10000 to 4crs in 18 months 1000rs to 50crs 300% returns 75% promoter holdings A 50 bagger A sureshot 5 bagger Analysis Another fraud? Auto ancillaries Bank sector Blind sell Brand plays Broking Bse Nse Buy calls cements Ceramics/tiles Counters I don't like Debt free businesses Delisting candidates demerger bets Disclosure- I own them Domestic consumption plays E-Commerce pick Education Exit at rallies Famous analysts Famous stocks FMCG Footwear future multibaggers Gems andJewellery Hidden gems High conviction ideas High dividend plays High potential small caps High ROE stocks Holding companies Hotel sector How they looted you.. Indian stock market Infrastructure sector Interesting Microcaps IT KPO Landbank plays largecap ideas Less than 5 PE stocks Liquor Logistics Market lessons Market outlook for 2013 and 2014 Market underperformers Meeting with the CEO Metals Monopoly businesses My 5 baggers My Favourite counters My paid stock recommendations My stock picking techniques nse bse tips Oil exploration Operator calls Paints Penny stock outlook penny stock updates Pharma sector Poultry stocks PSU Publicity freaks Real estate Renewable energy plays Safe bets Sell recommendations Share market Live shipping stocks short term call SOTP plays stock tips stock under 10rs Stocks to watch out for Strong bonus candidates Takeover candidates TATA product tea Textiles The 13 bagger The 45 bagger Trading companies Transformers Turnaround bets Tyres Uncertain/Risky business models Unique businesses

Search This Blog(Over 800 companies covered in the blog).

Archives : Old artciles

Thursday, January 28, 2021

My channel all set to hit 20000 members

  Thank you everyone for subscribing to my Equity investment related Telegram channel. It’s been subscribed by nearly 20000 subscribers. It’s free and always will be. Stock and sectors covered in my telegram channel:-

Here’s the channel link:-


Note: It’s a detailed coverage and proper diligence been done. Hope you all like the content.

1) EV theme 

2) Power sector

3) Chemicals&spec chem scuttlebutt and analysis

4) Coal Ind

5) Aarti ind

6) My patterns

7) Nocil

8) Deepak nitrite

9) Lupin

10) Optic fibre

11) How to find multibaggers

12) Market note

13) Solar power

14) 11 small caps to watch out for.

15) Smart capital allocator series

16) Your question and my answers regarding few individual companies

17) Sugar sector and my picks. 

18) Kingfa India.

19) Medicamen Biotech and Shivalik Rasayan.

20) How do I shortlist stocks..

21) What the Stalwarts are saying..

22) Harshad Mehta scam- Unbiased version.

If you are Still face problem joining the channel then just go go to Telegram search and search Arunstockguru. Happy investing  guys. If still there’s issue- WhatsApp my assistant Ayush at 9804270070 and he will get you added. 

Saturday, June 27, 2020

Welcome to my new Equity investing Telegram channel.

Hi Guys,

Reposting this message again for people who missed earlier:-

It’s been a long time since I have updated my blog. This days it’s disruption time and everything is available in your cell. I have migrated the blog to my Telegram channel, where you will get all the updates instantly. Just ensure your notifications are turned on. If you face any issues, whatsapp/call my assistant Ayush-9804270070. Below given is my Telegram channel link. Download the Telegram app and click the link. It’s already subscribed by nearly 11000 readers.

Last few detailed coverages in my channel:-
1) Deepak Nitrite
2) Nocil
3) Optic fiber cable cos
4) Pharma cos
5) Coal India
6) Chemical co scuttlebutt
7) EV theme and proxy plays
8) Lupin analysis
9) Market outlook and prospects ahead
10) How to identify good entrepreneurs
11) 10 microcaps to watch out for.
12) My fundamental multibagger patterns
13) Solar power related stocks and their future
14) How to research power sector related stocks.


Tuesday, January 21, 2020

Topics for Pune Extended Family meet event(8th and 9th Feb)

As you all know we conduct our yearly meets with our passionate group members/blog readers/ twitter followers/clients every 6 months. The next Family group meet event is just 15 days away. Can't wait to see you all again. Aside from the speaking on different topics,we also have got a 100 mins adda session which will have involvement of each and every members. So from stock tips to sectoral updates to scuttlebutt on unknown hidden gems to investment opportunities in startups,we have got them all covered. Here’s the full list.

1..Unravelling secrets of Equity compounding through Reverse Engineering. The power of Data Modelling(just by help of Excel and screener).

2..The EV revolution theme and it's repercussions. Which stocks to benefit from it and which ones you should watch out for as well as avoid.

3.Arun's version of Shark Tank(Startup story): The story of Dh health solutions. How Drhelpdesk is disrupting the online healthcare arena and why it's set to be the next big thing. 

4..Why investing in bonds should also be considered. The advantages of bonds over stock investing and what factors you should consider in mind while opting for Bonds.

5..What's up with the Auto sector? How to analyse the Auto ancillary companies? Which are the best stocks to play for the next 3-5 years? Which stocks to avoid? 

6.. Simplyfyng small cap investments through common sense and scuttlebutt. Few important patterns which will help the investors.  Eradication of mental blockages and biases.

7.. Behavioural economics and models. What connects companies like Indigo,Tata steel and GE Shipping. How to play them and when to exit them. 

8..Glimpse of the chemical sector and what's the future looking like? Which are the companies to play the theme. Which speciality chem co can really be that mega bagger? 

9..The class of Ajay bagga sir. He would be sharing his experiences and knowledge with the members. Which companies he likes and what he is feeling about the present market conditions.

10..Whats Corporate India/India inc suggesting at the current juncture. Which would be the likely sectors to participate in the next bull market(Kuntal bhai)

11. How to play the fintech stories. Which companies to watch out for.  How do VC firms shortlist entrepreneurs and when to exit from those listed co as well as startups.

12..100 minutes of adda session which will see the engagement of all the members. From individual stock picks to Scuttlebutt to words of Wisdom.

13..Couple of Listed small caps would be presenting their stories. Presentation and QNA.

14..Technical analysis segment. The art of Reading screen and playing momentum bets.

Passion regarding equities is the only eligibility to be part of our upcoming meet. Please fill the below form for registration. For any issues or queries-Whatsapp/call my assistant Ayush at 9804270070

Btw: It's very important to have different perspectives. Find guys who can play the role of a devil's advocate. We tend to be biased about our own pick. But ones you discuss with 10-15 guys you get so much of perspective that it opens up your mind. Also scuttlebutt is one very vital aspect which helps you in a massive way. Everything can't be confined to WhatsApp or some investment forum. You need to get out of your comfort zone and meet like minded guys. Also a better surrounding will do a world of good for your investing career. Ones you are in a company of 100 amazing investors,you get so much of confidence. Ones they know you or you know them,both the fraternity would open up a lot more than a whatsapp DM. This is why we conduct our yearly meet. Cumulative wisdom is imperative for alpha generation. We have all named it an extended family coz of the amazing bond where everyone is fond of each other. Happy investing guys.

Sunday, December 1, 2019

Shivalik Rasayan ltd: AGM Notes and Our take on it

Scripscan : Shivalik Rasayan ltd

1..The development of site at Dahej is on track and the company is working with strict monitoring to make sure that by December atleast 2 blocks are made operational.The infrastructure at Dahej supports 8 blocks – 4 for Oncology (1 Intermediates) and 4 for General (Non-Oncology) products (2 Intermediates). As a strategy its making sure that the company is not dependent on any external vendor for Intermediates or any key ingredients used in the manufacturing of APIs.

2..Once 4 blocks are operational and running, depending upon the demand timelines and business visibility, company will start adding additional blocks 1 by 1. This is to make sure, to have enough liquidity in hand to meet working capital and R&D expense. Once sales start coming in and capacity starts getting utilizing, it will start operations at other blocks. Infrastructure already is made to support 8 blocks, utilities are already installed supporting all 8 blocks, it will take 3-6 months for installation in additional blocks.

3..R&D Team is currently working on atleast 25 different molecules for API and work on 8 have been successfully concluded at R&D level. Once the site at Dahej is operational which is expected by December, co will immediately initiate the scale-up and Exhibit batches of these 8 API’s. This activity will take 3-4 months and by December 2020, its target is to file 8 DMF’s with USFDA. As soon as company files DMFs, it will trigger USFDA inspection and its preparing for March-June 2021 for USFDA inspection.

4..The Company is Putting strategy on leveraging the developments across different geographies. DMF for US & CEP in EU filing to be targeted parallelly. Focusing on other markets apart from US to be explored keenly to reduce dependent on single geography. Already in dialogue with different potential partners in Australia, Canada and Japan.

5..There is a specific inquiry from one Asian country for a Speciality chemical which company is currently exploring. The team visited the country last month to understand the clients requirements. Its progressing on samples and further dialogue to explore potential business. In case, things fall in place, co will have 1 dedicated block for this speciality chemical for the client only in that country.

6.. Compliance: Company been heavily focussing on all USFDA inspections made at every site in India in last 12-18 months. The team been understanding each critical observation that USFDA has made during their inspection to other sites and its confident that company will not face any such issues in future. Lot of efforts and investment has also been made in procurement and designing of equipment at plant level to have smooth and best infrastructure in place.

7..There are lot of enquiries already from different vendors on API and confident of good business once it initiates operations and have all approvals in place. Company has recruited industry veterans from big Pharma cos in its endeavour to reach massive scale by 2023.

Our Take: The Company’s core business of Pesticides been doing steadily doing around 50crs sales. Pricing power has helped it to scale revenues as it’s been operating at full capacity for quite a while now. The core business doesn’t make it an exciting bet. The API division is the real deal which can be its cash cow going ahead. Shivalik’s Few APIs namely Capecitabine,Azactidine,Busulfan Etc are much in demand and very costly. The first one costs 650$ per kilo. The second one which is Azacitidine is super costly,say 15000$ per Kg. Busulfan is super duper costly. Cost is around 125000$ per kilo. This are amazing products and as can be seen very high value in nature. We wouldn’t call it as complex as one thinks but it has high constraints. Being oncology in nature,you need to manage lot of compliance which the company is doing pretty meticulously and these aspects itself creates the entry barriers. By 2021-22,Shivalik we feel can easily do 150crs from this APIs with net margins of 20%. Company at present marketcap is just 270crs. Also it owns more than 40% stake in its forward integration baby Medicamen Biotech(Shivalik will supply the APIs for Medicamens oncology products which gives it a secured perpetual client) which quotes at 400cr mcap. They also have a land worth 50-75crs in Hardwar which could be used for future expansion. All this makes its valuations way more compelling than what it looks on first glance. We remain high on the oncology and related plays. 

 Btw: To know more about our Stock Advisory Service please fill the following form:
Let's compound our wealth together. 

DISCLAIMER - The writers are partners of SA Investment Advisors, a SEBI registered investment advisory firm. They along with their family members may have position in the company discussed above.

Monday, October 14, 2019

Fredun Pharmaceuticals ltd: Scuttlebutt and Analysis

Scripscan : Fredun Pharmaceuticals ltd

1.  Fredun Pharma has come a long way by growing at a CAGR of 30-40% and recorded sales of 98crs in FY19. The growth rate is likely to be around 25-30% for the next 2-3 years as management understands the balance between scalability and sustainability.

2. They started way back in the 90s being contract manufacturer to big Pharma companies. Currently contract manufacturing is only 2% of its total turnover. Anti-Diabetic contributes 25%, Anti Cardiac-18%, NSAID 24% and Others -33%. That’s the present mix of sales.

3. They have expanded the production capacity by 530% in the last few years. Company has been systematically investing in its productive Infrastructure by installing additional granulation departments, high speed tableting and blister packing machines. The current capacity utilisation is at 50% and by mid-2020, the utilisation levels would go up to 80%

4. The company’s product portfolio has expanded from having around 63 products in 2007 to 427 products in 2019. The company is registering its products in various countries and over 200 products due for registration within the next 18-24 months. It is set to get a cosmetic license for manufacturing related stuff by September 2019. They are also planning to launch a generic medicine line.

5. Anti-Diabetic products contribute nearly 25% of its revenues. The number of Indians with diabetes is projected to reach 73.5 million in 2025. The direct and indirect costs of treating such patients are currently about US $420 per person per year. If these costs remain the same as they are now, India's total bill for diabetes would be about US$30 billion by 2025.

6. Company is targeting sales of 120 cr in Fy20 and 150 cr FY21. Next 2-3 years focus will be on marketing/registering the products. The company has the right mix of value and volume-based products.

7. The company is targeting Africa and considers it to be a huge potential market can lead to good future growth. Sri Lanka also is another market which the company believes can be huge. They are registering some products for high potential Russian market too.

8. The Net margins of the company are likely to go up from 3% to 8% in the next 2-3 years. The company is in talks with banks and investors for some Working Capital, which is required to scale up. It could either be in the form of equity or debt.

9. Going forward in the next 2-3 years, the company expected to do a business of around 60 crores alone from Ointments and pellets. Most product developments are in the final stages. Current order book in hand is 45 crores.

10.  The inventory of the company has increased from 18Cr to 40cr and is likely to remain high since the company has been buying in bulk (for 4-6 quarters) to get discounts which leads to savings. Operating leverage will come into play once it crosses 170-180 crs of sales.

11. Company is having no concerns regarding Africa client payments or bad debtors. Company deals with parties which are largest or second largest in their respective countries. The total debtors of only 13crs on 98crs sales is a testimony of that.

12. The company has enough capacity to deliver 230crs of sales so for the next two-three years, it doesn’t need to expand capacities. Some machine and plant up-gradation cost would be there.

13. The recent 4% pledging was for secured loan collateral and the company has no plans of pledging more shares. There is no risk of existing pledged shares getting dumped in the market by the lender.

Our Take: The management of Fredun Pharma has the good habit of putting conservative guidance and over-delivering it by quite a margin. The first-quarter profit to us seems pretty deflated. The company rather than capitalising its R&D expenses showed them as expenses and took a hit on P&L. We feel it would have been better to create a subsidiary and do the activities related to research & development there. It would have led to showcasing the true standalone numbers as well as given them the chance to raise fund in the subsidiary which wouldn’t have led to dilution the parent company’s equity. In the next 3 years, we feel it would hit top-line of 200crs along with net margins of 8-9%. Altogether an interesting small cap bet with a lot of potential.

 Btw: To know more about our Stock Advisory Service please fill the following form:
Let's compound our wealth together. 

DISCLAIMER - The writers are partners of SA Investment Advisors, a SEBI registered investment advisory firm. They along with their family members may have position in the company discussed above.

Sunday, August 25, 2019

Kingfa Science&Technology: Scuttlebutt Update.

Scripscan: Kingfa Science&Technology ltd
Traded in:NSE-BSE

Quote: Kingfa India came with spectacular set of numbers where it’s profit vaulted from 60 lakhs to 10crs even under this slowdown. The company which showed 19crs of Pat last year should double the same in the present fiscal.

1..Top-line could double in next 3-4 years. Current market share for auto in India 24%. In couple of years it can exceed 50%. Current product mix 80% (auto) - 20% non auto.This mix may be revised to 60% auto - 40% other in long term.

2..Chakan plant could start production soon.Key focus of Company may shift to Engineered plastics (E.P.) in India. Total E.P. market in India 50 kt, current kingfa sells 3 to 4 kt. Nylon, ABS, PCABS are key targets.

3..It is likely that DSM India will feel pressure once Kingfa focuses on Nylon. DSM purchased SRF E.P. business (12,000 tons per annum), because it was a complimentary fit (4 wheeler presence added to 2 wheeler presence). 

4..July production volume was 6000 tons. Highest in the history of the company. As Chakan ramps small production, Jejuri will likely ramp down.

5..Long Glass Fibre projects are taken for specific small projects. Good product. In future it is likely that Kingfa will put LGF line as volume comes in

6..Major exports likely to commence in 2021.No major cost difference in polymer prices between China and India. In fact Reliance is bit more expensive.

7..Kingfa China  may strategically shift some export Business from China to India. 2021 supposed to be strong export year. Kingfa adjusts for crude cost with a quarter lag

8..In 4 to 5 years, it is likely that E.P. will be 40% of business, PP will be 60%. Key drivers could be :China market growth to moderate sharply going forward - like a developed market, while India has huge potential to scale.India could be export hub, China US concerns are also creating a long term strategic push for such a move.

9..Automotive:Electric vehicles should be very good for business. Lightweighting is a key initiative, and EP are a key solution.In EV, Battery casing, door panels, metal grills etc. are key products for replacement.Kingfa could be working with some German Tier 1 producer for such projects already.

10...Motherson key strategic global customer, large volumes rumored to be under discussion.MG Hector - 85 Kg all rumored to be supplied by Kingfa. Suzuki potential biz. 12 kt per annum.

Conclusion: Anything that can do so well under such slowdown only showcases what it can do when the sentiments changes for good. We remain positive on the future prospect of the company.

Btw : Happy to introduce our Sebi registered investment advisory services. Please click our website Equitywealth to know more about it.

Team Equitywealth

Sunday, June 2, 2019

Positive on the Shipping sector:-

Positive on the Shipping sector:-

After manufacturing here comes another sector(though cyclical) which after doing a lot of scuttlebutt,we are pretty convinced is going to soon make a lot of money for the investors. The perfect way to play the Sector is by betting on something which has been in existence since last 70 years and kept its head still while others winded up. Great eastern shipping  is your evergreen giant which is an amazing capital allocator, remains the best pick in the sector. The last man standing in quintessence is deploying massive capital in the business after a gap of 10-11 years. The Annual report is a fantastic read too. Pls don't look at the accrued crap basis of pat accounting but a cursory look at the OCF will tell one the reality..Its Close to 2-year lows and down 37% this year, in line with the mid cap debacle, but mostly because of some Rs.500 cr of Impairment Charges (on selling old ships and rolling over into new ships). Plus another Rs.500 cr over 2 quarters of Re depreciation (notional accounting charges, because the asset appreciation is not accounted but the Derivative losses are booked. Also, gains from Re depreciation in Freight is not accounted), which have depressed PAT, but don’t affect cash flow. 

Just like manufacturing co this co too posses huge operating leverage. With little capex and inevitable grand cash flows,easy to assume it will repay/prepay debt which will further boost profit. Tailwinds signs are visible after long long time. Ballast water treatment+IMO 2020+ the bigger picture which is India has 4.5% of world GDP, about 7% in PPP, and its biggest Shipping company is at 4000crs (only 4 Shipping companies in India, only $ 8 bn of Freight carried is under Indian flag). In every long cycle (Japan, China and earlier Greece/ Norway), a long growth cycle creates huge Shipping companies. India has only GE Shipping as a major bankable player.Indian freight growth is at 2.5 times worldwide merchant volumes growth. This will continue. Company though May not move for 3-6 months but it would be hard to lose money from this amazing co.Happy investing guys.

Btw : Happy to introduce our Sebi registered investment advisory services. Please click the below link to know more about it.

Team Equitywealth

Thursday, May 23, 2019

The Next Sector to help you make Alpha

Power sector broadly can be categorised into four segments starting with companies like BHEL which constructs power plants. The valuations of these kind of companies depend on their order books/capex cycle. Then comes the power generation companies such as NTPC and JSW Energy for whom profitability primarily depends on utilization given for PPAs. One major advantage for such companies now is that coal prices are getting passed on which wasn’t the case earlier. Third segment consists of the grids such as Power Grids of the world which are like the nodal distributors from state to state. Last segment belongs to guys like Tata, CESC and Adani (earlier Reliance Energy) which manage last mile distribution. It would be prudent to note that the Grids get a stable ROE kind of return however the last mile guys basically get an upside on volume growth.

Basic Thesis: It takes 3-4 years to set up a new power plant. Demand has been growing steadily at 7-8% a year, which is in line with real GDP growth. Capacity addition was growing at around ~15% for 3 years in a row i.e. FY11 to FY13 that lead to overcapacity and supply glut. Post that supply addition over the past 6 years has slowed to 2-3% so utilizations are inching higher for power generation companies.

PSU companies get preference in PPAs hence the PLF for them would always be higher than that of their private counterparts and on an average would be close to 80%. Which is why PSU generation companies have higher utilization rates. Let us consider a simple back of the envelope 3 year thesis on any operational power generation private company assuming PLF at 60% and no increase in tarrifs. So revenues and EBITDA can go up by 50% for private sector power companies on the exact same capacities with interest and depreciation either reducing or remaining constant. So JSW Energy for example by FY21 sees revenues at ~13500cr and EBITDA at ~4000cr minimum. Interest @800cr given debt repayment schedule and constant depreciation @1100cr giving a PBT of ~2100cr and PAT of ~1500cr. If valued at ~7x EBITDA, marketcap automatically doubles. That's the broad thesis for all such companies in the Power Sector. The same model can be applied to any power generation company.

First to benefit will be the power generation companies over the next 2-3 years. Post which next round of capex starts then it will be guys like BHEL which benefit. For distribution and grid companies it will be business as usual with steady growth. As in no earnings inflection. They should see steady 6-8% growth on existing assets. New assets of course will come in at a 14-16% ROE.

As a thumb rule for thermal power generation plants it costs 4.5-5cr for each MW capacity. So a 1GW plant will have a capex of 4500-6000crs. So if you notice a capex of say 7500-8000cr per GW just understand that it is capex gold plating. Interesting choice if asked to name, could be Gujarat industrial Power Ltd. Company with 800MW is quoting at around 1700crs Enterprise Value. Replacement cost of assets would be like 4000-5000crs. So in good times we might see a much higher valuation as the capacity gets utilised. As it is a PSU we can assume there are no management concerns. In the private segment, Jindal Steel and Power or JSW Energy may offer higher upside because of higher leverage.

Empirical evidence shows us, barring the commodities, no sector which created wealth in the previous bull cycle got repeated in the later bull markets. Power as a sector in living memory hardly created any wealth over the past 15-18 years. Let alone creating wealth, they have been wealth destroyers. Most of the companies are quoting at a huge discount to their replacement costs of assets. They are severely under owned and hated bets. But things are changing operationally for sure. The next 5 years can well belong to some of these quality stocks. Few of the companies even come with highly attractive dividend yields which protects their downsides. Valuations look pretty attractive and with clear signs of early tailwinds we should definitely watch out for some of these power stocks.

Btw : Happy to introduce our Sebi registered investment advisory services. Please click the below link to know more about it.

Sunday, February 17, 2019

Our upcoming Mumbai Annual meet in April

Our upcoming Annual meet in Mumbai this April:-

As you all know,every year we conduct our Investor groups yearly meet once in a year where for couple of days the shortlisted participants meet and greet each other,network and discuss everything related to equity markets. In the last yearly meet which happened during October in Pune,these were the stuff which happened and got discussed.

1) HEG-Graphite why the party is over and you should sell: Was presented by someone who personally is a shrewed investor and a supplier to both the companies.

2) Indian tile companies: What’s the ground reality? 

3) How to research a Pharma stock: Somone who manages the European portfolio of the Billion Usd Intas Pharma presented on it.

4) Behavioral economics and Indigo: Was presented by someone who has been CFO of 5 big listed companies.

5) Indian Shark Tank: Where a small time unlisted beverage cum snacks player presented and all the 60 participants grilled it. 

6) How a PE/VC zeroes in on a listed company: Someone who manages a VC fund and recently raised 100crs,presented on it.

7) All the 60 participants chipped in with their small cap ideas with logic and rationality.

8) How to play the Auto Ancilary stocks: Was presented by someone who happens to be asupplier to all listed auto companies. 

9) All the yearly group participants are kept in a separate whatsapp group where it’s like an extended family. Whole day discussion happen pertaining to different aspects of market.

10) The total event is of 22 hours. Crazy epic learning. It's like from morning 10 to 12 in the night and from morning 10 to 6 pm the 2nd day.

Btw: We don’t call any external speakers from outside. Everyone remain part of our fraternity. Everyone including the speakers are looking to learn from each other. 

It was total fun and amazing to listen to all the participants including the speakers. We are slated to do our yearly meet again this April. This time too we hope to maintain the flair if not bettering it. There will be new subjects and speakers who will be sharing their wisdom. We don’t look for quantity but quality here. The requirement to be a participant is simple. You just need to have the required passion for the subject. Rest of the details are given in the below form. Please fill it only if you are serious about being a part of it.

Sunday, January 27, 2019

Happy to restart the Blog

Quote: After a long hiatus finally am back to blogging. The reason for the hibernation was to comply to SEBIs diktat. Finally have got the SEBI Investment Advisor registration in place(SA INVESTMENT ADVISORS. SEBI Registration No: INA300011991). Wish each and every one of you a very happy,lively and prosperous new year 2019.

Forget all macro and let’s concentrate on only something where we are required to concentrate:-

1) There’s no bull or bear market this days as the cycle has shortened. Previously it would be 5 years of bull market and a bear market with same proportion of time but at present this are phases which are much frequent. It’s futile to hazard a guess and only resort is to stay put in good stocks backed by a ‘great sky is the limit’ aspiring jockey/managment team. Wherever there will be growth the market would pay a premium.

2) Nothing actually changed over the last few months yet at point of penning this note,the small cap index is down by 35% from its peak which is staggering. The greed and fear syndrome in market is back in vogue with this time being the latter. In a good market the PE gets rerated and vice versa on the reverse. Soon the albatrosses would find their junks desolated venue to make northward ways for the quality one.Your patience will get tested but conviction would be wildly rewarded.

3) If you are anxious about your portfolio but posses good quality cos with solid growth ahead backed by robust pedigree,sooth your nerves by fathoming the simple thing. The country is happy to grow by 6-7% yet the companies in your portfolio would grow at a minimum 20-25%. A few will grow by 40-50% CAGR for next 3-5 years. That’s serious growth folks. It’s only a matter of time before sanity comes back to the markets with eventual rerating of good stocks irrespective of small,mid or large caps.

4) When I go and speak to all the managments or visit the plants in person,it’s a complete different scenario. Everyone seems to be working over time. The order books are full,there’s more enquiries than ever,new employees are getting recruited,plants are being expanded-takes you to a different state of mind altogether. The idealogy remains simple,try to have that feel of lucrative business ownership and stock markets would automatically be a different place for you.

5) Avanti feeds adjusted everything moved from 7rs to 3000rs in a matter of 8 years. Nalanda capital swallowed a chunk of Page Industries during the era of 2007 at 600 bucks only to exit partly presently ar 25000 levels. Symphony moved from 2rs to 1200 almost in the same period. Enough of listening this sob stories. It’s high time you avail the bragging rights by just simply staying put in the companies you own as long as their growth story is intact. With time,they can only make you richer.

Conclusion: It fascinates me to the core sensing so many of the gullible retailers who are happy locking their money in FDs for decades,generating absoloute post tax peanuts but refrains to give bit of time to the best wealth generation asset in the world. The good part is I or you require nothing in lieu but just time and patience to grow richer along with all this amazing partners. The bad part remains,some of you will see,read,understand everything yet will panic and sell it to your neighbours at the least of prices only to see them getting liberated at age of 40 Vs your liberation at grandpa age of 60. You want to be in which boat-I leave that choice to you peeps.

Btw: We will be shortly launching our SEBI registered subscription based Investment advisory thing which will include the stock recommendation service pertaining to the high quality-high potential small and midcaps. If it interests you,do put a mail to

Arun Mukherjee
SA Investment Advisors

Saturday, September 30, 2017

CP Ltd: The penny stock with Multibagger potential

Scripscan: Confidence Petroleum(CP ltd)
Traded in:BSE

Quote: They say you are the average of your five closest surrounding. This quote had a meaningful impact on my life and needless to say in aspect of markets I have been surrounded by some amazing humble investors with full of wisdom and wits. The exposure and learning received from them could be termed overwhelming. Was having a recent interaction with my elder bro and mentor Singaraju about a particular stock and this is what he ended up with. Here's the quintessence.

Story:ASIA’S LARGEST LPG Cylinder manufacturer by capacity. Operating 16 cylinder manufacturing units with a mammoth capacity of 72 lakh cylinders per annum (including current expansions) & one more high-tech plant for high-pressure industrial cylinders in Vizag. Market leader in Indian cylinder market with around 20% share.

INDIA’S LARGEST private sector LBG Bottler offering services to all OMCs. Operates 60 LPG bottling plants & 4 blending plants (for blending propane and butane into LPG). The company claims to enjoy ~95% market share in the LPG bottling space which is outsourced by OMCs. A capital intensive and low margin business, though.

One of the INDIA’S LARGEST – among top 5 – Auto LPG Dispensing Stations (ALDS) network under the brand “Go Gas“. Through its 100% subsidiary C Go Gas Ltd, runs 110 ALDS of its own in prime locations, across 21 states. Have ambitious plans to add 50 more ALDS this fiscal and to scale upto having 250 ALDS throughout India in future.

One of the INDIA’S LARGEST LPG parallel marketers. Its packed LPG Cylinder retailing is also run under the well established brand name “Go Gas”, with ~20 lakh connections – now present in Maharashtra, Andhra Pradesh, Telangana, TamilNadu, Chhattisgarh, Madhya Pradesh, Gujarat, West Bengal, Jharkhand, Rajasthan, Goa, Karnataka & steadily venturing into new markets.

LPG transportation logistics services with 55 owned vehicles.Offers LPG cylinder repair services on a wide scale.Large presence Indonesian LPG market. Indonesian (70%) subsidiary PT Surya Go Gas Indonesia running ~5 bottling plants for Indonesian state-owned oil and gas company Pertamina & 2 cylinder making facilities.

Through Projects Division, operates turnkey projects in Africa and the West Indies relating to LPG/propane plants and piping.Through a Chinese JV, looking to produce Natural Gas Meters, betting on domestic gas pipe lines growth.

Asset Rich:After being taken over by Nagpur based Khara group in 2004, the company was rejuvenated itself over last decade – the new management infused new blood into the company with flurry of investments, mergers, JVs, acquisitions and takeovers. Subsequently the company is now sitting upon many great assets (as listed-out earlier), brands, retail distribution networks and valuable real-estate.Company holds free-hold lands worth of Rs.20 in B/S at cost price; this could be of valuable real-estate properties at current market rates.

Moving fast on the wheels of confidence, till date the company has invested Rs 950 crore on different verticals; and now has plans a further investment of Rs 600 crore on future expansions.
It will set up 30 additional LPG bottling plants and 150 auto LPG stations (ALDS). The schedule is to complete the entire expansion exercise by December 2018.C**** Group employs 4,400 people and with expansions, another 2,000 headcounts would be added.The company has tied up with IOC-Petronas for long-term supply of LPG and with SAIL for its steel requirements.

Management – The Good Part:When an established first generation entrepreneur – started life with a small utensil shop in Nagpur – says “My role model is business tycoon Dhirubhai Ambani, whose thoughts always gives me an inner strength” – that’s quite interesting.And when he cites one incident – he miserably stood for two whole days in front of a LPG distributor for getting a new connection in his boyhood – inspired him to spot a huge opportunity and to venture into LPG business... you tend to sit- up and take notice.Nitin Punamchand Khara had started from scratch and pulled out a national LPG conglomerate out of thin air; now has become a tycoon, a force to reckon with in Indian LPG industry. Also the Khara group has a past track record of taking over sick units and turning them around into profitable. The group had taken over many sick cylinder manufacturing units in Andhra Pradesh and Maharashtra a few years back and has managed to successfully turn them around.

Management – The Bad & Ugly:But the good vibes about Management ends here. All the declared numbers "Kind of seem odd" and are not so dependable for an analyst to crunch upon. Looks like a lot has been swept under carpet; only small parts are disclosed.Say for example: take the much vocally lauded ALDS (Auto LPG Dispensing Stations) division which is run under a 100% subsidiary C**** Go Gas Limited, with sizable investments. In FY2017, it had a sales of only 0.5 cr (0.25 cr in FY2016) & Net Loss at 0.15 cr (0.29 cr in FY2016). This division now runs about 110 ALDS on its own in prime locations. Somewhere else on media, they are very vocal about the strength of the brand, how they brought down the break-even of a new station to just 12 months from 24-30 months and their huge ambitions to scale- up to 500 stations and high average sales per station of 230 tonnes per annum. But the declared numbers are puny, nowhere near the actuals or potentials or investment made. Or take another much lauded Indonesian (70%) subsidiary PT Surya Go Gas Indonesia – which had an investments of about 75 crore, now running some 5-10 bottling plants for Indonesian state-owned oil and gas company Pertamina & few 3-kg cylinder making facilities. The declared numbers in FY2017 was kinda funny: Sales – 2.4 cr & Net Profit – 0.40 cr.During FY2017, the company incurred a forex expenditure of Rs 23 cr (Rs 27 cr FY2016) for purchase and import of LPG. Forex earnings are not so meaningful around Rs 0.7 cr (Rs 1 cr in FY2016) – from return on investments received from Indonesian subsidiary PT Surya Go Gas. Where are the revenues from the much lauded international operations??Reading the Annual Report 2016 & 2017 was a tamasha like Rahul Gandhi – numbers doesn’t add-up and tally anywhere. It hides more than it reveals.Very poor disclosure standards. In FY17 results declared, there was no consolidated balance sheet made available. The company website doesn’t bother to have an Investors section at all.

Complex Conglomerate:It’s a conglomerate with presence across the entire LPG value chain – with complex holding structure. Operates with too many subsidiaries and associates – 10 subsidiaries & 10 associates – despite the negligible reported numbers for them; would warrant a holding company discount.

...But still - a Value Buy: Yes, they are Not the cleanest of guys. Huge mismatch by the way the declared numbers & their size, scale, assets and operations. They would be siphoning out money big-time creating black money and hugely under invoicing sales and avoiding taxes. But no more these kinda operations possible on this much of scale—given the historic changes happening in the management of Indian economy. Now under the current regime, Chors are being forced to change; not much other ways around. As and when they do change and wake up to the potential of market-cap driven wealth rather than siphoning money, both topline and bottomline could be surging over next 2-3 years.Strong balance sheet with marginal debt.Despite topline fluctuations, company is profitable consistently.

LPG distribution – a brand driven consumer business. Generates good operating cash-flows.
Can fund the future expansions with internal accruals. Changing, Good Chor?!The recent promoter’s stack hike from 46% to ~57% is a huge green signal and more incentive to go professional. And still they are occasionally buying more through market operations. In an another development few days back, the company and its subsidiaries has bagged a huge order worth Rs 362 crore from BPCL, HPCL, and IOC. The order includes supply of 30,16,352 LPG cylinders with option of order for equivalent quantity next year. For the sake of comparison, they sold ~20 lakh cylinders in FY2017.This kind big of order win – with the possibility for one more order next year – is unprecedented & a first for the company. Perhaps indicates the changing attitude of management.We are quite perplexed when the MD declared in a recent interview that C**** Group had registered a turnover of Rs 1240 crore in the last fiscal (FY17) and is confident to chase the turnover of Rs 1500 crore in the current fiscal (FY18).The listed company is the flag-ship of the group; no other large meaningful company within the group. And the declared revenue for the listed co CP was Rs 499 crore in FY17. Then what did he mean? Perhaps a clue about the things to come??!! That will be wonderful, if it is.

Favourable Industry Trends:The Government in its drive to minimise the subsidy allowed in cooking gas, in a latest announcement has ordered OMCs to rise subsidised cooking gas (LPG) prices by Rs 4 per cylinder every month. This is good news and a boost to Private LPG Distribution sector.With the Central Government already refusing LPG subsidy to consumers earning more than Rs.10 lakh per annum, a ready- made market is now made available to private LPG parallel marketing companies.Due to these dismantling of LPG subsidy by the Government, the illegal sales of cylinders have shown a downfall, which is proving advantageous to the company.PAHAL - Direct Benefits Transfer for LPG (DBTL) of Petroleum and Natural Gas by Ministry of Petroleum and Natural Gas - has also encouraged the end of illegal sales of cylinders across the country, which is a further impetus to the segment.As crude prices are at a historic low, the demand for oil, gas and petroleum products has increased substantially in India and this has benefitted the sector.Historically, demand for petroleum products has traced the economic growth of the country. With the Indian economy expected to grow double digit in the long-term, the energy sector would benefit from the same, going forward.Additionally, replacement demand for LPG cylinders is rising, as distribution of LPG cylinders in India has gained momentum since the past decade.

Big Govt boost for LPG Infra:To cater to the demand, Government envisage an investment of the order of Rs.25000-30000 crore in LPG infrastructure including import terminals, pipelines and bottling plants. Fuel retailers IOC, BPCL and HPCL are planning to add another 4500 LPG distributors this fiscal to their existing LPG distributorship of 18500. These state-owned OMCs will also add 47 new LPG bottling plants over the next two years to their existing 189, expanding their total capacity by nearly 25% to 21 million tonnes in 2018- 19. State firms sold nearly 20.7 million tonne in 2016-17, mainly helped by more than 100% capacity utilization at several bottling plants and also with help from private players. But with the projected total demand of 24 million tonne in 2018-19, as per industry executives, the state firms alone can’t cope up with the demand but need to be supported by rabid private bottling capacity expansion.

LPG – sill underpenetrated:The LPG penetration in the country is around only 72% currently.Government aims take this to more than 95% households across the country in the next three years, entailing an investment of Rs.30000 crore. The 2011 census said there were about 24.7 crore households in the country. The oil ministry’s projection is to provide LPG connections to 26.87 crore customers by April 2019. The NaMo Govt is very determined to enroll 10 crore new cooking gas.All these government's ambitious plans are set to throw open big opportunities for private LPG bottlers and distributors – of which CP is leading the pack.

Industrial consumption too picking up:In order to replicate the benefits which CNG has given to the transport segment, cleaner gas fuels are now being promoted for industrial use.“LPG can be replaced in all sectors where there is a need for heating treatment. It is cheaper and cleaner than the existing fuels,” said Dharmendra Pradhan, Minister for Petroleum and Natural Gas, in a recent interview.Government’s policy initiative to switch to cleaner fuels for environmental concerns have been speeding up conversion of major industries from coal/other fossil fuels to CNG and LPG. LPG being a cleaner and cheaper fuel is becoming the preferred choice of industrial customers.  Delhi has already announced the ban on industrial use of high sulphur fuels in the city and is promoting a switch to cleaner fuels like LNG / LPG. The government has announced plans to build green corridors and ensure CNG stations on highways along Delhi and Mumbai.These demand-side boosts from the industrial segment provide significant tailwinds for gas retail companies.

GST bites:In the previous indirect tax regime, LPG attracted a zero or nil excise duty all over the country. VAT or sales tax was also nil on most states. However under GST, a 5% rate was levied on subsidised LPG and 18% for non-subsidised LPG. (Every household is entitled to 12 cylinders of 14.2-kg each at subsidised rates from OMCs in a year. Any requirement beyond that has to be purchased at market price).This essentially means that the LPG prices are likely to go up and impacting demand, could also be biting into sales for private players like CP. However, given the non discretionary nature of LPG, things will return to normal over time.

Acquiring a listed co – Globe Industrial Resources:In a recent development, CP is acquiring a listed company, Delhi based Globe Industrial Resources, listed on BSE and Metropolitan Stock Exchange of India Limited (MSEI).With already acquired more than 25% of shareholding, the company has announced an open offer for acquiring upto 49.66% of equity of Globe Industrial Resources from the public shareholders.The target company is said to be engaged in business of trading in textiles; it’s declared numbers are puny and reminds of a classic shell company.The rationale for this acquisition is not yet clear.

Valuations – going cheap:In every segment they operate, they are being quoted as ‘THE LARGEST’..!We are not sure whether it’s a valid point – but We are tempted to do a random comparison (DESPITE OPERATING IN DIFFERENT FIELDS) to get a perspective on valuations: If the largest Pepsi bottler Varun Beverges (sales-3850 cr/profit-150cr) can command $1.5bn valuation, why would the largest private domestic LPG bottler serving top OMCs with 95% market share for outsourced volume, 20% market-share for cylinders & with large international operation, reporting so trivial numbers and be available at 400 cr market-cap?

Stock - Long pause at yearly limit:After flurry of up circuits, the stock is now resting at the BSE yearly circuit limit of Rs 19 – for about 2 months. That will be relaxed on 1st of October.Looking at historical charts, travelling through wild swings of continuous up and down circuits (mostly in the range of Rs.5- 25) is not new to this stock; nearly over 2 decades, the stock has had so many of them.This time, will it be different?? Keep your fingers crossed..

Btw: Folks interested for our "Sebi registered premium small cap services"(Sebi registration number: INH300002357)pls fill the below form. For assistance do whatsapp/contact Ujjal at 9831291631 or dip at 9007652301.

Thursday, July 20, 2017

Here comes the "Next Caplin Point"

It's been one heck of a journey over the last 13 years meeting exactly 227 small cap companies till date,though average company meets seem a tad poor at less than 20 a year but the learning and the exposure received could be termed overwhelming. As you all know I have got a superb team in place and this days our " ShareBazaar Workshop" is kinda twice in a month be it Pan India or Pan international. Done with nearly 30 such whole day workshops with cumulative passionate attendance of over 2500 guys. Workshops in Australia,USA and U.K. are next on the list after recent completion of Dubai and Singapore. Pan India workshops meanwhile would continue too. It's such a a previlage and a satisfaction to meet you all in person.

Btw: The Corporate ShareBazaar Workshop is debuting next week with PepsiCo India. It's on 28th July,Friday. Would also love to meet up few passionate Delhi folks.

Note: Blogging after quite a while. I have shifted the blog to the much relevant "ShareBazaarApp" which is available in both Android version as well as IOS. Go to playstore or Apple Store and search "Share Bazaar Arun". It's been a rage since its revamped launch with downloads of nearly 43000 times. Hope you like it peeps.

Scripscan: Next Caplin ltd(M.B)
Traded in: BSE
Marketcap: 550-600crs
High low: 589/105
Teaser: Tweeting since 78 levels.

Special mention: Often as even being a shareholder so much of things can be done. Imagine there's 4-5 similar listed companies and you are acquainted with them. You can take the initiative to make them meet with one another. It's kinda nothing to lose but could be something to gain. Some one may have a great product and the other one may have an amazing supply chain and distribution reach. So much of synergy could be on cards. I mean it's not that hard as it may sound. I myself have done it a number of times. Even Caplin promoters may have met the Next Caplin promoters(You do know what am hinting at). Coral lab,Lykis and few other companies are doing decent business in the Africa region. May soon take the initiative to make them meet with Next Caplin. It's not restricted to a single company but goes for all. It's all about incremental value addition folks.

Quote: I have been tweeting about a certain company which to me is a replica of Caplin point and should replicate its story. Caplin as you all know has been a 60 bagger in the last 4 years since my coverage in this blog itself. From 12rs (Split adjusted)in 2013 to 700 bucks now. Let's get back to present and I recently met the management of this so called Next Caplin( This was my 3rd meeting with this hungry visionary pedigree in the last 2 years)in the EGM and here's the detailed update.Company also should set the trend for the rest of the year from its first quarter itself. I expect the company to treble its PAT in the 1st quarter vs last years 1st quarter. 

Story: Incorporated in 1993, Next Caplin(NC) manufactures pharmaceutical formulations for the overseas and domestic markets. NC has two finished formulation Plants-One at Bhiwadi (Rajasthan) and other at Haridwar (U.K.) The Bhiwadi plant is constructed in an area of 210,000 sq. ft. The constructed area is conceptualized on the block system comprising five block; each block has a covered area of about 20,000 sq. ft. The different blocks house different sections of manufacture viz. Beta-lactum (Penicillin) block, Non-Beta-lactum (Non-Pencillion Block, Cephlosporin Block, ORS and Oral liquid block, R & D quality control departments, store and the utility block. At Haridwar the company is having a single three storied manufacturing unit to manufacture Non-Betalectum range of product including Iron-Folic Acid tablets, ointments and lotions. In November 2015, SR Ltd, another BSE-listed company, along with five persons acting in concert, acquired a stake of 44.15% in NC .After taking over the company,the new management under the dynamic and able leadership of Mr Rahul Vishnoi,immediately resorted to some game changing tactics which was the need of the hour to catapult the company in the next level league.

Retained Ashutosh Gupta (erstwhile promoter) on the BoD due to his extensive business development background in the pharmaceutical industry. Promoted Rajesh Madan (former CFO) to the CEO position to drive the execution strategy of the company.Brought in Klaus Snej Jensen who is a COO of Missionpharma A/S Denmark as non-executive independent director.

Completely changed its focus to the export markets and stopped taking any fresh govt tenders which earlier contributed the lions share. NC earlier also dealt in some trading activities aka wafer thin margins stuff which also got eradicated.

In order to improve the bottom line of the Company it changed the product mix. More and more lifestyle diseases are now covered in product range. Earlier the Company was concentrated in Africa only but now it has reached LATAM countries, where product mix all together are different with comfortable margins. The company is least interested in Anti-Biotics range and has shifted its focus more to anti malarial and Anti-Diabetic products etc.

The Company has also set its eye on manufacturing of Cephalosporin.The demand in Africa and Asia has started picking up and it sees a big opportunity in getting contract work for export as many small players have not opted for manufacturing of Cephalosporin due to finance involved in construction of new block. In Haridwar plant the Company also intends to export ointment and lotions beside iron and folic acid tablets which will give big boost to the topline from this financial year itself.An interesting report on Folic Acid and how NC is placed is available in this link.

Concentration is further on the expansion of the plant and product portfolio along with stricter credit policy and cost control through long term contracts with suppliers and tightening of expenses so as to improve margins. With the addition of 2 new blocks the Company can produce goods worth Rs.500 crores per year.

NC always remained the golden goose which the previous promoter through its improper means couldn't capitalise. Let alone capitalising it rather lost as much as over 50crs of business from its captive client Mission Pharma,a Danish company,which also owns around 13% stake in the company. The new promoter convinced mission Pharma which till such time blacklisted medicamen biotech to redo the factory audit and brought it back in the most spectacular manner by Dec 2016. Mission which outsources goods worth over 600crs from India through its 83 products has started outsourcing 19 of them from NC. Company is fairly confident of covering many more of mission products in the coming years.

Possibilities are endless to say the least. There's some interesting crossholdings which makes the NC story a very interesting proposition. Euro Pharma,which is more than a billion USD firm owns Mission pharma.Euro pharma again happens to be a part of the multi billion dollar Toyota Corporation. The same can be verified from the website of Mission pharma which states," Since 2012, we have been a proud member of Eurapharma and the CFAO Group – a multibillion-dollar group owned by Toyota Tsusho Corporation". NC is actively exploring the outsourcing opportunities from this giants who are eager for a bigger base in Asia and other continents. 

When you aspire big,a proper foundation and a great core team helps in a long way in achieving your goals. The company has hired top management talents from behemoths like Dr Reddy,Akme formulation and Alkem. It's of ones easy presumption that these bigtime experienced folks can only join a tiny company with hardly 80crs revenues sensing the bigger story and the potential.

It's kinda a misnomer if someone says the new management hardly delivered in its maiden year as sales only increased from 67crs to 82crs. Now out of 67crs,as mentioned earlier more than 60% of the revenues came from sticky nil margin Govt tenders and trading activities. If I talk about 82cr revenues,only 15-18crs came from the govt side(NC is bound by contract to supply to govt till 2018,albeit with a much lower proportion). Now that changes the picture completely. So it's obvious the new management adjusting the govt thing and trading activities more than doubled its revenues. No wonder PAT vaulted to 5crs from almost nothing. The PAT would have looked way different had it not been some write offs and settlements,thanks to the earlier jugglery of the old promoters.

The company under the new management has been on a product registration spree. It's already done with 450 registrations covering 45 countries. The approvals have started coming thick and fast. Yet it's not satisfied and aims for the sky. The company aims for a "WHO- Geneva" Approval for its Haridwar unit which will expand its base to some 180 semi regulated countries. NC,if successful would only be the 14th company from India to enjoy such accolade.

The company have got the following Approvals in place. Not a pharma expert by any means but I am told some of the Approvals are pretty tough to bag this days. 

Brazil  –       ANVISA
Uganda -     NDA
Zimbabwe -MCAZ
Nigeria    –  NAFDAC
Tanzania  -  TFDA
Malawi    -    PMPB
Ivory Coast -MOH
Philippines  -BFAD
Sri Lanka   -  CDDA
Vietnam    –   Drug Administration
Zambia    –    MPB
Bhutan    –     DRA
PAHO    –      Pan American Health Organization  
Ghana      –    Food and Drug Board
Ethiopia    –    DACA
South Sudan  - MOH
Namibia    –    NMRC
Congo      –    Ministry of Public Health
Cameroon    –Ministry of Public Health

Company is targeting to develop 6 new lifestyle disease molecules which will be its acting agent for the next level of growth. The company plans to get it developed by its parent SR,since this comes with a cost and need certain set of skills and experience which SR is well capable of. At a certain royalty,the same would get passed on to NC which will pave its growth way at a thundering speed.

Company has risen by 41X in the last 2 years yet the promoter is ready to hike its stake after such a gigantic rise. It only signifies how supremely confident they are about the company. The promoter would always be the biggest insider of a company and if they are ready to swallow at this levels,that speaks volumes. Even Mssion Pharma is participating in the warrants,which only hints at the upcoming bigger picture.

Concerns: So what could be the concerns? The generic concerns remain just like any other similar Pharma story. At least here there's no USFDA vagaries which can come and derail the story. One can argue about Africa and bad debtors but Mastermind Vishnoi ji happens to be your perfect Marwari Baniya who avails 30% advances and gets everything remaining backed by proper LC thereby elemanitimg any bad debts.

The medium term story is simple. Mission Pharma outsourcing and the contribution from countries like Ethiopia,other Latin American countries,CIS countries. Africa presently is in the cusp of an economic revolution resembling the Indian economic era of 2003. Huge set of growth is expected to come in. The more distributors you tie up with the more you sell. Often one big distributor can take you to several countries with several addition of products.

Quote: The Ethiopian Govt has approached NC to set up its base in the country with some couple of million USD investment. The govt has committed 175crs of sales every year. With such a lucrative offer in hand,the management is contemplating the same and a positive decision in this regard is expected very soon. Let's be conservative and I ain't putting it in my number estimation.

So with so much of developments,how would be the numbers? Sales are expected to vault from 80crs to 150crs this fiscal. Company would also become debt free this year. Next fiscal company may well achieve 250crs. All in all by 2020,It won't be an exaggeration to expect a bounty of 375-400crs of revenues with conservative estimation of 20-22% EBITDA. With Zero interest costs and not much in depreciation costs either,you don't need a calculator to arrive at the PAT. Wait,it ain't over,the molecules too would start to chip in bigtime. Chalo,let's not consider them too. It's all set to be a scrip to rewrite a new scripture for itself.

Btw: It takes several months of hardcore meticulous research and efforts to unearth the true potential of a smallcap company with almost nothing in public domain.Often you need to be more than average persuasive to get that unbiased gold standard scuttlebutt info from the clients of that company or its raw material suppliers or even the driver of the promoters. Hits and misses or successes and flops hardly bothers me as even a 7 flops out of a portfolio basket of 10 stocks would still ensure a superlative Alpha for me. What pains me is when the electronic media aka the TV Chanels and the print media ,I.e, some garbage inane magazine would rubbish this "Amazing small cap companies" as simply manipulation and extreme over expensive. Just some 3 mins stuff and 5 liners and they would form that conclusion. Where's the bloody passion? Where's that effort to unleash the real story? Where's that fire in belly to learn daily and evolve?Anyways,It's high time we ignore such jokers and get the due diligence done by ourselves. Happy investing folks.


Sunday, April 9, 2017

Another small cap PVC Player with multibagger potential

Btw: Company was suggested to members at 34 bucks. Quotes around 40 now. Heck of a bet where you get all the soothing ingredients necessary for a core Portfolio bet.

Company on a whole from a rating note: Promoted by SSM in 1990, Company is engaged in the production of plastic pipes, ducts and mouldings after demerger of its solvent extraction division into a separate entity named KNL and of its auto component manufacturing division into a 100% subsidiary named KA in January 2010. It's facilities are located at Pithampur, Madhya Pradesh with a total installed capacity of 79,378 metric tonne per annum (MTPA) for pipe manufacturing and 2,076 MTPA for pipe fittings/mouldings as on March 31, 2016.As per the audited results for FY16, It reported a total operating income of Rs.463.99 crore (FY15: Rs.359.78 crore) and PAT of Rs.11.69 crore (FY15: Rs.2.69 crore). Further, as per the un-audited results for Q1FY17, Company earned a total operating income of Rs.134.02 crore and PAT of Rs.5.96 crore. 

Story:Company is engaged in the pipes business. The Company operates under Plastic segment in over four verticals, such as agriculture,building products, micro irrigation and infrastructure. Its agriculture products include rigid polyvinyl chloride (RPVC) pipe and fittings, casing pipe, polyethylene (PE) coils, sprinkler systems, submersible pipe, suction and garden pipe. Its building products include soil waste rainwater (SWR) drainage pipe and fittings, chlorinated polyvinyl chloride (CPVC) and plumb pipe and fittings, and garden pipe. Its micro irrigation products include micro irrigation lateral (inline and online), sprinkler systems, and RPVC pipe and fittings. Its infrastructure products include RPVC ring fit pipe (elastomeric) and fittings, high-density PE (HDPE) and medium-density PE (MDPE) pipes and fittings, permanently lubricated (PLB) telecom duct and micro duct. 

Here goes the story. We were actively doing scuttlebutt on our earlier find of Kisan mouldings by approaching the dealers,distributors and even other peer or competitors of the company. While discussing Kisan with a large PVC player,this company Propped up as that PVC giant liked It so much that they resorted to an acquisition offer to the promoters at over 100 bucks where in the company at that point of a time was quoting at just 35rs in the bourses. The promoters declined the offer as they have a vision to take it to the top cream league. That was it for us. Started glancing through the company and voila it looks to be an absolute bargain with all the multi bagger ingredients. 

Futile to talk about industry outlook,potential and future prospects of the industry as that's ditto to kisans note. Last couple of quarters were aberration in context to demonetisation in q3 and in q2 company undertook modernisation and relaying of plant which affected its operations.From November, it commenced operation of manufacturing CPVC pipes and fitting and water tanks which should result in higher margins going forward.

We are not going to delve much into the past as last 10 years number would include numbers of KN which got demerged few years ago. Least interested to speak about this coming quarters number or next years result. The company would probably on a conservative estimate will deliver sales of about 700crs by fy20 with ebitda margins of 10%. Keeping interest cost,depreciation and tax aside from 70crs ebitda,we get a profit after tax of  over 37crs. Company in 2016 delivered a topline and a bottomline of 479crs and 11crs respectively. Putting a 15 PE,the target value comes at 555crs or a price of 110rs. That's over a 2x from the suggested level. It's again pretty to tough to lose from this company.

Btw: PE metric ain't a sane stuff here to value a company. Most companies are valued at sales to marketcap and they tend to quote at 2-3x atleast. Astral,finolex,supreme though much bigger but all quote at over 2x sales.Even if It get1 time sales in next 3 years,the value comes at 700crs or 140rs per share. Company is probably the most efficient cum cheapest bet in the entire PVC arena.

Points which attracted us:-

1) Company with strong widespread distribution network and established operation is a leader in states like M.P,Chhattisgarh,Rajasthan with over 50% market shares.

2) Company in spite of having a loss making subsidiary where they invested 10crs earlier,still does a return on capital of over 30%. Return ratios would further better up once the capacity utilisation increases and the subsidiaries attain scale to put up better numbers.

3) The Company is venturing into newer territories with more value added products. Company' brand "Kasta" has got a very high brand recall among dealers and distributors.

4) We are very bullish on the domestic consumption stories and also on the migration from unorganised to organised industry. Company with a clean,conservative and visionary promoters-a perfect fit to both the themes.

5) The company has probably one of the best cash conversion cycle in the industry. As can be seen from the half yearly balance sheet,it has added 12crs in fixed assets by reducing debt from 52crs to 49crs. The classical show of getting stringent with your receivables and meaner on the creditors front. The business on Float or doing business on your suppliers money.

Concerns:Susceptibility of profitability to volatile raw material prices which is closely linked to international crude oil prices, seasonality associated with demand of its products, oligopolistic supply market of its raw material and intense competition in the plastic pipes industry are concerns of the industry on a whole and also of co particularly.The ability of the company to further improve its scale of operations and profitability with realization of envisaged benefits from recent expansion and modernisation capex will pave the way for the company going forward.

Folks interested for our "Sebi registered premium small cap services"(Sebi registration number: INH300002357)pls fill the below form. For assistance do whatsapp/contact Ujjal at 9831291631 or dip at 9007652301.

Thursday, February 16, 2017

My recent interview and the PVC turnaround candidate

Quote: Happy to share my interview folks. It's been a good long 12 years experience so far. The interview is all about it.

Guess the stock:-(Available at less than 200crs market cap,the 4th largest player in its industry by capacity)

Story: Company presents the widest, most comprehensive and coast effective range of PVC products, which are manufactured in 5 Modern production facilities located across India.It has been successfully manufacturing and marketing its products under the brand named K& C with a strong network of Distributors & Dealers spread across the length & breadth of India. Company caters to the need of topline clientele which comprises the likes of TCS,BSNL,Reliance info,Shapoorji Paloonji group,BHEL,Hindalco,L&T,HCC,Rahejas etc.

Rich Product Portfolio:
CPVC Plumbing Systems
•ASTM Plumbing Systems
•SWR Drainage Systems
•Composite Piping Systems

B)Infra and sanitation:
•PVC Pipes & Fittings
•HDPE Pipes
•Underground Drainage Pipes

C) Agriculture:
•Agricultural PVC Pipes & Fittings
•HDPE Pipes
•Submersible Pipes

D) Micro irrigation Systems
•Drip Irrigation
•Sprinkler Irrigation

E) Consumer products
•Moulded Furniture
•CPVC Plumbing Systems
•ASTM Plumbing Systems
•SWR Drainage Systems
•Composite Piping Systems

On the first glance,the company looks in a terrible pathetic state. It closed last fiscal with 465crs of revenues and a loss of 20crs. The serial equity diluter(7cr equity cap to 29crs in last 10 years)also defaulted in its interest payment obligations. The debt in book stands at over 250crs. Even its credit ratings were suspended. Promoters further have pledged 64% of their holdings.So why this particular company?

Family settlement: Just like most United Marwari families,the company was managed by four brothers. From indecision to inaction to laid back family managed approach aka mismanagement it almost had everything required to put up a doom show. And it actually delivered right? Fortunately things have started changing for good. They recently had a family settlement where the smartest one,SA bought out the remaining three.

Distributors meet in Udaipur: Company organised its distributor meet in Udaipur recently after a span of 9 long years. The company hardly expected any orders but went on to receive 72crs of order from the meet itself. Glimpses from that meet is available in the below link.

Arrival of the Rockstar: Before the family settlement took place,company tried a last resort by bringing an outsider CEO to professionalise the company which too failed miserably. Arrives 28 year old Junior Agarwal,son of Sanjeev Agarwal. RA has got a Bachelors degree in Finance from the University of Northumbria,Newcastle and a master degree in renewable energy from the University of Reading.From the family settlement to organising distributor's meet,the brainchild of the junior Agarwal started changing the course of the company. He also automated the Tarapur plant(went on stream this week itself) which will eradicate 1000 tonnes of scrap,resulting in annual saving of 8-10crs of working capital and making its product undisputed.

Supply chain and distribution network:Head Office of the company is Located in Mumbai. Company has 10 Branch Offices across the country including major regional cities such as Bangalore, Delhi, Ahmedabad and Indore. It also boats of 3000 strong Dealer/Distribution Network with over 500 exclusive K Dealers.

Strategies: Factories in Phulera, Baddi, Raipur and Roha have already been shut – All machines shifted. Some excess Land at Tarapur being considered for sale as well.Closing offices,godowns and moving to direct factory dispatches.Selling owned assets – moving to rent.Rationalising employee costs and other Expenses to allow it to spend in the right places. It's moving to a leaner business model by Focusing on Products and Markets with faster Rotation of funds.

List of idle assets for selling:-
•Raipur – 5 Crores
•Baddi – 6-7 Crores
•Tarapur Land – 6.5 crores
•Indore – Deal Done at 4.5 Crore
•Dewas – 1 Crore
•Indore – 1.5 Crores

Present focus:-
•Project Sales – to be at least 100 crores per year – from 50 crores currently
•Distributor model – promoting large distributors of over 20 crores per year. Currently none at that level but 3 already identified.
•Mix: Focus on high GP products – SWR, Column, Micro, fittings.

Operating+Financial leverage: Let's have a close eye on what it possess:-
1) PVC pipe capacity is 65000 tonne
2) PVC fittings 15000 tonne
3)CPVC 6000 tonne
4) HDPE pipes 5000 tonne
5)Furniture 8000 tonne
6)Micro irrigation 3000 tonnes.
Total capacity:-1,02,000 tonnes per annum.

Company last fiscal operated at just 40% capacity. As its easily assumable even if it's grows by as high as 30% CAGR ,it doesn't need any capex for at least next 3 odd years.Another very important aspect of the company happens to be its total area available and plant,building construction difference. On an area available of 294000 square meter,the plant,buildings are constructed on just about 90000 square meters. So even if it exhausts all its capacity,the land remains available to expand further. So barring few odd crs maintainence capex and working capital requirements,remaining OCF would be used in repaying the debt.

Key Market Drivers:-

A)Real Estate demand expected to increase in 2-3 years – constructions picking up soon.
B)Real Estate Bill –Pressure on builders to Complete Projects.
C)Smart Cities, Government spending on affordable housing – housing for all by 2020 etc.
D) Mental acceptance of CPVC and uPVC pipes as a replacement to GI – Potentially 10,000 crore market further available.

Industry Outlook: The total polymer pipe industry in India is currently around Rs 18,000 Crores, estimated to be growing at 8-10% per annum. Certain segments within the polymer pipe industry have shown a higher growth rate in the past, like CPVC which has demonstrated a growth rate of around 15% per annum. Unorganised to organise sector market share is split at 40:60%. Moves like demonetisation and GST will ensure boom time for the ethical organised players.

Indian Plastic Pipe Industry:-

●Plastics are increasingly replacing conventional materials such as steel, glass, paper, iron, aluminum and leather largely due to its cost effectiveness and durability
●For example, plastic pipes have replaced almost 80% of galvanized iron (GI) pipes in plumbing because GI has zinc-oxide, which corrodes over time
●Indian pipe industry is dominated by plastic pipes, of which PVC is the most prominent
●It is also expected that plastic pipes will contribute 51% of the total pipes demand by 2020.

9 month numbers: Company so far has delivered pleasant set of numbers in Its 9 month numbers(Adjusted Demonetisation effect) Total income has increased to 320 from 324crs. EBITDA has increased from 6 crs to 18crs. Losses have reduced from 22crs to 10crs. They also are in final stages of disposing some more idle assets. Deal to be announced any day now.

Risk and concerns: Company has been able to pass on its RM costs consistently over last decade which insulates it from the vagaries of input fluctuations. Young Agarwal,though comes with a brilliant aggressive visionary brain but lacks much experience. Company story mostly is dependent on his ability to steer it ahead by putting a check on working capital,introducing newer products,higher productivity,rationalising costs and retiring debts.

Misc points:- Company to repay debt and garner WC did a preferential issue at 40 bucks and collected 30crs. Though it diluted equity by nearly 35% but they had little to do considering the precarious,near bankruptcy position. Indianivesh sec guys and close associates/friends of promoters took part in the deal. As per the promoters,after family settlement and post pref issue,"Nearly 70% of the equity belongs to us and our close friends". Officially promoters own 51% stake as on date. We did interact to a lot of distributors of the company and they vouched for the quality of its product. They also mentioned,"Things are moving at a lightning speed and we are seeing sales figure never achieved in the history of the company". The mood is very vibrant with a customer centric focused approach. " The New lad" is making all ends meet to catapult the company in top level league.

Conclusion: The company is hopeful of delivering a topline of over 600-620crs in fy17-18 with an EBITDA of 12%. They should also make a meaningful profit of 18-20crs which would be the highest since inception.With disposal of idle assets and recent preferential issue of 30crs,the company has finally some fund. The company targets to achieve a topline of 1000crs within the next 3-4 years at an EBITDA of 14%.Even if it achieves close to its aim,stock would be a huge wealth creator. Even Amulya leasing which has less than 40% of company's capacity quotes at more than its Fy17-18 valuations. Finolex ,Astral,supreme though in different orbit,quotes in the band of 2-3x their annual revenues. Even on EV/EBITDA they quote in the range of 12 to 30. If co achieves 1000crs sales with a 14% EBITDA by 2020-21,stock would be an easy 6-7 bagger. Anyways,A .3x mcap to sales for company looks massively cheap by any metric. "It's tough to lose from this company folks". Now don't bother asking about its target...:)))))))

Btw: Did play a similar company called Uniply,though much smaller in size in a different industry but it resembles the pattern.

Folks interested for our "Sebi registered premium small cap services"(Sebi registration number: INH300002357)pls fill the below form. For assistance do whatsapp/contact Ujjal at 9831291631 or dip at 9007652301.

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This blog does not share personal information with third parties nor do we store any information about your visit to this blog other than to analyze and optimize your content and reading experience through the use of cookies.You can turn off the use of cookies at anytime by changing your specific browser settings.This privacy policy is subject to change without notice and was last updated on 20.3.2013. If you have any questions, feel free to contact me directly here: Investment in equity shares has its own risks.Sincere efforts have been made to present the right investment perspective.The information contained herein is based on analysis and up on sources that I consider reliable. I,however,do not vouch for the accuracy or the completeness thereof.This material is for personal information and am not responsible for any loss incurred based upon it & take no responsibility whatsoever for any financial profits or loss which may arise from the recommendations above.The stock price projections shown are not necessarily indicative of future price performance.The information herein, together with all estimates and forecasts, can change without notice.

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