The results season is finally over and it has been a mixed bag. There haven’t been much instances of major outperformances but overall good topline growth is being witnessed while margins are under pressure. It’s a good time to buy into selected good companies as margins would come back over the long run.
Results & updates on some of our favorite stock ideas:
1. Astral Poly – The stock was recommended here and we had provided an update about the meeting with the management.
The company has posted stellar growth yet again. For this year their turnover has grown 42% from 291 Crores last year to 411 Crores this year. The margins were under pressure and Net Profit growth was 18%. As per notes to accounts, the company has expanded the capacity by 56% from last year. As per analyst meet held recently, during the current year the company will expand the capacity by another 45%. It remains one of the best stock idea with strong growth visibility @ 25-30% p.a. for next 2-3 years.
Continue reading Company Results Update…
We came across the IPO document of Gravita India. It is one of the major competitor to Pondy Oxide and both are operating an identical business. Interestingly, Gravita despite being a smaller company when compared to Pondy, is going public at more than 3 times the valuations commanded by already listed Pondy Oxide.
Here is a quick comparison sheet to highlight the huge valuation gap between two companies:
|1. Capacity is calculated on Standalone basis and
|addition of various sub-segments
|2. M Cap of Gravita is based on price at upper band
As highlighted by Gravita in its various articles and documents, the lead recycling business has great potential due to strong battery demand, we feel Pondy Oxide is a much better bet when compared to Gravita as the valuations are very attractive in Pondy Oxide.
With the IPO of Grativa opening tomorrow, investors will get more informed about this sector and might discover the undervaluation in Pondy Oxide.
Gravita India Website | Pondy Oxide Coverage
Few weeks back we had discussed about Pondy Oxide and we were asked some good questions by our readers. We always love the creative criticism and this was wonderful.
To know the answers to some of the doubts, my good friend Donald Francis did an extensive research and also had a meeting with the management.
Some of the pending questions to which we got answers were about why the company is so leveraged at around 2 times debt to equity ratio, and who are the top clients ?
Amara Raja is a top client. We have several top battery manufacturers in Export Markets. Korea Indonesia and Malaysia are our top markets followed by Srilanka & Vietnam. We also export to Japanese customers like Yuasa.
We are trying to bring down our financing cost. This will come down by 15-20% easily as we have better terms now on FCPC (Foreign currency packing credits) $ credit norms -Libor+200 bps. Its likely that inventory & debtors will remain at these levels due to more focus on export market.
Few takeaways from his meeting:
- The outlook is robust due to ever increasing demand for batteries hence continuous demand for lead and lead oxides.
- FY 09 was indeed a very tough year. Since then then company has re-aligned a lot of things, changed its business model so as to reduce the effects due to volatility in lead prices.
- Major achievement has been penetrating the exports market. In FY 2009, the export sales were 16.64 Cr, in FY 2010 the company did 50.88 Cr and for FY 2011, the company expects to cross 100 Cr as export turnover.
- The growth momentum witnessed in Q1 is sustainable.
- Plants are now running at high utilization levels and the company plans to take up new expansion in a year.
- Co aims to reach the 500 Cr turnover milestone in next 3 years.
- Entry barriers – Licence is required for carrying out lead refining and related activities. Its not easy to get a new licence hence the players are limited. Pondy Oxide would probably be having a 8-10% market share.
- Amara Raja is their top customer. Pondy is already supplying to top battery manufacturers in Export markets. Tata-Yusa is also their customer.
Initial discussions with Pondy Oxides Management [ Thanks to Donald via ValuePickr]
We are always in search of undervalued and under-researched mid/small caps. Pondy Oxide appears to be one!
Pondy Oxides and Chemicals (POCL) is one of the India’s leading metallic oxides and plastic additives producers. Its products are Zinc Oxide, Litharge, Grey Oxide & Red Lead. These products are used in battery industries and automobile sector. India has been witnessing a steep growth in the usage of Lead consumption due to sharp rise in use of Lead acid batteries in automobiles, invertors and UPS. POCL specializes in refining of Lead and related metals.
POCL extracts lead and other metals from scrap batteries and re-uses the same after refining. POCL has been able to refine Lead to 99.99% purity through its R&D department. This form of lead is being imported in India for manufacturing of VRLA batteries.
POCL has a impressive growth track record – the company has been grown from just 20 Cr turnover in 2001 to 230 Cr in 2010. Still the company is available at a M Cap of just 30 Cr.
POCL has 3 business segments – 1. Metals 2. Metal Oxides 3. Plastic Additives
The company is one of the major player in the Metal Oxide Segment. It ranks among the top 10 players in India.
The company claims to be having a 30%+ market share in Plastic Additives segment in India. POCL has been innovative and develops new products through it’s R&D department to stay ahead of the competition.
POCL caters to the top players of the battery industry – Exide Ind, Amara Raja, HBL power etc.
POCL has a subsidiary Lohia Metals Pvt Ltd. The company holds 51% stake in it. In FY 2010, the company did about 75 Cr of turnover and posted a NP of 6.50 Cr. Therefore on the consolidated basis POCL is having an EPS of 12.25 vs EPS of 5.74 on standalone basis.
Valuations at CMP of Rs 30:
- The company has been growing at a CAGR of 30.69% for last 10 years. Turnover has grown from 20.81 Cr in 2001 to 232 Cr in 2010.
- The stock is available at 1.2 times standalone BV of about 25 and 1 times consolidated BV of 30.
- The stock is trading at a PE of 5 on standalone earning and a PE of just 2.5 on consolidated earnings.
- POCL has a fantastic track record of consistent high dividend. The stock is still available cum dividend of 12%. Giving a high dividend yield of 4%
- The company has posted a very strong Q1. The standalone turnover has increased from 26.51 Cr to 60 Cr. If the company is able to repeat the trend, POCL may be able to do a turnover of 250 Cr vs 150 Cr last year on standalone basis.
So here is a strong growing company available at cheap valuations.
- Being a metal sector company, it is prone to risk of high volatility in metal prices. For eg in 2008-09 when the metal prices tumbled sharply, the company had to suffer inventory losses and the profits were wiped out for the year.
- As per FY 10 Annual report, company has raised loans for expansion hence Debt Equity ratio is high at 2:1.
Yearly Consolidated (Valuation Sheet)
Yearly Standalone (Valuation Sheet)