Recently bought these two stocks. Full study
is under progress, so just giving brief introduction on the business model of
these two. These can be bought at current levels.
Indian Hume Pipe Company: Water is the next oil. World over,
water levels and resources are depleting fast. In india, situation is worse.
Over last 5 decades, per capita water availability has fallen 60%. Around 60%
of agriculture land is rain irrigated; which is very risky and cause of low
yield per acre. But even with 40% ground and surface irrigated land, still ground water levels are depleting fast. Around 90%
water is left untreated which is the main cause of pollution of rivers. Water is
not recycled at all. So this problem, if not treated in time, will become a
time bomb.
So water related companies are natural
candidates for investments. Big houses like Goldman sach, Morgen Stanley,
Citigroup are buying big time water related companies, which are active in water treatment, recycle, Filter technologies, supply and infrastructure etc. we should not
miss this. I am having Va Tech wabag ,
invested at around 250 (Recommended at this blog also), Forbes Gokak (Eureka Forbes), IL &FS Engineering in water related portfolio.
We have found another Gem;
Indian Hume Pipe Company.People take it as another piping company...but piping is just 70
cr out of total turnover of 1000 cr...rest is pure water services related
business.
It is around 90 years old company (1926) , given dividends for all
these years except for 7 years, out of these seven, four were initial years.
It has got land parcels across india costing only lacs in balance
sheet, but they are valued around 1000 cr which is more than it current market
cap of 700 cr. very low debt, high cash. Order book is around 2700 cr. It has
serious plans to monetize the land parcels. Recently it has entered into an MOU
with M/s Sobha developers for developing its land parcel of around 27000 sq meters
(around 2,96,000 sq feet as per
land laws can be developed for residential purposes)in
badarpur, New Delhi. Indian hume will get 48.50% of the revenue, while sobha
will get 51.50%. Development and other project related costs will be borne by
Sobha.
It is
one of the very few Indian infrastructure related companies with low debt and
have good amount of profits. It has earned a NP of 40 cr on a turnover of 1000
cr this year. Its debt is at 297 Cr. The only negative is high interest cost of
48 cr on this. But out of 297 cr, only 20 cr is for Long term, 277 cr is for
short term working capital, which is adequately safeguarded by inventory and
debtors.
So we hope that
it will wipe out the debt with a single deal of land sale, which will
significantly add to the NP. We entered at 290/- Current price is around 305/-
(Update Dec-2016: It has declared a bonus of 1:1, so adjusted recommended price after bonus is 152).
Monte
carlo Fashions Ltd: its IPO was at 645/- , but then it
slid to 450 and now at 540/- It is a brand known to all Punjabi's as we just
love to wear its woolen clothes which are of great quality.
But
It was looking good in every department. Like, It is excellent in Inventory
management. Inventory is at 140 cr with turnover of around 600 cr, so around
20%. Our great giant, Page industries’s (Jockey) turnover was at 1200 cr in
2014 with inventory of 360 cr, which is around 30%. Monte is doing it because
of full utilization of its production capabilities. Few days back one of my
friend asked me that Monte never gave huge discounts even during off season
sales. They usually give discounts in the range of 20% which is not big. Well,
this excellent inventory management is the reason that it doesn’t have to
dispose off excess inventory at discount. Its creditors and debtors are 84 cr
and 90 cr, which is also good. Cash in the books at the end of 2015 is around
140 cr while market cap is around 1200 cr. Debt is manageable at 90 cr.
So
in spite of looking great, I wasn’t buying it mainly because of one reason; in
spite of good cash and profits, company has not declared dividend after Dec-14
results. But it did just that after Mar-15 results in June and declared Rs.
10/- as dividend which is around 37% of EPS of 27 of 2015. This is a very good
sign.
It
is investing big for summer collection business also which will even out its
dependence on winter clothing. I am still to study it but it is just looking
too good in some metrics like cash, debt and inventory management…because
almost all of Indian retailers are too bad in all of these.
Current
market price is 535/-
Regards
(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)
Amazing picks backed by solid analysis with the data, in your style as usual. Thank you for the recommendations.
ReplyDeleteThanks Dear
ReplyDeleteHi
ReplyDeleteCould you please clarify the following:These are related from your earlier post on future retail
1. Who will run the retail business and back end businesses.Is it the both managements?
or will the business be distributed among managements?
2. Also why the payment gateways will be called as synergies?
3. Raising the funds to increase the number of stores from 600 to 4000 is pretty huge. Somewhere
I read being a great entrepreneur "Biyani" , in the past he ran into bad times because of the path choosen for expansions very aggressively. Do you think there are only less chances for such kind of slips this time?
4. I understand by buying the future retail shares now , we have both business shares after the merger (Front end & Back end). Running both these operations closely will have the maximum benefit.
However as you pointed out it will be listed as Future Enterprises (Infra) & Future Retail (Retail)
which business would be more profitable? Do you think could we compare the Infra with something like
Kesar terminals/Snowman which has some specialised warehouses?
5. As it carry 1200 crs debt , wouldn't it become too huge even if the expansion plans take may be from 5 to 10 years.Could you please share if they management have revealed any details.
6. I think Biyani sold 5% stake in pantaloons to Birla , it is his personal capacity only correct?
Thanks for your patience
I always like to read a quality content having accurate information regarding the subject and the same thing I found in this post. Nice work.
ReplyDeleteThanks Dear...
DeleteHi Gurpreet
ReplyDeleteCould you please suggest on the following for IHP
1. Contingent liabilities of 400 cr. Any specific reason for such big amt
2. Most govt projects are paid at the end . What are the risks in getting paid by govt. on time (One of my holdings Jain irrigation 50% down and waiting for right time to average as company impacted because of govt. payments)
3. The earnings are growing rapidly but not reflecting in profits. So assuming cash flow wont be upto the mark (May be wrong, sorry I am still in learning phase of accounting) . So how efficiently the company manage the working capital
Hi Dear,
Delete1.Out of 400 cr, 260 cr are general bank Guarantees given by banks on behalf of the company for variety of reasons like security against material supplied by third party, security for contracts undertaken by the company. These are contingent upon any default by the company, the chances of which, however are very less. Generally these BG’s are secured on any of the assets of the company. 114 cr is for sales tax demands, the details of which are not available.
2. In contracts, payments are not made at the end of completion but they are generally made periodically upon fulfillment of various milestones activities related to the contract as defined in the contract. Like for a contract for laying pipes for water supply, they can provide that 10% of the contract price will be paid on foundation completion, another 30% on transporting the pipes at the location, 30% on erecting pipes in the foundation and 20% on final commissioning of the full project and last 10% will be paid after one year from the date of completion to cover the warranty issues.
Jain irrigation fell into trouble as Govt didn’t paid them the subsidies due to them on time, so Jain had to take huge debt for covering working capital. Like they sell the irrigation product for 100/- but farmer gives them only 50, balance 50 is subsidy and that will be paid by govt. That 50 becomes a huge amount and Jain trapped in massive debt. But now it has changed its business model and now farmers have to get the subsidy from Govt itself…however Jain can finance for farmers. So don’t worry, Govt can delay but will not default. Jain will be a great company within 2-3 years. I am buying it steadily from 90 and now my avg is 70/- You should have averaged it out at 50. Very soon you will see a stake sale deal for its food business as people re not aware of the strength of its food business.
3.Its earnings are rising so as GP and NP. This year turnover has increased from 800 cr to 1000 cr. GP to 97 cr from 67 cr, NP to 42 cr from 24 cr. Operating cash flows are negative mainly due to debtors but these are normal for a contract company and they have taken working capital loan of 267 cr mainly for this. But this is just “Gap” financing ; debtors are eventually liquidated. Nothing to worry about it, however any land sale deal will eventually be used to reduce this debt.
Regards
Gracias Dear . Got actually what I am looking for.
ReplyDeleteHi,
ReplyDeleteany comments on Indian hume pipe results... thanks
Did not get to fully analyse them...but in contract business sometimes execution does not take place as planned and turnover may witness a fall. Long term story still intact.
DeleteRegards