Spentex Industries Ltd. NSE Code - SPENTEX TABLE 1 - MARKET DATA (STANDALONE) (AS ON 10 TH AUGUST, 2017) Sector - Textiles NSE Market Price (`) 3.80 NSE Market Cap. ( Cr.) 36.36 Face Value (`) 10.00 Equity (` Cr.) 89.77 Business Group N.A. 52 week High/Low ( ) 8.2/2.9 Net worth ( Cr.)* -264.80 Year of Incorporation - 1991 TTM P/E (TTM) N.A. Traded Volume (Shares) 13,273 TTM P/BV N.A. Traded Volume (lacs) 0.50 Registered Office - Source - Capitaline, TTM - Trailing Twelve Months, N.A. Not Applicable *as on 30 th September 2016 A-60 Okhla Industrial Area, COMPANY BACKGROUND Phase II, New Delhi, New Delhi - 110 020 Spentex Industries Limited is a textile company. The Company operates through three business segments: Textile Manufacturing, Textile Trading and Other Trading. Company Website: Its principal products/services include Cotton Yarn/Synthetic Yarn, and Cotton and Synthetic and Blended Yarn. Its product range includes hosiery yarn, weaving yarn, carpet yarn, sewing thread, flat knitting and industrial yarn. It offers synthetic and cotton yarns for hosiery, woven and industrial fabric manufacturers. It offers yarns made with a combination of cotton, viscous and polyester, among others. It provides fabric in grey, bleached and dyed forms available for applications in home textiles and garments industry. It offers yarns of various blends, such as poly/cotton combed, viscose/linen, polyester/viscose, polyester/cotton combed and carded (blow room blended), acrylic / cotton and acrylic/viscose. It has manufacturing facilities at Kolhapur, Maharashtra. Revenue and Profit Performance 300 200 100 0-100 Quarterly revenue and Profit ( CRORE) 210.79 223.82 193.1-19.44-30.77-21.01 Sep'16 Mar'16 Sep'15 Revenue Profit The revenue of the Company increased from 193.1 crores to 210.79 crores from quarter ending Sep 15 to quarter ending Sep 16. The Company made a loss of 30.77 crores in quarter ending Sep 16 vis-a-vis making a loss of 21.01 crores in quarter ending Sep 15. Source: Moneycontrol 1.50 1.00 0.50 Performance vis-à-vis Market TABLE 2- Returns 1-m 3-m 6-m 12-m Spentex Industries Ltd -14.61% 0.00% -2.56% -5.00% Nifty -0.72% 3.14% 11.69% 11.68% - Aug 16 Sep 16 Oct 16 Nov 16 Dec 16 Jan 17 Feb 17 Spentex Industries Ltd Mar 17 Apr 17 May Jun Jul 17 17 17 NIFTY Source - Capitaline 1 P A G E
TABLE 3 - FINANCIALS ( Cr.) Sep 16 Mar 16 Sep 15 Sep 16 vs Mar 16 % Change Mar 16 vs Sep 15 Net Worth -264.8-209.02-68.75 N.A. N.A. Current Assets 143.39 172.09 187.12-16.68% -8.03% Non-Current Assets 387.48 351.10 364.02 10.36% -3.55% Total Assets 530.88 524.09 551.14 1.30% -4.91% Investments 77.49 77.49 77.49 0.00% 0.00% Finance Cost 19.94 19.93 19.48 0.05% 2.31% Long Term Liabilities 24.94 34.29 154.15-27.27% -77.76% Current Liabilities 759.64 687.72 555.51 10.46% 23.80% Turnover 209.25 220.98 190.71-5.31% 15.87% Profit After Tax (PAT) -30.77-19.44-21.01 N.A. N.A. EPS ( ) -3.43-2.17-2.34 N.A. N.A. Source - Money Control/ Stock exchange filing Discussion by the Company in quarterly results - As on March 31, 2012, the accumulated losses of the Company had exceeded its net worth. Accordingly, company in compliance with the provisions of section 15(1) of Sick Industrial Companies (Special Provisions) Act, 1985 filed a reference with Board for Industrial and Financial Restructuring (BIFR). The operations of the company in the last few years have been adversely impacted due to demand and supply gap, high power tariffs, lack of adequate working capital, declining off take in internal market and overall subdued sentiment in the export market due to the tariff disadvantage created by FTAs of our competitors with the big buying nations. In the current financial year cotton prices have gone up significantly and the increase is not fully absorbed in the yarn prices leading to a huge disparity between spot cotton prices and yarn prices impacting the margins. The company has submitted a restructuring proposal to the banks and the same is under discussions. With strong management focus on strategic initiatives for cost rationalization, optimum product mix and efficient plant operation, coupled with various support measures announced by the Government for the Textile sector, the management believes that the accumulated losses would reasonably be paired in due course and the financial statements as such have been prepared on a going concern basis. The Company has an investment of 56.10 Cr. and 0.93 Cr. in its subsidiary Spentex Netherlands B. V. (SNBV) and its step down subsidiary Spentex Tashkent Toytepa LLC (SITl) respectively. Further it has 7.00 Cr. as export receivable from STTL and advances recoverable of 9.51 Cr. in SNBV as on 31 st March 2016. During the period of investment, Government of Uzbekistan (GOU) changed certain laws and policies breaching the investment agreement and rendered operation of STTL not only unviable, but also expropriated its investment. All the assets and liabilities of STTL have been taken over by National Bank of Uzbekistan (NBU) and existence of STTL has been liquidated as, per bankruptcy Jaws. In view of this corporate guarantee given by company in respect of STTL liability for deferred payment to Tashkent Toytepa Textile (TTL) stand extinguished. SNBV, which had made around 99% investment in the equity of STTL, had filed request for Arbitration against GOU for Claim through its lawyer before International Centre for Settlement Investment Dispute(ICSJD). As per the schedule prescribed in the procedural order issued by ICSID, SNBV has filed the memorial on Jurisdictions and Merits on 30 th June, 2014. Based on the claim lodged with ICSJD, Board of Directors have decided not to make any provision for the aforesaid amounts. In addition to above claim, the company has sent notice to the GOU for indemnify the further losses caused to company directly or indirectly on account of investment made in Uzbekistan. AUDIT QUALIFICATIONS Audit Qualifications in last 3 years: The Statutory Auditors issued Audit Qualification in last 3 financial years (2015-16, 2014-15 and 2013-14) as given below: Basis for Qualified Opinion for the financial year 2015-16 a. Note No. 39 of the standalone financial statements, wherein, we are unable to determine the extent of provision that may be required for diminution in the value of long term investment amounting to 20.45 Cr. in Amit Spinning Industries Limited, 2 P A G E
subsidiary of the company. Significant uncertainties exist in relation to the recoverability of loans amounting to 32.01 Cr., interest accrued thereon 9.59 Cr. and other outstanding amounting to 31.62 Cr. due from above subsidiary. Further, we are unable to determine the amount of liability that may arise on account of corporate guarantee mentioned in Note No. 29 the standalone financial statements on behalf of above subsidiary. b. Note No. 40 of the standalone financial statements, wherein, we are unable to determine the extent of provision that may be required for diminution in the value of long term investment amounting to 56.10 Cr. and 0.93 Cr. in Spentex Netherland B.V. and Spentex Tashkent Toytepa LLC respectively, subsidiary/step down subsidiary of the company. Uncertainties exist in relation to the recoverability of 9.51 Cr. due from above subsidiary. Further, we are unable to determine the amount of liability that may arise on account of corporate guarantee mentioned in Note No. 29 of the standalone financial statements on behalf of above subsidiary. c. Note No. 40 of the standalone financial statements wherein, the company has not charged to the statement of profit & loss 7.00 Cr., due from its step-down subsidiary, Spentex Tashkant Toyetpa LLC, shown as trade receivable under the head Other Non-Current Assets in the standalone financial statements. d. Note No. 42 of the standalone financial statements, wherein, the company has not charged to statement of profit & loss 1.01 Cr. and 0.27 Cr. shown as claim receivables and export incentive respectively under the head Other Non-Current Assets in the standalone financial statements. e. Note No. 43 of the standalone financial statements wherein, we are unable to comment on the recoverability of amounts relating to certain parties aggregating to 4.45 Cr. and 1.15 Cr. shown as advance against expenses and advance to trade payable respectively under the head Long Term Loan & Advances for which no provision has been made in the books of amounts. f. Note No. 49 of the standalone financial statements wherein, the company has not charged to statement of profit & loss penal interest and other charges, if any, in respect of delay in repayment of borrowings from banks. Therefore, we are unable to comment on the adequacy of interest and other charges provided for in the statement of profit & loss. We further report that, without considering the impact of paragraph (a),(b) and (f) above the effect of which could not be determined, had the observation made by us in paragraph (c), (d) and (e) above been considered, the loss before tax for the year would have been 94.79 Cr. (as against the reported figure of 80.91 Cr.), Reserves and Surplus would have been negative 312.67 Cr. (as against negative reported figure 298.79 Cr.), Trade Receivable under the head Other Non-Current Assets would have been Nil (as against the reported figure of 7.00 Cr.), Export Incentive under the head Other Non-Current Assets would have been Nil (as against the reported figure of 0.27 Cr.), Claim Receivable under the head Other Non-Current Assets would have been Rs.0.19 Cr. (as against the reported figure of Rs.1.20 Cr), Advance against expenses under the head Long Term Loans and Advances would have been 5.30 Cr. (as against the reported figure of 9.75 Cr.) and Advance to trade payable under the head Long Term Loans and Advances would have been 2.37 Cr. (as against the reported figure of 3.52 Cr.). Note: Similar qualifications were issued for the financial year 2014-15 and 2013-14. Management Response: Note No. 39 of the Financial Statement qualified by Auditors: The company has an investment of 20.45 Cr. in and has amount recoverable amounting to 73.22 Cr. to Amit Spinning Industries Limited (ASIL), a subsidiary, as on March 31, 2016. The accumulated losses of ASIL, at the year-end exceeded its net worth. There is also reduction in market value of the investment at the year-end by 18.75 Cr. In the opinion of the management, diminution in this long-term investment is due to adverse business conditions in the past. Management believes that diminution in the value of investment is of temporary nature and that outstanding would be realised within a reasonable period of time. Accordingly, no provision considered necessary in the value of investment held and amount due from ASIL. Note No. 40 of the Financial Statement qualified by Auditors: The Company has an investment of 56.10 Cr. and 0.93 Cr. in its subsidiary Spentex Netherlands B. V. (SNBV) and its step down subsidiary Spentex Tashkent Toytepa LLC (STTL) respectively. Further it has 7.00 Cr. as export receivable from STTL and advances recoverable of 9.51 Cr. in SNBV as on 31 st March, 2016. During the period of investment, Government of Uzbekistan (GOU) changed certain laws and policies breaching the investment agreement and rendered operation of STTL not only unviable, but also expropriated its ANNUAL REPORT 2015-2016 05 investment. All the assets and liabilities of STTL have been taken over by National Bank of Uzbekistan (NBU) and existence of 3 P A G E
STTL has been liquidated as per bankruptcy laws. In view of this corporate guarantee given by company in respect of STTL liability for deferred payment to Tashkent Toytepa Textile (TTL) stand extinguished. SNBV, which had made around 99% investment in the equity of STTL, had filed request for Arbitration against GOU for Claim through its lawyer before International Center for Settlement Investment Dispute(ICSID). Based on the claim lodged with ICSID, Board of Directors have decided not to make any provision for the aforesaid amounts. In addition to above claim, the company has sent notice to the GOU for indemnify the further losses caused to company directly or indirectly on account of investment made in Uzbekistan Note No. 42 of the Financial Statement qualified by Auditors: As regards an amount of 1.28 Cr. ( 1.28 Cr.) dues from Government Authorities, company filed an application for release with concerned authorities. The Company is making effort to recover the same and expects to reduce the outstanding dues significantly. The management is of the opinion that ultimately there would be no losses against these old balances and hence no provision is considered necessary at this stage. Note No. 43 of the Financial Statement qualified by Auditors: Advance balances aggregating to 5.60 Cr. are due from certain parties where payments are not forthcoming. The company is making appropriate concerted efforts including negotiations with these parties to recover the same and expect to reduce the outstanding dues significantly. The management is of the view that ultimately there would be no losses against these outstanding balances and hence no provision is considered necessary at this stage. Note No. 49 of the Financial Statement qualified by Auditors: The company's accounts have become Non-performing assets (NPA) with majority of the dealing banks. The company has submitted restructuring proposal proposing various alternatives to the banks which is under discussions. None of the banks has initiated action in any legal forum. The company has provided interest on such loans, however penal interest, if any, has not been provided. Emphasis of Matters for the financial year 2015-16: Without qualifying our opinion, we draw attention to: a. Note No. 41 of the standalone financial statements which indicates that the Company has accumulated losses and its net worth has been fully eroded, the Company has incurred a net cash loss during the current and previous year(s) and, the Company's current liabilities exceeded its current assets as at the balance sheet date. Further majority of the banks have categorized borrowing of the company as Non-Performing Assets (NPA) during the year and have sent recall notices u/s 13(2) of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI), 2002 to the company. These conditions, along with other matters set forth in Note No. 41, indicate the existence of a material uncertainty that may cast significant doubt about the Company's ability to continue as a going concern. However, the financial statements of the Company have been prepared on a going concern basis for the reasons stated in the said Note. b. Note No. 42 of the standalone financial statements regarding balance recoverable of 1.84 Cr. shown as advance to trade payable under the head Long Term Loans & Advances of the standalone financial statements which has been considered good by the management in view of the reasons stated therein. We have relied upon the assertions given by the management as to the recoverability of the said amounts. c. Note No. 4 of the standalone financial statement, wherein, the Company has not allotted shares against the share application amount of 11.10 Cr. which was brought in by the promoters in more than one instalments under restructuring scheme approved by the Bankers. However, the company has not complied with the provisions of Section 42 of the Companies Act, 2013 for the reasons stated in the said Note. d. Note No. 44 of the standalone financial statements requiring deposit/invest a sum of at least 15% of the amount of its debentures maturing during the financial year 2016-17 in one or more of the prescribed methods vide circular no. 04/2013 dated February 11, 2013 issued by Ministry of Corporate Affairs. However, the company has not complied with the requirement of the said circular. e. Note No. 45 of the standalone financial statements regarding balances of parties under the head trade receivables, trade payables and loans & advances which are subject to confirmation, reconciliation and consequential adjustments, if any. Our opinion is not modified in respect of these matters. Note: Similar Emphasis of Matters were drawn in financial year 2013-14 and 2014-15. 4 P A G E
Trading Ratios Solvency Ratios Liquidity Ratios Return Ratios Turnover Ratios STAKEHOLDERS EMPOWERMENT SERVICES Response Comment Frequency of Qualifications Yes Similar Audit Qualifications in FY 2015-16, 2014-15 and 2013-14 Have the auditors made any adverse remark in last 3 years? No - Are the material accounts audited by the Principal Auditors? Yes - Do the financial statements include material unaudited financial statements? No - TABLE 4: BOARD PROFILE (AS PER ANNUAL REPORT 2015-16) Regulatory Norms Company % of Independent Directors on the Board 50% 50% % of Promoter Directors on the Board - 30% Number of Women Directors on the Board At least 1 1 Classification of Chairman of the Board - Executive Promoter Director Is the post of Chairman and MD/CEO held by the same person? - No Average attendance of Directors in the Board meetings (%) - 93.48% Source - Money Control/Annual Report Composition of Board: As per Regulation 17(1)(b) of the Listing Regulations, 2015, the Company should have at least 50% Independent Directors as the Chairman of the Board is an Executive Director. The Company has 50% of Independent Directors and hence, it meets the regulatory requirements. Board Diversity: The Company has 10 directors out of which 9 are male and 1 female. TABLE 5 - FINANCIAL RATIOS Ratios Sep 16 Mar 16 Sep 15 Source - Money Control Sep 16 vs Mar 16 % Change Mar 16 vs Sep 15 Inventory Turnover 3.42 4.89 3.76-30.07% 30.09% Debtors Turnover 5.29 4.87 3.13 8.67% 55.30% Fixed asset Turnover 0.54 0.63 0.52-14.20% 20.14% Current Asset Turnover 1.46 1.28 1.02 13.64% 25.99% Operating Profit Margin -4.78% 0.57% -1.43% -945.69% N.A. Net Profit Margin -14.70% -8.80% -11.02% N.A. N.A. Return on Assets (ROA) N.A. N.A. N.A. N.A. N.A. Return on Equity (ROE) N.A. N.A. N.A. N.A. N.A. Return on Capital Employed (ROCE) N.A. N.A. N.A. N.A. N.A. Current Ratio 0.19 0.25 0.34-24.57% -25.71% Quick Ratio 0.11 0.18 0.25-41.37% -24.84% Cash Ratio 0.06 0.12 0.14-52.67% -12.84% Working Capital Turnover ratio N.A. N.A. N.A. N.A. N.A. Debt to equity ratio N.A. N.A. N.A. N.A. N.A. Interest Coverage Ratio N.A. 0.06 N.A. N.A. N.A. Market Cap / Sales 0.29 0.12 0.10 149.47% 19.17% Market Cap/ Net Worth N.A. N.A. N.A. N.A. N.A. Market Cap/PAT N.A. N.A. N.A. N.A. N.A. Market Cap/EBITDA N.A. 20.82 N.A. N.A. N.A. 5 P A G E
Shareholding (%) STAKEHOLDERS EMPOWERMENT SERVICES TABLE 6 - TRADING VOLUME Jun 17 Dec 16 Jun 16 Jun 17 vs Dec 16 % Change Dec 16 vs Jun 16 Trading Volume (shares) (avg. of 1 qtr) 55,159 36,736 27,996 50.15% 31.22% Trading Volume (shares) (high in 1 qtr) 832,622 287,031 139,739 190.08% 105.41% Trading Volume (shares) (low in 1 qtr) 1,436 102 610 1307.84% -83.28% Ratio - High/low trading volume 579.82 2,814.03 229.08-79.40% 1128.40% Ratio - High/average trading volume 15.09 7.81 4.99 93.19% 56.54% Source Capitaline TABLE 7 (A): OWNERSHIP & MANAGEMENT RISKS Source NSE Promoter shareholding 42.10 42.10 42.10 Public - Institutional shareholding Public - Others shareholding Non-Promoter Non-Public Shareholding MAJOR SHAREHOLDERS (AS ON 30 TH June 2017) Jun'17 Dec'16 Jun'16 Comments 0.02 0.02 0.03 57.86 57.86 57.87 0.02 0.02 0.0 No new equity shares were issued during the period from June 16 to June 17. There was no change in the promoter shareholding during the said period. No major change in shareholding observed during the period. The promoters have pledged 100%. S. No. Promoters Shareholding S. No. Public Shareholders Shareholding 1 CLC Technologies Private Limited 20.38% 1 VCIGPM Limited 21.45% 2 Mukund Choudhary 5.87% 2 Soyuz Trading Company Ltd 4.37% 3 Kapil Choudhary 5.82% 4 Ajay Kumar Choudhary 4.97% 5 Jyoti Choudhary 1.97% Source NSE TABLE 7 (B): OWNERSHIP & MANAGEMENT RISKS Market Activity of Promoters The promoters have not sold/bought any shares during the FY 2015-16. Preferential issue to promoters No preferential issue of shares was made to the promoters during the FY 2015-16. Preferential issue to others No preferential issue of shares was made to other shareholders during the FY 2015-16. GDRs issued by the Company The Company did not issue any GDRs during the FY 2015-16. Issue of ESOPs / Issue of shares other than Preferential allotment Source - Annual Report 2015-16 The Company does not have any ESOP Scheme. TABLE 8: PRINCIPAL BUSINESS ACTIVITIES OF THE COMPANY Sr. No. Name and Description of main products / services % to Total turnover of the Company 1 Cotton Yarn/Synthetic Yarn Cotton & Synthetic & Blended Yarn 100 Source - Annual Report 2015-16 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 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 7 P A G E
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 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 pershare 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. 8 P A G E
Market Cap Market Cap/EBITDA ratio = 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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