@rk1771 wrote:
Recently I come across Sirca Paints India Limited.
The company is involved in distributing and selling wood coating/finishing products. They have a tie-up with Sirca, Italy; import their products and sell it in India. Last three year results shows;
|Financial Year| 2016-17|2017-18|2018-19|
|Revenue (Cr.)| 84 93 131
|OPM %| 24 27 24
|Net Profit (Cr.)| 14 19 22It can be seen that sale is increasing at a decent pace, and the company is maintaining a healthy margin. The imported products are high-end products.
Earlier the company was an importer and seller of products, imported from Sirca SRL Italy. Sirca SRL is also a minority shareholder in Sirca Paints India Limited.
The company has a 2-decade-old relationship with Sirca, Italy. The company has entered into a Manufacturing License Agreement, in 2018, with Sirca S.p.A pursuant to which the company is setting up a manufacturing plant to manufacture paints in India, under the mark “SIRCA”. Sirca S.p.A is also providing the technical know-how for the upcoming manufacturing facility. The company has also entered into a Distributorship agreement pursuant to which we have received exclusive selling rights for Sirca products in India, Sri Lanka, Bangladesh, and Nepal. The manufacturing facility was expected to start in September 2019. Management has guided that on full capacity, it shall add around 225 crores to the topline.The manufacturing facility will not replace the sale of imported products, it shall add new product line. The trial run for the new facility has started. In q4 results, we may see some addition to the top line through the manufacturing facility. On a 30% capacity utilization, in the next financial year, the new facility can add substantially to the top line.
The company has primary sales and distribution strength in north India. They are increasing the sales network in other parts of India. Lately the company has also added new products like wall paints in their sales portfolio.
Investment Thesis:
(i) We may see substantial sales growth in the next couple of years. Sales of imported products are growing at a decent pace of 20% and likely to continue in the future. The addition of new products through manufacturing pipeline will add 250 crores in topline in 2-3 years. The addition of new products and expanded distribution will add to the sales.
(ii) The company is likely to maintain its OPM going forward. OPM on the imported products should increase marginally with higher sales. Even if the manufactured product has a lower OPM, on the whole, they can attain 20-22% margin.
(iii) The company has a strong balance sheet with almost zero debt. Not much capital required going forward.
(iv) Company has done 80 Cr. topline and 15 Cr. Net profit in H1 2019-20. With some effect of new manufacturing facility/distribution reach coming in H2; I expect 35 crores profit for 2019-20, resulting in eps of 12 rupees.
Valuation:
Presently the company is valued around 700 crores; at a PE of around 23. In 3 years, when the effect of all these changes may come; the company may be doing a topline of 500 crores with net profit of 100 crores. Looking forward, the valuations look reasonable.
[Disclosure- Invested].
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