Bhagawati Gases
Bhagawati Gases is in the business of supplying industrial gases
It supplies argon, nitrogen, and oxygen to three customer segments (based on customer size) – tonnage supply scheme, merchant market for bulk liquid, and cylinder gas deliveries.
The company reported continuous operating losses in the last three years on a revenue base of about 5cr in the last twelve months.  The debt load of 2.4cr is well covered by tangible assets of over 26cr.  The value of tangible assets was evidenced by a partial liquidation that was used to pay off debt two years ago, which wasn’t more than 2/3rd of its net book value at the time.
It is heavily dependent on one customer – Hindustan Copper Limited (HCL) – for most of its sales and this risk manifested itself recently when copper prices plunged last year depriving the company of orders for oxygen and forcing it to shut down supplies and take a hit on revenues.  Even under favourable business conditions, it is exposed to the success of HCL’s expansion plans.
The company is entering a new product segment called ‘Fiberglass Reinforced Plastic’ (FRP), which it claims to have tested for a number of years with applications in industrial as well as household segments.   Being an unrelated segment where management has no track record, this could prove to be a loss-making proposition for shareholders.
Management have also stated their intention to expand inorganically i.e. via acquisitions, which poses additional risks of overpaying, unfavourable financing, and mismanaged integration.
Management haven’t paid dividends in the past but have reduced debt.  The debt situation could easily increase and/or spiral out of control considering their stated intention of acquiring companies.