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:
| Comparison sheet | ||
|---|---|---|
| Pondy Oxide | Gravita India | |
| Capacity (MT) | 32000 | 24000 |
| Standalone Turnover | 158 | 105 |
| Standalone NP | 5.8 | 5.77 |
| PE Ratio | 7 | 22 |
| Consolidated Turnover | 232 | 159 |
| Consolidated NP | 12.31 | 13.23 |
| PE Ratio | 3.25 | 9.5 |
| M Cap | 40 | 170 |
| Notes: | ||
| 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
Yes I certainly agree with the view that Gravita is overpriced or Pondy is very under valued by market. Pondy Oxides and Chemicals Ltd is trading around Rs.39. As per Sept results, Pondy’s EPS works out to Rs.5.74 and Rs.10.11 resp. PE works out to 6.8 times and only 3.9 times resp.. Gravita’s PE is approx 12 times based on higher end of IPO price band. Thus, Pondy is better priced in the market than the Gravita’s IPO.
Another company undervalued by the market is Avon Corporation. It is trading at PE of only 1.33 times. Unbelievable but true. The company has shown good results for June and Sept quarters. Co. paid dividend of 30 paise per share in Oct.2010. The 6 month EPS is Rs.2.11 and annualised could be more than Rs.4.00 . CMP is Rs.5.35. PE of 1.33 only. The scrip is up about 7% today.
Hi Raj,
In the case of Avon Corp, there are a few red flags:
1. The co hasn’t been providing for taxes. So are the earnings genuine?
2. The debtors are very high
3. Stock has been continuously drifting downwards on heavy volumes.
So one should be careful here.
Regards,
PS: I may be wrong also, so kindly do your due diligence
yes Ayush,
Pondy is a better bet then Gravita. Its not necesary to have International exposure as it has its own problems – forex issues, Re fluctuation, managing small staff means more expenditure etc
I prefer deomestic growth and exposure thats whre Pondy is better.
I think Gravita’s traded volumes are not taking into account here. It is around 59 crores for FY 10. If one takes that into picture, PE comes around 12 FY10. It has given good FY11 q1 results (of course traded volumes are added) – http://www.gravitaindia.com/gravita-ipo.html
By going with net profit margins for FY10, Gravita’s is around 8 %, but Pondy Oxide’s is 3 – 4 %. Gravita has diversified it’s reach to other countries and I guess Pondy Oxide has not (pls correct me if I’m wrong).
Will Net Profit margin levels, diversified reach & trading biz (Guess it’s servicing) of Gravita’s go against Pondy Oxide scrip movement? Will this this be an obstacle for Pondy Oxide scrip getting re-rated to equivalent that of Gravita’s?
Share your views. Thanx.
Trading activity is not a good thing for long term shareholders….as the trading business will have its share of losses also.
Regarding international foray – I don’t see much logic in that, as the company plans to put up very small plants at foreign locations. Add to it, risk of mis-management, pilferage etc. I think having a dedicated bigger manufacturing facility in a competitive nation like ours would be a better plan.
Regards,
Gravita IPO is subcribed hundred percent…..looks lucrative due to the increasing demand of lead in the international market…..makes sense to invest in Gravita IPO.
Gravita growth is almost double in each FY, this is the best diwali offer for retail investors..
You are correct my friend, this is actual diwali Bonus gift……i have filled 3 applications already.
Expected listing price of gravita India is 225 what i have news from grey market…
Dear Ayush,
Gravita got listed at 90 per cent premium ….do you think Pondy is up for another rally?
Excellent listing for Gravita. Lets see where the stock settles in coming days.
Yes, Pondy is available at cheaper valuations but the management needs to be more transparent and investor friendly to get better valuations.
A couplf of questions:
How much of Pondy Oxide’s turnover and profits is from the lead business? Unless it is a significant amount, comparing it with Gravita may not be sensible?
Also, understood Pondy’s mgmt may not be as transparent, but after the listing, on current year estimates, Pondy is now trading at almost 1/4th Gravita’s valuations – is such a wide discount justified?
A couplf of questions:
How much of Pondy Oxide’s turnover and profits is from the lead business? Unless it is a significant amount, comparing it with Gravita may not be sensible?
Also, understood Pondy’s mgmt may not be as transparent, but after the listing, on current year estimates, Pondy is now trading at almost 1/4th Gravita’s valuations – is such a wide discount justified?
Almost 75-80% of turnover of Pondy comes from recycling of lead.
Hi Ayush,
What do you think of Birla Shloka Edutech Ltd?
Positives:
1. Company is in Education sector and promoted by Yash Birla Group.
2. IPO in January 2010 at Issue Price of Rs.50 per share now at 32
3. Top line CARG for five years stood at 178.42 per cent from 1 cr to 180 cr
4. Profits grew at a CARG 75.61per cent for past 5 years
5. PE is at 8, Industry PE is more than 25
6. Convertible equity share warrants allotted to promoters @ 68
Concerns:
1. Profit Margins around 3%
Suggestion for Blog: We can have a tab called “Stock Ideas from Readers”. This will stop us from commenting our ideas on posts of other stocks.
Regards,
Manmohan
Sorry, It was a FPO (not IPO as stated in above comment)
Hi Manmohan,
Somehow we haven’t been comfortable with Yash Birla group cos hence not much idea.
Regards,
pondy oxside is going so below.
what to do.
Hi,
It all depends on your investment perspective and time period. If one is having a long term horizon of 2-3 yrs, the stock should do well.
Regards,
Hi,
It all depends on your investment perspective and time period. If one is having a long term horizon of 2-3 yrs, the stock should do well.
Regards,
why so much valuation gap between pondy n gravitas??
Is it rational??
Hi Parth,
Pondy is still an unknown story while Gravita has been marketed due to the IPO. If one goes through the details, both the cos are doing similar business.
Regards,
Hi Parth,
Pondy is still an unknown story while Gravita has been marketed due to the IPO. If one goes through the details, both the cos are doing similar business.
Regards,
Hey Ayush,
Pondy Oxide is falling down? Any special reason for this fall ?
In last 10 days the fall is more than 30%
Curious to know the reason… and any link with Gravita India if any.
Thanks, Sachin
Hi Sachin,
As the rise was sharp on very high volumes, the reversals can be sharp as many people enter the stock with very short term objectives. Another reason is the weakness in the market leading to reversal of momentum.
Regards,
Hi Sachin,
As the rise was sharp on very high volumes, the reversals can be sharp as many people enter the stock with very short term objectives. Another reason is the weakness in the market leading to reversal of momentum.
Regards,
Hi Ayush,
Hope you are going well!
Any updates about Pondy Oxide. This stock is being hammered like anything. And on the other end Grativa is performing very well. Have fundamentals changed? The merger with Lohia metals was also postponed.
Regards,
Manmohan
Hi Manmohan,
If one removes the sharp rise which was witnessed in Pondy Oxide at the time of Gravit’a IPO, the fall hasn’t been as sharp as it seems. We had first recommended Pondy at 30 levels and the stock is now at around 25.
Yes, Gravita’s stock price has been doing well and there is a huge disconnect between the valuations of both the cos.
Fundamentals of Pondy seem to be intact. On the positives – the turnover growth is still there while on the negative – the margins have come down in last couple of qtrs and the loans have also increased.
No idea/update on the Lohia Metal merger.
Regards,
Hi Ayush,
Any update on merger news,secondly i didn’t understand why such high valuation is given to gravita india.
Hi Vishal,
The merger in Pondy is in progress and should get completed in near time.
The valuation of Gravita seems irrational but then as the saying is – “Markets can remain irrational for periods longer than I & you can remain solvet” 😉
Both Gravita and Pondy are sort of commodity businesses. I would suggest readers to also look at other new exciting and worth investing ideas being discussed at our blog.
Regards,