SEL Manufacturing. That’s the name of the company which I think is a wonderful investment opportunity at the current price levels.
Current price: Rs 72.55
Price target: Rs 350
Time period: 2 years
This one was a very easy pick. A screaming buy. Lets look at the financials so that we have an idea as to what the company is performing like
Mar '05 Mar '06 Mar '07 Mar '08 Mar '09 CAGR
Net Sales 64.31 121.56 188.84 366.83 606.53 75%
Profit after tax 3.33 14.64 23.60 44.85 54.78 101%
No of shares (cr) 0.02 0.98 0.98 1.52 1.72
EPS (Rs) 168.72 14.92 24.04 29.48 31.91
Book value (Rs) 4,682.52 110.86 135 142.81 183.88
Reserves (in cr) 92.33 99.01 122.71 202.08 298.49
During the period FY04 to FY09 sales have grown from Rs 64.31 crores to Rs 606.53 crores which is approximately a ten fold increase or a 75% CAGR. Correspondingly the PAT (Profit after tax) has also grown from Rs 3.33 crores in FY05 to Rs 54.78 crores in FY09 which is again a CAGR of 101%. However the EPS has not increase in that proportion. That is because the equity base has been expanded. And the reason is simple - for expansion.
There is more to it. During current year FY10 sales are Rs 471.91 crores and net profit Rs 38.41 crores. EPS is Rs 20.16. Just look at the FY09 numbers again and you will understand what stupendous growth this company is showing. Assuming the H1 FY10 performance is maintained during H2 FY10 we would be looking at an EPS of close to Rs 40. At current market price of Rs 72.55 this translates into a PE multiple of less than 2.
Still not convinced. Let me give you some more pointers. Exim bank has a 5% stake in the company since July 2007. (Check this link)
So what are the concerns. It has an ever growing debt in its balance sheet. At the end of FY09 the overalll debt stood at Rs 623.71 crores. Interest payment of Rs 37.77 crores. Highly leveraged company but considered the growth rate it seems quite justified.
We have seen a lot of companies with high debt but this one is different. Its a company with phenomenal growth rate. Unless ofcourse the numbers are fudged. Thats a caveat.
However if the growth is true which I believe is the case (remember Exim bank is a 5% stake holder) then we are looking at a phenomenal company at almost throwaway prices. Limited downside and upside on a conservative basis of atleast 5 times.
Think about it.
Thursday, December 17, 2009
Wednesday, December 2, 2009
Sumeet Industries - multibagger
While browing through the results of some companies I came across this interesting company called Sumeet industries. Out of the glare and glitz of the broader market this company is expanding massively. And the good thing is that its expansion is likely to be completed by the end of 3rd quarter. Thus the results for 3rd and 4th quarter of FY10 is going to be substantially higher.
Current price : Rs 14.98
Target price : Rs 75
Period of holding : 1 year
Lets see what the company is trying to do.
Sumeet industries is a manufacturer and exporter of polyester and polypropelene yarn and woven fabric. Key financial data is shown in the table below.
(Amount in crores)
Particulars 2008-09 2007-08 2006-07 2005-06 2004-05 2003-04 CAGR
Sales 157.79 128.51 112.49 82.19 34.90 34.24 36%
PAT 3.82 3.67 3.36 0.85 0.90 0.82 36%
PAT % 2% 3% 3% 1% 3% 2%
EPS 0.95 1.82 1.93 0.49 0.78 0.7
No of shares 3.99 2.51 2.24 2.24 1.66 1.66
(in crores)
During the period FY04 to FY09 sales have grown from Rs 34.24 crores to approx Rs 157.79 crores which is approximately a five fold increase or a 36% CAGR. Correspondingly the PAT (Profit after tax) has also grown from Rs 81.56 lacs in FY04 to Rs 3.81 crores in FY09 which is again a CAGR of 36%. However the EPS has not increase in that proportion. That is because the equity base has been expanded. And the reason is simple - for expansion.
It has setup fully imported C.P. PLANT of 100000 Tons per annum capacity and this has started operations from the 1st of July 2009. It is also setting up a 10’ lines of Polyester POY / FDY Spinning Plant with annual installed capacity of 48300 Tons per annum as Expansion Cum Backward Integration Project. This is expected to be operational by the end of 3rd quarter FY10. You must be wondering what do these expansion mean.
a) Using the CP plant pet chips which were earlier bought from the market will be produced within the company which will reduce cost substantially and will also be very much competitive and the company will be in a position to compete in the market in its price strategy with its peer group.
b) The polyester capacity that the company currently has is 12500 Tons per annum. So the expansion means a fourfold increase in capacity.
So atleast a fourfold increase in profits is what we can safely assume only from the capacity expansion. Also as per last financial years accounts raw materials consumed is approx 61% of sales. Thus even if we assume a 10% decrease in cost due to CP plant the net profits are likely to increase quite substantially. Even on a conservative basis its truly a 5 bagger atleast in the next 12 months.
Current price : Rs 14.98
Target price : Rs 75
Period of holding : 1 year
Lets see what the company is trying to do.
Sumeet industries is a manufacturer and exporter of polyester and polypropelene yarn and woven fabric. Key financial data is shown in the table below.
(Amount in crores)
Particulars 2008-09 2007-08 2006-07 2005-06 2004-05 2003-04 CAGR
Sales 157.79 128.51 112.49 82.19 34.90 34.24 36%
PAT 3.82 3.67 3.36 0.85 0.90 0.82 36%
PAT % 2% 3% 3% 1% 3% 2%
EPS 0.95 1.82 1.93 0.49 0.78 0.7
No of shares 3.99 2.51 2.24 2.24 1.66 1.66
(in crores)
During the period FY04 to FY09 sales have grown from Rs 34.24 crores to approx Rs 157.79 crores which is approximately a five fold increase or a 36% CAGR. Correspondingly the PAT (Profit after tax) has also grown from Rs 81.56 lacs in FY04 to Rs 3.81 crores in FY09 which is again a CAGR of 36%. However the EPS has not increase in that proportion. That is because the equity base has been expanded. And the reason is simple - for expansion.
It has setup fully imported C.P. PLANT of 100000 Tons per annum capacity and this has started operations from the 1st of July 2009. It is also setting up a 10’ lines of Polyester POY / FDY Spinning Plant with annual installed capacity of 48300 Tons per annum as Expansion Cum Backward Integration Project. This is expected to be operational by the end of 3rd quarter FY10. You must be wondering what do these expansion mean.
a) Using the CP plant pet chips which were earlier bought from the market will be produced within the company which will reduce cost substantially and will also be very much competitive and the company will be in a position to compete in the market in its price strategy with its peer group.
b) The polyester capacity that the company currently has is 12500 Tons per annum. So the expansion means a fourfold increase in capacity.
So atleast a fourfold increase in profits is what we can safely assume only from the capacity expansion. Also as per last financial years accounts raw materials consumed is approx 61% of sales. Thus even if we assume a 10% decrease in cost due to CP plant the net profits are likely to increase quite substantially. Even on a conservative basis its truly a 5 bagger atleast in the next 12 months.
Sunday, November 15, 2009
Sakthi sugar - FCCB conversion
Since my last post Sakthi sugar is still underperforming the markets. On the other hand Dhampur sugar which came out with good results was the star for the week. A reason some of my friends feel for its underperformance is the huge amount of debt it is carrying in its books. A large portion of the debt is on account of the FCCB issued by the company in 2006 (Check BSE)
However since my last post some key events have taken place in respect of these FCCBs which is a significant positive for this stock. Before we get into that its important that we understand what an FCCB is.
In a nutshell an FCCB is a bond issued to garner funds from outside India in foreign currency. Largely because the cost of debt is much lower. However the only difference between a normal debt and FCCB is that here the investor gets an option to convert his debt into equity at a predetermined price. Depending on the price of the share at the conversion point and the potential to give returns it may decide to exercise or not exercise the option. In light of this lets look at what has happened in the board meetings held on 7th November 2009 and 14th November 2009 where FCCBs were converted into equity.
Outcome of board meeting on 7th November 2009.
Name of the Allottee : Apollo Asia Opportunity Alpha (Mauritius) Ltd
- Number of Shares allotted : 2,36,263
- Series of FCCB : B
- Value of FCCB converted : USD 1,000,000
- Conversion Price per share : Rs 190.00
Outcome of board meeting on 14th November 2009.
1.Name of Allottees : JP Morgan Mauritius Holdings Ltd.
- number of Shares allotted : 8,63,269
- Series of FCCB : A
- Value of FCCB converted (in US$) : 4,000,000
- Conversion Price per Share (in Rs.) : 208.00
2. Name of Allottees : Goldman Sachs Investments (Mauritius) I Ltd.
- number of Shares allotted : 86,326
- Series of FCCB : A
- Value of FCCB converted (in US$) : 400,000
- Conversion Price per Share (in Rs.) : 208.00
3. Name of Allottees : Morgan Stanley Mauritius Company Ltd.
- number of Shares allotted : 86,326
- Series of FCCB : A
- Value of FCCB converted (in US$) : 400,000
- Conversion Price per Share (in Rs.) : 208.00
4. Name of Allottees : Morgan Stanley Mauritius Company Ltd.
- number of Shares allotted : 3,54,394
- Series of FCCB : B
- Value of FCCB converted (in US$) : 1,500,000
- Conversion Price per Share (in Rs.) : 190.00.
So what has happened is that approximately Rs 32.77 crores of debt has been converted into equity at an average price of about Rs 200. It has also increased the number of equity shares by about 16 lacs.
Now its worthwhile pondering as to why these FIIs have decided to convert there debt into equity at a hefty premium of more than 100% to the current market price. In light of the discussion above I guess you should be in a position to take a decision. An informed decision.
Sakthi sugar remains a strong buy.
Happy investing
However since my last post some key events have taken place in respect of these FCCBs which is a significant positive for this stock. Before we get into that its important that we understand what an FCCB is.
In a nutshell an FCCB is a bond issued to garner funds from outside India in foreign currency. Largely because the cost of debt is much lower. However the only difference between a normal debt and FCCB is that here the investor gets an option to convert his debt into equity at a predetermined price. Depending on the price of the share at the conversion point and the potential to give returns it may decide to exercise or not exercise the option. In light of this lets look at what has happened in the board meetings held on 7th November 2009 and 14th November 2009 where FCCBs were converted into equity.
Outcome of board meeting on 7th November 2009.
Name of the Allottee : Apollo Asia Opportunity Alpha (Mauritius) Ltd
- Number of Shares allotted : 2,36,263
- Series of FCCB : B
- Value of FCCB converted : USD 1,000,000
- Conversion Price per share : Rs 190.00
Outcome of board meeting on 14th November 2009.
1.Name of Allottees : JP Morgan Mauritius Holdings Ltd.
- number of Shares allotted : 8,63,269
- Series of FCCB : A
- Value of FCCB converted (in US$) : 4,000,000
- Conversion Price per Share (in Rs.) : 208.00
2. Name of Allottees : Goldman Sachs Investments (Mauritius) I Ltd.
- number of Shares allotted : 86,326
- Series of FCCB : A
- Value of FCCB converted (in US$) : 400,000
- Conversion Price per Share (in Rs.) : 208.00
3. Name of Allottees : Morgan Stanley Mauritius Company Ltd.
- number of Shares allotted : 86,326
- Series of FCCB : A
- Value of FCCB converted (in US$) : 400,000
- Conversion Price per Share (in Rs.) : 208.00
4. Name of Allottees : Morgan Stanley Mauritius Company Ltd.
- number of Shares allotted : 3,54,394
- Series of FCCB : B
- Value of FCCB converted (in US$) : 1,500,000
- Conversion Price per Share (in Rs.) : 190.00.
So what has happened is that approximately Rs 32.77 crores of debt has been converted into equity at an average price of about Rs 200. It has also increased the number of equity shares by about 16 lacs.
Now its worthwhile pondering as to why these FIIs have decided to convert there debt into equity at a hefty premium of more than 100% to the current market price. In light of the discussion above I guess you should be in a position to take a decision. An informed decision.
Sakthi sugar remains a strong buy.
Happy investing
Friday, November 6, 2009
Multibagger in sugar sector - Sakthi sugar
We are often too engrossed in finding unique companies which could become multibaggers. As a result what we miss out on are companies which are there in front of us shouting out that they are multibaggers but we do not believe them.
One such company is Sakthi sugar.
Current price : Rs 94
Price target : Rs 500 for a period of 1 year
Let me get to the numbers straight away.
Company Last Price M Cap.(Rs cr) Sales Net Profit
Shree Renuka 211.35 6,697.68 1,815.20 92.7
Balrampur Chini 147.35 3,783.29 1,117.24 193.95
Bajaj Hind 213.20 3,770.59 1,794.35 -50.17
EID Parry 318.90 2,751.08 812.27 691.96
Triveni Engg 104.30 2,689.69 1,596.52 111.52
Bannariamman 1,207.45 1,381.32 711.06 119.83
Dhampur Sugar 119.5 629.84 694.58 3.6
Andhra Sugar 120.05 325.42 602.9 45.69
Sakthi Sugars 93.5 293.34 1,172.48 -79.55
The sales turnover, net profit and total assets figure is as per the last annual accounts whereas the last price and market cap is as on 6th November 2009. The last annual accounts for Sakthi sugar was for a period of 18 months ended Dec 08.
Lets look at the performance of the company since then which is a period of 9 months.
9 months Annualised
Total income (Rs crore) 924.68 1,233
Net Profit (Rs crore) 97.4 130
No of shares (Rs crore) 3.137 3.137
EPS in Rs 31.05 41.40
Lets look at its comparative position against the performance this year.
For a company which is going to have a turnover more than Rs 1200 crores and a net profit of Rs 130 crores the market cap is only Rs 294 crores. Surprised. So was I. And if you look at the difference between the marketcaps of Sakthi and its peers the astonishment only grows. It should be a 5 bagger if not more.
Lets now look at Sakthi from the view of its profitability going forward.
That there is a likely to be a shortage of sugar in the near future is now common knowledge and the price of sugar is likely to be in the range of Rs 35 to 50 as per different estimates. So every sugar company is going to do well. However Sakthi should do better than its peers because of the following reasons.
1) Unlike in UP the buying of cane is not so much politicized in Tamil Nadu
2) Sakthi is also a refiner and so can continue producing sugar all throughout the year. Even when the crushing season ends in UP and Maharastra. This it can do by using the imported raw sugar.
3) This bring us to the question of how much imported raw sugar is available to Sakthi and at what price. According to news on the web it has contracted for 90 lac bags of raw sugar (90 crore kgs) at an approx price of Rs 20 per kg. Out of this only 100000 kg has been used by Sakthi sugar till September 2009. (See interview of MD – Sakthi sugar to verify facts)
4) Assuming a conversion cost of Rs 5 per kg and a sale price of Rs 31 the maths becomes quite simple. That is a whopping Rs 540 crores profit from the processing of raw sugar itself over the next 18 months. And it also has crushing capacity of 18500 tonnes per day plus income from power generations and alchohol. Huge is what you are thinking. Yes you are right. It is huge.
Lets look at some other developments and its impact.
a) The auditors have pointed out non provision of interest of 56 crores for the period of 9 months to which the company states that it has not provided for the same since it has gone through Corporate debt restricting process.
Impact
The interest is likely to be a reduced amount and in light of what has been discussed above should not be of any problem to the company.
b) The company is issuing and allotting equity shares by conversion of FCCBs.
Impact
This is likely to reduce the EPS of the company but at the same time it is going to bring down the debt levels also. A huge positive for the company.
In light of all the discussion the share prices of Sakthi seems very very undervalued. As a matter of fact during the last sugar cycle with even lower profitability than now the price of Sakthi was above the Rs 200 mark. So anything less than Rs 500 is just not on. Atleast a 5 bagger is what sakthi is.
Happy investing
One such company is Sakthi sugar.
Current price : Rs 94
Price target : Rs 500 for a period of 1 year
Let me get to the numbers straight away.
Company Last Price M Cap.(Rs cr) Sales Net Profit
Shree Renuka 211.35 6,697.68 1,815.20 92.7
Balrampur Chini 147.35 3,783.29 1,117.24 193.95
Bajaj Hind 213.20 3,770.59 1,794.35 -50.17
EID Parry 318.90 2,751.08 812.27 691.96
Triveni Engg 104.30 2,689.69 1,596.52 111.52
Bannariamman 1,207.45 1,381.32 711.06 119.83
Dhampur Sugar 119.5 629.84 694.58 3.6
Andhra Sugar 120.05 325.42 602.9 45.69
Sakthi Sugars 93.5 293.34 1,172.48 -79.55
The sales turnover, net profit and total assets figure is as per the last annual accounts whereas the last price and market cap is as on 6th November 2009. The last annual accounts for Sakthi sugar was for a period of 18 months ended Dec 08.
Lets look at the performance of the company since then which is a period of 9 months.
9 months Annualised
Total income (Rs crore) 924.68 1,233
Net Profit (Rs crore) 97.4 130
No of shares (Rs crore) 3.137 3.137
EPS in Rs 31.05 41.40
Lets look at its comparative position against the performance this year.
For a company which is going to have a turnover more than Rs 1200 crores and a net profit of Rs 130 crores the market cap is only Rs 294 crores. Surprised. So was I. And if you look at the difference between the marketcaps of Sakthi and its peers the astonishment only grows. It should be a 5 bagger if not more.
Lets now look at Sakthi from the view of its profitability going forward.
That there is a likely to be a shortage of sugar in the near future is now common knowledge and the price of sugar is likely to be in the range of Rs 35 to 50 as per different estimates. So every sugar company is going to do well. However Sakthi should do better than its peers because of the following reasons.
1) Unlike in UP the buying of cane is not so much politicized in Tamil Nadu
2) Sakthi is also a refiner and so can continue producing sugar all throughout the year. Even when the crushing season ends in UP and Maharastra. This it can do by using the imported raw sugar.
3) This bring us to the question of how much imported raw sugar is available to Sakthi and at what price. According to news on the web it has contracted for 90 lac bags of raw sugar (90 crore kgs) at an approx price of Rs 20 per kg. Out of this only 100000 kg has been used by Sakthi sugar till September 2009. (See interview of MD – Sakthi sugar to verify facts)
4) Assuming a conversion cost of Rs 5 per kg and a sale price of Rs 31 the maths becomes quite simple. That is a whopping Rs 540 crores profit from the processing of raw sugar itself over the next 18 months. And it also has crushing capacity of 18500 tonnes per day plus income from power generations and alchohol. Huge is what you are thinking. Yes you are right. It is huge.
Lets look at some other developments and its impact.
a) The auditors have pointed out non provision of interest of 56 crores for the period of 9 months to which the company states that it has not provided for the same since it has gone through Corporate debt restricting process.
Impact
The interest is likely to be a reduced amount and in light of what has been discussed above should not be of any problem to the company.
b) The company is issuing and allotting equity shares by conversion of FCCBs.
Impact
This is likely to reduce the EPS of the company but at the same time it is going to bring down the debt levels also. A huge positive for the company.
In light of all the discussion the share prices of Sakthi seems very very undervalued. As a matter of fact during the last sugar cycle with even lower profitability than now the price of Sakthi was above the Rs 200 mark. So anything less than Rs 500 is just not on. Atleast a 5 bagger is what sakthi is.
Happy investing
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