Stock analysis of Ganesh benzo and relevant mental models - presnented at the TIAA 20-20 stock summit on March 6, 2021

1. TIA 20-20 IDEAS SUMMIT 6th March 2021
Varadharajan Ragunathan
TAMILNADU INVESTORS ASSOCIATION 1

2. SPEAKER’S PROFILE
I’m a Chennai based individual investor, who’s passionate about murder mysteries,
corporate frauds and early warning signs. I’m also passionate about mental models –
the material, few mental models are the necklace that weaves together the pearls of
EPS, cash flow, revenue growth, governance etc. in investing. Ooh, and there’s one
more thing – I love to cycle everywhere now. When Howard Marks said all things are
cyclical, I didn’t know he was referring to the bicycle !
TAMILNADU INVESTORS ASSOCIATION 2

3. DISCLAIMER SLIDE
This is NOT a recommendation. I am not a research analysts. In fact, treat me as a
quack – don’t‘ take any of these words. Protect your money – do your own research
and build your own conviction. Trolling wont make you any money or save your lost
money. I have no inside information on any stock nor am I planning to add/sell more
stock because I did this presentation. This presentation, is a pure ‘labour of love’.
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4. INVESTMENT PHILOSOPHY
• GVAP
• Growth
• G – learnt better than to invest into melting ice-cubes and fast glowing cigar
butts.
• V – Variant Perception –very little coverage, low institutional interest and a strong
variant perception of self and triangulated with an external validation/data point.
What are objective facts to show that “management wants to change their
behaviour over a period of time?”.
• A – Actions by Management in line with reducing the valuation gap – for example,
AR - > Presentations - > conference calls - > IR - > Institutional meets . What are
objective triggers in place that show that “management wants to manifest their
changes in behaviour”?
• P – Perception and change. What does Mr. Market think right now and based on V
and A what do I expect Mr. Market to change it to ? How do I get a temperature
check on Mr. Market’s bipolarity on this stock?
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5. CURRENT TEMPERATURE OF
MARKET
Optimistically cautious:
• Tremendous liquidity.
• Hugely optimistic about India given the progressive budget and interest from FII’s.
• V- shaped recovery.
However, global macros look weak – tech bubble, fed action etc. and this can set off
a domino. Would specifically avoid sectors that have run up a lot (eg., tech) and
avoid story stocks in ultra fancied sectors (“trees grow to the sky”).
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6. STOCK
• Least prone to disruption.
• Least prone to Covid/lock-down/lock-up
• Serving an essential utility
• Tremendous pricing power
• Limited, no competition (‘They aren’t making ‘em anymore)
• Has adjacencies to improve margins – “bundling” for a higher ROCE
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7. GANESH BENZO
• LST – Liquid Storage Tank.
• 83 tanks 303,000 kl.
• “Cloak room” in a railway station type of business with free market pricing/low
regulations ; optionalities are porterage and ancillary services. Thoughtful expansion
can help grow 10-15 % over 5-10 years sustainably without erosion on ROCE’s
•60-80 Cr. of stable cash flow – what price will you pay for it for zero growth.
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8. FINANCIALS
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9. OPERATING LEVERAGE
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10. CONSISTENT IMPROVEMENT
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11. INDUSTRY ANALYSIS
• Local monopoly “toll road” business with stable, slowly increasing demand.
• Earnings increase comes from the huge delta between marginal revenues and
marginal costs.
• Mental model is brownfield expansion/forward integration on a “toll road” business
leads to disproportionate earnings increase.
• “They aren’t making it anymore “ – land close to a port is a scarce, un-substitutable
high ROE asset. Not a very high risk of disruption, black swans are recoverable from.
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12. WHY DID I CHOOSE THIS STOCK?
• Steady progress after 2015.
• Thanks to Mr. Anand Mohan for recommending this stock in 2015.
• Name a misnomer – neither a stock for “god fearing” (stock holders of “god named”
stocks have had to become eventually god fearing; and this is not a stock for
“chemical lovers”.
• Simple, easy to understand business.
• Entry of second generation has shaken up things for better.
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13. JNPT
• 245, 115 kl with 100% occupancy.
• INR 100 Cr. topline with 80 %+ EBITDA.
• Can store highly corrosive/inflammable liquids
•Cochin
• 43,500 KL.
•Goa
• 25,000 KL.
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14. CHEMICALS BUSINESS
Chemicals business : - Chemicals Division is processing a quality range of food
preservatives, lubricants and API drugs. Its range encompasses Sodium
Benzoate, Benzoic Acid and Benzaldehyde, Food Preservatives, Petroleum
Sulphonate, Lubricant Additives, Lubricant Components, API/Bulk Drugs etc.
These are pure, accurate in composition and safe to use and extensively used in
food, automobile and pharmaceutical industries. The Company is the only
manufacturer of pure Benzoic Acid & its Derivatives like Sodium Benzoate well
known food preservative and Benzoplast a Specialty plasticizer which is a
superior plasticizer as compared with other plasticizers.
The company’s products are commodities and the company has little or no
pricing power which shows up in its low and fluctuating margins. Suffice to say,
that this business has very little equity value.
To its credit, the company has been reducing the capital employed in this
business over the years and as per FY 2017 numbers, the CE in this is less than
Rs. 10 lakhs. The business has been making consistent losses over the years.
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15. OCF YIELD
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•Expect Rs. 60-70 Cr. OCF – at 450 Cr. Mcap and Rs. 500 Cr. EV, its at a 12-13 % OCF
yield for what is a 25 + ROCE business with stable, predictable incomes, cashflows
and growth optionality.

16. SCUTTLE BUTT WITH FRONT LINE
‘ Demand is very strong. Lock down did not affect us at all. Post
covid, India’s imports have gone up a lot and this has improved our
utilization.”
‘Tailwinds for chemical industry means higher share of organic
chemicals imported and this is good for us as the Gujarat hub gets all
a chunk of its imports via JNPT
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17. WHAT’S THE FUTURE OUTLOOK?
• ₹10-11 EPS for FY 22
• At CMP of ₹69, its at 6-7 x PE for a :
• 40 % ROCE business.
• 25 year + moat.
• 10-12 % growth on topline and 15 -20% growth on bottom-line.
• Demerger optionalities.
• Stake sale to a MNC.
• Preference allotment to promoters at ₹62/share.
See little downside as the company is seeing strong demand and if
expansion/demerger play out, see a re-rating.
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18. WHO DOES NOT SEE THAT?
• NCLT case Vs Morgan Credits.
• Past history has been chequered – has changed with the new generation at helm.
• No history of dividends.
• Chequered governance – mitigated to some extent by presence of MNC.
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19. MENTAL MODELS AT PLAY
• Monopoly, slow growth, disruption free business.
• MNC stake + new generation entrepreneur creates value after a generation of
squandering/stagnant value (eg. Hero Honda, Amara Raja)
• Reducing debt, reduced pledge, demerger, “optics” of responding to shareholder
queries shows intent, if not hunger to create value.
• Valuation catch-up with other larger players (1/6th of Aegis logistics‘ profits at
1/15th the mcap
•Strong OCF yield from a stable, cash flow business – its not a cyclical business but is
currently valued at cyclical multiples
•Buy before institutions come in. Right now very little institutional interest even from
small cap stocks
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20. RECOMMENDED
BUYING/ALLOCATION
• Buy at ₹60-65 – 2%; if Morgan credits issue is resolved buy more
below ₹75-80; if earnings momentum continues in Q4, add more
below ₹75.
• Recommended allocation – 5 %
•Own the stock and may exit/add anytime. There’s nothing called a
fact – you perceive the same fact differently and hence all disclaimers
are bogus !
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21. THANK YOU!
To my 10 year old daughter, who helped me design this PowerPoint, and to you all,
the viewers of this presentation!
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