Some Stocks i am Buying Now- Venky's india, Gujarat Borosil, Zee Learn, Himadri Chemicals, Surya Roshni

Generally It takes a lot of time to study a stock…but It has happened with me many times that while final analysis of some share was under completion, it just went above the roof and finally of my buying zone. So if I am 50% confident about some stock then I’ll buy it and after final study I take the final decision. But some of my friends asked me to share those also as many of those shares have skyrocketed before I shared my final analysis with them. Like Last year I bought Shreyas shipping at 20/- and D-link at 30/- before I finished my study they just blasted. Now Shreyas is at 480/- and D-link is at 190/- I am still holding these. Greenply is also one of these.

So I am sharing some of my recent buys which are still under final study.

Venky’s India: I am buying it from 500/- to 360/- today….my avg is around 410/- now. It is a 1800 crores company, one of the largest poultry sector behemoth. It gets 1000 crores from poultry, 650 cr from oilseeds and around 150 crore from animal health products. It has also ventured into Quick service restaurant business by opening XPRS chains which serves chicken and only chicken in direct competition with KFC. Its market value is just 320 cr but it is having 200 cr in cash. It promoters are good as in spite of huge dealings with a number of group companies, they don’t have cross holdings in these companies.

Maize and corn are their major raw material which comprises around 60-70% of their total cost. Prices of these are falling as evident from their dec-14 quarter results wherein the company turned profitable due to savings in raw material costs. But I feel as we are earning more money so demand for good quality poultry product will only grow. The chicken we are eating now from our backyard poultry farms are highly toxic treated with huge doses of anti biotics and growth hormones. So I see a shift will happen in the near future and we’ll realize that healthy chicken is costly. Godrej industries is selling their chicken brand Real Good chicken competing with local chicken. Also around 2004 I was buying chicken around Rs 70/- per KG which now trades at around 140/- although other major commodities like milk, rice, sugar, pulses, vegetables like onions etc now trades at around 4-5 times of their lows of 2004. A major shift is coming.

Gujarat Borosil: It manufactures Low iron glass which is used in solar power modules as a protective layer for solar cells. It protects the costly solar cells and also helps in transmitting the sunlight into solar cells. Normal glass with high impurity of iron does not absorb major sunlight due to iron and reflection of the surface…it absorbs around 83% of the sunlight. But Low iron Glass does around 95% after curing iron and applying a protective coating. Glass is a major component of a solar cell module comprising around 60-70% of total weight. India is investing huge in solar power and wants to build around 100000 MW of solar power capacity around 2022. For a perspective, it requires around 7-10 tonnes of silicon to make a solar panel for generating 1 MW…so we need a lot of silicon wafer. But we don’t even produce one kg of semiconductor grade silicon in india. Our local solar cell producres like Moser Baer and Tata power don’t produce solar cell from the scratch…they import silicon wafers which are then turned into solar cell by incorporating an electricity circuit around it to produce electricity by photovoltaic effect.

Although there is nothing wrong in these companies for not producing silicon wafer which itself is a highly technical process requiring huge investments and power. Conventional manufacturing processes consume 40-50 kWhr of electricity to make a kilogram of polysilicon. SunEdison of USA is developing  FBR technology which would need just 3-5 kWhr. But india can’t dream of building this huge capacity by importing all of the silicon…it will be a very costly proposition and may turn out costlier than oil and coal imports. So we need local manufacturing and Gujarat Borosil just does this.

It is the only local producer of low iron glass in india catering to local and export markets. The best thing about it is- its very low debt, only 40 crores. Last year turnover was 132 cr with net profit at 8 crore…so it is perhaps the only solar sector company which is profitable. Moser baer is having a debt of 3300 cr, indosolar of 800 c. Net worth of Moser baer is -1657 cr and of indosolar is -40 cr, while Gujarat Borosil’s net worth is 130 cr and its market value is 170 cr.

So I am sure Govt is going to do something very serious to promote our local solar industry. Gujarat Borosil is poised for a huge growth as it can use debt route for countering this coming solar storm. It is a good buy at current price of 23 and can be bought around 20-25-30 and at every fall.

Zee learn: I am holding it from 16 and few days back make another entry at 33/- our education sector is the most underdeveloped and incapable of shaping or giving direction to a natural prodigy. With its useless study materials and teaching techniques it can only ruin or delay the blossoming. So we’ll see major paradigm shift in this sector. Many companies have entered in this noble industry but their shares prices plummeted due to tainted promoters and shabby standards of accounts. So options are very few and Zee Learn is one of them. It owns Kidzee and Mount Litera chain of schools. Just give it some time and it’ll blossom.
 
Himadri Chemicals: At present there is no Lithium battery maker in India. But there is one indirect option and that is Graphite. Lithium batteries use high amount of Graphite (5 times than Lithium). Most of the weight of Li battery is of graphite. Graphite is of two types, natural and synthetic. Natural one is mined and synthetic is made from petrochemical raw material.
 

Mined graphite is somewhat impure as purity requirement of Li battery is around 99.99% which is given by synthetic graphite. Now they have innovated a cheap technology for making mined graphite more pure. But i think fall in oil prices will benefit synthetic graphite players and also mined graphite supply may not catch up with demand. Again China is having around 70% share in natural graphite, india is at second with some 12%.

However we have some good synthetic graphite players in India. Himadri chemicals is one of them. Largest player in india and it is also making lithium grade graphite products for japan also. but it is deep in red and high debt. But its fortune can change any time because it is very costly to transport petcoke (raw material) so mostly synthetic graphite markets are regional. I have entered in Himadri around 20 and will add more when it will perform. It main business where it supplies graphite to graphite electrode makers like HEG/Graphite India is also on the verge of turnaround. This one can really surprise when market will realize its potential.

Surya Roshni: Although Bajaj electrical is the major player in the kitchen appliances, fans and lighting in india but it outsources around 90% of its business to outside producers. Some analysts call it asset light model but i want to make some more study. In house production gives one better control over quality and inventory management. Surya Roshni is a bigger player in lighting sector than Bajaj with one difference. It produces everything from scratch In its factories starting from glass.

In lighting sector, we have seen one revolution from incandescent bulbs to CFL bulbs. LED bulbs are the next big thing. LED bulbs use half the power of CFL bulbs with much longer life. CFL bulbs use mercury for production which is very dangerous for humans hence need very careful disposal. No such issue is there with LED. Govt is focusing big for led revolution and has placed huge orders for led lighting systems for streets which has brought down the prices of bulb from 500 to 200. The price will go down further.

Surya is having grand plans for LED and it is having india’s most advanced lighting research centre equipped with photometric laboratory at Noida which is approved by DSIR ( Department of  Scientific  & Industrial research, Ministry of Science & Technology) and also it has been listed as one of the best testing laboratories in India by BEE ( Bureau of Energy Efficiency).

It has also entered into fan and home appliances business which is growing very fast and can be a real value creator as the company can count on its huge portfolio of distributors and retailers which is the main differentiator.

Its turnover is 3000 cr, with 2000 cr from its steel piping division and 1000 cr from its lighting business. Its net operating margins from steel business is very low around 3% as compared to 10-12% of lighting. Steel piping is a very low value addition business as all it does is to roll a flat sheet of steel into round pipes making it vulnerable to vagaries of ever changing steel sector.

I am yet to study about the future plans of the company regarding their steel business, capital employed, further investments or selling the same etc. capital invested in lighting business is 600 cr with 1200 cr in steel division which I feel is a bit skewed towards steel although we know Surya for light. Gross Operating profit earned from steel is 73 cr, it is 108 cr for lighting business. Operating margin to capital employed are just 6% for steel business while these are 18% for lighting. I think it makes much sense for Surya to invest more into lighting and expend more for brand building. It has also entered into UPVC pipes recently which are growing faster than steel pipes in india.

Regards

Gurpreet Singh.

(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)

Titan Biotech-update

There can’t be any entry price for these types of companies which are in its infancy. Because if they grow as expected then there stock prices can touch the sky as happened with Avanti and SKM Egg…and by the way when we are taking this much risk by investing in these unknown and small companies, we deserve hefty gains in the range of 10-20 times.

Titan Biotech is falling (or we can better say not rising as liquidity is very low even when it is falling) as its results for past 2 quarters aren’t that good with its turnover falling by some 10%...however the drop of water in the desert is its improving margins and lower raw material costs…its raw material cost is around 50% of turnover in last two quarters down from around 62% last year. We can’t gauge the reasons with surety due to lack of information provided by the company but It may be happening either because of fall in raw material prices, decline in trading activities, starting of production in its new factory.

Also last year, its turnover took a big leap to 40 cr from 28 in 2012-13 with export turnover doubling to 16 cr from 8 cr. So it is natural for it to remain stagnant for some time before finding new demand. Management is quite optimistic about the future of the company as they have also invested in new manufacturing facility, investing more money in the form of equity at a price of 60/- per share. Almost all of their products are linked with general health like protein powder etc which is quite different from pharma products…rising awareness and spending capability in the country will provide a boost to their products.

Entry barriers to their line of products are fairly high as apart from being sophisticated products, they need to take many approvals before launching new products. Also they have a varied list of users of their products which provides a cushion in case of slowdown in one particular segment of the economy.

So risk is high but reward can be pretty big…I’ll give it much longer time of around 2 years. Good dividend payout is one big indicator of promoter fairness in these small companies. So one can buy it around 32 and at every further fall…but with one condition…only invest your RISKY money (with which you can afford to take risk) not your NEED money.

Regards

Gurpreet Singh.

(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)

Building Material-HIL and Visaka Industries

Modi wave is taking us along. He said “Swatch Bharat” and whole country lifted brooms. Big corporate houses announced big plans for bringing cleanliness in villages under their CSR activities. We are counting sanitryware companies to be the biggest beneficiaries of this (Our HSIL is doing great, it is at 415/- from our price of Rs. 90/-).  But we just forget the humble cement fibre sheets because every toilet made in villages or town is going to use these. We can’t forget the rocket…E-commerce sector…which is going to create huge investments in warehousing which is also about cement fibre sheets.

These sheets use Asbestos fibre which is banned in almost all of western countries due to perceived lung complications but as our poor in villages still use Kutcha roofs…these provide affordable roofing option to them so they aren’t going anywhere atleast over a medium term. Also the variant of Asbestos (Chrysotile) used in india is not perceived as dangerous.

But my reason for choosing these is not because of Modi Wave. But because these companies are investing heavily in next generation building materials. Indian building material industry is still about red clay bricks, high doses of steel and cement. Clay bricks are natural disaster as they are destroying much needed and in short supply soil. One Sq feet of carpet area with clay bricks walling consumes around 25 kg of top soil and around 8 Kg of coal. More emphasis is being put on energy efficiency rather than energy consumption.

Cement Fibre Boards/panels and Autoclave Aerated Concrete Blocks (AAC Blocks) are going to revolutionize the way we build our structures. Cement Fiber boards are made of cement, wood particle, fine silica, quartz and some other minerals...they are then cured under high pressure steam to get the desired high strength and stability. They act as substitute for wood and plywood but provide added protection against fire, water and termites.

Visaka is making Cement fibre Boards and panels, while HIL is also making the both but it has also entered into making AAC blocks ( Autoclaved Aerated Concrete) which are being used as a substitute for  clay bricks. While cement fiber boards and panels are mainly used for their aesthetic features (apart from some major functional benefits over their precursors) as substitutes for wood boards and drywalls, AAC blocks are a serious business.

AAC blocks are made by combining fly ash, quartz sand, cement, lime, water and aluminium (paste or powder). These are mixed and then aluminium (powder or paste) reacts with lime and fly ash, resulting in the formation of millions of microscopic hydrogen bubbles.  The hydrogen bubbles cause the concrete to expand to roughly double the times its original volume.  The hydrogen escapes into the atmosphere and is replaced by air leaving a high closed – cell aerated concrete. This concrete is cut into blocks and then baked in autoclave which uses steam and pressure to speed up the curing process and finish the other chemical processes. Curing at high pressures and high temperature steam in autoclaves finishes the curing process in hours in place of days. Temperature of steam is around 190° Celsius and at this temperature various materials reacts and gives AAC its strength and other unique properties. However our routine red clay bricks are generally cured at temperatures around 1200° Celsius, hence AAC blocks are not regarded as Fired bricks but a lightweight concrete.

Around 70% to 80% of the total volume of AAC block is air, which renders it lightweight. So due to low density its compressive strength is relatively lower, almost 50% of the regular clay bricks. The compressive strength is the capacity of a material or structure to withstand loads tending to reduce size. Like if you press a tomato with both hands, it will deform and break fairly easily as its compressive strength is weak. A sold brick or concrete has fairly high levels of compressive strength. Then there is Tensile strength which is when we try to expand something by force like we do it for rubber band. On an atomic level, the molecules or atoms are forced apart when in tension whereas in compression they are forced together.

Concrete is low in tensile strength, that’s why we reinforce it with steel for making roofs of our homes as steel has very high tensile strength. So RCC for roofing provides compressive as well as tensile strength required for a roof to withstand both types of pressures. 

The porous AAC structure

So AAC blocks due to their unique properties provide many advantages:

1.       As these are around 80% lighter so using these can save costs related to steel and cement since the weight of the building is lower. Costs related to labour , transportation and fuel are also reduced.

2.        Its porous structure and inorganic materials acts as a strong fire proofing component. They can withstand fire for up to 7 hours as compared to 2 of normal clay bricks.

3.       It is 100% eco friendly as it doesn’t use natural clay, no pollutants, no wastages, uses very less energy, uses industrial waste fly ash. So it is qualified for LEED credits and lowers carbon footprints.

4.       Due to the presence of high number of (80% of volume) air pores in it…it acts as a great thermal insulator. As air is one of the best thermal insulator…hence its porous structure acts as a great thermal insulator. A detailed study on the same is done in the later part of this analysis.

5.       AAC blocks block sounds better as they absorb it. They can also withstand earthquakes better due to their light weight and high comparative strength per unit of area.

6.       They can save energy costs by around 30% due to their superior thermal insulation capabilities.

7.       As their making is of high quality with sharp defined edges as compared to uneven structure of clay bricks, they require much less material in giving them a smooth, flat finish as compared to clay bricks as they require a lot of cement covering to give them a smooth finish.

It is being used globally at a much larger scale than India. In USA it comprises around 40% market share, 60% in Germany…its use is growing very fast in china. Some of the most iconic buildings in the world such as the The Palm, Burj Khalifa, Emirates Palace, Dubai Marina in Dubai; Four Seasons hotel in China; Royal Crescent Flats in London; One Central Park in Sydney to our very own world’s tallest residential building, the ‘World One’ by Lodha Group, leading hotels such as ITC, Marriott, The Leela, Lodha Bellisimo and Wockhardt hospital in Mumbai have used AAC blocks. The material has now seen tremendous acceptance amongst a vast range of developers, such as L&T, Lodha, Shapoorji Pallonji, Kanakia, Rustomjee, Raheja, Ahluwalia Contractors, Westcon, Mantri Developers, Embassy Group, etc.

Few years back, cost of clay bricks were around Rs. 2000/- per cubic meter (which comprises around 600 bricks) as compared to around Rs. 3500/- of AAC blocks…after that due to rising cost of labour and fuel and restrictions on clay mining, clay bricks now cost around 4000/- per cubic meter in most parts of the country…AAC blocks also cost around the same levels. In the North, the installed cost of 1 cu m of AAC blocks is approximately Rs 6,800 while the installed cost of 1 cu m of red brick is approximately Rs 5,800. Builders still prefer using AAC blocks considering the numerous benefits it offers.

There are around 1 lakh clay brick manufacturers existing across India. However, the method of manufacturing these bricks is inefficient as a large land spread is wasted in the process; the top layer of the agricultural soil is excavated, further damaging the land. Compared to clay bricks, AAC blocks are 10 times larger and 70 per cent lighter. They are factory made and their size helps to speed up construction unlike clay bricks.

However supporters of clay bricks challenge the claim made by AAC block manufactures that it saves 25-30% energy cost of the building. And I feel this is the most challenging part on the part of architects to convince any prospecting consumer. I am not a civil engineer so can’t claim to have in depth knowledge of the same but I have made an attempt to understand the real facts.

Supporters of clay bricks are of the view that as clay bricks have high Thermal Mass, so they can better withstand the climate variations than AAC Blocks which is high in Thermal Insulation but low in Thermal Mass. Some researches also conclude the same. Thermal Mass is the ability of a material or liquid to absorb or store heat. As bricks have high mass so they can absorb high amount of heat like from sun and then the same is released into the environment…this whole process takes long time (which is called Thermal Lag) which is the main factor in reducing energy costs of the building, Like bricks absorbs heat in the summer throughout the day and in the evening when outside climate is cooler, it releases the heat back to the environment keeping the house cool.

Thermal Resistance (insulation): Heat transfers from hotter to a colder body either by conduction or thermal radiation. Like steel…heat can transfer from or onto it fairly easily as it is a good heat conductor. Hence thermal insulation is the reduction of heat transfer…by reducing thermal conduction and by reflecting thermal radiation in place of absorption. Wood, cloth, Thermocol (polystyrene), Glass wool, rockwool, air etc. are examples of insulators. They can block the flow of heat and can thus save huge amount of energy.

However some are of the view that Mass is much more important than insulation (R) and it is too such an extent that insulation is not required at all. But this is not true. It can be true in an area where there is huge variation in the day and night time temperature like in desert. For the day time, it’ll absorb heat from external climate thus maintaining a cool interior climate…in the nights when temperature falls considerable as compared to day time…then stored heat in the bricks will release to external climate as heat will flow to cooler climate which is outside and thus maintains the comparatively warm interior climate as it will also give some of their heat to interiors. Next morning, their external walls will be cool and will be ready to absorb heat from fresh sun.

But in warmer climates like india…this Mass will not suffice as in the night there will not be much difference in day-night temperature and if interior is cooler due to any reason like Air conditioning then the stored heat will be released into the interiors and the AC unit will have to work harder to keep the interior cool. This is where insulation will come handy…if the interior is insulated from inside then it’ll prevent the outside stored heat from penetrating into the interiors and AC unit will use lesser energy. Thermal mass in summer conditions works like a heavy metal frying pan…if you want to fry an egg…it will take longer time to heat and if you put the flame off, it’ll still release the heat and your egg will be overcooked if not removed from the pan.

Placing insulation inside the interiors will work wonders in summer but not that well in winters as it’ll block the exterior heat but in the same way it’ll also block the heat released from the internal environment like our bodies. Hence the role of Insulation can’t be ignored and it’ll save a lot of energy if planned properly. Care needs to be taken of using insulation on the roofs also as roofs will be in contact of the sun most of the time. Flooring also due to its high mass absorb a lot of heat…so use of insulating materials like wooden flooring, use of mats  etc. will also save  energy costs.

Insulation materials like mineral wool, rock wool, vermiculite, foams, expanded polystyrene and extruded polystyrene are not yet proven and their impact can be dangerous to the humans. So it is best to integrate the insulation into the design of your building like keeping the inner walls separated from the exterior surface, which is exposed to weather conditions, just like a Thermos flask. In hot and humid climates, architects make use of natural ventilation with light construction and high roof of organic material like thatch, keeth (interwoven coconut leaves) or plain terracotta tiles. These can be seen in the houses of Kerala and Tamil Nadu. Rooftop garden can also be a good option for providing good insulation, it can also provide good supply of fresh home grown vegetables. Cavity wall insulation is another effective way.

Cavities in the walls

Thermal performance of modern buildings can be improved with intelligent architecture. Replacing conventional material like brick and concrete with autoclaved aerated concrete blocks, hollow blocks or other material with inherent higher R-values can improve buildings’ insulation.

So the future really seems bright for AAC blocks. HIL which commands nearly 23% share in Asbestos cement sheets in india clocks turnover of around 900-1000 crores…out of which AAC block is around 100 crore and growing at around 25%, its boards and panels business also contributes around 50 cr. It has also entered into CPVC and uPVC pipes…which are growing very fast. It sells all of its products except asbestos sheet under Aerocon brand. Asbestos sheets are sold under charminar brand.

Its asbestos sheets business is going to outperform in the future. The demand for asbestos sheets will rise alongwith rising rural income and spending. Indian asbestos sheets companies import asbestos fiber ,Chrysotile, which constitutes around 50% of total cost of Asbestos sheet production. Due to huge fall in oil prices, import bill of India for the oil is also going to half which will make rupee strong against dollar thus reducing cost of import for these companies. As global investors are pouring money into india due to better business climate and hopes of high growth, this will also make rupee strong.

Rupee hasn’t risen against the dollar much inspite of the fact that oil prices have more than halved. It is mainly because Indian oil companies generally take 6-8 weeks credit line for buying oil and as fall of the oil is sudden hence true impact of the same will be felt in coming months.

HIL is investing heavily for being a complete building products solution company. As I have explained earlier also that companies providing basic lifestyle products enjoy strong and better brand loyalty than companies providing flashy and sensory products like jubilant and coca cola. Sensory choices and preferences change quite easily as we also want to experiment…but we don’t compromise with basic life style needs so easily. A person having a liking for “India Gate Rice” would not easily change the brand as product differentiation with other companies is not very high…almost all rice taste same…so minor positives become big drawing factors. Finolex cables fits this perfectly. HIL is also investing big in creating “Aerocon” building material brand as a testimony of high quality and customer centric approach.

Visaka Industries is also having high share in Indian asbestos sheet sector of around 17% and derives turnover of around 1000 crores with its textile division contributing around 178 crores. It is also investing big in promoting its cement Fibre Board brand Vnext which is also a variant of AAC blocks but these are mainly used as a substitute for wood. But it is having relatively high debt of Rs. 246 cr as compared to around 60 cr of HIL.

HIL seems better prepared in its diversification journey with better balance sheet. But still I have added Visaka at Rs. 120/- as it has got scale of around 100 crores but I have yet to study the demand and benefit scenario of Vnext boards and its future plans. However HIL is a great buy. I am adding this from 680 to 640 today.

(I am not a civil engineer; hence it is highly possible that my views on Thermal Mass and insulation are wrong. Reviews and corrections are welcome)

(Views are personal and should not be taken as a recommendation for buy or sell a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing)

Building Material-HIL, Visaka Industries, Everest Industries

Modi wave is taking us along. He said “Swatch Bharat” and whole country lifted brooms. Big corporate houses announced big plans for bringing cleanliness in villages under their CSR activities. We are counting sanitryware companies to be the biggest beneficiaries of this (Our HSIL is doing great, it is at 415/- from our price of Rs. 90/-).  But we just forget the humble cement fibre sheets because every toilet made in villages or town is going to use these. We can’t forget the rocket…E-commerce sector…which is going to create huge investments in warehousing which is also about cement fibre sheets.

These sheets use Asbestos fibre which is banned in almost all of western countries due to perceived lung complications but as our poor in villages still use Kutcha roofs…these provide affordable roofing option to them so they aren’t going anywhere atleast over a medium term. Also the variant of Asbestos (Chrysotile) used in india is not perceived as dangerous.

But my reason for choosing these is not because of Modi Wave. But because these companies are investing heavily in next generation building materials. Indian building material industry is still about red clay bricks, high doses of steel and cement. Clay bricks are natural disaster as they are destroying much needed and in short supply soil. One Sq feet of carpet area with clay bricks walling consumes around 25 kg of top soil and around 8 Kg of coal. More emphasis is being put on energy efficiency rather than energy consumption.

Cement Fibre Boards/panels and Autoclave Aerated Concrete Blocks (AAC Blocks)  are going to revolutionize the way we build our structures. Cement Fiber boards are made of cement, wood particle, fine silica, quartz and some other minerals...they are then cured under high pressure steam to get the desired high strength and stability. They act as substitute for wood and plywood but provide added protection against fire, water and termites.

To be continued….

(I have bought HIL at 680/- and Visaka industries at 120/-)

E commerce-Beyond Portals and Logistics-2nd Part-Borosil Glass works Ltd, Redington India, Future Retail

I couldn't post for a long time since i was busy in quarterly results and filling of various tax returns. In this period, I have bought Future Retail from Rs. 80 to 90, redington india at 120/- and Borosil Glass from 1750 to 1600/- Current market prices are higher but these still offer value. due to time constraint i couldn't write full analysis but i am posting small study here in this post in order to have some quick overview of these.

Future Retail and Redington India: Online retail is giving Offline retail a run for their money. Many has written off offline retail but there is more to this war than this recent burst. Online is relishing this burst due to huge inflow of equity money with which they can afford to give huge discounts to capture the customers and build scale. But I have serious doubt on customer loyalty in this model…customer is buying only because of lower price offered not because of it being offered from Flipkart or Amazon…brand loyalty is bare minimum at this level.

Sooner or later they have to think about profits and then there will be lesser discounts and lesser free deliveries. And we can’t just wipe out offline retail as they will also improve upon inefficiencies and wastages….changing their business model from one dimensional to omnipresent just like future group, reliance and likes of Raymonds has big plans for offering their products online. One can choose product online and can opt for delivery at his home or can pick up by self from the store located near his place.

Future Retail is having one of the biggest retail presence in india…they are improving their business model. Their Future consumer enterprise and Future Life style fashions have their own branded products like Tasty Treat, Sach, Clean Mate, indigo Nation, clarks, Mother earth etc which it can use for its retailing business giving higher margins.

Future Retail is having one of the biggest supply chain company, Future Supply Chain Solution ltd with 2.7 million square feet warehousing space. It is having a turnover of 521 crore with NP of 9.33 crore in 2013-14 (Don’t have figures for the first half of 2014-15, but these will be much improved). It was set up to handle the supply chain work of future group but of late sensing the huge opportunity in third party logistics it has started handling the logistics solutions of `other companies like Nestle, Mother Dairy, Coca cola etc.

Future retail is having 70% share of FSCSL and I am sure that with the astronomical valuations given to high quality logistic companies…Kishore Biyani will surely use the opportunity to sell a stake in FSCSL either to pare the debt of the group or further expand the business of supply chain business.

As I have mentioned earlier…Logistics business is not about trucks…but a high tech matrix of Warehousing, IT and transportation. Future Supply chain solutions and Redington India are having most advanced technologies in india for the same.

Borosil Glass Works:­  it is having a market cap of around 500 crore with cash holding of around 400 crore (Which it got by selling land)…hence its business is available at around 100 crore only which is having a turnover of around 170 crore. Borosil Glass is one which we can use over heat…for us it is a generic name for high quality glass. The company is having one scientific & Industrial products division which deals in scientific laboratories and other is consumer product division which deals in consumer products like Dinner sets, Trays and Bowls etc. This business is growing very fast over the years. La Opala RG has grown over 10 times in last 3-4 years…Borosil can replicate the same story here as it is having more than enough cash to fund any growth and diversification plans or with over 74% shares management can go for delisting also.

It is available in single digit valuations in spite of its being a reputed brand, efficient Management, high growth consumer business. 

(Views are personal and should not be taken as a recommendation for buy or sell a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing)

Fall of Oil-Only Fear Can Make us Slip

There was great noise regarding environmental pollution and we were made to think that our earth is going to die unless we reduce our excessive consumption pattern. Parallel ly there were growing concern regarding whether we had reached “Peak oil” and whether looming oil shortage would distort the rhythm of our life at earth.  To counter these fears…Sun and Wind came to our rescue…USA started the fight with Shale boom…efficiency of our vehicles were improved…we were making serious dedicated efforts to reduce our carbon emissions by being more responsible in energy consumption.  These were just the steps that should have been put forward and we did just that and these were actually working to the very best of our luck.

The most important factor responsible for driving the growth of material economy is the intangible one and that is…confidence, confidence of producers and Consumers that things will be under control. It is this confidence that will prompt producers to make investments for new productions and consumers to spend. At macro level, it becomes a Chicken-Egg riddle where consumer will be able to spend only if they have money and income due to rising employment levels prompted by new investments by producers and producers will invest when they are optimistic about consumer demand. And this is where this economic growth equation becomes very complex…everybody has his own version of economic theory. Some puts weight on making efforts to increase the consumption levels by giving incentives to consumers like cheap money and credit (Quantitative easing by US Fed)  thus raising production and employment but it backfires when consumption rise beyond optimal levels and future consumption is dragged into present…and any minor shock or fear ( Like Housing sector in USA, which fell like a pack of cards out of fear) can create ripple effects by pulling economy quickly down when people stop excessive consumption and demise of one particular sector spreads to other sectors of economy.

And some vote for Governments to tax the enablers of the economy to the brink and distribute the same to laggards so as to raise the demand. Some brilliant Governments plan to build Pyramids which they think will provide employment, create demand for cement and steel but these type of brilliant plans will only raise inflation levels as we witnessed here in india as Government can better use the resources to build warehouses to reduce agriculture wastage and this not only provides employment but also raises production (by reducing wastage).

Recession always is a phenomenon of misallocation of resources and basically a stage where economic forces correct that misallocation by directing the flow of investments to sectors which were undercapitalized and more fundamental.

Oil prices have fallen below $60 and this should have been welcomed at least by consuming economies but again we are being made to fear that falling oil is an indicator of falling demand due to slowdown in the global economies. First oil is not falling due to slowing down of global economies…it is the result of whole gamut of forces from shale oil, renewable energy growth, fuel efficient vehicles to political and economic forces fighting for market share.

OPEC has decided to not to cut the production to maintain its market share and is ready for more decline in oil prices as this would mean death knell for USA Shale Gas explorers as their cost of production is around $ 70-75 and many deep oil field around the globe can’t maintain their production at such a low prices. So shutting down of them will again raise the prices for OPEC. This may be a smart move but global energy sector is now much more complex as energy now covers more comprehensive resources like Solar, wind, Bio etc. solar can still compete with Oil even at $60 as we can plan input costs (which are bare minimum as Graceful Sun is free) with greatest surety and enter into long term contracts as there is mandate all over the globe to reduce carbon footprints.

USA can, at a certain level, in order to save its shale sector put sanctions on oil import by controlling the quantity of oil import or by levying import duties. Also this fall in oil prices may be a ploy to sideline Russia (oil exports are major revenue source of Russia) and ISIS.

Renewable sources are going to further dent the might of conventional fossil fuels with the advent of more powerful and cheap batteries. Huge research is underway on batteries which is going to change the game for Sun and wind.

Era of high oil prices were mainly due to misalignment of production resources in few hands and that balance is now going to settle in more equitable way. It is true that some of big investment plans for oil sector will now be shelved but that is very natural and that money will now flow into more productive use may be into Water preservation or batteries.

If Governments pass on the fall in oil prices to consumers then that will save much of their money and will leave them with more money…which is more consumption power or more savings. Unlike Indian Government which used the opportunity in raising the excise duty and thus aggregated around 10000 cr to make up for huge budgeted deficit. But at least we hope that they won’t use this money for building Pyramids.

So I don’t see any negative in this fall in oil prices unless fear grapples us and we plan to stop buying that beautiful Rose for our wives from that little girl at the corner of our street.

Transcorp International Ltd- Exchange your Money with It...

Transcorp international ltd belongs to TCI group (Transport corporation of india) which is one of india’s largest logistics company, transporting almost 2.5% of Indian GDP. Transcorp is into Money exchange, inward remittance, tour and travel, real estate and taxi hire business. Money exchange and inward remittance forms the major chunk of the business.  I am also holding Thomas cook from 100/- which is also into same business but with much larger scale.

Tourism sector is going to witness huge growth in india due to inherent geographical and cultural dividend. Development of infrastructure will provide the necessary nutrition for the growth. Same is the case for inward remittance business which deals with remittance of money into india from our NRI brothers. Both these are under the strict control of Govt and RBI and the company has to follow strict compliances and audits. Hence entry barriers to this business are fairly high.

At CMP of 42/- Transcorp is available at a market cap of around 20 cr. But in 2010 it revalued its land holdings to 26 crore which were acquired at the cost of 3 crore and then it transfer this real estate holdings into a separate subsidiary company created for this purpose named Transcorp estate private ltd. I cant get much information regarding its real estate business at present, but we can assume that the same land will be valued around 30 cr now.

It is also having a cash holding of around 8 cr as per latest results. It is also having shares of leading companies like TCS, RIL, Axis bank, Biocon etc at a cost of Rs. 26 lac but I have done the calculations and market value of these is around 1.5 cr at today’s prices of these shares. We add all these and we get 30+8+1.5=39.5 around 40 cr which is double of current market price.

Company currently earns around 3 cr yearly net profit, its net worth is around 40 cr which makes return on equity of only 7.5%. The same point was mentioned in one study also but there is one catch-its networth of 40 cr is inclusive of revaluation reserve of around 23 cr which leaves real equity of around 17 cr and that makes ROE to 20% which is good. Even if I give this 3 cr a PE valuation of 10…it will make total valuation of the company to 40+30=70 cr which is more than thrice the current market valuation.

Although I feel the scope for EPS growth is huge due to scalability of its business which can grow exponentially with the growth of Indian economy. It has also created another subsidiary with the name of Ritco tours and Travels which caters to tour and travel sector. It was created by it to focus on this growing sector…although it currently derives turnover of around 8-10 cr but It is profitable. I can’t get much details about its real estate and travel business but creation of subsidiaries points towards something big on the part of management.

It is a consistent dividend player and yield at current market price is 2%. Corporate governance standards are fairly high as company has given detailed information regarding its subsidiaries in its annual reports.

Good buy at Cmp of 42/- 

Update 13/05/2016: Transcorp has approved the splitting of shares from FV of 10 to FV of 2. So with this, the recommended price as on 12/12/14 becomes 8/-

(Views are personal and should not be taken as a recommendation for buy or sell a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing)

E commerce-Beyond Portals and Logistics ...Companies Covered--Rupa & Co., Borosil Glass works Ltd, Redington India, Future Retail

I am always of the view that sometimes user of a product or service derives more profits/business than producer of that product or service-just like pharma sector where many companies invest huge sums of money and time for developing a new medicine or product. Only one or two of those will succeed. But a hospital can harness their success for its benefit much better and longer than them. It doesn’t matter for a hospital, who invented the medicine…it can simply use the same irrespective of the producer. The risk of production is only for the producer.

I can see the same thing happening with Indian E-commerce sector. Biggest beneficiaries of e commerce in india will not be retail portles like flipkart or logistics companies-as is perceived by the market these days. Entry barriers to ecommerce portal and logistics business are low. Portals or logistics companies aren’t offering something different from others …everyone is offering the same. There is no product differentiation…we can and will see more such online portals and logistic companies.  We picked Gati when it was at 30/-…now it is around 300/- . But I still feel market-in its mad run for logistic companies-is ignoring those who can turn out to be bigger beneficiaries of e commerce evolution in india. These are those  consumer product based companies who are unable to reach the every possible consumer due to high cost of distribution in india.

There are many local or regional consumer product brands in india which are offering products of quality on par with global or Indian multinationals…but they are unable to reach scale due to massive distribution clout of these big corporate houses which these small companies can’t afford. Also sometimes it is not competition but sheer cost of distribution that keeps some companies to stay away from some markets. I think these companies can enjoy huge success if they can focus on transforming their business and marketing model. Cost of real estate and dedicated transportation are the biggest hurdles in formulating a viable distribution path. Like cost of real estate in organized retail is around 15% in india as compared to around 7% of western countries. In india a truck normally covers a distance of around 250 km per day at the rate of 20 km per hour which is 500-600 km per day and 60 km per hour in developed world. E commerce with no need of high cost prime location real estate and scattered transportation can eliminate both these.

We’ll study some companies within this framework, however these are not selected purely on e commerce viability model but mainly on their inherent business strength...which will be further sharpened by e commerce.

Rupa & Co. it is one of biggest innerwear company of india competing with Jockey who has taught Indian that not everything is for showing, comfort and personal style is equally relevant when it comes to innerwears. Although Rupa (company is not named after a girl’s name, but “Rupa” is “silver” in Bengali) is larger than Jockey in terms of volume but falls behind when it comes to brand recall and high operating margins. It is visible in their stock prices where Page industries (authorized manufacturer/distributor of Jockey in india for last 50 year or so) is available at a PE ratio of 65 where Rupa is at 25. But I feel there is another side of the story. First of all Rupa doesn’t manufacture its products, it gets it done from third party manufacturers or job workers, it just does bleaching and dyeing on its own. It eats away margins.

In 2013-14 Rupa posted 900 cr of turnover and around 70 cr as net profit, whereas Page industries posted turnover of 1173 cr and net profit of 154 cr. But there is one catch. Rupa spent 73 cr for advertising while Page used only 33 cr. Add this 40 cr extra advertising spend to the net profit of the company and difference of net profits of two companies will become smaller-to 110 cr for Rupa and 154 cr for Page. But this ad spend will come down as with establishment of strong brand recall, the need for high ad spend will be lower.

Also Rupa is a mass market player whereas Page is mainly a premium player where margins are better. But Rupa is focusing and investing big on premium portfolio like Macroman, Euro etc and also endorsed Hrithik Roshan as its brand ambassador. But one thing which I feel it has to take care now is the quality of premium brands, so it should focus on in house manufacturing of these brands to better control quality.

Ecommerce will provide another vertical to increase its reach further although Rupa is having almost 100000 retail points as compared to 23000 of Page.

My another convention that brand loyalty for life style products like staple foods like rice is much stronger than sensory products like Cold drinks, Pizza, noodles etc. People normally are more than willing to change their taste and hence product. Like Maggi is the biggest instant noodle brand in india not due to consumer brand loyalty but because consumers are not able to find out better substitute or some new unique taste. This convention holds true for Rupa due to its high brand loyalty which will become stronger with the focus on new premium products.

Rupa appears cheap when compared with Page industries and keeping in view of the strong demand for branded innerwear in india due to huge young population. Also Lovable lingerie which is a much smaller player as compared to Rupa and with lower brand recall is trading at a PE ratio of 40.

Good buy at current price of 225/-

Borosil Glass, Redington India, Future Retail---will be updated soon

(Views are personal and should not be taken as a recommendation for buy or sell a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing)