Few interesting micro caps

Small-cap

We personally love to keep a track of small, interesting and growing companies with a market capitalization of under 100 crores. But we are rarely able to talk much about these small companies as they come with their own set of troubles including low liquidity, low visibility, lesser information, chances of corporate in-governance etc.

It is interesting to go through their annual reports and valuations even if one does not invest in them.

[Companies with ** mark are classified under PCAS (call-auction mechanism)]

Acrysil** (M.Cap 53 Cr): Acrysil is the “only company in all of Asia – and one of just a few companies worldwide ” manufacturing quartz kitchen sinks.” The company posted a good June quarter. The management talks about big ambitions in the annual report. If they actually end up delivering what they are aiming for, this stock can give fantastic returns.

Alicon Castalloy** (M.Cap 55 Cr): This company is “one of the largest integrated aluminium casting manufacturing units in India.” Interestingly, the company has posted a growth of 25% in the revenues over last 3 years, when the whole auto ancillary industry has been witnessing a slowdown. The margins have fallen significantly though (from 18% to 11%). CRISIL report provides a good history of the company. The book value is Rs.96 and the stock is at 3.5 times earnings at Rs.50.

Bharat Agri Fert & Realty (M. Cap 40 Cr): Over the last couple of years the company entered into the real estate business. The company is getting majority of the profits from real estate projects of the company in Thane, Mumbai. The company is almost debt free and has got good success in the Phase 1 of the project. Phase 2 is scheduled over next 3-4 years. The stock is trading at 2 times earnings, 0.75 times the book value and provides a dividend yield of 3.25%

Dynemic Products** (M.Cap 15 Cr): The company is “into manufacturing of Food Colors, Lake Colors, and Blended Colors & US-FDA certified FD&C Dyes. These are essential ingredient of food, drug, cosmetic, personal care and FMCG industry.” This is a highly competitive market. The company has grown at about 20% over the last 5 years and about 70% of the revenues are from exports. Last year the margins were impacted due to MEE plant regulations. At current price of Rs.14, the market capitalization is just about 15 Cr, while the net profits over last 4 years have been more than 4 Cr each year. The stock provides a dividend yield of 9% (company has consistently maintained dividend payout of 30% each year).

Gulshan Polyols** (M.Cap: 53 Cr): The company is amongst the largest producers of sorbitol and calcium carbonate in India. It is the market leader with a substantial market share in the respective segments.The company is almost debt free, has 6 plants in five states, and cash from operations during each of the last 5 years have been in excess of 20 crores. The company has been consistent with dividends though the payout ratio is low (current yield is of 5%), 1/3rd of book value and a PE of 2.25 times.

KG Denim (M.Cap 37 Cr): If one looks at the past numbers, the company was quite stagnant till 2009 with the sales in 200 crores range and had been posting losses. Since then, the revenue has grown to over 500 crores and the profits are back (along with a significant improvement in the ROE numbers). The stock is available at just 2 times earnings, half the book value and provides 5.3% dividend yield.

Piccadily Agro** (M.Cap 58 Cr): We mentioned about this company earlier too. The company has grown at a CAGR of 25% over last 5 years. The interesting part is the country liquor business started in 2007-08 period, the company has been able to grow it rapidly from 36 Cr turnover in 2008 to 205 Cr in 2013. They now have some leadership brands in the Haryana market. The margins were severely affected for more than a year due to control on selling price but the same have been increased recently and the company should benefit. The stock is trading at 2 times earning, half the book value and provides a dividend yield of 4%.

Premco Global** (M.Cap 10 Cr): The company is a manufacturer “of Woven and Knitted Elastic and non-Elastic Narrow Fabric and Webbing.” This is a competitive market and with low margins. But the company has been posting some fabulous numbers lately. The company also has a good clientele. The stock is available at a PE of just 1.4, half the book value with dividend yield of 5.5%.

Shree Ajit Pulp & Paper**(M.Cap: 20.5 Cr): This is another very interesting company. The company manufactures “reels of kraft paper used for making corrugated boxes in packaging industry.” The revenues have grown at a rate 25% annually over the last 5 years. The company also has an ROE of 25%+ yet available at just 1.3 times earnings and almost at a third of its book value. Despite being in the paper sector, the company has had low debt and good working capital management.

** The companies are classified under PCAS (call-auction mechanism).

It is always better and very much rewarding to go into superior businesses. Prof. Sanjay Bakshi has posted a wonderful post on the same. Yet we fail to understand the extreme negative sentiments and valuations of 2-4 PE in few companies which have been consistent on dividends, growing at a decent pace and have good tangible assets backing them. We feel some of these small caps are trading at quite a discount to intrinsic value and perhaps compelling Graham kind of ideas.

  • Vivek Gautam

    Thanks. Keep up the good work.

  • Kris

    I think the most important question to ask is – do these companies’ management care about minority shareholders, share holder value? If you know something about integrity of management of these companies, highly appreciated.

    • Ayush

      Hi Kris,

      Most of the names mentioned above are the ones with consistent performance, decent to good dividends. In some of the cases, the managements have increased the dividends in line with the earnings.

      • Ragotham

        Dear Ayush, Small cap companies do come with a certain element of execution and integrity risk, but highly rewarding. Out of the current lot that were mentioned, Acrysil looks very interesting. I will revert with my comments after reviewing in more detail. If you look back, say 8 years back ( I was checking my broker statement & contract notes) TTK Prestige was traded at just Rs. 30-35. This was the time they started to build their exclusive show rooms, and the company has since then scaled up significantly. It is now a 100 bagger, although I did sell very early when I made about 5x to my cost in no time. Similarly, Cera Sanitaryware and Kajaria Ceramics have over the years have become multi baggers. While Annual Report does give good insights, we should perhaps do a more detailed market research with distributors and potential end user industries/countries, to find how the product is rated and what is the competition, positioning, etc. KG Denim has been very cyclical, with promoter related concerns and hence one has to be very very careful.

  • Bharath Kumar

    Hi Ayush,

    Any idea on Poddar pigments

  • Bharath Kumar

    Hi Ayush,

    Thanks for your reply. I keep tracking the stocks which you mention in the website. I think you can add AVT Natural also in the above list. Pls let me know if i can invest in Avanti Feeds now.Thanks.

    • Ayush

      Yes, AVT naturals is another very interesting co. One needs to see if they can maintain the profitability this year. Please take your own call on Avanti…there are lots of details available in our previous posts.

  • ROFL

    your claim of acrysil being only quartz manufacturing company in Asia is completely wrong. Forget Asia, even in their state they are not the only one. Simple google search will tell you companies like Nirali and zinzer have their own facilities. So you should be careful in what you claim and post. This is the classic problem of armchair value investors who love to believe any number they see. Even in case of KG Denim, why would anyone want to invest in a company whose PBT is lower than what it was 10 years ago while debt has doubled?

    • Abhishek Basumallick

      Are any of the quartz sink manufacturers you mention listed? I know Zinger isnt, neither is Quartex. Not sure about Nirali, though.

      For KG Denim, according to you no one would be interested in owning them, but it still has a stock quote, which basically means there are some people who are interested!!! Differing opinions make a market. If everyone agreed on everything, there would be no trades.

      • ROFL

        well, i did not read the claim to include the word ‘listed’. even in the annual report, that was so helpfully included above, the company claims to be only quartz sink manufacturers. does not say ‘listed’ anywhere. so what kind of promoter integrity issues does that raise? also, why would the CMD of the company get the company to pay a 2.4 lakh monthly consulting charge to his retired 76 year old father?

        there is some merit to research but that is completely lost on armchair value investors intent on disagreeing and on losing money. The financial blogs are tailor made for them. the reality always catches up.

        and one does not have to trade just because the market exists.

        • We agree that the managerial remuneration is on the higher side. If one looks at the business and their plans/aims going forward, it may get corrected with the growth in the company. These are few of the things one will need to monitor.

          On KG Denim, we are looking it as a turnaround story. From 2004 to 2009, the company was totally stagnant and the profits were deteriorating every year. They reported a 12 Crore loss in 2009. Since then, the turnaround has been remarkable and perhaps there could be more to it. At half the book value and 2.5 times the earnings, isn’t it worth looking into?

          • ROFL

            Sales and profit growth, margin expansion and return on capital employed are the ONLY numbers an investor should focus on.

            But reading Harry Potter will not tell you that.

          • mallikarjun

            Ajay if you can’t be of help, please don’t try to bring others down.
            AyushPratyush have been and have contributed a lot to lay investors which is immense

        • Dr Onakar singh

          A bit of advice…please disagree agreeably . Onkar

    • Hi Ajay, we appreciate your concerns.

      Regarding Acrysil, the statement was directly quoted from their annual reports. To check against it, we did look-up most of the names on MCA portal. http://mca.gov.in/DCAPortalWeb

      For Zinzer, aka Kruti Engineers, the company was dormant and not functioning.

      For Quartex, it is an individual sole-proprietorship established in 2011 (thus not into exports): http://www.indiamart.com/quartex-industries/

      Nirali is the leader in steel sinks and can be a major competitor. But based on the details, Nirali seems to be focused on the steel sink segment and might not be exporting quartz sink in a big way. Acrysil has scaled up quite a lot in the export of quart sinks (which contribute 70%-80% of its revenue).

      We further did some ground work by speaking to architects and builders and they do seem to know the brand name Carysil.

      Beyond the statement, we wanted to highlight (and encourage discussion) about the aggressiveness of this small cap company of around 50 Cr. which has been growing well and has some ambitious plans.

  • Nitish

    Hi Ayush and Co, hasnt Kesar Terminals ever come up on your list ?

    • Ayush

      Yes, Kesar Terminal does come up however we couldn’t understand the new expansion the co has undertaken in the logistic sector….somehow we felt it could be risky or long gestation project for a co of this size.

      • piysug

        kesar terminals and infrastructure could be a big multibagger in logistic space after the development of kmll, a logistic which could be demerged from ktil in couple of years, acc to news the company has already sublet its warehouse to nearby mandi’s…stock could come to 4 digits

  • Anil Kumar Tulsiram

    HI Ayush

    Would like to know your thoughts on capital allocation for such stocks. 1) How much % do you think one can allocate to nano caps 2) Within this allocation how would you allocate to various stocks….

    • Ayush

      Usually one has to adopt a basket approach for stocks like this. Many often despite wanting to do a bigger allocation, one can’t due to liquidity issues.

      But we don’t ignore ideas which interest us just because of illiquidity etc.

  • NeerajKumar

    Hi Ayush and Pratyush,

    What is your take on Store One Retail.

    Thanks
    NK

    • Ayush

      On the face of nos it looks very interesting and we would try to research on it. But somehow, given the history of co and sector, the nos are too good to be true πŸ™‚

      Would appreciate if you could share your insights.

      • NeerajKumar

        Actually I had few concerns. I have not visited any of there stores, so don’t know if to believe the numbers and if these stores are really good. Secondly why this company is not paying any tax? If this happens to other companies as well. I am also not able to find any Annual reports.

        Although I am not worried about the sector or the promoters.

        • Ayush

          You can’t visit their stores…as they don’t have any :))

          Out of curiosity went through the FY13 Annual Report of this co…the same is available in the document section of screener – http://www.screener.in/company/?q=532679

          The co is into a no of businesses like – Facility Management, Construction material hiring and renting and recently started travel agency too πŸ™‚

          The bulk of the revenues are from facility management which is a very profitable business and can be worthwhile…however there seems to be lot of issues in the balance sheet.

  • mallikarjun

    Hi Ayush
    Premco came up during screening value stocks few months back.. The recent margins were not good.. But suddenly 2012E, they have almost doubled.. Will it sustain and the reason for sudden spike in margins.. Any info on that will be helpful..

    Paushak looks good.. Please have a look..But i am wary of promoter group and unable to scrutinize the balance sheet like you

    Regards
    mallikarjun

    • Ayush

      Yeah, one needs to see if the current margins are sustainable or not to take a call on the co.

      Yes, Paushak also looks interesting. We have some positions to study it better.

      • Bosco

        I too am very interested to know the reasons for such an improvement in margins in Premco.
        Typically i have invested in these type of small cap stocks in my investment career, but after PCAS, i fear that proper price discovery will never happen in PCAS scrips.
        – Bosco

        • Ayush

          Hi Bosco,

          PCAS has been a very bad move by SEBI and has actually distorted price discovery in already illiquid stocks. Hope the same gets rectified.

          As investors, we feel that due to PCAS some small caps are trading at quite an undervaluation and hence we are interested :). We feel if the co is actually undervalued and good then it will attract investors over longer term and price discovery will happen in due time.

          Regards,
          Ayush

      • mallikarjun

        thanku Ayush

  • Vinod

    Hi Ayush,

    How big is the opportunity size for Acrysil ?

    Thanks,
    Vinod

    • Ayush

      As per the annual report of the co, the size of global granite sink industry is estimated to be around 10 mln nos per annum.

      Last year co sold about 1.8 lac sinks.

  • Ragotham

    Few small caps that are very interesting – Dion Global (which is back end that powers the information on http://www.moneycontrol.com and various other websites of brokers). Mahindra Satyam have taken a strategic stake and the company has some impressive financial software products with the IP. Dion has a impressive management and good vision. Could be a multi bagger.

    Another stock that could be worth tracking is IMP Powers Ltd which manufactures transformers (Mcap of around Rs. 30 crores. PE Funded by Motilal Oswal Private Equity Managers’ India Business Excellence Fund at around Rs. 160 levels). Company is current traded at Rs. 30-35. Very focused management. Capacity expansion completed with private equity capital. Have established a good presence in the Above 400 KVA segment. Have been winning some good orders. However, if the infrastructure/power space takes off, this company could be a multi bagger. PE of around 3-5 times.

    Other small caps worth tracking – Somany Ceramics, Bharath Bijlee (for a infra turnaround), NCC Ltd ( potential turnaround story, if they successfully reduce debt further), Navneet Publications, Supreme Infrastructure (road sector with few BOT projects that have already become operational).

    • Ayush

      Thanks, will take a look.

  • Ragotham

    On Acrysil, the cashflow from operating activities is very uninspiring at just around Rs. 2.90 Crores for FY13, and about Rs. 4 crores on an average for the last 3 years. RoCE has been reducing significantly from about 38% levels in FY2008 to around 17% currently. Number of days “average working capital” is also pretty high at around 122 days currently from around 97 days in FY2008. It should have been the other way, “decreasing working capital days and increase in cashflows”, if the company’s brand value had grown over the years and they had managed to command some amount of pricing power. This is not reflected in the numbers.
    There are much better stock ideas that we can focus our efforts on – Somany, Va Tech Wabag, Dion Global, Easun Reyrolle, Escorts, IMP Powers, IL&FS Investment Advisors, TVS Srichakra, Wheels India, BEML, Bharat Bijlee, Supreme Infrastructure, Monsanto, etc.

    • Madhu

      As Acrysil’s product relies on housing sector performance, i guess this company should be cyclical. Also, unlike consumption sector, repeat orders will take quite a lot time and hence the growth should depend purely on (i) new projects and (ii) how the company increases its market share globally.
      Any view on this?

      • Ayush

        The co is a very small player in global markets and has been gaining market share slowly. The co has started getting very good growth in domestic markets – the growth is about 40% for last 2 years (though the base is small)

    • Ayush

      Yes, the quality of the earnings have deteriorated over last 3-4 years but they were good earlier…perhaps the same is due to lower growth. The growth was very good in June Qtr and hence will like to check a cpl of qtrs to see if the things are improving for good.

  • Ashok

    Hi,

    In your performance and status sheet, there is not a single ‘buy at cmp’ stock – any reason ?

    regards

    • Ayush

      We have rated several stocks as Accumulate or Buy on decline which indicates the similar thing.

  • DeepakkumarPrasad

    Hi Pratyush,

    What are your thoughts on Divyashakti Granite . http://www.screener.in/company/?q=526315 . The technical numbers looks impresive. No debt, good dividend, huge free cash flow,

    – Deepak

  • Ayush

    Yes, its one of the other small cap trading cheap. One issue we feel could be growth and scalability in the area they are in….there is another co in this sector trading at similar valuations – http://www.screener.in/company/?q=523483

  • NeerajKumar

    Hi Ayush,

    Any Idea about EON electric. They seem to be expanding but still not making profit …

    Thanks
    NK

    • Ayush

      Sorry, we don’t track the same

  • Vivek Gautam

    How is Eimco Elecon with big cash on its book n very low PE ? Growth should come with emphasis on coal n iron ore mining returning back.

    • Ayush

      Yes, it looks undervalued

    • DeepakkumarPrasad

      the cash flow does not seem consistent for this company.

  • Vivek Gautam

    Congrats on your good call on Acrysil. Now even HDFC Securities has started covering it with good report issue on 22 oct 13.

    http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/2998191

  • Vivek Gautam

    Dear Ayush,

    Whats your take on Thinksoft Global in view of its latest results? How good is the opp size,promoters quality & business model?Is rupee depreciation the only tailwind for them?

    • Ayush

      Had shared my views and concerns on valuepickr.com

  • Ayush

    Yes, the stock has been doing well.

  • thotapathi

    JK TYRES given good results eps-17 for qtr AND TRADEING BELOW 2 P/E expansion plans announced and promoter increasing stake from 47 to 52% by pref allotment
    can it may become multibagger at current levels like BKT perfermed

    • Ayush

      Will have a look. The concern is that the co has had high debt and the ROE has been low over the years. The current lower rubber prices are good for the co though.

  • aircraft

    How about Igarashi Motors India, Alkyl Amines Chemicals, Munjal Showa, steelcast, haldyan glass can anybody give views about these companies

  • Nasirul Amin

    Hi Ayush,

    I am looking at Suven Life Sciences. Do you track this company? The performance over the years seems impressive.

    Could you please let me know how to evaluate Management Quality by novice and miniscule investor like me or How do you evaluate management quality? I don’t have big holdings in any company and my idea is to hold 10-20 excellent stocks and as such don’t have the capacity to attend AGM’s with these holdings.

    • Ayush

      Hi Nasirul,

      We don’t track the co so can’t advice.

      Do evaluate management quality, I think going back into history is the most important thing. Past track record is important – look what and how they have done over the years…have they been honest….have they treated minority fairly etc. Its not necessary to meet the management to be able to evaluate them.

      Regards,
      Ayush

      • Nasirul Amin

        Thanks Ayush! πŸ™‚

    • Mukul Kumar

      Suven came in forbes best under a billion list, nice catch

      • Nasirul Amin

        Thanks! But it’s in CRAMS & they don’t get as much valuation as mainline Pharma’s get it seems.

  • aircraft

    How about Igarashi Motors India, Alkyl Amines Chemicals, Munjal Showa, steelcast, haldyan glass can anybody give views about these companies

    • Ayush

      Sorry, we are not tracking them closely.

  • Vivek Gautam

    How Does Shilpa Mediacare encounter the problem of attrition of employees & how does it get the required talent? Why will an employee stay in a small district town when he can work in a metro like Hyderabad,Chennai etc in pharma co?

  • Vivek Gautam

    What are the triggers which may work in favour of Shilpa Medicare in near to medium term future?

    • Ayush

      Successful completion and utilization of new formulations facility and getting key approvals like USFDA, EUGMP etc etc. Its not easy given the strictness of USFDA and it may take time.

  • Vivek Gautam

    What’s your take on Acrysil results ? I had spoken to their Delhi sales guy. He was saying that Granite sinks doesn’t has any competition n they have pricing power in it while the competition is severe in other segments. Have you or any friends seen or used their products? Could this Diwali quarter be a crucial quarter for them?

    • Ayush

      Acrysil results are ok…there was lot of expectation before the results as several buy reports had started coming and the stock had already done well….hence it seems to be correcting.

      The product is good…we have used it at our home. However, how quickly can they scale up and push new products through their distribution network needs to be seen.

  • Vivek Gautam

    Ayush Bhai we don’t want these single line opinion on stocks from your end rather a detailed response as you are most upto date person on keeping track. Hence please give your analysis on Ajanta Pharma, Canfin Homes n Acrysil please at the earliest.

    • Ayush

      Dear Vivek,

      We always wish to share more of our thoughts however we have been running very busy over last few months and its not been easy to give time for blog posts. A blog post usually takes away half to one day..hence we try to share quick insights, if possible,

      Thanks for participating.

      Regards,
      Ayush

      • Nasirul Amin

        I appreciate the quick insights a lot and individual research shouldn’t be ruled out at any cost.

    • Ketan

      Dear Ayush,

      We don’t want to do any hard work ourselves or pay for it…pl research stocks carefully and make sure we don’t make any losses, only multi-bagger profits πŸ™‚ Happy New Year !!! πŸ™‚

  • GreyFool

    Excellent basket of stocks. Might just nibble in a few of them πŸ™‚

    • Ayush

      Thanks….look forward to your views/insights.

      Regards,
      Ayush

  • DeepakkumarPrasad

    Hi Pratyush,

    Do you think HSIL can be next Cera sanitary ware or la opala (though is another sector but in same idea – consumption )

    – Deepak

    • Ayush

      HSIL is cheap on valuations and does look interesting. However, as per some of the ground work, the brand hasn’t done much while Cera etc have taken over quickly.

      • DeepakkumarPrasad

        Do you think its worth a bet.

        • Ayush

          Not tracking it closely. Please take your own call.

          • DeepakkumarPrasad

            ok thanks.

  • Vivek Gautam

    Please do give your comments on latest results of Astral & also their concall.

  • Vivek Gautam

    Is the compensation level of both owners at Acrysil very high n as such corp governance practice is at risk?

  • Vivek Gautam

    The co Indian Terrain co with strong brands n having good visibility in different stores n malls is making new high nowadays. The co came out with an IPO in 2005 n founded by a IPS officer who had taken VRS n went into business. Has the co turned around ?

  • Vivek Gautam

    Any names from Textiles space you like . Has the sector turned around due to rupee depreciation?

  • Vivek Gautam

    Is there any chance for cos currently in pc call auction to come out from it. Which are the co which have come out of it? Any chance for Acrysil to come out? How is the co price performance once they come out of call auction?

    • Ayush

      Looking at the consistent volumes in the counter, there is a possibility of Acrysil coming out of it in next review….which happens at every 3 months.

  • mallikarjun

    Hi Ayush
    AksharChem ( India ) looks interesting.. Please have a look.. Have also put up some data on valuepickr

    Regards

  • Pingback: Happy New Year 2014 | Dalal Street()

  • Jigar

    Ayush,
    Any update on Shree Ajit Paper Mill Ltd.

    Regards,
    Jigar

    • Ayush

      Hi Jigar,

      No particular update as such. The recent quarter hasn’t been as good as the previous quarters. Yet the stock looks quite undervlaued.

  • Dayanand Deshpande

    Hi Ayush,
    What’s your opinion on SAPPML’s sep results? Do you think they have enough demand to sustain?

  • ask

    aha aha, what names, never seen thense before

  • ask

    SamKRG pistons is a sure rocket but

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