Monday, March 27, 2017

JITF Infralogistics - Gem - from the Garbage


This article is only for information purpose and we are not recommending anything here. The article is not encouraging any reader to take any investing decision. The purpose of this article is only to appraise the readers with a company which has just recently got listed and holds a good potential

We are holding a number of stocks in our portfolio, including the ones mentioned in this blog, before writing this article. We may buy more, hold or sell in the market based on what we think is good for our portfolio at any point of time in future. 

We are not registered or accredited research analyst under SEBI or any other regulatory agency. We are not registered with SEBI under the (Research Analyst) regulations 2014 and as per clarifications provided by SEBI: "Any person who makes recommendations or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations"

The facts, numbers and statements presented here are from the collection of various readings, news articles, information available on the internet, company’s annual reports and other filings etc, which we believe are correct & true. We couldn’t verify the authenticity of these nor could we keep a track of the exact sources of information shared here. Readers are advised to do their own due diligence.

We are back. (or lets say, we are trying to be back)
Hello Friends. Greetings and Apologies. In the last few months we had received a number of requests from many of you that why we have stopped writing/publishing. Being working professionals , it sometimes get very taxing to find enough time for a detailed research & share a detailed write up. Second reason is, in last few months, anyone who has remained invested anywhere has made money, regardless of the stock pick. There were too many smart investor who were multiplying money every month and promising the same to others - so we chose to stay away from this madness. Second reasons being, we couldn't find any stock idea which was available at an attractive level with a significant margin of safety. To re-start the efforts, We are writing about an interesting company which has moat, pedigree management, an interesting sector, a push from Govt. and with all this, still available at attractive valuations.
Due to lack of available information, we have kept this note short and crisp. This time we call it - 

“Gem – from the Garbage”

JITF Infralogistics – CMP – 80 – Market Cap – 207 Cr

JITF Infralogistics (JIL) was formed after the recent scheme of arrangement between Jindal Saw Limited, JITF InfralogisticsLimited, JITF Shipyard Limited and JITF waterways limited. 

Upon the Demerger, Existing shareholders of Jindal Saw limited have received the shares in JITF Infralogistics, in a Swap ratio of 50 shares of JIL against every 622 shares of Jindal Saw limited held by investors. 

The detailed scheme of demerger can be found at:-

JIL got listed on the BSE and NSE just recently and presently it trades in the T2T segment. Let us see what is the business model of JILThe company has 3 major subsidiaries:-

1. Jindal Urban Infrastructure Limited (168 Employees)
2. JITF Water Infrastructure Limited (236 Employees)
3. Jindal Rail Infrastructure Limited (90 Employees)

Jindal Urban Infrastructure Limited (168 Employees)(JUIL) – This is the main business vertical of JIL. This entity is involved in Municipal Waste management. In layman terms it produces electricity from garbage. Presently the company is engaged in the processing of 2050 tonnes of Municipal waste per day to generate upto 21 MW of power in Okhla (Delhi)In Punjab also the company has operationalized solid waste management plants which processes upto 1500 tonnes of municipal waste per day. The company has also been awarded projects in Madhya PradeshHydrebad and Gujarat. The company aims to have 100 MW capacity by end of 2017. As of March 31, 2016 Company had Reserves of 64.8 Cr and Networth of 113.8 Cr. 

The company has various step down subsidiaries as each project is to be executed under a separate subsidiary just like a BOT road project. Company is the leader in Waste to Energy segment in India and it should be the biggest beneficiary of the “SwachhBharat” theme. 

Imagine the company is present in a business that uses an input which is in oversupply (municipal waste) and producing an output which will always be in demand ( Electricity).

One of the subsidiaries of the company - The Timarpur-Okhla Waste Management Company Private Limited”is a state of the art waste to energy treatment plant which is owned by JUIL. As of March 2015, the company has infused equity of 60 cr in this subsidiary and the total fixed asset are roughly valued at 265 odd crores. This project is the first commercial waste-to-energy facility in India that aims to convert one-third of the Delhi garbage into the much-needed electricity, enough to serve 6 lakh homes. Visit and get the hang of this project. It may be noted that company has already been awarded projects on similar lines from MP government, Hyderabad government and Gujarat government as well. Infact Gujarat government has already allotted the company 14 acre land for executing the waste to energy project. Link attached 

JITF Water Infrastructure Limited (236 Employees) – This subsidiary is primarily engaged in Potable Water management, Sea Water desalination plants, Pipeline of drinking waters and Waste water management. The vision of the company is to provide drinkable water to every individual in India. The company aims to provide water for human consumption in Industrial as well as Residential areas and to lay down, build, operate, construct, renovate any plant and machinery, pipeline projects, pumping station, treatment plants, water distribution systems etc. Company is presently executing 19 projects worth 1800 Crs primarily in MP, UP, Delhi, Bihar and Assam. As of March 31, 2016 Company had reserves of 42.3 Cr and Networth of 72.3 Cr. The details about the company and the listing of all the ongoing projects can be found out at the official website of the company:- 

Jindal Rail Infrastructure Limited (90 Employees) – This entity is into designing, procuring, laying and operating railway lines, railway tracks, and other accessories required for smooth functioning of railways for passengers, cargo and goods of all description in India and abroad. The company also owns a wagon manufacturing unit (120 acres) in Gujarat with capacity to produce 3000 wagons per annum. Company manufactured 1250 – 343 -140- 250 wagons in last 4 years (starting from latest year). As of March 31, 2016 Company had reserves of 141 Cr and Networth of 171.7 Cr. Many companies are eyeing stake in this venture of Jindal group. Few links attached

As per the Information memorandum JIL had Networth of 318.6 cr as of September 30, 2016, on a standalone basis. On a consolbasis, the networth is negative. We were not able to find out the reasons for negative networth since the company just got listed and no clear information is available in the public domain. 

Some details of consolidated half yearly financials (i.e 30thSeptember 2016)
• Fixed assets - 637 Cr + CWIP 20 Cr
• Deferred Tax asset – 62.7 Cr (Accumulated Losses)
• Trade receivables - 187 Cr
• Cash and bank balances – 88 Cr
• Equity – 5.1 Cr
• Reserves and Surplus – (44.1Cr Negative)
• Long term debt – 470 Cr
• Working Capital Debt – 463.4 Cr
• Trade Payables  – 175 Cr
• Trade Recievables – 187 Cr
• Inventories – 129 Cr
• TOI – 242 Cr
• LAT –54 Cr (Yes It’s a Loss Figure)

Caveat and Concerns – There is a lot of confusion w.r.t the standalone and consolidated numbers made available by the company. More clarity will emerge once the company starts reporting the quarterly numbers and more importantly when the company will publish its official Annual report for FY2017 with Management commentary. It is safe to assume that company has present order book of 3000+ crores (1800 odd crores in water management and 1200 odd crores in waste to energy segment). The company will surely require debt to execute these projects and also there is no clarity on the serviceability of the debt as the company is presently running in losses at consolidated levelStill we feel that raising of debt should not be a problem for the company as long as the debts are backed by promoter entities. It should also be noted that the company primarily deals and relies on the Municipal Corporations for their waster to garbage businesses , which themselves are politically influenced entities and most of them in bad financial shape. In short company will always have elongated receivable cycles. Also the projects in which company operates have long gestation periods and sometimes take many years to become profitable. However, we believe that if taken a long term view, the company can emerge a leader in this relatively untouched sector. 

There are number of subsidiaries with somewhat similar names which also leads to a lot of confusion w.r.t interpreting the numbers. More clarity will emerge after first annual report

Summary – JIL is very well positioned and interestingly seems to be present in all the right sectors at the right time. Waste management, Waste to electricity, Drinking & Waste water management, Seawater Desalination, and Railways track laying- All these sectors are the top priority of Government and getting a right push under the initiatives like “Swachh Bharat”, Water conservation & management and huge capex planned by Railway . There isn't much financial information and valuation nos. are available to validate the right price but this company can be treated as more of a concept stock and will evolve as the company start making progress with its existing projects and awareness about the company increases. (We have not yet touched the positive Carbon Credit gains impact to the company from the Waste 2 Energy segment). Another company with the same W2E theme allured many Marquee investors (big bull) but the company couldn’t stand upto market’s expectations after the much hyped IPO and fell flat. (A2Z Infra) . However since JIL is successfully running one plant, we can safely assume that within next two years the company will be having waste to energy power capacity of close to 100 MW as planned. 

As per us the real reason for Jindal Saw to demerge JIL was (a) to enhance the focus and (b) to ease the fund raising options. These kind of businesses require huge Capex and accordingly debt and equity contributions. Equity infusion should not be a challenge with Jindal group being the promoter and raising debt from banks should not be challenging for these projects if banks are made to participate & support the Swachh Bharat Abhiyaan. The Timarpur Okhla project was funded by some of the best banks of the country. (Similar to Rural lending, Government might push PSU banks for Clean India projects lending under priority lending )

At a current mcap of 200 crore this seems to be a bargain buy considering 3000 crore worth of projects in pipeline, the pedigree of Jindal group (to support in getting new funding, projects etc.) , attractive sector and a very limited floating stock. There is hardly any liquidity in the market, stock trades in T2T segment with very thin volumes. 
Do your own due diligence and research before taking your portfolio bets. Happy Investing!!


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