Stock View: Cravatex

Cravatex is mainly a trading company. It sells fitness equipment (gym and home exercising) under the “Proline Fitness” brand. It is also the sole distributor of FILA and Dunlop in India. Primary customers are gyms and retail customers.

The sector is growing. Health consciousness in growing a lot. Talwalkar’s and Gold’s Gym are growing well. Talkwalkar’s expect to grow 30% in the next 2-3 yrs.
Cravatex has strategic tie-ups with both these chains.


FILA has the lowest market share amongst the established brands of international footwear in India. The market leader is Adidas (including Reebok), followed by Nike & Puma. FILA is just getting into the market and is competitively priced. So, market share is likely to increase provided it can increase its distribution capacity significantly. In the fitness space, the company has 28% of market share.

The promoter holding has been consistent at 75% over a fairly long period.

The company's networth has been steadily rising. From 10.74cr (2002-03) to 30.85 cr (2012).

It has increased its RoE significantly in the last 3 years. This has come mainly from an increase in net margins (probably the FILA brand making its impact felt).

Risks & Concerns

Total debt is 28.14 cr (cons). It has gone up from 17.64 cr (cons) from 2011. D/E is 0.87. It seems to be on the higher side.
Cash flow has been consistently negative over the last 3-4 years.


Valuation

Cashflow is negative so can't really do a DCF analysis.

On EPS estimates, with an assumption of 15% growth for 2013 & 2014, the expected EPS are 36 & 42 for the next 2 years.

Assuming a PE range between 10-15, the optimistic and pessimistic price ranges work out to:-

2013 –> 367 to 551
2014 -> 420 to 630

Conclusion: At CMP (425), the stock price has nearly halved from its high of nearly Rs. 800. The results for Q2 is also likely to be weak and the under-performance for the stock is likely to continue for some more time. On the medium term, however, the stock is priced well enough for adventurous investors to take a bite.

Disclaimer: I am invested in the stock and have a vested interest. Please do your own due diligence before investing.

Stock Update: Cera Sanitaryware

The company announced that it has appointed Shri S.C. Kothari, as C.E.O. of the Company. Mr Kothari  joined Cera as Corporate Finance Head. In 2002 was made CEO of the company. He had retired from the company in Aug.2008. So, this looks like an interim measure to bring in the previous CEO back at the helm. 

I am getting a feeling that option 3 is playing out from my previous post.

Valuation for the company and political uncertainty in India continues to be high and investors need to be cautious.

P.S.: Looking at some companies. Should be able to post about them in a couple of weeks.

Stock Update: Cera Sanitaryware

With the untimely death of Mr. Vidush Somany, the MD of Cera, there are a lot of questions in the mind of investors. Here are possibilities:-

1) There will not be any significant long term impact to the performance to the company. Mr. Vikram Somany, the founder and CMD of the company will continue to drive the company.

2) If there are no natural successors, then Mr. Vikram Somany may decide to sell out to another company at a later point in time.

3) If there are other potential natural successors, then Mr. Vikram Somany may continue at the helm or hand over to a professional CEO, till the successor is groomed.

Whichever scenario plays out, the business may see short-to-medium term weakness as it adjusts itself on the loss of its prime mover. The valuation is also not cheap.

Recommendation: Adventurous investors can continue to hold with a stop loss around 320-325 levels. I would suggest gradual profit booking of atleast 50% of your positions and then waiting to see how the business actually pans out. At this moment the risk-reward is NOT in favour of the long term investor.

Disclosure: I am invested in Cera Sanitrayware and HSIL and my views are likely to be biased. Please do your own due diligence before investing.

Supreme Industries Vs Astral Poly: Quick Look

Here is a quick look at Supreme vs Astral:

	Astral	Supreme
CMP	286	280
Face Value of Share	5	2
Sales	609.31	2962.2
Net Profit	39.46	240.52
Op Margin	14.15%	15.85%
Net Margin	6.83%	8.08%
RoCE	28.83%	45.6%
RoNW	21.55%	37.5%
Debt-Equity	0.34	0.4
Inventory Turnover	4.96	9.44
Asset Turnover	2.86	2.39
Material Cost	75.32	65.82
Dividend Payout Ratio	7.39	36.82
PE	15.17	14.9
P/B	3.49	5.58
Div Yield	0.4%	2.13%
Last 5 yr Rev Growth	42%	22%
Last 5 yr Profit Growth	23.51%	47.29%

  


The numbers are probably self-explanatory! Interestingly, Supreme has consistently improved its RoCE over the last 10 years. It used to be around 10% in 2002-03 and has moved to nearly 45% currently. It's CPVC business has grown 60% this year.

What I am most interested in is however, the composites business, which I think may be a big differentiator. This is their 5th and newest line of business. The company has received ISO approval for making fibre glass gas cylinders and is expected to start their trial run from Jan'13.




Disclaimer: I am invested in both Supreme and Astral and they are in top 5 holdings in my portfolio.

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.

Guru Speak: Mohnish Pabrai

Came across this recent video on youtube. Fascinating as usual.

Cera Sanitaryware: Stock Update

Cera is the third largest player in the Indian sanitaryware market after Hindustan Sanitaryware (HSIL) and Parryware (EID Parry).

The highlights of the company are:

• Sanitaryware - capacity expansion from 2 million pieces to 2.7 million pieces underway.
• Faucetware - Initial capacity of 2,500 pcs per day, scalable to 10000 pcs. per day
• Bathware & Wellness Range - Primarily imports from China; product ranges like shower cubicles, shower panels etc

Financial Results for FY2011-12:

• Revenues of 320 cr and Net Profit of 31.79cr.
• EPS was 25.32 up from 20.97 a year back.
• Paid a dividend of Rs 3, up from Rs 2.5 in 2010-11.
• EBIDTA margins have been closer to 18-20% consistently.
• RONW% is around 23% for the last three years.

Management/promoter compensation - Father/son duo (CEO and Executive Director respectively) get a salary of 2.5 cr and 1.9 cr, which is a bit high compared to the net profit of the company. Promoters hold 55% of the stock.

Cera has a strong distribution network with 1000 Distributors / Dealers and 10000 retailers.

The company has maintained its strong revenue and profit performance in the 1st quarter of 2012 as well. Revenue was at 90.5 cr (up 40%) and net profit was 9.24 cr (up 34%).

With a reasonably good demand for sanitaryware and Cera's position as the 3rd largest player in the market, added to its efficient use of capital, the company seems to be well placed for future growth.

I am expecting a EPS of between 28-30 for FY12, so expected FY12 end price is 230-360. The CMP of around 315 is already fairly reasonable.

Recommendation: Cera would be a good buy at closer to the 260-280 range. For long term investors, I would suggest to wait for lower levels than buying now, if you are planning to buy in large quantities. For smaller quantities, buying as a SIP would probably bet a good bet for Cera.