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 – http://www.screener.in/company/?q=532331

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

Sree Rayalaseema Hypo and other updates

A brief update on some of our stocks discussed before:

Sree Rayalaseema Hi-Strength Hypo (BSE Code – 532842, NSE Code – SRHHYPOLTD): We had discussed about the company’s expansion plants earlier. In the September quarter, the company has reported a good growth of 27% in turnover and the stock looks quite cheap, if it is able to maintain this growth in up-coming quarters (which is should cause of the recent expansion).

The company is operating in a niche area of water treatment chemical – Calcium Hypochloride and it’s the only Indian company doing this work. The company has healthy operating margins of about 19-20% and the business requires little working capital. The valuations seem quite attractive as the stock is trading at a PE of just 3.5 times and the Price to Book Value of only 0.50. We feel it’s a value pick at these levels.

Negative – The promoters have been increasing stake by doing preferential allotment and merging of group companies.

Continue reading Sree Rayalaseema Hypo and other updates

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):

Atul Auto
Balkrishna Industries
GRP
Mazda
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

Astral Poly: Management meet

We had recently mentioned about our trip to Gujarat and company visits there. Here is the detailed update on Astral Polytechnik.

We had first mentioned about this company in March, 2011. Since then the stock has done very well, rising from Rs 120 to 300 and we feel that it still has a good potential over a longer term. Here is a summary of the past track record of the company:

The company has had a fantastic growth – it has grown its turnover from hardly 13 Cr in 2003 to 578 Cr in 2012. We feel that the conversion from GI Pipes to CPVC is still catching up and hence the potential is still big enough and with the development and introduction of new products, company can continue with 25-30% growth rates for next few years. The stock may look fairly priced based on PE ratio but if one removes the forex losses (which are one time in nature), the stock is still reasonably priced, looking at the long term growth potential. Company is also focusing on creating a national brand.

Here are few excerpts from the management meet: Continue reading Astral Poly: Management meet

Liberty Phosphate – Exit

We had recommended Liberty Phosphate on 29th March, 2012 at Rs 64. The stock has more than doubled and created a new all time high @ 160 today. The stock has closed at about 148 today and we recommend an exit from the stock.

Though the stock may seem cheap but there are several negatives/limitations:

The industry is highly dependent on Government policies. Any change can lead to significant change in prospects in a very short term.
The SSP industry though doing well as of now but its highly competitive. There are hardly any entry barriers and hence over a longer term, the margins should moderate.
The company’s equity has increased in past and the promoters had increased their holding at very cheap prices by doing preferential allotments to themselves. This is negative for minority shareholders.

We feel there are several better ideas we are invested in for long term compounding. One may switch to GRP, Smruthi, Sree Rayalseema Hypo, Narmada Gelatine, Sree Sakthi Paper, Sahyadri etc.

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

Notes from company visits and AGMs

Last few days have been one of the most interesting and learning days for me. I travelled with a group of fellow investors and friends to Gujarat on company visit of few of the companies of our interest. We had some fantastic discussions day and night, and were able to do some very exciting ground work on the companies we visited. Here is a quick summary:

GRP Ltd. (formerly Gujarat Reclaim & Rubber Products Ltd): Company held its AGM at Ankleshwar, Gujarat. The plant was quite green and well kept. As we entered, we were provided a safety manual. Management explained that GRP has been taking social economic initiatives and has been recently certified by Japan for a fire safety practice. They are the second company in Gujarat to get this certification. We also met another investor form Mumbai who too had been tracking the company over the years and provided valuable insights.

GRP is the pioneer and third largest company in the world in the rubber reclaiming business. The company supplies to 6 out of top 10 tyres companies in the world and to 4 out of top 10 non-tyre rubber companies in the world. The company is a preferred supplier.

Continue reading Notes from company visits and AGMs

Investing and maximising savings

“The gold and silver import at US$ 61.5 billion has recorded a growth of 44.4 per cent during 2011-12” (that is over 3 lac crore rupees).
“Trade deficit for 2011-12 had hit a record $185 billion” (that is over 9 Lac crore rupees).

Gold & Silver Bullion

Money is a very important thing in life. The more important thing is to maximise, improve and maintain the standard of living. There are many ways to do it and I would share my dad’s experience on how to do it easily & conveniently.

The most important thing is to plan and save your wasteful expenses and maximise your earnings & savings, and to put this saving into regeneration. Regeneration as in seeds or corn, that multiply itself after sowing. Thus protect your money and learn investing.
Continue reading Investing and maximising savings

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Avanti Feeds: Annual Report updates

We discussed Avanti Feeds about a year back at Rs 35. The stock has been a multi bagger backed by very strong growth in revenues and profitability and is currently trading at Rs.145.

Financial Data of last 6 years (Figures in Crores):

FY	2007	2008	2009	2010	2011	2012	CAGR
Sales	121.74	102.83	73.00	96.16	207.75	393.41	26.41%
N.P.	1.67	0.88	(7.03)	(1.2)	3.42	28.07	75.82%

The reason for change in fortunes has been due to introduction of new variety of shrimps – Vannamei. Earlier Black Tiger variety was being produced which had lower density and hence higher cost of production.Vannemei is more remunerative for the farmers now.

It was encouraging to go through the FY 2012 Annual Report of the company. The undertone is very positive and as per it, Industry is expected to continue growing at 20- 25% for next 2-3 yrs. Avanti is aggressively expanding its capacity in anticipation of the demand.

Key Highlights of the Annual Report – 2011-12 (Link to report):

Thai Union Frozen Products PCL (TUF) holds 25.12% equity stake in the company. Mr.Wai Yat Paco Lee has been appointed as a director representing TUF. TUF is one of the largest seafood exporter company in the world.
The overall Shrimp culture was very encouraging and rewarding for the company. Its the second consecutive year where the overall increase in the shrimp culture both in terms of water spread area and density of culture was by around 25%.
The main reason being shift from Black Tiger shrimp cultivation to Vannamei shrimp cultivation.
The improvement in the international prices for shrimps has also encouraged new farmers in taking up the shrimp cultivation.
Strong sales growth by 125% in the Shrimp Feed segment. The processing and export division sales increased by 58.4%.
It is the most preferred brand by the farmers due to maintenance of high quality and constant technical support to the farmers.
The Government of India’s support and emphasis on Vannamei has also resulted positively
First quarter of 2012-13 itself has witnessed overall growth rate of 20% of the industry
The dividend has been increased to 65% from 10% last year.

Expansion Plans:

It is in process of buying a land near Chennai to set up hatchery in collaboration with THAI UNION
During the year the company has doubled its capacity by replacing old machinery with the new ones and constructed new godowns to handle increased volumes.The capacity has increased to 1,10,000 Mts p.a from 52,000 mts p.a.
The shrimp processing capacity has increased to 8000 Mts p.a from 2720 mts p.a.
As the demand anticipated by the company is slated for a big jump in a couple of years from now, further expansion would be needed as current capacities would be insufficient. Therefore, 4.94 acres of land near their current plant of Kovvur is already bought for expansion.

Risks:

Dependency on climatic conditions makes it unpredictable. Natural calamities like floods, cyclones, during the culture season can have serious impact.
Shrimps getting affected by virus and diseases also is a threat.

Our View:

The industry has had a poor past till 2008 but the recent changes in the industry are very strong and augurs well for the good players. Avanti Feeds is one of the biggest and perhaps the most efficient player with a significant tie up with worlds largest Seafood company Thai Union Frozen Products. TUF holds 25% stake in the company.

If the industry is to maintain 20-25% growth for next few years then Avanti has a good opportunity to capture a good business and make the most of it. We feel that the stock has potential and monitoring of performance is needed.

Analyze the company on our Screener