This company is not about some niche story. This is a case of sheer undervaluation of stock. Again this is no great analysis. I just managed to chance upon the stock. If one of you would have looked at the financials I think you too could have recommended this stock as an investment opportunity.
Website : Southern Ispat & Energy
This was just one of the companies till the end of FY09. However, it is after FY09 when the management started taking a more aggressive strategy. And thus last year that is FY10 has been stellar.
Lets just give you pointers to what I saw.
a) Revenues have grown from Rs 39 odd crores in FY09 to 272 odd crores in FY10 (about 7 times)
b) Profit before interest and tax has grown from Rs 1.56 crores in FY09 to Rs 9.78 crores in FY10 ( about 6 times)
c) PAT has grown from Rs 0.73 crores in FY09 to Rs 7.33 crores in FY10 (10 times increase)
d) However during the same time the interest has gone up from Rs 52 lacs to Rs 62 lacs. The interest numbers not going up too much suggests that the growth is not burdened by debt.
If you look at the 1st quarter numbers they seem to vindicate that the company is clearly on a growth path.
(June 2010 results). Don't think these would need any further analyses.
Now what has the market done to its share price for all this announcement.
The price has plunged from Rs 48 odd levels in January 2010 to about Rs 13.
This means a PE of about 2 and a market cap of about Rs 14.5 odd crores based on June 2010 shareholding pattern. (1.1 crore shares X Rs 13)
So what next is in store for us. The following news flows could give some pointers to the future prospects of the company.
a) Meger of privately held Kerala Sponge with itself
b) Own power generation through waste heat recovery in the steel plant as well as coal based plants.
c) Purchase of company in Gujarat. (Management interview)
Some digging on the name of the target company revealed the name Newtech Forge & Foundry Limited. (Source link) - DealCurry.
You can check out the website of the target company on this link. (Newtech)
What does all of this mean?
a) The company is integrating both backward and forward and this am sure will be reflected in the financial performance in future.
b) It is also alive to the opportunity that generation of power presents in current times.
c) The forward integration is infact even more interesting when the product portfolio of Newtech is looked at.
Did someone mention getting into auto parts manufacturing? Well if the entire company is being acquired then that is what is going to happen.
The board meeting on 7th April 2010 gives us some insights into how all this expansion will be funded. (Link)
You can imagine the scale of expansion.
The company has just recently concluded a GDR issue of about 3.23 crore shares.
Some of you all must be worried by now about the extent of promoter contribution. Yes, you are right it is quite low. Its about 20% and has remained constant all these years. Frankly, I dont know why it is so low. But my hunch is that in future with the merger of Kerala Sponge the promoters share should go up as Kerala sponge is a privately owned company. Secondly I think the fall in share price could also be because the management wants to mop up shares at a low price.
Now the interesting bit. On 27th of May 2010 1 crore warrants were issued to non promoters at Rs 32 per share (Rs 10 face value + Rs 22 premium). (Share warrant issue)
I have started investing. Do let me know if you think I have got it wrong somewhere.
Till then happy investing.
Thursday, September 9, 2010
Wednesday, September 1, 2010
Ganesh Polytex - update
The stock price of Ganesh Polytex hasnt really moved as per my expectations since it was discussed on this blog. However, thats not affected the developments in the Company. So lets see what all has happened and its ramifications.
Ganesh Polytex has a website and I was lucky to have found it. Request you to go through it once. (Ganesh Polytex). In case you dont have too much time may I request you to atleast look at the corporate presentation once. (Corporate presentation). Once you have gone through the website I dont think you will need a 3rd party to tell you as to why it is a value buy even at the current levels.
For the ones who are still not convinced lets look at the questions that might arise.
a) A lot of corporates nowadays have snazzy websites but what is the possibility that these guys will deliver.
b) Is there any evidence to suggest that there is any method to their madness. In other words has the management lived up to its promise.
c) How confident is the management about the potential in the business potential.
The answers are as follows.
a) The website and corporate presentation does not make lofty claims. It does not go too far into the future. Infact it seems to present a very well thought out plan which incorporates the financing aspect rather well. This is best explained by what the management plans its debt equity ratio to be. When other corporates see a good opportunity and want to expand they over leverage whereas this company wants to maintain its debt equity ratio at 0.8 levels. Inspite having a business plan which would more that triple profits in the next 2 years the company is keen to keep its debt at manageable levels. Very commendable to say the least.
To top it the cash being generated is phenomenal. From just Rs 10 crores in FY09 the amount has gone up to Rs 24 crores in FY10. With a ROCE% of close to 16% you can imagine the impact on profits.
b) The answer is an emphatic yes. And the reason is simple. Just try and look for the execution of projects. Absolutely right on time. The economic scenario around the world has had no impact whatsoever. To my mind timely project completion is the best way a company can assure its stakeholders of it ability to create wealth. To top this execution capability the management seems sanguine enough to realise that forward integration will lea to further value creation. Hence it is also setting up a facility for manufacturing Recycled partially oriented yarn or POY.
c) Check out this link. Share holding pattern. These guys have increased their shareholding from about 45% to about 52%. And to top it the promoters are issuing to themselves approximately 30 lac warrants convertible into equity. This is approximately about 40% of the current number of shares held by them. From an investor's point of view I dont think anything can instill more confidence than capital infusion by the promoter.
If you go to the section "Analysts covering Ganesh Polytex" on this link you can find a variety of analysts covering this company. All have different targets and I suggest you go through them. Especially the one by HBJ capital is particularly interesting.
But if you are looking for targets price I suggest you refer to the 2nd last slide in the corporate presentation. This company is planning a revenue milestone of Rs 1000 crores within the next 5 years. The revenue in FY10 was Rs 200 crores only. This means a five fold jump. Again the margins are also likely to improve significantly in future due to forward integration. So the profits should also see atleast a 5 fold jump. Infact more. To top this the current PE is hovering around the range of 6 which is par for the course if this company is treated as a textile company. However this is not a textile company. This is a waste management company and hence its PE is bound to be rerated in the times to come.
The only uncertainty is the way the expansion is going to be funded. Depending on the funding mechanism I would be looking at returns of about 5 to 10 times in about 3 years.
Happy investing
Ganesh Polytex has a website and I was lucky to have found it. Request you to go through it once. (Ganesh Polytex). In case you dont have too much time may I request you to atleast look at the corporate presentation once. (Corporate presentation). Once you have gone through the website I dont think you will need a 3rd party to tell you as to why it is a value buy even at the current levels.
For the ones who are still not convinced lets look at the questions that might arise.
a) A lot of corporates nowadays have snazzy websites but what is the possibility that these guys will deliver.
b) Is there any evidence to suggest that there is any method to their madness. In other words has the management lived up to its promise.
c) How confident is the management about the potential in the business potential.
The answers are as follows.
a) The website and corporate presentation does not make lofty claims. It does not go too far into the future. Infact it seems to present a very well thought out plan which incorporates the financing aspect rather well. This is best explained by what the management plans its debt equity ratio to be. When other corporates see a good opportunity and want to expand they over leverage whereas this company wants to maintain its debt equity ratio at 0.8 levels. Inspite having a business plan which would more that triple profits in the next 2 years the company is keen to keep its debt at manageable levels. Very commendable to say the least.
To top it the cash being generated is phenomenal. From just Rs 10 crores in FY09 the amount has gone up to Rs 24 crores in FY10. With a ROCE% of close to 16% you can imagine the impact on profits.
b) The answer is an emphatic yes. And the reason is simple. Just try and look for the execution of projects. Absolutely right on time. The economic scenario around the world has had no impact whatsoever. To my mind timely project completion is the best way a company can assure its stakeholders of it ability to create wealth. To top this execution capability the management seems sanguine enough to realise that forward integration will lea to further value creation. Hence it is also setting up a facility for manufacturing Recycled partially oriented yarn or POY.
c) Check out this link. Share holding pattern. These guys have increased their shareholding from about 45% to about 52%. And to top it the promoters are issuing to themselves approximately 30 lac warrants convertible into equity. This is approximately about 40% of the current number of shares held by them. From an investor's point of view I dont think anything can instill more confidence than capital infusion by the promoter.
If you go to the section "Analysts covering Ganesh Polytex" on this link you can find a variety of analysts covering this company. All have different targets and I suggest you go through them. Especially the one by HBJ capital is particularly interesting.
But if you are looking for targets price I suggest you refer to the 2nd last slide in the corporate presentation. This company is planning a revenue milestone of Rs 1000 crores within the next 5 years. The revenue in FY10 was Rs 200 crores only. This means a five fold jump. Again the margins are also likely to improve significantly in future due to forward integration. So the profits should also see atleast a 5 fold jump. Infact more. To top this the current PE is hovering around the range of 6 which is par for the course if this company is treated as a textile company. However this is not a textile company. This is a waste management company and hence its PE is bound to be rerated in the times to come.
The only uncertainty is the way the expansion is going to be funded. Depending on the funding mechanism I would be looking at returns of about 5 to 10 times in about 3 years.
Happy investing
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