My fellow Value-based Investors, - My personal favorite Stock Manaksia Ltd at 40 Rs CMP (Of course I am invested in it) is available at 50% discount to its fair minimum value.
My parameters are -
Debt Equity at 1% only
Current Ratio at 8.1x (too good as an ideal ratio is 1.5x)
The company has Net cash (Cash- Total Liabilities) of Rs 36 per share.
Asset Turnover Ratio - 75%
The company has earned adequate profits in past (above 10%).
Very Low PE at 5
Dividend-Paying Stock. Very High Div Yield at current Price of 26%
EPS of Rs 7.7 per share.
Huge Insider Ownership.
Have a look at this stock and do share your valuations.
The Bombay Burmah Trading Corp. Ltd. (BBTCL) is a part of the prestigious “WADIA Group” with a legacy of more than One and Half Centuries, having business interests in Plantations, Foods, Laminates, Electronics and Light engineering, Health care, Real Estate and Horticulture and is the HOLDING COMPANY of the Group.
After immense success in the business of Teak, BBTCL diversified its interests in Tea, Coffee, Dental Products and Formica Laminates, the Company owns large Tea, Coffee and Rubber plantations, the controlling holding in the group listed arms Britannia Industries and substantial holdings in the Flagship Bombay Dyeing & Manufacturing Company.
BBTCL through its step down subsidiaries holds 50.65% in the Biscuit Major - Britannia Industries, a BSE and NSE listed Company with a Market Capitalization of Rs. 82,971 Crs.
BBTCL which has a tiny Equity Share Capital of Rs. 13.95 Crs. (Face Value Rs. 2) holds huge treasure in terms of Wadia Group Shares with an aggregated Market Capitalization of around Rs. 69,000 Crs. – THE MARKET VALUE OF BBTCL HOLDING AT A WHOPPING RS. 41,485 CRS.
BBTCL intrinsic value of shares is pegged at Rs. 4,977 per share as against its CMP of only Rs. 1,078 per share… AN INCREDIBLE DISCOUNT OF OVER 70%.
What it means is that you can indirectly buy Britannia Industries and Bombay Dyeing and Manufacturing Company shares which are currently quoting at Rs. 3,450 and Rs. 57 per Share at 70% discount.
Wadia Group founded by Lovji Nusserwanjee Wadia in 1736 is One of the Oldest Conglomerate in India. Wadia Group with over 280 years at the forefront of Industry in India is today broadly diversified in several growth industries that covers Textiles, Chemicals, Plantations, Foods, Electronics, Light engineering, Health, Laminates, Real estate and Consultancy. Consistently, the group companies have emerged as market leaders in the field they have entered and over the years the group has developed an enviable record of successfully managing diverse technologies.
The Group has come to be known for its Sound and Prudent Financial track record. Building Strong Fundamentals forms the basis of Growth in each company, making them top pick of Indian bourses. Two of the Group’s publicly listed Companies - Bombay Dyeing & Manufacturing Company Ltd and Bombay Burmah Trading Corp. Ltd have consistently rewarded its shareholders with consistent dividend payouts for over a hundred years, despite several recession in the Industry.
BBTCL, the Leading Wadia Group Company is the Second Oldest Publicly Listed Company in India Listed in 1863 followed by Britannia Industries Ltd. which is the Fifth Oldest Company to List in India in 1892.
Wadia Group through its Flagship Company Bombay Dyeing & Manufacturing Company Ltd. is carving a niche in the Realty Sector with rapid expansion plans. Wadia Group has access to over 10,000 acres of historically acquired land at rock bottom prices belonging to Britannia Industries Ltd., National Peroxide Ltd., Bombay Burmah Trading Corp. Ltd., Bombay Dyeing & Manufacturing Company and the Wadia Trust. Even if one excludes the agricultural land belonging to Bombay Burmah Trading Corp. Ltd., a mammoth land bank available with the Group at some of the Premium and affluent locations across Mumbai, Thane, Bengaluru and other cities.
BBTCL – THE COMPANY PROFILE
BBTCL is One of the Oldest Company of Pre - Independence Era, still flourishing with its core values, ethics and above all, the competency in trade. After immense success in the business of teak, the company has diversified its interests in Tea, Coffee and Dental Products.
The 150 years old BBTCL entered the plantation business in 1913. Today its plantations in the hills of South India cover 2,822 hectares under tea plantations (around 7,000 acres). These plantations are located in prime plantation areas, producing around 5 Million Kgs of Tea annually. BBTCL hold the distinction of being amongst most eminent and reputed manufacturers and exporters of naturally grown “ Organic Tea”. The Organic Tea which is manufactured at their Oothu Facility is appreciated across the globe and is also certified by „
BBTCL‟s group of eight estates are situated in the district of ‘Kodagu’ (Coorg) in Karnataka State, South India covering an area of approximately 4,105 sq.kms. (1585 sq. miles) covering Coffee and Pepper plantations.
Folks,
This post is specifically about the emerged Life sciences arm of Suven. There is a separate forum for Suven Pharma which is CRAMS business that is not described here.
So here is my piece on what is possibly the only truly publically listed drug discovery company in India. The Indian Pharma market as you may know is generally considered to be composed of
Branded generics - Some of the biggies do offer a branded version of the originator molecule that has lost patent
Generics - This is common paracetamol kind of stuff where there are dime a dozen mnf
Biologics/Biosimilars- Very similar to generics except that this is not a true copy of the originator. The Generics copy the chemical entity while Biosimilars make similar monoclonal antibodies or cells.
API/ Formulation manufactures
Largely the pharma space is concentrated by companies in the Generic molecule space. Largely the money to be made in the Pharma world is the development of NME(New molecular entities) that get 20-year commercial patent protection leading to a monopoly (think Pfizer, Roche, Novartis, etc)
Stages of clinical trials
Computer model
Pre-clinical studies
Phase-1: Safety, tolerability
Phase-2: Safety, tolerability + efficacy
Phase-3: All the rest but in a bigger trial population
Typically it takes 8-12 years to bring an NME to the market meaning that the product only has the remaining 12-8 years to make money before it loses exclusivity and generics come in. The same applies for Suven
Coming over to our company Suven Life sciences - This company was carved out of the recent demerger at Suven with a pinpoint focus on discovering and bringing to clinical trials innovative molecules in the Central nervous system (CNS) space such as Alzheimer’s, Cognitive disorders, Depression.
The Business model
Revenue: This is currently a cash-burning machine. The revenue model revolves around the successful development of the molecules across the stages of the clinical trials. As the company is quite a small size and can’t commercialize on its own they will make money from
Out-licensing the molecule
Partnering with the bigger company in Phase-3 and revenue share if successful
Risk- Clinical trials have two outcomes - If it is successful, you make a lot of money. If not, then all R&D costs are basically sunk costs and zero revenue
This is what happened to SUVN-502 which recently failed to meet end-outcome in Alzheimer’s in Phase-2 POC trial. But apparently they are now testing it in dementia
Other assets and stages of development
SUVN-G3031: Narcolepsy, Phase 2 POC
SUVN-911: Depressive disorders, Ready for Phase 2
SUVN- D4010: Depression, Dementia, Planning for Phase 2
The success depends on how the company can get a product into Phase 3 and beyond because then it will get the attention of major players in the disease areas.
Current revenue sources
a) 136 crores loan from Suven Pharma- Enough to last them for the next 15 months
b) Contract technical services - minor
Costs - As I said, the costs of a drug discovery company are largely R&D numbers which are around 44 crores in FY20. As per the latest estimate, they are burning cash at the rate of 10-12 crores per month. A major point to note is that they get a tax deduction benefit, under Section 35(2AB) of Income-tax, of 150% of the R&D expenses. Therefore if they were able to successfully monetize the assets, they will get an additional benefit of a tax deduction on costs.
Risks or Unknowns
COVID has delayed trials and this company cannot afford delays considering the tight budget they are on
It’s a 0 or 1 company. If the assets fail to meet end-points in Clinical trials, it is game over for them.
Currently, they can manage 12-15 months but they can’t produce a good result what happens then? They may possibly dilute equity further by raising more money either in the US or India.
The main guy in this company is Dr. NVS Ramakrishna who heads drug discovery. He led Zydus previously and is an oncologist. I don’t have any further information but he is the guy to know about
Questions (Need to ask the management)
How is management dividing the span of attention between Life sciences and Pharma business
Impact of COVID in patient enrollment
What is the validity of the current patents of molecules in Phase 2? Remember that they have a fixed 20 year period
The consolidated R&D spend was 121 crores while standalone was 43 crore so I’m trying to figure out the numbers here
About 100 crores worth of land given to Suven Pharma is in the name of Suven Life sciences. This can be a hidden asset
Why is the board composition made up majorly of finance people and not scientists/drug discovery folks?
IMHO this is a pretty interesting company to track as it is the only one in its space. it has a niche but that comes with its own set of risks which includes bankruptcy.
The Indian power sector is made up of power generators, distributors (also called discoms), power transmitters and exchanges. In this entire value chain, discoms have been suffering losses by giving extraordinary discount to end customers due to political compulsion (example). Because of suffering discoms, the long term purchase agreements with power generators is not met, resulting in large receivables for power generators leading to their deteriorating fundamentals (eg: Tata power threatening to shutdown their Mundra power plant). Power exchange such as IEX has lowered electricity prices because of more efficient match of demand and supply resulting in more discoms purchasing from exchanges (in short term market). This has come at the cost of discoms voiding long term power purchase agreements with generators. In this whole value chain, only two players are still making good profits (Power grid and IEX).
Power grid connects the power generation companies to power distribution companies by building towers which forms a part of the grid network. This sector was opened to private entities in 2011, but power grid still maintains its monopoly status commanding 85% market share of inter-state transmission network and 45% market share of overall domestic transmission network.
Business fundamentals: Power grid invests in building grid network, maintains it and charges a fee for its services. It is governed by CERC and gets regulated ROEs of 15.5% (for the period of 2019-2024). This ROE is decided by CERC and gets revised every 5 years (in the previous 5-year period, ROE was also at 15.5%). For building a new asset, power grid uses 70% debt and 30% equity. Their mandate is to maintain this ratio.
Past financials: Tangible book value has grown from ~16’000 cr. in FY10 to ~64’000 cr. in FY20 (15% book value growth). D/E was ~2.16 in FY10 and has grown to ~2.35 in FY20. Debt grows when a new project is getting constructed (CAPEX phase) and is paid down when it gets commissioned. Sales, profits and CFO have grown at 18%, 18.4% and 16.7% over the last decade. Company has spent close to 1.05 lakh cr. in the last 5 years, and cumulatively has spent more than 2 lakh cr. since 2004.
Operational efficiency: Power grid is an efficient transmission company, making a gross margin of ~90% and a net profit margin of ~30%. For context, Power grid Bangladesh makes a gross margin of ~40% and a net profit margin of ~15%. PAT margins of Power grid have varied between 28-32% over the last 2 decades.
Growth drivers:
The company planned to do invest 1.6 lakh crore from FY17-FY22 adding ~43% of new transmission lines within their network. Out of this, they have done CAPEX of ~85’000 cr. in the past 3 years. This was partly funded by debt (~30’000 cr.) and rest from internal accruals. Over the last decade, power grid has generated CFO of ~1.75 lakh cr.
Railway electrification project: Railways are trying to achieve 100% electrification by FY22 at a cost of ~35’000 cr.
Cross border transmission with neigboring countries (Bhutan, Nepal and Bangladesh)
Telecom services: Powertel is rapidly expanding its optical fibre network, their plan is to connect 2.5 lakh gram panchayats.
Risks:
TBCB route of bidding: In this route, companies have to bid for projects and tariff is not cost-plus but based on the best bidder. This is a huge risk as a large part of incremental projects are coming from this route. If players become too aggressive, it can destroy profitability.
Government interference: Power grid had to give a rebate of ~1000 cr. to discoms during the Q1FY21. This will always be something to be watchful about.
Receivables have increased recently from 4’900 cr. in March 2020 to 7’500 cr. in July 2020 due to deteriorating fundamentals of discoms. Collections have improved recently but this is a key monitorable.
Key monitorables:
CAPEX vs commissioning: When the project commissioning is higher, it leads to greater free cashflow generation, which can be distributed to shareholders. In FY20, CAPEX came down from 25’000 cr. to 15’000 cr. As a result, free cashflow increased to ~19’500 cr. leading to higher dividend distribution. Going forward, management has guided for lower CAPEX (10’500 cr. in FY21) and will generate higher free cashflows. Dividend has increased at ~20% over the last decade.
Government recently announced launch a $1bn Invit from Powergrid (link). If this is successful, future projects can be directly funded by this structure instead of additional debt.
Valuations:
Its trading at 5.8% dividend yield (which is sustainable because the dividend payout ratio is only 50%), ~8x P/E and 1.4x P/B. For a business growing at 10-12% with a ROE of 15%, valuations are not demanding.
Khaitan Chemicals & Fertilizers Ltd. is India’s largest manufacturer of SSP fertilizers . It also manufacturers Sulphuric acid which is also a raw material for its fertilizer production. It operates six plants located mostly in Central India in the states of MP, UP, Chattisgarh, Rajasthan & Gujarat.
The Co. had a decent year 2019-20 with Sales at 437 Crs, a YOY growth of 17% with PAT of 15 Crs, a YOY growth of over 90%. Dividend has been increased from 5% to 20% . The good performance has continued in the current year as the fertilizer sector is relatively less impacted by Covid-19 since the movement & production of fertilizers have not been restricted by the Govt. Q1 Sales & PAT have come in at 129 Crs. & 6.98 Crs, showing a huge improvement over Q1 of last year at 106 Crs. & 2.35 Crs, a growth of 21% & 197% respectively. There are plenty of tail winds going for the Co. The current monsoons have being better than the 10 year average for the second year running. Besides, lower raw materials have helped improve the operating margins. At the current run rate, the Co. could easily do Sales of about 500-550 Crs . in the current year, with PAT in the range of 30-35 Crs . The current market cap is only about 170 Crs . & looks attractively valued. The promoter holding is the maximum permissible 75% .
So what has brought about this change in fortune for the Co. & is it sustainable? The primary reason for the continued improvement in performance is due to the change in Govt policy in the distribution of subsidy. It has now kept the subsidy for the SSP sector separately within the overall Phosphates & Potassium segment. This has led to faster disbursement of subsidy & improved liquidity & made a material difference to the working of the SSP fertilizer companies.
The Govt. has further initiated the process of Direct Benefit Transfer , linked to Aadhar for payment of subsidy directly into the farmers accounts. This process should be completed sooner rather than later as is being done for various other Govt. subsidies. As & when that happens, it would be a watershed moment for the fertilizer sector as it would mean that these companies would get the full value of goods sold directly from the consumer & not wait for subsidy from the Govt. It could potentially re-rate the entire sector. The subsidy would be a matter between the Govt. & the consumer. The farmer will know the true value of what he is buying. The subsidy bill too would come down meaningfully as currently there is no incentive for manufacturers to produce efficiently & modernize their plants.
The combined production capacity of the Co. is about 11.13 Lakh MT. The production in 2019-20 has been to the tune of 4.36 lakh MT. The current capacity utilization is less than 50% leaving plenty of scope for growth with very limited future capex, if at all. The promoter Mr. Shailesh Khaitan has been judiciously building capacities over the last several years by taking over sick units & turning them around! Being the youngest of the Khaitan brothers from the family that owns Radico Khaitan , he understands the dynamics of wealth creation. The Co.’s recent decision to list on NSE could be a step in that direction.
Concerns : Fertilizers at the end of day is a commodity even though all manufacturers promote their brands. Another concern is the dependence of the sector on the vagaries of the monsoons, though for the present, agriculture is amongst the very few sectors of the economy that are doing well & is unaffected by Covid-19
The company is on track to expand its API and CRAMS presence over the next three years. Long-lasting contracts in high-volume APIs will provide a solid base while high-value low-volume APIs and scale-up in the CRAMS business will drive both top-line growth and profitability. A 15% CAGR in top-line and 20% CAGR in EBITDA looks achievable. The recent fundraising of Rs 4.6bn will be utilized in developing capabilities in both these segments.
Fundraise of Rs 4.6bn: In Feb-2019, Solara announced a fundraise of Rs 4.6bn through warrants given to promoters and PE investor TPG. The company has already received 25% of total commitment while the remaining fund is likely to come in FY20E. A large portion of this fund will be used to acquire capabilities in CRAMS and in setting up a Rs 2bn Greenfield API plant in Vizag. The co has already started working on the plant with an initial investment of Rs 700mn. The revenue generation is likely to start in 2HFY21. Residual funds will be used to pare down debt.
CRAMS to improve business mix: As of now, Solara has only 5% of its revenue coming in from CRAMS orders. The management is looking to scale up its presence in CRAMS. It already has two R&D units in India while it is building its leadership team in the US. The potential acquisition in the US is likely to be in the form of kilo lab facilities having certain technological capabilities. Since the margins in the CRAMS segment are upwards of 30%, the management is targeting 20%+ EBITDA margin for Solara over the next few years.
Clean regulatory slate: The company has 4 API and one intermediate unit in India. It has not faced any enforcement action from the USFDA for its plants so far. The recently inspected Ambernath and Cuddalore plants received zero 483s. Puducherry and Mangalore plants were inspected in 2017 and 2016 respectively, both the inspections were clear.
New product filings remain high: Solara filed 9 DMFs in FY19 and is likely to file 10 more in FY20. The focus on new product launches remains high. Some of the interesting DMF filings include Posaconazole, Patiromer, and Pregabalin. The company is committed to spending Rs 500-600mn on R&D per year.
View & valuations: With 16/21/30% Sales/EBITDA/EPS CAGR and improved Adj. Net Debt/Equity ratio of 0.8x (v/s 1.4x in FY18), we believe the stock is trading at attractive valuations of 16/10x on FY20/21E P/E. However, the developing Ranitidine story related to NDMA impurities could be an overhang in the near term. If Solara successfully clears the impurity hurdles, it could turn out to be a big bonanza; else, sizable Ranitidine sales could be at risk. HDFC Sec (sept 2019) assigned a fair value of Rs 655 (15x FY21E EPS).
ASIAN had a very bad past with poor promoters, SEBI slapping a fine etc.
In FY 17 it was taken over by OILMAX and the turnaround is evident in the financials.
Company Analysis of last 10 years (Annual Report and Financials combined)
Mr. Gautam Gode is a Promoter Director of the Company and is also the director on Samara Indian Advisors Pvt. Ltd. Samara who fist invested in 2008, acquired a majority stake in Asian Oilfield and assumed management control from 2010 with 36.33% of shares.
In FY 11, the company made considerable profits of Rs. 9.93 Cr v/s 3.39 cr the previous year, but almost 85% of this was wiped out due to “provisions for bad linter-corporate Loans” amounting to Rs. 7 Cr. That resulted in a net loss of approx. Rs. 7 cr. This is not considered good in terms of Management quality and intent.
From March 12 to March 17, the expenses were more than sales resulting in considerable losses every year. This indicates poor operations or orders taken at loss – both of which are not good management traits.
In FY 12, the company received only 2 orders that is indicated from low sales revenue. This year also saw a fall of crude oil process falling that impacted their order prospects. With low orders, company could not control expenses that stood at 115% of sales that resulted in considerable losses.
Sales were flat in FY13 at 49 Cr. This year, the company expanded to internationally. The management expected a top-line of 300Cr by 2016 – it was not even close at 78 Cr. The same factors resulted in poor order numbers. The same problem of Expenses being above sales existed, resulting in loss. The new management recruited last year doesn’t seem to work. Despite losses and poor performance, the salaries of key managerial executives increased 3 times from 42 lacs to 1.4 cr! Provision from intercorporate doubtful loan still exists in the books.
In FY 14, sales increased substantially from 49 cr to 122 cr. This is due to the new government focusing on Indian oil reserves exploration. However the expenses overshot revenues again resulting in losses. (Not Sure But looks like provision has been made to disappear; that is written off – sign of siphoning?). The company was fined 20 lacs by SEBI for not disclosing Samara taking up of shares in 2012.
In FY 15, the sales further increased to 140 cr but again the expenses overshot sales resulting in losses.
The same story of inefficiency despite good market and good orders continues till FY 17 when Oilmax took over Asian.
The new management has set out clear goals for strengthening the balance sheet and on cost control. This focus is heartening.
The management has a record of good consistent delivery without major delays. No penalties have been levied on the company. No fishy transactions or doubtful loans.
The result of excellent management is seen in the financial numbers post FY 17. This is the proof of pudding.
*** Leading cloud-communication platform as a service (CPaaS) company.**:
RM ranked second globally as a tier-1 application-to-peer (A2P) service provider globally in 2017 (Source: ROCCO Report 2017).
Developed a single unified API (omni-channel platform) which incorporates communication modes such as A2P, P2A, 2Way messaging, email, rich communication services (RCS) messaging, voice and OTT business messaging, allowing enterprises to reach customers on both traditional and leading OTT platforms.|
Acquired 365squared in 2017, which operates in SMS analytics, firewall, filtering and monetization. Globally, telecom companies lost > $11 bn in revenues in 2018 due to delivery of messages through grey routes. With the use of RM’s analytics based SMS firewall, telecom companies can identify & plug such leakages.
SMS firewall contracts are sticky in nature with tenure of 1 - 3 yrs on an average. Acquired SMSC, MMSC and firewall technology assets from TeleDNA, to augment the telecom suite.
Established relationships with telecom operators: RM had direct relationships with over 240 telecom operators and can access > 800 networks globally.
Client base spans diversified industries including social media companies, e-commerce entities, banks, financial institutions and travel aggregators. Its telecom clients include over 25 operators spread across 4 continents
Key Risks:
Client concentration - Top-5 and top-10 clients constituted 44%, 54% of revenues respectively in FY20.
High attrition - The attrition rate of employees for FY17, FY18 and FY19 was 21.57%, 24.82% and 40.32% respectively, however in FY20 it came down to 18.8%
High competition.
India competitors revenues
Gupshup Rs519crs
Valuefirst Rs470crs
Route Mobile Rs956crs
Karix (A division of Tanla Solutions)
Global Comparable Twilio US$1.4bn with market cap of US$35.2bn making EBITDA and PAT losses.
Extrapolating 1Q results full year PAT should be Rs110-120crs At the time of IPO company market cap was Rs2000crs. Current market cap post listing 4440. So Stock trading at 37-40x P/E on FY21E. Indiamart is at 66x and Affle at 86x for FY21E P/E
Chemcon Speciality Chemicals Ltd is in the process of listing right now, with IPO closing on 23rd Sep 2020. With Spec Chem being the flavor of the season, decided to have a in-depth look at this one to find if its a red herring just riding the wave, or if it can deliver true value over long term.
Company Background
Incorporated as Gujarat Quinone Private Limited at Vadodara, Gujarat on 15 Dec 1988. Current promotors incorporated Chemcon Engineers Pvt Ltd in April 1996. They acquired 100% in Gujarat Quinone and merged the 2 companies and renamed entity as Chemcon Speciality Chemicals (CSCL)
CSCL is engaged in the business of manufacturing, marketing and supplying of the Pharmaceutical Chemicals and the Oilwell Completion Chemicals.
CSCL is an ISO 9001:2015 certified company. Its manufacturing plant is located in Manjusar, near Vadodara.
Products & Applications
CSCL product portfolio consists of Pharmaceutical Chemicals, mainly HMDS & its ancillary chemicals and CMIC
Oilwell Completion Chemicals, namely Calcium Bromide (solution and powder), Zinc Bromide (solution) and Sodium Bromide (solution and powder)
HMDS is important intermediates for API of life saving Antiretroviral (ARV) drugs used to treat HIV / AIDS and Direct Antiviral Action (DAA) drugs for Hepatitis B & C
HMDS is also an key intermediate for 2nd Gen Cephalosporin antibiotics which are used to treat variety of conditions in Bronchitis, Ear infections, Skin infections, bacterial infections, and infections of ear, lung, throat and urinary tract
Similarly, CMIC too is an critical intermediate for API of HIV / Hepatitis B & C drugs
Its Bromide family of Oil well chemicals are used preparation of Oil wells during oil & gas exploration
Business Analysis
Since the company is in listing process right now, financial data is available only for limited period of FY17, FY18 and FY19 in DRHP document.
Although CSCL has a limited basket of products, it seems to be well positioned in the market for these products.
In HMDC, it is the ONLY manufacturer in India, and the 8th largest producer in the world, as of FY18
For CMIC, it is the LARGEST in India, and the 2nd LARGEST producer in the world
Thus, it has been very successful establish itself within its niche, within a relatively short period of time
Industry-wise Revenue
As of FY19, Pharma contributes almost 2/3 of the revenue and remaining 1/3 is contributed by Oil Well Completion Chemicals business
A minuscule part of revenue comes from other industries such as semi-conductor and rubber. A very small amount of revenue comes from services
Segment
% of FY 19 Revenue
% of FY 18 Revenue
% of FY 17 Revenue
Pharma Chemicals
62.99%
61.97%
46.89%
Oil Well Chemicals
35.42%
35.86%
50.53%
Others
1.59%
2.17%
2.58%
Product-wise Revenue
As of FY 19, almost 40% of its revenue comes from its biggest product, HMDS
Bromide family of products contribute about 35%
CMIC contributes about 15.65% revenue
Domestic Vs Export Revenue
Revenue from domestic sales in FY19 is 196 Cr (64.67%), up from 24.2 Cr in FY17 (26.95%)
Revenue from exports in FY19 is seen at 98 Cr (32.22%), up from 58.5 Cr in Fy17 (65.08%)
Between FY17 and FY19, CSCL has demonstrated a very strong growth in both domestic as well as exports sales
While its total revenue has grown to almost 4 times in these 2 years, its export sales have grown to over 1.5 times, while the domestic sales have grown almost by a massive 8 times in this short period
Market Share
CSCL is India’s only HMDS manufacturer, and 8th largest globally. It has a global market share of 5.61% in HMDS. Its India market share in HMDS is 47.9%
It is also India’s top manufacturer of CMIC, and 2nd biggest globally. It has a global market share of 28% and domestic market share of 50.4%
In Oil well chemicals (Bromides), its market share is very small, 2.66%, though it is 6th largest manufacturer of such chemicals in the world. What is commendable though, is that till year 2013, CSCL did not even make these products, so it has done relatively very well to get this market share in a short span of 7 years.
Capacity & Utilization
CSCL has a total installed volumetric capacity of 236 KL. These are spread across 6 manufacturing plans at their single manufacturing site in Vadodara
Of the 6 plans, 1 is dedicated to making HMDS, 2 are for CMIC, 2 are for Oil Well Chemicals. One plant for HMDS was damaged in fire accident in 2018, and they are rebuilding it.
Total installed capacity is at 2400 MT for HMDS, 1800 MT for CMIC and 14,400 MT for Bromides solution and 600 MT for Bromides powder.
Current utilization (FY19) for HMDS is 93%, for CMIC is at 95% and for Bromides is at 57%
As per plan, IPO proceeds (fresh sale of 165 Cr) will be utilised for CAPEX for 3 new plants (46 Cr), shared infrastructure and Working capital (90 Cr)
All the 3 new plants will be dedicated to making of pharma chemicals i.e. HMDS & CMIC
The new plants will add new volumetric capacity of 376 KL. Along with restoration of plant lost in fire incident, the total capacity will rise to about 625 KL, more than doubling from current installed capacity.
Growth Runway
As per Frost & sullivan report, HMDS demand in India is projected to grow at CAGR of 5.6% in next 3 years. India is currently net importer of HMDS, with 52% of its demand in 2018 met by imports, mainly from China. Chemcon is the only HMDS manufacturer in India. Hence, by substituting imports and catering to India’s HMDS market, Chemcon has an opportunity to grow at a CAGR of ~20% between 2018 and 2023 in the HMDS Segment.
India and China are the ONLY 2 countries in the world to make CMIC. India has 45% market share, and China has 55% market share of global production.
India has the largest demand for CMIC, with 65% of global consumption. This demand is growing very fast. CMIC is critical input for HIV / Hepatitis B life-saving drugs. Demand for these drugs has been rising due to lowing prices and rising demand for better healthcare.
As per Frost & Sullivan report, global demand for CMIC is predicted to grow at CAGR of 12.5% between 2018 and 2023, with demand in India expected to grow at 14% CAGR in the same period. Currently, India is a net importer of CMIC, with 50% of its demand being met through imports from China.
Chemcon being leading producer of CMIC in India, is well positioned to substitute imports from China and hence has an opportunity to grow at a CAGR of more than 25% in CMIC segment between 2018 and 2023.
With planned CAPEX will double the capacity in lucrative pharma chemicals (HMDS, CMIC). Thus, post-expansion, CSCL will be in great position to grow its revenue by meeting the rising demand of HMDS and CMIC
If CSCL is able to achieve its expected growth CAGR of ~20% over next 3 years in HMDS & CMIC segment (currently 62%+ of its revenue ~200 Cr), it can easily double its revenue from the pharma segment in this period, to about 400 Cr
Competitors
In HMDS, its leading competitors are Dow Chemicals (18.19% global market share), Xingyaqian Silicon (China, 20.68% market share), Zheijiang Sorbo (China, 10.22% share), Shin-Etsu (Japan, 10.44% share).
In CMIC segment, Shanghai Twisun leads with a global market share of 33.46%, followed by Chemcon, trailed by Anshul Speciality (India, 11.26% global share) and Inner Mongolia Saintchem at 14.8% share.
In Oil Well Chemicals segment, its biggest competitors are Israel Chemicals Limited, Albermarle, LANEXESS, TETRA and PPC.
However, since it has no competition from any of the global majors in India, it maintains massive market share in domestic markets (HMDS 47%, CMIC 50%), while rest of demand is met through imports.
With domestic demand expected to grow at healthy pace in both HMDS and CMIC, CSCL can continue to expand at a much faster pace by substituting imports
Competitive Moat
Substantial market presence in HMDS segment. India’s only producer of HMDS and 8th largest in the world
India’s largest and 2nd largest globally, with a dominant global market share of 28%
Speciality Chemicals industry has high barrier to entry due to several reasons
a. Involvement of complex chemistry in manufacture of products, which are difficult to commercialize on a large scale
b. Long gestation period to be enlisted as a supplier with the reputed customers of Pharma industry and Global chemical groups
Industry is highly knowledge intensive
Given the nature of the end application of products, the processes and products are subject to and measured against high quality standards and very stringent impurity specifications. These are extremely difficult to achieve for new entrants
Since the intermediates are used in API manufacturing, reworking of regulatory approvals required by them on change of suppliers is very time consuming and costly, resulting in customer sticking to proven suppliers, thus making it very difficult for new players to enter
Some of the products used in manufacturing of Speciality chemicals are corrosive and toxic, and handing these materials requires a very high degree of technical skill and expertise, the operations involving these have to be undertaken by well trained and experienced personnel, which is not easy to obtain.
Obtaining environmental clearances from government agencies to set up and expand capacities for manufacturing these chemicals is time-consuming and difficult process. Even for established players, obtaining permission often proves to be elusive. New players thus find it very difficult to get a foot-hold
Financials
Revenue is growing at a break-neck pace, rising almost 4x between 2017 and FY2019, at a CAGR of 83.95%, up from 89.8 Cr in Fy17 to 304 Cr in Fy19. DRHP document does not contain financials of FY20, but from unconfirmed data available on various sites, the revenue for Fy20 has fallen by about 10% to 266 Cr, even though PAT has improved to 48.8 Cr in FY20, compared to 43.08 Cr in Fy 19.
EBIDTA in the same period (FY17 - FY19) has grown from 86.6 million to 679.21 million at a CAGR of 180.06%. PAT has jumped from 28.24 million in FY17 to 430.41 million in FY19, growing at CAGR of 290.39%
Decent balance sheet, with negligible debt and leverage. Inventory levels have shot up, but given the explosive growth in sales in last 2 years, its in line. Similarly receivables have shot up almost doubling over last 1 year, but given that revenue has doubled too.
RoE and RoCE for FY19 are seen at 44.94% and 43.37%
Receivable days are pretty high at 106 days, almost doubling from 56 days seen in previous year. This is clearly a concern.
Cash flow from operations has declined slightly to 113.71 million, down from 139.97 in FY18. Decline has mainly been due to steep rise in Inventories and trade receivables
Promotors
Promoters of the CSCL are Kamalkumar Rajendra Aggarwal, Navdeep Naresh Goyal and Shubharangana Goyal. Promotor group consists of another 15+ names in what looks like extended family / associates
The promotors have a stake in another listed company in India - Overseas Synthetics Ltd, and several other unlisted ventures, 3 of which qualify by SEBI’s definition as Group companies.
All the 3 unlisted companies have very ordinary performance. One (dealing in industrial linings) has a revenue of 19 Cr and meagre PAT of 0.5 Cr, another one (dealing in technical textiles) has a revenue of 6 cr with a profit of 0.8 Cr. Third one (dealing in real estate), has zero sales and a small loss of 0.3 Cr. The listed entity Overseas Synthetics, has had zero sales for the last 4 years, and practically nothing for past 10 years!!
There are some negative observations relating to these companies. In SILPL, it has granted unsecured loans to another promoter venture without clarity of interest rate and repayment terms. In case of Supertech Fabrics, there is dispute / law suit contending the purchase of a land parcel. In Kana Real Estate, the networth of the company has been fully eroded.
There are couple of additional significant Red Flags about the promotors
Kamalkumar Rajendra Aggarwal, Shubharangana Goyal and Navdeep Naresh Goyal and certain members of the Promoter Group, namely, Naresh Vijaykumar Goyal and Minal Kamal Aggarwal (collectively, the “PG OSL Shareholders”), have filed a settlement application dated March 10, 2019 with SEBI in relation to their inadvertent failure to make certain disclosures required under the Takeover Regulations and the SEBI Insider Trading Regulations in relation to their holdings in Overseas Synthetics Limited (“OSL”), a company listed on BSE Limited, which is a member of the Promoter Group.
Further, pursuant to a criminal complaint (“Complaint”) filed by the Central Bureau of Investigation (Jaipur) (“CBI”), the CBI Special Court, Jaipur (“CBI Court”), vide an order dated December 24, 2018 (“CBI Court Order”), has convicted and sentenced inter alia a member of the Promoter Group, Naresh Vijaykumar Goyal (in his capacity as a director of Super Scientific Works Private Limited) to (i) rigorous imprisonment for two years with a fine of ₹10,000 for commission of offences under Section 120-B of the Indian Penal Code, 1860; and (ii) rigorous imprisonment for three years and fine of ₹ 20,000 each for commission of offences under Section 13(1)(d)(ii) of the Prevention of Corruption Act, 1988
So, other than the success of CSCL itself, the track record of the promoters across their other ventures is not too flattering, and can be termed as moderate at best. Probably, the presence of 2 non-promoter, whole-time Directors contributes immensely to the success of CSCL over last 20 years. Mr Himanshu Purohit, who holds a master’s degree in inorganic chemistry, has been with the company for last 20 years, and is currently Director – Production, taking care of critical functions such as Product Development, Production, and Material management. Similarly, Mr Rajesh Gandhi, CFO and Whole-time director, has been with the company for 20 years, and is in charge of key functions such as Finance & accounting, Export-Import, Compliance etc. Together, they seem to have played a key role in the success of CSCL.
Risks
Promotor Risk - With the red flags noted above, it remains to be seen whether the promotors are clean and also given the performance of other group companies, CSCL remains the only exception which is successful.
Raw material import risk: CSCL is heavily dependent on imports for its raw materials. As of FY19, 50.89% of company’s raw materials were imported. This exposes it to cost escalations due to currency exchange fluctuations. Also, a large part of its raw materials are sourced from china. Given the recent escalations in border dispute between India and China, any trade relationship breakdown / embargo between the two countries will have a big material impact on revenue and profitability of CSCL.
Product Concentration Risk : As of now, 40% of CSCL’s revenue comes from one product – HMDS, used mainly for its applications in pharmaceutical industry. Revenue of CSCL depends on success of its customers end-products. Any change in that will have a very big impact on CSCL’s revenue and profitability.
Industry Concentration Risk : CSCL relies on Pharma and Oil and Gas Exploration industry for almost all of its revenue. Any down-cycle or headwinds experienced by these industries will have a very massive impact on CSCL’s revenue and profitability.
Customer Concentration Risk: As we have already seen earlier in this analysis, CSCL has massive dependence on its top 5 and top 10 customers. Any negative turn in relationship with any of these customers will have an immediate large impact on revenue and profit of CSCL.
Regulatory / Environmental Clearance Risk : Obtaining environmental clearance in India is difficult. Any delays / problems in getting clearance for capacity expansion can have a direct and material impact on the growth and financial performance of CSCL.
Execution Risk : If CSCL fails to execute on its strategy, failing to utilise the growth potential, it may have a big impact on its financials.
Market Risk : If the growth in demand for CSCL’s customer’s end products does not rise as expected, it would have a significant impact on financial performance of CSCL.
Conclusion
Just looking at the business in isolation, CSCL has found itself a very profitable and unique niche. With critical end-use of its products and rising demand, it looks to be on a unhindered growth path for the next 2-3 years. It has got itself in leadership position in its product segment within India and has made an impact globally as well.
Growth Opportunity – With projections from Frost & Sullivan report indicating strong growth for its products in next 3 years, CSCL finds itself in an exciting space. Barring some extreme internal mismanagement or an external black swan event, it looks to be on track to achieve significant growth and leverage on the growth opportunity available to it.
Promotor / Management Quality : CSCL Promotor quality is not top-notch, with several of their side ventures not being successful. Presence of couple of red flags (indicated in this report earlier) does not inspire confidence either. Though they have been in this domain for many years, they have not demonstrated innovation. Hopefully, the professional executives in the management team continue to drive the company to success, as they have done in recent past.
Drop in Fy20 revenue, though small (about 10%), rising inventory days, rising receivable days etc are concerns, so those have to be closely monitored.
Basis of current valuation assigned for IPO, at Rs 340, the stock is fairly valued at PE of 22.15 on trailing FY20 earnings. Given that other peers in Spec Chem space are commanding richer multiples in excess of 30, and also given the current IPO frenzy, this is likely to see good listing gains.
I plan to take a very small tracking position, and will watch it closely to see how its plays out, especially given the growth potential of the products and the less than inspiring management.
Hello everyone , hope you are fine and in good health
this is my first post in VP. Over the years i have learnt a lot from this forum as well another kinda predecessor forum (he now runs a famous pms ) and peter lynch .
Before i read these forums and peter lynch i actually knew nothing . i would watch tv and buy stocks based on what i saw on business channels , i was that kinda ignoramus
So finally decided to stop mooching off vp(just reading the stock posts ) and actually contribute
so here goes
There are safe no tension bluechip fmcg stocks, they are fast growing midcaps ,exciting smallcaps and then there are the ignored longshots. These undiscovered stocks generally have the right fundamentals in place but for some reason are ignored by the markets for extended periods of time (years and years )
The beauty of these longshots is that when they work out , the stock performance is often way higher than what we investors originally anticipated and will produce extremely pleasing results making us look like a genius. But the problem is we would have sold it off by then due to exhaustion
An example of such an opportunity for me was bombay burmah trading corp many years ago (i had accumulated a sizable position , got sick and tired of waiting and finally sold off at minor profit and then the stock went up more than 10 times
And so i have learnt to be more patient.
Company - Majestic Auto
MARKET CAP - 85 CRORES ( from moneycontrol) as on 14.6.20
CMP - RS 81.7 (listed only on bse )
Promoter holding - 75%
PLEDGING - NO Pledging
Consolidated BV - RS 385.64
Cons Price /book value - 0.21
Consolidated net debt - 171 crore (i have added up long term and short term debt and subtracted them from the current investments ,cash balances and other bank balances, i am ignoring things like other current assets)
Investments - 921000 shares of hero motocorp (as per 2019 annual report)
worth 221 crores as of today (hero motocorp price - rs 1401) on 14.6.20
Majestic auto is a part of Mahesh Munjal group (Family of Hero group)
The company which was originally an auto component co has discontinued its automotive components business in 2017-18 and has now transitioned into Leasing of office space and facility management of the office space it currently owns.
The business has 4 parts
a) Leasing business
the company has a subsidiary emirates technologies pvt ltd which owns office space of
6 lac odd(0.6 million) square feet in a building called Majestic knowledge boulvevard located at sector 62 in Noida city.
it has marquee clients like tech mahindra and ericcson (do correct me if i am wrong ).
has 93% occupancy as per the latest annual report (18-19).
this property/company was acquired for 73.2 crore in 2015… Majestic auto acquired 80 percent of emirates technologies pvt ltd while the rest of the 20% was acquired by Group company OK Hosiery Mills .(its a related party). mahesh munjal and renuka munjal are directors in ok hosiery mills private ltd.
we need to study this related party angle a bit more.Future growth can come from acquisition of new commercial properties.
if the link doesnt open search for cnbc majestic auto
in this January 2018 video where the promoter mentions annual rent of 32 crores plus some more income from the facility mgmt . Also mentions that they hold 10 lac(1 million shares) of hero motorcorp.
the news anchor is guessing the property could be worth around 500 to 600 crores .
its also a positive in my opinion that the promoter is not tom toming the company and in infact downplaying the assets that the company holds .
Rental revenue generated has been 29.89 crores until 9 months ended december 2019.
Rental Profit before tax generated has been 18.91 until 9 months ended december 2019(decreased by 65 lacs approx as compared to previous 9 months ).
Rental revenue has increased by 3 crores as compared to previous 9 months ended december 2018
b) Real estate mgmt/Facility Mgmt business
Majestic it services ltd is a subsidiary which is into managing the properties acquired by majestic auto. It manages the planning and mgmt of majestic knowledge boulevard as well as things like
catering, cleaning, , HR, accounting, hospitality.etc
future growth can come from the facility mgmt division taking up other clients besides its parent.
Revenure generated for 9 months ended is 26.76 crore . PBT for 9 months has been 10.96 crores
These figures have reduced by half from the preceding year. .Last year there was additional income from sale of land which is not present this year.
If any of the boarders find other reasons for the revenue drop other than land sale , do give your opinion.
c) Land
the company has shut down its manufacturing locations and is selling the land little by little.
from the annual report 2018- 2019.
“Accordingly Land and Building amounting to 6,414.61 lakhs which was earlier part of Fixed Assets has been re-classified as inventory held for sale. A disclosure in the quarterly results to BSE has also been made to such effect in the Financial statements filed for the quarter ended June 2018 (dated 10 August 2018). A part of such Land and Building valued at 1,407.68 lakhs which has
been re-classified as inventory was sold for ` 5,765.24 lakhs during
the year having a significant impact on revenue and profitability of
the Company”
from the above i understand a portion of the land was sold in financial year 2018 -19 for 57.65 crore
which was valued only at 14.07 crores in balance sheet.
so there is a chance that the rest of 50.06 crore worth of land (as per inventory) can be sold for a substantial sum in the future.But i am not using this aspect for my valuation.
I am yet to understand how much more land is actually available for sale.
and whether this spare land will be sold or used to develop newer real estate to rent out.
The land is at the two old manufacturing facilities which are in Ludhiana.and Greater Noida
9 months ended december 2019 there has been no land sale till now.
d) Investments
The company holds 921000 shares of hero motocorp(latest annual report ) worth 221 crores of today. i dont think any of these shares have been sold till 9 months ending december 2019.
In the above video link it was mentioned as a million shares (10 lac) . in 2017 annual report shares of hero moto corp are at 10.3 lacs which is now 9.21 lacs so the company is definitely not averse to sell the shares. During q1 2018 company sold hero shares woth 22.4 crores.
if i take into account the value of hero shares held then the company has zero debt and a cash surplus of 50 crores as of today.
MANAGEMENT
Mgmt compensation seems okay(vp boarders correct me if am wrong )
Both son and daughter of promoter are part of mgmt
Promoter has lent some money to the company and has received an interest of 3.73 lac. for 6 month ending september 2019
Promoter group company OK HOSIERY mills pvt ltd which holds 20% of emirates technologies which inturn owns the it park has been paid 31 lacs by the company as rent for 6 months ended 2019
source - bse disclosure
Future
i feel the cushion of hero motocorp shares might help the company raise more debt to buyout commercial real estate cheaper in the future (covid might change things a lot)
Alternatively company might sell hero motocorp shares as the market recovers and clear off all its debt and be a cash surplus company with a fixed income comprising of rental &others (slowly rising ) every year.
Pros
a company with a promoter holding of 75% , no pledging , rental revenue of around 35 crores from a commercial asset worth (well help me out here ) having zero debt and
effectively with a cash surplus of 50 crores considering hero motocorp shares
is available is at a marketcap of 85 crore. Net Net we are getting this company for 35 crore market cap (almost equal to one year rental revenue) and a price to book of 0.21.
Famous investors hold chunks of the public holding.
ANIL Kumar Goel holds 2 lac shares (0.2 million) which is 1.92 % of the company as on march 31st 2020
Nishit parekh holds 1.44 % of the company
varsha parekh holds 1.16 % of the company
dipak kanyalal shah holds 1.49 % of the company
other triggers like additional income from land sale and hero moto shares sale.
company has been reducing consolidated borrowings
reduced from 207 crore to 187 crore half year ended September 2019 as compared to previous half year.
Consolidated borrowing was 341 crores in 2017 which has come down to 187 crore in september 2019 and has been coming down consistently over the past few years.
Abhishek basumalick presented this company at the 2019 chintan baithak. link shows his slide on majestic auto.
if a senior vp boarder is interested then its definitely a plus point
Negatives
stock is listed only on bse . its in the x group and you have to take compulsory delivery .
As mentioned in the beginning its an undiscovered and ignored stock and when i say ignored i mean it literally.
Liquidity is really really low . the whole market starts trading at 9 15 am everyday and this stock slowly wakes up with a yawn at around 11 am and then there will be a transaction of shares in single digit volumes
The lack of liquidity would be actually be funny if i was not invested
Volumes are very low most days with less than 5k shares traded often.
the problem with ignored stocks is that they wont move up for years but will crash a lot in a situation like covid. So such stocks can have a lot of price damage as i learnt recently in march 2020 just because nobody is bothered to buy.
and when such crashes happen i often question myself as to why do i even bother to be a so called value hunter ,instead just go with the herd and buy fmcg stocks and chill in life. So these ignored stocks are definitely high risk and can be a scary roller coaster ride.
there are related party transactions which i have to study and 20% of the material subsidiary is owned the by a group company.
and we dont know how things will pan out in the future with respect to covid. Mgmt communication is very limited.
Conclusion
This is my first post , so seniors do correct me if i am out of line somewhere.
i believe majestic auto is an highly undervalued stock and deserves to be re rated.atleast to the bare minimum of its book value.
Discosure : i am invested in it …
vp boarders do help us all in finding what i am missing . why is the company trading at such a low valuation.
Comments and especially criticisms are welcome . i would love to know the red flags that i have ignored.
Please take my opinions with a sackful of salt
cheers !!
Disclaimer : This is not investment advice and should in now way be construed as one . I am not a registered sebi investment advisor. Please do your due diligence before investing.
Note: This is not about Indian market players.
Folks,
I see some interest in the markets outside India in this forum. Harsh Beria saw me mention NVDA and AMD in a thread and asked me if I can explain the industry landscape a bit. I decided to put it as a post to benefit others. Only Industry landscape. No financials. I am not good at reading financials.
If you find this thread not suitable for valuepickr post, @harsh.beria93, It is your fault . I don’t mind deleting this post.
I put down my thoughts along with references in a word doc. Attaching the same. proc_wars_1.docx (29.5 KB)
I will copy this doc into multiple post based in this thread on feedback.
Founded in 2015, Xelpmoc Design and Tech Limited (Xelp) is an end-to-end professional & technology service provider with a keen focus on product development, data science and analytics. Xelp’s core competence lies in building next-generation technology in Artificial Intelligence & Machine Learning Space, with a keen interest in Natural Language Processing & Data Analytics. The company primarily caters to e-commerce, education, transportation & logistics, recruitment, fintech, social networking, among several other industries.
Interesting story behind the name – it’s the reverse of COMPLEX – XELPMOC : So the motto being trying to solve complex problems with ideal solutions.
Management Key Members:
MD & CEO: Sandipan Chattopadhyay – MD & CEO, Founder – Expertise in tech devpt of several start-ups, credited with JUST DIAL success (Growth of 160X), co-founder of Moneycontrol and built the first website for TATA. Very honest and has excellent exposure in the field. Worked at Tata motors, Standard Chartered Bank, Deutsche Bank, Edelweiss Business Standard etc. “Red Hat Innovator Award 2019”. IIM Calcutta alumni and a statistician from ISI, Calcutta.
Chairman: Mr Tushar Trivedi (since 2018) – Expertise in banking (Experience @ Kotak Mahindra and Citi Bank)
Srinivas Koora – Director and CTO – Deputy CFO at Just Dial.
Jaison Jose – Director – Expertise in HR and business development.
**History at a glance: **
Started in 2015 as a 24-person company.
3 Promoters: Sandeepan Chattopadhyay, Rajesh Ramlal Dembla and Srinivas Koora
2015: First technology services agreement with Fortigo Network Logistics Private Ltd and made an investment in the company.
2017: First agreement with the Govt Org – Food Safety and Standards Authority of India, GOI
2019 – Went public at NSE and BSE
2020 – Operational Breakeven and Net Profit (Zero debt company)
IPO
Started in 2015 as a 24-person company.
3 Promoters: Sandeepan Chattopadhyay, Rajesh Ramlal Dembla and Srinivas Koora
2015: First technology services agreement with Fortigo Network Logistics Private Ltd and made an investment in the company.
2017: First agreement with the Govt Org – Food Safety and Standards Authority of India, GOI
2019 – Went public at NSE and BSE
2020 – Operational Breakeven and Net Profit (Zero debt company)
Business Models
Focused on building the next generation of technology in Artificial Intelligence (AI) and Machine Learning (ML), with a keen interest in Natural Processing & Data Analytics.
They work with Govts, Businesses, Individuals and Startups and help them take advantage of their data as technology partners and consultants
Building AI and ML tools for solving problems powered by Natural Language Processing and in house developed Intelligence Data Management System.
** Focus on Startups **
Tech deployment for multiple startups at early stages: Give tech solutions and charge fee as well as take equity if the start ups are promising with potential – this is a very good growth model.
Startups – Focusing on HEAL sectors – Health Education Agri and Livelihood – Key GDP contributors but underpenetrated and full of potential for AI and ML in India. They offer expertise and tech support as well as buy equity in start ups – huge GROWTH potential.
4TIGO – (Uber for Trucks in India) – Freight exchange facilitator for the truck ecosystem in india – (Nandan Nilekani – co founder of Infy and startup giant has stake in this too) – Xelpmoc provides tech solns as well as has equity and doing very good (already the co is growing very well with good revenue generation)
Mihup - Voice tech sector – Mobile assistant using ML and AI for human-machine and machine-human interaction
Snaphunt – HR sector – Singapore based south east Asian talent hunt programme
Woovly – social media sector – to bring people together with common bucketlist
Pencil – publishing sector – to help authors and writers to upload script, design etc for publishing
They have a pool of around 10 – 20 startups in focus all the time with promising potential.
Details, investments and current fair value can be obtained from their AR 2019-20.
As on March 31, 2020, they had invested around 3.36 crore Rs into startups and the fair value on that date stands at 34.8 crores. The startup ventures has already given them ~10X returns on investments with a YOY growth of 27.33%.
Growth Potential:
India – 3rd largest start-up ecosystem. ~9000 start ups incepted between 2014-2019.
2.Xelp focuses on High growth sectors (CAGR > 35-50% since 2014)
Direct equity investing in startups can give manifold returns
Current Startup Investment Sectors:
AI/ML : 27%
IoT : 23%
Big Data Analytics : 21%
Block Chain: 7%
AR/VR : 5%
Drones: 4%
Others: 13%
Financials
Key highlights:
a. 13.6% QoQ increase in Income
b. 258% increase in PAT
c. Debt free
d. Breakeven achieved
f. EBIDTA - 158% QoQ increase and will be positive this year
g. Revenue - 7.5% QoQ increase
h. Continuous increase in Sales.
focused on development, manufacturing and supply of Amino Acids, Nutritional Supplements and Active Pharmaceutical Ingredients (API) for Pharmaceutical, Nutraceuticals and Food industries
listed its shares in the Indian stock exchanges in 2016
manufacturing facilities located in Maharashtra and Gujarat state
four units for APIs/intermediates and one unit for formulation
The company is said to be one of India’s largest manufacturer of vitamin C, which is ascorbic acid, as well as its derivatives.
Clients:
Sun Pharmaceutical Ltd, Pfizer Ltd, Abbott Healthcare and Glaxosmithkline Pharmaceuticals are among its top clients for active pharmaceutical ingredients in the domestic market.
Recent Developments:
Govt. of India has started an anti -dumping investigation into imports of vitamin C from China in the wake of the domestic manufacturers making a case for imposition of the levy.
The company is said to complete the acquisition of “stressed assets” ( which includes factory, industrial land and vacant flats) for 61Cr. from Saraswat Cooperative Bank by October 2020.
Investor Presentation from BSE website for further reading:
Kopran Ltd. is a pharmaceutical company operating both in Formulations as well as API’s. The formulations are manufactured at its plant in Khapoli & API’s are manufactured under its subsidiary Kopran Research Laboratories Ltd at its plant in Mahad. Together on a consolidated basis the Co. has been doing Sales of about 300-400 crs over the last 4-5 years with Profits of around 20 crs in the same period.
On the face of it, nothing very exciting, but taking a closer look at the numbers over the last few quarters suggest that things may be changing here.
The June quarter results brought the Co. into the limelight with a jump in both Sales & profitability at 120.88 Crs & 14.23 Crs. respectively.
The March qtr numbers were pretty good too, if one factored in the notional forex loss of 5.5 Crs in the qtr. The Co. could easily do a PAT of about 45 Crs, net of forex gains / loss with cash profits of about 55 Crs. for the year. The current market cap of the Co. is about 392 Crs.
Numbers aside, with recent tensions with China, the Govt. has decided to give a huge thrust to the pharma sector to reduce our dependence from Chinese imports of APIs. It has announced investments of Rs. 10,000 Crs to incentivize the production of APIs in India. Discussions are on about making this even more attractive to encourage pharma companies looking to relocate from China to set up shop in India.
There has been a lot changing within the Co. over the last few quarters. The Co.’s API facility at Mahad was inspected by USFDA in January 2019 without any observation under Para 483. The Co. had filed the DMF of Atenolol which has been approved by USFDA & the Co. is in the process of commencing supplies of the API Atenolol to the US in the current year.
The Co. has also received the approval of Pragabalin from EU-GMP & will be able to market the API in Europe. Further it has filed for USFDA approval for Pregabalin & Azithromycin.
New products like Nitroxiline & Ticagrelor have been commercialized.
The Co. is gearing up production of both APIs & formulations & expanding its portfolio. The API plant in Panoli in Gujarat which the Co. was trying to acquire got delayed by a year, has finally come about & will give a further fillip to the scaling up of API business.
It is also reliably learnt that the Co. is in advanced stage of closing a couple of deals for contract manufacturing. Mgt has been paring down debt (about 77 Crs as on March 31, 2020) over the last few months. This will further improve the ROCE which based on the current year’s performance would be in the range of about 24% for 20-21.
Concerns: Kopran has been around for as long as I can remember, & has not done anything to write home about in all these years, so could this be a false alarm? Though in all fairness, the Somani family which are the promoters, have been having their own family restructuring & with the ownership issues now settled, the focus can shift back to the business of running the Co.!
The company is one of the largest bulk producers of tea. Value is at almost 1/3 rd of Goodricke.
Went down due to ICD’s given to sister company- Mcnally Bharat. With debt likely to be restructured, and possible PE interest, this stock could really rally. Eveready a sister company, got investment from Burmans and recovered from lows sharply.
The Khaitan family has to protect their family name and reputation, and wont let the company sink. Although many mistakes were made by them.
Apart from this, tea prices are up at the auctions and retail packet prices have also increased, which was a concern for the tea industry for so many years.
Prataap Snacks is one of the top players in the Indian snack food companies in terms of revenue and amongst the fastest growing company in the organised snack market. The company sells its product under the brand name “Yellow Diamond” with diversified product portfolio including traditional and western snacks.
Company products has 4 basket of products, Extruded Snacks, Potato Chips, Namkeen and Sweets. Its product portfolio consists of Extruded Snacks including Puffs, Rings and Pellets products, Chips including fried, sliced chips / crisps, and Namkeen including moong dal, masala or fried nuts, sev and bhujia. Sweets including cup cakes.
In a short time span of 12-13 years the company features amongst the top 5 organised players, and has witnessed its market share catapulting 4x from less than 1% in 2010 to 4% plus in 2018 (Market leader with 100+ years in market - Haldiram has a 20% market share). This is commendable as many of its peers, despite being in the business for over 20-30 years, have failed to transcend regional boundaries.
They were the first company in India that was offering different grammage (grams per packet) in different areas. They were offering a 16-gram Rs 5 pack in Delhi, but a 13-gram pack in Guwahati. When Frito-Lay was offering 22 grams in a Rs 5 pack, Prataap Snacks offered 30 grams for the same amount (offering superior value proposition for price conscious middle-class Indian consumers), which has helped the company to make a mark in this high intensely competitive space. Its pricing strategy pushed several bigger companies to also offer value packs in an effort to stay ahead in the market.
Prataap has a pan-India distribution reach via: (a) three-tier distribution structure of stockists, distributors & retailers. Prataap’s products reach 17 lakh retail touch points (almost 60% of PepsiCo’s and 35% of Britannia’s reach) served by 13 manufacturing plants with a combination of owned as well as outsourcing facilities.
Their revenue share from different regions, East with 34%, west with 30%, north with 25%, south with 11%.
In the last 3 years sales has grown at 15% CAGR.
Future Growth Drivers::
Avadh’s acquisition gives entry in large and fast growing Gujarat market.
Avadh is the fourth-largest player in Gujarat, which is highly regional and with no presence of any national player. On the opportunity dynamics front, Gujarat is home to 4% of India’s population, but consumes ~13% of packaged snacks. We believe, this acquisition is a great fit for Prataap, providing breakthrough in this market.
Avadh has a portfolio of , pellets (fryums) and namkeens which complements the overall portfolio of Prataap.Avadh posted a turnover of around INR 140 crore in FY18, with operating profit stood at roughly ₹ 11 crore.
80% stake in Avadh ws bought for ₹ 148 crore in Aug 2018, remaining 20% stake will be taken after 4 years.Before acquisition, Prataap has no presence in Gujarat,Rajasthan, Maharashtra (big markets for salty snacks), so with Avadh acquisiton, it entered those markets.
This year(FY2020) they made more than 200 crores from Avadh.
Outsourced model to drive higher asset turns and boost ROCE
In the snacks business, particularly chips and extruded snacks, it is imperative for manufacturing facilities to be closer to the market. This is largely to ensure freshness, high fill rate and also control freight cost as chips and snacks being light weight, the transportation cost is high. Hence, a successful pan-India player typically needs several small manufacturing facilities.Hence, Prataap is gearing to expand its manufacturing base via the third-party outsourcing model.Currently, the company has around 13 manufacturing facilities spread across India, of which 5 are owned and balance 8 are outsourced. Contract manufacturing constitutes ~10-12% to total revenue, which is likely to increase to 20-25% over the next 3 years.
Along with lower logistics costs, outsourcing results in lower capex, thus leading to an asset-light model. This yields better margins and asset turns, thereby driving higher ROCE.
Contribution of 3P manufacturing facility in sales increased from 11% in FY’19 to 18% in FY’20.
Key Concerns::
Raw material (key raw materials are palm oil and packaging laminate) forms around 67-68% of the total revenue for a value for money snacks player like Prataap foods. Any continuous upmove in the prices of the key raw materials would lead to impact on the Gross as well as EBITDA margin, impacting the profitability.
This year palm oil prices increased to 90RS/kg, it is why it posted very less margins this year.
Highly competitive space.
Last 5 years Financials::
Narration
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Trailing
Sales
445.61
558.80
757.19
893.95
1,017.35
1,170.61
1,393.79
Expenses
425.41
524.70
700.35
851.79
929.86
1,087.26
1,300.10
Operating Profit
20.20
34.10
56.84
42.16
87.49
83.35
93.69
Other Income
1.19
0.57
-5.41
2.74
7.49
10.81
9.20
Depreciation
11.68
15.34
17.99
25.47
30.42
37.64
61.74
Interest
4.73
6.33
5.88
4.57
2.90
0.86
7.47
Profit before tax
4.98
13.00
27.56
14.86
61.66
55.66
33.68
Tax
-0.40
3.10
0.19
-5.72
17.48
11.02
-13.25
Net profit
5.38
9.90
27.37
20.58
44.18
44.64
46.92
EPS
179.33
330.00
912.33
10.77
18.80
19.00
20.01
Management Commentary::
Aiming for 2000 crores in 3 years. 9 Percent margin in 4 quarters.
Promoters holds 71.5 perc, out of that Sequoia Capital holds close to 48 perc, rest 23 perc is by other promoters.
Malabar fund holds close to 6 perc.
Faering capital holds - 2 perc.
I have read the Offer Document of CAMS and wonder if it is worthy of Investment as it focusses on Mutual Fund and Insurance Industries.
What I have put here is entirely from of Draft red Herring Prospectus as I am not capable enough of my own research. This is just an effort to get views from seniors to see if CAMS could be a long-term Investment candidate.
Computer Age Management Services ( CAMS) is a technology-driven financial infrastructure and services provider to mutual funds and other financial institutions with over two decades of experience.
It is India’s largest registrar and transfer agent of mutual funds with an aggregate market share of 69.4%. Over the last five years, they have grown their market share from 60.5% to 67.6% during March 2015 to March 2019.
Mutual fund clients include four of the five largest mutual funds as well as nine of the 15 largest mutual funds.
The growth in the AUM of mutual fund clients is important as substantial portion of revenues based on Average AUM. Also, they get more fees from equity mutual funds as compared to other categories of mutual funds. The AUM of equity mutual funds serviced by CAMS grew from Rs. 2,180 billion to Rs. 6,701 at a CAGR of 30% from March 2015 to September 2019.
Mutual Fund Industry Overview:
The AUM has risen at a CAGR of 17.4% from Rs. 1.1 trillion as on March 31, 2000 to Rs. 23.8 trillion as on March 31, 2019. Mutual fund AUM as a percentage of GDP rose from 4.3% in financial year 2002 to 12.5% in financial year 2019.
The AUM of equity-oriented funds grew at a CAGR of 39% from Rs. 2.1 trillion in financial year 2014 to Rs. 10.7 trillion for the financial year 2019, whereas the debt segment grew at a CAGR of 9% during the same period.
Individual investors (retail and high networth individuals) AUM outpaces institutional segment. Individual Investors Invest more in equity schemes (68%) vs institutional (14%).
SIP contributions have seen strong growth. Between April 2016 and March 2019, the monthly amount invested through SIPs has risen from approximately Rs. 31 billion to Rs. 80.5 billion or over 150% in absolute terms. Number of SIP Accounts grown 24% to 26.2 million in financial year 2019 from 21.1 million in financial year 2018.
According to CRISIL, the mutual fund industry’s AUM is projected to grow from Rs. 23.8 trillion as of March 31, 2019 to Rs. 54 trillion by financial year 2024, which represents a CAGR of 17% to 19% of which Equity AUM expected to grow 21-23% CAGR.
As on March 2019: HDFC Mutual fund is the largest AMC in terms of its AUMs (14%) followed by ICICI Pru (13.1%) - SBI (11.6%) - Aditya Birla Sun Life (10.1%) - Nippon India (9.6%) - UTI (6.5%) - Kotak Mahindra (6.1%) - Franklin Templeton (4.9%) - Axis(3.7%) and DSP Mutual Fund (3.2%). Top five AMCs have 58.4% Market Share.
There are 3 Mutual Fund Registrar and Transfer Agents Viz. CAMS | Kfin technologies | Franklin Templeton Asset Management.
Among the top five AMCs, HDFC Mutual Fund, ICICI Prudential Mutual Fund, SBI Mutual Fund and Aditya Birla Sun Life Mutual Fund are serviced by CAMS and Nippon India Mutual Fund is serviced by Kfin.
As of November 2019, CAMS serviced Rs. 18.7 trillion of average AUM which constituted approximately 69% of the total mutual fund industry AUM.
CAMS has the highest revenue in the industry and also witnessed the highest revenue growth in the past three years with a CAGR of 20.4% in between financial years 2016 and 2019. For the financial year 2019, CAMS revenue from operations has grown by 8.1% and its EBITDA margins and RoE are better than its competitors. CAMS is the most productive MF RTA with its AUM per branch being the highest in industry.
Apart from Mutual Fund Houses, CAMS provides services to Insurance Companies with its division CAMS Insurance Repository Services. Insurance repositories act as a single stop shop for policy servicing for e-insurance policies.
Currently, there are four Insurance Repositories. Out of 1247475 E-policies - Market share of:
NSDL Database Management 45%
CAMS Insurance Repository 39%
KARVY Insurance Repository 11%
Central Insurance Repository 6%
(As on September 2019)
Other than above CAMS has:
Electronic payment collections services business.
KYC registration agency business
Software solutions business where it develops software for in-house mutual funds services business and for other mutual fund companies.
I did not read much into other business as Almost 87% of the revenue comes from mutual funds services business.
PROMOTERS:
Great Terrain is the Promoter of CAMS based out of Mauritius.
Great Terrain held 100% by Harmony River Investment Ltd, Mauritius.
Harmony River Investment Ltd is directly owned by certain private equity funds managed by Warburg Pincus LLC, New York.
This promoter of promoter of promoter type holding - could it be a problem in future (Thinking of GMM Pfaudler!)
I am surprised to know that CAMS Identifies - HDFC, HDFC Bank, Acsys, NSE, NSE DAL, NSECL and NSEIL as the group companies
Financials:
Not much data available as it’s a new listing:
As on March 31, 2019 they generated a revenue of 694 Cr - Operating profit of 201 Cr @ 29% margin and PAT of 131 Cr.
Interesting that CAMS gives out Dividend payout @ 65% which they intend to continue.
Risk Factors:
Almost 87% of revenue generated from mutual funds services business. Decline AUM of Funds could adversely impact revenue and profits.
Client concentration risk as TOP 5 client contribute 65% of revenue.
Regulatory Action Risk.
With my limited knowledge, I may not be able to answer any queries other than just hitting LIKE button
Disclosure - I have taken a tracking position - looking forward to inputs from ValuePick’rs to add more.
Thanks.
To my surprise there isn’t a separate topic for India’s largest pharma company. Though it is out of flavor in the current run up of Pharma/API in last few months. Let’s begin about future prospects and key challenges ahead of this company, will it able to regain its past glory? Key issues:
Halol plant is still to get clean chit from US FDA
Are corporate governance issues behind the company
Outlook of specialty generics in US markets and pricing pressure
Geography
Revnue Mix
Rs Billion
Change vs P/Y
USA
33%
105
-1%
India
30%
97
32%
ROW
14%
45
31%
Emerging
17%
55
3%
API
6%
19
11%
2019-20 EBITDA 65 Billion INR
Market Cap 1200 Billion INR
. I don’t mind deleting this post.
