Gujarat Reclaimed Rubber Products (GRRPL)

Rubber recycling looks like a good business – as it is both profitable and eco-friendly. Given the rising prices and supply limitation of natural rubber, usage of reclaimed rubber is more economical (costs Rs 40/Kg) and bound to increase. Add to it the opportunity to expand this business. There was an article which highlights the opportunity for this sector – thanks to addition of almost 33 million vehicles in last 3 years in India.

GRRPL has established a nice for itself and has become the largest reclaim rubber manufacturer in Asia. GRRPL is one of the most organised and technologically advanced company in this sector. The company has been manufacturing one of the widest range of reclaimed rubber with highest quality parameters and exporting almost 60% of its production. GRRPL has the technical expertise to offer machinery and technical know how to manufacture reclaimed rubber.

Lets look at their track record:

  • Grown sales from 15.5 Cr in 2001 to 130 Cr in 2009. i.e.. at CAGR of 30%
  • Grown Net Profit from 0.68 Cr in 2002 to 13.54 Cr in 2009. i.e.. at CAGR of more than 50%
  • Has been a regular dividend paying company. Has been maintaining a dividend pay-out ratio of close to 18-20%
  • High tax paying company.
  • First to implement customised SAP in the industry.

Company has had good profitability and other ratios:

  • Co has maintained high ROCE – almost 40%.
  • Co enjoys healthy operating margins of 18-22%.
  • Co has good control over inventory, debtors and debts.
  • Cash Flows are positive.
  • Company had a Book Value of about 320 as on 2009. It should be close to 400+ as on 31.3.2010

Promoters:

Promoters seem to be honest, educated and highly capable people who have a strong value system and are there to create value in long run.

Valuations:

The company has a tiny equity of just 1.33 Cr. Till 3 months back, the stock was traded in “Z” group and in lot of 50 hence many investors didn’t had access to buy the stock even though they liked this company. Now the stock is in B group.

At CMP of close to 875, the company trades at 8 times FY2010E earnings and 4 times EBITDA margins.

It would be tough to find quality companies at less than 10 times PE with following advantages:

  • Leadership position in their business segment
  • Consistent high ROCE of 30%+
  • Consistent good dividend pay-outs
  • Consistent growth in past years with CAGR of 30%+

The company is in process of expanding its capacity and should create new records in terms of turnover, profitability and market-share. One may do well by accumulating the stock on declines with 2-3 yr perspective.

Company Website | Snapshot of Financials and Projections

  • Investor

    Hi Ayush,

    Note: Promoters stake has decreased from 60% to 53% in last one year.

    Could you please share the details regarding the Capacity Expansion plans of this company.

    Regards,
    MM

  • Investor

    Hi Ayush,

    Note: Promoters stake has decreased from 60% to 53% in last one year.

    Could you please share the details regarding the Capacity Expansion plans of this company.

    Regards,
    MM

  • Ayush

    The above reduction is due to re-classification of the promoter group. The promoters of MRF group have been the initial set of promoters & investors of this company…later as the day to day management is done by Gandhi group, the same have been re-classified to non-promoter category.

    Infact promoters have been increasing their stake.

  • Ayush

    The above reduction is due to re-classification of the promoter group. The promoters of MRF group have been the initial set of promoters & investors of this company…later as the day to day management is done by Gandhi group, the same have been re-classified to non-promoter category.

    Infact promoters have been increasing their stake.

  • Hi Ayush,
    Excellent find, will dig in more & hopefully not miss this reco this time. One doubt, when a share belongs to Z category does it mean something bad?? What was the reason for GRRPL to get into that category??

    Another general suggestion, can u add an option to subscribe to comments ?? A so f now i am not sure when u reply to the comments & hence may miss them if i forget to recheck the post.

  • Hi Ayush,
    Excellent find, will dig in more & hopefully not miss this reco this time. One doubt, when a share belongs to Z category does it mean something bad?? What was the reason for GRRPL to get into that category??

    Another general suggestion, can u add an option to subscribe to comments ?? A so f now i am not sure when u reply to the comments & hence may miss them if i forget to recheck the post.

  • ayushmit

    Dear Siddharth,

    The more you will dig into this company, the more you will like it. “Z” category is more due to some non-compliance with BSE requirement…it has nothing to do with financials. This is the reason why I like this category – many often you will find gems trading at pathetic valuations just because of fear of investors to this category. Yes, risks are there hence homework is must.

    We have revamped the comments system. I hope the new system is convenient to follow comments.

    Regards,

  • Hi Ayush,

    This is definitely a good find. I just ran some numbers. I am not sure, but I guess it does not generate enough Free Cash flow. In last 9 years there CFO is around 60 crores totally but CFI is -51 crores. I am not sure whether they are investing this in mutual funds or buying fixed assets. I am yet to see the annual report. However, even if they have been investing in assets, they have been able to generate returns on it commensurately which is seen from their ROA. I would give this business a thumbs up. But I would not buy it at the present market cap I guess. Its EV/3 year normalized EBIT is around 7.75 to 9.5. Ideally I would like to buy this at a market cap of 80 crores. Will definitely be in my radar. Great find!

    Rgds,
    Pradeep

  • Ayush

    Dear Pradeep,

    They have been investing in FA.

    On buying now or later – If I were you, I would had bot some on liking the the stock and accumulated on falls 🙂

    Regards,
    Ayush

  • Agree with you. That is a better strategy. 🙂

  • Keshav Prabhu

    Excellent company Ayush, have held it since 250-300 levels. Expected it to do some real-estate dev as well. Check out some discussions on Phoenix

  • Ayush

    Hi Keshav,

    I have been following and accumulating this company from those levels. This is not a stock to buy once and forget rather keep accumulating from time to time.

    Haven't expected anything on the real estate front.

    Regards,
    Ayush

  • Hi Ayush,

    If you don't take offensively where have you got the numbers I mean they gave only 2 years numbers on the website and I have another doubt how do you calculate ROCE can you please explain the formula I haven't been able to figure it out

  • Hi Brijwanth,
    we had snatched a snapshot of financials and projections in the post. You can find it here: http://img338.imageshack.us/img338/5457/gujarat

    We do all the working for ratios on a separate excel sheet for each company.

    P.S.: Also for getting data of more years (even upto 10 or more years) you can check out this post: http://dalal-street.in/10-or-even-more-years-

    Hope that helps.

    -Pratyush

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  • Madhav Subscribe

    The stock is at 1014. Am I late to the party?

  • Ayush

    The easy answer is – think long term. I think the stock can do very well over next 2-3 yrs.

  • Sundaram_js

    Hi Ayush,
    I am unable to find this company quote neither in Economic times nor in NSE.
    Can you let me know from where can I find today’s price?

    Regards,
    Sundaram.J.S.

  • Roshan Vaidhyaraj

    Hi,

    I’m an avid reader of this site, and I’d to thank you for your great call on Pondy. About GRRPL, is it worth getting into this stock at current levels for returns in 1 year?

    • Ayush

      Yes, we feel GRRPL is a very good long term pick and as the natural rubber pries are increasing regularly, it bodes well for GRRPL.

      Regards,

  • Avinash

    Hi Ayush,
    Can I buy this stock at current price.

    Thanks
    Avinash

    • Ayush

      Hi,

      Its a very good long term idea. If you don’t have any, then you may buy some just now and try to accumulate on corrections.

  • Aksh

    Hi Ayush,

    Do we have ARs for last five years? I didn’t find it on the website.

    Thanks.
    Aksh

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  • TAHIR

    sir very good work done by your team .may Allah reward you the best IN LIFE AND HEREAFTER. THANKS A LOT

    • Ayush

      Thanks

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