SKM Egg Products Export (India) Ltd- A Revisit

For earlier study, click  here

Quite a few queries are coming for SKM Egg as it has fallen to 90 levels from the high of 230. However i do not see anything wrong with SKM Egg except for the fact that it has started its fantastic journey from around 7 to 230 and actually this was the reason that i was telling everybody to refrain from buying it at higher prices unless it shows some marked improvement in its next leg of journey which is exploring new products and new markets for the existing and new products. It is coming into buy zone now and those who have entered at higher prices should continue to hold without any worry and can think of buying more at every fall from hereon.

I usually never buy a stock who has run up too much discounting every chance of growth in its high valuation and then if something does not happen as per valuation or expectation...you will see another Shreyas shipping.

I entered in Shreyas shipping at 20 as i wanted to buy something linked with coastal shipping which shreyas was but in one year it touched 700 when other bigger and high quality shipping stocks like GE Shipping was on anchor. Its valuation was way above fundamentals. I remember some of my friends wanted to buy it around 500 but i stopped them strongly and when it touched 700 they were very angry with me. But seeing its rich valuation, i sold it at 690 and it touched 840 after that but i was sure that it would fall due to poor fundamentals and management issues. Now after 2 quarters of ordinary show it is at 170 and no one is happier than my friends. I am investing in GE Shipping slowly now as i feel it is very cheap and it can show great performance with favorable policy making and if it decides to enter coastal and inland shipping in india.

But SKM Egg is no shreyas shipping. Its shells are getting thicker. Its turnover has touched 300 cr from 120 cr in 2012, net profit at 30 cr vs loss of 12 cr. Its debt stand around 30 cr vs 90 cr which is a great feat. Also like a high class management, they have started sharing dividends again, last year gave one rupee dividend (Which for me is 10% of my investment price of 10/-). As shared in my earlier posts and queries, the products of SKM are a class apart due to their unmatched quality and high technology which acts as a high entry barrier.

After showing a stellar feat it is on breather now. Its performance this year is not bad but market may be demanding much more due to high valuations at 200. It is now running cheap at a market valuation of 240 cr with PE ratio of 8-9. The reason for the not so fast growth may be its exposure to export markets which are fighting with their own problems. Another reason may be of the capacity constraint. If I can remember they were running close to their full capacity (90%) and they have plans for capacity expansion also. I have earlier also opined that they are at somewhat risk in global markets as they are riding on a turnover of  just 300 cr (Although I have no idea about the bigger player) so for them it is best to enter into indian market also which is way underpenetrated in processed egg products and scope is huge; as they are having very low debt so they can plan their next journey into india….and I am going to wait for that…till then I am happy with boiled eggs and generic omelets.

(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 stock discussed in this Post)

Quick Heal Technologies IPO: A Quick take

We always wonder that in spite of so much noise about our IT industry’s clout in placing india as global hub for IT solutions, none of our IT behemoths like Infosys, TCS or Wipro have ever developed a product like Windows, IOS, Oracle. These companies operates on cheap Labour to win business; term cheap labour because that is what most of our IT professionals are doing in the labs of these behemoths…they just type the codes of a program developed somewhere in USA which is as lengthy as millions of lines.

So I am never a big investor in indian IT companies as their model can be challenged any time by other emerging alternatives like china and in fact these companies have realized it some time back and now focusing for new growth avenues. Their margins are falling continuously. 

Part of the reason for not focusing on developing an innovative IT product can be indian business structure where very little equity money is available for investments in new innovative but risky products as compared to developed markets. But this can further be due to the perception about the ability of Indians to produce something unique. Some may say that now millions of dollars are being invested in ecommerce startups in india like Flipkart but there is nothing new on fact and that is why almost 99% will vanish. Most of these startups have stolen their ideas from advanced USA markets and they think that their success in USA means success in india too although we are a very different country.

Like delivery startups like Foodpanda and Localbanya; they are trying to sell us the convenience factor in delivery at home but we Indians have never cared about convenience. We are always about value for money. We are ordering on Foodpanda because it is now value for money as we are getting delivered free. So no wonder Foodpanda and Localbanya are now at the verge of closing.

But Quick heal is the answer for lack of product based companies in indian IT sector. KPIT is another one which I like. Quick Heal chose the difficult path of investing in developing a product rather than offering generic services and so now they are a brand in direct competition to MNC behemoths like AVG, Mcafee, Norton, Kaspersky and in fact they are giving these a run for their money because Quick Heal commands around 30% share of retail anti virus market in india.

As they were short of funds initially so they invested lesser in branding but in developing distribution channels across india by offering them high margins, so now they have one of the biggest distribution strength in india with around 12000 channel partners. 

Quick Heal is a 300 cr turnover company but it invests around 50 cr in R&D which is never seen in india. It is also spending around 30 cr in advertising these days. As it invests big in R&D now so its margins are falling for past few years and its NP is around 60 cr in 2015. It has grown from 170 cr to 300 cr in last 5 years which is not so fast and that is where I feel the chances of growth and reason for going for IPO is emerging.

I never invest in IPO’s as I always find them expensive. Quick heal is also expensive at a pe ratio of 40. Another thing that I look for in an IPO’s is the reason for the IPO, if  IPO proceeds are going to promoters as they are selling their stake, I take this as a big negative. But if promoters are not getting any money and in fact company is issuing new shares and the funds collected will be used for the growth of company, that is a very healthy sign of the inherent strength and growth prospects in the company.

In this IPO promoters are not getting anything only their equity investor sequoia is selling  part of their share and company will get around 250 cr for future growth. They have plan for using 111 cr for branding and 40 cr for R&D which are a big positive. Their work force is around 1500 out of which 550 is dedicated for R&D which is just great.

Quick Heal is very dominant in Home and small user segment of security but they are now focusing big on SME (small and medium enterprises) and large enterprises segment and also launched their solution “Seqrite” which can be a big surprise in the future so as their focus on cloud, Internet of things sector.

I am a bit late in posting on this as I have spent only a few hours on this. But I feel at 40 pe ratio this one is worth taking a risk as this is different from any other IT company we have seen so far and so should not be compared with them. They are offering this at 40 pe ratio may be because of no so fast growth in the recent years. Also for product based companies, PE is not the only metric to value them, turnover based valuation along with PE is the best as product based companies can quickly earn bigger percentage of their revenue as profits after they cross a critical scale. Quick Heal is investing big (around 20% of turnover) in R&D, the full benefits of which are yet to achieved; may be mainly due to lack of sales promotion and branding which it plans to invest in now. After it reaches a scale of 500-600 cr (of current products, not of any future products) we can see a big turnaround in profits.

Even if it falls after listing I would be willing to invest more into this.  I am a great believer in the strength of intellect and creativity of we Indians and have faith that we have all the muscles to compete at global scale in branded products. Digital india and growth of IT gadget are a big opportunity for security system business in india.

(Views are personal and should not be taken as a recommendation for buying or selling a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing. I am not a certified Sebi Analyst and holding the shares discussed in this Post)

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

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

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

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

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

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

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

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

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

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

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

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

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

CMP is 82. Just Freeze it.

(Views are personal and should not be taken as a recommendation for buying or selling a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing. I am not a certified Sebi Analyst and holding the shares discussed in this Post)