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Sunday, November 11, 2012

A.K.CAPITAL SERVICES LTD,Thangamayil Jewellery Ltd and Atul Auto Ltd:Paid call to members

The same issue pulled me out again.It became an herculean task for me to cater to so many mails and get back to them with the last 3 paid calls for the month of october 12.So rather than shooting it to one by one am penning it here.

Stock idea:-(October 28,2012)

Bse code:530499
Percentage return:60%
Duration:9-12 months

Story:AK capital is the specialist in Indian bond market and is leading the segment through management of private placements as well as public issues.In the span of 17 years it has managed to capture a market share of  around 35% in the FY2012-13 as compared to 2% when the company had entered this market. It is noteworthy that the bond market has grown exponentially during this period from INR 300,000 million to over INR 2,000,000 million. AK Capital has served more than 250 clients including country’s premier Central & State Government undertakings, financial institutions, private corporates and private & public sector undertaking (PSU) banks and PSUs & FIs. It is also one of the largest arranger of bonds for PSUs, FIs and Banks. It crafts debt instruments that are not only best suited to the fund raiser’s requirements but are also investor friendly.Ranked no.1 in the private placement of Fixed Income Instruments in the Indian financial market, AK Capital is one of the few merchant bankers to have direct access as a counter party to almost each and every domestic bank/ institution.It  has closely worked with the regulatory bodies in setting up the guidelines for the debt industry like evolvement of norms for floatation of public issue of debt. AK Capital was the ‘Lead Manager’ in public issue of NCD aggregating INR 10,000 million by Shriram Transport Finance Company Ltd. (one of the three NCD issues in India).As the bond market in India is expanding and is expected to contribute to 55% of GDP by 2016,its all geared up to take the markets and be a bigger force to reckon with.

Quintessence:Bond market in India is quite nascent as compared to developed economies but none the less is now catching eyeballs of the investor community in India as well as abroad. Bond market is becoming preferable choice for the fund raisers to raise the required capital while investors find a safe haven to park their monies and assure themselves with the fixed income returns.More and more corporate are seeking debt instruments to raise finance without diluting their equities. Regulatory bodies are introducing significant reforms to accelerate the growth of the debt market.In a nutshell, the current trends are all in favour to facilitate the development of the Indian bond market.You are getting a market leader at a marketcap of 100crs with dividend yield of 4%.A business which boasts of a ROE of 30% with debt-quity ratio of 0.25.Its the same counter which clocked a high of 944rs hardly 2 years back,at present prices its quoting at 83% discount to its peak.Its the same company which Forbes has rated one among Asia's 200 fastest growing companies.Downsides at most can be 20-30 bucks but on the upsides front it can probably throw decent surprises.After all the reforms by the govt, its only the interest rate cut which is set to happen anytime now and that itself is the biggest trigger for this particular stock.What they would do this year or next year is anybody's guess but the real catch here is the potential.It may very well clock the same turnover this fiscal which it did last year(143crs sales and 31crs PAT),or it can post say 15-20% growth.But ones the sentiment changes for good it can post a massive rise in its  base which would also help the stock to get re-rated in the bourses.I mean loosing from a stock with trailing PE of 3 seems very odd.My conviction and confidence in the stock gets stronger when I see Mr Radhakishan Damani(the guru of Rakesh jhunjhunwala) has chipped into the counter with purchase of 72000 shares over the last few months.With market expected to be strong, A.K cap with its strong ratios,great prospects,market leader image,bargain valuations should easily settle in the 250-280 range within the next one year.

Stock idea:-(October 14,2012)

Story:Scripscan:Thangamayil Jewellery Ltd
Traded in:Nse-bse
Duration:6-9 months

Quote: In the month of august the same scrip was suggested which made a quick high of 240 bucks and now with the midcap voltility again, its back to near previous its recommended level.Present level offers a good change for the members who missed it last time.Also this week I couldn't find a bargain and since am a firm believer of sheer quality and not mere quantities-the above one remains one of the best pick under the present volatile environment.Also its results are due on 17th of this month which should be good and can help it to make a small northward move.

Story:I don't recall have ever suggested anyone to be in cash to counter the downfall,if any at all.I am not a votary of being in cash but in uncertain times preferred "growing cash equivalent stocks"-the likes of lever and ITC's of the world which helped me a great deal to fight bear markets of the past.Under the present environment markets are rewarding business with hefty valuation where there's huge growth forward.Today have zeroed in to something which on the first glance never quite made it to the picks list.But by applying this unconventional metrics of cash equivalent coupled with expected CAGR of 40% expected growth in both topline as well as bottomline+a visionary management on a mission to be a force to reckon with helped me to go for this company.Here there's no lack of growth,no recessional stuff but a company which is pretty transparent and aggressive in its dealings.Lets make a start:-Thangamayil has a long history. It was promoted as a partnership with Balu Jewellers way back in 1984, but then later converted itself into a company and then went public. It is concentrated in the southern part of Tamil Nadu from where it covers Kerala also; Tamil Nadu and Kerala account for more than 30% of the jewellery purchases in the country.It trades in gold, silver, diamond and platinum jewellery. The ornaments are made to order as per specific requirement of the customer and the same are manufactured at the company's unit near Madurai.A portion of the jewellery is also bought readymade from various dealers in Andhra Pradesh, Gujarat, Kerala and West Bengal. The company is also in the business of jewellery exchange and has popularized the concept of hallmarking in the region.Thangamayil Jewellery expects revenue of Rs 1,750 crore this financial year, helped by new store openings and strong demand for gold and diamond jewellery.The Madurai,Tamil Nadu headquartered company reported a revenue of Rs 1,131 crore in 2011-12.Net profit was 59crs for the period which should comfortably move to 85crs in the present fiscal.So great growth play to start with.Thangamayil focuses on opening stores in tier II and tier III towns of Tamil Nadu like Krishnagiri, Vellakoil, Coimbatore, Salem, Ramanathapuram and Theni among others and hell ya there is no slowdown yet in these markets and probably never would be.More than 60 per cent of current sales are from small branches. This ratio would only improve in coming years due to faster penetration into the business of the unorganized sector, whose presence is more in smaller towns, by the organised players in the industry.Another reason for the company to penetrate in this towns was the growing disposable income factor with the lower middle class.Bigger brands could offer “cost effective pricing" due to their market positioning.Therefore, at the end of the day, both the customer and the company will benefit from TMJL’s strategy of penetrating the rural areas and small towns. For the time being, TMJL will be only in Tamil Nadu, till such time its consolidation process is over.Out of its total branch network, only a handful – Madurai, Tuticorin, Salem and Coimbatore branches – are in municipal corporations.The rest are in medium-sized towns and some in the rural heartland, in place such as Dharapuram, Cumbum, Theni, Krishnagiri and Vallakoil. That it is able to set such a scorching pace in income growth in such a short time stands testimony to not only the increasing aspirations of the rural population but its purchasing power too.I believe this has been a great strategy for the company which silenced its critics by increasing its sales from 127.15 crore in 2006-07, to nearly ten times in the past six years to Rs 1,131.61 crore in last fiscal.The company currently has 20 stores and it is likely to have 28 outlets by March 2013. Depending on size of the branches, it will be spending Rs 40-50 lakh to meet its interior and other equipment needs.100% of their business is retail. No wholesale stuff.(Margins are obviously better in retail.)Thangamayil's first quarter net profit rose 42% year-on-year to Rs 15.13 crore, while total income was up 61% to Rs 358.4 crore. On a sequential (quarter-on-quarter) basis net profit and revenue was up 66% and 17% respectively.Morning shows the day folks.The first quarter has been a bang for the company and it should maintain the trend,if not bettering it.Thangamayil has a good payout ratio too where it paid dividend of 7 bucks,resulting an yield of 3.5%.A growing company can never be overlooked by the markets for long.At some point of a time market would realize the hidden value till then accumulate it slowly.On an equity base of 13.7crs the company is expected to deliver an EPS of 57-58rs.There's limited downside and at a forward multiple of just 3.5 times you have nothing to loose folks.It can easily trade at a PE of 5 times which gives you your target price.Oh ya, the peer group trades in double digit PE's which further provides one with the required comfort.

Stock idea:-(October 7,2012)

Scripscan:Atul Auto Ltd
Bse code:531795
Percentage return:50%
Duration:6-9 months
3-5yr CAGR return:30-40%

Quote:The hunch of finding a potential multibagger gives a special feeling folks.The feeling of satisfaction,the thought of owning something which would steadily multiply with time.If its a midcap, I kinda murmur not bad but you can do it better fella.A smallcap or say a probable "bud of the oak tree" really really turns me on.Atul auto just falls under that smallcap fraternity which stands tall to qualify as a big future winner.A true extremely undervalued,overlooked masterpiece..Why?Read on.

Story:Atul Auto Limited engages in the manufacture and sale of three wheeler auto rickshaw vehicles (passenger/loading) and spare parts.The company offers a range of three wheeler diesel auto rickshaws, CNG auto rickshaws, and PNG auto rickshaws, such as pickup and delivery vans; passenger carriers; and chicken carriers, tippers, water tank carriers, soft drink carriers, mobile shop vehicles, hopper vehicles, bio hazard vehicles, and vegetable vending vehicles. It produces auto rickshaw vehicles under Atul Shakti and Atul Gem brand names. The company exports its products to Nigeria, Kenya, Egypt, and Tanzania, as well as other African countries. It is also involved in the generation of electricity with wind turbine generators at village Soda Mada, Rajasthan and village Gandhavi, Gujarat.Atul auto differentiates itself with customised product offerings, low maintenance, and strong after-sales service to buyers in form of service warranties of two years which other larger players like Bajaj Auto and Piaggio do not provide.The company has been able to grow 25% and 20% respectively as far its sales and profits growth are concerned over the past five years(08-12).So the consistency stuff which we all crave for is here folks that too it showcased when we had the vagaries of recession,the uncertain inflationary environment.The industry itself had a de-growth where it operates in.Surprise surprise an auto play with cash equivalent(11crs) superior to its net debt(4crs).Thus, I present to you a de-leveraged bet with consistency and ethics where minority shareholders are well treated too(company has issued bonus twice in the last decade).Last fiscal it paid a dividend of 5 bucks resulting in an yield of nearly 5%.Forget the kotak mahindra 6% subbu ad and if you got plans to put in fund in an useless savings account-cancel the thought right now and park the same funds in atul auto,where you would get that savings account yield+sweet decent capital appreciation.The company has been a leader in its existing territory – Gujarat (approx. 45% market share) & Rajasthan (approx. 30% market share), the company is now trying to go Pan India by entering new territories(Kerala & Assam are its next big markets).The company has grown its domestic market share in the goods carrier segment from 5% in FY09 to 12% in FY12 while growing at a CAGR of 44%. In FY13 till date its market share was 15% in this segment.Atul Auto’s share in the domestic carrier space has increased  three-fold from 2% in FY09 to 6% in FY13.EBITDA margins have remained well above 9% in a challenging environment for the past three years.I happened to have a sound chat with with Mr. J V Adhia, Vice President, Finance – Atul Auto.In his words,"Current dealer network is about 120 dealers. A year back we had 100 dealers but only 30-40% were active! Now more than 80% are active. Plan to have 250 dealers in 2 years.As of now the company is seeing a very strong demand and there is a waiting period of about 10 days. As per policy the company is taking orders on advance basis only. Hence the high advances on Balance Sheet.We are in process of doubling our capacity from 24,000 to 48,000 vehicles p.a. This expansion is being done at our existing plant and we have sufficient space.We are expanding capacities by ongoing de-bottlenecking exercises. We are already at 20-25% higher production and the rest of the de-bottlenecking increases should happen over next 3-6 months.  We have options of introducing a double shift, as and when deemed necessary.We do envision to be 1000 Cr company by 2015-16". (Co did 298 Cr turnover in 2012 and around 400 Cr is expected for FY 13).On the exports front, as expansion comes in full by December 2012, the company is working on restarting exports in the South East Asian/Saarc markets like Bangladesh and Sri Lanka in theimmediate term along with newer African markets.The NPM too(5 % odd) is expected to remain on the rise considering lower input costs and a better operational performance.It ended fy12 with a PAT of 15crs which should comfortably cross 20-21crs in the current fiscal.On an equity base of 11crs that translates into an EPS of 19rs.At present market price of 111rs the same gets discounted by a PE multiple of a tad less than 6.PE expansion gradually would take place and at some point of a time it would quote at a forward PE of 8 odd,which gives you your target price of 160rs(19rs*8.4).For a growing company with consistency,ROE and ROCE of over 25%,dividend yield of nearly 5%,ethical and visonary management,huge exports potential coupled with the most sought after tag of "domestic consumption play"-I mean whats missing here?Nothing at all.A great buy.

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

btw:After thorough meticulous research only the paid calls are been provided to the members.The open site( is meant to provide outlook and not recommendations.Paid site is meant for recommendations with target/duration/complete story and updates.Scrips where am most bullish would be posted on the paid site.


1 comment:

Unknown said...

Very Nice Picks, Excellent

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