Post Demerger impact of Asian Hotels – Unlocking the hidden value

Hi friends, this is exciting!

Asian Hotels (which we recommended recently for its demerger news) has filed a document with BSE detailing the post-demerger financial aspects including the post-demerger balance sheet of the three new companies. We were flirting with the data to guess the post demerger scenario and here are the possibilities (provided in the excel sheet below).

As per the announcement, a shareholder holding 100 shares of Asian Hotels will get:
– 50 shares of AHL residual company
– 50 shares of Chillwinds
– 50 shares of Vardhman Hotels
The new figures show a significant rise in the book values, as during the demerger, the assets are transfered at their fair values.

Do give it a look at the above numbers and share your comments.

Update on Q3 nos

“Its’ the work on your desk…It’s the work on your desk. Do well with what you already have and more will come in.” – Charlie Munger

Dear Friends,

This post is to bring an update and review of all the stocks discussed till now.

Performance till now:

S.NO SCRIP NAME Date of Recommendation Price of Recommendation CMP Percentage Returns Remarks
1 CHI Investment 11-05-2009 25 45 80.00 Exit was advised earlier at higher price
2 Shilpa Medicare 26-07-2009 93 239 156.99 Hold
3 Jaihind Projects 02-08-2009 95 173 82.11 Hold
4 Albert David 25-08-2009 75 119 58.67 Book partial profits
5 Siemens Healthcare 14-09-2009 1100 1270 15.45 Exit was advised earlier
6 Ahlcon Parentals 28-09-2009 37 47 27.03 Hold
7 Fresenius Kabi 28-09-2009 80 120 50.00 Book partial profits
8 Majestic Auto 22-10-2009 68 62 -8.82 Hold
9 Suprajit Eng 26-10-2009 90 155 72.22 Hold
10 IST Ltd 16-11-2009 100 140 40.00 Buy
11 Manjushree Technopack 18-11-2009 32 46 43.75 Hold
12 Asian Hotels 01-12-2009 425 508 19.53 Buy on declines

Individual Updates:

1. Shilpa Medicare: This stock has been a wealth-creater. The company has yet again posted excellent Q3 nos. Based on the same, the future looks bright and the stock is getting the attention of bigger investors (Read: ICICI Prudential mutual fund 馃檪 ). On repeat or better financial performance, the stock has potential to reach 350 levels.

2. Jaihind Projects: The company has been doing well. As per a recent ET article, the co has to complete major projects by mid this year. One should continue to hold.

3. Albert David: This stock was picked as more of a value pick to park idle funds. One can consider booking partial profits.

4. Suprajit Engineering: The company has come out with excellent Q3 nos. The stock has also done well. To reward the shareholders, the management has proposed 45% interim dividend, 1:1 bonus and stock split. Though a bit aggressive than required, all these developments can take the stock to higher levels.

5. IST Ltd: As per the recent updates, the construction activities are going at good pace and co has built almost 10 lac sq ft of space. Leasing out of the same in due time will be a very positive development. If things keep going as per the plans, the stock has all the potentials of becoming a multi-bagger.

6. Manjushree Technopack: We have been providing updates in other threads.

7. Asian Hotels: Usually demergers create lot of shareholder wealth. So one should remain invested and look forward to buying on declines.

We are trying to bring some new picks from the Q3 nos. In the meanwhile some of my other favourite cos have come out with very good numbers and investors can consider them for investing: Balkrishna Industries & Poly Medicure.

The good is getting better

Dear Friends,
with your support and good wishes, we are being able to open our new Branch Office at Lucknow.

“Mittal & Co.” – members of UPSE (Uttar Pradesh Stock Exchange) and business associates of “Asit C. Mehta”, has been encouraging value investing since seventies and entered the brokerage business in 1982 (yeah, this is our 28th year). With the support of our esteemed clients, teamwork of most enthusiastic employees and hard work done by everyone, the good has just got better.

You are invited to join us at this wonderful moment.

Investing in the heart of the city has become easier now.

We will soon be posting the pictures of the new office for our readers who might not be able to join us on the opening ceremony.

Keep your wishes coming,

Happy Investing,

from whole team of “Mittal & Co.”

Manjushree Technopack – In depth snapshot

We covered Manjushree Technopack recently and the stock has shown a pretty good movement since then (as was expected). MTP (Manjushree Technopack) is one of the companies we have loved to work upon. Together with Donald and his esteemed team, we had collected all the data and did some very useful research and compared the same with the peers. The same has been brilliantly compiled and presented on his site along with 10 Questions to Manjushree Technopack Management:

[…] You see negative Free Cash Flows, but that’s not a bad thing for a company in its early growth stages. It is investing all the profits it generates and more back into business expansion. As you can see even the much bigger global majors report marginal or negative free cash flows in this industry.

Best Margins & Returns in the business

And when we look at its track record, it makes us feel even better. Although achieved on a small base, it has more than tripled its sales in last 5 years while earnings per share (EPS) has gone up 8x (on an adjusted basis) in the same period. Just look at the long term track record, it tells us this Management is managing growth nicely.

Exciting Growth on a low base

Makes me wonder about the quality of this growth. How has it managed profitability and returns in the pursuit of this growth?
Its heartening to see that margins have consistently been trending up. Returns shot up tremendously in FY07 on the back of high capacity utilisations. Since FY07 Manjushree has been investing in this growth aggressively by doubling capex every year. This has led to lower capacity utilisations and Asset turns, in turn lowering RoA and RoE. But on the whole returns have also been trending up.

Tells me Management is savvy and doing the right things while pursuing growth aggressively. […]

You can read the complete in depth analysis done by us jointly at Stock Pick Focus.

In -depth Snapshot of Manjushree Technopack [at Stock Pick Focus]

You might also like 10 Questions to Manjushree Technopack Management.

Happy New Year!!!

Hi Friends,

Yeah, I’m a bit late in conveying my new year wishes as last few days have been highly hectic.

Markets have been roaring and stocks are flying. I think we should be careful going ahead and should start building cash levels. Q3 nos will be very important to judge the price vs value for many stocks.

Among the stocks we have discussed at our blog earlier, almost all have done extremely well. Few updates:

Manjushree: After very good returns in short term, I think we should do partial profit booking here.

Fresenius Kabi: Stock has done quite well and looks a bit expensive now. One may book profits on rise here.

Suprajit Eng: One can continue to hold.

Jaihind Projects: I feel the best is yet to come. One may look to add more on declines.

Siemens Healthcare: One should exit due to the merger announcement.

Asian Hotels: Stock has moved up smartly as expected but more room is left.

Few new stock ideas which can be considered at current levels and declines: Vipul Ltd, Himatsingka Seide & Tata Sponge. (I’ll post detailed logic later)

Few Updates

Refer to our earlier posts, we were quite optimistic on selected pharma sector stocks.

Albert David: Has risen from 70 levels to 130.

Fresenius Kabi: Has risen from 70 levels to 113.

Shilpa Medicare: Mentioned at our blog @ 90, is trading at 190 now.

I hope our readers had acted on the calls and made good profits. We would advice booking partial profits at current and higher levels.

Some updates:

Shilpa Medicare has got listed on NSE also.

Jaihind Projects is convening a board meeting to appoint Delloite as their statutory auditor. This should be a very positive move for long term and provide comfort to investors.

Asian Hotels has uploaded few statutory details relating to the demerger. I would advice investors to go through the documents. The documents are available on BSE Website (announcements section)

Asian Hotels

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About Asian Hotels:

路 They operate three 5 star deluxe category hotels. Locations: Delhi, Mumbai & Kolkattta.

路 They operate the Hyatt Regency brand on the above three locations.

The stock is still undervalued based on the following logics:

路 The hotel sector is also recovering with the upturn in the economy. Going by the latest newspaper headlines, occupancies are back to 85% though ARRs are still 10-20% below normal peak levels. Hotels stocks are still down more than 50% below the crash levels.

路 Usually the per room cost (excluding land cost) is considered to be 1 Cr for a good 5 star property. Asian Hotels has 1144 rooms in total and at CMP of 420, the per room M Cap works out to be around 80 lac only.

路 The company is believed to have aggressive expansion plans post demerger

Demerger:

The most noticeable point based on the latest demerger scheme is 鈥 Promoters are going to infuse Rs. 341 Cr before the demerger by taking a preferential allotment @ 540…while CMP is 420.

Post demerger, the three hotels i.e. at Delhi, Mumbai & Kolkatta will get listed separately. So a shareholder holding 3 shares of Asian Hotels currently will get 1 share each of each of the separate entity.

Since long Asian Hotels hasn’t expanded its hotel base. It is said that there were conflicts between the promoters and hence the company wasn’t aggressive. With the demerger, the negative synergy should be removed.

The unlocking of the hidden value for the current shareholders can be expected with this demerger.

Manjushree Technopack (MT)

Top 10 Brand Values
Top 10 Brand Values

This was the article in “Economic Times” which specially attracted Dad. At number one, in respect of brand value, it was none other than Coca-Cola, and on a bit of research, it was revealed that Manjushree Technopack (MT) was providing bottling services to them. Yeah, it became an instant favorite 馃榾 .

banner

MT is a packaging solutions provider with an experience of two and a half decades in providing its customers with cutting edge plastic packaging solutions.

Few positives:

  • MT has been growing at CAGR of almost 25% for last 5 years. This growth rate is expected to continue for next few years based on the aggressive expansions the company has been undertaking. The company has been tying up with the top MNCs
  • MT has an impressive client profile : Cadbury, Nestle, Coca Cola, P&G, Bisleri etc
  • MT has been able to maintain very good operating margins and able to expand the same with increase in turnover. The other good things are its strong balance sheet 鈥 reasonable debt equity ratio, control over debtors and inventory to get strong cash flow.
  • As per the recent announcements, the company has tied up with Coca Cola & Bisleri and is putting up exclusive capacities to cater to their requirements. As per the arrangement, the offtake will increase 50% every year.
  • MT is also targeting to cater to the liquor industry and has tied up with likes of UB Group, Radio etc.

Attractive Valuations:

  • At CMP of Rs. 32.50, the stock is available less than 5 PE.
  • It is trading at a discount to its BV of 44 by almost 25%.
  • Co is a regular dividend paying company & had paid 10% dividend last year.

Expectations:

  • We expect MT to continue to grow @ 20-25% for next 2-3 years.
  • For FY 2010, MT may be able to deliver 130-140 Cr turnover resulting into a NP of 8-10 Cr. Hence an EPS of 6-7.5

Snapshot of past financials:

snapshot

IST Ltd

IST Ltd is little known and highly undervalued real estate story.

The company has 28.41 acres of land at Dundehra (Udyog Vihar), Gurgaon, at a distance of 5 Kms from New Delhi International Airport.

The company had tied up with Unitech Developers & Projects Ltd (‘UDPL’) to develop an IT SEZ. The project is designed to have total leasable area of approx 3.75 million sq ft. As per the arrangement, UDPL will develop and market the property and incur all the costs while IST will get 28% of the total rentals.

The highlights of the project are:

  • It is one of the first IT SEZ in Gurgaon
  • The location is good and the early occupants are Amdocs, Bank of America etc.
  • 12-15% of the project is already leased out and the next phase of construction has started.
  • The funding is already in place, so execution is not an issue. IST is also a debt free company.
  • As the project is a SEZ, the incomes are tax free.
  • For details visit : http://www.unitechgroup.com/commercial/infospace-sector21-gurgaon/index.asp

Project Progress and plan ahead:

ist

Risks:

  • The SEZ project is being executed through the co’s wholly owned subsidiary Gurgaon Infospace Ltd.
  • The stock is highly illiquid.

Current Valuations:

As the company has already leased out 4.64 Lac sq ft, IST has been already receiving close to 10 Cr as annual rental income. Co is in process of constructing another 12 Lac sq ft by mid of next year. If things go as per plans, IST would be earning a rental income of 35-40 Cr in next 1-2 yr.

At CMP of 100, the company is available at an M Cap of less than 60 Cr. Even on conservative valuations, the company has potential to earn 60-75 Cr of Net Profit every year once the project is totally leased out. So if things play out as per plans, this company has all the potential to be a multibagger in 3-5 years.

Delivering on Q2 expectations

Most of the stocks we have discussed till now have done very well in Q2 nos. In reference to the post on the pre Q2 stock ideas : , both the companies have done well.

Ahlcon Parentals:

http://www.bseindia.com/xml-data/corpfiling/announcement/Ahlcon_Parenterals_India_Ltd_311009_RSt.pdf

The company seems to be back to decent profitability. The expected growth may come up by next qtr. Stock has potential to get better discounting.

Fresenius Kabi:

Rupees in Crores

Quarter ended Year to Date Year ended
Sep 09 Sep 08 % Var Sep 09 Sep 08 %Var Mar 09 Mar 08 % Var
Sales 99.81 58.24 71.4 197.78 136.41 45.0 257.94 240.88 7.1
Other Income 4.59 125.36 -100.0
PBIDT 37.13 -28.83 LP 77.04 11.88 548.5 -41.13 168.54 PL
Interest 5.23 5.24 -0.2 10.75 10.02 7.3 21.97 7.86 179.5
PBDT 31.90 -34.07 LP 66.29 1.86 3464.0 -63.10 160.68 PL
Depreciation 3.09 2.95 4.7 6.21 5.80 7.1 11.81 5.43 117.5
PBT 28.81 -37.02 LP 60.08 -3.94 LP -74.91 155.25 PL
TAX 4.89 -4.01 LP 10.21 0.52 1863.5 1.12 6.19 -81.9
Deferred Tax 1.76 0.67 162.7 0.91 1.48 -38.5 1.66 -0.28 LP
PAT 22.16 -33.68 LP 48.96 -5.94 LP -77.69 149.34 PL

The company has done much better than the expectations. The margins have exploded and are above 30% now. At this rate and based on the expansion plans of the company, the company may deliver excellent returns in long term.

The company also seems to have attracted the attention of few fund managers (track the mutual fund holding in this company).