DATE: 3rd December, 2008

VOLUME NO:
ISSUE NO:

A Report by Team Stock Researchers Private Limited – http://www.niftyviews.com/

Old economy company:-

Delete box, or Gillanders Arbuthnot & Co. Ltd.
add logo, photo, has a rich heritage intricately linked with the
or other image undivided British India. The company started its
here.
corporate journey in the year 1819 when Mr. F.M.
Gillanders and Mr. G.C. Arbuthnot formed a
partnership firm under the name Gillanders
Arbuthnot & Co. Ltd.

On 1st February 1935, the firm became a Private

KEY STATS:
• CMP – 48.75
• BSE CODE : 532716
TEAM
STOCKRESEARCHERS
Pvt. Ltd.
3 SUBHASHNAGAR CORNER,RAIYA ROAD,
RAJKOT, Gujarat, 360007
www.niftyviews.com
CONTACT:09327744250
CST NUMBER: AADCT0544JST001
Limited company and carried on business in the
erstwhile British India including Burma. The
company then had interests in banking &
finances, property management, wide range of
trading activities and as Manager Agents of
several other companies. The company was
elevated to the status of a public limited
company on 28th February 1947.
Company Overview:-
Why to Buy shares of this company in a
recessionary environment when everything that
can be sold is being sold.
The company is an old economy company
owned by G.D Kothari nephew of legendary
G.D.Birla.
Company is a diversified midsize
conglomerate and operates in Tea, Engineering,
real estate, lead oxide, yarn, and marketing and
construction divisions.
Company is not a market leader in any of
the above-mentioned segments.

VOLUME NO: 1/2010

DIVISIONS :-
Tea Division:-
Division:-

The company produced nearly Delete box, or

1% of India’s tea output. At an
average price of 82.69 per kg the
revenue from the same is
showing an up tick.In 2005 post
a corporate restructuring 6 tea
estates were transferred from
Kothari plantations to GACL. In
addition it also carries on the
business of manufacture and
sale of Phytochemicals and Fine
and Synthetic Chemicals
through its
Phytochemicals Division having
its unit at Nagari, Madurai in the
State of Tamil
Nadu and manufacture and sale
of Formaldehyde and Hexamine
through its division
known as ‘Southern Synthetics
Division. having its unit at
Ranipet in the State of
Tamil Nadu. While there has
been some improvement in the
performance of the
Phytochemicals Division, the
Southern Synthetics Division
was impacted adversely
due to higher input costs of
Methanol coupled with lower
selling prices of
Formaldehyde.
add a logo,
photo, or other
image here.
Textile Division:-
Company has two plants, one
located in akbarbur near
Ludhiana in Punjab located at 43
acres of campus. Another plant
of Gis cotton mills, which was
recently merged, is located in
West Bengal. One should also
note that the company has
expanded its capacity recently
by increasing the number of
spindles.
Waldies Division:-
Company is the largest producer
of Lead oxides. It also
manufactures Pvc stabilizers.

Delete box, or
add a logo,
photo, or other
image here.
MICCO DIVISION
(Hidden gem!)
Modern India Construction Co.
(MICCO),
MICCO has diverse interests and
product lines. It is engaged in
the business of structural
engineering, steel fabrication,
execution of turnkey projects
and miscellaneous other
engineering works. The division
is equipped with state-of-the-art
machineries to maintain
stringent quality standards in
every aspect of its deliverables.
Company has an engineering
division which is engaged in the
business of execution of various
types of turnkey projects in steel
plants, power plants, aluminium
plants. Although the above
mentioned sectors have seen a
slow down in recent past.
The company has sufficient order
backlog which is 7X FY08 sales of
the division of 74.18 crs. Current
order book for the division as per
the last annual report is 485
crores. Major clients are SAIL,
TISCO, RINL, JINDAL Group
among others. The division is
located at around 4 acres of
factory space in sodepur, West
Bengal. There is a visibility in the
Business going forward.
Real Estate Division: (Another
Gem)
Company owns a sprawling
commercial property named
Gillander House in Central
Kolkata. The snaps of the same
have been attached in the
beginning of the report. I will just
like to emphasize on some points.
Reputed companies like Areva
Transmission and Distribution
and spencer retail have their
registered offices in Gillander
House. The rental from the
property last year was 4.96 crs.It
has been growing at around 12%
for last five years. A good number
of tenants are occupying the
space using old rental rates. With
the passage of time the rental
from this prime property will only
increase every year. Do remember
Gillander house is located at the
heart of the city in the prime
Business area. The rental is not
It/Ites rental from a BPO firm
which varies with the overall
macroeconomic situation. There
is absolutely no supply in the
vicinity of Gillander House. One
can visit the property himself at
Gillander House, 8, Netaji Subhas
Road, Kolkata 700001
gillander house in dalhousie square
Marketing division:-
Small division with sales of 18.72 crs
based in South India basically in
paints. Company has also entered
into a marketing arrangement with 3m
India recently.
Power Division:-
6.5 MW COGENERATION POWER
PROJECT at village Akbarpur,
Malerkotla, Dist. Sangrur in Punjab is
the flagship project of GILLANDERS
ARBUTHNOT & CO. LTD. in the power
sector.
Gillanders Arbuthnot and Company
Limited are installing a 6.5 MW
Biomass Power Plant with an
estimated expenditure of approximate
$8 million and construction is to
commence shortly as all necessary
approvals have been taken. The
project will be built up within the
textile mill complex, which is
occupied in an area of approx 1,
74,021 Sq Mts (43 Acres). The power
plant will be built in this area and an
additional 16,188 Sq Mts (4 Acres) of
land has been used for ash disposal.
It is proposed to generate 6.5 MW
power using rice husk to the extent of
85% of the time and coal to the extent
of 15% of the time and other biomass
as fuel.
Since the plant is located in the
vicinity of state highway, a well-
developed road network is already
available. The required water for
power plant operations will be met
from bore wells. There will be no need
of constructing housing for workers
as the site is located centrally and
shall generate lot of work
opportunities for local population who
shall commute to the work at the site
on a daily basis. In wake of the above
factors the project is likely to be
completed at a fast pace and shall be
running in full capacity by the year
2008
Investment
Rationales:-
• Over the years company has
been a dividend paying
company. Moreover at the Cmp
of Rs 50 the tax free dividend
yield is around 8%.Last year
the dividend payout was 40%.It
translates into a 12.18%+
dividend yield for people in
highest tax bracket.
• The real estate property
Gillander house should be
valued at more then the current
market capitalization of the
entire company.
• The company had entered the
rough patch in 2005.For the
first time in 20 years the
company had posted losses.
Management merged two
group companies with GACL
and hence the conglomerate
was born. Gis(Micco) founded
in 1957 was merged along with
6 tea gardens of Kothari
plantations.
• Company now has a natural
hedge against cyclical
movement of tea and cotton in
Real estate and Captive power
plants.
• The company has a total debt
of 160 crs mainly in the textile
Business.
• In last 18 odd years the
company has been a dividend
paying company. In 2005 when
it made losses the dividend
payout was maintained.
Investments should be made in
these companies which have
survived many bear phases in
past and will survive many
more recessions in future.
• The hidden value in the power plant
and the engineering division is
substantial in nature for the
company. Once market recognizes
the same valuations wont be the
same.
Financial synopsis:-
SOURCE-ASIAN CERC/TSR
RESEARCH

Profit & Loss account ------------------- in Rs. Cr. -------------------

Mar Mar Mar Mar Mar

'04 '05 '06 '07 '08
12 12 12 12 12
mths mths mths mths mths
Income
Sales Turnover 50.88 236.77 255.36 264.79 404.40
Excise Duty 1.29 7.42 7.24 4.74 9.52
Net Sales 49.59 229.35 248.12 260.05 394.88
Other Income 5.14 9.21 8.43 11.13 8.02
Stock Adjustments 0.53 3.61 -5.40 -2.70 7.09
Total Income 55.26 242.17 251.15 268.48 409.99
Expenditure
Raw Materials 21.66 127.85 124.70 134.47 212.65
Power & Fuel Cost 4.46 17.13 20.00 18.14 29.95
Employee Cost 15.90 45.36 47.32 45.81 58.41
Other Manufacturing Expenses 4.01 13.67 13.49 19.82 30.36
Selling and Admin Expenses 0.00 19.56 19.64 20.21 29.15
Miscellaneous Expenses 8.16 5.76 7.55 6.79 7.74
Preoperative Exp Capitalised 0.00 0.00 0.00 0.00 0.00
Total Expenses 54.19 229.33 232.70 245.24 368.26
 Mar Mar Mar Mar Mar
'04 '05 '06 '07 '08
12 12 12 12 12
mths mths mths mths mths
Operating Profit -4.07 3.63 10.02 12.11 33.71
PBDIT 1.07 12.84 18.45 23.24 41.73
Interest 0.03 5.15 6.86 6.36 12.94
PBDT 1.04 7.69 11.59 16.88 28.79
Depreciation 2.68 5.44 6.38 6.47 10.52
Other Written Off 0.00 0.00 0.00 0.00 0.00
Profit Before Tax -1.64 2.25 5.21 10.41 18.27
Extra-ordinary items 0.00 0.63 0.43 0.29 0.21
PBT (Post Extra-ord Items) -1.64 2.88 5.64 10.70 18.48
Tax -0.56 -1.01 0.59 2.96 3.63
Reported Net Profit -1.08 3.90 5.01 7.75 14.84
Total Value Addition 32.53 101.48 108.00 110.78 155.61
Preference Dividend 0.00 0.00 0.00 0.00 0.16
Equity Dividend 0.73 2.18 2.53 2.81 5.63
Corporate Dividend Tax 0.10 0.31 0.35 0.39 1.04
Per share data (annualised)
Shares in issue (lakhs) 47.60 48.48 108.79 112.23 112.23
Earning Per Share (Rs) -2.27 8.05 4.60 6.90 13.08
Equity Dividend (%) 15.00 20.00 22.50 25.00 40.00
Book Value (Rs) 111.91 216.41 107.61 108.67 122.26
Summary :-
Company generates 38 crs of free cash flow every year. Moreover it trades at
50% to its book value. I believe that the valuation is at a distress level and one
should buy the stock with dividend yield in mind. One can book part profits at
75 and 92 odd levels.

Research note prepared by

Vinayak,
Varun Jain.

http://www.teamsr.co.cc/

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