Of Brands-When an Iron Becomes a Magnet........... Brands Studied: KRBL, LT Foods, eveready, Gati, Exide , EIH/Indian Hotels, Hindware, Acrysil India,Va Tech Wabag, Vadilal

When Arjuna, encompassed by the Mystery of Life and the Unknown, asked Lord Krishna about the existence of force Almighty…Lord Replied then, “O Arjuna, now I shall explain to you My prominent divine manifestations, Because My manifestations are endless- Among trees I am the peepal, I am the Airvaata among elephants, I am the fraud of the gambler, Among senses I am the mind, Among the knowledge I am knowledge of the supreme Self, I am the wind among the purifiers, I am the beginning, the middle, And the end of the creation….

The list is real long and each example is just perfect… like that of Peepal tree, Peepal tree is the tree which releases lowest  CO2 at night  and highest Oxygen during daytime and scientists says that it releases a chemical called Isoprene in large quantities. This chemical strengthens the ozone layer in the atmosphere. Peepal tree also releases a chemical which is also produced by human brain. Lord is not condemning the other trees, he is just counting the best.

He is talking about Brands…in today’s times he could have added,” I am Tata Salt in Salts…In coffees I am Nestle.”

And when one thing is counted superior among the lot…it becomes a Brand…a Benchmark. A brand is nothing but an image…an image conditioned and coloured with positive perceptions. This Colouring of the image takes a long time. This colouring captures one’s imagination and decision making in such a way that you talk about detergent and at once you will hear the word “surf” in your mind…you talk about chocolate and you’ll hear “Cadbury”. This is conditioning.

Often Brands are associated with offering something unique. This uniqueness may have been linked to high quality, better functionality, cheap prices. Usually the innovators become successful brands as they caught the imagination first which becomes very difficult for others to wipe out.

Establishing a product as a brand is the toughest task…tougher than making it. It is like crafting iron from raw ore and when it is done…all of sudden this iron behaves like a Magnet…a powerful magnet. And then it can attract others from a distance, without much an effort on its part. 

The biggest contributing factor in creating a brand is continuous production of homogenous products and services for substantially long periods of time…which in turn creates loyalty among consumers which is often very difficult to break especially if product is costly like cars because people can go for Top Raman noodles in place of Maggi for a change but they wouldn’t switch their old trusted Tata Car with some other one. 

Creation of a Brand depends upon so many factors like Unique innovative products, Essential for life products, High quality, First mover advantage, cheap prices etc. The vulnerability of a brand also depends upon the main factor behind its creation. Like take the case of Maggi Noodles…it was created mainly because of first mover advantage and high distribution clout of Nestle. Maggi is having a lion’s share of 60% of Indian instant noodle market. But since it is a low cost product and satisfies the taste sensory part of our life which changes so easily, so anything with different taste can make huge inroads. Like Indian FMCG Giant ITC who has launched Sunfeast noodles and with its very strong distribution reach already captured 11% market share and it is placed second to Maggi.

Coca cola was a giant in soft drink market globally but when it entered India it faced stiff competition from home grown Thums Up in nineties. Ramesh Chauhan of Parle created the iconic brand of Thums up in 1977. He was just sensational since other iconic brands like Limca, Maaza and Bisleri was also created by him. Coca cola acquired Thums up in 1993 for $60M alongwith Limca and Maaza. Coca cola tried hard to suppress Thums up to promote its global brand Coca Cola. But still Thums Up remained India's biggest-selling soft drink even after Coca-Cola acquired Chauhan's business. This was despite going without marketing support for a while, when the US acquirer sought to promote Coke at the expense of the homegrown brand.

Coca-Cola India now puts a lot of marketing muscle behind Thums Up, spending the most on it among all its brands in India in order to counter the rise of Pepsi. It has brand endorsement by Salman Khan, the country's most expensive star. The brand was previously endorsed by Akshay Kumar. Taste the Thunder has been the most breakthrough communication campaign for the brand. It stands for masculinity. Thums Up, by 1991, had already positioned itself as a strong masculine drink and had decided to only cast macho alpha male as its ambassadors in future, which included Salman Khan and Akshay Kumar along with Mahesh Babu and Chiranjeevi for the southern markets.

I can still recall my childhood times when it was a thundering experience to drink all too strong Thums up. We used to bet who can drink a bottle of Thums Up with a single gulp and it always prompts us to show our Manly strength. That was the success of Brand…it created that very image in our minds which it is claiming as the true identity of its product in all its sales promotions. Very unlike of today’s deodorant ads which shows unreal feeble aspect of so many pretty females who runs after a useless punk just because he is using that terrible deodorant ??? so pathetic!! However, on the other hand,  almost all the campaigns from Thums Up have always build on its strength and its positioning as a macho drink.

In the American markets, Coca Cola is the cola of choice and Pepsi is an alternative to Coke – both having a distinct positioning. But in India, while Coca Cola experimented with Thanda Matlab Coca Cola, Jashn Mana Le, Open Happiness, et al, PepsiCo too adopted various taglines like Yehi Hai Right Choice Baby, Nothing Official About it, Yeh Dil Maange More, Oye Bubbly, Yeh Hai Youngistaan Meri Jaan, et al. Pepsi dropped Sachin Tendulkar and Shah Rukh Khan (both having a cult status) and roped in Ranbir Kapoor (however Most of our Young Indians won’t behave that immaturely to be regarded as residents of some youngistan (in fact Kiddistaan) of Mr Ranbir kapoor) and a bunch of young cricketers and thus failed miserably in creating the impact .

Now compare that with the iconic Thums Up, which on the other hand, has played on “Taste The Thunder” consistently for the last 20 years and has had only two prominent ambassadors (Salman Khan and Akshay Kumar). And doing so Thums Up has attained the status of a cult brand as it did not give in to the demands of momentary seasonal temptations and maintained its positioning relevant with times.

Thums Up is also a low value product like Maggi noodles…but it has conditioned itself with strength and masculinity in our minds and hence crossed the feeble boundaries of sensory pleasures. For us Maggi is just a tasty noodle and so there is always a scope for other tasty noodles. I myself like Top Raman very much.

We, humans are social animals….we always feel comfortable in a social group…we want to belong to something. The best-known brands in the world have successfully used these basic human drives to attract and develop brand loyalty by creating authentic emotional connections that bypass the brain and go straight to the heart, relating their products with powerful feelings about self-image, fantasies, aspirations and dreams. Although decisions about purchases and loyalties are based on both rational and emotional reactions, it’s the emotional response that motivates us to act. As someone has said, “The essential difference between emotion and reason is that emotion leads to action while reason leads to conclusions.”

Like, those who are in service industry, the biggest Brand building factor is the emotional resonance of the customer with them. When customer feels that he is also a part of “That family”. When they provide their services in such a way that it touches the “Family Emotion” sphere of the customer. Here I remember Mr. PRS Oberoi of EIH Hotels (Oberoi Hotels). He was such a force in establishing Oberoi’s as world’s best hospitality Brand that many MNC hotel chains were reluctant to enter india as they feared that they wouldn’t be able to compete with him.

In his every hotel, he is the one who plans everything from basic tiles to the inner architect. He is so deeply engraved in his passion that he didn’t have his home upto 40-50 years of his life. He was just staying in his hotels. Customers who stay in their hotels, say that their staff can go to any level to provide best possible service to their customers. One customer recalls his experience when while checking in he told the receptionist that he was somewhat ill. When he entered in his hotel room, he was surprised to find Medicines and Honey water in the room.

PRS oberoi calls his customers daily on the basis of their reviews and suggestions to improve. When one customer complained about something of his stay in his hotel in his feedback, Mr. oberoi called him over phone and apologized alongwith offering one day free stay in his hotel. This is the kind of behavior that  creates very strong customer loyality.

Brand awareness is the next important aspect for a successful Brand. Advertising plays an important role in making people aware of the Brand and its products in an attempt to touch and motivate their emotions. But advertising is just a messenger, it just can’t create which is not there in the product. Even if advertisement is very good and creative, Brands that don’t deliver on their promises will never earn the loyalty of the consumers. Consistently delivering the promised products will create incomparable Brand strength.

One of the best example of this is Tata, which riding on the success of its massive incomparable Brand strength and loyalty created a huge Brand out of just a small very low value commodity…salt. Tata salt is one of the leading Brand in india which enjoys huge following. It is having almost 70% share of Indian branded salt market. Its brand power is so immense that for us, Salt and Tata aren’t two different things…they are synonymous.

Tata has made it possible by delivering high quality products for over a century…they were the face of Indian hi tech manufacturing post independence…they made us proud when we were trying to break  the shackles of poverty and deficit after getting independence.

Hence while creating Brand awareness, how you are placing you product becomes the differentiating factor behind success and failure of the brand. For a case,To make Indians to accept instant noodles as a part of their cuisine , Lipton launched “Supermum” noodles in 80’s alongside Nestle’s Maggi. But supermum wasn’t accepted, because it made a big mistake in placing its noodles to Indians as a substitute for Roti and rice which Indian declined.

On the other hand Nestle presented Maggi as instant 2 minute snack, which was accepted by Indians gradually. After a long time, nestle rebranded Maggi  as “Taste Bhi Health Bhi”.

But nothing compared with an honest, high quality product over a long period of time.

People who were being able to locate successful emerging brands like Nestle, Prestige, Britania, Bata, Titan, Marico, Dabur etc. earlier when they were in their infancy, earned impossible like astronomical returns. Titan Industries move up from Rs. 1 in 2002 to 314 in 2012.

We will also make an attempt if we can find someone like that. In days to come, we will study stocks like HSIL (Hindware), Vadilal Ind, Tata Chemicals (Ishakti), VA Tech Wabag, oberoi Realty, Navneet Education, Eih etc to know if they can be able to make the cut.

Regards

Of Brands-EIH ltd and Indian Hotels co. Ltd

Hotels are not just plain beautiful buildings...the crux of hotel business isn’t about setting up lavish buildings wherein customers can come and stay. No, it is something much more. It is a service...customers evaluate hotels not from buildings and facilities but from the hospitality and warmth they have received from the hotel staff and that is the crux. Hotel room inventory is treated as commodity which is highly perishable…as on a given day the life of room inventory is one day. But there is huge difference between a general commodity like steel and hotel rooms. Commodities like steel are procured to use them…just use or consume…but hotel rooms are procured to experience, to relax, to relish…you use them and if you are treated with warmth and care that will create a life lasting impact on your psyche. And the value of the service can be best seen from the reviews of travellers of oberoi hotels around the world. Oberoi’s hotels are the only ones from india getting the awards for world’s best continuously. In 2010 their vanyavilas at ranthambhore ranked no. 1 in the world while their udaivilas, rajvilas jaipur and amarvilas agra were no. 2, 3, 4 in asia. Every year around 4-5 of their hotels ranked among top 12. Their recently opened oberoi gurgaon is described as new pinnacle of luxury. This year too Oberoi’s are regarded as world’s best luxury hotel defeating the giants like four seasons and park hyatt. Presently hotel industry is in a downturn. One of hidden secret of growing business is being consciously aggressive in building capabilities when everyone is negative. You get everything cheap during times of downturn. Hence one can build and expand more at lesser investments. You just have to have the intellect of understanding economic cycles. Supply gluts often lead to recessions and secret lies in understanding that excess supply will either slowly be absorbed by market or smaller fishes will be thrashed from the market and big fishes will prevail. The same thing is happening in our telecom sector. Hotel industry is facing troubled time…stock prices are at their life time lowest. But there is nothing wrong with these companies like EIH, Indian Hotels. It is only the macro environment which has turned negative for hotel industry in general and luxury hotel industry in particular. So as everybody is negative so this is the time to acquire the stocks of one of the best hotel companies of the world. The brand power they have is very difficult to replicate for anybody. Future of hotel sector is bright in our country because total hotel rooms available in entire india is lesser than rooms available in Las Vegas. So MNC hotel chains and Indian companies has announced their plans to build big hotels in india. But I feel that is very difficult because real estate prices are very high, approvals to set up hotels are very difficult to get, apart from big cities (which are already suffering from supply glut ) small cities lack supportive infrastructure like road, airports…financing is very costly. So Oberois and Tatas can survive with low room rates for a long period of time until demand return but these costly new hotels can’t as oberois and tatas are having hotels which in some cases are 70-80 years old. Hence I am of the opinion that many of these plans of building new hotels will remain  on paper only, also we can see the sale of properties from new hoteliers due to dwindling business and high cost scenario. Mr PRS Oberoi, 82, the chairman of the group, son of india’s first world renowned hotelier Sh. Mohan singh oberoi, is someone who understands , feels and lives hotel. He is made to be a hotelier just like seth’s of GE shipping who really understands what it is all about shipping business not like shipping corp of india which is in dire straits due to persons who doesn’t feel shipping from the core of their heart. Hotel is much more complicated arena...one has to feel it from the core of his heart. His father asked him to travel around the world to see and stay in the one of the world’s best hotels and he was just a traveller upto 40 years of his life and this is a long heck of a time. He is a real perfectionist. In his every hotel, he is the one who plans everything from basic tiles to the inner architect. He even mark his presence during excavation time for foundations. In his oberoi gurgaon, he guides his staff to choose table top for dining hall and went on to getting them washed to see the results. He chooses flowers for the flower pots and his mantra is flowers should pop out of the pot around  some few inches and this is the case for every vas. He is so deeply engraved in his passion that he didn’t have his home upto 40-50 years of his life. He was just staying in his hotels. They are the first who employed educated staff in 1970’s...first to employ female employees. To trained their employees they opened their own training centre in 1977 “Oberoi centre of learning and development OCLD, which is regarded as one of the best in world. Around 40000 applications comes every year for just 24 seats. Now he is mentoring his son vikram and nephew arjun to hand over the baton of the company. One journalist interviewed his son, vikram in one of their hotel. During interview, vikram saw a waste paper on the hotel lawn and he himself got up and threw the paper in the dustbin in spite of calling the hotel staff. So he has transferred his vision well. In 2010, reliance bought stake in his company for 1000 cr at 182/- a piece and later in 2011 subscribed for the right issue at 66/- current price is around 53/- Reliance is a shrewd investor who is looking for avenues to deploy their excess cash and hospitality is a sector which can see huge activity going forward. It is down currently due to macro factors....but India’s industry is to witness strong activity due to increasing propensity of Indian people to consume and enjoy their leisure with luxury. Foregn trourists are visiting due to increased spending on Indian infrastructure and india really has huge geographical edge and heritage and culture to attract the people from around the world. Although nobody is looking for hotel sector stocks because their are down and beaten....but this is the best time to pick these for long time because it is just on the lower end of the cycle. Because all of the world’s best hotels like marriot, four season, starwood etc are investing big time in india....they aren’t fool to invest when we think that the future is dim...because they are much knowledgeable than us and can forsee what we can’t. And now to their plans...PRS oberoi  just recently hinted that they are going into luxury homes around their forthcoming hotels. They have some prime lands of 8 acres in Bangalore and 55 acres ( this is massive ) in Goa facing sea....so plan is around hotels , they would also build luxury homes. These homes would finance upto 2/3rd cost of a hotel. This is a smart move because in india land is so expensive that you can’t expect to earn a handsome return of 40% ( operating Margin) without compromising services. And i feel this is where foreign companies has to fight....they have to invest big time in lands alone for hotels. They are forming a JV with reliance to develop properties in india including recently announced development of 15 acre land of reliance at navi Mumbai. PRS Oberoi also wants to venture into premium food segment and with their’s having the world’s best chefs and an understanding of almost all the cuisines of the world...they can very well do that. I feel the best strategy for them to open food restaurants around india in all the major cities with hub and spoke model. Infact they are running flight kitchen facilities at some of the major airports of india. They have become almost debt free with reliance’s entry and i am sure they are having some very big plans. In india, we are rushing towards all types of starbucks, KFC’s, Domino’s to spend like anything. The rate of growth of these premium fast food chains is stupendous. Because now we have realised the value of hygienic and expert service. The oberoi’s are the best in establishing quality standards to be followed by others. Like they source their own mineral water with their own brand for all of their hotels, which are 29 in the world and 3 charter luxury boats. Hotel sector is not a commodity business, a play of number of rooms and occupancy ratio. Infact it is a brand play wherein customers feels and established loyalty towards a quality service. And i have read the reviews of the customers of oberoi’s, they say that they can go up to any level to service their customers. Financials at present are not of much importance, their turnover is around 528 cr with net profit around 23 cr in the first six months of this year against 468 cr and net loss of 9cr last year, depreciation is around 130 cr every year, hence they can use this cash for their expansion plans well.     Most importantly they have reduced their debt from 1400 cr 3 year ago to around 500 cr after right issue and investments by reliance. They have an EPS of around 2 and yet they give a dividend of 1 rs even in this bad time. This liberal dividend policy will be a boon during good times when they will declare hefty dividends. ITC is having around 15% stake in the company and trying hard to perhaps acquire the company...which i feel it will never and shouldn’t succeed. These corporate hotels have very indifferent views and vision about a hotel...they are very plain and flat in their dealings with customers unlike PRS oberoi who calls his customers daily on the basis of their reviews and suggestions to improve. I am always a great devotee of this man PRS Oberoi, because i learn from him the secret of brand building in service sector. He is all about passion and living the passion. At 82 he is still going strong just like his father who died at 103 in 2002. I never missed any chance to read his interviews. EIH can be the best bet in the hotel sector once the recovery comes in the economies around the world due to its strong brand image, nil debt, apt management, partnership with reliance which can produce the cash even from thin air. Indian hotels co. is also a good buy at current price of 48/- as they are focusing on mid scale segment also and looking for selling stake in their overseas properties to cut down the debt. These two are the pillars of Indian hospitality sector and shouldn’t be ignored at any cost. Hotels stocks derive its value not alone from their earnings but also from the valuation of their hotels as they aren’t like normal buildings of other businesses. They are valuable properties acquired sometimes 100 years ago at potato prices. The valuation of the hotels of EIH alone will be around 11000-12000 crores whereas its market value is just 4100 cr leave out the earnings and their brand power. Our investments will be safe in best hands because as one journalist recalls a displeased PRS Oberoi, as he had just seen some dust on company’s car, a sedan, which just left with a customer. He asked his son vikram to call the GM of the hotel to meet him.

HSIL-POWER OF BRANDING

HSIL-Hindustan sanitary ware ....i feel this can be the next stock capable of giving superlative returns. This is one of the biggest sanitary ware co; having 40% market share, also 2nd largest glass company in india, also started trading in high value imported sanity ware for premium segment.

It has grown from a mere sanitary ware co. to complete bathroom solution company, it has also forayed into tiles segment also. It is opening  retail showrooms in india at a grand scale to improve its sales and margins with name EVOK....it provides complete solutions for your modular home for decoration of bathroom to kitchen.

India has the lowest penetration of sanitary ware....even lower from Pakistan....now people have changed with changed perception towards bathroom and kitchen finishing....from a place of least importance to a place where one can relax from the hectics of all day, a place to exhibit
superior taste for quality and modular furnishings.

With better incomes at their disposals , people are moving towards branded sanitary ware products....also india has great shortage of around 2 crore homes....premium segments homes are also finding a great demand, hotel industry and recreational segment is growing, in above all Malls and super market segment is also a great demand creator for the products.

I can still recall the time, when share prices of TTK prestige and Hawkins were given ordinary valuations, but then people realised their potential from a mere pressure cooker companies to complete kitchen solution providers and when people changed their aspirations for kitchen products from  mere kitchen cabinets filling phenomena’s  procuring them from back stage lower quality producers towards things the choice of which are a manifestation of one’s style, taste and view towards life....these companies witnessed stupendous growth and their share prices increased by around 8 to 9 times in a year and market gave them a PE ratio of 35.

Same thing can happen to the share prices of sanitary ware companies, which are also based on consumption based theme of Indian households...better consumption with better incomes. At present the share of biggest sanitaryware  co. Is quoting at a PE ratio of 8, which is too low for a strong branded company which is having Oberoi group, DLF, Unitech, ITC, TAJ , Hyatt hotels, Glaxo, Ranbaxy, HUL, pepsi, UB group, Dabur, GSK, parle, Pfizer etc as its customers for its varied range of products.

HSIL is having a great management, strong balance sheet,  dividend payout ratio of around 4%, which will only increase in times to come....all in all i feel this co. Is a must for any portfolio. Present price is Rs. 95/- in 2012, i wanted to buy Cera sanitary ware when it was at 170/-,  but I couldn’t buy it and now it is around 700/-....but at that time i didn’t cover HSIL...which is a larger company and at present available at very cheap valuations as compared to Cera.

Actually its qtrly profits aren’t growing as fast as of Cera sanitryware. However reason isn't the performance of HSIL's sanitry divison. It is still generating better operating margins than Cera (20% against 10% of cera ), the drag is of Glass divison of HSIL, which is a high cost low margin business, contributing almost 50% of turnover.

last sep-13 qtr glass divison has incurred losses due to general downturn in glass sector all over india due to high power costs and low demand etc.Its sanitryware divison is improving all the time.

Hence i strongly feel that HSIL will either sell its glass division and free the capital to use it for growing business and sector like sanitry or it will sell some stake in it to cut its debt or will demerge it. Chances are firm that glass business will turn the table. Glass business is always regional as it is very costly to transport the glass over long distances. Hindware is having strong foothold in south india.

India hasn’t reached saturation point in glass consumption…in fact our per capita consumption is at lowest ( 1.4 kg against 90 kg of south korea, 28 kg USA ). However with increased spendings on beverages, medicines and real estate demand for glass is set to grow fast. These days glass containers for liquor and soft drinks are not just containers but they are made to look like a piece of art. Companies are focusing on premium quality glass…presently it is mostly imported but with demand picking up…Indian glass sector is well capable to meet the scale.

The company has also ventured into the manufacturing of colored glass bottles (sole producer of such bottles in India), chemical bottles and lightweight bottles. These products, which are import substitutes, have seen good demand and should aid margin improvement ahead (given high realization. In india, 65% demand for glass is for liquor sector, balance is divided between soft drinks, food and pharma sector.

Present lull in the glass sector is only because of temporary mismatch in demand supply where supply is a touch higher. Consolidation will leave out inefficient players

Whenever market will become aware of the fact about the strength of its sanitry business, the stock is going to fly like Cera.

Of Brands-KRBL and LT Foods

I'm already having KRBL bought at 16. KRBL is the owner of biggest Indian branded basmati rice brand India Gate.

Leave aside everything financial…the biggest factor favoring these companies is their ridiculously lower valuations of 2-3 pe ratios in spite of having very strong brand image. Many will disagree with me but I am of the strong view that companies having strong image in basic living essentials should command better valuations as compared to sensory product category companies because I can choose to avoid sensory rice product like “Kurkure” for any reason may be because of taste or health but not rice as these are part of our daily diet.

But while sensory product companies like jubilant are commanding insensitive valuations of 50, KRBL/LT Foods are available at 2-3 times of their earnings which are way behind their intrinsic valuations. Yes we can’t ignore the fact that PE ratio is relative to huge growth prospectus of companies like jubilant selling style products like pizza but this doesn’t mean ignoring the stable ones because there is biggest risk of pizza’s losing our fervor than rice.

Although KRBL and LT foods are having debt but this is working capital debt which is normal for them as they need working capital for purchasing fresh rice crop and then storing them for 1-2 years to reduce their moisture content to make them fit for consumption.

Last time both these were recommended around 18/- and 50/- , these are around 30/- and 70/- but upside is still huge because both of these are going to witness huge rerating because of two reasons, first pe rerating and the other  because of huge earning growth due to rise in demand of basmati rice both from Indian and overseas market.

LT foods is having Daawat brand of rice along with organic food company Nature Bio foods selling various organic foods. it is having Kusha inc which is the biggest rice brand of USA...Prices of foods aren't going to come down even with increased production in future...the good time for these comapnies is about to come...

Although both these are available at PE ratios of around 2-3, however there is one Indian company Amira foods ltd which is having almost same turnover and NP, but it is listed in USA and commanding a PE ratio of around 9-10. USA isn't that much a bigger market as india. This is alongside the fact that US investors treat Indian companies as unreliable due to their very lower levels of corporate governance standards yet Amira is having a PE ratio of 10, expand this to Indian standards and it will become 20. One can gauge the potential from here.

 One bank granted a loan to LT Foods of around 200 crore on the security of just its Daawat brand...in the process valuing its brand for 200 cr when company itself is available at 150 crore.

Also Rabobank one of the biggest Agri investment fund in india, invested around 50 cr in its daawat rice brand.

LT foods has forayed into selling organic staples. it has also plans for foray into africa by investing around 250 cr for sourcing rice paddy and contract farming with farmers. It has also made a factory in Madhya Pradesh to make healthy Rice snacks with brand name of My-My. It is investing big time to launch these.

India is second largest producer of Rice after china but due to Govt restrictions on rice export, it was getting destroyed in Govt warehouses...now with widening current account deficit and a hope of another normal monsoon this year will prompt Govt to completely lift the ban from rice export.

Great buys at current levels and definite candidates for PE rerating.

Acrysil India

( This was recommended earlier around 90/-, currently it is around 120/- but I stil feel it is poised for a strong show. Current post is just a reposition of old recommendation.)

This company is into making of Kitchen sinks and other kitchen solutions....but what makes this company very different is their niche raw material...their sinks are made of quartz which is hardest material available...so its sinks are scratch free and they are of great quality. so they are exporting 80% of their products. they are only company in asia and one of the four in the world making quartz kitchen sinks.
They have also launched granite and steel sinks which are very unique in its design. They also have launched their faucets which are of great aesthetic style and finish.

Till now they are mainly into exports as due to their premium high priced had low demand in india...but things are changing very fast in india as people are willing to spend for a great quality product preferably for a great kitchen sink as they are only going to have one or two such sinks in their home so whether they cost 15000 or 25000 doesn’t matter much to them when they are spending lacs for their dream home.

It is a 62 cr turnover company with 49 cr as export however their domestic sales grew by almost 50% from 8 cr to 12.50 cr in 2011-12. They are also expanding their manufacturing base. They are paying dividends regularly at high rate, with eps of 7.5 they paid 4 as dividend which is 4.2% of their current price of 94/- with PE ratio of 12 which looks high but could come down very fast as their equity base is very low of 30 lac share, so earning jump of only 2 cr will bring 7 Rs eps.

Paying of high dividend when promoter holding is 45% is a good sign of corp governance as promoters are willing to reward shareholders. They just need to focus on brand building in india through various advertisements and it will rise with a Bang. Their products are featured in all the major retail outlets in UK, USA, Germany etc.

They also have a low debt of around 16 cr, but with net worth around 28 cr and with growing business they can afford both either equity participation from some strong investor or debt raising.

It is a good buy at every fall. i found it as i was looking for one more niche business to enter in Punjab which my brothers are handling. i feel its product will surely find its place in our market because we are the ones who are spending like anything on costly mobile handsets and laptops. This is another TTK prestige or Hawkins in the making which are commanding very high PE ratios of 35 in Indian market. Pressure cookers from these companies sells at much higher prices than their local counterparts around 5000/- as compared to 1500 to 2000 of local brands.

VA Tech Wabag-Water is Precious.

(The stock was earlier recommended in 2012, current price is still around 500/-   which is a great chance to enter… Current post is just a reposition of old recommendation)

I am always skeptical about small general type of infra companies which   work on contract basis from bigger players, Because they don’t produce    some unique products, don’t have any strong  brands; their products aren’t demanded because they are specific but because they do the work    cheaply, entry barriers to their business are very low.

Anybody can enter this segment because work is mostly labour based..not   much technical        qualification is required, which will impact their margins significantly. Present situation of small     infra companies is a testimony for the same,where they-in order to secure orders,got the contracts at  very low margins, that at a time when most of them have taken huge debt   for building the    basic infrastructure to do the  low value contract jobs. So when these contracts extend beyond time limit due to delays, their     already low margin turns into a loss.

Nor they have valuable revenue/income generating assets like of mining Companies (although    their products are somewhat general and volume based), that’s why if you want to go for infra sector then go for companies providing specific   and unique services or having valuable assets like GVK/GMR and jaypee infratech/ reliance infra/IRB infra as they are      having Valuable income generating assets like   roads, airports etc..they wont be impacted much in case of any adversity and will gain tremendously in case of general boom and        confidence .

 Va Tech wabag is one such company which i feel can scale great heights...it deals in waste water management, water treatment and biggest of all Desalination of sea water. It has just completed one project in chennai in sep-12 for supplying 100 Million CM of water per day for water starved chennai.

Va Tech is a perfect case of Management study, its promoter Rajiv Mittal, a chemical engineer from the Bombay University,  started his career with Hindustan Dorr-Oliver Ltd. He was working in the UK, and joined Wabag in 1995. The company sent him to India to set up a strategic business unit in water. In 2000, the Austrian company, VA Tech, acquired 100% stake in Wabag, forming a new company known as VA Tech Wabag. Wabag India became a wholly-owned subsidiary of this company. Mittal managed to carry out ongoing operations seamlessly and put the company on the growth path. In 2003, VA Wabag’s  turnover was R100 crore, the only company in water business to achieve this figure. “The following year, it made R200 crore.”

Just then, VA Tech decided to sell its Indian subsidiary due to business compulsions. Siemens took over the entire VA Tech group in 2005. Soon after, Siemens decided to put on the block all the overseas companies of the Wabag group. Mittal decided to try and acquire Wabag India, and With the support of ICICI Ventures, he competed with eight multinationals, and emerged the winner.

Later in 2007, VA Tech (India), in a rare instance in corporate history, acquired its erstwhile parent VA Tech Wabag (Austria) from Siemens and became a global player in the water treatment industry. Overnight, from being a small Indian company, VA Tech Wabag India  became a leading player in the water treatment engineering sector with 65 projects in 19 countries across Asia, Africa and Europe and the owners of over 100 patents. And the same Austrian and German executives who would be their reporting authorities till 2005, then started reporting to Mittal and Varadarajan! Nothing like this had ever been done in Indian corporate history. People were shocked and there were many experts who figured they would never be able to succeed with such a huge deal. After all their former parent company was twice their size then.

But no storm of that sort came and the new company sailed through difficult water bravely.

Now It is a leading player of 1400 cr in waste water treatment into reusable water for industry and human use. recycle water is cheaper than desalination water...it costs around 25 Rs. per Kiloliter as compared to Rs. 50/- for desalination...also capital costs for desalination are almost two times of waste water but may be the perception of people towards waste water is not good....anyhow all in all these are two great opportunities for the Co. to grow big time since Municipals all over world are investing heavily for water treatment since only 3% of total available water is usable for humans.

So scale of opportunities is real huge. And our india needs dramatic improvement in its waters or else we’ll be drowned in the mud.In spite of spending 20000 cr on water treatment on the shores of our Sacred Ganga, we are only able to treat only half of waste water flowing into our Holy Ganga from class 1 and 2 cities (1.2 billion liters out of 2.7 Billion), leave alone the figure of all the cities near Ganga. Our ground water levels are depleting due to excessive withdrawal for agriculture since we are very inadequate in preserving rain water, that depleted ground water is also polluted to the core due to careless policies regarding industrial waste treatment. Almost 50% of india don’t have sufficient/clean water for use. Situation is really scary and india need to wake up…in fact whole world need to wake up or else the next world war would be for water.

Va Tech is a leading player having margins of around 15% as compared to 5% of the top leader Ion Exchange( Zero B Brand )...the margins will improve further as company is looking to shift the engineering segment of its overseas subsidiaries to india wherein cost of manpower is 10% as compared to 30% in those countries. it is having 400 cr of cash which it will use for overseas acquisitions. Most important thing is their patents which provide them a definite global edge and not many Indian companies are global powerhouse when it comes to having patented leading technologies…in fact number will be very less because everything is borrowed by us. However the scenario is changing fast.

Only worry for me was debtors of around 1000 cr of turnover of 1400 cr....but company has clarified that it has done the work for around 500 cr in mar-12 alone and billed the same, also the major part was for the bills of desalination project due to funds awaited from central govt by state govt for the project. Company has clarified that they have received 50% of the debtors by june-12 and will receive the balance within two months...it is paying dividends regularly...last year it paid Rs. 6/- which will rise once the scale is reached. Although the pe ratio of 14-15 is a bit high....but considering the future of the scale, leadership position and patented technological edge....company can very well achieve the 40-50% growth. A great buy at current price of 450/-

 

Vadilal Industries

This is a very good company and brand in Ice cream and frozen food segment. Frozen food is the next big thing to come since 30% of agri product is getting wasted due to inefficiencies. Branded consumer products like Shoes, eatables, clothes, wellness products are going to be the next growth driver as rising income levels will prompt and motivate indian people to go for quality branded products. The demand for these products is not impacted by interest rate at all like other high value consumer products i.e vehicles, real estate.

I can still remember the times when pirated lower quality CD's of movies found a place in the cupboard of a movie lover in spite of these being rendering very poor quality viewing experience but now few buy these since demand for high quality viewing experience has bashed these pirated ones. so sentiments and perception towards living standards are changing which are prompting a structural shift in demand for high quality branded products.

India's Ice Cream market currently has a market size of roughly Rs.3500 crores, organised players account for Rs.2200 crores and the balance Rs.1300 cr by the small regional and unorganized players.

But The per capita consumption of Ice Cream in India is just 400 ml/ year against 20-25 litre of US and European countries…China’s annual market is around 25000 cr…3 litre per head, even Pakistan is 750 ml per year. Our agriculture processing is very low around 5% against 95% of USA…similarly we are way behind USA in milk processing. . 

Like although we are the second largest producer of the milk in world...but our annual cheese production is just 24000 tonnes...and against us is the USA having annual production of 50 lac tonnes...just compare the scales.  

The main reason behind low penetration of ice cream in india is lack of supportive infrastructure like cold storage and proper power supply. Another main factor which I feel is lack of innovations in ice cream products and high quality branded products. Indian companies are now investing big in cold storage, thanks to modern retail and consumers who are ready to spend for a quality product.

Amul has left behind Vadilal in a big way…but vadilal is now ready for a big pie of Indian market by introducing high quality innovative products and spending on brand building through media. After badabite, flingo, gourmet in 2011 and the ice trooper range for the kids' segment in 2012, this year it has launched Artisan range of products under which it will offer ice cream log, ice cream pastry, ice cream sandwich, cookie pie sandwich, ice cream bar (called as Sneak-a-Bar) and kewara mataka kulfi. Capitalizing on the increasing demand for fruit based products in India; the company is also launching new range of ice candies made with real fruit pulp in exotic flavours like cranberry, kiwi and mixed fruit under the 'Falala' brand name.

The Company recently entered Indian flavored milk market with its new 'Power Sip' under the vadilal Quick Treat umbrella brand. This initiative is part of the company's long term strategy to offer a wider range of frozen food products to consumers and its first major product launch in the beverages market.

It has emerged as the country’s most trusted ice cream brand for the second time in a row, according to The Brand Trust Report.

It is having a turnover of around 300 crore…however net profit is just around 7-10 cr…the reason being interest cost of around 25 cr due to huge expansions done in recent times to expand the production capacity and basic infrastructure to meet the demand of varying regions.  it has invested around 150 cr for high tech machines and expanding production capacity. Due to seasonal demand from north india…it currently earn profit only in june qtr when there are summers …hence proper supportive infrastructure, premium products and brand building will help in erasing this seasonal variations. It has doubled the capacity of its UP factory to meet the demand of northern india.

I am very optimistic that vadilal will emerge as one of the leading fmcg companies in times to come and one of the biggest brand. It is also expanding big in frozen ready to eat segment via Quick Treat brand.

It was earlier recommended around 100, It touched 300/- but now it is available at 120 which is a great entry price. Invest in it and enjoy the cooling effect.

Exide/Eveready/Gati

Exide: Alternate renewable energy sources like solar and wind are the future of our energy security. With increased research on these two, the cost per KWh for solar has declined to almost Rs 8/- from 15/- three four years ago and almost 50/- a decade ago.

World has invested huge resources into IT sector research over last 20 years or so...but there is one technology which has the potential to change the way we source energy and that is...Battery. The biggest cost component of solar and wind technology is not the conversion rate of sunlight or wind into energy but how to store these. Storage efficiency will be the biggest factor which will drive the growth of renewable energy.

Now huge research is going on Worldwide for making effiecient and cost effective batteries...Nissan has set aside 5 Billion Dollars for research for Batteries for electric vehicles. World has realized the huge social and environmental costs associated with fossil fuels. Hence time is near for Solar/Wind to gain their due regards.

I made a big mistake of ignoring Exide and Amara Raja battery ( it has gone up 5 times in last two years)....because these two look best suited to reap the benefits of any future innovation with regard to solar and electric vehicle Batteries. Although their main product is lead batteries which are not ideal for storing huge power at lesser space and weight. However research is on for Lithium and magnesium/Cobalt batteries (like of our mobile phones). These two also has big plans for venturing into Lithium or Nickel batteries. 

Auto batteries usually have life of 3-4 years...hence this is a great business to be in as for every single car sold…replacement demand for batteries keep coming in. Exide is debt free…its business produce cash of around 300-400 cores every year, which is more than sufficient to meet any future expansion plans…organic or inorganic. Inverters is one such area where Exide can think about acquiring some companies as it is already a battery producer. Current battery market is oligopoly with two players having almost 90% share means very strong brand power very difficult to emulate by any new player. 

Exide also was having 50% share in ING Vyasa Insurance…but later on it has acquired 100% by paying ING and other 550 crore. I think this can be a great business, but for this Exide has to find one big international insurance sector player as it cant go farther alone due to lack of experience. 

Although people go on suggesting ways like 100% FDI in insurance sector to make it grow, but I am of the view unless we prompt people to save their money via good insurance plans…success can never be INSURED. Section 80C is the biggest opportunity by which our Govt can motivate people to save more. I am hoping that our Govt will increase the limit of 80C atleast upto Rs. 2 Lac. That is a must as in india our Govt doesn’t provide any sort of social security to elderly people hence at least it can give them tax benefits if they plan for the same on their own.

Great buy at current price of 113/-

Eveready: Eveready is having almost 60% market share of Indian dry cells market which is running through difficult times due to high raw material cost in the form of Zinc coupled with High rupee depreciation last year severely impacted the imported price of Zinc for these companies which usually sell products in the form of small batteries ranging from Rs. 5 to 10 having very strong price elasticity especially in rural areas limiting power of these companies to raise the prices of their products.

Eveready wisely entered into Led lighting, Rechargeable batteries few years back to leverage its strong brand image in india. Just few days back it has test launched portable charger and Universal USB charger for charging tablets and mobile phones which is a big headache for our younger generation who wants to use these devices for 24 hours but for the lack of battery capacity of these devices. But with these chargers they can charge these devices anywhere. It has sold 100 numbers in just two days on Flipcart.

Eveready has indicated that they are going for a complete image makeover from being seen as a mature old player of Boring batteries and Torches to one dealing into portable devices for young generation. One such portable charger cost Rs. 1600 to 3200 which is equivalent of selling 100 to 200 dry cells. Also these products have much lesser price elasticity hence their price can be increased with any rise in input costs.

This is a great and must buy at cmp of 24/-

Gati:  One of the oldest courier and Logistic company in india credited with many firsts like cash on delivery which later on also adopted by flipcart.

It is having a fleet of 4000 vehicles out of which 20% are owned by it. It is into cold chain with Gati Kauser with a fleet of 100 reefer trucks with plans to increase these to 300 by 2013-14. 

Last year Japanese  company KWE express invested 267 crore for a 30% stake in its courier and logistic business which has been transferred into a separate subsidiary to accommodate the investment by KWE which is one of the largest freight forwarding company in the world. It values its courier and logistic business around 900 cr leaving out its cold chain/shipping/E commerce businesses. However Gati itself is valued at just 300 crore. Gati has plans to wipe out its debt with this 267 crore.

Regarding cold chain, india badly needs cold chain investments otherwise our food security is in danger  because almost 100000 cr of agri products are wasted due to poor handling facilities which is twice of the total production of fruits/vegetables in UK. But cold chain development in india has one big constraint and that is cost of land which is way too high due to dumping of enormous black money into real estate. However Gati has huge land banks in all over india where it is planning to make cold chain warehouses which definitely will going to change its fortunes.

Its E commerce arm too is growing very fast because Indian have started to use e commerce to do their online shopping thanks mainly to IRCTC and online ticket booking firms which taught Indians the ease of e commerce. At the backend of every Ecommerce firm whether it is flipcart or Myntra, is a company like Gati having expertise and infrastructure to deliver their products door to door.

Gati is doing this for Star Cj, TV 18, Naaptol and just inked deals with Flipcart and Myntra. This is going to be one of the biggest vertical for Gati in the future because e commerce sector will see huge activity in india going forward. It is a high margin business to be in.

Great buy at cmp of 29/-

(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)