Friends, thanks a lot for your fantastic feedback and encouragement on our new efforts at Screener.
Last two months have been fabulous for the markets. We mentioned in our post on 1st, Aug, 2012 that the appointment of Mr. Chidambaram as finance minister may bring a major change in the sentiments of the markets; in these two months the sentiments have totally changed with many stocks trading at their all time high now. This is one reason why veterans advice that one shouldn’t try to time the markets, rather just stick to the high quality stocks.
The current run up has majorly been limited to the large caps and high quality ideas, but going forward, if the markets remain stable, there might be a lot of improvement in the broader mid cap space where many companies are still trading at low valuations. However over a longer term, one should be careful and not get stuck in poor companies.
In our last post, we had mentioned some new ideas. Here are details on them:
Kaveri Seeds: Kaveri is one of the largest hybrid seeds company. Hybrid seeds is a very promising business area in India, as the better agriculture and improving the current yields is the need of the hour. This area has entry barriers and long term competitive advantages as it takes years of research to build a high quality seed and develop a brand value.
The Q1 results were fantastic – Revenues grew 100% from 241 Cr in Jun, 2011 to 480 Cr in Jun, 2012. Similarly the net profit grew 114% from 47 Cr in Jun, 2011 to 101 Cr in Jun, 2012.
Similarly the long term growth has been fantastic – the company has grown from a turnover of just 23 Cr in 2003 to 372 Cr in 2012 at a CAGR of 36%!
The company gets almost 50-60% of turnover from BT cotton. As per industry estimates, Kaveri is expected to have doubled its market share from about 5% in 2012 to 10% in 2013. The company has two major brands Jaadoo and Jackpot, and a steady growth is expected going forward. The second major area is the Corn Hybrid. The company has a good brand here and has been doing well consistently.
Going forward the company seems to be very optimistic on the hybrid seeds for the paddy. As per industry data, hardly 5% of paddy in India is by way of hybrid seeds as of now. This is expected to double out over next few years. Kaveri is also very optimistic on this area in its annual report.
Interesting points from balance sheet:
- Company is almost debt free.
- Company gets majority of the income in the first quarter. If one notices the balance sheet then we see high inventory at march end but the same is backed up by “advance from customers from sales”.
- The company has good cash flows. They have parked about 100 Cr in mutual funds last year.
- The growth has been fantastic till now. One needs to monitor if such growth rates can continue going forward.
- Company has been paying out a low dividend, despite being cash rich now. This along with Hyderabad tag, limits high allocation to stock.
We feel that 900-950 is a good range to buy.
Sahyadri Ind: This company is into fibre cement roofing sheets and wind mills. The company has grown faster than the industry and now has an annual turnover of about 375 Cr. The wind energy segment of the company has been doing pretty well and they have been getting best wind mill awards for several years.
The roofing sheets sector has started going very well in recent times. Most of the companies have been able to grow well along with expansion in margins. Sahyadri has had poor performance over last 2 years but Q1FY13 has been fantastic – 28% growth in revenues from 125 Cr to 160 Cr and 82% growth in net profits from 9.2 Cr to 16.76 Cr. The company might be back on the track.
Valuations seem attractive at CMP of 72:
- Stock is trading at a PE of just 4.
- Stock is trading at 0.6 times its Book Value of 123.
- Company has been regular in paying out dividends.
Generally Q1 is the best quarter and Q2 is weaker. So please don’t annualize the Q1 results.
Muthoot Capital: Muthoot Capital is a part of the famous Muthoot group but they are not into gold loan financing. They are a NBFC with focus on lending to two wheelers, three wheelers and light commercial vehicles sector. The company has a small base as of now and is growing very aggressively at a CAGR of 54% over last 5 years. Currently their asset under management (AUM) is about 300 Cr and they plan to quickly more than double the asset size to 700 Cr by the end of FY13.
We feel that the valuations are attractive considering the quick growth prospects in the company and the brand value of this group. At CMP of 82, the fundamentals are:
- Co has grown its topline at a CAGR of 54% over last 5 years and net profits have grown at a CAGR of 50% over last 5 years
- Stock is trading at 5.5 PE multiple and 1.1 time Book Value
- Company has been liberal in dividend payout and the stock provides a dividend yield of 4.3%
- Company had come out with a rights issue at Rs 80 last year in the ratio of 1:1.