Linde India Ltd: Solid Gas!!!

 Linde India: It is a global Industrial, food freezing and healthcare Gas giant. It is already the biggest player in Air Separation units (ASU) for steel and oil & gas industry in India. Air separation plants are used in the process of separating atmospheric air from its basic components, which are primarily nitrogen and oxygen, along with argon and other rare gases. But ASU’s requires high technological expertise along with high initial investments. Linde India is getting its majority of revenues from ‘Onsite” business where it creates the Gas supply facilities at the place of customer and enters into long term gas supply agreements with the customer. It is a long term partner of Tata steel from the days of first steel unit at Jamshedpur. Other business vertical is packaged Gas business where it sells Gas products in packages. Healthcare Gas business is its fastest growing business vertical.

Benefits of recent big investments yet to come

Off late it has created 2 ASU at Tata steel’s new steel plant at Kalinganagar, Odisha. It is also commissioning the ASU units for Bosch and JSW steel. In last 2-3 years, Linde has invested around 2500 cr in India the benefit of which is yet to come. High depreciation and Interest charge is eating the NP but its top line is growing fast and  will see further high growth as both the ASU at Tata steel will run full stream. Its depreciation has been increased from 120 cr to 200 cr and interest charge from 40 cr to 120 cr in last 5 years. It has long term Gas supply contract with Tata steel which will provide the stability to future revenues. Its assets base is 3100 cr but its Market cap is just 3600 cr which shows the current under usage of assets but the same will see high growth from hereon. Its turnover is 1800-1900 cr.

Healthcare, Food freezing and Renewable energy gases: Future high growth areas

It is also a big player in Medical gases in India the use of which is growing fast in India. Its healthcare gas business is generating revenues of 150 cr. I think its Medical gas business will be a big surprise factor as the technological edge of Linde will ensure ample growth opportunities. India is witnessing fast creation of healthcare facilities. India is an emerging force for medical tourism and I have shared earlier also that Indian healthcare industry (mainly Medical tourism) is a much bigger opportunity than IT sector and I am sure the future multibaggers will emerge from this sector. I have already advised investing into Narayana Hrudayalaya and Healthcare Global enterprise. These two will revolutionize the world of healthcare with their low cost but high quality healthcare services.

From its Tata steel ASU plants apart from selling gases to Tata it’ll also make merchant sale of other gases/Liquid gases. For this it is laying the pipeline to cover maximum customers.

Linde is a global force in Food freezing cryogenic technology. Linde is investing 500 cr in AP (The home of Indian sea food export, Avanti feeds is also based in AP) for creating the cryogenic food freezing facilities. Due to its extremely cold temperature, liquid nitrogen is used to freeze food within minutes, instead of the hours traditionally required with other systems. The faster freezing causes the formation of small ice crystals, which then help ensure product moisture and quality are maintained longer. Cryogenic freezing offers distinct quality benefits, including a taste and texture more resembling fresh seafood. This is a vast emerging opportunity for Linde India.

Linde is also a major supplier of electronic gases for Solar PV manufacturing and maintenance of gas facilities at solar power plants. I don’t think we need any data to prove the high growth potential of Solar PV power plants in India. But the ideal game changer will be the manufacturing of Solar PV cell in India. Already a few companies has shown the interest in creating the manufacturing facilities for Solar PV cell.

But Steel sector is seeing recovery in India…more so after duty imposition on cheap Chinese imports. There is also a proposal for allowing the use of steel only made in India for Infrastructure prjects. I am seeing Linde India growing big from hereon.

Surprise Factor: Hydrogen Fuel cell

 Although not related to India, but Linde is a preferred supplier of Hydrogen for fuel cell vehicles across the developed world. The company has equipped around 90 refuelling stations in fifteen countries. Hydrogen-powered vehicles have long ranges and short refuelling times (quite the opposite of current EV technology)– benefits that are spurring the expansion of this technology by Governments across the globe. A fuel cell just releases water as a pollutant!! Linde is doing big research for producing hydrogen from renewable resources; like from electrolysis of water.

Hydrogen is the simplest element wherein an atom of hydrogen consists of only one proton and one electron. It's also the most plentiful element in the universe. Despite its simplicity and abundance, hydrogen doesn't occur naturally as a gas on the Earth - it's always combined with other elements. Water, for example, is a combination of hydrogen and oxygen (H2O). Hydrogen is high in energy yet it generates no pollution. NASA is using liquid Hydrogen powered engines for its space programs since 1970 wherein fuel cell powers the space shuttle and produces water as a by-product which is used by the crew for drinking!!!

At present Hydrogen is mostly produced from Hydrocarbons like Oil, natural gas, methanol, and propane. Hydrogen can be separated from hydrocarbons through the application of heat - a process known as reforming. Currently, most hydrogen is made this way from natural gas. But this also results in air pollution although not at the point of use of Hydrogen in vehicles but over the entire lifecycle from Gas recovery to Hydrogen production. Then another zero pollution option is to separate Hydrogen from water using electricity which is somewhat expensive right now. But extensive research is already going around the globe with encouraging results. But who knows we can see the Hydrogen powered vehicles overtaking battery powered electric vehicles.

 I am not a scientist but I think of an ideal situation where we can use off grid excess solar/wind power to produce Hydrogen from water and then transporting it via pipelines…just guessing. Right now due to costly battery technology excess power produced by solar and wind turbine is wasted. But I think it is better to use this for producing Hydrogen. Actually the equation is simple: production of Hydrogen by Reforming of Methane (Natural Gas) also requires power to heat and in the same way power is required for separating Hydrogen from water. So at places where we don’t have any natural gas supply (even if we can supply) the excess energy of Solar/wind power plants can be used for water electrolysis. But it is just my view.

Although at present there are no such Hydrogen powered vehicles in India. Setting of Hydrogen filling pumps are also a big challenge. But invention of a new revolutionary technology transforms and creates necessary supportive infrastructure at unimaginable speed. We are witnessing one such thing in 3G/4G and broadband in India. But still all this shows the inherent technological strengths of Linde India; enough to maintain the technical edge. Great buy at CMP of 430. I have entered in it at 400 2-3 days back and almost done with the buying.

Also a number of stocks are under study and I have bought all of them. But I couldn’t post the analysis of them due to extremely tight schedule due to annual account closing activities. However some details of these stocks have already been shared with the email subscriber group. I’ll post detailed study on these whenever I am free. So I am just mentioning these and my entry prices. Market may see a correction in April so keep an eye on these:

Aditya Birla fashion and Retail: Entry price at 144 and multiple buying after that around 150. Owner of the biggest Indian fashion brands Ven Heusen, Allen Solly, Louis Philippe, Peter England. It will huge growth in the future. Undervalued at CMP 160. Great Buy.

Mahindra Life space: Entered at 350. One of its kind Integrated industrial cum residential developer. It developed 1500 acres of industrial cum residential park in Chennai which is a great role model for smart cities in India. Also it announced the right issue at 292 which will further lower the average price. CMP is 410 after hitting 450. Good Buy for long term.

Bajaj Corporation: Entered at 370. CMP is 407. It is predominately a one product FMCG company with strong brand; Bajaj Almond drops hair oil apart from other hair oil brands. It acquired Nomarks 2-3 years back which deals in Ayurvedic skin care products. Bajaj corp gives around Rs. 12 dividends with EPS of around 15-16!

It has net worth of around 480 cr and its NP is around 220 cr (Net of Exceptional items)...so a great ROE of around 50% but this is not the complete story. It has around 270 cr as investments in Bonds/MF so if we leave this out from net worth then it is earning NP of 200 cr on net Net worth of 210cr (480-270)...an ROE of 100%!!!

But Bajaj hasn't grown much in last 2-3 years due to general slowdown especially rural. Growth may be strong with good monsoon and general trend in shifting to Light hair oils. Bajaj is focusing on growing Nomarks. But my main reason for investing is its investment portfolio of 270 (May be valued around 330-350 cr after recent run up in Bonds).I feel Bajaj will use this to make some acquisitions for inorganic growth. It looks fairly priced now. But i love these Bajaj people for wealth creation and superior Brand building capabilities than the likes of Tata. So this one looks risky due to low recent growth and 25 PE but safer due to Bajaj, dividend and strong brand power.

(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)

Acrysil Ltd: Solving 'How" of the Path to Growth

As a professional finance person I have been involved in a number of debates about the relevancy of finance especially in an objective world. In one such lengthy discussion some of my friends related to science field gave their verdict that Science is relevant as it provides the answers for explaining the life and universe. They were of the view that Science explains “why” this world is like this. However I was of the view (still I am) that science never explains the “Why” but “How” of the life. Science knows “How” electricity works, how hydrocarbons provide energy, how cow gives milk, how gravitation affects the phenomenon. But we don’t know “Why” atom has charged particles, why there is gravitation and electricity, why our bodies die etc.

Only the Supreme creator knows the answer of this why. Only the creator knows the motivation behind his creation. But the most important why is “Why this life”….why we are here although we think (quite ironic) that we know “how” to live life. But there may not be any why over the realization that understanding the purpose of our existence is much bigger than getting the composition of variables of life support system (ecosystem) and Universe. Our life support system mayn’t be the best among other levels of life. I feel there are more levels of life (like of Devtas) and we may be at the lower end of hierarchy. Why I feel this is because at our present level of consciousness we can’t comprehend “Something out of Nothing” but our universe seems the one like this only. So there may be levels who understand this better than us. And thus our science may be of little significance in the context of life.

Various engineering branches describe how things operate and behave under controlled or natural circumstances. But there is also Financial engineering which creates the innovative financial systems. Derivatives, Futures and options, Taxes etc are all the inventions of Financial engineers…most recent one we hear is GST.

But in stock market, how is more important than why. We need to comprehend how industries grow, how economies progress, how brands are born, how products evolve. We understand this and stock market becomes a place of creativity. So many people think that stock picking is about understanding financial ratios like operating margins, inventory turnover ratio, ROE, ROA etc. But in most of the cases (Especially for quantum returns) these ratios are useless as they point towards history and can’t draw a line towards uncertain future.

Future is never linear...especially in stock market...only historical figures are linear. All the great stories of stock market could have provided superlative returns as they beat their historical performance by big margins and so re-rating happened. I am leaving aside the big guns like Pidilite and Page...but would like to mention KRBL (The maker of India Gate rice)...when i picked it at 16/- 3  years back...it was just another company. But then rice demand structure changed to Branded rice and its NP went from 70 cr to 330 cr...i am still holding it at 400 as it is still way undervalued compared to its brand strength. All the troubled metrics like Inventory and working capital improved during the period...same happened with LT foods (Daawat Rice)...i am having it from 5 to 60 now. I think Eveready Industries is an even better example...the way it improved all the ratios in last 3-4 years. It went from 16 to 320.

So stock market is all about understanding the forces responsible for transforming a normal business to something superlative and then selecting the company who is trying to execute the same. So today we’ll try to analyse one such company which I feel is doing something big to change the face of the company forever.

Acrysil Ltd: Selected its Path to Growth

The company is Acrysil Ltd. This was advised at this blog (Click here) in 2013 around 80-90. I bought it at 80 but I had to sell it at 430 in 2014 due to some personal reason. But today I have made another entry in it at 530. It is the maker of Quartz based kitchen sinks under the brand name “Carysil”. It is the only company doing this in Asia and among the four biggest globally. These sinks require high technical expertise and are quite unique in quality and aesthetic touch. These sinks are made up of 75 – 80% natural special color treated natural quartz minerals and gives the look of Granite and feel of Stone. Quartz physical properties are next hardest to Diamond. It makes these sinks so tough that one cannot scratch the surface even with sharpest of tools…virtually making it an indestructible surface and dent-proof. It’s homogeneous, heavy duty material where every inch of the material consists of quartz particles, making it lifelong. The granite sinks are very hygienic, they look smooth too, and are a style statement as well. Normally when we visit a home, we would start appreciating the modular kitchen wardrobe, the chimney or the hob. But we seldom go and see what sink someone uses because we know that there is nothing royal to see. But the products like these are changing this notion and people are opting these in India now. Worldwide there is huge market for this:

Acrysil is a very small company...it was export based earlier but then 2-3 years back it chose the challenging path to growth and decided to enter Indian market which was a huge potential market. And this is the most vital decision which may transform this small company into a big force. We need to take these tough decisions in our journey towards growth. So it is still early time...and it had to put in some material resources in the form of Fixed assets, Inventory and Working capital. In Branded product business, the biggest success factor is Distribution and marketing and this alone consumes the major resources. Huge investment, time and thought is required for Distribution and marketing function...and this is the most critical function for an FMCG company. High quality Product is only the starting point. But market acceptance is the most difficult part of the game because i am not a special...i am one among so many. We have seen Baba Ramdev turning into Baba Brand-dev!!

Its assets base has grown from 46 cr to 100 cr in last 5 years. It is expanding in small cities so Inventory requirement is getting larger so as is promotional discounts. Also it is importing some of its new products like Kitchen appliances and Bathroom Interiors...being trading activity it has low margins...but Acrysil is doing this to get the market feedback...better than investing front hand in capacity.

So after taking this tough challenge and investing substiantly in building capacities, assets and taking 80 cr loan its turnover has grown from 60 cr in 2012 to 173 cr in 2016. But operating margins are way higher at 15% from 5%...its net profit is at 12 cr from 1 cr!! Although it is a small company but still it hasn't missed dividends since 2006!! Earlier it was getting almost its entire 80 cr turnover from exports. But now its Quartz sink business is earning around 100 cr with around 30 cr is coming from Indian market which is a big positive. It has also ventured into steel sinks for Indian market. Apart from this, it is covering entire kitchen portfolio with products like Kitchen tops, chimneys, built-in Ovens, faucets and kitchen appliances like Ice makers, coffee makers, dish washers etc.

Sani-Q Wash Basin: New product with Awe Inspiring design

But I think apart from quartz sinks, its another block buster product line will be premium quality wash basins. Recently it has launched Sternhagen wash basin brand in India. These premium washbasins offer design innovation and engineering excellence in a bid to redefine the luxury bathroom segment in India. The Sternhagen range has already earned accolades from the industry for its awe inspiring designs and amazing quality and finish. While the designs are set to revolutionise the premium bathroom market, what’s beneath the surface is the real marvel.  Sternhagen wash basins are made from Sanitary Quartz (Sani-Q) discovered and perfected after years of intensive R&D. Born  in  2012,  the  fast  growing Sternhagen  brand  is  designed in  Germany  and  made  in  India at its plant  in  Bhavnagar,  Gujarat. Sani-Q has properties of being harder than ceramic; it is heat,  stain  and scratch resistant. Its mineral stone properties create a silky satin finish and highly durable products. Unique manufacturing technologies result in creating new forms and shapes which are unseen in bathrooms. Here are some samples (www.sternhagen.com):

It has also launched 3-D Tiles which are one of its kind in India:

They have recently launched a store in Ahmedabad. There is no doubt about the uniqueness, premium quality and royal touch of its products. These products are suitable for individuals looking for something unique for their home. So Acrysil will address this niche market. The only issue is Indians aren't aware of Quartz/Granite sinks and unique Sani-Q wash basins. We use only steel sinks. Quartz sink will cost around 5 times but it is just one time cost and in a costly house of 1-2 cr (Even 50-70 lakh also) the incremental cost of 4-5 sinks will be just around 1 lakh...not that big deal when we are building our dream home but it'll add uniqueness and royal touch.

Its market value is just 270 cr so if it can execute well the same will witness a transformation. The most important thing in the picking a stock is to pick it young...around 500 cr valuation especially for a new product category which can grow and create its demand quite fast. Indian sink market is around 2000 cr and will touch 3000 cr in 2-3 years but the share of Acrysil in it is just 30-40 cr!!! So huge scope of scale is possible...but as it is always with a small cap it deserves risky portion of portfolio allocation....but in Stock market ignorance is risk...unknown is risk...beyond control is risk...but taking risk is not risk...it is path to growth.

Good buy at CMP of 530 and an 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. I am not a certified Sebi Analyst and holding the shares discussed in this Post)

Music Broadcast Ltd: Creating Space

(I wanted to give a small introduction to Nikola Tesla due to his association with the invention of Radio but then it went out of my control and covered the distance too far. So it is better to make this one a two part series. First is about to understand the Space created by the supreme Creator and the second is about the Space that Music Broadcast Ltd needs to create for Radio in India.)

First Part: Of Space 

Information is precious….sometimes most important thing in our life. Our great Vedas were memorized by our great Rishis for thousands of years. Vedas were never written because they were not to be written. One of their biggest secret was not the syntax but the sound…pronunciation as their rhythm/vibration was meant to interact with the vibration of our DNA to activate certain energy centres essential for spiritual awakening. Vedas were memorized in order to comprehend them deeper, they should become your soul…your part; writing on clothes/leaves was not the best option to preserve the mighty Vedas so the best way was to memorize them for generations. Very strict discipline was required to memorize the Vedas.

But the Great Rishi Vedvyasa, near the end of Dwapara Yuga, realized that human beings in Kaliyuga with short life, poor brain power would be lacking the physical, moral and spiritual strength to memorize and follow the path of Vedas so in order to preserve the most vital he compiled them into four Vedas after some 4000 years of oral transmission. Vedvyasa was the 18^th incarnation of Lord Vishnu after Lord Rama and was born to Rishi Prashar. Not many know that he was the step brother of great Bheesma.

I am writing on Radio but why I am remembering Vedas here is also due to Radio. Radio was meant for information but surprisingly we are misinformed when we are taught that Radio was invented by some Marconi but it was not. Radio, in fact, was invented by one of the greatest genius ever born into Kaliyuga…Nikola Tesla. Six months after the death of Nikola Tesla in 1943, US Supreme Court ruled that all the patents for Radio actually belonged to Tesla. And when I recall Tesla…I recall his meetings with Swami Vivekananda, Quantum Physics and Vedas. Tesla was a genius much ahead of his time and was badly in need of some assurance for his crazy views about the origin and nature of matter which ultimately was provided by Swami Vivekananda. Tesla never studied Sanskrit but after his meeting with Swami Vivekananda he used Sanskrit words like Akasha and Prana everywhere. 

Tesla was a scientist in the field of electricity and he was way ahead of others at that time. He invented many of the most important inventions of our life like AC electricity, created the world’s first x-ray images, and conceived the idea of radar. But he was like a true eastern saint with no regard for material wealth. He just yearned for wisdom and knowledge. He never resorted to profiteering from his inventions unlike Edison (Tesla in his early life worked for Edison but soon they parted ways and Tesla proved his superiority many times) so he was a big obstacle for the corporate investors like JP Morgan. So he was dethroned of all of his inventions and Tesla was lost.

He was a hard-core scientist dealing with electricity which is a subatomic particle and most of the laws of classical physics do not apply on it. So he was not in conformity with others regarding the nature of matter including Einstein. Actually Tesla was the first Quantum physicist.

Quantum physics deals with the nature and behaviour of Sub-atomic particles and energy as at subatomic scale classical physics becomes useless. Classical physics describes the forces responsible for creating our everyday life like nothing can beat the speed of light and all matter is made of countless tiny particles. But when scientists looked deeper into the cosmos classical physics turned into last bencher. They found that the most basic particle Atom is not composed of something solid but of vibrating energy and breaking of speed of the light barrier was a routine in sub-atomic world. Scientists in early nineteenth century found that Subatomic particles such as electrons were able to instantaneously communicate with each other regardless of the distance separating them. It doesn't matter whether they are 10 feet or 10 billion miles apart. Somehow each particle always seems to know what the other is doing. The problem with this feat is that it violates Einstein that no communication can travel faster than the speed of light since travelling faster than the speed of light is tantamount to breaking the time barrier. In the 1920’s Nobel Prize winner Werner Heisenberg formulated his famous uncertainty principal which stated that Sub-atomic particle would change its position when it was observed. The reason; we use photon to observe (light) some phenomenon but as Photon itself is a sub-atomic particle so it will interact with the other sub-atomic particle being observed and will change its position.

But this made Einstein quite unhappy, although he agreed it worked perfectly, because it denied the reality of things when they were not being observed. So this led to famous Einstein quote “I like to think the moon is there even if I am not looking at it."

So there was utter confusion. But then Swami Vivekananda happened to the west and he introduced them to Vedas and Gita and Information was travelled to West. West was astonished to find out that wisdom of Vedas was quantum in nature. There was quantum physics everywhere in Vedas. So it is of no surprise that almost all of Nobel Prize winner Quantum scientists like Bohr, Heisenberg and Schrodinger regularly read Vedic texts. Another giant of quantum physics Robert Oppenheimer even learned Sanskrit and read the Gita in original. Heisenberg even stated, “Quantum theory will not look ridiculous to people who have read Vedanta.”

Qunatum physics in Vedas

Indian Rishis understood and experienced the quantum nature of the universe; although by following the other path…not by Analysis (Breaking into Parts) but by Synthesis (Wholeness). Indian Vedas are filled with Quantum proclamations. They are everywhere.

Like Aham Brahmasmi (अहं ब्रह्मास्मि) in Brihadaranyaka Upanishad of the Yajur Veda. This depicts the oneness and interconnection of all beings and the supreme creator. Separateness is an illusion. Our Great Rishi is not getting arrogant here but this is what he felt in deep meditations (Meditation is nothing but a state when consciousness resonates with the cosmos by raising the cell vibrations levels… Universe is nothing but a vibration). Now Quantum physics also knows this as electrons at billions of miles apart seem connected…In fact there is a growing belief that our Universe is a hologram where every part is containing the whole albeit the smaller whole. Science has so far put great effort in trying to understand the phenomenon by breaking into parts and thinking that by studying (Analyzing) parts they will comprehend the whole.

But a hologram (try Google for better understanding) is a different thing altogether as here every part contains the Whole albeit the smaller wholes. Similarly our Universe is a hologram….a consciousness…we are nothing but smaller wholes. That’s why our Rishis did Synthesis of the cosmos not Analysis. They knew that breaking wouldn't change anything.

Another Rishi announced “I am in the east and the west, I am above and below, I am this entire world.” These are from Mundaka Upanishad.

There are so many; Pragnanam Brahman – "Consciousness is Brahman" (Aitareya Upanishad Rig Veda). Ayam Atma Brahman – "This Self (Atman) is Brahman" (Mandukya Upanishad Atharva Veda).Tat Tvam Asi – "That Thou art " (Chandogya Upanishad Sama Veda).

Like Concept of time in Vedas which says that time scale is relative to the level of consciousness; different for different lokas. As per Vadas, 8.64 billion years mark a full day-and-night cycle in Brahma’s life. Just as Einstein said in his theory of Relativity that the measurement of time depends on observer’s motion and also the strength of gravitational field he is in. In Gita, Arjun looked at the past, present and future in the mouth of Lord Krishna in Vishwaroop Darshan (Ch.11 of Bhagvatgeeta).Just like the collapse of the space time coordinate system near singularities of general theory of relativity.

Quantum physics realized that no matter is solid…it is just empty space and energy. Just as vedic Rishi warns us to not to be distracted by MAYA as visible world is an illusion.

So finally some early Quantum physics scientists found a great companion in the form of Vedas. They were motivated to continue their journey further towards the unknown.

One important thing, four Vedas are called Shruti which means “that which is heard”. Vedic Rishis were not the creators of the Vedas. In fact they heard the “Vedic Gyan” in their deep meditations. They were the seers not the authors. Gita also belongs to this section…in fact it happened at earth without any medium…it is directly from the Brahaman, the Lord.

Akasha or Zero Point Energy field

Here I want to introduce something about Zero Point field or Akasha or Ether which I feel is the greatest gift to mankind by the Vedas. Nikola Tesla was the only one who understood this and dreamt of a world with limitless source of energy all free to all. His conviction got strength when Swami Vivekananda introduced him the concept of Akasha. Vedas described Akasha as the most subtle basic element from which other four elements were created. Other four element of creation are Air, Fire, water and earth. These are called Panch Bhootas in Vedas. So Akasha (Space) was never described as vacuum (absence) in Vedas…in fact they described Akasha as the basic element of which all other elements were born and hence Akasha is present in every particle of the Universe.

Thousands of years later, Vedas proved right.

All atoms are made up of protons, electrons and neutrons and we have some 100 types of atoms. So all the atoms are made of same things but they are different because of numbers of Protons, electrons. Hydrogen, Oxygen, Helium…they are all have same Protons, electrons and neutrons but these are different due to different numbers of these three. The reason Nitrogen and Oxygen are such different gases isn't that Nitrogen has 7 protons and 7 electrons and that Oxygen has 8 of each. But, it is the different amount of electromagnetic energy that that one extra proton and one extra electron in Oxygen make which changes the substance.

But still protons, electrons and neutrons are way too small at the scale of an atom…almost invisible. If an Atom is an earth then nucleus is just a football stadium. So our Atom is nothing but space. So space is the realty; space is the Atom. In other words Space is the substance of which all atoms are made. If we remove all the space from human body then the billions of these charged particles will form a heap which not even a microscope can see.

So we can say the structure of the atom is energy in a confined space between revolving charged particles. The space in this case is filled with electromagnetic energy. Atoms and Sub-atomic particles are bound together by Akasha or space that’s why atoms create substances as space acts as the binding force. Akasha is not emptiness, but it is an element which is spread over space capable of containing other elements. I even have a feeling that charged particles like protons and electrons just act as forces for creating different types of Atoms. The prime source of energy is not these charged particles but the Space.

Vedas even defined the property of Akasha which is Sound. Vedas say “Shabdaikagunamakasham” which means that Shabd (Sound) is the guna (Property) of Akasha. This is indeed very subtle. Quite contrary to the earlier popular belief Air is not the cause of Sound. Air is not the originator of Sound but Air is the carrier of sound. In a Vaccum (Famous bell-jar experiment) bell is ringed and it vibrates (Sound) but as there is no Air so listener doesn’t hear anything as there is nothing to carry the sound. But sound does originate. So Air is the carrier but not the substance of the sound. This sound property of the space is the reason that so much emphasis has been given by the Vedic Rishis on the mantras and sound pattern to awaken the Chakras in the human body.

So Tesla understood the power of Akasha and had grand plans to generate unlimited energy from space. He even built one tower for the purpose. This tower was proposed to be a model for more of these towers located around the world to provide free wireless energy to everyone. Upon J.P. Morgan finding out it was not equipped with any type of meter to monitor who was using how much of the energy it provided and was thus not for profit he ripped Tesla’s funding out from under him and the tower was torn down.

And so the Information on Akasha energy stopped there with Tesla.


Second Part: Commercial Space

Radio: Needs to focus on Information differentiation

So finally I am coming to Radio and Music Broadcast. Radio survived the onslaught of Television, Cinema and internet against all odds. Still almost 90% people in USA and UK listen to Radio, 80% listens daily. So more Americans use Radio than Facebook. Before the advent of Facebooks of the world,  Radio was the original social media platform. For majority of population in USA/UK radio is still the prime source for discovering the new music. Average listening time is 2 hours per week. So Radio is very much alive and growing fast. Radio still accounts for around 8% of total advertisement pie in western world.

But in India we have just surpassed the teething stage which was of playing filmy music all day long and creating awareness about the radio. That’s why I feel that there is no need to look at the financials of Radio players like Music Broadcast as if they can act wisely than huge growth will come. This is Quantum theory of stock market wherein we should focus on the comprehensive rather than particles :). But as now we have passed the initial stage and numbers of participants are also rising so Radio industry is now finding itself at a stage where every product in its lifetime finds itself; which is product differentiation, quality and creating a space for itself. So I feel Radio industry in India needs to move towards more product innovation; they need to be relevant for people by getting more informative. Information is not about the news or something else; it is being aware and creative in creating the content which will bring more people to the Radio. Just for a case, Green revolution in India owes its success to Radio when as part of one UNESCO project farmers took part in Radio forums. In Tamilnadu in Thanjavur paddy belt, farmers listened and learnt about a new paddy variety over Radio. It was a grand success and they even named the variety as “Transister paddy”. UNESCO applied the Radio forums all over the world seeing the success in India however AIR failed miserably after that and by 1970 all Radio Forums were defunct.

Also as per recently completed Phase 3 auction, multiple frequencies in a single city are allowed. Now Radio players can run more than one Radio station a single city so now they can focus on creating niche radio channels dedicated to something like business, regional music, education etc. Also radio players are now allowed to create network of radio stations by combining small cities and then use the same content in the network. This will work for their advantage as they can get more business with lower costs.

Here are some points due to which I feel that Radio will remain relevant and can achieve high growth in the future:

1)     Local and national advertising: India is the least advertised country. Our advertisement investments to GDP are very low. The reason is the low level of competition and logistics problems in having a nation wide footprint. But now time has changed fast in last 10-15 years. Competition is severe and brand awareness is the most important strategic decision. So we will see high growth in advertising. Local producers can’t afford television or digital advertising so Radio is the best fit for them. For national level producers Radio is another mean to reach people especially small cities/villages where mainstream TV penetration is low. So business is going to be strong for radio players. All they need is to focus on the content.

2)    Print ads are also expensive especially main page ads. But with Radio they are always on the front  page.

3)     For more effective impact of ads, we need to listen/see the ads alteast 3-4 times. For small local and  other small producers Radio is the cheapest way to do the same.

4)      People are required to be in front of television if producers want them seeing their ads. But with radio  they can reach the customer anywhere; in car, offices, colleges.

5)     Radio can reach everywhere. So while I can’t watch TV/News while driving, in the office, college but radio can reach there.

6)     Listeners feel attached to their local radio station. They feel them like their own. So loyalty is very strong here.

7)   In big metro cities like Mumbai, Bangalore driving time is the main time to listen to the Radio. Driving time is around 1 hour in big cities. Radio is the best entertainment source here.

8)    In today’s era of shrinking time, radio is the one thing that allows us to do the multi-tasking. I can work in my office while listening music, news etc.

9)   In India royalty is paid on the licensing rights for music but shared revenues are the norm in the international market.

10)  Local music is the big area of growth. Even now south market is big due to expanding regional film industry as compared to rest of India.

So Radio is not aggressive like TV but it has soft appeal. But there is one big issue which can have big positive impact on the fortunes of the radio industry and that is broadcasting of NEWS. Radio channels are currently allowed to air current affairs like sports, cultural events and weather information. But govt has not allowed them to air news citing security reasons as Govt says that they can’t keep a watch on the content being aired on radio which they are doing for television. A PIL has been filed and supreme court has asked the Govt to submit the valid reasons for not allowing private players to air the news. Govt is taking hefty annual license fees apart from initial bids but still not allowing to air the news. Also another shocking fact is that big media houses are the owners of radio channels who are already have the permission to publish or broadcast the news in Newspaper or at television. By doing so Govt is ignoring all the positive impacts that radio can bring in community development and creating awareness about local issues. Also all type of negative propaganda is already running unchecked on internet which is watched by crores of people in India. So censoring the content over radio is a big mistake as Govt is not aware of the real threats from internet terror. It is still targeting the poor people of the villages who can’t afford a TV but they can benefit and raise their participation in the growth of the country.

Govt has allowed radio channels to air the news from AIR unchanged by paying a fee which is not liked and used by any radio station.

But if this issue is solved then we’ll see much higher growth.

At present Radio advertising is at 4% of total advertising in India. Analysts are comparing it with 8% of the developed world. But things are never linearly comparable especially over civilizations. Due to limited reach of the other expensive media like TV and internet in the rural and small cities in India, Radio may acquire the bigger pie. Music broadcast is at Rs. 355 now…little higher than the issue price of 333. It is a good investment opportunity keeping in view the possible scale of operations in the future but still deserves the allocation from the risky part of your portfolio.

(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)

Results Update: Atlas Cycle and Tube Investments of India

Let me first come to Atlas Cycle which were picked at 250 in Sep-16. In no time it picked up great speed only to hit 700 few days back. Although I advised caution for the stunning run up which at times was looking stretched beyond fundamentals. Then due to corrections, it was trading around 500-520 range. But after its results on 2^nd feb, it is continuously hitting lower circuits and today touched 466. Market has taken its result negatively. Some readers have sent worried messages over the recent fall.

But let me tell you one thing its results are not bad; in fact they are very good as per my understanding. This quarter, due to demonetization, is bad for all the consumer businesses especially those dealing with rural and small towns….and this is what Atlas is. Indian Bicycle companies still earn most of their revenues from small towns. Although premium cycle demand from big cities will pave the way for strong growth but that phase has just begun. So it was natural for Atlas to get badly impacted and report lower earnings this quarter…just in line with the big brother Tube investments. Tube has reported muted numbers for its cycling business. Topline is at 298 cr vs 288 cr…a growth of 3%. But operating profits are at just 70 lakh from 8.70 cr last year. But this is perfectly on the expected lines and stock prices were reflecting this degrowth.

However Atlas managed to show good growth in the top line this quarter. Its turnover is at 147 cr vs 135 cr…almost 10% growth which is commendable during this negative period. It has brought down its interest cost from 2 cr to 1 cr. So its net loss figure before tax was at 2.54 cr vs 2 cr last year which is also quite an achievement keeping in view the big fall in the margins of Tube investments.

So its results are not bad at all and I am sure that we’ll see high growth in the next quarter. Atlas’ premium bikes are still cheaper compared to other big brands like Hero or BSA Hercules although they are at par in quality. Also there is high growth of cycling clubs all over India and craze for Cycling is growing like anything.

So there is nothing to worry as far as Atlas is concerned. Its management is good and they were paying dividends regularly till 2013 when they were profitable. During bad times, they managed to avoid unnecessary debt (their debt has fallen to 60 cr from 80 cr in 2012); they didn’t waste the money in expensive capacity creations (their assets are at 191 cr from 175 cr in 2012). Their inventory levels and debtors figures were always under control. So it is wrong to place the management of Atlas Cycles amid the likes of other shabby companies.

I never pick a stock like Atlas cycles (which are at the crossroads of their life and fighting the most significant battle for the survival and growth) for a double. My focus is to find at least a 10 bagger and there is no stoppage before that…we deserve 10 times due to the risk we are taking. But we need not to care for small oscillations in between…just focus on the goal. I picked KRBL at 18 but it oscillated between 50 and 80 a number of times…but now it is at 380. LT foods was picked at 50 but it remained going up and down in the range of 90-150 for a long time and I added another big quantity at 100…it is at 470 now. So in picking a multibagger, first thing is to absorb the initial spikes. Recent spike in the price of Atlas meant nothing to me and I was not celebrating it as it was depriving me from adding more of Atlas at lower levels which I’ll be doing now if somehow we are lucky to see it falling below 400. Anything near 350 will be a bonus.

Now let’s move to Tube. Tube Investments’ standalone numbers are not much worthy due to de-growth in cycling division and other businesses due to demonetization. Its top line has been grown to 1041 cr from 941 cr with operating profit at 44 cr from 52 cr (mainly due to cycle division). But still it managed to post PBT figure at 37 cr from 21 cr due to lower interest cost of 15 cr vs 33 cr (lower debt due to last years’ sale of general insurance business stake for around 800 cr).

Its listed NBFC arm (47% shareholding) Cholamandalam Investment & finance ltd has shown a growth of 10% in its NP at 163 cr from 148 cr which is impressive in the wake of demonetization.

But its General insurance business has recorded strong growth of 22% in GWP from 614 cr to 751 cr. Its NP is at 47 cr vs 34 cr registering a growth of 38%. These numbers could have been more impressive had it not for demonetization. So we’ll see much better numbers in the next quarter. Continue to hold and add more around 600.

(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)

Navneet Education: Education Needs Better Valuation Some Results and Updates: Sundaram Finance, Narayana H, HCG, Ak Capital services, Quick Heal, Agro Tech Foods.

Navneet Education: off late I have picked good quantity of this one. I think market has yet to fully understand its business model which has strong brand power with relatively high entry barriers. Education publication is a great business worldwide so as in India. Education publishers are much bigger than other much talked about media companies. Like Pearson, McGraw Hill or Penguin are much bigger and profitable than AOL or The New York times although Pearson is battling with slowdown in USA. 

But Indian education market is very small and dominated by huge number of small regional publishers. The Indian education publishing market is estimated at anywhere between Rs 14,000 and Rs 22,000 crore. But Navneet and S Chand are the biggest with around 500-600 cr revenues from publication and currently both or on acquisition spree to be the number one in Indian Publishing arena. S Chand is coming with IPO shortly but it has, In 2014, acquired a majority stake in Delhi-based publisher New Saraswati House. Earlier, it acquired Vikas Publishing House and Madhuban Books. In March 2016, S. Chand invested in education-technology start-up Testbook.

Navneet has recently acquired (for 90 cr) Encyclopedia Britannica’s Indian content development and publishing business. EB has revenues of around 75 cr and is developing content for CBSE affiliated schools in India serving around 5 million students. Navneet is so far a dominant player in Supplementary education books in Gujarat and Maharashtra with around 60-70% share while EB is a textbook player. As per the directives of Govt, NCERT is the content developer and publisher for almost all of the schools in India. Out of 15 Lakh schools, only 1 lakh are private with 20000 affiliated with CBSE/ICSE. So around 14.80 lakh use NCERT content. Although CBSE/ICSE are also supposed to use NCERT but the issue is debatable and these schools are using private publishers’ books upto 8^th standard. Also CBSE segment is growing very fast and I think EB acquisition will give high growth prospectus in textbook business.

Another area is Digital education and its impact in publishing business. First of all, Players like Navneet are not printing presses, they are content developers. Navneet has around 200 authors on royalty while S chand has a staggering pool of 3500 authors. So printed books are just a media; media can be digital. But even western countries have penetration level of only 20% for digital books. Students still prefer hard textbooks as they are more engaging and connect better. Digital e-books are a good supplementary  option. Pricing is another issue with E-books as they need different cost elements than paper and ink. The success of Digital Right management is not much high. The purpose of DRM is to prevent unauthorized redistribution of digital media and restrict the ways consumers can copy content they've purchased. Any hacker can break the code of DRM and that can be detrimental for the publishers. So publishers are not caring much for E-books. But still they are growing and publishers are also changing their game accordingly with almost all the publishers having their digital business for the same content. Even Apple is paying to the likes of Pearson education for their proprietary content and these books are sold by Apple to its subscribers. So I don’t see any threat from Digital books in stead they will only bring additional revenues due to more reach. Navneet has e-learning business under E-sense which is growing around 50-60% yoy.

But still, top Indian publishers Navneet and S chand are just having top lines of 500-600 cr which is very low for a big country like India. This is due to presence of so many regional publications in the entire chain. But this will change as players like Navneet and S chand may follow acquisition route for growth. So Navneet will look for more acquisitions and we’ll see high growth in the future. IPO of S chand will provide the re-rating as at present it is available at a PE of 20 but this is on the backdrop of some severe drought years where Navneet didn’t witness any growth at all. But this year it has witnessed strong growth so far. For 9 months its turnover is at 888 cr from 746 cr with Op profit at 212 cr vs 162 cr. But last 2 quarter has seen top line growth of around 50% and bottom line has grown by almost 100%.

Navneet is not a properly analyzed stock as market is giving it a valuation of a stationary company. But brand loyalty is very stronger in Education business where same books are recommended over generations. We can try different stationary brands as stationary is just a commodity but books are not. Every book is distinct and creative that's why as i have said earlier some education books are read over generations. "The Intelligent Investor" by Benjamin Graham was first published in 1949 but this is still being regarded as the best book on Value Investing. That's why i feel Content publishers especially Education content publishers should command much higher PE ratio of 30-40. It is at 133 and it was advised around 100 but it is still a good buy.

Some Results updates:

Sundaram Finance: Inspite of the impact of Demonetization, Sundaram Finance has given impressive set of numbers. Turnover is stable at 598 cr vs 590 cr. However PBT  is at 201 cr vs 147 cr…while PAT is at 138 cr vs 102 cr. So a growth of around 35% in NP…mainly due to lower interest cost at 288 cr from 324 cr which indicates that it has earned more fee based revenues this quarter although detailed report for this quarter is yet to be released by the company. However General insurance business, as expected, has given strong growth. Gross written premium this quarter is at 559 cr vs 423 cr last year; a growth of 32%. Overall this year GWP for 9 months is at 1637 cr vs 1210 cr. PAT of general insurance business is at 28 cr vs 20 cr. So we can see that this is growing at 40% and I am seeing this growing even faster in the future. The most impressive number is the NPA numbers; even after taking 90 days norms GNPA is just at 2% while NNPA is just 1% which is what I always like about the management of Sundaram.

But Tube Investments has a much bigger general insurance business with GWP of around 3500 cr with PAT figure of around 180-200 cr. So as I am saying from time to time, Tube is a stunning stock which is way undervalued at CMP of 600.

Narayana Healthcare and HCG: Narayana healthcare has grown its topline around 20% but it is the bottom line where it is putting its heart. Topline for 9 month is at 1395 cr vs 1186 cr but PAT is at 60 cr vs 16 cr. Same is the case with Healthcare Global which apart from Cancer business has a very promising fertility clinic business. For me these two are blind buys for next 2 years. As shared earlier also, healthcare will be the next IT like opportunity for India which will put India as the global hub for low cost quality healthcare. Just for putting things into Perspective, NH does the heart surgery at 1/10^th of the cost of the same in USA but still its mortality rate is almost at par with best USA hospitals. This is a great feat. NH is at 335 ( Last advised at 290) and HCG at 245 ( last advised at 190)…but these are still buys.

AK Capital Services: This was recommended at 280 in Nov-2016 to our blog readers via email ID of this blog. It is now at 415 already. Due to some reasons I couldn’t post the study on this at the blog. Actually I was planning to put Ak Capital as a demonetization pick as I think that huge bank deposits will pave the growth of Bond market in India but even I could not put my study on demonetization. We have picked Care Ltd in Aug-2016 at 1000/- on the same theme and RBI has made some policy changes to make corporates borrow more through bonds than banks.

As I have shared earlier also, Banks are not suitable for granting long term infrastructure loans for 20-25 years due to their assets liability mismatch. Most of the liabilities (Deposits) of the banks have average tenure of around 7-8 years but loans (assets) provided by banks are for 20-25 years. So Banks have a situation where they are required to refund the deposit after 7 years but they can’t demand the loan. I have always felt that Banks’ primary role should be channelization of savings from public. Then they should focus on lending these to other financial institutions and they should themselves deal mainly in retail and small business loans of small duration.

In Aug-2016, in order to slow down the bank loans to big corporates RBI has issued some guidelines for banks. RBI intends to create a special class of large borrowers called “specified borrowers”. Banks have to keep extra reserves for incremental loans made to these corporates along with making more provisions for these loans. This will raise the cost of borrowing from Banks for these corporates. This will make corporates to go for Bond markets. SEBI is also focusing on deepening the bond trading in India.  

Ak capital is the largest private sector merchant banker in India. It is having the largest chunk of bond issue market. For 2015-16 its standalone topline was 68 cr with NP at 18 cr. Its consolidated numbers were 241 cr and 41 cr respectively. But for 9 months this year, its standalone numbers are at 72 cr vs 49 cr while NP is at 18 cr vs 12 cr. But it hasn’t provided its consolidated numbers for the year so far. For last 2 quarters it is growing at around 70-80%. It is still ruling at a PE of just 5-6 and a significant re-rating can take place as management looks reasonable as nothing negative has come out so far. Most importantly they have current investment book of around 800 cr comprising mainly of Bonds. Out of this around 650 cr is Govt bonds. These are housed under its subsidiary AK cap Fin Pvt ltd whose results are not published. But this year after demonetization, Bonds prices have seen big upward movement coupled with overall low interest expectations. Interest rates will fall more in India. I am sure than AK must have sold big part of these bonds and could have gained huge. Only the time will testify this.

So I feel AK is still a buy at 400 levels. It is not comparable to Care Ltd in quality yet so it is better to put only risky money and should be a part of risky portfolio.

Quick Heal: I am advising this regularly from 220 levels. This is one company which will see huge rerating going forward. Cyber security is the next big business opportunity and even a common man using mobile for payments cannot afford to ignore security part of the game, After IPO, Quick heal has upped the brand promotion activity on television which was the only thing missing from its strategy in the past. But IPO money has been used for this purpose and we’ll see huge benefits from this. It has shown around 30% growth in june-16 quarter but stock price hasn’t gone anywhere. It is a great buy at 278.

Agro Tech foods: We were expecting a revival in its food business post marketing and distribution initiatives taken by the management. So this quarter, in spite of the demonetization, Agro tech has managed to maintain its topline at 208 cr vs 202 cr. But the surprise has come from the margins as its PBT is at 12.5 cr vs 9.5 cr…benefitted from low interest costs and margin improvements. I am seeing even better numbers coming quarters. Agro tech was advised around 525 but I made some good buying around 450 levels and the same was advised via emails also. It is now at 512 and looks ripe for a big jump.

(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)