Notes fom Annual Report - Supreme industries

•    No of distributors have gone up from 2469 to 2699
•    Value added product share has gone up from 34.2% to 36.73%
•    Current average monthly borrowing is 401 cr. SIL expects to reduce it to 300 cr in FY17
•    Supreme Industries Sharjah is exporting products to 15 countries - GCC, Africa, Australia, UK, Germany & Indian sub-continent. It has made inroads into Maldives and re-entered Saudi Arabia. It has also penetrated Solvent Cement market in Australia
•    Statutory auditors M/s Choggmal & co have stepped down and has been replaced by M/s Lodha & Co.
•    Polymer consumption has increased by 14% in volume terms which is double of GDP, something which did not happen in the last decade.

PLASTIC PIPING SYSTEMS
•    New plant at Kharagpur has started production. Full capacity to be scaled up by June 2016.
•    Further expansion of pipe manufacturing is expected at Kharagpur plant
•    cPVC volume growth was 23.7%; cPVC manufacturing has stabilized at Kharagpur
•    Roto moulding plant is being commissioned at Kharagpur, to start by April end.
•    HDPE piping systems gorwth was at 24.09%
•    SIL has launched a variety of septic tanks in technology tie-up with a South African company. Many other varieties are expected to be launched for underground water storage
•    SIL has produced multilayer foam pipe of 200 mm diameter, BIS certification in process
•    SIL has developed a cheap & economic model of manhole cover
•    In process to setup a PVC plant at Jalgaon to produce 20,000 tons at full capacity and is expected to go on stream by Mar 2017
•    Submersible pipes are getting good traction. Monthly sales are expected to rise to 750 tons in FY17 from 270 tons.
•    Maharashtra Fire Department has issued a directive that makes installments of fire sprinklers mandatory in every room for residential building above 45 m and in common areas for buildings between 25m to 45m. SIL has tied up with FlameGuard of USA to manufacture and sell these sprinkler systems. SIL is planning to sell the same product in Sri Lanka as well.
•    The portfolio of bath fittings has reached 90 items. Chrome fittings are likely to be launched this year

FURNITURE
•    SIL has introduced 8 new models this year and plans to add 7 new models this year.
•    SIL is looking to expand into export market with their new line of furniture
•    New plant being put up at Kharagpur; to start in the Q1 of FY17
•    Increased distribution channel partners to 746 and have started selling online as well; partnering with flipkart, amazon, snapdeal, pepperfry etc

INDUSTRIAL PRODUCTS
•    SIL started manufacturing complete coolers for one company. Expects good growth in this segment.
•    BOSCH, a new customer, has setup a large manufacturing plant for home appliances. SIL expects good orders from them.
•    Working closely with Honda cars on multiple models

MATERIAL HANDLING
•    New facility setup and started in Malanpur (M.P) for roto moulded products
•    Two new plants being setup - at Kharagpur and Kanpur; to be operational in April/June 2016

PACKAGING PRODUCTS
•    A specialty product - high gloss film has been successfully developed
•    The PPD plant at Kharagpur is now fully operational and is expected to generate a revenue of Rs 50cr

COMPOSITE CYLINDERS
•    Received initial educational order from HPCL for 5 & 10 kg cylinders; dispatches expected in April 2016
•    SIL received orders for 7.5 & 15 kg cylinders as well
•    FY17 may be a transformational year for this division

Getting Back to Basics - Presentaion at Investment Meet

We had the third meeting of your investment forum today. The venue was at Hotel Lindsay, bang opposite New Market. Thanks to Raghav for being gracious enough to arrange for the venue.

HDFC Bank is the next HDFC Bank!!

FM, Arun Jaitley has earmarked Rs 700 billion (USD 10.5 billion) in bank capital injections in the four years to March 2019.

Ratings agency Fitch estimates, however, that USD90 billion in capital will be needed for Indian banks to meet Basel III banking rules due to be fully implemented by March 2019. Fitch says that 11 Indian banks may fail to meet those norms.

With the finance minister spelling out compulsions in providing additional capital for the PSU banks, it is a matter of time that we say consolidation and increased transition from  public sector to private sector banks and NBFCs.

This provides a very large opportunity for organizations which are well capitalized and are diversified into multiple lending lines. I continue to believe businesses like HDFC Bank, Kotak Mahindra Bank, ICICI Bank, Bajaj Finance and others would do well over an extended period of time.

Century Ply - Notes from Annual Report 2016

Centuryply is among India’s largest interior infrastructure product manufacturers. The Company offers plywood, laminates, veneers, MDF, blockboards, doors, fibre cement boards and particle boards. It is also engaged in the logistics business through the management of a container freight station (India’s first privately owned CFS at the Kolkata Port).

Another unit in Laos is being commissioned. 5000 retail outlets added in 2015-16.

Launched new age products– Zykron and Starke (Wood Polymer Composite and Cement Fibre Boards). CPL expects to carve a 10% market share of the country’s B1,000 cr fibre cement boards market by 2020

Set up a particle board unit at Chennai, commissioning in June 2016, to capitalise on the fact that there are no similar units in the city

Commenced the construction of MDF unit at Hoshiarpur (Punjab). Following the commissioning of this unit, prlanned for July 2017, CPL will possess a capacity to manufacture 198,000 cubic metres per annum, graduating it to one of the largest in the country.

Grew the laminates business by around 15% on the back of a strong catalogue and distribution network.

Plywood capacity continues at 210,000 cubic meters

Laminate capacity continues at 4.8 million sheets p.a. Conventionally, new laminates would be introduced every second year; Centuryply revolutionised the space with the introduction of four catalogues a year.

The co did not reduce prices even though the competition did amidst sluggish demand. CPL maintained EBIDTA margins at 17%.

Raw material costs as a proportion of revenues declined from 53% to 38% in the three years ending 2015-16.

Working capital cycle reduced from 88 days to 70 days.

Container Freight Station at the Kolkata Port contributed only 5% to revenues in 2015-16, the corresponding EBIDTA margin was 46%.

Industry structure and developments
Wood panel products - The Indian wood panel market is valued at 28,500 crore. Plywood has a share of 63% (18,000 crore).
Plywood - India’s plywood industry is likely to reach a market value of 479.7 billion by 2019. This growth in the plywood market is expected to be led by a surge in the growth of commercial and domestic developments.

The MDF market is estimated to be  worth ~35 billion in India and has grown at a CAGR of ~5-8% over the last five years. The Central Government’s decision to withhold fresh licenses for the manufacture of plywood has widened the gap between demand and supply. This is a positive development for the MDF industry and will increase the use of engineered panel products.

Segment-wise performance
Plywood: Revenues from plywood business reported a growth of 2.94% from 1,243.06 crore in 2014-15 to 1,279.59 crore in 2015-16.
Laminates: Laminates reported a growth of 14.20% from 321.27 crore in 2014-15 to 366.89 crore in 2015-16.
Logistics: Revenues from the logistics sector reported a 12.50% growth from 75.42 crore in 2014-15 to 84.85 crore

Sagar Cement - August Despatches

Second consecutive month of decent production and despatches, even during monsoon, augurs well for the demand scenario.

Weekend Musings

 

The last few days has been quite eventful. We had the first meeting of the ValuePickr Kolkata group last Sunday.

I had expected about 10 people when I first thought of this first. We ended up having over 40 participants sign up and 28 showing up on a rain-drenched Sunday morning and stayed on for over 3.5 hrs!! 


 


Some interesting stuff I read:

https://medium.com/@yegg/mental-models-i-find-repeatedly-useful-936f1cc405d#.vvs6mtaqa
Superb collection of mental models in one page

http://thenextweb.com/lifehacks/2016/08/01/989517/ 
7 mental models you should know for smarter decision making

http://awealthofcommonsense.com/2016/05/lessons-from-losing-big/
Notes from the book What I Learned Losing a Million Dollars.

https://hurricanecapital.wordpress.com/2016/08/02/peter-thiel-on-characteristics-of-monopoly/
Peter Thiel, the billionaire VC, who founded PayPal and now Palantir and also was an early investor in Facebook, has written a book Zero to One where he talks about the attributes of a monopoly. This article summarizes the book and throws in some interesting observations on monopolies.

Stock Update - JK Lakshmi Cement

JK Lakshmi cement is a strong player in North India with a dominant position in Rajasthan. Other states where the company has a presence include Haryana, Delhi, Punjab and Uttarakhand in north. In the west also, the company has a healthy presence in Gujarat and has made inroads in the Mumbai markets as well. Sales wise, Gujarat contributes highest at ~35% of sales while Rajasthan contributes 27%. The contribution from the rest of the north region is at ~31%. Maharashtra contributes ~7% to topline.

NOTES FROM AR2015-16
Integrated cement plant at Durg started commercial production in FY2016 and has reached almost full capacity utilization in less than a year.1.35 MTPA grinding unit at Surat has been commissioned at the end of FY16 and is in the stabilization phase Total capacity across locations is 13 MTPAThe company plans to deleverage its balance sheet before progressing on brown field expansionsTied up with Snapdeal and is the first company in India to foray into online sellingCo had a capacity utilization of 82% as against an industry average of 66%The co continues to be one of the lowest cost producersThe Durg Plant has performed satisfactorily in the very first full year of its operations and achieved 104% capacity utilization in the last quarter of FY 2015-16. Company has become a third largest player in Chhattisgarh market in a short span of time.

NOTES FROM Q1FY17 Concall
Durg plant: 
In the quarter, sales from the East plant was 0.5mt against 0.19mt in Q1FY16. EBITDA has turned positive for the plant in the quarter primarily led by cost reduction as realization remains weak. The company is buying power for the plant at Rs6.8/unit from the grid which is very expensive (CPP generat ion cost is Rs4/unit). In order to save energy costs, it is in process of commissioning WHRS of 7MW (to be operational by Sep - 17). However, it will be able to cater to only 30% of the power requirement of the unit. Hence, the company is also trying to source power from private source which will be relatively lower than the grid cost (but not as low as the CPP cost). This is expected result in cost savings of Rs150/tn. Also, construction of railway siding is under progress and is expected to be com missioned by the FY18 - end which may further lead to savings Rs300 - 350/tn. Through these initiatives, saving of at least Rs300 - 400/tn is expected in the opex of East plant.

Product and sales mix of East plant :
East plant is currently producing 75% PPC and 25% OPC+PSC. This plant is currently selling 60% in Chhattisgarh , 20 - 25% in Orissa and rest in other markets. Larger exposure to Chhattisgarh market has led to lower realization for this unit . Thus company’s focus is more on cost saving so that the profitability can be improved.

Capex update:
The coompany has planned capex for a) Rs150cr for the capacity expansion at Durg plant from 1.8mt to 2.7mt (expected to get commissioned by Jun - 17), b) Rs90cr for WHRS unit of 7MW (to be operational by Sep - 17, c) Rs 100cr for the grinding unit at Orissa (0.6mt), to be operational by Sep - 17, d) Rs150cr for railway siding at the Durg plant (expected to get commissioned by FY18 - end ) and e) Rs20-22 cr left capex for Surat plant (trial run has started). Additionally , remaining capex for Udaipur plant (1.6mt, expected to get commissioned by Dec - 16) is Rs200cr.

Sales mix:
Company sells 60% in Chhattisgarh and 20 - 25% in Orissa form the East plant. From North plant it caters to Gujarat (35%), Rajasthan (30%), Maharashtr a (5%) and rest to other parts of north region.

Clinker production:
The company produced 0.34mt clinker in Q1FY17 as compared to 0.20mt/0.3mt for Q1FY16/Q4FY16.

Lead distance:
Lead distance for North /East plants is 450kms /300kms . The company is planning to take initiatives to reduce the freight cost in the North region.

Petcoke:
The average petcoke cost for the company in Q1FY16 was Rs5000/tn, however it has increased to Rs6,500 - 6,600/tn (spot price) as of now . It uses 90 - 95% petcoke.

Debt and cash level:
As of 30 th June, 2016 , gross debt of the company stood at Rs1950cr and cash was at Rs450cr. Debt pertaining to the Udaipur Cement stands at Rs500cr. Cash level has increased from Rs250cr as of Mar’16 to Rs450cr as of Jun’16.

Growth outlook:
As per the management the North/Gujarat/East regions grew by 1.0%/2.5%/3.0% in Q1FY17. On account of monsoon season, the company is not expecting any revival in the demand in Q2FY17, however, going forward it remains positive on the demand outlook for 2HFY17 and expects demand growth of 7 - 8% growth in this period . This, as per management, is expected to be driven by government spending on infrastructure, smart cities, housing for all scheme and rural growth on the backdrop of good monsoon.

DISCLOSURE: I am invested in the company.