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GFL Ltd
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Ladies and gentlemen, good day, and welcome to the GFL Limited Post Q1 FY '21 Results Conference Call, hosted by IDFC Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nitin Agarwal from IDFC Securities Limited. Thank you, and over to you, sir.
Thanks, moderator. Good afternoon, everyone, and a very warm welcome to GFL Limited Post Q1 Results Earnings Call, hosted by IDFC Securities. On the call today, we have from the management side, Mr. Deepak Asher, Director and Group Head, Corporate Finance, INOX Group companies. I hand over the call to Mr. Asher to make some opening comments, and then we'll open the floor for questions. Mr. Asher, please go forward, sir.
Thanks very much, Nitin. On behalf of the Board of GFL Limited, I'd like to extend a very warm welcome to all participants to this call. The Board meeting is just concluded. The quarterly results for June have been approved by the Board, and they've been uploaded on the website of the company as well as the websites of both BSE as well as NSE. With the results, we have also uploaded on the website of the company, a short presentation. And just to set the expectations, this presentation is not as much about earnings or about quarterly performance, as it is about what's happening at the company at a corporate level. Because, as you know, after the demerger of the chemical business, this company actually does not own any operations. So there is no operating income or operating expenses in this company. But it does own significant stakes in 3 subsidiaries, about 57% stake in INOX Wind Limited, around 100% stake in INOX Renewables Limited, and around 51% stake in INOX Leisure Limited. And there is some corporate actions that we are currently undergoing. And while we have not had this kind of quarterly upgrade calls for the past few quarters, essentially because there were no operations in this company, we thought it would be a good idea to hold this call this time in order to appraise you as to where we are. So with that backdrop, I'll just give a little bit of context in terms of the historical evolution of this company. As you might know, it belongs to the INOX Group, which is a diversified conglomerate, engaged in various businesses, including refrigerant gases, fluoro chemicals, multiplex cinema theaters, renewable energy and cryogenic engineering. The company historically has been called Gujarat Fluorochemicals Limited, or GFL. And this company has been engaged in the business of the manufacturing of chemicals, which includes; caustic soda, chlorine, chloromethanes, refrigerants, essentially HCFC 22; fluoropolymers, essentially PTFE; and also some other fluoropolymers and fluorospecialty chemicals. In addition to this Chemical business, GFL was also carrying on some other businesses through its investments in 2 listed and 1 unlisted entity. It's held 51% stake in INOX Leisure Limited, which was engaged in operating a national chain of multiplex cinema theaters. It holds 57% stake in INOX Wind Limited, which is engaged in the business of providing turnkey wind energy solutions to its customers, who are primarily IPP. And it owns 100% stake in INOX Renewable Limited, which is engaged in the business of generation of electricity through renewable sources. Now under the scheme that we implemented last year, the Chemicals business undertaking of GFL has been demerged into another mirror image company, which we, for the sake of abbreviation called GFCL, or Gujarat Fluorochemicals Limited, under the scheme which was duly approved by all the regulatory and other authorities, including the Board of Directors of the company, its shareholders, the creditors, BSE, NSE, SEBI, NCLT. And the appointed date for this demerger was April 1, 2019. And hence, with effect from April 1, 2019, the Chemical business is housed in a separate entity called GFCL. Post demerger, the name of this company was changed from the Gujarat Fluorochemicals Limited to GFL Limited, and the name of the mirror image company to which the Chemical business was transferred was called Gujarat Fluorochemicals Limited. And in consideration of the transfer of the Chemical business, all shareholders of GFL that held 1 fully paid of equity share of GFL were given 1 fully paid of equity share of GFCL. And hence, GFCL in a sense was a mirror image company. So essentially, if you own 1 share in the erstwhile GFL, you would now be holding 1 share each in GFL, the holding company of the renewable energy in the entertainment business and 1 share in GFCL, which was a chemical business. And the share of GFCL also were separately listed. So this is what we did last year. Now in the current financial year, we have embarked upon another restructuring. Now again, as I mentioned to you, to give you the context of what we are doing currently, GFL doesn't have any operations of its own, but it now owns 2 major businesses through its subsidiaries. It owns the Entertainment business through 51% stake in INOX Leisure Limited, and it owns the Renewable Energy business through 57% stake in INOX Wind Limited and 100% stake in INOX Renewable Limited. Now the Board of Directors as a part of the business restructuring program, at the meeting in March, have approved a scheme, which comprises essentially of 2 parts. Part A is the amalgamation of the wholly-owned subsidiary, INOX Renewable Limited, into GFL, and the appointed date for this April 1, 2020. And Part B is the demerger of the entire Renewable Energy business, which essentially comprises of the undertaking of IRL which will be merged in GFL, and the equity shares that GFL owns in IWL into a separate company, again, a mirror image company called INOX Wind Energy Limited, IWEL, which will be formed essentially for the purpose of vesting the Renewable Energy business. Now this came, of course, is subject to all regulatory approvals, which includes the approvals of the shareholders and creditors of this company; and the approvals of the stock exchanges, SEBI, the NCLT and whatever other permissions would be required. Now as a consideration of Part B of the scheme, which envisages vesting the entire Wind Energy business from GFL to IWEL, all shareholders of GFL, who own 1 fully paid equity share -- or rather who owns 10 shares of INR 1 each in GFL, will be given 1 share of INR 10 in IWEL. Again, IWEL would be a mirror image company or GFL. And therefore, instead of owning a share in GFL, which owns both the Wind business and the Leisure business, will end up owning shares of equivalent proportion in GFL, which would then own just the Entertainment business; and IWEL, which is only Renewable Energy business. And IWEL again would be separately listed. Now the reasons for undertaking this scheme, as we've kind of -- we've made out a longer list of all the reasons. But essentially, each of these 2 businesses of GFL have different potential for growth and profitability. Each of these have different risks, different competitive landscapes, different challenges, different opportunities and different business methods. And hence, it was necessary to segregate these 2 businesses, which were essentially quite different from each other into 2 separate entities. Currently, a shareholder of GFL, when he invests into GFL, is actually buying stake in 2 different businesses, which are significantly different from each other. And hence, we thought it might be advisable in order to enhance the shareholder value to segregate these 2 businesses to be held by 2 separate holding companies, GFL and IWEL. So that is the broad rationale behind doing this. As far as the status is concerned, we have applied to BSE and NSE under Regulation 37, as is required. Pursuant to this, we have already received an approval, which is technically called a No Observation Letter, both from BSE and NSE. This is usually granted after SEBI also clears it. So they know this observation letter from BSE and NSE implies a SEBI clearance to the scheme in principle, at least. And pursuant to this no observation letter from both the stock exchanges, we have recently filed the scheme before the honorable National Company Law Tribunal, the NCLT, the Ahmedabad Bench, essentially to approve the scheme, and we have soft directions to convene the meeting of the equity shareholders of GFL to approve the scheme, and to the wave the meeting of the shareholders of IRL and IWEL because both these are currently 100% subsidiary companies of GFL; and also to wave the meeting of creditors of GFL, IRL and IWEL because we have consents of a 90% of this creditors in value terms. Once this scheme -- eventually, once it gets approved by NCLT, we will obviously take such further action in the matter in accordance with the prescribed regulatory requirements. So that is broadly the picture of where we are on the corporate restructuring. I won't spend too much time on the financial results because essentially, as I said, there is no operations within this company. And therefore, the financial results essentially reflect the consolidation of 2 separate listed entities, essentially, which is INOX Leisure Limited and INOX Wind Limited. Both these companies are separately listed. Both of these have their own boards, their own shareholders, and they both hosted their independent earnings calls. And anybody who was interested in following the earnings of this companies, I'm sure would have followed those earning calls as well. So let me not spend too much time on that. Broadly, the market capitalization of GFL currently stands at about INR 1,000 crores, at a price of about INR 95, which was a recently quoted price, which is slightly lesser than the book value of the shares. The 52-week high low has been 58 to 163. We've also given you on Page 10 of the presentation, a list of the key investors. Broadly in terms of shareholding structure, the promoters own 68.72% of the company, DIIs own 4.6%, FIIs own 4.2% and the public/others owns about 22.48%. So that is a brief snapshot of where we are and what we are doing currently. I'd now like to open this for any questions or any observations that you may have. I'll try and respond to them as best as I can.
[Operator Instructions] The first question is from the line of Hansal Thacker from Lalkar Securities.
First of all, congratulations on no observation letter, because I assume we must have received it recently as the annual report was -- had mentioned that we were still awaiting it. So my question is basically that -- now directionally, I just want to know from the management that once the demerger occurs, and now we have essentially 2 holding companies, at any point in the future are these only companies going to collapse into the undertaking -- the operating undertakings? Or what is the management's view on this?
I think so. While we don't have a formal decision of the Board to that effect, I think that will be the eventual course of action that we would take. But as I said, that is subject to the Board deciding that. But I don't see the point in holding this -- holding companies separately from the operating companies, when all they own is only their operating company. So it makes to eminent sense to collapse them. But as I said, the Board needs to take a formal decision, and I don't wish to prejudge the decision of the Board.
No. Of course, I appreciate that. It's just to get some sort of an understanding because like you said, logically, that would make sense.
That's right.
Sir, my second question is, you mentioned that the company is seeking a Type II NBFC license. Now I assume this is more regulatory with respect to the ICD's, et cetera, which is why we're doing this, right?
That is correct. Just to clarify, the company does not wish to engage in any nonbanking financial activities. But under the RBI Act, any company that has more than 50% of its assets in financial assets, and by the way, not just the liquid assets, but even the equity shares that is owns in INOX Leisure and INOX Wind are presumed to be or defined to be financial assets. Or if it has more than 50% of its income from financial income and the company here has all its income, which is interest from the ICD's that represent as financial income, it falls within the definition of an NBFC. So even though the intention is not to engage in those activities by virtue of what is called the 50-50 rule, 50% or more of assets and 50% or more of income being from financial activities, it needs to apply as a formality to RBI for an NBFC registration.
We'll take the next question from the line of Shivang Goel, Individual Investor.
Hello?
Hi, Shivang.
So I just wanted to know that, there -- since we are going through pandemic, so what kind of time lines we are looking at for this demerger to happen? Like usually it takes 9 to 12 months, but since we are in front of a big problem. So what are the time lines you're expecting that the demerger, both the amalgamation and the demerger would be complete by?
Well as you were rightly said, normally the time taken is roughly about 3 months in the first phase to get the BSE, NSE and SEBI approvals. That has just got concluded. And then typically, it takes about 6 months' time for an NCLT approval, which is included in that 6 months’ time, because when the consent required of shareholders, creditors, et cetera. So we just filed with NCLT a couple of days ago. As the earlier question or remark, we received the no observation letter, say, recently about 10 days ago. And therefore, assuming that the clock starts ticking now, it should take, in normal situations, about 6 months to complete that process. However, as you very rightly pointed out, we are undergoing a pandemic situation. It's very difficult for me to predict how the regulatory authorities work will be affected by the pandemic, and how long the pandemic will last and what kind of lockdown restrictions will continue for the next 6 months. So that's a difficult question to answer. But assuming that it takes maybe a normal process that would require 6 months, takes another 1 or 2 months more. At an outside date, you might assume another 8 months from now. But regardless of when it actually happens, the appointed date is already 1st April and 1st July for Part A and Part B. So that does not change, even though it may take a month or 2 more than what you would have wished.
Okay. Secondly, the point on -- the formal decision has not been taken on collapsing. But from the legal part. So does any reverse merger poses any challenge or -- in terms of any company law that -- since there is no essentially business. We are just holding the shares of our group company. So does reverse merger poses any challenge in terms of compliance as far?
No, not in my knowledge. No. So a merger -- because this would really be a merger, a merger of the holding company with the subsidiary. There are regulatory constraints in terms of demergers, one, particularly when it does not own undertaking, and therefore, you need to make it at 2(19AA), which is a tax compliant demerger. But a merger does not pose any regulatory concerns.
The next question is from the line of Rajeev Agrawal from DoorDarshi Advisors.
I am relatively new to the company. So can you just remind me in terms of the ICD and the approximate cash that is on the books of the company? If you can just remind me how much that is? And when do we expect that to become available, to be distributed to the shareholders?
So the ICD -- okay, there are 2 ICD's. There is 1 ICD of about INR 240 crores, which is given to its 100% subsidiary, INOX Renewable Limited. And there is 1 block of ICD's, which is given to INOX Wind and its subsidiary, INOX Wind Infrastructure, which is about INR 195 crores. So put together, it's about INR 240-plus crores, about INR 200 crores. So about INR 440 crores of ICD's given to these 2 entities engaged in the Wind business. And these will get transferred to the IWEL as a part of the demerger of the Wind business. Now when they'll get paid is a function of what eventually happens once that demerger has taken place. If, for example, the holding company collapses into the Wind business, then the ICD's will get canceled because then all those entities become 1 entity. So that's a difficult question to answer at this stage. We'll have to take that call once this demerger is completed.
Got it. Got it. That's very helpful. And then the second question is, you talked about the operating company and the holding company collapsing. So if I assume sort of a 1-year time line from the time a scheme is sort of formulated to then executed, then it is reasonable that somewhere in the financial year '23 is where you would have an end stake, which is different companies for Leisure, for Renewable and GFL sort of completely collapsing. Is that a reasonable time frame? Or you think it could be even beyond that?
Well frankly, if we start that process, yes, that would surely be a reasonable time frame. But I just want to caveat that by saying that I have not indicated that the decision is a given. I said that, that would be a reasonable thing to do, but that decision is yet to be taken by the Board, and the Board will consider that at the appropriate time.
Just a follow-up here. Is there a reason why the Board has not taken that decision? Like is it just because we are making too many assumptions is why the Board has not taken that decision?
No, it's only because you don't want to launch 3 or 4 schemes together. So the first step was to demerge the Chemical business, which is what we did last year. The second step was to segregate the holdings in Leisure and Wind, which is what we are doing this year. And then once this is done, we'll consider the third step as well. So you don't normally take Board decisions over the -- for actions, which are to be taken over the next 2 or 3 years.
[Operator Instructions] The next question is from the line of Viral Shah from ENAM Holdings.
Just 2 questions from my side. Firstly, we've paid some advances to INOX Wind around INR 270 crores for asset purchases. So just wanted to understand the rationale of this? Will it come in the stand-alone GFL entity? Is it a 3-megawatt turbine? Could you just throw some light on this?
Yes. So it is a 3-megawatt turbine. It was intended -- when the order was placed, it was intended to be a 2-megawatt turbine, but now INOX Wind has launched a much more efficient 3-megawatt turbine, which provides significantly superior returns as compared to the 2-megawatt turbines. So we've actually converted this to a 3-megawatt turbine. But the delivery of that turbine is, I think, about a year away. So we will have to wait for that to happen before these turbines can actually be installed and commissioned.
So will this also get transferred to the new entity?
Yes, it would because it's a part of the Wind business, yes.
Okay. Okay. And just from my knowledge, with INOX Wind not being a 100% subsidiary, does it not require approval of majority of the minority shareholders?
Well I don't recall, but I'm sure it would have at the point of time. Whatever the approvals would have been required, would have been taken. This was not now. It's been given, if I remember like 2 or 3 years ago.
Okay. Okay. And secondly, on the brand guarantee that we have provided against borrowings of IWL. So when can we expect the reversal of this one?
Well again, it depends on when INOX Wind either reduces those limits, in which case the guarantors become infructuous or INOX Wind is able to borrow without the support of those kind of guarantees. So it's difficult for me to, again, lay a time frame for that. But again, those also would -- because it pertain to the Wind business, get transferred to the new entity.
[Operator Instructions] The next question is a follow-up question from the line of Viral Shah from ENAM Holdings.
Sorry, I just missed asking on the advance of INR 270 crores to IWL. How much megawatt of wind turbine have we ordered, sir?
So roughly, it will be about INR 7 crores per megawatt. So again, I don't have that number in front of me. But broadly, it should be about 40 megawatts, I guess.
Okay. So we've almost fully paid for the turbines?
Yes, that is correct because that intention was to have the 2-megawatt turbine installed immediately, but we've actually deferred that decision because of the introduction of the 3-megawatt turbine.
[Operator Instructions] The next question is a follow-up question from the line of Rajeev Agrawal from DoorDarshi Advisors.
Great. So just apart from the ICD, which you said is around INR 430 crores, there is this additional advance of INR 270 crores. Is that correct?
Yes, that's correct.
Is there any other assets on the GFL side, which we should also account for as we look at the company?
No. I mean the other assets that I mentioned is the stake, the 57% stake in INOX Wind; the 51% stake in INOX Leisure; the 100% stake in INOX Renewable; the 100% stake in a company called INOX Infrastructure, which is -- which has got a net worth of roughly about INR 60 crores. So those are the 4 equity stakes that it holds. And the non-equity investments are, as you just mentioned, the capital advance and the loans.
Got it. And on the liability side, anything?
Nothing at all.
[Operator Instructions] The next question is from the line of Koushan Patel, Individual Investor.
Can you throw some light for the valuation of IWEL? What kind of...
Right now, I can't throw any light on the valuation of IWEL.
No. What kind of valuation can we expect for this?
I wish, I knew. I can't predict valuations of companies. It is for the market to decide that.
[Operator Instructions]
I think, frankly, if there aren't any more questions, we might as well wind this down because I think we are scheduled this for 5 o'clock. And as I said, the objective was more to appraise shareholders of -- on the corporate restructuring that we are doing rather than to focus on any operational issues because there aren't any operations really.
Sure, sir. So are there any closing comments you want to make before we disclose this?
No, I think that's fine. We'd just like to thank the investors for their interest and look forward to their continued support in our endeavors.
Okay. Perfect. Thank you very much, and thanks for participating in the call. And thank you for taking the time out and participating. Thank you, everyone, and have a good day. Thank you.
All right. Thank you.
Thank you. On behalf of IDFC Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.