This is not a buy or sell recommendation.

We are in the process of compiling data sheets of companies that we track / own so that in future we may use these for buying / selling stocks of such companies. Reason for sharing is hopefully somebody who has more information / insight may get in touch with us or for a healthy debate.

Punjab Chemicals & Crop Protection Ltd Date Traded In Face Value CMP EPS (TTM) P/E Market Cap Enterprise Value 52 Week H/L Website : 3-April-14 : BSE B (506618) : 10 : Rs 75.90 : 8.62 : 8.8 : 93 Cr : Rs 384 Cr : 78.25 / 29.15 : http://www.punjabchemicals.com/

Timeline PCCL 1975 Established in joint collaboration with Excel Industries Ltd & PSIDC 2003 Acquires Alpha Drug India 2006 Amalgamation of all group companies (STS, ADIL, IA & IC, PAURAJ). 2006 Acquisition of Sintesis Quimica SAIC, Argentina. 2007 Acquisition of Agrichem BV. Netherlands. 2007 Takes stake in Source Dynamics plc, USA. 2008 Acquires 70% stake in Parul Chemicals 2009 Fire accident in Agro Chemicals Division, Derabassi 2011 Amalgamation of Parul Chemicals with PCCL 2012 Divests 100% shareholding in SD Agchem (Netherlands) 2012 Approval of CDR package to the Company under the Corporate Debt Restructuring framework of Reserve Bank of India.

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2012 Gowal Consulting Services Pvt Ltd invests in PCCL 2013 PCCL sells Agro Formulation Division to Coromandel Agrico Private Limited 2013 Board approves sale of IC division at Pune 2013 PCCL leases IC division at Tarapur to UPL 2014 Board approves sale of building at Mumbai Profile PCCPL is a Agrochemicals & Formulations company with Pharma, Industrial Chemicals & International Trading divisions. Company Snapshot

PCCL

Agro Chemicals

Pharma

Industrial Chemical

Technical Bulks (Mainly exports)

Intermediates for technicals, oxalic acid derivatives

Formulations (Retail Market)

Insecticides

Pesticides

Fungicides

Herbicides

Biological Agroproducts

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Particulars Basic use

Insecticides Kills insects Seeds - wheat, paddy, cereals, etc. 13 Across India, all seasons (kharif and rabi)

Pesticides Kills pests Seeds wheat, paddy, cereals, etc. 8 Across India, all seasons (kharif and rabi crops)

Fungicides Prevents/treats growth of fungus Fruits, tea, vegetables, paddy, wheat 13 West India (horticulture belt), South India (tea), North India (apples)

Herbicides Soil nutrients. Prevents growth of weeds All crops, sugar and beet products 7 Across India with major focus on the western market

Bio-agro products Nutrients for soil. Non-chemical based

Main crops

Wheat and paddy

40+ branded products Key regions and seasons

4 Growing with the awareness. Environmentfriendly

PCCL Notable Independent Directors Shri. Vijay Rai is Non-Executive Independent Director of Punjab Chemicals & Crop Protection Ltd. He is a B. Tech from IIT Kharagpur and has over forty years experience in Industry out of which 28 years was with the industrial group in India "the Tata group". He has worked in 12 different industries with the group such as food processing, engineering, chemicals and fertilisers. He was the CEO for over 12 years of Rallis India Ltd. He was responsible for the growth of Rallis from Rs. 250 crores to over Rs. 1200 crores in ten years. He was awarded in 1999 the "Most Admired Manager" in the Industry by the Pesticide Formulators and Manufacturers Association. He is also on the Board of English India Clays Limited, Navneet Publications (India) Limited, Greaves Cotton Limited, Greaves Leasing Finance Limited, TechPak Industries Ltd. (Nairobi, Kenya), Polygel Industries Pvt. Ltd.,Viswas Business Synergies Limited, Prince Ware International Pvt. Ltd., Akola Chemicals (India) Limited and Sri Biotech Laboratories Ltd. Shri. Mukesh D. Patel is Non-Executive Independent Director of Punjab Chemicals & Crop Protection Ltd. He is a graduate in Chemical Engineering. Besides having over 36 years experience in various areas of finance and corporate management at Director level. He had been active in various industry related trade associations like ICMA. CHEMEXCIL. He is also associated with trade related associations. At present he is on the Board of Transpek Finance Ltd., Universal Esters Ltd., Infinity Consultants Ltd., Torrential Investment Pvt. Ltd., Shilchar Electronic Ltd., Gujarat Automotive GearsLtd. ,Transpek lndustry Limited and Banco Products (lndia) Ltd.

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Financials Yearly Results - Profit and Loss

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Balance Sheet

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Cash Flow

Key Ratios

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Quarterly Results

Shareholding Pattern

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Investor Returns

Period 1Week 1Month 3Month 6Month 1Year 2Year 3Year 5Year

Date 26-Mar-14 03-Mar-14 02-Jan-14 03-Oct-13 02-Apr-13 02-Apr-12 04-Apr-11 02-Apr-09

Price (Rs) 68.5 63.15 60 38.85 48 57.95 92.4 159.35

Returns (%) 10.58 19.95 26.25 94.98 57.81 30.72 -18.02 -52.46

Src : http://www.motilaloswal.com/ Management Compensation

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Debtor Days Selling a product is one thing but getting the payment for is a totally different world. The speed at which the payment comes after the sale denotes the importance of the product to the customer. In the corporate world 60 90 days are the norm for the payment to be settled.

The debtor days for PCCL seems to be improving Capex

Exports

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Invert always Invert Carl Gustav Jacob Jacobi (1804 1851) was a German mathematician. One of his maxims was: 'Invert, always invert' ('man muss immer umkehren'), expressing his belief that the solution of many hard problems can be clarified by re-expressing them in inverse form. Charlie Munger often quoted the maxim from an investment perspective.

Lets try to do that. Instead of saying why we should buy PCCL. Lets see why we should not buy PCCL. If we have many valid reasons for not buying PCCL, then lets skip it. If we have fewer reasons not to buy PCCL, then maybe we should buy it Reason 1: Is the turnaround around? Both our operating and investment experience cause us to conclude that turnarounds seldom turn - Warren Buffet. Berkshire Hathaway Inc - 1979 Letter If we think PCCL will indeed turn, we better have some solid proof for the same Lets look at the cause of the downfall of the financials of the company Cause: The Company borrowed heavily to fund its overseas acquisitions during FY06 and FY07, which led to a severe financial crisis within the group during the downturn. The overall debt-equity ratio had increased from 1.5x in FY05 to 4.6x in FY08 and 13.0x in FY10 (due to loss of profit on account of fire at the companys Chandigarh plant). Src: Crisil IER Base report

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Action 1: The Company started to cut its flab. Lets look at what the company did to its divisions PCCL Divisions as on Mar 2013

PCCL

Agro Chemicals

Pharma

Industrial Chemical

Agro Formulation

Derabassi

Alpha Drug Lalru

Tarapur

Pune

Chiplun

Vadadora

Aug 2013 Agro Formulation division sold to Coromandel Agrico Private Limited Aug 2013 Industrial Chemical division (Pune) to be sold Nov 2013 Industrial Chemical division (Tarapur) leased to UPL Jan 2014 Office building in Mumbai to be sold PCCL Divisions as on Feb 2014

PCCL

Agro Chemicals

Pharma

Industrial Chemical

Derabassi Alpha Drug - Lalru

Pune

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Rs in Lakhs Revenue 1182 1226

Agro Formulation Industrial Chemicals - Pune

FY 2012 - 2013 6 months % of Total % of Total Revenue EBIDTA EBIDTA 5.84 3 0.2 6.11 4 0.27

Rs in Lakhs Industrial Chemicals - Tarapur Revenue PBT

FY 2012 - 2013 FY 2013 - 2014 6 months 6 months Company IC - Tarapur Company IC - Tarapur 20441 789 22438 1170 (207) (670) 394 (633)

The trimming done was well calculated. The IC Tarapur division which contributed to 4 5% of the total sales but was pulling down the profitability with its losses was leased to UPL. The Agro Formulation division which was contributing 5.84% to the overall sales but whose EBIDTA was only .2% was sold off. The IC Pune division has got the approval to be sold. The office space in Mumbai has got the approval to be sold

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Action 2: This is how the company trimmed its subsidiaries PCCL Subsidiaries as on Mar 2009
PCCL

STS Chemicals UK Ltd 100%

SD Agchem Europe N.V 100%

Sintesis Quimica Argentina 85%

SD Agrichem Netherlands B.V. 100%

PSD LLC USA 40%

Source Dynamics USA 20%

Agrichem B.V. 100%

PG Crop Protectiotion Ltd England 100%

N.V Agricultural Chemicals Belgium 100%

Agrichem Helvetia GMBH Switzerland 100%

Nedab Aps Denmark 50%

Kapchem Ltd Ireland 50%

Jun 2012 Sells 100% shareholding in SD Agchem (Netherlands) to United Phosphorous As stated earlier, the Company went through acute liquidity problem as the consolidated borrowings grew to Rs. 574 crores as on 31st March, 2011. The major borrowings portion of this was borrowings in SD Agchem (Netherlands) B.V and Agrichem amounting to 25.25 million (Rs. 175 crores approx) as at 31st March, 2012. There was an obligation for repayment of 10.34 million (Rs. 70 crores approx) to the banks in the year 2012-13.

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Therefore, to retire part of its debt and to improve the liquidity situation, the Company decided to divestment of its overseas businesses. The best proposal was received from United Phosphorous Holding BV (the buyer), a subsidiary Company of United Phosphorous Limited, hence it was decided to divest 100% shareholding in SD Agchem (Netherlands) B.V and its subsidiaries including Agrichem BV through SD Agchem (Europe) N.V. to them. This has reduced the consolidated debt of around 25.25 million (Rs. 175 crores approx) and saving of 2-3 million per annum being incurred on registrations of various products (Src: AR 2011 2012) PCCL Subsidiaries as on Mar 2013

PCCL

SD Agchem Europe N.V 100%

STS Chemicals UK Ltd 100%

Sintesis Quimica Argentina 100%

PCCL Joint Ventures Mar 2013 1. Stellar Marine Paints Limited (45%) 2. PSD LLC (40%) 3. Source Dynamics (20%).

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SD Aghem (Europe) NV which was bleeding heavily has been scaled down. So we may not see much loss there. Sintesis Quimica which was doing well till a couple of years ago, could go either way. Even if Sintesis bleeds heavily, based on the previous action we would expect the management to sell it out. Action 3: Capital Infusion Sep 2012 As part of the CDR (Corporate Debt Restructuring) package to the Company under the Corporate Debt Restructuring framework of Reserve Bank of India, the company issued 20,00,000 equity shares at a price of Rs 100 / share to its promoters Sep 2012 Company allots 30,00,000 zero coupon unsecured fully convertible Debentures to Gowal Consulting Services Private Limited at a price of Rs 100 / debenture convertible into equity shares of FV Rs 10 each at a premium of Rs 90 on preferential basis Sep 2013 Company approves the conversion of 30,00,000 zero coupon unsecured fully convertible Debentures into equity shares of FV Rs 10 Here begins the fun part. The directors of Gowal Consulting Services Private Limited are Jagmeet Singh Ushpal Singh Sabharwal S/O Ushpal Singh Sabharwal and Salim Pyarali Govani S/O Pyarali Manjibhai GovaniI. The 2 gentlemen hold 50% stake in Gowal Consulting Services. Mr Jagmeet Singh Sabharwal is the Managing Director of Spareage Seals Ltd Mumbai - www.spareage.in - Spareage formed in 1959, specialising in the manufacture of Hydraulic seals, Rotary seals Pneumatic seals and O rings, has today become Indias leading seal manufacturer. Mr Jagmeet Singh Sabharwal is the director in the following companies Spare-Age Seals Limited U K Hydraulics And Seals Private Limited USS Hydraulics And Seals Private Limited Gowal Consulting Services Private Limited Accolade Properties Private Limited Ring Plus Aqua Limited

Ring Plus Aqua Limited is a subsidiary of Raymond Ltd A graduate of Sydenham College, Mumbai, Salim Govani hails from a family that has been involved in the business of film distribution. His strength lies in identifying small companies that have great potential to succeed. Mr. Govani acquires such businesses and transforms them into highly profitable ventures. One such recent success has been his work with The Mount Everest Mineral Water Ltd. An early identification of its potential, innovative marketing, and customer education quickly catapulted the brand HIMALAYAN to being the market leader in its category, which was divested with

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management control to Tata Tea. Salim is also a member of the EO Mumbai Chapter since its inception (Src : http://www.chandamama.com/common/aboutus/aboutus.htm) Mr. Salim Govani served as Managing Director at Mount Everest Mineral Water Ltd. from 2004 to 2007 Mr Salim Govani is a director in the following companies Axsys Health Tech Limited Sadafuli Finvest Pvt Ltdtr Co from Maharashtra Bloom Packaging Private Limited Chandamama India Limited Himalayan Ventures Private Limited Foresight Holdings Private Limited Sethi Funds Management Private Limited RSB Schalungstechnik India Private Limited Gowal Consulting Services Private Limited Entrepreneurs Organization Mumbai ARR Bath Home Private Limited

Wow. If this was not exciting enough, there is more. Gowal Consulting Private Limited has an equity base of Rs 5 lakhs (50,000 shares of Rs 10). What ??? How did they buy Rs 30 Cr of equity shares of Punjab Chemicals. Hmmm. Gowal Consulting Private Ltd issued Unlisted Secured Redeemable Optionally Convertible Debentures worth Rs 31 Crores to SWAL Corporation Limited. The security is the equity share or investments held by Gowal in such companies agreed between Gowal and the OCD holders. The debentures are to be redeemed in Sep 2017. SWAL Corporation is the 100% subsidiary of United Phosphorus Limited

Punjab Chemicals

UPL

Invests in equity

100% Subsidiary

Loan through debentures

Gowal Consulting

SWAL

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What is the link between UPL and Punjab Chemicals?

Champraj Shroff

Govind Shroff Brothers

Kantisen Shroff

Devidas Shroff

Started in 1941

Son

Excel (Shroff) Group Excel Industries Excel Crop Care Transpek Industries

Excel Industries

Rajnikant Devidas Shroff

Started in 1985 United Phosphorus Limited (UPL)

Punjab Chemicals & Crop Protection (PCCL)

Started in 1975

PSIDC

Excel Industries is a promoter of PCCL. The promoter of UPL is related to the promoter of PCCL (but I am not able to figure out the relationship). Infact Shaila Shashikumar Shroff is deemed as a promoter in the shareholding of PCCL and UPL. Shaila Shashikumar Shroff is the mother of Shalil Shashikumar Shroff who is the MD of PCCL. Now that we have established the link between PCCL and UPL, lets try to deduce the reason for UPL going through a complex transaction for investing into PCCL. The reasons could be UPL wants to takeover PCCL or it wants to help PCCL. A complex transaction to takeover PCCL in the current situation is not warranted. Already UPL has taken over some of the assets of PCCL and if it wanted to take over PCCL a direct route would have been easier. Also the role of Gowal Consulting Services would be redundant for a takeover. Lets assume UPL wanted to help PCCL. Ok the below scenario is a figment of my imagination and I have no inside info or anything. The 2 gentlemen of Gowal are hired or their consulting services. Both of them have good management experience.

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They are asked to turnaround PCCL. They are given a loan by SWAL (UPL). They invest the received amount in PCCL shares. If they turnaround PCCL, the share prices are bound to rise. Gowal subsequently sell their PCCL shares. Gowal return the loan amount to SWAL. The spread between the selling price of PCCL share and Rs 100 (the price at which Gowal was allocated PCCL shares) would be their consulting fees. So everybody is happy now. PCCL has turned around. Gowal get their consulting fees. SWAL get their loan and interest. But then if it was as simple as the above script then horses would fly . Effect: The Company for the past 2 quarters has been profitable Positives: Amid various constraints, the Company has successfully commissioned another 'Fungicide plant' in Agro Chemicals Division of the Company with the technical support and buy back arrangement from one of the renowned Multinational Company in the month of March, 2013. The first lot of the finished product from this plant has been dispatched in May, 2013. The Company has projected a business of around Rs. 180 crores from this contract in the next three years. The successful implementation of this plant is a major morale booster for the Company. (Src: AR 2012 13) Worries: The profitability of the foreign subsidiaries http://en.wikipedia.org/wiki/Carl_Gustav_Jacob_Jacobi SWOT Analysis Strengths Backing of the Excel and UPL companies Gowal Consulting Services

Weakness Debt burden

Opportunities If the turnaround continues for a couple of quarters, the stock could get re rated big time

Threats Overseas subsidiaries may bleed

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Valuation By a back of the envelope calculation we are arriving at an intrinsic value of Rs 100 for the stock. The reasons being 1. If the turnaround continues for 2 more quarters, the company will have a TTM EPS of 20. With a PE of 5 we get a price of Rs 100. 2. Gowal consulting bought equity at Rs 100 in Sep 2012

Synopsis Since the intrinsic value calculation was pretty primitive, we felt the further the spread between the buying price and the intrinsic value, we would have a better chance of getting good returns. Thus we assumed the buying price should be around Rs 50 60. With the sudden interest (in MMB) and subsequent increase in price, we are not comfortable sure if it will come back below Rs 60. References 1. 2. 3. 4. www.bseindia.com www.punjabchemicals.com www.mca.gov.in www.motilaloswal.com

Disclaimer General: This report is not a buy / sell recommendation. Buying stocks must be done after careful analysis and the above report can be used as a base for the analysis and should not be used as sole basis. Vested Interest: The author does have position in the above stock @ average price of Rs 73. He may purchase / sell the same in the future in the short or long term based on his conviction and his financial situation. Data Validity: The data is collated from various sites in the internet. Even though we have tried our best, there may be discrepancy due to human error while collating the data. The author should not be held responsible for such mistakes. The data can be looked up at various websites given in the reference section. Valuation: The author is not an expert and his valuation may be off the mark.

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