Saturday 31 January 2015

GUJARAT AUTOMOTIVE GEARS LTD - RESULT UPDATE

Gujarat Automotive Gears Ltd recommended on 9th January 2015 @ 290.
Company has announced December 2014 quarter numbers on 30th January as follows.


As seen above: Sales have declined 27.39% (YoY) and the Net Profit has declined 36.36% (YoY)
It is to be noted that despite weak earnings the company has maintained OPM of 17.36% v/s 17.31% QoQ, As the numbers were not as per our expectations, I decided to speak to the management over the phone about the results and the proposed merger.
I got to speak with the chairman Mr Rajiv Aggarwal this evening who was traveling, and in the brief indulging chat Mr Aggarwal said the quarterly numbers were expected to to be bad, as due to some euro problems many companies have kept their orders on hold. He went further to assert that with the new product launches and aggressive marketing, the company has done good business after December. Lower crude prices too will positively impact the company hence the next quarterly results are quite clearly going to be good. For the new clients addition announced to the exchange he said that there will be great earnings from the new clients approximately after two-three more quarters.
When asked why the outcome of board meeting not submitted to the exchange till now especially announcements relating to the merger which was on the agenda of the board-meet, Mr Aggarwal said that the outcome will be communicated to the exchange on Monday and for the merger nothing concrete has happened as of yet. He did not comment if the promoters are hiking stake ahead of merger, though he hinted if need be they might consider upping the stake to 75% and giving a de-listing open offer for the remaining 25%.

I also asked about ex-promoter Naresh Kothari who has been selling shares in the open market and offloaded the full stake on 30th January 2015, Mr Aggarwal declined to comment on him and played down any insider information about the result angle and suggested the obvious that ex-promoter might even sell if he requires money. 

All in All i feel, the stock has already corrected sharply as it went 400+ after our post now it is back to 290s. Investors should wait for the earnings to boom as the chairman has asserted next quarterly numbers are going to be good and after two-three more quarters the new products and new clients can generate huge revenue.
As for merger/de-listing, remember the de-listing offer price if any is also calculated as per valuations of its peers, taking a look at other gear companies will show Bharat Gears trading at P/E of 100, Hi-Tech Gears trading at 40+ P/E and Shanti Gears hovering around 95 P/E while Gujarat Automotive is no way expensive and after including this bad quarterly number it is trading at a trailing p/e of under 13.
So the final word is hold patiently with the targets intact and also new investors can add this gem in their portfolio for long-term growth.

Tuesday 27 January 2015

SKM EGG PRODUCTS EXPORT (INDIA) LTD - RESULT UPDATE

SKM Egg Products recommended on 15th October @ 47.90 is now trading around 160 up 234% from recommended levels.


Today company has announced December 2014 quarter numbers as follows.

    
As seen above: Sales,Net Profit & EPS figures have boomed but other income too has sharply increased which is why the stock was under pressure today. Other income might include income generated by sale of by-products such as Egg-Shells or Export Subsidy therefore i am not taking it as an one-off since no asset sale has taken place. Important point is that the finance costs have decreased by 42.85% YoY which suggests that the company is heading to be a debt-free company soon.

Investors should continue to hold this stock for multibagger returns, next review will be done only after next quarterly results or any special event.

Thursday 22 January 2015

VALUE PICK - RICHA INDUSTRIES LTD



About The Company
  Richa Industries Ltd. established in 1993 is a reputed manufacturer and supplier in the segment of dyeing, processing and finishing of knitted fabric and now it has shifted its focus to Pre-Engineered Building (PEB) business.

 The company is headed by Shri Sushil Gupta an engineer by profession holding B Tech, M Tech qualifications from IIT- Delhi, Mr Gupta has been conferred with Udyog Patra and Udyog Vibhushan awards by The Govt. of India.

 The company's textile clients include multi-national brands such as "Adidas, American Eagle Outfitters, Calvin Klein, BIBA, Classic Polo, Coldwater Creek, GAP, H&M, Kenneth Cole, Marks & Spencers, Macy's Inc, Matalan, Next, Puma, Reebok, United Colors of Benetton, SuperDry.

The PEB division of the company serves industries such as Warehousing, Industrial Manufacturing, FMCG, Automobiles, Cold Storage, Agriculture, Factories, Showrooms, Dairy & Pharma, Power Plants, Multi-storey Buildings, Heavy Engineering and Paper Industry. The PEB business has been flourishing and list of clients include "L&T, Asahi Glass, Various food processing companies and warehouses, Usher Agro, NRB Bearing, WIPRO, Bedmutha Industries, Crompton Greaves, Indiabulls and BHEL.

Richa Industries in July 2014 completed an iconic construction for Madhu Silica Pvt Ltd.
The constructed project is a silica processing plant for the company in Bhavnagar, Gujarat. Spread over 204514 sqft. the plant consists of 7 buildings with the tallest being 36 meters, it is one of the tallest PEBs in the country. The project was started in September 2013 and finished in just 10 months which helped Richa create a great image for itself in PEB division.
 
The Ace Investor - Value Pick
(BSE:532766) RICHA INDUSTRIES LTD.
Company listed on BSE has now changed its industry from Textiles to Engineering and Construction, Currently trading around 33 with a P/E of under 7, Market Cap is about 70 crores, Promoter holding is at 57.38%, Debt/Equity Ratio is at 1.71. Brickwork Ratings has recently assigned BB+ rating for Richa's bank borrowing.

  Richa Industries Ltd. is engaged in textile and pre-engineered buildings business.
  Even though the textile business of the company has been doing well and has a lot of multinational brands as clients, the company as reported by the media is in talks to sell-off their textile unit as they want to focus on the high-margin business of PEBs, The probable sale of the textile unit to a Kolkata based company at valuations of Rs.200 crore+ was recently in the news and the textile unit sale will make the company fully debt-free, which is currently around 180 crores.

Richa Industries Ltd has recently further diversified into turnkey solutions for PEBs.
Which means 'from planning to final delivery' customers can award projects to Richa Industries Ltd with a deadline for delivery. Richa with its brand value can now attract more orders by diversifying into turnkey solutions.  

The MODI Govt. has ambitious "Make In India" plans and in all probabilities the plans are going to be successful, success of Make In India means huge boom in demands of warehousing, plants,manufacturing facilities which directly leads to a boom in demand of Pre-Engineered Buildings where Richa Industries Ltd is the only company certified with OHSAH 18001:2007 by IRQS.

It is a known fact that India ranked 66 among 105 countries in the Global Hunger Index 2012.
Due to the shortage of warehouses, unfortunately the hungry have remained hungry as grains and food is allowed to rot because of the warehouse and cold storage shortage crisis. If the MODI govt. wants to make any sense of the promises it made to the people, the hungry must get food and the wastage must stop. New finance minister Mr Jaitley has admitted that the current warehouse capacity is not sufficient and his govt. plans to strengthen the warehousing significantly in the upcoming budget with innovative ideas and plans. Richa perfectly fits the bill to get a lot of orders as it has already been working with a lot of private food processing companies for cold-storage and warehousing. Recently, PSU orders in the industrial space have started flowing to Richa then why not govt. orders for food warehousing?

As already written above, Richa's plan to sell textile unit already came into the mainstream media after which the stock rallied from 52wk Low of 19.20 to 52wk High of 44.70 in just two months giving us an idea on how positive a textile sell-off will be for the stock. However, even if we forget the sale of textile unit for the time-being, the debt of 180 crores is not such a huge number anyway.

Coming to the financials, Richa Industries has shown great growth over the years especially after FY07 as it started its PEB operations, You can see the annual results table below.


Particulars
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
Sales
24.97
40.92
63.49
99.32
147.76
174.56
228.58
301.41
269.60
276.50
Operating Profit
3.39
7.89
9.20
17.09
24.73
25.04
34.01
37.77
51.98
46.19
OPM
13.58%
19.28%
14.49%
17.21%
16.74%
14.34%
14.88%
12.53%
19.28%
16.71%
Other Income
0.04
0.07
0.13
0.35
0.77
0.76
0.32
0.76
1.82
1.04
EBIDT
3.43
7.96
9.33
17.44
25.50
25.80
34.33
38.53
53.80
47.23
Interest
0.98
1.59
2.30
5.34
10.55
9.59
16.22
19.70
23.35
22.56
Depreciation
1.03
0.93
1.29
2.94
3.93
4.78
5.50
6.90
7.50
6.09
Profit before tax
1.39
5.27
5.19
9.13
10.98
11.40
12.61
11.93
22.94
18.57
Tax
0.52
1.14
1.84
2.30
3.14
1.69
4.13
4.90
1.47
-0.29
Net profit
0.88
5.44
3.07
7.23
8.09
5.66
8.45
6.09
13.36
9.41
Adjusted EPS in
4.00
6.72
1.81
4.27
4.78
3.35
5.00
3.60
7.89
4.22
Cash EPS
N/A
N/A
N/A
6.01
7.10
6.17
8.24
7.67
12.33
6.95
Dividend Payout
0.00%
0.00%
0.00%
0.00%
0.00%
12.37%
8.28%
11.66%
5.31%
0.00%

As seen above the cash EPS of the company has been great and the company has paid dividend 4 times in the last 5 years.

With debt in check, good growth, strong order book, strong promoter holding and wonderful business prospects 'Richa Industries Ltd' is a multibagger gem trading at P/E of under 7, Richa can grow multifolds from here and it is not only a value pick it also is a Multibagger Pick, Which means target can be anything for this scrip above 150.
 
Recommend a strong multibagger buy on Richa Industries Ltd at current price of 33 with price target of minimum Rs 150 per share in long-term.

Note: Do not wait for correction to enter, Buy at CMP, Only genuine investors should enter our picks and short-term traders can stay away.