Innovative tech pack
-Manufacturer of PET bottles and jars supplied to fmcg and beverage industry. good growth prospects. competitors are Munjushree tecnopack, Moldtek packaging, both are trading at high valuations
-BIFR rehabilitation scheme approved and under final stages of implementation. Under the plan all the debt will be settled and co will be debt free, existing equity base will be reduced to 1/10th, the new equity base would be 2.2mn shares with promoters owning 68% of new equity.(promoters infuse 1.5crs at 10rs per share)
-co is planning for plant modernization and capacity expansion.(more capex-more debt!)
-co generated 33 cr sales and 5,2cr ebitda for FY10. June qtr was dismal with 70% fall in EBIT on account of increase in RM costs, one positive thing is that sales were up 16%. Co is trading at 3.6x ebitda. (Mcap of 15.3 cr on new equity base of 2.2mn shares at consolidated share price of 70 rs per share). ROCE is at 22%.
RISKS:
-Stock wld be suspended from BSE for capital reduction (record date 17 Sep, 2010). Time-line for re-listing is not known, it may take 3 or more months for cancellation of old equity shares and issuing new shares. MONEY INVESTED NOW WILL BE LOCKED FOR MORE THAN 3 MTHS AND RELISTING PRICE WILL BE EFFECTED BY THEN PREVAILING MKT CONDITIONS.
-Stock will be bit illiquid post capital reduction.
-operating risks include, customer concentration, competition, volatile RM prices, capital and Wcap intensive biz
-FY-10 extended up to Sep-10, so it will take more time for mkt to get hold of latest balance sheet and effects of BIFR plan.Value realization takes more time.
Smartlink network systems- huge insider buying
Smartlink promoters increased their stake by 4.45% thru open mkt share purchase in last 3 qtrs. They paid Rs.5.3cr at an avg price of 51.7 per share. The promoters may be confident that co will take a higher growth path with newly launched active networking products. Otherwise they may have some plans (special dividend or acquisitions) with the surplus cash of Rs. 96.5 cr (63% of current market cap). Either ways some shareholder value is going to be created in near future.
IFB industries Q1-11 results update
IFB reported good set of numbers for Q1-11. Sales up by 19% and EBIT is up by 50%. Home appliance division reported a sale growth of 13% and EBIT growth of 62.5% with margins of 10.4%. This kind of high margins may not be sustainable in future but for now the party continues……
Avon corporation analysis
Gandhimathi Mar-10 results update
Mar-10 qtr sales up 50% yoy and EBIT up 53% yoy. trailing 12 months sales up 60.4% and EBIT up 75%. Gandhimathis sales growth is much higher than the peer cos like Hawkins and TTK (around 20% sales growth) while reasons for such higher than industry growth are not known. It could be either product mix (gandhimathis is more into gas stoves-which might be growing faster!) or market share gaining from TTK (thru some value proposition!). 75% ebit growth comes mostly from sales growth while cost as % of sales remaining stable.
One long term factor to be closely watched is the cost structure alignment between gandhimathi, ttk and hawkins. Currently gandhimathis margins r lowest at 11% (ttk-15% and hawkins 21%) due to higher COGS as % of sales. With increasing sales volumes gandhimathi may benefit by opting for higher outsourcing. Balance sheets wise ttk and hawkins are pretty strong with zero debt and good cash balances. Gandhimathi has 27 cr of debt around 1.4x ebitda (within prudential norms!)
Gandhimathi comparable valuation
| Estimates (Rs in Mn) | TTK | Hawkins | Gandhimathi |
| YE 03/10 | YE 03/10 | YE 03/10 |
| Price | 446.0 | 690.0 | 61.0 |
| O/S | 11.3 | 5.3 | 9.6 |
| Mcap | 5,044.3 | 3,648.0 | 585.6 |
| Free float | 1,265.1 | 1,604.0 | 144.6 |
| Free float % | 25.1% | 44.0% | 24.7% |
| EV/Sales | 1.0 | 1.2 | 0.4 |
| EV/EBITDA | 7.0 | 5.7 | 4.1 |
| Peer discount | -41.8% | -28.5% | 0.0% |
| Net debt/ebitda | -0.3 | -0.1 | 1.0 |
| Cash conversion cycle | 76.1 | 18.7 | 32.4 |
| ROCE | 66.8% | 292.2% | 66.9% |
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| Net debt | -223.4 | -55.2 | 190.0 |
| EV | 4,820.9 | 3,592.8 | 775.6 |
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| Sales | 4,935.7 | 2,969.2 | 1,751.3 |
| Sales Growth | 23.0% | 23.0% | 55.0% |
| COGS% | 51.0% | 37.0% | 62.5% |
| Staff cost % | 8.0% | 11.7% | 5.0% |
| Other Exp % | 27.0% | 30.0% | 21.6% |
| EBITDA | 691.0 | 632.4 | 190.9 |
| EBITDA margin | 14.0% | 21.3% | 10.9% |
| EBIT | 656.9 | 615.4 | 180.9 |
| EBIT margin | 13.3% | 20.7% | 10.3% |
| Incremental margin | 32.4% | 63.1% | 846.4% |
| EBIT growth | 83.5% | 132.1% | 68.3% |
| Dep as % Op PP&E | 9.5% | 11.5% | 7.0% |
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| Last available info |
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| Inventory days | 82.9 | 85.9 | 53.1 |
| receivables days | 44.5 | 40.3 | 54.4 |
| payables days | 51.2 | 107.6 | 75.1 |
| Net Wcap | 542.9 | 66.8 | 128.3 |
| % of sales | 11.0% | 2.8% | 8.9% |
| PP&E | 440.7 | 143.8 | 142.0 |
| CE | 983.6 | 210.6 | 270.3 |
Is Elnet technologies suffering from huge promoter discount?
POSITIVES:Elnet technologies owns an IT park with lettable area of area of 2.1 lacs sq.ft on 3.16 acers of leasehold land in chennai.Elnet appears as a good investment with Mcap of 21crs, net debt of 13crs, rental income of 17.5 cr, operating cash flows of 7.5cr and minimal capex requirements.
NEGATIVES:Shri Shanmugam Thiagarajan (formerly Shri Thiagaraj S Chettiar), promoter of Elnet has aprox 25% stake in the co. Mr Thaigaraj was involved in financial irregularities, CBI probe and company law violations during his tenure as MD of Elnet. Surprisingly his name also appears among the major defaulters of RBF (Royapettah Benefit Fund- multi crore deposit scam )for 12.5cr default.
Promoter`s wife Mrs. Unnamalai Thiagarajan is current MD of the co. An amount of 3.6cr unsecured loan given to Shanmugam Thiagarajan is disclosed under related party transactions....
Shristi Inra- this Shrisit has any place for shareholder value?
Shristi Infra caught my attention during Mar-09 when there was huge insider buying in this stock- around 4% stake was bought by promoters from open market at avg price of 390. On intial QAD analysis I figured that is was very illiquid stock as the promoter own 49% and Opulent Venture Capital Trust (group realted co) owns another 46%, leaving just 5% free-float with public. As the stock price kept falling to current 250 levels another closer look was required. The Mcap of the co is 555 cr . Currently the only operational parts of the co are its construction biz and Durgapur city center.
Construction biz: 100% owned by the co. Sales of 85 cr, Ebitda of 17.5 cr, net debt of 48cr. This biz if valued at 40 cr mcap (17.5*5-48cr debt), it could support around 7% of the current market vauation (555cr mcap)
Bengal Shristi (49.78% JV)-
1)Durgapur city center project-500,000 sq.ft. commercial complex- operational.
2)Raniganj square- 560,000 sq. ft commercial complex- under construction.
3)Asansol Township- 6 million sq. ft township- under construction.
Bengal shristi has debt of 62 cr as of Mar-09. As one project only is operational the full value of bengal shristi can not be ascertained.
Vipani -retail mall in udaipur, Haldia international sports city, Krishnanagr centrum, 5 star hotel at Rajarhat, kolkata, vedic hotel cahins, commercial complex at agartala are the other projects of the co. All these are at different stages of implementation. Some of them are at planning stage, some are under construction.Majority of the projects are in westbengal.
These big ticket commercial projects have high implementation risks especially given most of them are initial stages of implementation and the current real estate market scenario. I am puzzled by the 555cr mcap of this co.
Why didn't this co take IPO route for listing, instead it got listed thru reverse merger with listed peerless finance? With current free float of just 5%, the stock is more prone to price manipulation.
Nirlon 2009 annual report highlights
-Macro risk 1:"The consistent growth in Real Estate for commercial space in Mumbai from the early part of this decade through the first half of 2008, led to the commencement of construction for a significant volume of commercial space in the city based on projected demand growth. The rapid decline in this demand from the second half of 2008, and the inability of developers to leave semi-finished projects incomplete, has led to an over supply of commercial Real Estate in the Mumbai suburbs."
"This holds true at Nirlon’s location in the Western suburbs and for the Goregaon area micro market. Thus, even if there is a consistent increase in demand, the ready availability of commercial space in the micro market is likely to keep rental rates depressed, at least through the first half of 2010. This could lead to lower licensee fee levels for the NKP development, and to that extent could affect projections and profitability."
Risk mitigant:"However, it may be noted that since the cost of land for the NKP Project as a proportion of project cost is, for all practical purposes, nil, the Company is likely to be less affected by lower rates than most projects, where the cost of land is usually the most significant cost."
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However this doesn`t completely set off the risk as co raised nearly 450cr debt for Phase I & II construction, for which repayment has already started from Aug-2009. Lower rentals /occupancy rates may cause delay in cash inflows which may lead to technical default (though not a serious thing in Indian real estate sector! Indian banks are more than willing to bailout real estate cos)
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"The majority of these license fees will be paid to HDFC to effect repayment of the construction loan for Phase 1. The commencement of license fees will allow this construction loan to be converted into a securitization loan, repayable in 108 months, at an appreciably lower interest rate than that which is presently charged to the Company."
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Questions to be answered:
-for 9yrs if MAJORITY rents go to HDFC, what will be the cash flows to the company look like?
-Is there a prepayment option? is the int rate fixed or floating?
-What could be the tenure of these leases? what kind of rent escalation clauses are there?
-Do they receive any interest free advance from tenants (under normal circumstance may be, but with this oversupply scenario I doubt!).
-What are the rentals like? (is it Rs 75/100/150 per sqft per month?)
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-Phase I is 85 to 95% occupied (not bad!)
-The 2008 annual report says 30% of phase II leasing was secured, but 2009 annual report is silent on the status of this licenses.????? (yeah tough times for Indian commercial real estate players)
-"Based on the successful marketing and commissioning of Phases 1 & 2,Phases 3 & 4 are scheduled to commence in 2010" (slow and steady! very good)
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Overall Nirlon appears to be good long term bet if the above questions have some favorable answers. At Rs 63 the margin of safety is less compared to Rs 40 at where there was a huge insider buying in this stock (3.2cr insider buying at avg price of 42 during May-Aug 2009)
