“Don’t judge a book by it’s Cover”
This seems to be an apt quote in the case of Piccadily Agro (PAL). I had a look at this stock idea about a year back and was stupid to give it a go thinking it to be just another Sugar company. Since then the stock has tripled and yet looks to be a very interesting stock idea with lot of potential.
Piccadily Agro Limited started off as an Sugar company in Haryana and the performance paralleled to the cycles of Sugar Sector. In 2008, the company ventured into Country Liquor business and the same seems to have done wonders for the company. Have a look at the financial performance till 2007 and then since 2007:
Financial Performance till 2007:
Continue reading Piccadily Agro
Sree Sakthi Paper (SSP) is the largest kraft paper producer in South India. The company is part of the Sree Kailas Group. Incorporated in 1991 with an installed capacity of 4,500 tpa the company has been growing steadily and now has a installed capacity of 1,00,000 tpa i.e.. 20 times in 20 years.
SSP has a impressive client list – ITC, HUL, WIMCO, Godrej, Mc Dowel etc.
What we like here is the high dividend yield of 7%+ and regular growth in the company. This stock might be offering the highest dividend yield in the market.
Snapshot of the dividend track record
At CMP of about 25.50, if the company maintains the dividend of 18% declared last year, one will get a dividend yield of 7.05%. This is much better than FDs etc cause dividend is tax free in the hands of investors. Also as SSP is a growing company, one can expect a good capital appreciation.
Company came up with the IPO in January 2006 at Rs.30 when turnover was approx. 60 Cr while today the fundamentals are much better yet the stock is available below the IPO price.
Why the dividend of 18% may be maintained?
Very good half yearly results:
Company has already reported 30% growth in sales and 55% increase in profits for the first six months and the second half is expected to be better. So there is a high chance of the company maintaining the past dividend track record or improving it further.
- Over the last 5 years, sales have grown at a CAGR of 26% from 57 Cr in 2006 to 143 Cr in 2010. This year, the sales are expected to cross 175 Cr.
- Stock is available at PE ratio of 7.25 based on trailing twelve month earning.
- Company has a good BV of 22.20.
- Co has already announced a 8% interim dividend. Stock is trading ex-dividend.
This stock idea may be used as a safe bet to balance cash portion of the portfolio or to park the profits.
Company Annual Report @ reports.dalal-street.in
A week back we had mentioned about Facor Alloys as one of our Mahurat Picks. The stock was in action today and up by about 16% to Rs 7.73. As the stock is crossing the level of Rs 7 after about 6 months, the action may have just begun.
First of all, I’ll like to thank Rohit for bringing to notice the merits in this company at his blog. He had discussed the stock about 6-7 months back, since then the company has posted much better than expected numbers.
Facor Alloys is in the business of chrome alloys, which are used in the steel industry. The industry is highly cyclical and the fortunes are linked to the steel industry cycle. South Africa is worlds largest producer of Alloys (60% share), over the last few years, India’s alloy industry has gained importance and is growing rapidly due to acute power shortage in South Africa.
Over the last few years, the company has very well re-structured itself. The debt has been wiped off, preference capital paid off + the company now has excess cash on balance sheet of about 35 Cr + Investments of 15 Cr in unlisted group company. Hence excess cash + investments is almost 40% of Current M Cap of about 130 Cr and provides a lot of comfort.
We feel the stock is a valuepick at these levels of about 7-7.50 and a re-rating may happen in the stock. Several positives are:
- The chrome alloy cycle seems to have turned positive.
- Co has been growing steadily by generating cash from internal accruals. This year expected revenues are 400 Cr+
- Co has posted excellent Q2 numbers.
- Cash Equivalent on Balance Sheet is almost equal to 40% of Current M Cap
- The company has been paying a dividend of 15% for last 2 years (FV = 1). Hence giving a dividend of 2%+ at these prices.
- Stock is available at 1.2 times BV of 5.6
- Stock is trading at just 5 times TTM PE
- Being a highly cyclical business, the earnings are highly volatile.
- Its a commodity natured business.
Indian Bearing industry comprises of 10 major players and several units in unorganised segment. Due to technology barriers, the industry is dominated by foreign players like SKF, FAG Bearing etc. and hence these players have high margins.
ABC Bearing is one of the largest player in tapered roller bearings which find usage in CV & Tractor industry. ABC has the technological collaboration with NSK, Japan and hence it has also developed a certain market share for itself. The co has a long standing relationship with automotive majors like Tata Motors, Ashok Leyland, Mahindra etc.
If one analyses the financials of the company, the company has had high operating margins in the range of 20-25%. Between FY 2002 and FY 2007, the company had grown steadily from 65 to 182 Cr turnover and had very strong profitability. In FY 2008 & 2009, the CV industry went through a rough phase and so did the company had a decline in turnover and profitability. Now the CV segment is back to strong growth and ABC should do well. Based on the last few quarter numbers, the company is already posting all time high turnover (200 Cr annualised).
- The co has constructed a new factory in Uttarakhand in a record time of 4 months. The plant was inaugurated on 28th March, 2010. This plant will primarily cater to the Ashok Leyland’s Uttarakhand plant. Sales growth should start coming up in next few quarters.
- The co is setting up another manufacturing facility for – Slewing Bearing & Large bearing. This is expected to get completed by end of this year.
Valuations at CMP of 155:
- For FY 2011, the company is expected to post a turnover of 205 Cr+. i.e.. a growth of more than 25%
- For FY 2011, the co may be able to post a NP of more than 25 Cr+, hence an EPS of more than 22.
- Stock is trading at about 7 times expected FY 2011 earning.
- The co has consistent record of high dividend pay-out of 25-30%. Last year the company paid a dividend of 45%.
- Co has enjoyed high ROCE of 30%+ consistently.
- Its almost a debt free company. Co repaid a loan of about 50 Cr in FY 2010.
If one looks at the valuations of bigger players in the industry like SKF, NRB, FAG Bearing etc, they trade at 15-20 PE.
Given the strong growth prospects for the company ahead over next 1-2 years, it seems to be a good growth story at attractive valuations.
We had mentioned about Sunflag Iron. Since then then the stock price has appreciated by just 10% while the fundamentals and the outlook seems to be getting stronger.
We had mentioned that the company has been acquiring coal blocks since last few years and getting backward integrated. The latest annual report gives a strong confirmation on the same:
Excerpt from the FY 2010 annual report:
“During the year under review, the total coal production at Belgaon Coal Block is 140,147 MT as against of 51,234.41 MT in the previous year, which is about 174% higher than the previous year.”
If one analyses the Fixed Asset schedule and the investment section, the company has been stepping up the investments for captive coal blocks after the success from the Belgaon coal mine. For eg: The co has invested 10 Cr+ in subsidiary – Khappa Coal Mine which is JV between Sunflag Iron (63.27%) & Dalmia Cement (36.73%).
Future expansions as per the annual report:
Compelling Valuations at CMP of 34:
- FY 2011 Expected turnover is 1650 Cr+, with expected NP of 110 Cr+
- Stock is trading at less than 5 PE on expected FY 2011 earnings
- Stock is trading at 1.25 times BV of 25.50
- Debt Equity ratio has improved to 0.80 : 1
Promoters have been regularly buying from open market and have increased their stake from about 40% in September 2008 to about 51% as of now.