Smruthi Organics – Update

We had discussed about Smruthi Organics Ltd (SOL) earlier and had highlighted about the consistent growth of 25%+ in this company and attractive valuations of just 6 times earnings. SOL has posted very good Q1 numbers and FY 2011 annual report also looks optimistic. The stock still looks attractive at CMP of 155.

Q1 results:

Particulars June 11 June 10 % Variation FY 2011
Sales 52.84 39.07 35.2% 157
PBIDT 7.09 5.23 35.6% 21.63
Tax 1.54 .74 108.1% 3.91
PAT 3.39 2.49 36.1% 9.71
EPS 8.89 6.51   25.50

Going by the strong Q1 results, it seems the company might be able to hit 200 Cr turnover for FY 2012 and post a NP of 12-13 Cr resulting into an EPS of 30-35.

Few highlights from FY 2011 annual report:

  • During the year company has received the approval from US Food & Drug Administration (USFDA) for manufacture of API viz. Amlodipine Besylate,  Carbidopa, Metformin Hcl, Norfloxacin and Telmisartan. This approval shall enable the company to export APIs to US, Canada and Eurpoe in a big way.
  • R & D has been strengthened further by the recruitment of experienced scientists and upgrading the facilities from bench to production levels.
  • Own product net sales grew by 31% and now contributes 48% of total sales. Contract Manufacturing also grew by about 30% and now contributes 52% of total sales.
  • The Company is looking for promoting Metformin in bigger quantities since the product registered a growth rate of 18-20% world wide. To increase the Metformin Sales Company is creating new facilities with capacity of 3000 MT / Yr. apart from existing capacity of 2000 MT/Yr. The total capacity by end of the year 2011 will be 5000 MT/year which quite big capacity for utilization of these capacities. Company is working with many multi national companies and the progress is very promising. Post expansion, SOL will become one of the largest manufacturers of Metformin in the World.

SOL seems to be doing well and yet available at attractive valuations in the Pharma sector. Look forward to more discussion and feedback on this company.

Financials:

  • Rv rajan

    Thanks for the timely update.. Bought at 158 and saw it zoom to 187..
    Going by the EV/ EBIDTA or Market cap / Sale for Pharma cos .. it should command a Market cap of 150 crores or more for FY12 results.. What is your view ?

    Thanks again for the quality work that benefits a number of us..

    • Ayush

      Thanks Rajan. Yes, M Cap is quite less at just about 60 Cr for a possible 200 Cr turnover co.

      Regards,

      • Rareinvestors1

        Yo ! Ayush you are doing great with superb strike rate. Well MCap / Sales is an important criteria then shouldnt one consider Ind-Swift Laboratories where Turnover is well in excess of 1000 Crs and Mcap is around 300 Crs and P/E of around 3. Generally I have found that low P/E companies are fly-by-night companies, can you take a look at Ind-swift Laboraties and give your recommendation or view ??

        I am eagerly awaiting for your next picks as well as your analysis of Ind-swift Laboratories

        • Ayush

          Hi, the quality of the co and nos is questionable in the case of Ind Swift. Its not a clean co…I think one should be very careful.

          This is why research is very important while looking at low valuation stocks.

  • Ayush,

    Is it a good time to enter now for the medium-to-long term (say for 3-5 years)?

    Abhishek
    http://valueinvstr.blogspot.com

    • Ayush

      Hi Abhishek,

      We follow a strategy – Whenever we like an idea, we do make a token entry at CMP. Post that we try to build better understanding and conviction and increase our stakes as per progress.

      Smruthi does looks to be a good medium term investment.

      Regards,

  • Pingback: Quarterly Result Updates and new idea [Indag Rubber] | Dalal Street()

  • Spectralradius

    Hi Ayush

    Any view on the super rise and the super fall for smruthi? i witnessed the same thing in patels airtemp a month ago

    • Ayush

      Hi,

      Yeah, strange movement and it just highlights the importance of sentiment in markets.

      The way the nos are, looks to have good value at these levels.

      Regards,

  • Rinku

    Ayush is 180 good entry point? If you dont mind could you please specify your top picks in current market? I think your picks like Balkrishna, Gujrat Reclaim, Mayur, PI.

    • Ayush

      Hi Rinku,

      Smruthi has been doing very well over last 4-5 years and if Q1 results are right indicator, then it seems to be a good investment even now.

      Yes, we like Guj Reclaim, BKT, Mayur, Apcotex, Oriental Carbon, Indag Rubber, Everest Ind etc.

  • vikram

    Hi Ayush

    Despite good results,why stock is falling?

    • Ayush

      Hi Vikram,

      Perhaps, the expectations were higher 😉 Yes, the results seem decent and over a long term, if they can continue growing at 25%+, the stock should do well.

  • Jatinder221

    hi Ayush , smruthi was a super duper call. lately movement is ferrocious. looks like fundamentally its a good pick at lower levels. a very safe bet to give 15-30 percent return in short periods of 3-4 months time.
    to share few thoughts with you , i feel that now some sort of confidence is coming back to stick our neck out and start taking delivery of budding blue chips which will give above average returns , or, in fact could possibly turn out to be multi baggers in the next 8-12-18 months time frame.
    I like the following stock , and more so since it has fallen quite a bit and available at lower end of the band. more importantly a big operator is out of it since last six months, now , new players are showing interst in this counter . and also the future is extremely bright for this company and for Birlas this could be the cash cow in the making. my advise is to accumulate at every fall …dont rush in to buy at the upper tick.
    CENTURY TEXTILES: CMP : 303

    It operates in 3 segments – textiles, cement and paper. Its textile mill mfgs cotton products like elite shirtings, suitings , dress materials bed linen, all branded products under baneer of CENTURY .
    For FY11 the profitability fell due to unfavourable market conditions especially in the cement segment.
    FV:10 / Eq: 93 cr. Promoter Hold: 40 % / Sales : 4376 cr. OP margins 14.30 % / 52 weeks H/L 552/268
    Last bonus in 1997 1:1 /
    The company is looking to hive off the cement division to ULTRATECH , another Birla company. Expected to fetch good valuations and the cash received will be utilized to develop commercial land in Lower Parel (Mumbai ) area.This space commands premium in the market and it will fetch superb revenue for the company. The other property in Prabhadevi is already near completion and soon will start fetching rental income.The future is promising and those who accumulate the stock at present levels will get a confident return of more than 100% in next 3-4 years time. Kumaramangalam Birla is now actively managing this company and just like Piramals, Godrejs , Raymonds , Bombay Dye, etc. …Birla also wants to capitalize on the booming commercial space in Mumbai.

    • Ayush

      Will keep a tab, thanks

      • Vishalkejriwal26

        In Dec Q company has posted 50+ cr top line with 3.5 Cr of bottom line states that 200 cr topline will be achieved easily.
        But as i looked in report stated by you
        1.company is planning to double its capacity of Metformin,how its going to affect its topline and bottomline?
        2. what is the progress of new plant?
        3.Any other update apart from this?

        Regards,
        Vishal

        • Ayush

          Hi Vishal,

          Yes, the co has done very well in recent times and should comfortably cross 200 Cr turnover this year.

          Yes, as per the annual report they had planned to double their capacity for Metformin by year end. The same should help them to grow at 20%+ going forward.

          The company hasn’t provided any fresh updates.

  • Vishalkejriwal26

    Metformin costs 10-13$/kg Now if we take value for Installed capacity of 2000MT ,its cost around 100 cr. whats about the contribution from other products?
    Company is planning to increase its capacity to 5000 MT its demand robust to consume installed capacity.

    Regards,
    Vishal

    • Ayush

      Co gets about 50% turnover from own products and 50% from contract manufacturing.

      Do have link for the price trend of metformin?

      • Vishalkejriwal26

        Hope this will help you
        http://india.alibaba.com/country/products_india-metformin.html

        apart from that in latest Q3 Shareholding pattern promoter holding is decreased by more than 1.5%, Is there any specific reason.

        • vishal kejriwal

          Hi Ayush,

          Any reason for decrease in promoter holding.

          • Ayush

            Hi, Had a look at the same. The name of Mr. Niranjanrao is not there in the promoter category now. From what I could make out, he is one of the senior member of the co and not exactly part of the promoters. It may be he has exited or it may be there is a re-classification.

          • Manmohan

            The Board has accepted resignation of Mr. E. Niranjan Rao from the Directorship of the Company. It is a re-classification.

  • Very useful content We are also providing domain registration in india

  • Manmohan

    As per Annual Report, the total capacity of Metformin by end of the year 2011 will be 5000 MT/year. Any updates on this capacity expansion?

    • Ayush

      No update from the co.

  • S.Raja

    Company’s Sundry debtors increased from Rs. 15 crs in FY10 to Rs. 36 crs in FY12. Any particular reason? Rest evertything is fine. Good dividend paying company.

    • Ayush

      The debtors have increased from 24 Cr to 36 Cr and if one looks at the long term % then its ok.

      • S.Raja

        Seems you are tracking gelatine sector. What’s your view on Narmada gelatine and its management? Gelatine realization has increased since may’12. Heard, import duty for gelatine increased from 8% to 20%. So, domestic players will be fully benefited from this. I prefer narmada gelatine over Nitta and India Gelatine. What do you say?

        • Ayush

          We have discussed about Narmada Gelatine at our blog earlier and looks good at CMP. we too prefer if over others as it has had consistently better performance with good div payouts

          • S.Raja

            Great. Thanks.