Quick Heal Technologies Ltd: Don't loose the Faith So Quick

Quick heal is facing tough times ever since it has made its debut in the stock market. There are doubts over its capability to withstand the competition from MNC brands. But I am still positive on the company and its inherent strength to offer high tech security solutions catering to the demands and needs of Indian market.

 I know so many people who think that Woodland shoe is an MNC brand and it certainly impacts their buying decision. So many people take Van Heusen as a foreign brand when in fact it belongs to our Aditya Birla group. People doubt Quick heal as they know that it is an indian player otherwise what it has achieved as a brand among the giant IT commodity players like TCS/Infosys is certainly  a great achievement. We have never heard about an Indian Brand in technology...we see Microsoft, Java, Oracle, Adobe, Norton, Kaspersky everywhere and we hardly know what our IT giants (Infosys/TCS/Wipro) do. Indianness is invisible in IT for us in branded products although the fact is that most of the Global IT giants are headed by Indians.

So there shouldn't be any doubt on the capability...it is only about the intent to choose the difficult path of brand and product building which is chosen by Quick Heal backed by strong technical capabilities. Quick heal has already covered some genuine distance, it is not some fairy-tale startup. Quick heal is a serious profit making organization, NP of around 50-60 cr on revenues of around 300 cr with strong in house R&D capabilities.

Our world is changing fast and in a sense we are moving towards non-material sort of world. Physical wars among big nations are not happening and chances are even lesser. Modern wars comprise currency wars and Cyber wars. We are moving more and more towards automation...most of the civil services will be fully automated in few years...cloud and IOT will bring radical changes to how Govt provides services. So any security breach will be serious...catastrophic. General public is doing everything online...our bank accounts/passwords are online. My enemy doesn't need to rob me personally/physically...he can do the same thousands KM away without even touching anything. So risks here are very serious and can't be left uncovered. We'll see huge demand for security products when people will realize the vulnerability of our online life. So i have no doubt about the future scale of operation.

Here i remember the hacking attack on dating site Ashley Madison which threatened to kill the life of its members and the business. Hackers threatened to public the names of its members claimed to be some 38 million. People panicked and small number of suicides were reported, a priest in Louisiana among them. So i feel threat is very potent and deadly for people to ignore it or taking it lightly. In fact people will only become more aware in the future. Current stage is just the tip of possible iceberg.

Stock markets are never perfect and it is good that they are like that as otherwise there will e nothing for us to find hidden deep value proposition. Like here, on one hand our market is finding it difficult to assign high valuation to Quick heal but still it is finding great value on other security company which is more like a Labour supplier involving relatively much lower technical expertise. I am talking about Security and Intelligence services India Ltd (SIS Ltd) which is trading at a PE of around 60 but Quick heal which is having much higher technical expertise with much stronger brand recall is trading at a PE of around 20 ( If we keep out the impact of GST on June-17 results). QH is also having around 375 cr in investments and cash!!

Its June-17 Qtr results were impacted by de-stocking by dealers ahead of GST implementation but still its enterprise business grew by almost 20% even in this tough environment which shows that Quick heal is on the right path as far as picking Enterprise business. For past 2-3 quarters, its performance is impacted by industry level macro issues like Demonetization and GST but i think the growth will be back very soon.

 India has big number of SME’s who earlier never bothered about the cyber security. But off late, SME sector was also getting aware of Security threats and spending was growing. SME got involved as earlier the threat was only to information (For SME) and their information was never valuable for hackers but as more and more SME was turning towards online banking etc....their threats were rising...so there will be high growth in SME and large enterprises sector in India.

Paid Security products vs Free products

Some people opine that general public will be reluctant to pay for the security software products as many are available free. Although i can't claim to understand cyber security better than an IT professional but there are certain things which i feel will pave the growth of paid cyber security products. First thing i always feel there are no free lunches. The free games we play, free videos we play...all have either embedded with the device maker/operating system maker or they need intermediate ads or else the free product is mediocre. 

When you think that you have found a free antivirus product then the real fact is that “You” have become a product for these companies. They will bomber your system with all type of nonsensical stuff like free toolbar, search engine etc. and in doing so they make money of you…so here you are the product. Free antivirus companies are just like other companies…they need profits to sustain themselves. So free antivirus products bundle all type of junk like adware, spyware, toolbars, tracking and other cheap stuff to make money from you. They will alter your search engine to make you click ads, some install terrible Ask toolbar which is nothing short of a nightmare, harvesting and selling your browsing data and other information. Even the reputed free antivirus companies like Avanst, Avira, AVG, Comodo are doing this. These free products market their other premium programs, upgraded paid versions of their free antivirus program to make people to pay for this and in the process they make big money.

Cyber security is a very complex segment which requires huge resources (most of which are used immediately i.e salary) which needs commercial success of the product. Updating of data base for viruses is very costly and it is a continuous exercise.

Besides free software lacks so many things which are must for a complete security software like:

1) Don’t provide for online backup in case of any emergency

2) Encryption of files in case of theft.

3) Internet security

4) Spam filtering

5) Quick updation of virus definitions and library

6) Ads area big distraction and consume resources

7) Most importantly, support system like onsite installation and telephonic support is never there which for a small business is a make or break decision. Quick support in case of a crisis will play the deciding factor in saving the business; even for a common layman. There are so many cases where cyber-crime resulted in the failure of a thriving business like recent attack on Sony which almost killed the giant.

Cyber wars: Indigenous “Make in India” products are key for India

Cyber warfare is the future of wars between nations. For long, China has attacked India’s cyber space and networks. The numbers of such attacks are rising continuously around 50000 a year. In 2010, Ministry of Defence computers were hacked pointing serious weakness of our systems. This year in May-June, hackers attacked the systems of Indian Banks and stole the data of around 3 million debit cards and the worst part was that Indian authorities couldn’t even establish the origin of the attack, the identity of the hackers, or how the securely self-destructing malware was created.

Israel is the global giant in cyber security space and US companies are the biggest investors in the Israeli cyber security start-ups. In Israel citizens are supposed to give their services in Army in young age. Israeli Citizens are one of the most patriotic nations of the world and their citizens are ready to serve and die for the country at any time. Time spent by young ones in the army makes them capable to understand the nitty-gritty of security systems and this is the reason for their success in Cyber security. USA and Israel are close ally in cyber war fare but both have maintained silence on their actual capabilities to originate a serious cyber attack and their expertise in defending such attacks.

Such ambiguity about the strength of cyber system puts your attackers in doubt as they can only guess your cyber technical expertise which puts them in back foot. Both USA and Israel created one of the most sophisticated Stuxnet Worm to attack on Iran’s nuclear systems in 2010 although they both never acknowledged the same. Stuxnet is regarded as one of the most sophisticated malware ever discovered. So I do not know whether India should adopt such policy to keep silence about their expertise but if we go by the recent attacks on our Defence systems it is clear that we are still have some distance to cover. Israel is also a close ally of India and I see both India and Israel strengthening their cyber systems with mutual assistance. India really have great IT skilled professionals who if given the chance can prove their true worth in developing the cyber security systems for India.

Here, I want to stress that Indian Govt is going to prefer Indian made cyber security products as it ensures that the source code that runs the programme and the machinery do not grant access to foreign firms or governments. So I think local firms like Quick heal can tap this huge opportunity along with the fact that they have already demonstrated their expertise and acumen in designing and developing security systems.

Regarding Quick Heal vs MNC players, i think Quick heal has everything to challenge them because this is what it has been doing so for a fairly lengthy period of time. It is having more than 30% share of retail market. MNC IT players are overhyped...they are good but Indians are not less. The only thing is the risk taking capability as focus on being a branded product player is a big risk which requires huge resources for branding and distribution. In fact the main aim for  Quick heal going for IPO was to get money for brand promotion and we can see that Quick Heal is now visible across Media which i feel is a great attempt.

Actually R&D and Branding is a different business games which i feel Indian investors don't understand at all. We always fail to value a R&D heavy company; we try to figure out the earnings when R&D is a long term game although with unimaginable growth prospectus. Same is for a Branded product company. Here Quick heal is trying both which is new first for Indian business. Giants like Infosys, TCS have never had the courage for going for product based future...timid...although they have the huge resources. But they failed terribly in understanding the future of IT...which was migrating from quick service product to value added products like Artificial intelligence. 

As i have explained in many blog posts R&D and Branding is not for chicken hearted; it is for brave warriors...it is journey to the unknown. Quick Heal has chosen this difficult path although it is very strong in R&D and developed some ground breaking solution in security.

Also i think Mobile security will see huge growth from here on. Recent attack on Android phones will make people realize the threat. 

I have great faith in Quick Heal...and i feel there are high chances of it to survive its quest for the unknown. Good buy at current levels of 190.

(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)

Jain Irrigation Ltd: Invest in Flood

As shared from time to time, I see this year to be the start of something big in Indian agriculture especially Supply chain side (Click here for earlier post). I feel we need to solve our agriculture mess first of all in order to start a real meaningful growth. We are wasting too much of resources to achieve little in our agro efforts…wasting 150000 lac cr of products…precious water…pollution is unaffordable and will wreak havoc one day. If we can see then too much money is also wasted by our govt in feel good efforts like useless subsidies, free power and loan waiver etc. All these are implicit costs for not focusing on poor state of agriculture. 

An economy is never a GDP thing as is the general view (Click here for earlier study). In fact an economy is a cycle and growth is all about the speed and efficiency with which this cycle is completed and growth will sustain for long if this cycle is in our control. Like now farmers produce with their blood but they never get the price we pay for their produce as middlemen capture majority of the final price. GDP will capture the higher production but it’ll never capture the efficiency. GDP just counts the final value of production capturing the value added at each step but it don’t captures the fact that money is going into the hands of few who add minimal value and can’t affect the demand side of an economy due to their small number. 

Let’s take the economy of a small village with 1000 earners/producers out of which 600 are farmers and 20 are middlemen (Like Aarhtiya, commission agent or money lender) and then there are 380 others doing other works like shoe-maker, supplier of household items, electricians, carpenter, cinema owner etc. As the farmers have small land holdings (or some other issues like government regulations like selling the crop only in approved mandis) so farmers can’t afford to transport their crop to demand centres on their own. These 20 middlemen are buying entire crop at very low prices and selling the same at much higher prices in nearby cities. As a result of this, the village is having 20 very rich individuals with 600 poor farmers. These 600 poor farmers are having very limited capacity to procure goods/services from the other 380 suppliers in the village leaving these 380 also with very limited scope for high demand for their products. But our ultra-rich 20 also just can’t affect overall demand scenario very much as they have limits to their consumption resulting in the accumulation of majority of wealth among these 20. But GDP will still show the higher numbers and just can’t capture the plight of farmers. So due to this structure our village will remain poor with high GDP. Had we had more equitable distribution of wealth, the same could have prompted/motivated other individuals to produce more innovative/high-tech products. Only wealth motivates the novelty, research and the hunt for bigger challenges. Ancient indian civilizations could achieve high spiritual and technical expertise only because India was rich and people never had to other about the bread.

Here, in above example, we can see that the production/supply of 380 individuals is dependent upon the “DEMAND” created by the 600 farmers (Of course also by 20 privileged ones). They are the demand side of the economy So they can’t affect the economy much. As explained in earlier blog posts also (Click here) that there are always two segment of an economy…demand side and supply side. You focus on one side and everything will be in mess. Demand and supply are the forces pulling this cycle…enlarging it. In our case Agriculture is the supply side due to sheer size of the capital invested and people engaged and our economic cycle starts from here. So if we need to make more productive use of our assets (like power, road etc) and resources (water, soil, manpower) then agriculture is the first variable in the equation.

Jain Irrigation Ltd: Best Agriculture play

Heartening fact is that our Govt is focusing on this and serious efforts are underway to solve this mess. Warehousing, crop insurance, micro-irrigation, mega food processing parks, Commodity futures and options, contract farming law etc. are the right steps in solving our agro supply chain. So I have already invested in the likes of MCX, snowman, Tata chemicals, Insurance stocks. Crop collateral on the basis of registered warehouse receipts will be the another big area as farmer can take short term loan on the basis of warehouse receipts in case of a price fall. Farmer can sell the crop in the future after price recovers and pay back the loan. Star Agri warehousing and Collateral management and Sohan lal commodity management Pvt Ltd are into crop collateral financing business. I am waiting for the IPO of these two.

But Jain irrigation is one name which is covering a number of agriculture related areas. It is world’s 2^nd largest micro-irrigation player and recent droughts and hue and cry over water among states has made our govt serious about MIS…and jain will be the biggest beneficiary.

The next big revolution to be happened in Agriculture will be of precision farming. Now we need to produce bigger from lesser resources to feed the ever increasing population and precision farming is the only remedy. Water is scarce so as land and other inputs so we can't afford to continue our current careless form of agriculture where focus was only on Output and never the emphasis was put to measure the optimum use of various Inputs. So a big revolution is going to happen where wastage of resources will be brought down to are minimum. Jain can be the one of the leader due to its portfolio of water saver micro irrigation.

Jain is one of the biggest players in food processing with turnover of around 1700 cr…biggest mango processor, third biggest onion processor in the world. Coca cola procures all of its mango puree requirements for “Maaza” from Jains. It has now ventured into B2C with its “Farm Fresh” brand. In last funding rounds for its food processing business, it was valued around 3200 cr ( Current market value 5000 cr).

Its turnover is around 7000 cr (Target of 8400 cr this year) distributed in a number of high growth and niche businesses like irrigation, food processing, UPVC pipes, green/poly house, solar and tissue culture. It is building a 750 acre food processing park in AP. I think it will be a big player in food processing.  

Its technical capabilities in tissue culture and agro research are un-matchable. A case in the point is Jalgaon. Jalgaon is the Banana capital of India accounting for nearly 70 per cent of Maharashtra’s and 11-12 per cent of India’s annual output. But it is not best suited for producing bananas which requires tropical climate with 2,000 mm of rain…still it is the 7^th largest banana producer in the world with just 750 mm rainfall. All this is due to irrigation system and Banana tissue culture from Jain Irrigation.

Farmers here have seen their avg yields rising to 100 tonne per hectare from 30 tonne…income from 1 lac to 3 lac…all this to superior technology and tissue culture from Jain. Tissue culture is the next big thing in Agriculture and Jain is already a big player in pomegranate and strawberries…coffee tissue culture is the next one where Jain is the only indian firm to achieve the success.  Plant tissue culture is widely used to produce clones of a plant and can be initiated from almost any part of a plant and Plants regenerated from tissue culture will be clones genetically identical to the cell they originated from. So health disease free saplings can be used for big gains in crop production.

Jain is recovering from the debt trap where it was trapped due to subsidy delays from govt for its micro irrigation and its price nosedived from 270 to 50. But now it has changed its business model where farmer bears the upfront subsidy. Its working capital days have been in steady improvement since then…around 150 from 270. It has top class management having vision and passion for doing big. They are more than capable of solving the hiccup in its journey. Although the dip in the price to 50 has given the opportunity for people like me to enter at lower levels. 

It is already a big player in the export with 45% of its turnover as exports. But it is entering Africa and Latin America big time and recently acquired two companies in MIS.

Food processing is the final step in the agro supply chain and NITI aayog is drafting the contract farming law in India which so far have seen muted success but we'll see something big here very soon. Tata chemicals ltd (CMP 570, Click here for earlier study at 400) is another one going to be a biggie in the food processing.

I am buying Jain regularly from 50 levels and off late done major buying at 90 levels. Today made another entry at 98

(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)

Updates on Zydus Wellness Ltd: Well Well Well !!!

Zydus wellness was earlier advised at 770 (Click here for earlier study). I am regularly sharing the updates on it via emails and it is one of my favorite and I am seeing it making it big…may be in this year itself. I am done with my buying and invested more around 800-830 in last 2-3 months. Zydus wellness is doing most of the things right now. Earlier people's perception about "Sugar free" was some sort of Diabetic supplement...some sort of medicinal or pharma thing attached to it. But then Zydus changed the packaging (Looks more like an FMCG product now)...roped in celebrities for branding and presenting it as life style product for health conscious. Now "Sugar free" is viewed differently and people are using it as healthy sugar substitute.

Sugar free is also changing with time...earlier it was just a chemical product (Aspartame based) but now it has one variant “Sugar free Natura” which is based on Sucralose (Natural Sugar). It has recently launched herbal variant (Stevia based) “Sugar free Green" which is 100% herbal and safe for children also.

They are spending big on ads now. They have re-launched "Everyuth" also which is a great skin care product but has been forgotten. So Zydus may see the benefits of restructuring very soon.

In the March-17 quarter, turnover was at 130 cr vs 114 cr last year, NP was at 30 cr vs 27 cr. Though looked average but it is commendable keeping in the view the recent headwinds in the economy due to demonetization. Economy was sluggish in March quarter due to demonetization but still Zydus managed to break the ice. I think their efforts on branding of Sugar Free as lifestyle product and re-launch of Everyuth is bearing fruits. I am expecting even better days in the future.

They are now aggressively promoting their stevia based “sugar free Green”. I am sure this will bring even better results as it’ll settle all the pre-conceived notions associated with sugar free products. Nutralite is another brand in their kitty which is table margarine used as a substitute for conventional butter. Margarine is a fat derived from animal and vegetable oil sources. Nutralite is sourced from Veg oils. It is cholesterol free and many health conscious people prefer it now a days as their low energy lifestyle makes butter unaffordable (Not economically) for them. Nutralite does not contain hydrogenated fats compared to butter. It also has PUFA (poly unsaturated fatty acid ) and MUFA (monounsaturated fatty acids ) which are known cholesterol fighters. But Nutralite still failed to gain an extensive market share and I feel the main reason for it was the taste. I also tried it but left it as it was greasy and devoid of any taste. I turned back to butter although I still prefer homemade white butter in place of Yellow butter from the likes of Amul, Hatsun etc. as I find it too salty and taste less.

Once I even thought of writing to the Zydus management to add 1/3^rd original butter in their margarine spread in order to increase the taste. But I think they realized this and recently they have launched two flavours Garlic & Oregano and Pudina & Coriander under Nutralite brand. The launch of new flavours will cater to the consumer demand for new tastes. Zydus has also changed the packaging of these spreads to make them look more contemporary and premium. Celebrity chef Sanjeev kapoor is the face of their brand campaign and high end branding is underway.

So Zydus is focusing and investing big in refurbishing the brand promotion, product variety and look. This aggressive focus was missing for last 5-6 years so I am sure that these efforts will surely bring the fruits. Zydus wellness is one stock about which I am very optimistic and I am sure that this year will be the growth catalyst. Its return ratios and balance sheet is very strong. On a turnover of Rs.495 cr net profit is 110 cr. Inventory is just 30 cr and debtors are meager 4 cr!!! ROE is good around 20%, cash in the books is 440 cr which is sufficient to meet any future expansion and marketing campaign. But still what we are seeing at present is nothing...turnover from Sugar free is just around 300 cr when there is huge diabetic population in India along with growing health conscious people. Zydus' Sugar free brand has 93% market share in sugar free market in India...so one can imagine the scope of future growth when demand for sugar free substitutes will leapfrog to more realistic levels...i can see a potential of more than 3000 cr. As i have shared many times future scope of scale is the biggest factor of growth and major determinant of the valuation. So keeping in view the high growth potential , Zydus wellness at a PE of 30 is cheap. Great buy at CMP of 850.

(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)