Bhoruka Aluminium at Rs 1.26 ~ Sold of Core Business to YKK ~ where to from here !?

This one is for blogreader Riyaz ~Bhoruka Aluminium closed at Rs 1.26 for a FV Rs 10 today,Friday,June 7,2013

Bhoruka Aluminium ,promoted by Aggarwals of  TCI Industries and TCI Finance  ,was severely stressed the past few years and was forced to exit and sell off  it’s core  Aluminium Extrusion Business to the Global Giant YKK Group’s Singapore Entity to pay off  Huge Debt

The Deal was reportedly at just over US $ 22 M or close to @ Rs 120 crs and was done on a slump sale basis and closed out  just last month in May 2013 though announced  in March 2013 and clearly being negotiated much before that

The Company was  primarily engaged in the aluminium extrusion business, with three state of art press, with installed capacity of 25000 M.T. per annum and also  its own inhouse powder coating and anodizing unit, for adding value  to mill finish products.

The Timing could not have been worse for setting up this New Plant at Metagalli in Mysore ~such heavy capex spend three to four years ago with bank borrowings ~ the Real Estate Sector simply collapsed and Demand shrunk considerably ~ Capacity Utilisation Levels were inevitably low ~high inflation, rising input cost, higher interest on borrowings, squeezed demand,working capital constraints all kicked in to add to the operating woes ~ the Company sold  7784 M.T. in the 18 months at September 30,2012 as compared to 8581 M.T in the previous 12 months year ended March 31, 2011

As on September 30,2012 Company’s Consolidated Networth had sunk to Rs 16.79 crs with Equity at Rs 54.94 crs (FV Rs 10) and Negative Reserves at Rs 38.15 having reported a Consolidated Loss of Rs 70.17 crs !~ It had become a potentially Sick Company and a BIFR Case ~ just the the audited Year before ending March 31,2011 it had declared a Bonus of 1: 1 ! and made a little Profit

On May 25,2013 they declared results for the Six months ended March 31,2013 and made no mention of how the YKK Deal was progressing but five days later they announced closure of this Deal !

Consolidated Networth has eroded more down to Rs 7.70 crs with losses of Rs 9.09 Crs that took Negative Reserves up to Rs  47.24 Crs

😯 What really intrigued me and raised by eyebrows most are two issues in The Audited Accounts for the 18 Months at September 30,2012 where I suspect Monies have been moved away from the Company :

  1. Long Term Loans and Advances given out have shot up to Rs 24.29 Crs from Rs 19.63 Crs in the previous Period FY 11 of which Loan to Associates is Rs 15.73 Crs ! (Previous Year Rs 13.67 crs)~ all interest free with no repayment schedule and also qualified by the Auditors  M/s R S Agrawala in their  Report
  2. Exceptional Item is a  Rs 29.82 Crs write off ! ! ! that constitutes Inventories and Receivable as below

(i) Correction of errors in the earlier years in valuation of inventories Rs 13.29 crs.
(ii)Write off of old outstanding receivables / payables found on reconciliation to be not actually realisable Rs16.53 Crs

How could the Auditors allow such a huge write off without even a mention in their Report !?

 Look at the write off  reasoning wording ~  for Inventories it is “correction of errors in earlier years in valuation” and for Receivables (found on reconciliation to be not actually realisable” 

This is clearly Suspect ! Inventories written off could have sold off  for Cash and not recorded as Sales and Receivables may have been realised part or full in Cash and not shown as received in the Books and conveniently written off as unrealisable in connivance with the Debtors !

Auditors have failed in their duty to report this write off and that they tested the valuation and realisable basis of these Assets and are alright with it ! ~ and I wonder why State Bank of India,the biggest Lender made no noise on this !

Promoters hold 33.77 % of the Equity and none of it is Pledged ~ because State Bank of India would probably not accept such beaten down shares ~ and so the pledge has been made of Promoters  TCI  Group Shares for Loans taken by Bhoruka Aluminium

The Rs 120 crs from YKK will pay off  Loans from State Bank of India and other Lenders as the Sale has been under their watchful and allowing eye ~ This would also include the Rs 12 Crs+ non provision of Interest in the FY 11/12 Accounts on the Loans for which the Auditors have qualified the Report

So where does this Core Business Sale  leave the Listed Company Bhoruka Aluminium !? ~ It’s now at just Rs 1.26 ,a little over one tenth of it’s Face Value of Rs 10 but more or less around it’s Consolidated Book Value at March 31,2013 of Rs 1.42

However with this Sale the Company got some Oxygen to survive going forward with reduced or no debt and of course no Core Business

We need to see it’s restated Consolidated Accounts after this Sale ~ it should show considerably depleted Assets and Liabilities ~ what I want to see if it has any Monies left over from the Sales Proceeds  to Operate any Business !

Even if it does and God does give a second chance, the Problem is that there are huge Corporate Governance Issues and a Trust Deficit where the Promoters are concerned and as a Principle where these exist I do not advice marrying or Company or staying married with it ,although over 7000 shareholders are in this situation! ~ Promoters need to make amends before one should even consider their Companies for Investment

On it’s Part  Bhoruka Aluminium remains cryptic in it’s communications to the BSE in this regard ~What is the Deal Size ? ~ Where will the Sales Proceeds be applied !? Is there any left over after paying off Lenders and Liabilities !? What are the restated Accounts post Sale ?~ What are the Plans going Forward !?

Directors have resigned and even the Company’s stated website domain name  is up for sale

But the Traded Quantity on Friday was 1.62 lakh shares on BSE,nearly twice two week average of 84000 shares

It remains in Normal Trading unlike TCI Industries which has been designated by BSE as an  illiquid Share and therefore allowed to quote only in the specified Periodic Call Auction Sessions ~ its’ stated price though is Rs 681 for a FV Rs 10 share! while TCI Finance is quoted in the regular session at Rs 29 for a FV Rs 10 share

So unless you know the ABC of Bhoruka Aluminium going forward just ABC ~ that’s Always Be Careful !

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