Results Update: Info Edge India Ltd, Parag Milk Foods, Narayana Healthcare, Healthcare Global, Max India Ltd:

Info Edge India Ltd: Info edge is my all-time favorite from E-commerce sector (click here for earlier study). It has never resorted to predatory discount offerings to have a transitory feel good factor and in the process destroying the long term survival and growth in the process. 

In spite of general slow down in the economy, it is continuously giving improved performance quarter by quarter. So this quarter was not an exception. Topline is 208 cr vs 193 cr however operating profits have shown even better at 58 cr vs 40 cr. NP is not comparable due to taxation impact in Mar-17. But for full year turnover is at 888 cr vs 748 cr, Operating profit at 144 cr vs 63 cr which is a great achievement. Net profit is also not comparable due to one time other income effect. Apart from good growth in Naukri.com business, other main factor behind the improved result is lower losses from 99acres.com. Operating loss from 99acres have fallen to 66 cr from 106 cr although 99acres is going to see high growth due to demand for affordable housing and overall economic growth and lower interest rates.

With all these efforts, Info Edge is now trading at a PE of 40-50 although it is deriving almost 40-50% of its value from its investments in Zomato, Jeevansathi etc. Zomato is on a strong growth path and I feel competition will be even lower as most of the players in so called food tech arena are leaving. So I think we may see the real re-rating of Info Edge from here on which I badly deserves.

Good time to buy at 880 levels. I am continuously sharing the views on Info Edge via emails. For non-subscribers I am pasting some of the discussions here:

---------- Forwarded message ----------
From: Gurpreet Singh
Date: 10 April 2017 at 12:18
Subject: Fwd: Info edge
To: Gurpreet Singh
Dear All, Just bought Info edge at 852...buying is just in final stages. I am buying this one in small since Jul-2015 with a keen eye on Zomato and 99acres as i never had doubts on Naukri. Management is top class. Zomato is doing great in the market with revenues for 2016-17 around 350 cr...80% jump...Operating burn down 81% to just 70-80 cr from 400 cr!!!

Ad growth is great at 60% to 270 cr. Food order business will see huge growth as Zomato never focused on lure of discounting instead its focus was always on genuine customers who needed ordering.

I think Zomato will touch 550-600 cr revenues this year (May be over optimistic) but i feel after 2nd quarter Info edge may cease to be a risky pick.

Regards

Gurpreet Singh.

---------- Forwarded message ----------
From: Gurpreet Singh
Date: 3 April 2017 at 10:34

Subject: Fwd: Info edge
To: Gurpreet Singh  
Dear All, Bought more Info Edge today at 810. But it should be a part of one's risky portfolio. Zomato is showing strong growth. Their food ordering business is growing 25-30% monthly. I am buying this for one and half year...but as i do always to buy these stocks slowly at every significant event. So far only bought 60% of my target qty. But i think this year by 2nd qtr i'll have finished the total quota.

But still a risky one...

Regards
---------- Forwarded message ----------
From: Gurpreet Singh Date: 6 December 2016 at 15:10 

Subject: Fwd: Info edge 

Dear All, Bought more at 872 today. Earlier avg is 825. This qtr results were great. Naukri.com is seeing good growth, losses in 99acres are coming down, Zomato is going well and is profitable in 6 countries including India.

I always like Zomato for their aggressiveness in growing across globe. No Indian brand is visible outside India. all the fights of tata/mahindra are only in India. So zomato may be the first indian global brand. They are just like TripAdvisor and i hope one day they can become the TripAdvisor of food. Food delivery is not food-tech and i think that our so called high headed food-tech newbies like Foodpanda has realized this and going to disappear.

Tech is always about value addition. So i feel Naukri.com will be here to reap the benefits of networking effects when high growth brings more employment and more business to Info edge.

Regards 

---------- Forwarded message ----------
From: Gurpreet Singh Date: 25 July 2016 at 22:03
Subject: Info edge
To: Gurpreet Singh

Dear all,

Info Edge has given stellar performance this qtr. turnover at 197 from 175 cr. However Op profit is at 41 cr from 19 cr which is mainly due to cost reduction in advertising from 46 cr from 25 cr which i think pertains to rationalization of 99acres.com. As explained earlier, Info Edge has weathered the negativity in india ecommerce very well so far..It is still above our buy price...My Avg is around 790. Its results does not include the results of Zomato since it is not its subsidiary; i think it is holding around 47% in it. Its owner Sanjeev Bikhchandani is one of the few in India who "feels" the e-commerce. He has made some great investments like Zomato, Policybazaar over time. It has been quite some time that i have studied it...so it needs a revisit. It is having around 1200 cr cash which is sufficient for further expansion. Looks like we should add more.

Actually the most important thing in understanding the business models of these e-commerce businesses is getting Network Effects....e-commerce is a completely different ball game. Links to study at our Blog:

http://oscillationss.blogspot.in/2015/08/info-edge-india-ltd-and-network-18_16.html

Parag Milk Foods: Parag Milk Foods is a proxy for changing Indian food habits (Click here for earlier study). With growth in income, we’ll be consuming more value added premium and branded products whether it is food, fashion or entertainment. Keeping in view all these themes we are buying structural shift stories like Tata Chemicals (Branded Pulses, Spices), Aditya Birla Fashion (Fashion), EID Parry (Branded sugar), Zydus wellness etc. Parag Milk is a play on dairy sector wherein we are moving from milk and Dahi to cheese. Whenever an economy grows especially the middle class then the consumption pattern takes a big shift; from low quality unprocessed products to premium high quality products with more value addition. We can recall the times when we could watch any movie in low quality pirated versions. But now pirated movies are a goner.

Selling of milk and straight milk derivatives like Curd is not Dairy....for me it is just logistics as no or minimum value addition is done to Milk. So as discussed earlier, it is better to call them retailer or distribution companies as they are not earning from "Production" but from distribution. But Parag chose the difficult path of premium value added products like Cheese than generic commodity products like Milk/Curd. We are already having another stunning diary player “Heritage foods” from lower levels of 200 and 370 and the same was advised at 500 again last year. It is trading at 1200 at present but will grow even faster from here on.

Parag Milk had a very bad 3^rd quarter due to demonetization and high milk prices which it couldn’t pass on to customers due to demonetization effect as demand was even lower for value added products at that point of time. So I was thinking that due to demoney this quarter results would also be bad taking the clue from muted results of Heritage foods due to difficult operating scenario in Jan-Feb-2017. But Parag has surprised big time. Its topline is at 428 cr vs 414 cr YOY but it is the operating results which are the big game changer. Its Operating profits is at 35 cr vs 30 cr last year (In spite of the increase in depreciation from 10 cr to 17 cr) although in Dec-16 quarter it was a loss of 26 cr. So this is big improvement and a sign that value added segment has better pricing power. Even its raw material costs are down at 68% of turnover as compared to 70% last year. 

I am sharing about Parag since it IPO days via emails and when it was down to 210 levels due to bad results of Dec-16 quarter I made good buying at those levels and I feel that we may not see these levels again. It should get its true valuation.

Parag has created another fantastic premium product with their organic fresh premium quality milk brand "pride of cows" which at present is available to around 25000 customers around Mumbai and Pune. But Parag has grand plans to launch this to pan India.

Just few days back they created another specialty product "Avvataar Absolute" which is 100% veg whey protein supplement by investing 110 cr. Whey solution is a byproduct of cheese manufacturing. I think this can turn out to be a master stroke as demand for protein supplements especially veg is growing fast in India and most products are costly as they are imported. Venky is also into it (Non-Veg) but this is from their unlisted company.

Few days back, they have also introduced milk based mango drink with brand name ‘Slurp”. Here again they have tried to be different from others by adding milk into the mango drink and they have kept the price at reasonable levels of 20 bucks for 200 ml pack. But it is interesting to see their brand promotion strategy as they have 3 consumer brand to establish; Pride of Cows, Avvataar Absolute and Slurp although their “GO” is already an established brand.

These products are having huge untapped market. Parag is spending big for branding after IPO. We can see some serious wealth creation here.

Narayana Healthcare, Healthcare Global and Max India Ltd: I am so sure about the growth of these two that I don’t even want to check their results. But I am doing this as I am yet to buy almost 40% of my target quantity. High quality and affordable healthcare is a segment which market is going to take some more time to identify but we are not. Just like Water, I feel affordable healthcare is a basic right and Government should make serious attempt (apart from wasting money on wasteful subsidies for vote bank) to provide the same to its citizens. Rather than wasting huge amounts on running Government useless Hospitals; I think they should think of something better alternative unless we assume that their IQ level is degraded like the service standards in their hospitals. Most of the Politicians have strong vocal muscles…so they just shout and shout. But irony is that there are some people who can still find value in these although these are just sounds…asymmetrical and originating from the stomach acids (not from third eye).

But still I think the likes of Narayana Healthcare, Healthcare Global, Thyrocare and Aravind Eye care are doing fantastic work in making healthcare affordable when in front of their eyes Government is making everything around healthcare unaffordable. I have no doubt that India will emerge as global hub in quality healthcare. Actually until now, healthcare (quality) is like a luxury as most of Indian (Global) population still can't afford it...but healthcare just can't be a luxury (Like Mobile telephony, you see where it is now)...it is a basic need...the need is to just think how it make it affordable....and companies like NH, HCG and Aravind eye care are just doing this...in some cases they are providing healthcare at 2-5% of the cost of western world.

I feel good that although the results of both have shown huge growth in last 2-3 quarters since we are buying; their stock prices are still around the same levels. It is good that we are being able to buy these at current prices....no need to worry about the under-performance of these relative to the market. Developed countries across the globe now just can't afford the high healthcare costs...they need some remedy...Poor countries (Asia and Africa) drastically need to find the sources of low cost healthcare. The answer to all of them is companies like NH, HCG because of their awe inspiring low cost model.

Medical tourism will be the next big story in India...it is good that nobody is talking about it in the market. But i am seeing this to be the much bigger story than IT. These two have unmatched capabilities in offering high quality care at fraction of cost of western world...some of their performance metrics are even better than their western counterparts. Like crisis response time taken by Narayana of their patients (like sudden heart attack in hospital) is just 7 minutes when western world has 30 minutes (don't think of the best hospitals in your cities).

Max India Ltd is another great play on healthcare. Its health insurance business under “Max Bupa” gets big synergy from its healthcare business. Max Healthcare has expanded its capacity to 5000 beds...turnover is around 2600 cr...but still almost 50% of capacity is fresh (may be more). Max India has 46% share of healthcare business.

Max Bupa is one of the largest brand in Health insurance.....i am highly optimistic on the growth of this vertical. Its premium will be around 650 cr this year. Max India has 51% share in it. I feel Max Bupa and Max Healthcare will provide great synergy to each other. Indians are badly under insured in healthcare and we pay most of the healthcare expenses out of pocket.

Antara Senior living is a novel concept in India. Breaking of joint family and Jobs commitment calls for senior living due to security and care aspects. I think their Dehradun project has been launched this qtr...ticket prices are upward from 1 cr  or so.

Both HCG and NH have given stellar numbers this quarter. They are still looking affordable even at premium valuations of 60-70 PE. Healthcare segment hasn’t performed so far in this bull run and I feel they can’t be kept far away as healthcare is a direct play of economic growth.

(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).

Market Update: Stocks covered Redington India, KPIT Tech, Snowman logistics, Kennametal India, Blue Dart, Hercules Hoist, Venky's India.

On the expected lines, we are witnessing some type of correction in the market. The main reason is the muted show in March quarter results...but sometimes market falls because it wants to fall...simple...no reason. Because here too i think muted results are also on expected lines...demonetization has also impacted this quarter's show...there is no doubt about that. Inflation numbers are in control (although i don't think it is due to some planning by Govt...Govt only plans for Tax revenue). 

FII's are selling and they should sell as i see them turning a minnow in next few years. Domestic inflows are very strong and this is saving the market from the fall...and this will save in the future also. But again irony is that market is falling after the entry of retail investors. They always are late because they want to time the market. In stock market, short term forces are always beyond control and beyond perception. I can't guess the each global scenario impacting the Indian markets...but at least i can try to reduce the exposure to stocks having exposure to so many of global events.

I have never tried to time the market even when i feel that chances of market fall are more. I love a stock (latest is Hercules Hoist and EID parry) and I’ll just buy it. This is in my hands but timing is not in my hands. In short term market is always smarter than me...it'll outplay me most of the times and i am ready to accept the defeat as after the initial windy storm and lightening what follows is the life giving Rain. we just need to withstand the initial blows. When we are going after 10-15 times gain, initial 10-15% plus minus doesn't matter much.

 India is going to be stunning growth story. The main reason is-our consumption story is natural and organic. it is not forced upon us by some Government with cheap money as there are still big number of Humans believing in Over-consumption led growth. Whether it is milk, meat, Staples, electricity, Entertainment or fashion whenever it comes to consumption India is nowhere near the global average. We are just at the initial phase of demand boom and only thing which matters is that we should be able to meet this demand as so far our story is mainly about wastage and missed chances. Huge population is going to create huge demand for resources and with efficiencies coming in there are high chances that we'll be going to see great growth stories and high end innovations in meeting the demand sustainably. At least we can learn from the mistakes of developed world in going for the consumption without caring for the natural resources. 

And only role the Government can play is to inflict minimum damage to this natural growth…Government can only correct their past mistakes…i have never seen them adding any value and I wish I am wrong. Government is just a mechanism to extract as much money from the earners in order to offer freebies to attract more votes…just like us its only concern is its own survival. But the difference here is that we are Humans and Government was supposed to be a SYSTEM to play the role of a catalyst channelizing the resources from unproductive to productive products. But now the roles have been reversed; we are a system to earn more and more money for the Government whose only concern is its own survival.

We are losing around 30% of our agricultural produce valued around 100000 crore and it is going on for ages…what has been done by the Government to stop this!! They were unable to provide cheap electricity for high quality warehouses (when Our power plants are operating at PLF of 60-70), they were unable to build roads from villages to place of consumption, they were unable to safeguard the prices of agri produce in case of a bumper crop, they were unable to create facilities for farmers to store their produce cheaply in case of falling prices and enabling farmers to get cheap loans on the basis of warehouse receipts as collateral, they were unable to guide the poor small farmers while deciding for a particular crop for sowing, they were unable to create a suitable Crop insurance product for them. The list of inefficiencies is way too big. But still they are wasting money on useless subsidies; on fertilizers leading to over use of these, on offering high minimum support prices (MSP) and thus disrupting the natural flow of the market. They think they are very smart but where is the result? Our farmers are still poor, our productivity is amongst the lowest in the world. The reason is simple- You can go on feeding a beggar for ages and he’ll remain a beggar. Government is just giving the farmers something more, like, they are earning x and Government is adding y into this and this is going on for long time. No natural environment is available for farmers to grow big…Government should have been focused on removing the obstacles…not giving them crutches for limping along. 

Just recently, a lot of activity is happening in Electric Vehicle (although just Noise) in India and it looks like that world is getting serious on EV. I amn’t sure about the man made global warming but man made concentrated air pollution is real and dangerous. In electric vehicle, I am still looking for the candidates but I think KPIT technologies looks interesting. KPIT is not like our conventional IT company just like Tata Elxsi it is predominately a system design and product engineering company with main focus on Auto sector. It has even developed its own products like Hybrid vehicle kit Revolo. It has very strong research capabilities with around 50 patents. Off late, it is focusing big time on electric vehicle, IOT, Intelligence transport system, Cybersecurity etc. New Delhi parliament is using the electric bus from KPIT. Its Hybrid electric vehicle kit Revolo is a revolutionary product which is getting high accolades across the globe. 

Any positive news on commercialization will be a big big positive as indian Govt is also having grand plans for electric mobility. KPIT is trading lower due to slower growth in recent past and high debtor days which it is improving fast. Higher salary cost was the reason for margin drop. But it is cheap at 10 PE and 2% dividend yield. But it looks a bit risky.

The agri produce wastage is huge area so as water. So we can see that even by eliminating the wastages we can achieve significant growth leave alone the demand push growth. Star Agri warehousing and Collateral management and Sohan lal commodity management Pvt Ltd are into crop collateral financing business. Star Agri is coming up with an IPO.

I am sure that we are going to see big innovations in Agricultural supply chain. With the growth of high tech warehouses, the short term loans on crop collateral will be another big growth area. I am already adding major players in this area like Snowman, Concor, Redington india and the hunt is on for adding something big in this area. Like GST will spur the demand for very large warehouses with size up to 5 Lac Sq feet. Presently majority of warehouses are small (As companies are required to be present in every state to save the extra Inter-state taxes and entry taxes) with no economy of scale and no automation whatsoever. But GST will make large companies like Suzuki, Hero, Uniliver to make one huge warehouse in Nagpur for covering, say, entire western India market. So the demand for Automation will be huge to cover the scale of operations.

Here I am adding Hercules Hoist (at 160) which I think can get big business as it is already into Material handling and material retrieval products. Growth of other industries will also spur the high growth in the future. Its market cap is 500 cr but it is having stocks of Bajaj group and MF valuing 240 cr...2 acre vacant land in Mulund in Mumbai (I think it should get around 70-80 cr)...so out of 500 cr, 60% belongs to Investments and land.

It is a consistent dividend player. I am a big fan of Bajaj group and just like Kennamatel India (also added at 570) this one can show big turnaround. Kennametal is a US based global hard metal products and machine tool giant. It is not performing well for last 3-4 years. I don't know the reasons as I couldn't do the analysis so far...but may be due to general slowdown in auto sector in India and cost pressures. But i like the company and products. The same was shared via email at 575. It has shown good results in past 2 quarters and it is at 626 now after touching 700. 

Also buying Snowman logistics (Click here for ealier study) regularly around 56. It is having assets of 500 cr but market cap is just 900 cr. From this year we'll see the govt focus on improving the agro supply chain in India as we are wasting more than 1 lac cr of agro produce. Around 75% of our cold chain is for Potatoes which is of primitive technology. But in other part of the world, Top 25 USA cold chain companies have around 15% of global cold chain capacity. So we are in urgent need of doing something serious to solve our agriculture mess. Even Govt has realized this and they are providing subsidy for setting up cold chains across India. Our other Pick Balmer Lawrie has also set up 3 cold chains after getting subsidies from Govt. This is my 2nd phase of investment in Snowman...last year made initial entry at 80 and then bought good qty in 50-60 range.

Most of us are already having Redington India (click here for earlier study) from 100 levels on the same theme. Redington is one of the largest IT product distributors which will derive high working capital gains post GST. It is also a big player in warehousing. It has been advised from time to time and it is way cheap at 10 PE and dividend yield of 2%. It is continuously improving its cash flows for last 2-3 quarters but market is sitting unaware and it is still taking as a player with huge amount blocked in working capital. Also after GST, for its IT distribution business, supply chain will be better managed and lesser amount will be blocked in stock. So I am seeing significant improvement in the business profile and it is re-rating candidate. 

Some doubt on Redington due to low promoter holding of some 10%. Actually promoters are doing it deliberately to make it professionally run company just like L&T where nobody will have big stake....FII's and other financial organizations are biggest shareholders in it. Also, Redington promoter R Srinivasan and singapore based Kewalram Chanrai group never had the majority shareholding of 50-60%. It was and still having global PE players like Standard chartered (12-13%) and Fidelity (5%) as shareholders, USA based distributor giant Synnex is having around 24%. As far as i know Mr Srinivasan, he wants the company to be management run with nobody having shareholding more than 26%. Mr Srinivasan does not believe in promoters having a substantial shareholding in a company...he admires L&T and HDFC. He views that promoters with a substantial shareholding become arrogant as they are not answerable to anyone before going public. I love this company and quite hopeful of a long clean road.

I am also looking to buy Blue Dart...it has already fallen to 4200 levels from 5100. It’ll be another big beneficiary of the growth of E-commerce and warehousing/Supply chain after GST. It is in under my watch for long but i am waiting for something quantum in its performance in order to justify its premium valuations...its PE is still 70 even after the recent fall. So in order to justify this valuation, it needs to whack with high growth. But it has muted last 2 years...mainly due to difficult business environment and slowdown in e-commerce. I am having my apprehensions on sustainable E-commerce business model in India. Reality is biting now most of the players so consolidation will be even faster. They need to add some value beyond suicidal discounts.

I think GST with large centralized warehouses, supported by faster Air cargo services can provide them a chance to squeeze some margins. Besides e-commerce, traditional Air cargo business is minuscule at present in India which has the potential of huge growth. Air Cargo business at present mainly is tied with metro cities only, Export cargo is the main revenue source but here competition is high, domestic inbound cargo is low due to infrastructure issues in tier 2& 3 cities which is a great opportunity as Air infrastructure is growing fast in India. 

India has high potential for moving high valued, important and perishable cargo (Like Jewellery, Pharma)  via air. Blue dart has un-matchable technologies and reach....way ahead of competition. So i don't any see any reason for not growing fast in the future. I think at 4200/- it is near its bottom; historically it has enjoyed premium valuations. Blue Dart’s passion for customer service is something which is never heard in Indian corporate houses. Its top management is always in touch with their customer. Its passion for customer service is such that last year its CEO of DHL (Parent of Blue Dart) on its Indian visit opted for meeting its customers like Amazon, Flipkart rather than meeting Government officials. It has its own fleet of freight aircraft (6-7); only of its kind in India. It gets big export business from its parent DHL. It is building giant scale warehouses to cater to the demand after GST.

Future enterprises Ltd is another one in Warehousing. It is the holding company of Future supply chain Solutions ltd which is one of the biggest logistics player in India. Its turnover in 2015-16 was 525 cr with NP of 30 cr. It was recommended at 18 and it is trading at 29 now after hitting 34. still a good buy.

Corporate results are not conclusive in this march quarter and I think apart from demonetization, GST may be another reason behind this muted growth. I think so many companies might have shunned their investment plans due to GST implementation in July-17. Actually under GST, a lot of players will be able to get the input credit for taxes paid on factors of productions like plant and machinery, like for Telecom and Multiplex owners like PVR. Input is adjustment of taxes paid earlier to the Government from the output tax liability for goods supplied or services provided.

Multiplexes like PVR at present pays a variety of taxes like service tax on lease rentals, Excise/VAT/CST on Infrastructure like machines for exhibition, Service tax and VAT for food and beverage business. But they charge Entertainment tax on their customers although they pay service tax for movie rights and Excise/VAT on equipment. As Entertainment tax is different from service tax and VAT, so PVR can't claim the benefit of Input here and so service tax and VAT paid by them is a total loss for them. So Input of these taxes are either nil or limited (like in case of F&B, input is available).

But with the application of GST, they will be able to get the input credit of GST paid on all the above components used for the supply of final service. As they will charge GST and pay GST for service and movie rights, Equipment. So GST will result in the margin improvements if Multiplexes decide to not to pass on the benefits to consumers which is most likely. Same thing will happen with Telecom companies and DTH as at present they pay heavily for equipment but as their final product is a service so they lose heavily for taxes paid for equipment.

So I think most of the recent planned investment has been shifted to post GST period. Another issue is de-stocking by the dealers and distributors due to pending clarity over issue of input credit of Excise duty paid on stock in hand as on July 1^st 2017. Actually as per GST Act, the credit of Excise duty paid on the opening stock in hand as on GST implementation day will be allowed. But they have given a condition that 100% will be allowed only to those having “Excisable Invoice”. In the absence of this, input credit will be available only up to 40%. This has created enough doubts in the minds of dealers and Distributors as they don’t get excisable invoice from their supplier/manufacturers. So as per current wording they won’t be able to get the input credit for 100% of excise duty paid and this will be a big loss for them. So I think this can be another reason. 

I am planning for a more detailed post on GST after some clarity over so many other issues is provided.

Venky's India Ltd has given great results. Turnover at 625 cr vs 600 cr but its operating profits have shown huge improvement from 28 cr to 77 cr mainly due to reduction in raw material cost, Interest charges and other expenses. NP is at 42 cr vs 20 cr after accounting for huge tax outgo this quarter. For the full year NP is at 125 cr vs 38 cr!!! Great show!!

Total debt has been reduced to 470 cr from 700 cr. EPS is around 100...at moderate PE of 15 it is touching 1500 shortly although i think it should command minimum PE of 20 so in my view 2000 is on the cards....but don't want any bad news from recent IT raids...which looks remote...so finger crossed. Venky’s India has already given us great returns; trading at 1220 from 200. But it is still a hold.

(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).