Vacuum Fillers: Dredging corporation of India Ltd and Snowman Logistics Ltd

Vacuum Fillers: Presently I am studying some companies which have the strength or can achieve the scale to fill up the huge demand supply gap in the near future for some much needed products or services which have in them to make our production very competitive.  Study is under progress but I am sharing the snapshots just in case somebody likes it and have it right at the moment. Incidentally these are related to indian logistic sector which is so far a drag to the economy as logistics cost in india are 14% of GDP as compared to 6-7% of developed world. Any Improvement in this can bring huge gains.

Dredging corporation of India: Dredging is making the depth of ports at a certain level so that Ships can navigate easily as they need depth from 10 m to 15 m. With the use, sediments accumulate deep down the port Bed which are then removed with the help of Dredgers. Some of the big ships need around 20 m to 24 m. as usual we Indians are way behind in this also with depth of around 12 m to 14 m in most of the ports here which render us unable to reap the benefits of economies of scale by transporting the cargo by bigger ships. A much larger ship like one with 14000 TEU (twenty feet equivalent units) capacity , the cost is almost 60% of a ship with capacity of 6000 TEU.  It becomes a double edge sword when big ships unload their cargo at bigger ports like Dubai and Colombo; from where cargo is shipped to india via smaller ships. 

No indian company is having a deep anchor in this sector with PSU Dredging corporation of india being the largest but with much of its dredging fleet being older dated back to 1970-80. 

Another big opportunity is Inland waterways projects of Indian Government which will make it possible for us to fully reap the benefits of large rivers like Ganga. We can pollute our Mother Ganga with all possible garbage but can’t use it for the best. India has just 14500 KM of inland waterways even these are not used for transportation of goods which can be very cheap as compared to road and rail. And our Non-religious Neighbor China has waterways of 100000 km and it transports around 47% of its cargo via water, we are at 3-4%. Even  EU is at 44%, Bangladesh at 35% !!

Number of inland vessels in india are just 1000, in china there are 200000 and 11000 of EU.

But now india is waking up and just recently they planned a waterway from Varanasi to Haldia of 1620 KM. Dredging is constantly required to keep these waterways navigable.

So we will see huge demand for dredging. DCI is the biggest indian Dredging service provider but garners just around 700 cr of turnover. But it has acquired 3-4 new vessels in last 2-3 years and plans are for better planning of its finance.

I am buying it regularly around 360-370. CMP is 370.

Snowman Logistics: We do not want to waste our life in tiny worldly matters. We see life as Maya but when we move in a Temple, all we seek is; Girl next door named Maya. We are a country of contrasts. We proudly regards agriculture as our identity but every year we waste fruits and vegetables equivalent to the UK’s yearly consumption!! No contrast here…UK do not consume smaller amounts of fruits and vegetables; it is we who waste big…around 40% of annual production. It is worth 50000 cr.

A quantity of wheat equivalent to one tonne per person for the entire population of Australia is wasted by India every year. India is the second largest producer of fruits and vegetables (about 200 million metric tonnes) but it has a very limited integrated cold-chain infrastructure, with only 5,400 stand-alone cold storage having a total capacity of 23.6 million metric tonnes. Most of this (around 80%) is for Potatoes and Onions. No wonder we only process just 5-6% of our agri produce against 80-90% of the western world. This is one of the main reason of wide swings in the prices of these; either we are long or most of the times short but never in balance for much of the time. Traders call the shots in indian agriculture produce.

So again here too, possible scale is huge but Snowman Logistics, the largest in indian cold chain scores just 250 cr as annual turnover. This is nothing and I hear some says it is overvalued!!! PE ratio of 30-40 is irrelevant at this time as it is investing big regularly in capacity expansions, the benefits of which will accrue in the near time.

Gateway distriparks ltd is the promoter of it, with negligible debt (70 cr) it is poised to show stellar performance in the future. Our eating habits are changing. Our new friends like Pizza, Burger king, KFC’s etc all rely on cold chain infrastructure to constantly provide us the same taste.

CMP is 82. Just Freeze it.

(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. I am not a certified Sebi Analyst and holding the shares discussed in this Post)

Tube Investments of India Ltd: Michael on Cycle

For earlier study Click here

Greeks worshiped the geometry like God. They were of the view that these intelligent designs were a proof of the some super Creator. They were very near to the truth. There lies a system, a thought, intelligent design behind our universe…and if we have open minds we can see that even pattern of petals of flowers are following a system, our DNA is following some pattern, so as tree branches, Galaxies etc…it is called Golden Mean; the Fibonacci series where every successive number is a sum total of preceding two numbers (1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144 . . .). Remarkably whole nature is built on the basis of this series. Its nature’s way of perfect design. Anything built on the basis of this ratio look perfect…Gize pyramids are also based on this ratio, Leonardo Da Vinci used this ratio extensively in his artwork; he conducted an entire exploration of the human body and the ratios of the lengths of various body parts.

So it is also called Divine Proportion. It is the division of a given unit of length into two parts such that the ratio of the shorter to the longer equals the ratio of the longer part to the whole or, when a line is divided such that the ratio of the longer part of the line to the whole is exactly the same ratio as the shorter part of the line is to the longer part. This ratio is golden mean or phi, which is approximately 1.61803. The higher you go in the Fibonacci sequence, the more closely the ratio between two successive numbers in the sequence approximates phi.

Shapes proportioned according to the golden ratio have long been considered aesthetically pleasing throughout many cultures, and is still used frequently in art and design, suggesting a natural balance between symmetry and asymmetry.

The master creator has left his watermark everywhere. He might have used this ratio for some purpose which we don’t understand but we KNOW HE has used it. This golden mean is a bit complex but once we understand it, it opens a new world to us. Same is theory of relativity, multi universe, time travel etc.

If we sit among the Gurus discussing it, we may find our head twisting as these are most difficult things for human mind. But when we Understand or Follow it, our Vision changes and we begin to see and comprehend a Life which was always HIDDEN from us.

We feel alike when we sit among another set of Gurus like CA’s, Finance professionals, Taxation experts etc. They use very complex phrases like “Excise duty is payable on manufacturing, but payment event is triggered on removal of goods from the factory gate. CST input can’t be set off against VAT liability but against CST liability.” Common man shivers on the name of Tax laws. Big words, tough ones. These are too complex. Our tax laws have become much complex and lengthy but I do not feel that tax administers have done it. Actually they are forced to insert/remove new tax rules due to some smart people exploiting the weakness of their rules. So they change their rules accordingly but all of it has rendered our tax laws into a big tree with thousands of interconnected branches and we are supposed to read one rule with reference to 10-20 other rules.

Being a CA myself, I have been the privilege of being in many so discussions. We think by understanding complex tax law we are doing something but at the end these taxes are just a mean to collect the money from the earners to distribute them to laggards to fulfill the political wishlists. You can go on feeding a poor man with free food for eternity but he will remain depend upon you. You are not doing any good. This is what our government is doing all the time. Very less money is really invested for growth. No denying to the fact that govt needs money for security and justice. So these tax laws are complex so that no one can evade it. There is no big deal in absorbing this mess.

And what our administers say about this mess? They say that tax income is needed for the security/growth of the country, helping the poor etc. but is it so? Whether they are successful in fulfilling the PURPOSE? A big NO! Poor pay the same amount of tax on Tea as is paid by a rich man. Our Government is still unable to devise a system to keep poor out of the sales tax. They say that they use the tax income to help the poor, but everybody knows the efficiency of distribution system of government where 50-60 rupees out of 100 are wasted or stolen. But yet so many talks, use of big words like “GST will end the cascading effect of taxes” when they are a failure in serving the purpose of collecting high amount of taxes.

Taxes on Indian liquor are around 100% which makes liquor very costly for a poor man. And so poor man buys substandard low quality liquor and many times he dies because of this. State says our constitution asks them to prohibit the use of liquor. But what about our Army? Army gets the liquor without taxes and at even lower prices. Why? They say they work in difficult conditions and also need to fight the depression of tough life. But whether our poor laborer lives an easy life? No, they live even harder life devoid of basic facilities. But on the contrary, every state earns around 20% of their tax income from liquor!!

Government talks about lowering oil imports, pollution. The way we are living, there are high chances pollution will kill everything. In order to promote consumption to bring growth, everybody focused on cheaper loans for cars etc. And then new roads, steel etc for these cars, trucks all of which contribute their share in pollution.

But in another feat of splendor, they kept their eyes off from the easiest remedy; instead they levied high taxes on it. I am talking about poor Bicycle which is taxed anywhere around 15-20%. It should have got subsidies but it is taxed!! So ridiculous. I mean what our planners really understand. Government should never enter any business; especially in competition with private sector. Just look at Air India, HMT, BSNL. These crowns were crushed by private elephants. But at least they can act rationally while levying taxes.

They should have promoted Cycle sharing systems, separate bicycle lanes, reward schemes for using bicycles, subsidies on bicycles with no tax. Bicycle are a panacea to reduce the dependence on costly oil, accidents, pollution, provides health benefits. But still india is way behind in using bicycles. Our share in global exports and production is also very low. China leads the way in it with 67% against 10% of india. India produce around 15 million bicycles but it exports just 5-6% out of it.

India exports bicycles mainly to Africa and other less developed nations. Their exports to western countries are negligible as we can’t meet their demand for high end products. Exports are growing at 10% but imports of high end bikes from countries like china are growing at 25%!! Although now we are waking up to it and companies like Hero and Tube are investing big into R&D. India mainly use steel for their cycles but global demand is for alloy, carbon or titanium based components which are not produced in india. India also lacks the technology to manufacture high technical cycle products like gears, disc brakes etc. which are currently imported. Here again, our great government planner play their innovative part by  imposing import duties of around 20% which further raise the final prices and hit the export competitiveness. We are urgently required to sort out these issues just like we did in pharma and auto parts.

Copenhagen, the capital of Denmark, is regarded as bike city of the world. Maximum people use bicycles for their household and office work. Most of the people owns a bicycle but not a car. Around 70% of their parliament members use bicycles. No wonder, Denmark is world’s cleanest and most peaceful country.

As a counter measure to deal with rising emission levels and congestion on roads, presently, 800 cities in 56 countries have well established public bicycle sharing systems. The system consists of bike hubs situation in an area from where anyone can rent a bike for short distance commuting. The cycle can be picked up from one hub and left at another on reaching the destination. The cycles are made available at cheap rents. Advanced electronic assisted tools help preventing theft or misuse.

It cuts traffic trouble and struggle for parking space. A space required to park a car can accommodate 15-20 cycles. Neighboring China is the world's largest shared-bike market with a fleet of 858,000. France started Velib’ in 2007, now the world’s second-largest operation.

But we are way behind the globe in using bicycles in spite of the fact that we are a poor country and bicycle suits us the most. Like just 50% of rural households have a bicycle in india as compared to 100% of china. Cheapest bicycle cost around 15% of annual per capita income as compared to 2.5% of china (our planner please open your eyes). So our planners needs to seriously eliminate the taxes on bicycles costing less than 5000 to help the poor along with providing direct subsidy to consumers on every purchase of bicycle.

So no doubt we need to do much in this direction. And I think that this is just on the anvil. Although the demand for high end sports bikes are growing fast in india for last few years but this is nowhere near the potential. Just as New Delhi Govt has imposed even-odd rule for vehicles on the roads on alternate days, I think measures for bicycle will be announced soon. It will take time to build separate cycle lanes in the city, but at least cycles can be made compulsory in colleges and universities. Government employees should be encouraged to use bicycles.

Efforts should be made to make people aware about the benefits of cycles and change in the image of bicycles as poor man’s gadget.

Although Hero cycles is the largest in india with around 40% shares but Tube with brands BSA and Hercules is second at around 25-30% share.

Tube got around 1300 cr from cycle business in 2014-15 with around 60 cr as operating profit before interest and taxes which is good keeping in view the competition with low demand, setting up of retail points (around 940), new models…the benefits of these will be realized in the future. As against this much older Atlas cycle with around 600 cr is grappled with losses for past many years. So Tube’s performance is encouraging relatively as sector is yet to see its good time. It is best placed along with Hero to reap the benefits of most probable surge in demand of bicycles in india. I have been to many cycle stores with some selling only high end costly bikes starting from 20000 and they are getting good respond. The only thing which I see lacking is proper brand promotion.

Cycle manufacturers need to link bikes with fitness and machismo; they need to endorse someone like Salman khan or John Abrahm and create a new product line. Tube and Hero has the financial muscle to do this.

Tube’s metal and engineering products divisions are fairly big in size with turnover of around 2700 cr. I will write more on these two on some other time.

Its most prized assets are cholamandalam investment and finance company ltd (CIFC, listed) and Cholamandalam MS general insurance company ltd (not listed). It is having 50.4% holding of CIFC. Current market value of CIFC is around 10000 cr, so its 50% share is valued at 5000 cr which with 30% holding company discount is valued at 3500 cr. Its insurance business is not listed but it earned around 150 cr net profit last year, I am giving it 30 PE ratio which is not high as compared to the current deal in the sector as growth prospects are very high in general insurance in india. So its value will be 4500 cr. Its share is 74% which valued it around 3200 cr. Since it is not listed I am not discounting it. These two are valued at 6700 cr itself. Current market value of Tube is 7800 cr which makes its standalone business with turnover of 4000 cr valued at just 1000 cr.

It also holds 70% in listed shanti gears whose market value is at 900 cr. It is also having a 50:50 JV with Tsubamex of japan for making dies and tools for which india depends on imports. It has invested around 20 cr in the JV which may bring good revenues in the future.

I want to devote some more time on detailing its other businesses but only for time and length of the article. I will post another post on it. Its cmp is 420 but do not make big of it as it is a Murugappa group company; Eid parry and Coromandal international. Good buy at CMP and at every fall.

Let’s wait for our respected PM to say “Michael on cycle” and this cycle will turn into a rocket.

(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. I am not a certified Sebi Analyst and holding the shares of Tube Investments of India ltd)

Hinduja Ventures Ltd: High Unused Bandwidth

I have covered most of the technical details of the business of Hinduja Ventures in the earlier post on it. It has already touched 450 from last recommendation at 396. I am just pasting the old analysis again to get the complete picture.

(It is one of the biggest player in digital cable tv (Incable) and invested huge amount in next generation cable tv via satellite, HITS via name NXT Digital. MSO like Siti, Den, Hathway, Incable are still far away from realizing the full benefit of digital cable tv. People are thinking that with digitization now they are getting full revenue from Local cable operators, but it is not the case, LCO are still paying them Rs. 60-80-100 per connection (earlier it was around 30-40) and retaining the balance. Fight is still on to decide who will bill the customer and the revenue sharing. So just hold your stocks of these MSO’s as we will see the real benefit coming in the future when a more logical deal will be stuck between both.

Hinduja has launched HITS via NXT digital for catering to phase 3 of digitization covering around 5 cr subscribers by Dec-2015. Phase 3 is related to small cities (phase 4 will cover most of rural india by Dec-16) where small Local cable operators work and they lack funds to move towards digital cable from analogues. They would need huge money for digital move for having digital access system, conditional access system and subscriber management system apart from expensive hardware. HITS can save all these costs for them…so chances are big that HITS can give DTH a run for its money as DTH falters in rain, DTH can’t show local channels which are a must in small cities. Even small Goa has 13 local Konkani channels.

Actually in TV broadcasting what happens is that a TV channel like Colors uplinks its signals to a satellite. An MSO like Den downlinks the channels signals from different broadcasters from different satellites at a place in a geography (take Bhopal in MP) which is called Headend ( huge cluster of dishes, a single dish for every channel) where they are bundled together and transmitted to LCO via cables who then distributes the same to our homes. But a single Headend cannot serve entire country due to cable costs, signal weakness etc so MSO have to install Headends in the entire country ( Hinduja has around 40 Headends) which is very costly.

However in HITS things are done in a different manner, here HITS operator downlinks the channels from all broadcasters at a single earth station from where signals are uplinked to a satellite used by HITS operator, so it is called Headend in the Sky, HITS. The HITS satellite further downlinks the signals directly to LCO or MSO, who will need just one Dish type transmodulator to transmit the signal directly to consumer via cables. So need for costly Headends will be reduced greatly which will benefit both the LCO/MSO and customers. HITS operator will also handle the Conditional access system and subscriber management system on their behalf which are also very costly and there is no need to install them at every Headend as in the case of a normal MSO. I am sure this HITS can compete with DTH in phase 3 & 4 of the digitization in india.

I will cover more details on HITS later on but just today read that Hinduja has already acquired 10 lac customers in first 3 weeks of the launch. )

Its MSO business and new age television broadcasting business HITS can target huge untapped potential and become a big force. Its MSO business under the brand name of Incable with around 10 million subscribers and around 600 cr revenues is a stable business which was a profitable one continuously in the past before digitization drive in which Incable like other MSO’s have invested high amounts for providing STB’s at subsidized costs resulting in losses in past 1-2 years. Its HITS business which is operated under its another subsidiary Grant Investrade Ltd (GIL) is in its initial phases but Hinduja group has high expectations from this business and they are planning to invest around 5000 cr in next 1-2 years according to the response generated. They have already invested around 500-600 cr. They have already launched their HITS platform via brand name NXT Digital in Phase 3 of the digitization and got around 10 lac subscribers in the first 2 months of launch.

NXT Digital will offer around 500 channels in MPEG 4 format and the number of channels will be increased to 1000 with set top boxes with recording facility. MPEG-4 allows a service provider to use less bandwidth for video transmission into the home, freeing up bandwidth for other things, including more HD channels, more VoD capacity, and better broadband Internet — all important attributes to have in a competitive marketplace. 

They are expecting to get around 10 million subscribers for HITS in next 2 years. Earlier many biggies like zee via Siti cable tried their hands in HITS but only to taste failure. But now scene is different with different challenges as at that time there was no DAS system, no mandatory digitization which would make MSO and LCO to opt for a bit costly HITS although it was a great reply to DTH competition. So now I feel that HITS has all the foundations ready and it can really taste the success this time.

But in spite of these two very promising businesses, Hinduja ventures is way undervalued than most of its peers like Siti ( I am having it from 8/-), Den, Hathway. The first reason is the big investments in the books of HVL, in fact these are valued much more than the current market value of HVL of Rs. 900 cr. Lets add these investments:

A.  Shares of Indusind Bank: it is holding 2960196 numbers of shares of another group company Indusind bank. At the current prices these are valued around 285 cr. It is also holding 13416 nos. of shares of other group companies like Gulf oil and Gulf Lubricants; but I am leaving these due to small size. Another holding of 6957580 shares of Indusind Bank is pledged with banks for taking loans which are valued at around 626 cr. So total holding is 285+626=911 cr.

B.     Holding in Hinduja Leyland Finance Ltd: It is the financing arm of Ashok Leyland. Its net profit in 2014-15 is 111 cr up from 81 cr in 2013-14. So taking the growth factor and Ashok Leyland being 2^nd largest player in trucks, I am valuing it conservatively at 20 times, making it a 2200 cr company. Out of around 38 cr shares, 2 cr is held by HVL so valuing it around 230 cr.

C.    Land holdings at Bengaluru and Hyderabad: it is having big land holdings of 4.75 acre and 47 acre in Hyderabad and Bengaluru respectively which are developed by a joint venture group company Hinduja realty venture. I am valuing these around 500 cr at low end.

D.     Investments in Hinduja Energy india ltd: it is having 10% share in Hinduja energy india ltd at a cost of 187 cr which is developing power plants in india. Its 1040 MW plant at Vishakhapatnam is in final stages. Due to lack of data, I am valuing it at cost of 187 cr.

E.      Cash in the books as on 31.03.2015 was 84 cr.

So by adding A+B+C+D+E, 285+626+230+500+187+84= we are getting 1912 cr which is way higher than current market value of 900 cr. Most amazingly we are getting much valuable MSO and HITS businesses for free which are in fact valued much more than this investment part.

Hinduja ventures has around 10 million subscribers under Incable.net for its MSO business (I am leaving out potential HITS subscribers just in order to be conservative). Siti cable with around same set of subscribers is valued around 2350 cr, Den with around 14 million subscribers valued at 2000 cr, Hathway with around 12 million valued at 3400 cr. All of these have around 800-900 cr debt in the books except Den with 400 cr. So we can easily take 2000 cr value for HVL’s current Incable.net business which will make the value proposition to 1912+2000=3912 cr. And it is without any value for HITS business and without giving any value for the high growth future for MSO business which will grow at high rates due to solution of problems related to billing with LCO.

So just compare the Current market value of 900 cr to our conservative estimates of around 4000 cr indicating huge unused bandwidth. It is still a good investment at CMP of 441/- and add at every fall.

(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)

EID Parry Ltd: All Sugars are not Same

Click here for the old post on EID Parry.

I do not like sugar at all. I seldom feel the craving for sweet. But regardless of whether I like sugar or not, my body converts everything I eat into sugar to use it as energy because our bodies are designed to operate in this way…nothing big here…it is just a Design. Here I want to share something about sugars as most part of my early life was about sugar when the passion of a great powerful body blessed upon me. In bodybuilding or we can better say in muscle building world (bodybuilders look too big sometimes); we usually say that every carb is not same (to point out the difference between useless calories like cold drinks and a nutritious fruit). However, amazingly every sugar is also not always the same. But sugar is sugar. Right? Wrong!!

Actually there are three types of sugars; Glucose, Fructose and sucrose. Fructose is the sugar of fruits. Glucose is almost in everything we eat and this is the sugar that our bodies recognize. Sucrose is our normal sugar which is a combination of both glucose and fructose (50:50). Our bodies need minimum processing for glucose and it is sent directly into blood stream to be used as energy. But if the same is not required for energy, then the same excess glucose can be stored as glycogen in liver (around 100 gm) and in our muscle cells (around 400-500 gm). Liver glycogen can be used by entire body when needed, but muscle glycogen is used only by muscle. But when we take fructose, it is treated differently by our body…for body it is not a fuel so it is broken into by our liver into glycogen and if our stored glucose levels in liver and muscles are full then our body has no other option but to store this fructose generated glycogen into FAT.

I have always reservations for most of fruits like apples, grapes, mangoes etc due to very high levels of fructose and very low levels of nutrition  (due to today’s extreme farming). Most of fruits are low in antioxidants. Fruits are nature’s candy…sweet. Glucose is less sweet than fructose and most of today’s beverages like colas use high fructose corn syrup which is way too sweet…these are disastrous. So quite contrary to the belief most of our fruits can make us fat if not used properly; a fruit's non fattiness is not isolated but it depends upon our other sources of glucose also. So a high glucose diet if further supplemented with fruits will do more harm than good.

But I am always having a revolving head which keeps on turning to some out of the norm notions. Like few years back, a thought struck my mind that if we take that glucose is the preferred fuel for our body but when we look at the stored levels of glucose in our bodies, it doesn’t look like that. You know our blood has just one tablespoon of glucose; Our liver has just a day’s stock of sugar, our muscles have just enough sugar for 60-90 minute mild level activity. Can we say that our body really wants this as a main source of fuel? I really doubt. On the other hand our body has huge amount of stored fat.

I also doubt on the role of insulin. It is said that insulin controls the blood sugar levels by storing the excess as fat. But if glucose is the main source then why our body wants to keep it to minimum by removing the excess?? Can it be other way around that our body treats this as toxic and so wants to remove it? Because our ancestors were used to live on a diet full of protein and high fat…carbs were not in their life. There was no diabetes in their life…it is the new age phenomenon. Our body treats fats in another way for fuel…it uses another set of enzymes to use fat as direct energy by sending fatty acids directly to blood stream just like glucose where they are used as energy by a process ketogenesis and the excess is stored as fat in the body for later use.

And because we are using glucose for ages so our bodies has sort of forget the use of fat as primary source of fuel because using glucose and fat for energy require separate set of enzymes or pathways. As we are using one particular pathway more so our body shuts down the another pathway of using fat as a primary source of energy and keeping glycogen only for the emergency like a sudden need of high glucose or energy. Because it just does not make sense that if glucose is the preferred fuel then we need to eat carbs continuously after every 2-3 hours. I also feel that if we switch onto a diet mainly composed of protein and healthy fats then slowly our bodies will also switch to its original source of fuel; Fat. 

So I am using fat more for last few (8) years and results could have been much better if I could have avoided carbs mostly but I could not as I was busy in too many things. But i am thinking of taking body first again and move to a diet full of nuts, meats, fish, whole eggs, dairy products and using very minimum of flour, rice, fruits etc. I am not an Neutritionlist nor a doctor, these are just my views after devoting more than 15 years of my life for muscles...and there are high chances that i may be wrong. 

I think we should move onto EID parry. I was just sharing my views…reviews are welcome. It was about the Energy part of our blog :) :) So just as every sugar is not the same; similarly every sugar company is not the same and always about sugar alone.

Indian sugar sector is a great example of something which can be made a hell by shabby politics. Politicians need the votes of poor farmers, so they declare high prices of sugarcane as minimum support prices. This MSP is done by central government and in order to surpass them, state governments use something like SAP ( state administered prices) which are always above MSP. Sugar mills have no choice but to buy the sugarcane at these prices from farmers. Current SAP is around 2500/- per tonne in most states and it costs around Rs. 33-36 for sugar mills for producing one kg of sugar. Wholesale prices are around 25-28 so they are losing on every kg sold. Prices are low due to global glut of sugar mainly in Brazil and USA. Also both are the largest producers of ethanol from sugarcane and corn, but as global oil prices are low so they are using more sugarcane for producing sugar than ethanol. This supply glut will take some more time to correct, but india has made the situation worse due to its illogical policies.

Sugar mills generally produce around 100 kg of sugar per tonne of sugarcane and they also produce around 10 litre of ethanol/alcohol. Bagasse can also be used for paper manufacturing and for generating power. EID is using bagasse for both.

As prices of sugarcane are always rising and profitable so many farmers have left other crops and are growing sugarcane for more profits which is not good at all. Take Maharashtra, it is not best suited for sugarcane due to huge water problems but still it is number 3-4 in sugarcane production in india. Maharashtra is more suited for pulses and oilseeds both of which india imports.

In fact, some parts of india are not suited at all for sugarcane production like most of north india like Punjab, Haryana, UP etc. sugarcane crop requires a mild temperature around 20-25 degrees, no excess heat, no frost…but north india has all of these negatives that is why per acre productivity is low in this part as compared to south india which is best suited for sugarcane. South india sugar mills can crush cane for 300 days in a year against 120 days of north Indian sugar mills. EID parry has all of its mills in south india and no doubt that its per acre productivity is highest also due to its use of high technology and bio fertilizers.

Further india do not allow direct production of ethanol from sugarcane due to fears of diversion of sugarcane to ethanol which can be a threat to food security. Hence sugar mills produce ethanol from molasses which is a byproduct of sugar. So sugar mills have to make white sugar first. Sugar is in excess supply for last 5-6 years which has created havoc for sugar mills and most of them are at the verge of closing. Farmers, even at higher prices, will lose much bigger due to nonpayment of their crops by these ailing sugar mills. So no doubt that our government would like to avoid any such situation.  Although EID parry is only one such company which has no dues pending for farmers.

Also Indian government is now very serious about implementation of blending of ethanol in oil to reduce our dependence on oil imports which will be great thing for sugar mills. I mean most of the negatives have already happened; now the time is very near to clean this mess otherwise whole industry will collapse.

The much needed reform in the sugar sector is to link the cane prices with the final selling price which will be more beneficial for both the farmers and mills. Very soon we are going to hear something along these lines.

Apart from sugar, EID has a very promising Biofertilizer and nutraceutical business. Both of these contribute around 165 cr out of 1600 cr total turnover. EID’s Neem based biofertilizer is growing very fast and it is best suited to preserve both the soil and the crop. Chemical pesticides are destroying the soil and whole bio ecosystem and the world is wakening fast to their misuse. EID has already got Bonsucro certification for sustainability practices followed in its area of cane cultivation and so many food companies like Coca Cola, Pepsico etc  have already announced that in the future they will procure their sugar only from sustainable companies like EID.

In its nutraceutical business, EID is focused to healthy products from natural sources like it was the first company in the world to produce organic spirulina from microalgae which is approved worldwide. It is also producing other nutritional products like Tomato lycopene for cancer. These are high margin business and I feel that these will grow much faster due to superior research capabilities of EID parry.

As mentioned in the previous post, EID has already got into branded sugar sector with the launch of vitamin based Vita sugar and a natural brown sugar Amrit. This step will be the distinguishing factor for its supernatural growth in the future.

Its 62% stake in Coromandel is valued around 3400 cr and even after giving 30% discount it is at 2500 cr and current market capital of EID is just 3000 cr . Coromandel has fallen all the way from 300 to around 200 now...its fair value is also much above 300 but even of we take 300 then value of EID's holding at 30% is valued at around 3500 cr which means we are getting original EID parry for free. Even during present phase of losses, its dividend yield is 2%!!

EID is known for the revolutions in setting up the first Indian R&D centre for sugarcane, great visionary management. I feel this is the best in sugar sector.

I have entered around 166, CMP is 172/-

(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)