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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

A review of FY12 Results [Updates]

The annual results are coming out and it’s a good time to re-evaluate the portfolio and also start considering what lies ahead for FY13. Here is an update on the performance of some of our ideas:

Gujarat Reclaim Rubber: We had first discussed about this idea at 875 levels and provided multiple updates. The stock did very well despite the weak markets. The Q4 nos are pretty weak and below expectations in terms of profitability though the top-line growth is intact. We feel that one should consider the annual performance also wherein the company has grown the topline by 30% for the year and net profits by 45% despite the weak Q4. It may be just a weak quarter due to several reasons like – write off of Plant & Machinery due to fire in the last quarter and loss of production (majority to be recovered by way of insurance), increase in employee cost due to one time bonus etc. and fluctuation and appreciation of rupee resulting in lower margins.

As per notes to accounts, the company has partially started the new production capacities and may be the growth will bring back the profitability. For FY 13, we do expect the company to grow 25-30% once again.

Continue reading A review of FY12 Results [Updates]

Cheers for Gujarat Reclaim & Rubber Products

Hello friends,

Congratulations to you all for participating in this superb run of Gujarat Reclaimed Rubber. Thanks for all your wonderful comments and your continuous support. Even in this relatively dull market, GRRPL has done remarkably well.

The stock has been a major outperformer and has more than doubled since our initial recommendation @ 875 about 2 years ago to Rs 2,000 now. We have been repeatedly providing updates on Gujarat Reclaim Rubber and the high allocation & conviction has been possible due to the regular feedback by our readers and friends. We would encourage you all to invite more of your friends & colleagues and keep exchanging more ideas.

Continue reading Cheers for Gujarat Reclaim & Rubber Products

Q3-FY12 Result Updates

When the majority were bearish, the markets surprised them by giving a strong upwards swing. Most of the stocks prices have improved by about 20%+ in less than a month. This is why it is always advised not to time the markets. Rather than remaining on sidelines, one should target companies doing well and yet available at sane valuations. The Q3 results look good till now. Here is an update on some of our existing ideas:

1. Indag Rubber: The company has posted yet another good set of results. Top-line grows @ 55% and Net Profits @ 85%. Yet the stock is still available at less than 5 times earnings. It looks to have good potential ahead.

Particulars	Dec 11	Dec 10	% Variation	FY 2011
Sales	57.45	37.17	54.60%	149.47
PBIDT	7.77	4.44	75.00%	16.69
Tax	1.59	0.85	87.10%	2.89
PAT	5.31	2.88	84.40%	10.75
EPS	10.12	5.48		20.48

*All Financial figures are in crore rupees (except EPS).

2. IFB Agro: The company has posted steady results with strong improvement in margins from the liquor business. The stock seems cheap as it is trading at just 4.5 times the earnings. Technically too the stock seems to be heading for new highs.

Particulars	Dec 11	Dec 10	% Variation	FY 2011
Sales	120.97	106.80	13.30%	422.82
PBIDT	14.82	7.73	91.70%	36.27
Tax	4.14	1.86	122.60%	8.40
PAT	8.23	3.47	137.20%	17.82
EPS	10.28	4.33		22.26

*All Financial figures are in crore rupees (except EPS).

3. Gujarat Reclaim: The company remains to be our favorite with its repeated stellar performance. If one considers the superior business quality of the company, superior ratios, management quality etc., we feel this company deserves much higher valuations. Over next one year, the company is in process of expanding its capacity by about 40%+. This stock should get a high allocation in the portfolio.

Particulars	Dec 11	Dec 10	% Variation	FY 2011
Sales	62.68	46.20	35.70%	185.04
PBIDT	15.23	7.43	105.00%	33.19
Tax	3.96	1.56	153.80%	8.14
PAT	8.53	3.97	114.90%	17.62
EPS	63.98	58.12		132.16

*All Financial figures are in crore rupees (except EPS).

Continue reading Q3-FY12 Result Updates

Nesco Updates

BSE Code: 505355 | NSE Code: NESCO

We recommended Nesco recently after going through the wonderful analysis by Prof. Bakshiji. The stock has got good coverage by fellow value investors and business channels. Do go through the detailed post by Rohit along with links to posts by Neeraj & Ninad.

Our viewpoint and thoughts in brief:

The Bombay Exhibition Center covering area of about 4.5 Lac sq. ft., is a sort of monopoly in Mumbai with a lot of bargaining power. The growth in rentals can be observed from the table below:

Year	Annual BEC Revenues (Million in Rs.)	Space (sq. ft.)	Monthly Rate (per sq. ft.)
2011	656.20	450000	122
2010	540.40	450000	100
2009	349.60	450000	65
2008	496.30	450000	92
2007	329.10	450000	61
2006	144.10	450000	27
2005	109.70	450000	20
2004	54.40	450000	10

Today most of the biggest trade events held in Mumbai are held here. Such kind of business is tough to find at reasonable valuations and I think most of us would agree that current valuations are reasonably cheap.

The trigger is: the company has already constructed IT Building – 3 which has a leasable area of close to 8 Lac sq ft. At a conservative rental of Rs.100 / sq ft, the company should be able to get a Net Profit of 70 Cr+ (post tax). This might happen over next 1 year.

Nesco made a Net Profit of about 68 Crores last year so if the profits are to double over next 1-2 years, the stock can also double out without any PE re-rating. Plus going forward, the company plans to build another IT Building and double the leasable at its Bombay Exhibition. Hence being a debt free company with about 180 Crore cash on Balance sheet, it seems to be a very safe pick at these levels.

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.

Portfolio shuffling…

It is important to re-evaluate the portfolio and weed out non-performers, or the stocks in which the story is not developing as expected, or switch to new ideas which look cheaper or have more value than others. We have exited from couple of our ideas over last few days:

1. Jocil – Initially discussed @ 265, it is a good company with good fundamentals. The company has also rewarded with a bonus in the ratio of 1:1 and the stock is cum-bonus @ 285. Yet, we are switching out as we feel better ideas are available. Also a couple of negatives are – 1.) The company hasn’t been growing over last few quarters while the debt has increased. 2.) Company is import dependent and due to strong rupee weakness, they may get a hit.

2. Balaji Amines – Initially discussed @ 48, though the stock seems cheap at 4 times PE multiple @ 35, but the negatives are – 1.) The debt levels are too high to be comfortable with. 2.) Being in chemical sector, stock usually get low PE ratios due to lumpy earnings. At this time, there are several companies which are debt free, domestic business and showing growth, yet available at 4-6 times earnings. Eg: Indag Rubber, IFB Agro etc.

Some new ideas which we are studying and look good are – AMD Industries, Oriental Carbon & Chemicals and GIPCL. Continue reading Portfolio shuffling…

Quarterly Result Updates and new idea [Indag Rubber]

In these volatile times, I’m happy to see some of our companies doing quite well and the stocks getting the due re-ratings. It just re-enforces your faith in the fundamentals and markets.

We had discussed about Smruthi Organics on 4th April, 2011 at price of 135 and had provided an update recently. The company has posted good Q1 numbers and the stock has had an amazing run – the stock had appreciated from Rs 140 to 250 levels all in 15 days!

Similar, we had discussed about Avanti Feeds on 13th March, 2011 at Rs 33. The company has posted fantastic Q1 results:

Particulars	June 11	June 10	% Variation	FY 2011
Sales	109.43	46.92	133.2%	199.62
PBIDT	9.80	2.10	366.7%	12.38
Tax	2.39	1.24	92.7%	1.69
PAT	5.41	-0.68	LP	3.42
EPS	6.77	-.85		4.24

Continue reading Quarterly Result Updates and new idea [Indag Rubber]

Mangalore Chemical–CMP 32

We had discussed about Mangalore Chemicals at our blog about in December, 2010 @ 37. Our interest was due to good results in first half and expectation of better times ahead. After a weak quarter of March (due to annual closedown and higher depreciation on impairment), the company has posted good set of results for June Quarter:

Particulars	June 11	June 10	% Variation	FY 2011
Sales	583.45	489.29	19.2%	2520.11
PBIDT	43.73	26.85	62.9%	159.07
Tax	2.75	6.23	-55.9%	34.51
PAT	29.70	12.54	136.8%	77.54
EPS	2.51	1.06		6.54

If one looks at the whole fertilizer sector, there is a lot of interest in these stocks as major reforms are expected. Agri related sector is doing well and with upcoming reform, investments should increase and better results should be seen.

We feel that Mangalore Chemical is one of the cheapest stock in the sector and stock at CMP of 32 provides a very favorable risk reward ratio due to strong fundamentals:

Stock is trading at 5 times FY 2011 EPS of 6.5. For FY 2012, the company may do better than last year.
Company has a good Book Value of 33. Stock is trading at less than Book Value.
Co has raised dividend from 10% last year to 12% in FY 2011.
Mangalore Chemicals is part of the Vijaya Mallaya group and M Cap of the company is just about 380 Cr.