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Note: The artciles are not research reports but assimilation of information available on public domain and it should not be treated as a research report.

Registration status with SEBI: I am not registered with SEBI under the (Research Analyst) regulations 2014 and as per clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations”

Disclosure: It is safe to assume that I might have the dkiscussed companies in my portfolio and hence my point of view can be biased.Readers should consult registered consultants before making any investments
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Friday, June 17, 2016

The Microcap Multibaggers(Extension of previous post)



"The quintessential 8 para to know everything about your desired microcap". Let's run:

1)Quote:This is not a fresh stock idea but an extension of the previous post. The intention is to have a detailed coverage of those 5 companies. The desi cloud player one was already long done. Today's note pertains to the 3rd company of the previous post. Indebted to dearest brother Bhaumik for his assistance and scuttlebutt.Its been on a good ride since few days for reasons not known to me. Its an expensively valued stock for sure at present levels( been an expensive stock always yet a 5 bagger in last few quarters).Oh yah, Damn! Trying the SEBI compliant way of penning again.

2)Story: 1200 cr Group based out of Kochi – their flagship company is E.Condiments (into spices and curry) with 900 cr. revenue – held 74% by promoters and 26% by Mccormick (US based Fortune 1000 company that manufactures spices, herbs, flavourings). Other group companies are ET(tyre retreading), E.Mattress (beddings with Sunidhra brand) Eastea (into teas), King Richards (garments). There are no cross holdings among group companies. ET is the only listed company and it’s likely to remain such. No plans of listing E.Condiments. 

3) ETs revenue mix – 70% open market, 26% SRTC (state road transport companies) and 4% exports. Gross margin are 26%, 35%, 38% respectively. Debtor days are 40-60 days, 90 days and 90 days with L/C respectively. CVs constitute 96% of revenue and 4% comes from PVs.Retreading is gaining traction led by improving awareness, brand creation by players like ET, Indag etc. and cost consciousness for fleet owners. A new truck tyre costs 20k, while retreaded tyre costs 5k and has 80% life of new tyre. Value chain – fleet owners give tyres to dealers/retreaders, who in turn procure retreading material from players like ET and do the retreading and give it back to fleet owners.Most retreaders in the market are non-exclusive i.e. they work for all players.Pre-cured retreading is used for CVs, PVs, etc. while hot retreading is used for OTRs, mining vehicles etc. which run on hard surfaces and required more strenuous working.Globally too hot and pre cured retreading technologies are used. There hasn’t been any material change in technology over many years.

4)50% of replacement demand is met by retreaded tyres in India. Globally that is much higher – in US it is 80% retreaded tyres. Gradually India will move higher towards retreaded tyres as awareness of its benefits increases and also these are environmentally more efficient. So over time share of retreaded tyres will go up.Retreading industry in India is a 3200 cr. industry – 50% organized – organized growing at 10% volume growth. This growth is likely to sustain with some gradually shift from unorganised segment. GST can provide a fillip to this shift. ETs volume growth in FY16 was 10%.Apollo,MRF etc are looking to enter retreading space – but they don’t see this as a threat. One these guys have a conflict as they also sell tyres and secondly it’s too small an industry for them. However, globally there is a big retreading market but it’s also a very matured. India will take years for tyre OEMs to look at this industry meaningfully.

5)They are in the process of changing their distribution network from only distributors to a mix of distributors and exclusive franchisees. In FY16, 10% of revenue came through franchisees in FY16 (6% in FY15) and they expect it to go up to 40% in FY17. They currently have 46 franchisees and will keep adding these. The advantage is they can charge higher prices by 15-20% through exclusive franchisees and also save on channel margin. This results in 5% higher gross margin. For instance, earlier Midas was selling at 140/kg and ET at 120...now ET is able to sell at 170/kg. Elgi Rubber currently follows this model of exclusive franchisees. While Indag was following this model but moved to distributor model as they found it difficult to scale it up. In franchisee model the other benefits are there is good brand loyalty and they can control the entire ecosystem and ensure better sales and servicing. However, scalability is an issue which ET is trying to address through ensuring focus on each franchisee and incentivising franchisees by ensuring minimum business etc.

6)They also have 2 retreading centres in Chennai and Bangalore which showcase retreading process and also act as brand centres. They also have Infinity Zones which are for brand visibility and are premium outlets. These outlets also provide marketing support to retreaders. They also organize fleet owners campaigns in each regions wherein they call 100-150 fleet owners and they educate them about the benefits of retreaded tyres and other services and also hear their feedback. This way they are able to get closer to fleet owners. This has helped them target fleet owners directly in some regions rather than depending on retreaders. ET is looking to position itself as a one stop solution for retreading – supply of quality retread material, accessories (gum, cement etc.), maintenance of machinery, skilled labour availability, marketing and awareness of retreading. They have started outsourcing machinery mfg and they supply these machines to retreaders – this ensure consistent good quality material and retreaded tyres. It will not involve any major capex. They also have a training institute where they train labour.

 7)Management focus has increased considerably in the last few years and they have also inducted professionals which has led to the above changes. Also earlier the Meeran family was only focused on E. Condiments. But now Mccormick as partner and also that company having stabilized, it will help increase their focus on ET. Raw material price movement is a pass through 1 month lag – so price risk is limited to 1 month. Typically gross margin will improve in times of falling rubber prices and vice versa because of numerator denominator effect. In case of retreaders, falling rubber prices is helpful as they typically don’t pass on that benefit while they take up the prices in times of rising rubber prices.Rubber prices have shot up ~40% in Mar-Apr’16 – they have taken a price hike of 11% in May’16 – this will largely cover the raw material price hike,they expect rubber prices to correct going forward and eventually not impact gross margin over time.

8)Long term vision is to achieve no. 2 position.Their target is to maintain RM/sales ratio of 65% (66.5% in FY15-16).  Over time they can do gross margin of 37-38%.Current capacity of 12000 MT and utilisation of 45%. They can reach 60% utilisation in FY17. They can do 200 cr. revenue with current capacity and 5 cr. capex. Capex of 7-8 cr. over 2 years – 5 cr. on capacity and 2-3 cr. on automation at plants. Maintenance capex of 50 lacs.Exports is 4% of revenue and they are targeting to grow it big. This year they are participating in 5 major exhibitions in Germany, Hannover, Kuala Lumpur Delhi etc. They are targeting 50% p.a. growth in exports. No salary is paid to directors as all are family members and most of them own shares in the company. Also they are not actively involved in the running of the business.Discounting trend is up as market is slow. Discount is accounted for as part of other expenses.OPM declined 230bps QoQ in Q4FY16 owing to higher promotion expenses on franchisee ramp up and higher staff costs (bonus).While Chinese tyre imports is a threat, their retreadability is bad. Also quality of tyres is bad and is considered unsafe and these tyres breakdown also a lot.They don’t have any plans of entering any other segment. Indag Rubber has not increased prices post expiry of excise exemption – they will be bearing the costs.No plans of fund raising or increasing promoter stake.KSIDC which holds 11.75% stake is looking to exit and any day expect a big fat bulk deal to happen.No dividend distribution policy in place.
 Btw: As it can be seen it takes huge efforts to dig into small unheard companies which can be the bluechips of tomorrow. No Reliance or boring Hind Unilever can provide you the kind of money which can help you retire rich early. About to launch some "SEBI compliant" small and midcap services only meant for long term patient disciplined investors. Do fill the form if that interests you. Happy investing folks.
Note: For issues or assistance kindly contact Dipendu at 9007652301.

Saturday, May 21, 2016

The 5 interesting small and midcap counters


It's been a long time since the blog got updated. Life has changed for good after the launch of  Sharebazaar android app. Search "Share Bazaar Arun" in playstore to download it. In a very short time as you know folks we attained the scale of nearly 30000 subscribers,without resorting to any publicity or marketing gimmick.From conferences to conducting pan India workshops,many things kept me occupied. Soon,will be conducting International workshops,starting from Dubai shortly.

Sebi too definitely stood out in terms of screwing the retailers in a better manner. Hence,won't like to name any stocks but hints may just help you to make out the names and dig further on the stories.

1) Been mighty impressed with the Chinese compounder which has also recently changed its name to signify its renewed focus. The parent has achieved an astounding track record of growing 65% CAGR in the last 20 years or so. The Chinese parent quoted at an average PE of over 50 since its listing. Even if it can do a fraction of what parent has done,the stock which comes with almost nil floating stock,would move in a different orbit. It's been a doubler since my Twitter rants.Company has recently bagged big orders from IFB and Symphony. Company's fortunes are further set to change as its biggest clients are shifting base from countries like Australia to outsource everything from India. Should keep outperforming coz of its 500crs expansion,parentage and growth prospects.Expensive at present levels but with its expected 50% bottom line growth for next 3-4 years,stock presents an interesting opportunity at slight dips. It's debt free as on date with market cap of around 800crs. Results which should be outstanding comes on 30th May.

2) The desi cloud player hailing from chennai has been a favourite of mine for the last 3 years. Company recently delivered decent set of numbers. Exclude the employee costs and it would look awesome. The company also refrains from taking any orders with gross margins beneath 65-70%. It's a massively scalable business with cumulative addressable market size of 2.5 lakh cr which is crazily expanding and set to expand further at 26-30% for coming atleast 5 years.Operating leverage coupled with strong rich tailwinds and an ultra super sales guy(
He had started off with a staff of three people in Singapore for Satyam in 2000, and went on to scale up the business into 15 development centres and 33 sales offices across 20 countries with over 4,000 employees. Quit to join HCL-During his time, HCL's growth in the region was spectacular,60 percent year-on-year growth, for instance.It became the fastest growing region for HCL)makes a perfect recipe for a potential multibagger. The fiscal 2016-17 should be the best for them. Oh yeah in case the same gold standard honcho resigns,spare no time in exiting it right away. That remains the biggest risk of this particular company. It's debt free as on date with market cap of around 2000crs.

3) Had an amazing Sharebazaar whole day workshop in Cochin recently. Had some spare time which was coolly utilised in visiting the areas of God's own country. Did get a chance to get glimpses of this company's plant. It comes with a highly credible management which is doing everything possible to create loads of shareholders wealth.Tyre 
Retreading is gaining traction led by improving awareness, brand creation by the players and cost consciousness for fleet owners. A new truck tyre costs 20k, while retreaded tyre costs 5k and has 80% life of new tyre.They are in the process of changing their distribution network from only distributors to a mix of distributors and exclusive franchisees. In FY16 10% of revenue came through franchisees in FY16 (6% in FY15) and they expect it to go up to 40% in FY17. They currently have 46 franchisees and will keep adding these. The advantage is they can charge higher prices by 15-20% through exclusive franchisees and also save on channel margin. This results in 5% higher gross margin. For instance, earlier Midas was selling at 140/kg and the company at 120...now It is able to sell at 170/kg. Company is almost debt free as far the long term debts are concerned. Company is set to grow at 30% CAGR for next 5 years.Tyre radialization would be a big theme to watch out for and look no further to ride the theme. Kerala"s Buffett did make it expensive with his tweets but long term prospects look more than robust. Marketcap stands at around 60crs.

4) It so happened was hell bent on searching for a player which is snatching market share from a giant. Jivanjor,the adhesive player seemed the best fit and I continued with my research. For Scuttlebutt means,interacted with lot of dealers and sales managers but the result wasn't that appealing. Finally,ended my research after a former sales manager disclosed a lot of uninspiring stuff which forced him to quit the company. He also mentioned of his new company and how it has kept him motivated to the extent which has led to a scorching 70% growth in his region. Incidentally,the same company happened to be a listed one which at that time had a tiny Marketcap of just 15crs. The company with a brand name of Euro 7000,is into white glue adhesives,scaled up 11x in the last 5 years and looking to achieve a 100crs bounty by next 2 years. Company got a phenomenal product named D3 which takes 60kgs to provide the required bond while Fevicol does the same in 100 kgs.They have pricing power,got a gross margin of 45-50% and spends a fortune in its marketing front. Company also posses a very strong supply and distribution reach of 7000 dealers in 13 states and 130 cities. Fevicol,over the last couple of years acquired similar companies by paying over 2x Sales. Stock since then has more than doubled with present Marketcap still at a paltry figure of 40crs. Promoters shareholding where 97% of it was pledged has recently been fully released.

5)Its not even required to pen anything for this one. Prem Watsa with his large investments in it,opines craftly.
In 2010 Nahoosh Jariwala and three childhood friends and their families were holidaying together at a tiger reserve in Central India. Nahoosh and his older cousin Rajan had founded the company in 1985 and listed it on the BSE in 1995. While Nahoosh had big dreams for the business, Rajan was not so keen, so while still on the holiday Nahoosh’s three friends decided they would buy out Rajan and support Nahoosh’s aggressive growth plans. Over the following five years until we came to hear of This company,Nahoosh had exponentially grown its  manufacturing capacity from 8,000 to 45,000 metric tons per annum.It is an oleo chemicals company. Oleo chemicals are, broadly, chemicals that are derived from plant or animal fat, which can be used for making both edible products and non-edible products. In recent years the production of oleo chemicals has been moving from the U.S., Europe and Japan to Asian countries because of the local availability of key raw materials.It occupies a unique niche in this large global playing field. It has developed an in-house technology that uses machinery manufactured by leading European companies to convert waste generated during the production of soy, sunflower, corn and cotton oil into valuable chemicals. Those chemicals include acids that go into non-edible products like soap, detergents, personal care products and paints, and other products that are used in the manufacture of health foods and vitamin E. The company’s customers include major multinational companies including BASF, Archer Daniels Midland, Cargill, Advanced Organic Materials, IFFCO Chemicals and Asian Paints.Co operates out of a single plant in Ahmedabad.It has the largest processing capacity for natural soft oil-based fatty acids in India. Over the last ten years, sales have grown at 23% per year to $27 million, and profit after tax has grown at 30% per year to $2.3 million.On February 8, 2016 we purchased 45% stake from the three friends of Nahoosh and other shareholders at rupees 212 ($3.12) per share.

My two cents: A tremendous scalable business with high entry barriers. Present headwinds provides an opportunity of a lifetime for value seekers looking to multiply capital over the next 5 years.


Btw: We are set to launch some interesting services only meant for long term investors. Interested guys pls mail at arunsharemarket@gmail.com for details. Also you can whatsapp dip at 9007652301. Happy investing folks.

Monday, December 7, 2015

Cheviot company and Pan India Workshop of Share Bazaar App






Seminars and workshops: About to have long 8 hours Investors Workshop in places like Delhi,Hyderbad and Kolkata over the coming 3 weeks. Do pen a mail at arunsharemarket@gmail.com if you interested in being a part of it. In last Mumbai Workshop,the themes of Jute got discussed and Cheviot incidentally was quoting at about 700 then. Let's pen what attracted me in this company.

Scripscan:Cheviot Company Ltd
Code:526817 

Traded in: Bse

Note: This days am pretty much occupied with the workshops and seminars which we are having Pan India. The latest venture "Share Bazaar Android App" has been a huge hit with nearly 30000 downloads over the last few months. Blogs are about to be obsolete owing to technological advancements and hence the decision to migrate everything in the App. Do download the app guys if you haven't done yet. Just search Share Bazaar Arun in play store.

Quote: Cheviot Company is one of the prime examples of a corporate that makes a lot of money from green fibre and sound investments.Harsh Vardhan Kanoria has created Gold out of an Industry, on which the Sun had literally set with the departure of the British in 1947.Today, with its processing units and a turnover exceeding Rs 265 crore, Cheviot Company makes more money out of Jute and its Corporate Investments, in a year, than most companies would ever make in their lifetime.While Kolkata may hold a different meaning for different people, for the current owners of Cheviot-the Kanoria family, the "Sun Never Set On Jute" even with the collapse of the British empire.


Introduction: Cheviot Company Limited (CCL) which was incorporated in 1897, is the flagship company of the Cheviot group, which has interests in the jute, tea, and leather businesses.CCL manufactures high-value jute yarn and fabrics, such as precision-wound fine jute yarn, sacking cloth, hessian cloth and bags, sacking bags (for packing food grains and other allied purposes), and superior hessian cloth.Spearheaded by Mr. H. V. Kanoria under whose leadership the group has shown exemplary performance year after year. He is an eminent industrialist with 40 years of vast experience in successfully handling Jute, Tea and Leather Industries.The company also ventured into new product category by adding jute shopping bags in their existing product lines. The company caters to both the export and domestic markets. It has two manufacturing units in West Bengal: one in Budge Budge and one in the Falta Special Economic Zone (export-oriented unit). 

Demand for eco-friendly bags: The demand for green products jute goods like gardening products, shopping bags, geo-textile, pulp and paper, home textiles, floor covering and non-woven textiles is very high at the consumers’ level in the international market due to the growing awareness about environment. Of those products, jute-made shopping bags are now the best-selling items. Many countries like the United States (US) and the United Arab Emirates (UAE) have already gone for replacement of plastic shopping bags by jute-made shopping bags. The demand for eco-friendly bags is also increasing in Western Europe, Australasia, Middle East, Asia and African countries. The global market size of jute-made shopping bags will be 500 billion pieces, equivalent to seven million tonnes of jute products, in the coming days, as efforts are on to totally stop use of polythene or plastic materials all over the world because of their adverse impact on environment.

Fibre of the future: Composite and Compounded materials from man-made fibres (i.e. glass fiber, carbon fiber etc.) are already available as products for consumer and industrial uses. Jute is one such natural fiber that can reduce the impact on the environment. It is available in abundance, strong and is increasingly being referred to as the “fiber of the future”. Jute filled PP composites are today being successfully used for various components and materials. . India is still largely an agrarian economy, which needs to generate massive employment in rural areas for a rapidly growing population. Technological breakthroughs such as jute-filled PP compounds show the way for economic development of the masses by marrying state-of-the- art technology and research with cash crops to create rural and industrial prosperity.

New Advancement in Jute Compound: Bengaluru-based STEER makes new advancement in jute compounds that ca help in use of fibre in automobile parts (under-the hood),housing construction materials or even microwaveable cooking containers. This New compound can have ripple effect not only on the jute sector, but the entire India economy by opening up a huge market opportunity. Jute polymers to provide excellent opportunity for new sunrise industry to emerge, creation of thousands of jobs in West Bengal, Orissa and Bihar. The popularisation of jute polymers is expected to help provide a major thrust to the Government’s Make in India campaign, by popularising new usage of jute in other sectors, thus stimulating industrial activity. Jute polymers are certain to greatly benefit the jute industry with its ability to transform the traditional use of jute for modern day products, thus, touching human lives. 

Advantage over Bangladesh :India and Bangladesh together accounts for the 95% of worlds jute production. The cost of producing quality yarn is 40 per cent higher in Bangladesh than in India because of the technological disadvantages. India has set up composite jute mills with modern machinery and technologies for production of fabrics, dyeing or lamination under one roof. Bangladesh has nearly 250 jute mills, but none of them has the dyeing and lamination facilities, which are essential to producing diversified products, according to exporters.

Potential for an anti-dumping tax: Around 125 lakh bales of jute sacks are needed just to package crop seeds in India. Indian jute mills can produce only 25 lakh bales of jute. The Indian Jute Mill Association (IJMA) has already pleaded for an anti-dumping tax in case Bangladeshi goods enter India. The Indian jute commission is considering the plea, and is soon to give a decision about it. This decision is aiming provide a monopoly to Indian jute mill owners which is a very big positive as there are barely few survivors in the industry.

Jute Particle Board: They are used as substitutes for wood. The availability of the technologies for producing particleboards and its high socio-economic value are arguments in favour of the future development of this product. The use of wood in house construction, furniture, etc. is slowly being discouraged due to environmental reasons. The use of jute particle board as a substitute has been found to be quite acceptable both in terms of quality and price.

Strong Financial Risk Profile: CRISIL's ratings on the bank facilities of Cheviot Co Ltd (CCL) continue to reflect CCL's strong financial risk profile, marked by a robust net worth, low reliance on external debt and strong liquidity. The ratings also factor in the strong business risk profile, with an established market position in the jute industry, a diversified product profile, and a wide distribution network.

Jute has always been a dull and boring sector. However, several positive advancement drew my attention to this sector.Several innovations ranging from diversified uses of Jute and Jute compounds (as discussed above) implies a turning tables for this sector.Also there has been a rise in demand for jute products all across the globe. Several countries have already banned use of plastic bags in their grocery markets and shopping malls. Thus, demand has been projected to increase 50 times within next five years if the eco-friendly trend continues.Potential for an anti-dumping tax which is a game changer, would provide a monopoly to Indian jute mill owners as there are barely few players in the industry.Recently MD of Gloster (one of the leading Jute players) emphasized in an interview that this is a ‘golden period’ for the jute industry with several sectoral tailwinds. He guided a robust rise in export demand in coming quarters. He also said that the upcoming quarters will see a very sleek growth which they have never seen before.

Concerns: Adverse regulatory changes in the jute industry may impact the top line and thus the regulatory risk would always prevail.Revenues coming in from exports have been a significant rise in past several quarters, fluctuations in currency can pose a threat. Also the RM prices which is Raw jute been on a recent upswing which can put pressure on its margins.

Financials: Company over the past 5 years have grown its topline and bottomline at a CAGR of 8% and 13% respectively. But the half yearly results of 2015-16 presents an entirely different picture where the company has delivered an impressive sales growth of 25% to register a figure of 150crs vs 120crs. Profits have more than doubled to 23crs vs 11crs. The third quarter numbers probably should be the best since its inception.

Conclusion: I liked Cheviot for its attractive valuations (in terms of EV) along with strong financial risk profile, marked by a robust net worth and low reliance on external debt.It has huge investments and cash on book worth Rs. 200 Cr and it’s almost debt free. Thus,on EV basis it is available at a very reasonable price.Currently it is quoting at a 6 forward PE and given the tailwinds even a meagre rerating up to 10 PE would make it move way higher. Promoters are owning 75% stake of the company.CCL has also been very generous with its consistent 20%+ dividend pay-out policy in past 5 years. So even dividends will be 2x with 100% rise in bottom line.Also, CCL doesn’t needs any capex and has huge reserves so one can expect another bonus due to low equity base. (Last bonus was in 2006) .There are very few listed players in Jute industry in India. All are with very tiny equities and limited floating stock. So even average accumulation can make them run into circuits.


BTW:For different stock market related services and also for techno-Funda tutorials,rush a mail at my mail id arunsharemarket@gmail.com to know more about it.


Note: The above is not a research report but assimilation of information available on public domain and it should not be treated as a research report.

Registration status with SEBI: I am not registered with SEBI under the (Research Analyst) regulations 2014 and as per clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations”
Disclosure: It is safe to assume that I might have Cheviot in my portfolio and hence my point of view can be biased.Readers should consult registered consultants before making any investments.

Saturday, October 17, 2015

Microsec Financial services:Agm Notes

After the launch of my Share Bazaar android app,the workload has increased many a times. Hardly there's any time to do blogging. As you all know the app has been a huge hit with downloads been nearly 25000 in a very small time. For the uninitiated,to download-go to play store and search Share Bazaar Arun. Do give your reviews and ratings folks.


Microsec Financial Services AGM Notes (Q&A)

E-commerce Divisions:-
 
1. Are we planning to raise Private Equity for both our E-Commerce division?
Ans: We were anxious when we started both e-com divisions but in retrospect we believe it was one of the greatest decision we ever made. Usually in a typical e-commerce start up, it takes huge amount of cash burning to achieve a GMV of 100crs but we are aiming to achieve that feet by remaining debt free. We are going to set a benchmark by achieving this only from a single state in India (West Bengal) which has been unprecedented in the world of E-commerce. And yes we are looking to raise money for both the verticals.


2. What is the USP of our E-com Services? Will ban on selling online medicine(if at all happens) affect us?
Ans: The USP of the company is our last mile delivery where 99% of the logistics costs are borne by the franchises. (Company gave the examples of newspaper where the logistics costs are Zero.) We don't sell prescribed drugs online. Sastasundar forwards the lead to its offline brick&mortar franchise/healthbuddies and they deliver the order to the customer. It's just a lead generation medium.


3. As medspa, Apollo pharmacy, netmeds, pm ventures are all in the same business as Sastasunder, What are we doing to thwart competition?
Ans: Competition makes business and the arena is too large. The retail pharmacy market is worth over 70000crs and there's a room for everyone to have their own pie.


4. We are entering Karnataka. What would be the strategy? Are we also entering other states?
Ans: Strategy is to repeat what we are doing in Kolkata. Sastasundar will further expand in Mumbai and other big cities by 2016.


5. In medicine distribution we need large inventories. Even we supply the inventory to our franchise owners. How are we playing it? Are we ready for addition in future debt?
Ans: Company is against too much debt however we may need some for taking care of our WC requirements.


6. What is the ratio of repeat customers to new customers? What are we doing to retain our old customers?
Ans: Repeat Customers contribute to 75% of the present top line. Company is taking all initiatives to retain its existing customers.


7. What is the credit cycle from where we procure the medicines?
Ans: (Didn't gave a clear answer but hinted of a good credit cycle once they garner in big volumes)


8. How many franchises we have till date? What is out average franchise revenue? What is the number of franchise we are looking to add over the coming few years?
Ans: 87 in total, 81 franchise and 6 company owned stores. Company looking to appoint more franchises. Aims for a number of 225 within the next fiscal.


9. What is the ebitda margin we will have after counting for 15% discounts and 8% commission to franchises? How can we compete with the retail pharmacist stores?
Ans: Our medicine distribution margins are 30%. The retail pharmacist averages margin of around 20%. So there's nothing to worry on that front. Sastasundar makes around 7%.

 
10. How many brands are attached with foreseegames.com as on date?
Ans: It's around 120 and yes the target is to tieup with 500 brands ASAP.


11. We brag about 11 lakh users in foresee then why is the revenue is not even 50 lakhs?
Ans: Foreseegame will see increased monetization from Brand partners going forward, however current strategy is more focused on acquiring more brand partners.


12. Foreseegame itself is engaging but the worst part is we have just 33k likes Facebook on user base of 1.1 million. Why aren't we looking at it? One of our peer latestone.com came into the arena much later yet they have 7-8 lakh fans in no time and increasing at a rapid speed.
Ans: (The Company appreciated the fact and promised to look into the issue at the earliest.)

 
13. Why aren't we marketing enough? We don't see foresee ads in TVs. They are nowhere. We haven't even done a SEO, let alone AdWords. Nobody can see us if they Google up online games. Why is it so?
Ans: Not fond of marketing in the television world. SEO and other needed necessities are actively looked upon which will help the company to increase its users.

 
14. Have we got a break even target in our verticals? When we will break even in e-com verticals?
Ans: Company looking to break even by fy17-18. Both e-com verticals are exceeding expectations as of now.


15. Do we make profit from every transaction? What is the ratio of our private level biz to the medicine biz? What is the margin we make from our private biz?
Ans: We are making profit from most transactions, if not all. The ratio is hardly much to talk about as of now. Private level business margins around 50%.

 
16. What about our recent launches: chef on and others? Are we seeing any traction? What has been the acceptance of our customers?
Ans: Chefon: the made to order segment has seen immediate traction after its recent launch. Company is getting 400-500 enquires on a daily basis.

 
17. In Foreseegame we often provide Sastasunder currency to our game buddies which in turn inflates the topline. Out of 21crs topline in Sastasunder, what has been its contribution last fiscal?
Ans: That is less than half a percent of the total turnover.


18. Any revenue guidance for foresee and Sastasunder in the present fiscal? Next year 17 and by 2020?
Ans: Foreseegame should more than double its turnover this year. Sastasundar's GMV should be heading to 100crs within the next few quarters.


19. Zapak games recently got valued at 1000crs, be it alexa rank or minutes spend in the site it’s beneath foreseegame by every standard. Are we looking to unlock value by divesting a stake?
Ans: Lot of offers from private equity. Foreseegame will dilute in favour of a private equity to unlock value. Should be done at a good valuation.


20. Ironically whenever we announce our results, we see our stock being hammered owing to higher losses. Would we see the same in future?
Ans: (We aren’t bothered about stock prices or market cap. The company is in a solid footing and with time, the right valuation should definitely chip in.)


Financial Services Division:-

21. It’s been quite a while since the demerger/divestment news was announced by the company. When is it actually happening?
Ans: Our core was finance and it's a pretty emotional decision to hive off the same. However, we believe in being ahead of the time and hence will soon do what’s best for the business.

 
22. We have a capital employed of over 100crs in the financial vertical. We have got large holdings running worth several Crs. We did a PAT of 10crs. It's a brand with intangibles adding up to a good few Crs. Tailwinds are blowing with few recent brokerage deals. Sudhir Valia acquiring fortune financial at 35crs and Sudip banerjee buying out JRG sec at 100crs. So we should get a good valuation right?
Ans: (They appreciated the fact and hinted about a good deal coming soon. Fathoming the body language, it seems like they will just sell the finance arm rather than demerging it as the full focus is on ECOM.)


23. Presuming we will sell out the Financial Services Division as admitted by Mr mittal earlier, how are we going to deploy that money? Would it be fully on Ecom? Or can there be a special onetime dividend?
Ans: As of now we are not in favour of a dividend as the stock price would just adjust it immediately. The money received would be deployed in the ECOM ventures.


24. Promoters own 71% in the company as on date, bit below the max permissible limit of 75%. Why aren't you buying out the rest? This fiscal year the promoters hardly bought anything.
Ans: Microsec is the only stock we acquired in last few years. We desire to own the maximum permissible limit of 75% soon.

 
25. We had an internal target of achieving a billion dollar market cap by 2020. How achievable does it look under the present juncture?
Ans: Futile to discuss about market cap at the present juncture. We believe in long term wealth generation for the stakeholders.


26. Is there any chances of selling out fully provided we get an extravagant offer, at a much premium to the present price?
Ans: No chances of selling out in the next 5 years.

 
What I Perceive: Finance business to be sold soon and then in due course would be demerged in two separate companies. Sastasundar and Foresee to be separately listed in the future.

P.s:Please refrain from asking buying/selling stuff. 


BTW:For different stock market related services and also for techno-Funda tutorials,rush a mail at my mail id arunsharemarket@gmail.com to know more about it.



Note: The above is not a research report but assimilation of information available on public domain and it should not be treated as a research report.
Registration status with SEBI: I am not registered with SEBI under the (Research Analyst) regulations 2014 and as per clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations”


Disclosure: It is safe to assume that I might have MICROSEC in my portfolio and hence my point of view can be biased.Readers should consult registered consultants before making any investments.
 
 

Sunday, August 23, 2015

Makers Lab AGM notes: Please it's not a Stock idea

In Mumbai from 11th to 13th of September. Hope to meet a few of my readers. Please whatsapp my guy Dibyajit at 9804238412 for more details. 

Hope you readers have all downloaded the Share Bazaar Android app. It's already been a mega hit with nearly 25000 downloads. Go to playstore ,find share bazaar app by Arun and download.

Am really really scared to put anything on public domain. Everything has been perceived as a stock idea. I pen a tweet to find the same in circuits. It's not a stock idea guys. Please read before your acts. Thanks to my Junior Abhijit for presenting it in such a brilliant yet witty way.

Following is a candid description of my visit to the Makers Labs AGM. Why Annual Grotesque Meeting? Wait till the end of this article to find out.
Scene 1: It was a sunny Tuesday morning, half past ten, I arrived at the IPCA Lab office located in Kandivali, Mumbai. As soon as I entered the gates, I saw a small white board in a corner. Some text was scribbled on it with atrocious handwritings. After a thorough analysis, I figured out that it was written ”Welcome to the 30th AGM of Makers Laboratories” (with two giant spelling mistakes, WELCOM and LABORATRIES).
There was nobody at the gate. After a few minutes of waiting, I observed a guard running towards me from the corridor. He was panting heavily and said: ”Sary Sur Hum thoda sa pishab karne gaya tha” (I wondered why only thoda, why not full?)
Scene 2: After I managed to find a chair in the shady looking premises of the office, a really beautiful lady came to serve me some chai with a gracious smile. Considering the texture of the steel glass (especially the deposits of dirt in between the texture), coupled with the bright red colour of the chai, I decided to give it a pass.
Scene 3: Recovering from a semi-trauma merely caused by the sight of that chai, I went out to get some fresh air. There I witnessed a gentlemen accompanied by his wife, entering the premises. After a basic introduction with him, he expressed how unhappy he was with the financials of the company and how much pissed he was with the company secretary Mr X for being a d**k on phone calls.
Scene 4: 11 o’clock, I did enter a small room where the AGM is supposed to take place. I was greeted by a sight of this really dingy and old school poster of Makers labs which didn’t even have a logo (or do they even have a logo in first place?). I saw several oldies roaming around in that room who apparently looked like shareholders. (PS: I did overhear them discussing on piles issue)
Scene 5: I heard someone fighting loudly at the entrance. It was that angry gentleman with his wife, who expressed his grudge towards company secretary before. Unfortunately, he stumbled upon Mr X at the entrance. Somehow people were able to separate them from their verbal barrage.He was accusing Mr X of treating him badly on the phone and complained that Mr X called him a ”gate crasher” and accused him to attend AGM only for the ‘free’ snacks offered and nothing else. (I’m not kidding, this is exactly what happened and they were actually fighting like a baby for that issue).After things were subdued, Mr X told us secretly, how that gentlemen only held 5 shares of the company and harassed him on phone calls.
Scene 6: Chairman literally READ the speech from the Annual Report. After about 5 minutes, it was time for Q&A. I will make a future post on how stupid and hilarious questions people asked the chairman. Some of the questions were asked by that gentleman who had also brought the annual report with all the spelling mistakes underlined. I literally felt suffocated in that intellectually polluted environment.The whole AGM was wrapped up within 20 minutes, and the same red chai with a vada and some stinking potato chips were served. (PS: one of the oldies from that piles group, did give a generous suggestion to replace vada with a sandwich in the next AGM.)
Scene 7: I left the room just to avoid the sight of oldies hogging on cold vadas and almost black potato chips. Right outside, I met this sensible looking fellow. I felt like giving him a hug. He was the Marketing head of Makers Lab. I had a chat with him for 15 minutes about so-called Future Prospects of the company and he assured me to stay away from the stock with a 12-foot barge pole. I’m not even kidding, his candid remarks about how dull the Generic drug industry is with not much room for Makers Lab to grow, were enough for eliminating Makers Lab from my watch list.
Final P.S.: Guess what I heard from a director of IPCA Labs in an offline conversation: ”DONOT expect much from Makers!’ I’m serious. That were the exact words he used.

BTW:For different stock market related services and also for techno-Funda tutorials,rush a mail at my mail id arunsharemarket@gmail.com to know more about it. 

Note: Let me clarify this was just a funny experience I had at the AGM and please don’t take any serious offence. Also, this is NOT an investment advice to buy or sell shares. Please make your own decision, as blindly acting on anyone else’s research and opinions can be injurious to your wealth. I do not own the stock, nor I am a registered Research Analyst as per SEBI Regulations, 2014.

Monday, July 13, 2015

Ramco Systems ltd:- Can the cloud player take your portfolio to cloud 9?

 Quote: I have tweeted about Ramco Systems innumerable times. Let';s pen down why am a fan of this particular company. Its an old note which was mailed to close mates and cohorts,a good couple of months back. Sebi has ensured tough life for the gullible investors. Even updating the blog ones in a month requires a lot of pre-thoughts,say mostly about the vagaries of the regulator.

Ramco Systems ki Kahani: Started as an R&D division of Ramco Industries in 1992, Ramco Systems is part of over 75 years old Ramco Group. Boasting a turnover of over Rs.6500 Crore, Ramco Group has become one of the most reputed business houses in India and has achieved international recognition for its quality products and services. Ramco Systems is a cloud enterprise software company focused on providing multi-faced enterprise software to corporates in the verticals of HCM (Human Capital Management), ERP (Enterprise Resource Planning) and M&E (Monitoring and evaluation) for Defence and Civil Aviation. They also provide associated services like consulting and implementation of its products to clients. Headquartered in Chennai, the company has 20 offices spread across India, USA, Canada, Europe, Australia, Middle East, South Africa and APAC. Ramco Systems has over 150,000 users from 1000+ customer organizations. Some of its clients are Bata, PUMA, Mother’s Dairy, Dabur, Emirates etc.

Industry Overview: Tailwinds for the cloud-based enterprise software: The global software industry is now in the middle of a radical change. Surge in the number of mobile and tablet devices, growing broadband connectivity and the increase in customization of IT-services has made the cloud based enterprise applications one of the most desired segment in IT. The growth in global IT industry is led mainly by enterprise software. As per Gartner, at least 30% of service-centric businesses will aggressively adopt cloud-based ERP solutions by 2018 (Gartner). Total market size of the cloud-based enterprise software is estimated to be around lakhs of crores and is growing at a rapid pace. Small and mid-sized organizations are embracing the cloud based systems which are followed by large organizations. Leading cloud-based enterprise software providers such as Workday, Cornerstone on Demand and NetSuite are growing in the vicinity of roughly 50% per year.

Human Capital Management (HCM) on fire: Ramco’s HCM software digitizes HR processes throughout the life of an employee in the organisation. It has integral analytics solutions that can be used by HR professionals and senior management to make the right HR decisions. This is currently the fastest-growing segment for the company with a revenue growth of 113% YoY. It currently targets companies with an employee base of less than 10,000. The company charges about Rs.5000 per employee per year for its cloud-based HCM solution which are lower than a lot of its competitors like Workday, Oracle Fusion etc.

Aviation segment: Small and medium sized airline operators who were earlier not able to adopt enterprise-class software due to complexity and fixed costs involved, now have started exploring Cloud based systems. This has opened up a new market opportunity in itself. Ramco is especially strong in the area of helicopter fleet management. Five of the ten largest helicopter fleet companies in the world are their clients. Revenue growth in this segment was 36% YoY. However, overall addressable market is relatively small as compared to HCM and ERP.

ERP Software – The management is less focused on this segment as compared to HCM and Aviation. However, they have focused their energies in a sub segment of ERP for Services industry named as Services Resource Planning (SRP). It closely incorporates key functions such as the ability of an organization to hire, train and retain workforce, implement projects efficiently, manage finances comprehensively and provide superior customer service levels. Ramco has a huge room to catch up and fight against a fierce competition in this segment.

How it is better than competition:
• Ramco’s solution provides the advantages of new age platforms such as Workday and Netsuite and also provides the functionality of traditional on premise ERP solutions such as SAP and Oracle.
• Unlike many of its competitors, Ramco’s applications have been built on a common platform making it more favourable over the competition.
• Unlike Ramco, not all players in the industry are providing end to end solutions to their clients. They have partnered with IT services vendors such as Infosys, Tech Mahindra, Dell Services and NIIT to aid the consulting and implementation part of its products to clients.
• Simplicity of implementation and integration coupled with its competitive pricing gives Ramco an edge.

Why can';t Oracle,SAP catch up:-http://www.netsuite.com/portal/resource/articles/on-premise-cloud-erp.shtml

Management:
• Mr Virender Aggarwal (ex-HCL Tech and ex-Satyam) joined the company as the CEO in 2012.
• He has proactively restructured the organisation by increasing focus on sales outside India, improving sales partnerships, and focusing on product innovation. Sales from outside India now constitute around 72% of the overall revenues.
• The new management that joined three years ago, has increased accountability of the sales team and has fired poor-performing staff.
• The company has also recently linked staff salaries to performance and has paid out excellent bonuses to the top performing employees.
• Promoters owns almost 59% of the company.

Number Crunching:
• The company';s revenue growth has been accelerating on a sequential basis in the last four quarters. Margins have improved significantly over the same period.
• The new management joined three years ago has invested heavily in sales and marketing and in the product. These increased spend led to cumulative losses of Rs. 63 Crore over past 2 years.
• Presently, the revenue growth has accelerated to 35% YoY basis with a 109% growth in order wins from new clients. The company is now turned profitable since the last four quarters and the management indicates that going forward it would calibrate investments in-line with its top line.
• Ramco is trading at 5.5 x EV/sales. Given its emerging scale and strong product offering in a large market, its current valuations may not be comparable to peers.
• Peers trade at significantly higher multiples: Workday (20.4x), Netsuite (15.4x), However Ramco’s future valuations may be driven by continued momentum in revenue growth and the scale it achieves.

Key risks: risk of poor adoption of the products by the market, Increase in competitive intensity from the fierce deep pocketed rivals.Resigning of the CEO maybe?

Conclusion: According to the management, its product development phase is almost complete and the company is now focused on strengthening its sales and marketing. As the company’s costs are largely fixed, strong revenue growth would likely result in an expansion in profitability due to operating leverage. Also as the oil prices have come down leading to increase in disposable income for airline industry is a positive for Ramco as airlines are likely spend that on improving their IT infra. To become a successful IT Product Company, it needs to be backed by a good product, strong brand and a committed management. It needs to relentlessly execute its sales and product development strategy in order to achieve meaningful scale. The promoters and the management also need to have the right mind-set to lead such a venture to a success. Ramco appears to have all the ingredient in place, but will it turn out to be the multibagger is the story yet to be unfolded.


 For 5th graders:-

A lot of you may not understand the IT or above stuff. Allow me to explain in simple language. Am not even talking about the other two divisions.Lets just talk about it payroll software.

We as a county ain';t famous for our products.I mean how many products we have?There';s Finacle,tally,the onmobile product and what else? Need to google up as there';s hardly anything else popping up in mind. That';s where our Ramco and its payroll software counts. It';s a product which is already making waves all over the world. Even the likes of Infosys,dell and several others are reselling its product.

They are softwares with an annual charge,business model can be compared to our consultancy services. Target companies with 10000 employes,charge per employee some 500 bucks monthly and you make a million USD yearly business. Think about the margins folks. You sell the same thing time after time with no incremental costs. Say we sell our stock ideas to 10 clients or 100 clients,our costs would be fixed but we will make 100% margins right? That';s how lucrative Ramco';s business is. Addressable market is nearly 1 lakh crores.

No other player in the world got as robust a product as ramco. The new CEO is the game changer for the company. As long as he is at helms,company will continue to grow heights. If the company can market its product well-Sky will be the limit for the company. Global peers are crazily valued with 15-20-40x of their sales.

Also they recently got a big deal in Australia through a partner/SI called Megasoft. Now they have 150 more SI folks. Think cumulatively what all those can result into? Sky is the limit for the company.



BTW:For different stock market related services and also for techno-Funda tutorials,rush a mail at my mail id arunsharemarket@gmail.com to know more about it.



Note: The above is not a research report but assimilation of information available on public domain and it should not be treated as a research report.
Registration status with SEBI: I am not registered with SEBI under the (Research Analyst) regulations 2014 and as per clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations”


Disclosure: It is safe to assume that I might have Ramco in my portfolio and hence my point of view can be biased.Readers should consult registered consultants before making any investments.

Saturday, June 13, 2015

Vadilal Industries ltd:- Can it become a multibagger?

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Q&A session:-

Q? I bought a lot of Vadilal industries at 340 bucks merely reading your twitter updates. You disclosed you too own a few of the company and looking for a target of 1000 bucks in the next 3 years. Can you please share the reason and logic to your readers? A detailed elaborate note like your other notes would be highly appreciated.

Ans) Vadilal was suggested at around 340 bucks as management commented about the impending merger and its consequences.However,I don't appreciate your logic of resorting to opt for the company,just going through my twitter updates and nothing else. Stock market ain't that easy a place to earn. Borrowed conviction often hurts bigtime, if you don't know the actual worth of your demat possessions. Request you to relinquish such gusto and concentrate on finding the operational reasons before proceeding in owning a business.

Here's what prompted me to pick the company:-

Company:The company is the second largest ice cream player in the country. Vadilal owns the bragging rights of having the largest range of ice creams with 150 plus flavours sold in a variety of more than 300 packs and forms. The range includes cones, candies, bars, ice-lollies, small cups, big cups, family packs, and economy packs. Vadilal is one of the very very few ice-cream players in the country to have presence in all the three categories of ice creams — premium, regular and frozen dessert — which remains and will be an asset.The company also offers products for all age groups in the price range of Rs 5 to Rs 100, and above. Vadilal has very strong distribution network having 60,000 retailers and over 750 distributors.Its advantage in handling such large distribution networks, including cold chains and stock-keeping units (SKUs) of more than 300, gives it valuable experience in scaling.The company currently just gets around 5-7 per cent of its revenue from Eastern part of the country, while 50 per cent of its revenues come from Western India and the rest from North India.The company has two production facilities – Pundhra in Gandhinagar district, Gujarat, and Bareilly in Uttar Pradesh.

Industry perspective:India’s current ice-cream market is worth Rs 3,500cr, including the unorganised sector. The branded market has a host of homegrown and international players, namely, Amul, Kwality Walls, Mother Dairy, Vadilal, Cream Bell, Baskin-Robbins, etc, amongst the the prominent ones. Whilst Häagen-Dazs, Baskin-Robbins, London Dairy, New Zealand Naturals, and Hokey Pokey cater to the high-end market, the likes of Amul, Vadilal, Cream Bell and Mother Dairy are available at wide-ranging price points. Lately, the imported concepts such as frozen yogurt and gelatos are gaining popularity. The Ice-cream is one of the fastest growing food categories in India.Notably, the business is seasonal in nature with April to June being the peak season and November to January the lean months. Sales slacken during the monsoons also.

In recent years, consumption of ice-cream and other frozen novelties in winters has been on the rise. A mix of factors is responsible for lessening the seasonal impact and contributing to the overall growth of the country’s ice-cream industry such as changing consumer perception, capturing regional variations, diverse consumer segments, favourable retail location, product range and innovation, festivities, and marketing and promotions. Currently growing at 15-18 percent annually, the future prospects of India’s ice-cream market seem promising for manufacturers, suppliers and retailers. A number of regional players have also started expanding.

Processed food division:Vadilal commenced processed food division in 1991. The company is exporting to USA, Canada, the UK, Kuwait, the UAE, Singapore, New Zealand, and Australia under the brand name of Vadilal Quick Treat and are present in more than 45 countries across the world. The company’s market share stands at around 15 per cent in the organised sector. The processed food division contributed 74crs of turnover last fiscal.Company plans to bring a strategic investor for changing the fortunes of the vertical.They may also exit it fully which can be a rerating factor.On 85crs of capital employed the segment was just able to break even.

Expansions:Company over the last few years has increased its capacity from 225,000 litres per day (lpd) to 375,000 lpd. It’s impressive that the company has accomplished this mainly through internal accruals.Besides, it's the only player to have invested in the installation of extrusion technology at its Ahmedabad plant so that its ice creams improve both in taste and texture.The company enjoys a 35 per cent market share in Gujarat, which is considered to be among one of the key markets for ice cream.Vadilal also has made aggressive plans to increase its sales in Jammu & Kashmir by over four times to around Rs 10 crore in the coming year. Company is already the number one player by volumes in Uttar Pradesh and is amongst the top ice cream players in NCR, Punjab and the northern belt. Vadilal is looking to penetrate deep into J&K, including regions like Srinagar, Anantnag, Baramullah, Pattan, Baandipura, Ganderbal and Sopian. Company is also expanding its dealer network aggressively in the eastern parts of the country.

Potential:India’s per-capita consumption of ice cream is estimated to be three scoops or 300 gms a person per year, against a mammoth 24 litres a person in several developed countries like the US, Japan and Germany.Even the Chinese consume about 3 litres.Leave China,Pakistan consume 150% more ice cream than us.With time as the power situation improves in the country,penetration will increase big time.The demand potential for ice cream is huge and Vadilal so far has been able to control and manage supply costs way better and more effectively than the multinationals..

Misc points:How it fared or whatever it did operationally in the last 10 years matters little as promoters weren't ready to share their wealth with investors. Vadilal enterprises got rich assets and a very tiny equity cap to the tune of less than a crore which will result to minimal equity dilutions.Company is also looking to sell some non core assets which will help in debt reduction.Real big money in stock market is made through foresight and not hindsight.

Concerns: A two decade odd family separation restricts Vadilal from selling its ice cream products in southern Indian states, including Mumbai and Goa. This is a major handicap, considering that 25-30 per cent of the country’s total ice cream sales come from these places.Competition from other players are heating up which though remains a threat but also helps in expanding the whole sector. To give you guys a perspective,country had an ice cream consumption of just 100 milligrams during the nineties. Amul entered the segment and increased the consumption multi fold.

Outlook:No sane companies with such strong brand recall would have ROE of 1-2%.Vadilal resorted to bizarre tactics of manufacturing ice cream itself and selling the same through its separately listed marketing arm.These events definitely hints at the uncomfortable zone which you members can easily fathom.Its a good new bull market going on and promoters are changing their attitude for good.They have finally decided to merge both the arms in a single listed entity. Vadilal has seen a drastic change in working capital requirement from 61crs earlier to just 23crs in the last fiscal. Vadilal enterprises works on negative working capital of 20-25crs. The merged entity would have either negative WC or very limited WC requirements as customer advances and distributors security deposits pile up.Last year security deposits of franchises went up to 8.75cs vs just 2crs,vindicating the stand of company"s expansion through asset light aka franchise model.Company has improved its collection period to just 2 weeks from a couple of months earlier.The age old tradition of doing business through other peoples money or OPM-Taking trade credit facility and becoming stricter on collections/demanding advances etc.

Conclusion:They have sufficient capacity to meet up any upcoming demand which takes out the Capex equation.Merged entity would have over 60crs of operating cash flows which can easily service the interest costs of 22-25crs.Debt stands at around 145crs as on last balance sheet figure.Company has also guided a reduction in debt which will boost the NPM.Vadilal has recently guided a turnover of 550crs for the merged entity with around 14% Ebitda margins.Company is just trading at 3x EBITDA.The 1000 bucks target over coming 3 years is based on few factors which include-Change in market perception owing to merger as conflict of interest vanishes,fancy towards consumption stocks with ice cream sector tailwinds,a branded play with expected EBITDA of 130-140crs on most conservative estimate 3 years forward.High promoters holding,low equity and lack of floating stock would ensure it quotes at a premium valuations too.Put 6x EBITDA to reach to the assigned figure.

Btw:All this figures will only be valid if the merger happens.Though nothing has been announced by the company in public domain but such amazing stock price rally amidst market mayhem only hints towards the insider activity which speaks volumes at the upcoming inevitable happening.If the merger gets postponed,stock will take a big beating.

Quote: The above note was prepared few months ago and since then stock have had a decent rally amidst market mayhem. Story seems to play out well. If merger goes through,the four figure mark would come way before the expected duration.

Recent results and improvement further in the balance sheet is a testimony to vadilal's strategy of doing business through the asset light model. The ice cream division did a ROCE of 19% which should further improve as both the levers assimilate to boost- Higher OP and depleting WC requirements. Merger will change the whole ball game as synergy chips in and you eradicate a lot of junks. There's no Capex for coming couple of years which will reduce a hell lot of high cost debts as high OCF galores. It's not quite your "Diary Queen from the sage of Omaha's stable" but nonetheless a cool consumption play with a change in attitude from the guys at helm. Mother Earth too is now the hottest in last 11000 years,that also makes a strong case to look at Vadilal? :))))) 


BTW:For different stock market related services and also for techno-Funda tutorials,rush a mail at my mail id arunsharemarket@gmail.com to know more about it.


Note: The above is not a research report but assimilation of information available on public domain and it should not be treated as a research report.

Registration status with SEBI: I am not registered with SEBI under the (Research Analyst) regulations 2014 and as per clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations”

Disclosure: It is safe to assume that I might have vadilal in my portfolio and hence my point of view can be biased.Readers should consult registered consultants before making any investments
.

Friday, May 8, 2015

Microsec Financial Services Ltd:-The E-Commerce Play

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Stock idea:-

Scripscan:Microsec Financial Services Ltd
Traded in:Nse-Bse
Cmp:74rs
Target:No targets(can be multibagger)
Duration:3-5 years
Portfolio allocation:5%

Quote:I have covered the company earlier at 20 bucks.Its already been a multibagger.Can well be a multibagger from present levels too.Check the link to know more:- http://www.arunthestocksguru.com/2013/11/microsec-financial-services-ltd-next.html


Verticals:The company got three business verticals which are: 1)Financial Services 2)Innovative Digital Media of Consumer Engagement - www.foreseegame.com 3)Innovative Digital Pharmacy and Healthcare Store - www.sastasundar.com 1)Financial services:It provides financing and investment, investment banking, broking and wealth management, insurance broking, financial planning and related service.


Quote:Simply not interested in this business.The company is much more than a boring RBI registered NBFC.Read on:-


Ecommerce:Tailwinds are blowing in ecommerce with almost a dozen deals happening everyday.Unfortunately, in the Indian stock markets the numbers of ecommerce plays are limited.We have a handful of companies with the likes of Just Dial and Info edge,both valued at over billion USD. Who actually cares to buy them though?Then the micro caps follow with average business models-Intrasoft technologies,Istreet network to name a few.Now let's talk about the probable best ecommerce play which is yet to be noticed by markets.Not only its debt free with innovative Ecommerce verticals but the company also posses a lot of cash in its book.


2)FORESEEGAME.COM:Foreseegame.com has become no. 1 consumer engagement platform in India with Alexa ranking of 270 at India level.The company as on date is having over a million users and is growing at a very rapid pace. It is a value innovation in marketing media which offers complete engagement cycle to brands. It is value additon to Digital Media – beyond impressions and clicks and providing 360degree engagement through games of prediction engagement around TVC, feedback,Co-creation and Social Responsibility.Foreseegame.com has more than 15 million page views per month and the average time spend per user at foreseegame.com is 28 minutes which is far ahead from any other website.Yes its even higher than Facebook or any site that you may surf daily.The most interesting feature is that the user spends maximum time with brands while on foreseegame.com.It provides brands engagement with their target audience through age-wise, gender-wise and location wise games and capable of bringing customers to stores/websites of the brands.The digital Advertising market size in India is around Rs.4000 crs and which is expected to increase at a 30% growth rate. The Management is foreseeing tremendous growth opportunity in this business.


Business in simple words:It's kind of an online lottery portal.Users predict and they win cash prizes,discount vouchers from several brands.Foresee gets 10 bucks from brands per engagement/game.For example if 1 lakh users play a game daily,the revenues will be 3crs monthly or 36crs yearly(1*10*30).A portal offering "cash prizes" in a cash starved country with population of 125crs. Relax and fathom the potential members.I too won some discount vouchers and cash rewards.


3)SASTASUNDAR.COM: Sastasundar.com is an innovative Digital Pharmacy and Healthcare Store.Within a very short span of time,it has received tremendous response from the customers. "At present, the services of sastasundar.com is available in Kolkata and nearby suburb area and it is processing on an average 1600 plus orders on daily basis.The company is catering to over 1 lakh customers with average daily addition being a highly impressive 400-500."


Business in simple words.They simply sell medicines online.From generic to the daily needed necessities.Retail medicine shops make 20-30% on an average. Sastasundar aims to capture that segment by offering 15% discount to its customers.Since the volumes would be way higher,the margins for the company would be superior than the average retail shops.The company aims to have double digit EBITDA in this segment.They are also into trading through their healthbuddy products which ranges from coconut oil to herbal Ayurvedic stuff.


Think about the integration:Through foreseegame the company would have access to millions of users,migrate them to sastasundar with impressive discounts and they are yours.With foresee the cost of branding sastasundar is minimal.


Even 500crs revenues for sastasundar ain't a big deal.Think about the service period of medicines.So if you clock 42 crs in your monthly sales,you will hit 500crs easily (42crs*12 months).Additional new customers will further fuel revenues.They have got some retail sastasundar stores and is also offering franchise based opportunities at minimum costs.


Sastasundar is becoming a rage in our part of the country simply due to the fact of offering genuine medicines at discount of 15-20%.Its already into the alexa top 500 portals of the country which vindicates my point.Till 2500 bucks of medicine purchase you get 15% discount and above that 20% discount follows.


The company is also about to start high margin innovative segments like" Make to order ". You order the chef how to make the foods and they will deliver it to your doorsteps.


Reference:My family got a monthly recurring expenses of 2500 bucks in medicine.We used to buy from nearby retailers previously.Since last couple of months we switched to sastasundar.They are delivering timely to home with no additional logistics cost.We are saving about 500 bucks with added satisfaction of consuming "genuine medicines".Presume the scalability of the business with over 9crs of population in the state alone.Company has a vision of going pan India but only after creating profitable zones.


Recent deals:Healthkart.com,a company into nutritional supplements recently raised around 130crs from Intel capital at a talked about valuation of over 1000crs.Another customer engagement firm freecharge is in news of late with reports of snapdeal acquiring the company at 2800crs.


The private equity way to value ecommerce players:They range from 3x to 150x revenues.


Endorsement of Phaneesh Murthy:Murthy, who previously held senior positions at Infosys and was the CEO of Igate, has started PM Health and Life Care, an online pharmacy. He is raising $10 million for the venture, which is expected to start operations in September in 10 Indian cities.As per him,"The Indian pharmaceutical market is estimated to be worth $56 billion by 2020".“Buying medicines online is a different culture altogether. There is great scope as consumers are increasingly shopping online,” he added.The Indian pharmacy market is fragmented with unorganized players accounting for over 95%.Indian spending on healthcare is expected to nearly double to 13% of disposable incomes by 2025, according to PWC.


9 month results:The financial services segment delivered 21crs of sales vs 19crs.Foresee recorded 28 lakhs vs 8 lakhs.Sastasundar saw a massive rise in revenues with sales increasing from just 8 lakhs to over 11crs. Sastasundar is well on course to hit 9crs sales in the last quarter which will make it clock 20 crs.Both the ecommerce portals delivered losses to the tune of around 8crs each.The financial services division clocked a profit figure of around 9crs in the 9 months period of the present fiscal.It will end up with 12crs of PAT.


Loaded with cash:Company has investments and cash of about 90-100crs in book which if you subtract from the Marketcap provides an EV of 120crs.


Risks:The financial services business will continue to do well as long as equities perform.In any case, cash flows would be robust owing the fee based in nature. Ecommerce segments though are sun rising but are far from making profits.It will take a while before both the segments make any meaningful profit.


Conclusion:Microsec has been a laggard post it's listing in 2010.The issue priced at 118 was oversubscribed by 12 times.With a sound strategy and new Sunrising verticals in place,company is about to see a change in its fortunes.Both the ecommerce portals would grow at 80-100% CAGR for coming few years.As the segments attain scale,it would probably be demerged into three entities.At present valuation,market is valuing the company at 10x EV.God fearing management has a vision in place to make wealth for themselves and the minority shareholders.They are transparent in their dealings.The promoters including microsec trust and associates own around 80% stake in the company 'officially'.You are actually getting the ecommerce divisions for free.No sane investor can presume or pen a target here.Floating stocks are negligible,even average buying interest in the counter will make it hit the sky.

Btw:You don't need to interact with the management.Just keep track of the Alexa rankings.The lesser the rank the higher the growth of the company.

BTW:For different stock market related services,rush a mail at my mail id arunsharemarket@gmail.com to know more about it.



Note: The above is not a research report but assimilation of information available on public domain and it should not be treated as a research report.

Registration status with SEBI: I am not registered with SEBI under the (Research Analyst) regulations 2014 and as per clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations”

Disclosure: It is safe to assume that I might have microsec in my portfolio and hence my point of view can be biased.Readers should consult registered consultants before making any investments
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