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.

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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.

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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.

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