Equity Advisory

Are you looking for an honest, transparent and independent equity research and advisory? www.intelsense.in is run by Abhishek Basumallick for retail investors. Subscribe for long term wealth creation.
Showing posts with label Stock Update. Show all posts
Showing posts with label Stock Update. Show all posts

Friday 24 August 2012

Stock Update: Hindustan Sanitaryware (HSIL)

Following up with Cera Sanitaryware review last week, I did a quick review of the other sanitaryware company in my portfolio.

For FY12:
Consolidated net revenues increased 27.38%
PAT grew 26.04%
EPS grew 15.2%

Building Products Division:
  • Net revenues increased 23.70%
  • Added 510 dealers and penetrated into 125 new towns
  • Added new brand QUEO targeting the luxury and super premium segment of the market

Installed Capacity:-
  • Sanitaryware – 3.5 million pieces annually. Completion of expansion at Bahadurgarh by October 2012 and greenfield project in Gujarat to achieve consolidated capacities of 5 million pieces
  • Faucets – 0.5 million pieces annually. Completion of phase I and II expansions of faucets at
  • Bhiwadi by Q2 FY 2013-14 and Q4 FY 2013-14 to achieve consolidated capacities of 3 million pieces.

Container Glass Division
  • Net revenues increased 30.62%
  • Completed capacity expansion, increasing total capacity from 1,125 tpd (1,643 million units) to 1,600 tpd (2,300 million units)
  • Container Division comprises of 55% revenue for the company. 22% market share in container glass segment in India.

Over 60% of India’s population does not have proper sanitation facilities. The Steering Committee of the Planning Commission has proposed an allocation of over `44,000 crore towards providing sanitation facilities in the 12th Five year Plan.

The company acquired Garden Polymers during the year and extended their product offerings to PET bottles, caps and closures, offering one more packaging solution besides glass bottle. Garden Polymers was the fourth largest manufacturer of PET bottles in India and HSIL spent 87cr for the acquisition.

Father-son duo (CMD and Jt MD) take a salary 7cr and 6.5cr! Whereas, the business division heads are paid 1.5 cr each! Does not speak very well of the promoter-management.

Business reconstruction reserve in the B/S of 225 cr has been done based on a scheme approved by the Calcutta High Court to revalue a portion of the company’s freehold land. It is not permitted as per GAAP. This looks to have been done primarily to maintain the debt-equity ratio in respectable numbers.

Recommendation:
With an EPS of 16.7 and an expected 12-15% growth rate for the next 3-5 years, FY13 EPS is likely to be around 18-19. At approximately 8x PE (with a lower margin glass business, it will be cheaper than a pure-play like Cera), the likely price can reach 150-170 by end of FY13. At a CMP of 110, it can be a good medium term buy. 
However, I would not make HSIL a core portfolio choice, given its low margin and high capital requirements. Cera is a better bet in this space, but at lower valuations.


Friday 10 August 2012

Stock Update: Supreme Industries (NSE: SUPREMEIND)

Supreme has been going strength to strength. Although it has not been able to sell its Supreme Chambers, it has shown consistent growth and operating results. It has its yearly closing in June. So, what was published last month was the full year results.

  • Polymer processing went up by 9.8%. 
  • Revenue was at 2965 cr, up 20% yoy
  • Net Profit was at 232 cr, up 36.91% yoy
  • Standalone EPS of 18.93
  • Final dividend of 4.5/share was announced taking the full year dividend to 6/share.
Supreme has 4 major business segments.

Segment
Volume growth
Value growth
Plastic Piping
14%
28%
Packaging Products
9%
19%
Industrial Products
8%
14%
Consumer Products **
-10%
6%
** excluding PP Mats business which was discontinued

  • The value added products segment has gone up by 31.5%
  • Committed to capex of 280 cr primarily in capacity expansion in cross laminated films, protective packaging unit at Hosur, composite LPG cylinder & pipe unit and plastic piping unit.
  • Total planned capex of around 1100 cr in the next 5 years, to be funded from internal accruals.
  • The company expects a volume growth of around 16% and value growth of 25% in 2013.

Expected EPS for June 2013 : 21.5-23
PE range : 12-15
Possible price range (June 2013) : 258-345

In my previous update of the company, I had expected an FY12 EPS between 15-16 and a target price range of 180-240 by June end 2012. Both have been positively surpassed. The stock is making new highs recently. Expecting a one year forward price of close to 320-350. I continue to hold Supreme and it continues to be the largest position in my portfolio. I see no reason to other that sit tight on it.

Disclosure: I am invested in Supreme. Please due your own due diligence before investing.

Monday 11 July 2011

Sintex Ind - Results Update

Good set of results from Sintex. The growth momentum continues.

Consolidate Net Sales is up from 930.9 cr to 1128.8 cr (up 21.3%)
Net Profit is up from 78.8 cr to 94.6 cr (up 20.1%)
EPS up from 2.91 to 3.49 (up 19.9%)

Monolithic segment order book at Rs 3000 cr after Q1 execution.

Category
Q1 FY11 (cr)
Q1 FY12 (cr)
Growth (%)
Remarks
Building Material
358.4
473.2
33.5%
  • Company adding execution capability in Bihar
  • Private sector orders flowing in, reducing the dependency on the government projects for Pre-fabs
Custom Moulding
450.7
523.9
16.2%
  • Pursuing growth opportunities at 12-15 new companies
Textile
98.3
109.3
11.2%


Negative
The pledging of promoter holding has gone up from 29.6% (Q1 FY11) to 38.14% (Q1 FY12).

Saturday 2 July 2011

Shriram Transport Finance Complay Ltd (STFC) - RBI Policy Update

RBI's monetary policy announced on May 3rd had created a lot of confusion on whether STFC's securitized assets would continue to be treated as priority sector loans. (Read the probable impact of it here)

On RBI's policy statement on July 1, 2011, it has clarified that investments made by banks in securitized assets that are originated by banks or other eligible financial institutions shall continue to be classified as priority sector.

This means that any bank's investments in securitized assets will be eligible  for classification under priority sector  only if it was eligible to be classified as priority sector advances before their securitization.

So, for STFC, this is good news, as their cost of borrowing is unlikely to go up.

However, the underlying concern of slowing of growth is still there. So, although the stock may not go below 600, it may be difficult for it to gallop away beyond the 720-750 range in the near future.

Monday 27 June 2011

GEI Industrial Systems - A Business Worth Looking At

Company Overview

GEI Industrial Systems Ltd is a Bhopal headquartered company that was started in 1970 and operates mainly in the industrial heat transfer segment. It was formed in 1970 as General Engineering Industries. Originally, it was formed as an ancillary unit of BHEL. The company is engaged in machining, fabrication activities and specializing in manufacture of air-cooled heat exchangers and finned tubes. It has a technical tie-up with Birwelco, UK, for design and performance guarantee of the products to be manufactured by the company. Its group companies are GEI Godavari Engineering, GEI Foods Pvt Ltd and GEI FHM Consultatnts.
GEI's client list includes BHEL, Tata Electric Company, HPCL, ONGC, Bharat Pumps and Compressors, IPCL (Baroda), Reliance Industries, Toyo Engineering, UHDE KTI, Mangalore Refineries, Davy Power Gas, Chemtex, etc.

Main Business

GEI Industrial Systems Ltd is a leader in Heat Transfer Technology . GEI is currently engaged in design engineering and specialized manufacture of Aircooled heat exchangers and Aircooled heat condensers in which it has a monopoly. The products manufactured by GEl find application in Power Generations, Oil-Gas Production, Gas Processing, Oil Petroleum Refining and Petrochemicals.The Company has also moved into design, engineering, manufacturing, installation and commissioning of extended surface heat transfer equipment and systems.
  • Air cooled steam condenser
  • Air cooled heat exchanger
  • Finned Tubes
  • EPC projects
GEI has inked a technical alliance with Innospin of Switzerland to produce air-cooled condensers for mega thermal power projects, especially supercritical power projects. As a result, the company, which is manufacturing and supplying condensers for up to 150 MW power projects, will get technical support for 660-MW and above rating power plants. The average ticket size for the air-cooled condenser order for a supercritical power project is Rs 125-Rs 150 crore. 

With the tie-up, GEI is set to be the only Indian company that will be equipped to locally manufacture and supply air- cooled steam condensers to new and up-coming super-critical thermal power stations. This will enable the company to tap the huge opportunity offered by mega thermal power projects.

Financials


FY11
FY10
FY09
FY08
FY07
Sales
353.24
250.78
238.04
211.18
123.99
Other Income
5.84
0.67
1.05
-1.41
0.42
Op Profit
62.94
36.06
32.95
33.22
18.63
PAT
28.9
14.87
10.37
8.97
5.3
EPS
17.39
9.22
7.16
6.18
3.88
OPM(%)
17.82%
14.38%
13.84%
15.73%
15.03%
NPM(%)
8.18%
5.93%
4.36%
4.25%
4.27%
Asset turnover(avg)
0.87
1.15
1.70
1.89
1.58
RoA(%)
7.15%
6.82%
7.41%
8.04%
6.75%
Financial Leverage
2.04
2.09
1.85
1.67
1.87
RoE(%)
14.62%
14.26%
13.70%
13.40%
12.59%

 

Investment Thesis


  • GEI is the market leader in air cooled heat exchangers and condensers. With the scarcity of water in India and the world, more and more power plants are moving to air cooling as opposed to water cooled plants.
  • Having realized the harmful side-effects of water used in condensing technology, indian states have started banning the use of water. Tamil Nadu, Chattisgarh and Rajasthan have already banned water-cooled condensers.
  • Huge investments slated in India in the power and oil & gas sector
  • Maintenance cost of Air Cooled units is 25% of those of Water Cooled Systems
  • In house finned tube manufacturing to reduce operating expenses
  • Very strong order book. It stood at Rs.400 crores as on March31,2011.
  • Insiders buying at a substantial premium to current market price. Promoters have granted warrants to themselves at a price of Rs 250 convertible within 18 months (from May 24, 2011). CMP was around 170-180 at the time. Banyan Tree (an Aditya Birla private equity fund) has been granted cumulative convertible preference (CCP) shares (each convertible at Rs 250 per share within 18 months of allotment).
  • The company is increasing its capacity to manufacture air-cooled condenser or equivalent BoP equipment from 3,000 MW to 5,000 MW at a cost of Rs 105 crore. The capex is partly funded from the proceeds from issue of CCPs or warrants.
  • The company expects consolidated net revenue of Rs 550 cr in Fy12.


Valuation


  • Stable or improving margins – both at operating and net levels
  • Current PE is 10 (at CMP of ~Rs.175)
  • 3-year Sales growth has been 26.46%; 5-year Sales growth has been 25.03%
  • 3-year PAT growth has been 41.04%; 5-year PAT growth has been 33.25%
  • 3-year EPS growth as been 33.44%; 5-year EPS growth has been 26.92%
  • Assuming a modest growth of 10%, FY12 EPS is expected to be around 19.1
  • The table below gives the likely prices for the possible PE ratios.


FY11
FY12E
PAT
28.9
31.79
EPS
17.38
19.12



PE(pessimistic)=10
173.84
191.22
PE(most likely)=15
260.76
286.83
PE(optimistic)=18
312.91
344.20

 

Conclusion


  • By March 2012, price expectation is Rs.190-340. The stock has been trading between a range of around 170 and 215-230 in the last one year.
  • For a short term view, look to reduce positions around that 215 to 230 mark.
  • For long term investors, look to hold for a good appreciation over a 1-2 year period.

Thursday 5 May 2011

Monetary Policy Impact on Shriram Transport Finance Complay Ltd (STFC)

This monetary policy announced on May 3rd has a new guideline whereby all loans by banks to NBFCs will now NOT be considered under priority sector lending (PSL). This has impacted the stock price of Shriram Transport Finance Complay Ltd (STFC) greatly. The stock has been hammered down by nearly 25% in the last few days. 
Let us quickly look at the facts:-
  • 20% of the companies funds come from banks. The rest is from retail and institutional borrowing.
  • The company foresees a slowdown in CV (commercial vehicle) sales in the next 3-6 months as interest rates rise.
  • Since the company primarily lends to used CV owners (70% of the loans are for used vehicles), there is a lag when the slowdown would impact the company. 
  • It is possible that the slowdown may hit in the next financial year and the company may grow at 10% instead of the 15%-20% it hopes to do now.
  • The company does not expect any significant impact on NIMs after the monetary policy
  • FY12 Q1 results would need to be keenly watched for possible future direction of the company.
  • The stock may not breach the 52 week low of about 530. I would be really surprised to see it go down much below 600.
Even if I assume a slowdown and a 10% growth for FY12, the expected FY12 EPS would be about Rs. 60. The expected price at an approximate PE band of 12-14 would result in an approximate price of 720-840.

I think STFC may be providing a good risk-reward situation for long term investors.

Thursday 21 April 2011

Yes Bank - Stellar Performance & Stupidity rolled into one!!

First the stellar performance:

Highlights for Full Year ended Mar 31, 2011 (FY11)
  • Net Profit up 52.2% to 727.1 cr (477.7 cr in FY10)
  • Net Interest Income up 58.2% to 1,246.9 cr (788.0 cr in FY10)
  • Operating Profit up 37.9% to 1,190.4 cr (863.3 cr in FY10)
  • Net Interest Margin at 2.9% 
  • Return on Average Assets-RoA of 1.5%; RoA has been at or above 1.5% over the past 3 years
  • Return on Equity-RoE of 21.1%; has been 20% or above over past 3 years
  • Basic EPS of  21.1 and Diluted EPS of 20.2
Other Key Highlights as at Mar 31, 2011
  • Advances up 54.8%
  • Deposits up 71.4%
  • Total Assets up 62.2%
  • Basel II Capital Adequacy Ratio of 16.5% (Tier I – 9 .7%)
  • Gross NPA at 0.23% of Gross Advances 
  • Net NPA at 0.03% of Net Advances 
  • Book value per share of 109.3 (91.0 as at Mar 31, 2010)
Now, the stupidity:

Yes Bank made 2 announcements - 1) dividend of 2.5/share (approximately 85 crores) and 2) it has plans to raise up to USD 500 million (about Rs 2,000 crore) during the current fiscal to fund business growth . 

These two announcements, to my mind, are contradictory in nature. Why does a company earning 20% RoE growing at over 40% need to pay a dividend? Specially, if it needs to raise equity capital in the near future. Beats me.

Bottomline: Great bank, keep buying on dips.

Wednesday 30 March 2011

Elecon Engineering Limited - A good stock to own

Company Background

Elecon Engineering Limited (EEL) is one of India’s largest manufacturer of Material Handling Equipments (MHE) and Industrial Gears and Power Transmission products. MHE systems primarily comprise of various conveyor systems. EEL is one of the largest manufacturers of industrial gears and was the first company in India to introduce modular design concept, case hardened and ground gear technology. EEL is the gear supplier of choice to core sectors like Sugar, Cement, Steel, Fertilizer, Plastic Extrusion and Rubber. They are the only manufacturers of Vertical Roller Mill Gear for the power and cement industry.

Investment Thesis

Turn around in capex cycle has meant that the order inflow has stabilized. EEC has acquired the Benzler-Radicon business from the David Brown Gear Systems Group for a consideration of ~132cr. The company proposes to fund 80% of the acquisition through debt. That means an additional debt burden of 105 cr. This acquisition provides EEL with access to European markets.

The order book is robust. The outstanding order book position on Jan 31, 2011 is 1690 crores. This includes 420 cr added in Q3 FY11. Out of this, MHE orders are 1350 cr and gears are 340 cr. EEL has also submitted bids worth 5000 cr and expects a hit ratio of 20-25%. With the existing order book, there is good revenue visibility for FY12.

Financials


FY10
FY09
FY08
FY07
FY06
Sales
1109.36
1030.84
927.85
816.6
507.75
Other Income
18.72
-7.89
0.88
0.89
-0.32
Op Profit
168.45
180.72
154.75
123.75
73.45
EBDIT
187.17
172.83
155.63
124.64
73.13
PBT
94.68
92.05
107.57
87.76
45.48
PAT
66.18
57.45
67.2
54.9
27.88
EPS
7.13
6.19
7.24
17.75
48.85
Depreciation
33.12
22.15
14.2
12.22
9.43
Interest
58.71
58.23
33.86
24.66
18.22
Effective Interest Rate(%)
11.26%
9.83%
8.27%
8.69%
8.86%
Tax
24.14
30.65
31.47
29.5
13.09
Effective Tax rate (%)
25.50%
33.30%
29.26%
33.61%
28.78%

Assets
847.68
867.5
646
471.57
308.41
Networth
326.1
275.4
236.72
187.9
102.67
Debt
521.58
592.1
409.28
283.67
205.74
Net Block
344.34
282.91
177.15
122.27
84.55
Cap WIP
17.88
28.11
15.92
4.47
10.66
Debt/Equit Ratio
1.60
2.15
1.73
1.51
2.00
Book Value
35.12
29.66
25.49
60.76
179.87

Debt-Equity Ratio is likely to go up after the acquisition. Increased debt of 105cr would mean an additional interest outgo of around 10-12 cr.

Net Cash (Operations)
170.11
71.25
-20.22
-62.13
-40.51
Net Cash (Investment)
-60.21
-135.33
-79.32
-40.82
-41.73
Capex
84.32
140.1
80.53
43.75
104.64
Free Cash Flow
85.79
-68.85
-100.75
-105.88
-145.15
FCF/Sales(%)
7.73%
-6.68%
-10.86%
-12.97%
-28.59%

Interestingly, EEL has turned net free cash flow positive in 2010 and has turned positive operational cash flow from 2009 onwards.

Dupont Analysis





OPM(%)
15.18%
17.53%
16.68%
15.15%
14.47%
NPM(%) -- (A)
5.97%
5.57%
7.24%
6.72%
5.49%
Asset turnover(avg) -- (B)
1.31
1.19
1.44
1.73
1.65
RoA(%)
7.81%
6.62%
10.40%
11.64%
9.04%
Financial Leverage -- ( C)
2.60
3.15
2.73
2.51
3.00
RoE(%) -- (=A*B*C)
20.29%
20.86%
28.39%
29.22%
27.15%

Quarterly Results

Q1
Q2
Q3
Sales
247.17
280.91
302.39
Other Income
0.01
0.4
20.55
Op Profit
37.91
39.96
49.65
EBDIT
37.92
40.36
70.2
PBT
19.16
19.95
48.03
PAT
13.32
14.21
36.82
EPS
1.43
1.53
3.97
Depreciation
8.92
9.75
9.83
Interest
9.85
10.66
12.34
Tax
5.84
5.74
11.21
Effective Tax rate (%)
30.48%
28.77%
23.34%

Risks

Political instability may reduce the pace of infrastructure development and may harm the growth for the company.
Input cost of steel is important for margins and any sudden and large increase in prices may impact margins.

Valuation

Stock is currently at 68.95 (NSE closing price) and PE of 19.34 (based on FY2010 EPS) and 7 (based on TTM EPS of 9.85). So, it cannot be termed as expensive. Expected FY12 EPS is around 11-12, with an estimated PE range of 10-12, the expected price range is Rs 110 – Rs 144.

I would not be surprised if I see atleast a 50% price appreciation in one year. The downside risk seems to be limited to 10%-15%.