Info Edge India ltd and Network 18 media & Investments Ltd: Dotcom Bubble was Created not Happened!!

American Netflix deals in online streaming of movies and video content. Is it a very complex business? No, it is as simple as watching movies. But Netflix is a Giant. Its market value is $49 billion (around 3 lac crore), Revenue is $ 5.5 billion with NP of $ 267 Million. It is trading at a massive PE ratio of 250. Its NP is lower mainly because of huge investments being made for global expansion and acquiring licensing rights for new data which will only add to the bottom line once it is over with its investment phase. It is having subscribers base for its streaming business of 62 million worldwide, with around 40 million in USA and 23 Million global. Apart from licensed content, it creates exclusive content which only add to its brand image. As per latest estimates it will cross around 180 million subscribers worldwide by 2020.

Just imagine, its profit growth with this kind of numbers. Even if I take its minimum plan of $7 pm (around 500 per month), total revenue will be around $17 billion. I cannot count its net profit due to lack of data regarding its cost structure, but taking maximum costs as fixed costs for licensing and data delivery costs which are not huge and offer around 10 times profit as compared to price paid to service provider. So I can take 20% NP margins and we’ll have a net profit of $ 4 billion in 2020, which is based on its lowest subscription model NOW, it will of course raise the prices also. And any price increase will mostly transferred into net profit only. So we can take this net profit of $ 4 billion to 7-8 billion and comparing this $ 4 b and $ 7 b with current market cap of $ 49 b does not make current market price too expensive.

It is also in DVD rental business via mail and it developed a patented process to look after this complex business. I will entail more details about Netflix’s technological expertise and edge in delivering the content in some other time.

Welcome to the 2^nd round of DOTCOM! And this time it is not floating like bubble, in fact seriously huge data is flowing through this. Netflix alone account for almost 1/3^rd of total peak network data in USA.

Our previous Dotcom era was destined to be a bubble, huge investments just made it huge. At that time E-commerce growth model was based on slow internet speeds, too high internet data costs, very low numbers of PC leave alone laptops and please don’t talk about smart phones, poor design of websites with little security, online payments system were very doubtful. These were all related to infrastructure which was indeed a big hurdle. But still successful business plans can be built with lowest possible infrastructure if they are planned sensibly and within limits and calculated risks.

But along with irrational money and over enthusiasm of investors, the main culprit was poor business models of those companies, which raised millions-billions of dollars for businesses which were based on unreal astronomical visitors/users of their online services. Every software company was touted as next Microsoft and every college dropout was starting a software company in garages and issuing shares to its employees as salaries who thought they would get millions after selling them. I am enlisting few of them:

Webvan: launched in June 1999, where users can order their groceries online and have them delivered to their homes. Webvan raised around $ 1billion. However its idea was good but it did not pay any heed to slow internet speed, high cost and very low penetration levels. It was dealing in getting goods and storing them in warehouses. Hence it needed huge staff, massive amounts for warehouses, cutting-edge automation and servers to handle orders. Rather than going for slow growth, Webvan invested $1 billion in state-of-the-art warehouses.

So no doubt, it did not witness any such growth and went bankrupt and shut down in July 2001.

Boo.com: founded in 1998, was meant for showing fashion trends and deliver fashion and sports clothing and accessories to customers all over the globe. It spent $42 million on an ad .The site featured an animated assistant called Miss Boo, and the ability to drag clothing onto models, zoom in on items and see them from all angles. Indeed that was a good technological stuff, but in that time of slow internet, less powerful computers…it provided a very bad user experience also because users had to download its software which was not compatible to most of the computers. Costs were way too much, photographing the goods cost $ 200 per item. The site had to maintain versions in multiple languages, and deal with currencies, taxes and shipping for regions all over the world. Clearly the model was unviable and it went bankrupt in 2000.

I have listed these two cases, because we can find similarities of businesses of these with today’s Flipkarts. But as we can see, the main fallacy was not the lack of infrastructure but their business plan which was based on unreal forecasts.  That type of growth is very much possible today with the support of technology. Amazon.com also belongs to the same era…but it survived as it was rational in its spending and dealt mainly with books. This low cost model helped it in building brand strength and when everybody was out of the E-commerce arena after small bouts…it relished and flourished.

You will be amazed to know that during Dotcom bubble, Google was up for sale for $ 1 million but nobody was interested. Today its market value is $ 434 billion!!! You see, people became over fearful and failed to realize that internet and computers were going to change our life just as oil and telephone did.

Info Edge India ltd and Network 18 media and Investments Ltd: I am looking to find any such opportunity in india where underlying idea is scalable. I have shortlisted Info Edge India ltd and Network 18 media and Investments Ltd.

Info edge is the house for Naukri.com, Zomato, 99acres.com, Policybazaar.com, Meritnation.com, Canvera.com.

Network 18 is having whole TV 18 broadcasting business, Investments in BookmyShow, Homeshop18, some of the best portals in india like Moneycontrol.com, its business portal and Firstpost.com, its very unique view based news portal.

I have already invested in Info Edge at 700/- recently. Network 18 I am still studying. But all these are very complex businesses and analyzing these require huge time. So I feel this blog post will take more than one post to cover at least most valuable businesses of both.

E-commerce start ups are unique in many ways from traditional startups; hence it has its own set of rules to value these startups. The most unique fact is the capacity to leverage and grow the business many fold with existing infrastructure setup. With every layer of business growth, most of the incremental revenue goes to the bottom line. So scale is the most important metric and hence these should be valued on the basis of forecast of scale which should be realistic. This realistic forecast is the most difficult part.

But Indian E-commerce startups have one benefit which was not available to their western counterpart and that is experience and data available from western world. Indians can build their business model on the basis of them and chances of failure become very low. Just like our Flipkart which based its business model on Amazon and played a relatively safer game.

But most important test for E-commerce businesses is entry barrier, existence of moat or threat of competition. Moats enjoyed by E-commerce businesses are of different types so as are entry barriers. People say that anybody can build a website and start an E-commerce venture.

Let’s take the example of a Newspaper shop in a small city. It is there for years, giving good service selling plain newspaper. There opens a new shop to sell the same paper with same set of service. How many of us will switch to new shop? Perhaps none. We don’t want to take the risk of taking the experience of a new set of environment, processing it over a long time and then having a conclusion which at best will be equal to our current experience. So why should we take so much pain to have the set of experience. This is the moat.

Take Naukri.com…it is having the 70% share in online job market in india since it was the first of its kind in india when it started. So it is having the largest store of resumes, Job seekers and largest number of employers listed. So every new job seeker will go to it thinking that as it is having the largest number of employers so chances of getting job are high and similarly new employers will go for it to hire new employees thinking that it is having the largest depository of job seekers. This will become a circle, a loop which will absorb more business.

Zomato also enjoys the same…as it was the first of its kind in the world because its huge army go to each restaurant in a city and get the most possible data and pictures regarding menu, prices, location etc. so it has built a huge inventory of data of restaurants which is very difficult to replicate. Because as we know that Zomato is the biggest, so whenever we want to search for a nearby restaurant we’ll go for it as we know that chances of getting a listing is higher with it thanks to its huge inventory of restaurants. That thing will make more restaurants willing to list their data on Zomato.

However good service and strong backend infrastructure is equally important. Just having an online portal will not suffice. Like Flipkart, displaying items and getting order is the easiest part. But order processing, inventory management, stock return management are the most critical parts. Although Flipkart does not follow classical inventory based model in india mainly to counter the FDI in retail norms. So it is operating marketplace model where it works as an agent between a buyer and a seller and it charges for its service.

But this model makes Flipkart having little control over quality, availability, problem solving…and as it provides very little value addition in this process so any big competitor can set a shop against it. Just like Amazon is doing it, it is following inventory based model in india as it is having its own cash. Just remember the crash of Big Bang sale by Flipkart on Oct 6, 2014, a case of having lesser control over the process. We’ll cover this later on.

The important thing is, if Flipkart aims at surviving marketplace model then it should raise its technological expertise to very high standards. It should incorporate unthinkable technological aspects for the shoppers like third party evaluation of the products of different brands and their value for money index. It just cannot be a order processing software…it should make shopping at its portal a memorable experience. It is a technology company.

So an E-commerce venture first of all should add value to a process; either by lowering costs or by substantially reducing/saving the time required or by helping choosing a better product. Unless it pass this first test, the survival is a passé.  Just like Moneycontrol.com, which stands miles above the other financial portals in india. The quality of data, presentation, relevant news, analytic tools, user interface etc is just unmatchable which provides it huge brand equity. I am using it for last ten years and have not even thought of trying/using something else.

In the next part (probably by Tomorrow) we will cover the Zomato and BookMyShow as these are the most important parts which can contribute maximum to a future windfall.

(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)

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Gujarat Borosil Ltd: Sun will Smile on It

For earlier post on Gujarat Borosil: Click here and here

Gujarat Borosil is still under scrutiny and I am buying it very slowly at every fall. But due to current scenario of solar power in india and globally , I feel it is better to wait for some more time to let the things fall in place and in order. However one of our reader Sh Sridhar has posted some interested queries on Gujarat Borosil. I am trying to answer them with this post.

First, let us have a firsthand detail of the solar panel industry. Solar panel is a combination of many components, which are encapsulated and bind together. First quartz sand (silicon) is processed into polysilicon, which is a very energy intensive and costly process. Around $100 million are required for setting up 1000 tonnes polysilicon facility. So no wonder, we have none here in india. Around 70% market share is with top 3 companies from Germany, USA and China. This Polysilicon is used to make ingots and then ultrathin Wafers which are finally used for making a solar cell. This is also a capital intensive process. This process of sand quartz to solar cell accounts for around 60% of total cost of a solar module.

                                Polysilicon

Cell manufacturing involves creating the all-important pn-junction, coating and layering. It is an important step in the value chain responsible for about 20% of the total value addition, and it is here where significant technical differentiation is created.

While the largest Indian manufacturer has the cell production capacity of less than half Gigawatt (500MW), the average being less than 100 MW, Chinese manufacturers have the average capacity of morethan 1 GW. This is the combined cell manufacturing capacity of all Indian producers. Even the US has anaverage manufacturing capacity of about half a GW. China’s total annual production is around 40 GW.

Due to this smaller size, Indian cell manufacture companies are unable to reap the benefits of scale of operation. Also during the good times of 2005-2007, when Europe was on a growth phase and Govt were supporting solar power big time by giving high tariff and huge subsidies; all this resulted in huge solar cell manufacturing capacity which was way above demand. So when recession crept in Europe, Governments there discarded their renewable energy bandwagons. This coupled with rise of china resulted in huge global over capacity and prices crashed world over.

Indian opportunist companies, which didn’t have technical and financial clout for solar business, also joined the race somewhere around 2006-2008. But they were just assemblers…they imported everything and then made solar modules (Indian Module capacity is around 2700 MW) of them without any value addition and they were very happy that they would capture the Indian market after initially focusing on export market as they were thinking that with low cost assembling they would be able to penetrate into global arena (poor dreamers). Yes, they added small cell manufacturing capacity also but this was not a very high tech process. But they underestimated Chinese producers who came with a bang and shaken everybody.

So after Global meltdown and death of many western solar producers, Chinese and western producers started dumping their solar panels everywhere in order to capture market share and to recover some of fixed costs. They suffocated tiny Indian producers with their cheap prices. Indian Government is investing big on solar power to stave off the coal crisis and providing power to the farthest corners of india which are far away from the grid. Cheap solar panels from Chinese and western producers brought the cost from 15 Cr per MW to 7 Cr and now it will achieve grid parity soon.

 Indian producers were forcing Indian government to impose anti dumping duties on them as they were dumping their products. Although they were right but Indian government did not approve the same. Indian producers cannot meet the high capacity requirements of solar power producers who are investing big in solar power and so far around 3000 MW capacity has been  created in india. Indian Government has plans of 100000 MW by 2022 and Indian producers are just not capable of supplying this much solar panels. So any imposition of duty will only raise the cost of solar power and will defeat the very purpose of affordable power to all.

Moreover unless we create big capacities for upstream raw materials like Polysilicon in india, we can’t harvest the best out of this whole solar power process. So even if we create huge cell manufacturing capacity, the benefit to Indian economy is minimum as long as we continue to import Polysilicon wafers. This is just the other side of the same coin, at one side we are importing 100% for 50 and on the other we are importing 90% and after adding 10% we are paying 80. This is just wastage of resources.

Indian solar power producers are using Thin film solar panels which are cheaper as compared to Polysilicon solar panels, but they require more land. The term "Thin film solar panels" refers to the fact that these types of solar panels use a much thinner level of photovoltaic material then polysilicon solar panels. Thin film solar cells consist of layers of active materials about 10 nm thick compared with 200- to 300-nm layers for crystalline-silicon cells.

So where land is not a issue, producers are using it. But they are not efficient, with their efficiency is around half of polysilicon cells. So you take into account high land cost, high installation cost per MW due to more panels per MW, Lower efficiency, rapid decrease in power production and all the cost benefits disappear. Against a global average use of 10%, Indians are using it at 60%, which is way high and i think it will come down with more rational policies from the Government.

Now coming to the Glass part of the Game: For crystalline cells, solar glass is used for protection and performance enhancement. In the case of thin films, glass is used as a substrate. Solar cell inside the panel is a very delicate and costly component, so it should be protected from any external shock and dust which can impact its performance badly. Glass is best for this due to its strength, durability and most of all it can allow uninterrupted transmission of solar rays and with some coating can prevent reflection of sun light of its surface. All this is just perfect for solar cell.

Contrary to silicon, india is having all the ingredients available for making high quality solar grade glass starting from raw material to technology. Saint Gobain is doing the same in india. Gujarat Borosil was only Indian company to do the same and it has got all the necessary European certifications for export. Gujarat Borosil manufactures low iron glass all the way from making glass from silica and then curing the iron impurities.

So far it is supplying the glass to Indian cell manufactures (with only 1000 MW capacity!!!) which are just working at only 30-40% capacity (only 300 MW). It is also exporting some of its production.

I am putting by faith on Gujarat Borosil due to some reasons. Like, Some Chinese companies will surely look to shift some of their manufacturing base to india in order to stave off the high import duties imposed on Chinese solar products by USA and European union. By sourcing solar panels from india, Chinese manufacturers can become more competitive in the U.S. and the E.U. The move could lower the duties and related trade-restrictions that they face on its cells and modules that are currently manufactured in China. Earlier this year, the U.S. International Trade Commission approved the imposition of final duties on Chinese and Taiwanese photovoltaic imports, anti-dumping duty of 30%40 and a countervailing duty of 50-60%.

Infact , One Chinese company Trina solar has big plans to invest $500 Million india for creating 2 GW solar manufacturing capacity. Apart from avoiding USA trade restrictions, It can take advantage of low labour cost of india. The hourly labor cost in India for manufacturing averages $0.92, compared with $3.52 in China, according to Boston Consulting Group. Although I think they will only create Cell and Module capacity in india, but Gujarat Borosil can take advantage of this. Due to its integrated production capabilities, it can compete. Actually Glass is a heavy product, it comprises a low value part of a solar panel, but it comprises of 60% of weight of a solar panel. So it is very costly to transport glass to long distances…so I am very doubtful that any company can cater to global markets from a single source. Glass market will be regional. Gujarat and Rajasthan Governments are supporting solar power big time, so Gujarat Borosil will surely capture the major part of this market.

Also, at present indian solar power producers are importing Thin Film solar panels, which use glass as base, hence these can't be imported without glass. but when indian producer will focus more on Crystalline solar panels due to their benefits and life cycle cost advantages, then it will be best for them to import them without glass to reap the benefits of low transportation costs and then encapsulating the panel in Glass in India. This game can be played also by foreign supplier who can create Glass assembling facilities in india to compete with others. There can be another face of this game like any big indian solar panel producer can do the same by importing solar cells and supplying them to solar power producers in india after adding Glass onto them. But it is best if Glass is applied here in India...it will surely save big costs along with breakage during transit.

I am sure Indian Government will make supporting policies for local industry but only when it will be big enough. We will surely see big investments in solar panel manufacturing in india.

I  think Gujarat Borosil is doing right by waiting at the corner. It can enhance its production capability any time when scenario will turn favorable. Its low debt will enable to take debt for any such capacity enhancement. It is recognized globally due to high quality of its products. 

(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)

TVS Electronics Ltd

Made a small entry in TVS Electronics Ltd around 43.50. i remember when i picked Gati/TCI and other logistic companies 2 years back focusing on coming demand from E-commerce sector when nobody was aware of it. It worked great and all of these turned multibaggers. stock market is all about seeing in the future; that too ahead of others.

Now I am focusing on outsourcing of warranty and after sales services sector. There are crores of Laptops and smart phones in india and number is rising fast. Companies need to invest big in setting dedicated Warranty services units. But they can save huge money by outsourcing these services to third party service providers like Logistics. So I feel this can be a big business in india.

 I bought smartlink sometimes back around 50 on the same theme although it has a great name in networking solutions and other IT hardware products.It is now around 94/- and  with one good quarter can touch 150 as it is having 113/- cash per share in its books as a result of sale of its Digilink brand few years back. It is investing big in setting up distribution channels for its IT and networking products under the brand names of Digisol, Digilite and Warranty service business under Digicare.

Now I find another one..TVS electronics Ltd which is a leader in Dot Matrix printers in india the demand for which is on a decline. So it has set its eye on retail sector and established a great brand in Point of sale devices like cash registers, Scanners, POS terminals, displays and POS systems etc with the brand name INDIPos. One can see these in all retail chains across india and demand of these will only rise with the growth in organized retail. Even small stores are investing in these due to huge savings in time and ease.

TVS-E has a great name in warranty services business in india and it is the authorized partner in india with Xiaomi. This is the business which along with retail POS products will change the fortune of this company.

It achieved turnover of 270 cr in 2014-15, however raw material costs are good at 102 cr which means it is manufacturing significant amount of products in its own units. Interest cost at 7 cr for a debt of around 57 cr is high but with proper planning this can be taken care of as it is working capital debt. Inventory, debtors all looks under control. Profit margins are not that great because of scale of operation and high interest costs which is eating away 90% of operating profits. But all these constraints represent prospects for high growth. I did not get much time for further study into its products and financials…will post second post on it with greater details.

I strongly feel that this sector will see huge growth. But invest with caution as it should be treated as risky although it is from the house of TVS. I always prefer risky stocks from good promoters like we did for NIIT. It is already trading near 50/- after we picked it up at 37/- as market is realizing the strength of its focus on changing its business model with more focus on corporate learning and skill development.

CMP is around 44/-

(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)

Bajaj Electricals Ltd: It is Light

For earlier post on Bajaj Electricals ltd Click here

As expected, Bajaj electrical has delivered great results in Mar-15 Quarter. Turnover at 1311 cr from 1271, almost same but NP at 47 cr from loss of 11 cr. I always prefer to use operating profits to make something out of a statement as it evens out the impact of debt and differential tax rates. Here its operating profit is at 70 cr from loss of 78 lac with its engg division has posted 20 cr operating profit from loss of 20 cr…big turnaround. I was putting my money on that….and it has done just that.

Now let’s view its return on capital employed. It has deployed a capital of 120 cr in Lighting and Consumer Durables division and operating profit of both is 165 cr…so an operating ratio of around 140% !!!

We take proportionate interest cost of 15 cr and tax rate of 30% and net profit now is at 115 cr….so return on capital employed is actually around 100%....just awesome. And it is not just an aberration but it is around this regularly. As I have explained earlier, it is because Bajaj has outsourced almost all of the production to third parties. It is just what Apple does…only designing and conceptualization is done by Apple in USA, the whole production is done in China…but maximum value is derived by Apple for conceptualization , designing and Marketing. If I am right, out of $150, china only accounts for $7 but does the maximum production.

Welcome to the new age of manufacturing where branding and designing are the biggest contributories to profits than manufacturing alone. This is “Production”. India too is realizing the difference between “Made In India” and “Make in India”. Indians are traditionally better than Chinese in branding and marketing. In China, a number of manufacturers go on producing the same products and you just can’t differentiate the producer as branding is at minimum. And Branding is a costly cost component.

Back to Bajaj, Indian Government is going to start bidding for its 100 smart cities. Bajaj is surely going to win huge orders. Bajaj Electricals has partnered with Cisco to jointly bid and participate to develop, deploy and promote smart street-lighting solutions. Cisco will manage the software applications and networking aspects such as routers and wireless applications while Bajaj Electricals will focus on advanced LED technology to install and service the street-lights.

Few years back, it implemented “Theory of Constraints” program to put its supply chain, inventory and distribution on track to minimize the blockage of resources and to channelize the flow of resources to eliminate the internal and external constraints to growth. This is yielding results as inventory levels are not high given its outsourced business model.

Last year its inventory was at 447 cr and turnover was 4000 cr. But consumer goods turnover was around 3000 cr. Finished goods inventory was at 390 cr. So just 13%...which is very good for an outsourced company like Bajaj. Recently, there has been much emphasis on supply chain and inventory control in india. As these can make or break a business like in retail excess inventories in one financial year can turn into obsolete stock in next financial year and can create havoc. So model is changing fast, with distributors leaving their old school intelligence of forecasting the demand and supply and then arranging the supply chain. Often company marketing team is seen dumping stocks to distributors for meeting sales targets. All this is horribly inefficient and a waste of costly resources.

Distribution channel should not be a costly factor in the whole process from production to consumption. If it is; then it will only lead to wastages of resources just like we see in our horrible agriculture distribution system in india which wastes 30% of the produce. Distribution is not just about transporting, storing and supplying; it is pure planning about how much to store. Distribution system’s role is to add value into the whole process and it will be adding value only when it is precise in knowing the quantity of stock required and at which interval. And for this, it should have the needle like accuracy levels.

If it acts like this, then it can save huge resources of the organization in the form of reduction in inventory, stucking of stock with distributors and retailers, obsolete stock, reduction in transportation cost etc.

Now a day’s companies are resorting to collection of daily sales data from distributors in order to make the whole supply chain real time and with this they can pick which product is not functioning up to the mark. With conventional system, often a non performing product is labeled as a failure on the part of distributor with no effort is being made to know the deficiencies of the product.

Bajaj Electricals was recommended around 220/- it touched 300/- after the results and now it is trading around 275/- It is still a great buy.

Regards

(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)

Indian Hume pipe Company Ltd and Monte Carlo Fashions Ltd.

Recently bought these two stocks. Full study is under progress, so just giving brief introduction on the business model of these two. These can be bought at current levels.

Indian Hume Pipe Company: Water is the next oil. World over, water levels and resources are depleting fast. In india, situation is worse. Over last 5 decades, per capita water availability has fallen 60%. Around 60% of agriculture land is rain irrigated; which is very risky and cause of low yield per acre. But even with 40% ground and surface irrigated land, still ground water levels are depleting fast. Around 90% water is left untreated which is the main cause of pollution of rivers. Water is not recycled at all. So this problem, if not treated in time, will become a time bomb.

So water related companies are natural candidates for investments. Big houses like Goldman sach, Morgen Stanley, Citigroup are buying big time water related companies, which are active in water treatment, recycle, Filter technologies, supply and infrastructure etc. we should not miss this.  I am having Va Tech wabag , invested at around 250 (Recommended at this blog also), Forbes Gokak (Eureka Forbes), IL &FS Engineering in water related portfolio. 

We have found another Gem; Indian Hume Pipe Company.People take it as another piping company...but piping is just 70 cr out of total turnover of 1000 cr...rest is pure water services related business.

It is around 90 years old company (1926) , given dividends for all these years except for 7 years, out of these seven, four were initial years.

It has got land parcels across india costing only lacs in balance sheet, but they are valued around 1000 cr which is more than it current market cap of 700 cr. very low debt, high cash. Order book is around 2700 cr. It has serious plans to monetize the land parcels. Recently it has entered into an MOU with M/s Sobha developers for developing its land parcel of around 27000 sq meters (around 2,96,000 sq feet as per land laws can be developed for residential purposes)in badarpur, New Delhi. Indian hume will get 48.50% of the revenue, while sobha will get 51.50%. Development and other project related costs will be borne by Sobha.

It is one of the very few Indian infrastructure related companies with low debt and have good amount of profits. It has earned a NP of 40 cr on a turnover of 1000 cr this year. Its debt is at 297 Cr. The only negative is high interest cost of 48 cr on this. But out of 297 cr, only 20 cr is for Long term, 277 cr is for short term working capital, which is adequately safeguarded by inventory and debtors.

So we hope that it will wipe out the debt with a single deal of land sale, which will significantly add to the NP. We entered at 290/- Current price is around 305/-

(Update Dec-2016: It has declared a bonus of 1:1, so adjusted recommended price after bonus is 152).

Monte carlo Fashions Ltd: its IPO was at 645/- , but then it slid to 450 and now at 540/- It is a brand known to all Punjabi's as we just love to wear its woolen clothes which are of great quality.

But It was looking good in every department. Like, It is excellent in Inventory management. Inventory is at 140 cr with turnover of around 600 cr, so around 20%. Our great giant, Page industries’s (Jockey) turnover was at 1200 cr in 2014 with inventory of 360 cr, which is around 30%. Monte is doing it because of full utilization of its production capabilities. Few days back one of my friend asked me that Monte never gave huge discounts even during off season sales. They usually give discounts in the range of 20% which is not big. Well, this excellent inventory management is the reason that it doesn’t have to dispose off excess inventory at discount. Its creditors and debtors are 84 cr and 90 cr, which is also good. Cash in the books at the end of 2015 is around 140 cr while market cap is around 1200 cr. Debt is manageable at 90 cr.

So in spite of looking great, I wasn’t buying it mainly because of one reason; in spite of good cash and profits, company has not declared dividend after Dec-14 results. But it did just that after Mar-15 results in June and declared Rs. 10/- as dividend which is around 37% of EPS of 27 of 2015. This is a very good sign.

It is investing big for summer collection business also which will even out its dependence on winter clothing. I am still to study it but it is just looking too good in some metrics like cash, debt and inventory management…because almost all of Indian retailers are too bad in all of these.

Current market price is 535/-

Regards

(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)

Jubilant Industries Ltd: It is Fevicol vs Jivanjor

I entered in Jubilant Industries at 84 in Apr-15. But as I was busy in annual account closing and audits, so I could not post the analysis in this blog and it just went above the roof and touched 170 in just one month. But after the recent fall in the market, Currently it is trading at 140/- I feel this is also a good entry price.

 This belongs to Jubilant bhartiya group…other companies related to the group are Jubilant foods and Jubilant Life sciences. It was under my watch for the last 3-4 years. It was a good profit making company but the problem started when it entered into retail sector with retail chain in Bangalore with the name of Hypermarket. It is posting losses since 2012 only due to the losses in retail business. Their other businesses are good and profitable. I was waiting for the moment when the company would do something for its retail division. Recently it has done a deal with Aditya Birla retail to sell its four hypermarket stores in Bangalore via slump sale for an undisclosed amount.

I think this deal will mark the return of the profitability and growth in its other businesses.
Apart from retail, it deals in Agri products like fertilizers, crop growth regulators and crop protection. It is one of the largest manufacturer of Super single phosphate fertilizer in india. For more details on fertilizers and SSP, kindly check my study on Coromandel in this blog. Its SSP fertilizer product brand Ramban is widely respected by the farmer community.

In food polymers business, Jubilant is one of the three major global suppliers of Solid Poly Vinyl Acetate (SPVA). Solid PVA is the major raw material for making gum base for Chewing Gum and bubble gum. Jubilant boasts of a customer profile which includes the market leaders worldwide, in the chewing gum industry. Some of these are - The WM Wrigley Jr. Company, Cadbury (The Kraft foods Company) & Perfetti Van Melle Company.

The Consumer Products business is focused on providing customers with a complete range of woodworking solutions ie adhesives & wood finishes, footwear adhesives and epoxy sealants under the Brand name of ‘JIVANJOR’. This is the business which I feel can be the game changer for the company.

Jivanjor is the second largest brand in the wood adhesive and finishing sector after Fevicol. But Fevicol is way ahead in terms of brand recognition and market share. Fevicol controls around 80-90% market share in wood adhesive sector in india. But Jivanjor is growing fast and doing some right things to gain the market share. Just recently I visited my home town Bhatinda in Punjab;  Jivanjor was visible in all the market at par with fevicol. Distributors and retailers are promoting it because of higher margin offered by it than Fevicol because product and quality wise it is no less than Fevicol. Carpenters are offering this to their clients because of commission offered to them by retailers as they can still earn good margin even after giving 5% to carpenters. Even we have used this in our house and it is just as good as Fevicol.

After the deal with Aditya group, Jubilant will be almost debt free and it can spend the money on brand promotion of Jivanjor, which is not visible in mainstream advertising world. It can plan better marketing strategy with additional funds.

Jubilant is having a turnover of around 850 crore. Agri products delivers 170 cr, Performance polymers (Mainly Gum and Jivanjor) 354 cr, Retail 335 cr. Operating profits are 4 cr, 23 cr and    loss of 70 cr respectively. As we can see, the losses are mainly from retail division. If we keep it out, then operating profits for Agri and Performance polymers business will be around 30 cr. Taking a tax rate of 30%, the net profit will be around 20 cr. Although due to accumulated losses of past years, it won’t have to pay any tax for many years in the future, but we are trying to be more conservative. If we assign this 20 cr a PE ratio of minimum 15 because of growing market share of Jivanjor (Pidilite has a PE ratio of 55), then its market value is coming around 300 cr. Although with better product mix and lean balance sheet, it will surely achieve greater turnover and profits. At 30 cr profits and PE of 15, Market value is around 450 cr…you take into account growth factor and NP is around 40 cr and it will become 600 cr. At current market price of 140, the market cap is 167 cr. The scope for increase in the market price is quite visible here.

It is having 300 cr debt in its books. Capital employed in Retail sector is around 160 cr. I believe it will be able to wipe out most of it after the sale. I do not have the data regarding the owned stores and leased stores for its retail divison.

Its agri divison will see better days after the current lull in Indian fertilizer sector is ended. India is heavily dependent on import of pulses due to inadequate production of these in the country as our farmers are busy in producing Wheat and rice only to let these rotten in the dirty warehouses of government agencies. The country annually imports about 30-35 lakh tonnes of pulses for around 15000 crores. India is the biggest producer of pulses in the world at 19 million tonne and their biggest importer. same is the situation for refined oil. SSP is a better option for growing pulses and oilseeds. 

Jubilant ranks No. 1 in India and is No. 2 globally, for manufacturing VP Latex used in dipping of automobile tyre cord and conveyor belt fabric. The Company also produces SBR Latex used in tyre cord fabric. The Company is bulk supplier of these lattices to global automobile tyre manufactures and dippers. The Company is also engaged in manufacturing of Indian Made Foreign Liquor (IMFL) products for the various established brands in India, engaged in liquor business. The capacity is 100,000 cases/month for IMFL. The specific details of these businesses are not available, but latex seems to be one with good volume and better future .

Good buy at current market price and 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)

Tata Communications Ltd, NIIT Ltd and Biocon Ltd

Entered in these stocks some times back. in fact i am holding Biocon for a long time at avg of 250/- I'll post detailed study after some time. Now just posting some introduction for these to have basic idea.

Tata Communications: Entered around 400/- . It is the company which provides the data services to internet service providers, voice services to our telecom giants. Contrary to the belief our telecom and internet services are not at all wireless. In fact they are wired…our internet data travels across the globe via huge optical cable network in the seas. Same is true for telecom voice services. Wireless is only from mobile device to mobile tower.

Our telecom giants are not having installed these optical fiber cables across the globe under seas and under land in india, they buy these slots from companies like Tata communications which is having around 210000 KM optical fibre submarine network under sea and operating in around 240 countries across the world. Global submarine cable network is around 12 lac KM. Around half of this network was laid in the dotcom period of 1999-2002, thinking that world would need these for providing services like movie on demand which never materialized at that time. And because of that wholesale prices for data and voice is falling for years. Oversupply has meant prices of bandwidth saw a steep fall - in 2010 they were 20% of what they were in 2003.

But now the emergence of smartphone and huge need of data services for internet and live streaming of videos and movies, most importantly cloud computing which requires huge data capacities are now creating the need and demand for optical fiber network and driving the wholesale data prices.

But this game of fiber network is much more complex. There is excess capacity of fiber network across the globe. But the traffic moves only within the lines, it just can't break this line. For an email to go from Australia to India, it is often first routed to California, and then back across the Pacific to India. There are many cities in Asia which are only linked to each other through the US because of a lack of direct cable links. The US still acts as a major clearing house for internet communications - though that importance will decline as investments in new cable routes are made. But there's also an incentive to build more cable on routes already well served by existing systems.

a couple of years ago , a ship's anchor dragged on a cable and severed it, leaving many in West Asia with weak or no internet connectivity. Indeed, such accidental cable breaks happen quite often. A new cable, between two regions but along a different route, isn't just a luxury, but a necessity. Bandwidth wholesalers like Airtel see the ability to offer customers capacity on multiple routes between key destinations as a competitive advantage. If one route gets taken out, traffic can be switched to an alternative route.

Tata communications’ optical network carries around 10% of the global internet traffic and 19% of the voice traffic. It carries 25% share of indian data traffic.

With voice business loosing stream it is betting big on data business which is going to see huge demand in the future. It is to reap the benefits of broadband storm in india and setting up of 100 smart cities

Tata communications is now focusing on new age business which uses the synergy from its data network like streaming of media content, payment solutions through management of white and brown ATM's across the country, data center services, cloud computing with partnership with global behemoth like Google.

I feel the worst is behind the company and it is having unmatched technical capabilities in this field.

It is in the final stages for selling its stake in its African business Neotel to Vodafone for around 4000 cr, which will reduce its high debt. Need to study the full news.

NIIT Ltd: Entered in NIIT at 39. It is at 650 cr market cap. It is holding 25% of NIIT Technologies which works out at 575 cr and at 30% discount it is at 400 cr. there is around 100 cr cash in the books apart from valuable land...it makes up about 500 cr,which leaves just 150 cr for a business having a turnover of 1200 cr, strong brand name NIIT.

I think brand of NIIT will be around 1000 cr itself. NIIT is one of the best education stock in the market apart from Zee Learn...it is changing its business model to offer more productive courses like E commerce and Finance. 

NIIT is an old horse...they know the running. NIIT is moving into corporate training and more value added contemporary courses on e commerce and finance. Many times it is good to buy a stock guessing the next move of promoters like recently i did for Future retail (that they will either list their logistics arm or do some change in their business model; they did the merger with bharti). in the same way i am taking my call on the promoters of NIIT..they have the brand power, 30 years of history and experience, no debt....so they can change their course of action into something more comprehensive in education sector in the future.

Like the main reason behind the IT coaching falling down was the starting of the same in the schools and colleges, so sensing the opportunity NIIT has entered into school training, teacher training etc. I think earlier we were getting anything in the name of IT coaching, our standards were very poor...our software engineers were just doing coding (writing millions of lines of a program designed and conceptualized in some USA, we are still doing the same). This is the reason; we have not created anything like Oracle, Java, Windows. our infosys and TCS are just low cost contractors. i think it is all about education.

So i am betting my money on this quality education part.

Biocon: Biocon is one of the best research based pharma company. I am a huge fan of  its owner Kiran mazumdar shaw, who started the business with 10000/- in 1978 after banks declined to give her loan because she was a girl. i adore some indian promoters like PRS Oberoi of EIH, Vikas oberoi of Oberoi realty and kiran M shaw of biocon for their business acumen, fairness and passion. She doesn't like the idea of taking debt for acquisition. Biocon was a debt free company, only recently it took a loan, perhaps for its Malaysia plant for making insulin for catering to global market as its present capacity in india is fully utilized.

Biocon is investing around 7-8% of its biotech turnover on R&D which is equal to global MNC as compared to indian standard of just 1%. Biocon has been betting big on oral insulin and it is into 3rd phase trial...if it is a success you can sense the scale it can generate. It is also into final stages of developing the drug for cancer.

It has launched many innovative drugs with its own research. Now it is focusing big on Biosimilars which is a huge business opportunity because patents of many biologics are going to expire upto 2020. Biosimilars are generic version of biologic medicine. Generic drugs are generic version of chemical drugs.

Making of curd and making of liquor is the best examples of workings of biotechnology, when enzymes convert one material into a complete new material. Biotechnology is changing our medicine world with its innovative and side effects free biologics.

Biocon is one research arm Synegene which provides research outsourcing facilities to global clients. Biocon is going to list it in the market around jul-15, it comprises 25% of profit but its valuation last year was 4000 cr (biocon market cap is 9000), so if syngene gets a valuation of 5000 cr then we are getting Biocon at just 4000 cr. CMP around 440.

(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)