@pradip wrote:

Godrej Consumer.xlsm (249.8 KB)

The 120 Yr old company is going strength to strength in both India and outside. Though the company is a familiar household name in India, below I have put together a quick investment thesis-

Godrej Consumer Products is a fast moving consumer goods company, manufacturing and marketing Household and Personal Care products. The company has been nominated for CNBC IBLA outstanding company of the year award 2019.

Today, the Group enjoys the patronage of 1.15 billion consumers globally, across different businesses. In line with their 3 by 3 approach to international expansion at Godrej Consumer Products, they are building a presence in 3 emerging markets (Asia, Africa, Latin America) across 3 categories (home care, personal care, hair care). They rank among the largest household insecticide and hair care players in emerging markets. In household insecticides, they are the leader in India and Indonesia and are expanding their footprint in Africa. They are the leader in serving the hair care needs of women of African descent, the number one player in hair colour in India and Sub-Saharan Africa, and among the leading players in Latin America. They rank number two in soaps in India, are the number one player in air fresheners in India and Indonesia, and a leader in wet tissues in Indonesia.

Below are snippets from company’s financials based on screener data -

Total Income - The company has managed to grow revenue consistently over years. Though the growth has slowed in recent years.

Net Profit Margin - The NP margin has increased in last couple of years driven by cost savings initiatives initiated across markets. The NP margin is >10% and mostly stable which is a healthy indicator of pricing power the company enjoys. For e.g. the company is facing rising cost challenges in Argentina which it plans to pass over to customers.

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Earnings per share - The company has been steadily increasing EPS over the years. The promoter holding is stable at ~63% over the years (no equity dilution)

Reasonable debt - The company carries reasonable debt on its balance sheet (<2 times of annual net profit). Too much of debt kills the profit and becomes a burden during stressed times.

Cash Flow - The company’s cash flow looks healthy. It has been generating free cash flow consistently. Generating free cash flow is a healthy sign as that shows that the company does not need a continuous investment in research and capacity build which exceeds the cash flow/profit it generates.

Return on Equity - The company has been improving its RoE in the last couple of years driven by increase in profit margin. RoE >20% is a good indicator of efficient capital allocation.

Inventory management - The company has been managing inventory quite well. The growth rate of sales exceeds that of inventory. Inventory pile up is a worrying sign as that indicates that the company has been struggling to push its products to the stores and eventually to customer’s homes.

Asset Distribution - The company’s asset side looks stable and healthy. Both receivables and inventory are stable over time.

Liability distribution - Though a quarter of the liability is debt, the proportion is stable over time. One of the reasons the company has to borrow from the market is to be able to fund its acquisitions both within India and outside.

The financials of the company look very pristine and healthy. Coming to valuation, the company currently trades at ~27X consolidated earnings. The PE ratio in the last 5 Yrs are ~31, ~30, ~38, ~28 and ~24.

The company’s Q219 concall and investor presentation inspires confidence of exciting times ahead. Given the successful history of the company, the company looks promising to deliver on the growth plans.

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GCPLQ2FY19ConferenceCallTranscript.pdf (217.1 KB)

On the risk side, the following could hurt the company -

1.The company is facing challenges in generating returns in Latin America and Africa (company’s ~50 revenue is generated outside India). So if these markets don’t turnaround, the overall returns of the company will be reduced.

2.Some of the acquisitions in the past couldn’t perform well. The company sold its UK subsidiary in 2018. Though the company has hinted that it will be going slow on acquisitions, any non-strategic acquisition by the company will hurt.

3.New product launches could fail to impress the customers.

4.Govt initiatives like Swatch Bharat might hurt the sales the company generates from HIT & Good Knight.

I invite thoughts/comments on GCPL by all boarders!! @hitesh2710 @Yogesh_s @deevee @basumallick @richdreamz

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@bharat19 wrote:

Sterling Tools : MCap : 1200 Cr
Promoter Holding : 65% (70% last year) : Reduction due to some preferential Share allotment to Meidoh Co. and around 2% Stake Sale in open market by one of the Promoter.
No equity Dilution except Last Year Preferential allotment
D/E Around 0.14 ( It was above 1 few years back)

Established in 1979, STL is engaged in the manufacturing and marketing of high tensile cold forged
fasteners for the automobile industry. STL has three manufacturing plants located at Faridabad, Ballabhgarh and Palwal in Haryana and is in the process of setting up its fourth manufacturing plant, in Karnataka at an investment of Rs. 90 crore. The company has a total installed capacity of close to 45,000 MT per annum and is one the largest fastener manufacturers in India (After Sundaram Fasteners), catering to leading automotive companies in India and Tier-1 auto-component manufacturers in Europe. STL’s product portfolio includes fasteners, which find application in both automotive and non-automotive segments. In FY2018, STL entered into a business collaboration with the Japan-based fastener manufacturer, Meidoh Co. Ltd, which would enhance its design and development capabilities in the automotive fastener segment. Majority of the fasteners manufactured by the company are developed based on designs provided by the customers

Clients : Maruti , M&M , Tafe , Honda Motors , Ashok Leyland , Tata Motors etc

Financials :
Sales Growth 10 Yr = 11% , Profit Growth 10 Yr = 20%
Sales Growth 5 Yr = 10% , Profit Growth 5 Yr = 35%
Sales Growth 3 Yr =10% , Profit Growth 3 Yr = 30%
OPM Levels improved from 12-13% to around 19-20%

Sterling.png1158x491 27.6 KB

Pros :

• Second largest player with a healthy share of business with leading OEMs across automotive segments

• Recent business collaboration with Meidoh likely to strengthen STL’s product development capabilities and business expansion initiatives

• Well-diversified presence across automotive segments including CV, PV, 2W and tractors, with only 35% of its revenues in FY2018 derived from CVs, which is its largest segment.

Cons :

• High dependence on domestic market for revenues. deriving approximately 90% of its sales from the Indian market. Any downside in Auto Markets may impact the performance.

• Limited product diversification with entire revenues derived from the sale of fasteners . It is a highly fragmented and competitive product segment, with presence of a large number of unorganised players.

Disc : I have no holdings as of writing the post. I came across this company and found No thread on forum so have created this. Have few questions too which i have posted below. I am currently understanding the Fastener Market. This post has most of the information taken from ICRA Reports.
This is a 1200 Cr Company. Another company where i initiated a thread some days back is a 100 Cr Company. Biggest Company Sundaram Fastener is a 10000 Cr Company. There are some well known investors who have investment in this company but have reduced some stakes recently.

Key Questions i am trying to figure out are :

1. What can be the possible market for Fasteners ? How long it can grow ?
   There are lot of unorganised players despite that this company and other organised listed players have grown at 20% in last 10 Years.

2. What are the threats to these companies from transition to EVs ?
   As per 2018 AR Management Discussion, “Internal combustion engines (ICE), which are used in most cars, have more than 2,000 moving parts, while an electric vehicle has about 20 resulting in fewer breakdowns”.
   Possibly it may result into lower requirement of fasteners. There is still no clear policy in EV and whether it will affect PV , CV or 2W or the entire industry in medium term.

Views Invited @hitesh2710 @ayushmit @suru27 @phreakv6 @deevee @dd1474 @basumallick and others !

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@smehta wrote:

Varroc Engineering Ltd.
CMP: 722 MarketCap: 9735 crores

Varroc Engineering ltd. (VEL) was established in 1990 is a global Tier – 1 Auto ancillary provider operates in two businesses: Global Lightening business, Indian component business & designing, Manufacturing and supply of lightening systems for Global 2W OEMs. Basically, VEL is the 6th largest company in Global lightening business and 2nd in India in component business in terms of revenue.

Promoters are relatives of Endurance Tech (twin) and Bajaj (nephew) guys.

Indian Business focuses on 2w - 3W market. There are 3 segments: Polymers (Revenues contributes 15% - 16%), Electrical – Electronics (revenues ~ 9% - 10%) & Metallic (revenues 6%). Product portfolio is 17. Based on revenue sharing, Bajaj Auto contributes the highest (53%). Clientele – Bajaj Auto, Hero Motocorp, Honda, Royal enfield, TVS Motors (is the latest entrant in the list). While in 3W – Atul Auto, Bajaj Auto, Piaggio and so on.

Global lightening business focuses on lightening business, having a portfolio of halogen, Xenon / High intensity, discharge LED, matrix LED, High definition MEMS and DMD, Surface LED and OLED module, Flex LED and LED pixels headlamps. Europe contributes 41.8% and USA contributes 34.4% of the total global revenue share. Clientele – Ford, Renault, Nissan, Mitsubishi, Tesla, Volkswagen, JLR, Fiat & Hyundai (latest entrant).

Strength:

• Low – cost manufacturing:
  • Company has manufacturing facilities in countries like India, Mexico, Czech Republic, China, Morocco (started production) and Brazil (will start production)
  • In the above countries, Labor costing is very less & these facilities are near manufacturing automotive hub. This low labor costing is helping Company to be more cost competitive compared to its peers.
  • There are in total 36 manufacturing facilities. Six manufacturing facilities for lightening business, 25 for Indian business and 5 for other business.
  • Company has 16 R&D centers with 1365+ engineers employed in Czech Republic, India, Poland & Mexico. (R&D % to sales comes to around 4%)
• Sticky business:
  • An ancillary service seems to be like a sticky business. VEL gets into manufacturing of small parts and then it builds – up by increasing more and more products portfolio.
  • For eg. Company use to supply 1 to 2 products in Honda and after building relations with the company they have increased to 4 – 5 products and company is looking to add more products and also looking to add companies.
  • Once the products are approved by the buyers than it will be an agreement for the next few years till the Model is in the market. So, if the model is blockbuster than the business will be constant and long term.
• Capital Allocation:
  • Company has a good allocation strategy. They have bought companies in the past at low valuation and have built them up. They went into JVs so as to enter into various countries and companies.
  • Historical allocation strategy:
    • In 2007, formed a JV with Plastic Omnium Auto exterior SAS, France. Acquired I.M.E.S, Italy.
    • Acquired 2W lightening business of Triom, Italy in 2011
    • Acquired lightening business of Visteon Corporation in 2012
    • 50% stake in Varroc TYV corporation, BVI from Visteon International holding in 2014
    • Partnership with Scorpion automotive in the UK for 2W security products in 2015
    • Partnership with MEKRA Lang in Brazil for manufacturing of mirror system for CVs in 2017
    • In 2018 company has entered in various agreements:
      • 2W electronic fuel injection technology by entering into a joint venture with Dell’Orto SPA.
      • Acquired auto lightening business facility in Turkey and alongside it got a small facility in Bulgaria too
      • Agreement with Heraeus, Germany for working on catalytic convertors for working on catalytic converters in India.
      • Diversified its business activities by acquiring Team concepts which is in the business of auto accessories.
• Growth Drivers:

  • Global LED business & electric business:

    • LED business is getting transformed from Halogen business due to sharp decline in cost, reduction in Co2 emission.
    • LED business will be the major contributor for the growth to come in next 2 – 3 years.
    • LED business is a high margin business which will further add to the bottom line.
    • Company has also won orders from new customers like Geely and Nissan.
    • Market share in EV stands at 20% with customers like Tesla and Nissan which are more focused on EV.

  • Domestic business:

    • Company has been diversifying business from Bajaj Auto to Hero, Honda & Royal – Enfield.
    • Growth was visible in the last quarter.
    • Company is able to add new clients in the Bad cycle as well. In last quarter, they were able to add TVS motors in the list.
    • Even Bajaj Auto was able to show growth in last quarter which will also help VEL to grow.

  • BS – 6 Norms:

    • Company has recently tied up with Dell’Orto SPA, Italy for Electronic fuel injection which will replace carburetors in two wheeler. This norm will be applicable form April 2020 as per the government.
    • Company is in talks with Royal Enfield and Bajaj Auto.
    • As per the industry reports, it is expected that every year 2 crore two wheeler are sold and this is the opportunity size for VEL.

  • Margin expansion:

    • Company is currently operating at 7-8% margins with low scale and lower product portfolio. Currently, in India Company is operating at around 50% capacity utilization in which they sell products to only Bajaj so with the addition of clients there has to be some margin expansion.

  • Upcoming capacity:

    • As per the latest concall, company has brought forward the commercial production of Morocco to February 2019 from April 2019 and Brazil to January 2019 from March 2019.
    • Halol plant has been started which will be supplied to Hero Motocorp.
    • Company will be starting a plant in Chennai only to cater the demand from Hyundai. (this has been possible after the Turkey acquisition)
• Risk / Variables

  • Political Risk:

    • There are two political risks which are going on i.e. Bre-exit & US – China Trade war.
    • 60%+ revenues come from the Europe and USA which is watchful.

  • Low labor cost:

    • With low cost comes lot of problems in dealing with labor unions.

  • Pricing pressure from customer:

    • Company might face some pressure from OEMs which could lead to decline in profitability and they have to maintain quality standards while pursing cost reduction.

  • Tax benefits completion:

    • Company has some tax benefits in China (upto 10%) any non renewal of the incentives might be a decline in Profitability.

  • Acquisition of companies:

    • Company has been able to successfully in the companies they have acquired but this variable has to be tracked.

  • Slowdown in industry:

    • As of now, there has been a slow down in the industry but Varroc has been able to increase the clientele and is also adding new facilities for them which won’t have much effect on the company.

  • Raw Material prices moving up and if that can’t be passed on.

• Technical chart.
  

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@dd1474 wrote:

Background
3M India Limited is 75% owned subsidiary of 3M Company, USA. In 1988, 3M India began its journey as Birla 3M Ltd, a joint venture between 3M Company and the Birla Group. In 1991, Birla 3M India was listed on the Indian stock exchanges and only in 2002 did the company’s name change to 3M India Ltd. It’s the only listed 3M Company subsidiary.

The Company manages its operations in five operating segments: Industrial, Health Care, Safety and Graphics, Consumer and Energy. In India, the Company has manufacturing facilities at Ahmedabad, Bangalore, Pune and has a R&D Center in Bangalore. 3M India’s five business segments bring together common or related 3M technologies that enhance the development of innovative products and services and provide efficient sharing of business resources. Most 3M products involve expertise in product development, manufacturing and marketing, and are subject to competition from products manufactured and sold by other technologically oriented companies.

For more details about parent company please visit following link
https://investors.3m.com/overview/default.aspx

3M India Limited is a technology company. The Company’s segments include Industrial segment, Health Care, Safety and Graphics, Consumer and Energy.

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Source: FY18 Annual report

Research driven business:
During FY10 to FY18, 3M india has spent Rs 481.03 Cr on R&D with average of 3.23% of sales. Very few MNC have utilised Indian subsidiary for research. 3M India research initiative has resulted in major success with nearly 100 patents filed by 2016. The research unit focus also developing products specific to Indian market.

Globally 3M is among the most innovative company with nearly 113,000 patent filed over the period.

Critical subsidiary for parent:
In very few countries 3M has subsidiary with 75% equity holding. In 2017 form 10K filed by 3M with SEC, the minority interest item has explenation which give understanding that beside India, none of the other major country 3M has minority partner.

Further, during intial period, 3M has supported Indian subsidiary by waiving of royalty payments. Find extract of relevant portion from Annual report of FY18 of 3M India.

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During FY10-18 period, total royalty payment by 3M India to Parent is Rs 156 Cr which is lower than Income earned from Parent for Contract Research of Rs 158 Cr.

Lastly, 3M US has a fully owned private limited company as subsidiary by name 3M ELECTRO AND COMMUNICATION INDIA PRIVATE LIMITED which was registed in 1989. The company is now in process to merged with 3M India. Details of financial and other terms of merger are in enclosed presentation.

The company would be making total cash payment of Rs 590 Cr. 3M electro reported net profit of Rs 22.8 Cr during FY18, which mean acquisition P/E of around 26 times. While amount paid is probably at higher end of unlisted private limited company, it ensure that 3M India would be the only entity for business in India for 3M USA.

Business Propsect:
3M India growth prospect are highlighed by management in presentation made to sharheolder in AGM of 2018. It is very difficult to project future sale and profit growth as there are more than 10,000 product of 70,000 product marketed by 3M US. What is interesting is despite industrial growth in India being lower during last 4-5 years, 3M Industrial segment has been showing very healthy profitable growth duing the same period.

Segmentwise Sales and PBIT

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While Index of Industrial production (as published in Economy survery of Jan 2018), has growth at CAGR of 3.7% p.a. during FY12 to FY17 period, 3M India Industrial sales registered CAGR of 8.9% p.a. during same period. Even after adjusting for inflation of 3% p.a., as against nominal growth of 6.7%, Industrial segment sales has outpaced Indian Industrial growth. Industrial segment PBIT had registered growth of 21.5% p.a. CAGR during same period.

That give confirmation that 3M India can grow profitably even in difficult market conditions.

3M India in its presenation to Shareholder has shared interesting graph which indicates sales in USD/ mn USD nominal GDP. As expected, India GDP penetration is lower than most of the countries.

If we compare same with other industries, the gap appear to lower (with China being almost at same level to India). Having said that, mutiple product, superior quality and near mononpoly situation may assist 3M India to register higher growth.

It is pertinent to note that the gross margin on traded sales (traded sales- purchased finished goods) in 3M India has been in very high range of 44% (lowest during FY14) to 54% (highest during FY18) during FY11-FY18 period. Average Gross margin around 48% which indicate very high pricing flexiblity of the company.

The most critical aspect on 3M India business operations is to understand Indian market and “Indianise” product or service it offer to the customer. Find enclosed article which explain concept behind launch of Car Care units by 3M India. Nowhere in global market, 3M has such srevice being provided. However, looking at Indian market characterstic, it develop a structure which can address customer need at the same offer to leverage of mutilple product the company has to offer to customer.

The same article in 2013 provide aspiration goal of 3M management to reach USD 1 billion by 2017 which it defintely failed to meet on Topline for sure. In FY18 sales of Rs 2500 Cr is not even 50% of the stated sales goal. However, from 1 store in 2010, the company has successfully 100 stores in FY2018.

Risks
High Related party transaction
3M India has very high portion of purchase which is sourced from related party. While the shareholder approve the related party deals, still it may not rule out the risk of unfavourable treatment to the minority shareholders.
Having said that, the company management has shown high integrity in business conduct. Further, I have no knoweldge of unfair treatment being given the minority shareholder in past.

Exchange rate volatility
3M india is exposed to exchange risk volatility (USD INR) due to high level of import traded products and neglible exports. In past, adverse exchage rate movement has adversely affected the company quarterly financials.

However, most of the products marketed by the company are innovative and much superior quality and performance. As a result, it emjoy high pricing flexiblity (kind of monopoly in many of products) and pass on same within 3-6 months period after rupee depreciation.

Very high valuation
3M India would be among the most expensive company if one consider P/E multiple as valuation parameter. At market price of Rs 20,700 it is trading at Trailing 12 months PE of around 68 times which is super rich valuation.

It may be interesting to note that since March 1994, closing PE for 3M India has been average of 74 times, (Median 63.8 times, Max 638 times and Mean 15.4 times). So rarely company come in attractive value zone for investor, only 21 months of 299 months, closing PE was less than 20 times while on 172 months of 299 months, the company traded at PE higher than 50 times.
3M Past price data.xlsx (38.0 KB)

Incentive to Indian Top Management
3M india executuve compensation have stock option of 3M USA. This may be concern for minority shareholder as Top executive performance would be more align to parent then Indian business. However, 75% stake of parent in subsidiary and also no past incidence of wrong conduct on part of Global management specifically adversely afffecting minority shareholder rights address this concern to an extent.

Link to Business of 3M along with other details.

Disclosure: I had tracking position in the company more than 3 years and recently added as Core holding in my portfolio. My view may be biased due to my investment. Further, I am not a SEBI registered advisor. Investor shall do his/her own due diligence and consult investment advisor before making investment decision,

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@bharat19 wrote:

The thread is only dedicated to the Corporate happenings taking place in Companies. Since it is tough for all to track all the companies , collectively this thread may help as a common source to discuss the latest happenings like Promoter Purchase , Promoter Sell , Buybacks taking place in companies.
These details may help to dig deeper and i believe interesting things may come up. This thread should only be used to inform of the corporate actions while company fundamental details and reasons Behind such Sale / Purchase should be discussed in respective company thread.

Below are the business i track where some corporate actions is taking place.

1. Greaves Cotton
   Promoters have bought 17.5 lakh shares (0.72% in last 3-4 months)

2. Jindal Stainless Ltd
   Promoters have bought 6.6 Lakh shares (0.14% in last 2 Months)

3. Aarti Industries
   Promoter sold 0.1% Shares in last 1 Month.

Buybacks where promoters did not participate

1. Thyrocare has completed the buyback at Rs 670 per share (Current Price : Rs 540 per share)
2. Oriental Carbon is buying back from Open Market (Current Price: 1150)

Disc: If the thread does not seem to be of use or violate the forum rules or if there exist any other thread for the similar topic , moderators are free to delete this thread…
Personally i think that tracking these corporate developments can help in little ways to dig deeper.
I was looking for such thread but did not find which is why started the thread.

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@lingalarahul7 wrote:

Hello fellow ValuePickrs,

Starting off a thread to discuss Zee, a household company in India. Surprised to see this is not discussed yet in the forum.

Quick Intro:
Zee has 35+ channels in India with a viewership share of ~18%. It also has 35+ channels in rest of the world. It has also been venturing into various businesses like Digital subscription, Zee Studios, Zee Music Company, live ticketing…
Its revenue mostly comes either from Advertising (63%) or Subscription (30%) and it is venturing into other businesses like producing movies, owning music rights, hosting live / theatrical events.

TV Business:
Most of Zee’s revenues are derived from here through advertisements of subscription of Zee’s channels by DTH companies or Cable operators.
Zee TV, their flagship channel is one of the top channels in India. Their regional channels like Zee Telugu, Zee Kannada, Zee Bangla are also top channels in their respective regions. Zee channels typically fall in Top-3 channels in the region they are operating.
Zee also possesses niche channels focussing on urban population like &TV, Zing…
Before concluding that Internet will take over TV, it is important for us to remember that still TV is not properly penetrated in India (~66%). Zee believes that it will be ‘TV with Digital’ in India’s near future instead of ‘TV vs. Digital’.
FMCG companies are the top advertisers in Indian TVs and India being a third world country, FMCG is not properly penetrated yet (remote areas) and this can lead to increased ad spending by these companies.
While penetration of Digital OTT players is rising fast in Urban areas, penetration of TV households in rural areas is fast rising. See below link.

TV Advertising revenues seem to be in a long-term growth story (checking up with Digital once a year is still a good caution) due to this rural penetration and top players like Zee will not miss it.
Coming to subscription revenues, DTH players which are mostly present in urban areas are facing strong competition from OTT players. Since DTH players are mainly used by middle to high income families, they can mostly afford OTT platforms and people using OTT prefer to stick with it due to its flexibility and the ability to binge-watch. This can put DTH companies out of business (as they are unaffordable in rural areas) which implies a drop in subscription revenues for Zee. This can be visible in Zee’s revenue contribution trend too.

		2018	2017	2016	2015
Broadcasting Advertisement		42048	36375	33652	26603
Broadcasting subscription		20287	22629	20579	17935
Advertisement Fraction		0.6745488089	0.6164836282	0.6205306928	0.5973101621
Subscription Fraction		0.3254511911	0.3835163718	0.3794693072	0.4026898379

Digital Initiatives:
We all know the rise digital media is in, with Jio’s disruption.
ZEEL has launched ZEE5, their online platform for content viewing. Their content seems more complete compared to Prime Video / Netflix which seems to be targeting on English speaking audience. ZEE5 also has soap operas and not just movies. ZEE5 already has 5+ crore subscribers while Prime India has 1 crore and Netflix India has only 50 lakhs.
ZEEL management believes that there are too many OTT players currently in the market and Zee expects consolidation in this space as consumer’s experience can get cumbersome if he has to get subscription from multiple OTT players. With ZEE5 having different genres of content,
Zee Music Company (ZMC) is another initiative towards digital side which is discussed further below. Performance of ZEE5 should be monitored if one is interested in ZEEL for the long-term.

Zee Studios:
Zee has very good movies on its resume like Sairat, Rustom, Secret Superstar. FY17 was really good for Zee while FY18 was average. The focus seems to be on storyline. Zee identified that digital rights and international box office revenues are improving the economics of movie producing and hence ventured into this area. With around 160 crores movie revenues per year, this still seems to be a small part of Zee’s business.

Zee Music Company:
The music industry is set on boom with digital disruption. 65% of the industry revenues are from digital streaming now. ZMC is acquiring rights of songs from top films (music-wise) like Half Girlfriend, Secret Superstar, Baahubali… The industry is only of 1800 crores size which is much less than Zee’s annual revenues. And Zee has 14% market share in the digital streaming.

Live ticketing:
This industry is expected to be of the 6500 crores and also expected to grow fast. Zee’s event called Wicked Weekends is apparently India’s longest party marathon. I personally don’t like Zee diversifying into this industry as this falls more into a different orthogonal form of entertainment.

Recent Developments:
Zee Promoter Group’s i.e. Essel Group’s companies were alleged to have executed / associated with some transactions with Nityank Infrapower and a group of shell firms whom the SFIO is currently probing. This allegation was made by Wire.

However, Shubhash Chandra, Zee promoter, denied those allegations and came back on Wire with a defamation law suit.

He also came up with a good apology letter as he finds it difficult to clear his dues in other Essel group’s companies like Essel Infra. The promoter group plans to sell 50% of its already small stake (42%).
TRAI came up with a la carte based pricing for TV channels. I expect low income households in the rural areas to subscribe only to the base pack for FTA channels. Zee’s subscription income needs to be monitored in the coming time.

Quick Financials:
Debt Ratio - Low - 0.3
Current and quick ratios - High - 2+
ROCE - High - 25%+
ROE - High - ~20%
PAT Margins - High - ~20%

Positives Summary:

1. TV penetration in Rural India is growing strong. 100% Electrification is only going to help here. This should increase the revenues for top TV channels like ZEE
2. Strong financial ratios - ROCE, ROE, Margins, D/E…
3. ZEE5 seems to be getting good traction even though it is competing with huge dinosaurs like Prime and Netflix
4. Increasing presence in related fast growing sectors with tailwinds - Zee Studios, Zee Music Company, Zee Live

Negatives / Alerts Summary:

1. Essel Group’s other companies like Essel Infra are unsuccessful causing the promoter family to fall into huge debts. This is causing the promoters to pledge their shares in the company
2. Promoters’ ambition to run too many businesses and failing in couple of them causes me some discomfort
3. Company is diversifying into too many verticals. We should ensure that capital is being deployed efficiently by monitoring vertical specific financials (if we get data)
4. Low promoter holdings (~42%) which can get even lower with promoters planning for a stake sale to clear their dues
5. With OTT players good traction in India, DTH players are already feeling the heat. With new TRAI regulations, one should keenly observe the impact on subscription revenues

Valuations:
On the light of recent developments, the stock is swinging wildly. I’ll let you assign your own fair P/E multiple to this company

Encouraging fellow members to take the discussion further. Will keep adding more info as I read up more.

Disclosure: Not a buy / sell recommendation. Not invested. Just started exploring. Noob investor.

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@aashav23 wrote:

• Smart meters are part of the advanced metering infrastructure solution that measures and records electricity use at different times of the day and send this information to the energy supplier. This gives consumers better access to information and allows them to make more informed decisions on the use of electricity in their homes, leading to reduced power wastage, and long-term carbon and financial savings

Recent News: https://www.ndtv.com/india-news/government-looks-to-make-all-electricity-meters-smart-prepaid-in-3-years-1967574

https://economictimes.indiatimes.com/industry/energy/power/power-ministry-mandates-use-of-smart-prepaid-meters-april- 2019-onwards/articleshow/67233334.cms

https://www.news18.com/news/india/come-april-you-can-recharge-your-electricity-connection-as-centre-makes-prepaid- meters-mandatory-report-1982299.html

Take-away

• Ministry of power is planning to make smart prepaid meters mandatory across all states starting 1 April, 2019. Central Govt plans to make all meters the smart meter by 1st April 2022 - -
• Talking about the problems in the process the minister said, “But there is problems of technology meters are not available. We are, however, pushing it. We have added 2.26 crores new consumers. It is a record high.
• DISCOMs will benefit as they will get payment in advance. This means just like a prepaid SIM connection for a mobile, which can be recharged and used again, electricity will be used in the same form. This will help poor consumers. Instead of mandatorily paying for 30 days, they can now pay for the days or hours they would like to consume as per their requirements - -

"This step is likely to bring revolution in power sector by way of reduction in AT&C losses, better health of DISCOMs, incentivize energy conservation, ease of bill payments and doing away with the paper bill “

• The government is procuring smart and prepaid meters to be deployed across the country. State-owned Energy Efficiency Services Limited (EESL) has floated two global tenders for procuring a total of 10 million smart meters.

• Attempts to bring down the price to Rs 1,500 to Rs 2,000 and finally below Rs 1,000. The

• Minister of Power said that the meters would be entirely made in India, as the country is one of the best manufacturers of such devices in the world.

• Union power minister Piyush Goyal had said that the electricity meters, priced at around Rs 10,000 to Rs 15,000, would come down to under Rs 1,000 a unit.

Advance Metering Tech Ltd. (AMTL)

Brief History

• AMTL was born out of demerger from EON Electric Ltd in 2011-12 when EON Electric (formerly known as Indo Asian Fusegear Ltd.) sold its Switchgear business for more than 600cr. Indo Asian switches was one of the rare electrical fitting brands that was created in India.

• Indo Asian was left with the lightings, wires and cables business and between the two promoter families it was decided the Indo Asian would be rechristened Eon Electric which would continue with lightings business and the other promoter, the Ranade Family, that more interested in Energy management, conservation and metering business would form the other entity called Advanced Metering Technology Ltd (AMTL). AMTL in its true sense was a startup with no existing business but was incubated with very experienced management that had a strong vision.

• The management has proven credentials and have built huge successful business in the past and has laid a strong foundation in the present one as well. Business Segments AMTL is Noida based company having 3 subsidiaries but none of them contribute significantly.

• AMTL‘s business has primarily three things : 1. Wind power 2. Energy Audits and 3. Electric Meters.

• Wind Mill : AMTL operates 3 wind mill power projects located in Jaisalmer district in Rajasthan with a total capacity of 11.7 MW and has been operational since 2012. No recent addition of capital to this segment, only the first done gross block exists. Energy audits : This vertical is small relatively but this has immense potential and is probably capable of generating higher margins as its simply service business with not much direct costs associated. Direct sales breakup for this is not available Smart Meters It is their fastest growing vertical and has humongous potential. Smart meters, which also include pre-paid meters is being used heavily in the smart cities and in the majority of new societies that are being formed because of Govt thrust to move to smart meter from conventional meters. The demand in this sector is huge and India is facing capacity constraints as mentioned in their AR

• Since, they were new, they were just qualified to do some job works as a sub-sub- contractors and therefore, the volume and margins were low but now they have enough Smart meters manufacturing experience which has made them eligible to become consortium sub-contractors which is bringing significantly higher volumes now. But the biggest kicker is expected to come in the next few quarters , when it would also become eligible to be part of the consortium itself (based on the volume of meters manufactured). So, the script appears to be for strong and sustained growth.

Management’s focus on Meter business

• Management has been constantly increasing the asset base of the Meter segment compared to only initial investment and no additional capex done in Power generation segment.

• This indicates management’s expectations from meter segment are higher as the asset base increased by 10x in past 6 years

• Meter Segment- 57% of assets contributing 84% of revenue currently

• Recently management did capex for backward integration in the Meter segment as well- producing the plastic component and electric component used in meter, this will help in reducing the costs of components and better in-house quality products. It seems this benefits are not yet completely reflected in the numbers

• Topline growth in meter segment has been fantastic with growth of 72% CAGR (base effect as well). Whereas, during the same period, growth from power generation has been flat.

• Currently its contributing 85% of companies revenue which is very significant division. Also for HY19 company doubled the previous year’s numbers, indicating significant revenue increase even on higher base.

• From MD&A- “India is in electrification overdrive, with about 30,000 new electricity connections being granted every week. Prepaid and smart meters are going to get greater thrust from the government as India moves towards the target of achieving universal household electrification as part of the Saubhagya scheme by end of next year. There is assured demand for smart meters. The households which will be electrified in future will be connected through smart meters.

• Co is also focused on expanding product basket and enhancing market reach. As the demand for meter further increases, Co. plans to add higher capacity

• India has large electricity customer base with about 120 million consumers – approximately 90 million domestic, 13 million agricultural, 12 million commercial, 3 million others ( public lighting, water works etc.) With the Central Electricity Authority mandating the use of static meters, the Indian energy meter market has shifted largely to static meters from earlier electronic mechanical meters. With this shift, India is expected to install 130 million smart /static meters by the year 2021.

• With higher volumes, company is able to the meter division profitable at operating level, unlike earlier. This indicates that profitability would be better due to higher margins as better scale is achieved

• Power generation has always been profitable business but its very capital intensive. Strong visibility even in this segment as company got 20-25 years of fixed tariff at roughly 5rs/unit from state boards

• The meter segment turned operating profitable in last 2 Quarter- June’18 & September’18

• Various States of India are also making the “Energy Audit” mandatory for all the industrial and commercial consumers. The company has a group of experts for Energy Efficiency improvement and most of them are “Certified Energy Auditors”/ Managers . The Company is accredited by the Bureau of Energy Efficiency and is also an empanelled auditor for PCRA, Ministry of Petroleum & Natural Gas for Demand Side Energy Management. The company has already carried out energy audit assignments in various manufacturing industries and commercial buildings. Keeping in view the importance given by the Government in Energy conservation, this vertical of the company has a very bright future.

2013

• The market in India is showing steady growth owing to technological advancements. The market which was dominated by electromagnetic meters and simple static meters is steadily moving towards adoption of intellegent static, digital and smart meters by utilities and industries. Government is showing increased attention towards rural electrification and efforts to replace old meters with new meters. This step of the Government has given a huge fillip to the demand of digital and smart meters.
• The Energy Audit management vertical of the Company is manned by experienced and certified engineers with vast experience. Within a short span of one year, the company has been able to bag prestigious energy audit assignments in the hospitality, medical and other sectors.

2014

• The Power Generation and the metering division of the Company have witnessed many challenges during the year, despite the various challenges faced by the Company. Challenges like the wind fluctuations, thefts and maintenance issues due to which the generation by the Wind Power projects has witnessed a downfall. Also, prices of key materials have soared.
• Meters: India is estimated to install 130 million smart meters by 2021 but progress could be stalled by significant infrastructural development and capacity building issues. “Reduction in commercial losses is one of the principal advantages of using smart metering, particularly of relevance for India, which arguably has the highest AT& C losses in the world at about 28%),” Certain government initiatives are leading the way towards metering smartly in the country.
• Energy Audit : India is in its nascent stage as compared with those in other nations. From a humble beginning of 3 Energy Audit Services industry in the early 1990s, the country has witnessed the growth in the number of Energy Audit Services Companies to 114 today of which 25 new companies were accredited in 2010-11. The Bureau of Energy Efficiency has also mandated the energy Audits in some industries.

2016

• Your company has also strengthened its portfolio to include a wide range of current transformers, EPC services for energy sustainability, lighting solutions, solar PV solutions and power management and control. Your company continues to invest in growth opportunities in the existing business portfolio.
• Competition in Meter industry is escalating and technological changes will spur or drag the forward march of individual units in meter industry- expression of interest by foreign companies to set up new energy meters making units. However, coming years are also going to witness substantial additions particularly in the Asian regions.

2017

• AMTL has widened it’s base to provide smart metering solutions to the power and distribution sectors. The present government has created initiatives schemes like UDAY Scheme, housing for all, smart cities etc. These schemes will throw up huge demand for smart meters and AMTL is positioned to cater to the needs of the power sector.
• Prepayment meters have recently seen steady growth as more power utilities are installing them to increase consumer visibility in terms of load patterns and to reduce the percentage of under-recovered revenue. While in developed countries prepayment meters are considered to be tariff meters, in the India they are considered as smart meters and are considered as the first step towards establishment of smart cities and smart grid projects. Smart grid pilot projects are under implementation mostly in the southern and western parts of India although, northern and eastern states also have some ongoing pilot projects

2018

• Government is promoting smart and prepaid meters as a move to change the electricity ecosystem. A major constraint, however, remains the limited capacity of smart meters being manufactured in India. Prepaid and smart meters are going to get greater thrust from the government as India moves towards the target of achieving universal household electrification as part of the Saubhagya scheme by end of next year.
• There is strong visibility of growth and healthy orderbook Valuations

Valuation

• Currently stock is trading at 32rs which equals to 50cr Market cap. Long term borrowing- 6.8cr; WC loan- 76cr ; Total= 82.8 crore Investments in mutual funds = 56 crores.
  Net Debt = 26.8
• Enterprise Value= 77 crore
  Despite constant losses earlier, net-worth is quite high- currently around 120cr due to past demerger arrangement.
• As there is no significant EBITDA yet, the multiple looks quite high but can be completely different if and when it starts generating significant operating profits.

Triggers

• Very strong above discussed tailwind from the Govt policies to directly benefit the meter segment by providing ensured demand to the segment for next 3-5 years
• Lead by 1st generation management with rich experience and past history of shareholder wealth creation
• Management’s focus increasing more on the Meter segment

Peers

• • Secure Meters Ltd
• • BENTEC India Ltd
• • Superior Products Industry (SPI) - Towa engineering works
• • Schneider Electric India Pvt Ltd Unknowns

Unknowns

• Kind of numbers that can be generated from the existing capacity of Meter segment is unknown currently.
• Expected margin level that would be sustainable over long run once the company attains significant volume in meter segment.
• Whether the company got any recent orders from state electricity board- clients
• How long will it take to ramp up production and turn operating level profitable
• Having 56 crores of investments in mutual fund seems to be risky diversification- an amount equal to current market capitalization

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@Amit_Agarwal wrote:

Sumit Woods Ltd is recently listed Co listed in SME Platforms at NSE Emerge…

Promotors:- Sumit Woods Ltd is leading Developer having projects in Mumbai and Goa, SWL take up mid size Projects. Co Promoted by Mitaram Jangid & Subodh Nemlekar now Second Bhushan Nemlekar (Harvard Graduate) too joined the Business.

SWL successfully running the Business since last 30+ Years and delivered over 5000 units spanning over 52 Projects.
All the Projects delivered with OC

Sector outlook :-

Real Estate Sector in MMR on revival mode, Mumbai will have World Class infra in next few Years that will attract huge demand going forward.
Unsold Inventory is big issue in the Sector but once we analyse the data most of the inventory belongs to large luxury projects and Projects in way far (Locations disadvantage) & Projects stuck due to approvals or Financial reasons. All such inventory having age of over 3 Years hence in normal ongoing projects inventory isn’t that big issue.

Business Model :-
Since the beginning Co working on Joint Development Projects, Redevelopment Projects, now started getting Projects on Development Management Model. Co provides housing to Mid Income Group.
Co adopted Asset Light Business Model since bigining and don’t believe in buying Lands.

SWL believe themselves as a huge beneficiary of RERA, SWL believe that they working according to the RERA norms since beginning.

Pros :-

1. Strong Asset Light Business Model
2. Strong and timely execution of Projects
3. Strong execution lead better Reputation & enjoy better sales outcomes
4. Inventory levels is almost Nil
5. Start Projects with all necessary approvals and Financial Closures so risk of being stuck is Negligible
6. Debt Equity ratio is nearly 0.30
7. Finance Cost is nearly 12-13% which is phenomenal in the segment.
8. Strong Project Pipeline, currently around 9-10 project in pipeline and 3-5 Projects may be added in next 2 Qtrs, Got Completion Certificates(OCs) for 3 Projects in past 3-4 Months
9. Strong inhouse Team to execute the Projects.
10. Zero litigation from Consumer

Cons :-

1. Sector is very difficult
2. Recent liquidity crunch affected the Sector
3. Policy and Tax issues affect the Industry

Valuations :-

CMP 45
PBV 0.85
EPS (Diluted) 5.00 FY18, 7.00 FY19E
PE Ratio. 6-6.50
MCap 65-67 Crs
RoE & RoCE ~ 17%
Debt Equity 0.30
Expected 3-5 Years CAGR Profit 25-30%

Evaluating on going Projects and expected to commence immediate future I’m Expecting Rs 150-250 Crs Net Cash Earnings (Pre Tax & Amortisation & net of Debt) spanning next 3-5 Years

Disclosure : Invested & willing to add more!

Financial & Cash Flow abstracted from RHP
(upload://xjL8y7TqGLHzPdpMlw8Mo59Dt42.jpeg)

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@chetanb wrote:

Permanent Magnets appear to be a competitor with products like Shunt Resistors listed among products - also claims to be supplying and working on products for electric vehicles. Numbers appear good. TTM PAT 12cr, networth 24cr, net debt 13cr, promoters holding 72% (pledge 0.51% only). Would appeciate view on this if anyone had a look at this and how does it compare to Shivalik as competitor.

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@dineshssairam wrote:

Universal Autofoundry Limited (http://www.ufindia.com/)

Company Overview

Incorporated in 1971, the Company is engaged in the manufacturing of Iron Castings. They manufacture castings components in Grey Iron and S.G. (Ductile) Iron, primarily for automotive sector. Castings are supplied in Machined, Semi Machined and as cast condition with surface treatment as per customer’s need. Suspension Brackets, Differential housing, Hubs, Brake drum, Flywheels, Adjuster Nuts, Pulleys, Dampers, etc. are some of the items that find application in the commercial vehicle and engineering industry.

They have more than 65,000 sq. ft. size area manufacturing plant located at VKI Area, Jaipur, Rajasthan, which has an existing installed capacity of 7,800 MT p.a. for the manufacture of grey iron and ductile iron castings. In addition to that, they have another capacity of 11,400 MT p.a. with their group foundries. They cater to the requirements of many of the major automotive and engineering goods manufacturers in India and all over the world.

Product Categories

Commercial Vehicles: Suspension and Engine Mounting Brackets, Engine Bearing Caps Block, Differential Iron, Flywheels, Wheel Hubs and Pulleys.

Tractors: Lift Arms, Differential Cases, Cylinders, Adaptor Plates, Brake and Control Housing and Rocker and other Brackets.

Passenger Cars: Pulleys.

Earth Movers: Brake Drum Casting.

Construction: Anchor Body.

Clients

Ashok Leyland, V E Commercial Vehicles, Escorts, TAFE, JCB India, AIlena Auto Industries, Rane Automative etc.,

Business Analysis - SWOT

Strengths

• I think the key strength for the business that it is at a safe distance from the much-touted EV disruption. Most of their Revenues come from parts for heavy vehicles. Considering the fact that it will be several years before the world, let alone India, gets ready for electrifying heavy commercial vehicles, I would say UAF is well shielded.

• The company has several Quality Certification on its side, including the IATF 16949 for a Quality Management System, ISO 14001:2004 for Environmental Management Systems and BS OHSAS 18001:2007 for Health and Safety Management Systems. All of these seem like standard certifications to have, with the exception of the IATF 16949, which looks like a little more difficult to obtain.

• Since foundries require heavy Capex and good power facilities, there should be a good barrier to entry.

• According to the management, they have a market share of approximately ~5% in an otherwise largely unorganized market. While this doesn’t make them anywhere closer to even the top 15 producers, they seem to be placed well among the medium-to-smaller players.

• Besides these, the company has listed down some of their ‘Business Strengths’, in case you want to take a look. I think they are just generic statements.

Weaknesses

• The market size is approximately Rs. 1,900 Crores. However, the industry is really saturated with about 5000 units all over India and majority (90% according to the management) being MSMEs. Even if you ignore the ones without proper Quality Accreditation, the tally still stands at a tall 1500 units.

• According to the management’s own admission, young Engineers generally do not look forward to working in foundries, since it doesn’t pave way for a lucrative career.

• Power Costs in India for Foundries seem to be doube/triple of the power costs in China or Germany, the major competitors. Power is about ~20% of the industry’s input costs.

• The industry is quasi-commoditized, dependent on the bigger CV/PV/Tractors segment to aid growth and is susceptible to raw material price movements and demand-supply mismatch. In fact, the industry was in a down cycle for the past few years (Source 1, Source 2).

Opportunities

• There are several articles online (Example 1, Example 2) claiming that the Foundry industry in India is likely to grow in double digits in the coming years. The management also seems to think so.

• Power is about ~20% of the industry’s input costs. With the government making moves towards a better power infrastructure for the country, this would be a substantial help to Foundry players.

• The new Manufacturing policy of India envisages to increase the share of Manufacturing GDP substantially (15% to 25%), but this isn’t specific to the Foundry industry of course.

Threats

• By far the biggest threat seems to be China, who is the world leader in Foundries. India ranks second, but China seems to have the upper hand (Source 1, Source 2).

• Labor unrest seems to be a perennial problem in the industry. The management themselves have admitted that they have very little pricing power. Both of these seem to put a pressure of the company’s Margins.

• It looks like there’s very little technology upgradation in the Indian Foundry industry (Again, due to a lack of attractive employment opportunities). This could eventually become a massive roadblock, as other developed countries march ahead.

Financials (Source)

On the Financials front, the company seems to be doing extremely well. Revenue Growth averages at ~18% for the last 5 years, Profit Growth at ~35% and the Return Ratios at ~25%-28% or so. The Cash Flows also seem quite consistent.

The negatives seem to be the high Debt (1+ D/E Ratio) and high Working Capital Requirements (~20% of Sales).

Profit & Loss Statement

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Balance Sheet

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Cash Flow Statement

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Concerns / Red Flags

Lack of Board Independence: The people in charge of the company seem to be related to each other in one way or the other. Even some of the top shareholders seem to be that way.

Related Private Businesses: The company has listed down the names of several other private businesses in UAF’s ‘Contact Us’ page. A quick look at Tolfer tells us that these are indeed companies doing similar businesses and managed by more or less the same set of people. A MoneyControl article written during the IPO of the company confirms the same.

Related Party Transactions: As expected, the company has Related Party Transactions with the related private businesses. It looks like the related businesses do the machining work for UAF. The Trade Receivables from them forms a ~22% part of the overall Trade Receivables total.

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Unlikely Association: Out of the above related companies, one “company” is named ‘Indian Metalfoundries Institute Private Limited’. They have listed themselves to be in the ‘education’ business. However, UAF recently made a Rs. 0.5 Crores investment in the institute. Investing in a company which is already managed by the same group of people seems a little out of place, notwithstanding the question of why they would invest in an educational institute in the first place. There are no comments about how they plan to utilize this new association. What’s interesting is that the company has also made a loan amounting to Rs. 0.5 Crores to the institute last year, of which Rs. 0.3 Crores is receivable in 2018. Being a Debtor and a Shareholder of the same company sounds possibly oxymoronic to me.

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Promoters-Lenders: Almost ~50% of the company’s entire Debt seems to have come from the promoters and more surprisingly, their relatives too.

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Bad Credit History: The company wasn’t always in such a good financial position. In 2010, ICRA Rated a bulk of the compnay’s Debt as LB+, which is a pretty low on the ‘Non-investment Grade’ Ratings (Source). In fact, at that point, they had a D/E of ~18 (Yes, you read that right).

Low Interest: What’s really bugging me is that regardless of such a poor credit position in the past, the company has historically paid an interest of ~10-11% on their outstanding Debt. The loans seems to have jumped around, from SBBJ to IndusInd to others.

Salary Structure: This is just nitpicking, but the CFO earns ~2.3x the Salary of the Directors/MDs, which I found a little weird.

Dislcaimer

I do not own any shares in the company. The company popped up on my Screener and I eventually looked into it. I wanted to begin a thread on it in order to get better clarity on the concerns I have listed down.

Important References

IPO Prospectus
Intimations to BSE
Annual Reports
The Institute of Indian Foundrymen
Status of Indian Foundry Industry (2012 Presentation)
Foundry Industry 2020: Trends and Challenges

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@piyush1189 wrote:

Adv. enzymes
Vedanta
HPCL
Dilip Buildcon
AB Capital
L&T finance
IIFL holding
Tata Motors
Edelweiss
Indiabulls housing

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@enelay wrote:

Overview:

Centrum Capital is a diversified financial services company which has established fee based businesses in
Investment Banking, Institutional Equities and Wealth Management and emerging Lending businesses in the
SME, Affordable Housing & Micro Finance segments. It has also recently entered Insurance Broking and Asset Management. In 2016, Jaspal Bindra acquired a ~20% stake in Centrum and became the new CEO of the group. Prior to joining Centrum, Jaspal Bindra’s last position at Standard Chartered was as the chief executive of the Asia Pacific region. He was credited with making Standard Chartered India one of the three largest international banks in the country by assets and its third-largest profit and revenue driver. His peers include Anshu Jain, co-chief executive of Deutsche Bank; Ajit Jain at Berkshire Hathaway; and Ajay Banga, president and chief executive officer of MasterCard (more on Bindra: https://economictimes.indiatimes.com/industry/banking/finance/former-standard-chartered-asia-chief-jaspal-bindra-to-pick-up-stake-in-centrum-group/articleshow/51723827.cms).

With the management change in 2016, the focus is now on lending plus fee-generating business. In June 2018, Centrum sold its forex business, Centrum Direct, to EBIX Inc. for approximately INR 1,200 crores (more on EBIX transaction: https://www.centrum.co.in/uploads/newsroom/press-release-cdl-ebix-sale.pdf). It has ventured into housing finance, SME loans, micro finance, insurance broking and asset management in the past two years. The company has now put in place the corporate structure and management team to tap into the growth opportunities in the lending space over the next 3-5 years.

Centrum Group Corporate Structure

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Housing Finance business:

The company started the housing finance company (HFC) business in Dec-16 and its focus is on the affordable housing segment, largely in tier 2-3 cities. According to the company, the focus is on the Central and Western regions of India initially, before gradual expansion in other regions. The low- to middle income segments are its target customers because these segments are underserved by the banks, given their very small average ticket size. Centrum Capital’s housing finance loan book comprises largely mortgages with no
exposure to developers. The company operates a hub and spoke model, with 40 hubs and 85 spokes currently. The company is building its housing finance loan book in a gradual manner, without comprising on asset quality. Currently, the average yields are ~12.5% with spreads of ~2.5%. The average ticket size is INR 10-12 lacs with loan-to-value (LTV) ratios of 65-70%. More than 50% of its customers are salaried employees. The loan book stood at INR 178.3 crores as on March 31, 2018 and stands at INR 450 crores as of Feb 2019.

SME and Micro Finance businesses:

The company’s SME loans are largely working capital loans (the basis of which are the cash flow of borrowers). For this division, the company focuses on four customer segments: 1) micro, small and medium enterprise (MSME) loans 2) lending to micro finance/smaller non-bank financial companies (NBFCs), 3) real estate, and 4) supply chain management. Currently, the average ticket size is INR 10-15 crore, with 2x collateral and personal guarantee of promoters. The average yields are 13-14%. In December 2018, Centrum acquired L&T Finance’s Supply Chain Finance business (more: https://www.livemint.com/Companies/fhtD5aBgSY5FGqCRoQOlNL/Centrum-acquires-LT-Finances-supply-chain-business.html). The acquired business has a loan book of approximately INR 800 crore, a staff strength of 50 professionals and operates out of 16 cities in India. Its SME loan book stood at INR 360 crore as on March 31, 2018 and stands at INR 1,400 crore as of Feb 2019.

In November 2017, Centrum obtained approval from the Reserve Bank of India to commence Micro Finance Lending operations and simultaneously acquired the micro finance business of FirstRand Bank India (more:https://www.livemint.com/Companies/mIwXSa53Fo0e140YHaxePM/Centrum-Capital-to-acquire-FirstRand-Banks-microfinance-bus.html). FRBI’s micro finance business comprised of around 70,000 customers with an average ticket size of INR 20,000, operating in Maharashtra with an employee strength of over 300 people. The loan book of its micro finance business stood at INR 117.6 crore as on March 31, 2018 and stands at INR 250 crore as of Feb 2019.

Wealth Management business:

Centrum’s wealth management business is the fifth largest in India by AUM (INR 18,500 crore as on 31 March 2018 and approximately INR 21,000 crores currently).The number of clients and advisors stood at about ~8,400 and 155 respectively as on March 2018. The company’s wealth management business provides value-added services such as estate planning, trust services, investment structuring, tax and legal advisory services, to its target customers, ultra-high net worth individuals (HNIs) and family offices. The company has developed strong research capabilities to have a competitive advantage over its rivals in the wealth business. The division’s gross yields are ~100bp on average. The strong AUM growth of its alternative investment funds (AIF) business led to above-historical average yields of 117bp in FY18. As of end-FY18, 40-50% of AUM is comprised of equity and the remaining 50-60% is made up of debt and structured products.

Emerging businesses - Insurance Broking and Asset Management:

Centrum received a Direct Insurance Broking license from IRDAI in Aug 2017. The license will enable Centrum to tie up with all Life, General and Health Insurance companies in India to offer their products to Centrum’s clients. The insurance premium collected grew from approximately INR 35 crores to INR 65 crores in FY2018. The business operates out of 15 cities and Centrum is targeting to generate a revenue of INR 500 crores through insurance premiums over the next 5 years, by leveraging synergies across the Group’s other business of wealth management and lending.

Centrum Alternatives was incorporated as a LLP in July 2017. During its first year, the focus was on building
team capabilities and consolidating Centrum’s third party investment management activities under Centrum
Alternatives. The business aims to launch funds focused on private equity, public equity, private debt and real
estate. Kalpavriksh is Centrum’s maiden PE fund which invests in high growth unlisted companies in consumer, education, technology, healthcare and wellness sectors. Its current investments include Littlemore, The Label Life and the HEAL Institute. In March 2019, the company announced plans to launch a INR 500 crore structured credit fund (more: https://economictimes.indiatimes.com/industry/banking/finance/centrum-to-launch-rs-500-crore-structured-credit-fund/articleshow/68448747.cms?from=mdr).

Management Team:

• Jaspal Bindra (Executive Chairman) - ex Asia Pacific Head of Standard Chartered. Joined in 2016.
• Nischal Maheshwari (Head - Institutional Equities) - ex Head of Institutional Equities at Edelweiss Securities. Joined in 2018.
• Rajendra Naik (Head - Investment Banking) - Part of founding team, with Centrum since 1996.
• Rajnish Bahl (Head - Wealth Management) - ex Head of Branch Banking and Wealth Management at HSBC India. Joined in 2010.
• Ranjan Ghosh (Head - NBFC) - ex Global Head of Commercial Banks, Securities & Asset Financing at Standard Chartered. Joined in 2016.
• Sanjay Shukla (Head - Housing Finance) - ex MD at CentBank Home Finance. Joined in 2016.

The key shareholders are the Byramjee family (founders), Chandir Gidwani and Jaspal Bindra who own approx. 20% each. Both Chandir Gidwani and Jaspal Bindra have been increasing their stake via market purchases over the last 12 months.

Financials:

The market cap of Centrum is INR 1,423 crores as on 18 March 2019. I am not including a financial summary here as the business has changed significantly post divestment of the forex subsidiary. Hence the historical financial data is not representative of the current business, and the company only publishes consolidated financials at year-end. According to the company secretary, they will begin publishing quarterly consol financials from Q1 FY20.

Summary:

I like Centrum as a diversified financial services play in the small cap space because its serving large, scalable - and highly competitive - markets in India. With the recent on-boarding of respected industry leaders who have significant skin in the game and the timely exit of the low-margin forex business right before the liquidity crisis hit India’s NBFC sector, Centrum seems to be well positioned to grow from here. I’d love to have the views of other VPers who are tracking this company as well.

Disc. Invested. Data from research reports, annual reports and various news articles.

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@devarshi84 wrote:

Few Indian companies boast of survival as long as Andrew yule. Founded in 1863, Andrew Yule today is completely different than the what it was even a decade ago. In 1913 Andrew Yule was the largest managing agency house in the country with 37 companies under its hold. The turnover of the Group in 1947 was Rs.23 crore and employed 86000 at the time. JP Morgan was a major shareholder of the company in 1919.

What most people see: A mini PSU struggling to stay afloat with a high P/E and a cyclical tea business.

What I see: A PSU that has seen the best possible turnaround in the last decade since it exited BIFR. Andrew Yule is also a promoter of Tidewateroil backed by LIC and United India Insurance. Standard Grease recently purchased its way into the promoters list but with PQR consultants holding other majority of shares,hostile takeover is not happening anytime soon. PQR consultants is owned by wife of Kallol Dutta who brought Andrew Yule back from the ashes. Another plus is the huge plots of lands, Historical Yule house and assets which have no value on books after decades of depreciation.

Current situation: The company recently shut down the loss making Hooghly printing. The major reason is mostly due to the rental conflicts with the landlord. Also, they were planning to set up two bought leaf factories for tea processing but I assume that the current requirement of cash by the Govt of India and their low cash has led to deferring the expansion. Currently the major business of the company are Tea, Electrical, Engineering, Webfil filaments and dividends from Tidewateroil recd as promoters.

They also hold shares in 'The Statesman, 'Khatras Jerriah mines, The New Beerbhoom Coal Co. Ltd., Yule Agro, Yule finance leasing etc and hold a few cr of shares of exide inds. They are also running a cafe in Kolkata.A few years ago when the tea gardens of various private companies were under financial stress, they had jointly requested to be brought under Andrew Yule group (when Mr. Kallol Datta was chairman).

Why I find this company exciting: It has a legacy which included periods of struggle and BIFR. Since it exited BIFR, the company is not only debt free but also profit making. Their tea is one of the best in the business and has good exports business too. Their Electrical and Engineering businesses need a little boost which can bring in good profits to the company in the long run. They recently shut down Hooghly printing which was a huge overhead. I see them doing the same with many other side businesses and concentrating on only 3-4.

Threats: Tea is the major business and cyclical in nature, Mcleod Russell had to sell of many gardens to bring down their debt. Also, the company has regularly argued how they have a problem expanding due to the bureaucracy of GOVT of India. (Govt of India recently killed ONGC’s finances for its own benefit). Majority of their businesses lie in Kolkata where strikes are as regular as Durga Puja.

Strengths: Tidewateroil has a collaboration with Nippon UX Japan, and holds the historic Veedol Brand name. Andrew Yule tea is regularly awarded at various shows and is one of the most premium tea exported to various countries. Collaboration with M/s. Togliati Transformer Co. Ltd., Russia. The management is regularly trying to outdo their PSU mentality and try something new.

Only 5-6% of shares are available to retail investors with the rest held by Govt of India and Bank of Baroda.

financials (as per screener)
Market cap 911 cr.
current price: 18.65
ROCE 13.64
ROE : 9.18
Price to book value: 4.55
peak sales in 2017 at 421 cr (consolidated)
profit in 2017 45.43 cr (42.12cr other income from TWO)
debtor days : 75
Inventory turnover : 7.36
5 year sales growth : 2.88
5 year profit growth : 5.04
average 5 year roe : 14.03

With recent market trends affecting many companies adversely, Andrew Yule is ripe for the picking for long term investment. The biggest risk remains in how they steer through loss making divisions and grow within the boundaries of GOVT of India’s stringent cash strapping rules. Shutting Down Hooghly printing and turnaround of other businesses should boost profitability to a comfortable level. Andrew Yule also recently declared that they wanted to setup boutique resorts at tea gardens.

Disc: invested tracking quantity. I don’t see this as stock being among my top 5 but holding at the CMP (only 5-6% in open market), not much can go wrong.

source: www.andrewyule.com
www.screener.in
Andrew Yule Annual report

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@Ragav1024 wrote:

Hi All,

I have been hearing lot many interesting facts about fintech industry and its potential to grow in years to come.

Fintech or financial technology companies use technology to provide financial services such as payments, peer-to-peer lending and crowdfunding, among others.

According to NITI Aayog, India is one of the fastest growing fintech markets globally, and industry research has projected that $1 trillion, or 60% of retail and SME (small and medium sized enterprises) credit, will be digitally disbursed by 2029.

Paytm is one company that is growing at faster rate but unfortunately it is not listed.

What are the other listed companies in this space ?

Views invited.

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@cabunny wrote:

Hi,

I am new to investing field , this is my first attempt to analyze a company in detailed manner.

Company Name: Auro Laboratories Limited
Business: Manufacturing of API especially anti diabetic drugs Like Metaformin HCL etc.
Capacity: On their website it is mentioned that installed capacity is more than 500 MTPA
A. Sales Growth :
10 Years growth is around 17 %
From 2014 to 2016 there was de growth in sales for consecutive three years, In annual report they stated that it was due to reasons like competition, Low global demand etc.

2017 onwards sales is again on track and growing.

B. Profit Growth :

OPM is consistent and growing with a good pace, main reason behind continuous increment in growth is low Raw material cost, may be this is due to pricing power of Auro Labs or due to shortage of API in global market .

PAT growth of last 10 years is 52% against sales growth of 17 %. NPM is also improving due to decrease in Intt cost and higher operating profit margin

C. Financial :

a. Debt equity ratio is 0.7, improving due to repayment of loan from the year 2016. Total repayment from 2016 to 2018 is 7.21 crs. As on 31.03.2018 Debt outstanding is 9 Crs
Debt level is still on higher side and needs to improve further. Intt coverage ratio is 5.6
b. Tax Rate: Tax rate is fluctuating due to DTL and low profitability, in future if company continue to grow its turnover than they need to pay Tax in a range of 30-35%.

c. CFO comparison with PAT and FCF: Cumulative PAT of 10 years is 8 crs on the other hand cumulative CFO is 27. Total capex during last 10 years is 14 crs, healthy Free cash flow is there.

d. Fixed Assets Turnover ratio: From 2010 it is in range of 2.8 to 4, company is regularly doing capex to increase capacity still NFAT is constantly above 3.

e. Inventory Turnover ratio: Is in up trend, which shows efficient working capital management, but in 2018 it was around 29 which will not be easy to maintain.

f. Receivables Level: Debtor’s turnover ratio is constant, if you see cash flow statement of last 3 years they recovered increase in receivables in next year. As on 31.03.2018 more than 6 months outstanding is around 20 lakhs.

g. SSGR vs Sales Growth: Last 10 years sales growth is 17 % and last 3 years SSGR is 8 % still Auro Lab manage to reduce the debt level in last 3 years this is mainly due to efficient working capital management. This is the area where an investor needs to focus because if they do capex in future they need more debt.

D. Valuation

Valuation wise stock is available at PE level of 7, which provide sufficient margin of safety to an investor.

E. Management Analysis :

a. Remuneration: From 2014 onwards promoters start withdrawing remuneration, if you see it in % terms may be it is on higher side but in absolute terms it looks moderate. (Please refer management analysis sheet).

b. Share holding pattern: In 2011 promoters hold nearly 40 % stake in company, in last 7 years they bought stock from open market and as on 31.03.2018 promoters hold nearly 52%, which shows their interest in the business. Other than that Ms Shikha lohia who is daughter of Mr Sharat Deorah is also holding more than 1% stake in company, her holding is part of public category.

c. Succession Plan: Mr Siddhant Deorah who is the son of promoter director Mr Sharat Deorah is already in board as whole time director. He is an MBA.

d. Related Party Transactions :Over the years Promoters and associated firms of promoters provided unsecured loan to Auro Lab at a moderate interest rate ranging between 6.7 to 10 % ( Please refer management analysis sheet)

F. Red Flags :

a. Auditor’s Observation : In Annual report of 2010-11 , auditor qualified the report for overstatement of profit due to following reasons :

1. Non provision for doubtful advances amounting to Rs 39 lakhs. In 2013 AR that amount was reduced to less than 8 lakhs.

Management’s comment on above observation :

In 2013 Amount reduced to 7.49 lakhs and same is still exist on 31.03.2018

2. Company was not following Accounting standard 10 of Fixed assets ( 2011 to 2013)
3. Gratuity provision was made on cash basis which was not as per AS 15. (2011 to 2016) and same was acknowledged by management in notes to accounts in 2011

b. Expansion plan: As per Pre feasibility report dated 28.11.2018 available on internet Auro labs is looking for expansion. In that report they mentioned that existing capacity is 60 MTPA. If you look at their web site it is mentioned that installed capacity is more than 500 MTPA and in energy conservation data of each year in AR annual production is in range of 120 to 160 MTPA. A clarification is required from management for more clarity . They want to expand it to more than 9700 MTPA that too in 12.5 crs.

c. Contingent Liability: From 2014 onwards they are showing contingent liability as a foot note and it is in a range of 2.25 to 3 cr. Nature of contingent liability is not clear.

d. Foreign exchange fluctuation: Export sales is major portion of total sales (34 to 60 % ) , the company do not have any hedging policy in place.

e. SEBI complaint: In 2018 company received 2 compliant from SEBI and same was resolved in 2018, nature of complaint did not mentioned in AR.

A mail was sent to company’s investor relation mail ID to clarify expansion plan, exsiting capacity, contingent liability and SEBI complaint. Reply is still awaited.

Basic Data Analysis and Fund Flow Analysis statement

basic data 1.png1920x1080 180 KB

management anal..png1920x1080 146 KB

Please provide your feedback/ suggestion for improvement.

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@bhaskarjain wrote:

Background:

On 9th January 2019, Prabhat Dairy announced its plans of entering the animal nutrition
business and partnership with DLG, the Denmark based world leader in high-quality vitamin-mineral feeds.

On 21st January 2019, company announced that it has “entered into definitive
agreements with Tirumaia Milk Products Private Limited, a wholly owned subsidiary of French
dairy multinational Groupe Lactalis,for the sale of its dairy business for a consideration of INR
1.700 crore. The transaction involves sale of the dairy business undertaking of Prabhat Dairy by way of
slump sale on a going concern basis, along with the sale of 100% shareholding in Suntresn
Agro Industries Private Limited (a step—down subsidiary of Prabhat Dairy Limited) via a share
purchase agreement.”

“The Company intends to share a substantial portion of the proceeds from the sale With
shareholders after meeting its tax and transaction cost obligations. After Closing of the
Transaction. Prabhat Dairy Limited intends to further develop its cattle feed business in various
parts of the country, as well as expand into allied businesses such as animal nutrition and
animal genetics.”

===============================================================================

Next day the market rejoiced with upper circuit for brief period but investors wary of recent experience with Leel Electricals etc. dumped the share 15% down. It did not help that twitter and media “experts” predicted that minority investors would be short-changed. Only one long term institutional shareholder (ALQUITY SICAV - ALQUITY INDIAN SUBCONTINENT FUND) bailed out on 22nd January. No other major institutional shareholders seemed to have reduced/exited their holding. At least no disclosures in this regard were notified to the exchanges.

Screen Shot 2019-04-01 at 7.04.42 PM.png802x850 208 KB

Company came up with a clarification same day at night rebutting the “speculative” news flow around the deal and reiterated that (1) substantial portion of the proceeds would be shared after meeting tax and transaction costs (2) in most optimal manner (3) proceeds means all proceeds including from subsidiaries.

Stock went on lower circuit loop for few more days till 5th February when the company announced that it was considering to merge Cheese Land Agro with itself. Stock went up after that. EGM for the approval of the slump sale of the dairy business to Tirumala Milk Products was planned for 26th March. On 25th March company came out with a update, that the board has decided that an Escrow account shall be set up into which the net proceeds of the Transactions, after meeting tax obligations, indemnity obligations and transaction costs will be deposited. Also a “Transaction Committee" consisting of at least three independent directors and not
than two other directors, who will oversee, supervise and manage the utilization of the
proceeds from the Transactions in the Escrow account held in trust for the shareholders. And no part of the proceeds from the Transactions will be deployed towards residual business of the Company i.e. the animal nutrition and cattle feed business.

Proceeding of the EGM, state that approximately INR 1000 cr -1200 cr
might be available for distribution to the shareholders. The EGM resolution was passed.

Current MCAP of the company is around 720 cr. I have not worked out the actual payout if they go for special dividend (taking into account the dividend distribution tax ~18%) or if they go for a buyback. Payout could be greater than the cmp and we could also end up with the future animal feed, nutrition business. Yes it all ends up how honest the promoters are and if they stick to their words. Company could have come up with the clarifications earlier and could have prevent all this drama. With the volume of trading done, looks like some insiders/operators would have surely benefited from the movement the past few weeks. IPO of the company was in August 2015 but the promoters have good background in the dairy sector for decades, so maybe they might be able to grow this animal feed, nutrition business.

Please let me know your thoughts on this.

disc - invested

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@kapilgokharu wrote:

Brief Background About the Company
5paisa is a financial services company with a focus on “discount broking” services, providing financial products through an online technology platform and mobile application. 5paisa is a depository participant of CDSL and also a trading cum clearing member of BSE and NSE.

Services of 5paisa
Discounted stock broking services
Clearing and Depository Services
Mutual fund distribution
Distribution of other financial products

Recently, company has formed a wholly owned subsidiary namely 5paisa P2P Limited (“5paisa P2P”) which will operate as a peer-to-peer lending platform. An in-principle approval for registration as NBFC peer-to-peer lending platform (NBFC-P2P) from RBI has been received.

Discount Brokerage Industry
These brokers offer services at low and fixed brokerage fees, irrespective of size of order and provide such services via an online platform. Discount brokers typically do not provide any cost intensive facilities and services such as physical offices, research reports and relationship managers. Currently, there are more than 15 discount brokers in India. As per the annual report from the company during the period FY 14 to FY 18 the market share of discount brokers has increased from 1% to 8%. USA was the pioneer in discount broking where currently about 70% of the retail broking is conducted through discount broking.

What is exciting about the company
Company has declared the financial results for the period December 2019 the revenue of the company has increased by 50% in a single quarter while the cost has increased by only 5%. Press release and financial results have been attached.

Discount brokers are gaining market share rapidly, effect of this can been seen in the quarterly results of ICICI securities

The growth of discount brokers can be seen on the following links
Discount broker active clients 2018
https://www.chittorgarh.com/report/top_10_discount_brokers_in_india_by_clients_at_nse/3/?year=2018

Discount broker active clients 2017
https://www.chittorgarh.com/report/top_10_discount_brokers_in_india_by_clients_at_nse/3/?year=2017

5paisa has increased the clients 3 times from 2017 to 2018

I have tried to pullout the financials of other discount brokers from the ROC data. Zerodha and RKSV are the main competitors of 5paisa. I could not found the data for Zerodha but i have found the data for the RKSV (Balance sheet has been attached). As per the link
( https://yourstory.com/2017/02/zerodha-3 ) zerodha has reported the profit of Rs 120 cr on the turnover of Rs. 220 crores in the financial year 2017-18, which is very impressive at the same time zerodha has grown aggressively after 2017-18.

RKSV has grown 100% from FY 2017 to FY 2018 (financials extracted from the ROC data has been attached). The turnover or RKSV has grown from 13.24 in FY 2017 to 26.78 FY 2018, while its expenses have grown only marginally. The company also reported profits in FY 2018.

I have extracted the financials of other zerodha group companies same has been attached herewith.

Open offer
Recently company came with the open offer for raising around 100 crores.

The proposed utilization of Net Proceeds is set forth below:
(in ₹ million) Sr. No. Particulars Amount

1. Business and operations expansion 240.00
2. Manpower expenses 141.60
   3.Margin maintenance with stock exchanges 450.00
   4.Investment in our Subsidiary 50.00
   5.General corporate purpose

New Clients Acquired as per offer letter
April 2018
7,121
May 2018
7,671
June 2018
8,535
July 2018
10,390
August 2018
12,569

The Company proposes to push the process of customer acquisition through an aggressive marketing drive. Company targets at acquiring additional 200,000 clients in a time frame of 12 months. Company therefore earmark proceeds of ` 240 million i.e. 50% higher budget than the Fiscal 2018 for branding and business development purpose. We intend to achieve 4X growth in customer base with an increase of just 50% in acquisition expenditure over the previous year. The estimate considers the growing recognition of the brand and increasing benefit of customer growth by word of mouth.

Risks
Company has reported losses of Rs. 23 cr on the turonver of Rs. 49 cr (TTM revenue) as the same time RKSV has posted the handsome profits on turnover of Rs. 26 cr.

I have no idea about the management of the company.

Conclusion
In my opinion company can report good amount of growth in the coming years as the industry expands. The company can be multibagg
er from 3-5 year perspective.

Disclaimer
I own 2% of my portfolio in the 5paisa which has been recently been acquired
.
This my second topic on the value picker.
this is not an investment advice,

Link for open offer document

Press release Q3

Annual Report report and fiancials
https://www.5paisa.com/investor-relations

Zerodha Securities Financials_2017-18.pdf (2.7 MB)

RKSV AR and Financials 2017-18.pdf (2.0 MB)

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@dineshssairam wrote:

Petronet LNG Limited (https://www.petronetlng.com/Company.php)

Company Overview

Petronet LNG (PLNG) is the market leader in the LNG receiving and regasification business in India. The company has set up the country’s first LNG receiving and regasification terminal at Dahej, Gujarat, and another terminal at Kochi, Kerala. While the Dahej terminal has a nominal capacity of 15 MMTPA, the Kochi terminal has a capacity of 5 MMTPA. The company is in the process to build a third terminal at Gangavaram, Andhra Pradesh. A couple of other important plants are also in the plans.

Capacity.PNG780x452 33.2 KB

Formed as a Joint Venture by the Government of India to import LNG and set up LNG terminals in the country, it involves India’s leading oil and natural gas industry players. Their promoters are GAIL (India) Limited (GAIL), Oil & Natural Gas Corporation Limited (ONGC), Indian Oil Corporation Limited (IOCL) and Bharat Petroleum Corporation Limited (BPCL).

Business Overview

To put it shortly, PLNG’s business follows the below cycle:

1. Sign long term, fixed price contracts with gas suppliers from overseas. Currently, they have signed such contracts with Gaz de France and Ras Laffan LNG Company.
2. Process the purchased gas in liquefaction plants
3. Store them in LNG storage tanks.
4. Sell them to Oil & Gas clients, after which the gas will be vaporized and transported via gas pipelines. The buyers are largely IOCL, BPCL, GAIL and ONGC as of now.

Industry Overview

The quest for alternative fuel has been a common denominator in most parts of the world. Closer in Asia, India and China have been spear-heading the change.

Even if India were to simply move towards the global average power mix, it would still mean a massive shift towards gas:

Energy Mix.PNG731x336 45 KB

PLNG’s direct competitor, Shell, came out with a statement expressing their enthusiasm about the LNG market prospects in India:

Other news articles also follow through:

https://www.lngworldshipping.com/news/view,lng-in-india-in-with-the-new_54423.htm

But in fact, the overarching story is that the Supply-Demand situation for gas in India is highly skewed. Supply is only a fraction of the projected demand:

Considering how the domestic gas supply isn’t up to the mark, LNG imports will have to be boosted to fill in the gap.

Business Analysis - SWOT

Strengths

• PLNG has the highest market share in this space and can play a huge part in bridging the demand-supply gap in LNG imports and regasification.

• PLNG already has large plants at low capacity utilization levels. If the demand for imported gas indeed picks up, the operating leverage can kick in to aid profitable growth.

MS.png1327x454 23.1 KB

• PLNG is also largley the face of India’s LNG import talks with foreign nations. So if there’s a list of companies that can successfully discuss profitable LNG import deals for the country, PLNG would probably figure at the top of the list.

Weaknesses

• When all is said and done, the regasification business is a commodity business and therefore, reliant on supply and demand of raw material (Here, gas). Any high-demand situation in gas abroad can dent PLNG’s margins quite easily. However, currently, the prices seem to have stabilized.
• Since the firm largely supplies to the Oil & Gas giants of India, bargaining power with customers is non-existent. On the other hand, the firm imports gas based on long term fixed-price contracts. So once again, bargaining power with suppliers is also quite less.

Opportunities

• As already discussed, the upcoming push towards green energy and a lack of local gas production offers a lot of value to the company on a golden plate. It’s only a matter of how large a piece of the pie the company can claim for itself.
• In the past few years, the company has been negotiating gas import contracts with more suppliers (Exxon in Australia, Henry Hub in USA to name a few). Done successfully, this will spark a price war and hopefully, PLNG can get their raw materials at a cheaper price. The diversification of raw material sources also comes as an advantage.
• If and that’s a big if, PLNG can negotiate shorter term contracts instead of long term contracts, raw material prices can come down significantly. My memory slips where I read this exactly, but the difference could be as much as 50% lower.

Threats

• A great profit opportunity attracts several competitors and the regasification business is no exception. PLNG’s capacity to supply far exceeds the competition. But it is always good to look out for dark horses.

Financials

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Mandatory linking to Screener. But I sincerely suggest that you check out the report by Ventura. They have done an excellent dissection of the numbers related to the business.

Valuation

In my opinion, depsite the run-up in the stock’s price, it looks to offer some value.

PLNG - Unbiased Value.png2040x750 48.5 KB

However, please note that the above valuation is done at a Cost of Capital of ~12.5% and a Margin of Safety of 30%, both of which I think are not enough. Considering the commodity nature of the business, these should be a tad higher. So a valuation tainted by my personal risk-reward opinion would look like this:

PLNG - Biased Value.png2040x750 48.7 KB

TLDR is, PLNG is not my cup of tea. But it could be yours, depending on your own risk-reward tendency.

Red Flags / Risks

• PLNG is a state-owned entity. So, there is no question of Corporate Mis-governance here. But of course, the same fact also appears as a red-flag. We know the fate of several state-owned entities being the playthings of politicians. It is not too farfetched to assume that PLNG could join the pack during the upcoming flood of LNG demand.
• 50% PLNG is owned by 4 Indian Oil & Gas giants. Not only do they own 50% of the company, but they also sit on the board of the company (Talk about independence of the board). The cherry on the cake, these four entities are also the sole customers of the company (Well, almost). You can probably do the rest of the math.

Important References

PLNG’s Annual Reports
Ventura Research on PLNG (A MUST READ research report on PLNG)
PLNG’s Corporate Presentation
Petronet LNG - Wikipedia
List of LNG Terminals in India

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@dd1474 wrote:

Background

VST, originally incorporated in 1930 as Vazir Sultan & Son, became an associate of British American Tobacco Plc. (BAT) over a period of time, which holds a 32.2% stake in VST Industries. Post-acquisition of stake by BAT, the named was changed to Vazir Sultan Tobacco Company Limited, and further in 1984 to VST Industries Limited. In the early 1970s, the Government of India directed all companies coming under the Foreign Exchange Regulation Act (FERA) to reduce foreign shareholding to less than 40 percent. Consequently, BAT’s stake in VSTIL got reduced to 32.6 percent.

Post Liberalisation, in 1993, the company has failed efforts in diversifies in real estate, Agri processing and financial services, which resulted in large losses during FY1999. With support of BAT and difficult strategic decision to focus on core business, the company again resumes its part of profitable growth.

In February 2001, Radhakishan Damani, India’s savviest stock market investors, astonished the market by making a hostile bid for cigarette maker VST Industries, owned by British American Tobacco (BAT)., Damani had accumulated below 15 percent in the company over the last year at an average price of 88 per share. But ITC which entered the fray as a white knight and foiled it with support from BAT. Damani still holds 26 percent in VST Industries.

The company is mainly engaged in manufacturing and marketing of cigarettes, and trading of unmanufactured tobacco. VST is the third largest cigarette manufacturer in the country, operating mainly in the lower end category of the industry. VST’s flagship brands include Charminar (since 1994), Charms Virginia (since 1997), Special Extra Filter (since 2004) and Moments (since 2007).

Positive:

Strong cash generations:

High Entry barrier

As cigarette being not good for health, the government has banned promotion of cigarette through advertisement in television. Also there is good efforts to promote bad effect of cigarette on health, specifically by pictorial warning on cigarette pack, cancer related issues due to cigarette consumption. Also, the government has banned new capacity of cigarette. While all these factors have resulted in degrowth of cigarette consumptions in India, same has also resulted in very high entry barrier in the sector. There are only 3 large players which control around 90%

Negative factors

"Sin" product

Tobacco consumption has been major factor driving cancer and other health related disorder. The government has taken various action on controlling the tobacco consumption including increasing various taxes on cigarette. Being an addiction, the rise in cost/taxes are passed on to the consumer, who has very limited choice to avoid consumption due to addition. Hence, while the cigarette business may provide stable cashflow to investor, it is not be good industry from society value perspective. Also, over a long term, the industry growth is expected to remain negative as reported in Developed market with increasing per capita income and awareness.

Growing illicit cigarette market in India

While there is high entry barrier of entry in Cigarette sector, same is applicable only to organised sector. As per ITC Corporate presentation, the legitimate cigarette industry has declined steadily since 2010‐11 at a compound annual rate of 4.8% p.a., illegal cigarette volumes in contrast have grown at about 5% p.a. during the same period, making India one of the fastest growing illegal

Cigarette markets in the world. So higher tax on cigarette from organised along sector, along with very high portion of pack being covered gruesome images adversely affect safety perception of domestic cigarette in India and increasing share of illicit imported cigarettes.

High Valuation

VST Industries is currently trading 25 times PE on TTM basis. Since March 1997, average PE multiple and Median Multiple for the company is 14.37 times and 14.12 times. Hence, valuation of the company has limited, rather no margin of safety if considered with past parameters.

Rationale for investing

After 4-5 years of negative volume growth, resulting for various factor, VST Industries as well as orgainsed cigarette industry have shown positive growth from last 2 quarters. I have relied in ICICI Direct report on VST Industries in Jan 2019. The relevant portion of report indicating positive growth is enclosed.

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Further, December 2018 results TTM EPS Rs 143, with dividend payout ratio of around 70%, may result in increased dividend to Rs 100 per share in FY20 for VST Industries. Since I like stable dividend investment, I expect VST Industries to provide for 2.7% Dividend Yield as on Current price (Rs 3600). The share price movement would depend on how industry growth revive and I have no view on same. Further, at current level, there is limited margin of safety for investor in my opinion. However, this may be good stable dividend generating idea if an investor is looking at investing for 3-5 year horizon.

Past Dividend, Share price and PE for VST Industries

Year End	Dividend %	Dividend Rs	Share price	TTM PE	Div Yield
Mar 2018	775	77.50	2,919	25.23	2.7%
Mar 2017	750	75.00	2,880	25.95	2.6%
Mar 2016	700	70.00	1,620	17.31	4.3%
Mar 2015	700	70.00	1,607	15.18	4.4%
Mar 2014	700	70.00	1,649	19.14	4.2%
Mar 2013	625	62.50	1,505	18.12	4.2%
Mar 2012	650	65.00	1,457	16.96	4.5%
Mar 2011	450	45.00	640	10.4	7.0%
Mar 2010	300	30.00	521	10.49	5.8%
Mar 2009	300	30.00	225	4.62	13.3%
Mar 2008	200	20.00	309	9.51	6.5%
Mar 2007	200	20.00	330	8.64	6.1%
Mar 2006	125	12.50	482	17.44	2.6%
Mar 2005	125	12.50	231	6.6	5.4%
Mar 2004	60	6.00	202	10.92	3.0%
Mar 2003	55	5.50	89	3.58	6.2%
Mar 2002	45	4.50	151	6.32	3.0%
Mar 2001	25	2.50	110	6.15	2.3%
Mar 2000	10	1.00	67	6.59	1.5%
Mar 1999	0	0.00	113	0	0.0%
Mar 1998	10	1.00	95	22.56	1.1%
Mar 1997	10	1.00	90	18.39	1.1%

Links:

ITC Presentation: https://www.itcportal.com/about-itc/shareholder-value/ITC-Corporate-Presentation.pdf

Screener Data: https://www.screener.in/company/VSTIND/

Cigarette industry data Euro monitor: https://economictimes.indiatimes.com/industry/cons-products/tobacco/cigarette-sales-will-continue-to-be-under-pressure-in-india-report/articleshow/61056049.cms?from=mdr

Disclaimer: I have been holding VST Industries since last 9.5 years and my view may be biased. I have recently increased my allocation to VST Industries by 20% in last 15 days. I am not SEBI registered advisor and investor shall consult his/her own investment advisor before making any investment decision.

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@rupaniamit wrote:

Jyoti Resins & Adhesives Limited has hit two back-to-back 20% upper circuit on BSE in last two trading sessions and made a new 52-week high today. I spent some time to understand the business and numbers and wanted to share my findings. I found questionable bloated unpaid expenses reserves and few other anomalies which raised many questions as mentioned below.

CMP: 165.05
Market Cap: 66.02cr

Introduction:

JRAL sells various adhesive products under EURO7000 brand which was launched in 2006. Unfortunately, management has not bothered to share any business specific information with the investors. It has same content for MD&A that it has been using for last several years. Company is based out of Ahmedabad, Gujarat with manufacturing plants in Santej, village Kalol in Gujarat. More about their products can be found here: https://www.euro7000.com/events.html

Business Numbers:

Overall business has decent gross margins (north of 50% until 2018) but low net profit margin.

Receivable days have increased as high as 300 days. Current receivables per FY18 balance-sheet is 43.38cr. It forms 78.63% of the FY18 revenue.

Its requirement for fixed assets has been low, but heavy investments have been needed in Working Capital (mainly receivables and inventory) to grow the business. Business has generated enough cash from operations and with help of some debt to support its working capital requirements. It had debt of almost 5cr until FY17, but repaid all debt in FY18 and now has cash surplus of almost 4cr on its balance sheet as per FY18 balance sheet.

Below please find some details in the table:

Source: screener.in

Promoter Stake Consistently Increasing:

Company has 40 lakh shares outstanding. Not a single new share has been issued since FY2011. Promoter’s stake has grown from 25.47% in FY11 to 40.86% in FY18. Management has been increasing stake by purchasing from market.

Below screenshot shows a small list of many market purchases made by promoters lately:

Promoters Happy with Increasing Salary than Increasing Dividends:

Promoters are happy with increasing salaries than increasing dividends. Management has not paid a single rupee in dividends so far. Also, total of their FY18 remuneration was 107.5 lakhs, whereas, Net Profit for the company was 105 lakhs. So promoters took more than the annual net profit of the company as salary. What happened to the ceiling per the act? May be prior they took approval to announce more salary than net profit of the company.

Source: Company Annual Report

Bloated Reserves and some other anomalies:

Company has created unpaid expenses reserves on liabilities side in their balance-sheet. It has grown from 1.45cr in FY14 to 46.7cr in FY18. It’s steep jump in unpaid expenses (where vendors or suppliers are not asking for their money )! We have a business with annual revenue of ~54cr with 47cr of unpaid expense provision.

Source: Company Annual Report

I found some unusual Target Incentive and Sales Promotion expenses that were charged under Other Expenses. I suspect some portion of these expenses charged have made their way to Unpaid Expenses Reserves for Promoters. It seems like all this money has been reinvested in the business in the form of COGS, Receivables, and Inventory. And surprisingly company removed Target Incentive and Sales Promotion Expenses from the list of Other Expenses in FY18 annual report.

Source: Company Annual Report

Need explanation on below items from management:
 Bloated unpaid expenses reserves amounting to 46cr.
 Where did Sales & Target expenses go away in FY18 financials?
 How are promoters able to take home fat paychecks which is more than annual net profit of the company?

Disclosures:

1. The content of this write-up is only for information for the readers and not to be construed as investment advice. Please consult your Financial Advisor before acting on it.
2. My main goal is to document my findings and follow-up later to get more understanding on the open items.
3. Never had any position or holding in JRAL.

I have added a new post of Jyoti Resins & Adhesives Limited (with bloated reserves) on my blog. If you want to read the details it in a pdf, please click here

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