Arun the Stock Guru -Stock tips,Trading Tips,Bse Nse,Share market live,Sensex,Indian Stock market

My channel all set to hit 20000 members

2021-01-28T10:27:00.002-08:00

Thank you everyone for subscribing to my Equity investment related Telegram channel. It’s been subscribed by nearly 20000 subscribers. It’s free and always will be. Stock and sectors covered in my telegram channel:-

Here’s the channel link:-

@ArunStockGuruReal

Note: It’s a detailed coverage and proper diligence been done. Hope you all like the content.

1) EV theme

2) Power sector

3) Chemicals&spec chem scuttlebutt and analysis

4) Coal Ind

5) Aarti ind

6) My patterns

7) Nocil

8) Deepak nitrite

9) Lupin

10) Optic fibre

11) How to find multibaggers

12) Market note

13) Solar power

14) 11 small caps to watch out for.

15) Smart capital allocator series

16) Your question and my answers regarding few individual companies

17) Sugar sector and my picks.

18) Kingfa India.

19) Medicamen Biotech and Shivalik Rasayan.

20) How do I shortlist stocks..

21) What the Stalwarts are saying..

22) Harshad Mehta scam- Unbiased version.

If you are Still face problem joining the channel then just go go to Telegram search and search Arunstockguru. Happy investing guys. If still there’s issue- WhatsApp my assistant Ayush at 9804270070 and he will get you added.

Welcome to my new Equity investing Telegram channel.

2020-06-27T20:38:00.001-07:00

Hi Guys,

Reposting this message again for people who missed earlier:-

It’s been a long time since I have updated my blog. This days it’s disruption time and everything is available in your cell. I have migrated the blog to my Telegram channel, where you will get all the updates instantly. Just ensure your notifications are turned on. If you face any issues, whatsapp/call my assistant Ayush-9804270070. Below given is my Telegram channel link. Download the Telegram app and click the link. It’s already subscribed by nearly 11000 readers.
https://t.me/joinchat/AAAAADu4jy-Sj3Yf_6ah_A

Last few detailed coverages in my channel:-
1) Deepak Nitrite
2) Nocil
3) Optic fiber cable cos
4) Pharma cos
5) Coal India
6) Chemical co scuttlebutt
7) EV theme and proxy plays
8) Lupin analysis
9) Market outlook and prospects ahead
10) How to identify good entrepreneurs
11) 10 microcaps to watch out for.
12) My fundamental multibagger patterns
13) Solar power related stocks and their future
14) How to research power sector related stocks.

Regards,
Arun

Topics for Pune Extended Family meet event(8th and 9th Feb)

2020-01-21T22:51:00.000-08:00

As you all know we conduct our yearly meets with our passionate group members/blog readers/ twitter followers/clients every 6 months. The next Family group meet event is just 15 days away. Can't wait to see you all again. Aside from the speaking on different topics,we also have got a 100 mins adda session which will have involvement of each and every members. So from stock tips to sectoral updates to scuttlebutt on unknown hidden gems to investment opportunities in startups,we have got them all covered. Here’s the full list.

1..Unravelling secrets of Equity compounding through Reverse Engineering. The power of Data Modelling(just by help of Excel and screener).

2..The EV revolution theme and it's repercussions. Which stocks to benefit from it and which ones you should watch out for as well as avoid.

3.Arun's version of Shark Tank(Startup story): The story of Dh health solutions. How Drhelpdesk is disrupting the online healthcare arena and why it's set to be the next big thing.

4..Why investing in bonds should also be considered. The advantages of bonds over stock investing and what factors you should consider in mind while opting for Bonds.

5..What's up with the Auto sector? How to analyse the Auto ancillary companies? Which are the best stocks to play for the next 3-5 years? Which stocks to avoid?

6.. Simplyfyng small cap investments through common sense and scuttlebutt. Few important patterns which will help the investors. Eradication of mental blockages and biases.

7.. Behavioural economics and models. What connects companies like Indigo,Tata steel and GE Shipping. How to play them and when to exit them.

8..Glimpse of the chemical sector and what's the future looking like? Which are the companies to play the theme. Which speciality chem co can really be that mega bagger?

9..The class of Ajay bagga sir. He would be sharing his experiences and knowledge with the members. Which companies he likes and what he is feeling about the present market conditions.

10..Whats Corporate India/India inc suggesting at the current juncture. Which would be the likely sectors to participate in the next bull market(Kuntal bhai)

11. How to play the fintech stories. Which companies to watch out for. How do VC firms shortlist entrepreneurs and when to exit from those listed co as well as startups.

12..100 minutes of adda session which will see the engagement of all the members. From individual stock picks to Scuttlebutt to words of Wisdom.

13..Couple of Listed small caps would be presenting their stories. Presentation and QNA.

14..Technical analysis segment. The art of Reading screen and playing momentum bets.

Passion regarding equities is the only eligibility to be part of our upcoming meet. Please fill the below form for registration. For any issues or queries-Whatsapp/call my assistant Ayush at 9804270070

https://docs.google.com/forms/d/e/1FAIpQLSdfY1OwK02M4u-RzUZoGwnt3j6VLJDDafwT6RLeLUN8YV2mQg/viewform?vc=0&c=0&w=1

Btw: It's very important to have different perspectives. Find guys who can play the role of a devil's advocate. We tend to be biased about our own pick. But ones you discuss with 10-15 guys you get so much of perspective that it opens up your mind. Also scuttlebutt is one very vital aspect which helps you in a massive way. Everything can't be confined to WhatsApp or some investment forum. You need to get out of your comfort zone and meet like minded guys. Also a better surrounding will do a world of good for your investing career. Ones you are in a company of 100 amazing investors,you get so much of confidence. Ones they know you or you know them,both the fraternity would open up a lot more than a whatsapp DM. This is why we conduct our yearly meet. Cumulative wisdom is imperative for alpha generation. We have all named it an extended family coz of the amazing bond where everyone is fond of each other. Happy investing guys.

Shivalik Rasayan ltd: AGM Notes and Our take on it

2019-12-01T22:30:00.001-08:00

Scripscan : Shivalik Rasayan ltd
Cmp:200rs
Marketcap:260crs

1..The development of site at Dahej is on track and the company is working with strict monitoring to make sure that by December atleast 2 blocks are made operational.The infrastructure at Dahej supports 8 blocks – 4 for Oncology (1 Intermediates) and 4 for General (Non-Oncology) products (2 Intermediates). As a strategy its making sure that the company is not dependent on any external vendor for Intermediates or any key ingredients used in the manufacturing of APIs.

2..Once 4 blocks are operational and running, depending upon the demand timelines and business visibility, company will start adding additional blocks 1 by 1. This is to make sure, to have enough liquidity in hand to meet working capital and R&D expense. Once sales start coming in and capacity starts getting utilizing, it will start operations at other blocks. Infrastructure already is made to support 8 blocks, utilities are already installed supporting all 8 blocks, it will take 3-6 months for installation in additional blocks.

3..R&D Team is currently working on atleast 25 different molecules for API and work on 8 have been successfully concluded at R&D level. Once the site at Dahej is operational which is expected by December, co will immediately initiate the scale-up and Exhibit batches of these 8 API’s. This activity will take 3-4 months and by December 2020, its target is to file 8 DMF’s with USFDA. As soon as company files DMFs, it will trigger USFDA inspection and its preparing for March-June 2021 for USFDA inspection.

4..The Company is Putting strategy on leveraging the developments across different geographies. DMF for US & CEP in EU filing to be targeted parallelly. Focusing on other markets apart from US to be explored keenly to reduce dependent on single geography. Already in dialogue with different potential partners in Australia, Canada and Japan.

5..There is a specific inquiry from one Asian country for a Speciality chemical which company is currently exploring. The team visited the country last month to understand the clients requirements. Its progressing on samples and further dialogue to explore potential business. In case, things fall in place, co will have 1 dedicated block for this speciality chemical for the client only in that country.

6.. Compliance: Company been heavily focussing on all USFDA inspections made at every site in India in last 12-18 months. The team been understanding each critical observation that USFDA has made during their inspection to other sites and its confident that company will not face any such issues in future. Lot of efforts and investment has also been made in procurement and designing of equipment at plant level to have smooth and best infrastructure in place.

7..There are lot of enquiries already from different vendors on API and confident of good business once it initiates operations and have all approvals in place. Company has recruited industry veterans from big Pharma cos in its endeavour to reach massive scale by 2023.

Our Take: The Company’s core business of Pesticides been doing steadily doing around 50crs sales. Pricing power has helped it to scale revenues as it’s been operating at full capacity for quite a while now. The core business doesn’t make it an exciting bet. The API division is the real deal which can be its cash cow going ahead. Shivalik’s Few APIs namely Capecitabine,Azactidine,Busulfan Etc are much in demand and very costly. The first one costs 650$ per kilo. The second one which is Azacitidine is super costly,say 15000$ per Kg. Busulfan is super duper costly. Cost is around 125000$ per kilo. This are amazing products and as can be seen very high value in nature. We wouldn’t call it as complex as one thinks but it has high constraints. Being oncology in nature,you need to manage lot of compliance which the company is doing pretty meticulously and these aspects itself creates the entry barriers. By 2021-22,Shivalik we feel can easily do 150crs from this APIs with net margins of 20%. Company at present marketcap is just 270crs. Also it owns more than 40% stake in its forward integration baby Medicamen Biotech(Shivalik will supply the APIs for Medicamens oncology products which gives it a secured perpetual client) which quotes at 400cr mcap. They also have a land worth 50-75crs in Hardwar which could be used for future expansion. All this makes its valuations way more compelling than what it looks on first glance. We remain high on the oncology and related plays.

Btw: To know more about our Stock Advisory Service please fill the following form: tinyurl.com/y62ttkjo
Let's compound our wealth together.

DISCLAIMER - The writers are partners of SA Investment Advisors, a SEBI registered investment advisory firm. They along with their family members may have position in the company discussed above.

Fredun Pharmaceuticals ltd: Scuttlebutt and Analysis

2019-10-14T05:52:00.002-07:00

Scripscan : Fredun Pharmaceuticals ltd
Cmp:215
Marketcap:85crs

1. Fredun Pharma has come a long way by growing at a CAGR of 30-40% and recorded sales of 98crs in FY19. The growth rate is likely to be around 25-30% for the next 2-3 years as management understands the balance between scalability and sustainability.

2. They started way back in the 90s being contract manufacturer to big Pharma companies. Currently contract manufacturing is only 2% of its total turnover. Anti-Diabetic contributes 25%, Anti Cardiac-18%, NSAID 24% and Others -33%. That’s the present mix of sales.

3. They have expanded the production capacity by 530% in the last few years. Company has been systematically investing in its productive Infrastructure by installing additional granulation departments, high speed tableting and blister packing machines. The current capacity utilisation is at 50% and by mid-2020, the utilisation levels would go up to 80%

4. The company’s product portfolio has expanded from having around 63 products in 2007 to 427 products in 2019. The company is registering its products in various countries and over 200 products due for registration within the next 18-24 months. It is set to get a cosmetic license for manufacturing related stuff by September 2019. They are also planning to launch a generic medicine line.

5. Anti-Diabetic products contribute nearly 25% of its revenues. The number of Indians with diabetes is projected to reach 73.5 million in 2025. The direct and indirect costs of treating such patients are currently about US $420 per person per year. If these costs remain the same as they are now, India's total bill for diabetes would be about US$30 billion by 2025.

6. Company is targeting sales of 120 cr in Fy20 and 150 cr FY21. Next 2-3 years focus will be on marketing/registering the products. The company has the right mix of value and volume-based products.

7. The company is targeting Africa and considers it to be a huge potential market can lead to good future growth. Sri Lanka also is another market which the company believes can be huge. They are registering some products for high potential Russian market too.

8. The Net margins of the company are likely to go up from 3% to 8% in the next 2-3 years. The company is in talks with banks and investors for some Working Capital, which is required to scale up. It could either be in the form of equity or debt.

9. Going forward in the next 2-3 years, the company expected to do a business of around 60 crores alone from Ointments and pellets. Most product developments are in the final stages. Current order book in hand is 45 crores.

10. The inventory of the company has increased from 18Cr to 40cr and is likely to remain high since the company has been buying in bulk (for 4-6 quarters) to get discounts which leads to savings. Operating leverage will come into play once it crosses 170-180 crs of sales.

11. Company is having no concerns regarding Africa client payments or bad debtors. Company deals with parties which are largest or second largest in their respective countries. The total debtors of only 13crs on 98crs sales is a testimony of that.

12. The company has enough capacity to deliver 230crs of sales so for the next two-three years, it doesn’t need to expand capacities. Some machine and plant up-gradation cost would be there.

13. The recent 4% pledging was for secured loan collateral and the company has no plans of pledging more shares. There is no risk of existing pledged shares getting dumped in the market by the lender.

Our Take: The management of Fredun Pharma has the good habit of putting conservative guidance and over-delivering it by quite a margin. The first-quarter profit to us seems pretty deflated. The company rather than capitalising its R&D expenses showed them as expenses and took a hit on P&L. We feel it would have been better to create a subsidiary and do the activities related to research & development there. It would have led to showcasing the true standalone numbers as well as given them the chance to raise fund in the subsidiary which wouldn’t have led to dilution the parent company’s equity. In the next 3 years, we feel it would hit top-line of 200crs along with net margins of 8-9%. Altogether an interesting small cap bet with a lot of potential.

Btw: To know more about our Stock Advisory Service please fill the following form: tinyurl.com/y62ttkjo
Let's compound our wealth together.

DISCLAIMER - The writers are partners of SA Investment Advisors, a SEBI registered investment advisory firm. They along with their family members may have position in the company discussed above.

Kingfa Science&Technology: Scuttlebutt Update.

2019-08-25T13:20:00.001-07:00

Scripscan: Kingfa Science&Technology ltd
Cmp:540rs
Traded in:NSE-BSE
Mcap:650crs

Quote: Kingfa India came with spectacular set of numbers where it’s profit vaulted from 60 lakhs to 10crs even under this slowdown. The company which showed 19crs of Pat last year should double the same in the present fiscal.

1..Top-line could double in next 3-4 years. Current market share for auto in India 24%. In couple of years it can exceed 50%. Current product mix 80% (auto) - 20% non auto.This mix may be revised to 60% auto - 40% other in long term.

2..Chakan plant could start production soon.Key focus of Company may shift to Engineered plastics (E.P.) in India. Total E.P. market in India 50 kt, current kingfa sells 3 to 4 kt. Nylon, ABS, PCABS are key targets.

3..It is likely that DSM India will feel pressure once Kingfa focuses on Nylon. DSM purchased SRF E.P. business (12,000 tons per annum), because it was a complimentary fit (4 wheeler presence added to 2 wheeler presence).

4..July production volume was 6000 tons. Highest in the history of the company. As Chakan ramps small production, Jejuri will likely ramp down.

5..Long Glass Fibre projects are taken for specific small projects. Good product. In future it is likely that Kingfa will put LGF line as volume comes in

6..Major exports likely to commence in 2021.No major cost difference in polymer prices between China and India. In fact Reliance is bit more expensive.

7..Kingfa China may strategically shift some export Business from China to India. 2021 supposed to be strong export year. Kingfa adjusts for crude cost with a quarter lag

8..In 4 to 5 years, it is likely that E.P. will be 40% of business, PP will be 60%. Key drivers could be :China market growth to moderate sharply going forward - like a developed market, while India has huge potential to scale.India could be export hub, China US concerns are also creating a long term strategic push for such a move.

9..Automotive:Electric vehicles should be very good for business. Lightweighting is a key initiative, and EP are a key solution.In EV, Battery casing, door panels, metal grills etc. are key products for replacement.Kingfa could be working with some German Tier 1 producer for such projects already.

10...Motherson key strategic global customer, large volumes rumored to be under discussion.MG Hector - 85 Kg all rumored to be supplied by Kingfa. Suzuki potential biz. 12 kt per annum.

Conclusion: Anything that can do so well under such slowdown only showcases what it can do when the sentiments changes for good. We remain positive on the future prospect of the company.

Btw : Happy to introduce our Sebi registered investment advisory services. Please click our website Equitywealth to know more about it.

Regards,
Team Equitywealth
www.equitywealth.co.in

Positive on the Shipping sector:-

2019-06-02T06:05:00.003-07:00

Positive on the Shipping sector:-

After manufacturing here comes another sector(though cyclical) which after doing a lot of scuttlebutt,we are pretty convinced is going to soon make a lot of money for the investors. The perfect way to play the Sector is by betting on something which has been in existence since last 70 years and kept its head still while others winded up. Great eastern shipping is your evergreen giant which is an amazing capital allocator, remains the best pick in the sector. The last man standing in quintessence is deploying massive capital in the business after a gap of 10-11 years. The Annual report is a fantastic read too. Pls don't look at the accrued crap basis of pat accounting but a cursory look at the OCF will tell one the reality..Its Close to 2-year lows and down 37% this year, in line with the mid cap debacle, but mostly because of some Rs.500 cr of Impairment Charges (on selling old ships and rolling over into new ships). Plus another Rs.500 cr over 2 quarters of Re depreciation (notional accounting charges, because the asset appreciation is not accounted but the Derivative losses are booked. Also, gains from Re depreciation in Freight is not accounted), which have depressed PAT, but don’t affect cash flow.

Just like manufacturing co this co too posses huge operating leverage. With little capex and inevitable grand cash flows,easy to assume it will repay/prepay debt which will further boost profit. Tailwinds signs are visible after long long time. Ballast water treatment+IMO 2020+ the bigger picture which is India has 4.5% of world GDP, about 7% in PPP, and its biggest Shipping company is at 4000crs (only 4 Shipping companies in India, only $ 8 bn of Freight carried is under Indian flag). In every long cycle (Japan, China and earlier Greece/ Norway), a long growth cycle creates huge Shipping companies. India has only GE Shipping as a major bankable player.Indian freight growth is at 2.5 times worldwide merchant volumes growth. This will continue. Company though May not move for 3-6 months but it would be hard to lose money from this amazing co.Happy investing guys.

Btw : Happy to introduce our Sebi registered investment advisory services. Please click the below link to know more about it.
tinyurl.com/y62ttkjo

Regards,
Team Equitywealth
www.equitywealth.co.in

The Next Sector to help you make Alpha

2019-05-23T06:20:00.001-07:00

Power sector broadly can be categorised into four segments starting with companies like BHEL which constructs power plants. The valuations of these kind of companies depend on their order books/capex cycle. Then comes the power generation companies such as NTPC and JSW Energy for whom profitability primarily depends on utilization given for PPAs. One major advantage for such companies now is that coal prices are getting passed on which wasn’t the case earlier. Third segment consists of the grids such as Power Grids of the world which are like the nodal distributors from state to state. Last segment belongs to guys like Tata, CESC and Adani (earlier Reliance Energy) which manage last mile distribution. It would be prudent to note that the Grids get a stable ROE kind of return however the last mile guys basically get an upside on volume growth.

Basic Thesis: It takes 3-4 years to set up a new power plant. Demand has been growing steadily at 7-8% a year, which is in line with real GDP growth. Capacity addition was growing at around ~15% for 3 years in a row i.e. FY11 to FY13 that lead to overcapacity and supply glut. Post that supply addition over the past 6 years has slowed to 2-3% so utilizations are inching higher for power generation companies.

PSU companies get preference in PPAs hence the PLF for them would always be higher than that of their private counterparts and on an average would be close to 80%. Which is why PSU generation companies have higher utilization rates. Let us consider a simple back of the envelope 3 year thesis on any operational power generation private company assuming PLF at 60% and no increase in tarrifs. So revenues and EBITDA can go up by 50% for private sector power companies on the exact same capacities with interest and depreciation either reducing or remaining constant. So JSW Energy for example by FY21 sees revenues at ~13500cr and EBITDA at ~4000cr minimum. Interest @800cr given debt repayment schedule and constant depreciation @1100cr giving a PBT of ~2100cr and PAT of ~1500cr. If valued at ~7x EBITDA, marketcap automatically doubles. That's the broad thesis for all such companies in the Power Sector. The same model can be applied to any power generation company.

First to benefit will be the power generation companies over the next 2-3 years. Post which next round of capex starts then it will be guys like BHEL which benefit. For distribution and grid companies it will be business as usual with steady growth. As in no earnings inflection. They should see steady 6-8% growth on existing assets. New assets of course will come in at a 14-16% ROE.

As a thumb rule for thermal power generation plants it costs 4.5-5cr for each MW capacity. So a 1GW plant will have a capex of 4500-6000crs. So if you notice a capex of say 7500-8000cr per GW just understand that it is capex gold plating. Interesting choice if asked to name, could be Gujarat industrial Power Ltd. Company with 800MW is quoting at around 1700crs Enterprise Value. Replacement cost of assets would be like 4000-5000crs. So in good times we might see a much higher valuation as the capacity gets utilised. As it is a PSU we can assume there are no management concerns. In the private segment, Jindal Steel and Power or JSW Energy may offer higher upside because of higher leverage.

Empirical evidence shows us, barring the commodities, no sector which created wealth in the previous bull cycle got repeated in the later bull markets. Power as a sector in living memory hardly created any wealth over the past 15-18 years. Let alone creating wealth, they have been wealth destroyers. Most of the companies are quoting at a huge discount to their replacement costs of assets. They are severely under owned and hated bets. But things are changing operationally for sure. The next 5 years can well belong to some of these quality stocks. Few of the companies even come with highly attractive dividend yields which protects their downsides. Valuations look pretty attractive and with clear signs of early tailwinds we should definitely watch out for some of these power stocks.

Btw : Happy to introduce our Sebi registered investment advisory services. Please click the below link to know more about it.
tinyurl.com/y62ttkjo

Our upcoming Mumbai Annual meet in April

2019-02-17T08:04:00.002-08:00

Our upcoming Annual meet in Mumbai this April:-

As you all know,every year we conduct our Investor groups yearly meet once in a year where for couple of days the shortlisted participants meet and greet each other,network and discuss everything related to equity markets. In the last yearly meet which happened during October in Pune,these were the stuff which happened and got discussed.

1) HEG-Graphite why the party is over and you should sell: Was presented by someone who personally is a shrewed investor and a supplier to both the companies.

2) Indian tile companies: What’s the ground reality?

3) How to research a Pharma stock: Somone who manages the European portfolio of the Billion Usd Intas Pharma presented on it.

4) Behavioral economics and Indigo: Was presented by someone who has been CFO of 5 big listed companies.

5) Indian Shark Tank: Where a small time unlisted beverage cum snacks player presented and all the 60 participants grilled it.

6) How a PE/VC zeroes in on a listed company: Someone who manages a VC fund and recently raised 100crs,presented on it.

7) All the 60 participants chipped in with their small cap ideas with logic and rationality.

8) How to play the Auto Ancilary stocks: Was presented by someone who happens to be asupplier to all listed auto companies.

9) All the yearly group participants are kept in a separate whatsapp group where it’s like an extended family. Whole day discussion happen pertaining to different aspects of market.

10) The total event is of 22 hours. Crazy epic learning. It's like from morning 10 to 12 in the night and from morning 10 to 6 pm the 2nd day.

Btw: We don’t call any external speakers from outside. Everyone remain part of our fraternity. Everyone including the speakers are looking to learn from each other.

It was total fun and amazing to listen to all the participants including the speakers. We are slated to do our yearly meet again this April. This time too we hope to maintain the flair if not bettering it. There will be new subjects and speakers who will be sharing their wisdom. We don’t look for quantity but quality here. The requirement to be a participant is simple. You just need to have the required passion for the subject. Rest of the details are given in the below form. Please fill it only if you are serious about being a part of it.

https://docs.google.com/forms/d/e/1FAIpQLSdfY1OwK02M4u-RzUZoGwnt3j6VLJDDafwT6RLeLUN8YV2mQg/viewform?vc=0&c=0&w=1

Happy to restart the Blog

2019-01-27T03:27:00.000-08:00

Quote: After a long hiatus finally am back to blogging. The reason for the hibernation was to comply to SEBIs diktat. Finally have got the SEBI Investment Advisor registration in place(SA INVESTMENT ADVISORS. SEBI Registration No: INA300011991). Wish each and every one of you a very happy,lively and prosperous new year 2019.

Forget all macro and let’s concentrate on only something where we are required to concentrate:-

1) There’s no bull or bear market this days as the cycle has shortened. Previously it would be 5 years of bull market and a bear market with same proportion of time but at present this are phases which are much frequent. It’s futile to hazard a guess and only resort is to stay put in good stocks backed by a ‘great sky is the limit’ aspiring jockey/managment team. Wherever there will be growth the market would pay a premium.

2) Nothing actually changed over the last few months yet at point of penning this note,the small cap index is down by 35% from its peak which is staggering. The greed and fear syndrome in market is back in vogue with this time being the latter. In a good market the PE gets rerated and vice versa on the reverse. Soon the albatrosses would find their junks desolated venue to make northward ways for the quality one.Your patience will get tested but conviction would be wildly rewarded.

3) If you are anxious about your portfolio but posses good quality cos with solid growth ahead backed by robust pedigree,sooth your nerves by fathoming the simple thing. The country is happy to grow by 6-7% yet the companies in your portfolio would grow at a minimum 20-25%. A few will grow by 40-50% CAGR for next 3-5 years. That’s serious growth folks. It’s only a matter of time before sanity comes back to the markets with eventual rerating of good stocks irrespective of small,mid or large caps.

4) When I go and speak to all the managments or visit the plants in person,it’s a complete different scenario. Everyone seems to be working over time. The order books are full,there’s more enquiries than ever,new employees are getting recruited,plants are being expanded-takes you to a different state of mind altogether. The idealogy remains simple,try to have that feel of lucrative business ownership and stock markets would automatically be a different place for you.

5) Avanti feeds adjusted everything moved from 7rs to 3000rs in a matter of 8 years. Nalanda capital swallowed a chunk of Page Industries during the era of 2007 at 600 bucks only to exit partly presently ar 25000 levels. Symphony moved from 2rs to 1200 almost in the same period. Enough of listening this sob stories. It’s high time you avail the bragging rights by just simply staying put in the companies you own as long as their growth story is intact. With time,they can only make you richer.

Conclusion: It fascinates me to the core sensing so many of the gullible retailers who are happy locking their money in FDs for decades,generating absoloute post tax peanuts but refrains to give bit of time to the best wealth generation asset in the world. The good part is I or you require nothing in lieu but just time and patience to grow richer along with all this amazing partners. The bad part remains,some of you will see,read,understand everything yet will panic and sell it to your neighbours at the least of prices only to see them getting liberated at age of 40 Vs your liberation at grandpa age of 60. You want to be in which boat-I leave that choice to you peeps.

Btw: We will be shortly launching our SEBI registered subscription based Investment advisory thing which will include the stock recommendation service pertaining to the high quality-high potential small and midcaps. If it interests you,do put a mail to arunsharemarket@gmail.com.

Regards,
Arun Mukherjee
SA Investment Advisors

CP Ltd: The penny stock with Multibagger potential

2017-09-30T03:39:00.000-07:00

Scripscan: Confidence Petroleum(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

Here comes the "Next Caplin Point"

2017-07-20T13:51:00.000-07:00

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)

Another small cap PVC Player with multibagger potential

2017-04-09T03:37:00.000-07:00

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.

http://tinyurl.com/zw3vvjt

My recent interview and the PVC turnaround candidate

2017-02-16T23:24:00.000-08:00

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.
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Dubai Workshop and the amazing small cap multibagger

2016-11-26T03:58:00.003-08:00

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.

The Microcap Adhesive player(Extension of previous post)

2016-07-21T23:45:00.000-07:00

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.

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

The Microcap Multibaggers(Extension of previous post)

2016-06-17T05:37:00.005-07:00

"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.

http://tinyurl.com/zw3vvjt

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

The 5 interesting small and midcap counters

2016-05-21T06:17:00.001-07:00

It's been a long time since the blog got updated. Life has changed for good after the launch of Sharebazaar android app. Search "Share Bazaar Arun" in playstore to download it. In a very short time as you know folks we attained the scale of nearly 30000 subscribers,without resorting to any publicity or marketing gimmick.From conferences to conducting pan India workshops,many things kept me occupied. Soon,will be conducting International workshops,starting from Dubai shortly.

Sebi too definitely stood out in terms of screwing the retailers in a better manner. Hence,won't like to name any stocks but hints may just help you to make out the names and dig further on the stories.

1) Been mighty impressed with the Chinese compounder which has also recently changed its name to signify its renewed focus. The parent has achieved an astounding track record of growing 65% CAGR in the last 20 years or so. The Chinese parent quoted at an average PE of over 50 since its listing. Even if it can do a fraction of what parent has done,the stock which comes with almost nil floating stock,would move in a different orbit. It's been a doubler since my Twitter rants.Company has recently bagged big orders from IFB and Symphony. Company's fortunes are further set to change as its biggest clients are shifting base from countries like Australia to outsource everything from India. Should keep outperforming coz of its 500crs expansion,parentage and growth prospects.Expensive at present levels but with its expected 50% bottom line growth for next 3-4 years,stock presents an interesting opportunity at slight dips. It's debt free as on date with market cap of around 800crs. Results which should be outstanding comes on 30th May.

2) The desi cloud player hailing from chennai has been a favourite of mine for the last 3 years. Company recently delivered decent set of numbers. Exclude the employee costs and it would look awesome. The company also refrains from taking any orders with gross margins beneath 65-70%. It's a massively scalable business with cumulative addressable market size of 2.5 lakh cr which is crazily expanding and set to expand further at 26-30% for coming atleast 5 years.Operating leverage coupled with strong rich tailwinds and an ultra super sales guy(He had started off with a staff of three people in Singapore for Satyam in 2000, and went on to scale up the business into 15 development centres and 33 sales offices across 20 countries with over 4,000 employees. Quit to join HCL-During his time, HCL's growth in the region was spectacular,60 percent year-on-year growth, for instance.It became the fastest growing region for HCL)makes a perfect recipe for a potential multibagger. The fiscal 2016-17 should be the best for them. Oh yeah in case the same gold standard honcho resigns,spare no time in exiting it right away. That remains the biggest risk of this particular company. It's debt free as on date with market cap of around 2000crs.

3) Had an amazing Sharebazaar whole day workshop in Cochin recently. Had some spare time which was coolly utilised in visiting the areas of God's own country. Did get a chance to get glimpses of this company's plant. It comes with a highly credible management which is doing everything possible to create loads of shareholders wealth.Tyre Retreading is gaining traction led by improving awareness, brand creation by the players and cost consciousness for fleet owners. A new truck tyre costs 20k, while retreaded tyre costs 5k and has 80% life of new tyre.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 the company at 120...now It is able to sell at 170/kg. Company is almost debt free as far the long term debts are concerned. Company is set to grow at 30% CAGR for next 5 years.Tyre radialization would be a big theme to watch out for and look no further to ride the theme. Kerala"s Buffett did make it expensive with his tweets but long term prospects look more than robust. Marketcap stands at around 60crs.

4) It so happened was hell bent on searching for a player which is snatching market share from a giant. Jivanjor,the adhesive player seemed the best fit and I continued with my research. For Scuttlebutt means,interacted with lot of dealers and sales managers but the result wasn't that appealing. Finally,ended my research after a former sales manager disclosed a lot of uninspiring stuff which forced him to quit the company. He also mentioned of his new company and how it has kept him motivated to the extent which has led to a scorching 70% growth in his region. Incidentally,the same company happened to be a listed one which at that time had a tiny Marketcap of just 15crs. The company with a brand name of Euro 7000,is into white glue adhesives,scaled up 11x in the last 5 years and looking to achieve a 100crs bounty by next 2 years. Company got a phenomenal product named D3 which takes 60kgs to provide the required bond while Fevicol does the same in 100 kgs.They have pricing power,got a gross margin of 45-50% and spends a fortune in its marketing front. Company also posses a very strong supply and distribution reach of 7000 dealers in 13 states and 130 cities. Fevicol,over the last couple of years acquired similar companies by paying over 2x Sales. Stock since then has more than doubled with present Marketcap still at a paltry figure of 40crs. Promoters shareholding where 97% of it was pledged has recently been fully released.

5)Its not even required to pen anything for this one. Prem Watsa with his large investments in it,opines craftly.In 2010 Nahoosh Jariwala and three childhood friends and their families were holidaying together at a tiger reserve in Central India. Nahoosh and his older cousin Rajan had founded the company in 1985 and listed it on the BSE in 1995. While Nahoosh had big dreams for the business, Rajan was not so keen, so while still on the holiday Nahoosh’s three friends decided they would buy out Rajan and support Nahoosh’s aggressive growth plans. Over the following five years until we came to hear of This company,Nahoosh had exponentially grown its manufacturing capacity from 8,000 to 45,000 metric tons per annum.It is an oleo chemicals company. Oleo chemicals are, broadly, chemicals that are derived from plant or animal fat, which can be used for making both edible products and non-edible products. In recent years the production of oleo chemicals has been moving from the U.S., Europe and Japan to Asian countries because of the local availability of key raw materials.It occupies a unique niche in this large global playing field. It has developed an in-house technology that uses machinery manufactured by leading European companies to convert waste generated during the production of soy, sunflower, corn and cotton oil into valuable chemicals. Those chemicals include acids that go into non-edible products like soap, detergents, personal care products and paints, and other products that are used in the manufacture of health foods and vitamin E. The company’s customers include major multinational companies including BASF, Archer Daniels Midland, Cargill, Advanced Organic Materials, IFFCO Chemicals and Asian Paints.Co operates out of a single plant in Ahmedabad.It has the largest processing capacity for natural soft oil-based fatty acids in India. Over the last ten years, sales have grown at 23% per year to $27 million, and profit after tax has grown at 30% per year to $2.3 million.On February 8, 2016 we purchased 45% stake from the three friends of Nahoosh and other shareholders at rupees 212 ($3.12) per share.

My two cents: A tremendous scalable business with high entry barriers. Present headwinds provides an opportunity of a lifetime for value seekers looking to multiply capital over the next 5 years.

Btw: We are set to launch some interesting services only meant for long term investors. Interested guys pls mail at arunsharemarket@gmail.com for details. Also you can whatsapp dip at 9007652301. Happy investing folks.

Cheviot company and Pan India Workshop of Share Bazaar App

2015-12-07T05:30:00.000-08:00

Seminars and workshops: About to have long 8 hours Investors Workshop in places like Delhi,Hyderbad and Kolkata over the coming 3 weeks. Do pen a mail at arunsharemarket@gmail.com if you interested in being a part of it. In last Mumbai Workshop,the themes of Jute got discussed and Cheviot incidentally was quoting at about 700 then. Let's pen what attracted me in this company.

Scripscan:Cheviot Company Ltd
Code:526817
Traded in: Bse

Note: This days am pretty much occupied with the workshops and seminars which we are having Pan India. The latest venture "Share Bazaar Android App" has been a huge hit with nearly 30000 downloads over the last few months. Blogs are about to be obsolete owing to technological advancements and hence the decision to migrate everything in the App. Do download the app guys if you haven't done yet. Just search Share Bazaar Arun in play store.

Quote: Cheviot Company is one of the prime examples of a corporate that makes a lot of money from green fibre and sound investments.Harsh Vardhan Kanoria has created Gold out of an Industry, on which the Sun had literally set with the departure of the British in 1947.Today, with its processing units and a turnover exceeding Rs 265 crore, Cheviot Company makes more money out of Jute and its Corporate Investments, in a year, than most companies would ever make in their lifetime.While Kolkata may hold a different meaning for different people, for the current owners of Cheviot-the Kanoria family, the "Sun Never Set On Jute" even with the collapse of the British empire.

Introduction: Cheviot Company Limited (CCL) which was incorporated in 1897, is the flagship company of the Cheviot group, which has interests in the jute, tea, and leather businesses.CCL manufactures high-value jute yarn and fabrics, such as precision-wound fine jute yarn, sacking cloth, hessian cloth and bags, sacking bags (for packing food grains and other allied purposes), and superior hessian cloth.Spearheaded by Mr. H. V. Kanoria under whose leadership the group has shown exemplary performance year after year. He is an eminent industrialist with 40 years of vast experience in successfully handling Jute, Tea and Leather Industries.The company also ventured into new product category by adding jute shopping bags in their existing product lines. The company caters to both the export and domestic markets. It has two manufacturing units in West Bengal: one in Budge Budge and one in the Falta Special Economic Zone (export-oriented unit).

Demand for eco-friendly bags: The demand for green products jute goods like gardening products, shopping bags, geo-textile, pulp and paper, home textiles, floor covering and non-woven textiles is very high at the consumers’ level in the international market due to the growing awareness about environment. Of those products, jute-made shopping bags are now the best-selling items. Many countries like the United States (US) and the United Arab Emirates (UAE) have already gone for replacement of plastic shopping bags by jute-made shopping bags. The demand for eco-friendly bags is also increasing in Western Europe, Australasia, Middle East, Asia and African countries. The global market size of jute-made shopping bags will be 500 billion pieces, equivalent to seven million tonnes of jute products, in the coming days, as efforts are on to totally stop use of polythene or plastic materials all over the world because of their adverse impact on environment.

Fibre of the future: Composite and Compounded materials from man-made fibres (i.e. glass fiber, carbon fiber etc.) are already available as products for consumer and industrial uses. Jute is one such natural fiber that can reduce the impact on the environment. It is available in abundance, strong and is increasingly being referred to as the “fiber of the future”. Jute filled PP composites are today being successfully used for various components and materials. . India is still largely an agrarian economy, which needs to generate massive employment in rural areas for a rapidly growing population. Technological breakthroughs such as jute-filled PP compounds show the way for economic development of the masses by marrying state-of-the- art technology and research with cash crops to create rural and industrial prosperity.

New Advancement in Jute Compound: Bengaluru-based STEER makes new advancement in jute compounds that ca help in use of fibre in automobile parts (under-the hood),housing construction materials or even microwaveable cooking containers. This New compound can have ripple effect not only on the jute sector, but the entire India economy by opening up a huge market opportunity. Jute polymers to provide excellent opportunity for new sunrise industry to emerge, creation of thousands of jobs in West Bengal, Orissa and Bihar. The popularisation of jute polymers is expected to help provide a major thrust to the Government’s Make in India campaign, by popularising new usage of jute in other sectors, thus stimulating industrial activity. Jute polymers are certain to greatly benefit the jute industry with its ability to transform the traditional use of jute for modern day products, thus, touching human lives.

Advantage over Bangladesh :India and Bangladesh together accounts for the 95% of worlds jute production. The cost of producing quality yarn is 40 per cent higher in Bangladesh than in India because of the technological disadvantages. India has set up composite jute mills with modern machinery and technologies for production of fabrics, dyeing or lamination under one roof. Bangladesh has nearly 250 jute mills, but none of them has the dyeing and lamination facilities, which are essential to producing diversified products, according to exporters.

Potential for an anti-dumping tax: Around 125 lakh bales of jute sacks are needed just to package crop seeds in India. Indian jute mills can produce only 25 lakh bales of jute. The Indian Jute Mill Association (IJMA) has already pleaded for an anti-dumping tax in case Bangladeshi goods enter India. The Indian jute commission is considering the plea, and is soon to give a decision about it. This decision is aiming provide a monopoly to Indian jute mill owners which is a very big positive as there are barely few survivors in the industry.

Jute Particle Board: They are used as substitutes for wood. The availability of the technologies for producing particleboards and its high socio-economic value are arguments in favour of the future development of this product. The use of wood in house construction, furniture, etc. is slowly being discouraged due to environmental reasons. The use of jute particle board as a substitute has been found to be quite acceptable both in terms of quality and price.

Strong Financial Risk Profile: CRISIL's ratings on the bank facilities of Cheviot Co Ltd (CCL) continue to reflect CCL's strong financial risk profile, marked by a robust net worth, low reliance on external debt and strong liquidity. The ratings also factor in the strong business risk profile, with an established market position in the jute industry, a diversified product profile, and a wide distribution network.

Jute has always been a dull and boring sector. However, several positive advancement drew my attention to this sector.Several innovations ranging from diversified uses of Jute and Jute compounds (as discussed above) implies a turning tables for this sector.Also there has been a rise in demand for jute products all across the globe. Several countries have already banned use of plastic bags in their grocery markets and shopping malls. Thus, demand has been projected to increase 50 times within next five years if the eco-friendly trend continues.Potential for an anti-dumping tax which is a game changer, would provide a monopoly to Indian jute mill owners as there are barely few players in the industry.Recently MD of Gloster (one of the leading Jute players) emphasized in an interview that this is a ‘golden period’ for the jute industry with several sectoral tailwinds. He guided a robust rise in export demand in coming quarters. He also said that the upcoming quarters will see a very sleek growth which they have never seen before.

Concerns: Adverse regulatory changes in the jute industry may impact the top line and thus the regulatory risk would always prevail.Revenues coming in from exports have been a significant rise in past several quarters, fluctuations in currency can pose a threat. Also the RM prices which is Raw jute been on a recent upswing which can put pressure on its margins.

Financials: Company over the past 5 years have grown its topline and bottomline at a CAGR of 8% and 13% respectively. But the half yearly results of 2015-16 presents an entirely different picture where the company has delivered an impressive sales growth of 25% to register a figure of 150crs vs 120crs. Profits have more than doubled to 23crs vs 11crs. The third quarter numbers probably should be the best since its inception.

Conclusion: I liked Cheviot for its attractive valuations (in terms of EV) along with strong financial risk profile, marked by a robust net worth and low reliance on external debt.It has huge investments and cash on book worth Rs. 200 Cr and it’s almost debt free. Thus,on EV basis it is available at a very reasonable price.Currently it is quoting at a 6 forward PE and given the tailwinds even a meagre rerating up to 10 PE would make it move way higher. Promoters are owning 75% stake of the company.CCL has also been very generous with its consistent 20%+ dividend pay-out policy in past 5 years. So even dividends will be 2x with 100% rise in bottom line.Also, CCL doesn’t needs any capex and has huge reserves so one can expect another bonus due to low equity base. (Last bonus was in 2006) .There are very few listed players in Jute industry in India. All are with very tiny equities and limited floating stock. So even average accumulation can make them run into circuits.

BTW:For different stock market related services and also for techno-Funda tutorials,rush a mail at my mail id arunsharemarket@gmail.com to know more about it.

Note: The above is not a research report 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 Cheviot in my portfolio and hence my point of view can be biased.Readers should consult registered consultants before making any investments.

Microsec Financial services:Agm Notes

2015-10-17T06:17:00.003-07:00

After the launch of my Share Bazaar android app,the workload has increased many a times. Hardly there's any time to do blogging. As you all know the app has been a huge hit with downloads been nearly 25000 in a very small time. For the uninitiated,to download-go to play store and search Share Bazaar Arun. Do give your reviews and ratings folks.

Microsec Financial Services AGM Notes (Q&A)

E-commerce Divisions:-

1. Are we planning to raise Private Equity for both our E-Commerce division?
Ans: We were anxious when we started both e-com divisions but in retrospect we believe it was one of the greatest decision we ever made. Usually in a typical e-commerce start up, it takes huge amount of cash burning to achieve a GMV of 100crs but we are aiming to achieve that feet by remaining debt free. We are going to set a benchmark by achieving this only from a single state in India (West Bengal) which has been unprecedented in the world of E-commerce. And yes we are looking to raise money for both the verticals.

2. What is the USP of our E-com Services? Will ban on selling online medicine(if at all happens) affect us?
Ans: The USP of the company is our last mile delivery where 99% of the logistics costs are borne by the franchises. (Company gave the examples of newspaper where the logistics costs are Zero.) We don't sell prescribed drugs online. Sastasundar forwards the lead to its offline brick&mortar franchise/healthbuddies and they deliver the order to the customer. It's just a lead generation medium.

3. As medspa, Apollo pharmacy, netmeds, pm ventures are all in the same business as Sastasunder, What are we doing to thwart competition?
Ans: Competition makes business and the arena is too large. The retail pharmacy market is worth over 70000crs and there's a room for everyone to have their own pie.

4. We are entering Karnataka. What would be the strategy? Are we also entering other states?
Ans: Strategy is to repeat what we are doing in Kolkata. Sastasundar will further expand in Mumbai and other big cities by 2016.

5. In medicine distribution we need large inventories. Even we supply the inventory to our franchise owners. How are we playing it? Are we ready for addition in future debt?
Ans: Company is against too much debt however we may need some for taking care of our WC requirements.

6. What is the ratio of repeat customers to new customers? What are we doing to retain our old customers?
Ans: Repeat Customers contribute to 75% of the present top line. Company is taking all initiatives to retain its existing customers.

7. What is the credit cycle from where we procure the medicines?
Ans: (Didn't gave a clear answer but hinted of a good credit cycle once they garner in big volumes)

8. How many franchises we have till date? What is out average franchise revenue? What is the number of franchise we are looking to add over the coming few years?
Ans: 87 in total, 81 franchise and 6 company owned stores. Company looking to appoint more franchises. Aims for a number of 225 within the next fiscal.

9. What is the ebitda margin we will have after counting for 15% discounts and 8% commission to franchises? How can we compete with the retail pharmacist stores?
Ans: Our medicine distribution margins are 30%. The retail pharmacist averages margin of around 20%. So there's nothing to worry on that front. Sastasundar makes around 7%.

10. How many brands are attached with foreseegames.com as on date?
Ans: It's around 120 and yes the target is to tieup with 500 brands ASAP.

11. We brag about 11 lakh users in foresee then why is the revenue is not even 50 lakhs?
Ans: Foreseegame will see increased monetization from Brand partners going forward, however current strategy is more focused on acquiring more brand partners.

12. Foreseegame itself is engaging but the worst part is we have just 33k likes Facebook on user base of 1.1 million. Why aren't we looking at it? One of our peer latestone.com came into the arena much later yet they have 7-8 lakh fans in no time and increasing at a rapid speed.
Ans: (The Company appreciated the fact and promised to look into the issue at the earliest.)

13. Why aren't we marketing enough? We don't see foresee ads in TVs. They are nowhere. We haven't even done a SEO, let alone AdWords. Nobody can see us if they Google up online games. Why is it so?
Ans: Not fond of marketing in the television world. SEO and other needed necessities are actively looked upon which will help the company to increase its users.

14. Have we got a break even target in our verticals? When we will break even in e-com verticals?
Ans: Company looking to break even by fy17-18. Both e-com verticals are exceeding expectations as of now.

15. Do we make profit from every transaction? What is the ratio of our private level biz to the medicine biz? What is the margin we make from our private biz?
Ans: We are making profit from most transactions, if not all. The ratio is hardly much to talk about as of now. Private level business margins around 50%.

16. What about our recent launches: chef on and others? Are we seeing any traction? What has been the acceptance of our customers?
Ans: Chefon: the made to order segment has seen immediate traction after its recent launch. Company is getting 400-500 enquires on a daily basis.

17. In Foreseegame we often provide Sastasunder currency to our game buddies which in turn inflates the topline. Out of 21crs topline in Sastasunder, what has been its contribution last fiscal?
Ans: That is less than half a percent of the total turnover.

18. Any revenue guidance for foresee and Sastasunder in the present fiscal? Next year 17 and by 2020?
Ans: Foreseegame should more than double its turnover this year. Sastasundar's GMV should be heading to 100crs within the next few quarters.

19. Zapak games recently got valued at 1000crs, be it alexa rank or minutes spend in the site it’s beneath foreseegame by every standard. Are we looking to unlock value by divesting a stake?
Ans: Lot of offers from private equity. Foreseegame will dilute in favour of a private equity to unlock value. Should be done at a good valuation.

20. Ironically whenever we announce our results, we see our stock being hammered owing to higher losses. Would we see the same in future?
Ans: (We aren’t bothered about stock prices or market cap. The company is in a solid footing and with time, the right valuation should definitely chip in.)

Financial Services Division:-

21. It’s been quite a while since the demerger/divestment news was announced by the company. When is it actually happening?
Ans: Our core was finance and it's a pretty emotional decision to hive off the same. However, we believe in being ahead of the time and hence will soon do what’s best for the business.

22. We have a capital employed of over 100crs in the financial vertical. We have got large holdings running worth several Crs. We did a PAT of 10crs. It's a brand with intangibles adding up to a good few Crs. Tailwinds are blowing with few recent brokerage deals. Sudhir Valia acquiring fortune financial at 35crs and Sudip banerjee buying out JRG sec at 100crs. So we should get a good valuation right?
Ans: (They appreciated the fact and hinted about a good deal coming soon. Fathoming the body language, it seems like they will just sell the finance arm rather than demerging it as the full focus is on ECOM.)

23. Presuming we will sell out the Financial Services Division as admitted by Mr mittal earlier, how are we going to deploy that money? Would it be fully on Ecom? Or can there be a special onetime dividend?
Ans: As of now we are not in favour of a dividend as the stock price would just adjust it immediately. The money received would be deployed in the ECOM ventures.

24. Promoters own 71% in the company as on date, bit below the max permissible limit of 75%. Why aren't you buying out the rest? This fiscal year the promoters hardly bought anything.
Ans: Microsec is the only stock we acquired in last few years. We desire to own the maximum permissible limit of 75% soon.

25. We had an internal target of achieving a billion dollar market cap by 2020. How achievable does it look under the present juncture?
Ans: Futile to discuss about market cap at the present juncture. We believe in long term wealth generation for the stakeholders.

26. Is there any chances of selling out fully provided we get an extravagant offer, at a much premium to the present price?
Ans: No chances of selling out in the next 5 years.

What I Perceive: Finance business to be sold soon and then in due course would be demerged in two separate companies. Sastasundar and Foresee to be separately listed in the future.

P.s:Please refrain from asking buying/selling stuff.

BTW:For different stock market related services and also for techno-Funda tutorials,rush a mail at my mail id arunsharemarket@gmail.com to know more about it.

Note: The above is not a research report 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 MICROSEC in my portfolio and hence my point of view can be biased.Readers should consult registered consultants before making any investments.

Makers Lab AGM notes: Please it's not a Stock idea

2015-08-23T01:07:00.002-07:00

In Mumbai from 11th to 13th of September. Hope to meet a few of my readers. Please whatsapp my guy Dibyajit at 9804238412 for more details.

Hope you readers have all downloaded the Share Bazaar Android app. It's already been a mega hit with nearly 25000 downloads. Go to playstore ,find share bazaar app by Arun and download.

Am really really scared to put anything on public domain. Everything has been perceived as a stock idea. I pen a tweet to find the same in circuits. It's not a stock idea guys. Please read before your acts. Thanks to my Junior Abhijit for presenting it in such a brilliant yet witty way.

Following is a candid description of my visit to the Makers Labs AGM. Why Annual Grotesque Meeting? Wait till the end of this article to find out.

Scene 1: It was a sunny Tuesday morning, half past ten, I arrived at the IPCA Lab office located in Kandivali, Mumbai. As soon as I entered the gates, I saw a small white board in a corner. Some text was scribbled on it with atrocious handwritings. After a thorough analysis, I figured out that it was written ”Welcome to the 30th AGM of Makers Laboratories” (with two giant spelling mistakes, WELCOM and LABORATRIES).

There was nobody at the gate. After a few minutes of waiting, I observed a guard running towards me from the corridor. He was panting heavily and said: ”Sary Sur Hum thoda sa pishab karne gaya tha” (I wondered why only thoda, why not full?)

Scene 2: After I managed to find a chair in the shady looking premises of the office, a really beautiful lady came to serve me some chai with a gracious smile. Considering the texture of the steel glass (especially the deposits of dirt in between the texture), coupled with the bright red colour of the chai, I decided to give it a pass.

Scene 3: Recovering from a semi-trauma merely caused by the sight of that chai, I went out to get some fresh air. There I witnessed a gentlemen accompanied by his wife, entering the premises. After a basic introduction with him, he expressed how unhappy he was with the financials of the company and how much pissed he was with the company secretary Mr X for being a d**k on phone calls.

Scene 4: 11 o’clock, I did enter a small room where the AGM is supposed to take place. I was greeted by a sight of this really dingy and old school poster of Makers labs which didn’t even have a logo (or do they even have a logo in first place?). I saw several oldies roaming around in that room who apparently looked like shareholders. (PS: I did overhear them discussing on piles issue)

Scene 5: I heard someone fighting loudly at the entrance. It was that angry gentleman with his wife, who expressed his grudge towards company secretary before. Unfortunately, he stumbled upon Mr X at the entrance. Somehow people were able to separate them from their verbal barrage.He was accusing Mr X of treating him badly on the phone and complained that Mr X called him a ”gate crasher” and accused him to attend AGM only for the ‘free’ snacks offered and nothing else. (I’m not kidding, this is exactly what happened and they were actually fighting like a baby for that issue).After things were subdued, Mr X told us secretly, how that gentlemen only held 5 shares of the company and harassed him on phone calls.

Scene 6: Chairman literally READ the speech from the Annual Report. After about 5 minutes, it was time for Q&A. I will make a future post on how stupid and hilarious questions people asked the chairman. Some of the questions were asked by that gentleman who had also brought the annual report with all the spelling mistakes underlined. I literally felt suffocated in that intellectually polluted environment.The whole AGM was wrapped up within 20 minutes, and the same red chai with a vada and some stinking potato chips were served. (PS: one of the oldies from that piles group, did give a generous suggestion to replace vada with a sandwich in the next AGM.)

Scene 7: I left the room just to avoid the sight of oldies hogging on cold vadas and almost black potato chips. Right outside, I met this sensible looking fellow. I felt like giving him a hug. He was the Marketing head of Makers Lab. I had a chat with him for 15 minutes about so-called Future Prospects of the company and he assured me to stay away from the stock with a 12-foot barge pole. I’m not even kidding, his candid remarks about how dull the Generic drug industry is with not much room for Makers Lab to grow, were enough for eliminating Makers Lab from my watch list.

Final P.S.: Guess what I heard from a director of IPCA Labs in an offline conversation: ”DONOT expect much from Makers!’ I’m serious. That were the exact words he used.

BTW:For different stock market related services and also for techno-Funda tutorials,rush a mail at my mail id arunsharemarket@gmail.com to know more about it.

Note: Let me clarify this was just a funny experience I had at the AGM and please don’t take any serious offence. Also, this is NOT an investment advice to buy or sell shares. Please make your own decision, as blindly acting on anyone else’s research and opinions can be injurious to your wealth. I do not own the stock, nor I am a registered Research Analyst as per SEBI Regulations, 2014.

Ramco Systems ltd:- Can the cloud player take your portfolio to cloud 9?

2015-07-13T21:14:00.002-07:00

Quote: I have tweeted about Ramco Systems innumerable times. Let';s pen down why am a fan of this particular company. Its an old note which was mailed to close mates and cohorts,a good couple of months back. Sebi has ensured tough life for the gullible investors. Even updating the blog ones in a month requires a lot of pre-thoughts,say mostly about the vagaries of the regulator.

Ramco Systems ki Kahani: Started as an R&D division of Ramco Industries in 1992, Ramco Systems is part of over 75 years old Ramco Group. Boasting a turnover of over Rs.6500 Crore, Ramco Group has become one of the most reputed business houses in India and has achieved international recognition for its quality products and services. Ramco Systems is a cloud enterprise software company focused on providing multi-faced enterprise software to corporates in the verticals of HCM (Human Capital Management), ERP (Enterprise Resource Planning) and M&E (Monitoring and evaluation) for Defence and Civil Aviation. They also provide associated services like consulting and implementation of its products to clients. Headquartered in Chennai, the company has 20 offices spread across India, USA, Canada, Europe, Australia, Middle East, South Africa and APAC. Ramco Systems has over 150,000 users from 1000+ customer organizations. Some of its clients are Bata, PUMA, Mother’s Dairy, Dabur, Emirates etc.

Industry Overview: Tailwinds for the cloud-based enterprise software: The global software industry is now in the middle of a radical change. Surge in the number of mobile and tablet devices, growing broadband connectivity and the increase in customization of IT-services has made the cloud based enterprise applications one of the most desired segment in IT. The growth in global IT industry is led mainly by enterprise software. As per Gartner, at least 30% of service-centric businesses will aggressively adopt cloud-based ERP solutions by 2018 (Gartner). Total market size of the cloud-based enterprise software is estimated to be around lakhs of crores and is growing at a rapid pace. Small and mid-sized organizations are embracing the cloud based systems which are followed by large organizations. Leading cloud-based enterprise software providers such as Workday, Cornerstone on Demand and NetSuite are growing in the vicinity of roughly 50% per year.

Human Capital Management (HCM) on fire: Ramco’s HCM software digitizes HR processes throughout the life of an employee in the organisation. It has integral analytics solutions that can be used by HR professionals and senior management to make the right HR decisions. This is currently the fastest-growing segment for the company with a revenue growth of 113% YoY. It currently targets companies with an employee base of less than 10,000. The company charges about Rs.5000 per employee per year for its cloud-based HCM solution which are lower than a lot of its competitors like Workday, Oracle Fusion etc.

Aviation segment: Small and medium sized airline operators who were earlier not able to adopt enterprise-class software due to complexity and fixed costs involved, now have started exploring Cloud based systems. This has opened up a new market opportunity in itself. Ramco is especially strong in the area of helicopter fleet management. Five of the ten largest helicopter fleet companies in the world are their clients. Revenue growth in this segment was 36% YoY. However, overall addressable market is relatively small as compared to HCM and ERP.

ERP Software – The management is less focused on this segment as compared to HCM and Aviation. However, they have focused their energies in a sub segment of ERP for Services industry named as Services Resource Planning (SRP). It closely incorporates key functions such as the ability of an organization to hire, train and retain workforce, implement projects efficiently, manage finances comprehensively and provide superior customer service levels. Ramco has a huge room to catch up and fight against a fierce competition in this segment.

How it is better than competition:
• Ramco’s solution provides the advantages of new age platforms such as Workday and Netsuite and also provides the functionality of traditional on premise ERP solutions such as SAP and Oracle.
• Unlike many of its competitors, Ramco’s applications have been built on a common platform making it more favourable over the competition.
• Unlike Ramco, not all players in the industry are providing end to end solutions to their clients. They have partnered with IT services vendors such as Infosys, Tech Mahindra, Dell Services and NIIT to aid the consulting and implementation part of its products to clients.
• Simplicity of implementation and integration coupled with its competitive pricing gives Ramco an edge.

Why can';t Oracle,SAP catch up:-http://www.netsuite.com/portal/resource/articles/on-premise-cloud-erp.shtml

Management:
• Mr Virender Aggarwal (ex-HCL Tech and ex-Satyam) joined the company as the CEO in 2012.
• He has proactively restructured the organisation by increasing focus on sales outside India, improving sales partnerships, and focusing on product innovation. Sales from outside India now constitute around 72% of the overall revenues.
• The new management that joined three years ago, has increased accountability of the sales team and has fired poor-performing staff.
• The company has also recently linked staff salaries to performance and has paid out excellent bonuses to the top performing employees.
• Promoters owns almost 59% of the company.

Number Crunching:
• The company';s revenue growth has been accelerating on a sequential basis in the last four quarters. Margins have improved significantly over the same period.
• The new management joined three years ago has invested heavily in sales and marketing and in the product. These increased spend led to cumulative losses of Rs. 63 Crore over past 2 years.
• Presently, the revenue growth has accelerated to 35% YoY basis with a 109% growth in order wins from new clients. The company is now turned profitable since the last four quarters and the management indicates that going forward it would calibrate investments in-line with its top line.
• Ramco is trading at 5.5 x EV/sales. Given its emerging scale and strong product offering in a large market, its current valuations may not be comparable to peers.
• Peers trade at significantly higher multiples: Workday (20.4x), Netsuite (15.4x), However Ramco’s future valuations may be driven by continued momentum in revenue growth and the scale it achieves.

Key risks: risk of poor adoption of the products by the market, Increase in competitive intensity from the fierce deep pocketed rivals.Resigning of the CEO maybe?

Conclusion: According to the management, its product development phase is almost complete and the company is now focused on strengthening its sales and marketing. As the company’s costs are largely fixed, strong revenue growth would likely result in an expansion in profitability due to operating leverage. Also as the oil prices have come down leading to increase in disposable income for airline industry is a positive for Ramco as airlines are likely spend that on improving their IT infra. To become a successful IT Product Company, it needs to be backed by a good product, strong brand and a committed management. It needs to relentlessly execute its sales and product development strategy in order to achieve meaningful scale. The promoters and the management also need to have the right mind-set to lead such a venture to a success. Ramco appears to have all the ingredient in place, but will it turn out to be the multibagger is the story yet to be unfolded.

For 5th graders:-

A lot of you may not understand the IT or above stuff. Allow me to explain in simple language. Am not even talking about the other two divisions.Lets just talk about it payroll software.

We as a county ain';t famous for our products.I mean how many products we have?There';s Finacle,tally,the onmobile product and what else? Need to google up as there';s hardly anything else popping up in mind. That';s where our Ramco and its payroll software counts. It';s a product which is already making waves all over the world. Even the likes of Infosys,dell and several others are reselling its product.

They are softwares with an annual charge,business model can be compared to our consultancy services. Target companies with 10000 employes,charge per employee some 500 bucks monthly and you make a million USD yearly business. Think about the margins folks. You sell the same thing time after time with no incremental costs. Say we sell our stock ideas to 10 clients or 100 clients,our costs would be fixed but we will make 100% margins right? That';s how lucrative Ramco';s business is. Addressable market is nearly 1 lakh crores.

No other player in the world got as robust a product as ramco. The new CEO is the game changer for the company. As long as he is at helms,company will continue to grow heights. If the company can market its product well-Sky will be the limit for the company. Global peers are crazily valued with 15-20-40x of their sales.

Also they recently got a big deal in Australia through a partner/SI called Megasoft. Now they have 150 more SI folks. Think cumulatively what all those can result into? Sky is the limit for the company.

BTW:For different stock market related services and also for techno-Funda tutorials,rush a mail at my mail id arunsharemarket@gmail.com to know more about it.

Note: The above is not a research report 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 Ramco in my portfolio and hence my point of view can be biased.Readers should consult registered consultants before making any investments.

Vadilal Industries ltd:- Can it become a multibagger?

2015-06-13T00:16:00.002-07:00

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Q? I bought a lot of Vadilal industries at 340 bucks merely reading your twitter updates. You disclosed you too own a few of the company and looking for a target of 1000 bucks in the next 3 years. Can you please share the reason and logic to your readers? A detailed elaborate note like your other notes would be highly appreciated.

Ans) Vadilal was suggested at around 340 bucks as management commented about the impending merger and its consequences.However,I don't appreciate your logic of resorting to opt for the company,just going through my twitter updates and nothing else. Stock market ain't that easy a place to earn. Borrowed conviction often hurts bigtime, if you don't know the actual worth of your demat possessions. Request you to relinquish such gusto and concentrate on finding the operational reasons before proceeding in owning a business.

Here's what prompted me to pick the company:-

Company:The company is the second largest ice cream player in the country. Vadilal owns the bragging rights of having the largest range of ice creams with 150 plus flavours sold in a variety of more than 300 packs and forms. The range includes cones, candies, bars, ice-lollies, small cups, big cups, family packs, and economy packs. Vadilal is one of the very very few ice-cream players in the country to have presence in all the three categories of ice creams — premium, regular and frozen dessert — which remains and will be an asset.The company also offers products for all age groups in the price range of Rs 5 to Rs 100, and above. Vadilal has very strong distribution network having 60,000 retailers and over 750 distributors.Its advantage in handling such large distribution networks, including cold chains and stock-keeping units (SKUs) of more than 300, gives it valuable experience in scaling.The company currently just gets around 5-7 per cent of its revenue from Eastern part of the country, while 50 per cent of its revenues come from Western India and the rest from North India.The company has two production facilities – Pundhra in Gandhinagar district, Gujarat, and Bareilly in Uttar Pradesh.

Industry perspective:India’s current ice-cream market is worth Rs 3,500cr, including the unorganised sector. The branded market has a host of homegrown and international players, namely, Amul, Kwality Walls, Mother Dairy, Vadilal, Cream Bell, Baskin-Robbins, etc, amongst the the prominent ones. Whilst Häagen-Dazs, Baskin-Robbins, London Dairy, New Zealand Naturals, and Hokey Pokey cater to the high-end market, the likes of Amul, Vadilal, Cream Bell and Mother Dairy are available at wide-ranging price points. Lately, the imported concepts such as frozen yogurt and gelatos are gaining popularity. The Ice-cream is one of the fastest growing food categories in India.Notably, the business is seasonal in nature with April to June being the peak season and November to January the lean months. Sales slacken during the monsoons also.

In recent years, consumption of ice-cream and other frozen novelties in winters has been on the rise. A mix of factors is responsible for lessening the seasonal impact and contributing to the overall growth of the country’s ice-cream industry such as changing consumer perception, capturing regional variations, diverse consumer segments, favourable retail location, product range and innovation, festivities, and marketing and promotions. Currently growing at 15-18 percent annually, the future prospects of India’s ice-cream market seem promising for manufacturers, suppliers and retailers. A number of regional players have also started expanding.

Processed food division:Vadilal commenced processed food division in 1991. The company is exporting to USA, Canada, the UK, Kuwait, the UAE, Singapore, New Zealand, and Australia under the brand name of Vadilal Quick Treat and are present in more than 45 countries across the world. The company’s market share stands at around 15 per cent in the organised sector. The processed food division contributed 74crs of turnover last fiscal.Company plans to bring a strategic investor for changing the fortunes of the vertical.They may also exit it fully which can be a rerating factor.On 85crs of capital employed the segment was just able to break even.

Expansions:Company over the last few years has increased its capacity from 225,000 litres per day (lpd) to 375,000 lpd. It’s impressive that the company has accomplished this mainly through internal accruals.Besides, it's the only player to have invested in the installation of extrusion technology at its Ahmedabad plant so that its ice creams improve both in taste and texture.The company enjoys a 35 per cent market share in Gujarat, which is considered to be among one of the key markets for ice cream.Vadilal also has made aggressive plans to increase its sales in Jammu & Kashmir by over four times to around Rs 10 crore in the coming year. Company is already the number one player by volumes in Uttar Pradesh and is amongst the top ice cream players in NCR, Punjab and the northern belt. Vadilal is looking to penetrate deep into J&K, including regions like Srinagar, Anantnag, Baramullah, Pattan, Baandipura, Ganderbal and Sopian. Company is also expanding its dealer network aggressively in the eastern parts of the country.

Potential:India’s per-capita consumption of ice cream is estimated to be three scoops or 300 gms a person per year, against a mammoth 24 litres a person in several developed countries like the US, Japan and Germany.Even the Chinese consume about 3 litres.Leave China,Pakistan consume 150% more ice cream than us.With time as the power situation improves in the country,penetration will increase big time.The demand potential for ice cream is huge and Vadilal so far has been able to control and manage supply costs way better and more effectively than the multinationals..

Misc points:How it fared or whatever it did operationally in the last 10 years matters little as promoters weren't ready to share their wealth with investors. Vadilal enterprises got rich assets and a very tiny equity cap to the tune of less than a crore which will result to minimal equity dilutions.Company is also looking to sell some non core assets which will help in debt reduction.Real big money in stock market is made through foresight and not hindsight.

Concerns: A two decade odd family separation restricts Vadilal from selling its ice cream products in southern Indian states, including Mumbai and Goa. This is a major handicap, considering that 25-30 per cent of the country’s total ice cream sales come from these places.Competition from other players are heating up which though remains a threat but also helps in expanding the whole sector. To give you guys a perspective,country had an ice cream consumption of just 100 milligrams during the nineties. Amul entered the segment and increased the consumption multi fold.

Outlook:No sane companies with such strong brand recall would have ROE of 1-2%.Vadilal resorted to bizarre tactics of manufacturing ice cream itself and selling the same through its separately listed marketing arm.These events definitely hints at the uncomfortable zone which you members can easily fathom.Its a good new bull market going on and promoters are changing their attitude for good.They have finally decided to merge both the arms in a single listed entity. Vadilal has seen a drastic change in working capital requirement from 61crs earlier to just 23crs in the last fiscal. Vadilal enterprises works on negative working capital of 20-25crs. The merged entity would have either negative WC or very limited WC requirements as customer advances and distributors security deposits pile up.Last year security deposits of franchises went up to 8.75cs vs just 2crs,vindicating the stand of company"s expansion through asset light aka franchise model.Company has improved its collection period to just 2 weeks from a couple of months earlier.The age old tradition of doing business through other peoples money or OPM-Taking trade credit facility and becoming stricter on collections/demanding advances etc.

Conclusion:They have sufficient capacity to meet up any upcoming demand which takes out the Capex equation.Merged entity would have over 60crs of operating cash flows which can easily service the interest costs of 22-25crs.Debt stands at around 145crs as on last balance sheet figure.Company has also guided a reduction in debt which will boost the NPM.Vadilal has recently guided a turnover of 550crs for the merged entity with around 14% Ebitda margins.Company is just trading at 3x EBITDA.The 1000 bucks target over coming 3 years is based on few factors which include-Change in market perception owing to merger as conflict of interest vanishes,fancy towards consumption stocks with ice cream sector tailwinds,a branded play with expected EBITDA of 130-140crs on most conservative estimate 3 years forward.High promoters holding,low equity and lack of floating stock would ensure it quotes at a premium valuations too.Put 6x EBITDA to reach to the assigned figure.

Btw:All this figures will only be valid if the merger happens.Though nothing has been announced by the company in public domain but such amazing stock price rally amidst market mayhem only hints towards the insider activity which speaks volumes at the upcoming inevitable happening.If the merger gets postponed,stock will take a big beating.

Quote: The above note was prepared few months ago and since then stock have had a decent rally amidst market mayhem. Story seems to play out well. If merger goes through,the four figure mark would come way before the expected duration.

Recent results and improvement further in the balance sheet is a testimony to vadilal's strategy of doing business through the asset light model. The ice cream division did a ROCE of 19% which should further improve as both the levers assimilate to boost- Higher OP and depleting WC requirements. Merger will change the whole ball game as synergy chips in and you eradicate a lot of junks. There's no Capex for coming couple of years which will reduce a hell lot of high cost debts as high OCF galores. It's not quite your "Diary Queen from the sage of Omaha's stable" but nonetheless a cool consumption play with a change in attitude from the guys at helm. Mother Earth too is now the hottest in last 11000 years,that also makes a strong case to look at Vadilal? :)))))

BTW:For different stock market related services and also for techno-Funda tutorials,rush a mail at my mail id arunsharemarket@gmail.com to know more about it.

Note: The above is not a research report 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 vadilal in my portfolio and hence my point of view can be biased.Readers should consult registered consultants before making any investments.

Microsec Financial Services Ltd:-The E-Commerce Play

2015-05-08T02:09:00.002-07:00

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Stock idea:-

Scripscan:Microsec Financial Services Ltd
Traded in:Nse-Bse
Cmp:74rs
Target:No targets(can be multibagger)
Duration:3-5 years
Portfolio allocation:5%

Quote:I have covered the company earlier at 20 bucks.Its already been a multibagger.Can well be a multibagger from present levels too.Check the link to know more:- http://www.arunthestocksguru.com/2013/11/microsec-financial-services-ltd-next.html

Verticals:The company got three business verticals which are: 1)Financial Services 2)Innovative Digital Media of Consumer Engagement - www.foreseegame.com 3)Innovative Digital Pharmacy and Healthcare Store - www.sastasundar.com 1)Financial services:It provides financing and investment, investment banking, broking and wealth management, insurance broking, financial planning and related service.

Quote:Simply not interested in this business.The company is much more than a boring RBI registered NBFC.Read on:-

Ecommerce:Tailwinds are blowing in ecommerce with almost a dozen deals happening everyday.Unfortunately, in the Indian stock markets the numbers of ecommerce plays are limited.We have a handful of companies with the likes of Just Dial and Info edge,both valued at over billion USD. Who actually cares to buy them though?Then the micro caps follow with average business models-Intrasoft technologies,Istreet network to name a few.Now let's talk about the probable best ecommerce play which is yet to be noticed by markets.Not only its debt free with innovative Ecommerce verticals but the company also posses a lot of cash in its book.

2)FORESEEGAME.COM:Foreseegame.com has become no. 1 consumer engagement platform in India with Alexa ranking of 270 at India level.The company as on date is having over a million users and is growing at a very rapid pace. It is a value innovation in marketing media which offers complete engagement cycle to brands. It is value additon to Digital Media – beyond impressions and clicks and providing 360degree engagement through games of prediction engagement around TVC, feedback,Co-creation and Social Responsibility.Foreseegame.com has more than 15 million page views per month and the average time spend per user at foreseegame.com is 28 minutes which is far ahead from any other website.Yes its even higher than Facebook or any site that you may surf daily.The most interesting feature is that the user spends maximum time with brands while on foreseegame.com.It provides brands engagement with their target audience through age-wise, gender-wise and location wise games and capable of bringing customers to stores/websites of the brands.The digital Advertising market size in India is around Rs.4000 crs and which is expected to increase at a 30% growth rate. The Management is foreseeing tremendous growth opportunity in this business.

Business in simple words:It's kind of an online lottery portal.Users predict and they win cash prizes,discount vouchers from several brands.Foresee gets 10 bucks from brands per engagement/game.For example if 1 lakh users play a game daily,the revenues will be 3crs monthly or 36crs yearly(1*10*30).A portal offering "cash prizes" in a cash starved country with population of 125crs. Relax and fathom the potential members.I too won some discount vouchers and cash rewards.

3)SASTASUNDAR.COM: Sastasundar.com is an innovative Digital Pharmacy and Healthcare Store.Within a very short span of time,it has received tremendous response from the customers. "At present, the services of sastasundar.com is available in Kolkata and nearby suburb area and it is processing on an average 1600 plus orders on daily basis.The company is catering to over 1 lakh customers with average daily addition being a highly impressive 400-500."

Business in simple words.They simply sell medicines online.From generic to the daily needed necessities.Retail medicine shops make 20-30% on an average. Sastasundar aims to capture that segment by offering 15% discount to its customers.Since the volumes would be way higher,the margins for the company would be superior than the average retail shops.The company aims to have double digit EBITDA in this segment.They are also into trading through their healthbuddy products which ranges from coconut oil to herbal Ayurvedic stuff.

Think about the integration:Through foreseegame the company would have access to millions of users,migrate them to sastasundar with impressive discounts and they are yours.With foresee the cost of branding sastasundar is minimal.

Even 500crs revenues for sastasundar ain't a big deal.Think about the service period of medicines.So if you clock 42 crs in your monthly sales,you will hit 500crs easily (42crs*12 months).Additional new customers will further fuel revenues.They have got some retail sastasundar stores and is also offering franchise based opportunities at minimum costs.

Sastasundar is becoming a rage in our part of the country simply due to the fact of offering genuine medicines at discount of 15-20%.Its already into the alexa top 500 portals of the country which vindicates my point.Till 2500 bucks of medicine purchase you get 15% discount and above that 20% discount follows.

The company is also about to start high margin innovative segments like" Make to order ". You order the chef how to make the foods and they will deliver it to your doorsteps.

Reference:My family got a monthly recurring expenses of 2500 bucks in medicine.We used to buy from nearby retailers previously.Since last couple of months we switched to sastasundar.They are delivering timely to home with no additional logistics cost.We are saving about 500 bucks with added satisfaction of consuming "genuine medicines".Presume the scalability of the business with over 9crs of population in the state alone.Company has a vision of going pan India but only after creating profitable zones.

Recent deals:Healthkart.com,a company into nutritional supplements recently raised around 130crs from Intel capital at a talked about valuation of over 1000crs.Another customer engagement firm freecharge is in news of late with reports of snapdeal acquiring the company at 2800crs.

The private equity way to value ecommerce players:They range from 3x to 150x revenues.

Endorsement of Phaneesh Murthy:Murthy, who previously held senior positions at Infosys and was the CEO of Igate, has started PM Health and Life Care, an online pharmacy. He is raising $10 million for the venture, which is expected to start operations in September in 10 Indian cities.As per him,"The Indian pharmaceutical market is estimated to be worth $56 billion by 2020".“Buying medicines online is a different culture altogether. There is great scope as consumers are increasingly shopping online,” he added.The Indian pharmacy market is fragmented with unorganized players accounting for over 95%.Indian spending on healthcare is expected to nearly double to 13% of disposable incomes by 2025, according to PWC.

9 month results:The financial services segment delivered 21crs of sales vs 19crs.Foresee recorded 28 lakhs vs 8 lakhs.Sastasundar saw a massive rise in revenues with sales increasing from just 8 lakhs to over 11crs. Sastasundar is well on course to hit 9crs sales in the last quarter which will make it clock 20 crs.Both the ecommerce portals delivered losses to the tune of around 8crs each.The financial services division clocked a profit figure of around 9crs in the 9 months period of the present fiscal.It will end up with 12crs of PAT.

Loaded with cash:Company has investments and cash of about 90-100crs in book which if you subtract from the Marketcap provides an EV of 120crs.

Risks:The financial services business will continue to do well as long as equities perform.In any case, cash flows would be robust owing the fee based in nature. Ecommerce segments though are sun rising but are far from making profits.It will take a while before both the segments make any meaningful profit.

Conclusion:Microsec has been a laggard post it's listing in 2010.The issue priced at 118 was oversubscribed by 12 times.With a sound strategy and new Sunrising verticals in place,company is about to see a change in its fortunes.Both the ecommerce portals would grow at 80-100% CAGR for coming few years.As the segments attain scale,it would probably be demerged into three entities.At present valuation,market is valuing the company at 10x EV.God fearing management has a vision in place to make wealth for themselves and the minority shareholders.They are transparent in their dealings.The promoters including microsec trust and associates own around 80% stake in the company 'officially'.You are actually getting the ecommerce divisions for free.No sane investor can presume or pen a target here.Floating stocks are negligible,even average buying interest in the counter will make it hit the sky.
Btw:You don't need to interact with the management.Just keep track of the Alexa rankings.The lesser the rank the higher the growth of the company.

BTW:For different stock market related services,rush a mail at my mail id arunsharemarket@gmail.com to know more about it.

Note: The above is not a research report 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 microsec in my portfolio and hence my point of view can be biased.Readers should consult registered consultants before making any investments.

Starting Techno-Funda Tutorials in Android App and Stock idea:-Ambika Cotton Mills ltd

2015-04-19T00:53:00.001-07:00

Quote:As promised last week,here's the note of Ambika cotton.

Techno-Funda Tutorials:-

We are going to start the techno-funda tutorials in the app from May.To know more about it mail here:sharebazaarapp@gmail.com.

Soumya will take care of the technicals and I will try to make you learn what I have learned over the last 12 years.I remember visiting several cybercafes which charged 70 bucks per hour,back in 2003.Whatever pocket money was gathered,got "invested" in learning the aspects of the game.Dividend takes care of the living and hence there's little motivation to work more.Inflation may compound at 8% but tax free dividend too ain't inferior with 20% yearly growth.So if I could teach even a few passionate ones the fundamental aspects,that will be a satisfaction booster.

Need a demo of what will be taught?Lets prepare the analysis in couple of ways.One for the nerd and the other for the geeks.Simple note for the simple investor and an interesting note for the professional investor who invests for living.Thanks to Saurabh,Saumya,Ujjal da,Dibyajit and Keshav for helping me with the inputs.

Stock idea:

Scripscan:Ambika Cotton Mills
Traded in:Nse-Bse
Avg buy price:895rs
Target price:1350
Return percentage:50%
Duration:9-12 months

Note 1:

1)ACML operates in a niche segment which is estimated to be only ~ 10% of total yarn market by volumes.

Note:Cotton yarn is boring commodity but ACML seems got a differentiated model.Manufactures for the premium shirt manufacturers.Hell yah it's the market leader,he'll yah it's a monopoly.No comparable peers.

2)Debtors days of less than 5 or receivables of just 5crs on nearly 480crs of sales.

Note)Can be two aspects:
A)Unlike other commodity yarn manufacturers who first manufacture yarn & then look for customers, ACML it seems only manufacturers against orders.

B)It exports over 60%,it surely will take more than 4 days to reach to its clients.That hints at "advance payments from largest premium manufacturers of the world".

Quote:The bargaining power will be with the manufacturer."So pricing power is certain".

4)Since we are talking about premium and largest,ACML's customers ought to have stringent processes for quality compliance.Inventory days at 80.

Note:Thats a moat out here.Not any xyz can take its market share just like that.
Inventory days ought to be higher as it imports raw material from Egypt,USA.Operating cycle just at 3 months vs over 8 months,five years ago.

5)ACML's Debt has reduced from a peak of 280crs. in FY08 to 70Cr. without dilution, & the co. is expected to become debt free by FY15 end.

Note)Debt reduction with higher sales,great going.Debt free to boost NPM.Higher payout too.

6)Opm peaked at 29% in 2011,present Opm at 20%.

Note:Related to cotton prices which saw a high of 165 cents per pound in 2011 to just about 80 now.Still it's at 20% Opm vs nothing of peers which got royally banged.It ain't a commodity obviously then.

7)Capital turns up 150% in 5 years from 60 paisa in 1 re to nearly 1.5rs with same 1 rupee.

Note:Company seems sweating its resources big time.Ones cotton prices starts to outperform,Opm will rise which coupled with higher capital turns will boost the ROIC.ROIC already at a respectable 17% which itself is a moat as per Dorsey.

8)Opm at such higher levels also due to captive power.Power is the 2nd largest cash expense & the co. has 27MW of captive Wind Mills which is boosting the margins.

Note:Higher margins but on a capital employed of 90crs.That ain't your ROE booster.

9) ACML's sales have increased from 40Cr. in FY00 to 477Cr. in FY14 & has never declined in the 14 year period.EBITDA declined only once in the past decade in FY12 due to forex losses.

Note:Impressive achievement which market couldn't fathom as it always perceived it to be a boring commodity player.Things to change as perception changes but ya susceptible to forex losses.

10)Debt free-Internal accruals,Tuf subsidy?Return ratios down?

Note:Promoter seems want to keep the co. debt free & incur all future capex only through internal accruals, despite availability of TUF subsidy as norm, which might pull down the Return ratio.

11) During the past 5 years, cos. dividend per share has increased from 2/- in FY09 to 12.5/- in FY14.

Note:That's called increase in commitment towards the minority shareholder.Will increase more as mcap increases(psychology) and as it becomes debt free.Market perception to change slowly from boring to not really boring to hell yah wow(experience).

Misc stuff/Anything am missing?

Note:Reduction in Working Capital in 5 years - from 45% of Sales down to just 8%.Positive EVA generator,AltmanZ score of 2.49 vs 1.14.Still not in safe zone but will get better with time.Spindle production capacity has grown from 42k spindles to 110k spindles in last years at 11% Cagr. Revenues per spindle has increased at a healthy cage of 9% in the same period(20.7k to 43.4k).ACML's scrap sales at 8% vs at max 4% for other cotton yarn manufacturers.This is probably because ACML rejects the cotton that others might have used, as its yarn is used in premium garments.

Promoter and Foundation:

Note:Chandran grandpa at 64,fit guy,can still run the show.Daughters on board.Can run the show?

Moat certificates?
Note:Supima,oeko-tex,GOTS.Not available to many.

Retail investors Psychology/Market perception nature?

Note:They ain't interested anything about 1000 as pensive guys got gusto only towards penny priced craps.Markets will give it it's deserved due,from oversold 5 PE to double digit multiples slowly.Stock to be steadily chased.MF's,HNI's to get in.Opportunist/Chartists to get in.

Put together:Ethical visionary promoters+Holding margins inspite headwinds+scalability+Monopoly with pricing power+debt free+high cash flows+ robust ratios+Higher payout+20-25% cagr for eternity with higher margins+too cheap valuations and low floating stock.

Conclusion:ACML is a high quality co with good clean,visionary promoters, which is wrongly being valued as a commodity yarn manufacturer, thus, the stock is ripe for a re-rating.

Note 2:-

Company & Business Overview: Incorporated in 1988 in Coimbatore (Tamilnadu), Ambika Cotton Mills Ltd. is engaged in the manufacture of premium quality cotton yarn for hosiery and weaving. Today, the company has become an established player in the global yarn market with exports comprising nearly 60% of its revenues. The company makes both, compact ring yarn and eli twisted yarn, though, majority of the production is of compacting system. The company has four manufacturing facilities at Dindigul, (Tamilnadu) with a total spindle capacity of 110,000; of which 100,000 spindles is of compacting based system. Compact spinning is recognized as a revolution in ring spinning. This technology is claimed to offer superior quality and better raw material utilization. The company is said to be a whiz in the shirting segment and is considered to be the preferred client of all top quality shirt and t-shirts manufacturers across the world for its specialty cotton yarn. The company, over the years, has managed to carve out its own niche in the huge cotton yarn market by focusing on producing the specialty cotton yarn.

Industry Overview: Now before we go into analyzing the company, just have a look at the current developments in the industry. India is the world's second-largest producer of textiles and garments and accounts for about 22% of the world's spindle capacity. It also has the highest loom capacity with 61% of the world's market share. The industry contributes ~14% to the country’s industrial production and 4% to GDP; and it is expected to expand at a CAGR of over 10% to reach USD 223 bn by 2020-21. At the same time, the exports have had a smart growth over the last few years. In the overall basket of cotton textiles, cotton yarn has shown a tremendous growth of ~29% (as compared to fabrics and made-ups) increasing from USD 3,535 mn in FY13 to USD 4,503 mn in FY14.

However, according to Directorate General of Foreign Trade, the cotton yarn export is following the declining trend for the last several quarters on account of weak demand from China, which is the largest importer of India’s cotton yarn. The stocks started piling up in the spinning mills, though mills have yet not reduced the production. In April 2014, China has terminated its old cotton procurement policy and now shifted to a direct subsidy based policy, under which, farmers would sell the cotton at the market prices and in case the market price is lower than the government set target price, the difference i.e. subsidy would be directly paid to the farmers; this shift towards direct subsidy would make cotton available at market rates to mills in China, thereby, reducing the dependence on imported cotton as well as imported cotton yarn. Now, the import duty on cotton and cotton yarn in China can be a key determinant of cotton yarn exports from India. According to a report of ICRA, The demand for cotton yarn continued to remain healthy with cotton yarn production increasing by ~9% to 3.9 MT, during FY14, thereby, substantially increasing the capacity utilization levels.

Point to note:Now, talking about the raw material, cotton & cotton prices; India is the second largest cotton producer of the world, just next to China. The cotton prices have already come under pressure due to higher stocks and the world cotton industry may witness fifth consecutive surplus season thereby giving no sigh of relief for the cotton producers & suppliers and at the same time, any worrying factor to them who use it as a raw material. The best thing is the demand for yarn and textile from the country is growing and is set to grow higher. We have recently seen the boost in businesses of companies like Pearl Global Industries, Orbit Exports and others. A rough idea about the current demand and supply economics about cotton can be looked at through the following article.
(http://www.thehindubusinessline.com/industry-and-economy/agri-biz/india-set-to-emerge-as-worlds-largest-cotton-rower/article6379920.ece)

Financials & Valuations Outlook: Since the company has carved out its own niche and is involved only in the manufacturing of specialty cotton yarns primarily made from the imported raw material, it remains isolated from the usual cotton and textile demand-supply economics of the country. The company also boasts of several exclusive things as compared to other players in the industry; the company does not carry much debt and inventory on the books along with very low receivables which is quite a trend in this industry. This loudly speaks out of efficiencies employed in the work, demand and quality for its products and efficient working capital management with low credits. During the previous fiscal, the company spent nearly Rs.29 crores towards modernization of Unit-I and implementing EHT facility ensuring dedicated electric supply exclusively to support the operations of Unit – II, III & IV; and also pre-paid the loans to the extent of Rs.17 crores. During the five years, spanning FY09-FY14, the company has grown at a CAGR of ~21% from Rs.184 crores to Rs.477 crores while the Earnings Per Share have grown over 8x from Rs.16 to Rs.82 during the same period. Since, the cotton prices are hovering at such low levels while the demand is likely to remain consistent in the mid-term, we expect company’s operating margins to resume to 25% plus levels. At the existing growth,we expect the company to report top-line of Rs.710crores in FY17 and Rs.850crores in FY18; at an operating margin of 20%(most conservative estimate),we get an operating profit of Rs.170 crores. The company will soon be debt-free and depreciation could be Rs.40 crores at max. So, this has all the potential to show an earnings per share of Rs.170 after taking out corporate taxes.This company has tremendous book-data unlike any other company in this area – better return ratios, low debts, efficient working capital management system, etc.At 8x you get your target price.

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Note: The above is not a research report 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 ambika in my portfolio and hence my point of view can be biased.Readers should consult registered consultants before making any investments.