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.

VP Chintan Baithak, Goa 2016

The VP Chintan Baithak at Goa 2016 was one more fantastic event. Building up on last year, we took up a few independent themes for each day. First day was more devoted to introductions of the new invitees and look back at the basics - inculcating VP process. Day 2 was spent on discussing top picks from all participants and discussion on the self-reinforcing business model. Day 3 was spent on business models, risks and corporate governance. Day 4 was a curtailed session but one in which we looked at trends in industry for the future. Interspersed during each day were comments and discussions from the two guest participants - Prof Bakshi and Vinay Parikh.

A few things that were discussed:

• Always ask yourself how does the company make money. Avoid companies that are not win-win for all stakeholders
• Look for companies which have a long term track record of prudent capital allocation
• You can average up in companies that have "fundamental momentum"
• Try to learn about similar business from other industries
• It is important to focus on reading - read annual reports when they are available, books, magazines, journals, industry reports at other times.
• Spend some time to read something not directly related to investments everyday to broaded your horizon and increase your ability to connect various dots

I thoroughly enjoyed the 4 days mainly because it was about the topic I am most passionate about and in the company of friends. I was amazed by the zeal of Prof Bakshi and Vinay Parikh. They spent the entire day with us right from 9am to 1:30-2:00am!!!

Thanks to all the participants who made this one more memorable experience.

Stock Update: JK Lakshmi Cement

Good results for Q1 2017 - http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/14865A7A_4DA7_42B9_9213_D55048DC67CE_165307.pdf