Kiran Vyapar Ltd: Huge Potential

Kiran Vyapar: Bought this small company few days back at 110. The same was shared via email to email subscriber group of this blog. It is already trading at 140. It is LN Bangur group company with around 600 cr of Equity/Mutual funds and 300 cr of group investments but with no debt and market cap is just around 300 cr...Dividend yield 2.4%.

But my main trigger is not above...it has something much valuable hidden in it...and that is 40% share in Agro warehousing business (Navjyoti Commodity Management services ltd). Its warehouses are WDRA approved and hence they can issue Warehousing receipts to be used by farmers for WR financing. As shared in earlier posts also, in my view Warehouse receipts financing is the next big thing and the same is expected to grow at fast pace. With Warehouse receipt financing, a farmer can withstand the short term variations in the crop prices. Normally at the time of harvest, due to oversupply agro produce prices are always low but with demand picking up after 203 months prices generally returns to normal higher levels. But our poor farmers do not have other financing options and they also don’t have cheap warehousing options available with them which force them to sell their produce at cheap prices to middlemen who later on reap huge profits at the cost of farmers. But with WR receipt financing, farmer can meet his short term needs and when prices normalize he can sell the crop and pay back the loan amount. Banks can also provide loans fast due to adequate security of the crops.

But I think cheap and reliable power is the main catalyst for the growth of warehousing in India which at present is barely sufficient. Around 60% of total warehousing is concentrated in 4 states Punjab, UP, Gujarat and WB. Also, around 80% of cold chain warehouses cater to potatoes only, and if we add Onions then the same will cross 90%. So Cold chain warehousing capacity dedicated to high valued horticulture is very low but i feel that just like the role of cold chain logistics in the growth of  Dairy sector in India, the same success story will be replicated in horticulture also. Our Power sector is grappling with the low demand issues as we couldn’t create the demand for power after creating big capacities, so the steps like warehousing will provide big push to the demand for power provided we can offer cheap power. This will provide double benefit.

I am waiting for the IPO's of bigger players in this area like Star Agri and Sohanlal Commodity...but Kiran is also a good play. At present market is not aware of this business just like it was about general insurance but recent IPO's of general insurance companies will ensure the high re-rating of our general ins picks like Tube Investments, Bajaj Finserv, Sundaram Fin, Future Ent, Max India etc. These were advised at much lower levels in the past but still all these have huge growth potential. 

Navjyoti provides supply chain solutions for agricultural commodities such as grain, cereals, pulses, beans, oil seeds and other commercial crops. It handles over 5 million mts of commodities in more than 16 states across 300 locations and is setting up 50+ state of the art agri logistics parks across India.

Same thing will happen for WR financing companies and i think players related to Agri finance like Mahindra Fin and new age rural centric banks like RBL, IDFC can make big inroads in this business.

At present WR Financing is available only for dry staples like Wheat/Rice as warehousing standardization for horticulture crops is still not available although in my view WR financing is more suitable for horticulture crops as short term variations in horticulture crops are high and farmers just get only 35% share of the final price paid by the consumers due to middlemen. But for staples like wheat/rice, due to steps like Govt controlled Minimum Support prices, Farmers garner much higher share in the final price paid for these. That's the main reason why i am investing big in Snowman also as it can enter this WR financing business anytime and it is the biggest in organized cold chain sector. I am seeing big opportunity for WR financing and logistics in horticulture crops. At present there is no such news related to WR financing of horticulture crops but i can see a real scope for it for snowman as it already has everything in place.

Kiran is having 303286 share of Indian Energy Exchange who is coming with an IPO with price at 1650 valuing the stake of Kiran in it at 50 cr. Kiran is selling 90986 shares valuing around 15 cr in the IPO. Our another pick in Power and defence sector, Tata Power ltd is also selling its stake in the IPO valued at 206 cr.

But this is just the tip of the iceberg; like Kiran is having 16.37 lakh shares of Suryoday Small Finance Bank Ltd which is growing very fast in rural India. It has received its small financial banking licence in the month of August, 2016 and commenced its operations as a Small Finance Bank on 23rd January, 2017. Its earlier avatar was of Micro finance institution. At present it is just in the teething phase with 4 branches opened this year, turnover of 254 cr and NP of 15 cr for the year but I think the figure will grow much bigger with full year of operations starting from this year. 

I think value unlocking from unlisted investments like Navjyoti will be much higher than quoted investments. Its investments in listed companies are around 167 cr which is valued around 334 cr on Mar-17 and I think the same should be much higher at present. Even it is holding free hold land costing 25 cr…I don’t have the figures but even the value of this could be way higher.

Kiran is also having a 46% share in LNB group's renewable energy business which is growing fast in Solar. I do not have much study about LNB group and also trying to find out the more details of their WR business...so this stock deserves only risky capital although high discount to investments, Dividend yield, Low PE  of 7 give some margin of safety.

(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)