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. […]

You can read the complete in depth analysis done by us jointly at Stock Pick Focus.

In -depth Snapshot of Manjushree Technopack [at Stock Pick Focus]

You might also like 10 Questions to Manjushree Technopack Management.

Asian Hotels

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About Asian Hotels:

· They operate three 5 star deluxe category hotels. Locations: Delhi, Mumbai & Kolkattta.

· They operate the Hyatt Regency brand on the above three locations.

The stock is still undervalued based on the following logics:

· The hotel sector is also recovering with the upturn in the economy. Going by the latest newspaper headlines, occupancies are back to 85% though ARRs are still 10-20% below normal peak levels. Hotels stocks are still down more than 50% below the crash levels.

· Usually the per room cost (excluding land cost) is considered to be 1 Cr for a good 5 star property. Asian Hotels has 1144 rooms in total and at CMP of 420, the per room M Cap works out to be around 80 lac only.

· The company is believed to have aggressive expansion plans post demerger

Demerger:

The most noticeable point based on the latest demerger scheme is – Promoters are going to infuse Rs. 341 Cr before the demerger by taking a preferential allotment @ 540…while CMP is 420.

Post demerger, the three hotels i.e. at Delhi, Mumbai & Kolkatta will get listed separately. So a shareholder holding 3 shares of Asian Hotels currently will get 1 share each of each of the separate entity.

Since long Asian Hotels hasn’t expanded its hotel base. It is said that there were conflicts between the promoters and hence the company wasn’t aggressive. With the demerger, the negative synergy should be removed.

The unlocking of the hidden value for the current shareholders can be expected with this demerger.

Manjushree Technopack (MT)

Top 10 Brand Values
Top 10 Brand Values

This was the article in “Economic Times” which specially attracted Dad. At number one, in respect of brand value, it was none other than Coca-Cola, and on a bit of research, it was revealed that Manjushree Technopack (MT) was providing bottling services to them. Yeah, it became an instant favorite 😀 .

banner

MT is a packaging solutions provider with an experience of two and a half decades in providing its customers with cutting edge plastic packaging solutions.

Few positives:

  • MT has been growing at CAGR of almost 25% for last 5 years. This growth rate is expected to continue for next few years based on the aggressive expansions the company has been undertaking. The company has been tying up with the top MNCs
  • MT has an impressive client profile : Cadbury, Nestle, Coca Cola, P&G, Bisleri etc
  • MT has been able to maintain very good operating margins and able to expand the same with increase in turnover. The other good things are its strong balance sheet – reasonable debt equity ratio, control over debtors and inventory to get strong cash flow.
  • As per the recent announcements, the company has tied up with Coca Cola & Bisleri and is putting up exclusive capacities to cater to their requirements. As per the arrangement, the offtake will increase 50% every year.
  • MT is also targeting to cater to the liquor industry and has tied up with likes of UB Group, Radio etc.

Attractive Valuations:

  • At CMP of Rs. 32.50, the stock is available less than 5 PE.
  • It is trading at a discount to its BV of 44 by almost 25%.
  • Co is a regular dividend paying company & had paid 10% dividend last year.

Expectations:

  • We expect MT to continue to grow @ 20-25% for next 2-3 years.
  • For FY 2010, MT may be able to deliver 130-140 Cr turnover resulting into a NP of 8-10 Cr. Hence an EPS of 6-7.5

Snapshot of past financials:

snapshot

Shilpa Medicare – Update

YTD graph of Shilpa MedicureWe recommended SML in our blog on 26th July, 2009 @ 90. The stock has witnessed a fantastic upmove and has been hitting upper circuits since last few days. The stock was locked up at 161.70 today J

At CMP, we advice small/partial profit booking but at the same time one shouldn’t underestimate the long term story in this stock. The stock still has long term potential for the following reasons:

  1. The company is all set to emerge as the biggest & dedicated player in the Oncology segment.
  2. The company has fantastic operating margins of 25-30% and the company is growing @ 30%+.
  3. For co’s growing at such pace with such high margins, the PE multiples could be in the range of 15-20.
  4. If so, price target of Rs 200 can be achievedJ.

Other triggers are:

  1. The company is expected to receive USFDA approval by the end of this year.

Apart from that, we are awaiting the annual report of the company and looking for industry/market updates. Chip in your updates, if any.

Albert David

Hi Friends,

Have a look at this small sized pharma company which has been performing very consistently over the years yet the valuations are cheap.

The pharma sector is going through very good times and one should invest in good company still available at reasonable valuations. Good things are:

  • At CMP of 75, the stock is trading at less than 6 times FY 09 EPS of 13.2 and much less than the BV of 100+.
  • The company has a good dividend track record and paid a dividend of 35% last year hence giving a div yield of 5%.
  • Company though not aggressive yet is a slow and steady performer with clean balance sheet. They did major upgradation, expansion and modernization of their facilities a year back and the positive effects should be seen in coming quarter nos.
  • They have very strong cash flow as the company is very disciplined on the Inventories and Debtors position.
  • Their Q1 nos were pretty good and if they repeat or improve the same, the company should be able to post an EPS of 17-20 for FY 10 and stock has potential to give 50-100% in a year.

This is one of the stock ideas in which one can lock his profits .

Views Invited

Financial Snapshot:

Year

200203

200303

200403

200503

200603

200703

200803

200903

201003

   
Type

Full Year

Full Year

Full Year

Full Year

Full Year

Full Year

Full Year

Full Year

Full Year

   
Sales Turnover

95.60

103.33

114.39

101.79

127.42

141.16

158.12

183.91

200.00

   
Other Income

2.78

4.30

4.79

3.02

3.79

2.26

2.21

2.14

   
Total Income

98.38

107.63

119.18

104.81

131.21

143.42

160.33

186.05

200.00

   
Total Expenditure

86.43

93.83

103.04

92.54

113.97

121.51

137.84

160.75

   
Operating Profit

11.95

13.80

16.14

12.27

17.24

21.91

22.49

25.30

28.00

   
Interest

2.86

2.41

1.73

1.73

1.50

2.48

3.84

5.15

5.00

   
Gross Profit

9.09

11.39

14.41

10.54

15.74

19.43

18.65

20.15

23.00

   
Depreciation

3.15

3.45

3.47

3.92

3.87

4.77

6.73

7.95

8.00

   
Tax

2.00

2.74

3.69

2.42

4.45

7.56

4.59

4.66

5.00

Best

Worst

Reported PAT

3.94

5.20

7.25

4.20

7.42

13.20

7.33

7.54

10.00

11.50

8.00

                     
EPS  

9.11

12.70

7.36

12.99

23.12

12.84

13.20

17.51

20.14

14.01

PE  

10

10

10

10

10

10

10

10

12.00

6.00

Exp Price  

91.07

126.97

73.56

129.95

231.17

128.37

132.05

175.13

241.68

84.06

CMP (7-Aug-06)      

90

90

90

90

90

75.00

75.00

75.00

                       
OPM %

12.50

13.36

14.11

12.05

13.53

15.52

14.22

13.76

14.00

   
NP %

4.12

5.03

6.34

4.13

5.82

9.35

4.64

4.10

5.00

   
                       
Dividend %

16%

18%

20%

20%

25%

30%

30%

35%

     
Dividend Amt

0.91

1.03

1.14

1.14

1.43

1.71

1.71

2.00

     
Payout %

23.10

19.81

15.72

27.14

19.27

12.95

23.33

26.53

     
                       
ROCE:

20.66

23.33

27.55

15.25

21.19

20.82

14.78

15.21

     
                       
M Cap:

42.83

                   
BV:

100

                   

Jaihind Projects

“First I determine themes that will be played out over the next several years. Then I identify groups of stocks that reflect those themes.” – Ralph Wanger

Working on the above advice, we all will agree that the next big opportunity is in the Gas Sector. Early beneficiaries will surely be “pipe line laying” companies.

Jaihind Projects (JPL) is a leading player in this space and is scaling up very aggressively. I have been bullish on JPL for quite some time and feel that there is enough potential.

About Jaihind Projects (http://www.jpl.in/)

  • It is only listed dedicated player available in this space.
  • Company has been doing this work for major PSUs such as Gail, IOC, GSPL etc for several years. Gail, GSPL etc have ambitious targets for building pipeline network across India, JPL should surely gets its share in future orders.
  • The company has grown from just 50 Cr turnover in 2005 to 325 Cr turnover last year.

Going Ahead:

  • Company is expected to achieve a turnover of atleast 500 Cr+ this year and if they are able to maintain their historical operating margins at around 12%, the company has potential to achieve Net Profit of atleast 20-25 Cr.
  • Which will result into an EPS of say 20-25 on an expanded equity of close to 10 Cr.
  • At current market price of less than 100, the forward P/E is less than 5. Considering the things will go well, stock has potential to more than double in two years period.

Risks:

  • The company has been taking debt to expand so if there are delays, the company can be adversely affected.
  • The company has been diluting equity by issuing shares to promoters on preferential basis.
  • The company doesn’t pays dividend to conserve cash for growth.

Do work out the calculations and share the views.

Shilpa Medicare – A strong bet on Oncology

The company has come out with very good June Qtr nos and deserves a closer tracking.

About the company and the business:

  • Company has been expanding in the Oncology space and wants to be the largest Oncology API manufacturer in India apart from big formulation cos which do production for captive use. This space has lesser competition and hence quite high margins
  • Go through the announcements of the regulatory approvals the company has achieved in last 1 year. Co claims to be one of the few cos to get such approvals
  • Company expects to get USFDA approval by year end.

On Financials:

  • Company has scaled up from just 25 Cr topline in 2003 to 138 Cr last year and targeting close to 200 Cr this year.
  • Margins have been on the rise over the years due to co’s deliberate move from low margin to high margin business. The margins are currently at 25%+…on a turnover of 200 Cr this will result into an operating profit of 50 Cr, from this we should subtract the interest and taxation cost, which shouldn’t be more than 7.5 & 10 Cr respectively. We get a figure of 35 Cr+ as potential cash flow this year and NP could be close to 25 Cr, conservatively.
  • For margins calculations I have been removing the forex adjustments. Last year the company suffered a notional 10.85 Cr forex loss on the outstanding ECB. In this quarter there is a gain of 2.9 Cr.
  • There are some losses in the consolidated nos, as the company did an acquisition in Austria last year. These losses are expected to come down soon.

Why I like the company:

  • I like companies with scalable business model having high operating margins. Shilpa is growing fast with operating margins expected to remain very healthy around 25%.
  • The company seems honest and has been applying conservative accounting policies. The company has been providing good amount of depreciation and tax at the maximum rate.

Valuations:

  • Currently trading at less than 8 times expected FY 10 EPS of 12 (this EPS is excluding forex gains/losses). Not very cheap but a strong buy on declines.

Annexure 1:

Year

200303

200403

200503

200603

200703

200803

200903

201003

Type

Full Year

Full Year

Full Year

Full Year

Full Year

Full Year

Full Year

Full Year

Sales Turnover

24.11

35.66

37.51

47.62

68.39

95.81

138.09

200.00

Other Income

1.78

0.73

1.12

1.27

2.36

2.52

0.90

Total Income

25.89

36.39

38.63

48.89

70.75

98.33

138.99

200.00

Total Expenditure

23.68

30.88

32.79

40.58

56.79

77.22

102.00

Operating Profit

2.21

5.51

5.84

8.31

13.96

21.11

36.99

50.00

Interest

0.29

0.46

0.31

0.39

0.32

0.85

4.92

7.00

Gross Profit

1.92

5.05

5.53

7.92

13.64

20.26

32.07

43.50

Depreciation

0.30

0.82

1.00

1.77

2.30

3.51

6.05

9.00

Extraordinary Adj

0.00

0.00

0.00

0.00

0.00

0.00

10.85

0.00

Tax

0.63

1.74

1.24

1.88

3.48

5.44

8.39

9.00

Reported PAT

0.99

2.49

3.29

4.27

7.86

11.31

6.78

25.00

EPS

0.74

1.85

2.40

2.46

4.53

5.32

3.08

11.35

PE

12.00

Exp Price

136

CMP (26-Jul-09)

95

OPM %

9.17

15.45

15.57

17.45

20.41

22.03

26.79

25.00

NP %

4.11

6.98

8.77

8.97

11.49

11.80

4.91

12.50

Mcap

209.24

ROCE:

21.73

39.54

29.53

17.61

21.34

12.21

CHI Investments – proposed merger impact

Dear Friends,

RPG group has proposed the merger of the listed finance cos viz. CHI Investments, Summit Sec, Octave Investments, Brabourne Ent with RPG Itochu Finance. As per the preliminary analysis, I feel the scheme and ratios are unjust to the shareholders of CHI Investments.

There are two issues in this amalgamation:

1) RPG Itochu Finance Ltd shouldn’t be a blank company i.e. it should offer value equivalent to the value being offered by the merging companies. Explanation: We have been informed that RPG Itochu is having equity of close to Rs. 5 Cr without having any significant operations, assets or profitability on balance sheet. If so, it will reduce the current value of the merging companies by 50+%.

2) The swap ratios seem unjust:

The logic in all these four cos is: They are just holding cos, so the best way to value them is – consider the market value of investments they have and consider the exchange ratio accordingly, while RPG is trying to give benefit to Summit Securities which has the least value (refer column F below) among all the four listed companies.

Here is the calculation sheet:

Merger Impact (as on 13th July)

Equity

CMP

Current Mcap of Company

MV of Invest.

Ratio (MV of Invst/Mcap of Co.)

1 Share of RPG Itochu for

New Equity creation in RPG Itochu

Cost to shareholder in new co.

A

B

D

E

F = (E/D)

G

(A/G)

H = B*G

Summit

48.51

8.4

40.75

165

4.05

16

3.03

134

Brabourne

14.39

7.75

11.15

58.04

5.20

28

0.51

217

CHI Investments

11.46

28

32.09

258.80

8.07

6

1.91

168

Octav Investments

3.01

20

6.02

26.11

4.34

21

0.14

420

507.95

5.60

MValue of Investments per share in new company (436.93/5.60)

907.19

RPG group is trying to give more value to Summit Securities where the ratio of MV of investments to MCap of the company itself (i.e.. column F) is the lowest. i.e.. 4.05 times vs 8.07 of CHI Investments. So the company having the least value has been offered the best swap ratio (refer column H) and other companies i.e.. CHI Investments and Octave are being penalized L

The approximate damage to the shareholders of CHI is:

Damage to shareholders of CHI Investments
Earlier After Merger
M Value of Investments per share

225.83

907.19

Cost to shareholder

28.00

(CMP)

168.00

(As per merger ratio of 1:6)
Ratio (of Value of Investments per share)

8.07

5.40

Damage:

33.05%

This is a clear case of unjust value erosion to the shareholders of CHI Investments. We should take the matter to the company and SEBI etc.

If the management’s intention is to just consolidate the cos into one company, why merge these into RPG Itochu?? Why not merge the other 3 companies into CHI Investments which itself is listed on both BSE & NSE.

At the bare minimum, they should revise the swap ratio for shareholders of Summit Securities to 1:56 from 1:16 (Logic: CHI holds value 8.07 times while Summit has value of only 2.31 times so swap ratio for Summit should be 2 times more than current ratio). Ideal swap ratio for Summit Securities should be 1:40, if swap ratio for CHI is 1:06, to bring the shareholders to the same level.

Management should provide details on RPG Itochu and the rationale for these swap ratios.

If the swap ratio gets corrected it will result into value-unlocking for CHI Investments.

Assumptions:

  1. All calculations have been done considering RPG Itochu finance to be a new company created for the purpose of merger or having a very small equity capital.
  2. I haven’t considered the value of unlisted investments in the above companies (they are less than 10% of the total investments).
  3. Haven’t considered the impact of merger of Instant Holdings with KEC, which is a subsidiary of Brabourne Enterprises.

P.S. There were few updates on the Value of investments in the companies the effect of which has been updated on 26th July 09.

UPDATE: The most important question in this amalgamation scheme is – What does RPG Itochu Finance Ltd has to offer ?

As per recent updates, it has been known that RPG Itochu Finance Ltd is having an equity of close to 5 crores with no significant operations. If so, then this merger will reduce the value of merging companies by 50+%. The effect of the same is not reflected in the tables above.

The ride of CHI Investments

CHI Investments has hit an another upper circuit closing at Rs.44.25. What a wonderful ride it is going on.

We recommended CHI Investments on 15th May on this blog, when its price was Rs.25.

chi-vs-sensex

CHI Investments may reach Rs.70 in near future and the old investors should start reducing their average costs (and enter into other value picks). However, we still recommend in holding a major part of the stock for a long term.

The real beauty of the stock is that it is still discounted at around 85% as KEC (forming 50% of its portfolio) too has seen a similar price rise. Seeing the recent trend, it wont be hard for the stock to reach the optimum levels and reduce the discounting.

Keep circuiting up CHI Investments!

An Insight of a Term Loan Evaluation by a Bank

The evaluation process by banks are one of the most comprehensive evaluations and can be used to evaluate almost any company. The presentation below tries to cover this process in few slides. The various topics covered include evaluation of companies, management rating, economics, risks and cash flow study.

Continue reading An Insight of a Term Loan Evaluation by a Bank