Scripscan:Omnitex Industries ltd(Strata India)
Note:In 2009 or probably 2010,similar company called Subuthi Finance(now Indus finance)was suggested at 8 bucks as the company was holding truckload of Indowind energy.Subuthi from 8 in a matter of few quarters moved all the way to 339 bucks.
Quote:I have called Omnitex guys a few times and every time I was asked to mail them up which eventually was done but till date no reply has arrived from their desk.On calling the Omnitex given phone number in Bse,one is greeted by the message of "Welcome to Strata India".Plan to meet them up in due course.You folks try to grill them up too.
About Omnitex:Omnitex is a company with no core business.So before you start to sense irrational stuff,pay heed to the details.It owns around 30% in its JV company called Strata Geosystems and there lies my interest.Company's paltry income is of basically licence fees received for premises and amenities from Strata Geosystems.Google up to know more about Strata or even a close eye on the care ratings will do a world of good too.
Care ratings:Ratings are mostly unbiased stuff which provides mostly everything about a company.Here's the link(http://tinyurl.com/nyvbw9h).Am pasting the CARE rating's nutshell.
Background:Strata Geosystems is a JV promoted by Omnitex and Strata Systems Inc.SGIPL is engaged in manufacturing of Geogrids along with providing end-to-end solutions from designing to execution of constructing retaining wall for approach to fly-overs.The manufacturing facility of SGIPL is located at Daman & as of March 31, 2013 had the capacity to produce 4.50 million sq.mtr of Pet Geo Grid per annum.In FY13,company was also engaged in trading of Geo cell and in FY14, the company is setting up a plant to manufacture the same at an estimated cost of Rs.3.33 crore.Furthermore the company is an exclusive distributor of BEBO arch system in India.
Increase in scale of operation coupled with healthy order position:During FY13, the total income of SGIPL’s grew by 21%, mainly due to increase in orders received for both manufacturing of geo grids coupled with receiving orders for providing end-to-end solutions.However, overall scale of operations remains modest with operating income of Rs.63.32 crore and PAT of Rs.2.42 crore.On H1FY14,it reported total income of Rs.27.00 crore.SGIPL has order book of Rs.138 crore as on October 01, 2013,out of which approximately 50.00 crore will be executed by March 2014.
Improvement in overall gearing:Overall gearing improved 0.52x as on March 31, 2013 from 0.74x as on March 31, 2012 primarily on account of repayment of term loans and accretion ofprofits.Moreover, SGIPL has comfortable liquidity position in the form of un-utilized working capital borrowings (as the average monthly working capital utilization was around 49% for the past twelve months ending September 2013.
Decline in operating profitability leading to marginally deterioration in debt coverage indicators:The operating margins of SGIPL declined by 670 bps during FY13 vis-à-vis FY12 primarily on the account of comparatively lower realizations coupled with write off bad debt amounting to Rs.1.90 crore. However the operating margins continues to moderate.
Introduction of new products & services resulting in moderate capex:As discussed above, during FY13, SGIPL has ventured into trading of Geocells and has plans to set up a manufacturing unit for the same.Furthermore, the promoters has also planned new vertical for design, supply and construction of bridges using precast archbridge technology. The company will source technology from Swiss based BEBO Arch International AG.The company is developing moulds for bridge arch with a total cost outlay of Rs.1.00 crore.Thus going forward, ability of the company to successfully diversify its revenue stream and complete the aforementioned project,without any time and cost over-run, shall be critical from credit perspective.
Prospects:SGIPL’s prospects will largely depends on its ability to increase the scale of operations via continuous flows of orders from infrastructure sector in the scenario of slowdown. While increasing awareness towards the technical textiles would be crucial for its future prospects in India.
1)1)Strata geosystems growing at a rapid speed(Company has grown over 50% CAGR since inception).Even its counterpart Maccaferri India aims to be a 1000cr turnover company in next 5 years with growth of 50% CAGR(http://www.business-standard.com/article/companies/maccaferri-eyes-robust-growth-targets-rs-1-000-cr-turnover-111032900215_1.html)
3)Robust clientele,comfortable debt equity ratio,great pedigree team(mostly IIT folks,Checkout in linkedin).Just read more about the background of guys who are the promoters of Omnitex or say who owns a lot of shares in Omnitex.The likes of "Ashok Bhawnani,Narendra Dalmia-People of great repute and incredible entrepreneurial skills with extravagant successful past track records.
4)Industry is new and growing at 30% per annum.Maccaferri and Strata have got lot to gain.Their business is confined to just 5-10% of the entire construction spending. However, the amount of quality and savings they ensure for the developers are phenomenon. Hence, the growth is certain.Strata recruiting daily,can find jobs in google with good million yearly package.
5)Promoter owns 20% of strata in their name and 30% through Omnitex,if they put the remaining 20% in Omnitex in lieu of warrants,story will change and stock will get massively re-rated.Also since Omnitex has given a corporate guarantee of 21crs,it obvious the minimum value of Omnitex assets are worth atleast 21cr,so the present marketcap of 5crs is not even 25% of its asset value.
1)In fy09 shares were issued at 60 when PAT was mere 16 lakhs.In fy12 again shares were issued at 60,valuing the co. at only around 4xFY11 earnings.Omnitex applied for only 8718 shares during FY12 & its stake got diluted from 33.88% to 29.5%.Omnitex invested only 5.23 lakhs for 8718 shares, even though it found money to give 17 lakhs inter corporate deposits.
3)The corporate guarantee given by Omnitex to Strata increased from 10Cr. to 21Cr.For this, Omnitex is not receiving any guarantee commission which is generally ~ 2% of the guarantee amount or 42 lakhs p.a.Though on the reverse,strata is saving that amount which is helping some cost reduction.
3)Strata would continue to grow but if they allots more shares and Omnitex stake gets diluted(Provided omnitex refrains from subscribing),shareholders of Omnitex would never benefit or any re-rating may never occur.Also its a call auction category scrip with 2week average trading volumes of just 800 odd shares.
Valuation:Holding companies typically trade at 50% or a bit less than the their intrinsic holding value.Since there's no direct listed player in the segment and also considering Strata's amazing management team and with robust growth prospects,I prefer to value it on 1 time marketcap/sales.Strata as per the order book position would end fy13-14 with 77cr sales.So applying my valuation metric,77cr is the valuation for Strata Geosystems.Now the listed Omnitex India owns around 30% in Strata geo(30% of 77crs comes at 24crs).After putting a 50% holding discount,we arrive at a value of 12crs.Also as pointed out,Omnitex properties are atleast worth 21crs.So on adding up the values,we get much superior valuation for omnitex.It would also be prudent to note that Strata is expected to perform amazingly once the infra cycle picks up.Say even 50% CAGR is not a big deal as it has already proven its execution skills(albeit on a small scale),the low base effect will also help.I mean considering the prevailing tough environment,its still a cash positive profit making company with comfortable interest cover.So if Strata even grows at 40% cagr,the stock price of Omnitex should follow suit too.Provided there's no malpractices and 40% Strata geo growth(from 77crs in fy14 to 295crs in fy17).So again if Strata makes it 290crs revenues in next 4 years,Omnitex with 30% stake and 50% discount value,will have a value of 45crs or 108rs per share.Present market cap is just 5crs folks.
Disclosure:Bought 280 shares on last week.Intent to buy a few more.
btw:People looking for midcap/smallcap positional call professional service may rush a mail at my mail id email@example.com to know more about it.