Updates from the company visits & AGMs

During the past few weeks, we have been on the move to attend the Annual General Meetings (AGMs) and meet the companies we have been tracking. A lot of effort has been in re-understanding the companies and preparing proper questionnaires to get a bigger and longer term picture. We are in process of preparing detailed notes and will share them in coming weeks. Here are some quick updates:

1. Mayur Uniquoters: It was one of the most pleasant and well organized AGM. The company welcomed the shareholders with open arms and proved to be a great host. The management seems to be hands on the business and way ahead of the competition. The company has a fantastic track record (50% CAGR growth in net profits over last 5 years) and has one of the best financial ratios (ROCE of 55-60% with a good dividend pay-outs).

Mayur aims to be a 550 Cr. turnover company by 2015 (company did a 315 Cr. turnover in 2012). They have undertaken a backward integration project and the same is being carried out at their new plant. The company aims to bring down the rejection rate to be able to enter the highly lucrative US Auto OEM market. The company has been building relationships with some of the best names in the industry – Ford, Chrysler, BMW, Mercedes, GM etc. The orders from BMW & Mercedes have been slow and they expect the same to pick up in 1-2 years. The backward integration project should get completed by Sept-Oct, 12.

The 4th production line setup at the end of last year has now stabilized and the company is now trying to scale up the production. Mayur is in the process of setting up a 5th line of production and the same should get commissioned by the year end. This line would be used to tab exports market.

2. Apcotex Ltd: We had discussed this stock due to an excellent management pedigree, good growth in last few years and excellent dividend payout. The reason behind the past growth has been the active participation of the next generation of the Choksi group.

Apcotex has undertaken an expansion of about 30 Cr. in FY 12 to expand and upgrade its capacities. The company aims to maintain a growth of about 25% for next 3 years, and to scale up a small amount of CAPEX will be required. One may like to go through the AGM document posted by the company.

3. Balkrishna Industry: This has been a excellent company with an incredible track record with a compounded topline growth of 30% for over last 15 years! The company has undertaken a major expansion to double the current turnover by 2015.

Balkrishna looks very well placed to maintain consistent growth of 25-30% for next 3 years. The business model is intact and the company is getting lot of traction from the US market. The company also expects to see a margin expansion in coming quarters due to correction in rubber prices.

4. Oriental Carbon & Chemicals Ltd.: OCCL has been doing very well in its niche area of Insoluble Sulphur. OCCL has been growing at a 25% CAGR for last 5 years with a much higher growth in net profits. Today the company commands a 7-8% global market share of Insoluble Sulphur and is the second largest player. The industry is dominated by the US giant Solutia which commands a 70-75% market share. OCCL has been able to improve quality and relationships over the years and is now a preferred supplier and serves the top names of the tyre industry like Goodyear, Continental, Bridgestone etc.

The company is experiencing some demand slack in near term from Europe and hence the near term growth may be muted but the company expects the things to pick up in few months. The company would take a call on the next phase of expansion by the end of the year after accessing the demand situation.

Updates on Quarterly Results

The quarterly results season is on and its good to see that most of our companies have done well. Some particular updates:

1. Indag Rubber: The Company has once again posted very good set of consistent results. The company seems to be having volume growth in excess of 20% and this is a very good positive. The stock looks undervalued at these levels.

2. Avanti Feeds: Avanti has once again performed much better than the expectations. The biggest positive was the big increase in dividend from 10% last year to 65% this year. This should help in improving the perception of the investors towards the management.

3. Atul Auto: The stock has had a fantastic run by almost doubling a couple of weeks back. The stock has now corrected to levels where it looks undervalued. The company has delivered a good first quarter with a 25% growth in topline. This is a very good growth considering the slowdown in the three wheeler space wherein other companies are posting negative growth.

4. Oriental Carbon: The company has posted good numbers and the margins have expanded. The sales growth has been slower than expected and the same trend may continue for 1-2 quarters after which the things are expected to pick up. Company is trading at Rs.120, with a PE of just 3-4 and below BV of Rs.150+ with a decent dividend yield of 4.20%.

Among new stock ideas, one may study Narmada Gelatine. We would also like our readers to go through some latest annual reports given below (we have highlighted the important sections):

GRP Ltd (previously Gujarat Reclaim & Rubber): 2011-12 Annual Report

Smruthi Organics: 2011-12 Annual Report

Nesco: 2011-12 Annual Report

We feel the appointment of P. Chidambaram again as the finance minister would be a positive move for our markets, this should certainly improve the sentiments. His minor corrective steps can bring about a lot of positive change and bring back the cheerfulness in the market. We invite your views.

  • Sridhar

    Ayush , Hi thanks for the updates . One concern on reading the NESCO financials . While overall DSO is comfortable at 24 days , the ageing is a concern . 50 % of the receivables is greater than 180 days . I hope there is no exposure on this as there is no provision . Any views on this ?

    • Ayush

      Thanks for pointing to this but I think the amount is small. Its about 4.5 Cr while the annual profits are more than 60 Cr.

      • jb

        Hi ayush,
        I am unable to calculate the liquidation value of a share using graham’s Net net’s.can u plz explain how to calculate with example.
        Thnks

        • Ayush

          Hi,

          In Indian context and for easy calculation, one may use Book Value as the liquidation value. Ofcourse this may be un-real and this is where balance sheet analyses is needed. For the graham formula, one should use current assets – current liabilities.

          • How are the Astral Poly results as foreign exchange losses hv been postponed to year end.?

  • Abhishek Basumallick

    I completely agree with your assessment that with Chidambaram at the helms of the FinMin, things might improve for the markets. Primarily because he is not as dogmatic and brought up with the socialistic mindset like Pranab.

  • Could you pl call me at 9899301971 Ayush.hv misplaced your no.still holding to liberty phosphate?

    • Ayush

      Yeah, we are still holding though we have reduced exposure

  • Girish

    Hi,
    Balkrishna Ind has proven to be good investment for me. And one reason is I entered at the right price. I wanted to get your opinion on current valuation. Does it justify heavy buying of this stcok at current price.

    Regards,
    Girish

    • Ayush

      Hi Girish,

      BKT has been a fantastic co and does remain a good long term idea but as per our principles, one should look at the % allocations to a stock in ones portfolio i.e.. to start with if you like a co, then it should be atleast 2-3% of your portfolio. As your confidence increases, allocation should be increased to 5%. In stocks where confidence is very high allocation can be increased to 10%.

      So think on these terms and decide for yourself. Also try to participate when the stock is new and un-discovered and not when it has risen multi-fold. I would suggest you to go through other ideas of our blog also and participate in them too.

  • So Ayush which cos remain your top piicks. Indag rubber valuations seems attractive but as in other cases I am late . So which will be relatively undiscovered stories. Some suggestion from my side include Hikal, Kale consultants, Denor, Astra Micro n Astral poly. We can discuss each one of them.which appears to attractive to u.also pl be more frequent on you blog as u keep away for long times.

    • Ayush

      Hi Vivek,

      We don’t refrain from investing in cos just because the price has risen. For eg: One of our top picks is still Gujarat Reclaimed Rubber despite it being a multi-bagger for us. We have been buying into this co from time to time for over 6-7 years now.

      Look at some of the new ideas we have discussed like Kakatiya Cement, Narmada Gelatine, Smruthi Organics, Sree Rayalseema Hypo etc.

      Whenever we look at new ideas, we compare them with the ideas we are invested in and we strongly feel that we are already invested in some very good ideas. So it doesn’t make sense to keep chasing something new.

      • Amongst Indag n Guj reclaim which is the better option .one and the same thing or some differentiator between the two. Also Mayur Uniquoters is becoming ex bonus from tomorrow. What’s the price action expected n at what price Mayur will become attractive to add more.I think to take advantage of loophole selling is bound to take place. At AGM did Mayur promoter continued their track record of under promising ??? By highlighting the difficulties being encountered by them in exporting .I feel Mayur is a strong play on Indian consumption story as a reliable ancillary supplier to Bata, Liberty,Action n to reputed car seat players like Elegant.

        The market cap of Mayur is still very low coupled with Low PE.can it still grow at 30 % CAGR as the size of opportunity is huge n track record is superb.

        • Ayush

          Yes, there is a big differentiation between the business of Guj Reclaim & Indag Rubber. I think the business of Guj Reclaim is better in terms of value addition, quality and scalability. In terms of mgmt quality etc, Guj Reclaim scores much higher.

          Indag is present in a very competitive environment but is doing well due to its focus on cash flows and profitable growth. But on a longer term the size of opportunity is limited.

          Mayur is a good long term idea and ex-bonus 250-275 levels should be good to accumulate. The co did say that the things will be challenging going forward and it would be tough to continue the 35-40% growth momentum as seen before. But they are confident of achieving 20-25% growth going forward.

  • Sreekanth

    Hi Ayush.. Nice to see you back after a long time.. Please update your blog regulary :)… Have you seen results of Manali Petro? your comments on them? Also need your views on Navin Fluorine and Excel Industries.. Can one buy them at current levels?

    • Ayush

      Results seem decent. Sorry don’t track the other two.

      • How are the latest BKT results ? And also is JK tyre appearing as a major competitor with their Mysore plant new focussing on OTR segment

        • Ayush

          The latest results are good yet again though the profitability is a bit lower than the expectations. I don’t think J K Tyre has any major presence in OTR export market…they are more focused on domestic operations.

          • Just go thru Jk Tyres chairman highlighting opening of new OTR plant at Mysore.cud this herals new competitor.

          • Ayush

            I think BKT already has a major lead vs J K Tyres in this space. Don’t think they are a serious threat

  • Roberto el Sandriano

    Hi Ayush,
    Smruthi Organics (in their Annual Report) have mentioned that margins might get impacted due to rupee depreciation. I thought it was other way round.
    Regards,
    Roberto

    • Ayush

      Hi,

      I think its more of a general caution.

  • TT

    What is your exit strategy?

    • Ayush

      Exit is when the performance is not good as per our expectations or if we have better ideas or the stock has run up too much.

      • TT

        Please let me ask in more detail. Take your current holding of Piccadily Agro which is down over 50% from your purchase price? Why do you still own this stock? Is your exit strategy based on a numerical percentage drop or increase?

        • Ayush

          We are still owning that stock caus the price is much below the BV and the co has still paid a decent dividend of 10% despite a bad year. We feel that the poor performance may be temporary due to the industry issues. Hence monitoring.

  • jb

    Hi ayush. I am sure you have read the latest post of safal niveshak which features Prof Sanjay Bakshi. He seems to be bullish on IL&FS investement managers and says it is available at liquidation val of the share. Request you to please help me calcualte the LV per share of IVC.

    • Ayush

      Haven’t gone through IL&FS Investment. On the face of nos, the co is good as it pays out good dividend and has high ROE the negative is the lack in growth. The co earns by way of incentive on the AUM it manages and hence the growth will be when the AUM expands so one should try understanding that part.

      On the liquidation value, it seems less than the market cap unless the market value of investments on B/S is much higher. Plz check that

  • Burza

    Hi Ayush,
    At what price level do you expect Piccadily Agro to be 2 years from now?

    • Ayush

      Don’t have price expectations as of now. Had entered the co when the performance was very good but since last one year the performance has been very poor. So one needs to watch and understand.

      • Burza

        Has the poor performace of the company got to do with its exposure in the sugar sector or otherwise?

        • Ayush

          Quite possible. In last qtr they did better hence we are waiting for couple of more qtrs to get clarity.

  • Dear Ayush,
    Any views on Unichem lab post it’s results today. Pharma cos it seems are in for bright future n this co seems to fit the bill.

    Any other pharma co you track ? How does FDC appear to you

  • Any views on Unichem lab post results
    Do you have any pharma stocks in your portfolio.
    How were Avanti feeds results ? The co is very old n the sole survivor amongst huge no of marine cos.tell something more abt these cos

    • Ayush

      Hi,

      Yes, the results are pretty good. In pharma sector we own Cipla in large cap and Smruthi Organics in small cap.

      Avanti Feeds results were excellent and latest annual report is very optimistic. This co may do quite well for next 2-3 yrs.

  • mayank

    Hi Ayush,
    What scrips do you recommend to begin a position with at current levels?

  • Roberto el Sandriano

    Good move on Smruthi Organics; is slowly but steadily up by over 20% in the last month.
    Roberto

  • Lloyd

    Hi Ayush – Do you still recommend investing in Guj Reclaim at ~ 1500 levels. I plan to include this in my long term portfolio – 8-10 year+

    • Ayush

      Hi Lloyd,

      I think its an excellent stock for long term investing.

  • Rajat

    Hi Ayush
    The GRP Annual Report link does not have the file attached.

    Can you please update the link or let me know the source of AR – I can’t seem to find it on their website or BSE site 🙁

    • Ayush

      Hi Rajat,

      Will update the above link. In the meanwhile, you may access the annual report at GRP’s website – http://www.grpweb.com/progress/investors/annual-report.html

      • Rajat

        Thanks for the link – never knew GRP has a new revamped website as well !

        • Ayush

          This is what makes the things interesting here 🙂

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  • Rashmi

    Ayush,
    Have you met Avanti Feeds management? Do they meet analysts? If so, I can ask an analyst to initiate coverage.

    • Ayush

      We haven’t met with the mgmt. Let me know if there is a contact and a meet is possible