Monday, 10 November 2014

Some stocks worth Investing-KPIT Technologies, Radico Khaitan, Tata Coffee, Jain Irrigation,Tata Power

Radico Khaitan: Liquor…this is one sector which is going to witness huge activity going forward. First…we Indians don’t yet know what is really a whisky? What we drink in the name of whisky is nothing but neutral spirit extracted from molasses (By product of sugar) which is then blended with imported malt and grain scotch whiskies to get the flavor and colour of whisky. In india, they have given it a very funny name; Indian Made foreign Liquor (IMFL) which comprises Whisky, Beer, Vodka, Brandy, Rum etc. In foreign countries, Indian whisky gets the tag of rum as it is made from molasses and most of them find its taste terrible. Single malt or grain whiskies are like silk and these are enjoyed best neat without adding any soda/water/ice.

At present india has imposed huge import duties on imported scotch whiskies which inflated the cost of BIO (Bottled in Origin) whiskies by almost 3 to 4 times and BII (Bottled in india) by twice. This has protected the inefficient Indian liquor industry from high quality competitors. However there are some like Amrut distilleries from india whose single Malt whisky has been awarded as the world’s best twice which shocked the entire world. This prominently export oriented company has now started offering 1000 bottles in india also. Amrut is always in short supply globally. This shows with dedication and efforts Indian companies can give global brands a run for their money.

Scotch Whisky unions of Europe are eagerly waiting for india to sign the FTA agreement with European union which will force india to lower the high import duties on scotch whisky. Sooner or later india is going to sign the treaty. Whenever this will happen will prompt foreign companies to look for acquisitions in india to get hold of complex liquor distribution system of india where every state has its own set of rules with regard to wholesale and retail of liquor. Central and state level taxes are very high and these are stretched to the fullest by state governments to increase their revenues. Diageo has already done the same by acquiring USL. Secondly this will also make bulk imported whiskies cheaper for Indian companies for blending purpose which will raise their margins. It will also prompt them to focus on high quality grain based products in order to be competitive.

One more thing, in spite of global demand for whisky almost doubled in last 20 years or so, area under Barley (to make malt for scotch whisky) production has actually decreased during the period which is made up by rising production of barley per acre. Although barley produced in Scotland is best suited for scotch whisky but india can be a huge global supplier of Malt.

With this background, I feel it is worth risk taking to buy the Indian liquor stocks like Radico Khaitan/USL/Tilaknagar industries which are trading at multiyear lows. Radico CMP is around 88/-


KPIT Technologies: one of the very few of Indian IT companies focusing on product based growth model rather than linear growth model wherein more employees are added to get more generic orders mainly due to cost competitiveness like our IT behemoth Infosys. However now they are also trying to change their business model. KPIT is a research driven company focusing on strong IP creation. It provides services in the areas of Integrated Enterprise Solutions, SAP and automotive segment.

Today’s vehicles are more of electronic devices with more and more of vehicle is about semiconductor Chips where millions of written codes control the way our today’s high tech vehicles function. KPIT has developed many IP based automotive solutions in the areas of in vehicle networks, body electronics, engineering design, infotainment, powertrain etc. It has also developed a component REVOLO which will convert the vehicle into Hybrid vehicle running on Gas and electricity from Batteries. It has filed 17 patents for the system and has already received four. It comes with a set of batteries, software and an electric motor which can be charged from standard electricity source. Batteries are also charged through regenerative braking system wherein electric motor rotate during braking and in process batteries are charged. The system recognize the driving pattern and start stop the power source from batteries and fuel engine as per the requirement like waiting at traffic signal.

We may be having a vehicle of higher power and strength but during normal driving in cities such a high performance engine is not required…in these situations Revolo shuts down the engine and start the battery powered motor and thus increases the fuel efficiency. As per KPIT management, Revolo can increase the fuel efficiency by 60%-80%.

Company derives a major part of its revenues from Offshore Product Development which is also going to be a major development in IT sector. KPIT CMP is around 164/-

Jain Irrigation is one of the best pick for solving the problems of indian agriculture...of low water levels, higher fertilizer subsidy. Both can be saved by Micro Irrigation which results in saving almost 50-70% odf water and 30-40% of fertlizer savings along with raising productivity by 50-200% in various crops. 

Govt will ahve no ther option but to make it mandatory to have micro irrigation by giving subsidy. although savings from reduced power and fertlizer usage will be huge as compared to total outlay on subsidy on micro irrigation.High debt of Jain irrigation is adequately safeguarded by pending subsidies from various state governments...there can be delays but ultimately most of it will come to jain. 

Only 7% of indian Farmland is Micro orrigated against 55% of USA and 95% of Israel. So just imagine the scope of scale...Jain Irrigation is 2nd largest micro irrigation comapny in the world after Netafam of Israel. CMP is around 86/-

Tata Coffee: First of all, Coffee is not a bean as it is regarded and thought of…instead it is a seed of coffee fruit. Coffee is a unique experience both for coffee brewer and drinker. It provides huge scope for creativity in brewing a splendid coffee. India which was predominantly a tea nation is bouncing towards coffee…however our knowledge about coffee drinking is preliminary. The powdered coffee we buy from our nearby stores is made of Robusta coffee beans which is a cheaper version of coffee as compared to royal class Arabica. Robusta is more bitter, less flavored with more caffeine as compared to Arabica. 2/3rd of Indian coffee production is Robusta. Also powdered coffee is either heat dried or freeze dried with former reducing the flavor and aroma of coffee due to heat hence freeze dried derives premium valuation in the market. Coffee is the 2nd largest traded commodity globally after oil and derives a turnover of 100 billion dollars.

Tata coffee is india’s largest coffee producer with 19 estates in india covering around 25000 acres. It is also the biggest producer of cardamom in india which is produced along with coffee. It produces around 10000 MT of coffee…almost half of which is exported and half is used to make instant coffee in its plants in india which commands better valuations and insulated from variations in global coffee prices as india is not a big player in coffee.

It derives 600 cr from its operations in india. It is having Eight’o clock coffee of USA as its subsidiary which is a more than 100 years old brand of USA. Its turnover is around 1000 crore and acquired by Tata in 2006. Tata is planning to launch the same in india also. 

Now I think the bigger future valuation creator will be its focus on freeze dried instant coffee segment than selling raw coffee beans globally. Also with Tata Starbucks JV growing big in india will provide huge growth opportunities to tata coffee as the JV is procuring its coffee from Tata coffee. Starbucks also has plans to source the coffee for its global operation also from Tata coffee.

With Indian customers now waking up to the idea of coffee and coffee chains, Tata coffee can reap the benefit from the massive distribution clout of its Parent Tata Global for tata tea in india. It has just recently opened a new instant freeze dried coffee plant in india. CPM is around 920/-


Tata Power: indian power sector needs great reforms and improvements to meet the current   demand as well as future demand to meet our growth targets. mundra plant is the main drag   on its financials due to costly imported coal which i feel was the fault of management for not    being able to calculate the possible chances of any high rise in coal prices.

However with cerc allowing to pass on the cost of around 50 paise to power distribution companies, the good time may come. Moreover with global oversupply of gas due to shale boom,     USA becoming net exporter of oil/Gas, technological improvements in renewable power…oil,       coal prices are going to fall further and there will be opportunities to buy coal mines at low      prices in usa/canada which i think tata can buy.

Also its defense arm SED is the gem in the crown as it is having highly advanced capacities to produce high tech products for Indian army. Its current order book is around 2700 crores. it is   having most advanced missile testing center in India…also producing high-tech night vision         equipment, highly advanced mobile phones for army etc.

 it is investing big in renewable power and power transmission and distribution, and to over-      come the dependence on India it is creating power assets globally. India can’t survive without      improving   its power sector and i feel due to its superior management and great track record…it is the best play on power sector.

(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)

5 comments:

  1. Hi Gurpreet ,
    KPIT - As u know because of the results didn't met as per the expectation in last quarter and today's rumour , the stock has fallen 50% from yearly high. Could you please advise can I use this opportunity or wait for any clarifications ?

    I entered in Infinite computer because of low P/E at 180 and it moved all the way 320.However because of client fee reduction , I came out with great difficulty because of back to back low circuits and surprisingly I got out at 173 with not much loss. While going through some of the articles , realized the IT future for the companies focused just on service based. KPIT is on my watch list for a while and as the automobile business is more interested because of pollution issues popping up now a days. Considering a good amount of holding period , please advise can this be grabbed now?

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    1. Dear Sir, I am also holding it from 140/- I am yet to analyse the situation. However when i studied it, i didn't find anything suspicious. But now i just want to make sure that i was right. Because at that time, because of Cummins link, i was having a feeling that balance sheet is OK.

      However i am sure that Only one Satyam was possible and that has happened. Management has not done any hiding today, they were rather aggressive in tone. So let's hope that everything is fine.

      I'll come back soon.

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  2. Thank you Gurpreet for your help always.

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  3. Hi Gurpreet ,

    I found some interesting link which has list of stocks which are future potential sectors.The one that you are always best at:)- .The link is pasted below , it is not ok , please feel free to delete it.But when u get some time please take a look on the listed sectors/stocks that u r interested as I believe you may like atleast few of them .

    http://stocks-information.blogspot.in/2008/10/best-indian-companies-for-investment.html

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    1. You took me back to year 2009 when i read this blog post and got the idea for Solar energy. I studied it deeply and my elder brother added the solar business in his piping business. We tasted great success in it. On the same pitch, now we are looking at adding water treatment business.

      But i think this blog is not being updated now. Will look into this again to find something meaningful.

      Thanks for sharing it.

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