Updates and Follow-ups

Shilpa Medicare: The company has got funding from Barring Equity PE Fund. The co will be allotting 5 Lac warrants to promoters and 20 Lac shares to the PE Fund @ Rs 350/share. This is a major positive for the co in the long run and fundamentals will improve majorly.

Harrison Malayalam: We had discussed about the company a few days back. The company has come out with poor nos and the stock is down to 118 levels. We feel the intrinsic value of this company is much higher than the current M Cap of the company. Few reasons to substantiate our view:

1. The company has 57,800 acres of plantations. The value today would be multiple times higher than the Current MCap of just 210 Cr. Have a look at the 10 yr financial data of the company. in 2005, the co had sold 674 Hectares of one of its Rubber Estate and had got 33 Cr as other income. Similarly in 2006. the co had sold about 916 Hectares of another rubber estate and got 63 Cr as other income.

2. The asset value of the estates must have almost doubled since 2005. As of 2009, the company has about 25,000 Hectares of plantations. So if one extrapolates the above valuation, the real value of their assets would be huge.

3. Over the years the company has been able to reduce the labour and mechanize it’s plantations.

4. As Rubber & Tea prices are rising, logically the co should be making money.

5. The record date for the demerger should be announced in next few days.

Manjushree Technopack: We had earlier recommended MT at about Rs 32 here. The company has posted excellent Q1 numbers. MT is a proxy play to the domestic consumption story and the co should continue doing well. We expect the company co close FY 2011 with 195-200 Cr turnover and close to 15 Cr of NP. The stock should continue to do well.

Gujarat Reclaim Rubber: The co has posted a very good Q1. We expect the company to come out with better nos going ahead and the stock should do very well. The company had been featured in the latest “Tyre Asia” magazine and the article is a must read.

Balkrishna Industries: BKT continues to do well. The company has posted a good Q1 when other tyres cos suffered heavily on the margins side. The reason for good performance is the niche area the company is operating in. As per Q1 con-call of the co, the updates are:

1. The outlook is very positive. The co is already operating at 100% capacity and needs more capacity to fulfill additional demand.

2. Co is witnessing very strong growth in US markets. Share of EU has come down to about 55% from 70% earlier.

3. Co is adding about 20% capacity in next 1 year. At a cost of about 150 Cr

4. Co is undertaking a major expansion of about 900 Cr over the next 2 years. Post this the capacity of the company will get more than doubled.

5. Co wants to be a $ 1 Bln turnover company by 2015.

We feel that BKT is an excellent long term opportunity.

Sunflag Iron: As expected, the co continues to do very well. The promoters have been buying every other day from the open market. The stock is available at less than 5 PE and 1.2 times BV.

Harrisons Malayalam – Value Unlocking?

huge plantations

At CMP of 140, the co is trading at a Market Cap of about 255 Cr. Now first lets look at the assets of the company:

Harrisons Malayalam Limited (HML) has huge tea and rubber plantations spanning across 23,417 hectares i.e.. approx 57,800 acres. HML is the single largest producer of Rubber in the country with 18,300 acres under cultivation. It is also the largest grower of tea in South India having plantations spread across 15,000 acres. It is also one of the largest farmer of Pineapples in the region. Over the last few years, the company has also been a major processor of other agricultural produce from neighbouring farmlands.

HML through it’s 100% subsidiary – Harrison Financial, holds investments worth more than 225 Cr of group companies like – CES, KEC International, Ceat etc.

HML also has a small projects division. They won a 50 Cr KRCTC contract in January, 2010.

Though in the past the company hasn’t created value and has had a slow growth, but things seem to be changing and major positives are there for the company.

1. All time high Rubber prices:

The rubber prices have risen from about Rs 90/Kg to Rs 180/Kg.

2. Tea prices have been firming over last several months.

3. Management focussing on growth:

There was an article in Business Today magazine on HML, titled – “Entering unchartered waters”. As per the article, the company is doing the following to improve the performance:

a. “Moving away from selling produce as a commodity”. HML is trying to sell branded tea rather than selling it in auctions.

b. Upping land productivity (through re-planting old tea bushes and rubber trees with new high-yielding varieties and inter-cropping pineapples, bananas and other crops with rubber).

c. Upping labour productivity. (Mechanisation has increased to 50% in 2009 from 20% in 2008).

4. Demerger to unlock value:

HML had announced the demerger plans on 29th January, 2010. As per the details, the company is demerging the investment undertaking into Sentil Tea & Exports Ltd (STEL). The shareholder of HML will receive new shares of STEL in the ratio of 1:1.

The investments are worth 225 Cr+ and the equity capital of the new company would be 18.46 Cr. Even if STEL lists at 50% discount to value of investments, the listing price would be Rs 60+.

If one is to consider the replacement value of the huge plantations HML has, the value is unbelievable. Such huge assets can’t be created again. At such low Market Cap, the potential is huge.

Company Website: Harrisons Malayalam