NMDC-Boring is Beneficial

Note: This post was originally written on 11/06/2013.

Market loves to chase stocks which are fancied madly by people mainly because of its fancy type of business model. They deal in goods which catch the imaginations of people and these are viewed as goods something of a class different or higher than our routine goods like Pizza’s sold by Jubilant Foodworks. These stocks are given astronomical valuations of 40-50 PE ratio although most of the times goods sold by these are not good or healthy for people like Pizza’s, Maggi, Alcohol, cold drinks  etc.

I have always found that most of the times entry barriers to these are comparatively low and business model can turn erratic. Like if properly planned, any Indian traditional health drink like Coconut water (packaged and processed) can give these expensive sugary cold drinks a run for their money.

The business of these houses run mainly on high advertisement, propaganda and linking of style quotient with these by masses. I am not against investing in these stocks but i feel these are always too overvalued for anyone to earn superlative returns unless he is one of the early mover in the stock, like, current stock price of Jubilant Foodwork at a PE ratio of 50 has already factored in high growth for next 3-4 years and given their portfolio i feel their growth would normalize after 5-6 years of high growth. Also anyone from their neighbour can develop his own version of Pizza and can compete with them like i read on that day that two Indians are selling Dosas etc to American people after modifying it to their taste.

But  investors in their race for these hyped and fancied stocks always forget less talked and boring stocks but which have the potential to outlive these fancy ones. People find these boring as they belong to our normal life like Steel, rice or staple foods, resource rich like Mining. Most of the time entry barriers are high as capital requirements are high like in steel or rice.

One such stock is NMDC which have fallen all the way from the highs of 550 and 250 year ago to paltry 115 now. It is Indian mining Giant producing 15-20% of Indian iron ore production which have risen to 30% after the mining ban in Goa and karnatka. Its proven reserves as on today is around 12 billion tonnes with current production around 26-27 Million Tonnes and they have plans to ramp up it to 50 MT from 2015. At a production rate of 50 MT, these reserves are sufficient for 25-30 years. NMDC is adding to its reserves very fast every year.

Now to most interesting part, it is having a cash of almost 24000 cr in its books and its market value at present is 46000 cr, means half of its price (around 60 per share) is cash, so we are getting main business for just 55 per share at a PE ratio of 3.5. It has great plans for using this cash for higher return like they are building steel plants near their iron mining sites. India still import huge quantities (6 MT) of steel every year and given our requirement in the near future these imports are likely to touch 50 MT per year by 2020.  It has already acquired the land for this plant in record six months by giving great rewards to villagers for their land and promising a job in the plant.

It is looking to acquire mines all around the world to meet Indian needs. For its steel plant, it has two captive coal blocks.

At present Indian mining is under huge stress due to local aggression, environmental issues. In india , land owners only have surfacial rights to their land, any mineral beneath it belongs to Govt. this is unlike USA where people have full rights to their lands which i feel is justified. So pvt companies can pay them and look for minerals. Also in india, Govt. takes the royalty from mining companies for their production and these royalty money goes to state or central Govt wallets which is then wasted on useless subsidies. The better way should be that this money should go to local panchayat or Municipal  corp which then uses this for local development. I think this can kill issues related to Naxalism or Maoism.

Recession always is a result of misallocation of productive resources and market can correct itself after a period of low growth by adjusting to right levels of investment. When prices of commodities rise, many more jump into the bandwagon to ride the tide which result in over supply and thus prices drops and share prices fall and this is the time of entering into these as sooner the late jumpers would leave out resulting in normalization of production.

NMDC has given a Dividend of Rs. 7 this year, which is almost 7% better than FD return of around 6% post tax and with growth in steel and production this will only rise as our Govt needs funds to fund the fiscal deficit and high dividend  income from PSU’s is one of the best option.

HZL is also worth buying as it is also ruling at PE ratio of 7 with huge reserves of zinc, lead and silver. It is one of the largest and in the world in lead and zinc production and lowest cost producer. 

Regards 

(Views are personal and should not be taken as a recommendation for buy or sell a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing)

Semiconductor Chips and Telecom Sector

There was a time in 80’s when our home grown car makers Hindustan Motors/Premier padmini were the kings of the Indian Roads due to closed economy and licence Raj...they were the dreams of any young man who wants to lead a life full of utter luxury. Today they are nowhere...even fallen back beyond horizon. Then enters in the scene were, Maruti and Tata and they make Indian cars competitive enough to be exported out globally, give . Today, the scenario is such that all of world’s major car makers like Ford/Toyota/GM/Volkswagen etc. want to set up manufacturing units in india due to much improved infrastructure which can cater to their export market potential. 

Switch over to mobile handset market and we find ourselves on same footing with a different environment. Today like old car makers, Indian mobile hand set makers are very few with no technology of their own, cheap and crude processing power and design. The only change is that we are not restricted to purchase only these...we can buy high tech, costly imported hand sets from the houses of world’s best. Although some like Nokia, LG has set up manufacturing facilities in india but these are more of assembly units than real manufacturer which just assemble the imported parts of a mobile handsets.

Our local warriors like Micromax, karbonn, spice, Zen, intex also don’t manufacture anything in india...they just source everything from china or elsewhere. Also there is an increasing fight all over the world for Intellectual property rights for various components/applications/design among all the leading handsets makers, recent fight between Samsung and Apple is the one of. Indian companies are just copy cats. So far big MNC’s were not treating them worthy of competition but as these Indian makers are beginning to bite their share, the space is heating up and anytime we’ll see fights over infringement of IPR by these companies.

India imports telecom equip/mobile handsets valuing around 100000-150000 crores with little production in india. It is estimated that at current pace it’ll outpace our oil/gas imports by big margin in 2020. To have a figure, our oil/gas import this year was around 7-8 lakh crore. With recent havoc in rupee depreciation due to high imports, india is looking to lower its import bill. So this is one big sector which can’t be ignored at all. India is trying for long to set up Semiconductor chip manufacturing fab in india, but it never succeeded due to policy paralysis. At present, semiconductor IC’s comprise for around 10-20% of cost of every electrical item (for mobile handsets IC’s count for almost 30-40% of cost of production). Also all of today’s electronic items have an IC which control its entire operation.

Just when i was studying this sector...Govt has announced setting up of two Semiconductor chip fabrication facilities in india. These two will be set up by Jaypee group and HSMS india in technological collaboration with foreign companies. It will entail an investment of around 50000 crores. But yet india can’t compete with cheap chips manufactured by giant factories in china Taiwan and Singapore. Chip making is a very difficult and capital intensive sector which also requires huge amounts of power and water...the easy availability of which in india is always doubtful. 

The compacting of chip sizes, driven by the inexorable stretching of Moore’s Law, which postulated long ago that the number of transistors on a microprocessor would double every two years, has had a dramatic impact on the industry. The number of transistors on a device — defined as transistor count in industry parlance — has increased from 2,300 on the Intel 4004 in 1971 to 5 billion transistors on the 62-core Intel Xeon Phi processor that was released last year. Individual chips, which used to be of 10 microns in 1972, are now down to 22 nanometres (a nanometre being 1,000 times smaller than a micron). Silicon wafer, the building block of an IC chip is made from humble Sand wherein sand is heated at 2000*C and other high power processes to filter the impurities to make a high grade silicon wafer. Hence, at present india can’t count on export income from semiconductor chips. But local Indian demand is sufficient enough to provide a support to the sector if Indian govt impose import restrictions on the same. 

If i can recall our Reliance industries was also having plans to set up IC chip and solar PV cells units with an investment of around 30000 crores...i don’t know whether they are still serious about the same. BHEL is also making a solar PV and silicon wafer making facility with an investment of around 2000 crore.

However one thing where india is having an edge over the others with respect to chip is....chip designing. Indian engineers are designing high tech chips for major electronics companies of the world. India is designing 15% of chips globally. Broadly speaking, the industry comprises of VLSI design (transistors), embedded software development and hardware/ board design, all of which make up a $15 billion chip design industry.

From Qualcomm to Intel, the world’s leading chip design shops have established their captive design centres in India. A lot of this is high-value work. Semi-conductor design firm Freescale’s India Design Centre, for instance, has developed a world-class family of micro controllers for automation systems and complex medical applications. 

Electronic goods companies need to quickly launch new products that too at low costs. Outsourcing the designing work to the specialists mitigates major risks since design is the main building block. Indian engineering institutions are creating a huge supply of ever efficient engineers.

Hence so far i have filtered two companies who are best placed to benefit from this shift. These are Bharat Electronics Ltd and Tata Elxsi.

Bharat Electronics Ltd ( BEL) is a govt PSU under the ministry of defence. BEL is serving Indian defence sector with its innovative products since 1954. Its turnover has grown  from some 20 lacs in 1956 to 6000 crores in 2012-13. The best part in this is that around 75% of the turnover (as per annual report) is achieved with products developed at BEL through in house R&D, rest is from technological partnerships. It manufactures Missiles(currently Akash Missile), Battle tanks, Army communication system, Naval system, Night vision equipments, aviation systems, electronic warfare systems etc. These are all high tech system requiring significant technological strength. In civil sector, it is making civil radars(used at airports), telecom broadcast systems ( Like tablets/Set top boxes), homeland security systems, solar products etc. It is only one of the few PSU’s making semiconductor chips.

India is looking to develop its local defence sector in order to free itself from import dependence. Hence it is allowing for Private and FDI investment in defence sector. It has made compulsory for any Foreign company getting order from Indian Govt to get 30% of supplies/services of its order from Indian companies which is a great opportunity for BEL. It is increasingly looking after civil sector for huge growth in sector like homeland security, civil radar and telecom and communication products. Once it has produced a very low cost tablet for Indian govt for population counting. 

I don’t know its plan for telecom sector but i am sure sooner or later the company will leapfrog into the sector with great vigour due to its inherent strengths.

The best part of the investment is the cash holding of the company. Market value of the company at current price of rs. 1100 is 8800 crores. It is having a mammoth 5300 crores as cash which is 60% of the market value. So we are getting 60%, 660/- in cash and so we are paying only 340 Rs. for the stock for its earning capability. Hence chances are great that company my announce a big special dividend. However its gross block has grown from around 1431 crores in 2008 to 1902 crores in 2013 ( net block of 413 cr to 510 cr), which means company hasn’t invested much in setting up new capacities. So i feel the more chances are for further expansion than special dividend. I am yet to find out the reason of such a low growth in capacity addition over time...the reason may be that it is importing major components of its final product as mentioned in its annual report...2551 crores of foreign exchange outflow against an inflow of just 166 crore. Net outflow is almost 40% of total turnover which is huge by any standard...i can't find out how much is for capital items.

This can raise a doubt on its R&D capabilites because its operating margins are just around 8%. its operating income is 525 crores on a turnover of 6200 crores...it earns major part of its net profit from interest on fixed deposit which is 560 crores for 2012-13. it looks more like a trading or assembly company. for 2012-13 its operating cash flow turned negative to -1351 cr, mainly because huge pending debtors of 3300 crore (our Govt will not default however) which reduced its cash holding from 6800 cr to 5300 cr. Nothing significant is visible on technology front at present.

But perhaps this is the reason for its lower valuation and if there comes a good policy breakthrough or company plans some significant investment for capacity addition because it invests 8.5% of its turnover, around 500 crore in R&D, which is huge by indian standard and comparable to world's best.

Due to these, it may appear somewhat risky...but cash holding of 60% provides for safety margin and

 it is best placed to reap the benefits of defence sector localization.

I will further study its R&D break throughs to have a better understanding of its technological prowess. On a net basis..till then it is  a buy from me.

Tata Elxsi- another gem from the house of tatas. This company is a leader in chip design and product design providing services in the field of product engineering, industrial design, animation and VFX etc. It is serving leading consumer brands of the world. Its turnover is 630 crores for 2012-13 with Net profit before exceptional item is around 38 crore which is going to show better due to picking up of demand and closing of loss making unit in los Angeles.

Its visual computing lab has produced VFX shots for movie Bhaag Milkha Bhaag and many other Indian blockbusters apart from Hollywood movies. it plays a part in launches of cars like Tata Motors’ Manza, Tata Motors’ Aria, where the entire special effects were created purely from the engineering data. So there was no actual car used for creating those special effects. 

I am holding this from 2009 picked at 130/- and adding at every fall. Sh S Ramadorai, the current chairman sees Tata Elxsi as next TCS in the making. He was managing director at TCS for 13 years and now after retirement, he has been given the task of mentoring smaller gems like Tata elxsi and CMC to  giants like TCS.

Business for Tatas is always a serious thing. Tata elxsi is a leader in Broadband, wireless and 4G telecom technologies.

It is giving constant dividend of 7/- for many years inspite of ups and downs in its net profits, which is 4% yield at current market price of 172/-

Regards

Telecom Sector

Note: this post was originally written on 07/05/2013.

 

 

After the bloody war prompted by new entrants into telecom sector like videocon, aircell etc which saw pulse rates going down the hell...there are signs that this war is going to end soon because the notion “survival of the fittest” is best demonstrated in the field of commerce.

Big fishes like Airtel, Idea, Vodafone, Reliance had the strength and back up to absorb the long periods of falling profits and Revenue but not these small players. In the end, these big Fishes will eventually eat out its small counterparts.

But next wave of telecom story is not about Voice, pulse rate....it is about data. Reliance Industries is on the verge of launching its mega 4G network, starting with 3 cities and then expanding into all over india. And Mukesh Ambani has the fervour to do everything on grand scale, so his plans are to merge Voice, data and entertainment ...all three into one package and offer these to value conscious Indians at attractive prices but not at cheap prices like he did in 2003 with his 501/- rupees plans which proved disaster later on mainly on account of shabby back up operations which never paid much consideration to verify the user profiles resulting in Reliance Communications to write off around 4500 cr when it was handed over to Anil Ambani.

And there are ample signs that in the future these big fishes won’t engage in bloody price wars since after recent cross company dealings (Reliance Ind getting cable and tower connectivity on lease from Airtel and Rel comm) they have become the stakeholders in each other’s companies. And Reliance Ind and airtel has big plans to lay the undersea fibre optic cable of 8000 KM to connect various asian countries. They have realised that in order to survive gracefully they are better off as wise partners than fierce competitors.

However inspite of very low level of penetration of broadband (2 Cr) services, our rates are still very high, infact highest in the world. I think this is mainly due to non utilisation of broadband capacities, poor infrastructure. I see people buying expensive tablets and what they do with them, mostly for playing games, movies etc!!! but it is total waste of money unless we have reliable and cheap internet connections available. In USA 3G connectivity is 90%, in Japan 99%, china 16% (launched in 2009) but we are lagging at 4%. 3G was launched in USA in 2003, just to compare our growth story.

We are on the verge of an internet revolution. Already there is an increase in the online transactions, E-commerce is going for a big take off.

So i feel, our telecom companies are going to increase the voice rates, alongwith offering value for money data usage plans. With people using their handsets more for Data rather than voice, the scale of growth is huge. Even i find that Voice usage of my cellphone is almost half of that of data.

Hence , stocks of our telecom companies may get rerated within a year or may be earlier. I have already purchased Reliance Ind. But i am yet to study Airtel, Idea and rel communications.

However if anybody is having the shares of these companies picked at lower rates, then it is right time to add some or hold onto them. 

Regards

DCM Shriram Conslidated

Note: i have written this in Dec-12. Current post is just a re posting of the old one.

DCM is a 5000 crore turnover company with main focus on Chemicals, Sugar, Farm inputs and hybrid seeds. It is available at market cap of 1100 crore. How much value is hidden in this stock can be gauged from the fact that it has around 283 MW captive power plants. If we assign moderate valuation of 5 Cr per MW...it is coming around 1400 crore!!!

It did have PPA with state Govts for around 51 MW at 4.11 Rs per Kwh. 

Under its chemicals business it is manufacturing Caustic soda and chlorine which finds its use mainly in textiles, paper and soaps with turnover of 1600 cr in 2011-12. It is one of the oldest in india. But power comprises almost 60% of cost of production of these and with coal prices at all time high, this could affect the margins like it did in 2011-12. However is developing a lignite mine for its power plant at a cost of around 80 cr which could suffice for around 10-15 years. lignite is a cheaper source as compared to coal and they are about to open the mine around dec-12, so this can improve their earnings much better because prices of caustic soda are ruling at all time high.

Hybrid seeds Business is under its subsidiary Bioseed...which sees its turnover jumping from 151 cr from 2009 to 391 cr in 2011-12. This can be the biggest game changer for the company as company is expanding big time in various geographies around the world and within house research facilities which is recognised by Indian research organisation and also gets funding from govt for its research.

It invests 10% of its turnover for research. Its mainstay is hybrid seeds for wheat, cotton, corn, rice, tomatoes, watermelon, chillies etc. It has introduced Bt cotton in india but couldn’t launched BT corn in india due to Govt control...but it has launched Bt corn in other countries after getting the technology from Monsanto. However Hybrid rice can be the greatest bet because in india only 3% of 110 Million acres of rice cultivation area is under hybrid seeds where production is at 6 tonnes per acre as compared to 4 tonnes for conventional seeds. India saw the great jump in its cotton and wheat production once hybrid and GM seeds were introduced. China has around 60% of rice acreage under Hybrid seeds.

It is also developing hybrid tomato seed which increases its shelf life considerably in partnership with USA based arcadia biosciences.

Under sugar it is having a listed company DCM Sugar with turnover of 900 crores...decontrolling of sugar prices and fixation of alignment of ethanol prices with international oil prices can increase the margins of the company.

For its Farm inputs business it is having a turnover of 1100 crore. it supplies urea/fertilizer, micronutrients. With fertilizer decontrol under consideration for long it will also be one of the main factors for growth in future.

Its other businesses which are at small scales are cement with turnover of 150 crores which gets raw material from its chemical division, Fanesta building systems which manufacturers UPVC windows and doors, a small textiles division.

Its debt was at 1615 crores in Mar-12 which has now reduced to 1400 crores....i feel management can sell its small business units like cement/Textiles to cut debt. I don’t know if they have any plans for doing that.

Hariyali Kisaan Bazaar: this is the rural retail arm of the group with around 300 stores around india for small villages which sells multi branded agri inputs, FMCG products etc. However this isn’t performing well since its inception with losses of 105 cr in 2011-12 which was the main drag on its net profit. I have seen that somehow Indian companies are unable to break the code of success in retail business with every retail chain staring at losses.

I think it is because of cultural built of india, too high cost of real estate, blocking of working capital on unnecessary items like i’ve seen electronics goods segment in reliance retail which is a sheer wastage of money. To buy TVs, fridges etc nothing is better than dedicated electronics shops or chains than these Khichdi stores which can’t have the varieties which we as customers love to choose from. There is no sense in blocking capital in these. Inventory turnover ratio at most Indian chains like pantaloons is around 150 days against 30-40 days of Gods of retail like Walmart.

But Management has taken a wise decision to close all the stores except 37 which are only selling fuel for which DCM has contract with BPCL which is a good margin business. For its stores it is having 180 acres of land out of which 15 acre is occupied by 37 Fuel stores, remaining 165 acre will be sold off to cut the debt. The value of these assets will be around 200 crores.

DCM is having around 16 crores shares, so even if we leave the losses from Retail it will add around 7 rs to EPS. Currently it is at 67/- it is one of the best buy at present and at every fall.

Regards

(Views are personal and should not be taken as a recommendation for buy or sell a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing)

Forbes Gokak

How the movie Mughel E azam is linked to Tata group? And who is the single largest shareholder of Tata Sons (Holding company of Tata Group)?

Well the answer for both these doesn't have any link with Tata. I come to second question first, the single largest shareholder is Mr. Shapoorji Pallonji Mistry, the 82 years old veteran of Shapoorji Pallonji Group who holds 18.4% in tata sons and he was the person who produced the Movie Moughel e azam with whopping 1.5 cr in 1952 and then spent 5 cr for giving it colorful touch in 2007.

Shapoorji pallonji group made huge factories for tata group which offered them shares in its group companies as payments. They further acquired stakes of those who left tata group and thus leading to current holding of 18.4%.

His daughter is married to Noel tata, half brother of ratan Tata and MD of Trent Limited (Retail arm of Tata).

But most importantly he is the father of Cyris Mistry, new chairman of tata group.

SP group is one of the largest and best construction group of india (Also oldest around 250 years Old) credited with some of the country’s most iconic constructions, including the Taj Intercontinental Hotel, the Reserve Bank of India building,Bombay Stock Exchange building  and the HSBC building all in Mumbai and some famous sports stadia such as the Braboune stadium in Mumbai and the Jawaharlal Nehru stadium in Delhi.

Apart from these,the company has built a stone palace for the Sultan of  Oman in 1971.

After the 2008 Mumbai Attacks,the company was involved in the repairs and renovation of  Taj Mahal Palace & Tower  which was severely damaged by the attack .

Other notable projects include The Imperial in Mumbai, Jumeirah Lake Towers in Dubai and Ebene Cyber City in Mauritius.

They are around 15000 cr group. Their construction business is not listed. But they have some very interesting business listed in india and that is what got my attention.

Water will be the next big thing in the future...next gold. we can survive without power and petrol but not without water. Hence i think all the companies dealing in water technologies (Only serious and Honest Groups) are great for investment. we picked Va Tech Wabag around 450/- and it touched 580/-. Now it is around 535/- and is still a great buy.

but there is another company which is having the lion's share ( around 60% ) of indian water purification market.

what will we see in our mind if someone says 'Cadbury'? we recognize 'milk chocolate', say 'Xerox' and we understand photocopiers. Say Aquaguard? and here we are...it is water purifier.

Yes , it is the one who teaches us if something looks clear doesn't mean that it is safe...EUREKAFORBES. It is part of the Pallonji group, but it isn't listed directly. Infact it is 100% subsidiary of group's Listed company Forbes Gokak Limited, Which is mainly into precision tools and shipping/logistic sector with turnover of around 300 cr. it was in losses sometimes back but coming back to profits now.

However their main crown Eurekaforbes is having a turnover of around 1500 cr with NP of 35 crores. it is the company which brings the concept of direct selling to india in 1990's and still today it is having a dedicated workforce of around 8000. On the most of it, it is featuring among the best employers list of india for last three years. this feat of having 8000 strong workforce of direct selling employees is almost impossible to emulate in today's world. they were the main building blocks of the success of Eurekaforbes, because the locations, which are having water supplies having less dissolved particles, they don’t need RO system...but you need experience selling agent to check all these variables and this is where Eurekaforbes scored much better.

when all the companies in india has one line in their mission statement "To Enhance/maximise shareholder value" , Eureka is having Customer satisfaction and relationship as mainstay of its corporate existence vision. And this Customer Concentration is what renowned management schools are teaching now  days, leaving aside the shareholder value maximisation. A pharma company can enhance shareholder value by selling a product which is dangerous for public health.

But you care for customers and you become a brand, a force to reckon with and shareholder value grows up automatically. Indian companies copy these management Mantras from their western counterparts. 

how can "maximising shareholders Value" can be the mission of a comapny? doesn't it look too selfish and vague? It was western companies like Ford who brought the mantra of Professional management setting aside management by family persons from promoter group. Professional people are required when scale of business becomes very large for a family conglomerate or where specific skills are required like our Air India, The maharaja which is ailing because people who are running it doesn’t know anything about an airlines.

Eureka forbes is bringing in some great water purifying technologies into india like one iodine based earlier used by NASA for its space programmes. Iodine is very safe compared to chlorine and bromine.  It is eyeing global footwork and has entered into a jv with Lux international from Switzerland ( Not our Lux Soap) forming Forbes Lux Inc to distribute water/air  purifiers, security system across the globe mainly in west Asia.

The credentials of management group are top class since one of their director Cyris Mistry is now steering the Tata group. I don’t have any reason to be sceptic of management group. Shapoorji Mistry, 48, the elder brother of Cyris is now heading the group who has strong ambitions to take the group to global scale. The whole SP group is media Shy and they rarely appear into the scene or media. They are very humble and down to earth people.

Their precision tools business is also growing. I couldn’t study much about their shipping business which i feel can also grow stronger in line with overall growth in Indian port based logistic business. Their new venture Forbes Technosys which is into process automation segment like ATM’s, MICR handlers, includes e-Governance solutions such as G2C transaction kiosks, bill payment kiosks, POS terminals, electronic cash registers, portable biometric enabled platforms for UID registration and authentication. It has already won several innovation awards globally .

The turnover for this segment doubled in 2011-12 to 91 cr from 45 cr. It is having strong order book from banks and govt dept and added several new customers like  volkswagan, shriram finance, maruti suzuki. It got its first order from Indian railways for 80 ATVM’s ( automatic ticket vending machines ). Although it has incurred losses of 8 crores but future is great with the increase in scale.

It is having 22 subsidiaries , but scale of others are small. Its stock price is at 530/- after touching 1075/- from 400/- after the news came for Cyris mistry to mentor the tata group. its 2008 low is around 350/- hence its price is still not upto its full potential. On the basis of 2012-13 consolidated results, it has achieved a turnover of 1976 crore with Net profit of 83 crore with EPS of 67. it is trading at a PE ratio of around 8 which is low given it has great scope for ample growth going forward.

Group may consider listing some of its unlisted companies like infra and construction. But for Forbes Gokak, the real value lies in Eureka forbes and if it gets listed then the price can touch sky.  It is a very vast group and i’m yet to study some of the main segments of their business like their venture of solar lamps named Eurodiya ,their foray into packaged bottled water through franchise mode etc.

But for me it is a buy at current prices and at a every fall. Only problem is it is traded at a very low volumes hence fragmented buying is the best option.

Regards

(Views are personal and should not be taken as a recommendation for buy or sell a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing)

Radico Khaitan

Note: This post was originally written on 27/06/13. 

Although i don’t drink but I am a firm believer of the phrase " Khushi ho ya gham...banda piyega RUM". Keeping the faith, I bought United spirits @ 600 and will be selling it around 2700-2800 soon as and when market recovers.

Radico Khaitan is also one of the best premium alcohol player in india Its brands includes  8Pm whisky, Contessa rum, Morpheus Brandy. It is the largest supplier to Indian army. As advertising isn’t allowed for alcohol products in india, hence for any foreign brand coming to india, it is a must to forge a partnership with any established Indian brand or acquire it (like Diegeo did by buying United spirits, although Vijay Mallaya sold due to poor financial status of the group as a whole), so as to benefit from the distribution reach of the Indian brand.

Radico has the second largest capacity in india. It has around 40000
retail outlets all over india, which may lure any foreign partner to forge partnership with it. Over time radico is moving towards high quality premium products which are of high margin, for this it is focusing and expending big on brand promotion by engaging celebrities like Hrithik roshan. It has already launched 8PM apple juice as surrogate product for advertisement.

40% of the shares are with FII and 40% with promoters, leaving just 20% in the hands of public. It is available at a PE ratio of just 17, which is very low for 70 year old established brand keeping in view the high demand phase of Indian alcohol sector due to changing demography and is expected to double by 2017.

Indian will now learn to drink premium quality alcohol, because still even most of our astute drinkers can’t differentiate between whisky made of Molasses or Grain. What we are drinking as Grain is also a Blend of whiskies from many distilleries. Hence share of single Malt and wine is expected to grow.

Another USP of Radico is very attractive packaging which also add to the royal touch of a premium product.

In very highly regulated Indian alcohol market where it is very difficult to get a new licence let alone to build a distribution force of 40000 retail outlet, Radico is strongly poised for a rerating. I am buying it around 100/- its lowest in many years. It touched 50/- during the terrible lows of 2008-09 meltdown of world markets.

Of late it is selling famous premium Japanese brands like suntory in india. Japanese brands managed to challenge the  western hold from the premium whisky segment and they are growing very fast in western market.

Perception of the western countries towards indian whiskey is one of  a low quality. However of late some of indian brands have managed to change this view. Like Amrut Distillery , one of the oldest indian premium brand, they did this by launching an innovative campaign. Their whiskey was offered to general public in western countries as a branded western whiskey, everybody praised the product...but when they were told that it was an indian one, they were shocked and expressed their willingness to buy the same if it was available in their market. Today Mohun's whiskey is fully exported, but still demand is way more than its supply. They are now planning to launch their premium products in india also.

The only thing which is hindering the growth is devil like taxes by state Govt. Alcohol is taxed by some 40-50% in india. Worst hit is the poor man, who just want one or two pegs of whiskey after a hard day of work just to relax his ailing body and nervous but only to find that good quality whiskey is way too costly for him. So he is left with no other option but to buy a substandard local made one with terrible quality which often leads to deaths everywhere in the country and people condemn alcohol for the same. However the bigger culprit is the govt.

As per media reports, suntory is looking to buy a stake in Radico Khaitan which can be trigger for a rally in the stock. Just as we are moving towards premium phrase...premium clothes, premium shoes, premium mobile sets and other electronic items...so next is premium alcohol brands.

I have bought Radico at an average price of 95/- now it is at 122/- A good buy if it falls anywhere between 110 to 120/-

Regards

(Views are personal and should not be taken as a recommendation for buy or sell a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing)