Riddhi Siddhi Gluco Biols Ltd.
Riddhi Siddhi Gluco Biols is the largest producer of Starch & starch derivatives in India. The company has a market share of more than 25%.The most interesting thing about the growth of this company is – the promoters have build everything in just 20 years. They started from scratch in 1990 and today they control 25% market share and do a turnover of 750 Cr+. They now have three strategically located plants spread across different areas so that they can cater to customers across the County in the most efficient manner.
Starch & starch derivatives find application in diverse industries like – Paper, Textile, Pharmaceuticals, Adhesives, and Confectionery etc. Hence the characteristics of this industry is more like FMCG industry i.e.. the demand is ever increasing. The industry is expected to grow @ 15%+ for next few years. Riddhi Siddhi has been growing consistently with CAGR of 30% for last 5 years.
In India the per capita consumption of Starch is quite low as compared to the developed nations. The consumption is picking up every year. Another opportunity area is – as of now only 40 types of applications are done with Starch in India, while worldwide more than 1000 applications are there. So the company has a potential to do lot of value addition and grow.
If one analyses the past 10 year track record of the company, the company has had a wonderful CAGR of 27.58%. Very few companies can claim such growth rates. Operating profits & Net Profit CAGRs are even better.
A close look at the Balance Sheet of last ten year also gives some interesting insights –
- The company had been growing by way of debt till the year 2005 and the balance sheet was quite leveraged. Debt equity was as high as 3.62.
- In 2006, the company got equity participation from one of the biggest company in this business – Roquette. The French major took a 15% stake in the company.
- Since then the debt problems reduced and the debt equity ratio has been steadily decreasing. The debt equity ratio is now expected to be close to 1 now.
In year 2008 & 2009, the company had a couple of tough years. Since then the company has been witnessing strong topline and operating margin growth. They have been using the cash flows in expanding the swiftly reducing the debt to make the Balance Sheet stronger. In 2009 & 2010, due lower interest costs, the increased operating profits are making direct impacts at Net Profit levels. This trend is expected to continue.
People feel that this business is cyclical. But a closer analysis of P/L for last 10 years reveals that the margins remain between 13-16%. So we should use these margins for calculating the fair value.
Valuations:
- For Year 2011, we expect the company to do a turnover of close to 900 Cr.
- At operating margins of close to 15%, the company may be able to post a Net Profit of 60-65 Cr, resulting into an EPS of 53-58.
- At CMP of 285, the stock is available at a forward PE of less than 5.50
- The company has a strong BV of 175.
- Company has paid a dividend of Rs 5/share.
Trigger:
There were recent articles in media that the French partner of the company – Roquette (already holding close to 15%) wants to increase its stake to 51%. If so, it could lead to value unlocking and better future prospects.
Good articles
“Dumbo could fly because he was a baby elephant. Adult elephants are aerodynamically unsound.” – Ralph Wanger in reference to preferring Small Cap Stocks over the Large Caps in “A Zebra in a Lion Country”
Here we are again to share some newspaper articles and blog posts we liked specifically.
1) When – How – What of Small Cap Stocks (Economic Times):
Finding the right small cap is one of the best way to wealth creation. The reasons is simple – they are usually available at 1/3rd the valuations of large caps with better to double growth rates. Also like the hugely successful small cap fund manager Ralph Wanger says – “Chances are, things have changed enough so that whatever made you a success thirty years ago doesn’t work anymore. I think that by concentrating on smaller companies, you improve your chances of catching the next wave.”
2) Investing in stocks is the best bet to beat inflation (Business Line):
A nice comparison of the returns provided Sensex, Gold Bonds and Fixed deposits and as expected, investing in stocks proves to be the best way to beat the inflation.
For over 25 years we have been working on this concept with a continuous effort towards finding a good undervalued small/mid cap stock ideas with strong fundamentals. We share about such ideas to have healthy discussions and connect to people with the similar approach.
Online links to both the above articles are – ET article & Business Line article.
3) Alice Schroeder (author of Snowball – the authorized biography of Warren Buffett) discusses Buffett’s approach towards investment
In the video Alice Schroeder takes us to a journey using a specific case study which was not discussed in the book.
Thanks to Pradeep for sharing the above video on his wonderful blog.
Do share your favorite articles through comments.
Camphor & Allied Products
Camphor & Allied Products is a pioneer in the field of Terpene Chemistry with technology from Dupont, USA. The products of the company are Synthetic Camphor, Terpineols, Pine Oils and Resins etc & they find application in Fragrance, Pharmaceutical, Soap & Cosmetics & Varnishes Industries. CAPL has two plants – first at Bareilly, UP & second at Baroda, Gujarat. CAPL also has a dedicated in-house Research Center.
CAPL has been witnessing major change in the performance and profitability since the change in the management in 2008. The company was taken over in 2008, via stake purchase and open offer @ Rs 167/share.
The new promoters are leaders in fragrance industry – Oriental Aromatics Ltd. Since then the turnover has increased from 105 Cr to 165 Cr and NP from 0.49 Cr to 10.18 Cr, yet the stock is available at Rs 100 only.
Attractive Valuations:
- The stock is available at 20% discount to its BV of 125
- Stock is trading at just 5 PE
- At CMP of 101, the M Cap is just 51 Cr. Operating profit is close to 20 Cr.
- Another compelling factor is the discount to the open offer price at which the company was taken over earlier.
Looking at the quick turnaround, much better revamped websites, strong tax pay-outs, the new promoters seem to be quite capable & honest. If the company continues the good performance, the stock should be prove to be an excellent long term investment and wealth creator.
Company’s Website: http://www.camphor-allied.com
Shakti Met Dor
When I first looked at this company 3-4 years back, I couldn’t believe that selling doors could be a highly profitable and organised business.
Yes, SML is a Hyderabad based company which specializes in Special steel Doors & Windows. The company has quickly scaled up from about 7 Cr turnover in 2002 to 80 Cr in 2010. SML caters to diverse industries like Pharma, IT, Hotels, Construction sector, embassies etc. Do make a visit to their website and one will instantly feel the quality and difference the company has. Visit to their Gallery section, speaks highly about their association with leading architects and contractors like L&T etc. They have experience of handling large prestigious projects like – Hyderabad Airport, Reliance Petroleum, TCS IT Parks etc.
A look at the numbers and other ratios between years 2002 – 2008
- Was growing rapidly @ 47% CAGR
- Had excellent operating margins consistently > 25%
- Has had an track record of excellent ROCE in the range of 40-50%+
- The business doesn’t involves lot of investment in Fixed Assets, Inventory and debtors.
- The company has mostly carried moderate debt.
To repeat the above growth the company had carried out an ambitious plan to triple it’s production capacity and introduce new products. The expansion was funded through internal accruals and debt. To scale up, the company also opened offices in every metro. Year 2009 & 2010 were tough years for the company as capital expenditures and opening of new buildings had slowed down…hence the nos of these years don’t look good. Yet the company was profitable in these two years.
If one looks at the last two quarterly numbers of the company, the company has done 23 Cr for Q3 & 34.33 Cr for Q4. The sales seem to be coming back and company seems all set to reap the benefits of the expanded capacities.
In last few months the promoters have increased their stake through an open offer @ 180.
As per a latest announcement on BSE, the company has intended to delist the shares from BSE. Currently the promoters are holding 56% share and would need to buy 44% of additional shares. It won’t be an easy task and if promoters are serious to de-list, lot of value-unlocking may take place.
Welspun Syntex
Welspun Syntex Ltd (WSL) is part of the reputed B K Goenka group (Welspun Gujarat). WSL is one of the largest exporters of Polyster Textured Filament Yarn from India. The company has two plants located at – Silvassa and Palghar, Thane.
Interesting points to note are:
- The company is doing a turnover of approx 400 Cr while the Mcap is just 35 Cr.
- The company is profitable and posted an Operating profit of 27.12 Cr and NP of 7.13 Cr in FY 2010.
- The company has restructured itself well over the years. The company had reduced the equity capital by 3/4th to make the Balance Sheet stronger in 2008.
- Now the company is trying to reduce debt .
- Company has a huge gross block of almost 300 Cr with an accumulated depreciation of almost 200 Cr.
Interestingly as the company has high turnover and comfortable debt position now, they can spend more on the modernisation and technology front to improve the operating margins of the company which are just 7-8% as compared to 12-13% of JBF Ltd. If done, it will have a huge positive effect on the fortune of this company.
Hidden trigger is that most of the equity is held by Promoters and Financial Institutions. Promoter’s holding is 37.69% & FIs holding is – IFCI 33.62%, IDBI Bank 6.19% and LIC 1.59%. Change of hands could be a major trigger in the stock.
Valuation @ Rs 15:
- M Cap to Sales ratio is just .08 times.
- Book Value = 21.60
- TTM PE = 5
We view this small cap stock idea as an interesting long term turnaround story where the possibilities of value addition are huge.
Majestic Auto – Performance Updates
We had recommended Majestic Auto here at just Rs 60/- (then at approximately at 80% discount to its value of investments). The stock has been hitting upper circuits for last few days and is trading @ 138.75 now.
The valuation gap discussed earlier has now reduced to approx 52% now from 80% earlier. We would recommend investors to book profits at current levels and upsides.
The other stock idea on the similar concept is – BNK Capital. We had discussed the same at our blog here. BNK capital is still available at more than 75% discount to NAV value.
Best articles during the week
“I read about eight newspapers in a day. When I’m in a town with only one newspaper, I read it eight times”. - Will Rogers
Most of our investment ideas come small corners of the daily newspapers or the weekly magazines (or some interesting blogs). We often come across some interesting articles feeling an urge share with our readers too. So we will often compile (mostly weekly) these interesting articles and share the same here.
1. Gas Sector – Huge Potential ahead
It was an interesting article in Business World magazine on the Gas Troubles in India and the potential ahead. “9% Energy needs met by gas in India, while 24% is the world average”.
Arundhati Prasad, 36, who lives in the outskirts of Patna, has to queue up in front of a liquefied petroleum gas (LPG) agency’s office to get a cylinder of gas. Now compare Prasad to Mohammad Ali Bhatti of Dera Baba Bhuman Shah village in Pakistan’s Okara district: in addition to the gas used for cooking in his kitchen, everything from the refrigerator to lamps in the Bhatti home run on natural gas.
There are various charts, tables which provide a lot of understanding on this sector.
2. India’s Best Market Minds (19th March ‘ 10 Issue of Outlook Profit)
It was a really good compilation by Outlook Profit with the warm interviews of the “India’s Best Market Minds” including Jhunjhunwala, Sanjoy Bhattacharya, Prof. Sanjay Bakshi and many more .
While all the interviews are not available online, you can read the interview of Prof. Sanjay Bakshi and Abhay Aima online.
3. Poly Medicure Media Updates (in Business Standard, Hindu & Financial Chronicle)
We have discussed on this company couple of times here and here. The stock has been doing well and getting attention of investors.
The company has provided some updates in the media recently about the expansion plans.
4. India Motor Parts & Accessories Ltd (IMPAL) – by Siddharth Shukla
Siddharth has done a good detailed work on the stock. IMPAL has come out with good Q4 numbers and the stock shot up by 20%.
We will be sharing more interesting articles and blog posts regularly.
Also, we have come upon with a new commenting system powered by Disqus to have more better conversations. So, do leave a comment and feel free to share your favorite articles.
Gujarat Reclaimed Rubber Products (GRRPL)
Rubber recycling looks like a good business – as it is both profitable and eco-friendly. Given the rising prices and supply limitation of natural rubber, usage of reclaimed rubber is more economical (costs Rs 40/Kg) and bound to increase. Add to it the opportunity to expand this business. There was an article which highlights the opportunity for this sector – thanks to addition of almost 33 million vehicles in last 3 years in India.
GRRPL has established a nice for itself and has become the largest reclaim rubber manufacturer in Asia. GRRPL is one of the most organised and technologically advanced company in this sector. The company has been manufacturing one of the widest range of reclaimed rubber with highest quality parameters and exporting almost 60% of its production. GRRPL has the technical expertise to offer machinery and technical know how to manufacture reclaimed rubber.
Lets look at their track record:
- Grown sales from 15.5 Cr in 2001 to 130 Cr in 2009. i.e.. at CAGR of 30%
- Grown Net Profit from 0.68 Cr in 2002 to 13.54 Cr in 2009. i.e.. at CAGR of more than 50%
- Has been a regular dividend paying company. Has been maintaining a dividend pay-out ratio of close to 18-20%
- High tax paying company.
- First to implement customised SAP in the industry.
Company has had good profitability and other ratios:
- Co has maintained high ROCE – almost 40%.
- Co enjoys healthy operating margins of 18-22%.
- Co has good control over inventory, debtors and debts.
- Cash Flows are positive.
- Company had a Book Value of about 320 as on 2009. It should be close to 400+ as on 31.3.2010
Promoters:
Promoters seem to be honest, educated and highly capable people who have a strong value system and are there to create value in long run.
Valuations:
The company has a tiny equity of just 1.33 Cr. Till 3 months back, the stock was traded in “Z” group and in lot of 50 hence many investors didn’t had access to buy the stock even though they liked this company. Now the stock is in B group.
At CMP of close to 875, the company trades at 8 times FY2010E earnings and 4 times EBITDA margins.
It would be tough to find quality companies at less than 10 times PE with following advantages:
- Leadership position in their business segment
- Consistent high ROCE of 30%+
- Consistent good dividend pay-outs
- Consistent growth in past years with CAGR of 30%+
The company is in process of expanding its capacity and should create new records in terms of turnover, profitability and market-share. One may do well by accumulating the stock on declines with 2-3 yr perspective.
Company Website | Snapshot of Financials and Projections
Our stocks in Media
Usually most of our discussed stocks are mid-caps whose merits are generally unknown to the masses. Whenever there is coverage of these stocks by Media…they get due attention and often do well. Some of our stocks got wide coverage in last few days:
1. Asian Hotels:
Will Asian Hotels’ shareholders gain after its demerger into three separate companies? Recently, the company split into three different entities — Asian Hotels (North), Asian Hotels (West) and the Asian Hotels (East). Right now, only Asian Hotels (North) is being traded on stock exchanges, and going by its current market capitalisation, the gains to shareholders look uncertain. The other companies are awaiting regulatory approvals to list next month
http://economictimes.indiatimes.com/articleshow/5829815.cms?frm=mailtofriend
We had covered the demerger story at our blog here and covered the demerger impact here. One of the demerged company – Asian Hotels (N) has already got listed and given better than expected returns.
Our View: The above economic times article is very well highlighting the reasons why this demerger is creating value. We do expect the other to companies to list well and provide better gains than the calculations done at our blog earlier.
2. Shilpa Medicare:
The bulls have taken fancy to the Shilpa Medicare — a small-sized pharma company. Its price made a record intra-day high of Rs 362.50 on Tuesday after rising by more than eight times over the past one year. News of financial institutions buying a small stake in the company along with a dilution by the promoters has fuelled the recent rally in the stock.
We have covered Shilpa Medicare several times at our blog. Initially it was covered at Rs 80 here.
Our View: As the article points out – the stock is not cheap, yes we agree but we also believe that good stocks don’t trade cheap 
It would be tough to find a company having leadership position in Oncology segment, having operating margins of 30%+, growing at 45% CAGR available at less than 20 times PE. Infact if one takes a close look at last two quarterly nos of the company, the stock is trading at just 15-16 times annualised earnings.
Also if one increases the outlook to more than 1-2 years, the company has a good future. They are putting up new capacities and plan to double their turnover in 2 years.
3. Jaihind Projects:
We had first covered this company at our blog at about Rs 90 here. The stock has done exceeding well and has created a new all time high of 265 today. The company has been getting coverage on various business channels and people our discovering the underlying story.
4. Balkrishna Industries (Update):
Balkrishna Industries Limited (BKT) specialises in the production of tyres for off-road applications, including agriculture, industry & construction, earthmoving equipment, ATV and lawn & garden vehicles. http://www.tyrepress.com/News/77/19257.html
Our View: This is one company which has a fantastic track record and aims to be a 1 billion dollar company by 2015, which is quite possible looking at the business model of this company. In long run, the stock can give superb returns if they continue to grow as per their plans.
We believe that for better wealth creation investors should keep looking for undervalued and growth oriented stocks and invest in them at an early stage. This is the place where maximum wealth is created. We have been continuously working on this area. Would request the readers to keep exchanging ideas and keep spreading the logics to other investors.
Three cheers for Shilpa Medicare
Shilpa Medicare has made a new high at 345 today. We had initially discussed the stock on our blog here on 26th July, 2009 when the price was Rs 80. Hence the stock has given a gain of 331% in less than 1 year . The stock is now a 10 bagger from March lows.
The stock has been witnessing a lot of fund action, Reliance Capital has bought 4.50 lac shares yesterday @ 285. Earlier ICICI Prudential had bought 9 lac shares.
The interest in the stock is logical due to the fantastic financial performance of the company and the bright prospects ahead. The Oncology business will remain to be the fastest growing segment for next 4-5 years and Shilpa is the largest standalone (not for captive use) Oncology API manufacturer in India. The company targets to be a 500 Cr turnover company in next 2 years.
Such successes are possible only due to active participation, discussion and feedback of our readers, investors and friends. Look forward to you support and views.
Regards,
