REI Agro Ltd 31 st May, 2016 TABLE 1 - MARKET DATA (STANDALONE) (As on 31 st May, 2016) NSE Code - REIAGROLTD NSE Market Price ( ) 0.40 NSE Market Cap. ( Cr.) 43.11 Sector - FMCG Face Value ( ) 1.00 Equity ( Cr.) 95.80 52-week High/Low ( ) 0.95/0.35 Net worth ( Cr.) -2,774.18 Business Group-Indian Private TTM P/E N.A. Traded Volume (Shares) 4,45,009 Year of Incorporation - 1994 TTM P/BV N.A. Traded Volume (lacs) 1.78 Source - Capitaline Corporate Office: Everest House, 15 th Floor, Room 15B, 46-C, Chowringhee Road, Kolkata-700 071, West Bengal Company Website: COMPANY BACKGROUND REI Agro Limited, a company dealing with fragmented basmati rice industry, was established in the year 1994. REI Agro follows an integrated business model and is equipped with the latest technology available globally. The company has regularly scaled up its production capacity and it has presently got a capacity of 534360 mt/hr. The company's products come under in three brands, in the form of Premium, Midrange and Economy. In both three have different products, Premium includes Kasturi and Real Magic, Midrange includes Mr. Miller, Hungama and Ikon and the Economy covers Hansraj and Rain Drop with wide choice in all the price segments. REI Agro has become a household name. The state - of - the - art facilities and ISO - conforming quality initiatives have resulted in superior quality grain at an excellent value proposition. REI Agro's Basmati Rice Processing unit is situated in Bawal, Haryana with capacity of 49 TPH of rice and 32 TPH of par boiling. The company has 355 stores in Delhi, Punjab, Himachal Pradesh and Haryana. In 1996, the company established with the commissioning of a modest 10 TPH rice grading unit in Bawal, Haryana. REI Agro integrated backwards into rice milling in the year 1998. During the year 2001 the company pioneered the branding of broken rice and enhanced its total capacity by 20 TPH. TABLE 2 - PRICE PERFORMANCE 30 th May, 2016 29 th May, 2015 30 th May, 2014 % Change 2016 vs 2015 2015 vs 2014 CAGR for 2 years Price ( ) 0.45 0.70 2.75-35.71% -74.55% -59.55% Trading Volume (Shares) (yearly avg.) 10,41,045 29,13,468 23,30,780-64.27% 25.00% - NSE Market Cap. (in Cr.) 43.11 67.06 263.45-35.71% -74.55% -59.55% Source - Money Control 1 P A G E
TABLE 3 - FINANCIALS ( Cr.) 2015 2014 2013 % Change CAGR for 2 years 2015 vs 2014 2014 vs 2013 Net Worth -2,774.18 2,590.57 2,614.05-207.09% -0.90% N.A. Current Assets 1,187.78 6,428.84 6,970.96-81.52% -7.78% -58.72% Non-Current Assets 2,848.77 2,961.19 2,454.74-3.80% 20.63% 7.73% Total Assets 4,036.54 9,390.03 9,425.70-57.01% -0.38% -34.56% Investments 443.95 618.21 1,499.46-28.19% -58.77% -45.59% Finance Cost 314.99 649.12 609.26-51.47% 6.54% -28.10% Long Term Liabilities 29.54 499.16 1,482.89-94.08% -66.34% -85.89% Current Liabilities 6,781.18 6,300.30 5,328.76 7.63% 18.23% 12.81% Turnover 1,855.77 4,523.25 5,089.09-58.97% -11.12% -39.61% Profit After Tax (PAT, Cr.) -5,494.30-38.35 211.01 N.A. -118.17% N.A. EPS ( ) -57.35-0.40 2.18 N.A. -118.35% N.A. Source - Money Control/Annual Report Discussion as per Company: In Annual Report for 2014-15, the Company has mentioned that during the financial year under review, the total turnover of the Company was 1,85,576 lacs on a standalone basis as against 4,52,324 lacs in the previous year. Further, due to decrease in revenue from operations, heavy finance cost, slow recovery of dues etc. the Company has extended its losses to ` 5,49,429 lacs during the year in comparison to the previous year loss of ` 3,835 lacs. In Annual Report for 2013-14, the Company has mentioned that the in financial year under review, turned out to be the weakest years in recent times. Total turnover of the Company was ` 4,52,324 lacs on a standalone basis as against ` 5,08,909 lacs in the previous year. The company`s Profit before Interest and Depreciation was `67,807 lacs during the year. However, after providing ` 64,912 lacs towards finance cost and ` 6,858 lacs for depreciation, the company suffered a loss of ` 3,835 lacs during the year. The company has also been facing a tight liquidity position and has not been able to meet all its financial obligations thereby requiring corrective steps to be taken with the support of its lenders. In Annual Report for 2012-13, the Company has mentioned that during the year under review, the Company has achieved a turnover of ` 5,089 Crores on a standalone basis as against ` 4,225 Crores in the previous year, a 20% increase over the previous year. The company had a net profit of ` 211 Crores during the year compared to net profit of ` 226 Crores for the previous year. They have registered significant movement in top line, however, the bottom line was slightly pressed due to increased financing costs. 2 P A G E
AUDIT QUALIFICATIONS Audit Qualifications in last 3 years: The Company has given a qualified opinion in the Annual Report for FY 2014-15. On the basis for qualified opinion in FY 2014-15 the Company has mentioned: 1. The Company has not provided interest on loans availed from banks and financial institutions which have been classified as NPA by them. The amount not so provided amounts to 425.23 Crores for the year ended 31 st March 2015. 2. Provision for gratuity and leave encashment has been done on the basis of estimation and not as per the Actuarial Valuation, which is not in consonance with AS-15. 3. The company had provided Corporate Guarantee to the lenders for the borrowings by its Subsidiary Company namely Ammalay Commodities JLT. The said subsidiary company has defaulted in the repayment of the facilities provided by the lenders and therefore the lenders of the subsidiary company has invoked the Corporate Guarantee provided to them amounting to 3,105.93 Crores from the company against which no provision has been made in the books of the accounts for the year ended 31 st March 2015. It has been explained by the management that it shall provide for the liability, if any, after the lender has not been able to recover the amount from the subsidiary company. Management Response: On the qualifications raised by the Auditors, the management has responded: There were a few observations mentioned in the Audit report by the Auditor, below mentioned are the clarification of the Board of Directors in regard to their observations. i. Board of Directors informed that maximum no. of accounts of the Company are turned NPA during the year under review. As per banking regulations banks are not charging any interest on NPA accounts, therefore the Company has also not provided interest on such accounts after the period they turned NPA. ii. Board of Directors submit that total strength of the employees of the Company has been reduced by more than 90% from the peak number of employees; therefore, company used the estimation method for calculation for gratuity and leave encashment. iii. Board of Directors submits that the company had provided Corporate Guarantee to the lenders for the borrowings by its wholly owned foreign Subsidiary Company, namely Ammalay Commodities JLT. It is contingent liability of the Company and said liability may be raised when the lenders failed to recover money from the subsidiary companies. Response Comment Frequency of Qualifications - The Auditors have qualified opinion only in FY 2014-15, in last three years. Have the auditors made any adverse remark in last 3 years? Are the material accounts audited by the Principal Auditors? Do the financial statements include material unaudited financial statements? Yes Not ascertainable, as the Company has not disclosed consolidated accounts In Auditors Report for FY 2014-15, the Auditor have mentioned that the matters described in the Basis for Qualified Opinion and emphasis of matters in their Report, may have an adverse effect on the functioning of the Company. The Company has mentioned in Annual Report for FY 2014-15 that As on 31 st March 2015, the Company had 5 (Five) wholly owned foreign subsidiaries namely; Ammalay Commoditiess JLT, UAE, Ammalay International PTE Ltd, Singapore and Holy Stars Ltd, Auckland Holdings Ltd and Orient Agro (M) Ltd., which companies are all based in Mauritius. These companies have not submitted their financial statements for the year ended 31 st March, 2015 which are required for the finalization of Consolidated Financial Statements of REI Agro Limited for the year ended 31 st March, 2015. Due to this, the Company has not been able to finalize/prepare its Consolidated Financial Statements for the year ended 31 st March, 2015. The delay in preparation of Consolidated Financial 3 P A G E
Statements is beyond the control of the Management TABLE 4: BOARD PROFILE (As on 31 st March, 2015) Regulatory Norms Company % of Independent Directors on the Board 50% 67% % of Promoter Directors on the Board - 67% Number of Women Directors on the Board At least 1 None Classification of Chairman of the Board - Executive Promoter Director Is the post of Chairman and MD/CEO held by the same person? - Yes Average attendance of Directors in the Board meetings (%) - 51% Source - Money Control/Annual Report Composition of Board: As per Regulation 17(i)(b) of the Listing Regulations, 2015, the Company should have at least 50% Independent Directors as the Chairman of the Board is a Promoter and Executive Director. The Company as on 31 st March, 2015 has 67% of Independent Directors and hence, it meets the regulatory requirements. Board Diversity: The Company has 3 directors as on 31 st March, 2015 out of which 2 are male and 1 is female. The Company had a single woman Director on the Board only for 25 days from 31 st March, 2015 to 25 th April, 2015. The Company is noncompliant with Listing Regulations, 2015, regarding the requirement of at least one-woman director. Holding of position of MD/ CEO & Chairman by same person: Appointment of a single person as the Chairman and Managing Director of the Company is not a good governance practice as it may lead to concentration of power in a single person. Attendance at Board Meetings: The average attendance of Directors in the Board meetings is 51% and this is mainly due to low attendance of Mr. Dr ING N.K. Gupta and Mr. K.D. Ghosh, independent directors, at Board meetings. The Directors of the Company should devote sufficient time to the affairs of the Company. 4 P A G E
Trading Ratios Solvency Ratios Liquidity Ratios Return Ratios Turnover Ratios STAKEHOLDERS EMPOWERMENT SERVICES TABLE 5 - FINANCIAL RATIOS Ratios 2015 2014 2013 % Change 2015 vs 2014 2014 vs 2013 Inventory Turnover 7.09 1.38 1.09 414.48% 26.47% Debtors Turnover 2.22 1.65 3.97 34.85% -58.41% Fixed asset Turnover 0.65 1.53 2.07-57.35% -26.32% Current Asset Turnover 1.56 0.70 0.73 122.06% -3.62% Operating Profit Margin -281.28% -0.88% 5.10% N.A. -117.17% Net Profit Margin -296.07% -0.85% 4.15% N.A. -120.45% Return on Assets (ROA) -136.11% -0.41% 2.24% N.A. -118.24% Return on Equity (ROE) N.A. -1.48% 8.07% N.A. -118.34% Return on Capital Employed (ROCE) N.A. 13.02% 16.47% N.A. -20.96% Current Ratio 0.18 1.02 1.31-82.83% -22.00% Quick Ratio 0.14 0.50 0.43-72.65% 15.73% Cash Ratio 0.01 0.06 0.19-78.87% -66.41% Working Capital Turnover ratio N.A. 35.19 3.10 N.A. 1035.53% Debt to equity ratio N.A. 1.76 1.97 N.A. -10.76% Interest Coverage Ratio N.A. 0.94 1.43 N.A. -34.17% Market Cap / Sales 0.02 0.01 0.01 143.74% 12.51% Market Cap/ Net Worth N.A. 0.02 0.02 N.A. 0.91% Market Cap/PAT N.A. N.A. 0.22 N.A. N.A. Market Cap/EBITDA N.A. 650.71 609.40 N.A. 6.78% Trading Volume (shares) (avg. of 1 year) 11,57,639 38,13,077 14,59,563-69.64% 161.25% Trading Volume (shares) (high in 1 year) 78,35,874 3,42,14,723 1,34,65,827-77.10% 154.09% Trading Volume (shares) (low in 1 year) 10,9,223 74,074 81,649 47.45% -9.28% Ratio - High/low trading volume 71.74 461.90 164.92-84.47% 180.07% Ratio - High/average trading volume 6.77 8.97 9.23-24.56% -2.74% Source - Money Control 5 P A G E
Shareholding STAKEHOLDERS EMPOWERMENT SERVICES TABLE 6 (A): OWNERSHIP & MANAGEMENT RISKS Dec' 2015 Dec' 2014 Dec' 2013 Comments Promoter shareholding Public - Institutional shareholding Public - Others shareholding Non Promoter Non Public Shareholding 28.67% 31.55% 53.73% 12.54% 22.53% 33.18% 58.79% 45.92% 13.09% 0.00% 0.00% 0.00% No new equity shares were issued during the period from Dec 13 to Dec 15. The promoter shareholding decreased from 53.73% as on Dec 2013 to 28.67% as on Dec 2015 due to sale of shares by IFCI Ltd. The shareholding of public institution decreased from 33.18% to 12.54% and that of public others increased from 13.09% to 58.79% during the said period. The promoters have pledged 10.41% of their shareholding as on 31 st Dec 2015. TABLE 6 (B): OWNERSHIP & MANAGEMENT RISKS Market Activity of Promoters Preferential issue to promoters Preferential issue to others GDRs issued by the Company Issue of ESOPs/Issue of shares other than Preferential allotment Source - Annual Report The Promoters shareholding have decreased from 52.84% as on April, 2014 to 28.67% as on 31 st December, 2015 due to sale of shares by IFCI Ltd. No preferential issue of shares was made to the promoters in last three years. No preferential issue of shares was made to other shareholders during last three years. None The Company did not issue any shares to the employees under its ESOP Scheme. 6 P A G E
Equity: The equity shares capital of the Company Glossary Net Worth: The amount by which the Assets exceeds the liabilities excluding shareholders funds of the Company Turnover: The revenue earned from the operations of the Company EPS: Earning Per Share is net profit earned by the Company per share EPS = Profit After Tax Number of outstanding shares P/E ratio: It is the ratio of the Company s share price to earnings per share of the Company P/E ratio = Price of each share Earnings per share Current Assets: Cash and other assets that are expected to be converted to cash in one year Fixed Assets: assets which are purchased for long-term use and are not likely to be converted quickly into cash, such as land, buildings, and equipment Total Assets: Current Assets + Fixed Assets Investments: An investment is an asset or item that is purchased with the hope that it will generate income or appreciate in the future. Finance Cost: The Financing Cost (FC), also known as the Cost of Finances (COF), is the cost and interest and other charges incurred during the year in relation to borrowed money. Long Term Liabilities: Long-term liabilities are liabilities with a maturity period of over one year. Current Liabilities: A company's debts or obligations that are due within one year. Inventory Turnover ratio: Inventory Turnover is a ratio showing how many times a company's inventory is sold and replaced over a period. Inventory Turnover ratio = Inventory Debtors Turnover: Accounts receivable turnover is an efficiency ratio or activity ratio that measures how many times a business can turn its accounts receivable into cash during a period Debtors Turnover ratio = Accounts recievables Fixed Asset Turnover: The fixed-asset turnover ratio is a financial ratio of net sales to fixed assets Fixed Asset Turnover ratio = Fixed Assets Current Asset Turnover: The current-asset turnover ratio is a financial ratio of net sales to fixed assets Current Asset Turnover ratio = Current Assets 7 P A G E
Operating Profit Margin: Operating margin is a measurement of what proportion of a Company s revenue is left over after paying for variable costs of production such as wages, raw materials etc. It can be calculated by dividing a Company s operating income (also known as operating profit ) during a given period by its sales during the same period. Operating Profit Margin = Operating profit Net Profit Margin: Net profit margin is the percentage of revenue left after all expenses have been deducted from sales Net Profit Margin = Net profit Return on Assets: ROA tells you what earnings were generated from invested capital (assets) Return on Assets = Net profit Total Assets Return on equity/net worth: return on equity (ROE) is the amount of net income returned as a percentage of shareholders equity. Return on Equity = Net profit Net worth Return on Capital Employed: Return on capital employed (ROCE) is a financial ratio that measures a company's profitability and the efficiency with which its capital is employed. Return on Capital Employed = Net profit Total Debt + Equity share capital Current ratio: The current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months. It compares a firm's current assets to its current liabilities. Current ratio = Current Assets Current Liabilities Quick ratio: The quick ratio is a measure of how well a Company can meet its short term financial liabilities. Quick ratio = Current Assets Inventories Current Liabilities Cash ratio: The ratio of the liquid assets of a Company to its current liabilities. Quick ratio = Current Assets Inventories Account Recievables Current Liabilities Working Capital Turnover ratio: The working capital turnover ratio is also referred to as net sales to working capital. It indicates a Company's effectiveness in using its working capital. Working Capital Turnover ratio = Current Assets Current Liabilities Debt to Equity ratio: The debt-to-equity ratio (D/E) is a financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets. Debt to Equity ratio = Short Term Debt + Long Term Debt Net Worth Interest Coverage ratio: The Interest coverage ratio is a debt ratio and profitability ratio used to determine how easily a Company can pay interest on outstanding debt. Interest Coverage Ratio = Earning Before Interest and Tax Finance Cost 8 P A G E
Market Cap/Sales ratio: Market Cap/sales ratio, Price sales ratio, P/S ratio, or PSR, is a valuation metric for stocks. It is calculated by dividing the company's market cap by the revenue in the most recent year; or, equivalently, divide the per-share stock price by the per-share revenue. Market Cap Market Cap/Sales ratio = Market Cap/ Net Worth ratio: It is a valuation ratio calculated by dividing Company s market cap to net worth. Market Cap Market Cap/Networth ratio = Networth Market Cap/ PAT ratio: It is a valuation ratio calculated by dividing Company s market cap to net profit. Market Cap Market Cap/PAT ratio = net profit Market Cap/ EBITDA ratio: It is a valuation ratio calculated by dividing Company s market cap to EBITDA. Market Cap/EBITDA ratio = Market Cap EBITDA Trading Volume (shares) (avg. of 1 year): Average number of shares/day traded in 1 year Trading volume (shares) (high in 1 year): Highest number of shares/day traded in 1 year Trading volume (shares) (minimum in 1 year): Lowest number of shares traded on any one day in 1 year 9 P A G E
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