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)

Companies at Crossroads: Tube Investments of india ltd, Jagran Prakshan Ltd, EID Parry Ltd, Hinduja Ventures ltd, VIP Industries Ltd, Future consumer enterprise Ltd

Off late I am planning to post a study on some companies who are at a crucial juncture in their lifeline; one right step and they will belong to another league. But I am not being able to post the study as i am very busy these days due to shifting to Nagpur. But in just a week Future Consumer Enterprise has been zoomed from 14 to 20. I have been sharing my views about this via personal emails to some readers of this blog but couldn’t post a study on this. So I am writing this post on some of these stocks which really can become a big force in the future…due to time constraint I am just writing small snapshots of the details about them. I will post the full study in the future.

Tube Investment of india: This is the maker of BSA, Montra and Hercules bicycle brands in india apart from distributing foreign luxury bicycle brands in india. It is getting around 1200 cr from bicycle sales and is profitable. I think cycle will see a big transformation in the near future from being a transportation vehicle to sports and leisure equipment. ROE of cycle division is around 60% which is great. Apart from it, it is a market leader in auto ancillary products like precision tubes, door frame and chains with turnover of around 2500 cr. It is also holding company of Cholamandalam finance and investment (50.45% stake and listed) and Cholamandalam MS general insurance ( around 70% and unlisted). Total valuation of these two is much bigger than given by the market. Few days back Gurgaon tried car free day and response was good as most used bicycle. It just need one Salman Khan to promote and and we will see this bicycle maker turning into a rocket. I have invested around 400/- CMP is 413/-

Jagran Prakashan: newspaper will not become a news of the past. I do not think that they will ever die. Online newspapers are no doubt growing but still no comparison with a morning tea with fresh newspaper. They are very important for getting regional and local news and advertisements. Print advertisements are most peaceful, they do not interfere…they just sit quietly…but they are very effective if planned in a creative way. TV ads are an interruptive phenomenon, they are attacking, forced on us…we never like them but they work on the notion of familiarness;   we have seen something so we feel attached to it and will prefer it if given an option. But most of the time, for most of the brands and products TV ads are not suitable…they are just huge wastage of money.

Jagran has a very interesting brand activation division which promotes brands in a very creative and interactive way with consumers. It is also having Out of the Home advertisement unit. I like these very much but very sad to hear that management is planning to sell these as these are not as profitable. Although I feel that management should focus more on it as very soon we will see marketing managers of a new brand will understand the weakness of TV ads and look out for something more engaging and unique.

Apart from hindi newspaper, it is also having an English paper, Mid Day media,  which is very popular in Mumbai and Gujarat. However most interesting is its Radio business for which it is investing very big. Highly profitable group and dividend is also good. My investment at 135/- CMP 145.

EID Parry: Sugar company but with great visionary management. I am a fan of them just because of their deep understanding of creating value for the company by making their suppliers more valuable. Poor farmers are their suppliers but this company cares for them like a mother. In 2011 cyclone Thane hit their factory and sugar farms in tamil nadu and badly damaged the factory and crop. Farmers were fearing for the unknown but the management took a great step and bought the damaged crop at full price and incurred loss of around 4.5 cr. But those farmers are now their biggest friend. Company provides loans to them for everything by giving guarantees to banks, guides farmers with everything.

EID is the first asian sugar company to get the certificate from Bonsucro, a global multi-stakeholder organisation for sustainable sugar growth.The farmers, who serve EID Parry’s 4,500 TCD sugar plant at Pugalur in Tamil Nadu, have undergone 53 different  tests over the last 3 years to see that they not only achieved 10-20% more sugarcane yield per acre but also saved power and water substantially through drip irrigation.

But most importantly, they have launched a branded sugar “Amrit” which is made 100% from cane with preserving all the natural minerals (potassium, calcium, magnesium, phosphorous and iron), the sugar retains the original brown colour. Normal sugar gets its white colour due to refining process. The product would be initially launched in Chennai and Bengaluru in the initial stage and would look at launching across South India by January, 2016. The initial product is a 500 gram, at a maximum retail price of Rs 30 per pack. 

We have seen branded salt (tata chemicals), Flour (Aashirwad, ITC), Dal (I-shakti, tata chemicals)…but so far nobody has tried sugar but I was waiting for the one. EID is the parent of Coromandel international (62% share) and receives heavy dividends from it, around 60-70 cr (need to check). I think as there is no shortage of funds to the group, so they can spend big on the brand promotion of Amrit sugar and it really can become a big success. CMP is 163/- around its multiyear lows.

Hinduja Ventures ltd: 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, hardware limitations, 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.

It is also having a treasury arm which earns big from investing, trading; it holds around 3.5% in indusind bank and around 5 acre in prime location in Bengaluru which is being developed by the group company. My average is around 320 as I am holding it for long and buying currently around 390. Dividend is 15/- per share! CMP is 396.

VIP Industries:  I like this stock for long. Radhika Piramal, the daughter of Dilip Piramal (promoter) is doing some really good things to VIP. I am a big supporter of doing innovative things for branding of a good high quality product. Radhika brought Alia bhatt for Caprese, which i think will be a great product. I have seen girls here in india wearing very expensive jewelry and apparel but holding very cheap hand bag as they have not still covered the hand bag in their style quotient while in western countries it is one of the sought after style.

In fact we only follow them in hand bag styles.But time is changing fast here in indi also and costly hand bags are becoming a regular. Caprese deals in mid and high range. 

Radhika has also brought back Skybags brand of luggages which are trendy, colorful by endorsing Dhawan as the face. Introduction of Alia and Dhawan is a master step as people were taking VIP as old age thing. But Alia/Dhawan are the faces of young stylish india.

VIP has started their manufacturing facility in Bangladesh in place of imports from china, which will aid into margins...more on this later. CMP is 84/-

If anybody has money and looking for a good high quality stock...this is just the place to unpack your luggage.

Future Consumer Enterprise: I have been positive on Future group companies for a long time. I think Biyani will create his real magic this time as now he understands the nitty gritty of retail and FMCG branding. FCEL has invested big in creating big fmcg product manufacturing. It has started a 110 acre food parks in Telangana. It can sell all these FMCG products in its own and other group retail chains along with other reputed brands at lower rates. My average cost is just 9 as I am accumulating it from 5 to 14 in Aug-15. It is now around 19 and it is not cheap as its market value is above 3000 cr on a sale of around 1500 cr. But scope of growth is still huge and now with Baba Ramdev with it, both can together create big brands in Indian FMCG sector due to high technological capacity of FCEL in its food park. Buy at every fall, CMP is 19.65/-

(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)

Query on Pioneer Embroideries Ltd

Our friends Sanjeev and Darshan have posted queries about Pioneer Embroideries Ltd. Earlier also I am getting queries on this. So let' have a small look.

Que: Can you share your thoughts on pioneer embrioderies,godavari drugs and bambino agro. These are in my list of less than 100cr mcap and some risk.
Also would like to know about investing in GATI at current market price after correction in logistics space.

 I am not tracking these. Gati, picked at 30 and already sold around 150 as i was not comfortable with valuations, these low entry barrier firms were getting. For logistic play i am investing heavily in concor, balmer, Redington, Future retail, gateway etc as these are true logistic players with all round and complex logistics solutions like ports, warehousing, ICD, containers etc. But i am holding these from very lower levels although i am adding these at current market prices also but my avg cost is still very low as compared to CMP. So i am neutral on Gati. Trucks and stores are not high tech logistics; anybody can enter in it.

Pioneer, well, I have never studied it either but just now made a 10-15 minute round. Textile is a very difficult business in india as we are near China and Bangladesh. Garden silk is dead for a long time. Even classic Raymond is struggling for a long time. It is still looking for a COMPLETE business model. There are hundreds of sarees brands in india. Fashion retail is most difficult business in india just like running an airline and you will be surprised that the reason is not linked much to demand and products but too high real estate prices and lease rentals.

Ask any girl about Hakoba and most may not be knowing it or you can’t differentiate it from the other hundred generic saree and fashion brands. Raymond will one day be complete because it has great technology and gigantic brand name. even still, it is burdened with losses in retail business. You can count very few branded success in india in retail. I also think the reason for this is unreasonable high investments in fashion business in india. You can see hundreds of branded apparel show rooms in every city because people think it is an easy business. So the total possible business is divided among too many players and so everybody is in loss. Few players will make it profitable and demand for real estate will also fall.

On total assets of around 200 cr turnover is very low at 270 cr. But its turnover is rising continuously for last 10 years so I wonder what was the need for making huge capacity expansions when much of it was and is still unused. From 2007 to 2010, it borrowed around 160 cr but added only 80 cr of assets and then it went to CDR cell?? Its turnover has increased to 265 cr from 100 cr in last 10 years but its inventory and debtors are always in the range of 35-45-50 cr!!! It has never earned good high margins even when it was in its so called good times. Just see the margins of good medium level brands like Kewal kiran.

There is also some strange advances, one 9.75 cr to a BIFR company Arcot textile and now they are trying to get it back as the same is not getting itself out of BIFR (recieved so far 1.3 cr ); 6.5 cr for some properties which are not taking place ; so they are trying to get these back and hence they are considered good!!!

Some useless investments in dubious companies like padmini tech which are not getting listed and hence these are written off, amount involved is small, around 18 lac..but what is happening here?? They are in difficult times and yet these unrelated and useless advances and investments!!!

It is in very difficult business with large unorganized players having same products with matching quality. It is too risky for me. Although I am having Titan Biotech which belongs to same high risk category. But Titan has some unique products with medium to high entry barriers, good clean balance sheet and it is paying dividends remarkably regularly. 

I do not want to devote any further time to Pioneer. I cannot claim that with these 10-15 minutes I have covered everything. There may be something which I may be missing but I do not like its products, very small scale of operations in a commodity type business.I normally stay away from these types of risky stocks. We have taken risks with stocks like SKM, Avanti, MPS, NIIT, Jubilant industries, Eveready, Venky's etc. But one can see the difference, all these stocks are dealing in niche business areas with some having great brand power like NIIT and Eveready. These are risky stocks where risk is only about future performance; all other things are nicely at their place.

I think we can better go for Raymond as apart from branded textiles business it is also having park avenue FMCG brand and huge land bank.

(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)

E-commerce Startups Faltering in India Now

In my earlier posts on E-commerce valuation Click here and here, I have explained the power of network effect enjoyed by e-commerce companies and the threats to these. As I have mentioned that from the current flood of e-commerce startups in india, very few will survive because most of the times these startups are not adding any value to the service they are offering. Most of the times they are just an ordering platform; one can use them to order something. There is not any differentiation, no value addition.

I have explained earlier also that a business must add some value to a product or a service if it wants to be relevant. Only then it can squeeze some profits on its own. Substitution effect is not always that strong. We are seeing a flood of online startups, better to say them ordering startups like grocery, food delivery, hotel room, restaurant reservation etc. But whether just processing orders is enough to attract crores of venture capital and mostly this free venture capital is burnt on delivering the order as delivery is free. I mean it is ridiculous, you have a business plan like to deliver grocery at people homes and common sense says that people would not mind paying a fee for savings in time, uneasiness and fuel costs, but you are offering this as free just to be competitive. But people will take it as a right.

I mean, if you want to give free it is ok as you are dealing with two parties; suppliers and consumers, but in this two tier platform model, one can only afford to subsidize only one party. You need to have a viable business model. It must be something valuable especially if it is a service. Delivery is too common and very low entry barrier business; you can’t rest assured that by offering free you can hammer your competition. The moment you will try to monetize your platform, others will jump into the race. Kishore Biyani and Reliance is doing the same by waiting on the sidelines of online retail. When Amazon and likes of Flipkarts will try to monetize their services, they will jump in with much better products and logistics.

I am always in a hurry, so I am ordering most of my things over phone only. I normally calls the shop keeper to pack the chicken etc as it can save my time. Then I go to shop and pick everything…I can pay him some money if he can deliver the same at my house. In fact we are paying our Gas cylinder wala for a long time for delivering gas cylinders at our home…so what’s the big deal in it. Local Kirana wala is doing the same for long that too at free of cost.

You wonder how our Kirana wala is doing the same for free always, because he is not subsidizing the both platforms. He is earning money from the “Sale” of kirana items so in order to earn more money from more customers he can afford to offer free.

Our Zomato can also do the same since it has multiple revenue streams; so it can switch to subsidize anyone. Its strength is unique set of huge data and already a large base. Domino’s is getting its 40% business from online and it is doing it for long; delivery is free because it is “earning” from the sale of pizza itself. So by offering free delivery, they are just adding the “value” to its product and they will get their reward in the form of increased sale because last time when I was in Nagpur, I ordered from Domino’s only because of free home delivery otherwise I would not have gone to eat/get pizza at their place. This is Value addition.

Why I am writing all this? Actually just last day I saw some news regarding troubles faced by food delivery startups like Localbanya and these at once reminded me all this. I am just pasting the small bits from the news. Just for sharing.

Source: Economic Times Dtd 09^th Oct 2015:

Localbanya is ‘temporarily’ out of business 

Online grocery startup Localbanya has temporarily halted operations, citing the upgradation of its back end. "We are temporarily suspending services due to maintenance and upgrade purposes," the company said on its website. "No orders will be processed at this time." 

The company rejected speculation that it was strapped for cash and maintained that staff attrition was not unique to it.  Two suppliers of Localbanya said they had been told that there was a shortage of funds. 

"The company is also trying to change the model of sourcing merchandise from large retailers or cash-and-carry players to consumer goods companies directly," said another supplier.

Founders Mehrotra, Rashi Choudhary and Amit Naik have been seeking to raise $15-20 million for the past few months and had plans to raise another $35-40 million by the end of this fiscal. 

Industry executives said several Localbanya employees are looking for jobs with salaries not having been paid for the past two months. Nayan Choudhury is said to have quit as vice president, trading, commercial and operations. This could not be independently verified. 

"Localbanya has been faltering on deliveries in the past few weeks due to paucity of funds. The company is trying to revive with fresh funds," said an executive. The company's Facebook page had several consumer complaints posted recently about orders not delivered. 

Given the low margins in food and grocery retailing, online companies need a constant flow of funds. "Logistics and consumer promotion alone would account for 20 per cent of the total cost for the online grocers. With huge competition in online grocery retailing space, the companies should now look at how to make the business sustainable and generate profit," an industry official said. 

Source: Times of India Dtd 09^th Oct 2015:

Food delivery startups feel the heat

On Monday, when customers tried to access food delivery startup Dazo's app, they were greeted by a message from the company's co-founder and CEO, Shashaank Shekhar Singhal: "We are discontinuing Dazo's curated food ordering platform and thus won't be taking new orders. As a team, we've decided to move over this business and we'll be working on a new product."

This came as a surprise to many, particularly because the company was backed by bigwigs like Google India chief Ranjan Anandan, TaxiForSure co-founder Aprameya Radhakrishna, and former Freecharge chief executive Alok Goel.

But Dazo is not the only food delivery startup that has taken a hit in recent times. The space, which has seen a host of players enter in the past few years, is now witnessing plenty of casualties. SpoonJoy, Bengaluru-based online food service venture that raised $1 million in May, shut down its Delhi operations last week and has started scaling back their operations in Bengaluru. Delhi-based Langhar, an online platform selling home-cooked food, shut operations in February, just two years after it started. Chennai-based OrderSnack closed even before raising their first round of funding.

Investors say the food-tech space is a tricky business. K Ganesh, a promoter at Freshmenu, which delivers fresh food, said that the online food sector is mirroring the offline trend. "While the barriers are low, it is a tough business as people's opinions are whimsical. In food, people get bored easily even if it is good," he said. He added that the execution challenges are high in the business, and aggregator models will always struggle to make enough money.

DSG Consumer Partners, which has invested in ventures like Oyo Rooms, ZipDial and EazyDiner, says it does not invest in startups whose core model is delivery of food. "Very few teams we saw had the full set of skills we think it takes to succeed. Some had a good balance of tech and food but did not understand the details of food related licensing, safety, and traceability issues," said Deepak Shahdadpuri, MD and founder of DSG.

Startup analytics firm Tracxn finds that 31 food-tech startups have so far raised $161.5 million in investments this year, as compared to $66.8 million last year. However, the aggregate funding in both years was hugely influenced by restaurant listing and food delivery venture Zomato, which raised $60 million in 2014 and $110 million in 2015.


Gurgaon-based Bueno, an online food delivery startup offering global cuisines, says it will survive the race because it has a differentiated positioning in the market. Founder Rohan Arora said most food delivery startups do not factor in delivery charges into their business model. "If you're working on a Rs 100 price point for a meal, you have to also factor in Rs 50-60 delivery charges. But many startups don't do it in order to acquire customers," he said.

Shahdadpuri said only two categories of businesses will survive in the end. One, where the startups have a viable business model and understanding of all areas of the value chain. And second, where startups are lucky enough to be funded by VCs with very large pockets so that they are able to fine tune their model despite cash losses.

In this market fall, our E-commerce picks Info Edge and Network 18 are still doing good…they are still around the same levels. So I think we can add more.

(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)

Future Retail Ltd: New Deal with Baba Ramdev's Patanjali

For old postings about Future Retail Click Here and Here

Future retail has inked a deal with Baba Ramdev’s Patanjali for selling their products in the retail chains of entire Future group. Just pasting the news from Moneycontrol.com:

Kishore Biyani's Future Group is all set to announce a tie-up with Baba Ramdev’s Patanjali. The former will get exclusively right to see the latter’s products in Future outlets like Nilgiris, Food Bazaar, Food Hall and Big Bazaar. Fast moving consumer goods (FMCG) major Patanjali is no small fish in the market.

The company has surpassed listed companies like Proctor and Gamble, Emami  and Jyothy Labs  in terms of annual revenue. With revenue of Rs 2,500 crore, its valuation goes up to a whopping Rs 14,000 crore. Patanjali Group is targeting revenues of about Rs 5,000-10,000 crore in the next few years. It also plans to launch new products including instant noodles, malted food and oral care.

Sources say that Future Retail  is also eyeing close to Rs 1,500 crore revenue from this deal and is expected to expands its customer base by one crore people. One interesting fact about Patanjali is that though all its products have Baba Ramdev’s face on it, the yoga guru does not own any stake in the company.

Baba Ramdev is a prime example of direct/personal branding and I like the way he has created his empire from the scratch. He has interacted with people through his yoga and health awareness for a very long time and thus created a huge feel good factor in the public, people feel themselves attached to brand Ramdev…they take it as their brand because so many of them have directly communicated with the creator; Baba Ramdev.

So I think this deal is a big one for future group. Although my positivity for Future Retail comes from the fact that they have their own in house FMCG production capacity in the form of Future consumer and Future lifestyle fashions; Future retail can sell these products at par with other branded FMCG products in its retail chains with better margins. Also I am waiting for them to enter into online retail with full strength as this is the right time because people have accepted online retail in their routine life. I think we may get something from Biyani for online retail this festive season.

Most of us are having FRL from the levels of 85-90. So just continue to hold it. Fresh investments can be made at this level also but one has to keep enough cash ready for more buying at lower levels in case of any 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)