Monday, 31 August 2015

Some High Quality Stocks for investing Now: United Breweries, Rallis india, Concor, UFO Moviez, Tata Chemicals

As market is falling, there are some good high quality stocks which can be bought now for long term. So I am listing some of them. These are less risky and belong to reputed and quality management groups.

United Breweries: It is not now with Vijay mallya. Global Beer giant Heineken is the largest shareholders with around 42% shareholding with Mallya holding around 31%. But Heineken is trying hard to buy the holding from Mallya and be a Majority shareholder. Indian states are very confused. They want to demotivate people to drinking, so they impose high taxes on liquor to make it costly for a common man. Although that poor common man finds shelter under low quality toxic local liquor and sometimes pays with his life.

Same is the case for Beer, although it is having alcohol content of 5-10% but it is taxed even higher than Whiskies which has 70% alcohol content; Beers sometimes are taxed at 70-80% much more than other liquor. So people have no incentive in drinking Beer with low Alcohol, at high prices equivalent to other brown liquors like Whisky. So they prefer Whisky etc as it gives them more kick per buck. So even a normal IQ person can see whether our Government is motivating us to drink low alcohol Beer or High whisky. But our IAS administrators cannot see this.

So time may change in the future. In india, we prefer high alcohol drinks to beer in the ratio of 70:30, but it is reverse in western countries. We drink only 2 liter beer per head, which is around 60 in USA, even china is at 35 liter. Moreover Beer is a social drink in western world with no social stigma attached to it. But in india people drink alone secretly in their houses mostly. But this is changing fast.

UB is having Kingfisher Brand which is having 50% market share. So apart from very capable parent in the form of Heineken there are many other growth factors which can spur the beer industry in india and so UB. First is the rationalization of taxes. Also Government can allow sale of beer in retail shops like cold drinks keeping in view its low alcohol content. So at 860/- after the recent fall, it is a good long term safe buy.

Rallis India: Another gem from house of Tata. It belongs to pesticides and seeds. It is not growing for last few years due to challenging environment in india. But it is having world level technological expertise. Its seeds subsidiary, Metahelix, which it acquired in 2010 is a giant in the making due to its superior research capabilities. Rallis is a 1800 cr giant. But it is focusing on leaving chemical pesticide business and investing big for Plant growth nutrients, Organic composts, seeds, Micro Nutrients and contract manufacturing at its newly created Dahej Plant. Its non pesticide business’ share is now at 33% from 10% few years back. Metahelix was a loss making one with turnover of around some 30 cr, but now it is profitable and going to clock turnover of 400 cr this year.
Dahej plant is going to perform well after some time. CMP is 214/-

Tata Chemicals: Moving away from fertilizer business which is under strict government control, hence handicapped by pending subsidies and low return ratios. It is in talks with selling this for 6000 cr which will make it debt free. It is a great company with unmatched R&D capabilities in india..owner of Tata salt and Swatch water filter. It is focusing big in branded pulses ( I-Shakti ) and other branded products like nutraceuticals etc. Its I-shakti pulses are only of its kind in india as they are unpolished and pure, so they pack with them all the essential nutrients, there is no player in branded pulses in india, which can be a huge market. Tata Chemicals has roped in its agriculture giant Rallis to guide farmers regarding growing pulses. India still imports around 15000 cr of pulses, so if Tata can build scale and brand, this can be a bigger story than Tata Salt.

But its only drag was Fertlizer business, which was capital intensive and delay in getting subsidies which resulted in high debt. Its debt is 7000 cr and debtors are around 3400 cr , mainly due from Govt. also inspite of capital employed of 3000 cr in fertilizer business, its operating profits before int and tax are only 300 cr.

So when I bought it at 250/- two year ago, I was thinking Tata Chemicals will do something to its fertilizer business. Because it was not investing anything new in it, so I was thinking either it will demerge it and sell a stake in it or it will sell the entire business. Now after 1 and half years of wait, there is a news that it will be selling its fertilizer business for around 6000 cr, although replacement cost of this is around 10000 cr. So even if it can get 6000 cr, it will wipe out all debt and with all gains of interest cost saving and high cash available for its branded business, it can grow manifold from here. It is a great buy with dividend of 10/- CMP is 410. I am buying more of it from 435.

Concor: Indian giant in rail container transportation. Rail logistic is cheaper by half than road but still roads carries around 70% of freight traffic in india. Rail carries only bulk commodities like coal and steel etc. Small cargo require freight stations all over india which at present are not here. But Concor is having around 3000 cr in its balance sheet so it is investing huge in building ICD at strategic locations. It is investing big for dedicated Frieght Corridor project of Indian Govt where railway lines from Calcutta to Ludhiana and from Mumbai to New delhi will be operated only for freight trains with triple capacity and at average speed of 100 Km (now at 25). This will revolutionize Indian logistic sector.

It is having a cold chain subsidiary, FHEL, which is expanding big. Concor has also entered into Air cargo business. India still expend around 14% of its GDP on logistic as compared to 7% in developed world  mainly due to gross inefficiencies built into the system. GST will bring more commonsense into it.  I have invested in it at 600, then at 1300 and now at 1495….will be investing more in it. Only thing to see is the government’s plan to sell partial stake in it. CMP is 1430/-

UFO Moviez: it is having 54% market share of digital movie transmission in india. It distributes movies in digital format through satellites. Earlier distributors were used to sell analogue movie prints at 70000/- per movie print which was very costly and would cost around 3 cr extra to show the movie in 400 screens  in india. India is having around 14000 movie screens. Digital prints were also costly and there were logistic problems. So there were piracy problems also due to non showing of movies all over india and digital hard disks and analogue prints can be pirated easily. But there is no such problem with direct digital distribution through Satellite.

Also producers and distributors can now release their movies in 5000 screens at a same time which increases their revenue manifold even if the movie is a flop. UFO installed its equipment for free to make cinema owners realize its benefits. It cost it around 15 lakh per screen so UFO accumulated debt in its books. But it receives fixed fee from cinema owners, along with In cinema advertising rights and per show charges. In cinema advertising is going to get bigger as viewers cannot go anywhere but to see the ad. It has also developed a local software to convert 2D cinema into 3D very cheaply which is also growing big.

Although big foreign media houses like Paramount, Fox and sony etc show their movies only in DCI enabled cinemas all over the world. DCI screens are very costly, around 30-40 lac per screen. Cinema owners can not let go this revenue source either as foreign movies do big business in india. But now the issue is resolved as these houses also can not afford to loose the rvenue from Non DCI screens in india which are big in numbers around 10000. So these Non DCI cinemas (called E-Cinema) are also showing their movies.

But UFO is having  all fronts covered, it has invested in Scrabble entertainment acquiring around 76% share which is having the rights of making cinemas DCI ready in india and Asia.
It is posed to strong growth in the future. With rising income, its debt is only going to come down. Its turnover now is 477 cr with NP at 50 cr. CMP is 552/- IPO was at 630 in Apr-15.

Other include Piramal Enterprises, Raymond, Tata Global, Jagran Prakshan, Biocon, Tata Communications, Tube Investments of India etc. I will write a short note on these shortly.

(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)



14 comments:

  1. Stories on these stocks looks good

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  2. Sir, How do you see Gujarat borosil at this level considering solar industry in india has yet to take unfold? Don't you see returns could be much more from this sunshine sector especially g borosil.

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    1. Sir, G Borosil is a good stock...we are buying it from 20-23. You can find the study on G Borosil in this Blog. But this one should be treated as risky one due to impact of so many variable forces and policy hangover.

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  3. Sir, How do you see Gujarat borosil at this level considering solar industry in india has yet to take unfold? Don't you see returns could be much more from this sunshine sector especially g borosil.

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    1. Dear Sir, Borosil is a good buy even now because even if it is in commodity sector but due to transportation costs of glass it can compete well. But i still rate it as a risky one and should be part of a risky allocation part of a portfolio.

      You can also look at Tata Power as contra play as it is in thermal power, solar power generation and production, Defence can be a big one in the future.

      Regards

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  4. Sir, your view on Swelect Energy a solar stock which has 200cr cash in bank available at market cap of 400 crs .

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    1. Hi Dear..actually for past some days very busy in some official work. Tmrw i am going to Nagpur for a meeting, after that i'll be having time to have a look at this. Regards

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  5. From Tata chemicals MD on Aug 5th..

    Mukundan termed media reports on company's plans to sell stake in its fertiliser business as "speculative".

    "That's a speculative media news, which has come and we are very much clearly focussed on making sure that the Babrala (plant in UP) works in full steam," Mukundan told reporters.

    http://articles.economictimes.indiatimes.com/2015-08-05/news/65243803_1_urea-policy-april-june-quarter-consumer-products

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    1. Hi Dear, Thanks for update. It is a common for any Management to term these types of news as speculative. They may be right in their world as these plans may be in preliminary stages. So these are speculative until something is finalized. But one thing is sure that Tata will have to do something for this business and they will do it also.

      Jubilant industries was also at same stage due to debt for retail business which was a drag, so the only remedy to grow its other business was to sell the retail and it did exactly the same. We picked it at 84 and it is now at 315. Tata chem is also in the same boat, it can not make its consumer business a biggie until it cleans the mess of fertilizer business.

      Fertilizer business is a real mess in india. The nonsense policies has turned soil of punjab into poison. You can read about fertilizer quagmire in my blog post related to coromandel international.

      So i am very much optimistic that they will do something for it. We can not ask for better if Govt itself does the correcting process.

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    2. Thanks...I read your post on coromandel...very informative..I would keep a watch on governement policy on urea and coromandel...And it would be great if you can provide your insights on comparison of companies in Agro chemicals sector like Dhanuka Agritech, Rallis, PI industries, Monsanto and coromandel...and which of them would be a promising pick..

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    3. Hi Dear, no study of stocks you mentioned other than Rallis. I like the R&D capabilities and new focus area of Non Chemical products and seeds. It has so far under-performed by huge margin...it will do the catching very fast.

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  6. Very good write up. Only question - On all your post you mention that you have already purchased the stock 2/3 years or months back. this appears that everything is good at hindsight. How about posting your ideas just after a month or so....

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    1. Not on all posts...only on some stocks and these can be counted but for that one has to go through the entire blog searching which is not recommended as the purpose here is not me. You may have read this post only. Even in this post only Concor and Tata chemicals are my old buys...that too before this blog. Also Ideas of most of these "already bought" stocks were shared to all of my friends and readers via emails before setting up of this blog.

      And when I say that I have bought Concor at 600 and then at 1500…the motive is not of bragging due to buy at 600 (as someone can think) but to show my confidence in it even at 1500 ( it is now at 1100 and I am buying more of it). So this is not for some demonstration but for sharing and disclosure part regarding my holdings. Most of the readers of this blog are in constant touch with me via email id of this blog. Recently I have bought so many stocks like BASF, Clariant, GE Shipping which are not shared at this Blog due to availability of time but these are shared via emails.

      It is not that if i buy some stock at 10 and if it touches 15-20 or 5 then it ceases to be a buy and should not be shared at the blog. I generally buy a stock on my initial study but it is not possible to always share the same at the blog instantly due to time constraint. Also I do not share something at the blog unless my study is complete and when I do I disclose this also.

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