A brief update on some of our stocks discussed before:
Sree Rayalaseema Hi-Strength Hypo (BSE Code – 532842, NSE Code – SRHHYPOLTD): We had discussed about the company’s expansion plants earlier. In the September quarter, the company has reported a good growth of 27% in turnover and the stock looks quite cheap, if it is able to maintain this growth in up-coming quarters (which is should cause of the recent expansion).
The company is operating in a niche area of water treatment chemical – Calcium Hypochloride and it’s the only Indian company doing this work. The company has healthy operating margins of about 19-20% and the business requires little working capital. The valuations seem quite attractive as the stock is trading at a PE of just 3.5 times and the Price to Book Value of only 0.50. We feel it’s a value pick at these levels.
Negative – The promoters have been increasing stake by doing preferential allotment and merging of group companies.
Balkrishna Ind: Company has been one of our core ideas and it has done quite well to be a multi-bagger. The September quarter numbers have been good, though we are concerned about the medium term prospects as the order book of the company has reduced sharply. The order book has halved from usual 60-65000 MT to just 32,000 MT in the latest quarter updates. The bad part is that this has happened when the company is in the process of doubling its capacity over the next 2 years and the first phase of new expansion has just begun. The company is now sitting on total loans of about 2,000 Cr+ and debt to equity is over 1.50 times.
The company has a pretty good past track record of execution and they should do well if the demand improves. However, if the things remain weak for another 6 months to 1 year, then the company may get into a big trouble. We prefer to play safe here and reduce our exposure to protect our gains.
Technofab Engineering: We had discussed this idea recently and the stock has gone nowhere. A friend – Devesh Kayal, discussed and guided me about the inherit negatives of the infrastructure sector and how the numbers are un-reliable for majority of the companies in this area. We have thus decided to exit from this idea.
Narmada Gelatine: The company has been doing well consistently and with the increasing prospects for this sector, the stock should continue to do well. Given the strong fundamentals and high dividend, the downside seems protected. The company may end up doing an EPS of more than Rs.35 for FY13 and the stock is trading at just about 4.5 times PE multiple.
Kaveri Seeds: We had discussed about this idea recently and the stock has had a fantastic run and has gained more than 60% in a quarter. One may do some profit booking here.
Shilpa Medicare: This has been one of our favorite companies and has been an excellent wealth creator. The company has posted good growth in the September quarter results after a long consolidation of more than 18 months. Interesting thing to note here is the major increase in the capital work in progress in the half yearly balance sheet of the company. The company is quite low profiled and hence very limited details are available. It would be great if we can research more on their upcoming expansion plans.
Poly Medicure: This has been an excellent company and wealth creator over the last few years. If one looks at the numbers carefully, some very interesting things are happening. The company had been providing for major forex losses over the last 2 years and they have finally come to an end in this last quarter. These losses happened due to some derivative contracts undertaken by the company in 2008.
If one removes these losses, then the company has been improving its operating profits in a major way and now would be having an operating margin of more than 25-27%. Going forward, the stock seems to be available at just 12 times normalized earnings.
Negative – Poly Medicure is considering the plans of investing into alternate energy. We feel, it can be a diworsification.