Scripscan:Shakti Pumps ltd
Company:An ISO 9001-2008 certified company has its sprawling state of the art manufacturing facilities with an installed capacity of 1 million pumps per annum, is strategically situated in central India at Pithampur in the state of Madhya Pradesh.Company manufactures diverse models of submersible pumps and motors and other application pumps for a wide range of applications. Over the years of steady growth, Shakti has become one of the leading pump exporters in India apart being a major player in domestic market as well.Today the company is answering water needs of more than 100 countries across the globe and the number is steadily growing over years. Owing to its success of strong product lines and technology that is at par with the best in international markets, Shakti Pumps has carved a niche amongst quality conscious users around the globe.
Accolades and Product applications:Shakti is among the few pioneers in the world to produce 100% stainless steel submersible pumps and motors.Shakti is rubbing its shoulders with best brands in the world thanks to the state-of-the art technology and innovation as its hallmarks.The main focus of the company is to manufacture best quality pumps which consume less energy, have long life and are easy to maintain. Considering energy efficiency features of its pumps, Bureau of Energy Efficiency (BEE) has granted it 5-star ratings to more than 260 of its pump models.Its pumps are largely used for applications like drinking water supply, agriculture, irrigation, industrial applications and processes, pressure boosting in high rise buildings and townships, rural/urban community water supply schemes, waste and sewage water treatments, firefighting etc.
New products:Innovation and R&D are the key of long sustainability in the pumps industry and it got plans to launch many new products like high capacity solar pumps, enhance the range of booster pumps, upgraded open well pumps, and hydro pneumatic systems and update products as per customer requirements. Its also in process to develop high quality energy conservative sewage pumps,slurry pumps, waste water pumps, hot water pumps etc.All this products will help the company catapult in the top global league and cement its position as one of the largest players.
Industry outlook:The global pump industry in on the threshold of scorching growth ahead in the coming decade.Global pump demand will rise 6.4 percent yearly through 2016 to $76.1 billion. Gains in developing areas such as China and India will result from investment in water infrastructure and electricity generation.In developed areas, growth will be driven by process manufacturing.Growing urbanization,irregular rainfall and depleting ground water levels augur well for the pump industry.India's agriculture accounts for around 14% of its GDP and employs majority of the people.The Govt has taken various initiatives to improve the agri business thereby reducing the growing food inflation rate.Demands for food grains and ground water for irrigation will drive the demand for the pump industry in our country in the near future.
Company Future outlook:Despite only moderate growth in the global economy,company expects order intake and sales revenue to grow at a good speed in coming years. In next two yearsthe company aims to achieve top line of 600 crores with net margins of 10%+.In the last one year, the company expanded its footprint into new geographies like Ecuador, Mexico, Argentina and Morocco.It has plans to register its presence in all BRICS, G20 and European Union and in other growing countries in coming years. Shakti pumps is also committed to increase the Branch Network to 30 and Dealer network to 100 by the next 15 months.Shakti has further plans to set up or acquire small plants in other region of the country which will help it to cater across the regions by mid 2015.
Domestic focus:Solar pumping solutions also are the next big buzz in the sector as many state govt with MNRE are coming up with solar pumping projects.With its strong R&D capabilities, the company is moving towards industrial pumps,solar pumps to target institutional and Govt businesses.Going forward, Shakti Pumps has decided to expand its presence in the domestic market by tapping the fast growing industrial segment through its energy efficient pumps. The company has also made a strategic shift in its dealership model beginning April 1, 2014. The company will now appoint dealers who will exclusively sell only its products. This it believes will help the company to serve farmers better as they will now opt for what is required and not what is necessarily offered to them.
Margin of safety:The company trades at just 5 PE(forward earnings) vs industry PE of 15.Its one of the largest player in its segment.Five year((from 2009 to 2014)CAGR of Sales and profits at 22% and 26% respectively.Sales went up from 107crs to 292crs,PAT galloped to 25crs from just around 8crs in the same period.Stock market loves consistent players and treat them with premium valuations.The investor friendly company rewarded shareholders with a 1 for 1 bonus issue in the year 2011 which speaks about the confidence and conviction of the management.Promoter owns around 45% stake in the company as on date.ROE and ROCE of over 15% and 20% respectively.
Concerns:Chinese competition remains the main concern but the superior quality and competitive price of the company's product will ensure it always remains in the reckoning.
Conclusion:It is investing aggressively for strengthening product mix with value added pumps to cater growing international and domestic market.About 67% of revenues comes from export and remaining 33% from Indian market.On a consolidated basis, Shakti Pumps India's net profit rose 48.5% to Rs 24.98 crore on 39.9% increase in net sales to Rs 292.09 crore in the year ended 31 March 2014 over the year ended 31 March 2013.Now the company targets sales of Rs 400 crore plus including exports of 250crs and PAT of Rs 42-45 crore for FY 2015(with 21-22% EBITDA margins).That should result into an EPS of 29rs for fy15.The company presently quotes at a very attractive valuation of just 5 times its expected earnings.A mere multiple of 7 odd times helps me to arrive at the target price of 210rs.
Gulshan polyols has moved nearly 200% since the recommendation hardly 6 months back.Enjoy members.
Quote:I have been fortunate to be associated with a lot of amazing analyst buddies and corporate folks.I have been bullish on GPL for quite a while now.On discussing about the future prospects of the company with kinda a mentor figure(Hemant bhai),he forwarded me his take in the counter.Since we both post similar stuff,am not penning any fresh words but having said that it must be noted we both echo a very bullish stance on this particular counter.
Scripscan:Gulshan Polyols Ltd(December end call)
Story:Muzaffar Nagar based Gulshan Polyols Ltd (GPL) has emerged as the largest manufacturer in India of 70% Sorbitol and Calcium Carbonate.Its production facilities are spread over 6 locations in 5 states covering land area of more than 150 acres. Company has installed capacity of 1.05 lac tonnes of Calcium Carbonate and 60000 tonnes of Sorbitol.In order to reduce energy costs, GPL also has 10MW of cogen power.
SORBITOL 70%:GPL has fully integrated facility for producing Sorbitol (Corn to Starch to Dextrose to Sorbitol) with 3MW cogen power. Sorbitol is mainly used as Sugar substitute and bondingagent. Main user industries are Healthcare,Cosmetics,Confectionary,Textile,Paper,Paints industry etc.
CALCIUM CARBONATE :Company producing various varieties including PCC, GCC, ACC and WGCC. Installed capacity is 1.05 lac tonnes with 7MW cogen power plant to meet energy requirements. GPL is also 1st company in India to install onsite PCC plant at a paper factory.Main user industry for Calcium Carbonate are PVC&Cables,Dentrifice,Detergents,Rubber,Plastics etc.
Clientele:GPL's customer list includes who's who of corporate India:-
FMCG :Colgate, Dabur, ITC, Unilever, Wipro
Food :Brittania, Candico, Yahoo Foods
Paints :Berger, Asian Paints, Kansai, Pidilite
Paper :ITC, TNPL,BILT, ABC Papers, Century Pulp
Pharma :IPCA, Cadilla, Torrent, AstraZeneca, Novartis, Pfizer, Merck etc
Buying of promoters:Last year, promoters had increased their stake by 5% (maximumpermissible limit through creeping acquisition route). Again, in current year promoters have increased their stake by another 3.50%.Now, PROMOTER STAKE STANDS AT 73.64%. A comparative small promoter increasing stake by 8.50% in less than 2 years speaks of confidence of promoter in future prospects of GPL.
Valuation:.GPL has been reporting consistent performance and steady growth. Same has been possible due to strong cost control measures, highly efficient production practices,and dominant market shares with strong/top brand customer base. Despite so called economic slowdown and global factors and rising interest rates,company has been improving its performance year after year which speak s of efficient management. With low debt, interest cost account for less than 1.50% of total sales.For FY13, GPL Pat rose 34.70% to 24.13 crores, translating into EPS of Rs 27.43. Company doubled the dividend to Rs 2.50 per share.For H1, GPL has achieved good nos with topline rising by 18% and Bottomline rising 14%.Newly set up plant in Rajasthan has contributed to higher turnover.GPL is likely end FY14 with topline of 310 cr ores and Pat of Rs 25.50 which will provide EPS of Rs 30.20. Hence, stock is available at extremely low PE Ratio of 2.5x FY14E EPS.Current Marketcap of GPL is just 64 crores whereas CASH ACCRUALS OF PREVIOUS 2 YEARS (FY 12 and FY 13) stand at Rs. 69.53 crores which means market cap is less than 2 years' Cash accruals.
Conclusion:In today's tough environment,those companies in smallcap and midcap segment have good future which DOMINANT market share of their product, assured demand from growing user industry, low debt, steady growth, strict control of costs and GPL meets all these criteria as its products are used in variety of industries (and those industries are growing rapidly). Moreover,company is supplying its products to renowned MNCs and other big Indian companies,so there are no problem of bad debts and delayed payments. Despite growing business, interest costs are not rising. And, GPL is very cost efficient producer and is able to compete against Chinese manufacturers in international market as well. Finally, GPL has strong and large asset base spread over 6 plants.Company is quoting at very attractive valuations of less than 2.5 PE its FY14 earnings of 30 rs.A modest PE multiple of 6x gives you the target price which is nearly 160% higher than the CMP.At present prices there's hardly any downside either.Go for it folks.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.