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Archives : Stock Tips

Sunday, November 16, 2014

Stock market basics and a cool stock idea:-Premier Explosives Ltd(PEL)

General aspects for newbies:-

1)What is stock market to you?

Ans)Stock market is a place which gives you lucrative ownership of companies.By owning a single stock you are actually becoming the owner of a company.Its liable to share everything with yourself.

2)What is the kind of returns that can be generated?How its comparable to bank FD returns?

ans)I personally look for 26-30% yearly gains on a compounding basis.A 26% compounder increases your fund by 10 times(1 lakh invested becomes 10 lakhs) in 10 years.A 30% CAGR boosts your portfolio by nearly 14 times(1 lakh invested becomes 13.8 lakhs) over a period of decade.Bank FD's would just double your money(1 lakh invested becomes 2.15 lakhs) over the same period.Add up some dividend top ups which if further invested,makes the figure look much more interesting.

3)Its easy to earn this days as everything is moving up isn't it?I buy xyz and double my money in a week.

Ans)It was always easy to earn actually but only over the longer term.So how much you actually made from the time you joined markets?What was the CAGR?Everything looks green from the other side.A lot of crap stocks are moving coz of vested interests.Once the wind stops,they gonna go down like anything.Invest in a disciplined way in stocks which you understand,that too with proper portfolio allocation.Even the greatest mathematician,Sir Isaac Newton lost nearly 30crs(on today's figure) and mentioned – "I can calculate the motion of heavenly bodies, but not the madness of people".

4)How does one construct a portfolio which can provide 25-30% CAGR returns year after year?When to exit is something which confuses me a great.Please help.

Ans)Buy my recommended companies and allocate not more than 5% in each of them.A basket of 15-20 stocks is enough to get your desired returns.Why to exit actually if the growth is there?I see a lot of guys exiting my older recommended stocks like symphony and avanti feeds to buy the new ones.This is one of your biggest mistakes.The secret to win from markets is to have the best ones and sit tight with them till their growth is intact.You just don't need to buy the new ones as you already posses the best money making companies.I myself hardly bought any recent recommendations as am fully invested on the older ones which ensured an amazing overall portfolio return so far.

5)Then do we exit once the target gets achieved?Also have seen you recommending companies only after they have doubled/tripled/became 5x.If those were provided earlier,we could have made so much more.

Ans)What is a target?Its just based on historical figures showing what its worth over a period of time.Frankly speaking there's no target folks.Just hold with trailing stop as long as the growth of the company persists.Minimizing losses and maximizing profits is what you should strive for.A company which moves up and consolidates higher gives me the required clarity.There's so much to speak about,say from opportunity costs to MF's or FII's interest.A higher PE means investors confidence whereas a low PE company simply signifies lack in confidence.Buy at low and sell at high ain't in vogue.It should be buy high to sell much higher.A higher valuation also boosts the confidence and productivity of the promoters/management as they are biggest gainer of the rising stock valuation.

Some more words:You need to pay wealth tax if the value of personal assets you own exceeds 30 lakhs.Nah,don't be concerned.Stocks, which are one of the best assets ain't even considered as an asset in our country.My association with you guys last from a quarter to some years.Its not the money which satisfies me(30% of the paid readers are given free membership coz of their sheer passion and love for the subject.They all wanted to pay though)but only when I see the members trying to learn and doing the required due diligence before zeroing on a stock,that's such a wow feeling.So earn and try to learn too.Happy investing folks.



Note:Premier explosive too was recommended to members at 206rs just few weeks ago.Here's the research note of it.Company quoting around 230 rs now.Readers its time for you to act on it now.

Stock idea:-

Scripscan:Premier Explosives Ltd(PEL)
Bse code:526247
Cmp:206rs
Target:300rs
Return percentage:47%
Duration:9-12 months

Quote:Keshav's research helped me to complete 50% of the note.Rest of the inputs got penned down by your's truly.

Promoter: Dr. Amar Nath Gupta (ANG) is the CMD of PEL. He is a first generation entrepreneur.He is a Gold Medallist from Mining Geological and Metallurgical Institute of India. He is a Member of Society of Explosives Engineers, U.S.A. and was Chairman of Explosives Development Council constituted by Government of India and Chairman of Explosives Manufacturers Association of India.Dr. ANG believes in profitable growth. The company could have achieved sales of around Rs.300 - 400Cr. had it been ready to sacrifice margins at the altar of sales growth. The company only considers projects where it expects to recoup its investment in 4 years.

History:Premier Explosives Ltd. was incorporated in 1980 and started off with manufacturing Slurry Explosives and during the 90’s started manufacturing the complete range of explosives & accessories like detonators, bulk explosives, detonating cords and blasting accessories. The company diversified into Mushroom Farming in 1997. In FY07, the company ventured into Space & Defence. The co. divested its Mushroom Division in FY08 for a consideration of around 20Cr. Since then the company is focussing & expanding into the Space & Defence sectors.

Company:The Indian Explosives Industry is amongst the top 5 in the world. Around 70% of the entire output of the industry is consumed by the coal mining industry which primarily consists of Coal India Ltd. & its subsidiaries. The Indian explosives industry is fragmented with around 45 units and around 10 major manufacturers Premier Explosives is the 6th largest manufacturer of explosives with around 5% market share.PEL caters to all mining sectors like Iron Ore, Limestone, etc..PEL is the only private sector entity manufacturing solid propellants & other specialized products for the defence sector.

Some more info: Amongst many firsts, PEL is the first company in the world to produce safer and greener NHN (Nickel Hydrazine Nitrate) detonators on commercial scale replacing ASA (Lead Azide, Lead Styphnate and Aluminum Powder) detonators.PEL is operating and maintaining a State-of-Art Chemical Manufacturing facility of Indian Space Research Organisation (ISRO) at Sriharikota and Solid Fuel Complex of Advanced Systems Laboratory at Jagdalpur.PEL's R&D facility is recognised by the Council for Scientific and Industrial Research (CSIR),Government of India, as an established research centre. It is also recognised as a research base for Ph.D. work by Gulbarga University, Karnataka. Further,PEL has collaboration with IIT, Madras and Gulbarga University for research in high energy materials.For FY14, PEL achieved a turnover of INR 145crs and profit after tax of INR 9.2crs

Presently, PEL has 4 main divisions:-

1)Commercial Explosives
2)Detonators & Accessories
3)Special Products Division – Solid Propellants
4)Service Contracts – ‘Operation & Maintenance’ Contracts.

Commercial Explosives: The Company is manufacturing a diverse range of commercial explosives for mining and infrastructure requirements at its 6 manufacturing units.The company is a dominant player in its segment.The explosive industry is fragmented while the main customer is a monolithic (Coal India).Others include the likes of Singareni Collieries,Neyveli Lignite,NMDC,Karnataka Emta Coal Mines and the Cement companies.The other listed players from this space are Keltech Energies Ltd. & Solar Industries India Ltd.The ‘Industrial Explosive’ division of PEL did sales of Rs.67crs vs 48crs.Production of explosives increased to 20,703 tonnes from previous year's 16,367 tonnes.The company should be able to maintain 15% operating margins as the management refuses to bid for those tenders where a threshold margin of 15% is not assured.With signals of revival of global economy and expected industry-friendly policies, Indian explosives industry is expected to post 8% CAGR over the next few years on robust growth plans of user industries like mining and infrastructure .

DETONATORS:After adoption of NHN technology last year subsequent to the accident, during the current year Detonator plant produced 53.27 million pieces which is 17% higher than 45.44 millions produced during previous year(sales value of 33crs vs 29crs).Demand for detonators, which are sold through trade channels,continue to be weak.Revival in detonator demand is expected in Q3FY15.The company is confident of raising the production further in 2014-15.

SERVICES DIVISION :O&M –Premier has been operating and maintaining the solid propellant production facilities of prestigious agencies, namely ISRO’s satellite launching station, SHAR at Sriharikota, Andhra Pradesh and Solid Fuel Complex (SFC) at Jagdalpur in Chhattisgarh.At SHAR, the company has deployed 330 of its staff under the 10 year contract for O&M services which commenced in 2007.The company also has O&M contract at SPROB. At this facility about 60 of the company’s staff are deployed.More than margins,O&M is a significant technology transfer as PEL is learning to run complex facilities and than setting up such units on its own. Such contacts are called GOCO (Government Owned, Company Operated). These contacts have annual price escalation clause which leads to steady increase in revenues.The segment contributed 15crs of revenues in the fiscal fy13-14.

SPECIAL PRODUCTS DIVISION:Premier has been manufacturing solid propellants from 2003.Since then Premier has been adding facilities to manufacture solid propellants at Peddakandukuru in Nalgonda district of Telangana. The company has been catering to the needs of tactical missiles like Astra, Akash, LRSAM and rockets like Pinaka.PEL is the only private sector entity in India manufacturing solid propellants & other specialized products for the defence sector.Solid Propellant manufacturing is a Sunrise Industry in India.Premier produces Explosive Bolts, Pyro Actuators,Smoke Markers, Cable Cutters and many other products including Blazer Plates for the Indian defence services.Premier also is the only private entity producing oleoresin based tear gas grenades used for mob control by law enforcement departments. The company had developed this product in collaboration with Defence Research Development Establishment (DRDE), Gwalior..The defense related business of the company has grown more than five folds(from 5.2crs to 26.7cr) in the period of fy10-fy14.Defence Off sets is a big opportunity for PEL.The management believes that the defence & space business will exceed the Bulk Explosive & Detonator business within the next 5 years(as of now defense contributes 20%).

Concerns:The company wrote off investments worth around Rs.13Cr. during FY09 & FY10. These investments were made in FY07 in JV’s in Turkey & Georgia. The management claims that’s the foreign partner duped it. It is possible that the management duped the shareholders as this a very convenient way of siphoning off funds by Indian promoters. After all who is going to Georgia to check out the details.PEL is fighting a case against its Turkish partner & is expecting a write back.This 'writing off' investment aspect kept me away from the counter for long.It was after a long interaction with few of the big investors which finally made me recommend it.The recent entrance of reputed investors like Dolly Khanna and Vijay Kedia further convinced me.

Other aspects:Got debt equity ratio of less than .2%.Boasts of 10 year average ROE of over 20%.Promoter has hiked its stake to 48% from below 40% in the last few years.Paid a dividend of 2.5 bucks which with higher profits should see a decent hike.Company never diluted its equity in the last 17 years until very recently when it did a tiny preferential issue to promoters.Cash flow has been positive over the last 6 years.Check out the presentations to know more about the company.
http://www.pelgel.com/Q4FY14_Presentation_PEL.pdf
http://www.pelgel.com/Q1FY15_Presentation_PEL.pdf

Conclusion:The proportion of revenue from Defence products and Services(low competition-high margin) is expected to rise vis-a-vis proportion of revenues from Explosives(high competition-low margin), over the next three years.The company has guided a topline of 200crs for the present fiscal, 2014-15.PAT should be around 13crs.Next year the company may deliver revenues and PAT of 260crs and 18crs respectively.The company at present prices quotes at a PE of 14 times its forward earnings.The other listed entity-Solar Industries quotes at 30 times its fy15 forward earnings.Putting the same multiple of 14 for fy15-16 earnings of 21.5rs,to arrive at a price target of 300 bucks.


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

Monday, October 27, 2014

Galaxy Entertainment Corporation Ltd:-The special Diwali call to members

Note:Galaxy Entertainment was suggested to members as a special Diwali call at 31 bucks just few days ago.Scrip is on circuit since then.As it has moved over 20% from the recommended price,time to post in the open blog for the readers.Please don't haste and buy at higher levels.Treat the article for educational purpose.

The Special Diwali call:-

Multibagger Idea-

Scripscan:Galaxy Entertainment Corporation Ltd
Bse Code:506186
Cmp:31 rs
Target:No targets as returns can be huge.
Portfolio Allocation:2-3%

History:The company much earlier was controlled by the Chatterjee group of Haldia petro fame and run by one Satish Chunder, a former banker from Citibank.Unfortunately,Chunder died suddenly and the company became rudderless.The company changed hands in early 2006; one of the largest and most experienced organised retailing chains, Pantaloon, bought 15.73% stake in it(now it holds around 31% stake).It also amalgamated Pan India Restaurants with itself which had food courts.Mumbai-based real-estate firm Phoenix Mills holds a 27 percent stake in Galaxy.Few papers reported the phoenix stake to be higher at 34%.No clue about it though as my figures are based on the SHP of the company.

Scene of 2010(Annual report with 92 pages)

Company:Galaxy Entertainment Corporation Limited was incorporated on August 13,1981.It operates leisure and entertainment centers across the country and as at the balance sheet date it has 23 centers offering a variety of facilities such as bowling,pool and video games,restaurant service etc.Note the below mentioned aspects.

Revenues:36crs
Centres:23
Rent paid:10crs
Debt:26crs
PBT:10crs loss
Cash flows:3crs
Working capital:(3crs)

Scene of 2012:Company eroded its network and was a BIFR case.The company only had 14 centres then.It was nearly a gone candidate but the 2013-14 A.R suggest an entire different picture.

Scene of 2014(Annual report with 78 pages)

Company:Galaxy Entertainment Corporation Limited was incorporated on August 13,1981.It operates leisure and entertainment centers across the country and as at the balance sheet date it has 28 centers offering a variety of facilities such as bowling,pool and video games,restaurant service etc.Note the below mentioned aspects.

Revenues:35crs
Centres:28
Rent paid:4crs
Debt:10crs
PBT:30 lakhs
Cash Flows:14.5crs
Working capital:(13crs)

Note:So the Biyanis seems to have learnt their lesson.Finally they have embraced the power of low debt and high cash flows.Even a lot of meaningless crap pages got curtailed from the A.R.The present A.R is quite a delight.

More from the 2014 A.R:-

1)With cash flows of 14.5crs the company repaid 7.2crs of debt and financed its capex worth 7crs.

2)Out of that 14crs,Trade payables contributed 10crs.The power of trade credit folks.Simply means it has been able to demand trade credit from its suppliers and made best use with it.

3)It got negative working capital of 13crs.Advances from customers stood at over 14.5crs.What the hell?I mean think about it-its gaming and restaurants business did a revenue of 17crs for the entire fiscal of 2013-14 and already 14.5crs+ is in your pocket.This is like your interest free money.Can expand,can pay your suppliers without need of any further capital.Obviously you have some superior offerings or products or plans through which your clients happily paid for it.In an ordinary product,we get the product and then pay for it.In an extraordinary product,we pay way before and get the product later.Recall my earlier recommendations of Caplin point,Symphony,Atul Auto,Relaxo etc.

4)Long term debt of around 4crs would mature within this fiscal.Further it has short term debt liabilities of 5crs.So are we really talking about a debt free,negative working capital,high cash flow generating Kishore Biyani company?

5)After a long long time,the future group as it seems has taken the company seriously.From closing the loss making centres to focusing on the profitable ones,opening up new ones,seems to have done the trick.Over a period of five years,they not only have more than what they had but a lot debt got retired,rentals are down sharply,strong cash flows,large trade credit facilities from suppliers,huge customer advances- all hints at the strong future prospects.This time as it seems,the Biyanis are determined to make it really big.

Food court/Food chain deals:Ammis biryani got a funding of 40crs from Saif partners when it delivered hardly 4-5crs of sales.Paradise foods got funding of 70crs at 3x(as per sources) its revenues from Samara Capital.Other deals in the QSR business include Ventureast investing Rs 21 crore in Goli Vada Pav, a Mumbai-based ethnic food chain selling vada pav, a popular snack in Maharashtra.Sequoia Capital also invested $5 million in Faaso’s,Pune-based vendor of Indian fast food.The only listed play,Speciality restaurants Ipo which was heavily subscribed,was priced at 4.5x its fy11 revenues.

Point to note:Owing to accumulated losses(negative reserves)it should have a lot of deferred tax assets.This amount is available to offset tax on future taxable income.Given the carried-forward tax loss,no tax provision is required for atleast some more quarters,if not years.

The Era of Sports:Probably sports in near future will occupy all our 365 days.We already have IPL,Kabbadi league,badminton league,Hockey League.ISL or Indian soccer league just got started too with a bang.Not to forget the ever raging EPL,Uefa champions league and all other sports carnival which we crave for bigtime.You can now enjoy all those on big screens with a glass of beer at food courts managed by Galaxy Entertainment Corporation.

On words of Sunil Biyani:"The Indian food service industry is growing on the back of increasing income and changes in food consumption pattern.Besides, food courts are driving this industry as malls are expanding to smaller towns.Food-courts play the role of anchor tenant in a mall. Along with complimenting businesses such as books, games, fine dining restaurants and movies,they provide good recreational space to the customers.However, there is a huge vacuum and the latest offerings are geared towards entertainment, relaxation and leisure dining. We plan to open 22-24 food-courts this fiscal at an investment of 10 crore".It currently runs 11 food courts, and has tie-ups with various malls to operate and manage food outlets through a minimum-guarantee-plus-revenue-sharing model.

Raju Nanwani?Who?Was looking at the SHP and found this bloke having 1.8 lakh shares,acquired over the last 9-10 months.The Bible of internet(obviously Google)came with few results,notable among them was a guy who also happens to be the VP of ICICI Sec.Considering my 9600 readers,he probably would have the search of his life now.Jokes apart,mailed him up but no reply as on time of this note.So is it like already the smart ones have started accumulating it?

Recommendation in public domain:Couple of reputed guys did recommend the counter with multibagger tag but those lacked any meaningful substance.In any case the stamp of value seekers help.

Few links to vindicate my stand:-

1)http://freepressjournal.in/sporty-menu-at-sbxs/
2)http://indulge.newindianexpress.com/high-spirits/bangalore/8651
3)http://epaperbeta.timesofindia.com/Article.aspx?eid=31806&articlexml=DESIGNS-ON-YOU-Distressed-look-in-their-genes-15062014002026
4)http://brandsdisplay.com/?p=3271
5)http://archive.asianage.com/life-and-style/sports-city-338
6)http://www.thehindubusinessline.com/companies/future-groups-galaxy-bets-big-on-food-courts/article5902020.ece
7)http://www.fashioncurry.com/night_life.html
8)http://mumbaimag.com/sports-box-mumbai/

Fy13-14 numbers:It delivered a sales of 35crs and a PAT of 30 lakhs for fy13-14.Trading in fabrics contributed 17crs of revenues.Have no idea what it is all about.Core business contributed the rest(my subject of interest).

June numbers:Net profit of Galaxy Entertainment Corporation reported to Rs 0.20 crore in the quarter ended June 2014 as against net loss of Rs 2.30 crore during the previous quarter ended June 2013. Sales rose 18.20% to Rs 5.52 crore in the quarter ended June 2014 as against Rs 4.67 crore during the previous quarter ended June 2013.

FY14-15 Guidance:They expect to end the year with a 20% growth.

What can derail the story:Biyani is an over aggressive guy who for sake of topline growth sacrificed his cash flows and through massive debts made his empire.As we all know what followed next.In 2011-12,the company seeked shareholders' nod to hike borrowing limit to 80crs.So far,the company has pared debt but in case it opts for a big debt funding,the story will change again.There's no need of any debt as can be made out from the above penned lines.

Conclusion:So the scaling up of business is happening at a rapid speed.Its quoting at a mcap of just 46crs.The company's business of gaming and restaurants contributed 17crs on last fiscal.So roughly 2.7x of its trailing revenues.We are talking about a business with quite a bit of margin of safety.Valuation wise too,at 2.7x trailing revenues ,in comparison to the above mentioned deals,sounds pretty cheap.Scaling up of business with pedigree of Biyani,nearly zero debt company with high negative working capital and loads of cash flows makes it an interesting buy at present levels.There's no listed comparable peer,hardly any floating stock to talk about too.Even above average numbers can make the stock move really really high.

Btw:The company trades with very little volumes.Its overlooked for reasons not known to me.Buy slowly and accumulate at declines.Let the story unfold more.Don't make the stock move up with artificial forceful volumes,let market realize and re-rate it."Wish you all a very happy,peaceful and prosperous Diwali".Happy Investing folks.


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

Friday, October 10, 2014

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

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


Stock tip:-

Scripscan:Shreyas Shipping & Logistics Ltd
Traded in:Nse-bse
CMP:69rs
Target:130rs
Duration:6-10 months
Percentage return:85%

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Sunday, September 21, 2014

Kitex Garments Limited:-A great long term buy

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

Stock tip:-

Scripscan:Kitex Garments Limited
Traded in:Nse-Bse
Cmp:338rs
Target:475rs
Return percentage:40%
Duration:9-12 months
5 year CAGR return expected:25-30%
5 year target potential range:1031rs-1254rs

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

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

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

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

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

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

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

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

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


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

Friday, September 5, 2014

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

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

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

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





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

Business Idea:-

Scripscan:IFGL Refractories ltd
Traded in:Nse-Bse
Cmp:168rs
Target:250rs
Duration:6-9 months
Return percentage:50%

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

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

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

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

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

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

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

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


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

Saturday, August 23, 2014

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

Some interesting miscellaneous observations:-

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

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


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

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


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

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


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

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


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

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





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

Stock tip:-

Scripscan:Fluidomat Ltd
Bse code:522017
Cmp:131rs
Target:195rs
Return percentage:50%
Duration:9-12 months

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

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

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

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

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

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

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

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

Points to look for:-

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

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

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

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

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

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

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

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

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

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

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

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

Tuesday, August 12, 2014

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

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


Long term Stock tip:-

Scripscan:Minda Industries Ltd
Traded in:Nse-bse
Cmp:288rs
Target:530rs
Percentage returns:80%
Duration:15-18 months

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

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

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

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

Few points to vindicate the bullish stand:-

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

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

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

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

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

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

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

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

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

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

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


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

Wednesday, July 30, 2014

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

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

Multibagger Business idea:-

Scripscan:Gati  Ltd
Traded in:Nse-Bse
Cmp:107rs
Target:400rs
Duration:3-4 years
Return percentage:4x
CAGR return:40%

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

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

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

https://www.gati.com/images/pdf/Investors-Presentation-FinalV1.pdf

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

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

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

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

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

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

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

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

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


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

Wednesday, July 16, 2014

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

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


Multibagger Business idea:-

Scripscan:Capital First Ltd
Traded in:Nse-Bse
Cmp:204rs
Target:800rs
Duration:3-4 years
Return percentage:400%

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

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

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

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

Business:Provides Mortgage Loans,Gold Loans,Two-Wheeler Loans,Durable Loans,Personal loans etc.Mortgage loans contributes around 70% of the total loan book.Over 80% of the total loan book of 9600crs are of retail.Check their corporate presentation to know everything about them.http://www.capfirst.com/pdfs/investor-relations/Capital%20First%20-%20Corporate%20Presentation%20-%20%20FY14.pdf

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

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

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

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

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

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

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

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

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

Friday, June 27, 2014

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

The aspects of markets:-

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

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

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





Stock idea:-

Scripscan:RS software ltd
Traded in:Nse-bse
CMP:230rs
Target:300rs
Duration:6-9 months
Return percentage:30%

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

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

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

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

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

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

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

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

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

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

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

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