Monday 26 February 2018

ESS DEE ALUMINIUM LTD - Interesting Stock

MCAP: 200 Crores.
CMP: Around 64-

The stock has crashed from close to 800 in February 2014 to near 30 in 2017.
Now it is hovering at 60.

ESS DEE was major aluminium foil player for the pharma industry till 2014-2015.
They were doing really well 2015 I reckon looking at the numbers.
Near FY14-15 they had turnover of 700-800+ crores,EBIDTA margins of 20% + and a net profit close to 50 crores.
The company became NPA for its bankers, The business got shut and the stock nosedived.
Debt is nearly 800 crores now.

The company in its results note has remarked that through their Singapore based entity they are restructuring the debt to restart operations :-

So as the results note clearly states, they are looking for a turnaround, the ARC SSG Capital which recently bought a part of Bhushan Steel's debt as well is active and working to resolve the working capital issues.

Even though the results note remarks expectations of resolution within another 10-12 weeks. Lets take that with a pinch of salt.

Some Important minus and plus Points:-
- Business is Shut
- Management
- Resolving debt is not a cake walk
- Till turnaround actually takes place tough to believe anything.
- 10-12 weeks timeline does not look convincing enough.

+ Niche Business
+ Good Margins
+ Retaining clients should not be very difficult, They have worked with many many pharma companies.
   Many of them have shifted to importing foils from China.
   Medicine foil form a minuscule percentage of the total product cost, even if China is cheaper.
   It is a no brainier that you better get that work finished in India instead of having one extra import procedure.
+ If SSG Capital succeeds in resolving debt, Factory restart should not take Hell lot of time.

If at all the company is able to re-start. If it goes back to its glory days of 2014-15, It leaves a huge X potential of price appreciation for the stock. But this in no way is a safe investment grade stock, Totally risky and much like a gamble in disguise of a turnaround. 

Note: The above is not a research report but information as available on public domain and it should not be treated as a research report.

Registration status with SEBI: I am not registered with SEBI under the (Research Analyst) regulations 2014 and as per clarifications provided by SEBI: “Any person who makes recommendation 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”

Disclosure: It is safe to assume that i have ESS DEE ALUMINIUM LTD in my portfolio and hence my point of view can be biased. Readers should consult their financial advisory before any investments.