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Sunday, 29 April, 2007

Cheviot Company Ltd

Company Website: Cheviot Company Ltd
Company Details: Kotak Securities
Annual Report: Cheviot Company Annual Report 2006

I read about Cheviot on Rohit Chauhan's blog first. Then Prem Sagar talked about it. And since it was on their radar, I had to look at it.

Cheviot is a West Bengal based company into Jute products. It has 100+ years history. 100 years don't guarantee anything. Recently a 1400 year old business succumbed to excess debt.

Company is into two businesses - Jute goods and Captive power generation. Annual Report 2006 says that power generation contributes less than 10% of revenues and hence is not covered in the annual report. Jute goods include Jute Yarn, Sacking Bag and Canvas Bags.

Its products are used extensively in packaging. In India, GOI has made it mandatory to pack sugar and some other food items to be packed in jute bags. However more than 70% of revenues come from exports and even if these regulations are taken away by GOI, there would not be a major impact on earnings.

Since the entire jute industry has been facing losses, small competitors and most of the players in the unorganized sector have been forced to shut shops. Cheviot remains the lowest cost producer and one of the few companies left making money in the industry.


1.Company deploys excess cash in mutual funds and other companies. Subsequently company is sitting on Rs 212 cash per share (and this is at cost of investments – with market giving 46% return last year, the market value could be much much higher).

2.Current trading price is about 238. With 212 per share in cash, Cheviot can be effectively bought at Rs. 26 per share.

3.Promoter group holds about 73% of outstaying shares – may be a reason for their love of giving out generous dividends! It would have been interesting to know the dividend payout if promotes had only 27% holding in the company.

1.Jute industry has been given sops by GOI and in absence of these sops, profitability might come down. Most of the revenues come from exports and in case sops for packaging are taken away, Cheviot would still be unaffected.

2.There is no catalyst that might initiate the value unlock process. In case of Venkys, people just had to start eating chicken again. Here there is no such natural catalyst.

3.Labour issues in West Bengal are very sensitive. Strikes happen on whims and fancies of the union and might have some effect on operations of the company.

1. Jute – prices and availability of raw jute.
2. Annual report mentions about petroleum prices being an input.

Dividend History
2007 - 80% interim
2006 - 100% final

Numbers as on April 27, 2007
Market Cap: 108 Crores
Current Market Price: 238
Face Value per share: 10

Numbers of shares outstanding: 3007500

52 week low: 214 on 02 April 2007
52 week high: 492 on 04 May 2006

All time low: 10 on 06 Dec 1996
All time high: 492 on 04 May 2006

EPS: 78 (as per 2006 annual report)
PE Ratio: 3 (as Rohit and Prem say ... market is pricing Cheviot for bankruptcy!!)

To be read more
1. Mention of bonus shares in 2006 report. What happened to it?

2. Read about Jute industry, mandatory packaging of food grains in Jute bags in India, products from Bangladesh and China etc.

3. Use of petroleum in manufacturing jute bags.

4. Operational cost margins to be considered. With 58 crores in bank, the real figures of ROE and ROI have to be better.

Please point out mistakes and errors ... !


Pradeep said...

Just a few comments..

* record date for bonus shares was Sep 12, 2006.
* Cash at hand after adjusting for bonus shares (one for every 2 held) is about Rs. 142 (with FY06 data)

Shankar said...

Hi Saurabh,

What is company doing with this excess cash - any buyback news, capex, heavy dividend .. ??? I can see some heavy dividend coming .. Rs. 8 as interim and say another 6 rupees in final would mean a dividend yield of 6.5% (quite good)

Warm Rgds

Anonymous said...

Hi guys
there are plenty of companies like this. Not sure on what basis should one value them. I have been following Nagreeka Exports for the last fear years. I stumbled across it a few years ago. It has a similar story. It has a huge inventory of stocks and mutual funds. In fact it had over 400000 shares of Sterlite Industies at a book value of 250. This is what sparked my interest. Since then the share has had a decent run up but it has never seemed to catch up to even come close to its book value.
it went as high as 165+ ( perhaps more) , since then the company as spun off its investment arm as Nagreeka Capital. how ever asfter the demerger they combined value is only about 130 rupees.
As far as i know the companies business ( cotton yarn exports) is doing well. The Shares that are in its portfolio ( as per last balance sheet) as also been performing well. However The share price has been sliding.

How does one value a company such as this? Im sure there are many such companies does it make sense to try and find them? what are your opinions?

please let me know



ps i own shares of these companies.( nagreeka exports and nagreeka capital)


Saurabh said...

Hi TJ,

Please leave your contact details so that I may get back to you.

About your question, in my opinion you should not ask how to value these companies - the value is there. You should ask

1. What is the pobability of this value being realized?

2. How long would it take for Mr. Market to realize the hidden value? Can you keep your money blocked in this company till the time value is realized?

3. What trigger is required to make Mr. Market realize the true value?

In Cheviot, the triggers were absent. There was another company called HB Stockholding, there again the trigger was absent

I have posted about the same thing here.

About Nagreeka, I havent really read about it. I shall read about it and post again here.

Hope this helps.