Kitex Garmets: Management Q&A

We have briefly discussed about Kitex Garments a few times over the last 1 year. What primarily attracted us to the stock was its low valuation. The stock was trading at 5-6 times its earning. The clarity about the company’s business, however, was insufficient. At that time Crisil had suspended the company’s rating, the annual reports were not very detailed and the few available articles mostly mentioned about the political problems the company had been facing.

The fabulous March 14 quarter, coupled with the increase in the gross block of the company got us more excited about the company. When we watched a few videos about of the company’s facilities ( ), we ensured that we attend the company’s AGM. At the AGM, we were fascinated by the passion and track record of the company’s management . We were able to understand company’s focus on quality and timely delivery. The value proposition for the company is huge volumes and the inherent employee efficiencies, both of which take years if not a decade to replicate (more discussed here). Our seniors also highlighted about the huge positive impact the company is making in the lives of thousands of women by providing them a good work environment (including fooding and stay).

Donald Francis, of ValuePickr, pursued the story after the AGM to cover the company in even more detail. Using his scuttlebutt approach, he interviewed various vendors, suppliers and customers across the textile and infant garment industry to understand the nuts and bolts of the infant garment industry. Donald then followed up all the doubts and missing pieces in his Q&A. The Q&A is available on the ValuePickr website and we recommend you to go through the same. We have shared a few extracts from it:

You have set up a high-quality infrastructure on par with the best in the world with state-of-the-art advanced machinery. Who were the early influencers?

Well I guess the credit for it goes to my dad and the early training he put me through. He was a strict disciplinarian and he ensured I learnt to respect every aspect of the work ongoing in our factory. As a 13 year old, I was started out from cleaning the lavatories, to the shop-floor, to becoming a machinist, technician, bleaching and processing to garmenting operator.

I grew up with the ethos and the confidence of trying to do something different from the run-of-the-mill. We were not afraid to take risks.

We make it a point to publish results immediately after the year-end – even that is a creative first!

How do you see KCL and KGL growing individually in the next 2-3 years?

Both will double the capacities. Both should keep growing at 20-25% annually.

What about the Employee Base? ~4000 are direct employees at KGL. What is the total KGL+KCL direct employee strength? How many are contracted?

Total employee strength is ~8000. There are no contract labourers.

While capacities are being enhanced what about the Labour situation? will that also need to be doubled ~16000 employees in 2-3 years? And, if you continue to double volume capacities every 2-3 years – realistically, where do we see Labour counts growing to in the next 3-6-9 years?

Actually we will need only incremental 10% more additional Labour to reach 1.1Mn/pieces per day.

That’s something difficult to grasp and will take some doing. Kindly share how will this be achieved?

Firstly productivity improvements through use of advanced technology, backed up by productivity improvements through increasing efficiencies. Thirdly automation is being brought in new areas. For example we are installing a shaving machine that will bring in 4:1 savings in manpower. That itself will free up 300 people. We are bringing in lot of automation in Kitchen that will free up another 100 people. Automatic Roti-Maker (just need to put the Maida) producing 60 Chapaties every minute. Automatic Idly-Maker producing 2000 idlies per hour. 30 kg onions will get peeled in 1 hour. 2000 plates will be cleaned every hour. All imported fully automatic machines being introduced. Imported German machines for Vaccuum Cleaning that will bring in 75% labour saving.

It’s not one single thing that will do the trick, but a whole host of new initiatives in every area that we can identify where we can improve productivity and/or increase efficiency. Together we are confident these will deliver double the capacity at low incremental labour addition.

Read the complete Management Q&A on ValuePickr

Recent conference call of investors with MD

Annual Reports of the company since 1996

Happy New Year 2014

Welcome 2014!

New year img

Dear Friends,

Dalal-street team wishes you & your family a very Happy & Prosperous New Year!

2013 has been a great year for markets, especially the mid cap area we focus on. The best thing about markets has been that it has focused on quality and rewarded companies with good balance sheet, business model and corporate governance. Several stocks which we discussed earlier like Astral Poly, Ajanta Pharma, Atul Auto, Mayur Uniquoters, Poly Medicure etc underwent multiple re-ratings and delivered multi-bagger returns. While at the same time cos with poor track records and corporate governance standards are just languishing and long term returns have been very poor. This will go a long way in encouraging investors, companies etc to seek something unique and establish high governance standards. Continue reading Happy New Year 2014

Few interesting micro caps


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. Continue reading Few interesting micro caps

Can Fin Homes & other updates

Can Fin Homes (BSE: 511196, NSE: CANFINHOME) is a housing finance company promoted by Canara Bank (having 42% stake). Housing Finance has been a very rewarding sector in past (look at HDFC, LIC Housing and GRUH Finance). Thus the discussion on Can Fin caught our immediate attention.

Can Fin focuses on affordable individual home loans and is concentrated in the southern India. Until 2011, the company had been growing at a marginal pace of around 7%. The Silver Jubilee year and the change in management seems to have brought about a new enthusiasm though. Since then the business has been growing at a rapid pace of about 30% p.a.

Details 2011 2012 2013
Disbursements 472 859 1814
Loan Book 2207 2674 4016
Branches 40 52 69
Gross NPA 23.47 crore 19.01 crore 15.66 crore
Gross NPA % 1.06% 0.71% 0.39%
Net NPA 0 0

Looking at the support by the government towards cheaper financing for affordable housing, there seems to be good growth opportunity ahead. Continue reading Can Fin Homes & other updates

Kovai Medical Centre & Hospital and other updates

BSE: 523323 | NSE: KOVAI

CMP: Rs.165 | Market Cap: 175 Cr | PE ratio: 9.50 | BV: 71
Screener link
| Company Website

Kovai Hospital

Kovai Medical Centre and Hospital (KMCH) is a 691 bed multi-disciplinary super speciality hospital located in Coimbatore. The company has two satellite centres at Ramnagar, Coimbatore (10 beds) and Erode (65 beds). In addition the company through its subsidiary “Idhayam Hospital” operates another speciality hospital (58 beds) in Erode. Coimbatore has emerged as one of the major medical centre in South and is attracting a lot of medical tourism.

KMCH had undertaken a major capex of Rs 269 Cr for increasing the number of beds from 320 in 2008 to 691 beds, completed in phases till Aug, 2012. The company has been reporting very good results in recent quarters. Healthcare industry is an evergreen industry and due to health insurance and medical tourism, the sector should see consistent growth. Continue reading Kovai Medical Centre & Hospital and other updates

Lumax Auto Technologies

Two wheelers in India


It is usually rare to find a good company in the auto-ancillary business. The reason is that they are capital intensive and usually the margins are low and hence they provide low return on capital. However, there are always some companies which do much better than the indutry. Lumax Auto Tech seems to be one such company. The company has had a an excellent growth in past along with good profitability and strong balance sheet. Continue reading Lumax Auto Technologies

Caplin Point & Poddar Pigments

We earlier talked about some developing ideas for 2013. This post is to discuss them in more detail.

Caplin Point (BSE: 524742)

This seems to be a very interesting pharma company at an early growth stage. We have been tracking it for some years but it really caught our interest when we received its FY12 annual report few months back. Few snapshots:

Balance Sheet

Caplin Balance Sheet

The interesting thing was that the company’s topline had grown by almost 35% in 2012, and yet the efficiency improved. The inventory and debtors remained at very low levels, debt reduced and the cash on balance sheet increased. The company has been getting efficient over the last few years: Continue reading Caplin Point & Poddar Pigments

Ajanta Pharma and MPS Ltd

Ajanta Pharma ranks among the Top 50 Pharmaceutical companies in India (IMS ORG MAT March 2012) with sales growing at 27% CAGR over FY06-12.

Link to company financials –

Main Generic Brands:

  • Ophthalmology (Olopat, Diflucor, Zaha, Unibrom, Nepaflam) 
  • Dermatology (Melacare, Pacroma, Salicia KT, Sunstop)
  • Cardiology (Atorfit CV, Met XL, Rosufit) 
  • Anti-Malarials (Artefan – Artemether & Lumefentrine) 
  • Gastroenterology (Lafutax – Lafutidine) 
  • Male Erectile Dysfunction (Kamagra – Sildenafil Citrate)

In the Dermatology segment, the company ranks 18th and has 34 generic brands – with 4 leading brands and more than 10 first-time products. In the Opthalmalogy segment, the company is ranked 7th and has 30 generic brands – with 9 leading brands and more than 16 first-time products in India.  In the Cardiology segment, the company ranks 31st and has 51 generic brands – with 3 leading brands and more than 6 first-time products in India.

Over last 3 years, things seem to have really changed for the company. Ajanta is growing at about 25% CAGR now and at the same time its improving its operating margins, reducing loans and bringing working capital efficiency. Hence the ROE has improved from about 15-16% in earlier years to about 24% in 2012. The markets have noticed the same and the stock has been re-rated from usual 5-7 times PE multiples to about 10 now. However, we feel that given the strong branded formulation play and good rankings in several segments, the stock is available at a reasonable valuation considering the high multiples enjoyed by the pharma sector (Industry PE 26).

Continue reading Ajanta Pharma and MPS Ltd

Happy Diwali: Muhurat Picks and Quarterly result updates

Happy Diwali

Wish you a very Happy and Prosperous Diwali friends.

Tomorrow is the Muhurat Trading session from 3:45PM to 5PM and we would recommend all our readers to take part on this auspicious day.

Our muhurat picks are (in no particular order):

  1. Atul Auto
  2. Balkrishna Industries
  3. GRP
  4. Mazda
  5. Polymedicure

We are also studying Maithan Alloys and Aarti Drugs, and one may make an entry into them.

Further, the quarterly numbers have been good so far. A brief update about the latest numbers:

Continue reading Happy Diwali: Muhurat Picks and Quarterly result updates

New stock ideas: Kaveri Seeds, Sahyadri Ind & Muthoot Capital

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.

Continue reading New stock ideas: Kaveri Seeds, Sahyadri Ind & Muthoot Capital