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Friday, October 10, 2014

Shreyas Shipping & Logistics Ltd:-The high quality coastal logistics bet with cheapest valuations

Note:Shreyas was recommended at 69 bucks to members, hardly 2 weeks ago.Company since then has moved quite a bit and ended the last trading day at 88 bucks(up 3% in Friday's trade).The target penned was 97rs but with falling crude prices and considering the 'Sudden interest" of some of my big HNI acquaintances,the same is raised to 130 rs.So open blog readers,there's nearly 50% gain to pocket up folks.

Stock tip:-

Scripscan:Shreyas Shipping & Logistics Ltd
Traded in:Nse-bse
Duration:6-10 months
Percentage return:85%

Quote:This note has been penned by my elder brother Ram,who also happens to be a member of mine.He is an amazing research guy and counts in my list superior to many renowned analysts.With assimilation of my thoughts,here's the quintessence.

Note:As you all know,am bullish on the entire logistics sector.Previously recommended the likes of Gati,TCI and Balmer lawrie of the world.Its the time for Shreyas now.

Company: Shreyas Shipping & Logistics Ltd (SSLL) is a dominant multimodal container logistics operator using land-sea-land route. Their claim is they are No.1 Coastal Operator in India with 51% market share, in handling domestic coastal cargo. It is also the India's largest container feeder vessel owning and operating company & first co to link all key ports of India for containerised trade.Shreyas begun in 1994 as a container feeder operator between Indian ports and international container transshipment ports. A few years back they crafted a niche business model, by giving more focus to domestic container logistics using land-sea-land route, covering: transportation, warehousing, distribution, airfreight, sea & air freight forwarding and parcel services.
It has two subsidiaries:
1). Shreyas Relay Systems Ltd (100%)
2). SRS Freight Management Ltd (51.1%)

CONTAINER FEEDER SERVICES:The principal co SSLL operates this service vertical. Container Feeder Service covers carriage of containers of Main Line Container Operators from Indian Ports to proximal well equipped International Container Transshipment Terminals like Dubai, Colombo & Singapore.

Today India’s 70% of the Indian containerised cargo is usually transshipped in:
1). Singapore and the Malaysian ports of Port Tanjung Pelepas and Port Klang for importers and exporters using the Indian east coast.
2). Middle East ports such as Jebel Ali, Khor Fakkan and Salalah for Indian west coast origins/destinations.
3). Colombo (Sri Lanka) for both west coast and Bay of Bengal ports.

The need for feeder service is:As only few Indian terminals provides the depth & facilities for operating main line vessels hence all other ports need assistance of feeder vessels to carry out the containerized trade.Main line operators unable to service all ports due to size, cost and volume constraints.To bridge the gap and provide connectivity to all ports.High land transport cost demands more feeder connectivity between the ports in India

The customers for Feeder Service are the Main Line Operators (MLO) and their basis of selection of a feeder operator hinges on factors such as frequency of sailings, experience of feeder operator, suitability of their vessels and their integrity & consistency of operations. Shreyas being pioneers in Feeder Service in the Indian Subcontinent enjoy excellent rapport with almost all Main Line Operators in India.

Multimodal Logistics Services:Shreyas Relay Systems (SRSL) provides scheduled round the clock seamless, door-to-door, domestic, multimodal container transportation solutions incorporating the Road-Rail-Sea-Air route. It offers a tailor-made solution to suit the needs of the customer.SRS also offers regular Domestic & Regional Liner Services to various ports in Indian Sub Continent, South East Asia & Middle East, by way of slot agreements with various operators through own container fleet.SSLL and SRSL business models complement each other—depending upon the market condition, they interchange the vessel deployment. SSLL’s shipping adds value to its logistics business in a way similar to companies using aircrafts for cargo movement.

They offers services to various ports given below:
Indian Sub Continent: Colombo / Karachi / Male / Nhava Sheva / Mundra / Cochin / Tuticorin / Chennai
South East Asia: Singapore / Port Klang
Middle East Continent: Jebel Ali / Bandar Abbas / Muscat / Sharjah / Abu Dhabi / Doha

As part of the multimodal operations, SRS also offers customized land transport solutions to all industries and product segments, using a fleet of owned & leased trailers fitted with GPS to enable Trace and Track.SRS has strategic alliances with CONCOR and other private Container Train Operators in Railway network. Using this, it offers varied rail based container service to the different segments and types of cargo across the country, to meet the customers multimodal requirements.

Key multimodal clients of SRS includes: JSW Ispat Steel Ltd, Vedanta Aluminium Ltd, Sterlite Industries Ltd, Bharat Heavy Electricals Ltd, Galaxy Surfactants Ltd, Indian Steel Corporation Ltd, Ashapura Minechem Ltd, Reliance Industries Ltd, Kajaria Ceramics Ltd, TRF Ltd, Bhushan Steel Ltd, RAK Ceramics Ltd, Cochin Minerals & Rutile Ltd, Star Bentonite, Ankur Chemfood Ltd, ITC Agri Business Division Ltd, Bansal Group, Cargill India Ltd, Bagadia Brothers Pvt Ltd, HNG Glass Ltd, Gujarat Guardian Ltd, Saint Gobain Glass Ltd, Food Corporation of India.The company has a strong brand recognition and respect among potential clients and peers, because of its leadership in identifying and successfully executing new opportunities.In a recent development, for the first time Food Corporation of India (FCI) has been permitted by Union Govt to transfer food grains by sea route from Andra Pradesh to Kerala. SRS secured the contract to move 20,000 tons of food grains per month using multimodal logistics. This contract is expected to add to topline & bottomline substantially going forward.

Freight Forwarding Services:SRS Freight Management Ltd, leveraging its own domestic network & through the parent Transworld Group’s global network spread over Europe, USA, Middle East, Far East and Indian sub-continent offers the customers with complete Freight Forwarding and Supply Chain Management Services (SCM) around the globe. It associated with organizations: ACCA, IATA, WCA & FFA.The value added services like Cargo Consolidation, Custom Clearance, Bonded Trucking, Air Charter Operations, Warehousing & Distribution and Door to Door services offers customers a single window solution.

Rich assets:Presently, the Company owns & operates six container ships:
• MV OEL Kochi (1,725 TEUs)
• MV OEL Kutch (1725 TEUs)
• MV OEL Shreyas (1280 TEUs)
• MV OEL Trust (1050 TEUs)
• MV OEL Victory (501 TEUs)
• MV OEL Mumbai (1613 TEUs)

Trucking fleet:TATA Prima 4028 - 12 Nos, TATA 4018 - 5 Nos, TATA 3518 - 35 Nos, LEYLAND 4023 - 5 Nos, LEYLAND 4019 - 13 Nos.Have own 100+ Heavy Commercial Vehicles & operates many more leased trucks and trailers as per business requirements.Tanker movements and operations.Trained and experienced drivers who have undergone driving training program

Warehousing space:Covered space – 0.6 million sq.ft.Open space – 0.7 million sq.ft.The co is actively adding up to the warehouse capacity through a mix of owned and leased facilities.

Warehousing locations:Kandla,Ahmedabad,Cochin,Tuticorin,New Delhi and Mumbai.

Facilities:Loading Unloading Bay (Platform),Fork Lifts,Pallet Trucks,Bulk Storage Racks,Trolleys.Other equipments and facilities that can be provided on request as per commodity-cargo requirements.Computers with Internet connection for online Warehouse Management.Trained Staff and Laborers and 24 hours security.SRS also owns a large inventory more than 6200 quality containers of 20' / 40' HC / 40 RHC—consists of Dry, Special, Reefer and Tank Containers.Management is highly skilled with domain knowledge & expertise which along with massive network established over long period of time - is a great asset in itself.As on 31.3.2014, the co employs 30 shore staffs & 126 floating staffs besides many temporary staffs.

Management: Shreyas is part of Dubai based shipping conglomerate TRANSWORLD GROUP, which has 25 years of experience in the shipping industry. Promoters own 73.29% of the small equity base of 2.2 core shares outstanding. They respects &never diluted equity.The $800-million annual turnover group operates through 15 subsidiary companies including: Orient Express Lines, Balaji Shipping, Shreyas Shipping and Logistics, Shreyas Relay Systems, Albatross Shipping among others. It has more than 1,700 employees on payroll, spread across nine locations in the GCC, 28 cities in India and one office in the United States.It operates a fleet of 27 ships, including 12 container ships and 15 feeder vessels.The group has been growing at a year-on-year rate of 15-20 per cent over the last few years despite the downturn, cashing in on Dubai's central location as the region's biggest transshipment and re-export hub.They maintains excellent relations with DB World, Dubai which owns the Vallarpadam ICTT, Kochin.

Unique business model:Shreyas traditionally had two businesses – vessel charter and feeder services. Revenue from these businesses were exposed to fluctuations in international freight and charter rates, which were determined by the Howe Robinson Container Index (HRCI).Shreyas Shipping & Logistics Ltd realized the impact of the fluctuation in price realization and formulated a new business model to remain immune to international pricing and generate steady cash flows. It re-positioned itself as a pure logistics company, in addition to feeder and regional service.
• Container sent to clients premises for loading
• Cargo loaded in containers, sealed and transported to nearest port
• Coastal shipping to port of destination
• Container discharged at port, transported to client's premises and cargo delivered
It also offering this service in Door to Port, Port to Port, Port to Door models.
• Door-to-Door service
• Customized solution for each client
• Own ships, containers and trailers
• Special containers like Open Top/Flat Rack of all sizes
• Web based cargo, container and vehicle tracking system
• Fixed day schedule departure and arrival service

Governement push:Unfortunately so far, it’s all hiccups in terms of Govt policies and implementation for costal shipping.About half a dozen groups/committees formulated for the promotion of coastal shipping in India over the past 2 decades, such as: Afzalpurkar Committee (1993), Pinto Committee (1997), Kakkar Committee (1999), Tenth plan Sub Group (2002), Tata Communication System Study (2003) and Eleventh plan Sub-Group (2007) etc. Though Government has formally accepted a number of recommendations given by them, adequate implementation is yet to happen.But all this set to change with new initiatives of Modi Government —now, coastal shipping have increasingly become the focus of attention in India.Govt has envisaged an ambitious plan to grow the Indian shipping fleet from 12 million GT to 40 million GT by the year 2020.Many State Governments also now trying to divert cargo from road to costal shipping, to reduce road congestion and accidents.The Kerala Government recently announced a policy providing financial and fiscal incentives to encourage movement of goods by sea. The Minister of Ports K. Babu said that Kerala is the first State to offer a subsidy of Rs.1 for a consignment of one tonne for a distance of 1 km. He pointed out that Government had constituted a coastal shipping promotion fund with an allocation of Rs. 3 crore.

Containerization-boon to coastal shipping:Huge waves of changes have been taking place in the shipping industry, particularly in the container shipping trade, globally and in India too.In the present globalized economy, container is at the centre point of a highly automated system for moving goods from anywhere to anywhere, with minimum cost and complication.Containerization of cargo is one of the key trends expected to drive Indian coastal shipping to higher levels—it’s share has been growing steadily in coastal shipping, from 14.8% in FY04 to 20.6% in FY14.Impressive growth rate of about 22% (excluding 2008-09) in container traffic & container demand in India is forecast to grow about 21 million TEUs by 2020.Presently, the containerization level of general cargo that can be containerised is only 68% in India against the international levels of around 80%. Further increase in containerization of bulk cargo is expected over the next few years and this increased penetration of containerization is expected to push domestic traffic volumes to higher levels.Of late with Modi, India is poised to becoming the most preferred destination for manufacturing outsourcing in the world, offering greater potential for containerization.As observed, the future of maritime trade is expected to be containerized cargo!

GST Trigger:What GST means for logistics? A single national market, seamless movement of goods across state borders, emergence of hub&spokes distribution model, increased outsourcing of logistics, emergence of new models such as 3PL, 4PL etc— a big volume booster by all means.In GST regime, more companies will outsource logistics to 3PL players—at present, 3PL accounts for just 9-10% of total logistics in India against 57% in developed countries.And finally, GST could be live here in next 9-12 months. It would bring a 15-20% cost advantage immediately and more business for logistics players over time.Not only for logistics, the positive vibe of GST will be felt across the board. It alone can lift GDP 1-2%, really big deal for a growth starving nation.

FINANCIALS & VALUATIONS:After successfully recasting the business model, SSLL posted a 35% CAGR in topline over last 5 years to Rs.488 crores in FY2014. This commendable performance comes without any increase in debt levels or working capital—indicates co is cash-flow positive & no-nonsense people are running the business well & they try to keep asset light as much as possible.Net Debt to Equity ratio is at a modest 0.6.SSLL is posting big losses over last 2 Qs because of booking losses on selling old ships and buying new to modernize fleet—a one off event. Otherwise it would be in green.Also normally for a shipping logistic company, the first two quarters (Q1 & Q2) are difficult because of the monsoon and storms. Q3 and Q4 would be usually better.With healthy topline growth & changing business dynamics, it will charter into profit zone soon.Management is confident of EBITDA margin @ 12-13% & net margin @ 6-8% over time.For Shreyas, fuel expenses are the biggest cost item amounting upto 22-25% of topline. Now with crude on a sustainable easing trend—of late Brent below $100—it would prove to be a big relief on this front.Mcap is Rs.150 crores with reported cash flows of 42crs for last fiscal 13-14.I mean a quality logistics company quoting at less than 4 times its trailing cash flows makes it one heck of a buy.Even at a MCap to Sales ratio of 0.3, the stock is going very cheap.Stock also at a discount to BV of RS.63.Its tough to lose money from this counter.A 7 odd times trailing cash flows gives me my target price.
BTW:People looking for midcap/smallcap positional call professional service may rush a mail at my mail id to know more about it.

Sunday, September 21, 2014

Kitex Garments Limited:-A great long term buy

Note:Company got suggested to members a couple of weeks back at 338 bucks.Its quoting at 410rs presently.Company has got stunning potential.Readers its your time to capitalize on the same.

Stock tip:-

Scripscan:Kitex Garments Limited
Traded in:Nse-Bse
Return percentage:40%
Duration:9-12 months
5 year CAGR return expected:25-30%
5 year target potential range:1031rs-1254rs

Quote:Am mostly into single liners which enables me to pick up stocks.Lengthy note helps in keeping away a large number of impatient readers,detrimental to the alexa ranking of my blog.Jokes apart,here's a real deal.Its more like a Page Industries in a different segment.I have summarized everything in the conclusion segment.

Business:Kitex Garments Ltd manufactures toddler wear for most of the international brands such as MotherCare, Toys R Us, Gerber etc and is ranked as the third largest company of such type in the world.Company also supplies to jockey.Group employees to over 8000 peeps.It is the only company in the world which uses Acutex 1 quality of input.Add up more safety features like 100% certified safe process and organic dyes using threads from the number 1 codes etc which makes it the most favorable supplier for infant clothes.The company has to its credit the Best Vendor Award from Toys R Us and Gerber for the past couple of years(among over 280 rivals).

Few points which attracted me the most:Business is recession free as proud parents would never compromise on quality.I mean how odd it sounds,say kinda in an interaction,Mother retaliates by saying my cuty pie taking her first steps with the Chinese attire,scares the heck out of the listener for sure.There's even some mandatory saliva test in this particular segment.A newly born increases in size by 30-40 grams a day,think about the service cycle.I mean from the day or birth to till 2 years,think how many times the parents would need to make their babies put on Kitex's stuff.From infrastructure to technology,company claims to be second to none which helps it to charge premium in comparison to other suppliers.Kitex Group also has special criteria for taking orders where its clients should have a minimum $15 Millions on Free on board basis.Kitex even rejected orders from the likes of Tesco owing to such criteria,fact speaks volumes about their dominant position.Total infant wear market stands at a massive 1.2 lakh crs.This particular industry has very strong entry barriers too.

More soothing stuff:Even after 15-20 washes,Kitex products retain their quality,while competitors products don’t.Debt stands at a comfortable position.To my knowledge,it never diluted equity over the last decade.Company has amazingly designed its units for a 3 shift operation.Presently it operates with a single shift but if demand rises higher,it wont be hard for the company to cater to it which will also help in raising its ROE higher.Niche product,seller power catering to cream clientele,dominant leader with high quality products,visionary promoters-What else do you want?

Brand play:Kitex is all set to roll out its own branded products in the United states within the next quarter.Management expects turnover of 30-40crs in the maiden year.

Concern:Promoter got his own company called KCL(quite similar business,Large transactions with sister concern ought to raise lot of eyebrows) which he plans to merge once it reaches the turnover of 400crs+ from the present 250crs.Till that happens, corporate governance issue will linger and keep away a lot of investors.Also around 100crs cash is in current account which its loosing out on the interest side(real money or?).Even bank FD would have given it around 8crs of yearly interest.

Last fiscal:The Company achieved an all time high performance on account of both Revenueand profits. While the Gross revenue touched Rs 456 crores which was up by 42% and the PBT went up to Rs 88 crores which went up by 100% when compared to last year.Company achieved an EBITDA margin of over 21% which its confident of even improving it in the coming years(pricing power and high demand on a larger scale).The Company now plans to take its performance to next level by further modernization, creating new markets in Europe and US by implementing niche products using high tech and time saving machinery and devices.

Prospects:On words of the management,"China’s prominence in the garment business is fast eroding due to high wages and low safety standards in the industry.Several apparel manufacturing units have now shifted operations to Vietnam and Bangladesh.Earlier,65 per cent of the garments exported to the US were from China. This has come down to 45 per cent. Though Cambodia, Vietnam and Bangladesh are strong competitors,safety issues and lack of potential for scalability had minimised their opportunities.This has provided India a good business opportunity to source a major chunk of the global garment manufacturing business.Today, India exports 25-30 per cent of the textile goods to the global market.The shift in orders from competing countries like China, Cambodia and Bangladesh would help us to strengthen our order book position".Was pondering over a media report which suggested Wing lu,a Chinese rival,was even planning to reduce its capacity.

Conclusion:Kitex garments specializes in infant wear(0-24 months)market.The company derives majority of its revenue from export sales with exports contributing more than 90% to sales revenue in FY14.The company is about to be the world's biggest infant wear manufacturer in the next 2-3 years(presently 3rd largest manufacturer with capacity of 5.5L pieces per day only behind Wing lu of China and Gyn of Singapore with capacities of 7.5L and 6.5L pieces per day respectively).Sales and PAT over a 10 year period have grown at a fierce speed of 21% and 43% respectively.Company boasts of a ROE of over 35%.Kitex is expected to grow 28-35% CAGR for the coming few years.The company is aiming a PAT of 100-106crs in fy16.At present prices it quotes at a forward PE multiple of 16x its fy16 earnings.This kinda companies trades at 20-25 PE's in most days.PE will expand more once it bags the bragging right of being the largest player in its segment.Assigning a PE of 22x,the target price gets assigned.FII's will eat up this kinda amazing businesses.A great medium to long term buy.

BTW:People looking for midcap/smallcap positional call professional service may rush a mail at my mail id to know more about it.

Friday, September 5, 2014

IFGL Refractories ltd:-The attractively valued small cap wonder with multibagger potential

INVESTRIVIUM:-Here we showcase a historical fact from the stock markets that not only motivates the investor but its a complete stream of education to speak the least.The following phrase is a lesson in itself:

“I invested Rs.50 lakhs in Karur Vyasa Bank in 1993 and today it is more than Rs.200 crores.”– Rakesh Jhunjhunwala (Oct, 2012)

Moral: Buy Right, Sit Tight! This saying is as common as air.Have you recently watched that Kaun Banega Crorepati promotional video where a girl from the North-East India is quizzed about the Kohima City and she replies “Jaante Sabhi Hain, Par Maante Kitne Hain?” Such is the condition of this short and widely popular saying in the stock markets. The investment turned whooping 400x in less than 20 years;the micro-cap bank with conservative business model, strong fundamentals returned over 20x between 2002 and 2012. The residual of that initial investment of Rs.50 lakhs after booking substantial profits a couple of times now fetches an annual dividend income, yes, an annual income of above Rs.5 crores.

Quote:Recommended to members at 168rs few weeks back.It has just moved 15% since then.Readers,its your time to pocket the gem which is set to pen a new scripture for itself in the bourses.

Business Idea:-

Scripscan:IFGL Refractories ltd
Traded in:Nse-Bse
Duration:6-9 months
Return percentage:50%

Company Overview:Indo Flogates which was founded in 1979 managed to collaborate with Flogates, UK in 1983 for manufacturing of Slide Gate Mechanism & Refractories. The joint venture was with Flogates Ltd, UK and an exclusive Indian Licensee of Flocon Slide Gate Systems, developed by US Steel Corporation through their wholly-owned subsidiary USS Engineers and Consultants Inc. On the other hand, Mr. SK Bajoria founded IFGL Refractories in 1993 in collaboration with Harima Ceramic Co., Japan. In 1999, both the companies merged to come into the current form of existence.Over the past decade, the company has scaled up its operations significantly, both, organically and inorganically. During these years, the company made several acquisitions and also set up a few greenfield capacities to evolve from a single manufacturing facility to current eight capacities with across the globe distribution presence.

Later, during 2005, the company acquired Monocon Group with production facilities in the Brazil, China, UK, USA and Taiwan; the product portfolio included tundish spraying mass, refractory darts, monolithic lances robotics for EAF, Ladle and tundish lining maintenance, monolithics for EAF, Ladle and Tundish. Later, during 2006 the company acquired UK based Goricon Metallurgical Services Ltd and US based Goricon LLC that manufactured darts, lances, ladle powders etc. used by the steel industry. Again, in 2008, the company overtook Hoffman Group with manufacturing facilities in Germany and Czech Republic and the product offerings got wider with inclusion of foundry ceramics – casting filters, feeders, SiC chill plates, pouring system and monoblock stopper, high grade fire proof refractory shapes, drawing tools and tread guides. Recently, in September, 2010, the company acquired EI Ceramics LLC and CUSC International Limited engaged in manufacture of isostatically pressed continuous casting refractories in US.

Today, the company’s distribution network spreads over 50 countries and a business relationship with all the leading steel manufacturers; some of these clientele include Arcelor Mittal, SAIL, Tata Steel, Corus, Bhushan Steel, Gerdau Group, Nucor Group, Hyundai Steel, Essar Steel, Jindal Steel, Adhunik Metaliks and others while the company competes with Vesuvius India, Orient Refractories, Orissa Cement, etc. Vesuvius is the global leader and commands a majority of market share both in International markets and domestic markets.

Business Overview:IFGL Refractories is engaged in manufacturing of specialized refractories and requisite operating systems for the iron and steel industry through its facilities based in India, US, UK, China and Germany. The product range includes casting refractories, slide gates, furnace gates, tundish gate refractories, refractories for the purging in the ladle, precast refractories, monolithics and castables, tube changer mechanisms for slab caster, foundry ceramics, namely foundry ceramic filters, feeders, silicon carbide chill plates and mono-block stoppers for foundry industry. These refractories are made with the latest know-how from Krosaki Harima Corporation, Japan, a subsidiary of Nippon Steel Corporation. These refractories are used for flow control of steel and treatment of quality. As mentioned earlier, the company also offers customized operating systems for clean metal. The company also makes foundry ceramic filters. Additionally, the company is engaged in manufacturing of bio-ceramic products for dentistry, orthopedic and ophthalmic segments with the technical association of CSIR Laboratories; which is nothing but a substitute for human limbs. They make dental implants, bone implants, hip-joints, etc. This business maybe a low volume but ensures high profitability. Although the division is in nascent stage but the Management cites a huge potential for the segment in the long-run.

Recently, the company had announced significant capacity expansion programmes. The company is doubling up the capacity of its Kandla, Gujarat plant from 80000 odd pieces which will subsequently be tripled (phase-ii), during the next fiscal and also the capacities at the US plant (EI Ceramics LLC) would be doubled from current levels, during the current fiscal year.For the aforesaid developments, the company will incur a minimal capex since these are primarily brownfield expansions and de-bottlenecking; capex of less than Rs.6 crores (Kandla) and Rs.6-7 crores for US, which would be funded through internal accruals. These expansions would possibly have an incremental revenues of Rs.50-60 crores (Kandla) and Rs.75-85 crores (US). Besides, there would be a maintenance capex which could be in the range of Rs.10-15 crores on the consolidated level. However, the phase ii expansion at Kandla might require Rs.15-18 crores.

Financials & Investment Rationale:Despite a slump in the metals and probably the worst times of the last decade, the company has managed quite a handsome growth over the last 5 years through strategic investments, foray into new geographies, increased product portfolio and healthier industrial relationships. Resultantly, during the difficult times, the company has more than doubled the top-line and bottom-lines since FY2010. For FY14, the consolidated revenue stood at Rs.778 crores and the operating margin improved to 14%; the company managed a bottom-line of Rs.64 crores. During these times, the company has increased the net block from Rs.110 crores to Rs.258 crores while the debt levels have not gone up substantially.During these times, the debt has gone up moderately from Rs.78 crores in FY10 to Rs.98 crores in FY14. Going forward, the recent capacity expansions, an upturn in the steel sector and push to infrastructure will drive the top-line while debottlenecking,cost-efficiency measures along with savings on tax and logistics with expansion of Kandla facility would result into improvement in profitability. Moreover, foray into new markets, new products and technologies are likely to place the business poised for robust growth. However, significant appreciation in Rupee may pose threat to the company’s financials.     

Outlook & Valuations:The management expects the country to witness significant growth in steel production and consumption in the domestic markets and thereby the industry to come out of the slump of last so many years over the next few years. Reportedly, there are a lot of steel plants that are lined up in commissioning stage; to the tune of some 30-40 MT of new capacities coming over the next 3-4 years on account of increased thirst for infrastructure by the new Government. Thus, there are bright years for refractories as well, going ahead.The current capacity utilization levels are 67-70% at the consolidated level which could be further taken to cent per cent utilization levels as witnessed in US facilities. 

Conclusion:Going forward, we expect company to achieve a turnover of Rs.1000 crores by FY16 and a slight improvement in the EBITDA margin of 16% with the improved utilizations of current capacities and debottlenecking exercises being undertaken and savings on tax and logistics costs from Kandla facility. Strong free cash flow generation, strengthened balance sheet and comfortable valuations are added advantage. Assigning an EV/EBITDA of 6x (In a good market, it has historically traded at 10x) and Price/Sales ratio of 1.0x (historically traded at 1.3x), we expect market capitalization should be somewhat in the region of Rs.900-1000 crores that showcases huge potential upside from current levels. We strongly believe that with the recent growth, increased size of the company, wider coverage, leadership position in the industry, the company has all the reasons to trade beyond the historical multiples.

BTW:People looking for midcap/smallcap positional call professional service may rush a mail at my mail id to know more about it.

Saturday, August 23, 2014

Some interesting miscellaneous observations and hidden gem stock idea:-Fluidomat Ltd

Some interesting miscellaneous observations:-

1)Recall the Modi wave?Most of you clamoured for the infrastructure stocks.They were expected to double/triple in days,going by some words and speeches.Innumerable mails poured in for stock tips related to that sector.What actually happened?Did they blasted?Its the reverse actually,stocks like Simplex and Ivrcl are down over 40% from their recent levels.

My view:Too much cook simply spoils the broth.Never bother about any sector,specially if its the talk of the town.Where everybody joins,its ought to flop.This doesn't mean stocks from that sector wont move in near future.They will definitely but only if the stock is of quality and posses something which seperates it from the other inferior ones.To sum up,even if you bag 10000crs order,you need money or say working capital for that right?.Bank provides loan at 14% circulating and your profit margins are 10%,so you will only make losses right?

2)A member sometimes back mailed me about some Intraday tips provider who helped him in making lot of money.That particular member again mailed yesterday about how he went bankrupt,thanks to that same Intraday stock tip provider.

My view:Intraday trading means gambling.Ever heard people making money through gambling?My simple question to the folks who asks for sureshot intraday tips provider-If they are so good,why would they give you the tip for some 2000-3000 monthly fees?Wont they beg,borrow and sell everything they posses to garner as much as they can with brokers 1:10 margin to double it in an instant?Self preservation is the first law of nature after all.
q)I know whats coming next.Why do Arun or your's truly provides the tip then?
ans)Because that provides me more cashflows and I buy more of that company.Its like not only am making money with your money but helping you to make yours too.Whatever money I have made of so far,they all being yours man.1000 bucks compounded to 10000 and that compounded to few more zeroes.

3)So many members with around a lakh rs capital dreams about 1cr portfolio in the next 15-20 years.They get disheartened as they feel its an herculean task to achieve that figure.

My view:Not really members.Lets chalk out a formula then,say the way out to achieve your dream.If you start with a lakh capital,put on 3000 bucks every month for 16 years and compounds it with a 26% gain-You will reach that craved figure of 1cr.Considering out last 5 year's CAGR,thats a possible target right?I mean we already have compounded by over 30% for the last five years inspite of adverse market conditions.Prevailing circumstances have changed for good and hopefully so would be the returns.Just want to buy such counters?Buy all the Godrej group counters and come back being a Crorepati after just 16 years.To some surely 16 years would sound like massive lengthy ages.Tarry a bit pal-How much did you actually earn in the last 16?

4)I do cater to some post retired sexagenarians who prefer to gift business ownership(stocks re) to their grand childrens.They should have huge margin of safety and can survive business cycles of two decades.They should be compounders in the range of 18-20%.So what would be ten such stock ideas for such intelligent prudent would be grandfathers?

My view:Hdfc bank,Amara raja batteries,Godrej consumer,Asian paints ltd,Pidilite Industries,Gruh finance,Sun pharma,Hero Honda,United spirits and ITC.That makes one heck of a very long term portfolio.All are highly expensive counters but they are sure shot winners for coming several decades.All are leaders in their respective sectors with huge margin of safety,great brand and past wealth generation track records backed by amazing pedigree.From robust ratios to high payout,you got them all.Such great stories,a click of a mouse and you are owner of such amazing high quality businesses.Am already having goose bumps,ain't you too?

5)Life is all about full of uncertainties right?Accidents,critical diseases can well destroy one.So how does stock chips in there?

My view:Few years back a terrible bike accident nearly killed me.Fortunately, I did survive but to avoid complete paralysis,a spinal surgery was done with inclusion of few titanium screws in the back.I even lacked a complete mediclaim then which worsened the matter.The hospital assumed a charge of several lakhs within a short period to which the cash was unavailable.It just happened after I lost my loyalest bestest admirer,my Granny.We were also amidst the construction of our residence.It was one heck of a stormy period which happened all so suddenly.My stocks came to the rescue,sold a part of them and had a successful surgery which lasted almost 4 hours.I got laid for over a year but the stocks made sure the income kept coming in,dividends ensured everything happens smoothly too.I owe a great deal to my stocks.So there's that side also guys.Stocks or business ownership can help you in so many ways.Be disciplined and passionate,love the subject,understand what you are owning,have patience and conviction.If implied,you will have extravagant future gala days in store for sure.

Quote:Fluidomat was recommended to members at 68rs and at 131rs very recently.Even at present price of 160 odd,it looks to have some worth.Readers time for you to act on it.

Stock tip:-

Scripscan:Fluidomat Ltd
Bse code:522017
Return percentage:50%
Duration:9-12 months

Quote:It was very difficult to dig about this company as management always been very very reluctant to speak.Thanks to my analyst buddies Keshav and Saurav for their inputs and research notes which helped me in getting aware of the most about the company.

Business:Fluidomat Ltd. makes Fluid Couplings.Google up to know what a fluid coupling is all about.Fluid Coupling is a Power Transmission Product.It is a Capital Good & not a consumable.Fluidomat has supplied more than 900 Scoop Control Couplings and several thousand constant fill fluid couplings on variety of applications in all sectors of industry including Coal base Power Plants, Steel, Cement, Paper, Chemical & fertilizer industry, Petrochemical Industry,Underground & Open Pit Coal and Mines, Harbor Handling and Nuclear Power Generation Plants in India and Abroad.Around 75% of the Revenues of the company are from the Power Sector.Sales growth of the company is dependent upon the Capex in these industries.

Market Size:Around 230crs in India and several times more internationally.Huge export potential for the company.Main thrust is on the Domestic Market, though the co. has expectations in Australia, Indonesia, Malaysia & Brazil(from the mining sector). The company has appointed dealers in these geographies.

Clients:ABB, BHEL, Braithwaite, Burn Standard, CIMMCO, Chemical Construction, DEMACH, DCIPS, ELECON, EPIL, FFE, Fuller KCP, Flakt, Flender, HEC, HDOL, HSML, INDURE, Krupp, Kirloskar, Kraft Engg., L&T, MAMC, MBE, Metso, MECON, Naveen, Oilex, Penwalt, Promac, Reitz, Sayaji Iron, Techpro,Thermax, TLT, TRF, Walchandnagar Industries, Warman etc.

Approvals from the Consultants:Fluidomat Fluid Couplings are approved by all leading industries and consultants in the country. The consultants include ACC, BHEL, Birla Tech Services, DCPL, Desin, HOWE India, Holtech, Jacobs, MECON, MN Dastur, NTPC, Tata Consultants,Tata Projects, Samsung, Doosan (Korea), Hyundai (Korea), Alstom (France), Sulzer (Germany) etc.Its also got a tie up with flow serve (Spanish company).They too have requirement for these couplings.

Price Range of company products = Rs.12,000/- to Rs.80 lakhs.

Competitors:Premium Energy Transmission Ltd., Elecon Engg. Ltd. & Voith (German). Apart from Voith,all others have rented tech.Main competition is from voith but with time I feel fluidomat would be able to beat voith comfortably.Voith’s pricing is 3 to 10X of fluidomat for same products.

Service cycle:FCs can last for 25-30 years also,typical replacement cycle is 10-12 years.In government departments specific budgets are allocated,hence they tend to replace their couplings earlier at 5-6 years as if these budgets are not used they are extinguished.

Points to look for:-

1)There is no unorganised sector in Fluid Couplings due to the hitech nature of the product.Also Fluid Couplings are very crucial products and reliably is a big factor. If it fails then the whole plant comes to a standstill.

2)The company does not require much capex.Land and building  are excess.It can grow to Rs80-100 Cr turnover by adding only CNC machines.Capex could 1-2 Cr per annum.The company has started manufacturing FCs for fans used in boilers. It is now supplying the same to BHEL. Voith is the only competitor in this segment. The company entered into this segment three years ago based on indigenious R&D.

3)Fluidomat has also concluded designs for less than 110 MW boilers.It will enter this market soon.Working capital requirement for company's business is 3-4  months.Cycle is long as until the entire order is ready inspections don’t start(Debtor Days thus being 100).The company does not face issues on account of bad debtors as it supplies very critical equipment.

4)The company has started supplying FCs to NTPC also in the last year.Here again voith was the competition.Voith used to charge 4 Cr for one coupling which the company is supplying for 45 lakhs.In Jan 15 these couplings would complete one year of functioning.If the operation is glitch free.The company will be automatically approved for all future orders of NTPC.

5)The company is vertically integrated.It has its own foundry and fabrication facilities.The company has got cash and bank balance of 10crs as on date.Thats more than 20rs per share.Its a debt free counter.Company paid dividend of 2.75rs for the fiscal.Management has hiked their stake from 25% odd to 53% in the last few years.

6)Fluidomat has increased the prices of its fluid couplings from 70000rs in fy06 to over 100000rs in fy13-14.It generated 5crs FCF last fiscal,toppled that with a return on equity of 30%+.This is one heck of a monopoly company.When you get a company which can increase the prices of its products without loosing its market share and then you talk about 30% ROE,You are really on something.

7)In case the economy starts recovering which it should as now the BJP guys are at the helms.Fluidomat can do a turnover of Rs50 Cr in two years.If it receives incremental order from Petronas.Turnover could increase to Rs100 Cr in 2 years.If the economy does not recover it can sustain its turnover at 30-35 Cr based on replacement demand and through its spare parts sales.Spare parts contribute nearly 40-45% of its revenues.

Latest update/My latest interaction with the management:As per the words of Pramod jain,"Getting an order is bit difficult because of our size and inexperience.For one ntpc tender we bidded for 22 lakhs vs voith's 2.7crs,yet the order went to voith.But we are hopeful of bagging future NTPC orders.As we grow, more orders will flow to the company".At the present capacity they can achieve a turnover of 65-70 crores.There are several developments going on but any of them could be a big one.A single order can change the fortunes of the company big time.Product is very crucial and its significance can be seen by this example-one company which had never used couplings - ordered fluidomat couplings for the first time.Fluidomat was expecting payback to be around 4-5 years but it happened before end of first year.Competition is tough with voith but they are gradually taking over businesses of others like elecon.Elecon used to outsource its requirement to fluidomat then it started copying fluidomat products and began supplying but last year they saw some rejections.

Consistency:Revenues in the last 11 years(2003-04 to 2013-14) increased from 5crs to 27crs.PAT has jumped from a mere 12 lakh to 5.7crs.

Conclusion:The promoters have no business interests except Fluidomat.No inter dealings and thus strong influence on the owned listed company.Company is getting lot of enquiries from both the domestic as well as the international markets.A single big order(there are talks of a 50crs order from Petronas) can change the fortunes of the company as mentioned earlier.The company is expected to grow 25-30% on bottomline for the coming couple of years.Revenues are bit difficult to predict as of now.Assuming it grows with a 30% CAGR in bottomline,the company would come end fy15-16  with PAT of 9.6crs.Thats 19 odd rs EPS for you.So assigning a PE multiple of 10x for fy16,I arrive at the target price of 195rs. Company is an amazing long term buy.

btw:I have recommended Fluidomat earlier at 68rs.But the story is too good and the scrip deserves much bigger levels than what its quoting at present.

People looking for midcap/smallcap positional call professional service may rush a mail at my mail id to know more about it.

Tuesday, August 12, 2014

Minda Industries Ltd:My multibagger bet in the auto ancillary sector

Quote:Minda is a recent recommendation to paid members which should rock big time.Scrip is yet to to be fancied by the investors.Till that happens,Blog readers its time for you to get set go.

Long term Stock tip:-

Scripscan:Minda Industries Ltd
Traded in:Nse-bse
Percentage returns:80%
Duration:15-18 months

Company:Minda Industries Ltd,part of UNO Minda Group,is one of the leading players in Auto Components Industry,with a wide product portfolio. It is world’s largest manufacturer of 2/3 wheeler switches and horns.It supplies to leading OEM players & caters to the replacement market across the globe, with presence across 11 countries.It has 23 manufacturing facilities in 14 locations in India.

Business:The company offers two and three wheeler switches, such as handle bar, modular, neutral, gear indication, panel, and brake switches, as well as lever holder assemblies; and off road switches, including bake, push pull, push-push, neutral safety, ignition, lever combination, horn, hazard warning, heater starter, and ignition starter switches. It also offers lamps for two, three, and four wheelers, as well as off-road vehicles; electronics sensors/controllers; automobile horns; automotive batteries; blow molding components; alternate fuel kits; renewable and energy efficient devices; and handle bar assemblies.In addition, the company is involved in the trading of auto components and allied products.

Clientele:It boasts of a clientele that includes almost everyone from the likes of Bajaj Auto, Hero, TVS, Honda, Suzuki, Mahindra,Daimler,Swaraj group,Hynundai,Fiat to TAFE,Kawasaki,Aprilla,Komatsu,Torica,Piaggio etc.

Results:Company registered revenues of Rs.1,706 Crores in FY14 ,at a consolidated level, growth of 27% over FY13, from Rs.1,056 Crores.EBITDA of Rs.78 Crores, with margin of 4.6%.Profit after Tax at Rs 7 Crores during FY14.At a standalone basis,company registered revenues of Rs. 1,108 Crores in FY14, growth of 5% over FY13.EBITDA of Rs.76 Crores,with margin of6.9%.Profit after Tax of Rs.27 Crores for FY14.During the quarter, company generated revenue of Rs.303 Crores at a Standalone level, as against Rs.275 Crores in same period last year.EBITDA of Rs. 30 Crores for the quarter, with margin of 9.7%.Profit after Tax stands at Rs.14 Crores for Q4FY14.

Few points to vindicate the bullish stand:-

1)Conference call and sushil finance update aligned with my thoughts:During FY14, the exports contributed 19% to the consolidated top-line while the remaining 81% of the consolidated revenues came from domestic markets; 13% of the revenues were recorded from replacement markets while 87% of the revenues were from OEMs. The two-wheeler and four-wheeler percentage in the consolidated revenues stood at 63% and 37%, respectively. The domain-wise revenues break-up was as follows: Electricals & Electronics (46%), Body & Structure (14%), Chassis & Motor Systems (21%) and remaining others (19%).

2)The Management stated that the FY14 performance lagged on the consolidated basis primarily due to lower utilization levels in the recently expanded capacities and non-recurring extra-ordinary expenses incurred on acquisition of Spanish Company, Clarton Horn. The acquired entity registered a top-line of above 2,000.0 mn but incurred a loss of approximately Rs.110 mn at the PBT levels which included a one-time Management Fees of roughly Rs.60 mn which was paid to the erstwhile stakeholders for the smooth transfer of operations. The EBITDA margin stood at 4.5% which is likely to go up over the period of next two years on account various cost-cutting measures and streamlining activities to synthesize the Indian and Spanish operations. The subsidiary received upgraded business orders from Renault and Nissan. Additionally, the leading horn manufacturer came out with new horn product for both OEM and Aftermarket.

3)The Lighting division which contributed 14% of the top-line was substantially impacted by the slowdown in the four-wheeler category as majority of its revenues are being derived from four-wheelers. The profitability was also impacted in this segment on account of extended investments in Manesar, Pune and Chennai facilities. The Management stated that during last three years, the company has been investing substantially in capacity expansions in lighting division. The capacities are now ready and awaiting a ramp-up in improving the utilization levels. The old facilities have been running at 85-90% but the recently added capacities witnessed low utilization levels of 30-40% which is likely to improve during the current fiscal. The Pune plant is likely to break-even during Q1 FY15. The company has received new orders from Nissan and Mahindra & Mahindra in this division.The EBITDA margin in the lighting division has come down from 14.96% to 13.72% during FY14.

4)The Switches business also dragged the overall performance as the Hosur Plant which started production only in Q1 FY14 took almost three quarters to break-even. The Management expects the full benefits of this added facility only in the second half of FY15. The old capacities of this segment run at 85% utilization levels but the Hosur one ran at  55% in the recent quarter which is likely to move up to 80% within two quarters.

5)Minda Distribution & Services Ltd. (MDSL) which is a distribution company for the aftermarket segment is primarily run as a cost-centre and all the profits are passed on to Minda Industries Ltd. and thus, despite a good top-line the profits are negligible.

6) The top-line of another subsidiary, Minda Kyurako doubled from Rs.210.7 mn in FY13 to Rs.467.0 mn in FY14, however, the losses at the PBT levels widened from Rs.15.7 mn in FY13 to Rs.44.3 mn in FY14 primarily due to addition of Bawal facility which started commercial production only during the last year and a paint shop which was added recently. Due to high investments, as reflected in higher interest and depreciation costs, led to widened losses.Nevertheless, the Management expects improved capacity utilization levels in FY15 which will positively impact the profitability levels.

6)During the fiscal, the Company has started production of Fuel Caps for Maruti Suzuki India Ltd. The fuel cap business is currently running at 50% capacity utilization levels and is likely to go to 75-80% levels during H2 FY15. In addition, the revenues of Minda Auto Components jumped from Rs.550 mn to Rs.650 mn while the PBT levels improved moderately from Rs.35 mn in FY13 to Rs.40 mn in FY14.

Dividend:The Board of Directors has recommended a dividend of Rs.3 per share for the year ended March 31, 2014.

Auto ancillary industry outlook:Am not making the report lengthier as be it a small or a big company all will have the same positive outlook.But its the leaders with size and scale who will make the most out if it.

Concerns:Slowing down of economy,raw material prices etc.

Conclusion:An uptick in the domestic auto industry, besides a pick-up in replacement demand, will give a fillip to the auto ancillary industry.Company consistently has generated lot of operating cash flows over the last several years.Debt too is under control with interest cover of well over 3.Company has a clean management with strong vision backing them up.I am not putting any estimate for fy15.During the recently concluded conference call, the Management has guided a top-line growth of 40% in FY16 over FY14 and has also commented upon the scope of improvement in profitability.Net margins for fy15-16 can be around 3.5-4% on a turnover of 2300crs.Taking a conservative 3.4% NPM,I get a PAT figure of 80crs.Company marketcap is just 450crs and it trades at just 5.6 times its fy16 earnings.Industry average PE is above 15.Putting a multiple of 10x,the figure comes at 530 bucks,which is your target price.

BTW:People looking for midcap/smallcap positional call professional service may rush a mail at my mail id to know more about it.

Wednesday, July 30, 2014

Gati Ltd:-The multibagger logistics idea/The e-commerce proxy play.

Note:Recommended to members a week back at 107.Quoting at 110 odd now.

Multibagger Business idea:-

Scripscan:Gati  Ltd
Traded in:Nse-Bse
Duration:3-4 years
Return percentage:4x
CAGR return:40%

Quote:Sometimes you don't need to be a research bloke to get hold of big multibaggers.Think being a 16 year old or maybe someone who hardly understands any ratios or valuation metrics.Few such kinda points which will tell you why today's pick is one heck of a potential big multibagger.

Note:I don't quite prefer to recommend two stocks from the same sector but if something is expected to be hot,then playing with two-three growth stocks can provide a lot of returns.I did recommend TCI, which has been an instant success.As you all are aware it was given at 120 bucks and in no time it doubled just like that.TCI is a leader which is managed by people with conservative guidance.Gati on the other hand guides aggressively.At that time,TCI looked much cheaper than Gati in terms of valuations.Its the reverse now, gati has turned much cheaper to TCI.

About the company:Gati Limited is pioneer and leader in Express Distribution and Supply Chain Solutions in India delivers 5.2 million packages per month. Having started as a cargo management company in 1989, Gati has grown into an organization with more than 4,000 business partners and a network reach of 667 out of total 671 districts in India. Gati has over 4500 vehicles on the road excluding their fleet of refrigerated vehicles, container shipping vessels and world class warehousing facilities across India. Furthermore, Gati has a strong market presence in the Asia Pacific region and SAARC countries. Gati has offices in India, Singapore, Hong Kong, China, Nepal and Thailand.Now to know about its infrastructure,JVs,capability and efficiency or about its guidance,follow the investor's presentation:

1)I am someone much fond of online shopping.Many a times bought stuff from the likes of snapdeal,flipkart,myntra,yepme,jovi and many more.This companies are growing at 200% annually maybe.But they are never bothered about profits.Its a classic greater fool theory where a fool buys only with the intention of selling to a greater fool at much profit.What is my interest then?Sounds irrelevant?Come on think about the logistic providers.The medium between the company and the buyer in a quintessence.There would be many more e-commerce firm which will come and go but they would ensure the logistics providers enjoy a super extravagant life atleast for the next decade or so.

2)Gati's e-commerce division did a revenue of 40crs in fy13-14.Company expects to grow by 100-125% for next few years.They have an aim of delivering 1200crs revenues from this division by 2020.For a reference,there's a supply chain company called 'Delhivery' which is about valued at 500crs.They probably did 140-150crs last fiscal.So if gati delivers 1200crs which shouldn't be a big deal considering the upcoming demand,that single segment itself gives a 3600-4000crs valuation to Gati, say 5 year forward.Gati's present marketcap is just 900crs.

3)I don't like greedy promoters during uncertain times but when times changes for good,I do fancy them.The reason is simple folks-They would do every possible things to make sure their stock price moves higher.The hints are infront of you.They have even managed to convince stalwarts like Radhakishan Damani,Ashish Kacholia etc.Those big names are holding a chunk of Gati.Imagine a listed company claiming "logistics will lead the next bull run' in their presentation.Well the sector certainly will-I echo their statement.

4)When Trade to trade segment is a trigger:TCI has moved to different orbit as punters are trading on it.Delivery stats are way too low for that company.If gati was in normal segment,its fate would have been same like TCI.So ones Gati gets moved to the normal settlement,same punters would fancy it and make it move higher.This is more of a psychological thing which the experienced can well fathom.In this case its rather of a big trigger.

5)The fast expanding e-commerce market in the county provides it with an opportunity to leverage on Gati-KWE back-end services(its Jv) and expand its reach.Exiting the shipping business will improve the profitability of the company.For a long time,investors avoided the sector for poor ratios.But with strong tailwinds and implementation of GST,they would look much better.Also as the Ecom division grows big,the operating leverage story will pan out too.Wont be surprised if it shows ROE of around 18-20 by fy20.

2013-14 numbers:In Q3FY’14, the Company’s consolidated net profit stood at Rs 13.8 crore as against Rs 7.5 crore in the corresponding quarter previous year.The total consolidated turnover stood at Rs 386.5 crore for Q3FY’14 compared to Rs 321.7 crore in the same period of last fiscal. In FY’14, the consolidated turnover of the company (9 months) stood at Rs. 1,127.1 crore and net profit was Rs 28.3 crore.

Company guidance:Its current debt stood at Rs 480 crore as of March 31, 2014.It expects debt to be contained under 500 Cr.Company has given a guidance of 1732crs of consolidated revenues for fy14-15 and further guided 2066crs of revenues for fy15-16.Ebitda for those two years guided remains 170crs and 214crs respectively.Pbt guided for 2015 and 16-100crs and 151crs respectively.PAT for fy16-17 should come over 100crs.Company has changed its year ending from July to April.So maybe one-two quarters adjustment to reach that figure mark.

Point to note:Gati within a couple of months at most will sell out the Gati ship division(as guided in the latest conference call).It made losses to the tune of 17crs.So without even doing anything,this 17crs would swing and inflate the last years number.That's over 60% a jump to last year reported net profits of 28crs.

How I arrived at 400rs:Company will grow its PAT at 35-40% CAGR for coming few years.The highly craved e-commerce division will grow at over 100% CAGR.So assimilating those and keeping a PEG of tad less than 1,helps me to arrive at the price target of 400 bucks.Sectoral tailwinds,implementation of GST will further rerate the stock.Company has guided an EPS of 10-11 for fy16.So quoting at par compared to over 15 times of TCI or Bluedart.Gati thus is one heck of a long term buy.

BTW:People looking for midcap/smallcap positional call professional service may rush a mail at my mail id to know more about it.

Wednesday, July 16, 2014

Capital First Ltd:-My gift to blog readers.Profit from this amazing NBFC with multibagger potential

 Quote:Recommended to members hardly 2 days ago at 204.At present its quoting around 223-224,can be bought for amazing long term gains.

Multibagger Business idea:-

Scripscan:Capital First Ltd
Traded in:Nse-Bse
Duration:3-4 years
Return percentage:400%

Disclosure:I had 9000rs in my account on last Friday.Bought 44 shares at 209 and then it closed at 204.Intent to buy a lot more in near future.

Note:A great business idea is one where you can make others understand it in few lines.Capital first is all about it.

Company is owned by:Warburg Pincus-Private equity player-40bln USD of AUM.They have had Massive success stories like Havells,Kotak bank,Bharti in past.So capital which is mostly the constraint of the NBFC to grow,will never be a problem here.

MD and CEO:Vembu Vaidyanathan-The same guy whom Kishore Biyani snatched from ICICI bank by offering a 50crs salary.Ya 50crs-much more than anyone else in the country.This MD is one of the main reasons why I bought the shares of the company.He is simply the best.More about him

Business:Provides Mortgage Loans,Gold Loans,Two-Wheeler Loans,Durable Loans,Personal loans etc.Mortgage loans contributes around 70% of the total loan book.Over 80% of the total loan book of 9600crs are of retail.Check their corporate presentation to know everything about them.

It takes a lot of time to have such gigantic loan book.Retails are considered much safer than any other ones.A lot of insurance or mfs or wealth management products can be sold to them which would help capital first in incremental ROA without implementing any capital.

Industry outlook:Generally the well managed NBFC's with their reach and experience manages to grow at 3.5-4 times the GDP.So this companies will easily grow by 20-25% for the next 20-25 years,resulting into huge gains for the shareholders.

Its cost of Funds and NIM:For the NBFC industry as a whole probably well rated NBFCs of the AA or AA+ or may be even A+, they all borrow in the range of about 11.5 to may be 11.75. In case of the company, it is much lesser because of the strong asset quality and capital adequacy over 22 percent, it is just around 10.5%.NIM stands at around 5.5% which the management is confident of sustaining.

NPA:The non-performing assets (NPA) of the company has come down to as low as 0.4 percent on a gross basis and 0.1 percent on a net basis.Infact for the last four years it has remained very stable.Management is confident of maintaining the same in the coming years.

Numbers:Net profit of Capital First rose 193.40% to Rs 44.04 crore in the quarter ended March 2014 as against Rs 15.01 crore during the previous quarter ended March 2013. Sales rose 37.74% to Rs 285.67 crore in the quarter ended March 2014 as against Rs 207.40 crore during the previous quarter ended March 2013.For the full year,net profit declined 47.00% to Rs 36.98 crore in the year ended March 2014 as against Rs 69.77 crore during the previous year ended March 2013. Sales rose 32.69% to Rs 1052.41 crore in the year ended March 2014 as against Rs 793.16 crore during the previous year ended March 2013. Profitability has decreased because of high fixed costs associated with building a retail franchise and change in its accounting policy.

Management's guidance for fy14-15:They expect the company to more than double their profits in the present fiscal.

Other points:Promoters own around 72% stake in the company as on date.The company recently declared a dividend of 2 bucks.

Outlook:Over the last five years its portfolio has changed from wholesale (90%) to retail (81%).Led by mortgage loans to SMEs (LAP),loan book has grown at 100% CAGR over FY10-13.This is a 3-4 years call,so what it would do this year or next year is useless.The operating leverage will take care of it as it gets in the higher scale zone.Present loan book of 9600crs.It aims at 30000crs of loan book by fy19-ROA of 2.5%.Presently its leveraged by 10x probably.Even considering 8x leverage with a ROA of 2.5% gives me ROE of 20%.Anything about over 1.5% ROA and 15% ROE with such a gigantic retail book is incredibly amazing.

Conclusion:How I arrived at the target price:P/BV is the metric applied in valuing NBFC's.Estimating book value is a mean task as equity dilution to maintain CAR is a ritual norm of the NBFC business.Book value is 142 presently.Sharekhan's estimate for fy16 is around 162rs.For fy19,veterans tracking it say would be around 220-230.Multiplying 230 with 3.5x gives me the price of around 800 bucks.You can ask me how I arrived at 3.5x of BV and not more or less?Let me try to the answer it the simplest manner.Say you make a FD somewhere,you get post tax interest of 5.6%.You want that 5.6% safety net too when you are valuing your nbfc stock.So divide the ROE which in this case is 20 by 5.6 to get your P/BV for the stock which comes at 3.5 to have the figure of 800.Gruh finance like traded at 8 P/BV last year, coz of its management and quality.Market has its own unique way of valuing quality companies.Capital first is an amazing company with an equally amazing parent and pedigree,a masterclass for your core long term portfolio.
BTW:People looking for midcap/smallcap positional call professional service may rush a mail at my mail id to know more about it.

Friday, June 27, 2014

The aspects of markets and RS Software ltd:-The E-Commerce play

The aspects of markets:-

Last week a member was promised a detailed note about the so called 'Opportunity cost'.OC simply put would be the cost of an alternative that must be forgone in order to pursue a certain action.Put another way, the benefits you could have received by taking an alternative action.OC relates much to the value investing aspect where you opt for deep value counters in place of growth counters thereby availing yourself a long waiting period.A growth stock may well double or triple but chances of the same happening to a value stock remains low.There's a long waiting period,it will likely bore you to death,you may well tear your hairs noticing every cats and dogs turning out to be multibaggers with your owned value bets moving nowhere.But if you could endure a long long waiting period,there's special moolah waiting at the end.If you have got the counter right,it may even single handedly make you rich provided the allocation is on the higher side.Yah am talking about those most craved about 30-40 baggers.So the decision for you members would be which boat are you in?In the growth counters with rich valuations with growth rate or in those value picks with tremendously attractive valuations but attached to the OC factor with a long gestation period backing it up?I used to opt for lot of microcaps in my earlier days which though performed well over a long period of time but certainly they ensured my patience matched the level of the Scotland King-Robert Bruce.They took many many years to perform.Several counters moved massive but those value counters remained in the vicinity of my purchase price.I really got habituated in getting okay with a no return for years period.But as the personal experiences grew and acquaintances became many,the strategy changed to be a more of a mix of both.Jim rogers adage of buying cheap,if not very cheap, with a positive trigger helped me bigtime.The returns started flowing much faster than what I could anticipate.The CAGR saw a betterment with the near banishment of OC factor from the portfolio.

Nowadays even if I come close to a good quality microcap,the screaming excitement of finding a ciger butt no longer prevails.A plethora of questions sets in automatically.Why in earth is it so cheap?Is it kinda we are unaware off certain negative factors in the counter?Its a microcap so mutual funds and FII's cant get in.HNI'S too would be interested at a higher level.It ought to have a low liquidity and the OC factor.Portfolio allocation too would be abysmally low as even 2-3% allocation may get me a 3-4% stake.Thus overall returns even if its a 10 bagger ultimately would be nothing.Also cant even recommend to you guys,you members would chase it and ensure it forcefully remains in the upper circuit for weeks.Ones you folks have pocketed with your's heart content, it will start to drift low due to lack of follow up takers.

A reality check to the recommended counters of mine would speak everything.Tata Elxsi moved to nowhere in the last 5 years till month of October 2013.It suddenly jumped 10% due to a great quarterly result,then when they stated they plan to make it a TCS on its own sector and the result most likely to remain upbeat,the whole game changed.Tata elxsi subsequently was recommended as the special Diwali call with the counter tripling in a matter of 4 months.So think about it folks,what would you have preferred?A tripler in a matter of 5 year and 4 months or just in 4 months?Take the case of recent call on Canfin homes.The company was doing amazingly well,thanks to the efforts of the MD-Mr C llango.It remained in the 170 range for nearly 18 months before moving to 220,all in a matter of a week with good deliver volumes.It was probably the cheapest bet in the sector,thus with even a 30% rally the multiple hardly went by 1.The call was given then even when a lot of members argued about a 30% rally in a week's time.But the factor remained it only moved 30% in a matter of 18 months.Canfin since then has moved to 360 in less than 3 months.There's a nomenclature of similar examples.From Atul auto to symphony to kajaria to hcl info to ratnamani metals etc.Thus its not a crime to buy something higher.A higher price or a higher PE often hints at a lot of clarity.Stronger hands,better perception and the breakout factor.There's also the incredible factor of buying something higher and getting that high conviction.Then those HNI's creeps in eradicating the last bit of negative vibes putting the stock higher.The MF's suddenly finds the particular stock which they long argued not to have owing to several factors, much convincing as it enters into the so called limit of their minimum marketcap requirement.The promoters and the management they too joins the bandwagon seeing the rise in the stock price,putting more efforts to perform,doing conference calls,analyst meets,Tv interviews.Lastly the FII's with billions in pocket,aiming to grow at high single digit ensures it remains in the overbought high multiple territory zone for ages.So if we consider all this thoughts and put together the actions in a 10 PE 100rs stock,growing at 30-35% CAGR and slated to grow at the same rate for coming 3 years,what would happen?The stock would move to 1000 bucks,resulting in a 10 bagger with a PE of just over 40 times.Can you guys name one such stock from my recommended stable?Well why one,take the case of Cera and Relaxo.Hope have been able to help you in learning a tad more about the aspects of markets.Happy investing folks.

Stock idea:-

Scripscan:RS software ltd
Traded in:Nse-bse
Duration:6-9 months
Return percentage:30%

Quote:q)Who are the key influencers for the company?
Ans)The rapid growth in electronic payments volumes and new payment types forces payment providers to constantly revise their strategies, shorten their time to market, and create new products and services. RS Software provides solutions to help them meet these challenges.A close glance to the director report gave me everything about the company.Just ignore everything and concentrate on the quintessence.Think e-commerce-electronic payment-online payment gateway-mobile payment and their potential.Add up a visionary management,debt free growing company with lot of cash in books.Attractive valuations and Moat.You got the whole RS story folks.

Story:Story:Founded by the US based entrepreneur Raj Jain, RS began with a clear vision of providing quality software services to international markets. The company researched and instituted global best practices in the areas of People Management and Process Architecture to build a world-class organization. With rigorous attention to world standards, the company acquired ISO 9001:2000, SEI CMM Level 4, P CMM level 3 and ISO 27001:2005 certifications.RS Software is a Kolkata based IT company focussing on electronics payment domain. They have their own products which they sell as solutions.Playing a pivotal role for the Payment Industry, RS has developed and maintained mission critical applications for leading Payment networks in North America, Japan and UK. RS Software’s offices are located in the US, Canada, UK and India, employing over 1000 professionals to deliver high quality solutions for Payment networks, Processors, Acquires, Issuers, and other Payment Industry companies.Today RS Software is on course to be the leader in using its domain expertise to enhance the most powerful Payment Networks globally, and provide leading edge technology solutions to all stakeholders in the Payments industry.

Clientele:RS Software seems committed to its aggressive growth strategy.This company caters to the need of topline clientele which includes the likes of Visa, Visa EU, Visa CEMEA, Maclane, Pemco, Vignon etc.The cornerstone of RS Software’s value proposition is its understanding of the payment transaction’s entire life cycle, and a unique methodology customized for managing software applications for the electronic payment industry, in the areas of development, maintenance, migration and support. The experience of working in this industry over the past 20 years continuously enhances the knowledge pool that is managed by RS’ knowledge management system, with a goal to cross train in all areas of work. RS constantly refines the unique methodology to meet the dynamically changing requirements of its customers.RS Softwares is a niche player working on patent pending solutions in the mobile payments area.

Positive trends of the payments industry to continue:Few aspects which would speak about the positive trend of the industry.Nearly $11 trillion is spent globally each year (cash and cheques)providing a robust foundation for the growth of the electronic payments industry.The global electronic payments industry is experiencing an unprecedented growth on account of an irreversible shift from paper to electronic payment forms, processing tens of trillions of dollars of payment transactions.US payment transactions processing just on Visa & MasterCard networks have grown from 18% of non-auto retail sales in 1991 to 77% of non-auto retail sales in 2012 (estimated at $4 trillion).US consumer payments using cards are estimated to rise from 40% in 2006 to 60% by 2016.This industry has grown 10,000% since its inception in 1970. RS Software is well positioned to capitalise on this global opportunity and has a well laid out strategy backed by a comprehensive understanding of each client’s business.

Mobile telephony potential:While the global population is around seven billion, the total number of mobile phones is close to six billion, a global penetration of nearly 85%.Developed countries like the US, the UK and Germany have a penetration of over a 100% while Hong Kong and Saudi Arabia have a penetration approaching 200% even as the mobile phone penetration indeveloping countries like India and China is close to 70%, representing a scope for expansion.Mobile phones are extending financial services in lieu of an underdeveloped banking system with transactions involving SMS-based payments, direct mobile billing using PIN and onetime password (OTP) authentication and mobile web payments.The room for smartphones to grow is huge considering that there are only 1.5 billion smartphone users as against 6 billion mobile phone users in 2013.The global volume of money spent using mobile phones was around $106 billion in 2011, rising to $171 billion in 2012, and expected to grow to about $617 billion by 2016.

Words from Raj jain:The US economy has revived in the last few quarters. It is expected to continue to grow over the next few years and possibly be the best performing economy in the developed world.About 84% of our revenues comes from US. We should be strengthening this further. The US is the largest market for payments industry. We are starting to explore the India market, which has large potential but is currently limited as compared to US and Europe. We are today operating in four continents.However, our clients operate across the globe. We work with them globally. We have an excellent foundation to be a domain leader from India in the IT services industry, which is still largely focused on general outsourcing requirements.We continually evaluate good opportunities for acquisition globally . We have significant cash on our balance sheet and any acquisition if undertaken will make it possible to enhance our strategic capability and add value to our clients.The company’s global delivery model and knowledge transfer disciplines ensure that the company’s cross-culture experience enables maximum value to the customer from start to finish.

Sunidhi-Brokerage call on it:RS has seen demand recovery in the U.S. which bodes well for its business given its exposure to the market. RSSIL continues to put significant thrust on innovations and in building competencies through the Payments Lab and School of Payments.RS is building a robust global sales engine that complements the high priority accorded to the company's dominant customers and leveraging at the same time unusual growth potential.Longer term operational and strategic planning is being put in place.With its foundation for growth well laid out, RSSIL is poised to confidently approach the other leadership companies engaged in the one trillion dollar Electronic Payments space globally mitigating its risk of depending on a few clients. RSSIL is encouraged by its initial traction in the market place and the quality of the dialogue with new prospects/customers.RS remains committed to constant renewal of its abilities to deliver high performance.RS sustained focus on merchant acquiring aspect of the payment landscape, procedural improvements in CRM, focus on e-mail marketing to generate strong business response and undergoing initiatives to strengthen the team and process - all give strong revenue visibility going forward.

Few cool aspects:RS Software has appeared for the first time in Forbes ‘Asia’s 200 Best under a Billion’ in 2012. Steady growth in revenues, profit and earnings per share has placed theCompany in this elite group.RS Software has been listed as one of the ’30 fastest growing companies in India‘, by Outlook Business.Ranked at #17, RS Software has moved into the spotlight of high performing organisations across all sectors in India.

Numbers:Company has grown at CAGR of 24 percent in revenues for the last 5 years.PAT has seen a massive CAGR jump of 53 percent.Company delivered consolidated revenues of 381crs in fy13-14 vs 317crs in fy13-14.PAT jumped to 51crs vs 35crs in the same period.OPM and NPM stood at 22.0% and 14.0% Vs 17% and 11.9% respectively in FY13.The company is expected to grow 22-25% in the present fiscal.Reveneus should increase to around 470crs,PAT is expected to inch up to 64crs.EPS will stand at over 50rs for fy14-15.

Conclusion:RS software is an amazing play on the e-commerce boom.This fine business boasts of 30%+ ROE does not burden the oarsman.Debt too is nothing leaving balance sheet squeaky clean.The company has generated free cash flow year after year.The marketcap of the company is only 295 crs.As at 31 March 2014,the cash &cash equivalent including deposits and investment stood at 61.5 crore or 48 per share.Thus we are getting the company for just 230crs.The dividend declared for the year has been 6 rs per share.A debt free, dividend paying company which has been a consistent performer over the last several years operating in a sunrising industry, commanding a trailing PE of less than 6 is a massive bargain for the investors planning to own a pie of it.The company is expected to deliver an EPS of 50 for fy14-15.Keeping the same trailing PE of just 6 for fy-15,helps me to arrive at my target price for the counter.Its still an unnoticed gem which whenever gets attention would move on to a different orbit.One can safely buy it for solid returns in the coming months and years.

BTW:People looking for midcap/smallcap positional call professional service may rush a mail at my mail id to know more about it.

Saturday, June 14, 2014

Shakti pumps and Gulshan polyols:-The couple of amazing attractively valued midcap bets

Recommended to paid members hardly few weeks back.Its time for you readers to act on it.

Stock tip:-

Scripscan:Shakti Pumps ltd
Traded in:Nse-Bse
Buy range:135-149rs
Percentage returns:50%
Duration:9-12 months

Company:An ISO 9001-2008 certified company has its sprawling state of the art manufacturing facilities with an installed capacity of 1 million pumps per annum, is strategically situated in central India at Pithampur in the state of Madhya Pradesh.Company manufactures diverse models of submersible pumps and motors and other application pumps for a wide range of applications. Over the years of steady growth, Shakti has become one of the leading pump exporters in India apart being a major player in domestic market as well.Today the company is answering water needs of more than 100 countries across the globe and the number is steadily growing over years. Owing to its success of strong product lines and technology that is at par with the best in international markets, Shakti Pumps has carved a niche amongst quality conscious users around the globe.

Accolades and Product applications:Shakti is among the few pioneers in the world to produce 100% stainless steel submersible pumps and motors.Shakti is rubbing its shoulders with best brands in the world thanks to the state-of-the art technology and innovation as its hallmarks.The main focus of the company is to manufacture best quality pumps which consume less energy, have long life and are easy to maintain. Considering energy efficiency features of its pumps, Bureau of Energy Efficiency (BEE) has granted it 5-star ratings to more than 260 of its pump models.Its pumps are largely used for applications like drinking water supply, agriculture, irrigation, industrial applications and processes, pressure boosting in high rise buildings and townships, rural/urban community water supply schemes, waste and sewage water treatments, firefighting etc.

New products:Innovation and R&D are the key of long sustainability in the pumps industry and it got plans to launch many new products like high capacity solar pumps, enhance the range of booster pumps, upgraded open well pumps, and hydro pneumatic systems and update products as per customer requirements. Its also in process to develop high quality energy conservative sewage pumps,slurry pumps, waste water pumps, hot water pumps etc.All this products will help the company catapult in the top global league and cement its position as one of the largest players.

Industry outlook:The global pump industry in on the threshold of scorching growth ahead in the coming decade.Global pump demand will rise 6.4 percent yearly through 2016 to $76.1 billion. Gains in developing areas such as China and India will result from investment in water infrastructure and electricity generation.In developed areas, growth will be driven by process manufacturing.Growing urbanization,irregular rainfall and depleting ground water levels augur well for the pump industry.India's agriculture accounts for around 14% of its GDP and employs majority of the people.The Govt has taken various initiatives to improve the agri business thereby reducing the growing food inflation rate.Demands for food grains and ground water for irrigation will drive the demand for the pump industry in our country in the near future.

Company Future outlook:Despite only moderate growth in the global economy,company expects order intake and sales revenue to grow at a good speed in coming years. In next two yearsthe company aims to achieve top line of 600 crores with net margins of 10%+.In the last one year, the company expanded its footprint into new geographies like Ecuador, Mexico, Argentina and Morocco.It has plans to register its presence in all BRICS, G20 and European Union and in other growing countries in coming years. Shakti pumps is also committed to increase the Branch Network to 30 and Dealer network to 100 by the next 15 months.Shakti has further plans to set up or acquire small plants in other region of the country which will help it to cater across the regions by mid 2015.

Domestic focus:Solar pumping solutions also are the next big buzz in the sector as many state govt with MNRE are coming up with solar pumping projects.With its strong R&D capabilities, the company is moving towards industrial pumps,solar pumps to target institutional and Govt businesses.Going forward, Shakti Pumps has decided to expand its presence in the domestic market by tapping the fast growing industrial segment through its energy efficient pumps. The company has also made a strategic shift in its dealership model beginning April 1, 2014. The company will now appoint dealers who will exclusively sell only its products. This it believes will help the company to serve farmers better as they will now opt for what is required and not what is necessarily offered to them.

Margin of safety:The company trades at just 5 PE(forward earnings) vs industry PE of 15.Its one of the largest player in its segment.Five year((from 2009 to 2014)CAGR of Sales and profits at 22% and 26% respectively.Sales went up from 107crs to 292crs,PAT galloped to 25crs from just around 8crs in the same period.Stock market loves consistent players and treat them with premium valuations.The investor friendly company rewarded shareholders with a 1 for 1 bonus issue in the year 2011 which speaks about the confidence and conviction of the management.Promoter owns around 45% stake in the company as on date.ROE and ROCE of over 15% and 20% respectively.

Concerns:Chinese competition remains the main concern but the superior quality and competitive price of the company's product will ensure it always remains in the reckoning.

Conclusion:It is investing aggressively for strengthening product mix with value added pumps to cater growing international and domestic market.About 67% of revenues comes from export and remaining 33% from Indian market.On a consolidated basis, Shakti Pumps India's net profit rose 48.5% to Rs 24.98 crore on 39.9% increase in net sales to Rs 292.09 crore in the year ended 31 March 2014 over the year ended 31 March 2013.Now the company targets sales of Rs 400 crore plus including exports of 250crs and PAT of Rs 42-45 crore for FY 2015(with 21-22% EBITDA margins).That should result into an EPS of 29rs for fy15.The company presently quotes at a very attractive valuation of just 5 times its expected earnings.A mere multiple of 7 odd times helps me to arrive at the target price of 210rs.

Gulshan Polyols:-

Gulshan polyols has moved nearly 200% since the recommendation hardly 6 months back.Enjoy members.

Quote:I have been fortunate to be associated with a lot of amazing analyst buddies and corporate folks.I have been bullish on GPL for quite a while now.On discussing about the future prospects of the company with kinda a mentor figure(Hemant bhai),he forwarded me his take in the counter.Since we both post similar stuff,am not penning any fresh words but having said that it must be noted we both echo a very bullish stance on this particular counter.

Stock tip:-

Scripscan:Gulshan Polyols Ltd(December end call)
Bse code:532457
Return percentage:160%
Duration:9-12 months

Story:Muzaffar Nagar based Gulshan Polyols Ltd (GPL) has emerged as the largest manufacturer in India of 70% Sorbitol and Calcium Carbonate.Its production facilities are spread over 6 locations in 5 states covering land area of more than 150 acres. Company has installed capacity of 1.05 lac tonnes of Calcium Carbonate and 60000 tonnes of Sorbitol.In order to reduce energy costs, GPL also has 10MW of cogen power.

SORBITOL 70%:GPL has fully integrated facility for producing Sorbitol (Corn to Starch to Dextrose to Sorbitol) with 3MW cogen power. Sorbitol is mainly used as Sugar substitute and bondingagent. Main user industries are Healthcare,Cosmetics,Confectionary,Textile,Paper,Paints industry etc.

CALCIUM CARBONATE :Company producing various varieties including PCC, GCC, ACC and WGCC. Installed capacity is 1.05 lac tonnes with 7MW cogen power plant to meet energy requirements. GPL is also 1st company in India to install onsite PCC plant at a paper factory.Main user industry for Calcium Carbonate are PVC&Cables,Dentrifice,Detergents,Rubber,Plastics etc.

Clientele:GPL's customer list includes who's who of corporate India:-
FMCG :Colgate, Dabur, ITC, Unilever, Wipro
Food :Brittania, Candico, Yahoo Foods
Paints :Berger, Asian Paints, Kansai, Pidilite
Paper :ITC, TNPL,BILT, ABC Papers, Century Pulp
Pharma :IPCA, Cadilla, Torrent, AstraZeneca, Novartis, Pfizer, Merck etc

Buying of promoters:Last year, promoters had increased their stake by 5% (maximumpermissible limit through creeping acquisition route). Again, in current year promoters have increased their stake by another 3.50%.Now, PROMOTER STAKE STANDS AT 73.64%. A comparative small promoter increasing stake by 8.50% in less than 2 years speaks of confidence of promoter in future prospects of GPL.

Valuation:.GPL has been reporting consistent performance and steady growth. Same has been possible due to strong cost control measures, highly efficient production practices,and dominant market shares with strong/top brand customer base. Despite so called economic slowdown and global factors and rising interest rates,company has been improving its performance year after year which speak s of efficient management. With low debt, interest cost account for less than 1.50% of total sales.For FY13, GPL Pat rose 34.70% to 24.13 crores, translating into EPS of Rs 27.43. Company doubled the dividend to Rs 2.50 per share.For H1, GPL has achieved good nos with topline rising by 18% and Bottomline rising 14%.Newly set up plant in Rajasthan has contributed to higher turnover.GPL is likely end FY14 with topline of 310 cr ores and Pat of Rs 25.50 which will provide EPS of Rs 30.20. Hence, stock is available at extremely low PE Ratio of 2.5x FY14E EPS.Current Marketcap of GPL is just 64 crores whereas CASH ACCRUALS OF PREVIOUS 2 YEARS (FY 12 and FY 13) stand at Rs. 69.53 crores which means market cap is less than 2 years' Cash accruals.

Conclusion:In today's tough environment,those companies in smallcap and midcap segment have good future which DOMINANT market share of their product, assured demand from growing user industry, low debt, steady growth, strict control of costs and GPL meets all these criteria as its products are used in variety of industries (and those industries are growing rapidly). Moreover,company is supplying its products to renowned MNCs and other big Indian companies,so there are no problem of bad debts and delayed payments. Despite growing business, interest costs are not rising. And, GPL is very cost efficient producer and is able to compete against Chinese manufacturers in international market as well. Finally, GPL has strong and large asset base spread over 6 plants.Company is quoting at very attractive valuations of less than 2.5 PE its FY14 earnings of 30 rs.A modest PE multiple of 6x gives you the target price which is nearly 160% higher than the CMP.At present prices there's hardly any downside either.Go for it folks.
BTW:People looking for midcap/smallcap positional call professional service may rush a mail at my mail id to know more about it.

Tuesday, May 27, 2014

Words of Wisdom and the paid stock idea:-Transport corporation of India ltd

Words of Wisdom/Words from experience:-

Often in my tweets have mentioned this market reminds me of the bull market of 2002 to 2007.Now during those days,I was what a kid of 14-15,bunking school classes to know more about the market stuff.Had no demat accounts and dealt whatever I could with the small amount of money dad had in his account.Though I was lucky to earn 45 bucks in Wellwin industries,the subsequent blunders cost me nearly everything.In the present scenario,often members are upto interesting mischief(read mistake),and they are so alike to the blunders I committed in my early teens.Am penning 3 mistakes which really changed my life for good.Often blunders help you to get better than ever before,you understand the methodologies and if you can learn from them,you ought to perform way better in your future dealings.

1)In the very early stages of my life,I was churning the portfolio like hell.The lure of easy money and the childish excitement cost me a fortune notionally.Knowing all the details and after doing those childwood due-diligence, I bought Ttk prestige at 25 only to sell it at 30 around a week later.Got into Havells at 5 to exit at 6(adjusted split bonus).Today Ttk quotes at 3200 bucks and Havells at 900 respectively.

Lesson:In both the cases I made money.On a percentage annualised term,those were big but too miniscule if compared to the returns they would have provided if those were held on to even today.There was no obligation to exit them,but the greed of easy money took the better out of myself.Profit booking is a good habit but the longer term always provide big returns.Stay put in a business till the growth is intact.Active portfolio churning would never make you rich but ya your broker may well become your best companion as long as the chapter continues.

2)Just by using logic, I zeroed in on a counter called Kec international.Hailing from the coveted RPG stable it was one of the largest power transmission companies in Asia.Am not putting the whole analysis but opted for it at 16 bucks.The next day it nosedived to 14,a week later to 12 and a fortnight later to below 10.It was too much of a tension,money going down the drain and folks at that age,even 10k was like a million to me.Kec dropped more and I couldn't take it.Sold it off at one ago when it was finally below 8.Was kinda relieved,felt it would come to 5 and would buy more.3-4 years passed by and Kec moved to 800.

Lesson:Understand what the company is all about.Read as much as you can.The more amount of confidence and conviction you got,the higher the chances of returns.Market is all about greed and fear,they pay no heed to short term emotions,let alone relation with the intrinsic value or inherent fundamentals.But markets seldom overlook quality or value for long.If you have got a good company,stick to it and buy more provided the conviction and margin of safety is at helms.

3)Bought into a counter called Alphageo at 60 bucks with high amount of conviction backing it up.I already had the experience of Kec and hence even when it moved to below 50,was cool and kept holding it.What followed was pure frustration and boredom of your's truly.Entire markets moved up,its peer like Shiv vani moved 4 times yet Alphageo stayed at around 65.A year and a half passed by,alphageo traded at below 70.Out of depression,I exited at 65 to move on to some other counters.Within 20 months,Alphageo went on to hit a level of over 1000 bucks.

Lesson:Even if the market doubles, triples or quadruples and your quality stock is around your acquisition price,don't get bored but stay put and if possible add more of it.Your patience may well get tested but ultimately the conviction would be rewarded.It would also be prudent to note that when those overlooked superstars move,they really move big and results in massive 10-20-30 bagger gains for its owner or the stakeholders.Even the great Rakesh Jhunjhunwala got bored of Hawkins and sold it at below 100,as we all know hawkins quote over 2000 bucks this days.Learn and earn folks.Happy investing.

Quote:In a matter of less than couple of weeks,TCI delivered a spectacular return of 40% for the members.Enjoy folks.Its funny how market rewards a particular stock so fast,what I presumed would be achieved in 9-12 months got done just in 12 days.

High Conviction long term bet:-

Scripscan:Transport corporation of India ltd
Traded in:Nse-Bse
Buy range:124rs
Percentage return:40%
Duration:9-12 months
Long term call:High conviction bet,expect 30% CAGR for next 5 years.

Quote:Was discussing about TCI with Ram,great mate of mine who also happens to own a lot of TCI.He was kind enough to forward me his note.Am aligning my thoughts with his note for the same.

Business+Moat:TCI is India's leading Multimodal Integrated Supply Chain Solutions Provider with a Global presence. With expertise developed over five decades, customer centric approach and extensive infrastructure,TCI today moves 2.5% of India's GDP by value.In a highly fragmented road transport sector, TCI is no more a commodity kind of player but a business driven by Brands and Networks => moat => pricing power. Apart from moving goods, TCI doing more complicated works like 3PL,inventory management, order processing, delivery, payment collection, labeling &packaging, warehousing and storage.

Management:Very important criterion-the people whom you are dealing with? If you get it wrong,then all other facts and numbers become unreliable, everything is a  waste of time.Good conservative Management with over five decades of experience.Governance and disclosure standards are high from the legacy of being listed over 4 decades since 1974. Now, infusing young blood with Vineet Agarwal elevated as MD last year,only raises hope. He is not only the face of the co but represents the industry on many issues.

Asset size:Covered warehouse space of mammoth 10 million sq ft, 7000+ fleet of customized vehicles (1500 owned), network of 1000+ IT enabled offices, call centers across India, 5000+ strong trained work force, 4 cargo ships, nearly 200 properties across India, presence in 4 countries, 10.5MW wind forms, high potential JVs etc. Can you duplicate the setup (replacement cost) for 900 crs?Imagine how many years it will take for anyone new to come up with such gigantic stuffs.

Opportunity size & Scalability:The country’s logistics sector is expected to cross US$200 billion by 2020 from current size of US$125 billion.Logistics is middle infra, hence a direct play on economy. In 2007, India was barely $1trillion economy but now kissing $2trillion.Despite current hiccups, hopefully set to double in 6-7 years and many more trillions to follow. So does the goods manufactured, consumed, imported and exported. No choices but all things have to be moved, who is going to do it? The great new Indian consumer society consuming like never before, who is going to fill the shelves? Logistics is unavoidable bridge and you have to pay the toll. Obviously leaders like TCI, armed with some finest assets in the industry, will leverage this asset base and benefit.The industry is one of the most fragmented.With technology adoption and the advent of modern sales formats, the unorganized sector is gradually losing out to organised counterparts.

Prudent debt management:Despite being in a capex driven industry, they are very careful with its debt. Net D/E ratio at 0.6 & Longterm D/E at 0.15. Long-term debt is just 20% of total.Interest cover is 4. Highest credit ratings from rating agencies.Capex mostly funded from internal accruals. From 2006-2013, their total capex was 501 crs. During that period, net debt increased only by 123 crs (from 113 crs to 236 crs), means they generated 378 crs from internal accruals over the 7 year period. This cash generation would only increase going forward.They propose big a capex of 230 crs for this year, FY2014— 60 crs from internal accruals & 170 crs from debt. These capex are unavoidable in this business since you have to be ready with infra to seize the opportunity bcaz of likes of GST & FDI. Given their prudence with debt, these big capex may bring short-term pain as higher interest costs but do bring fruits over long-term.

Carving for better margin:Their approach seems pragmatic about growth— knowing topline is vanity, bottomline is sanity.They let go off many deals sensing bad payments.Self-restricting the growth of credit driven TCI Freight, since its debtor days crossing normal 60 days and putting stress on working capital. That’s how they keep the business in rock solid footing.Management tries for better profitability with better business mix. Now, the two high potential divisions SCS, XPS are contributing 55% in sales and 70% in profits. In future the share of SCS, XPS & Freight in sales would finally settle as, 35:30:25 respectively. As high margin businesses taking lion share and improving, margins would pickup.If Management gets things in order, TCI can finally achieve net margins around 8%.

GST proves elusive:Usually logistics grows at 1.5 times the GDP rate. As a direct economy play, lower GDP means lower growth for the co.But I think over a 5 year period, things will even out.GST for logistics is somewhat comparable to what Cable Digitisation meant for Media.It would bring a 15-20% cost advantage and more business for logistics players over 3 years period (single national market, seamless movement of goods across state borders, emergence of hub&spokes distribution model etc). Not only for logistics, the positive vibe of GST will be felt across the board. It alone can lift GDP 1-2%, really big deal for a growth starving nation.GST can be delayed but not denied.With Modi at helms now,things surely can only change for good.

Consistency:Over the last 5 years from FY2009 to FY2013, which was very difficult period for the world trade after the 2008 meltdown,the CAGR of TCI in:-
BV = 10% (rs.40 to rs.60)
Topline = 15% (1350 crs to 2140 crs),
Net profit = 20% (33 crs to 70 crs).
Not expecting anything this fiscal 13-14 as more of a period of consolidation.PAT more or less would be at the same level.
Assuming TCI will continue to grow at 20% rate from now on— which it achieved in the worst period of world trade— net profit will be in triple digits for first time in FY2015-16. And over next five years,say from 2016-17 to 2020-21, they will make 250 crs at 20% CAGR. And fortunately, say, the much expected tail winds (like GST, retail FDI, GDP growth etc) happens soon after election.Then a bit of higher growth can be possible. At 30%, they will net 370crs.At 40%, they will net 540 crs.Over last 10years, 2003-2013—they never had a down year— topline up 4 times (530 crs to 2140 crs) and bottomline up 11 times (6 crs to 70 crs).

Valuation:Last quarter results are on may 24th so not making an assumption.Better to see and pen an update once the same gets announced.For fy15-16 they will cross 100crs of PAT.So at present prices it quotes at 9 times its fy15-16 earnings.Lets put a reality check to its peer group valuations.Gati trades at 15 times forward,Blue dart trades at 20 times fy15-16 earnings.There's no point which should make the leader TCI quote at such a large discount to the peers.Putting a conservative multiple of 12.5-13,I arrive at the target price of 170 bucks.A great high conviction bet.Bet it on for coming 3-5 years to make a pot of money folks.

BTW:People looking for midcap/smallcap positional call professional service may rush a mail at my mail id to know more about it.

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