Updates for Financial Results 2012

Dear Friends,

FY 2012 results are now out and the focus will shift towards earnings for FY13. Despite a very challenging market and weak economic conditions, we are happy with the financial results of the companies we track. Most of them have been able to report healthy growth and maintain their leaderships. Many of the companies have raised dividends and are now trading at very low PE (price to earning) and Price to Book (P/B) ratios. Although the macro environment and prospects remain uncertain, there is an opportunity for stock pickers to do their home work and build a quality portfolio.

Some of the noticeable results of the companies we track are:

1. Oriental Carbon: Initially discussed in Oct, 2011, the company has delivered as expected. The company has delivered 36% topline growth and the revenues increased from 158 Cr to 216 Cr. The Net Profit fell 15% from 37 Cr to 31.50 Cr due to normalization of margins and expiry of tax shelter to the company. The notable thing is that the EPS is about 30 for the full year and dividend has been raised from 40% to 50% resulting into a dividend yield of close to 4.35%. At CMP of 115, the stock is available at a PE ratio of just 3.5 and price to book value of less than 0.80.

This business is not a normal chemical business. OCCL is the only manufacturer of insoluable sulphur in India and one of the few globally. The company has been enjoying operating margins in excess of 25% for last 3-4 years and if the same is maintained, the stock may see a positive re-rating.

OCCL has implemented phase 2 of its expansion and the plant has started on 15th May, 2012. This should add 30% to the existing capacity and the company might be able to grow another 25% for FY13. The stock seems worth accumulating.

2. Liberty Phosphate: Initially discussed at Rs 64 in March, 12, the stock has done well and the company has posted spectacular Q4 results. The company has posted a 30% revenue growth from 365 Cr to 473 Cr turnover and 41% net profit growth from 35 Cr to 50 Cr. The EPS is 34 for the year and at CMP of 79, the stock is trading at 2.30 PE and 0.90 times its Book Value.

The company is in process of doubling its capacities and the sector is witnessing strong growth but risk remains on the stability of the margins due to the depreciation of rupee and lowering of subsidy by GOI for FY 13. Still, if the company is able to grow its turnover, good profitability may be maintained. It seems to be a good bet for short to medium term.

3. Atul Auto: Initially discussed at Rs 107, six months back, the stock has done well. As expected, the company has delivered excellent growth of 48% in revenues from 202 Cr to 298 Cr and 65% growth in Net profits from 9.4 Cr to 15.60 Cr. Company has also rewarded the shareholders by proposing a bonus in the ratio of 1:2 and a liberal dividend of 50%.

At CMP of 142, the stock is trading at 7 PE and 2 times its Book Value.

For FY 13, the company is in process of doubling its capacity at the existing location and the same is via debottlenecking, there won’t be any major capital expenditure. The company aims to maintain its excellent growth of 25-30% and their long term aim is to reach a 1000 Cr turnover by 2016.

We feel its an excellent company and is in a sweet growth phase. As the company’s prospects are based on domestic market it will be quite immune to the foreign issues and being a debt free company with a brand value, it may get higher PE multiples. Investors may continue to increase exposure on corrections.

4. Manjushree Technopack: Initially discussed 2.5 years back at Rs 32, the stock has come a long way. The company has performed much much better than we had imagined at that time and the future looks very promising. MT has posted 43% revenue growth from 216 Cr to 310 Cr and a 40% growth in Net Profits from 15 Cr to 20 Cr. For FY 13, the company is targeting close to 30% growth and cross 400 Cr turnover.

At CMP of 83, the stock is trading at a PE ratio of 5 and 1.1 times is Book Value. We feel it’s a very good stock for long term investing and investors may accumulate the stock.

5. IFB Agro: Initially discussed a year back at Rs 105, the stock did very well in between and price had more than doubled. The company has posted weak Q4 results due to some one time expenses on closure of a plant (no production was being done for sometime) and the stock has been correcting and has come down to Rs 135 levels. We feel that the stock has value at these levels and if one looks at the yearly results, the performance is still very commendable – revenue has increased 35% and Net Profits have increased 50%. The stock is trading at 4.5 PE and 1 time its Book Value. We recommend a hold on the stock and one may increase exposure on sharp declines.

6. Piccadily Agro: Initially discussed a year back at Rs 46, the stock has done poorly and has fallen off the cliff to Rs 20. The performance was very bad for last few quarter but the company has posted very strong set of numbers for Q4, FY12. It may be that the worst is over and it may be a good price to buy more and bring down the average cost of acquisition. The company has also declared a dividend of 10% and this might protect the downside.

7. Ansal Property: Recently discussed at Rs 32, the company has come out with weak set of results for last 2 quarters. Though on the financials the stock doesn’t seem attractive but if one considers the success of some of the projects, there seems to be hidden value. In the presentations, the company has been reporting very high sales and collections from customers. But still, as there is lack of clarity and question mark on the corporate governance quality, its better to go slow and keep the exposure small at 1-2%. One may increase exposure on sharp falls or better clarity.

Friends, in dull and weak markets, investors need to be patient and build portfolio of high quality companies with good growth potential ahead. One should keep getting out of stocks where things are not going as expected and book losses if needed to participate in better ideas.

Couple of high quality ideas which we had mentioned earlier and have come out with excellent results are – Mayur Uniquoters & Ashiana Housing.

  • DeepakkumarPrasad

    Good Work!!

  • Desai Dhwanil

    Hi Ayush,

    good updates on some of your picks. What are your views on narmada gelatine/fluidomant and Mazda. I see value emerging in these companies post FY 12 results though they are micro caps. As per our discussion, you do invest in microcaps and hence it will  be interesting to know your  views on the same.

    Best Regards
    Dhwanil Desai
    http://www.valueinvestinginpractice.blogspot.in/

  • Ayush

    Hi Dhwanil,

    We also like all the above mentioned names and are buying them gradually. Any update on the growth prospects of Fluidomat at your end?

  • Sridhar S

    Hi

    You had once mentioned Sree Rayalseema Hypo .
    Any update on this

    Thanks

    • Ayush

      Hi,

      The performance of the co has been quite volatile in past but going forward it seems to have lot of potential as the co has undertaken a major expansion.

  • Jigar

    Hi Ayush,

    I read an article on Dhwanil’s blog, regarding Oriental Carbon, below is the link.
    http://valueinvestinginpractice.blogspot.in/2012/03/updates-on-oriental-carbon-chemicals.html

    Could you please throw some light on it.

    Regards,
    Jigar

  • Ayush

    Hi Jigar,

    We feel that the transaction is more of a strategic bargain buy rather than a diversification. We feel so caus OCCL was already a JV partner in that co and they must had the first right to buy the stake. The valuation at which the transaction has been done is cheap. The target co has done a land deal worth 43 Cr, post which the debts should come down and they should be able to break-even.

  • Robeto el Sandriano

    Hi Ayush,

    The 1Q FY ’13 results of OCCL looked good on the face of it. If we assume that they will do around 30% this year, the current valuation looks cheap. But market reaction was lukewarm. Do you know if the markets are factoring in anything else in the current valuation?
    Also, how big is the worldwide market for insoluble sulphar? Isn’t the current revenue figures for OCCL too small for a company which is in top 3 worldwide in their business?
    Regards,
    Roberto

    • Ayush

      Hi Robeto,

      Yeah, the nos are good in terms of profitability. The negative is the slow growth. It seems it would be tough for the co to grow at 30% for this year…a realistic turnover seems to be 260-275 Cr. But if they are able to maintain the margins, I think it would be a very good performance given the challenging business environment.

      The global market is about 2,50,000 MT and OCCL has about 7-8% market share now. The majority of the market potential is captured by Solutia and they are controlling close to 70-75% of the market.