Some Stocks i am Buying Now- Venky's india, Gujarat Borosil, Zee Learn, Himadri Chemicals, Surya Roshni

Generally It takes a lot of time to study a stock…but It has happened with me many times that while final analysis of some share was under completion, it just went above the roof and finally of my buying zone. So if I am 50% confident about some stock then I’ll buy it and after final study I take the final decision. But some of my friends asked me to share those also as many of those shares have skyrocketed before I shared my final analysis with them. Like Last year I bought Shreyas shipping at 20/- and D-link at 30/- before I finished my study they just blasted. Now Shreyas is at 480/- and D-link is at 190/- I am still holding these. Greenply is also one of these.

So I am sharing some of my recent buys which are still under final study.

Venky’s India: I am buying it from 500/- to 360/- today….my avg is around 410/- now. It is a 1800 crores company, one of the largest poultry sector behemoth. It gets 1000 crores from poultry, 650 cr from oilseeds and around 150 crore from animal health products. It has also ventured into Quick service restaurant business by opening XPRS chains which serves chicken and only chicken in direct competition with KFC. Its market value is just 320 cr but it is having 200 cr in cash. It promoters are good as in spite of huge dealings with a number of group companies, they don’t have cross holdings in these companies.

Maize and corn are their major raw material which comprises around 60-70% of their total cost. Prices of these are falling as evident from their dec-14 quarter results wherein the company turned profitable due to savings in raw material costs. But I feel as we are earning more money so demand for good quality poultry product will only grow. The chicken we are eating now from our backyard poultry farms are highly toxic treated with huge doses of anti biotics and growth hormones. So I see a shift will happen in the near future and we’ll realize that healthy chicken is costly. Godrej industries is selling their chicken brand Real Good chicken competing with local chicken. Also around 2004 I was buying chicken around Rs 70/- per KG which now trades at around 140/- although other major commodities like milk, rice, sugar, pulses, vegetables like onions etc now trades at around 4-5 times of their lows of 2004. A major shift is coming.

Gujarat Borosil: It manufactures Low iron glass which is used in solar power modules as a protective layer for solar cells. It protects the costly solar cells and also helps in transmitting the sunlight into solar cells. Normal glass with high impurity of iron does not absorb major sunlight due to iron and reflection of the surface…it absorbs around 83% of the sunlight. But Low iron Glass does around 95% after curing iron and applying a protective coating. Glass is a major component of a solar cell module comprising around 60-70% of total weight. India is investing huge in solar power and wants to build around 100000 MW of solar power capacity around 2022. For a perspective, it requires around 7-10 tonnes of silicon to make a solar panel for generating 1 MW…so we need a lot of silicon wafer. But we don’t even produce one kg of semiconductor grade silicon in india. Our local solar cell producres like Moser Baer and Tata power don’t produce solar cell from the scratch…they import silicon wafers which are then turned into solar cell by incorporating an electricity circuit around it to produce electricity by photovoltaic effect.

Although there is nothing wrong in these companies for not producing silicon wafer which itself is a highly technical process requiring huge investments and power. Conventional manufacturing processes consume 40-50 kWhr of electricity to make a kilogram of polysilicon. SunEdison of USA is developing  FBR technology which would need just 3-5 kWhr. But india can’t dream of building this huge capacity by importing all of the silicon…it will be a very costly proposition and may turn out costlier than oil and coal imports. So we need local manufacturing and Gujarat Borosil just does this.

It is the only local producer of low iron glass in india catering to local and export markets. The best thing about it is- its very low debt, only 40 crores. Last year turnover was 132 cr with net profit at 8 crore…so it is perhaps the only solar sector company which is profitable. Moser baer is having a debt of 3300 cr, indosolar of 800 c. Net worth of Moser baer is -1657 cr and of indosolar is -40 cr, while Gujarat Borosil’s net worth is 130 cr and its market value is 170 cr.

So I am sure Govt is going to do something very serious to promote our local solar industry. Gujarat Borosil is poised for a huge growth as it can use debt route for countering this coming solar storm. It is a good buy at current price of 23 and can be bought around 20-25-30 and at every fall.

Zee learn: I am holding it from 16 and few days back make another entry at 33/- our education sector is the most underdeveloped and incapable of shaping or giving direction to a natural prodigy. With its useless study materials and teaching techniques it can only ruin or delay the blossoming. So we’ll see major paradigm shift in this sector. Many companies have entered in this noble industry but their shares prices plummeted due to tainted promoters and shabby standards of accounts. So options are very few and Zee Learn is one of them. It owns Kidzee and Mount Litera chain of schools. Just give it some time and it’ll blossom.
 
Himadri Chemicals: At present there is no Lithium battery maker in India. But there is one indirect option and that is Graphite. Lithium batteries use high amount of Graphite (5 times than Lithium). Most of the weight of Li battery is of graphite. Graphite is of two types, natural and synthetic. Natural one is mined and synthetic is made from petrochemical raw material.
 

Mined graphite is somewhat impure as purity requirement of Li battery is around 99.99% which is given by synthetic graphite. Now they have innovated a cheap technology for making mined graphite more pure. But i think fall in oil prices will benefit synthetic graphite players and also mined graphite supply may not catch up with demand. Again China is having around 70% share in natural graphite, india is at second with some 12%.

However we have some good synthetic graphite players in India. Himadri chemicals is one of them. Largest player in india and it is also making lithium grade graphite products for japan also. but it is deep in red and high debt. But its fortune can change any time because it is very costly to transport petcoke (raw material) so mostly synthetic graphite markets are regional. I have entered in Himadri around 20 and will add more when it will perform. It main business where it supplies graphite to graphite electrode makers like HEG/Graphite India is also on the verge of turnaround. This one can really surprise when market will realize its potential.

Surya Roshni: Although Bajaj electrical is the major player in the kitchen appliances, fans and lighting in india but it outsources around 90% of its business to outside producers. Some analysts call it asset light model but i want to make some more study. In house production gives one better control over quality and inventory management. Surya Roshni is a bigger player in lighting sector than Bajaj with one difference. It produces everything from scratch In its factories starting from glass.

In lighting sector, we have seen one revolution from incandescent bulbs to CFL bulbs. LED bulbs are the next big thing. LED bulbs use half the power of CFL bulbs with much longer life. CFL bulbs use mercury for production which is very dangerous for humans hence need very careful disposal. No such issue is there with LED. Govt is focusing big for led revolution and has placed huge orders for led lighting systems for streets which has brought down the prices of bulb from 500 to 200. The price will go down further.

Surya is having grand plans for LED and it is having india’s most advanced lighting research centre equipped with photometric laboratory at Noida which is approved by DSIR ( Department of  Scientific  & Industrial research, Ministry of Science & Technology) and also it has been listed as one of the best testing laboratories in India by BEE ( Bureau of Energy Efficiency).

It has also entered into fan and home appliances business which is growing very fast and can be a real value creator as the company can count on its huge portfolio of distributors and retailers which is the main differentiator.

Its turnover is 3000 cr, with 2000 cr from its steel piping division and 1000 cr from its lighting business. Its net operating margins from steel business is very low around 3% as compared to 10-12% of lighting. Steel piping is a very low value addition business as all it does is to roll a flat sheet of steel into round pipes making it vulnerable to vagaries of ever changing steel sector.

I am yet to study about the future plans of the company regarding their steel business, capital employed, further investments or selling the same etc. capital invested in lighting business is 600 cr with 1200 cr in steel division which I feel is a bit skewed towards steel although we know Surya for light. Gross Operating profit earned from steel is 73 cr, it is 108 cr for lighting business. Operating margin to capital employed are just 6% for steel business while these are 18% for lighting. I think it makes much sense for Surya to invest more into lighting and expend more for brand building. It has also entered into UPVC pipes recently which are growing faster than steel pipes in india.

Regards

Gurpreet Singh.

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

Titan Biotech-update

There can’t be any entry price for these types of companies which are in its infancy. Because if they grow as expected then there stock prices can touch the sky as happened with Avanti and SKM Egg…and by the way when we are taking this much risk by investing in these unknown and small companies, we deserve hefty gains in the range of 10-20 times.

Titan Biotech is falling (or we can better say not rising as liquidity is very low even when it is falling) as its results for past 2 quarters aren’t that good with its turnover falling by some 10%...however the drop of water in the desert is its improving margins and lower raw material costs…its raw material cost is around 50% of turnover in last two quarters down from around 62% last year. We can’t gauge the reasons with surety due to lack of information provided by the company but It may be happening either because of fall in raw material prices, decline in trading activities, starting of production in its new factory.

Also last year, its turnover took a big leap to 40 cr from 28 in 2012-13 with export turnover doubling to 16 cr from 8 cr. So it is natural for it to remain stagnant for some time before finding new demand. Management is quite optimistic about the future of the company as they have also invested in new manufacturing facility, investing more money in the form of equity at a price of 60/- per share. Almost all of their products are linked with general health like protein powder etc which is quite different from pharma products…rising awareness and spending capability in the country will provide a boost to their products.

Entry barriers to their line of products are fairly high as apart from being sophisticated products, they need to take many approvals before launching new products. Also they have a varied list of users of their products which provides a cushion in case of slowdown in one particular segment of the economy.

So risk is high but reward can be pretty big…I’ll give it much longer time of around 2 years. Good dividend payout is one big indicator of promoter fairness in these small companies. So one can buy it around 32 and at every further fall…but with one condition…only invest your RISKY money (with which you can afford to take risk) not your NEED money.

Regards

Gurpreet Singh.

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