Textile Stocks offering value?


The whole textile sector has witnessed a strong performance in last 1 year and the last quarter numbers were exceptional. Yet most of the stocks are languishing and available at low PE multiples. Yes, it could be a value trap if the textile cycle turns towards bad but there are several long term positives going on for the sector and the medium term looks bright, for eg: Appreciation of Yuan is making Indian Textile much more competitive than before.

Ideal way to bet on this sector is to choose few stocks which offer decent margin of safety and invest for medium term. Few ideas which we like are:

Continue reading Textile Stocks offering value?

Sunflag Iron – Update & Ideas

A Blog of Value Investing

We had discussed about Sunflag Iron and provided an update earlier. At that time the company had been posting substantial improvement in operating margins and hence much better net profits and it seemed that the improved was because of the backward integration the company had been doing over last 2-3 years. But since last 2 quarterly results, the margins have taken a hit and so have net profits.

As the whole midcap space has undergone a strong correction in last 3 months, there are several other interesting ideas available at good valuations. One may consider switching out from Sunflag Iron into new ideas.

Some new ideas on which we are researching are:

Continue reading Sunflag Iron – Update & Ideas

Pondy Oxide

We are always in search of undervalued and under-researched mid/small caps. Pondy Oxide appears to be one!

Pondy Oxides and Chemicals (POCL) is one of the India’s leading metallic oxides and plastic additives producers. Its products are Zinc Oxide, Litharge, Grey Oxide & Red Lead. These products are used in battery industries and automobile sector. India has been witnessing a steep growth in the usage of Lead consumption due to sharp rise in use of Lead acid batteries in automobiles, invertors and UPS. POCL specializes in refining of Lead and related metals.

POCL extracts lead and other metals from scrap batteries and re-uses the same after refining. POCL has been able to refine Lead to 99.99% purity through its R&D department. This form of lead is being imported in India for manufacturing of VRLA batteries.

POCL has a impressive growth track record – the company has been grown from just 20 Cr turnover in 2001 to 230 Cr in 2010. Still the company is available at a M Cap of just 30 Cr.

POCL has 3 business segments – 1. Metals 2. Metal Oxides 3. Plastic Additives

The company is one of the major player in the Metal Oxide Segment. It ranks among the top 10 players in India.

The company claims to be having a 30%+ market share in Plastic Additives segment in India. POCL has been innovative and develops new products through it’s R&D department to stay ahead of the competition.

POCL caters to the top players of the battery industry – Exide Ind, Amara Raja, HBL power etc.


POCL has a subsidiary Lohia Metals Pvt Ltd. The company holds 51% stake in it. In FY 2010, the company did about 75 Cr of turnover and posted a NP of 6.50 Cr. Therefore on the consolidated basis POCL is having an EPS of 12.25 vs EPS of 5.74 on standalone basis.

Valuations at CMP of Rs 30:

  1. The company has been growing at a CAGR of 30.69% for last 10 years. Turnover has grown from 20.81 Cr in 2001 to 232 Cr in 2010.
  2. The stock is available at 1.2 times standalone BV of about 25 and 1 times consolidated BV of 30.
  3. The stock is trading at a PE of 5 on standalone earning and a PE of just 2.5 on consolidated earnings.
  4. POCL has a fantastic track record of consistent high dividend. The stock is still available cum dividend of 12%. Giving a high dividend yield of 4%
  5. The company has posted a very strong Q1. The standalone turnover has increased from 26.51 Cr to 60 Cr. If the company is able to repeat the trend, POCL may be able to do a turnover of 250 Cr vs 150 Cr last year on standalone basis.

So here is a strong growing company available at cheap valuations.


  1. Being a metal sector company, it is prone to risk of high volatility in metal prices. For eg in 2008-09 when the metal prices tumbled sharply, the company had to suffer inventory losses and the profits were wiped out for the year.
  2. As per FY 10 Annual report, company has raised loans for expansion hence Debt Equity ratio is high at 2:1.

Company Website

Yearly Consolidated (Valuation Sheet)

Yearly Standalone (Valuation Sheet)

Riddhi Siddhi Gluco Biols Ltd.

Riddhi Siddhi Gluco Biols is the largest producer of Starch & starch derivatives in India. The company has a market share of more than 25%.The most interesting thing about the growth of this company is – the promoters have build everything in just 20 years. They started from scratch in 1990 and today they control 25% market share and do a turnover of 750 Cr+. They now have three strategically located plants spread across different areas so that they can cater to customers across the County in the most efficient manner.

Starch & starch derivatives find application in diverse industries like – Paper, Textile, Pharmaceuticals, Adhesives, and Confectionery etc. Hence the characteristics of this industry is more like FMCG industry i.e.. the demand is ever increasing. The industry is expected to grow @ 15%+ for next few years. Riddhi Siddhi has been growing consistently with CAGR of 30% for last 5 years.

In India the per capita consumption of Starch is quite low as compared to the developed nations. The consumption is picking up every year. Another opportunity area is – as of now only 40 types of applications are done with Starch in India, while worldwide more than 1000 applications are there. So the company has a potential to do lot of value addition and grow.

If one analyses the past 10 year track record of the company, the company has had a wonderful CAGR of 27.58%. Very few companies can claim such growth rates. Operating profits & Net Profit CAGRs are even better.

A close look at the Balance Sheet of last ten year also gives some interesting insights –

  • The company had been growing by way of debt till the year 2005 and the balance sheet was quite leveraged. Debt equity was as high as 3.62.
  • In 2006, the company got equity participation from one of the biggest company in this business – Roquette. The French major took a 15% stake in the company.
  • Since then the debt problems reduced and the debt equity ratio has been steadily decreasing. The debt equity ratio is now expected to be close to 1 now.

In year 2008 & 2009, the company had a couple of tough years. Since then the company has been witnessing strong topline and operating margin growth. They have been using the cash flows in expanding the swiftly reducing the debt to make the Balance Sheet stronger. In 2009 & 2010, due lower interest costs, the increased operating profits are making direct impacts at Net Profit levels. This trend is expected to continue.

People feel that this business is cyclical. But a closer analysis of P/L for last 10 years reveals that the margins remain between 13-16%. So we should use these margins for calculating the fair value.


  • For Year 2011, we expect the company to do a turnover of close to 900 Cr.
  • At operating margins of close to 15%, the company may be able to post a Net Profit of 60-65 Cr, resulting into an EPS of 53-58.
  • At CMP of 285, the stock is available at a forward PE of less than 5.50
  • The company has a strong BV of 175.
  • Company has paid a dividend of Rs 5/share.


There were recent articles in media that the French partner of the company – Roquette (already holding close to 15%) wants to increase its stake to 51%. If so, it could lead to value unlocking and better future prospects.

Company Website

Camphor & Allied Products

Camphor & Allied Products is a pioneer in the field of Terpene Chemistry with technology from Dupont, USA. The products of the company are Synthetic Camphor, Terpineols, Pine Oils and Resins etc & they find application in Fragrance, Pharmaceutical, Soap & Cosmetics & Varnishes Industries. CAPL has two plants – first at Bareilly, UP & second at Baroda, Gujarat. CAPL also has a dedicated in-house Research Center.
CAPL has been witnessing major change in the performance and profitability since the change in the management in 2008. The company was taken over in 2008, via stake purchase and open offer @ Rs 167/share.
The new promoters are leaders in fragrance industry – Oriental Aromatics Ltd. Since then the turnover has increased from 105 Cr to 165 Cr and NP from 0.49 Cr to 10.18 Cr, yet the stock is available at Rs 100 only.

Attractive Valuations:

  • The stock is available at 20% discount to its BV of 125
  • Stock is trading at just 5 PE
  • At CMP of 101, the M Cap is just 51 Cr. Operating profit is close to 20 Cr.
  • Another compelling factor is the discount to the open offer price at which the company was taken over earlier.

Looking at the quick turnaround, much better revamped websites, strong tax pay-outs, the new promoters seem to be quite capable & honest. If the company continues the good performance, the stock should be prove to be an excellent long term investment and wealth creator.

Company’s Website: http://www.camphor-allied.com

Gujarat Reclaimed Rubber Products (GRRPL)

Rubber recycling looks like a good business – as it is both profitable and eco-friendly. Given the rising prices and supply limitation of natural rubber, usage of reclaimed rubber is more economical (costs Rs 40/Kg) and bound to increase. Add to it the opportunity to expand this business. There was an article which highlights the opportunity for this sector – thanks to addition of almost 33 million vehicles in last 3 years in India.

GRRPL has established a nice for itself and has become the largest reclaim rubber manufacturer in Asia. GRRPL is one of the most organised and technologically advanced company in this sector. The company has been manufacturing one of the widest range of reclaimed rubber with highest quality parameters and exporting almost 60% of its production. GRRPL has the technical expertise to offer machinery and technical know how to manufacture reclaimed rubber.

Lets look at their track record:

  • Grown sales from 15.5 Cr in 2001 to 130 Cr in 2009. i.e.. at CAGR of 30%
  • Grown Net Profit from 0.68 Cr in 2002 to 13.54 Cr in 2009. i.e.. at CAGR of more than 50%
  • Has been a regular dividend paying company. Has been maintaining a dividend pay-out ratio of close to 18-20%
  • High tax paying company.
  • First to implement customised SAP in the industry.

Company has had good profitability and other ratios:

  • Co has maintained high ROCE – almost 40%.
  • Co enjoys healthy operating margins of 18-22%.
  • Co has good control over inventory, debtors and debts.
  • Cash Flows are positive.
  • Company had a Book Value of about 320 as on 2009. It should be close to 400+ as on 31.3.2010


Promoters seem to be honest, educated and highly capable people who have a strong value system and are there to create value in long run.


The company has a tiny equity of just 1.33 Cr. Till 3 months back, the stock was traded in “Z” group and in lot of 50 hence many investors didn’t had access to buy the stock even though they liked this company. Now the stock is in B group.

At CMP of close to 875, the company trades at 8 times FY2010E earnings and 4 times EBITDA margins.

It would be tough to find quality companies at less than 10 times PE with following advantages:

  • Leadership position in their business segment
  • Consistent high ROCE of 30%+
  • Consistent good dividend pay-outs
  • Consistent growth in past years with CAGR of 30%+

The company is in process of expanding its capacity and should create new records in terms of turnover, profitability and market-share. One may do well by accumulating the stock on declines with 2-3 yr perspective.

Company Website | Snapshot of Financials and Projections


Are there any value picks in this market? Yes, I believe there are a few options like – Jocil. Most of us would be hearing this name for the first time 🙂

The company is a subsidiary of Andhra Sugars (55.02% stake) and is listed only on NSE. The company specializes in manufacturing of Stearic Acid Flakes, Fatty Acids, Toilet Soap, Soap Noodles and Refined Glycerine. The company has been doing contract manufacturing of toilet soaps for leading FMCG brands such as – HUL ( Liril, Lifeboy etc), ITC (Vivel, Superia etc), Marico ( Manjal, Jasmine etc), Johnson & Johnson (Savlon) etc.

Very strong financials:

  1. Jocil has been growing at a CAGR of 51% for last 3 years and a CAGR of 25% for last 5 years, yet it is available at a P/BV ratio of just 1.25, TTM PE of just 6.
  2. It is a debt free company. Has excess cash of 25 Cr on Balance Sheet (as of 31st March 2009)
  3. Has limited investment in inventory and debtors. Hence the business is not working capital intensive.
  4. Has a track record of excellent dividend payout ratio. (Payout ratio has been around 35% for last two years)

So at CMP of 265, we are getting an FMCG related company at a M Cap of about 115 Cr having atleast 25 Cr as cash on Balance Sheet, turnover of approx 300 Cr, Operating profit of approx 35 Cr and a Net Profit of 21 Cr. Isn’t it a value pick?

Other trigger could be – If the company maintains the div payout ratio of even 30%, it means a 150% dividend this year :):)

Company’s website: http://www.jocil.in

Views Invited.

Happy Investing


Sunflag Iron & Steel – CMP 31

Dear Friends,

Steel Sector has been witnessing a lot of price hardening due to both input price rise and demand. Stocks of this sector are finding interest.

One company which has good fundamentals and looks interesting is – Sunflag Iron & Steel. Sunflag is part of the Bhardwaj group having presence across 6 Countries in 3 Continents. The company manufactures high quality alloy steel which finds usage in Automobile Industry and Infrastructure sector.

The company has grown steadily over the years and should be able to post a turnover of close to 1300 Cr this year- FY10. Over the last few years, company has tried to go for backward integrations – for eg: expanding of captive power plants, acquiring coal blocks etc.

Attractive Valuations:

1. Stock is available at 7 times expected FY10 earnings.

2. Stock is trading at just 3 – 3.5 times FY10(E) EBITA margins.

3. If one analyses last few quarters, it seems the effect of backward integrations are fructifying and if the company can continue the same, the company may be on its way for yearly net profits of more than 100 Cr.

Another positive is – increasing shareholding of promoters (from 42.39% to 49.03% within one year).

Financial snapshot:

Interview of ER Shekhar, Director. | Company Website

Poly Medicure

P/E Comparison

Poly Medicure is one of our favourite small cap stock which has carved out a niche for itself and has grown well over the last few years.

The company is the one of the biggest exporter of IV Safety Cannulae and other healthcare disposable products. This business segment is always growing and with development of better medical facilities, this segment should grow faster.

Few worthy points:

  • The company has grown at a CAGR (Compounded annual growth rate) of 30.75% over last 10 years. (From turnover of 10 Cr in FY 2000 to 112.22 Cr turnover in FY 2009)
  • The company is expected to grow at 20% YOY (Year on year) for next 2-3 years. This year the company is expected to do a turnover of 135 Cr with a net profit of 15 Cr, thus implying an EPS of 27.
  • The CMP of 200 discounts the immediate EPS of 27 by just 7.5 times.

The last two quarters have been very good due to the backward integration efforts of the company done in the last few years and hence the company may be able to sustain operating margins around 20%.

Recent Developments

  • The company has won series of patent infringement cases against major B Braun, after which the company is free to sell the advanced IV Safety Cannulae with the inbuild safety feature (http://www.expresshealthcare.in/201002/market26.shtml). This product has potential to sell at a very remunerative price in the developed nations.
  • The company has been strengthening its sales network on the domestic front and tying up with major hospitals.
  • The company is looking to expand its capacities and targets to double turnover in next 3 years. For they same they are also looking to put up a new factory.


Being a high volume low price product, the scaling up of the business is not easy. The company has been trying to develop new products to overcome the same.

Here is a company with strong financials, good business model, high margins, good return on equity, good cash flow yet available at less than 8 PE.

Balkrishna Industries – Not just any regular tyre company

Its logical not to go for tyre companies as long term investment as the business model is not very attractive cause:

1. No competitive edge hence no pricing power and high competition

2. ROCE are low

This is where Balkrishna Industry (BKT) stands out. This company has had a spectacular track record of:

1. Growing at 30.47% CAGR for last 11 years!!! Yes, the company had a turnover of just 98 Cr in 1999 and last year, the company was able to post a turnover of 1407 Cr.

2. Net profits have also grown at the same pace.

3. ROCE has on average remained in the range of 20-25% for last 5 years.

4. Consistent healthy margins

5. Good dividend pay-out.

WHY is the the difference between Balkrishna Ind and other tyre cos so huge?? Reasons:

BKT operates in the OHT (Off Highway tyres) segment i.e.. the tyres find application in the agricultural and construction equipment segments. BKT exports 90% of its production to developed countries and 75% of the sales are to the replacement market.

Globally this industry is leaded by Bridgestone, Good year and Michelin…and as this business involves high customisation and labour, these global companies are unable to maintain their competitiveness. BKT has been able to provide the quality at 30% cheaper prices and hence is gradually gaining market share. As of now, BKT has a market share of 2-3% and the company aims to increase the market share to double digits in next 5 years.

The company has 1900 SKUs – one of the highest in the industry and the company claims to have an expertise in developing the new SKUs in-house in the least time.

Other positives:

During the crisis last year, BKT prudently held back the planned expansions to better the balance sheet. Result – the interest cost has reduced majorly and so has the debt equity ratio. The cash flows are coming in.

Going ahead, I feel the company will be back on growth to gain market share.

At CMP of 590 and declines, the company is available at attractive valuations for a long term investment perspective.