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Jesus said, "Except ye eat the flesh of the Son of man, and drink his blood, ye have no life in you," (John 6:53).

23 May 2018

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Company Background
Cheviot Company Limited is the flagship company of Group Cheviot. It owns Cheviot Jute Mills in West Bengal. The company manufactures jute products and jute fabrics with flexibility to cater to both domestic and international market. The company is renowned for manufacturing superior quality technical jute fabrics and fully customized jute shopping bags for export market at the Export Oriented Unit situated at Falta Special Economic Zone in the state of West Bengal, India.
It has got two manufacturing units which are equipped with the state of the art technology near Kolkata, West Bengal, India.
i) BUDGE-BUDGE - Composite jute mill producing high quality jute yarns & traditional jute products such as-Hessian cloth & bags in different sizes & constructions, sacking bags like A-Twill, B- Twill & DWF Bags-both Normal & Food Grade Quality.

ii) FALTA - Specialty jute weaving unit manufacturing high quality technical / decorative fabrics on sulzer looms and jute shopping bags.
Jute Product Manufacturing Facilities

Over the years, company has been manufacturing the fabric required for jute shopping bags on sulzer looms, the quality of which has been appreciated by its customers. Jute decorative fabrics is manufactured using superior quality material having high versatility nature of fiber which enables it to be combined with any other material to come up with a new product. These jute decorative fibers have high tensile strength and are resistant to heat and fire. It has a silky luster and ensures immense designer potential.
As a forward integration, the company started producing jute shopping bags from cloth manufactured in-house, which puts Cheviot in an advantageous position to guarantee quality & timely shipment of the bags and that too at a very competitive price. The company's focus is always on developing into new product lines which are eco-friendly & bio degradable. In pursuance to this policy, company has embarked in to manufacturing jute shopping bag business which is being manufactured under strict supervision of highly trained people with latest technology.
Mr. Harsh Vardhan Kanoria is the head of Group Cheviot. He is an eminent industrialist with 40 years of vast experience in successfully handling jute, tea and leather industries. He has served as chairman of the Indian Jute Mills Association, Kolkata for 2 terms. Mr. Kanoria is heading the company as Chairman and Managing Director.
Mr. Utkarsh Kanoria is son of Mr. Harsh Kanoria and is appointed as President of Cheviot Company. He is a qualified graduate from the reputed Carnegie Mellon University at United States. Mr. Utkarsh Kanoria is looking after day to day business operations.
Product Range:
i) Promotional Jute Bags
ii) Fashion Jute Bags
iii) Beach Bags
iv) Bottle Bags
v) Miscellaneous Bags
vi) New Collections
1 Government hikes raw jute MSP by Rs. 200 to Rs. 3,700 per Quintal – April 2018
The Cabinet Committee on Economic Affairs (CCEA) on 25th April 2018 gave its nod to raise MSP of raw jute from Rs 35,000 to Rs 37,000 per tonne. The revised MSP is in line with the recommendation by the Commission for Agricultural Costs & Prices (CACP). The Commission takes into account the cost of production, overall demand-supply, domestic and international prices, inter-crop price parity, terms of trade between agricultural and non-agricultural sectors and the likely impact of MSP on the rest of the economy while recommending the MSP.
The government feels the increase in MSP would benefit the jute industry which supports the livelihood of around four million farm families and provides direct employment to 0.37 million workers in organised mills and in diversified units including tertiary sector and allied activities. These farm families are mainly concentrated in West Bengal, Bihar and Assam which account for over 95 percent of the area as well as jute production in the country.
The government in the Budget for 2018-19 had announced fixing MSPs at 1.5 times the cost of production for various crops.
2 Ban of light weight plastic bags to augur well for alternative options – Mar 2018
In many countries of the world, there has been a phase-out of lightweight plastic bags. Single-use plastic shopping bags, commonly made from low-density polyethylene (LDPE) plastic, have traditionally been given free to customers by stores when purchasing goods—a popular method considered a strong, cheap, and hygienic way of transporting items. Problems associated with plastic bags include use of non-renewable resources (such as crude oil, gas and coal), disposal, and environmental impacts.
Governments all over the world have taken action to ban the sale of lightweight bags, charge customers for lightweight bags and/or generate taxes from the stores who sell them. The Bangladesh government was the first to do so in 2002, imposing a total ban on the bag. Such a ban has also been applied in countries or regions such as Rwanda, China, Taiwan, Macedonia and most recently in Keyna (August 2017). Some countries in Western Europe impose a fee per bag. Bans, partial bans, and fees have been enacted by some local jurisdictions in North America, Australia, and Myanmar. Concurrently with the reduction in lightweight plastic bags, shops have introduced reusable shopping bags.
India is also not far behind in implementing ban on plastic products. With recent plastic carry bag ban imposed by Maharashtra, it becomes the eighteenth state in the country to ban plastic carry bags and cutlery made of thermocol. The government has implemented the ban from the date of issues of notification, but has given traders, manufacturers and even consumers a time period of one month to dispose of the banned items in their possession. The ban proposal was cleared by the Maharashtra cabinet on 15th March.
Ban in usage of plastic carry bags is expected to augur well for cotton as well as jute bag manufacturers.
3 The Cabinet Committee on Economic Affairs (CCEA) recently extended the mandatory packaging of food grains and sugar products in jute bags for the year ending June 2018. As per the norms, it is compulsory to pack 90 percent of food grains and 20 percent of sugar products in jute bags. The decision also mandates, the entire requirement for packing of food grains would be placed in jute bags thus, making a provision for 100 percent packing of food grains in jute bags subject to the ability of the jute to meet the requirement. Considering nearly 3.7 lakh workers and approx. 40 lakh farmers are dependent for their livelihood on the jute sector, the government has been making concerted efforts for the development of the jute sector
4 With a view to boost demand in the jute sector, government has imposed definitive anti-dumping duty on import of jute goods from Bangladesh and Nepal with effect from 5 Jan 2017, which has provided scope for additional demand of 2 lakh MT of jute goods in the domestic market for the Indian jute industry. Moreover, Government is expected to extend anti-dumping duty to jute clothes from Bangladesh to support farmers and labour who are dependent on jute Industry. This is expected to augur well for companies operating in Jute sector.
5 Jute products being environmental friendly and having bio-degradable characteristics of natural jute fiber have an edge over other packing materials. Use of Jute goods in floor coverings, jute geo-textiles, shopping bags will provide ample opportunity to boost the demand. Barring unforeseen circumstances, the outlook for the jute industry appears to be promising for coming years.
Financial Performance

As of Mar’18, promoter’s shareholding in the company is 74.76%, promoter’s stake is reduced marginally by 0.24% during Sept’17 quarter. Moreover, the company has reduced its equity capital from 4.51 crore to 4.31 crores through buy back of shares. Last year, Cheviot Company decided to buy back two lakh shares for an amount of Rs 30 crore. The company has set 16 Jun’17 as the record date to decide on the eligible shareholders. The shares were bought back from shareholders on a proportionate basis through a tender offer at a price of Rs 1,500, 13.7% more than its closing price of Rs 1319 on announcement date. Promoters have not pledged any shares, Institution shareholding in the company is negligible at 0.17%
The company is paying regular dividend since 2008. It paid dividend of Rs. 1 in June 2017 for FY16-17. Low dividend payout was mainly due to shares buy back. The company paid higher dividend in past years. The dividend yield is at 0.07%.
Cheviot Company can deliver PAT of 67.40 crores in FY18-19 with annualized EPS of Rs. 153. At current price of 1537.10, stock is available at forward P/E multiple of 10X based on FY18-19 earnings. Company’s valuation looks attractive considering good growth potential for the company in domestic as well as export market.
On equity of Rs. 4.31 crore, the estimated annualized EPS for FY18-19 works out to Rs. 153 and the Book Value per share is Rs. 924.22. At current market price of Rs. 1537.10, stock price to book value is 1.66.
Considering favourable Government policies to grow domestic jute industry to support farmers and labours, expected rise in demand of jute products with rising ban on usage of plastic bags across country, company’s efforts to drive exports sales by expanding its geographical reach, and attractive valuation of the company with strong cash flows and debt free status,
“Buy” Cheviot Company Ltd at current market price of Rs. 1537.10 for target of Rs. 2950 over a period of 12 to 24 months.
Buying Strategy:
60% at current market price of 1537.10
40% at price range of 1200 - 1350 (in case of correction in stock price in near term)
Key Concerns / Risks
Bangladesh jute manufacturers enjoy substantial cost advantage in the form of lower wage and power cost vis-a-vis Indian manufacturers of jute products. Thus they continue to provide strong competition in the international market.
Availability of raw jute depends on crop size which in turn largely depends on weather conditions. Deficit in rains due to below average monsoon will have an adverse impact on company’s performance.
Alternate packaging materials like HDPE/Polypropylene being cost effective are used as substitute in the packaging market. However, the company is making efforts to develop light products of jute goods with less jute content, manufacture diversified jute products including shopping bags to mitigate the risk.

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