Unlisted Shares

Stagnant Revenue Growth: Despite operating in the tea industry for over 100 years, the company's revenue growth has remained nearly stagnant, fluctuating between Rs.15 crore and Rs.25 crore. Consequently, it has been unable to secure a significant market share in India.

Threat from Oil Drilling: Indian Oil Corporation Limited (IOCL) is seeking to acquire additional land from the company for oil drilling. If this occurs, the company may lose another 2 to 3 hectares, in addition to the 10 hectares already taken by IOCL over the past decade. This will negatively impact the company's production and revenues.

Liquidity Risk: The company has been unable to improve its current ratio, maintaining an average of 34.4% over the past five years, significantly below the industry standard of 137%. This poses a threat to the company's short-term liquidity.

Investment Thesis: The company experienced a increase in revenue and net income in FY23 due to increase in average realization price of tea and an increase in non-operating income.

Currently, the stock is trading at Rs.77/share with a price-to-earnings (P/E) ratio of 1.6x, indicating that it might be undervalued compared to the industry's median P/E ratio of 9.0x. Moreover, the intrinsic value of the stock, determined through relative valuation, is Rs.400/share, suggesting significant potential for growth in the stock. 

Company's major expense is of Employee benefit expense. It has increased its bonus provision from 8.3% to 20.0% in FY23 owing it has better cash flows in FY23 and plans to follow this policy in future years as well. Despite having a positive cash flow in the FY23, company's average free cash flow growth has been negative at -11.8% over the last 5 years which raises a concern on company's future profitability and cash flows owing to an increased expense.

We have kept this recommendation at buy as company has filed for amalgamation with Rydak Syndicate which is expected to create substantial value for shareholders once the merger is finalized. Moreover, the company's revenue has grown at a compound annual growth rate (CAGR) of 13.8% over the past five years, outperforming the industry's growth rate of 6.6% over the same period. 

For example, If a person owns 1,000 fully paid-up equity shares of Rs. 10 each in Dhelakhat Tea Limited, they will receive 325 fully paid-up equity shares of Rs. 10 each in Rydak Syndicate Limited after the amalgamation scheme is completed. Currently, Rydak's shares are trading at Rs. 605 each, while Dhelakhat's shares are trading at Rs. 77 each. For every 1,000 shares held in Dhelakhat (valued at Rs. 77,000), shareholders will receive 325 shares in Rydak (valued at Rs. 1,96,625). The price per share of Dhelakhat tea based on the amalgamation, would be ~ Rs. 196/share