Nakoda Limited (BSE Code - 521030)

By now we all know that Sumeet is a great story in the making. Suggested on this blog on 2nd of December 2009 at Rs 15. The share price of Sumeet Industries is Rs 23 odd as at the close of trade on Friday March 12, 2010. That is a cool 55% in about 4 months.

Let me discuss another stock which to my mind is probably just as good as Sumeet.

Its Nakoda Limited (earlier known as Nakoda textiles). Its financial year ends in December. It is a 25 year old company which was incorporated in the year 1984.

The issued number of shares is 6.64 crores of face value of Rs 5. In Janurary 2010 the company had done a stock split from Rs 10 to Rs 5 and had also issued bonus shares in the ratio 1:1.

Current market price is Rs 11.07.

Thus at the market price of Rs 11 odd the market cap of the company comes to Rs 74 crores.

The sales of this company for year ending December 2009 is Rs 1029 crores (approx 13.9 times market cap) Net profit was Rs 22.72 crores (0.3 times market cap) and EBITDA for last year was Rs 50 crores odd (0.67 times market cap)

Now let me suggest an offer to you.Technically if all of us collectively can garner Rs 75 odd crores then we can buy this company and get all our money back in about 2 years flat (EBITDA is only 0.67 times market cap). Yes, you got it right in 2 years flat. Thats how undervalued this company is.

Is this an aberration. Could be, so let us look at the financials.
Sales growth from Rs 167 crores in FY05 to Rs 1031crores in FY09 which is a 6 fold increase at a CAGR of 58%
Net Profit growth from Rs 4 crores in FY05 to Rs 23 crores in FY09 which is again approx a 6 fold increase at a CAGR of 55%
The EBITDA margins for this company stand at approx 5% and the company has been able to maintain this margin throughout FY05 to FY09

What is phenomenal is that the sales and netprofit have grown every single year..... no ups and downs.
That makes the curent PE as about 3.3 at the friday closing price of Rs 11 odd.

I think what we have discussed above is enough reason to invest in Nakoda. But hang on there is more to it.

This company is also foraying in to power generation through wind energy. Thats a one time investment with recurring income at very minimal cost. So virtually the entire revenue is the profit.

Apart from this the company is also expanding massively.

Expansion plan (check out this link)

Announcement dated September 2009 (Link)
Announcement dated December 2009 (Link)

Spinning capacity from 50,000 MTPA to 100,000 MTPA (Double)
Texturing capacity from 1070 MTPA to 30,000 MTPA (Manifold)
Backward Integration through setting up a CP plant of capacity of 100,000 MTPA. (Sumeet has also set up a 1,00,000 MTPA).
Not to mention the textile park.

What does it tell us? It tells us that just like Sumeet Industries Nakoda is also integrating both forward as well as backward. Infact the backward integration seems to be stronger than Sumeet.

So what would all of this translate into numbers.
Management says the entire expansion is to be completed by June 2010 and they are targeting 1500 crores as turnover with margin improvement of atleast by 6%. Note the word "by" and not "to"

If you do the maths I am sure your will realise what we are looking at.
At a turnover of Rs 1500 crores and an EBITDA margin of say 10% the EBITDA could be about Rs 150 crores. The annual report is not available on the website and thus it is difficult to estimate the interest or the depreciation. However, my hunch is that the EPS for next year would be fairly high. (about Rs 10)

A quick comparison with Sumeet will tell you what a great buy Nakoda is at these levels. If you think Sumeet can go upto Rs 100, I am sure you can think of Nakoda in the same manner.
Thats all for now. I think that is enough masala for you to ponder over.

Let me know whether I am thinking in the right direction. Time for your comments

P.S. Manish, this is the stock I mentioned to you when we met on chat.

Happy investing

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.