Finolex Industries on 20% upper circuit @ Rs 120 on excellent FY 13 numbers~but continues to drag Derivative Loss Disputes for last 5 years
The Pune based Finolex Industries promoted by the Chhabrias and India’s largest manufacturer of PVC Pipes & Fittings has produced stellar results for FY 13.Last it performed like this was in FY 10 ~ It has earned Rs 136 crs recording an EPS of Rs 10.97 on an Equity of Rs 124 crs (FV Rs 10) giving a Multiple of 11 ~The Networth is Rs 721 crs at March 31,2013 giving a Book Value of Rs 58.2 and a multiple of 2 ~ The Dividend has been upped from 30% to 55% ~ Chhabrias hold 52.39% Stake=> @ 6.5 cr shares ~ thus Rs 35.75 crs would flow as tax free dividend to them
Capacities have been expanded with a new PVC Pipes Plant commissioned on March 27,2013 for 30000 MTpa at Masar near,Vadodra in Gujarat.This will be upped to 50000 MT pa in FY 14
The Government has increased the outlay in the 12th Five Year Plan for Rural Water Management & Irrigation ~ This augurs well for Finolex Industries
Would have been happy for Finolex Industries had their not been this Derivatives Loss Disputes Cloud that continues to hang over it,specially that they appear to have willfully defaulted on these lossess raising a Corporate Governance issue
For Loss suffered on Derivative Contracts in 2008/9 by Finolex Industries the Banks had made claims that showed at Rs 222 crs Contingent Liabilities as on March 31,2012 as they were not acknowledged as Debt and were disputed ~ As of February 2013 some were settled and @ Rs 100 crs continue to be unresolved of which Deutsche Bank claims Rs 95 crs ~ Deutsche Bank had approached the Debt Recovery Tribunal to declare Finolex Industries as a Wilful Defaulter ~ this would have meant the Company would find it difficult to raise finance with banks and even in the capital markets and the Directors would have to resign from other Directorships ~ The Bank relied on an RBI Circular but the Company contested that the circular was not relevant as it covered only lender- borrower situations and the Bank had not lend any monies to the Company and Derivative Contracts were not covered by this circular and that they had miss-sold such contracts ~ In August 2011 the Mumbai High Court ruled in favour of the Bank as RBI filed an affidavit that the circular did cover Derivative situations too ~ However the Company won the case on a technicality that due process was not followed and all case papers were not given to them by the Bank before deciding to tag them as a Wilful Defaulter ~ However in December 2012 the Supreme Court,where the matter was being heard ruled in favour of the Banks
The Valuations are not exactly a Bargain at Earnings Multiple of 11 and Book Multiple of 2 for FY 13 and even on a Forward Earnings Multiple of 9 + for FY 14
So though the Share Price of Finolex Industries may move some more towards Rs 150,this Derivatives Loss Dispute Continuing Cloud + the fact it yet had Rs 571 crs as Buyers Credits (Bank Acceptances shown as Short Term Borrowings) ,probably largely unhedged like FY 12 makes me wary of getting excited about the Company ~ more so as a Wilful Defaulter is defined as one that can pay but will not !
Wondering how Deutsche Bank did not go to Court to stop Finolex Industries from declaring and paying Dividend all these years till they cleared or settled the Derivative Losses !