I am currently analysing Cheviot company (for company website see here).
The valuation is as follows
No. of shares outstanding – 0.45 Cr
Price per share – 228
Mcap – 103 Cr
Investment/ cash on book – 63 (last year)+ 10 Crs (this year) = 73 Crs
Net value = 103-73 = 30 Crs
Current year expected NP = 23 Crs
The company seems to be priced for 1-2 years earnings. The market seems to valuing the company with a horizon of 1-2 years and expects the company to be out of business after that !!.
Cheviot company is a West bengal based company into the manufacture and sale of Jute based products. Almost 70% of the sale is export and the rest is domestic (Page 6 of Annual report).
The company has been in business for more than 100 years and is currently the most profitable in its industry (the jute industry as a whole is sick and incurring losses). The company has two manufacturing units, one at Budge budge and the other at Falta. The unit at Budge budge is having some labor trouble which may impact the Topline for the company.
The company has had a ROC of almost 20%+ for the last few years (if one excludes cash). The company has been consistently profitable and has good free cash flows ( equal to net profits).
In addition, although the volumes have come down, the company has moved up the value chain and has been able to improve realization for the end product (Raw material cost as % of Sales has been coming down over the years). The topline has increase with a CAGR of 6% for the last five years whereas the Net profit has increased by 15% CAGR over the same period.
The company has almost 73 Crs cash on book which has been invested in mutual funds and other liquid investment.
The indian government has made jute the mandatory packaging material for food grains and sugar to support the industry. In addition the government also provides marketing assistance for the export market which is received as a credit. Thus the industry is surviving based on this support from the government.
The company currently has labor unrest in one of its units which may impact the short term profitability. In addition, this industry is marked by labor issues and strikes.
In my view, the strike could impact the topline for a quarter or two, but it is not a long term risk. In addition, the company has been concentrating on the export market and as a result could continue to do well.
The market is currently discounting all the above issues and more and pricing the company for bankruptcy, which does not seem probable.