“Market rewards you as per your perception about the market. If you treat it as a gambling den, it will prove a gamble for you” – Vijay Kedia
The results season is here and we are again busy tracking them. For those who still don’t use the alert feature in the Screener, we would highly recommend you to set an email alert for the Bulls Cartel Screen and the Growth Stocks screen (select alerts for the “new results”) to keep an easy tap of the results (that is what we do along with adding stocks to the watchlists to also get the updates about them).
On the performance side, most of the results look good and here is a brief review on the stocks we have discussed so far:
Avanti Feeds – The company has posted a fantastic Q4 result. This is the fourth year since the industry has changed and started doing well, and Avanti is delivering a super growth. Here is a snapshot:
At CMP of 110, the stock is trading at just 3.5 times earning, less than BV of 130 and offering a dividend yield of 6%. The concern remains that this is a volatile industry, though we feel that the current price discounts the same.
Atul Auto – The company has again posted very good set of results. Despite a modest growth of 20% in turnover, the net profits have grown 66% for FY13. If one looks at the balance sheet carefully, several interesting things are happening:
Excellent working capital management – AAL has been able to reduce inventory consistently from 15% of turnover in 2009 to just 6% in 2013. At the same time, creditors are increasing (thanks to advance from dealers too) and hence the company is now operating on negative working capital. The company is having a cash balance of close to 40 crores now (on a market cap of around 200 crores).
Expansion of Net Margins – As the company has been able to grow from the same base, the operating leverage has been kicking in. The net margins have improved from just 2.5-3% historically to 7% in FY13. With the latest doubling of capacity at a very low incremental cost, this can surprise positively again.
Expansion of product profile and geographical reach – AAL has been steadily entering new states and expanding its dealer network.
Shareholder friendly management – AAL has been rewarding shareholders with bonus and liberal dividends. For FY13, the company has declared a 60% dividend.
We feel the company is quite under-rated and holds a good potential and deserves higher valuations. [Related interesting reading on expected performance of the 3-Wheelers in the upcoming years].
Astral Poly Technik – The company has posted yet another spectacular set of results – the topline has grown yet again at 40%. The compounded topline growth delivered by the company for last 10 years is of 52%! This has been one amazing growth story and the future seems equally bright. Given the growing product range, greater adoption of CPVC, growing real estate activity etc, the company should be able to maintain good growth rates for the coming years too. Key things to note in the results are the improving financial ratios – the ROCE has been improving over the years (almost 34% now) and the cash flows are excellent. This year the working capital management has been remarkable. The company has done well in building a PAN India brand. One should remain invested and try to buy on sharp declines, if any.
Kovai Medical – The hospital has done pretty well – delivering a 33% topline (turnonver) and 77% bottomline (net-profit) growth for FY13. Though our expectations for Q4 were more but nevertheless, the results are good. As the company hasn’t announced any major expansion, the peak debt may be behind us and now the company might focus on reducing the outstanding loans. Given their excellent cash flows, if the debt and the interest cost reduces (currently interest cost is more than reported net profits) the company should be able to deliver good profitability growth for the upcoming year. The debt equity ratio has corrected from 3.40 in FY12 to 2.29 in FY13. At CMP of about 165, the 700 bed hospital is available at a market-cap of 170 odd crores. [Related interesting reading on 150 bed Apollo expansion for Rs.120 crores].
Indag Rubber – Though on the face of the numbers, one might not feel excited but given the bad business environment for auto industry, we feel the company has done well. Most importantly the company has focussed on excellent cash flow management and both debtors and inventory have further reduced. Due to this, the current investments on balance sheet have swelled to 26.65 Cr vs 0.50 Cr last year. The dividend has been increased from 60% to 80% and yet the stock is trading at just 4.5 PE. One reason for the undervaluation is that the stock is under illiquid category but it may be an opportunity for the long term investors.
Kaveri Seeds – Usually Q4 is a bad quarter for this industry but Kaveri has posted good numbers (though as per the concall, few one time adjustments are there). As June quarter is the most important quarter for this industry (majority of the profits are reported), the balance sheet of Kaveri for March year end becomes really important as it gives a sneak preview of the upcoming season. As per the FY13 balance sheet, the inventory has increased almost 60% and the advances from dealers about 15-20%. The advances haven’t increased proportionately due to an intense competition in the industry but as per the concall and management guidance, the company should grow at least 20% for the upcoming year. Given the major increase in dividend (Rs16 vs Rs4 last year) and inventory, few are expecting a much better growth in the upcoming season.
Astra Zeneca Pharma India – AZPI has posted another quarter of poor performance but as per the notes to accounts and the recent presentations of the company, it seems the problems of the company are about to over. In a recent unheard move, the parent company has provided a financial grant of 119-140 Cr to the Indian subsidiary, showing their long term commitment. As per the SEBI guidelines, the company is diluting its shareholding to 75% on 28th May and would remain listed. We feel it might be a good opportunity for patient long term investors.
Mayur Uniquoters – The growth rate in MUL have come down to 15-20% vs. almost 40% growth rates over earlier years due to the poor economic environment but if one hears the management and their business plans etc, this is one high quality company. Also, the way the company has rewarded shareholders and maintained excellent financial ratios and transparency, it deserves better valuations when the growth is back. We feel, it remains a good compounding story.
Poly Medicure – As discussed earlier, the forex problems are over and now the real picture of the superb financial performance of the company is coming forward. The key thing to look in the performance is the way the operating profits (excluding forex losses) have increased over the years to 26-27% now and the efforts of the company to maintain 20-25% growth going forward. The company has also announced a 1:1 bonus.
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