Tuesday 22 September 2015

Gloster Jute Ltd and Cheviot company Ltd: Golden Fibre From The Ganga

Shahrukh Khan played the role of the great King Asoka in Asoka Movie in 2001. Although he nearly killed the soul of the King with his soulless acting because he could not gasp the soul of King Asoka.  King Asoka was a great warrior who felt the uselessness of the material things after the bloody fight of Kalinga. After the war, the great King transformed into a Buddhist and there is a legend that he created a society of Nine Unknown to preserve the most crtitical and sacred knowledge of his time so that wrong minds could not misuse it. Those Nine unknown men produced precious Nine books related to different fields of knowledge like Alchemy, Physiology, microbiology etc. One account says that Judo is leaked from the book related to physiology. There are also talks that these books are still hidden in some unknown place and Nine Unknown are kept changing from time to time. Don’t get excited as there is no book related to STOCK MARKET :).

Another account related to microbiology book says that the water from Great River The Ganga was purified by special microbes by these nine at secret base of Himalayas. Indeed Ganga is a special river. It has bewildered scientist since ages with its unique bacterial properties. Ganga has unique anti bacterial properties and no bacteria can survive in its water. In fact the word Bacteriophage was created during study of this anti bacterial properties of Ganga in 1896.

Bacteriophage are those microbes which kill bacteria. What a cat is to a mouse, the bacteriophage is to a bacterium. The bacterium Vibrio Cholerae which causes the deadly Cholera disease, when put into the waters of Ganga died within three hours! The same bacteria continued to thrive in distilled water even after 48 hours!

Water from Ganga remains fresh for a very long time sometimes for years while ordinary water will rot in few days. It happens due to very high levels of oxygen in Ganga which is around 25 times more than the normal water. The waters of Ganga when added to other water resources in adequate amount, causes the bacteriophage in it to quickly multiply cleaning the new water resource of any bacteria present in it. Which is why the ancient Indians used to take Ganga jal back home to clean their local water resources! People practice it even today, except that most of them don’t know the actual reason!

Scientists were amazed when they saw that only a few feet below the bodies of persons floating in the Ganga who had died of dysentery and cholera, where one would expect millions of germs, there were no germs at all.
So I have no doubt that something very unique is going on with Ganga since ages. And we Indians just Love Ganga, it is in our life all the time from birth to end.

Moving forward; a mother cannot feed rotten or stale food to her child. If she does the same, we are certain of one thing that she does not love her child. These two things can’t coexist. But we are doing the same to Ganga everyday for years. We are putting the maximum possible garbage in Ganga and yet we claim that Ganga is our mother, we love it, we adore it. But this garbage and our respect just can’t coexist. Garbage is real so we can say our love is only at the surface. I don’t think that we are doing this to Ganga because we know its uniqueness but because we can’t see beyond our selfishness.

And we are doing the same to our mother earth at a much grand scale. Our earth is dying. I am limiting this macro level damage to usage of plastic bags. These bags are a disaster as they take almost hundreds of years to degrade. Also there are yet no Unknown Nine who can design a way for speedy degrading of these plastic bags. But there is no need for the same as we already have a remedy existing and that is Biodegradable bags which can be made of paper or JUTE.

Paper is not a solution as it requires cutting of trees etc and it is not that strong. Jute fulfills all these. It is a tough crop requiring minimum of care and inputs like fertilizers and pesticides, has very high acreage per acre. It just needs warm weather, tropical rainfall and high humidity; so fertile delta of Ganga is most suitable for it. So we find Ganga here again.

Jute is also a textile but most of textile like cotton has cellulose fibers but jute is part cellulose and part lignin. Cellulose is a plant fibre but liglin is a wood fibre. That’s why jute has flexibility of cellulose with strength of wood.

We think that plastic bags are cheaper because they are produced cheap but we never add the environmental costs. I have always found the current methods of calculation of GDP inaccurate because they do not deduct the depreciation caused by us to “Natural Capital”. Natural capital is also a part of our manufacturing and living process and it comprises of our environment, forests, water bodies, soil etc. All these are vital for our existence, so if I destroy a forest and extracts iron ore from it we add this iron ore to GDP but we never deduct the damage caused to Natural capital by this activity which is as real as iron ore. So all our GDP figures are overstated. And unless we design a way to calculate this damage we will never understand the value of Natural capital.

In fact I think, every industry should be charged with this cost of natural capital and should be rewarded if they add into it. You will see that most of our industries will become loss making.

So bags, mats and geo textiles made from jute can really save our earth. Geo textiles are used in construction of roads, dams, river slopes, soil savers etc to stabilize loose soil and reduce soil erosion. Geo textiles made from jute were used in village road projects in Kerala, Tamilnadu and Karnatka and they shown good results. Government has written to all the states to use these as they are very environment friendly and require less maintenance with greater durability. Center has asked states to use at least 15% geo textiles made from jute or coir in making these roads under Pradhan mantri Gram Sadak Yojna.

I studied Gloster jute last year but I was waiting for some positive work from Government in promoting jute bags for daily use and for storing wheat and rice in the godowns of FCI. In fact government has mandated the use of jute bags for wheat and rice storage but these govt agencies prefer plastic bags as they are cheap. So stern steps are required from government in directing these agencies to use jute. Plastic bags are made from petrochemicals which are produced from imported crude oil so using jute can save foreign exchange apart from providing employment.

Gloster Jute is the largest jute product manufacturer from india and it manufacture all type of jute products from bags, mattress to geo textiles. It is having a turnover of around 320 cr with net profit of 13 cr last year. It is getting around 90 cr from exports which I think can be a huge market in the future as Jute is only grown in india and Bangladesh so world is not aware of it yet. It can really took off with a bang if world bodies decide to use jute for storage purposes only. Jute mills in india are living in very tough times due to reduced demand for storage bags from government agencies and they are working around 50% of their capacity. Gloster is liberal in dividends even in this difficult times and giving dividends of 6/- every year. It is having very low debt of around 47 cr. Its modernization project for its plants is about to complete at a cost of 22 cr.

But just today I have read the news that Government is likely to make the use of technical and geo-textiles mandatory in construction of infrastructure like roads, ports and dams, as well as in sectors like defense and railways. So I think good time for this sector is just near. I also feel that government is also going to announce something big and serious in banning plastic bags just like its swatch bharat abhiyaan. Anything like this will pave the golden path for jute. There are many countries where plastic ban is enforced very seriously with huge fines; even a small country like Rwanda is free of this mess due to huge fines on plastic bags. Jute is even now being used in clothes also apart from making high quality mattress. 

Last time I studied Gloster it was around 215 and today it is at 275/- but I think it can be bought at every fall without caring much for the current price because even a small ruling can open the gates of heaven. One can study its annual report for more details about its products.

Another company which is related to the jute is Cheviot  with turnover of 263 cr and net profit of 34 cr , dividend payout and yield is 17/- and 3%, cash and investments in the books is 200 cr while its market cap is just 240 cr. Current market price is 537. All this look too good to be true. I have not studied it fully just had a small look due to a query posted by one of our reader. But it also looks like worth investing.

I want to write more on this subject but it has already gone very lengthy. So some other time.

Update Gloster: Gloster has given a bonus of 1:1 on 20th May 2016, hence adjusted price on the day of this Blogpost is around 137/-

(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)






37 comments:

  1. great article sir. thanks

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  2. very good reasearch done...

    http://www.cheviotjutebags.com/customize.php

    for online selling of jute bags of chevoit which will be growth driver

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    1. Thanks Dear...I think you told me about Cheviot. I like Cheviot but not sure whether it is into geo textiles. although nothing look doubtful in balance sheet. so i think it is better to invest in both.

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  3. it is in geo tex

    http://www.cheviotjutebags.com/productmain.php

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    1. Ok ..Thanks...So i think both are passing our screener. Only thing which i am studying is raw material import from Bangladesh. although both of these are USERS of raw material, so they won't be affected by import. Although in case of ban on cheap import, their raw material cost may rise. Also Bangladesh produces superior quality Jute...also need to check why indians produce cheap quality jute. High quality jute is more suited for clothes, Mattress and geo textiles etc. But no doubt these are good enough for taking risk.

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  4. Awesome.....The way you relate things like relating ancient india with modern india looks great....i too didn't know anything , what you have written about The Great Ganga .

    i was very tired and didn't want to read it . i thought "i will read it tomorrow ". but when i read first two lines of it , i couldn't stop myself from going through it completely......Really Great ....

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  5. Dear Sir, any view on Pantaloon , soon going to be merged with aditya birlas mudra fashion with brands like peter england,Allen silly, von hausen,lui Phillips and many more.Nearly 96% shares are with promoters and corporates.Recently Templeton and manulife bought huge quantity.

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    1. Dear Sir,
      Actually i have not gone through the merger plan. i am holding Aditya Birla Nuvo from 700 which is the owner of Mudra, so just did not feel the need for study. i am very positive on offline retail and holding Future Retail (small study posted on this blog also). Offline retail is much more organized than online retail; quite contrary to the belief. And companies like Future have very advanced logistic firms under their clout. Moreover they have their in house manufacturing of FMCG products which they can sell with marquee brands at slight lower prices. I am very skeptical of indian startups in online retail like Flipkart with doubts on their backend prowess regarding order processing, inventory management, sales return etc.

      I have a feeling that not many of indian online ventures will survive. They are fighting with easy venture money for a small pie. But biggies like Amazon is a powerhouse of technology. They squeeze their margins with value addition in the entire retail process with high technology, economies of grand scale and innovative solutions.

      I feel that 3 biggies will survive the battle of offline retail and these will be Future, Birla and Reliance. Birla, reliance because of their money and Future for its experience, in house brands and manufacturing, and technological strength. These, then, can make a big entry in online retail with all the basics in place; these are much better placed to win the battle of online retail due to inherent complex realities of retail in INDIA.

      So you can buy Pantaloons at every fall. Future retail with revenue of around 11000 cr is having debt of 4200 cr which is 40% of turnover; While Pantaloon is having revenue of around 1800 cr with debt of 1200 cr which is almost 70% of turnover. But it may be due to recent expansion by Pantaloons about which I have no clue. But I think it is better if you invest something in Future Retail also.

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    2. Hi Sir, The Pantaloon revenues will go up after merging Mudra (revenues with Mudra will add on ) and may be it should fall on the same future retail category . The merger ratio is for every 1 Nuvo share will get 25 Pantaloon shares.

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    3. Just made a small look. For every 5 nuvo shares we will get 26 PFRL shares. Total share of PFRL post merger will be around 9 cr+68 cr=77 cr. Total debt will be 1800 cr with revenues of around 5200 cr...which are great. Market is expecting a valuation of 12000 cr post merger for PFRL, which will value one PFRL share at 155-160 which is less than current value. Also need to work out the value of ABNL after madurai.

      I just did this in 10-15 minute so something may have been left....not sure.

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    4. Generally this is compared against Page Industries with Jockey Brand under them and its said PFRL will command premium valuations. I'm not sure if this is correct. Arvind stores already also has owned/licensed brands like Arrown, US polo assn, Tommy Hilfiger, etc with them but doesn't command high valuations and hasn't performed consistently.

      It remains to be seen what market values it after merger and most importantly the future growth plans.

      Don't understand those ratio of shares with Nuvo and PFRL and where the valuations stand at after merger but I have taken small position in it because of Birla's good name and investment by Franklin Templeton.

      Also I agree with Gurpreet sir on online retail here in India. This is even more true for the apparel business. Sometimes I feel online apparel shopping is just like hiring someone by only doing telephonic interview and it doesn't work like that.

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  6. Happy to discover your blog sir....
    are you tracking fluidomat? no debt less mcap high entry barrier...sales is a worry until it gets big order.
    Thanks!

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  7. Dear sir,actually i studied Fluidomat in apr-may-14 when it was around 100, then it shoot to 200 in no time. But looking at its scale of operations and profits, i do not think it deserves such a high PE ratio although it has high margins unless it has big expansion plans for which i do not have any knowledge.

    On assets of 15 cr, turnover is just 27 cr which is less and so may be there is excess/ underutilized capacity which can be handy in future growth. But i do not know much about its products, their demand scenario, cheaper import risk. Kindly have a look at these before committing as these are the main things in selecting an industrial B2B player. Although we have used their products in power plant in MP which our company (BHEL) is constructing.

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  8. Dear Gurpreet, after studying Gujarat borosil bought some shares at 30 recently.Titan bio also seem to be a futuristic company and wish to buy same at current price of 27 though vol is very less.Do you track mpl plastics having Milton brand.

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    1. Sir, Borosil is a good buy...it is trying to move beyond 35 barrier. Titan biotech is a very risky one. So invest only after investing in all of good quality shares you like. It deserves residual capital. Take care of that.

      Not tracking MPL...but will try to have a look some day.

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  9. Regarding merger of Pantaloon with mudraa of ab, many brands like peter england, Allen Solly,lui Phillips,van huesen,planet fashion,eagle will come under Pantaloon.Don't you think so much brand power can take Pantaloon much higher.

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    1. You are right. But i have just replied to your previous query above, regarding the valuation of both post merger. I have not yet worked it out.

      Look like ABNL is a better option....but need to recheck...i may be wrong because valuing an unlisted company is very complex.

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  10. Dear Gurpreet, do you see value in amtek auto after such a crash and all bad things happening.?

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    1. I have never studied this group much but i always have apprehensions about them. I studied one of their group company, Rollatainers due to its link with Barista coffee chain but i decided against it due to management and other valuation issues. It jumped from 60 to 160 in a month but now it is at 45.

      I usually buy a high debt company only if it belongs to a very strong group like Tata communications....otherwise just stay away from them. In stock market, we are not Hunters risking for a lucky hunt. We are putting our hard earned money, so margin of safety is a must.

      So i think it is better to stay away from it. i am studying Jagran Prakshan and bought it at 135...i may be posting a post soon on this. It is a unique media company offering unique branding solutions along with radio business. You can buy this if you like.

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  11. Hello sir...appreciate your views on duke offshore

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    1. No study Dear...But very small player in highly competitive business. you can look at Dolphin Offshore, a much bigger player. or you can leave both and look at Aban and GE shipping...highly capable player in shipping and rigs. Low oil prices are here to stay for longer period which will spell troubles for intermediar players due to low demand.

      Smaller one are more vulnerable. so my advice is to stay away from this....i can't see any differentiating factor for Duke, neither it has scale. As a contra play, GE shipping is the best ( they know what is shipping business all about), next is aban.

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  12. Dear Gurpreet, Gujarat borosil is consolidating around 30 for some time.Do you see it breaking this zone in near future and what are its future prospects.

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    1. Dear Sir, Gujarat Borosil may consolidate around these levels for some time more because it has run up from 7-8 when i studied it for the first time. At current price it is fully reflecting its fair value. It will move beyond this only if there is some breakthrough performance in its business or some industry level changes.

      Most of us are holding it from 23-25 and i made some buying around 20 also. So at current levels, allocate only your risk money into it. There is no doubt on quality of the products but it is in very competitive and over supplied sector...so in my view it is very risky but with high quality products and Management.

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  13. Hi Gurpreet ,

    Big Solar players from China/USA (Tianwei,Suntech,LDK etc) gone for bankruptcy. Could u please advise in general why these players are not able to sustain and what went really bad. Even-though the sector can win big in our country, will the companies be able to maintain healthy (Better) balance sheets and not ended up like Infra companies or Solar companies in various countries.
    Appreciate your views.

    Thanks
    Sridhar

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    1. Dear Sridhar, they faltered due to the age old mistake (they call it strategy) of going overboard in expansions due to overestimation of future demand and then their expansions result in glut or oversupply and finally crash in prices.

      After this enter the consolidation phase where big fish eat the smaller ones and again prices stabilize. This is just like boxing or martial art fight which says only the one who can absorb greater pain and blows will win. Although most of the times in business world the oversupply is due to over enthusiasm of businessmen than due to war of market share.

      So there is over capacity in solar sector and as you can see consolidation is already under way. But i see solar just one step away from an eruption and that is Battery; the day we see a light weight, cheap and high capacity battery, days of oil and gas is over.

      So i feel this overcapacity as a limitation due to technological issues also. Whether companies will be able to be rational, we just can't say. we have seen Moser baer, indosolar etc going over board with no technological expertise; they were just assemblers but yet dared to dream much bigger and paid the price of not understanding the war of market share. They were building their hopes on govt duties on import where infact they were importing 90% of their final product.

      That's something which i like about Gujarat Borosil, they remained within their limits and so they are still almost debt less.

      So in india, i am placing my bets for solar only on two companies, Tata Power and Borosil.

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  14. Dear Gurpreet, Chinese firm longi to make 8000 cr plant in AP for solar module manufacturing. Trina solar China to make 3000 cr solar spare part manufacturing unit in vishakapattnam.Is it going to benefit borosil in any way.

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    1. Dear Sir, If you go through my latest post on Gujarat Borosil, i have also pointed the Trina solar china making investments in india and the reason behind the move.

      These investments will surely benefit Borosil as these modules will require glass for covering and encapsulation; and glass due to its weight and low value is always a regional product so chances of Borosil getting more business are very high.

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  15. Hello sir
    Can I have your insight on Mic electronics @cmp after a steep fall?

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    1. Never studied it...but i think it is over hyped due to LED play when in fact we are having much bigger and creadible players like Bajaj electricals at much lower levels. Eveready and Surya roshni are other big players..but Bajaj is cheaper. I am holding eveready from 20/- so can't advise for buying at 300/- I am finding MIC not credible, better to go with Bajaj. A post on Bajaj is already at this blog.

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  16. hello sir
    thanks for such a wonderful blog.
    started small amounts of investments periodically since one year.
    Just looking for less than 500cr mcap companies with no debt and some dividend yied.
    holding skm,gloster,cheviot,vidhi,waterbase,hester,cupid,freshtop,prima plastics,ambika.
    recently tracking ultramarine and pigments though not invested. would like your opinion on it and also would be of great hlep if you find any in the list not worth investing.
    Thanks!

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    1. Hello Dear, I have never studied Utramarine...but at first look its balance sheets looks good....it has earned around 57 cr as net profit in last 4 years, 20 cr depreciation...makes it 77 cr ...i think it has distributed around 35-40 cr as dividends which is great...in fact at a pe ratio of 13 dividend yield is still around 4%. Debtors are low at 20 cr , gross block does not look to have over capacity, debt is nil….looks good.

      But the most important thing is the growth prospectus of its products…the only thing which can impact its future stock price. I do not have any knowledge of its products, their competition, import threat, any monopoly enjoyed, raw material sensitivity etc. If you have studied its products and have some firsthand knowledge about the future demand of its products then you can go for it because its turnover has gone up from 121 cr in 2011 to 172 cr in 2015 which is not great. But there can be some explanation for this. So as it has passed the balance sheet test, so only thing that remains is its products…so just cover that in your study and you are at home.

      From your other investments, never studied Vidhi, Ambika, cupid, prima but others are good however your entry price in these is the most critical part like for SKM ( jumped from 6 to 200) which has given great returns and one of my favorite even after giving 20 times returns to me. Same is for Hester (I have studied it when it was around 100) waterbase and freshtrop. So be careful at your investment price.

      But these are all risky stocks. Your portfolio may turn very risky if your entry price in these stocks are high. So do not follow any fixed metric in most variable thing, stock market, and invest major portion of your money in good high quality stocks.

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  17. Dear Gurpreet sir,

    Shriram EPC has caught my attention recently. This is into High-end engineering services company providing EPC & Turnkey solutions.
    Its mcap is around 850cr with debt of 1700cr. Last year Nov promoters raised 160cr to reduce debt. Now under CDR they have converted 500cr of term loan to equity shares for CDR lenders.
    Promoters again have infused 389cr. Overall this will bring down the debt level significantly and turn the company profitable in couple of quarters.

    They have good execution history and their customer include many state water boards, RIL, Tata Steel, etc.

    Their current order book position is 1600cr project.

    The recent CDR implementation and infusion of money by promoters gives a breather to bottomline. Good order book should take care of the topline.

    Last quarter company showed good performance and we can expect it to continue in future.

    I'm seeing this to be case of value unlocking in near term (similar, not same, as what happened with Jubilant Industries) and with financial muscle of Shriram group, decent management, a good good long term bet too.

    Whenever you find time, request your view... thanks

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    1. Ok Dear...never studied this one but will take a small study. The only thing here is the technological expertise in doing high tech projects.

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  18. Sir, can I enter FCEL now or should I wait price to come down.

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    1. Nothing bad with it at any price around 20. Now at 17 is good...but it is not cheap by the look of 17 as its market value is good at 3000 cr. There are much better stocks available for investments and many of them have been discussed at the blog.

      Regards

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