Thursday, 19 February 2015

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)



11 comments:

  1. Respected Sir,
    Excellent Analysis . But Guj Borosil is facing the problem of Gas supply from GAIL. Whole belt in Vapi Ind area is facing the same problem . If Govt. Of Guj.intervene then Guj Borosil is an Excellent Pick.
    With Regards Sir.

    ReplyDelete
    Replies
    1. Dear Sir,

      Replied in a separate post.

      Regards

      Delete
  2. Hi Gurupreet ,
    Hope you had some fun during holi .
    Couple of weeks ago during my search on beaten down industries , I found your blog and its just AWESOME . Lot things to learn from you and your great work . Keep it up.

    Thanks
    Sridhar

    ReplyDelete
  3. Hi Gurpreet , I am holding D-link from 120 levels. My worrying factor is about the margins and it may not be increased in the future because of distribution business.
    Would u throw some light on this and advise your opinion for longer term ?

    ReplyDelete
    Replies
    1. Hi Jaya, D-link is a great buy and a proxy for broadband revolution in india. As you have stated, D-link is a trading company, it sources products from its parent in Taiwan and sells in india. If a parent is having a spare capacity or arrangements then it is better to supply to its global subsidiaries from there only. The only thing to look out for is if there are any high import duties which will make products costlier than local counterparts. In this case, there are no such entry level duties in india because there is no such manufacturing capacity exists in india.

      You will be surprised to know that biggest import into india is not oil or Gold but electrical items because there is no such in house prowess exists.

      So margins will not reflect the complete picture here, the better metric here will be return over equity and capital employed. Its operating profits are 32 cr and Np are 22 cr. Capital employed is 135 cr, hence its gross return over capital employed is 24% and Net return is 16% which are good by any standard. These are improving steadily.

      It will improve further as D-link has acquired Team F1 which is a provider of networking and security software for embedded devices to customers around the world, its clientele includes Cisco, HP, Siemens, Avaya, Alcatel, and Samsung.

      TeamF1 Networks is headquartered in Silicon Valley in California with an R&D facility in Hyderabad. D-Link, Taiwan has been in a partnership with TeamF1 since 2012, it uses the embedded software from TeamF1. D-link has issued 55 lac shares to the promoters of F1. This acquisition of networking software can add synergies to D-Link India as it is into networking hardware.

      Regards

      Delete
    2. Thank you so much for your prompt reply and great to see your positive opinion on this stock. Could you help me in understand the following :
      Orient Green power is the stock under my radar for a while now mostly because of promoters infusion and govt. interest towards the sector . This business has Wind and Biomass generation with the capacities around 450 & 100 MW respectively.
      Biomass is kind of loss making business because of high pricing & un-availability of stock feeds. Even-though wind business is "ok" the debts are high as a part of expansions and whether these can turn to fruitful or not needs to be seen.
      Today there is a announcement from this group which states both the biomass and Wind power business is separated out in a 10:1 ratio (Every shareholder receives 1 share for 10 shares of current holding and bio-mass business will be listed out soon ) . Apart from that , they have merged a wholly owned subsidiary which is in wind business.

      1. The wholly owned subsidiary is un-listed one and not sure what the merger means.It is anyway part of company earlier and what difference would it make?
      2. The orient green power has around 500 M shares . Does it mean, the equity will be reduced by 10% after de-merger ? So will the share price be adjusted too ? If so the share price of orient green should comedown,correct?
      3. I don't see any postal ballot from company . As the promoter holding is 75% , it is not required to reach out for minority shareholders , Is that true?

      Thanks in Advance.

      Delete
    3. 1. Yes, it won’t make any difference. Generally companies having diverse businesses, transfer one particular line of business to a 100% subsidiary to make a better and clear structure where one can see and value the separate business vertical. It helps in value a particular business and holding company can list or sell a stake in the subsidiary just like recently it has been done by Gateway distriparks by listing its subsidiary Snowman Logistics. We can see the same being done by Godrej Industries for Godrej Agrovet just like it did for Godrej Properties ltd.

      In this case, Wind subsidiary is being merged back simply to carry out the demerging of biomass business.

      2. No Dear, the equity will not be reduced. Number of equity shares will remain the same for original company. The net assets transferred will be adjusted with the Security premium account or from general reserves. In consideration of this negative adjustment, the shareholder of demerged company will receive new shares in the resultant company. However you can say that shareholder’s fund will be reduced to the extent of net assets transferred.

      3. Under company Act, 1956 shareholders consent is required in person or proxy in physical meeting convened by Court for Merger, demerger etc us 390 to 396A. Postal ballot under section 192 A was only for meetings convened by the company not by court. Now section 110 of Companies act 2013 has replaced the section 192A. Section 110 is almost identical to section 192A except in that it applies to all companies not only to public listed companies.

      The same decision is given by Bombay High Court in case of merger of Godrej Industries ltd and Wadala commodities, whereby it denied the proposal by Godrej Ind to dispense away with the court convened meeting of shareholders and proceed with postal ballot under section 110.

      So in case of merger/Demerger etc. the proposal is still required to be approved by physical court convened meeting by Shareholders either in person or proxy.

      However, the postal ballots still have a say here. It is because of SEBI circular which asks for getting shareholder votes by postal or e-voting before the court convened meeting. SEBI circular says that in order to merger or demerger scheme to be passed, the number of public shareholders (other than promoter group) who have casted the vote in favour of the proposal must be more than the number of shareholders casted votes against the proposal by postal ballot or e-voting.


      So in your case, you will receive both the notices; one for court meeting and one for postal ballot or e-voting. Till date, only Board of Directors have approved the proposal and all other necessary formalities will be followed in the future.

      Hope this clarifies.

      Regards

      Delete
  4. Would like to add one more to the above question . How can we estimate how the debt will be distributed. I assumed all these details would be provided along with the de-merge details but that is not the case. Could u also shed some light here.Thanks

    ReplyDelete
    Replies

    1. As explained in the earlier reply, the company will give the full details of the transaction along with reason in their Postal ballot notice to shareholders. However generally in case of demerger, the related assets and liabilities of demerged line of business are transferred to the resultant company. I checked their recent quarterly results, but they have not provided the details regarding the capital employed in wind and Biomass business separately.

      So the amount of debt which has taken by the company for biomass business will be transferred to the demerged entity.

      Regards

      Delete