JBF INDUSTRIES - CRUDE BENEFICIARY PLAY?

JBF Industries, stands on a gleaming pinnacle of success as an industry leader in Polyester Chips & as one of the top 5 players in the polyester Partially Oriented Yarns (POY) in India. The company conceived as a private limited company in 1982, attained the corporate status by becoming public limited company in the year 1986. The company's growth can be imagined by the fact that company's turnover has increased by about 250 times since it became public  limited. It was not only the corporate status and turnover, which changed but also the company's product profile engorged with the vibrant polyester industry in India. Starting its operations as a consumer of POY for texturising yarns to become a leading supplier of POY in India and thereby further backward integrated projects in manufacturing of Polyester Chips, made JBF a dominant force in India. Despite company's focus on Indian market, it never lost the opportunity to cater to the growing polyester markets globally and made its due presence in global polyester markets . These efforts were duly recognized by the govt of India by awarding company with export house status.

Raw material costs accounted for 72.9% of FY14 net sales. The costs of most of the raw materials like pure terephthalic acid or PTA (69.8% of raw material consumption) and mono ethylene glycol or MEG (25.6%l) are linked to crude oil prices. The costs of these raw materials accounted for ~72.0% of net sales and, therefore, the fall in Indian crude oil basket price will boost gross margin. On a consolidated basis, raw materials costs accounted for 78.0% of net sales and its composition is fairly similar to the standalone entity. As the company has inventory (high-cost) of 78 days, it will suffer inventory loss in 3QFY15 and after three months the positive benefit of lower crude oil prices will be visible. The company has Rs80bn of debt, with a 4x D/E ratio in 1HFY15 and working capital requirement of Rs22.7bn. With the fall in crude oil prices, its working capital requirement will reduce significantly, which will ease the high D/E ratio and also reduce interest costs to that extent.

Since it's an opportunity who believes in high leveraged high risk portfolio position, we advise small risk takers to stay away. However, for medium to long risk takers this could be opportunity to dive in.