Updates on the Quarterly Results – Q4FY14

Arun Jaitley – the new finance minister

First of all a heartiest congratulations to everyone for giving such a clear mandate. It was the need of the hour for our country and society to have a better and stable government. It is heartening to see that this time the election has been won on the agenda of development. From inaction and scams, lets hope the economy gets back on track.

The markets have witnessed a major change and upliftment in its mood over last few weeks. Those who were invested from before must be enjoying the gains. One should be careful, however, to not get carried away. These broad rallies are very useful for portfolio reconstruction – i.e. getting out of ideas or mistakes where the conviction levels were not high and moving into companies with a better clarity and visibility.

Lately, we have not been posting much because the companies we have discussed earlier are performing quite well fundamentally and continuing to grow consistently. We feel they still have a good long term potential.

Brief updates on our existing ideas:

Astral Poly – While the company continues to deliver an expected growth of about 30%, the stock keeps surprising everyone through a regular re-rating. Though the stock does trade at high valuations now, we recommend reading this article for some insights about the company’s high quality of business, management and growth prospects going forward.

Ajanta Pharma – Ajanta has once again come up with an excellent quarter – it continues to surprise everyone with the quality of its numbers. Do see their latest presentation, which gives a lot of insight on the brands they own and other qualitative aspects of their business. The slide number 14 is very interesting and is one of the key reasons behind their good growth and superior margins.

Shilpa Medicare – Shilpa Medicare too has reported a good quarter:

Particulars 2013 2014 % Change
Turnover 328.19 527.37 60.69%
EBIDT 69.82 126.57 81.28%
NP 46.06 80.86 75.55%
EPS 12.49 21.98

Its good to see a consistent increase in the gross block of the company. Recently the company has raised 75 Cr by way of preferential allotment to an FII. The company has been developing a product pipeline over the last 3-4 years; we expect the new facilities and products to give a revenue growth of 25-30%+ CAGR over the coming years.

Avanti Feeds – The company continues to maintain high growth rates with a revenue growth of 75% in 2014. Its amazing to see that the company has grown from just 72 Cr turnover in 2009 to 1135 Cr in 2014. The balance sheet is quite healthy with a debt of just 50 Crores.

Particulars 2009 2010 2011 2012 2013 2014 % CAGR
Turnover 72.51 96.16 199.62 393.41 648.04 1131.61 98.76%
NP -8.59 -1.20 3.42 28.06 30.20 69.75
EPS -10.74 -1.50 4.28 30.90 33.26 76.82

As per a recent article on the company, the company has recently set up a 85,000 tonne plant in addition to its capacity of 1,40,000 tonnes. With the industry continuing to do very well, it is expected that Avanti may again deliver high growth of 30-50% for the coming year FY15.

Its also good to see promoters buying over 1.7 lac shares since 1st April, 2014.

*Caution: Shrimp industry is a high risk industry, often affected by shrimp diseases and natural calamities.

Kitex Garments – We visited the AGM of the company and it was a superb experience. Its one of the those extra-ordinary entrepreneurship stories where a person has created a great company from scratch, all in 15-20 years.

Shareholders awarding Mr. Sabu for the excellent performance

Today, KGL is the third largest infant garments manufacturer in the world and supplying to some of the best names in the world including Gerber, ToysRus and Carter. They are known for manufacturing the best quality garments. Compared to a normal textile industry, the infant’s garment industry does not have a high competition. Infants can be allergic to dyes and chemicals, or chew the buttons – thus Kitex uses the best of the dyes and yarns. They also invest heavily into social compliances and provide an air-conditioned factory, free food and free stay to almost 9000 workers, of which 90% are females. The company had done a recent capex – it aims to be the biggest in the world in this year and eventually double the current size in 3-4 years.

Though the stock has had a sharp run up in recent times, we feel that it is one high quality business and should do well over a long term.

GRP – The company continues to face tough times. We were expecting the things to get better with the improving turnover, but this quarter has been a disappointment. Till the previous quarter, the issue was underutilization of capacity and problems at the new plant set up; hence we had a hope of better times as and when the economy improves. During the last quarter, however, the raw material cost as a percentage of total cost has increased substantially and is now a new cause of worry. We have reduced some exposure (by about 15-20%) and look forward for an update at the company’s upcoming AGM.

Oriental Carbon – After a long wait, the company has posted a good set of numbers. One of the big positives is the increase in dividend from Rs 5 last year to Rs 7 this year. The stock is trading at 5 times earnings with a price to book value of 1.

Amongst the new ideas, we are working on Anuh Pharma these days. The latest quarterly numbers hint an improvement in the company’s operations. From being a general bulk drug company, the company seems to be making efforts on R&D and entering regulated markets. The negatives are – 1. the group has several other unlisted companies which are also into pharmaceutical business and 2. the listed company has had a dull past.

We look forward to a strong budget over the next month. Happy investing!

Alembic Pharma Q&A and other updates

Alembic Pharma Management Q&A

We have an US CEO who has been with us for last 5 years and assembled together a top Team in International Generics business. Success has come because of Product Identification ability. Year-wise market-wise plans are drawn up till 2024

We have built a strong IP Culture/Team over last 5 years or so.

We have been following Alembic Pharma for last few quarters. We mentioned about the company in our Diwali post.

Alembic Pharma is among the oldest companies in the Indian pharma industry. But no major developments took place over the last decade as the company was more into the domestic markets, and limited to the anti-infectives, cough and cold segment which are highly competitive and matured. Over last 2-3 years there has been a contrasting change in the company. The revenues are growing (earlier the growth was 10% now it is 20-25%), the margins are expanding (earlier margins were 13-15% now it is 18-20%) and the balance sheet is getting stronger and efficient.

Reason for the change is the shift towards the international generics. This segment is expanding quite quickly for the company – from about 100 odd Cr in 2010 to 235 Cr in 2013 to 450 Cr in 2014 (expected). This segment has a potential to scale up to 1000 Cr turnover over the next 2-3 years given a strong product pipeline prepared by the company. Alembic Pharma has filed 60 ANDAs (just 18 five years back and 31 are approved till date). On the domestic side, the company has been entering the specialty segments such as Ophthalmology, Cardio, Anti-Diabetic etc, which have a higher growth and a better margin. Continue reading Alembic Pharma Q&A and other updates

Updates from quarterly results and AGMs

“management’s indifference and shareholder negligence both worked on Warren’s behalf, for the fewer folks came to the show, the more valuable would be whatever knowledge he could wrest from the company.” – from The Snowball where WB talks on the importance of attending AGMs

Swelect AGM

There is a lot of fear in the markets and several stocks in the mid and small cap space are having a free fall. These are the great times to focus and research more on the companies to find undervalued gems.

Last month, we toured South India to attend a few AGMs. We visited Avanti Feeds, Shilpa Medicare and Swelect Energy. The meetings were good and the companies seem well placed. It is often concerning to watch a few shareholders holding nominal quantities and coming over for free gifts and snacks. Despite good arrangements and the good work by the management, these shareholders often sabotage the proceedings. We need to fix this, otherwise the promoters will never treat the minorities properly. Probably having a video conferencing of AGMs may help.

Brief updates from above meetings:

Avanti Feeds: We have discussed the company many times in past and the stock has performed well too. The industry continues to see high growth rates of 30%+ since the adoption of the new shrimp specie – Vannamei. The company is superbly placed in its sector (due to the support of TUF) and ranks among the top. The management seemed quite honest, hard working and conservative. They were one of the first to understand the potential of the Vannamei specie in India and took various steps to get it introduced. The company has grown from a turnover of just 100 Cr in 2009 to 650 Cr in 2013. Avanti seems well placed as the industry is expected to remain on a good growth path for the next few years. Continue reading Updates from quarterly results and AGMs

Oriental Carbon & Chemicals: Management meet

We discussed Oriental Carbon & Chemicals Ltd. (OCCL) almost a year back. The stock has remained at the same levels while the company has grown and the fundamentals have got even better. To get a more understanding on the company and the future prospects, we met with the senior management of the company. Here are the extracts from the management meet:

Insoluble Sulphur is a niche market and as per our data total market is about 2,25,000 MT. Solutia controls 70-75% of the market. OCCL is the second largest with 7-8% market share.

Insoluble Sulpher is mostly used by the Tyre Industry. Increased Radialisation is the main demand driver.

Entry Barriers: The technology is closely guarded. No tyre major is interested in shifting vendors or entertaining new vendors unless you can supply in sizeable quantity and the approval process is lengthy and costly.

Continental AG, Goodyear, Bridgestone, Pirelli are some of our big customers. In the domestic market we have MRF, Apollo, JK tyres and some more.

Demand situation warranted that we expand quickly. Yes capacities were pre-sold as per arrangements with our customers. We are working at something like 75% capacity utilisation at the moment.

We should continue to grow at current levels. The volume growth may be limited to 10-15% if the demand slack continues.

Effective tax rate will be lower at 20-22%.

If you see the last 5 years, we have generally been increasing dividends. In FY12 again we have increased dividends.

Yes 500 Cr is possible and should happen after the expansion of the next 11000 MT capacity.

Please check out the complete management interview (requires free login)

Continue reading Oriental Carbon & Chemicals: Management meet

Updates from the company visits & AGMs

During the past few weeks, we have been on the move to attend the Annual General Meetings (AGMs) and meet the companies we have been tracking. A lot of effort has been in re-understanding the companies and preparing proper questionnaires to get a bigger and longer term picture. We are in process of preparing detailed notes and will share them in coming weeks. Here are some quick updates:

1. Mayur Uniquoters: It was one of the most pleasant and well organized AGM. The company welcomed the shareholders with open arms and proved to be a great host. The management seems to be hands on the business and way ahead of the competition. The company has a fantastic track record (50% CAGR growth in net profits over last 5 years) and has one of the best financial ratios (ROCE of 55-60% with a good dividend pay-outs).

Mayur aims to be a 550 Cr. turnover company by 2015 (company did a 315 Cr. turnover in 2012). They have undertaken a backward integration project and the same is being carried out at their new plant. The company aims to bring down the rejection rate to be able to enter the highly lucrative US Auto OEM market. The company has been building relationships with some of the best names in the industry – Ford, Chrysler, BMW, Mercedes, GM etc. The orders from BMW & Mercedes have been slow and they expect the same to pick up in 1-2 years. The backward integration project should get completed by Sept-Oct, 12.

Continue reading Updates from the company visits & AGMs

Updates for Financial Results 2012

Dear Friends,

FY 2012 results are now out and the focus will shift towards earnings for FY13. Despite a very challenging market and weak economic conditions, we are happy with the financial results of the companies we track. Most of them have been able to report healthy growth and maintain their leaderships. Many of the companies have raised dividends and are now trading at very low PE (price to earning) and Price to Book (P/B) ratios. Although the macro environment and prospects remain uncertain, there is an opportunity for stock pickers to do their home work and build a quality portfolio.

Some of the noticeable results of the companies we track are: Continue reading Updates for Financial Results 2012