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Thursday, November 03, 2016

Rasandik Engineering: Deep Discounted stock.



Rasandik Engineering India Limited.
http://www.rasandik.com/home.htm
CMP:65.80
Market Cap: 31.09Cr
Equity:47.3 Lakh Shares. 4.73Cr (Face Value:10/-)
Sales (March 2016): 214.55Cr
Net Profit: 1.14Cr

Rasandik established in 1986 as manufacturers of Fuel Tanks & Sheet Metal Components has been pioneering new frontiers in Tailor Welded Blanks(TWB), Engineering Solutions, Tooling and Product Design. The use of high level of automation, robotics, softwares like Catia, Unigraphics, Hyperform and Rasandik’s passion for innovation and latest technology have triggered a chain reaction catapulting it to its ‘pioneering market leader’ status today. Company caters to the following Product Sectors:
- Sheet Metal components for Cars, Trucks, Tractors, Two Wheelers
- Three Wheelers,
- Die and Tools,
- TWB (Tailored Welding Blanks)

Rasandik Engineering Industries India Limited (Rasandik) is engaged in the manufacture of sheet metal components for automobiles. The company offers tailor welded blanks, body-in-white parts and subassemblies, tools and dies, suspension parts and sub-assemblies, fuel tanks, exhaust line and CNC bending products, and scissor jacks. It also provides white goods, such as air-conditioner body stampings and assemblies, refrigerator body stampings, and washing machine body stampings. In addition, the company offers engineering solutions in the areas of hyperform draw analysis, tractor body parts, point cloud data, surface model, and MUV wire frame.

TWB’s is a technology that is futuristic & helps OEM’s manufacture light weight and cost effective vehicles. We provide a single point responsibility from product design to product delivery. Rasandik is rapidly moving up the value addition chain and becoming an integrated component manufacturer.

Customer List:
Cars/SUV/MUV: Maruti, Honda, General Motors, Tata, Mahindra, Renault-Nissan, FIAT,Hindustan Motors.
Motor Cycle: TVS, Honda Motor Cycles
LCV,HCV: Swaraj Mazda,AMW, Force Motors, Ashok Leyland,
Tractors: NewHolland, Mahindra Swaraj, Renault Agriculture, CLAAS.
WhiteGoods: LG
Press Tools & Dies: Maruti Suzuki, Tata, General Motors, Gindustan Motors, Hero Motor Corp, Honda Motorcycles, TVS.

Rasandik Engineering was started by Shri. Rajeev Kapoor (IIT-Delhi 1977 batch) worked with F.L.Smidth & Company, Denmark and subsequently started Rasandik Engineering in 1986. .

Our Mission for 2015 - 16... to build capabilities for Aluminum & Titanium, metal working for Aerospace Sector, Stainless Steel and Special Steels heavy fabrication. Feasibility study to build capabilities for GI & SGI castings. To achieve this, my message to the Rasandik team is to continue providing quality as a way of life and inculcate an attitude of ‘Do it right the first time and every time’.

Our Vision 2020... to Build Capabilities for Design to manufacture of components and aggregates for to Build for Design to manufacture of components and aggregates for Automotive Sector, Aerospace Industry and to carry out Heavy Fabrication.




  
Rasandik Engineering had taken a 10 Million USD 3%  (45.79Cr) Foreign Currency Convertible Bonds  which matured in April 2009 company has paid 80% of the bonds and 2 million worth (9.158Cr) are unpaid Company has stated that its been provided for in their books. So it could be a case of identity of bond holder or other issue not in control of the company.

Rasandik is reporting losses and does have 117Cr worth of borrowings. and Capital expenditure is also consistently close to 35Cr every year which is quite high for a 225Cr sales company.Could be due to vision of entering into Aluminium/Titanium Welding space and entry into aerospace/defense engineering or the fact that technology is the differentiating factor in the auto component space to survive.

Conclusion: With forcasted lower interest rate regime(I expect the rates to be low going forward for a long time - new trend) companies which have debt in their books and who are well established should be able to take advantage of the lower rates. Already Automobile companies are reporting higher sales number. All said and done @ 30Cr market cap..low equity base.. I'm expecting the management to turnaround the company.Good value buy for the long term investor.




Wednesday, November 02, 2016

How Are We Doing Diwali 2016

Wishing All Investors. Readers & Visitors A Very Happy, Healthy and Prosperous New Year...
Let us start with a review of performance of stocks recommended in this blog.

Its been around 7 years since the blog was started.. A total of 30 stocks have been suggested as good investment ideas.10,000 invested in each of the 30 stocks ie 3,00,000/- lakh invested over the 7 years would have been worth 9,64,764.70 (Including dividends) would have given a return of 38.64% per year.
without including dividends the return would have been 36.41%

This is hypothetical case, because there have been rights issued and I have assumed that rights shares have been bought.  Also the total invested days is 2093 days as the stocks were introduced over the period of 7 yrs (2 of them in 2016)

The Recommended Best Buy stocks have turned around in 2016-17 Last year the Best Buy stocks had a 6 yrs absolute return of 50.51%  and this year 7 yrs absolute return is 271.67% an increase of 220% in one year..
In past 1 year
GAEL has increased from 45.20 to 95.4
Jayant Agro has increased from 109.90 to 551.40
NHPC has increased from 17.70 to 26.90
Tata Comm has increased from 431.30 to 634.55

The point being made is its very difficult to know when the stock becomes active and starts to be valued by investors increasing demand and increasing stock price. I also feel management suppport is important and management is in a position to project the right image to investors..

The question is.. is there still value left in these recommended businesses? The answer is yes!! These companies will still continue to perform well and with passage of time the value of their business will grow..

One of the most important things about a business/company is its ability to pay taxes after all expenses are considered. An individual gets a salary.. which is first taxed .. and then we pay for our expenses and finally we save the remaining income.
For example
A company earning 1000 having 500 as expenses  paying 30% tax has following savings
1000 - 500 = 500 which is then Taxed @ 30% (150/-)
Savings : 1000-500-150 = 350.00

An Individual earning 1000 and having 500 as expenses and paying 30% tax has following savings
1000 income is Taxed @ 30% ( 300/- ) & 500 Expense,
Savings = 1000-300-500 = 200.00

As you can see All things equal.. Individual saves 200/- while corporate saves 350/- A corporation can save 75% more than an individual just because in case of corporates you pay taxes  after all expenses are paid.. while in case of an individual you pay taxes before your expenses are paid. (BIG Difference!!)

So one of the important functions of a corporation is the tax benefit and hence corporates have an incentive to invest and grow. Over a period of time the effect of compounding increases the wealth of corporates. Management is always an important factor as they can make or break a corporation.

Outlook: BASEL-III implementation is just being rolled out.. so banks are going to have a tough time growing their books. due to lower leverage than normal.(due to basel -III restrictions) . what is the need of the hour is "excessive printing of paper currencies" and all the central bankers are busy doing it..

Excessive printing is required to replace the lower leverage in the balance sheet of the banks.. now the Goverment balance sheets are expanding... and till the bank leverage stays low we are all good.. the problem will be when the banks return to their old ways and leverage their books.. that is when the problem will start.

India is one of the few countries where the level of leverage in the system is very low. A large portion of the Indian population is still unbanked.. NBFC with no basel-III restrictions can really eat the cake of the banking industry.. and a NBFC owned by a bank would be able to somehow have the best of both worlds..



 




Thursday, October 06, 2016

Tata Power: Hidden Asset: Strategic Engineering Division

Tata Power:
CMP:  78.20
Market Cap:21,150Cr, Free Float: 14,170Cr
Annual March 2016
Sales: 36,700Cr,
PBDIT: 8070.13Cr
Net Profit: 873Cr
Annual Report March 2016
Power is a controlled commodity as its one of the basic necessities of modern life. Govt of India regulations exist such that power companies whether its Coal, Nuclear, Hydro, Solar, Wind, are entitled to a fixed return on their capital which is around 16%.  This results in Power companies leveraging their balance sheet so that during the initial growing years (new capacity addition) the company earnings are always under pressure from the debt repayment as well as depreciation.

Electricity pricing is a very politically sensitive subject and profits of any power company will be questioned for electoral gains.. so please consider this before considering Tata power as an investment destination.






But then what makes Tata Power attractive is its subsidiary " Tata Power Strategic Engineering Division"

http://www.tatapowersed.in/

Centre for Excellence in Strategic Electronics
For close to four decades, The Tata Power Company Limited through its Strategic Engineering Division (Tata Power SED) has been a leading private-sector player in the indigenous Design, Development, Production, Integration, Supply and Life-cycle Support of mission critical Defence Systems of Strategic importance. During this period, the Division has partnered the Ministry of Defence (MoD), the Armed Forces, DPSUs and DRDO in the development & supply of state-of-the-art Systems and emerged as a Prime Contractor to MoD for Indigenous Defence Production when it secured Orders for Pinaka Multi Barrel Rocket Launcher, Akash Army Launcher and Integrated EW System for the Indian Army and for the Akash Air Force Launcher, COTS-based Automatic Data Handling System for Air Defence and Modernisation of Airfield Infrastructure (MAFI) for the Indian Air Force.

Tata Power SED has the unique distinction of participating in Defence Programs through a dedicated R&D Centre at Mumbai and a Production facility along with an R&D Facility at Bengaluru. As a leading domestic player in Strategic Engineering, the Division is now globally recognised for harnessing its “Systems and Engineering” capabilities and has been appraised at Maturity Level 5 of CMMI® for Development v1.3.

Success in modern war depends on Integrated operations over distributed geographies using Sensors and Weapons of varying vintage. Tata Power SED's team has the right blend of technological and operational experience in integrating these heterogeneous systems, using both industry standard and system specific interfaces and protocols.

In recognition of its pioneering capabilities in Design, Development, Manufacturing and System Integration, Tata Power SED was nominated by MoD as a Major Work Centre for the Samyukta Electronic Warfare Program under the aegis of DRDO. Tata Power SED has also received several national awards from industry associations such as the Federation of the Indian Chamber of Commerce and Industry (FICCI), the Confederation of Indian Industry (CII) and the Ministry of Science and Technology.

The Government of India, Ministry of Defence awarded Tata Power SED in 2006, seven Defence Production Licenses, thereby empowering the Division to design, develop, manufacture, assemble and upgrade mission critical systems in seven core areas of Defence Strategic Electronics.

These Production Licenses open a vast domestic addressable market, which include upgrades of existing Weapon systems and platforms. Additionally, business opportunities through ‘Offsets’ for Systems Design, Engineering and Testing Services will also be targeted by the Division, thus opening up the export market.

The seven Defence Production Licenses received are:
1. Electronic Warfare Systems (Stand-alone & integrated) for Army, Navy, Air Force, Para-military and Inland Security,
2. State-of-the-art Network-Centric Warfare Enablers, including Tactical and Strategic Communication systems GPS-based Navigation & Tracking  and GIS systems.
3. Avionics, Airborne assemblies, Systems and Equipment for Aircrafts, Helicopters & AWACS including development of UAVs (Unmanned Aerial Vehicles) and UVs (Unmanned Vehicles) of all types.
4. Air Defence / Naval guns, Field Artillery, Tanks, Combat Vehicles, Anti-Tank Weapons systems, Mortar, Shell, missiles, rockets etc., and any associated systems.
5. Naval Combat, Air Defence, Artillery, Command & Control Systems, Border Security and Surveillance, including sensors such as Radars, Sonar, Thermal Imaging, Radiography, Optronics and Night Vision sub-systems.
6. MIL (Military Grade) products such as Display Consoles, Rugged Computers, Workstations Servers, On-board Computers, GPS Receivers, Printers, Documents / Bio-metric Security Systems etc.
7. Weapon Systems – Rocket and Missile Launchers, for Ground and Naval applications including associated systems and sub-systems, including inertial and GPS based navigation and tracking systems.
================
 The Tata Power Company Limited through its Strategic Engineering Division (Tata Power SED) has consistently harnessed cutting edge technology to fulfill its deep rooted commitment to the Nation.

In 1975, Tata Power SED, originally known as the R&D Division of Tata Electric Companies (TEC R&D), started its foray into the development of systems for Indian Defence. It developed and supplied systems for the Air Defence Ground Equipment System (ADGES) built by Tata Institute of Fundamental Research (TIFR). The systems covered Radar PPI displays & Random Scan Displays (with synthetic graphics and text display facility).

Since the mid 80s, Tata Power SED also made a significant contribution to the Integrated Guided Missile Development initiatives of Dr. APJ Abdul Kalam and has to its credit, the development and supply of AKASH Launchers (Army and Air Force versions), Missile Interface Units for AGNI Launcher, On-board Computers and Launcher Electrical Systems for PRITHVI Launcher and a host of other Ground Electronics support systems.

Tata Power SED has now evolved into a Systems Integrator for programs of national importance such as the Pinaka MBRL System, Launchers for the Akash Air Force and Army Programs, Electronic Warfare Program, Command & Control Systems for Air Defence and Naval Combat.

With its sound knowledge of interfacing and integrating Weapon Systems, coupled with its capabilities in the area of Mission Critical Software, Data Fusion, Communications and Large System Integration, Tata Power SED has the multi-disciplinary resources necessary to take the decade old partnership with the Armed Forces into a new dimension in the era of Digital Wars.

Interesting news Item: Tata Power SED to make 16 Akash surface to Air Missile Launchers for 36 Million USD .. it goes on to say that Total order over the next 20 yrs is 3000 Akash Missile launchers for Army and Airforce. (March 2009 News Item)


Capabilities:


Weapon Systems and their Upgradation for Ground Forces
=>Pinaka Multi Barrel Rocket Launcher
=>Akash Army and Air Force Missile Launchers
=>Medium Range Surface to Air Missile Launcher
=>TCT A5 Launcher
=>105mm Mounted Gun System
=>Upgrade of Air Defence Guns with EO Sights and on board Ballistic Computers
=>Launchers with Integrated sensors for All Types of Missiles and Rockets
=>Fire Control Computer for Tanks and ICVs
=>155/52mm Mounted Gun System
=>155/52mm Self Propelled Gun (Tracked)
=>Remote Weapon Station
=>Pragati Mobile Launcher System

Upgradation of Tanks, Armoured Vehicles and related Equipment
=>Advanced Hull Electrical Systems for Armoured Vehicles
=>Thermal Imager Fire Control Systems

Ballistics and Data Fusion
=>Ballistic Software for Air Defence Guns
=>Ballistic Software for Field Artillery Weapon Systems
=>Ballistic Software for T-90 tank (Indian and Russian Projectiles including Tank fired Missiles)
=>Data Fusion

Aerial Reconnaissance Equipment, Airborne Radio Transmitters / Receivers, Radars and Navigation Equipment
=>Reconnaissance payloads for UAV
=>Operational Data Link
=>Navigation Equipment including GPS and INS
=>Medium Altitude Long Endurance UAV
=>PTA - Digital version

Air Defence Data Handling Systems including Ground Radar and Equipment including Air Defence Control & Reporting System
=>Air Defence Artillery Control & Reporting System
=>Radar Interface Devices
=>Mobile Command Post for Command & Control for Air Defence Artillery

Computer-based Trainers, Simulators and other Training Equipment
=>Air Traffic Control Training Simulator
=>Operator Training Simulator for Pinaka MBRL System

Ruggedised Computers and Peripheral Equipment
=>Tactical Field Computer (TFC)
=>RUGBY - Rugged computers
=>Fire Control Computer (FCC)
=>Dual-Redundant Rugged Computer
=>Tactical Consoles
=>Rugged Workstations on Mobile Platforms

Network Centric Warfare Enablers, Tactical/Secure Communication Systems including Network & Spectrum Management Systems, Electronic Warfare and Power Supplies
=>Systems for Tactical Communications and Network Centric Operations
=>Spectrum / Network Management System
=>Signal Command and Control System
=>Operational Data link
=>Tactical Radio with Mobile ad-hoc technology (Adaptive SDR)
=>DC-DC Converters and Ruggedised Power Supplies
=>Intracom for Electronic Warfare Systems
=>Tactical Rugged Router
=>Rugged Multimedia Communication Systems
=>Integrated Packet Voice Communication System (IPVCS)
=>Indigenous Security based Messaging and Networking Solutions (ISMNS)
=>Evolved Packet System (EPS)
=>Sectorial Antenna System with Amplifiers
=>Multi-service Tactical Access Switch

Vehicle Equipment and Trailers
=>EMI / EMC and EMP Hardened Mobile Command and Control Posts
=>Payload retraction and hoist system
=>Hydraulic / Electrical / Electro-mechanical Outrigger Assemblies

Electronic Warfare Systems and Related Equipment
=>Integrated Electronic Warfare System for Mountainous Terrain
=>Low Power Jammer systems
=>Low Intensity Conflict EW Systems
=>Heliborne EW Systems
=>Aerostat Based COMINT Systems
=>Spectrum Monitoring and DF for IAF
=>Command & Control Software for Com and Non Com EW Systems
=>Countermeasures Control Centre Software
=>Voice / Tone Recognition and Keyword Spotting System
=>Antenna Retraction and Servo System
=>Ruggedised Work Stations and Consoles for EW Entities
=>Entity Engineering on various platforms including Tracked vehicles and HMVs
=>Synchronized Direction Finders and location fixing
=>Intra Com for EW Systems
=>Indigenous GIS and High Speed Light Weight GIS
=>Passive Interception and decoding of GSM (Encryption type 5.1 and 5.2) and CDMA
=>Migration from Solaris based systems to Linux / Windows based client - Server systems
=>Voice Recognition and Analysis System
=>Fast Scan Receiver

Air Defence Systems & associated products
=>Radar Data Processors
=>Multi-sensor Data Fusion
=>Plot Extraction Devices
=>Dual Channel Video Extractors
=>Area Moving Target Indicators
=>Futuristic Automated Air Defence System
=>COTS-based Air Defence System
=>Integrated Air C&C System
=>Mission Planning Package
=>Air Intelligence Package
=>Mission Computer for Sukhoi Aircraft
=>SRSC - Software Radar Scan Converter
=>AURA - Remote Control and Monitoring System for Airfield Lights

Unmanned Aerial Vehicles, Aerial Reconnaissance Equipment, PTA & Air-Ground Data Link
=>Reconnaissance payloads for UAV (Gimbal Payload Assembly)
=>Electronic Modules for PTA (Lakshya)
=>Digital version PTA

Command Posts, Displays and Multi Function Consoles
=>Dual Monitor Multi Function Consoles (DMFC)
=>Tactical Naval Consoles

Setting up / Upgradation / Modernisation of Air field Infrastructure, Strategic facilities & Bases
=>Modernisation of Air Field Infrastructure

Sensors / Underwater Sensors
=>Thermal Imaging / Night Vision Systems
=>Electro Optical Payloads
=>Tadpole Sonobuoys

Border Security Management Systems
=>Secured Perimeter with Intelligent Detection and Effective Response
=>Remote Pan/Tilt Observation System
=>Ground Based/ Underground Sensors
=>Solar Panel based un-attended Power Supplies

Manufacturing, Documentation, Maintenance, Support and Repair Services
=>Design Engineering Services
=>Value Added Electronic Manufacturing Services
=>Life Cycle Support
=>System Up-gradations in case of non-availability of obsolete components
=>Refurbishments, Retro-fitments and modifications as per User requirements
=>Warranty Support/Comprehensive Annual Maintenance Contracts
=>Obsolescence Management / Drop-in Replacements
=>Structured Training Modules for Operations and Maintenance
=>Customised Technical Documentation – JSS0251 Standards
=>Inventory management with Component-level traceability for components
=>All India network of Service Centres: Resident engineers deputed at remote installation sites

Pinaka Multibarrel Rocket launchers are now the de-facto standard Multibarrel Rocket Launchers for Army. and Army is producing 5000 rockets per year (2014)





My take: if you consider the Defence capabilities built in "TataPower SED" I think Tata Power SED will be worth atleast 20,000Cr. Tata Power power assets are also substantial as its the largest Pvt sector power company In India. From the look of it tata Power SED is into Electronic & Communication systems for Indian Defence industry.. and does everything under the sun. For someone who is looking for an above the market returns over the next 5-10 yrs can expect Tata Power to deliver the same. I would say a multibagger with risk reward in favour of investors..


Tuesday, October 04, 2016

Permanent Magnets: Hidden Gem, Value Buy!!


 http://cdn.shopify.com/s/files/1/0309/7625/t/1/assets/logo.png?13420208566542412253





Permanent Magnet  www.pmlindia.com

CMP: 18.8
Market Cap: 16.17Cr
Annual Sales March 2016: 67.7Cr
PBDIT: 3.81Cr
Net Profit: 0.93Cr (93 Lakhs)
EPS: Rs1.08
Debt: Long term: 3.82Cr
Debt Short term: 13.82Cr
Annual Report March 2016

Permanent Magnets Limited is one of the flagship companies of Taparia Group, Mumbai and also one of the leading manufacturers of Alnico Cast Magnets and Yoke Assemblies. It is a front-runner among young, dynamic and growing companies in India.

PML magnets are used extensively in key industry sectors such as electronics, electricity meters, automobile industries, telecommunication, defense, space research, aeronautics, railways and electricity generation.

The technical collaboration started in 1963 with “Centro Magneti Permanenti” (CMP) Italy. In 1973, PML started manufacturing Ferrite magnets. In 1983, PML upgraded technology with help of Dowa Mining (Japan) and Sumitomo (Japan).

PML started manufacturing magnetic assemblies such as Separators, lifting devices, holding devices etc. in 1984. In 1996, PML implemented the ISO 9001:1994 system for the first time. PML has been growing since then in the field of Magnets, Assemblies, Shunts and High Permeability components.

PML is into manufacturing electricity meter components (electro mechanical meters) used in metering systems installed in households. it also manufacturers a large variety of magnetic material equipment for industiral as well as personal use.
With the move worldwide to smart electronic meters (meters which provide additional data such as energy utilization, remote meter reading..) the company had to retool itself to manufacture these smart electronic meter components.
===================
Smart meters consist of digital displays for displaying detailed energy usage,and the cost related to the energy usage. With the detailed energy usage and cost displayed on digital display, the consumers are able to understand and act accordingly to conserve the energy For instance; the consumers adjust their consumption patterns when they discover the amount of power used and the cost of operation of the several appliances.

The major appliances in the home, such as washing machines can be automated with the help of smart meters. This allows such appliances to take various advantages, such as time-of-use tariffs. With the two-way communication offered between intelligent household appliances and meters, the consumers are able to make note of the power being consumed. By two-way communications, energy service provider or utilities are also able to control elements of the consumer’s usage for lowering their bill.
====================
Taparia group is a well established name in "Hand tools market and is a market leader in India" so the management is a well established business group.

PML India intends to address the smart meter market in India and abroad and the management seems to be experienced in this business (as they used to manufacture magnetic components for electro-mechanical electricity meters before.)

Valuation wise due to low profitability it is not yet clear how it will all pan out. But looking at the addressable market and the growing demand and strong promoter background, I expect Permanent magnet valuation to rise further as the firm becomes entrenched in the market, fundamentals improve and the market acknowledges its position.

Fair valuation will be a market cap equal to 1 times sales.  liquidity is very low so one needs to patiently accumulate. Long term value buy, multibagger



Tuesday, November 10, 2015

How Are We Doing Diwali 2015

Wishing all Investors and readers a Healthy and Prosperous New Year!.. Let us start with the review of our performance.




Its been 6 yrs (2009 to 2015) and looking at the data of recommendations.
1. considering an investment of 10,000 in 28 stocks ie. 2,80,000 the stocks discussed in the message board have given an absolute return of 158.75% that's an avg of 30.74% per year on invested capital(Including dividends). 
Invested capital: 2,80,000.00
Current Value: 7,24,513.00

2. The NIFTY (Absolute: 82.50%, Annual: 12.79%) & SENSEX (Absolute: 82.72% & Annual: 12.82%)
this clearly shows that if we do invest with value investing principals on a long term basis the returns are  worth the effort and one can expect to do better than the index.
Index Annual Return: 12.82% add another 2% for dividend ie 14.82%
Stocks Discussed in Blog Annual Return: 30.74%(dividend included)
Difference:  15.92%

3. Surprisingly my Recommended Best Buy stocks : GAEL,Jayant, NHPC & Tata Comm) have fared not so well.  giving an annual return of 9.32% 

4. hypothetical situations:
- If invested only in profit making stocks returns would be: Absolute: 253.04%, Annual: 48.76%
- If invested only in loss making stocks  returns would be: Absolute: -ve 30.56%, Annual -ve 4.88%
- If invested only in dividend paying stocks returns would be: Absolute: 184.36%, Annual: 35.84%

Total Stocks: 28
Loss making stocks: 9, Ratio: 32.14%
Profit making stocks: 19, Ratio: 67.85%
Avg no of days invested: 1884.71 days (5 yrs 2 month)


Takeaway: Investment of 2,80,000 (10,000 invested in each of the 28 stocks discussed in the blog)  would have in 6 yrs become 7,24,513.30 (PN: some stocks have given rights which would have resulted in additional investment capital) giving an avg of 30% return every year.. This is a very good number and if we can continue to produce these kind of returns on a long term basis it would be phenominal!!
I doubt that we can continue to produce such great returns .. but long term I'm sure we can beat the index.

Our Data indicates investing only in dividend paying companies is a great investing principle

I must add.. Manugraph India which has been reporting losses for past few yrs but still continues to pay dividend even during these loss making years is a good buy at current prices.. (CMP is below our recommended price in 2010)

Dividend payment also indicates a management which is willing to share the wealth with shareholders and I think its a great idea to stick to investing in dividend paying stocks..

Recommended Best Buy:
Absolute Return: 50.51%, 
Annual Returns: 9.32% 
Recommended best buy stocks have actually underperformed massively

GAEL has given the best returns Absolute Returns: 113.65%, Annual Returns: 19.34%
Tata Comm has given avg returns: Absolute Returns: 73.52%, Annual Returns: 14.84%
Jayant Agro has given below avg. returns: Absolute: 48.87%, Annual Returns: 8.90%
NHPC has been the real drag giving -ve returns: Absolute Returns: -ve 34.01, Annual Return : -ve 6.35%
 
NHPC indicates how important it is to buy at the right price.. right now NHPC CMP: 17.70 is a great price to add on for the long term. In hindsight ..I have a better understanding that though Hydro power plants are the cheapest producers of power but that is on the long term.. initial capital investments are high and depreciation eats up a lot of earnings.. having said that over the long term (as capital investment decreases to zero) we can see NHPC giving out huge amounts of free cash.. its said that the first hydro power plant still produces energy.. so NHPC is truly for the long long term...

Recommended Best Buy stocks are all dividend paying stocks and over past 6 yrs improved their fundamentals (increasing Reserves). and from our own data we know that dividend paying stocks give good returns.. I think the "Best Buys" still have not yet reached their full potential and are worth investing in at current prices..
 
Tata Comm though rarely discussed is also a great company.. with the largest network of Fiber optic cable network in the world (some say 25% of worlds capacity) also with the largest amount of end points Tata comm is already the largest carrier of voice traffic in the world,  Tata Comm has -ve "Net Current Assets" which means its working capital requirement is NIL. Tata Comm management has front ended all its expansion plans which gives it the first movers advantage .. giving it a moat which even well established names will have tought time cracking.. SPRINT, AT&T & some 60+ odd telecom carriers world wide use Tata Comm  network to provide telecom services to their clients... Tata Comm is a play on the "data driven future" 

Jayant Agro Organics: the most written about stock in this blog.. and surprisingly has very little coverage in the media .. according to me is a definite multibagger. Uniquely placed as India produces 80% of worlds castor seed (Castor seeds is the raw material for Jayant agro's speciality chemicals derived from castor oil) 

Castor oil according to Indian Institute of Chemical Technology - Hyderabad can be used to derive 1000+ chemical intermediates to replace "Crude oil" in the chemical industry.

Jayant Agro had purchased the Govt of Gujarat Castor Seed Crushing plant in Banaskantha Gujarat. Now Banaskantha produces close to 200,000 Metric Tonnes of castor seed which is equal to the total castor seed production of "China" the 2nd largest castor producing country.. now Jayant is the largest processor of Castor seeds in the world.

Jayant has also formed alliances with Arkema (French Speciality chemical company and largest consumer of castor oil in the world:- Ihsedu Ahrochem: Jayant:75.1%, Arkema:24.9%) 

Jayant has forward integrated to produce high value added Castor oil based polyols: Vithal Castor Polyol:  Mitsui Chemical, ITOH OIL JV: Jayant 50%, Mitsui Chem:40%, ITOH Oil: 10%)

Jayant has over the years built a moat by backward and forward integration.. now its time to enjoy the fruits of years of hardwork... I see a more assertive management with news reports trickling in.. 
midcap companies)   ranking of 500 companies. Jayant Agro 7 yrs Avg. ROCE (Return on Capital Employed): 26.32%, Consistent dividend payout since inception 21+ yrs is a real Hidden Gem..

Suggestion: Invest in all the recommended best buy's as they are still very attractively priced.

Outlook: Outlook for demand is "GRIM" specially world wide due to BASEL-III. Though Basel-III is supposed to help prevent a banking related "financial crisis" .. BASEL-III regulations are going to reduce the ability of the banking industry to rotate money.. resulting in slower growth and tepid demand.

World wide demand will stumble (unless the US FED Raises Rates by 50-75 basis points.. yes raising rates by FED could result in 2-3 trillion dollars to flow into the US/world financial system.. which could hypothetically cause devaluation of dollar and massive inflation - in USA) US FED Banks hold 2.5 Trillion in excess reserves with the FED   well thought out Stocks are still going to be the best bet.

India is still going to see a problem of excess demand (As most of the population is still unbanked and live beyond the reach of banking/finance) and basic needs are still not fulfilled.  Integration of the rural masses to financial system is going to be crucial(easier said than done in a cash economy). 

Inflation is here to stay for next few yrs.. even though the NDA govt has reduced the rate of Monetary expansion its running at 11% (16% during UPA).  Tier -II bonds of banks is an interesting space for fixed income.   There is always misallocation of Assets and Asset Reconstruction Companies is also an interesting space.. A well run bank in an unbanked country like India could be available at attractive rates due to BASEL-III regulations causing a sharp rise in NPA..

=Happy Investing

PN: these are my personal view points and not a recommendation to buy or sell. Please consult a SEBI registered financial advisor. This blog is a place for me to reflect on my investment view point over the passage of time for my own personal understanding.

Thursday, October 15, 2015

Jayant Agro Organics: Short Term Debt..is it really Bad/Good Debt??

Jayant Agro Organics:
CMP: 112
Market Cap: 168Cr
Book Value: 146.78 (consolidated), 124.49 (stand alone)
Sales March 2015: 1580.71Cr
Net Profit: 10.52Cr (Consolidated)
Cash Flows From Operations (March 2015): +175Cr
7 yrs Avg. ROCE: 26.32% (Consolidated), 25.34%(Stand Alone)

Whenever I suggest Jayant agro to other investors stating all the Strong points of Jayant agro.
- Largest Player in castor oil and castor oil derivatives space in the world.
- Unique advantages as India produces 80% of world's castor seed
- Consistent dividend payout since inception ie more than 21yrs of dividend payout.
- JV with market leaders like Arkema, Mitsui Chemical, ITOH Oil.
- Castor oil & its Derivatives are well established as Green Chemicals
- Promoters hold US Patent for efficient production of Sebacic Acid.

One of the question almost always get pushed back at me was..
just look at the Debt 250Cr Huge!!
add to that low Net Profit margin 1-2% its not worth the risk..

Well today lets look at the Huge debt !! and try to understand why its there and is it really Good/Bad Debt??

If you go to CRISIL which is the credit rating agency that has rated Jayant Agro's Debt. We get the following info (link)

Jayant Agro:
Long Term Rating: BBB+/Stable (Reaffirmed)
Short Term Rating: A2 (Reaffirmed)

Bank Facilities:
Letter of Credit & Bank Guarantee: 70 million (7Cr) Rating: A2
Long Term Loan: 492.8 million (49.2Cr) Rating: BBB+/Stable
Packing Credit: 2539.7 million (253.97Cr) Rating: A2
Proposed Long Term Bank Loan Facility: 2.2 million (22 lakhs) Rating: BBB+/Stable
Standby Line of Credit: 395.3 million (39.5Cr) Rating: A2
Total: 3500million (350Cr)


If I look at the various bank facilities listed in the CRISIL rating for Jayant Agro, the largest component is a short term 253.97Cr Packing Credit with A2 credit rating. Considering the total rated debt is 350Cr 253.97Cr is like 72% of the credit line for Jayant agro. if we understand Packing Credit we will understand Jayant Agro's Debt..

What is Packing Credit?
According to RBI (Reserve Bank of India): Packing Credit is credit provided by a bank to an exporter on the basis of Letter of Credit opened in his favour...


Letter of Credit : The LC should be irrevocable and issued by our correspondent bank abroad or a bank of international repute. Genuineness or authenticity of the LC should have been verified.

So the 72% of the Short term loan (254Cr) actually indicates that Jayant agro has a Confirmed Export Order (Letter of Credit) in hand worth 254Cr and this is a credit scheme for exporters provided by RBI.

Now that we know "Short Term Debt" is nothing but an export credit backed by a letter of credit issued by a bank? So is Jayant agro "Short term Debt" Good Debt or Bad Debt?

Another thing worth observing is the type of rating Jayant Agro debt has.. A2 & BBB+

According to CRISIL: (Rating Definition)
Short Term A2: Instruments with this rating are considered to have strong degree of safety regarding timely payment of financial obligations. Such instruments carry low credit risk.

Long Term BBB+: Instruments with this rating are considered to have moderate degree of safety regarding timely servicing of financial obligations. Such instruments carry moderate credit risk.

Export related finance that Jayant has got (Rating: A2) has a higher degree of rating than its "long term Loan" (Rating: BBB+). the RBI guidelines are helping Jayant get export "Packing Credit" at an attractive interest rate.

The return on capital employed (ROCE) is a better measurement than return on equity(ROE), because ROCE shows how well a company is using both its equity and debt to generate a return.

If you see Jayant Agro 7 yrs ROCE its 26.32%  indicating a pretty efficient financial setup..
Even in year ending March 2015 ROCE is: 18.76% which is pretty good considering 2015 Net Profit was the lowest in past 6 yrs.


Conclusion: Jayant Agro Debt is 90% short term in nature and is "Packing Credit" which indicates the debt is backed by a "Confirmed Sale" in the form of Letter of Credit. 

ROCE of Jayant agro for 7 yrs on average is: 26.32 % which indicates that Jayant agro is pretty efficient in allocating its capital (Equity + debt) High short term debt is acting like a smoke screen... 

Jayant's Cash Flows from Operations for Year Ending March 2015 is: +175Cr, longterm debt: 16Cr  Current Market Cap of Jayant Agro is 170Cr.. which means you have a world class castor oil & castor oil derivatives player you can buy 100% stake for less than its "1 year Cash Flows from Operations!!

Jayant agro high short term debt and low profit margins are acting like a smoke screen .. hiding a very efficient allocator of capital (ROCE: 26.32% 7 yrs avg). Jayant agro is very very attractively priced and a Deep Value Buy!! A true Hidden Gem!!


Link: Jayant Agro: Why I Love this 2% Net Profit Business


Monday, October 12, 2015

Gammon India: worth it!

Gammon India
CMP: 13.28
Market Cap: 180.30Cr

Gammon India is one of the largest civil engineering construction companies in India. Gammon India can also lay claim to having built the maximum number of bridges in the whole of the commonwealth (commonwealth is a term used for countries ruled by the British)  First project started in 1919 was the piling and civil foundation work for "The Gateway to India"  Gammon India was founded on 1922.
Other important landmark civil engineering projects are:
- India's first cable-stayed bridge at Akkar, Sikkim
- The longest railway tunnel in Asia for Konkan Railway at Ratnagiri.
- Mahatma Gandhi Setu Bridge spanning the river Ganges, between Patna and Hajipur in Bihar (Commerative stamp issued by Indian Postal department in 2007 "LandMark bridges of India)
- Terminal Building of Sharjah International Airport UAE.
- Elevated viaducts for Delhi Metro Rail Corporation
- India's First Second Generation Prototype Fast Breeder Nuclear Reactor

The list is endless .. the latest addition is going to be the Signature Bridge Across Yamuna river in Delhi 
So all said and done Gammon India is a well established name in civil engineering in India. 

Lets now look at why Gammon India is quoting at such a dismal price (Market Capital of 180Cr ) 

If we look at the balance sheet we see that.
1. Gammon India has a -ve networth of -432Cr
2. Total Debt is 10,306Cr
3. Has been reporting Annual report for 9 months for past 2 yrs 
4. 2014-2015 year end has been extended to 18 months ie Oct 1,2014 to March 2016


Income statement also has only a sad story to tell.. 
1. past 5 yrs Sales has dropped by 50%  8162Cr(2011) to 3885Cr (2014 [9 months])
2. Net profit is negative for past 4 yrs 


Lets look at Cash flows.. and its gets a little bit interesting
1. +ve Cash flows from Operations for past 3 yrs 
2. Company has been able to generate +ve cash flow from "Finance Activities" 
3. Gammon has not stopped deploying cash in new projects (-ve Net Cash From Investing Activities)

Clearly though Gammon India has been reporting losses for past 4 yrs, it has been able to scrape through as far as Cash Flows is concerned with finance still trickling in..



Price Chart: 
Price chart is something we already know about (180Cr Market Cap) 

1. Gammon India stock price was at its peak in 2008 of about 790/- per share..
2. During the financial crisis 2008-2009 it fell to its teens and then recovered to 200+ levels 2009-2010
3. 2011 -ve earnings started and company has been downhill since then.
4. 999 Day EMA(5 yrs) Exponential moving avg is 47.47 
5. 50 Day EMA is 14.02
6. 100Day EMA is 16.05
7. CMP: 13.28


Well there is no doubt that stock price is in the dumps. topline for year ending Sept 2014 was 3885Cr 
Market cap of 180Cr is like 4.6% of its Last reported Annual Sales..

Ofcourse 180Cr Market cap has no meaning cause there is 10306Cr of debt and 8770Cr of Contingent liabilities.. 

So 2 things is clear .. 
1. Market cap is peanuts for Gammon India considering that its a pre-independence Era company and is well established as a Civil construction Engineering company.
2. Gammon India is in dumps with 10306Cr debt and 50% drop in Sales in past 5 yrs... picture is Bleak!!

I think as investors one question in my mind is "Will it recover" Can I buy this worthless piece of paper and turn it into a crown jewel??

My answer is Resounding YES!!

1. Gammon has done a Corporate Debt Restructuring (CDR)
2. Cut-off date of CDR was 1st Jan 2013
3. Total debt aggregating 14,814Cr has been restructured. (both Fund & non-fund based)
4. CDR package provides a 10yrs repayment plan (including 2 yrs moratorium)
5. Interest rate has been lowered by 1% for 15 months ( that would be till April 2014)
6. Waiver of penal charges till date of implementation
7. Additional funding by way of priority loan. 
8. All securities envisaged under the CDR scheme have been created.
9. Promoters have been issued Zero Coupon (zero interest) Compulsory Convertible Debentures worth 100cr. So the promoters have bought in 100cr additional investment in equity of Gammon India on 26th May 2015 these CCD will be converted into shares @ a price of 25.30 per share.

10. On 14th August 2015 Gammon India has decided to restructure and segregate its businesses and created 2 wholy owned subsidiaries 
   a) Gammon Retail Infrastructure Limited (GRIL)
   b) Transrail Lighting Limited (TLL)
The rationale was..
   a) To create sector focussed companies
   b) To enable investments by strategic investors
   c) De-risk business from each other
   d) Deleverage balance sheet of the company.

Gammon Retail Infrastructure Limited (GRIL): Transfer & vesting of the company's civil EPC undertaking ie. Civil Engineering, Procurement and construction business carried on by the company in roads, hydro-power, nuclear power, tunnels, bridges, buildings, cooling towers, chimney and other sectors as a going concern, which shall include all the properties, rights & powers and all debt, liabilities, duties and obligations comprised in and pertaining to the EPC business into GRIL against issue and allotment of equity shares by GRIL to GIL (Gammon India Limited)

Transrail Lighting Limited (TLL):  Transfer & vesting of the company's T&D Undertaking (as defined in the scheme) comprising of the Engineering, Procurement and construction business of the company in the Transmission & distribution sector, including the tower testing facility located at Deoli and the tower manufacturing facility located at Baroda and Nagpur, but excluding the tower manufacturing facility located at Deoli and the conductor manufacturing facility located at Silvassa, as a going concern,  which shall include all properties, rights and powers and all debts, liabilities, duties and obligations comprised... to the T&D business into TLL against issue and allotment of equity shares by TLL to GIL 

basically the company has created 2 100% owned subsidiaries which are Healthy (a going concern) and debt liabilities of these 2 Healthy companies have been separated (for sale in the future or to attract investments..)

11. On 27 Aug 2015 Step down subsidiary Gammon Infrastructure Projects Limited (GIPL) has divested its stake in 9 projects .. this will result in cash inflows of 563 cr plus advance waivers of 285cr another divestment of 50% stake in Vizag Seaport Pvt. Ltd. will result in 62.5cr, plus future cash flows of  100cr based on achieved milestone. So that should see 1000cr inflow into Gammon India Limited.

12. Gammon India on 21 Aug 2015 announced receipt of 397cr road project from Public Works department.

13. On 24th Sept 2015 Gammon India announced getting a 1799.99cr NHAI road project.

Conclusion: 
All these activities donot confirm that Gammon India is solvent. It does however indicate that the company is taking steps to reduce its debt burden. creating separate subsidiaries GRIL & TTL which are considered "A going concern" all point to positive development.

Though complete recovery will take years.. I think this is a good time to buy into Gammon India. If Gammon India was not in Financial difficulty we would have never seen such low price.. the brand is intact and we are still seeing new order flows.. Long term 5+yrs could be a multibagger.