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We are shareholders of NBI Industrial Finance Co. Ltd. (NSE: NBIFIN).

NBI is a holding company within the Shree Cement group (NSE: SHREECEM). Its primary asset (around 95% of the total) is shares of Shree Cement.

We created this website to stimulate shareholder discussion about NBI. Some of our questions for the company are listed below.

Depending on the answers, we may then proceed to make proposals for the company.

Please contact us if you would like to know more.

2020-07-20T11:11:46+08:001 July 2020|0 Comments

Letter to board

We have today sent the following letter to the Board of Directors:


16 July, 2020

 

The Board of Directors
N.B.I. Industrial Finance Co. Ltd.
21 Strand Road
Kolkata 700 001
India
Attn: B. L. Gaggar, Chairman

 

Dear Members of the Board, (more…)

2020-07-20T10:53:17+08:0016 July 2020|0 Comments

“Strengthening of resources”

1. The company has almost never paid a dividend, with the usual explanation being “to further strengthen the resources”. Why do the resources need further strengthening, given the company’s extremely strong balance sheet and earnings?

2. When will the company consider the resources as being “strong” enough to resume dividends? Please commit to a target expressed in terms of financial statement ratios.

In the last five years, NBI has been profitable every year and its net assets have been on a rising trend. However, it has only paid a dividend once:

NBI: profit, net assets and dividends

All figures in ₹ crore (10 million). Quoted investments valued at market. NBI does not include changes in value of investments within net profit.
Year ending MarchNet profitNet assetsDividend paid
20163.41,072-
201780.71,5020.1
20183.81,493-
20196.11,709-
202013.01,617-

The explanations have been as follows:

2016: To further strengthen the financial position of the Company and to conserve resources your Directors have decided not to recommend dividend [sic].

2017: [ Dividend declared. ]

2018: The Board does not recommend any dividend for the year . . . with a view to further strengthen the resources.

2019: The Board does not recommend any dividend for the year . . . with a view to further strengthen the resources.

2020: Please note that the Board has not recommended any dividend for the year … with a view to conserve resources.

In our view, these explanations do not form a sufficient argument for why resources need to be strengthened or conserved.

2020-07-17T09:53:43+08:0028 June 2020|0 Comments

Abolition of DDT

Given the abolition of Dividend Distribution Tax, will the company commit to paying out all dividends received from its investments from fiscal 2020-21 onwards, given that to do otherwise will incur unnecessary and wasteful taxes?

The Union Budget 2020-21 presented by Finance Minister Nirmala Sitharaman abolished Dividend Distribution Tax (DDT).

Previously, companies were not taxed on dividends received, but they were subject to DDT on dividends paid out. Netting off was available where dividends were received from subsidiaries, but this did not apply to NBI as none of its investments qualify as subsidiaries (50% ownership required).

From fiscal year 2020-21 onwards, companies must pay income tax on all dividends received unless they pay out at least as much in dividends to their own shareholders at least one month before the tax filing date (Section 80M of the Income Tax Act). This applies to all dividends, not just those received from subsidiaries:

India: dividend tax pre- and post-April 2020

 Dividends receivedDividends paid
Before April 2020 (DDT regime)NO TAXDDT payable but deduction for dividends received from subsidiaries (50%+ ownership)
After April 2020Taxed as income but deduction for dividends paid out at least one month before tax filing dateNO TAX

NBI has received dividends from its investments (such as Shree Cement) in each of the last five years, and has rarely paid out even a small fraction of these to its own shareholders:

NBI: dividends paid and received

All figures in ₹ crore (10 million).
YearDividends receivedDividends paidPaid / received
20163.4-0%
201710.10.11%
20185.2-0%
20195.5-0%
202014.0-0%

Given the taxation changes, if NBI does not pay out all of the dividends it receives from fiscal 2020-21, it will naturally result in a higher tax bill and consequent destruction of shareholder value.

2020-07-17T10:21:02+08:0027 June 2020|0 Comments

Long-term capital gains tax

Given that long-term capital gains tax on equities was introduced two years ago, why has NBI not yet addressed the “double-taxation” issue, given the company’s professed commitment to good corporate governance?

The Union Budget 2018-19 presented by Arun Jaitley introduced long-term capital gains taxes on the sale of listed equity shares held for more than one year, at a rate of 10% (link). This became effective on 1 April 2018.

Since that date, companies such as NBI which directly hold listed equity portfolios have been liable for capital gains taxes on them, which they must record as deferred tax liabilities according to Indian Accounting Standards.

On top of this, shareholders of companies such as NBI are liable for their own capital gains taxes, whether as retail or institutional investors.

This means that NBI’s shareholders effectively face two layers of capital gains taxes on the listed equity portfolio: once at the company level, and then again at the shareholder level.

By contrast, shareholders in a mutual fund which held listed equities would face only one layer of taxes.

NBI’s directors highlight the company’s commitment to efficiency in the 2019 Annual Report, page 30 (our emphasis):

The Company is fully committed to the principles of transparency, integrity and accountability in all spheres of its operations and has been practicing the principles of good corporate governance over the years. In keeping with this commitment, the Company has been upholding fair and ethical business and corporate practices and transparency in its dealings and continuously endeavors to review, strengthen and upgrade its systems and procedures so as to bring in transparency and efficiency in its various business segments.

It is not clear how with the maintenance of a corporate structure which results in double taxation for its shareholders is consistent with a commitment to efficiency.

2020-07-02T21:34:01+08:0026 June 2020|0 Comments

Discount to NAV

What measures will NBI consider to address the share price’s significant discount to net asset value?

NBI holds a portfolio of high-quality assets, including a substantial stake in one of the most successful cement companies in India (Shree Cement) which accounts for around 95% of the total.

Despite this, NBI’s share price is trading at a very large discount to the value of these assets:

This has been the case ever since NBI moved its listing to the National Stock Exchange in 2016, with the typical discount being around 71-79%:

NBI: average share price discount to net assets

Quoted investments valued at market. Share prices up to 10 July, 2020.
Year ending MarchNet assets per share at start of year (₹)Average share price (₹)Average discount to net assets
20174,44593579%
20186,3591,74373%
20196,0771,30778%
20206,9581,42779%
20216,5811,48677%

Shareholders who wish to sell their shares must therefore accept an extremely low valuation. In addition, the company is restricted from raising equity finance as it would be grossly inefficient to do so with the share price at such a large discount to book value. To our knowledge the company has not carried out any actions to address this.

2020-06-30T20:55:08+08:0025 June 2020|0 Comments

Purpose of listing

Around 95% of NBI’s assets are accounted for by its holding in Shree Cement shares and NBI does not appear to have any operating business. What is the purpose of maintaining the company’s listing on the National Stock Exchange?

We note that NBI was incorporated in 1936 and is categorised as a Non-Bank Financial Company (NBFC) under the Companies Act, 1956. However, in contrast to many other listed NBFCs, it does not appear to have conducted any real business for a very long time. Despite the company’s name, NBI Industrial Finance does not conduct any “financing” of any “industry”.

Around 95% of the company’s assets are represented by its holding in Shree Cement. And most of the non-Shree Cement investments are also listed stocks that any investor could go out and purchase by him/herself. Yet compared with holding these stocks directly as an individual investor, NBI is highly disadvantaged due to the requirement to pay National Stock Exchange listing fees, auditing fees, annual report preparation fees, dividend taxes (from fiscal 2020), long-term capital gains taxes, employee salaries, directors’ fees, office rent and so on.

It is hard to understand the purpose of NBI maintaining its listing on a public stock exchange when almost every investor would be better off buying shares of Shree Cement directly.

2020-06-30T20:55:08+08:0024 June 2020|0 Comments
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