Management Archives | Dalal-Street

Oriental Carbon & Chemicals: Management meet

We discussed Oriental Carbon & Chemicals Ltd. (OCCL) almost a year back. The stock has remained at the same levels while the company has grown and the fundamentals have got even better. To get a more understanding on the company and the future prospects, we met with the senior management of the company. Here are the extracts from the management meet:

Insoluble Sulphur is a niche market and as per our data total market is about 2,25,000 MT. Solutia controls 70-75% of the market. OCCL is the second largest with 7-8% market share.

Insoluble Sulpher is mostly used by the Tyre Industry. Increased Radialisation is the main demand driver.

Entry Barriers: The technology is closely guarded. No tyre major is interested in shifting vendors or entertaining new vendors unless you can supply in sizeable quantity and the approval process is lengthy and costly.

Continental AG, Goodyear, Bridgestone, Pirelli are some of our big customers. In the domestic market we have MRF, Apollo, JK tyres and some more.

Demand situation warranted that we expand quickly. Yes capacities were pre-sold as per arrangements with our customers. We are working at something like 75% capacity utilisation at the moment.

We should continue to grow at current levels. The volume growth may be limited to 10-15% if the demand slack continues.

Effective tax rate will be lower at 20-22%.

If you see the last 5 years, we have generally been increasing dividends. In FY12 again we have increased dividends.

Yes 500 Cr is possible and should happen after the expansion of the next 11000 MT capacity.

Please check out the complete management interview (requires free login)

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Atul Auto–Management Interview

We have discussed about Atul Auto a couple of times and to go in-depth and get a much better understanding of the company, we interacted with Mr. J V Adhia, Vice President, Finance – Atul Auto.

The company seems to be in a sweet spot with a very comfortable balance sheet and a good opportunity to maintain growth rate of about 25-30% for at least next couple of years. The co has been a leader in its existing territory – Gujarat (approx. 45% market share) & Rajasthan (approx. 30% market share), the company is now trying to go Pan India by entering new territories.

Here are the highlights from the management interview:

During the period 2001-06 the company had been growing at about 70% p.a. Till then we were a front-engine 3-wheeler company. In 2007 we decided to go pan India and introduced the more predominant rear-engine 3-wheeler segment. Some things went wrong and the company faced a rough patch, and that is the reason you notice stagnant sales for the period 2007-10. However in June 2009 period we introduced Atul Gem the rear-engine vehicle and it has been received very well in the market. The growth is back on track.

Overall about 91% of the total autos are rear-engine vehicles.

We are No #1 in Gujarat with about 44% market share & No #2 in Rajasthan with about 30% market share. Kerala & Assam are our next big markets.

We are gradually entering new territories and ramping up dealer network.

Current dealer network is about 120 dealers. A year back we had 100 dealers but only 30-40% were active! Now more than 80% are active. Plan to have 140-150 dealers by this year end and 250 in 2 years.

As of now the company is seeing a very strong demand and there is a waiting period of about 10 days. As per policy the company is taking orders on advance basis only. Hence the high advances on Balance Sheet

We are in process of doubling our capacity from 24,000 to 48,000 vehicles p.a. This expansion is being done at our existing plant and we have sufficient space.

We are expanding capacities by ongoing de-bottlenecking exercises. We are already at 20-25% higher production and the rest of the de-bottlenecking increases should happen over next 3-6 months. We have options of introducing a double shift, as and when deemed necessary.

We do envision to be 1000 Cr company by 2015-16. (Co did 203 Cr turnover in 2011 and 275 Cr is expected for FY 12)

Please check out the complete management interview (requires free login)

Management Meet–Indag Rubber

We discussed Indag Rubber recently and the stock has done quite well in a challenging environment.

We recently visited 3 companies to get a better understanding of them – 1. Indag Rubber 2. P I Industries 3. MBL Infra. The meetings went on well and all the three companies are optimistic. Here are the key highlights of our meeting with Mr. J K Jain (CFO), Indag Rubber:

Indag as a brand has got fairly established. A certain segment of quality conscious customers do ask for Indag brand.

Our quality has stood out over the years. For example we are the only retreader who can collect advance payment from some State Transport Units (STU) like the UP STU.

We have introduced newer materials and more effective tread patterns that have started paying off in the last couple of years. We have started growing at a much faster pace now.

If a new CV tyre costs Rs. 18000 then retreads usually sell at 4500-4800 range and a good retread runs approx. 80-85% of a new tyre. Hence it’s a logical cost saving proposition and the business will continue growing.

Roughly 40% of tyres come for retreading at the end of useful life.

Demand is robust, we have not seen any slowdown in demand of retreads.

Please check out the complete management interview (requires free login)

One of the key take away from the meet is that the company is being professionally managed and management is quite conscious on the quality of earnings rather than just growth. Company maintains strict control on debtors and inventories and hence it has good free cash flows.

Company is confident of maintaining the volume growth seen in first two quarters of FY 2012 and we expect an EPS of Rs.30-35 for current year.

Balkrishna Ind–Management Meet

Friends, we had posted about Balkrishna Ind (BKT) and highlighted about their superior business model when compared to the regular tire industry. The story has only become stronger and there is much more visibility on the growth ahead. Our friend Donald Francis visited BKT to get in-depth understanding on the company and get answers to some of the queries. Few highlights:

Co targets to be a $ 1 Bln turnover company by 2015

Co targets to capture about 10% global market share by then

We have grown sales in FY 11 at over 40%. If we had capacities, we could had sold much more

Order book is there for 5 months and the margins are protected at about 18-20%

Please check out the complete management interview (requires free login).

Key Takeaways from the interview:

The co seems to be on track to continue its spectacular track record of growing at a CAGR of 29% for last 13 years. Their target of $ 1 Bln turnover and 10% market share seems quite achievable.
For FY 12, BKT may be able to do a 25-30% growth resulting into a turnover of 2500-2700 Cr.
There were concerns on the growing competition and we asked the management about the same. It seems the market is big enough for 2-3 players to operate like BKT and take away the market share from biggies. Other players will take quite some time to catch up.
So if the company is able to do a turnover of about 2500 Cr with 18.5% OPM, it may post a NP of about 240 Cr, resulting into an EPS of about 25 for FY 2012. CMP of 156 discounts it by just 6.5 times.

We feel that as BKT is entering the big league and making its presence felt in the global OTR space, the stock deserves a re-rating also. It would be tough to find companies having a consistent growth of about 30% for last 13 years with good margins, ROCE etc available in single digit PE multiples.

Astral Polytechnik–Management Meet

We had recently posted about Astral Polytechnik Ltd. (APL). We had discussed about the shift taking place in the Indian plumbing market from GI Pipes to CPVC and Astral’s leadership position in the same. The feedback and further research on this stock has been remarkable.

Our friend – Donald Francis, made a company visit and had a Management Meet to get a better understanding. Few highlights:

We see us growing at 30-35% CAGR for the next few years. If we execute well, a Rs. 1000 Cr turnover is achievable within the next 3 years.

We are looking to expand to 70,000 MT by this year end.

The availability of the CPVC compound (other than Lubrizol) is a key constraint.

Please check out the complete report (requires free login) to get a in-depth understanding of the company and the potential ahead.

Key Takeaways from his meeting:

The opportunity for the CPVC players is huge as the acceptance and usage of CPVC is increasing fast in the plumbing industry.

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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. […]