Get Magazines for free

Categories

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

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

Please note

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

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

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

Archives : Old artciles

Saturday, September 30, 2017

CP Ltd: The penny stock with Multibagger potential

Scripscan: CP Ltd
Cmp:19
Traded in:BSE

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Btw: Folks interested for our "Sebi registered premium small cap services"(Sebi registration number: INH300002357)pls fill the below form. For assistance do whatsapp/contact Ujjal at 9831291631 or dip at 9007652301.
http://tinyurl.com/ya5mzmgz

Thursday, July 20, 2017

Here comes the "Next Caplin Point"

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

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

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

Scripscan: Next Caplin ltd(M.B)
Cmp:568rs
Traded in: BSE
Marketcap: 550-600crs
High low: 589/105
Teaser: Tweeting since 78 levels.

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

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

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

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

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

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

The Company has also set its eye on manufacturing of Cephalosporin.The demand in Africa and Asia has started picking up and it sees a big opportunity in getting contract work for export as many small players have not opted for manufacturing of Cephalosporin due to finance involved in construction of new block. In Haridwar plant the Company also intends to export ointment and lotions beside iron and folic acid tablets which will give big boost to the topline from this financial year itself.An interesting report on Folic Acid and how NC is placed is available in this link.
https://www.whatech.com/market-research/industrial/328920-report-explores-the-folic-acid-global-market

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Regards,
Arun(arunsharemarket@gmail.com)

Sunday, April 9, 2017

Another small cap PVC Player with multibagger potential

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

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

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

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

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

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

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

Points which attracted us:-

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

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

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

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

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

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

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

Thursday, February 16, 2017

My recent interview and the PVC turnaround candidate

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

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

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

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

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

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

D) Micro irrigation Systems
•Drip Irrigation
•Sprinkler Irrigation

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

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

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

Distributors meet in Udaipur: Company organised its distributor meet in Udaipur recently after a span of 9 long years. The company hardly expected any orders but went on to receive 72crs of order from the meet itself. Glimpses from that meet is available in the below link.
https://m.youtube.com/watch?v=O0mkRfazhos

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

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

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

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

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

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

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

Key Market Drivers:-

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

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

Indian Plastic Pipe Industry:-

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

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

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

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

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

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

Folks interested for our "Sebi registered premium small cap services"(Sebi registration number: INH300002357)pls fill the below form. For assistance do whatsapp/contact Ujjal at 9831291631 or dip at 9007652301.
http://tinyurl.com/zw3vvjt

Saturday, November 26, 2016

Dubai Workshop and the amazing small cap multibagger

Finally our first International ShareBazaar Workshop comes in Dubai in 2nd week of December. Register folks here:- tinyurl.com/qgfcqaz Guess the stock folks:- · In 1991 the company graduated from the traditional business of Iron & Steel trading with investment of Rs 30 lakhs and than ventured into manufacturing of bead wire for tyres. · Current annual capacity is at 30000 MT each both in India and Thailand plants. Both can go up to 48000 MT each if required. Currently they are operating at 82% utilization levels. · Currently 85% sales are contributed to Tyre Sector and rest is attributed to value added products. · For tyre companies its products constitute around 3% of total expense hence they always prefer to go with superior quality products since it very important component of tyres . · The company had a technical collaboration and joint venture agreement with Gustav Wolf, Seil-Und Drahtwerke GmbH & Co of Germany, which was terminated in the first week of October 2003.They had 25% stake in company and promoters bought that stake in 2003. · Currently in India company's market share is 39%, Tata Steel is 25% and Aarti steel is 12%.Aarti steel is a Ludhiana based company and is much bigger in size compared to My today's pick. But they have other business also hence this business is small part of their total sales. · All major tyre companies are clients for the company. · Current Thailand market is of 5000 Mt size and company’s market share is 20%. Till now company was supplying on to small players in thailand market since they were in process of getting approval from big players. They plan to get 50% market share on ASAP basis. · A high carbon wire is their major raw material. · Entry barriers in this business are big since approval from Indian tyre companies take 4 years and Japanese companies take 5 years for approval. · Thailand Plant was set up in 2008 and took 8 years for break even. They invested $13 million at that point of time. · Company is only player in Thailand Market for bead wires business. · But recently company has got approvals from Sumitomo and Bridgestone hence their sales have shoot up in Thailand markets. In last year they did sales of 17000 tonnes in Thailand with gross profit margins of 50%.Sales realization was at Rs 60000/tones. · In last financial year Company did sales of Rs 180 crores of sales from Indian markets and Rs 100 crores sales from Thailand markets. · In Indian Market company has done EBITDA margins of 12% and Pat margins of 5% in bad times and EBITDA margins of 17% and PAT margins of 9% in good times. · Company expects improvement in sales for 40% in Thailand 12% in Indian markets. · In Thailand they have accumulated losses of last 8 years hence they don’t have to pay taxes for next 2 years. · Company is trying to get Michelin tyres as a client for their business in Indian Markets. · Sumitomo currently consumes 9600 tonnes/ year of Thailand capacity which is good part of sales generated from Thailand plant. Sumitomo’s 50% business requirement is fulfilled by the company in Thailand. · Bridgestone consumes 2040 tonnes/year in Indian market and more than 8000 tonnes/ year in Thailand Markets. · Over next 3 years capex required is Rs 20 crores in Thailand market. · Overall Industry size is 1.2 MT and Company constitutes only 5% of overall Industry hence there is big scope of improvement. Kisewires from Korea and Bekert from Belgium are the Global giants in this business. · Thailand business have become profitable from this year hence company is going to approach local Thai banks for restructuring existing loans which is currently services by ICICI bank. These restructuring will help to reduce interest cost by 7%-8% for debts taken related to Thailand plants. · Overall capex required is $1 million for installing 1000 tones plant. · Working Capital requirement is 120 days in India and 90 days in Thailand Plant.

Wednesday, September 28, 2016

The turnaround Capital goods bet with Multibagger potential

The company was suggested to the premium members few weeks ago. It has moved a good 30% since then. Still looks a company with multibagger potential. People interested for our coming Mumbai workshop as well premium small cap services pls fill the below form. For assistance do whatsapp/contact Ujjal at 9831291631 or dip at 9007652301.

AGM Updates:-

Improvement in operational efficiency by reduction of manpower and raw material cost (thereby improving ebidta margin). Being 70 yr old co., the cos main strength is offering diverse product range & designing and customising products according to the clients requirements. Supplying products & services to almost all the Fortune 500 companies.

Improving topline and market share in Railways & Defence segment, incurring R&D expenses to develop and introduce new technology driven products and thereby improve application of product line in steel, sugar, textile, cement, energy etc. Trying to get back in defence business where we were 15 yrs ago. Looking forward for better results in Q3 and Q4 due to good order inflow for (Mysore plant for oil fill transformers) and growth seen in the abovementioned sectors. Getting orders (revenue) is not a problem for the co, main aim is to reduce the working capital debt and interest burden cost & improve distributor network. Certain defence orders are in L1 stage(lowest bidder in tenders).

Expect huge market for renewable energy in India. Cos top mgt executives have been touring and meeting power station companies.

The co will bid for a Water Grid project (Irrigation scheme - provide drinking water from various rivers near AP to all its various cities) and expecting to get an order worth 50 Cr in Telengana state for supplying 1000+200 high and low voltage Pump Set (of 12 Lac each). Execution will come in Q3 & Q4. Recently, the co has got solar project order worth 60 Cr. It is the biggest opportunity for revenue growth.

Restructuring undertaken with banks in 2014 for working capital and improving cost of capital. The co has been gradually reducing the Deposits (of 24 Cr) and ICD (of 22 Cr).

Make company debt free over a period of time by disposing non core real estate assets of the co. in Hubli of 100 acre near hubli airport, initially earmarked 20 Cr, which will fetch them 120cr (waiting for approval from the state govt to ride over the crisis), Mysore - 5 sites worth approx 50 Cr, Regional Office spaces in Delhi, Hyd, Pune, Bglr etc. (probable model to be adopted by the co. is disposing of and taken back on rental basis). Reducing debt with corporation bank.

Total real estate non-core assets of the company is more than 1000 Cr.

My view: Recent step taken by the mgt regarding sale of treasury stock worth 18 Cr and QIP issue of 37 Cr was one of the brave and bold step. It has brought positivity and optimism among all the employees of the company and they will work really hard to bring it back to the top. Initial issue of working capital is solved and they have started concentrating on the business.



Scuttlebutt from the biggest distributor who is with the company for last 20 years:-

If you order LVM motors today u will get it tomorrow. So there is no problem of dispatch in standard motors but if you demand for specialized one then depending upon size, features delivery time gets from 1 month to 6 months.Recent speech from Chairman was fantastic. Expecting very good profit in next 2 years Crompton and abb are also aggressive.This company has huge land bank in banglore and hubli.

•Ravi series is doing good because of terminal arrangement on top & side both available. Earlier only side terminal arrangement was available but now both.70 to 80% more efficiency achieved in ravi series, complaint have came down drastically.In terms of sales & network, the company is like maruti & lupin.They have purchased new land 5 to 6 years back.It is Trying to increase market share.It is trying to hire big guys from market.

2 to 3 wrong people have chaired in the company due to which last 5 to 7 years were not good. New MD had come recently and is cleaning all dust from the company. He removed all wrong people, all inventory were cleaned. Also fired people who were thinking company like government organization.New MD is silent and aggressive. I have personally felt that he is working very hard.In my 15 to 20 years of experience at the company I can definitely say that things are improving sharply and next 2 to 3 years will be fantastic.I am very optimistic.

Trying for new supplier with new people.New MD is pure finance guy and cleaning all inventory.I have personally seen all plants of it and felt that, recently accountability & responsibility has improved for each and every person. Getting quarries from lost customer which is big achievement as of now.In terms of brand, Crompton, this company, abb is preferred (Order).


Summary:-

What happens when a family managed company with good products and a great brand recall changes its PSU approach to be a well managed private one? That's precisely the story of this company.They have given two professional rockstars a free hand to run the show. VB,who was the CFO of the company got promoted to be the MD around 2015. AH,the star salesman with wealth of experience in the industry took the charge of being the sales head. They are churning inside out to transform the company and take it to the coveted league.

The problem of the company started with the acquisition of LDW in 2008,a German company known for its technology. The recession followed which made the matter worse for the company. Inspite of every possible support from the Indian parent the German subsidiary couldn't turnaround. Few quarters back it finally gave up and booked the losses. They have imbibed the German technology and with the sector it caters to looking up,better days finally prevails for the company.

The company posses rich non core assets to the tune of over 1000crs(mostly land parcels and factories which are not needed). They are in active dialogue to dispose of the same worth 400crs and make the high debt entity a debt free one. Over the course of next 2-3 years,Company would be a lean entity with no more interest cost obligations. Would be prudent to note that the present interest cost of the company would be near 40crs.

The end users of its products aka the sugar,power,steel and cement industries have started seeing times changing for good. If your output user marks a rich turnaround,the vendor too will turnaround right? Often common sense is very uncommon,notably in case of retailers in terms of selecting listed entities.

Our channel checks from its dealers network across the country vindicates the point on the demand front. Customers are having a waiting period of 2-3 weeks for its Ac-Dc motors. Dealers also suggests about the renewed focus from the company's end. It has a near monopoly status in "Oil Filled Transformers" where it's seeing huge demand. Last year they did around 18cr sales. This year they already have orders worth 90crs in hand,comes with double digit EBITDA margins.

The company always had orders but owing to working capital crunch they couldn't execute most of it. The condition went so precarious that it had to resort to selling its treasury shares in and around December 2015. It garnered 20crs and finally scripted a turnaround after a very long time. They did a QIP of 36crs recently at 46rs which would further provide relief and help it to achieve the 700crs targeted topline figure.

What's a blessing in a disguise? How about accumulated losses of hundreds of crores in its book which means no tax obligation till it surpasses the accumulated losses within the tax window of 7 years. Management did clarify about no MAT either.

Conclusion: After exactly 8 quarters or in the December 2015 numbers,company finally came in green. Last 2 quarters been profitable too for the company. It targets a 30% growth where its sales are expected to surpass 700crs this fiscal. Estimated EBITDA of 9% gives us a PAT figure of around 15crs(63crs minus interest cost of 36crs and depreciation of 12crs and with no tax obligation). Company quotes at 23 times fy16-17 earnings. Fy17-18 will see it clocking 880-900crs of sales with higher margin orders. EBITDA expected of around 11% makes the company quote at just 7 times. Turnaround bets are greeted with higher valuation and with the company catering to core sectors,it would always quote in a range band of 15-20. Peers group which are notably the behemoths,your Alstom,Siemens and Abb of the world are quoting at over 30 times fy18 earnings. Also as mentioned earlier in the reports they are targeting to be a debt free entity over the next 3 years. In case that happens,Company could well pen a scripture for itself with shareholders making multi fold over the next couple of years. A delight of a bet in a quintessence meant for your core portfolio. Now don't bother asking the target folks.

Thursday, July 21, 2016

The Microcap Adhesive player(Extension of previous post)


ShareBazaar whole day Workshop this August in Cities like Bangalore,Hyderbad and Delhi.FIll the form if that interests you.

tinyurl.com/glwucbp

Note: Extension of the earlier micro cap posts. Of those 5 companies,eastern treads and ramco systems got already covered. It's the time for the 4th stock from that list. Oh yah Sebi compliant too.

Quote: Since tweeting about it in last September at 30 bucks,company has been a near 5 bagger in a very short period. It took huge amount of work and time to have the required inputs and compile the note. I mean they haven't even got a proper website. There's absolutely nil info in public domain.At present price it seems pretty overvalued though remains a microcap with just around 50crs of market cap. 

2014-15 Annual report inputs:The company is engaged in the business of manufacturing of Wood Adhesive. It has built up a reputation as a manufacturer of “high quality” products and is known for its ethical dealings in business. The company supplies its products to leading Hardware & Plywood Stores in all over India.The company is presently in a phase of financial consolidation. The difficult times faced by the company during its initial years of operations had resulted in carried forward losses, which the company has been able to wipe off in the last few years. On account of its prior experiences, the company is presently working in certain low volume high margin niche products and also limiting its sales to few select prestigious customers. Consequently, the profits of the company are presently seen to be inadequate.However, the company is now focusing on adjusting its growth strategy with the rapidly changing economic scenario. The present consolidation phase will provide a good launching pad to the company. The company is also working with some domestic merchant for increase its business as also trying to identify some high volume, low margin products to improve capacity utilization of its facilities. Based on the buoyancy of the Indian economy, the over all scenario and the steps taken by the Management, the future outlook of your Company looks bright.

Company meet update:

1)Established in 1988, Company started as a paints manufacturing company.In 2006, they decided to take a plunge in white adhesive market and compete against Fevicol. This Ahmedabad based company gradually started expanding from Gujarat to Rajasthan to MP. Penetrated Maharashtra and acquired at a pace of 2-3 retailers per day.Product sells under brand name of Euro Marine,D3,Xtra,Grip etc.

2)They had a horror time initially to convince dealers about taking the Euro brand. Nobody was ready to keep anything other than Fevicol. Times have changed and they are enquired on a daily basis about dealership and distribution opportunities. Have presence in 13 States and 130 cities with a network of 7000 dealers. Company also have got a very strong motivated sales team.Targeting Pan India presence by next 3 years. Company does meticulous due diligence before giving dealership to anyone.

3)Debtor days at around five months from 7 months earlier and to be reduced further. Creditor days at around 75 days. Chances of bad debtors minimal. Company further ensures the same by providing rich cash discounts and incentives.

4)Senior Patel had a dream of having a listed company. Junior Patel,who seems to be a focussed humble chap,dream is to be known by his "Euro" adhesive Brand. Hired a management Guru called Himanshu Buch to train and motivate the staff(When the company was much smaller and the training continues till today)
https://www.linkedin.com/in/himanshubuch

5)Bought and shifted to a bigger 8000sqft office in Ahmedabad. To hit the FA this quarter. On being asked about the extremely high asset turns,promoters claimed it happens in this business. Also the capacity was there since last many years. No new capacity required for next 2 years.

6)Promoter claimed they have a " Sales like Hot Cake" adhesive product called "Xtra" which Fevicol copied and it came out with "Sh Xtra".

7)Promoter claimed of almost nil attrition as they take care of the employees well. All employees are send on a tour every year. Some 180 odd guys on payroll.

8)Pidilite acquired smaller adhesive companies like Bluecoat and Supershva at over 2X sales. They were also targeted but no plans to sell out for next 2-3 years.

9)Shot in the arm moment for the company came when Prince Laminates,a large Mumbai based Distributor with access to 600 dealers ditched Fevicol to sell only Euro. Company expects similar developments in Bangalore.

10)Promoter stake at 60% including associates and relatives. 96% promoters holding was pledged which was completely released recently. No plans to hike stake as of now.

11)Would be a big beneficiary of GST if or whenever happens. Pays Excise,VAT and others at 27%. 18% GST cap would be a big boost.

12)Operates with around 50% Gross Margins. Not sustainable.Will get reduced if crude moves higher. Though 5 year average Gross Margins are healthy at over 45%.

13)The competitive intensity factor where product price is tied with leader Fevicol prices. Moment Fevicol increases their product price,it follows too.

14) Have grown nearly 12 times in last 5 years,from 4crs in 2010-11 to 47crs in 2015-16. 100crs is the peak capacity sales which they are targeting by FY18. Targeting FY18 Ebitda of 8% and NPM of 4-4.5%.

15) No plans of advertising big way through the TV medium or so.Joked how Euro has a good brand recall thanks to Euro underwear,Euro cup,Euro laminates and so on. 200crs is what they can achieve with a fast speed after that the growth will slow down to realistic level. They may think of selling out then at proper valuations. 

Scuttlebutt-Retailers,Sales manager and Distributors:-(Mumbai and Himachal)

Mahesh Sharma,Himachal sales manager:He will grow 70% in his region in the present fiscal.In some product,Euro does the same thing in 60 kgs which jivanjor takes 80kg and fevicol 100.Euro priced premium to fevicol in some segment.Promoters commited looks after the grass root guys.Company keeps guys inspired and motivated.People address Fevicol as adhesives-Its like they ask for euro fevicol.

1)Bhoomi Ply:Was only shop amongst 3 in a row to have Euro, the other two did not stock it, and drove me away as they were doing hissab.Said that he stacks loads of tubs of Euro, and showed me 4 big boxes full.Had no clue what was Euro D3.Says sales are good, customers like it, not just because of the lower price.Says incentives are given by both Pidilite and Euro, nothing out of the ordinary.‎ Fevicol to get done with stock, Euro to encourage sales.

2)Local furnishing store, Borivali: Resinova Zesta is our preferred brand.‎Why choose Euro when there are cheaper and better alternatives?Euro costs us around 120 per kilo and Zesta is 115 Per kilo when we buy a 12 KG tub.We need something that gives us good reports, that dries quickly and gets the job done.Euro isn't bad, but there are better ones that do the job cheaper. We use Euro and Fevicol as spares when we don't get our preferred brand.

3)Golden Ply and Laminates:Euro sells, no issues, they're adhesives in the end.I would recommend fevicol over the rest, and there's a difference of 25 rs per kilo.Falcofix is running well and is marketed by Pidilite as the low end replacement to Fevicol.

4)Maharashtra Laminate (Big shop)‎:Didn't know Euro 9000, and had 55 Kilo tubs with Euro Marine 7000 on display. Said Euro 9000 must be ultra marine.Euro gives us incentives like cutter machines useful for carpenters and also gives us bulk discounts as incentives. Pidilite gives us nothing.Euro selling the most among adhesives.

5)Parth Ply:Euro D3 is the product that gives the output of 2 kilos of fevicol in 1 kilo, but is more expensive.Euro 7000 and Euro 7000 D3 are different, and the former is cheaper than the latter. Didn't know what is Euro 9000.‎1 kilo of fevicol costs 180 rs, 1 kilo of euro 7000 D3 costs 230 rs per kilo, but ultimately Euro is cheaper because less adhesive is needed. Performance has been solid.Incentives are given by both.Fevicol is selling more because of brand name,.else the performance is great for both.

6)Lucky Electricals and Hardware(Friends shop): Stocks Euro 7000 Marine, but calls it Euro 7000 Fevicol, says people relate to it better that way.Says that 70 percent Fevicol, 30 percent Opt for this.The 30 pc, he says, is because people are happy with its strength, and often come back to buy it once they've tried it.Did not know about D3, says that this is the one thing he stocks and sells.Did not speak much about incentives.

7)Chedda Laminates:Euro is literally the best! People need to use it once! Every customer who has tried it has come back for it! They are extremely happy with the bond that Euro offers, and it's not just the price that makes them come back.Pidilite is overconfident about its brand, and has started paying more attention to other products and their marketing, but Euro is catching up very fast.Euro is taking care of their customers by assisting carpenters, giving those instruments in the big boxes and also coupons worth 10, 20, 50 Rs etc that makes the small folk happy.They are also giving trial packets, etc to people and telling them there's nothing to lose, if you find it nice, use it!. He believes that Pidilite is losing its share in the town area and even more so in the areas north of Bandra! (Andheri, Goregao, Malad, Borivali etc). Not that Euro is the only one gaining, but it is a prominent company that's gaining.I am still selling fevicol, but I recommend my customers to try Euro and (points to shelf) I'm trying to sell more of Euro than Fevicol. (Packets of Fevicol are placed behind Euro on the shelf.)D3 is a phenomenal product, but it isn't marketed a lot by the company, so isn't popular.

8)Logus Ply and Laminates:I'm selling both, and Euro is great, but people who want Fevicol buy Fevicol only.But Euro does have a substantial share in the market, it has been noticed and is being picked up enough for me to refill it often.Fevicol gives me more margin than Euro.Euro is being picked up because the customer is also seeing what is he getting in return. Pidilite doesn't give any incentives, Euro gives them as vouchers and tools, so people see where more advantage lies and go and take it.It's not that it's a bad performer either, it's doing pretty well infact. Which is why people don't mind buying once they've tried it. The money saving isn't a huge deciding factor, it's the overall advantage.No idea what Euro D3 is."Fevicol vs Euro is like Colgate vs Pepsodent"Is Euro that popular? That it can be compared with giants of their industry like that?"Not yet, there's time for that, but it isn't impossible"

9)Laxmi Timber Mart:I don't stock Euro at all. I don't think it's a great product.I think people are greedy for those cutter machines more than they are looking for the adhesive.The machine barely costs 1500 Rs, why sacrifice the best adhesive for that tiny amount?

10)Plypoint:Euro is pretty nice quality-wise, I have had people come back and ask me more, not many, but several. It has a decent market share and is doing well.The adhesive business barely gets us any money, the margin is negligible.Both Fevicol and Euro go at almost the same rate as they come in, hardly any earnings in them.

11)Ravi Ply:Even if Euro tries hard, it can penetrate only 20-30 percent of Fevicols share.It's a good product and it definitely has its presence in the market today.It has a chance to grow if it pushes very hard for the next 5 years, with advertisements, contractor benefits, carpenter incentives, low price, bulk discounts etc.Do you think it is working hard enough?"Definitely."You stock araldite and Fevicol, but not Euro. I don't keep Euro on display that much, but I do stock it. I do have an advantage selling Euro, because it is cheaper,it sees a lot of orders quantity wise, margins are also a little better than Pidilite.Fevicol is like the Sharukh/Salman Khan of the adhesive industry, newcomers will have quite a challenge to try to topple it.

12)National Ply:Relatively large store,has loads of huge tubs of Euro lying around. Euro 7000 Marine more than the regular Euro 7000.Most Fevicol Tubs are smaller than Euro tubs and are kept on top of Euro.Euro was given more preference in display than Fevicol. Most low level, illiterate employees refer to Euro as Fevicol itself.Was a busy shop so didn't ask a lot of questions, but he seemed confident about his views on Euro.But as he flicked through the receipt book, I saw plenty Euro. However, Euro Ply was also sold there, so I could be wrong. 

Misc points: As on date they have got debt of around 8crs,mostly working capital related short term loans.They spends a fortune in sales promotions and marketing expenses. They were of the opinion that company will have to incur marketing expenses in order to penetrate new markets and establish EURO as a brand across various cities and states.The expenses will remain more or less same in the absolute terms and thus in terms of percentage of total income will gradually reduce considering economies of scale.Promoters supported the company with interest free loans during difficult times. No related party transactions. Some associates of promoters manipulated the stock price in the year of 1995  for which Sebi penalised them. Since then the promoters have turned extremely cautious and reports to Sebi themselves even in small stock price rise.
........................................................................................................................................................................................................... Btw:About to launch some "SEBI compliant" smal an  midcap services only meant for long term patient disciplined investors. Do fill the form if that interests you. Happy investing folks.

http://tinyurl.com/zw3vvjt
.................................................................................................................................

Note: For issues or assistance kindly contact Dipendu at 9007652301.

Friday, June 17, 2016

The Microcap Multibaggers(Extension of previous post)



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

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

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

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

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

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

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

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

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

Important Disclaimer&Privacy policy

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

Subscription to Arunthestocksguru

Enter your email address:

Delivered by FeedBurner