@Swapnil_gangele wrote:

Company Profile

              Aarey Drugs & Pharmaceuticals Limited, promoted by the Ghatalia family, is engaged in active pharmaceutical ingredient (API)/Bulk Drugs manufacturing and offers a range of products for various industrial applications. The Company is engaged in trading and manufacturing activities. The Company is a manufacturer and supplier of pharmaceutical raw materials, chemicals, pharmaceutical ingredients, API's drugs, food colors and flavors. The Company's assortment of pharmaceutical products includes Metronidazole and Metronidazole Benzoate. Its products include Monomethyl Urea (MMU, Dimethyl Urea (DMU), Theobromine (THB), Theophylline (THP). Its other businesses include trading aromatics chemical, chemical acid, chlor alkalis, industrial alcohols, industrial ketones, glycols and glycol ethers, fiber intermediates, industrial amines, acetates and esters, chlorinated solvents, industrial intermediates and industrial chemicals

Recent Capacities

1. Company has commenced manufacturing of Mono Methyl Urea & Di Methyl Urea (Dimethylurea is used for synthesis of caffeine, theophylline, pharmachemicals, textile aids, herbicides and others. In the textile processing industry dimethylurea is used as intermediate for the production of formaldehyde-free easy-care finishing agents for textiles) as decided in June 2016 . Company has further added new products i.e. Erithromycin Derivates (Erythromycin is an antibiotic used for the treatment of a number of bacterial infections. This includes respiratory tract infections, skin infections, chlamydia infections, pelvic inflammatory disease, and syphilis) Mafenamic Acid (Mefenamic acid is used for the short-term treatment of mild to moderate pain from various conditions. It is also used to decrease pain and blood loss from menstrual periods. Mefenamic acid is known as a nonsteroidal anti-inflammatory drug) with capacity of 10 m.t. & 25 m.t. respectively in June 2017
2. New Upcoming Capacity/Product
   Company will start production of new product i.e. Theophylline by March, 2019 Necessary steps has already taken by the management (Theophylline is used to treat lung diseases such as asthma and COPD (bronchitis, emphysema). It must be used regularly to prevent wheezing and shortness of breath. This medication belongs to a class of drugs known as xanthines)

Industrial Overview
*Rising Healthcare Spend: Healthcare expenses rose to US$118 per head from US$76.1 per head and it is going to rise only with Govt focus on public healthcare

• Health Insurance: Rising disposable income and government initiative will flourish primary healthcare and disease management
• Indian Pharma Market to expand at a CAGR of 22.4% over 2019–22 to reach US$ 55 billion Indian Generic Market Growth at a CAGR of 16.3% over 2019-22E • India generic export accounts for 30% (by volume) and 10% (by value) in US generic Market • 304 ANDA approvals from USFDA in 2017
  Promoters and QFI Interest

1. The company has alloted 10,00,000 Warrants Convertible into equal number of Equity Shares on preferential basis to Mr. Nimit R Ghatalia, Promoter vide its Extra Ordinary General meeting held on 1st February, 2018, and ii. The company has alloted 33,00,000 Equity shares on preferential basis vide its Extra Ordinary General meeting held on 1st February, 2018 to Qualified Institutional Buyers. Primary liquidity needs have been to finance working capital needs. To fund these, the company relied on internal accruals and borrowings
   Note : These allotment made above Rs 50/share on avg shows confidence of promoter and QFIs and so offers lucrative bargain to novice Retail Investors

2. Promoter are continuously accumulating since Dec-18 above INR 30/Share and so far bought 1,39,602 Shares from market.
   Major Booster Ahead for Next 5Years
   It is estimated that drugs worth US$40bn in US and US$25bn in Europe will be going off patent in next 5 years. This is expected to be the major export booster for the generics and API Industries based out of India.
   Risk or Red Flags
   Couldn’t be identified hence welcome if found by any fellow member

Valuation
Topline is growing CAGR @ 15% for past 5 yrs and bottom line is expanding CAGR @56.42 %.
Present capacity utilization is below 60% means no major capex required for next 80 % volume expansion and looking at past growth rate this could be achieved in next 3 to 4 yrs which could reflect in the bottom line expansion of more than 200% from here, keeping present macros in mind. In figure terms that could easily translate in EPS of 10.34 Rs/ share 3-4 yrs down the line. At FY 2022-23 FPE of only 3 against avg industrial PE of above 29 this least leverage compounding business looks attractive.
Discl: Already Invested

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@Aman_Mutkule wrote:

Market Share of Top Players

mkt-share-bulb-e1546085471200.jpg?resize=801%2C472&ssl=1801x472

Key Market Players

Cummins India Ltd.

Cummins India Ltd is a subsidiary of Cummins Inc, USA, which is the global Power leader in Diesel & alternative fueled electric generators. Cummins entered India, in the early 1960’s with Joint Venture with Kirloskar Oil Engines Ltd. Today, the co. is the sole subsidiary of Cummins Inc, USA. Cummins is the market leader in India and enjoys roughly 39% of the market share alone. The business of Cummins is primarily derived from 3 activities, and these are:

• Engine Business: Cummins manufactures from engines from 60 HP for low, medium & heavy duty on-highway commercial vehicles, off-highway commercial equipment industry.
• Power System Business: They design & manufactures High Horse power Engines from 700 HP to 4500 HP for Marine, Railways, Defense & Mining Applications.
• Distribution Business: This segment is specifically for providing products, packages, services & solutions for the up time of Cummins equipment.

The company is present largely in the middle, Heavy duty and High voltage segments. It is trying to penetrate in the Lower segment as well. It supplies its engines to its OEM’s who further assemble that into generators. These OEM’s are:

• Sudhir Power Ltd: Sudhir has been the OEM of Cummins for the past 3 decades. Sudhir is a leading supplier/ dealer of diesel generator of Cummins in the regions of Delhi NCR, Punjab, Himachal Pradesh, Gujarat, Madhya Pradesh & Jammu Kashmir.
• Powerica Ltd: Powerica has been working as an OEM partner of Cummins since, 1984. It supplies the Cummins generator in the South & Western India.
• Jakson Ltd: Jakson Power manufactures & sales Cummins powered diesel generators in the North & North Eastern regions.

⇒ The company’s plant in SEZ has entered 6th year, whereby its tax liability has increased from 22% to 27%, the companies tax shall increase further after 3 years.

⇒ The company has leadership position in the industry & also, benefits immensely from the technological support provided by its parent co.

⇒ The company has strong exports, which are nearly 31% of its revenue.

⇒ The Higher segment products of Cummins India are priced a bit higher as compared to its peers. The company earns better margins, due to its strong sourcing & premium pricing of its products.

Caterpillar Inc.

Caterpillar has been active in India since 1930s. They brand their products as “CAT”. ‘Perkins’ is a subsidiary of Caterpillar company. Caterpillar caters to the requirement of different industry, with its products & service for Mining & Quarries, Power Generation, Construction, Road works, Rail & Petroleum industry. It largely operates in India through its 2 dealers, i.e. TIPL (Tractors India P Ltd), GMMCO, who further handle 8 dealers.

• Tractors India P Ltd (TIPL): TIPL operates as the authorized CAT dealer in North and East India and Bhutan. TIPL sells and services an extensive range of Cat equipment for construction, mining and several infrastructure applications. The enduring partnership of over 72 years with Caterpillar provides TIPL with the desired competitive edge and that too entirely customer centric.
• GMMCO: GMMCO, a CK Birla group company, is the no. 1 dealer of Caterpillar products in India. It provides Diesel Gensets rating from 200 kVA to 7150 kVA and Gas Gensets rating from 77.5 kVA to 5000 kVA. Apart from Gensets, GMMCO provides with the engines for powering various on highway & off highway automotives.

Kirloskar Oil Engines Ltd.

Incorporated in the year 1946, Kirloskar Oil Engines is the flagship company of the Kirloskar group. Kirloskar Oil Engines’ specializes in the manufacture of both air-cooled and liquid-cooled diesel engines and generating sets across a wide range of power output from 2kVA to 1010kVA.

⇒ Also, they offer engines that can run on alternative fuels such as Bio-diesel, Natural Gas, Bio gas & Straight Vegetable Oil (SVO).

⇒ Apart from Gensets, the company produces Engines for Agriculture, Industrial & Other heavy industries.

⇒ The company derives nearly 35% of its revenues from the sale of Gensets.

⇒ The company is chaired by Mr. Atul Kirloskar and is managed by Mr. Nihal G. Kulkarni.

⇒ The company took over La Gajjar Machineries (LGM), last year. LGM produces electric pumps for Domestic & Export markets. Its popular brands are ‘Varuna’ & ‘Raindrop’.

Mahindra & Mahindra

Mahindra & Mahindra Ltd ventured into Power Generation in 2001-02. The company brands its product as ‘Mahendra Powerol’. The company manufactures Diesel generators in the range of 5 kVA to 625 kVA, has huge presence in the Telecom sectors, it enjoys ~60% share in the Telecom sector and is clearly, an industry leader in this particular segment.

Greaves Cotton Ltd.

Greaves Cotton is chaired by Mr.Karan Thapar (of Thapar Group), the company is primarily engaged in the manufacturing of Auto Engines, but it also has diversified its product offerings and provides Gensets in the range of 2.5 kVA to 500 kVA. The company assembles the Power Generators for the use by various industries.

⇒ The company is the market leader in the Diesel Engines for commercial vehicles.

⇒ The company supplies Engines for Commercial Vehicles like 3 wheelers to Piaggio, Atul Autos.

⇒ It has nearly 75% market share in the 3 wheeler engine segment. Apart from 3 wheeler engines, it supplies engines to Tata Motors for its commercial vehicles.

⇒ The company has recently formed a Technological Alliance with Pinnacle Engines of US & Altigreen Propulsion Labs of Bangalore, to manufacture engines compliant with BSVI norms. The co. announced wider product portfolio, in order to de-risk its dependency on single cylinder engines. In its attempt, it will beef up its capabilities in areas of Generators, Energy & after- market products by entering into B2C segment.

Honda Siel Power Products Ltd.

The company is a subsidiary of Honda Motor Co. Japan, and was incorporated in 1985. The company is engaged in the production of Portable genset, Water Pumps, Tillers and General Purpose Engine. It has its manufacturing facility in Greater Noida.

⇒ The company is quite export oriented with its products being exported to America, Middle East, Africa & other countries.

⇒ The company produces genertors that run on petrol, rising prices of petrol can be a concern for the consumers.

⇒ The demand for Portable Gensets is on a downward trend. The company is low on debt, cash positive and has a good dividend payout record.

⇒ The company makes payments ~7-8% of its revenues to its parent company. These payments are in the form of Royalty, Model fees, Technical Information, etc.

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@Aman_Mutkule wrote:

Abrasives Industry, which is around Rs. 3,000/- crores, 50% of the market share is with Carborundum Universal Ltd. and Grindwell Norton Ltd. each having ~24-25% of the market share.

Carborundum Universal Ltd.

Carborundum Universal Ltd. is part of INR 269 billion Murugappa group, a giant conglomerate founded in 1990. Varied businesses fall under the group; bicycles, sugar, abrasives, fertilizers, financial services, and manufacturing. The group was establsihed by Dewan Bahadur A M Murugappa Chettiyar. Currently 4th generation of Murugappa Group promoters is now navigating the Group’s strategic direction and growth, while the 5th generation has taken up different roles across functions and businesses.

Carborundum Universal Ltd. is one of the major companies of the Group. It was incorporated as a Joint Venture amongst Carborundum company, USA, Universal grinding wheels, UK and Murugappa group. Carborundum is a global player with ~45% exports sale.

Grindwell Norton Ltd.

Grindwell Norton Ltd. is subsidiary of Saint Gobain, a French Group that manufactures high class mirrors & other industrial construction material. Two Parsi entrepreneurs Mr. P.H. Sidhwa and Mr. R.D. Sidhwa promoted the company in 1941.

In 1967 the company entered into a technical collaboration with Norton co. of USA & thus changed its name to Grindwell Norton Lltd from its initial years’ name Grindwell Abrasives Ltd.

In 1983, Grindwell Norton Ltd. which was by then a Joint Venture between Norton Company and the Indian Promoters, was listed on the Bombay Stock Exchange. In 1996, GNO became a majority-owned subsidiary of Compagnie de Saint-Gobain (which had acquired Norton a few years earlier). With its headquarters in Paris, Saint-Gobain is a large, transnational Group with a presence in 67 countries.

Read full study in below mentioned link

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@anandsharp wrote:

Infobeans technologies (NSE SME listed) to be a good fundamental value pick. It’s continuous growth story.
It’s current mcap is around 170 crore and free float mcap is around 45 crore. (market price is around 70 rs).
Promotor holding is 74%. It’s ipo price was 58.

Company Description:
InfoBeans Technologies Ltd (ITL) is engaged in software development services, specializing in business application development for web and mobile and operate at Capability Maturity Model Integration (CMMI) level 3. ITL services can be broadly categorised as storage; Virtualisation, Media, Publishing and eCommerce. In India it operates out of 2 facilities in Indore and Pune employing more than 600 people across locations. As the company has prominence in exports, it has established local presence in the North American market by way of a 100% subsidiary, which has 2 offices located in California Georgia, USA. ITL is ServiceNow partner for implementing their software

This company is listed on NSE SME. It’s CAGR is > 20% in last 5 year.

Investor Presentation (after Q4 March 2019)
INFOBEAN_03052019150338_NSE_INTIMATIONTFORPPT_138.pdf (3.9 MB)

Resource retaining is always challenge to any IT company. If we see this company top level management, all are associated with this company since long time which is eventually benefiting to company.

Company has presence in North America, Europe and Dubai market and rapidly spreading its footprints across the globe.

Effectively company has 34 cr rs cash in hand and have total investment (long term/ short term / non current investment) of 58 crore. Company has 98 cr reserve and surplus. It has zero debt ( against long term/ short term provisioning).
Total cash + investment = 92 cr and current mcap is 170 crore.
It’s topline increased 23 crore to 120 crore in last 6 year

Infobean 2018-19.jpg1252x677 252 KB

it’s virtual debt free company.

Disc. Initial entry into the stock at around 60 rs. Invested.
Risk: In IT industry, technology risk is always exist in digital time and any type of global slowdown could also impact in revenue.

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@narendra wrote:

Apollo Tricoat Limited (ATL) journey:

It was initially incorporated as “Potential investment and finance ltd” in 1983 and acquired by Mr Saket Agarwal by open offer in 2016. Subsequently name was changed to Best steel logistics with major areas of business as warehousing,logistics and trading activity of steel.

In 2018 Mr Rahul Gupta(RG) son of Mr Manoj Gupta(Chairman of APL Apollo tubes) has acquired controlling stake and changed company name to Apollo tricoat ltd and started setting up plant near Bangalore for manufacturing of tricoat tubes.

By FY18 end RG has increased his shareholding to 31.25% (80,30,000 shares) from 5.41%(for FY17) by preferential allotment of eq shares and warrants(48,00,000 @Rs.120.00)

During OCT 2018, LAXMI UDYOG LTD ( Subsidiary of APL Apollo tubes) did purchase agreement with RG to acquire his eq shares, 43,00,000 eq shares after warranty conversion @ Rs.120 and 79,30,000 shares from public with open offer @ Rs.135. As per latest shareholding promoter and group hold 64.33% in ATL.

This whole process looks complicated to me, request vp expert @phreakv6 to comment.

(What I have written below is based on annual reports,scuttlebutt,plant visit,discussion with people involved in steel industry. My interpretation may be wrong in few things.)

Apollo tricoat has set up its plant near Bangalore for manufacturing of tricoat tubes,designer galvanised tubes,narrow sections…etc.(to know the difference between pipes and tubes@ HERE)

Normally steel tubes are produced from from HR coils. When plain HR coil converted into tube it has to be wielded at the point of contact and tube has to be covered with zinc to prevent rusting. Once tubes are made into round tubes they are cut and dipped in zinc bath. Making round pipes and zinc coating by dipping in zinc bath is easy but making in rectangular or square shape and zinc coating is not easy. When tube is made into rectangular/square shape zinc coating inside is not uniform and when air is blown inside to clear zinc impurities the distribution of zinc inside the tube gets altered.

To overcome the above, plain HR coil itself is dipped in zinc bath and later converted into tubes/rectangular section tubes which is called as GP Pipes(G- GALVANISED, P-PLAIN HR COIL).Problem with GP pipes is loss of zinc coating at the junction of wielding making it prone for corrosion.

Apollo tricoat has got inline galvanizing technology from a US company for which they seems to have paid good money. Using this technology the HR coil converted into tubes/sections, wielded, coated with three layers. Interior of steel tubes by zinc paint,outside by zinc galvanisation which is in turn covered by polymer coating making it corrosion resistant with smooth surface. The whole process happens inline continuously without any loss of continuity during the whole process.

Presently one line of tricoat tube has recently started with production capacity of 7,000 tons /month on two shift basis. The present line is still facing minor stabilization issue which will be solved completely. Trial batch has been dispatched and seems to well accepted by market. Present line can produce 0.5 to 2.5 inch size tricoat tubes. Different sizes of tubes can be produced by replacing the machine parts through which HR coil passes through. HR coil of different dimension is used depending on requirement ,size…etc

Benefits of technology: Greater corrosion resistance,greater yield, and tensile strength(see the presentation). As tube is wielded before coating,even the wielded area is as corrosion resistant as rest of the tube(which was problem with GP pipes).

Benefit to company is better margin compared to GI pipes (Rs.5-10/kg more than GI pipes/EBITDA margins are 2 times more compared to GP pipe as mentioned in APL concall) due to cost saving by inline process and less use of zinc.

ATL has target is to sell 30,000 tons of tricoat tubes for FY20. Another line for tricoat tubes will be installed in next 1-2 years.

Uses: Tricoat tubes will offer more life,better strength and corrosion resistance for roof top sheds.(kerala seems to biggest market of 30,000 MT per month for galvanised pipes.). Green House is emerging in India, through tricoat tubes we will be offering pre fabricated solutions to greenhouse supplying contractors.In developed countries its compulsory to use steel tubes for electrical conduit instead of pvc in high rise buildings. Presently there is no such trend in India but we can explore the market in future.

They have technology agreement with US company not to sell the technology to any other company for five years. Once ATL install another line in next 1-2 years US company can not provide technology for another five years. Apollo has to buy specific machinery provided by US company as nobody else can do. Don’t think anybody else will do it also as its expensive technology. Even globally just 4-5 countries have such product line and in each country its monopoly.

(Technology provider seems to be “ALLIED TUBE AND CONDUIT” which is a part of listed company “ATKORE INTERNATIONAL”. Allied tubes and conduit has patented FLO-COAT® inline galvanising technology which is similar to Apollo tricoat technolgy. My limited to search to look for market size,margins of Flowcoat tubes through Atkote international AR did not yield much results. For more details refer http://www.atc-mechanical.com/mechanical-tubing/flo-coat/ and http://www.atkore.com/about-atkore/.)

Another line for door frames, designer galvanised tubes is in progress and will be operational in few months. Here HR coil goes through normal galvanising process but the tubes will have designs over the surface which is used for various domestic household uses like gates,window frames,railings…etc. Nobody else in India have this technology or producing it.This We have learnt from others outside India with the help consultant we are going to produce it. We will be making profiles and sent to our other division where it will be modified as per customer requirement. We will be replacing wood products by our steel products.

Steel companies produce thicker sections of HRC. Presently hrc coils of 1.4 to 1.2 mm is not available in market. We are putting cold rolling mill where these hr coil will be converted to thinner sizes using which small size section tubes of ¼ inch to 1.5 inch will be made. Thin sections by cold rolling mills of ¼ inch to 1 ½ inch for meeting customer requirement of frames,railings etc. This will be operational in six months. We have procured all the necessary machines and planning to commission every line over next few months ( including GP line?).

As we are supplying these pipes to premium market we want to pack both ends with plastic caps for better management during transportation. We are thinking to install machines for making plastic caps. For 200 tons of pipes per day dispatch requires 1000 to 2000 caps per day.

Hybrid pipes: plan for 10,000 tons capacity in a new pant nearby. Here galvanised steel tube is coated inside with PVC. This hybrid pipes can be used for drinking water purpose and it can be replacement for CPVC pipe.

Tricoat tubes will be sold through same distributors of APL tubes.Normal credit period of around 30 days. Raw materials will be sourced from JSW steel.

As per APL tubes concall EBITDA for GP pipe is around 5,000/ton. Going by the commentary tricoat will make 2 times the EBITDA margin i,e 10,000/ton(RS.10/KG)

Even if Tricoat able to sell 30,000 tons in FY20, they will be earning EBITDA of 30 Cr for FY20.

Financials: Does not have value as past business was entirely different. Below is performance of company (best steel logistics)

GfEL4aKL-g6eOCuMp9AsRybsnA8vwl4uu-o_vS0wtVKjdpkMPrSCs4iZt-SuGve23vI1QH2iTrfi1NVt_E7cwG50lO2zaaW_t2IuCJHLZxrSJTlVe-FkS8CDyYV-Mj5hjgXizpT6715x561

Questions:

1. Acceptance of product: As its new technology with stated benefits of corrosion resistance,long life and better strength. Will customer note this differentiation and buy this new product?
2. Even though ATL has agreement with US company,seems like there are companies in other countries which are using the same technology. Any Indian company may tie up with them and increase the competition.
3. Why it’s monopoly business in different countries? Why only limited no of lines are functioning? Does the market size of tricoat inline galvanised tubes is limited? Or is it difficult to replace GP pipes?
4. Higher margins are to some extent is due to less amount of zinc utilisation. What is the quantity/value of zinc required per ton of tricoat tubes v/s GP pipes.
5. Can they pass on increase in raw material cost(predominantly steel) to customers. Even APL tubes couldn’t do it effectively is last few quarters.
6. Better margins may be due to fact that they are going to use APL tubes distributors? What will be the expenses if they have to pay for it or end up using separate distributors?
7. What will be the logistic costs if they have to supply all over India from single plant location?
8. At the end its commodity conversion business. Does it deserve valuation of 530 Cr market cap.

Disclosure: tracking position.

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@geordiejob wrote:

Essential Financials
Market Cap: Rs.330 Crores
P/E:12.5; ROCE: 15%; ROE: 15%; Sales Growth (3 yrs): 8%; D/E: 0.9; Interest Coverage: 4.15
Profit Growth (3 years): 107%; Profit Growth (10 years): 34.5%; Pledged Shares: 0%;
Promoter Holding: 63.5%; Change in Promoter holding (3 yrs): +1.22%

Introduction
• Rajratan is the second largest bead wire manufacturer in Asia (Excluding China). Bead wire is a critical component in all types of tyres. It holds the tyre to the rim while resisting inflated pressure. 84% of this company’s revenue is from Bead wires.
• Rajratan manufactures High Carbon Steel wires too. 13% of the revenue comes from this segment.
• It has got two manufacturing units located in Indore (Management claims that it is deal for Pan India Supplies) and Ratchaburi, Thailand located near to customers and ports (Ideal for Exports). It’s Thailand Capacity increased from 26000 TPA to 34800 TPA. It also added 8000 sq metres of warehousing capacity. It appointed a consultant to plug organisational gaps and build a stronger team.
Why Thailand as a manufacturing hub for the Tyre Industry?
Thailand is Asia’s largest tyre manufacturing hub. Rajratan is the only manufacturer of bead wires in Thailand. Thailand is emerging as the world’s largest tyre manufacturing base. 37% of global raw rubber supply is from Thailand leading to significantly lower prices for raw materials. US tariffs on Chinese tyres is a booster shot for Thailand Tyre Industry. There are large investments made by global tyre players in Thailand. Thai Tyre market is estimated to grow $3 billion by 2022. This means that around 12-14% growth is expected per year in Thailand till 2022.
• Almost all major tyre manufacturers (including Indian) are clients of this company.
• Positive Sectoral Outlook:
Around Rs.51,000 Crores Investments in Tyre Industry;
Anti-Dumping Duties on Chinese Tyre Imports to India;
Trebling of Indian Automotive Industry size to around Rs.16 – 18 lakh Crores by 2026 (Contributing to almost 12% of GDP) and Increasing Export value to more than US$ 80 billion (Around Rs.5,40,000 crores ) according to Automotive Mission Plan, 2026.
• Sticky Customers: 85% of revenue generated from customers of >5 years.
• Rajratan grew at 3x Industrial growth rate during 2018-19 while also is soon going to achieve 72000-tonne capacity from 36000 capacity couple of years back. This capacity expansion has led to enhanced customer confidence and retention.
• Equity at Rs. 10 Face Value is Rs.4.35 Crores. 63.5% of shares owned by Promoters.
• RoCE for Rajratan is around 19 for FY19 compared to 16 in FY18. The current EBITDA margin is 10.98%. This is depended upon steel prices.
• It reduced Debt Costs from 11.5% in FY15 to 9% in FY19. Interest Coverage ratio went up from 1.35 in FY15 to a healthy 4.15 in FY19.
Competitors
One of the Competitors in India Shutdown around Feb 2019. They had a debt of around Rs.250 crore. They had a capacity of 8000-9000 tonne per year for tyre bead wire. This will create an opportunity for higher growth and pricing power in the coming 2 years. (It takes around 2 years for any new capacity to come alive).

Other competitors in India are Tata Steel and Aarti Steels. Presently, both are running in full capacity. Foreign competitors are primarily from Malaysia, Vietnam and China. Possibility for new competitors is low because the learning curve is too long for this industry.

Raw Materials
The major raw material is Steel. Last year, the cost of Steel increased by around 25%. Rajratan purchases steel on a monthly basis. Increase in Raw Material cost is passed around to the customers in the next quarter.

Pricing Power
It is estimated that around 3% of a tyre’s manufacturing cost is Bead wires. Due to this, pricing is not a major issue for suppliers. It is quality that matters for suppliers.

• Past Performance
  Rajratan registered a growth of 41% in Revenue which included 22% Volume Growth over FY18. EPS increased by 56% over FY18. Rajratan had charged all interest expenses to Profit & Loss Statements in last year.

It was asked by one of the participants about why despite a price hike and volume hike, the sales across all quarters in FY18-19 were flat. Management didn’t have a proper answer then and told that it will be clarified later to the questioner later. Management had also said that Rajratan had compromised growth in India up till 2015 for survival and they turned around their Thai operations during this period. This led to an increase in revenue from them. Investments in Thailand happened in 2009, and it took 4 to 5 years to become profitable. (CARE rating says it got profitable after 6 years.)

Entry Barriers
Entry Barriers in this industry are quite high. Management expects that there will be further consolidation in the industry. Bead wire has a very long approval cycle. It takes around 10 years to get approval in Japan. Tata Steel is yet to get approval. Rajratan is in the process of getting approvals from new customers. Yokohama has already approved Rajratan as its supplier. Michelin may approve Rajratan in a few years.

Creating a greenfield capacity won’t be viable for new companies. It costs $1000/tonne/year for new capacity addition according to claims of Rajratan management (Almost Rs.70000 per tonne). In comparison, Rajratan is able to add the same capacity at Rs.14,000/tonne due to its existing working plants. Minimum 25000 – 30000 tonnes per annum is required for breakeven capacity, and it will cost Rs.150-200 Crores for the same. In such a scenario, according to management during concall, RoCE shall be less than 10% which makes it not viable for new players to enter. The ability for Rajratan to add capacity at low cost remains key for its competitiveness. Learning Curve is too long in this industry which shall effectively become another entry barrier.

Customers always prefer to have their suppliers to be near to their locations for ensuring consistent and regular supplies. This also enables to keep the logistics costs lesser for the suppliers. However, it may not be viable for suppliers to keep plants near to those customers with low volume requirements.
Without a big benefit, customers like MRF do not have an incentive to switch. It will take 2-3 years to ensure quality.
Market Size

• Indian Market has a cumulative capacity of 120000 tonnes. It is unknown whether this capacity is exclusive of the shutdown capacity by Rajratan’s competitor.
• Thailand Market size is around 95000 tonnes. They mainly import from Malaysia, Vietnam and China. In this, around 70000 tonnes is from Trucks and Buses Radials (TBR).
• Rajratan claims a market share of 40% of bead wire market share in India.
  Capacity Expansion
  Rajaratnam expects the capacity to be doubled to 72000 tonnes by next quarter. In this, the bead wire capacity shall be 60000 tonnes. Around Rs.20 Crores of Capex remains to be invested out of the total Rs.50 Crore marked for doubling capacity. Roughly, this amounts to around Rs.1 Crore required for expanding capacity by 720 tonnes for Rajratan. It’s around Rs.14,000 per tonne.
  In Thailand, no additional capex is required. Total Capacity of Rajratan (India + Thailand) after expansion becomes 106800 TPA.

In FY21, Rajaratnam expects peak level production in India to be around 65000 tonnes out of a total capacity of 72000 tonnes total proposed capacity in India.

• Future Projections by Management
  Management is fairly confident of 20% - 30% growth in volume for next 2 years with an EBITDA margin of 12% - 12.5% (Compared to 11% this year). Competitor Shutdown in India shall be a significant catalyst in India due to the vacuum of 8000-9000 tonnes in capacity. Major capex of around Rs.25000 crores – Rs.30000 crores is done by tyre companies (around extra Rs.20000 crores in the next 5 years). Even then, the tyre industry is operating at 70%-80% capacity utilization. This should be another big catalyst for growth. According to Industry estimates, Indian auto markets shall be growing at 12% up till 2026. Management expects debt to go up by Rs.10 -15 Crores in the immediate future for remaining capex. However, later, debt will come down.

Rajratan shall also be developing new products, expanding to other growing markets and sourcing business from new tyre companies investing in the servicing markets. These shall be the growth drivers beyond the next couple of years.

Sales Volume Breakup as heard and understood from Concall.
Volume (Tonnes)
Sales INDIA THAILAND
Q4 FY19 11021 7000
FY19 40019 25186
FY18 33105 22274
Share of Purchase from Rajratan by Customers for bead wire
Apollo MRF CEAT BKC Bridgestone
50% 50% 70% 80% 80%
Customer Concentration: Around 80% of revenue comes from the top 5 customers. (MRF accounts for 25% of sales in that).
Working Capital may not be able to be reduced beyond a level.

My Thoughts

• Rajratan offers solid visibility in growth for the next 3 years of at least 10%-12% (Claims of up to 30% growth by Management).
• Moats in terms of Learning Curve and Switching Costs. High Entry Barriers exist in business. Consolidation in the industry should occur. New suppliers are always looked at with suspicion by customers and it will take time to gain trust. Pricing Power is with the Seller. Price of Bead Wires is just 3% of Cost of Tyre for Customers. It is quality that matters for customers. Increase in raw material cost should not affect this company wildly.
• Rajratan holds around 40% market share for bead wires in India. Going beyond 50-60% will be quite difficult. Rajratan should look at geographical expansion for new markets.
• Logistics cost shall be a problem for exporting to far places in big quantities. Also, new greenfield plants shall be costlier than increasing existing capacity. It will be interesting to see what management does to overcome the dilemma.
• I do not see any existential problems for this company for the next 5 years. However, without new products or new geographies or low-cost capacity additions, sustainable high growth period will be impossible.
• As per my rough calculations(after swallowing management guidance in numbers), Net Profit should be somewhere around Rs.50-60 Crores for FY21-22 which makes it a doubling candidate in market cap by then based on current P/E. Based on basic DCF done in a piece of paper (It doesn’t matter whether we use fancy excel or a piece of paper as long as logic is the same), I believe current price after in 3 years discounted terms could be anywhere between 720 to 1500 (i.e. Intrinsic Value having 5% downside to up to 100% upside from current price).

Geordie Job Pottas
“@geordiejob” - AnAnthem In Equity

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@arpitjain512 wrote:

Company Background :
Black Rose Industries Ltd. was established in 1990 as Asia Fab Limited, a textile manufacturing company. Now, Black Rose consists of three main divisions – chemicals, acrylamide, and textiles. The chemical division is engaged in the import, distribution, and export of a wide range of specialty and performance chemicals. The acrylamide division operates India’s first and only acrylamide manufacturing plant. The textile division manufactures fabrics and made-ups for industrial applications. The company also has a fully owned subsidiary in Japan, B.R. Chemicals Co., Ltd., Japan.

Office & Manufacturing Plants :
Black Rose has its head office in Mumbai, manufacturing units in Jhagadia (Gujarat) and Kolhapur (Maharastra), warehouses in Bhiwandi (Maharashtra), Vapi (Gujarat), and Chennai (Tamil Nadu), and a liaison office in Hyderabad (Andhra Pradesh).

Business Domains :
1. Chemicals

Chemical Distribution :
The largest contributor to the company’s top line continues to be the sales and distribution of specialty and performance chemicals. These chemicals are mostly imported while some are indigenously procured.

• Speciality Chemicals
  Company offers a wide range of speciality chemical raw materials used in industries as diverse as agrochemicals to polymer additives, dyestuffs to tyres, and catalysts to perfumeries, to name a few.

• Performance Chemicals
  Chemicals for specific end uses are handled by performance chemicals team. Flocculants, cyanoacrylate adhesives, polymer additives and rubber chemicals are some of our areas of expertise

Chemical Manufacturing

• Acrylamide
  The company produce and supply acrylamide solution under the brand name BRILMIDE ® in South Asia’s first acrylamide monomer plant in Jhagadia, Gujarat. The plant capacity, whose capacity has been increased from 10,000MT to 14,000MT, was established in 2013 under technology license from Mitsui Chemicals, Inc., of Japan. The company plans to further increase its capacity to 20,000MT, with growth in demand and has already secured necessary government approval for the same.

2. Textile
The company’s operations in this sector are the manufacture of fabrics and textile made ups. The fabric produced is used for the manufacture of made-ups such as industrial safety gloves that are then sold domestically or exported

3. Renewable Energy
The company has two windmills of 0.8MW each, one in Rajasthan and the other in Gujarat, totaling 1.6MW. Power Purchase Agreements have been entered into with the respective State Electricity Boards and all power generated is sold accordingly.

Revenue contribution by different business :

Source : SKP Securities Report

Key Management :

1. ANUP JATIA
   Executive Director & Promoter
   B.Sc. Chemical Engg. & Economics (E & AS), California Institute of Technology, U.S.A

2. SHIVHARI HALAN
   Independent Director
   B.Com., Bombay University, India

For the complete list one can check below link :
https://www.blackrosechemicals.com/team.php

What is Acrylamide ?
It is an odorless and transparent liquid solution, prepared by hydrolysis of acrylonitrile (ACN) in the presence of industrial enzyme nitrile hydratase.

Application of Acrylamide :
Acrylamide is majorly used to synthesize acrylamide based polymers which finds many uses such as water soluble thickeners and flocculants for waste water treatment, polymers for enhanced oil recovery (EOR), shale gas extraction, shale strengthening, binders and retention aids for paper and also in making waterproofing chemicals, coating and paint emulsions, ore processing, sugar manufacturing, cosmetics etc.

Why BRIL is focusing on Acrylamide ?
The domestic market demand of acrylamide monomer is approximately 7,000MT on a 100% solid basis, or 14,000MT on the basis of acrylamide 50% solution. The company produces and supplies acrylamide solution to this market. In addition to the
domestic market, there is a strong export demand as well. The company has expanded its capacity from 10,000MT to 14,000MT in order to meet both domestic and export market demand.
To manufacture acrylamide company has sourced technology from Mitsui Chemicals under an exclusive technology license agreement.
Globally, the demand for acrylamide is in liquid form , whereas Indian market was largely consuming solid acrylamide. Now with the entry of BRIL’s liquid acrylamide, Indian market is shifting to consume liquid acrylamide.
Mitsui technology licensed to BRIL is highly efficient and provides high purity acrylamide through an environmentally friendly zero discharge process. Its considered superior to technologies available in other parts of the world.

Poly-Acrylamides Capex Plans as mentioned in AR 2017-18 :
Acrylamide is the basic raw material for Poly-Acrylamides.
BRIL plans to set up Poly-Acrylamides capacity – solid and liquids (10,000 mtpa & 40,000 mtpa respectively), Polycarboxylates (5,000 mtpa) and NMethynol-
Acrylamide (2,000 mtpa) at a capex of Rs 600 mn, at its existing unit where most basic infrastructure is in place.

image.png1304×446 326 KB

BRIL will enjoy a strong first mover advantage in South Asia with current(Acrylamide) production and upcoming(Poly-Acrylamide) Capex Plans.

Acrylamide Consumption Pattern in India :
In India acrylamide in liquid form is being consumed mainly in the water management sector. This sector alone consumes around 70% of the total consumption. This is followed by Binders/Emulsions Sector (Coatings and Ceramic Industry) consuming around 15% of the total market and the balance 15% is being shared by the paper, printing, dyeing, mining and other uses.

Acrylamide Demand Outlook in India :
Water Management, Coatings and the Ceramic industries will continue to dominate the usage pattern in India as there no major presence in the Oil & Gas Sector. According to the Industry Sources the demand is expected to grow at around 20% per annum in the next five years. At this rate the demand can be expected at around 42,000-tons on 50% basis and 21,000-tons on 100% basis. Current capacity is 10,000-tons on 100% basis indicating good scope for investment in expansion as well as new capacity.

Key Risks Involved :

1. Chemical Distribution :
   The prices of the products sold by the company are affected by global prices of feedstock, foreign exchange rates, and market dynamics. Slowdown in the domestic or international economies, downturns in the user industries, volatility in foreign exchange rates, increase in interest rates, and tightening liquidity conditions may adversely affect margins, business, financial condition and results of operations.
2. Chemical Manufacturing
   The price of acrylamide is mainly affected by changes in the cost of its key raw material, acrylonitrile (also used to manufacture acrylic fiber and ABS polymers). Domestic market forces as well as International market forces also affect acrylamide prices.
   Acrylamide is also imported by a number of commodity dealers and end users, and import duties can be as high as 7.5% on the same.

Shareholding Pattern (as on 31st March 2019)

Indian Promoters : 0.47%
Foreign Promoters : 74.53%
Pledged Shares : 0%

Latest Consolidated Financial Data :
Latest Results March 2019 :

image.jpg966×638 199 KB

Segmental Revenues and Profits :

image.jpg663×523 118 KB

Clearly one can see the dominance by Chemicals segment in revenue and profits of the company. Still this company is listed under Textile sector in many websites.

Past Consolidated Financial Data :
Profit & Loss Statemnt :

image.png1706×600 51.1 KB

Cash Flow Statement :

image.png1691×241 21.9 KB

Key Financial ratios as on May 28, 2019
Market Cap: 221.09 Cr
Current Price: 43.35
52 weeks High / Low : 54.50 / 37.00
Book Value: 6.95
Stock P/E: 16
Sales Growth (3Yrs): 20.42 %
PAT Growth (3Yrs) : 104.75 %
EPS Growth (3Yrs) : 103.83 %
Listed on : BSE
Face Value: 1.00
Debt to equity: 1.00
Equity capital: 5.10 Cr.
EPS: 2.71
NPM : 4.5 %

Sources of data mentioned above :

1. Company website : https://www.blackrosechemicals.com/
2. Annual Report 2017-18 : https://www.bseindia.com/bseplus/AnnualReport/514183/5141830318.pdf
3. Latest Results March 2019 : https://www.bseindia.com/xml-data/corpfiling/AttachHis/f74ca368-c61a-42f1-aa5f-387c202f125b.pdf
4. SKP Securities Ltd Research Report
5. Various research websites like screener.in , marketsmojo.com etc
6. https://www.chemarc.com/content/article/product-profile-acrylamide/5a142a27053b27647d727c66

My take : Company looks good from Investment perspective considering the Large Capex in Poly-Acrylamide space and the First Mover advantage it will enjoy. No listed competitor in India as of now. Small size and can grow leaps and bounds from here.

Request fellow members of the Forum to provide their thoughts on this.

Disclosure : This information is presented for Educational purposes only. In my watch-list. No current position.

PS : This is my first attempt to present a stock story here on VP. Please excuse me for any mistakes or errors. Healthy discussion are always welcomed.

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@lingalarahul7 wrote:

Company Brief:

Endurance Technologies is an auto-component manufacturer whose product profile consists mainly of four categories: Aluminium Die-castings, Suspensions, Transmissions, Braking systems

It was started in 1985 by Anurang Jain, nephew of Rahul Bajaj. Initially, it was supplying Aluminium Die-castings to Bajaj Auto and later it ventured into the remaining three categories which have higher margins. These three categories are sometimes referred together as ‘Proprietary products’ by the management. Endurance’s research focus is also on the newer, higher margin segments.

The company has 16 plants in India and 8 plants in Europe. The raw materials are Aluminium and Steel. Any increase in these prices can affect the profitability of the company but the company has a clause with its customers to pass on the costs in next 3 to 6 months.

The company also has an aftermarket business whose sales contribute just around 3% of the consolidated revenues. But this is growing fast at 15%+ and also has high margins. The company has an extensive network of 12 distribution centres and 300 distributors.

The top six clients of the company are Bajaj Auto, Fiat Chrysler, Honda Motorcycles & Scooters India, Royal Enfield, Daimler & VWG.
Recent new customers to the company are TVS, Kia Motors.
Bajaj Auto contributes about 55% of domestic revenues & 39% to overall revenues. In case of Bajaj, we can also try to look at it from the other side. Endurance supplies more than 50% of all auto components supplied to Bajaj. Anurang also mentioned in a conf call that he has high share of business with RE too (30%).
With Honda and as well as Hero Motocorp, we only do castings and suspension. Transmission and Brakes would be a huge opportunity coming our way.
With Yamaha, we have alloy wheels business.
So to summarize, in RE & Bajaj, there would be volume growth and more tech items which will drive growth. For other OEMs, there is scope to increase our share of business and also add new product areas.

The company has been working on reducing customer concentration both in India (with Bajaj) as well as in overseas (with Fiat & Daimler).
The company is working on cross-selling its complete product portfolio to the new 2W OEMs it got entry into.
At the moment, OEMs are rationalizing their vendors and hence this is a good opportunity for Tier-1 supplies like Endurance to cross-sell its product portfolio. OEMs are focussing on rationalising their vendors and Endurance being a Tier-1 supplier should help them

Products:

Screenshot 2019-06-02 at 10.32.41 AM.jpg874×954 302 KB

Structural benefits to our product portfolio (as per AR FY18):

1. Increase in Aluminium die castings requirement for light-weighting purposes and increased machine casting business for 2W, 3W and 4W leading to value addition
2. Premiumisation in 200cc+ suspension products and replacement of shock absorbers in scooters with high value front forks.
3. Increase in paper-based clutch assemblies, increasing business with higher value addition and CVT volume growth from rising scooter demand
4. Rising 2W demand, higher penetration of disc brakes and its entry into 200cc+ segment with high value addition, and the Govt’s mandate for introducing CBS (combined braking system) and ABS (anti-locking braking system) in FY20 for all 2Ws.

Castings:
Endurance is the largest Aluminium die-casting company in India in terms of actual output and installed capacity. Die casting contributes to about 45-50% of total sales of the company.
Casting is a process in which a liquid metal is somehow delivered into a mold that contains a hollow shape (i.e. 3D negative image) of the intended shape. The metal is poured into the mold through a hollow channel called sprue.
Die casting is able to produce automotive parts with complex shapes in closer tolerances than many other mass production processes. Little or no machining is required and thousands of identical automotive die castings can be produced before repairing the molds. Please view a one minute video here:

Suspensions:
A motorcycle fork connects a motorcycle’s front wheel and axle to its frame, typically via a yoke, also known as a triple clamp, which consists of an upper yoke joined to a lower yoke via a steering stem, a shaft that runs through the steering head, creating the steering axis. Inverted front forks are used in high-end motorcycles. An inherent advantage of inverted forks is their weight, they’re lighter than conventional front ends. A steel fork tube is the heaviest part of a traditional fork assembly. By design, inverted forks have shorter and thinner walled fork tubes. This results in less steering inertia and more responsive handling feel. One more benefit, inverted front ends deliver better compression and rebound dampening than conventional designs. Oh and one more big benefit when you compare inverted front ends against conventional front (tube & slider) ends is their strength. Please watch a video here:

Endurance Technologies is the only company in India to produce and commercially supply inverted front-forks, which are preferred by premium brands.
With the move towards more premium products, OEMs are switching from conventional twin hydraulic shock absorbers for a motorcycle’s rear suspension, and are adopting hydraulic and gas filled mono shock absorbers. Endurance has established a sizeable presence in this market, and expects an increase in their use.

Transmission:
Endurance introduced paper based friction plates to be used in high-end motorcycles. These are preferred over the conventional cork based plates for improving clutch performance and durability. The Company has also developed CVTs for scooters, which are preferred over natural clutch assemblies.

Braking:
The Company is poised to benefit from the higher composition of rear disc brakes as compared to low-end drum brakes, its participation in disc brake assemblies for higher cc motorcycles and also the mandatory ABS / CBS.
Endurance has already started commercial production of CBS through a technology tie-up; and the Company has entered into a License and Technical Assistance Agreement with a leading global brake and suspension company for joint development of ABS for 2W and 3W. These products will further widen the market for Endurance.
ABS prevents the wheels from locking up, thus avoiding uncontrolled skidding of the vehicle and decreases the distance travelled without slipping.
The CBS stands for “Combi-Brake System,” a name patented by Honda. What this means is that if you apply pressure at either one brake level, braking force is applied to both wheels. In India, this system debuted on the Activa, where the rear brake lever actuated both the rear and the front brake as well.
Endurance’s strong R&D capabilities has also helped it emerge as the market leader in the disc braking systems. There is growing acceptance of disk brakes, owing to its sharp braking and ease of maintenance over drum brakes. Endurance is expected to emerge as the largest beneficiary from the rising penetration of disc brakes.
The disc brake dissipates the heat more effectively. It takes longer for the disc brake to achieve brake fade, and these perform better on steep descends. The drum brake has the potentila of collecting water inside during rain or driving over puddles. That can result in the drum brakes not performing as well in wet conditions.

European Operations:

The company’s European operations are mainly castings and machinings. These contribute about 25-30% of the sales.
The company also has operations in Europe mainly supplying to Fiat & Daimler. These two OEMs contribute about 55% of overseas revenues.
The company’s strategy with Europe is to produce in Europe for the European market and to produce in India for the Indian market. This is because we are going in a direction where we supply big components, and it is not convenient to transport these parts from India.
The Company has secured orders in Europe for EVs and HVs. It has capabilities to produce castings in new shapes as required for such vehicles.

Management:

Management continuously aims to grow higher than the auto industry by increasing their content per vehicle.
Anurang is an extremely quality-focussed businessman. Just read through one of the conference call transcript and you will see his lazer-like focus on quality first, expansion next.
Anurang is also a self-made billionaire with a good track record of diversifying the product portfolio from low-margin castings to the four categories I have mentioned above.
Management is very financials focussed and keep mentioning that they at least want to maintain 20% ROCE in their business and their fresh investments.
No sudden surprises post IPO (like no fall in margins / no fall in asset turnover…)
Management is very happy to provide a lot of info during the conference calls.

Risks:

1. Slowdown in Auto industry can cause slowdown in Endurance too
2. Customer concentration risk with Bajaj Auto contributing 38% of consolidated revenues
3. Too much mix of family and business. The top customer (38% contribution) is Bajaj Auto which is run by Anurang’s uncle. Another complication is that Anurang’s twin brother, Tarang Jain also supplies components to Bajaj Auto via Varroc Engineering (recent IPO)
4. EV disruption. Though suspensions and braking systems are safe from this, casting (low-risk) and transmission (high-risk) businesses can be affected

Valuations & Efficiency:

Currently available at P/E of 34, which is on the expensive side for an auto-component manufacturer.

2017-19 CAGR numbers below:
Revenue => 16%
PAT => 22.5%

Efficiency parameters below:
ROCE => 25%+
ROE => 20%+
PAT Margins => Increasing from 5.3% to 6.5% over the years
Assert Turnover => 4+

Working capital cycle:
Inventory days => Less than a month
Receivable days => Less than two months
Payable days => More than three months
This is leading to very strong cashflows from the company compared to its PAT.

		2018	2017	2016
PAT		3907.57	3303.1	3004.5
CFO		7420.68	5370.77	6982.84

Disclosure:

No holdings. Not a buy / sell recommendation. Please do your own research.

Resources:

Annual Reports. Conference Call Transcripts. Credit Rating Reports. Wikipedia. YouTube.

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@Akshada_Deo wrote:

A few things to understand about the Cinema/multiplex space.

ATP- is the average ticket price
F&B SPH- is the food and beverage spend per head
Occupancy- The number of seats filled per screen
Footfalls- number of people visiting the establishment in a given period. (could be yearly or quarterly)

Lets say you are interested in the business and want to build a multiplex:

Capex required would be 2.75-3 cr per screen (Acc to Inox’s management)
ATP is 197, Occupancy is 28%, Number of seats in the screen are 235, F&B SPH is 73 (Current q4fy19 numbers)

So every day you will earn= Occupancy*(ATP+F&B SPH)
So, 28% of 235 is 66 Seats. So your earnings from one show will be= 66 (197+73)=17820.
Every screen plays 4 shows per day. So daily earnings will be 178204=71280.

Along with this the burdensome time we spend watching the vicco vajdradanti and lyra ads during interval and start of the movie, also provides us with additional revenue.

Other sources of revenue would be any ticketing platform use, renting out some space to different vendors, etc.

This would bring our daily average sales to around Rs.85000. So on an average a screen will provide with revenue of 3.10-3.5 Cr per year. With a 8% net profit margin, in our pockets is 27- 30 Lakh.
This is 10% cash generation for the capex.

The footfall generally increases, after a year or two of operations. So in 10 years time, we will own the infrastructure of the screen as well as a free cash flow machine. Due to dealing with customers we get upfront payment and there is no bad debt scenario, giving us a negative working capital.

Before we get too excited by this, lets see the challenge in opening a screen. The regulatory approvals take time. If you’re ready to build a multiplex right now, it takes 4-5 years to carry out the plan. Why so? Multiplexes are generally built in a mall. So, the plan needs to be present when the mall is being planned as well. Plus there is usually an exclusivity given to only one multiplex per mall, as multiplex brings a lot of footfall for the mall as well.

INOX LEISURE:
It is a company of the Inox group which consists of a lot of companies in Chemical sector.

This is how Inox’s revenue is divided:
Net Box office (60-65%)
Food & Beverage (20-25%)
Advertisement (8-10%)
Others (6%)

This is why single screen lost popularity and how soon they lost it:

image.png764×654 21.4 KB

After a screen has matured, nothing other than external content will be able to drive revenues. So, geographical expansion is key to grow.

Inorganic acquisitions are done to boost growth.

The GST point:

• Entertainment tax was levied which was of 25%. GST is 18% and hence the 7% difference gave a good margin expansion. They have passed on this benefit to customers, which is why you may see a dip in ATP when GST was rolled out.

• F&B had a tax of 12% which got revised to 18%. Company has increased F&B prices.

Following is the growth strategy for Inox:

• They are increasing screen presence like never before. They used to have a 3 screen addition per month as their growth. However this year company has grown to opening 17 properties and 85 screens bringing the total number of screens to 583. This is the highest ever new screen opening for the industry in a year. Inox was adding lesser screens in a year than PVR and is one of the reasons why it was trailing PVR’s growth.

• Inox had 250 seats per screen, which has now been reduced to 235, and they aim to reduce this more. Lesser seats more screen.

• Company is net debt free.

• Company’s screens are divided as:
  42% in West
  22% in South
  21% in North
  15% in East

• Current Segmental Revenue Breakup:-
  

• Company has also paired up to broadcast Cricket matches and leagues in 8-12 locations to boost revenue.

• A fact to note is that movie business do good in recession as it is the cheapest form of entertainment compared to any travel and tourism.

Risk:

• Content
  There is content risk as company provides a service based on someone else’s product. Revenue will differ with onset of blockbusters. In 2018 when Padmavat was banned to be released in certain states, revenue was hampered.

• Government:
  Government in the past have promoted the multiplex sector by providing subsidies, cheap land and electricity etc. Govt may take all of this away and impose more restrictions. Regulations such as allowance to bring your own food can be bad for the company.

• Valuation:
  Stock has recently touched its all time high. It is not the cheapest valuation and that needs to be taken in consideration.

With the entry of Insignia, Inox IMAX, and the aggressive expansion with no net debt seems like a good opportunity.

This is my first post on ValuePickr and I have gained a lot of knowledge here. Do let me know if I have made any mistakes or breached any community guidelines.

Disclosure:- Not invested but interested.

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@hitesh2710 wrote:

Lux Industries is a company engaged in manufacture of hosiery wear. The product range consists of men and women’s inner garments, leisure wear etc. Details of all its products with the photographs of celebrities endorsing the products are available on company website or in annual reports.

cmp 1250, market cap 3200 crores. Promoter holding 73%.

Peer is Page industries with market cap of 22000 plus crores.

MANUFACTURING FACILITIES

Company has manufacturing facilities at Agarpala, Dhulagarh, Ludhiana, Tirupur, BT Road, and a dream project at Dankuni West Bengal.

OPPORTUNITY SIZE

Addressable market in male and female innerwear in 2015 was 24000 crores which is expected to go up to 47000 crores by 2020.

This is because of expansion of category into leisure wear, sports wear etc and increase in per capita spend on the innerwear segment from Rs 150 to Rs 300.

PRODUCT RANGE

ECONOMY SEGMENT Lux Venus vests and briefs, Lux Karishma panties, Camisole, Leggies, Lux Cotswool therrmals.

MIDPREMIUM SEGMENT Lux Cozy big shot premium trunks, Lux touch panties, Camisoles, Leggies, Lux cozy glow collections, Lux inferno, Quilted thermals, Lux Cozy innerwear

PREMIUM - ONN, One 8.

Company has a wide product range from Rs 38 to Rs 1350 with over 5000 SKUs.

Luxury brand ONN has been growing at 30% CAGR.

Company stated aim is to increase sales of luxury range and thus improve margins.

Net Margins have improved from 4% in FY 13 to 10% in FY 19. Operating margins during same period has gone up from 6% to 15%.

SEGMENT WISE CONTRIBUTION AND MARGINS

ECONOMY REVENUE 34% EBIDTA MARGIN 8-10%

MID PREMIUM RANGE REVENUE 45 % EBIDTA MARGIN 13-15%

PREMIUM RANGE REVENUE 21% EBIDTA MARGIN 15-18%

Company targets to grow the premium range by 30% over next few years .

MANUFACTURING

Company is one of the lowest cost manufacturers with most of the work done inhouse. However stitching is outsourced to keep the employee base in check.

Company manufactured 20 crores innerwear pieces in a year which is the largest for any innerwear company in India.

DISTRIBUTION

Company has 950 plus large distributors and some with relationship over 35 years.

It has 160 large format stores which help in showcasing a large portion of the company’s product range. It has 9 exclusive brand outlets.

It is one of the few Indian innerwear companies to organise distributor and owner conference in and outside India.

Company has a pan India distribution network with strong presence in West and Central India with highest absolute sales coming from UP, MP and Uttarakhand.

Exports to 47 countries including those in Africa, asia and Europe and Australia. Focus is to be countries with demography similar to India.

ENDORSEMENTS

Lux has over the years roped in celebrity endorsements with personalities such as SRK, Sunny Deol, Varun Dhawan , Amitabh Bachchan etc.

Company has sustained brand endorsements of around 8% of total sales and spend 109 crores in FY 18 and 91 crores in FY 19 as advertising expenses.

FINANCIALS

¨FY 19 REVENUES AT 1218 CRORES VS 1079 CRORES IN FY 18, INCREASE OF 13%.

¨EBIDTA INCREASED 21% TO 189 CRORES.

¨NET PROFIT INCREASED TO 101 CRORES FROM 78 CRORES AN INCREASE OF 30%

¨EBIDTA MARGINS IMPROVED FROM 14.5 % TO 15.6% AND PAT MARGIN FROM 7.2 TO 8.3%.

¨FY 19 EPS AT 40 PER SHARE VS 31 FOR FY 18.

¨LONG TERM DEBT AT 5.3 CRORES AND SHORT TERM DEBT AT 173 CRORES (DOWN FROM 316 CRORES IN FY 18)

¨SINCE FY 13, REVENUES HAVE GROWN AT 9% CAGR, PAT HAS GROWN AT 31% CAGR AND EBIDTA MARGIN HAVE IMPROVED FROM 6.3 TO 15.6% AND NET PROFIT MARGINS HAVE IMPROVED FROM 2.9% TO 8.3%.

¨FY 19 ROE 24.5%, ROCE 30% AND NET DEBT TO EQUITY 0.4%

GROUP COMPANIES MERGER.

¨JM HOSIERY REVENUE INCREASED FROM 293 CRORES IN FY 18 TO 328 CRORES IN FY 19.

¨EBELL FASHIONS REVENUES INCREASED FROM 198 CRORES IN FY 18 TO 254 CRORES IN FY 19.

¨BOARD OF DIRECTORS HAVE APPROVED THE SCHEME OF ARRANGEMENT OF MERGER OF THESE TWO COMPANIES WITH LUX. REGULATORY APPROVALS AWAITED.

VISION 2020

¨TO ACHIEVE TURNOVER OF 1500 CRORES HAVING 13-15% CAGR.

¨MAINTAIN SUSTAINABLE GROWTH IN EBIDTA MARGIN OF 100-150 BPS.

CONSTANTLY ADD NEW AND INNOVATIVE PRODUCTS TO GAIN SIGNIFICANT MARKET SHARE AND CAPTURE MORE EXPORTS FROM VARIOUS COUNTRIES

INVESTMENT THESIS

¨GOOD OPPORTUNITY SIZE FOR A DECENT COMPANY.

¨PREMIUM SEGMENT GROWTH TO HELP CONTINUE MARGIN IMPROVEMENT.

¨COMPANY HAS CONTINUED TO LAUNCH NEWER PRODUCTS AND CREATE NEW CATEGORIES LEADING TO EXPANSION OF ADDRESSABLE MARKET.

¨FOR A COMPANY WITH GOOD MANAGEMENT AND DECENT OPP SIZE, VALUATIONS ARE REASONABLE. CAN BE SOME RERATING IF GROWTH CONTINUES.

¨RISKS CAN BE SLOWDOWN IN CONSUMPTION, HIGHER TAXES.

KEY MONITORABLE IS CASH FLOWS AND WORKING CAPITAL MANAGEMENT AS THE COMPANY GROWS.

A CASE HAS BEEN GOING ON AGAINST THE TWO PROMOTERS IN SUPREME COURT FOR ABETTING SUICIDE.

disc: I hold an investment in the company.

This is not a recommendation and anyone contemplating buying or selling should do their own diligence or take advice of their financial advisor.

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@bimalb wrote:

DCB Bank (DBL) is a midcap private sector bank with network of 333 branches and loan book of Rs186bn based in Mumbai, with presence across Retail, Agri, MSME and Corporate split is 52%, 17%, 12% and 19%, respectively.

On Basel III basis, 79% of Retail and Corporate assets comprise Retail. DCB Bank has displayed a loan CAGR of 125% over FY12-17.

DCB Bank has a CASA ratio of 25.7% and its cost of funds is 6.4% and, as a result, it registered a net interest margin of 4.1%. Its cost to income ratio stood at 62.3%. Consequently, it delivered a return on assets of 0.9% and a return on equity of 9.3%****, implying a financial leverage of 10.8.

MCAP - 7114 cr
CMP - 230
ROCE - 7.61
ROE - 11
P/BV - 2.28

Growth Trends:	10Yr	7Yr	5Yr	3Yr	TTM
Sales Growth	23%	23%	22%	21%	0%
OPM	66%	67%	67%	67%	67%
PAT Growth	-217%	29%	17%	19%	0%
Avg. PE	19.2	17.5	18.1	20.2	21.9

Management plans to double its balance sheet size in the next 3.5-5 years.

ROE declined during branch addition -

Most retailised mid cap bank on asset side –

Loan yield highest amongst peers below City union bank –

Higher loan yield also translates into higher net interest margin –

Well diversified and no high concentration risk to one big loan account going NPA.

PAN India approach and well diversified branches -

DBL already had a reasonably balanced branch distribution back in FY14, but it actively added branches in a manner whose by-product is the reduction of branch share in its then top region (western region) from 42% (as of FY14-end) to 29% as of end-February 2018.

As a result, DBL’s exposure to its top region (now, northern region) is 31% compared with 44-96% for mid-cap peers . This underlines the balanced, pan-India approach of DBL, which augurs well from a long-term scalability perspective.

Regulatory regime providing significant incremental fillip for bank lending to MSME segment, on which DBL is most focused

Formalisation of MSME segment due to GST increases the opportunity size for bank

Lending With the advent of GST regime and the ongoing formalisation of the MSME segment , a rising quantum of MSME business would be backed by formal documentation, which directly enhances the opportunity size in favour of MSME-focused banks such as DBL, diverting business away, on balance, from NBFCs disbursing loans to the MSME segment.

DBL’s credit exposure to the most stressed sectors of the Indian economy, viz. metals and Infrastructure, stood at 2.5% of total funded credit as of 1HFY18-end compared with 4.2%-27.6% for mid-cap peers. In fact, DBL is not disbursing any major new loans to the infrastructure sector.

Financials snapshot below –

image.png1197×503 29.6 KB

Key Risks –

1. Loan book stress due to loan against property business. It is known that large-ticket loan against property (LAP) business has undergone stress at an industry level due to dilution of underwriting standards on the back of hyper-competition. DCB presents highest underwriting skills till date.
2. Proportion of corporate loans is kept within a band - Corporate loans are 17% of total loan book and management intends to keep the proportion similar going forward. This could be somewhat negative from a scalability perspective.
3. High interest rates.
4. Decline in GDP growth.

Views invited.

Disc - 10% of my portfolio, invested since 2017.
Please note that I am not an investment advisor. This post is for information purpose only. Please do due diligence before taking investment decisions.

Sources -

https://www.screener.in/company/DCBBANK/#documents
http://www.careratings.com/upload/CompanyFiles/PR/DCB%20Bank%20Limited-04-01-2019.pdf

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@ankitgupta wrote:

About the company
The Anup Engineering Limited (Anup) was incorporated in 1962 and is part of the Arvind group of Ahmedabad. The company was demerged from Arvind Ltd and listed as a separate entity in March, 2019. The company is engaged in the business of design and fabrication of process equipment which mainly includes heat exchangers, pressure vessels, centrifuges, columns/towers and small reactors that find applications in refineries, petrochemicals, chemicals, pharmaceuticals, fertilizers and other allied industries. Heat exchangers contributed 80 – 90% of the sales while remaining was contributed through sales of pressure vessels, centrifuges, columns/towers and small reactors.

About the product
Heat exchangers are used to transfer heat or cooling from one liquid to another. Key industries served – oil & gas refineries, petrochemicals, fertilizers, chemicals, pharmaceuticals, food and other allied industries. The company has technical collaboration with Lummus Technology for special High Efficiency Heat Exchangers (Helixchanger).

image.jpg927×486 176 KB

(source: Anup Presentation)

About the industry
Heat exchanger is a USD 21 billion industry globally – used to increase efficiencies. Largest players in the industry include: - Alfa Laval (>30% market share), Kelvion (Germany), Hisaka (Japan), SPX Flow/APV (US), SWEP (US). High profitability margins with many companies reporting gross margins of more than 45%. Alfa Laval has EBITDA margins of 14 – 15% while its Indian subsidiary also has EBITDA margins of 19%.
This is something which Credit Suisse prepared forx capital goods industry (was made for Alfa Laval):

Transformation Journey of the company
Despite being in the engineering segment since 1962, the company was not able to scale the business. However, the transformation of the company started when its current CEO – Mr. Rishi Roop Kapoor joined the company in 2010. Mr. Kapoor has pretty good reputation in the engineering industry and is an IIT Roorkee pass out. Prior to joining Anup, he was associated with Godrej and Boyce for more than a decade. The company has become a net cash company during the past few years and generates healthy cash flows.
Key financials of the company:

Some of the measures taken to turn around the company include:

• Increasing market reach with increasing exports: Over the years, the company has increased focus on export markets to reduce cyclicality associated with domestic markets.
  

• Empanelment with large EPC players: Despite its relatively smaller size, the company has been able to empanel itself with large global MNC EPC players and customers including Lurgi, Linde, Jacobs, Mitsubishi etc. The company has executed large projects for companies including Dangote Refinery (one of the largest refineries in the world), Reliance, OMCs etc. The key client lists include:
  
  (source: Company presentation)

• Improving designing and manufacturing capabilities – one of the rare companies with entire range of metal processing capabilities under one roof and excellent design capabilities

• Increasing complexity and weight of the product manufactured: Over the years, the company has increased realization of the equipment manufactured by it as indicated in the graph below:
  

• Sticking to deadlines and avoided paying liquidated damages - Gained confidence of customers leading to repeat buys - Liquidated damages are one of the biggest cost.

Competition
The company competes with pure play heat exchanger companies including Patel Airtemp and Tema India (unlisted company) as well as large capital goods companies inlcuding ISGEC and L&T. Have done a comparison on the margin profile of Tema and Patel with Anup. Companies like ISGEC and L&T have much diversified product profile and are not strictly comparable.

image.png762×151 58.7 KB

Anup has highest margins amongst its peers and even better than much larger and diversified player – One interesting thing to note is the healthy GM of pure play heat exchanger cos which is much more than many capital goods companies.

Way Forward

• All time high order book of the company – 300 crore by end of FY19 – largely from domestic market (might impact margins as guided by the management in its maiden concall post Q4FY19 results)
• Expanding capacities – Target to spend 150 crore in capex for brownfield capacity in Odhav, Ahmedabad and greenfield capacity at Kheda – 40 kms from Ahmedabad – to be funded through internal accruals
• Looking for further technological tie ups to enhance capabilities
• Targeting 1000 crore over then next 4 – 5 years

What is attractive about the company?

• Large industry size globally – new orders expected from all round the globe to improve efficiencies and cleaner fuels from refineries – Euro VI and BS VI implementation. Furthermore, the government owned OMC’s refinery are operating at 105 - 110% capacity utilisation and given the domestic demand of petrol/diesel with growth rates of 10 - 14% every year, these companies are looking at big capex over the next few years to expand their capacities.
• Valuation – 42 crore PAT reported in FY19 and market capitalisation of around 500 crore currently. Healthy growth expected in revenues and PAT in FY20.
• Attractive industry dynamics with many players reporting attractive gross margins
• Net cash balance sheet and healthy cash flows.
• Good feedback received from the industry peers about the company and top management.

Key Risks

• Lumpy business – less visibility of revenue beyond one year. Furthermore, revenue can remain volatile on quarterly basis based on dispatches and orders in hand.
• Largely dependent on oil & gas & petrochemical segment
• Peak margins given it reported EBITDA margins of 25% plus during FY19. However, some comfort can be derived from company’s track record of reporting margins in the range of 24 – 28% over the past 5 years.
• Working capital intensive operations - Its working capital intensive business with working capital cycle remaining between 100 - 180 days. These will also depend on dispatches during the year end.
• Loans and advances extended to Arvind Ltd, its parent: Anup has extended interest bearing loans & advances of Rs.40 crore as on March 31, 2019 to its parent. However, the same can be called back depending on Anup’s fund requirements as per management.

Key Financials:
Profit and loss & key ratios

image.png1034×505 171 KB

Balance Sheet & Key Ratios

image.png1128×640 311 KB

(Disclosure: Invested. This is not a recommendation and anyone contemplating buying or selling should do their own diligence or take advice of their financial advisor)

Q4FY19 Results.pdf (2.8 MB)
Anup Engineering_VP Presentation_2019_For Uploading.pptx (923.0 KB)
Information-Memorandum_The-Anup-Engineering-Limited.pdf (3.0 MB)

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@deevee wrote:

Hi All

Starting this thread on Galaxy Surfactants as I could not find any thread on it. Moderators please feel to change if required. Thanks.

I did not want to make a long post so have put it in a document. Attached is the PDF of the document.

Galaxy Surfactants_June 2019.pdf (1.3 MB)

Areas I have tried to touch upon in the note are:

1. What are surfactants?
2. Global market for surfactants
3. Indian market for surfactants
4. Global preservatives and preservatives blend market
5. Business of Galaxy Surfactants
6. Patents
7. Research & Development
8. Customers of Galaxy Surfactants
9. Plants
10. Corporate Structure
11. Industry Trends
12. Promoters
13. Raw Materials
14. Fx Hedge
15. Failed IPO 2011 & Successful IPO 2018
16. Shareholding
17. Certain risks in DRHP 2017
18. Debt to Equity
19. P&L Metrics
20. Return Ratios
21. Efficiency
22. Cash flow from Operations
23. Competition
24. Brokerage Expectations
25. Valuations
26. Capex
27. Growth Drivers

I hope we can dig around and find out more. Inputs and discussions welcome on the opportunity.

Sources of information are from annual report (I didnt incorporate the FY19 as the annual report is not out but the numbers were better at top line level), DRHP 17 & 11, Edelweiss Report, Wikipedia, Screener, Tijori Finance, General articles on the internet.

Regards
Deepak

Disc: I am not a SEBI registered analyst/adviser. I am studying the company and have only a tracking position in the company. Not interested yet.

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@rollnball wrote:

fascinating read on self storage industry in usa

anything like that in india ?

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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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@basumallick wrote:

About the Company:

• 65 Year old company

• Y.R. Ghorpade, the former Maharaja of Sandur, after he merged the Sandur State with Union of India, was awarded a mining lease over an area of 7500 ha. It was he, who founded the Sandur Manganese & Iron Ores Limited (SMIORE) and the lease was transferred to the company. Out of this, 2800 ha of area, which was largely iron ore bearing, was deleted when our lease was renewed in 1974 and retained by the Government. During the second renewal, the company voluntarily surrendered another 1500 ha of forest area for land preservation. Finally the lease was renewed over an area of 3200 ha with effect from 1st January 1994.

• With a view to ensure better protection and development of the forested land, Founder Y.R. Ghorpade, magnanimously gifted about 1600 ha of his personal property in 1980. Out of the 3200 ha, we work on 2005 ha, keeping the balance 1200 ha reserved for future use.

Let’s look at some of their past nos

Then the mining crisis happened

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One of the few honest company in mining

OBxe4K5kV_qcg5d3SXTeK0TNJPDvljtZe0UOZY6SinQy_d9YCl1MtwMwLzjdcr_9-GsAFDllZvKJG5grG5jMdvyn-ipen2ElKkqsivm9Tbc4MtNYV2-rTWFDymRj2pdDmKv2wmQuYxM1061×95

Only Mining Lessee to have been awarded 5 Star rating in the state of Karnataka and one of 3 in the Country to have got 5 Star rating

SC allowed category A mines to operate with a cap on production. This cap is being relaxed gradually.

qdDbCY5Uh3dp-CbwCj4wO-JvHv96DTgMjZknXarbYQoQTrFOobJ3CTqw1DOzYKx6lN7ZKGWFDJQ3Uw0hRtIT6l_EGQwZzoxRXw0DvFsxsP8As1P8U3OdleXSztYyRDxC-QVFqVR3zUM593×617

Why it could be interesting now?

VyktAnX85MA5SzOoLdNwY252cLNeTCt8C-Ud4_pLFNWgJrd2qPZzUrxioyTFp--FuqVrI2pcNB4cFROZxSrMcTiqO105gSMAw5-pLGyP_7tcaeC8dDqMEE2PsSC9wFb2mJ2dM6uvnj8767×558

Financials - https://www.screener.in/company/504918/

To Summarize:

• At Mcap of 700 Cr
• Stock trading at 5 PE
• Profits for last 3 years - 56 Cr, 107 Cr, 142 Cr
• Business generates high margins and free cash flows. Co is debt free with cash on balance sheet
• Optionality of substantial increase in operations
• Expansion of 400-500 Cr underway - co investing into Coke Oven plan, ferro alloys etc as forward integration

Negatives:

• Highly volatile commodity
• Regulated by Govt. Strange rules in Karnataka
• Major expansion into steel in coming years

Disclosure:
I am a SEBI registered RA and founder of www.intelsense.in. I have no current investments in this stock, neither have I recommended it to my members. However, I may do so in the future. Please do your own due diligence before deciding to invest. This post is for educational purposes only.

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@kb_snn wrote:

Since 2014 Govt has been consistently awarding smaller companies with 5% Tax Rebate on income tax ie through movement from 30% to 25% tax bracket . Now 99.3% firms are covered under this .

Tax reduction from 30% to 25% if one includes surcharges gives lot of benefit to shareholders in terms of additional cash flows - and hence higher dividend payout specifically in cash rich companies .Plus at time it might increase competitive moat vis a vis larger firms in same industries

The Sales TO eligible for rebate in this budget has been increased from 250 cr to 400 cr

Lets look at firms that are eligible for that -

Large companies with ROCE > 10

Screen Shot 2019-07-12 at 10.29.06 AM.png2584×640 114 KB

High Dividend paying companies ROCE > 10 and with low or zero debt

Screen Shot 2019-07-12 at 10.31.22 AM.png2584×672 122 KB

Pl study individual firms before buying stocks … This theme is for investing horizon for less than 3 years as hopefully these companies will grow and their TO may go beyond sales TO threshold for Tax rebate .

Also there is chance that by end of their term GOVT may increase TO threshold giving these companies a longer runway …

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@Akshada_Deo wrote:

HDB Financial services bank is a subsidary of HDFC BANK, with the latter having more than 95% stake in it.

My interest peaked at looking at the valuation that the unlisted market was commanding for HDB.

For the year of 2019, EPS has been 14.71 and B/V has been 91.36. While giving it the same valuation as HDFC BANK, the Market price comes to be in the range of 400-450.

But the market is commanding a price of 1138 currently.

I understand that there are a lot of complexities when it comes to valuation especially during even pre-drhp times.

But the valuation seems steep to me.

Disclosure: Interested but not invested yet

HDB Financial Services-Annual report 2019.pdf (2.3 MB)

https://www.bloombergquint.com/economy-finance/hdb-financial-is-hdfc-banks-mini-me-on-the-fast-track-to-growth

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@Anant wrote:

Axtel industries Ltd. is engaged in the manufacture of custom designed food processing plants and machineries as per the requirements and specifications of food and pharmaceutical industries. The company was founded by Shri Ajay Nalin Parikh and Mr. Ajay Desai in 1992, both of who continue to be Executive directors with Axtel Industries Ltd. since its inception.

Industry Landscape: The process equipment industry for food can be categorized into two different kinds depending upon the complexity:

• Standardized equipment: These are standardized equipment like flour mills which are more capacity driven and does not require much engineering skill.

• Specialized custom equipment: These are specific equipment which requires highly specialized design and engineering capabilities. The equipment is built to specifications from client and requires deep understanding of food handling, flow engineering, electrical and automation capabilities. This is dominated by European and American players like Buhler, SPX, GEA Group, Russell Finex, Rockwell, CM-OPM etc. These companies specialize in certain equipment and a product line (e.g. a chocolate line for Nestle) would generally involve equipment from some of these. Most large food companies have internal design teams who work with these companies to come up with designs who work with these companies to develop the right process and equipment. The smaller companies can hire external consultants for this part.

Axtel manufactures highly specialized process equipment for food industry. They have capabilities right from Project advisory-> Process Systems->Process Equipment. The company provides process systems for the following food industries:

Why Axtel?: Axtel operates in a field which is currently dominated by the European companies. For any large food company the cost of setting up a line is very low as compared to the impact a faulty/badly manufactured line can have. This results in orders going to the existing set of suppliers who have a proven track record of quality. This also creates large entry barriers for newer players and also explains why despite being in business for 28 years Axtel’s turnover is just 110 cr. Today though Axtel has a large range of both International and Indian food companies as its client including Nestle/Mondelez/Hershey’s/GSK/Puratos/ITC/HUL/Heinz/Kellog’s etc.

https://www.axtelindia.com/ourclients.

Axtel has a very large opportunity ahead as the packaged food industry/packaged chocolate is growing at over 15% in India and with Axtel having relationships with all large players in these segments it is well poised to exploit this opportunity. There is also an opportunity in automating the existing facilities to reduce manpower costs. The other large opportunity is the export market. Axtel with its high quality products, international relationships and large labor arbitrage vis a vis the European players can grow significantly in the export markets.

Financials:

(in Rs. Cr)	FY19	FY18	FY17	FY16	FY15	FY14	FY13
Sales	111	82	76	67	40	48	60
PAT	13	6	7	5	-8	3	3
Gross Margin	50%	50%	52%	53%	50%	57%	41%
EBITDA Margin	20%	12%	14%	15%	-6%	19%	11%
PAT Margin	12%	7%	9%	7%	-19%	6%	6%
RoE	25%	15%	20%	17%	-29%	11%	15%
Cash Conversion Cycle	69	70	80	87	156	98	84
Dividend (in Rs. Cr)	1.5	2.4		0	0	0	0
Domestic Sales		65	59	66	32	46	54
Export Sales		17	17	1	8	2	6
Inventory	21.7	17.8	12.2	13.7	17.8	10.8	7.65
Trade Receivables	19.4	20	18	18	13	17.6	17.2
Advances from Customers	11	11	6	6	11.7	1.7	4.2
OCF	9.1	11.8	15.1	-1.2	6.7	8.28	1.26
Debt	1	4	5	10	12.5	17	15
Cash + Investments	20	18	7	1	6.3	1.7	1.3
Net Block	16	17	18.3	18.3	21	24.2	16.8
CWIP	0.2	0	0.3	0	0.3	0.4	0.3
Intangible Assets	0.3	0.3	0.2	0.37	0.07	1.2	2.7
Discount/Debts Written off	1.3	0	0	0.18	0.7	0.13	0.35

As is evident from the financials Axtel’s sales have grown steadily from 40 cr to 111 cr in last 4 years. What is more heartening is the improvement in margins, operating cash flows and virtually zero debt. The company’s RoE today including the cash+investments is a healthy 25%. Axtel had one bad year in FY15 which was probably due to order cancelations from a significant client.

Risks: Axtel operates in cap goods and there can be significant volatility in QoQ and YoY performance depending upon demand supply to order execution. Axtel is a microcap with 110 cr sales and 180 cr market cap. Small caps have inherent profitability and business performance risks. Investing in small/micro caps comes with liquidity risks.

Disclosure: Invested with 5%+ holding. Views are biased please do your own due diligence. I am not a SEBI registered advisor and this is not a stock recommendation.

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@Pratik_Patel9 wrote:

The Company is engaged in manufacturing of Coil Springs, Leaf Springs, LHB Springs and forging items.

• Springs for LHB Coaches
• Suspension Coil Springs for Freight Stock
• Suspension Coil Springs for Coaching Stock
• Suspension Coil Springs for Diesel and Electrical Locomotives (EMD, WAG 9, WAG 7, etc.)
• CLH and VLH Coil Springs for Power Sector (BHEL)

Frontier Springs Ltd. comprises three different units all working in synergy to fulfill the demands of clients and also developing new products periodically.

• Spring Division- In Kanpur, Uttar Pradesh and Paonta Sahib, Himachal Pradesh
• Forging Division- In Kanpur, Uttar Pradesh
• Colour Coated Roofing Sheets Division- In Paonta Sahib, Himachal Pradesh

Its major client is Indian Railways which is witnessing a lot of modernization and developments. The company has received many orders of the Springs which are used in LHB coaches. LHB coaches are being used in super fast trains like rajdhani or shatabdi. These coaches were being imported earlier and now they are being made in India. The company has benefited from this which is clearly visible in its performance over last 4 years.

The company has also received orders of springs for Metro coaches from Chennai and another state. This also opens a door for further development.

Current market cap is 70 crores and profit of the company in TTM is around 8 crores. The company has not diluted equity in many years. Company’s website seems to be good for a 70 crore market cap business, no that this is anything to base decision off.

Risks :
Major risk is that the company’s revenues are highly dependent on government spending which is always lumpy and risky.
Other risk is that the company might be at the peak of its good days if subsequent orders and projects don’t fructify from the government.

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