Management Meet–Indag Rubber

We discussed Indag Rubber recently and the stock has done quite well in a challenging environment.

We recently visited 3 companies to get a better understanding of them – 1. Indag Rubber 2. P I Industries 3. MBL Infra. The meetings went on well and all the three companies are optimistic. Here are the key highlights of our meeting with Mr. J K Jain (CFO), Indag Rubber:

Indag as a brand has got fairly established. A certain segment of quality conscious customers do ask for Indag brand.

Our quality has stood out over the years. For example we are the only retreader who can collect advance payment from some State Transport Units (STU) like the UP STU.

We have introduced newer materials and more effective tread patterns that have started paying off in the last couple of years. We have started growing at a much faster pace now.

If a new CV tyre costs Rs. 18000 then retreads usually sell at 4500-4800 range and a good retread runs approx. 80-85% of a new tyre. Hence it’s a logical cost saving proposition and the business will continue growing.

Roughly 40% of tyres come for retreading at the end of useful life.

Demand is robust, we have not seen any slowdown in demand of retreads.

Please check out the complete management interview (requires free login)

One of the key take away from the meet is that the company is being professionally managed and management is quite conscious on the quality of earnings rather than just growth. Company maintains strict control on debtors and inventories and hence it has good free cash flows.

Company is confident of maintaining the volume growth seen in first two quarters of FY 2012 and we expect an EPS of Rs.30-35 for current year.

29 thoughts on “Management Meet–Indag Rubber”

    1. Will like to know your reasons for your opinion.

      Would also suggest to go through the original link – http://dalal-street.in/quarterly-results-updates/ and have a look at the excel sheets. The co has had good track record in past and scores very well on the dividend payout also…which speak volumes on the quality of earnings.

      The mgmt is the ex-chairman of Gail while the promoters are not involved in day to day business. Hence we call it professionally managed.

      Would also like to know if you have better ideas.

  1. Hi Ayush,

    Some other things from that mangement interview-
    “There is not much price difference between products from organised sector. ”
    ” there are no plans for disposal of Bhiwadi factory Land in the near future.”
    “Michelin has announced its plans for India.”

    Based on these info & price appreciation recently, Do you still feel Indag is undervalued? If yes, why & by how much?

    1. Hi JK,

      Good to see you have gone through the details.

      Yes, the space is competitive and mgmt is not very aggressive and perhaps that is the reason for low multiples. But still its a decent co with safe market share and earnings.

      Currently the stock is trading at just 5 times earnings…we expect the multiple to improve to 8-10, if the co can repeat performance like H1 and the market improves.

    1. Yeah, we are tracking and have some position here. Looks interesting as it is trading at very cheap valuations when one looks at financials, BV & on comparison with Manjushree.

      The limitation is – the mgmt doesn’t seems aggressive.

      1. do u expect it to bounce bak from these levels?? Promoters stopped buying the stock… (they wer buyin wenit was goin down from 30 levels)

    1. Hi,

      Among our favourites, Gujarat Reclaim tops the list…we think everyone should participate in it with 15-20% exposure.

      Other favourites are:
      Nesco
      Atul Auto
      Avanti Feed
      IFB Agro
      Balkrishna
      Indag Rubber
      Apcotex
      Astral Poly
      Oriental Carbon

    1. It would be very tough for the co to perform something like Q2. As per industry trends, H2 is weaker when compared to H1. Even if they repeat a performance like Q1, the stock should do well.

  2. Ayush

    Been reading you previous blog entries and am new to your blog. You have a very good analysis pattern.

    I am looking to find small cap company with CMP in 25-50 range with good fundamentals. Can you tell me few that you know or a place to sort with CMP and do research

    1. Thanks a lot, Prabeesh.

      Any specific reason for looking at the CMP range of 25-50? Don’t go by the price…look at the value the stock is providing at CMP

      1. No particular reason just that i want to catch them young and ignored :P. Since i dont mind having them in my folio for long years if they are worth it.

        1. Some names:

          Pondy Oxide
          Chemfab Alkali
          Sree Sakthi Paper
          DHP India
          Liberty Phosphate
          Omax Auto
          Anjali Portland Cement
          Fortis Malar Hospital
          Samrat Pharma
          Dujodwala Product
          Manugraph
          Kohinoor Foods
          Nelcast
          Vamshi Rubber

          These are some of the small cap you can research on and do share your views.

  3. I LIKED YOUR BRIEF ANALYSIS OF ATUL AUTO.PRICE HAS CORRECTED SIGNIFICANTLY. YES, ONE SHOULD SLOWLY ACCUMULATE IN EVERY FALL. MOREOVER, I WILL ALSO STICK TO YOUR EARLIER CALL ON “NESCO”. THIS SCRIP CORRECTED BUT NOT TOO STEEPLY.THIS SCRIP SHOULD BE BOT…BOT..AND BOT MORE IN EVERY CORRECTION. I STRONGLY BELIEVE INVESTORS WILL SURELY MAKE A GOOD RETURN…IN SHORT TIME…MAYBE 3-4 MONTHS…AND IF HELD FOR LONGER DURATION…MORE TAH 6 -10-12 MONTHS…THEN GAIN WILL BE SIGNIFICANTLY HIGHER.YOU HAVE GIVEN TWO VERY GOOD CALLS. THANKS AND I APPRECIATE INTELLIGENT ANALYSIS. KEEP IT GOING.

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