IE&M 75 HiddenGems E

“Successful Investing takes
time, discipline and

patience. No matter how
great the talent or effort,
some things just take time:
You can’t produce a baby
in one month by getting
nine women pregnant.”
– Warren Buffett
DISCLAIMER
These reports are prepared for informational and learning purposes and not meant
to be a stock recommendation within the purview of any regulatory framework.
The stocks talked about in this First Special Initiative released by Indian Economy
& Market, are strictly not a recommendation to buy or sell. While the opinions are
held good and data has been referred, errors may have crept in; profit/ losses
resulting from this will be at the reader’s risk.
The individual authors/ investors may change their views about the stocks they have
talked about, depending on how critical variables like the management, the
underlying business, global or domestic economic situation and the valuation might
play out in the future.
(Market related data as on January 5, 2018)

1st Special Initiative of Indian Economy & Market
fRoM thE EDItoR’S DESk
Small is Beautiful
T
he small cap indices, for the year 2017 were up by 58%,
twice the move witnessed by a large cap index such as
Sensex and Nifty. The stupendous rise in the index value
of small cap has got reflected in their share of total market
cap of the Indian equity market. For example, BSE Small
Cap index contributed around 18.7% of the total market cap.
Such an outperformance has also led to a higher valuation of small cap

companies both in absolute terms and in relative terms. For example,
the NSE Small cap index is trading at a price to earnings of more than
100 times, which is almost four times higher than the benchmark
indices. Even the BSE Small cap index valuation in terms of price to
earnings (PE) is trading 3.3 times the valuation of BSE Sensex.
It is an established fact that during the bull run, small cap outperform
their larger counterpart. Nevertheless, one should also keep in mind
while investing in small cap companies that they are highly risky and
probability of loosing capital is more.
The world of small-cap stocks can be a dangerous minefield for the

uninformed speculator, but a gold mine for investors willing to do
the necessary research to uncover market gems. Since these are
under-researched and under-owned stocks therefore they are more
prone to wide swings and fluctuation in their prices.
The retailers had been looking forward to some quality content

in this area for the longest time now, and that time has finally
come. Guys, it took us massive efforts to compile this issue
and bring forth the final product. So we genuinely feel that
you like it.
and this Special Initiative

No amount of comfort in life will be worth the sufferings of a
mediocre life trapped in broken dreams. So let your dreams not
be a byproduct of internet fads, but instead something that comes
from the depth of your thought, understanding and knowledge. In
this issue we talk about the inspiring set of investors who left normal
4
life and embarked on an adventure of chasing their dreams and then there
was no looking back. Their passion towards their work is compelling and
most of them have made a huge impact and a lot got liberated through equities.
Let us point it out here that all these masterminds have unique approaches
towards their equity investments and have very unique methodologies to offer.
These are the folks who would be ultra passionate and live, breathe, eat and
sleep markets to the core. They are avid learners with rich competence in
finding multibaggers. Stock market in reality is vastly different than what it’s
perceived from the outer side. Bookish knowledge may mean a little while you
are trying to figure out the next multibagger.
Also, I would like to mention here that this Relative Performance of Small cap and Nifty
issue is first of its kind as such diversity has
(%) NSE Small Cap Nifty
never been looked into. All the investors are 1.6
well versed with their domain knowledge and 1.5
power packed with wisdom. These investors
1.4
may just not come under the discussions daily,
1.3
but have been compounding at a scorching
1.2
pace over many years, some even decades.
1.1
Readers, Indian Economy & Market categorically 1
states here that this is not a recommended list 0.9
for you to invest, however, you can use it as a – 0.8Krishna Kumar Mishra
Jan’17 Feb’17 Mar’17 Apr’17 May’17 Jun’17 Jul’17 Aug’17 Sep’17 Oct’17 Nov’17 Dec’17 Jan’18
starting point to probe further to make any @krishnakumishra
investment. Moreover, these are good
companies and consistently growing so the share prices of some companies
might have run up. In this scenario, it would be advisable to first understand
your own risk profile and investment horizon.
As John Templeton famously said “Bull markets are born in pessimism, grow
on skepticism, mature on optimism and die on euphoria. The time of
maximum pessimism is the best time to buy, and the time of maximum
optimism is the best time to sell.” As we’re in a fierce bull market this is the
time to take extra precaution.
Altogether 90 brilliant and passionate minds have worked tirelessly to come

out with 75 hidden gems, still more to be unearthed. I’m very glad to see the
enthusiasm shown by the readers – mind it, there won’t be many copies left as
it was a pre-booking offer. Coming from a new and fledgling media house
such a response was unprecedented.
Thank you all who are holding the copy and reading.
Happy Investing.
– Krishna Kumar Mishra

@krishnakumishra
5
First Special Initiative

Contents
INDIAN
ECONOMY
&MARKET Harshit Jain BCL Ind. & Infra. Ltd. .............. 20
ISBN No.: 978-81-929515-2-2 Dhruv Shah Intrasoft Technologies ............. 22

Edition: January 2018 K S Priyan Som Dist. & Brew. Ltd. ........... 24
Ashish Khokha HIL Ltd. .................................. 26
Editor: Krishna Kumar Mishra
Sandipan Ghosh Vishnu Chemicals Ltd. ............ 28
Associate Editor: Shabahat Manzoor A.
Aveek Mitra PTC Industries Ltd. ................. 30
Art Director: Avinash Rajurkar
Chintan Antani Worth Peripherals Ltd. ............ 32
Photographer: Mangesh Chavarkar
Digital Team Head: Amit Prabhakar Pendurkar Parthiv Shah Jash Engineering .................... 34
Advertisement Coordination: Amolikka Mishra Rajesh Sehgal Globus Spirits Ltd. .................. 36
Circulation: Ravindra Singh Darshit Shah Avantel Ltd. ............................ 38
Editorial, Advertisement & Circulation Office Gurpreet Singh Nelco Ltd. ............................... 40
Scintilla Communications, 105/4, Ground Floor
Ritesh Udhani Tyche Industries Limited ......... 42
Opp Bharat House, Mumbai Samachar Marg
Fort, Mumbai – 400 001, Maharashtra, India Anshu Sridhar V-Mart Retail Ltd. ................... 44
Phone: +91 22 2261 7771
Email: indianeconomy.market@gmail.com Amol Chavan IMP Powers Ltd. ..................... 46
Dr Allen Baby Liberty Shoes Ltd. ................. 48
Printed, published and owned by Krishna Kumar
Kesho Ram Mishra and printed at Digwijay Nikhil Oza Peninsula Land Ltd. ................ 50
Printing Press, Gala No. 9, Saptarshi Bldg.
Behind Milan Hotel, Daftary Road, Malad (East) Sachin Gupta Welspun Enterprises Ltd. ........ 51
Mumbai – 400 097 and published at Prashant Shah Precision Wires India Ltd. ....... 52
105/4, Ground Floor, Opp Bharat House
Mumbai Samachar Marg, Fort, Mumbai Chaitali Bhavik Shah Rubfila International Ltd (RIL) . 54
Maharashtra, Pin Code – 400 001.
Editor: Krishna Kumar Mishra Aniket Gore Thangamayil Jewellery Ltd. ..... 56
Ankitanshu Roy Som Distilleries Ltd. (SDL) ..... 58
All rights reserved throughout the world.
Reproduction in any manner is prohibited. Keshav Karunakar Compuage Infocom Ltd. ......... 60
Total Number of Pages 172, including Cover Moitraya Roy GMM Pfaudler Ltd. ................. 62
Sarkar Raj Uniply Industries Ltd. .............. 64
Purvi Shah Neuland Laboratories Ltd. ....... 66
6
Mukesh Prajapati Star Paper Mills Ltd. ............... 68 Ankit Kanodia Prima Plastics Ltd. .................. 118
Pawan Sharma Akme Star Housing Fin. Ltd. .... 70 Kaustubh Agashe Kamat Hotels (India) Ltd. ........ 120
Jagadeshwar Rao Vishnu Chemicals Ltd. ............ 72 Partha Mukhopadhyay Majestic Res, Serv. & Sol. Ltd.. 122
Dhaval Parikh Gulshan Polyols Ltd. ............... 74 Singaraju R. Kokuyo Camlin Ltd. ............... 124
Laxmikant Kabra Mallcom (India) Ltd. ............... 76 Jehan Bhadha MIRC Electronics Ltd. ............. 128
Abhijay Sethia Prima Plastics Ltd. .................. 78 DB CMM Infraprojects Ltd. ........... 130
Ravi Jain Inditrade Capital Ltd. ............... 80 Nav Bhaiya Emmbi Industries Ltd. ............. 132
Sanjay Prajapat Centum Electronics Ltd. .......... 82 Manish Sarda Salzer Electronics Ltd. ............ 136
Harshvardhan Agrawal Muthoot Capital Services Ltd. . 84 Dhiraj Dave Shemaroo Entertainment Ltd. . 138
Hemant Rajput Lasa Supergenerics Ltd. ......... 86 Zafar M Oceanaa Biotek Industries Ltd.. 140
Ankush Raghuvanshi Aimco Pesticides Ltd. ............ 88 Pratik Mukasdar Associated Alco. & Brew. Ltd. . 142
Ashish Golechha Datamatics Global Ser. Ltd. ..... 90 Swarn Saklecha Nath Bio-Genes (India) Ltd. ..... 144
Ujjal Paul Cords Cable Industries Ltd. ..... 92 Rajiv Mehta Perfect Infraengineers Ltd. ...... 146
Aashav Patel Rama Vision Ltd. .................... 94 Saurabh Jain Autoline Industries Ltd. ........... 148
Sourabh Mehrotra Pennar Industries .................... 96 Amitabha Chatterjee Kriti Industries (India) Ltd. ....... 150
Dipendu Nandi Globus Spirits Ltd. .................. 98 Ashish Sharma Kernex Microsys. (India) Ltd. .. 152
Raj Kumar Agarwal Associated Alco. & Brew. Ltd. . 100 Vaibhav Gupta Universal Cables ..................... 154
Hemanshu Srivastava Panacea Biotec ....................... 102 Gurudatta Kamath Andhra Petrochemicals Ltd. .... 156
Mukesh C. Shah Super Crop Safe Ltd. .............. 104 Vivek Bothra Satin Creditcare Ltd. ............... 158
Nishit Golchha Simplex Casting Ltd. .............. 106 Hitesh K Kirloskar Ferrous Ind. Ltd. ....... 160
Hemanshu Shukla Ajmera Realty & Infra India Ltd. 108 Vivek Gautam Focus Lighting & Fixtures Ltd. . 163
Porus Vazifdar Inditrade Capital Ltd. ............... 110 Abhishek Basumallick Royal Orchid Hotels Ltd. ......... 164
Abhishek Jain Maha Rashtra Apex Corp. Ltd.. 113 K J B Mathew RKEC Projects Ltd. ................. 166
Yashasvi Bhuta Modison Metals Ltd. ............... 114 Sreeselvanarayana V V Freshtrop Fruits Ltd. ................ 168
Ashish Dey Associated Alco. & Brew. Ltd. . 117 Ravi S Websol Energy Systems Ltd. .. 170
7
MASTERSPEAK
Knowledge, Wisdom &

Temperament
the three most important things required if one wants to significantly outperform
the markets, says Ashish Chugh
Ashish Chugh is a very familiar face on the Stock Exchange Official Directory by BSE,
market related TV news channels. Some time a compendium in 18 volumes. This enabled
back, on CNBC, he did a very popular him to get balance sheets and other
program Hidden Gems every Monday on information about all the companies listed
Prime Time, which recorded the maximum on the BSE, which was not so easy to get at
TRPs for the channel. He also used to regularly that time.
contribute his research to poweryourtrade.com
and moneycontrol.com. Ashish has a knack for He has a long list of stocks, many of which
picking stocks from the small & microcap have gone up 20 to 100 times. Some of these
segment and most of the stocks are Natco Pharma - which has gone up 70
recommended by him have done times, Avanti Feeds - 100 times, Greenply - 60
phenomenally well. He picks up stocks that are times, Bajaj Finserv - 50 times, Heritage Foods
beaten down because of short-term negatives, over 50 times and many more. And the best
but have the inherent strength to bounce back part is all his recommendations were not
once the negatives are out of the way. In fact, private, but all in the public domain, because
many of the companies he picks up for of which many investors also benefitted.
investment are noticed by the market players
only after they have become 5X or 10X. Indian Economy & Market caught up with
Ashish Chugh to understand his Investment
He says his best investment so far was Philosophy and the thought process behind
`11,000 he spent in 1992 to subscribe to The selecting stocks for investment.
8
Investing is nothing but a

mind game, the problem
here is that stock price
movements tend to mess
with one’s mind. So, it’s
important to keep one’s
temperament under
control. Focus on company
performance rather than
stock performance.”
What is your recipe for selecting Multibagger Stocks?

There is no secret recipe honestly. Multibaggers are
not created on Day 1 - they evolve over a period of
time. The clear focus while we hunt for them is
whether they carry the potential to evolve as a
Multibagger over a period of time. I generally
follow a bottoms up approach while identifying
stocks for investment. The focus is to buy into such
companies at much lower than their fair value and
therefore the time to hunt for them is when these
companies are not enjoying the best of times, there
are short term negatives or concerns. That is the
time most investors shun such stocks and you get
them at cheap valuations. There are various factors
which one has to consider - Brand, Pricing Power,
Potential of the product/ industry and of course
the valuation that you are going to pay for the
business. Also, it is very important to look at the
Big Picture rather than get too involved with
number crunching on Excel spreadsheets.
9
What has been your learnings in the markets and where

did they come from?
Knowledge, Wisdom & Temperament are the three
A good investor needs to be most important things required if one wants to
significantly outperform the markets. The process of
flexible, should have the one’s evolution as a seasoned and mature investor only
ability to see the changes comes with time and after witnessing periods of
happening around and should depression in the market.
be able to and willing to adapt In my case, my evolution as a better investor became

to the changes.” after I went through a few bear markets. Bear markets
change your entire perspective about investing - most
investors who have not seen or experienced a bear
There are two characteristics which are common to market would get seduced by the rising stock price and
most of my stock picks which have turned are focussed entirely towards returns & stock price (risk
Multibaggers - management is not important). It is only a bear market,
which makes you think and rethink your investment
ONE, most of these stocks were hammered down to low style and strategy, sobers you down and you evolve as a
levels because of certain short term negatives - either mature investor. In my case too the focus in investing
the sector going out of fancy OR some event which switched from chasing stock prices to managing risk.
was “perceived “ as negative by the market players & Also, what is more important is to focus on the
the stock hammered down significantly OR because of performance of the business rather than the
a bad numbers for a few quarters. To give a few performance of the stock. This will help you.
examples - Natco Pharma was hammered down by
over 50% only because the markets didn’t like the Many of our readers are young people, new to investing.
company’s acquisition of Drug Stores in US. However, What would be your advice to them to become better
the valuations came to a point where the Mcap was investors?
only 7 times Annual PAT and lower than the land Control of temperament is an important factor in
assets that the company held. This was for a company investing. Investing is nothing but a mind game, the
which had discovered molecules which only a handful problem here is that stock price movements tend to mess
of companies in the world used to sell. Likewise, with one’s mind. So, it’s important to keep one’s
Greenply was hammered down to low valuations only temperament under control. Focus on company
because the construction and hence Ancillaries to performance rather than stock performance. Try and
construction went out of favor. This company was keep your Greed and Fear under control. Most investors
available at Mcap which was less than 3 years PAT. tend to over-analyze when stocks are going down (fear)
and under-analyze when stocks are going up (greed).
Many a times when stocks are available so cheap, you
start doubting your conviction. The key is to develop Also, it is important to keep an open mind while
your own conviction and the only way to do that is to investing - A good investor needs to be flexible, should
work hard and study the company well. have the ability to see the changes happening around and
should be able to and willing to adapt to the changes.
THE SECOND important factor is Growth - Future
Growth is one of the important parameters for the Reading & thinking is an important trait in investing.
stock to evolve as a Multibagger - I believe that a value Try reading Annual Reports of companies since they
stock remains a value stock unless there is growth. provide great insights into the business. Also, don’t get
Therefore, sustainable Long term Revenue and Profit distracted by the information overload era that we live
growth with little or no Equity dilution is an important in today. FOCUS, FOCUS, FOCUS - Focus on the
characteristic of a multibagger. Also, it is very business, its potential and its valuations. And as some
important to differentiate business performance with wise man has said - Spend as little time as possible,
stock performance. trying to analyze the big things in the world.
10
A magazine for the people who are really INDIAN
interested in the economy and markets ECONOMY
&MARKET
We want
to see our
stocks fly
high 3x, 4x,
5x from
whatever
the price
we bought.
We love
that
feeling.
12
In the kingdom of stock investing, there have been many folks who
have come and disappeared within just a few years. Nonetheless,
there are very few gems who have stood the test of time and have
made an authentic dent in the universe of stock investing. Indian
Economy & Market caught up with two enterprising young investors
who have made it big over the last few years.
A college dropout by choice who entered markets at age of 14,

Arun Mukherjee had his maiden management meet of Rain
Calcining (Rain Industries) prior to his college days. He says it was an
easy decision to quit the moment the professor started teaching
about management levels. He started his investment journey with
a petty sum of 1000 bucks which over the years has grown to be
a decent size portfolio. An active small cap devotee with an
exposure of meeting over 230 listed companies. Mukherjee
also happens to be one of the most followed investors on
Twitter with over 37000 followers. The young investor has
picked up some big multibagger stocks in his career of over
14 years, including Havells, Cera, Symphony, Caplin Point,
Medicamen Biotech, Kisan Mouldings, etc.
A die-hard stock picker, Soumya Malani has completed his

Masters in Accounting and Finance from the London School of
Economics but this is only a miniscule part of his academic
achievement. He has been one of the state toppers in secondary and
higher secondary examinations with All-India Ranks in CA and CS.
Young Soumya has been ruling the social networking platforms for his
multibagger hunting skills. He has made a killing in companies such
as Avanti Feeds, which he continues to hold and has made over 70
times in last 4 years, Minda Industries, Avantel and many more which
have turned out to be mega multi-baggers for him.
Together they conduct “Sharebazaar Workshops” Pan India and

Internationally and have trained over 2,000 people. They have also
co-founded a stock market investment app called Share Bazaar App,
available both on android as well as iOS. The app has received
tremendous acceptance from the investment fraternity with rich
downloads of over 50000.
13
Small-Cap Stocks in the markets. In our ShareBazaar Workshops, often

The quest and love for small cap stocks goes way way banking guys who would work in a HDFC Bank or
back. Finding aggressive visionary intelligent fanatics on even an IndusInd Bank would seek advice regarding
low base and tiny market caps is what we love to again whether they can look at a SBI for investment. How
and again. Small caps are certainly risky, but provided ironic is that? We mean day in and day out with full
one bets on a basket of them with meticulous research track of CASA accounts they enquire about a
and study, the final outcome is bound to be beyond lackadaisical SBI?
amazing.
Stock Picking Strategy
Advice to Readers Along with conventional stock picking metrics of good
We would like to ask a question to the readers - What’s visionary promoters, scalable business and rich ratios we
the use of retiring at 60 having tons of money? Sin City do follow some fundamental patterns which help us
Vegas may come calling, but because of aging and bring a company on the radar much earlier.
health issues you may be glued to Bhakti Channel or
have pills dominating your life. Life changes way before • The Negative Working Capital Pattern: Where the
in equities than one can fathom. A lot of people ask us business operates on Other People’s Money (OPM) or
what is the minimum investment required to start the suppliers money. Advances from Customers is a
investing in equities. A one-time investment of a Lakh good hint to go by.
followed by a consistent SIP of 5000 bucks per month • Companies which are the Leaders in Niche Area
for 15 years at 24% CAGR would make you a crorepati. with Tiny Market Caps: Once they grow and market
Plough back the dividend to have the bounty much realises their potential, you get huge multi-baggers.
superior. The secret to win big in markets is the SIP way. This reminds us of the domestic consumption stories.
Just like you did SIP in MFS the same can be done in If one looks back to the market cap of a Cera or a
your stocks. Symphony or a La Opala they were just too miniscule
compared to the scale they catered to. Had their
Please don’t be bothered about markets. Concentrate on supply chain and distribution network in place.
individual stories. Sensex had hit a high of 21000 in Tailwinds followed and the market took them to a
early 2008. It’s been a decade now and on markets term different orbit.
the returns on a CAGR basis been very minuscule. • Promoters Change: Take the recent example of
However, a nomenclature of Individual stories from a Uniply or Kingfa. Both the companies have been over
Caplin Point to a Bajaj Finance to a Symphony or an 30 baggers in the last 3-4 years. Kingfa was again a
Avanti Feeds been mega multibaggers. Irrespective of commonsense choice. A Chinese giant who grew from
markets movement over the coming decade, the same is nothing to be the Asia’s largest compounder, had a
going to be vindicated once again. Many more stocks track record of 65% CAGR for 22 long years. Saw its
will deliver super returns. market getting saturated in India and acquired an
Indian company paying 3x premium to its prevailing
“We want to see our stocks fly high 3x, 4x, 5x from whatever price. Took control, brought efficiency and stock
the price we bought. We love that feeling. Investing in the stock became huge multibagger.
market should be soothing relaxation experience. We mean you • Eradication of Non-Core Diworsification: Some
would want to sleep peacefully at night... right?? Think Out of companies would have a solid, profitable core
the Box! Everything is there right in front of your eyes! All you business, but owing to loss making non-core units, the
have to do is See and Act upon your common sense!” overall BS and PNL would look in hodgepodge shape.
Sometime sanity would prevail where those
Common Sense Investing companies sell those units and plough back the fund in
The first thing is to learn to use common sense in core business which further accelerates the growth.
terms of investing. Common sense is most uncommon Markets love such stories.
14
five crore with his unscrupulous means. But how

about showing the same through books of accounts?
The same five crore would mean an extra 100 crore in
market cap considering a PE of 20. On even a 50%
ownership they get richer by 50 crore. Which is better?
This area offers serious moneymaking opportunities
presently. Moves like demonetization further
reinforces our stand.
Thoughts on Companies with High PE Ratio

A lot of newcomers base their entire valuation exercise
on PE or price-earnings ratio of a company – we believe
this is a big mistake. PE ratio cannot be considered on
• Companies that Outperform during Huge its own. We need to also consider growth that the
Headwinds: TV Today again is a classic example. company can deliver. Buying high PE stocks on low base
Barring the Aaj Tak parent every single company was and high growth isn’t that bad. Titan’s average PE
bleeding badly in the media sector. The digitisation multiples in 2005, 2006 and 2007 were 57, 51 and 53
became a game changer with the stock becoming a 12 times. In 2007 it traded at 80 times. Even then look at
bagger in last 4-5 years. the returns that the stock has given and you will be
• Demerger in Sizeable Company: FII have got market stunned. Since 2007, stock has returned 800% or around
cap stipulation and hence they tend to sell out in haste 25% annually. We tend to focus more on PEG and not
without even caring about the intrinsic value. Arvind on PE. We are happy to pay a PE of 50 times if the
Infra, Marico Kaya being examples of huge value growth CAGR is expected to be near about 50. Discount
creation. the PE for next 2 years and your 50 PE would look
• Companies eating Market Share of Market Leaders: much attractive. Mind you on the face of it though it
Amara Raja, Havells are good examples as they took may sound exorbitant, but a lot of the small caps would
market share from market leaders Exide and grow by such percentage for the next many years.
Crompton Greaves.
• Second run companies in sectors where the Leaders Advice in Current Market Situation
been Multibaggers - At some time the valuation gets Under the present environment where even albatrosses
so stretched that investors start to look for the smaller are flying high it’s imperative one exercise caution and
peers and the valuation gap narrows. Avanti- pay heed to margin of safety. Protection of capital is
Waterbase, Relaxo-Mirza, KRBL-Chaman Lal are of utmost importance as it’s very easy to be
good examples. complacent and get carried away with few flukes based
• Strong Leverage but very efficient in Working on hearsays and rumours. Naive investors should stick
Capital Management - At some time the capex would to the larger caps companies with a good past wealth
be covered for next 3-4 years. Just the maintenance generating track records. Any sectoral leaders with a
capex remains. So, all OCF goes in debt repayment great management would ensure decent double-digit
and NP vaults. compounding in the next 5-10 years. You just simply
• Legacy companies which are seeing the induction of can’t lose from an Asian Paints or an HDFC Bank.
new generation - The predecessors were habituated in Avoid companies which are out of your competence
siphoning off aka black money, but the new guys who circle. Debt laden stories and companies with
in most cases would be freshly groomed from corporate governance issues should be strictly ignored.
renowned business schools, would be inclined to look Apply common sense and make a habit of reading at
at the market cap which is pure white stuff. It’s a least one hour a day. The world is changing pretty fast
simple math. A small cap promoter may Siphon off where most things are interconnected. If you stay
15
updated with the happenings around, along with your

wealth, your knowledge would compound too.
Thoughts on – Demonetisation, GST and Modi Government

with respect to Equities
Demonetisation - When you make 35 crore Indian
stand in a queue without any riot or much fuss, that
itself signifies how adept we are in absorbing shocks.
Demo is ancient history now and we don’t expect a
repetition of the same for next few decades. Greed and
fear-driven sentiments cause market movements in the
short term. What happened amidst demonetisation,
reflected fear among market participants. As people
realised the overselling of equities the fear started
receding, backed by better than expected Q3 corporate
earnings and domestic inflows. It’s been over a year now liberalisation in 1991, we have definitely seen lots of
and markets have moved way ahead. How long it will intent - from Jan Dhan to passage of Aadhaar bills to
last is a function of liquidity in the short term, global LPG subsidy transfer through DBT to RERA, there’s
markets and news flows. Irrespective of this kind of been no dearth of reforms. It would also be prudent to
speed breakers, India remains the quintessential bottom- note that under Narendra Modi’s able leadership, FDI
up market, where investors can find a nomenclature of inflows have jumped to $60 billion in 2016-17 from $36
quality stocks which can generate massive returns over billion in 2013-14. What we are keeping a close eye on
the longer term. and hoping for remains a revival is the private cycle
capex which has seen a sustained downturn since as back
GST: We are now in the post GST regime and in the 2007. Massively leveraged balance sheet been a huge pain
shorter term, though there could be some pangs of to many corporate. Till the capex cycle returns in a
overhang and uncertainties, but we have no doubt in our meaningful manner coupled with respectable capacity
mind that GST will add up 200 basis points to the GDP utilisation levels, we would see more NPAs messes and
over the medium term. Every bull market seeks new minimal job creations in the country. We are already
themes which leads the market and there’s little doubt seeing talks of Bad banks creation, any structured,
about the theme of GST based migration from positive development in that regard would help in a long
Unorganized to Organized players which would create way in making lives easier for the corporate. We expect
massive wealth in the long run. Watch out for the more reforms to follow and get delivered in numbers.
efficient, organized players as the watershed moment of
their life awaits them. A vibrant, growing economy Main Concerns about the Market in Current Scenario
would mean bullish and prosperous capital markets. As Many of the small and mid-cap companies are quoting at
is the case globally, when economies undergo this absolute ridiculous valuations. Alongside, the albatrosses
transformation, the equity asset class creates wealth in too have had gala days, thanks to the increasing retail
the economy and outperforms most asset classes. India participation in the market. It’s just a matter of time
will witness the same phenomenon - equities will before the market corrects big time. Investors should be
outperform most asset classes over next 3-5-10 years. very watchful about their investments. The reversion to
mean certainly isn’t far. It’s easy to lose big money in a
Modi Government: The last 4 years have been certainly bull market. Prices are inflated, the financials of “hot
great for the markets with investors breeding massive picks” are often dubious. Above all, many bull market
money from individual stocks. Aside the GST which participants tend to be inexperienced and sometimes
probably is the biggest reform post economic arrogant; and they tend to get drunk on success. When
16
prices fall, most of them lack the discipline to admit on a strong growth trajectory. India’s GDP growth rate
they’ve made mistakes and exit with dignity. Investors is expected to be the fastest globally. The country’s per
should lower their expectations and should not expect capita income has risen steadily over the last few
bumper returns like of 2014-2017. Moreover, there could decades. Since 2003, India’s total market cap has grown
be some profit booking at every rise. Partly, investors are over 600 percent, which is just second to China. With
also to be blamed for picking stocks at any price (upon China sneezing big time these days, the next decade can
hearsay) without looking at the fundamentals of the very well belong to India. Time to embrace equities as
company or at the valuations. Macro level concerns like part of the nation building exercise.
the volatility in crude prices, rising interest rates, FII
selling will remain and may create an overhang. One Thoughts on FIIs Investment in the Country
must always remember basic mathematics that 100 to FIIs bought Indian equities worth $8 billion in total
400 amounts to 4x appreciation, but the journey from FY17. They continue to remain bullish on India and
400 to 100 just needs 75% fall. back the country with rich investments. In the last 15
years, barring 2008 and 2011, FIIs have been massive
India Story in Context of Equity buyers. With more and more new FII’s coming and
In FY2017, Equity including mutual fund was Only 3.8% registering in the country, the figure is set to further
of total asset of Indian households. In January 2008, this explode. We have reached a certain stage where we
ratio was about 5.6%. So, we are like nowhere near the cannot be ignored by the world any more. Our
peak. After the demo shock a lot of money is getting consumption is expected to rise over 7% annually for the
migrated to equities and further as time progresses and next 25 years. By 2032, eight out of 10 Indians will
financial literacy increases, more Indians would be belong to the coveted league of the global middle class.
further inclined to bet on equities. We recently read a There will be some speed bumps along the way (you
wealth creation report by a top brokerage house which guessed it right, Demonetisation was a great recent
stated that India’s GDP took 60 years (1948-2008) to hit speed breaker) but there won’t be any U-turns. From a
its first trillion, next took 7 years (2008-2015), Third macro perspective, our country can look a tad bit
Trillion will take 5 (2015-2020), and Fourth Trillion will expensive, but considering the growth profile and
take 3 years (2020-2023). The Sensex has grown like possibility of value unlocking from balance sheets, it is
100x in 32 years, at 15% CAGR. India remains the bound to remain expensive. Corporate earnings are
favorite investment destination and thus nobody can expected to grow at a healthy pace of 16-18% CAGR for
ignore the fastest growing economy in the world. Over the next 3-5 years. The idea is to take exposure in the
the next 10 years, equities will beat other assets hands right sectors and stocks.
down provided one gets bit meticulous on their stock
picking. A lot of great companies backed by superb Preferred Sectors to Play Indian Growth Story
pedigrees are on the cusp of inflection point. They will Indian equity investment opportunities can be classified
certainly ensure one becomes liberated early in life. into eight macro themes: -
We have heard of global MNC giants and the growth • Unorganized to Organized Sector Migration:
stories of them. Now, desi entrepreneurs are gearing up Plywood, Adhesives, Pipes, Paints, Footwear
to play the global theme with the vision of creating • Domestic Consumption/Lifestyle based
Indian MNCs. These easily signify that India has opportunities: FMCG, Retail, Entertainment,
reached global scale and size. The economy is on its way Multiplexes
to becoming an economic superpower. The Made in • Infrastructure Spending based opportunities: Power,
India theme is running wild. India as on date, ranks Ports, Roads, Airports, Mining, Construction
among the top 10 nations of the world to attract highest • Agriculture based opportunities: Irrigation, Agri-
foreign direct investments. The Indian economy has Processing, Fertilisers
witnessed a paradigm shift since the past decade and is • Banking and Financial Services: NBFC, Micro-
17
Finance Companies. Even the proxy affordable and with higher aspirations of the youth, the next few
housing companies would do very well years would have many more investors who would breed
• Food Processing Companies: Organic foods: rich money through equities. Kudos to the folks though,
Anything which act as a value addition will do well. who are already investors. Younger you are, higher
Organic Tea, Readymade Processed Foods, value should be your allocation in equities.
addition in Dairy
• Outsourcing based opportunities: Auto Ancillaries, Recipe of 100-bagger Stocks
Pharma which are into the contract manufacturing We are devotees of market legends such as Rakesh
area Jhunjhunwala, Ramesh Damani, Vijay Kedia, Ramdeo
• Distressed companies with Great Assets: where Sir. We have been following their ways and research for
there’s a forced change or a debt settlement or with an quite a while now. If we mix their words along with our
ARC taking control and making it turnaround. experience, then the answer to above aspect may come
like-Mathematically, sales volume growth multiplied by
Advice to Youngsters who are Entering the Market sales price growth multiplied by a margin, and valuation
The first thing is to make some legend a guru. Make Joel expansion is the possible source of a 100-bagger. Simply
Greenblatt, Ramesh Damani, Rakesh Jhunjhunwala put, growth in share price will be directly influenced by
your guru. Even Ian Casell is a wonderful choice. A growth in sales volumes and sales price, along with
guru is a necessity if you want to make it big in the expansion in margins and valuations. If all these things
markets. You need someone whom you can look up to. happen simultaneously, it could be a huge game-changer.
These geniuses been there, seen it all and made billions. It is possible for a smaller company to grow its sales by
They have shared their strategies in the public domain. 20-25% annually. However, sales turnover cannot be
Go through them as they would certainly help. The seen in isolation.
gold-standard Rediff chat archives of Ramesh Damani
would help one in a long way. There’s a site called If a stock is trading at 30X and the margins are going to
Buffettfaq.com which has the compilations of all Mr double, for us it is a 15 PE stock. We now know what
Buffett and his partner Charlie Munger’s lecture. Make it margins can do to valuations. Similarly, if a stock is
your Bible/Gita. It’s certainly superior to the content of currently trading at 10X and after a few years starts to
50 Investing books put together. trade at 30X, one can imagine what impact valuations
could have on a higher earnings base. It is a combination
Another important aspect that youngsters need to of multiple variables that have to work together to create
develop is mind set or temperament for equities. Equity a 100-bagger. It is impossible to think in terms of 100X
markets is a place to enjoy lucrative high-quality sales or 100X volume growth for a particular company.
business ownership. Investment in equities is a soothing, But even with 20-25% annual sales growth, if other levers
relaxation experience. By just click of a mouse, you can such as margins, return ratios and valuations expand, it is
be the part owner of an amazing business. quite possible for an investment to turn into a 100-bagger.
Unfortunately, equities till date, aren’t considered as an
asset. The total equity penetration to population is In terms of our experience any stock that has the
abysmally low at less than 3%. Though the younger following lethal combination would have massive
generation have started taking notice in capital markets potential to be a big multibagger:
of late, but still the magnitude is pretty average. It’s the
only place where you get to keep everything you make
Visionary Management + Scalability = Lethal
as long-term gains are still tax free. Dividends are tax
+ Pricing Power + Tailwinds + High Combination
free too (exemption limit stands at 10 Lakhs but which
Growth + Higher Incremental ROCE for a
retail investor makes a million bucks through dividends
+ Low Equity + Under Ownership Multibagger
in India?). Hopefully, with negligible banking interest
+ Leader in a Niche Area
rates, which ironically comes inferior to core inflation
18
BCL Industries and Infrastructures Ltd.

BSE Code: 524332; Face Value: `10; Market Cap (`Cr): 253; CMP: `180
B
CL Industries (Formerly Bhatinda Chemicals) is one of the
leading vertically integrated plants in the country with the
capacity of processing 1000 metric tonnes per day. It is the
only company in India and the South Asian region that has a
forward and backward integrated distillery ethanol plant. The
integrated edible oil complex comprises Oil Crushing Unit, Solvent
Harshit Jain Extraction Unit, Refinery, and Vanaspati Ghee Manufacturing Unit along
Equity Analyst - Blackrock Inc. with a Rice Sheller. Among their different businesses, edible oil business,
Active in the markets 7 years which is firmly established as the largest division in the Group, continued
to perform exceedingly well and is the foundation behind the Group’s
He loves to analyze financial steady and sustainable growth. It continues to be the largest contributing
statements; an avid sports follower, he business within BCL Industries, representing over 65% of revenues.
plays football, golf and badminton.
Being adventurous, he also loves to Business Verticals
explore places. The edible business seems to be gaining a competitive edge in the near
future. BCL’s ‘edible oil’ business includes refined vegetable oil, vanaspati
ghee, mustard oil, rice, etc., which are sold under the following brands -
My Mantra Homecook, Vanaspati, Do Khajoor, Murli, etc. It has purchased an edible
The market is not constant and oil and rice shelling unit (Kissan Fats Ltd.) at Jalalabad in Punjab in 2002.
one needs to keep track of all the This unit has a three MW state-of-the-art co-generation power plant for
important global financial news on a captive consumption, which runs on non-conventional energy sources.
regular basis. Investors should look at Both the plants are equipped with modern technology. Its total power plant
companies that have consistently capacity is eight MW.
delivered earnings growth and good
corporate governance. Never invest in The distillery business also grew well amid a competitive and regulatory
a firm without understanding the environment. This can be attributed to the capital expansion for the new
dynamics of the business. Always plan 100 KLPD distillery unit the company has set up and made operational at
for the long haul and keep sticking to Village Sangat Kalan during the last year. As part of the expansion
good companies to get multifold strategy, the management is planning to set up another grain-based ENA
returns. and ethanol production unit at West Bengal. Clearly, the distillery business
will be the major growth driver for BCL in coming years.
The real estate vertical, which currently contributes only 3.5% of the total
revenues, has been progressing well. The homes and apartments have been
well accepted in the marketplace and continue to support its multi asset
play.
Disclosure Long-Term Story

The writer is not a registered analyst under SEBI All the three verticals are expected to perform strongly from the next
guidelines. He and his family have a position in the
stock. Readers must do their own research before quarter. Going forward Financials will remain stronger on QOQ basis.
investing in the company. Introduction of GST will help the company to increase its margin on
20
“Invest in the small

caps, which will be
the large caps. The
biggest challenge of
investing is that you
should recognize
whether organization
edible oil as from the unorganized counter is rather low, but will
sector business will move to improve as the company posts good
has the ability to
organized sector in the edible oil results going forward. The liquidity scale.”
field. It will facilitate the company is expected to raise further once
to swell its operating and net profit value-buying starts after the
margins substantially going forward. company’s prospects become more – Rakesh
The cash cow for the company will visible. The company is hopeful to Jhunjhunwala
be distillery business. The get it listed on NSE this year. Recent
management has already entry of HNI’s and successful fund
successfully doubled the capacity managers such as Porinju Veliyath,
last year; results will start showing Nikhil Vora and Sunil Singhania
from FY19, Bhatinda being the next deserves an attention to this ignored
developing city in Punjab. Opening stock. Considering all this aspects, it
of new stores, brands, malls, QSR should have interesting times ahead.
joints will improve the real estate
market and being a legacy brand Key Points
name in Bhatinda will definitely
help the company to sell its • The management has already
inventory at higher prices. This can successfully doubled the
be a game changer for the company capacity last year.
and improve its valuation. As per • The liquidity is expected to
the management, balance sheet is raise further once value-
expected to improve from FY19 as buying starts after the
the substantial capex is done and company’s prospects become
they do not foresee any major capex more visible.
in near future. • The company is hopeful to get
it listed on NSE this year.
True Value • Recent entry of HNI’s and
If we carefully see the shareholding successful fund managers
pattern, nearly 90% of the shares such as Porinju Veliyath,
are with the promoter and family Nikhil Vora and Sunil
(PAC’s). This limits the public float, Singhania deserves an
which results in lower volume at the attention to this ignored stock.
bources. The liquidity in this
21
Intrasoft Technologies
BSE Code: 533181/ NSE: ISFT; Face Value: `10; Market Cap (`Cr): 1090; CMP: `748
F
amously known for its flagship website 123greetings, this
company has witnessed sustained growth in US e-commerce
market with high free cash flow generating ability. It was in
2009, when the course changed and the company started in the
USA 123stores.com. This company not only makes profit but
also gives dividend and do not need any incremental capital for future
Dhruv Shah growth. 123stores is basically a 3rd Party retailer (3P) in the US. A 3P sells
Vice President, Research product of several companies on various market places like Amazon, eBay,
Ambika Fincap Consultants Pvt. Ltd. Jet.com, Best Buys etc.
Active in the market 5 years
1P and 3P
He prefers to focus more on the When Amazon sells a manufacturer’s products on a wholesale
business rather than the company. relationship and it decides the pricing and the listing of the products, the
manufacturer is called 1P. When a manufacturer sells its products
through 3rd party player who in turn sells the products on various
My Mantra marketplaces and fulfills the customer order, then the 3rd party is called
Don’t get carried away with the 3P. Hence a 3P basically ties up with the vendors who are the
momentum. You might underperform in manufacturers of goods and sells their products on several market places.
the short term, but in the long run 3P is an aggregator and has to handle everything right from the listing
you will outperform the markets. and pricing of products to picking up the goods from the vendor’s
warehouse and delivering the same to the end customer. In recent years,
3P has been gaining traction and one can gauge the same by the fact that
the 3P share of Amazon’s total sales has gone up from 5% in 2009 to
over 50% in 2016 and is growing at the rate of 30%.
Why 3P and not 1P?

First of all to sell as 1P, one needs an invite from a market place, for
example an invitation from the vendor management team of Amazon.
Without the invitation one has to rely on a 3P. Secondly, one needs a
mindset to sell on various online marketplaces and most large
corporations lack this. Also, companies do not want their brand value to
deteriorate when their products compete with several other brands and
may not be in the buy box of the market place – Amazon has a buy box
concept wherein the market place recommends a product based on a
complex algorithm. In most cases, in a 1P relationship, Amazon takes
possession and hence the inventory has to be made available for
Amazon; in 3P relationship, products can be made available for sale on
Disclosure Amazon and can be removed if that inventory is sold elsewhere. With
The author is not a registered analyst under SEBI these benefits, most large corporations in US have turned to 3Ps to
stock. Readers must do their own research before promote their products on the web.
investing in the company.
22
Market Opportunity
In the United States e-commerce
sales reached $395bn in 2016, up
16% YoY, which was 8.5% of total
US retail sales. With more and more
e-commerce market places shifting
to 3P model, it leaves a huge
opportunity for 123stores to grow.
Financial Metrics
Currently the cost model is like this:
64-66% is the cost of goods sold,
15% is the commission given to the
market place (can vary between
5-15% in some cases) and 15% is the
cost of logistics (many times the
cost is shared with the market
places), and 2% is other expenses.
The rest is the company margin.
Now, as the volume increases, the negligible inventory. It has payables feedback. 123stores was ranked 392
cost of goods starts coming down as of 42 days and receivable of mere 2 in 2015 by the internet retailer’s
the company gets volume discount. days leading to negative working magazine, improved to 262 in 2016
But as a 3P player, 123stores is capital. On the same model and further to 223 in 2017.
always on a lookout for new Intrasoft Technologies has also
vendors and newer products to grow changed its model and has Promoter’s Holding
revenue and increase the market developed an inventory system with Currently the promoter’s holding
share. In the initial years new the use of algorithms which is stands at 47.52%.
products need to be nurtured till helping it to manage the inventory
they attain critical volumes. Once in a better way. Inventory days have Valuation
they attain required volume, the come down from 32 days in The company is currently valued at
company will start getting volume Q1FY17 to 20 days in Q2FY18. around 1 odd x sales based on
discount and that is when they start Also, the company is able to get trailing twelve months. All these
making money. 123stores better credit terms from suppliers/ companies in the US are valued
management has decided to vendors. Overall working capital for based on the sales. Wayfair is valued
continue to invest in acquiring new 123stores has come down from over at 1.77x sales based on trailing
vendors and expanding the product 30 days in FY16, to 14 days in twelve month basis.
basket. As such, it remains in an Q2FY18. With inventory turnover
investment mode. improvement and likely increase in End Result
supplier credit, the net working Intrasoft Technologies is in the most
Working Capital: capital is likely to reduce further. sophisticated and fiercely
A Case Study competitive US e-commerce market.
Wayfair, another company listed in Amazon is the largest market place The overall e-commerce market in
the US which deals only in in the US with over 60% of the US is recording an incremental
furniture, has its own marketplace incremental e-commerce sales in the growth at over US $60bn resulting
(over 90% sales). In 2016 they US. It has over 2 million retailers in a huge scope to scale up. With
recorded a sale of $3.38bn, a growth selling on its marketplace. 123stores very little incremental capex
of 50.2% as compared to last year. It as of Dec’17 is ranked in the top 25 required and with the working
continues to have a guidance for a 3Ps on Amazon. It has a 97% capital requirement coming down,
top line growth rate of 25-27% in positive rating over the last twelve one will certainly see a sharp
the long term. Wayfair has almost months, which is based on customer increase in free cash flow.
23
Som Distilleries & BrewEries Ltd.

BSE Code: 507514/ NSE: SDBL; Face Value: `10; Market Cap (`Cr): 742; CMP: `180
T
he company started in 1995 with a single brewery unit near
Bhopal, Madhya Pradesh and with continuous Brownfield
expansions has reached current capacity of 12.5Mio cases of
beer and 1.7Mio cases of IMFL. The company dominates its
home state with a 36% market share overall. Other state
opportunities are catered by a nationwide chain of depot and outsourced
K S Priyan bottling. In FY17 all the beer brands (5) did combined 5.39Mio case in
Managing Partner of PP EMS LLP, sales with three brands crossing 1.0mio+ sales. Hunter Premium Beer is
an investment vehicle as VC/PE and doing a spectacular 2.12Mio cases, making it one of the leading Indian
broader Capital Market. Operating also beer brands. Contribution from beer category continues to grow every
plantations in Kerala and Karnataka year, ending with 89% in FY17. IMFL category encompassing numerous
populated with Rubber, Cocoa, Pepper, brands in Whisky, Rum, Brandy, Vodka, Gin verticals contributed to
Arecanuts as major crops. barely 11% of revenue.
Active in the market over 20 years
The company has slated a goal to join the top three Alco-Bev league.
Experience in Global Capital markets This seems to be driven by a strategy of aggressively growing in beer,
benefiting from extended overseas stay. Southern market and CSD distribution. Som has three large beer brands.
He gets his sanity from motorbiking Hunter Premium is the leader of the pack aimed at urban youth.
and running. Running is the personal BlackFort is strong beer and semi-premium, whilst Power Super Strong
punishment of choice and participate in caters to strong affordable consumer. BlackFort is being focused
quarter and half marathons. primarily on CSD distribution. Other brands Woodpecker and Legend
seem to be minor ones and yet to have a clear positioning. Southern
states dominate consumption of alcoholic beverage and Som has
My Mantra oriented its brewing, bottling and distribution plans to cater well to this
Many positions have been lost by market.
investors confusing volatility with risk.
Volatility is inherent to the model which CSD (Canteen Stores Depot) is the single biggest distributor of alcoholic
is auction-based and sentiment driven. beverage in India anchored on its zero tax and minimal profit motive.
Success comes in good measure to The competitive moat is enormous in every product with a higher tax
the investor using volatility to his incidence notably alcoholic beverage, which from state to state has
benefit. Early stage investors need to imposed 20-150% taxed. The company has obtained approval for four of
fortify behavior with 24/7 observations, its brands (3 in IMFL and one in beer) last year. It has installed specific
voracious reading and complete bottling and depot arrangement for catering to this opportunity on a
faith in E=P*(1+r)n. nationwide basis; by way of using bottling capacity of Jagatjit Industries
Ltd. and Oakland Bottlers Pvt Ltd. This opportunity will be
transformative for the company, especially in the IMFL segment.
Disclosure Southern Plans

The author is not a registered analyst under SEBI A well-defined and long-term strategy has been rolled out to make huge
stock. Readers must do their own research before inroads in Southern markets; Karnataka, Kerala, Tamil Nadu, Andhra
investing in the company. Pradesh and Telangana make up 51% of the Indian beer market. Warmer
24
weather provides all year demand Big Facts

for lighter beverages. The biggest
leap is happening with • With 89% of topline coming from beer segment; a rare investable
commissioning of a new brewery in company in the space dominated by IMFL & IMIL players.
Karnataka. Expected to start • Extremely high holding concentration with 68 individuals/companies
production by the end of January controlling 94.2%, which runs contrary to the optically low 23%
2018 with starting capacity of 4mio categorized as promoter. It is evident that the others are promoter
cases of beer and 1.3mio cases of proxies/associates. Earlier 60 similar entities controlled 94%; fairly
IMFL. With this huge foray, share constant over past two years, except intragroup transfers.
of beer in overall portfolio - both • 3. H1FY18 topline up by 37.5% on y-o-y basis and bottom line up an
volume and values will steadily rise. impressive 53%. In fact the H1PAT (`15.07 crore) exceeds the entire
FY17PAT of `13.4 crore.
Southern states have higher per • 4. Reducing absolute debt by `19 crore last FY. Net debt/equity ratio
capita and overall consumption, so to very healthy 0.33x in FY17 compared to 0.57x previously.
any player with ambition has to • 5. Entry with four brands and categories into the Canteen Sales Dept.
make a presence. Level of (CSD). To be noted that alcoholic beverage contributes to 26% of
urbanization has also material FY17 topline (`7500 crore) of CSD.
impact on the consumer, rising
about 20% with likewise levels of
urbanization. Kerala and Tamil
Nadu feature in Top 5 with nearly industry to grow at a CAGR of tremendous benefit of leveraging
50% and Karnataka, Andhra 8.6% over the next five years to any evolving demand without
Pradesh with nearly 40% feature in reach `676 billion by CY2021. The resorting to expensive capex at the
Top 10 urbanized states. numbers may differ slightly but all onset. Similarly, CSD distribution
Propensity to spend on alcoholic of them project to high growth. has incredible operating leverage
beverages is clear. The same study also projects IMFL though it may come with higher
market in value term to reach debtor days and slightly lower
Notable is the trend in the Indian 3,032billion by 2021 though the margins. This may be partially
beer market where the value domination of IMFL cannot be offset with lower channel cost.
growth is ahead of the volume. removed anytime soon; the beer USFDA approval for the bottling
Over the next three years, the market lends itself to elevated level facility is positive, but the
volume is slated to grow over 6% of premiumization, segmentation commercial impact is uncertain.
and value growth will touch 9-11%. and product innovation. The
Premiumization has been an company has not been very clear The Result
underlying theme and will lead to a on the initiatives to develop IMFL Som Distilleries looks a very
better realization for breweries. segment. More and more it seems interesting company at this
Increased import/licensed to be riding the distribution of beer juncture. Earning growth and PE
production in the premium brands on one hand and CSD expansion will have enormous
segment is a visible trend in line opportunity on the other. All these impact on the Market Cap. If the
with premiumization. Rise of developments will drive the promoter improves counter
micro-brewing is a trend which is numbers to a much higher liquidity by way of a split and/or
further catching enormous pace. As trajectory. With major capex bonus, it can lead to higher
seen below India ranks highest in behind it and much improved cash institutional interest which is
expected growth (Source ADB). flows, expectations are of rapid negligible currently leading to
reduction in net long-term debt. further governance comfort and
Though on overall basis the Reducing to NIL or insignificant possible 2nd leg of PEx re-rating.
estimates talk of 7.9%, the industry levels in the next 2-3 years. Smart The Company can deliver a topline
expects South Indian demand to moves in tying up with Jagatjit of `430 crore for FY20 with 10%
grow in the low-teens. Euro Industries and Oakland Bottlers for NPM. At 11 times FY20 earnings
monitor study projects Indian Beer bottling services provide its tough to lose from it.
25
HIL Ltd. (formerly Hyderabad Industries Ltd.)

BSE Code: 509675, NSE HIL; Face Value: `10; Market Cap (`Cr): 1100; CMP: `1525
E
stablished in 1946, HIL Ltd. is among the country’s largest and
most respected companies in the building material industry for
the last seven decades. HIL is a pioneer of green building
materials, producing roofing solutions, panels, walling blocks,
plywood substitutes, high-quality pipes and fittings, and
industrial insulation. HIL is the market leader in Fibre Cement Sheets, Solid
Ashish Khokha Wall Panels, and Fly-Ash Bricks (AAC). With over 3,950 employees, 20
VP in a Financial Services organization manufacturing facilities, 43 depots and 8 sales offices, HIL sells its roofing
Active in the market 8 years solutions under its iconic brand ‘Charminar’. It also has another brand
‘Aerocon’, which is also a leader in the Green Building Product space. HIL
He follows a data oriented approach to filed its first patent in the Roofing Industry in 1993. It was the first to
investing and tries to align that with a introduce fly-ash along with cement in the fabrication of Charminar AC
top down view on the industry sector Sheets in 1995. It was also the first to introduce Cement Solid Wall panels in
and the company. He has built his own India. HIL is also one of the leading Sheeting Machine Maker in the world
data models that allow him to quickly and exports to 22 countries. It was judged ‘Asia’s Most Trusted Building
understand the company and sector Material Company’ for 2016 and Charminar and Aerocon were recognized
using publicly available data. This also as Consumer Superbrands for the year 2016-17. The company has a small
helps him decide when not to invest, equity base of `7.5 crore and 75 lakh total shares. The promoters hold
which is a more important decision than 40.99% of the company. All promoter shares are currently unpledged.
investing.
Financial Performance & Valuations
HIL Ltd. is a well-managed company with strong focus on P&L and
My Mantra balance sheet. In the last few years, the company has not diluted equity at
In the long term, you have the all. Entire capex for the last 5 years is funded through internal accruals.
potential to create wealth in the Investors like Reliance Small Cap Fund are invested in the company. Sales
markets. Follow the 10,000 hour rule – growth has been rather muted (7% CAGR in the last 3 years) but that
that’s the time it takes to master any should increase, going forward. In Q2FY18, sales growth was 12%.
subject (hypothetically). In the short Operating margins were in the 8-10% range in the last few years. They have
term, FOMO (fear of missing out) and started to move up in the last 2 quarters of FY18. The company had other
tips from experts should be two of the income of `4-5 crore due to the sale of real estate but was prudent in
biggest concerns – learn to manage offsetting that with accelerated depreciation of some assets. Return on
the first and not use the second to equity (RoE) is 11% and Return on capital employed (RoCE) is 15%. With
guide your investment decisions. Think last two quarter results, RoCE is also going up and may exceed 20%, going
positive. There will be opportunities forward. The company is almost debt free and hence, has the lowest DE
every year, no matter what. ratio in the industry. Current ratio is a healthy 1.5 (vs. 1.2 in FY16). The
company also has `118 crore of current investments on the books (10% of
the company’s market capitalization), which provides an added margin of
Disclosure safety in valuations. The company has consistently paid dividend with an
The author is not a registered analyst under SEBI average 30% dividend payout rate (DPR) in the last three years. HIL has
stock. Readers must do their own research before managed its working capital well and WC/ sales is just 14%. Average days
investing in the company. receivables is very healthy at 30 days.
26
working spaces for her citizens. used conventionally in the

The company has been able to More than seven crore Indians are construction industry.
convert its profit into cash flows. homeless and 90 crore live in
Cumulative CFO to pre-tax substandard housing. There lies a Recently, HIL announced the
earnings over the last 7 years is 96%. strong demand for roofing in rural commencement of commercial
Cash flow from operations (CFO) in India wherein, out of 21 crore production of Non-Asbestos
FY17 was `160 crore (16% of houses in rural areas, 54% are Roofing Sheets (Green Roofing
market cap). The company is Kuchha houses. The huge housing Solution) under the brand
expected to generate similar CFO deficit in rural India (lack of Pucca “Charminar Fortune”. It is being
(approx. `150 crore) in FY18 as houses) offers a tremendous manufactured at Kondapalli Plant,
well. This is significant, given that opportunity for sustained growth of Andhra Pradesh, which has the
company has incurred capex in new age construction practices as capacity to manufacture 33,600 MT
FY18 for developing the Charminar well as building products. The PA. Charminar Fortune is a new
Fortune product as well as setting major growth driver for roofing - addition to the company’s Roofing
up the new pipes and fittings “Housing for All” - aims at products; it is Asbestos free and has
manufacturing facility. Capex in the providing affordable housing for the excellent load bearing capacity,
last five years has been solely funded poor. The government is supposed thermal resistance, soundproofing,
through internal accruals. to build almost 20 million homes by fire resistance and a life of many
Company’s asset turnover ratio is a 2022 (of which 10 million to be decades. This advanced, research-
healthy 2.3-2.5. The company is completed by 2019), with central based, green roofing solution has
keen on acquisitions and free cash assistance to the tune of `2 trillion. been developed in-house by HIL.
flows will provide the capital to do The government has identified 500
just that. The tax rate is in the range more cities and towns in nine states The company has high focus on the
of 26-30% for the last 3 years. under this plan to be covered in the Pipes & Fittings segment and is
first three phases, with an allocation pursuing a `130 crore capacity
Given the sector tailwinds, increased of `230 billion in budget 2018. strengthening aimed at growing the
urbanization and reconstruction, scale of the business in the coming
better product portfolio, all India Implementation of GST will have years by way of positioning a high
presence, and better operating three big benefits – (1) Shift in end quality product, enhanced
leverage, there is a huge opportunity market share from unorganized to branding activities, access across the
for the company to grow manifold organized sector by eliminating country and commercialization of a
in the next 3-5 years. HIL could, in anomalies in tax structure across wider range of product offering.
fact, be a multi-year growth story states (2) Reduce logistics costs by Contribution from the Pipes &
(like IT, Pharma and HFCs). eliminating barriers to interstate Fittings business was `40 crore in
Despite great performance and sales, both physical and fiscal. HIL FY17 and the company expects it to
tailwinds, HIL valuations are very product lines are bulky and increase to `400 crore by FY20.
attractive. Cash yield is 13% and logistics form a significant part of HIL is looking for a technology
cash returned on invested capital the overall cost structure. With the based candidate for acquisition in
(CROIC) is 21%. Earnings yield is GST implementation, the company India or abroad and the size of the
8.3%. FY17 Piotroski score is a will be able to reduce the number acquisition could be $50-70 million.
perfect 9/9 and FY18 is expected to of depots and move products faster If that happens, the stock will get a
be 8/9. HIL is the cheapest stock in to markets thus eliminating major re-rating.
its sector (17.5PE at TTM EPS). wasteful expenditure. Building
Expect the company to do 86-86 material products (Roofing, Risks & Concerns
EPS in FY18 and 104-106 in FY19. Boards, Panels, PEB, Smart Steel The slowdown in the economy,
Buildings, and Metal Roofing) will change in government policies and
Investment Rationale be taxed at a reduced rate of 18% regulations, environmental concerns,
India has a very daunting task GST. This should result in making competitive action and company’s
ahead to ensure adequate shelter, products more affordable and ability to counter such actions
decent sanitation and comfortable comparable to competing products introduce the element of risk.
27
Vishnu Chemicals Ltd.

BSE Code: 516072, NSE VISHNU; Face Value: `10; Market Cap (`Cr): 472; CMP: `375
I
ncorporated in 1989, this Hyderabad-based company is a leading
producer of chromium chemicals and allied downstream products
serving across 40 nations across the globe (52% of revenue comes
from outside India). It has world class manufacturing facilities at
Bhilai, Hyderabad, Visakhapatnam and Srikalahasti.
Notwithstanding the tepid performance in the past, the vision and
Sandipan Ghosh dynamism of the second generation Siddartha Cherukuri (Joint MD)
Individual Investor in Micro Caps make it worth a re-look. He is an MS in Biotechnology from Northumbria
Active in the market 10 years University, and an MBA from Saginaw Valley State University (USA).
Volleyball is his other passion… “true to Why is the space so interesting?

the nature of the sport, it motivates me Chromium is the sixth most abundant element on earth; a steely-grey
to reach new highs”. chemical often found in nature combined with iron and oxygen to form
chromite ore. It has various states of oxidation - the most common being
Chromium III (trivalent) and Chromium VI (hexavalent). The latter being
My Mantra the most harmful form; if not controlled properly in industrial conditions,
Markets are a great leveler over is known to exhibit carcinogenic effects especially when detected with
time, stick to what you have traces of lead.
comfort in.
It is for this reason that the production of chromium chemicals carries
substantial environmental scrutiny adding to its high capital costs and no
new player has entered in the business in last two decades. The market has
been growing in low single digit for existing players like Lanxess,
Elementis, Soda Sanayii, Hebei Chromate, Vishnu, etc..
Sodium Dichromate, a hexavalent salt, is the key starting material -

directly or indirectly through intermediate steps for all downstream
compounds. As a thumb rule: 0.9MT Soda Ash + 1.4MT Chrome Ore
+Fuel, etc. ≈1MT Sodium Dichromate. Leather tanning, metal finishing/
plating, ceramic pigments, pharma intermediates are some of the key end
user industries using Chromium chemicals.
Size Matters
Vishnu derives approx 24% and 41% of its revenue from Sodium
Dichromate and Basic Chromium Sulphate. Installed capacity of
70,000MT of Sodium Dichromate equivalent (now operating at 60%)
makes it one of the biggest plants in the country. None of the domestic
Disclosure producers are even close to 10% of this size. Elementis derives 25% of its
The author is not a registered analyst under SEBI annual turnover from Chromium Chemicals but makes 25-28% EBITDA
stock. Readers must do their own research before margin. At 13-16% EBITDA, imagine the upside that can play out for a
investing in the company. low cost Indian major like Vishnu Chemicals if it gets its act right! It has a
28
long term arrangement with Ramky Acid (non-metallurgical) and

Enviro for solid waste management Chrome Oxide Green. These have a
at Visakhapatnam unit, 100 acre global demand of 160000MT but
solid waste pit at Bhilai and enjoy higher profitability. The
collaboration with IIT Hyderabad company has been aggressively
for alternate uses of waste. seeding big clients for these two
products. On the raw material front,
What was Ailing the company has annual volume
Earnings? contracts with prices generally
Multiple factors like capex taking linked to volumes committed—size
longer time than expected – lack of benefits accruing to it. At a later
bank limits and product stabilization stage it may also consider co-
issues; focus on low margin products investing in a small chrome
to ensure optimum utilization of beneficiation unit to have better
dichromate capacity (up to control on prices.
50,000MT). Volume in FY2016 earnings. The most critical part of
impacted by foreign exchange this is its investment in a new So an improving margin profile, a
advantage to competitors (currency Carbon Dioxide recovery process Balance Sheet turn around and right
devaluation of Turkey, Russia, (`20 crore outlay). This was a attitude from second generation
South Africa); lost domestic market process employed by Lanxess whose definitely makes it worthwhile from
share due to dumping of sodium patent has already expired. This a risk-return perspective. The Board
dichromate. This was followed by would enable Vishnu Chemicals to has recently approved alteration of
doubling of Chrome ore prices in cut down consumption of soda ash the terms of its Redeemable
FY2017 (from Oct 2016) from and Sulphuric acid & recycle Preference Shares (`47.5 crore). The
US$210/MT to US$430/MT, sodium sulphate to make soda ash. stock does not enjoy high liquidity
something not seen in 10 years. It can produce CO2 in-house at a though –promoters have 75% and
Since August, deliveries have been later stage than purchasing. This an avid investor Asish Kacholia
back to around US$ 240/MT. overall mechanism when holds 4.7%.
implemented may potentially lead
The company has applied for to an operational cost saving to the Icing On The Cake
anti-dumping on dichromate tune of `8/kg. It has also put up Vishnu Barium Private Limited, a
imports – cost & quantity data 7MW high pressure steam- wholly owned subsidiary, was
known to favour the Company. It is generated power unit. acquired at a nominal price from its
a 25000MT domestic market Accumulation of the high inventory erstwhile JV partner Solvay in 2015.
wherein Vishnu Chemicals enjoys a of Yellow Sodium Sulphate (approx It owns 30000MT unit at
70 % share. The recent closure of `333 crore in FY2017) was leading Srikalahasti to make Barium
Zarate (in Argentina) facility of to a major block in its WC. At `2/ Carbonate.
Lanxess (52000 MT for basic kg it was not viable for resale.
chromium sulphate) will free up Vishnu Chemicals has put up a This business is in the black in
equivalent demand for players like plant to convert this into White FY2017— revenue `74 crore and `2
Vishnu Chemicals to cater to. Sodium Sulphate (fetches around crore PAT - a testimony to the great
`6/kg) which is used as a filler in work done by the management in
What makes the stock detergents, glass, paper, etc.. reducing fixed costs, improving
interesting now? The key aspect of its growth yields. This has very good synergy
Vishnu has already completed its strategy would enhance dichromate with its core chromium chemicals.
`95crore capex in FY2107 for the capacity utilization levels to 85%+ For instance, both are used in
Visakhapatnam unit. The multi- in the next 3 years leading to an ceramics thereby enabling Vishnu
pronged benefits expected to accrue EBITDA of at least 20%. The focus Chemicals to capture a higher mind
from H2FY18 can take the herein would be to make more share of customers. All this makes
company to a different trajectory of downstream items like Chromic the stock a bet worth noticing.
29
PTC Industries Ltd.

T
his is a Lucknow based quality casting manufacturer since
1963. It has over the years matured from a low-end sand
casting foundry to a high-end metal processor, which can
manufacture fully machined alloys of different metals as per
the customer requirement. The company has substantially
invested in “Replicast”; a lab technology invented by casting Technology
Aveek Mitra International, UK and improvised it to produce near-net-shape castings of
An investor in Small Caps and owner of more than a tonne. Over the years, the company also has developed a new
a SEBI registered advisory firm technology “forgeCAST” through which it claims to have overcome a few
Active in the market 20 years inherent limitations of a casting product like porosity, shrinkage
(commonly known as hot spots), sand inclusion and slag inclusion.
He waited till the age of 29 to make his
first investment which halved in no According to the company annual report of FY17, it is now capable to
time! It was made as per manufacture any size, near-net-shape, complex parts in exotic and higher
recommendation of a reputed broker metallurgies with mechanical properties, strength, reliability and quality
friend and it was his only savings after equivalent of that of forgings. In metallurgy, welded fabrication or forging
almost 6 years of slogging in corporate. is always considered to be superior in quality due to its superior strength,
He became a learner and serious about better mechanical properties and greater reliability. But forging of complex
knowing the field of investment out of parts in alloys of medium or large size in prohibitively costly and here
desperation to recover his lost capital. comes the advantage of a quality casting manufacturer like PTC Industries
who mastered the technology and passed through a prolonged learning
curve of metal processing.
My Mantra
Indian economy doubled in the
The company in spite of such a low revenue base has marquee clients like
last ten years and it’ll double in the next
a Rolls Royce Marine, Flowserve, Metso, Wartsila and Vikram Sarabhai
8-9-10 years. We talk about GDP in real
Space Research Center and 100% of its revenue is derived from these very
terms, but Sensex/ Nifty, and corporate
extremely demanding and quality conscious clients. It demonstrates the
profits are quoted in nominal terms.
strength of the company’s capability as a quality vendor partner for critical
You get your money in nominal terms
casting components. Now the question arises, why the company has such
and it’s your responsibility to protect
a low margin of just 16% when it has such niche capability? The
and grow its value in real terms. There
conclusion on reviewing the company suggests that lack of bargaining
is a synchronised global growth
power with large customers and small ticket sized orders have made their
happening after almost a decade and
processing, stores and spares and employee cost relatively uneconomical at
India would be a major participant
the current level of operation. Also, the company focussed mainly on
due to its size and population.
manufacturing the right quality and developing the right process over cost
control or volume manufacturing. Unlike most foundries, the company
does not work on design and die as given by the client, but focus on
Disclosure providing a better material faster, with better strength to weight ration to
The author is a SEBI registered analyst. He has a solve a specific customer requirement.
small investment and it’s advised in few large client
portfolios. May add more with the passage of time.
PTC Industries is currently expanding its capacity almost four-fold and,
30
“My view is that I am

not entering the
stock market to
make 15-20 per cent
kind of return. I am
very clear. Unless I
can look at 100 per
cent return, I am
as per management, it is one of a supporting ecosystem in place like
better off with fixed
kind in terms of capability, Lucknow to effectively cater to large income assets.”
automation and precision scale high end requirements for
processing. The new plant is fully extremely demanding global
robotised and existing manpower customers. – Shankar Sharma
would be sufficient to run the larger
plant. Areas of Concern
Repayment and interest payment
We feel going ahead, this new plant would kick in as soon as the plant is
may put them in a formidable commissioned. It may put a
advantageous position when the temporary cash flow pressure and
new capacity comes into full initial few quarters after new plant
operation. The processing cost becomes fully operational would be
would come down and operating challenging. Also, product approval
leverage would flow through the and initial demand ramp up may
bottom-line. Also, now they would take much longer than projected.
be in a position to handle many But as the capacity of the entire
more varieties of alloys which can plant is fungible unlike many
improve their EBITDA per ton of foundries, they can meet demand
metal processed. It may take a while from any industries like Oil & Gas,
though, but, at `300 market cap, Pulp & Paper, Aviation, Defence,
there is enough headroom for Marine, 3D Printing etc. It may give
valuation to grow significantly over them a major cushion to withstand
the years. The company has a new any initial hardship.
COO Mr. Anthony Rowett who is a
veteran in the industry for 25 years The End Result
and possibly another person with Promoters are focussed and there is
international exposure would join no reason to doubt the lofty
them as R&D head soon. This intentions of the management. A
organization building is a positive good long term Make In India story
step as the company doesn’t have a is being unfurled at PTC Industries.
31
Worth Peripherals Ltd.

Listed on BSE SME; CMP: `110
Industry Dynamics
The Indian packaging industry grew at a CAGR of 16% over the last few
years. It stood at $32 billion a couple of years ago. Globally, this industry
stands at $700 billion, India contributes about 4-5%. There is a stark
difference of per capita packaging consumption as well. India stands at
4kg, Germany at 42kgs and Taiwan at 19kgs. It is estimated that the
Chintan Antani Indian packaging industry can grow at 15% in the coming decade.
CFA, FRM Packaging is mainly of two types - Rigid and Flexible. Flexible packaging,
Independent Investor. Currently working due to its inherent characteristics, anticipates a higher growth trajectory
as a Senior Portfolio Manager at CIIE. than its traditional sibling. Features such as convenient transport, disposal
Active in the market 10 years & handling, cheaper movement assembly put flexible packaging as
preferred type. Factors such as an increase in income, expansion of
An avid reader. Likes to travel. Faulty organized retail market, e-commerce boom will catapult the use of
contrarian. Always skeptical. A corrugated boxes. Demand for packaged food will also lead to a significant
wannabe value investor as still finding rise in the use of corrugated boxes. The pharmaceutical industry will be
his sweet spot as far as investing the next biggest consumer of packaging material like corrugated boxes.
method is concerned. Heavily Corrugated box manufacturing is one of the most fragmented and
influenced by Warren Buffet, Graham, unorganized sector (there are close to about 5000 scattered box plants).
Peter Lynch and all super investors. High prices of Kraft paper, inefficient operations for box manufacturing,
increasing competition offer some hurdles to the sector. High tech
machinery from China and Korea along with Germany will give immense
My Mantra potential for efficiency and growth along with innovation to corrugated
If you are entering the markets box manufacturers.
today, please be aware risk reward is
not in your favor. A lot of multi-baggers The Company
have run their course. Being stock Established in 1996 the company has two manufacturing units in Indore,
specific with an incremental focus on Madhya Pradesh and Mr. Raminder Chadha has been running the show
valuation and what you are paying to for the past two decades. A self-made entrepreneur and industrialist, he
own that business will ensure that you has pioneered the corrugated box manufacturing. The company designs
will do well irrespective of market and makes boxes as per the customer’s requirement so as to bring down
condition. It does not matter if you are the eventual cost of transporting the final product. The company has its
buying the bluest of chips out there. own fleet of GPS enabled trucks to ensure that there is timely delivery to
Pay too much for anything and your the end client. All types of in-transit breakages, delays are avoided as the
portfolio will be black-blue & red company doesn’t rely on 3rd party logistics. With an in-house testing
for a long time. facility, it focuses on quality and durability of the boxes.
The company has repeat orders and customers list extends from HUL,
Disclosure Adani Wilmar, Cargill to Parle, Bira91 and Lupin. Perhaps the biggest
The author is not a registered analyst under SEBI competitive advantage the business has, is the state of the art machinery. It
stock. Readers must do their own research before has a fully automated unit with Programmable Logic Centers. The raw
investing in the company. material supplies and losses due to inventory pile up are minimized due to
32
the entire automated system that is

in place. Over the last year the
company has procured state of the
art automated machinery. The
company is looking to aggressively
invest in upgrading its machines and
putting up more units catering to
various aspects of making a
corrugated box. It plans to expand
its products to fruits and vegetable
boxes for supermarkets as well. “If you’re looking for
Fully automated color printed boxes
are something the promoter is a home run -- a great
banking on, with an extreme focus
on quality and serving the big investment for five
players. Also, the company is years or 10 years or
banking on a geographical
expansion in the next 5 years. Being more -- then the only
family owned and started from
scratch the founder, Raminder way to beat this
Chadha has his skin in the game. enormous fog that
The 2nd generation – Jayvir Chadha crore and `5.7 crore respectively.
also dedicates his time and energy The coming quarters are expected to covers the future is
behind learning the tricks for be robust too.
growing the company. to identify a long-
Management & term trend that will
Financials & Corporate Governance
Valuations It is worth mentioning about the give a particular
The company has performed well in founder and his team. Mr.
the past. It came out with a decent Reminder is an absolute down to business some sort
set of numbers for H1FY18. With earth personality. Having started of edge.”
the capex and machinery upgrades from scratch, he has an
lined up, the company should post a understanding of stakeholder
decent growth of double digits in engagement – be it, importance of – Ralph Wanger
the next 5-6-year time frame. clients, suppliers or shareholders.
Growth and return rations are Another observation – he will never
pretty decent given the give future guidance on the sales
commoditized business. The number, and profits etc. And that’s
company came out with an IPO of how true entrepreneurs work –
about `18 crore with a post money focus is business, focus is
valuation of `67 crore. It was profitability – price of share is a
available at dirt cheap price. At the byproduct and the management led
time of writing this report the price by an able leader understand this.
is hovering around 110. Debt is Whether or not Worth will create
under control and the cash profit history is a question of time – but it
more than covers interest payments. is worth partnering with them. I
The company ended FY17 with have and I intend to do so in the
`130 crore sales and `7.3 crore PAT. foreseeable future. It is one of
In the first half of FY18 it delivered India’s best corrugated box makers
a topline and bottomline of `75 in the country.
33
Jash Engineering
Traded in: NSE Emerge; CMP:185
T
his is an ISO-9001:2008 company manufacturing wide range
of equipment for Water Intake Systems, Water and Waste
Water Pumping Stations and Treatment Plants, Storm Water
Pumping Stations, Water Transmission Lines, Power, Steel,
Cement, Paper & Pulp, Petrochemicals, Chemical, Fertilizers
and other process plants.These equipments are Water control gates,
Parthiv Shah Mechanized screening systems, Screening conveying and washing
Director, Tracom Stock Brokers Pvt. Ltd. systems, Knife gate valves, Water hammer control valves, Energy
Active in the market 10 years dissipating valves, Archimedes screw pumps, Micro hydro turbines,
Clarifiers, Clariflocculators, Flash Mixers, Degritters, Aerators,
He first invested in the US markets in Thickeners, Gravity Decanters, Trickling Filters, Digester Mixers, DAF
2007 and witnessed the Lehman Units and solid handling valves.
Brothers crash in which his portfolio
comprising of even fortune 100 Jash Engineering offers a single stop solution under one roof, including
companies collapsed by 60%. He got Design, Casting, Fabrication, Assembly & Testing and provides the most
the courage to cost average in those varied range of these products in largest possible sizes. To ensure this the
names with the monthly salary, cash company is continually investing in its manufacturing capability as well
flows and eventually by the time he left as in the development of new products and technologies either on its
USA for good in 2010 he ended with a own or through collaboration with suitable technology partners and
33% CAGR returns. It tested all his leaders in the trade. With over six decades of excellent engineering and
emotions and made him a mature manufacturing experience, Jash Engineering is today an industry leader
investor. in India for most of these products and also exports to over 30 countries.
Acquisition
My Mantra The latest acquisition of Rodney Hunt was to get access to a world
Try and build your own conviction renowned brand and get a respectable access in the North American
from the word go. For which read market of water control gates. This acquisition brought its own set of
Annual Reports, Newspapers, challenges in terms of integration, but now the management is confident
Investment related magazines, etc. of turning around and scaling it to be a `100 crore revenue company.
Spend most time in reading and even Also the margins and working capital cycle are far better in the North
longer time holding on to your high American business than Indian business.
conviction bets.
Triggers
The company has three units and the 4th is under construction. All these
units have a potential to do a maximum sales of `500 crore. Current
sales are of `158 crore. The company is aiming to have over the next 5
years, at least five product groups to have a contribution of 15-30% in the
Disclosure annual turnover. Acquisition of Rodney Hunt & Mahr Maschinenbau
The author is not a registered analyst under SEBI will lead to water control gates and screens becoming two of the
stock. Readers must do their own research before strongest product groups contributing over 45-50% of total turnover of
investing in the company. the company. Recent breakthroughs in North American market for Knife
34
Key Points
• A single stop solution under
one roof, including
• The acquisition of Rodney
Hunt was to get access to a
world renowned
• The process equipment group
is growing at over 20% rate
and will become the fifth
largest contributor to turnover.
• The company has the
potential to record `500 crore
revenue, which is a 25%
CAGR.
gate valve business will make the presently growing at over 20% rate challenge for Jash emerges from the
valve product group the third and will become the fifth largest domestic business in terms of
largest contributor to turnover. contributor to turnover. receivables from customers in India
who are still facing a tough time.
Successful completion of `38 crore The company is aiming that in the But based on the reforms taken by
order for supply of 21 Archimedes next 5 years, sales from any region the government things shall
Screw turbines to generate 5.15 is not more than 40%. Until the 1st improve.
MW power (the largest project in half of FY18 the order book was
the world using this technology) in `176 crore. Of which 53% were End Result
the year 2018 will strengthen the domestic, 35% USA and 12% We feel that by 2022 very
future business potential of the ROW. The company is extremely conservatively Jash Engineering
Renewable Energy & Pumping well positioned to take the massive has the potential to record `500
group, making it the fourth largest opportunity that is there in the crore revenue which is a 25%
contributor to turnover. The water segment not only in India but CAGR. This is a great bet for next
process equipment group is the world over. The biggest 5 years.
I always tell young analysts or fresh market participants that

their job should be to try and double their money every three
years. So to find a stock which can double in three years, the
first question one must ask is that ‘is this business going to
be around three years from now and will it be better off than it
is today?’ That question will itself weed out a lot of bad
business as you might not have a clue about the sustainability
of several businesses. This is a good way to narrow down the
pool of business to study. In life also if you know what you
don’t want and what to avoid, things become relatively easier.
– Ramesh Damani
35
Globus Spirits Ltd.

BSE Code: 533104/ NSE GLOBUSSPR; Face Value: `10; Market Cap (`Cr): 446; CMP: `155
G
lobus Spirits Ltd. is India’s largest grain based distiller with
a capacity of 150 million bulk liters. These facilities use
latest distillation technologies and are zero discharge plants
having the highest grain recovery in the industry. The
company is the market leader in Rajasthan for IMIL
(Indian Made Indian Liquor) with a 32% market share (75% of Globus’
Rajesh Sehgal IMIL sales by volume) and 2nd largest private player in Haryana with a
Managing Partner Equanimity Investments 11% share (18% of IMIL volume). In addition to the IMIL business,
Active in the markets 20 years Globus bottles liquor for some other Indian liquor (IMFL) majors,
including the top 3 IMFL players, and also sells bulk alcohol to them.
A long term investor with tremendous
breadth and depth of experience For Q218, IMIL, which is the highest margin consumer facing business,
managing early stage investments, accounted for 46% of total revenues. Manufacturing businesses accounted
private equity and public equity funds for 54% of sales and comprised of sales of bulk alcohol, which accounted
for over two decades. A Wharton for 29%, IMFL franchisee bottling 15% and by-products contributed 10%
alumni and XLRI management of sales. It is important to note that by products like DDGS (Dried
graduate. He holds the CFA charter Distillers’ Grain Soluble), used as animal feed, and carbon dioxide
holder, however, Physics remains his enhance profitability of the business. In Q218, EBITDA margin came in at
first love and physical cosmology 9.1%, up 160bp q-o-q while net margin came in at 10.1%, up 200bp q-o-q.
doesn’t stop enchanting him with newer Promoters own 57% of the company and Templeton PE owns 17% - these
ways to look at the universe we live in. are both long term investors and focused on value creation for all
stakeholders, which bodes well for the business.
My Mantra Current Updates

Know who you are. There are The company has recently set up new distilling capacity of 60 million bulk
investors and then there are traders. liters in East India across two locations: West Bengal and Bihar. This
There’s nothing wrong or right about provides the locational advantage of lower material costs, higher
either. What’s important is to realize realization and logistical benefits as they cater to a market with a clearly
where you belong. If you’re an investor, positive demand supply dynamics. Globus has four strong brands in the
stop seeking tips and following tick by North India market that they intend to launch in East India as also focus
tick charts. If you’re a trader, stop on creating products and brands specific for these markets. One has to
reading balance sheets, projecting keep an eye on raw material costs as that is the largest input for Globus.
revenues, profits, etc. and start eyeing With the increased capacity, the company will be able to better manage
the tape and figure out the trades. costs and demand good quality and price in the markets, but this does
Secondly, develop your own style remain an area of concern for a business like Globus. It has a strong
and strategy and keep improvising. balance sheet with D/E of 0.60 as at Q218.
Disclosure Triggers
The author is not a registered analyst under SEBI • Globus invested about `250 crore in capacity expansion in 2016-17 -
stock. Readers must do their own research before West Bengal 33KLPD (Kilo litres per day) and Bihar 27KLPD. The WB
investing in the company. facility started commercial production in Feb 2017 and is expected to
36
increase utilization levels in

FY18. Since WB is a new facility,
its output is mostly bulk alcohol
and as this sales mix changes to
IMIL, margins will expand in
line. As a thumb rule, IMIL
contribution margins are over 3x
that on selling the same product
as bulk alcohol.
• The new Bihar distillery has not
yet commenced operations since
Bihar was, unfortunately for
“As time goes on, I
Globus, announced a dry state as get more and more
soon as this capacity came up.
The matter is pending with the convinced that the
government and the courts. If
Globus is allowed to manufacture
right method of
and sell alcohol outside the state, investment is to put
without any export tax, overall
capacity utilization levels, fairly large sums into
revenues and profitability will get private equity capital for Unibev.
a booster shot. In addition, the • Globus has a strong balance
enterprises which
P&L will be able to better handle sheet, despite having nearly one thinks one
the interest and depreciation doubled its capacity in 2017, with
burdens. a debt-equity of 0.6x and strong knows something
• Globus has hired the services of cash flow generation from
Mr. Vijay Rekhi, the man behind operations.
about and in the
the huge success of United • Valuation is pretty reasonable management of
Spirits over the last 3 decades, to with a PE of 12x 2019 and 6x
run its own IMFL business set up 2020 earnings. ROE and RoCE which one
as a 100% subsidiary called are on a trajectory to reach the
Unibev. Mr. Rekhi served United mid-teens from the current
thoroughly believes.”
Spirits as President and subdued levels given that the
Managing Director till 2011 post major capex undertaken is yet to – J.M. Keynes
which he held the position of result in steady state revenue and
Chairman of the Board of profit.
Advisors at Tilaknagar Industries • Another trigger for the stock is
and an independent director on the entire discussion and policies
the board of Royal Orchid around fuel ethanol. If grain
Hotels. He has been retained based ethanol is allowed to be
with the lure of some stock used as a mix for fuel under the
issuance arrangements. Unibev upcoming biofuel policy, it will
plans to launch four brands bode well for Globus. India is
across selected geographies in now at a 2% ethanol
2018 with an investment of `16 consumption despite the target of
crore. This is likely to result in a 10% blending. The government’s
revenue of `60 crore and an target of 20% ethanol blending of
EBITDA of `15 crore in the full 2030 will require allowing grain
year ending March 2020. The based distilleries to supply
management also intends to raise ethanol.
37
Avantel Ltd.
T
he moment we have a glance at this company which is a
pioneer in integrating technologies related to wireless front-end,
Satellite Communication, Embedded systems, Signal
Processing, Network management and Software development,
the first question that pops up is, the company is around for
more than two decades and listed since 2000 and does only `30-35 crore of
Darshit Shah revenue. I often wondered what had kept the management, motivated and
Portfolio Manager, Nirvana Capital sustain for so long with no significant growth and R&D expense,
Active in the market 10 years sometimes as high as 18-25% of revenues.
In 2008 he completed CA and CFA and The answer lies in the passion with which the MD of the company Dr
joined D.E. Shaw, the global hedge Vidyasagar who is an IIT graduate and a doctorate along with his R&D
fund and later managed portfolios of team works with the vision to innovate and integrate new ideas and
HNI clients at Equirus Securities. In technologies. They love what they do and that is the reason why there are
2015 at the age of 29 he left it to start people in the R&D team, including the R&D head who have been there
Nirvana Capital where he manages his with the company for more than 20 years now. Their core strength lies in
concentrated portfolios and few HNI RF system design, Wireless & Satellite Communication system, Embedded
clients. Two stocks which he bought in system & digital signal processing, Network & software management and
2011 and kept on adding as and when IT services. They are one of the only few companies who are present
he had money and the price was through this full value chain.
tempting, changed his life and allowed
him the leisure to be on his own terms Clients
- Caplin Point Lab & Avanti Feeds. Their customer list includes Indian Navy, Indian Army, Indian Coast
Guard, DRDO, ISRO, Indian Railways, BEL and the likes of behemoth
Boeing. The company’s credibility and technological strength can be
My Mantra vouched from the fact that Boeing uses Avantel’s Satcom device in their
I firmly believe there is no good or prestigious PI8 fighter aircrafts bypassing few of their criteria for vendor
bad time to enter markets or buy selection like requisite net worth, etc. Most of the clients though
stocks. The most important thing is to independent are Indian government organisations which have been always
identify good companies with great very slow to adapt technologies and have their own problems of rampant
leaders at the helm at any point of time corruption and implementing projects - one of the important reasons why
and stick to them with patience and Avantel could not grow that fast. Just to highlight an example, an important
you will be rewarded handsomely. And project of Indian Railways whose initial RFP was floated in 2012 and
mind you, you just need to find one or Avantel was the only player to successfully make and deliver that product
two such companies to change beating the likes of BEL & TATA is still to get the final award may be
your life. sometimes in 2018. Dr Vidyasagar jokingly says even the last benchers of
my IIT batch are $millionaires and far richer than me in USA. Now we
Disclosure know why all this IITians don’t stay in India and run to USA.
He and his family own more than 1% in the
company.
What Has Changed?
The company on average takes around 4-5 years to develop a new product
38
and it has over the last 6-7 years Future Products under development:
developed products and technologies 1) Development of UHF Satcom
which might change its fortune in System for Helios
the years to come. The new Defence 2) Development of MSS Terminals
procurement policy to buy Indian- for Next Generation Satellite
IDDM (Indigenously Designed, 3) Development of 1KW HF System
Developed and Manufactured) will for Indian Navy
also give the necessary thrust to 4) MSS transceiver terminal for
Indian companies working hard in coastal surveillance
this field 5) MSS transceiver with electronic
is the company’s business is very beam former for G-Sat 7 & G-Sat 6
• Development of 1KW HF Power asset light and will need only the 6) Universal MSS Terminal for voice
Amplifier & Antenna Tuning Unit `3-4 core of further capex to and data applications using G-Sat-6
• Development of MSS transceiver implement such projects. Also, since 7) Up-gradation of MSS Hubs with
for SSK submarines the company is present across the higher data rates with voice
• Development of MSS transceivers value chain right from designing the capability
with voice up gradation feature for product till its network/software 8) Hardware development of ASIC
MARCOS management and related IT services, based modem with high data rate up
• Mini- jammers the AMC revenue from such projects to 40Mbps
• 20 to 500MHz 1KW power could be to the tune of current
amplifier revenue in the years to come with no This clearly shows that the company
• Real Time Train tracking and additional cost attached to it and is doing lots of R&D work whose
Information system with warning thus directly adding to the bottom fruits might be recognized in the
at Unmanned Level Crossings line. years to come.
• MSS reporting terminal for
Coastal surveillance Scuttlebutt with a Valuation
• Digital beam former for increased Scientist at the Indian The company is debt free currently
data rate in MSS systems Space Centre, ISRO, with just 40 lakh shares outstanding
Ahmedabad and is available currently at a
The company is eyeing projects He confirmed that they are market cap of `180 crore. The
worth more than `400-450 crore in aggressively working on the above promoter’s stake is around 40%, but
the next 2-3 years. Even if 50% of mentioned project in collaboration this is the only bread and butter for
that materializes, it could be with Indian Railways. The trial runs him and he might sell a few shares
significant for the company doing for both Real time train tracking here and there for his needs, just
`30-35 crore currently. The company along with an information system like what we do. They would end
has finally got recognition with warning at unmanned level up FY18 with `10-12 crore PAT
Indian Railways along with ISRO crossings are running since last June (excluding other income which they
who are implementing the much on few trains and the results are got from selling their office
awaited project- Real Time Train very satisfactory. He also building) resulting in P/E of 15x
tracking and Information system appreciated Avantel’s product and for FY18E. Since the business
with warning at Unmanned Level said it is also compatible with model of the company is asset light,
Crossings. Avantel has developed IRNSS (The Indian Regional any increase in revenue from here
the product for this project, which Navigation Satellite System). The on would result in a
will be used by ISRO in Railway Minister, Piyush Goyal has disproportionate increase in the
collaboration with Indian Railways told all 16 Railway zones to bottom line of the company.
across all trains in a phased manner. implement this project on a fast
This project is expected to start track basis. There are in total 15000 Risks
sometime in 2018 and this single trains and more than 10000 Significant delays in implementing
project alone could be worth more unmanned level crossings on which the projects by various organizations
than `150 to 200 crore. The best part this project will be implemented. whom they cater to.
39
Nelco Ltd.
BSE Code: 504112/ NSE NELCO; Face Value: `10; Market Cap (`Cr): 292; CMP: `120
T
his is the age of speed, information is valued relative to its
speed of transfer. Gigantic efforts are underway all the time for
faster delivery of information. The internet is one of the
biggest transformational force and its effectiveness and use
increases with speed. So speeds of GBPS are fast becoming
the norm. Faster and wider Internet will bring the next industrial
Gurpreet Singh revolution. But our visual of internet is very narrow as we can only
A chartered accountant working visualize cable broadband (or 3G/4G/5G) but most do not know that
with BHEL cable/terrestrial broadband can’t reach each and every nook. Rather, it is
Active in the market 7 years the Satellite Internet which has this distinction of reaching each and every
corner of the globe.
A very passionate small cap investor
and an avid reader. The Company
Nelco Ltd. is a Tata group (Tata Power is the parent) company dealing in
the business of providing satellite connectivity (VSAT). Nelco, through its
My Mantra Tatanet brand, provides VSAT connectivity to banks, oil and gas
While investing always act like a companies, government and educational institutions, etc. It is ranked third
businessman. Business is not about (19% market share) in the list of the top 5 where Hughes Communications
financials as financials are just an (around 40% market share) and Airtel (22% share) top the chart. But the
expression of the business difference between Airtel and Tatanet is not significant. Hughes is a global
performance. Business is all about long $1.3B VSAT giant offering both hardware and services solutions. Nelco
term growth of the products which Ltd. has undergone massive restructuring recently and it has disposed of a
requires careful analysis of entry number of non-core businesses in its quest to grow bigger in VSAT. Nelco
barriers, competition, the threat of
is well placed to witness high growth in VSAT business going forward.
substitute products, control over raw
material and final product prices etc.
What’s all this mean for Nelco?
So understanding the business
The implications of this huge increase in the capacity will enable VSAT
model is the most important thing.
players like Tatanet to offer more services at much cheaper rates. As of June
2017, out of the total VSAT base of around 280000 in India, Hughes
communication accounts for 100000 connections, while Bharti is at 71000,
Nelco at 56000, HCL Commet at 27000 and BSNL is at 19000 connections.
After going through a difficult phase for almost a decade, Nelco started to
dispose of its other businesses to focus on VSAT business. In this process,
in Jan 2015, it sold its defense business of Unattended Ground Sensors
(UGS) on a slump sale basis for about `8.3 crore to its parent Tata power
Ltd. Then, in March 2015, it sold its managed services business to
Disclosure Mumbai-based ATM e-surveillance firm Securens Systems Private Ltd. for
The author is not a registered analyst under SEBI `2.6 crore on slump sale basis. These transactions have been resulted in cost
stock. Readers must do their own research before control and freeing up of working capital, which enabled faster topline and
investing in the company. bottom line growth for Nelco.
40
services will be in excess of `1000

crore in the next 5 years, of which
Nelco expects to get a fair share.
However in a major step in this
direction, Trai (Telecom Regulatory
Authority of India) is all set to
release the much-delayed and
much-awaited recommendations for
In-Flight Connectivity (IFC) by the
end of December-2017. Trai has
been delaying the recommendations
on in-flight connectivity (IFC) for a
long time now. With the increase of
broadband usage in recent times,
During the last two years, Nelco has period and new business Trai is looking to provide broadband
managed to return to profitability. It opportunities in the field of new connectivity to passengers on board.
has PBIT figure of around `10 crore dedicated business services, Any positive outcome will result in
and NP figures of around `6 crore hardware and repair and the re-rating of the Nelco as at
with annual topline of `144 crore. maintenance will emerge. Nelco has present market is not aware of the
This year, in the first half, its topline Tata power as a parent and in case growth prospects of Satellite
is `73 crore vs `70 crore last year. of any need accessing funds for any internet in India. To market,
But it has managed to show much new business opportunity in the internet is all about the fight of the
better performance in other above segment will not be a trinity - JIO, Airtel and Vodafone
operational metrics and has shown a problem. The financial and business (Idea included). But here Nelco may
net profit of `4.84 crore vs `3 crore. clout of Tata group will turn out to emerge out as a winner.
Finance costs are down at `3.23 be one of the biggest growth
crore vs `4.56 crore. Tatanet secured catalysts for Nelco like Tata What’s Cooking?
more than 45% market share of the Communications, which is already After selling non-core businesses,
incremental VSAT deployment in a significant player in terrestrial Nelco has started investing in
off-site ATMs during the year. internet and IOT so this can help capacity expansions. In FY2016-17,
Tatanet deployed 6998 VSAT Nelco in garnering new business the company had set up a new
systems for bank ATM’s last year. opportunities. Before the advent of Extended-C VSAT Hub in Mahape.
Nelco accounts for more than 70% the VSAT internet for general The initial capacity was 24MHz,
of the rigs for offshore oil consumers in the future, the near which will be augmented in due
exploration in India. During term triggers are opening of In- course. The company has also added
FY2016-17, Nelco has incorporated flight and maritime connectivity. 18MHz of Ku band capacity in its
another wholly owned subsidiary, India is perhaps the only country Dehradun Hub during the year. It
i.e. NNPL to carry on the business other than North Korea, which does has plans to set up one more Ku
of VSAT based Satellite not allow in-flight Wi-Fi services. band VSAT hub in FY18 to further
Communication, Value Added Even international airlines flying increase the satellite bandwidth
Network (VAN), Electronic Data over India have to switch off Wi-Fi capacities for coming opportunities
Interchange, sales and maintenance when they travel over India. in the Indian VSAT market.
of Satcom equipments including
VSATs etc. Rich Tailwinds End Result
As per the estimates the VSAT At present it is available at a market
These are early days for the VSAT industry in India will double in cap of just 270 crore, which is very
industry in India and it is better to 2-3 years’ time once the license for low for third biggest VSAT players
leave aside the financial data for at offering the Maritime and Aero for a high growth economy like
least next two years. This sector will Communication services are given. India. Looks one heck of a bet for
witness high growth during the The market potential of these two the long term.
41
Tyche Industries Limited

T
yche Industries Limited (TIL) was incorporated in 1998 under
the name of Siris Soft Private Limited as a software company
and later diversified into manufacture of fine chemicals. In
March 2000, the company was converted to Public Limited and
in 2004, the name of the company was changed to Tyche
Industries Limited and the company commenced commercial production
Ritesh Udhani from August 2005. Tyche has its manufacturing unit in Kakinada and
Portfolio Manager in a Pharmaceutical registered office in Hyderabad. The company is engaged in manufacturing
organization of Intermediates and API’s for anti-retroviral, anti-depression, anti-arthritic,
Active in the market 5 years anti-diarrheal, anti-psychotic etc. segments. TIL has 7 production blocks
and has a total reactor capacity of 156 KL. Out of 7 blocks, 3 of them are
The majority of his investments are for API and 1 for Intermediates. The plant received EU GMP approval in
from simple observations and about 2013 and USFDA approval in 2016. The company has 24 acres land and
what’s happening around. currently only 8 acres build for production, rest area can be utilized for
Pharmaceutical space is his major future expansion. The company is currently into 4 business segments: API,
investment sector as he understands Intermediates, Nutraceuticals & Contract Manufacturing Services.
the sector better. He keeps his
investment thesis as simple as The Series of Events
possible. • 1998 – Incorporated as Siris Soft, a software company, but later
diversified into the manufacture of fine chemicals
• 2000 – Made a public offer to part finance its expansion, meet the cost
My Mantra of marketing ERP products and to establish branches in the US
Disciplined approach in • 2004 – Name was changed to Tyche Industries Ltd.
investment is the key to success. Invest
• 2005 – Commenced its commercial production from August 2005
only in things you understand. Every
- Dispatched its first export consignment of 5 tons of Glucosamine HCL
decision has an opportunity cost and
• 2013 – Received EU-GMP approval from German Regulatory Authority
one needs to choose what matters the
for 11 Active Pharmaceutical Ingredients (APIs)
most. Don’t attempt to buy everything,
• 2016 – Gets USFDA nod for an API Mfg facility in AP
as you may end up on losing side.
Control your nerves and stay away
Very few people in Vijayawada, can claim to be unaware about Siris Labs,
from the noise.
which was incorporated on 6th December 1966 as a private limited
company in the name of South India Research Institute Private Limited and
was run by Mr. G.S Raju. The company became a deemed public limited
company on 23rd December 1985. Many readers will be amazed to know
that the company had annual sales of around `500 crore in 1995, but the
debt of the company was around `300 crore. The company eventually lost
its way to overcome the debt settlements and had to sell off its assets.
Disclosure Current promoters of Tyche G Ganesh Kumar and G Sandeep are
The author is not a registered analyst under SEBI grandsons of G S Raju of Siris Labs. G Sandeep is a chemical engineer and
stock. Readers must do their own research before an MBA from Loyola University, Chicago. He has 8 years of experience in
investing in the company. production and distribution of API’s and Advanced Intermediates and
42
developing innovative strategies for suppliers for the molecule and only
promoting new molecules. from India.
Promoters have increased their stake
by almost 10% in last 5 years. The Temptation
The management has taken concrete
Journey So Far steps to further improve the overall
Looking at the past nine years data, business volume and profitability, to
the company was growing its top line overcome the competition and has
consistently and crossed `100 crore chalked up plans with a clear-cut
sales milestone in year 2013-14, but road map focusing on long term
the majority of that was driven by business model and emerging
API intermediates and certain ARV opportunities. At current Market
APIs for domestic regions which was Cap of `135 crore, Tyche looks to be
low margin business. In 2014, the contribution excluding Glucosamine an interesting bet as with increasing
company decided to prepare for will start contributing. In the last capacity utilization and right
USFDA and started to move on from two quarters the company has product mix the operating profit
low margin Intermediate business to shown significant improvement in its margin still has some space to
high margin APIs. The drop-in operating margin and this is due to improve further. With an improved
revenue from `100 crore to `42 crore increased focus on API business. A product portfolio & exclusive
in 2016-17 was due to change in peek of the last 10 quarters reveals developments for big pharma
strategy to focus on API business. that the company has reported its players, both domestic and
The company successfully obtained highest profit margin in the last two international names, Tyche has
USFDA approval in 2016 with zero quarters. target to cross 100 crore annual sales
observation. Out of 3 API blocks, in next 3 years. With small equity of
one of them is dedicated for More Interesting Stuff one crore shares and majority lying
Glucosamine production and the rest In addition to this, Tyche is a cash with promoters and close family,
two are for other APIs. Glucosamine rich company and is virtually debt consistent dividend paying record,
is a stable business for the company, free. The company has been cash rich balance sheet and minimal
though low margin, but company consistently paying dividends and debt, there is enough safety of
will continue to manufacture the has been away from the noise. The margin for an investor to look into
same for time being. promoter’s approach is conservative the company. At sales of `100 crore,
due to incidences with Siris Labs the company could achieve EPS of
Future Outlook and hence doesn’t want to increase around `12-15 due to improved
Tyche has shifted focus from low their debt and grow at a steady pace. efficiency, which will also result in
margin intermediate business to API Currently they are operating at 55% improvement in ROE. Considering
business. Currently API contributes capacity and new demand will the improvement in operating profit
to 50% of revenues, including sales increase the capacity utilization. margin and expanded client base,
of Glucosamine and rest 50% is The company has enough spare the stock looks interesting at the
contributed by Intermediates. The capacity to cater new demand and is current price.
inclusion of niche products in the consistently looking for new
development pipeline along with partners and new opportunities. The Concern
several other is set to increase its company currently holds 4 DMFs One thing to bring to the reader’s
revenue and profitability in the and 1 CEP directly and few notice is that, the scrip was
ensuing years. In addition to this, the additional indirectly on the name of temporarily suspended from trading
company is also working with their clients and will be filing new due to non-submission of
multiple companies for contract DMFs and CEPs every year to compliance as per the listing
development of APIs for them. The increase the API basket. The agreement (which are categorized as
outcome of this is expected to have a company filed its last DMF on penal reasons by the BSE Limited)
positive impact and changes will be Phenelzine Sulfate in January 2017 in 2012 but the company has a
visible in coming years as API and is one of the 3 active USDMF robust compliance since then.
43
V-Mart Retail Ltd.

BSE Code: 534976/ NSE: VMART; Face Value: `10; Market Cap (`Cr): 3000; CMP: `1500
F
our reasons why I like V-Mart: Massive addressable market
– The company targets aspirational low to low-mid income
earners in tier-2 – 4 cities who yearn for fashion wear,
agnostic about the brand. This is a very large segment of
population. Some of these may graduate to brand conscious
category in years to come, but will be replaced by others who need
Anshu Sridhar affordable daily wear fashion merchandise. It does so at very reasonable
Value Investor price. Rather than price at a premium, the company works with a fixed
Active in the market 12 years mark-up of 30% and average ticket size of only `700 which even a poor
family can afford once a year.
Expanding Very Prudently

V-Mart eschews LT debt for store expansion, instead only growing at the
pace its internal accruals allow it to. Store sizes are broadly similar which
is the sweet spot to display all merchandise adequately and give the
customer a good experience. Other retailers have store sizes that vary
substantially. V-Mart’s experience was that all stores more than 10,000 sq
feet lost money. With every new store within 150km of the other, it uses
the cluster approach – this helps to better inventory control within a
region, lowers transportation costs. The focus is on getting the systems
right before expanding – Retail is about getting the back-end first and then
the front end. V-Mart has invested in business intelligence tools, warehouse
management systems before stepping up the expansion. Over FY12-18E,
sales/ sqft is up 47%, while inventory/sqft is up only 28%. Strict control
on rents - Rent is a fixed cost for retailers and being imprudent about
locations can hurt in a downturn. Rather than a mall/most expensive
location, the company prefers to deal with house owners looking for
additional income as they get better deals. At the point of signing, they
work with assumptions of rent not exceeding 4.5% of sales, vital when
gross margins are so low.
Low Risk From The Online Competition

Gross margins itself are so low (V-Mart has the lowest gross margins
across Asia for a retailer that carries inventory on its own books/doesn’t
operate on consignment). Low rents + cluster approach = low ability for
e-commerce to disrupt. E-Commerce’s ability to price products lower than
brick & mortar comes from lower rents since their store is virtual and
Disclosure storage is in warehouses. V-Mart’s rentals are the lowest in the retail
The author is not a registered analyst under SEBI industry. Secondly, with a cluster based approach, the incremental cost of
stock. Readers must do their own research before delivery for every additional store will keep falling –V-Mart is able to eke
investing in the company. out the best deals on delivery and pass on the benefits to the customer.
44
operations. Without focusing on

any one year in particular, it is
reasonable to assume 10% growth in
sales/ sq ft pa (5% inflation, 5%
higher volumes/store – the stores
are like fish markets only during the
few days around Diwali) over a
longer period of time this will be
interspersed with a year of no/little
growth if there is a bad season or
agricultural distress. There is a
degree of operating leverage still left
– EBITDA margins steady state is
10% (9.5% currently), which is
solid. Any further operating
leverage would be used to expand
rather than show up as immediate
profits. Primark in the UK, which is
so small has 325 stores. It is thus
reasonable to assume that V-Mart is
at 164 stores now and can keep
adding 20-25 stores every year.
Put together, it is not worthwhile on orders are placed, vendors bid and
a consistent basis for an shipments are tracked. Conclusion
e-commerce player to target FY20 I am working with a 5.5% net
V-Mart’s customer set. Key Risk margin and `100-105 crore PAT
The low GM, while being an (FY18E – `65 crore). A sustainable
The Plus Points advantage is also a risk. The 3rd 20% RoE and 20% growth business
Interesting developments occurred quarter accounts for >30% of sales can command a 25x multiple.
during V-Mart’s evolution as a and 60-70% of profits. At such low Effectively the stock today is fairly
retailer - Shrinkage is down to 1.2% GMs, a bad fashion season or valued on FY20, and I don’t expect
from 1.6-1.8% earlier. Shrinkage weather (warm winter) can wipe out any major returns over 12 months
either from pilferage, damage or profits for the entire year. This (but the stock is up 3x this year).
punching errors are a straight knock wouldn’t be the case if GMs were This is a hold for now, but with no
off for profit. In a low margin 45% or so. Management is disconfirmation of LT thesis, this
business like retail, this is cognisant of this, but however should be part of a core LT
anathema. With better technology believes their USP is low prices and compounding portfolio – a bad
systems, V-Mart has been cutting hence is willing to take this risk. season most likely driven by adverse
this down gradually; Supplier weather conditions would be a
consolidation - When it was less Valuations great time to add to and then hold
than half its current size V-Mart Over FY12-17, V-Mart’s sales, this company.
dealt with 1,800 vendors. Today it EBITDA and EPS and invested
deals with 1,200 vendors – each capital have grown by 3.6x, 3x, 3.7x
remaining vendor is now a larger & 2.6x highlighting the growth
absolute player in V-Mart’s business. opportunity and the capital
This should keep going down over efficiency. Pre-tax OCF for V-Mart
time. This helps administrative has more than quadrupled in the
efficiency and also creditor days (up last 5 years as incremental working
by 6-7 days). V-Mart has a capital investments have stayed
dedicated vendor portal where constant even at a higher scale of
45
IMP Powers Ltd.

BSE Code: 517571/ NSE: INDLMETER; Face Value: `10; Market Cap (`Cr): 107; CMP: `115
T
his is the flagship company of the $120million, the IMP -
MANGALAM group, a well-known name in the
manufacturing of EHV, Power, Distribution, Special Purpose,
Furnace, Thyristor Duty Transformers & Reactor up to
315MVA 400KV Class. The company was incorporated in
1961 and currently India’s leading manufacturers of various types of
Amol Chavan Transformers, ranging from 1MVA to 315MVA, up to 400KV Class with a
A value Investor target to raise production capacity up to 500MVA.
IMP has ventured into an exciting new business - Exclusive Marketing of
He started investing in 2006, and paid “Kinetic energy turbines”. It has entered into an exclusive marketing
a lot of tuition fees during the 2008 agreement with Smart Hydro Power (Germany) (“SHP”) to support
crash. Saw many multi-baggers market of 5kw Kinetic Energy Turbines. They can be installed in canals,
happening before him. tail races of conventional hydropower plants, rivers and free-flowing
streams. This cutting-edge technology coupled with low infrastructure cost
makes this product a cost-effective solution. The company has procured an
My Mantra order for the supply of the Kinetic Energy Turbine in India and
My advice to novice will be to read successfully commissioned the same.
a lot of books on investing and
investment behavior science before IMP Energy Ltd. (IEL), a subsidiary of the company is engaged in micro
entering. Make somebody your guru and small hydro power sector and provides clean and green power in the
and learn from him and never take renewable energy sector by setting up of small and mini hydro power
tips from someone. plants with end to end solutions in the country. The company has
consortium tie-ups with OEM’s and can offer a full portfolio of
components required for hydro power plants. Hydro Power generation is
destined to continue to grow rapidly as only 1/3rd of the available hydro
power is harnessed. IEL has been qualified for 7MW Independent Power
Producer Projects (IPP) of Jammu & Kashmir Energy Development
Agency in the state of Jammu and Kashmir. The company expects to
commission at least two projects in the next one year and more projects
thereafter.
Major Achievements
The company is amongst the top five power transformer companies in
India in the 132-220kv class category
• The company has orders worth over `600 crore in hands

Disclosure • The company has been awarded for its outstanding performance of the
The author is not a registered analyst under SEBI highest numbers of EHV transformers successfully tested for Short
stock. Readers must do their own research before Circuit Withstanding capabilities as per IEC standards
investing in the company. • The company, with Empanelment/ enlistment with PGCIL, NTPC &
46
Railways, etc., expects additional rate in developing countries). This is Major Triggers
orders of substantial amounts for due to the low entry barriers in the It has a healthy order book of `616
transformers distribution transformer market, crore. This will keep their assets
• The company has been awarded leading to unorganized players sweating for next 1.5 years and
for its outstanding performance of entering the market, and competing during that period the company can
having tested at CPRI, the highest on the price factor. SEBs historically vouch for more orders. Management
rating of transformer “160MVA, follow a L1 vendor selection is scouting for newer markets like
220/66kV” successfully for criteria, which has led to the Africa. Management is promoting its
short-circuit withstand capabilities proliferation of many small players product via different programs like
as per IEC standards that compromise on the quality of ELECRAMA, which may benefit
• The company has received its first transformers manufactured. This is the company gather new orders.
order for the supply and changing and will have a big effect Improved sales, good margins,
installation of (5KWx4) Kinetic in the long term in the transformer attractive valuations (Price to Sales
Energy Turbines industry. This shall improve from 0.25) and combined with balance
now onwards given the current sheet kept in equilibrium, makes it
Things are Changing government working style. interesting with Margin of Safety.
With the government push on
infrastructure (Power, Threats from cheaper imports End Result
Transportation, logistics) and with (mainly from China) and lack of The stock seems cheap on valuations
the combination of GST has made adequate testing facilities for when compared to its peers. The
level playing field for organized and transformers are some of the company adopted changes in
unorganized sector. The high failure challenges faced by the industry. accounting standards which lead to
rate of distribution transformers, is IMP Power has in-house testing report dismal Q1FY18 numbers.
a big concern for the transformer facility to face this challenge. The These numbers are improved in
industry in India. The average government has involved the Q2FY18 and if it continues, the
operational life of a transformer is principle of reciprocity for giving stock is definitely cheap on all fronts
between 25 to 30 years; however, business opportunities in India to providing Margin of Safety. It can
transformers are known to be those foreign countries which give catch up on valuations and also
recalled for repair in as early as similar reciprocity to India. This outperform the market along with
three years. The failure rate of measure along with anti-dumping transformer sector stocks. Business
distribution transformers in India is import duty on Chinese products, of subsidiary company (IMP
estimated at 10-15% (in stark will go a long way to help the Energy) flourishing in the future
contrast to the less than 2% failure Indian transformer industry grow. could add up the desired moolah.
47
Liberty Shoes Ltd.

BSE Code: 526596; NSE: LIBERTSHOE; Face Value: `10; Market Cap (`Cr): 435; CMP: `260
L
iberty is a six decade old company based in Haryana. It has
three business verticals which are domestic, exports and
institutional clients including the Indian army. It produces over
50,000 pairs of footwear per day. It has a large distribution
channel with 100 distributors, 400 exclusive stores, over 6000
Multibrand outlets and franchises across India and has a presence in
Dr Allen Baby nearly 25 countries through various distribution channels. Liberty
Individual Investor in Small Caps and produces footwear for all age groups for men, women and kids and at
owner of a SEBI registered advisory firm different price point catering to the wider market with 10 unique brands in
Active in the market 10 years different segments. The management team led by Adesh Gupta and
Anupam Bansal has been trying to create a new growth trajectory for the
He claims to have trained over 5000 company over the past few years in a sharp contrast to its traditional
professionals from over 35 nationalities business style. Mr Adesh Gupta is also the Chairman of a leading
in the area of finance and investments; footwear industry association.
the co-founder and Chief Investment
Officer of Gems Investment Advisory Why Liberty Shoes?
Pvt Ltd, a boutique equity Investment Despite being a good brand, the company hasn’t been really able to show a
company. strong financial performance due to a host of troubles ranging from high
raw material prices, low margin products on the institutional side, end of
tax benefit for two plants, rising labour costs and labour issues in its
My Mantra factories in Haryana. Though the share price has risen from around `50 to
Develop an owner’s mindset while `260 levels in the past seven years, it hasn’t been a smooth ride for the
investing and understand the business shareholders. However the company appears to be nearing a key inflection
you invest. Remember that share prices
point, which could possibly open a new phase for wealth creation over the
are the slaves of earnings and a
long term. But the turnaround could take a few quarters to see any major
company that grows its profits would
visible impact.
automatically see its share prices
moving up. It is equally important that
GST To Change the Fortunes
the business has a great jockey in the
India is one of the largest footwear markets in the world given the huge
form of capable managements. One
population. Indian footwear industry size is over `30,000 crore.
should hold on to such investment for
However, this industry largely comprises of the unorganized sector,
many years and the exit decision has to
which is almost 80% of the total industry size, with low mechanization
be made when the growth slows down
and high labour intensity. Places like Dharavi slum in Mumbai is well
or your original investment thesis
known for the small micro enterprises in the footwear industry. In the
is proved wrong.
post GST era, it is very difficult for the unorganized sector to thrive in
the future. Due to this footwear industry size including exports is
expected to double in the next 5 years.
Disclosure
A SEBI registered analyst and has a vested interest • Changing customer dynamics: Changing nature of India’s consumer
in the stock mentioned.
preference towards branded products is a subtle trend worth noting. With
a median age of 28 years, Indians are now increasingly ready to pay more
48
for buying quality products for to be fueled by new products and Moat & Pricing Power
their personal consumption from Exclusive showrooms across the The company has good brands and
electronics, clothing to footwear. country. 400 such stores have it’s an accepted fact that strong
This trend could augur well for the already been opened with nearly brand is amongst the best moat for a
organized footwear industry in the 33 stores added in the past year company. It also has a decent
long term. alone. This investment phase is pricing power which was reflected
• Government support likely: slowly getting over and could in the way they passed on the rise in
Government is likely to support contribute significantly to topline. GST costs to the customers. With
the footwear and leather industry • Restructuring: Company had a increased focus on premium
with more tax sops as these are complex web of associate products like Healers the company
highly labour intensive industries. companies which is now being would be able to increase its
As per the DIPP study every one simplified with a restructuring margins.
crore investment in leather plan which is underway. The
industry can generate nearly company currently pays a royalty • Benefits of operating leverage
250 jobs. to these firms for using their assets could kick in as its major
and now the company would investment in exclusive stores
New Growth Areas acquire the assets of the two would start contributing to the
The company has identified new partnership firms. Apart from this, bottom line. This is likely to
growth areas and focuses on new there is a conscious effort from improve the operating profit
products, especially for women the management to take the margins. It has to be noted that
where there is a clear absence of company to a different trajectory the company had OPM of around
brands unlike men. Women’s through brand rejuvenation, 8-9% and NPM of 2-3% in the
footwear segment is growing at 20% change in distribution strategy, FY2013-2016.
CAGR, twice the rate of that of the focus on new growth areas etc. • The online website platform of
men’s segment. Also the company the company is gaining traction
has increased its focus on pan India Valuation and its products are also available
growth with presence in tier-1 and The stock is undervalued given the on Flipkart and Amazon, which
tier 2 cities. The company has also long term potential. Liberty is could help the company scale up
identified South India as a key available at just around `440 crore its growth at lower costs.
growth area. market cap and the entire company • The balance sheet is largely
can be acquired at an Enterprise healthy with a manageable level
• HEALER: The Premium brand: valuation of around `600 crore. of debt. The company has a very
Company has just launched this This is anyway low for a leading good credit rating of A from
unique medicated premium franchisee in India with good CARE which shows its financial
footwear brand with a focus on brands and huge distribution strength and its ability.
style and health comfort. It network. It also has a healthy
proposes to keep this brand balance sheet with relatively low Risks to the
outside the Liberty brand to give it Debt Equity ratio. Bata, and Relaxo Projection
a premium feel. The company has trade at a much higher valuation, The proposed theme can have an
invested `25 crore for this brand but for the right reasons as they effect due to the following risks -
which is priced between Rupees have higher profitability and return Factories primarily in Haryana,
3000-10,000. While this segment ratios. Liberty is at a low valuation, Himachal. Labor issues in the past
has large global brands, any major primarily due to its poor financial have plagued the company and any
success in developing the new performance and some promoter increase in minimum wages can
brand can be a massive shot in the issues in the past. However, hurt the margins; Investments in
arm. increasing levels of transparency, exclusive stores and new brands not
• Growth Targets: Company has significant investments made in the paying off; Raw material prices can
set a sales target of `650 crore in past in exclusive stores, brands like turn volatile on the back of the
the next two years and `1000 Healers, etc., the company could rising commodity prices and the
crore by next 5 years, the growth stage a turnaround. failure of the restructuring plans.
49
Peninsula Land Ltd.

BSE Code: 503031; NSE: PENINLAND; Face Value: `2; Market Cap (`Cr): 1055; CMP: `40
I
n realty sector, many of the companies don’t have a consistent
booking (sales) which by default make a substantially lower profit
and that makes such companies very cheap as compared to its
underlying assets, which gives an investor a huge advantage to invest
in such depressed sector in such a depressed situation. So, can it be
worse from here? May be, no one knows, but we have a good margin of
Nikhil Oza safety. Most of the big players like DLF are more concerned about debt
Individual Investor in Small Caps and than expansion that shows the sector is going through a liquidity crisis.
owner of a SEBI registered advisory firm This in turn shows that the sector altogether in consolidating phase. RERA
Active in the market 5 years to benefit organized players - because post RERA and GST
implementation, market understands which developers have the ability to
After being a practicing Chartered deliver. The customers and bankers now know whom to approach. So this
Accountant for three years he involved is the time when the volume for organizing players will start picking up.
himself with his own Pav Bhaji Center, The real estate sales portfolio is a combination of residential and
which now has four branches in the commercial sale, of which commercial is only 7-8%. The government is
name of MH 12 Pav Bhaji in Pune. He hell bent on seeing a pickup in affordable housing. The quality realty
is also on the advisory board of stocks, thus should further continue their momentum.
Hedgehog investing and a big fan of
Mohnish Pobrai, who, he considers, is Investment Thesis & Why Peninsula Land
a master in making big out of small. Real estate turnaround, sector to be more organized due to RERA. The
main problem with the Peninsula Land is that it has a debt of `2300 crore
against which it has hardly any revenue other than rent and interest. The
My Mantra company got aggressive and started many projects in the last three years in
Please never trade and take time
which the debt increased from `1200 to `2300 crore, although the
to learn the game. It’s a boring game
company has a huge inventory of `2800 crore. The best part is that
and you have to wait for opportunities
company is on deleveraging mode and looking for sales of non core lands.
to come to you as a blind bet. Diversify
One or two are already done and some are in final talks. The company has
into 20-30 stocks initially, but invest as
one land at Diu Daman which has been given to Delta Corp on lease,
if you have invested 100% in each of
which is soon going to be sold to them. The company is now focusing on
them. Read investment books, annual
asset light model for future development through JV with land owners in
reports, screen 100s of stocks, look at
which they don’t have to invest a huge amount in land upfront, it just has
their valuation at various cycles.
to get all the permissions and start building and sell them simultaneously
Always be invested, never time the
which generates good ROI. The company has ongoing projects which once
market.
sold out can generate `3750 crore of free cash. The best part is 50% of the
ongoing project is already sold out. From this free cash flow it can easily
pay out total debt and still would have `1300 crore of extra cash.
Disclosure Conclusion
He is a SEBI registered analyst and has a vested Looking at this sensible move of deleveraging, going asset light, good
interest in the stock mentioned.
execution in the last cycle, great management, good execution capability
I’m very much confident on the company as of now.
50
Welspun Enterprises Ltd.

BSE Code: 532553; NSE: WELENT; Face Value: `10; Market Cap (`Cr): 3140; CMP: `183
E
stablished in 1994 in Vadodara (Gujarat), Welspun Enterprises
Ltd. (WEL), formerly known as Welspun Projects Ltd., is part
of Welspun Group and is primarily engaged in construction,
developing and maintaining BOT projects. Currently, WEL
has five operational BOT projects, out of which four are in the
road segment and one pertains to industrial water supply. The company
Sachin Gupta also has stakes in Adani Welspun Enterprises Ltd (35% stake) which is an
An avid investor oil & gas exploration company and is currently exploring 4 Oil & gas
Active in the market 15 years blocks (2 in Mumbai Offshore and 2 in Kutch OffShore).
Key Investment Themes

WEL is a recent spin-off with a mishmash of assets which we think is in
the process of being transformed from holding company structure into an
operating business with the core focus on road projects. WEL’s parent
company is Welspun Corp, which is a leading global oil pipeline company.
The other Welspun group company is Welspun India, which is a leading
textile company. WEL gives us opportunity to participate early in fast
growing businesses at very cheap valuations, with clean balance sheet and
the promoter has meaningfully increased stake recently.
• Goenka family stake has increased from 38.2% to 44.57% over the past
few months.
• The company has close to `1,000crore in net cash.
• They have been executing the Hybrid Annuity Road (HAM) model
extremely well, and recently got 3 new contracts with a `3,000 crore
fresh order book. That takes the total order book to around `4,000 crore
over the next 18-20 month time frame. Guidance is for order book to
grow 35% year on year from here. IF Welspun executes `1,500 crore per
year revenue from this order book, then the company will earn `175
crore EBITDA just from the EPC Margin (guidance is 10-15% margin).
• The company has announced an NBFC foray to utilize the excess cash
on the balance sheet:
• Operations will start in Q4 of FY2017-18.
• Have earmarked `350 crore for this out of total cash of `1000 crore.
Welspun will have a 60% stake in NBFC and 40% will be owned by
promoters directly.
• Adani Welspun is an oil and gas exploration JV where WEL owns 35%
Disclosure stake and rest is with Adani Group. WEL equity investment in JV till date is
The author is not a registered analyst under SEBI around `300 crore and they have further earmarked `200 crore to be further
stock. Readers must do their own research before invested. JV has already discovered oil in two blocks in Kutch Region and
investing in the company. tied up with ONGC to determine if discoveries are commercial.
51
Precision Wires India Ltd.

BSE Code: 523539; NSE: PRECWIRE; Face Value: `5; Market Cap (`Cr): 664; CMP: `290
P
recision Wires India Limited (PWIL) was set up in 1989 to
manufacture Enamelled Copper Winding Wires. It was
promoted by erstwhile Atlas Wires Limited (AWL), Mahendra
Mehta, Deepak Mehta and Milan Mehta. PWIL has been
listed on the Bombay Stock Exchange and National Stock
Exchange since inception. The AWL’s first manufacturing facility was set
Prashant Shah up in 1981 in Gujarat. Two decades later, in 2001, AWL was amalgamated
A value investor with PWIL. The company manufactures insulated enamelled wires and
Active in the markets 10 years other insulated electric conductors. It is the largest manufacturer of
winding wires in the country. The primary raw materials are copper wire
He is a qualified Chartered Accountant. rods, enamels and chemicals. The company has manufacturing facilities in
As an investor, he specially focuses on Silvassa, Dadra Nagar Haveli and Palej in Gujarat. The total market size
emerging Small & Mid cap companies of the industry is roughly `9000 crore (2,00,000 tons) with a share of
with growth potential in the long term. organized sector in the range of 50-60%.
What are Enameled Wires?

My Mantra Magnet wire or enamelled wire is a copper or aluminium wire coated with
Never go over the tips. Invest on a very thin layer of insulation. It is used in the construction of
the basis of your research and transformers, inductors, motors, speakers, hard disk head actuators,
conviction over the company’s growth. electromagnets, and other applications that require tight coils of insulated
Try to meet the management, attend wire. Insulated enamelled wires are used primarily in electrical equipment,
AGMs to understand their thought for electric power, capital goods and infrastructure sectors. The country is
process and vision for the company. looking to phasing out of petrol and diesel vehicles by 2032 and bringing
Look for breakout earnings and capex in place electric vehicles. These would require electrical-motor which in
stories. Don’t over-diversify or turn requires armature coil winding (copper enamelled wire). This would
over-concentrate your portfolio. necessarily lead to huge demand of enameled wires.
The major raw material is copper which is procured domestically both

from Vedanta and Hindalco as well as imported depending on the price.
Fluctuations in copper prices do not have any major impact on profitability
as the same is procured on the customer’s account.
Investment Rational
• Capex: The existing production capacity of the company stands at
around 36,000 MT with a capacity utilization of 75 to 80%. The
company proposes to enhance its capacity by approximately 8000 MT
which would entail capex of `33 crore. The said capex shall be funded
Disclosure through internal accruals and term loan / buyer’s credit. The enhanced
He is not a registered analyst under SEBI capacity is expected to go on-stream by March 2019. In anticipation of a
guidelines. He and his family hold shares in the
company. revival in the power sector, the company is further increasing capacity of
Continuously Transposed Conductors (CTC). New unit 5 for Enamelled
52
Round Wires commenced

production during Q2FY 2016-17.
The company plans to invest
during the next 2-3 years on
capital equipments and other High PE Stocks
fixed assets mostly for the purpose
of modernization.
& Return
• Diversified User Industry: The
share in revenue comes from
power, auto and industrial Buying high PE
equipment sector, 20% each;
consumer durables 10-15% and enhance product visibility and
stocks on low base
the balance from other sectors. exposure in international markets. and high growth
1/3rd of revenue is from job • Government of India’s rural
work. 90% of the sales are to electrification program is a big aren’t bad.
OEM. The company is the biggest boost for growth of the company.
supplier to auto manufacturers
among competitors. Financial Information Titan’s average PE
• Benefits of GST: The company PWIL has an equity base of `11.56
expects benefits out of GST in the crore with reserves of `211.57 crore. multiples in 2005,
long term as it would lead to One significant point to be noted is
consolidation from the that the company doesn’t have any
2006 and 2007 were
unorganized to the organized long term borrowings on its books. 57, 51 and 53 times.
sector in the next 5 years. As per Short term borrowings stand at `58
BSE filing, on account of uniform crore. Promoter shareholding as on In 2007 it traded at
GST rates on finished products, Sept 30, 2017 is 59.67% and the
the company closed its sales balance is held by the public. The
80 times. But look at
depots in Ahmednagar, company is consistently paying out the returns and you
Faridabad, Indore, Jaipur, Palej a dividend. The company has
and Secunderabad. The sales reported excellent numbers with will be stunned.
would be made from the Silvasa consistent growth both in June and
factory. The company has also Sept 17 quarters. During H1FY18,
closed down its Small Bare revenue stood at `617.50 crore, PBT Since 2007, stock
Copper Wire Unit in Palghar. at `26.75 crore and PAT at `17.02
This shall lead to reduction in crore, up (YoY) by 24%, 65% and has returned 800%
costs. GST rate of 18% applicable 59% respectively. The company
with no major change from the should continue to report excellent
or around 25%
previous tax liability under excise numbers going forward. annually.
and VAT.
• Strong Relationship With Outlook and
Customers: Though there are a Conclusion
number of players in the industry, The promoters of the company
including many in the SSI sector, Mahendra R Mehta and Milan M
due to the quality of products and Mehta have a good reputation in
long standing relationship with the industry. Consistent
OEM customers it continues to performance in June and Sept
remain an industry leader. quarters, capex plan, benefit of
• Exhibition: The company GST in the long run, increased
regularly participates in demand of the product, make the
international exhibitions to company interesting.
53
Rubfila International Ltd (RIL)

I
ncorporated in 1993, in Palakkad, Kerala, it was promoted by
Rubpro Sdn.Bhd. (Malaysia) along with Kerala State Industrial
Development Corporation. It manufactures heat resistant latex
rubber thread. Product range includes Talc Coated Rubber thread
(TCR), Silicone Coated Rubber thread (SCR), colored rubber thread
and furniture grade rubber thread. Rubber thread is a product which
Chaitali Bhavik Shah majorly used in the manufacture of elastics for undergarments. Rubfila has
A value Investor two manufacturing facilities in Palakkad, Kerala and Agartala, Tripura.
Active in the market 7 years RIL has a strong international presence with exports to 25 countries which
include USA, Latin American, European and Asian countries. Right from
She has been following the trends of the first year of operations, the company had been exporting to various
the markets, making timely countries and succeeded in carving a place for itself in many major
investments. Her major areas of interest markets. Customers in Turkey, Japan, Russia, Hong Kong, South Africa
are Mid Cap and Small Cap companies etc. place order repeatedly. Applications of its products are mainly in
with a strong capex story. hosiery - shorts, pants, skirts, sportswear, sock tops and special - medical
nettings, braids, laces, cords, poly catheter manufacturing and webbing for
furniture etc.
My Mantra
Patience is the key in the stock New Management, New Initiatives
market. Be confident about your The company ran into rough waters during the course of time and
research and stay well informed. Buy started running in heavy losses and was referred to BIFR when the total
right, sit tight should be your approach net worth eroded. In 2005, a new group of investors led by Bharat Patel
to get the benefit of compounding stepped in and a new management team was also put in place to bring
returns. In all, don’t predict and time the the company out of troubles. The company recorded profits in 2010
market. Focus on your goals and invest under the new management. The company, which suffered a net loss of
accordingly. Reading maximum `7.12 crore in 2008, has clocked a net profit of `2.77 crore in 2011. It
newspapers and industry magazines underwent major restructuring, share value reduced from `10 to `5 to
will give an extra edge to your write off accumulated losses. RIL was out of BIFR in 2013.
investment journey. Management has done a good job in the last six years, growing the
business to current level using only internal accruals and not through
debt or the issuance of new shares.
Ongoing Capex
RIL has installed two production lines with `11.46 crore in FY17 to
manufacture heat resistant latex rubber thread. The commercial
production of the 5th Line started in March 2017 and Sixth Line at the
end of August 2017. RIL is hopeful of keeping the full capacity utilized.
Disclosure Constraint in production capacity was one of the reasons why the
I am not a registered analyst under SEBI company restricted itself from further expanding the export market. But
guidelines. She and her family hold shares in the
company, so kindly do your own research before with the commissioning of the sixth production line, it expects to cater to
investing in the company. more international customers.
54
crore supported by reserves of

`59.45 crore leading to share book
value of `21.83 (FV: `5). It’s a
Debt-free company with RoCE of
around 20-22%. Promoter holding
is 64.35% and balance 35.65% held
by the public as on 30th September,
2017. During FY17, with PAT of R
12.5 crore and registering sales of R
176.1 crore, it fetches an EPS of
`2.90. Management is targeting a
turnover of `275 crore in FY18.
Rubfila has been paying a constant
dividend since 2013. The company
Investment Rational undergarments in the country was has reported stunning numbers with
RIL has a chemical lab installed very low and with the increase in remarkable performance in
with advanced testing equipments income and life standards across H1FY18. During this period, it
and the lab personnel work round urban and rural areas, the sector has reported net sales and PAT at
the clock to monitor and control the grown substantially. This growth `113.14 crore and `13.28 crore
quality of the inputs to the process. has a direct influence on the growth respectively up by 21% and 238%
RIL believes in continual product of rubber threads too. over those during H1FY17. EPS
improvement and product has gone up from `0.91 for
innovation and preserves the same Preferential H1FY17 to `2.81 for H1FY18.
through a dedicated R&D initiative. Allotment of Warrants First half year profit (H1FY18) is
The R&D crew consists of RIL has made a preferential more than the previous full year
dedicated polymer scientists, allotment of warrants on a private profit.
handpicked by the management and placement basis to the promoter.
trained at the facilities of Rubpro The company’s business is growing Outlook and
Sdn bhd. Rubfila caters to majority and the funds are required by the Conclusion
of the Indian customers spread over company for meeting its capital The company is confident of facing
the hosiery clusters of Delhi, requirements. Total 40 lakh challenges in the industry backed by
Kolkata, Ahmedabad, Surat, and warrants at `47.5 per warrant has its efficiency in the cost
Tiruppur. The company maintains been issued. management due to the large
regional marketing offices in all the manufacturing base, technological
above regions so as to have a close Risk and Concern expertise, committed manpower and
contact with the customers. The Wide price difference in latex in reputation in the international
location of the factory is well domestic vs other south east Asian market. With GST issue getting
connected to major seaports Cochin countries where prices have been gradually resolved, the company
and Tuticorin and the proximity to lower than India; Threat from should see a robust second half and
India’s largest textile cluster imports is always a major concern; could end up with sales and profits
Tiruppur. The decreasing customs duty under of about `250 crore and `30 crore
the ASEAN agreement makes for the current year, making current
RIL continued to maintain the imports attractive; Cheaper imports price level look quite attractive.
leadership in the market. Rubfila’s of finished goods – rubber threads Considering zero debt, improved
products command a good premium from Malaysia and Thailand and, performance since last few quarters,
in the market for its good quality increase in the usage of spandex as capacity expansion, strong
and brand image. Being a dominant a replacement for rubber threads. management team, regular dividend
player in the industry, Rubfila payouts and reasonable PE, it can
enjoys high operating margins. The Financials be a good pick with three years
per capita consumption of RIL has an equity base of `21.61 perspective.
55
Thangamayil Jewellery Ltd.

BSE Code: 533158; NSE: THANGAMAYL; Face Value: `10; Market Cap (`Cr): 8438; CMP: `600
I
ndians have a special and unprecedented affinity for Gold. India is
on the cusp of rapid growth and is expected to be a 4 to 5 trillion
dollar consumption economies by 2025. Only 2% of Indian spends
`20 lakh annually, and this number is likely to rise to 5% in 10 years.
Over 16 crore Indians will earn more than `10 lakh annually in the
next decade. As income tends to increase, people premiumise their
Aniket Gore purchases - and especially those people with higher salary brackets,
Managing Director - Ceramet Group purchase of luxuries and discretionary spends increase. In China when per
Active in the markets 15 years capita GDP went up from USD2200 to USD8500, the jewelry sector grew
at 23% CAGR. One can expect that India is also poised for rapid growth
A successful entrepreneur, voracious in jewelry sales. There are around four lakh jewelers in India. A majority
reader, avid traveler, wildlife and nature of them come from the unorganized sector. Over the past 10 years,
lover, passionate equity investor. I am organized players have increased their market share from 8% to
an advisor to Eleven Dimension Funds, approximately 25 - 30%. Post implementation of GST there is a level
which is a Globally Invested Fund playing field for unorganized and organized players. It is expected that
Focusing on Emerging Market organized players will gain market share at a rapid pace from unorganized
Companies which present an players in the next 10 Years.
opportunity for multi year growth.
In calendar year 2012 gold imports were at 1000 tons, and ballooned to
USD17billion. Due to widening fiscal deficit, the government imposed
My Mantra restrictions on the sector, which were subsequently eased. The current
The speculation is the surest way fiscal scenario is now much better - forex reserve at USD400bn, current
to lose money. Invest in quality stocks account deficit at 0.7%, and fiscal deficit is at 3.2%. As long as GDP
and hold them for the long term. Wealth growth stays between 6 to 9% this augurs positive news for consumption /
compounds over time, it cannot be discretionary spending in sectors like jewellery.
made overnight.
About The Company
It started operations in 2000. This is the second largest player in Tamil
Nadu with 32 showrooms having a total area of 40,000 sq.feet. The
company has a firm focus on Tier 2 and Tier 3 towns, and specifically
focuses on lower and middle income wedding jewelry. The average sales
ticket size is `30000 and 10 gm gold per sale. The company has limited
inventory to choose from, which is a big advantage in terms of asset turns.
Payal and Chudi make up 30% of its sales. It was the first company in
Tamil Nadu to sell Hall Mark Jewellery. It has a loyal clientele, and an
extremely good Brand image. Difficult times made it tighten its belts – the
company reduced the inventory days by 30%. It has improved the
Disclosure inventory turns from 3x to 4.4x in 2017. The management never skipped
He is not a registered analyst under SEBI dividend even in bad times. Over the last 5 years the debt has reduced from
company, so kindly do your own research before `300 crore to less than `100 crore, and in the next 2 to 3 years the
investing in the company. company should be debt free. The company has lowest inventory days in
56
class. The typical customer’s profile

is of working couples with 5 to 15
lakh annual incomes.
The company enjoys huge client

trust - during bad times customer
deposits fell only by 10%, as against
90% fall for Tanishq, 50% plus for
PC Jewellers and TBZ `350 crore as
sales annually happen through “Investors should
customer advances.Company sold always keep in mind
2600 kgs gold in 2010, and 4000 kgs
in 2016. It is expected to sell 4600 to that the most
4800 kgs in 2017. The current sales
mix is 50 - 55% gold bridal Wear / important metric is
30 - 35% daily wear / upto 10% not the returns
fashion jewellery. Thanga is now
focusing on opening smaller stores achieved, but the
- Thangmayil Plus (100 to 150 sqft).
Their next leg of growth will be returns weighed
driven by franchises and against the risks
Thangamayil Plus.
incurred. Ultimately,
Over the next two years, sales at `45 this risk is limited to companies like
crore per store can increase to `55 Thangamayil which focus on bridal nothing should be
- 60 crore per store. The company jewelry which continue to be driven more important to
enjoys good capital efficiency due to by “Touch and Feel” sales.
slower expansion, and RoE can go investors than the
to 25% plus. Margin should expand Conclusion
due to operating and financial Thangamayil is run by capable and ability to sleep
leverage. prudent promoters who have shown soundly at night.”
integrity and focus on capital
Promoters efficiency. It enjoys the fierce
Salary of all promoters put together customer loyalty, and have displayed – Seth Klarman
is only òne crore per year. grit in bad times to convert
Promoters recently sold 4% stake difficulties to their advantage by
ostensibly to buy a home, however, implementing lean operating
they still hold 71% equity of the practices. Valuations are currently
company. The second generation of expensive, however, they are
family is active in business, justified due to the quality and
providing good succession visibility. capability of execution, and promise
Thanga have no subsidiaries or of many years of growth ahead.
associate companies, and quality of
their disclosures to stock markets is (I am updating this stock idea which
superb. was originally presented by Viraj Mehta
- Equirus Securities Pvt. Ltd to an open
Risk forum several weeks ago. It is a stock
Government restrictions to the with long term potential - that can
sector; online sales of Gold by exhibit very good growth over the
e-commerce companies; however, coming years.)
57
Som Distilleries Ltd. (SDL)

BSE Code: 507514/ NSE: SDBL; Face Value: `10; Market Cap (`Cr): 742; CMP: `180
T
he beer industry in India grew at a steady 12% over 2004-14.
The industry can be largely segregated into mild and strong beer
with the latter garnering a larger market share (60%). The
Indian beer industry is quintessentially covered by three to four
major players with United Breweries in pole position (51%)
followed by SABMiller (27%) and Carlsberg (6%). With nearly 60% of the
Ankitanshu Roy population in the drinking age (15- 59 years) and low per capita
A value investor consumption of 1.9 litre/year, India provides huge scope for growth. Any
Active in the markets 7 years minor change in the consumption pattern would provide a huge delta owing
to the significant population base. With an annual consumption of 3000
A first generation stock market entrant, million cases in FY17, the Indian beer industry remains at an infantile stage.
his family is nowhere related to stock The beer segment grew at a steady rate of 8% CAGR over FY10-17. India
markets. Passion is what drives him in remains one of the fastest growing beer markets in the world with abysmally
the market. low per capita consumption (pcc) of 1.9 litres per annum against 34 litres in
China and a whopping 65 litre per annum in Brazil. The beer industry in
India can be largely segregated into mild and strong beer segments with the
My Mantra latter having a greater market share (40:60 ratios). Growth in urbanisation
Don’t be afraid of making and change in lifestyle with increasing acceptance towards alcohol
mistakes. Take your chances and consumption is expected to buoy beer volumes significantly. Also, beer’s
calculate the maximum bearable loss positioning as a milder drink compared to liquor bodes well with the young
and play to the fullest. It’s not crowd (age group 15-24 years), which forms nearly 20% of the population
necessary to find 10 new ideas, as you and grew at a CAGR of 2% over the last decade. Further, as India’s
will need just one multi-bagger to “demographic dividend” improved, the dependency ratio declined
make a fortune. significantly over the past decade, thereby leading to higher disposable
income.
About SDL
SDL, established in 1993, is one of the prominent players engaged in the
production of beer and IMFL. With an installed capacity of 59200
kilolitre (kl) of beer and 5400 kl of IMFL in Madhya Pradesh (MP),
SDL commands 36% and 19% market share (state-wise) in beer and
IMFL respectively. SDL manages key millionaire brands (sales >1 mcs
per annum) like Hunter and Black Fort and Power Cool. The other
brands include Milestone 100, WhiteFox and Woodpecker. SDL
currently sells 5.4 mcs of beer, 0.7 mcs of IMFL, mainly in Madhya
Pradesh and North India.
Disclosure The Key Revenue Triggers

He is not a registered analyst under SEBI SDL has entered into bottling arrangements of its brands with Jagatjit
company. Industries and Oakland Bottlers to enhance its supplies to the canteen store
departments (CSDs) and key markets in North India. SDL has embarked on
58
the next growth phase by setting up a

brewery in Karnataka (through its
subsidiary Woodpecker Distilleries
and Breweries Ltd.) that would have
a capacity of 3.4 million cases (mcs)
of beer and 2.8 mcs of IMFL. The
state has a market size of 30 mcs of
beer and 60 mcs of IMFL majorly
held by United Spirits and UBL. The
initial launch of Black Fort Beer in
the Karnataka market was very
encouraging and the company Financial Performance
expects to get a considerable market The historical growth for the “I think you have to
share in the short term. The H1FY18 company remained sluggish with
results reflect the fact with revenue revenue and EBITDA growth of 5% learn that there’s a
growth of 37% `184 crore as and 4% CAGR respectively over
compared to `135 crore in H1FY17. FY13-17 to `246 crore in FY17.
company behind
The PAT growth also stood at a Moreover, PAT over the same period every stock, and that
healthy growth of 50% YoY to `15 declined by 6% CAGR to `14 crore
crore as compared to `10 crore. Also in FY17. However, with H1FY18 there’s only one real
SDL’s beer brands have been PAT at `15 crore, which has already
approved by FDA for supplying to exceeded the FY17 full year PAT.
reason why stocks
the US of which the first trial order With the seasonality H2 across go up. Companies
has already been dispatched. The Alcobev industry remains weak.
strategy is in line with that of go from doing poorly
BIRA-91 which intends to target Valuation to doing well or
foreign markets. SDL has also We believe that SDL remains
recently appointed Nilojit Guha as uniquely positioned in the Indian small companies
President, Sales & Marketing. His alcobev sector as it aptly blends a
responsibilities would be to lead sales combination of beer and IMFL. The grow to large
and marketing function on a pan stock currently trades at Mcap/Sales
India basis in the southern and of 2x, however the peers, trade at
companies.”
eastern markets. higher valuations - 5x for United
Sprits and Breweries and 3x for – Peter Lynch
Key Issues Radico Khaitan. In terms of P/E the
Liquor ban in the state government stock trades at a TTM multiple of
election manifesto continues to linger 26.2x compared to 41x for Radico.
on the growth rates in the Alcobev Although much smaller, the
industry. A specific risk would company is making efforts entering
involve the changes in the MP or newer markets and targeting market
Karnataka government state policies. share. With the production of new
From last many years, promoter’s facility expected from the January
holding stands at 23%, however, 2018 and expansion in newer
more than 20 people, which are a markets we expect SDL to clock a
part of non-promoter category hold revenue and PAT of `500 crore and
another 60% stake. The broad `40 crore over the next two years.
understanding is these are held by Hence on a forward basis SDL is
large distributors which the company available at 1x sales and 12.5x P/E
intends to buy back and increase its basis which we believe is
shareholding. undervalued.
59
Compuage Infocom Ltd.

BSE Code: 532456/ NSE COMPINFO; Face Value: `2; Market Cap (`Cr): 319; CMP: `55
W
hen I started reading Compuage Infocom, which was
triggered on screen as a 52Wk low stocks, I was
disinterested to read a company which has 2% OPM.
Why to waste time in such a company. There were
many other questions in mind.
Keshav Karunakar Should you invest in a distributor company? In my IIMB marketing class,
Cofounder of an IT company and Prof. Murthy asked how many of us hate the middle man in a business.
individual investor 90% of the class raised a hand in affirmation. After that, he enlightened us
Active in the market since a decade on how important role middle man plays in business success. The 4P of
marketing has “Placement” as one of the pillars. To have your product
With 19 years experience in IT industry, placement right, you need a strong middle man. One of the KRA for sales
he loves to read about business and team is to keep the distributor in good health and connection. The business
investment and strongly believes that can be successful only if you have a very good distributor. This is a
only a good investor can run a parasitic relationship.
successful business. He doesn’t follow
any particular style of investing. Trading Is there any moat in distribution franchise? You cannot enter distribution
is strictly no no. He is a long term business till you are blessed by the company. The company looks for bigger
investor with good companies; invested distributors who has maximum reach, have money power to buy the
in many multibagger and still holding product up front and carry inventory. It should be able to cater to need on
them so far like Intrasoft is a 20x
Just in time basis. Most of the companies prefer to have their competitor’s
investment.
distributor. So there is a fair amount of entry barrier. Most of the
industries have cartel in the distribution business. They don’t allow new
entrant from outside community. Smaller distributors do not have
My Mantra
bargaining power. Compuage falls in the middle category. The company
First, understand yourself. Who
holds the bargaining power if the product is good and fast moving. The
you are? Invest money, which you can
distributor has bargaining power if the customer is new.
afford to lose. Don’t trade. Read annual
reports of companies which you are
Valuing a Distributor Company
investing. Don’t buy stocks on tips.
As a distributor, a company can lose money only if its execution is bad,
It will take you to pits.
since it gets 2- 8% margin on the products. It is not developing the product,
it has to be efficient to make money. This company was doing exactly
same. The management moved the central warehouse from Mumbai to
Chennai, added more towns in its reach, and moved the sales target to
`1000 crore per quarter. The management implemented SAP system to
manage the back end system. The beauty was that this SAP system was
implemented in record time. The company was doing business in day time
Disclosure and SAP was getting implemented at night time.
The author is not a registered analyst under SEBI
stock. Readers must do their own research before The Market Size
investing in the company. India is a huge growth market for electronics, mobility, laptop, etc.
60
Indians are still deprived of the Shareholding &

basic data network. Each Promoters
household needs modems, many Promoters have 61% shareholding.
sets of mobile and one set of It was reduced from 65% after they
laptop. In villages, students are did preferential allotment in 60+ to
getting a laptop from political a private equity firm. Kitara India
parties. This company is a Micro Cap Growth Fund has 9%+
distributor of all such products. It holding which they bought in the
is an exclusive distributor for upper of `60 band. We are getting
Reliance Life mobile in south company in `55.
India. The company has a
distribution license for Apple Promoters know the business well.
accessories in the western part of The company is doing quarterly
India. If they do good they can get investor calls. It has reduced debt
more products from Apple to from 4x to 2.83x. The business is
distribute. Its list has Samsung, working capital intensive and hence
CISCO, and TPLink products also. has debt in higher orders. The
If one is buying a laptop from company has done equity capital
Flipkart (WSRetail), mostly it will dilution. The equity grew 9%
be distributed by this company. CAGR in last 10 years. The reserve
has grown 34% CAGR. Borrowing
And The Competitors has kept pace with a 27% CAGR.
HCL Infosystem and Redington Working capital has grown 10x “If you have trouble
(India) Ltd. are its competitors. keeping pace with sales growth.
Redington India is a `7500 crore Return on equity has been in double imagining a 20%
market cap company with sales of digit, ROIC is also in double digit. loss in the stock
`41000 crore, which translates to The company has been paying
almost 0.2x of sales. This company regular dividend. The company market, you
is doing sales of `4000 crore odd strengthened its credit rating from
and valued at `300 crore, not even BBB+ to A for Long-Term Bank shouldn’t be in
at 0.1x of sales. If we compare Facilities and from A2 to A2+ for stocks.”
finance of both the companies, we Short-Term Bank Facilities (CARE).
find that these are comparable and To sum up company’s Annual
Compuage Infocom Ltd. is better report 2017 states: “Inspired by the – John Bogle
in most of the parameters. With vision of Digital India, where
sales growth coming, it will technology is accessible to each and
become more efficient. If the every Indian, our roadmap for the
company can do `10000 crore sales future is crystal clear. We are
by 2022, and the market gives 0.1x expanding our network, forging new
valuation, we have `1000 crore partnerships and accelerating the
market cap company, which is reach of technology products and
nearly 4x from here. The company solutions. Not only are we confident
has grown its sales 10x for the last of reaping the network benefits by
10 years about small base. Going growing in tandem with the Indian
for 2.5x sales in the next 3 years economy and adoption of digital
should not be an issue. The technologies in India, we are also
company can replicate the same committed to contributing to this
success in other countries growth. Our distribution network is
(Singapore), where it has opened an accelerator in digitization of the
subsidiary. Indian economy.”
61
GMM Pfaudler Ltd.

O
ver last 3-4 years one of the riding themes of the ongoing
bull run has been the shift of the chemical and Api
production from China to India. Many stocks from this
sector have given multifold returns to equity investors. Most
of these companies are now at peak profit margin and peak
ROE. Unless the business moat is sharpened by continuous innovation on
Moitraya Roy either cost side or process side, incremental margin improvement is less
A Small cap investor likely in the sector. Another factor that is common is that most chemical
Active in the markets 8 years and pharmaceutical companies are undertaking huge incremental capex
which satisfies both their urge to grow and also to be competitive.
My Mantra In the above context, I have been tracking a small cap company called
I believe in Peter Lynch who said GMM Pfaudler. It has been around for 55 years and controls more than
that during the Gold Rush, most 50% market share in the glass lined process equipment which is used in
would-be miners lost money, but chemicals, pharmaceutical and other similar industries. GMM is now a
people who sold them picks, shovels, JV with Pfaudler, Inc which is a leader in the global glass lined industry.
tents and blue-jeans (Levi Strauss) The other listed competitor is Swiss Glass Coat Ltd. and De Dietrich
made a nice profit. Hyderabad (erstwhile glass lined division of NILE Ltd.). The three
companies together control more than 85% market share in this niche
segment.
Reshaping Itself
It was an old world company till 2015 which was the decisive point in the
history of the company. In 2015 Pfaudler, Inc was acquired by Deutsche
Beteiligungs private equity fund from National Oilwell Varco. Most PE
funds have a 5-7 year window for exiting and the PE funds are quite
focused on creating value for its unit holders. The second and perhaps the
more important point was the elevation of Tarak Patel as the managing
director of the company. Tarak, a 6 feet Herculean chap, in last two years,
has transformed the company from an old world enterprise to a new
world target oriented company. Standalone sales increased from `201
crore in 2012 to 230 crore in 2016, and is expected to grow to approx
`310 crore by March 2018. Tarak Patel has now set an internal audacious
mission 2020 target and is heavily focused on expanding non glass line
side of the business.
Shifting Focus
Disclosure GMM is shifting from traditional electricity based furnace to a gas furnace
The author is not a registered analyst under SEBI based company from Feb 2018. It will lead to an incremental 200bps
stock. Readers must do their own research before impact in EBITDA margin starting Feb 2018 as per the last concall.
investing in the company. Moreover the company had hired a lot of experts and consultants in 2017
62
After Eicher motor

it’s turn for #Maruti.
12500 in 2003 is
now 10 lakh in 15
years. IPO in 2003 at
`125/- which is
today `9000/-CAGR
to improve efficiency and to out the continuation of order
debottleneck the production of the inflow from Pfaudler to GMM of 35% +dividend.
company. Most of the job of these Pfaudler as GMM is one of the
analysts is expected to be over by lowest cost producers of Pfaulder
January 2017 which will again add products globally. Moreover, till Out of every two car
to the bottom-line. GMM is putting recently GMM couldn’t export
in two service centers in south India much of their produce as there was sold in India one is
to increase the service component a government restriction on
of the business. This component is identifying the final buyer before
from Maruti. Maruti
incrementally a very high margin the final export bill was approved. earns more profit
business. Mavag, a swiss based This clause existed as some of the
subsidiary of GMM has undergone company’s products could be used than global partner
a radical transformation under the to manufacture WMDs. This
two pronged strategy of Tarak Patel. clause has now been relaxed to
Suzuki selling cars
Tarak’s father now heads that identifying the final buyer after world over.
company and his brother in law is three months of exports. This
also a senior consultant there. single relaxation opens the
Mavag is an operating leverage story floodgates for GMM to leverage
as once the business crosses the ten the Pfaudler brand name. With a
million euro threshold profits `85 crore cash surplus and a zero
increase much faster than the debt balance sheet combined with
increase in sales. Over last few years MNC parentage and 50 percentage
company has shifted a lot of point market share it looks very
production of Mavag to the parent interesting. Do note that it’s a
company in India. decent ROCE business and the
ROE gets subdued because of the
Conclusion presence of cash in its balance
Incrementally one needs to watch sheet.
63
Uniply Industries Ltd.

BSE Code: 532646; NSE UNIPLY; Face Value: `10; Market Cap (`Cr): 961; CMP: `430
S
tarting off as U and I ply company (UnIply) in 1996 and
beginning with importing its products from South East Asia, the
company made a decent progress in setting up its plants in South
India and expanding its business up until 2013. Saddled with
high debt for the plant expansion and with major churn in its
senior management in 2013, the company was facing bankruptcy after
Sarkar Raj posting losses in FY13 and FY14. The company hired the services of an
A value investor and portfolio manager investment banking firm Globality Ventures, headed by an energetic young
Active in the markets 15 years man Keshav Kantamneni, and asked him to look for a buyer.
With a science background and an Rebirth of Uniply

ambition to become a geologist working The banker in Keshav saw more than just a pure investment banking deal
with NASA and discover something in Uniply. He saw it as his calling and spent days understanding the
undiscovered some day, Dalal Street business of Uniply along with its employees, customers and global
was an unexpected place where there landscape. Ultimately Keshav decided to buy out the promoter’s 36% stake
were ample undiscovered treasures. He in Uniply for `2.5 crore and took `113 crore debt of the company also. He
started from scratch as an equity analyst had some grand plans for Uniply and didn’t want it to be just another
and now works in one of India’s leading plywood manufacturing company. He embarked on the road less travelled
financial services firm as a Portfolio in the interior infrastructure sector by making the following key
Manager, managing large equity assets. transformations in the company:
• Brought in strategic long term equity from veteran investors like RK

My Mantra Damani, Ramesh Damani and Vallabh Bhansali.
Consider your investee companies • Moved from low margin plywood business (single digit margins in the
as your prospective bride and try to face veneer business) which accounted for close to 50% of the revenue
know as much as you can about them till 2015, to high margin plywood business and acquired Euro Décor
before you commit for the long term. plywood for `42 crore. Plywood contributed to 95% of the revenue in
Don’t treat your investments as one FY17.
night stands. Never try to learn about • Made a key entry into interior infrastructure space through acquisition
the company by meeting the of Vector Projects business for `64 crore. This is the highlight of future
management first. Read up about the growth plans.
company, talk to its customers and • Sold the plywood business to UV Board, which is owned by the early
those who have invested in the promoters of Uniply for `300 crore, which will help in reducing debt on
company. Investing on hear say and books of Uniply and also release the pledged shares of Keshav which
tips are like a sure shot formula for were pledged for working capital loans. Uniply’s stake will increase to
financial hara-kiri. 37% in Uniboards. UV Boards will pay `42 crore for Uniply’s
manufacturing facility in Gujarat. It would also pay `75 crore for the
Disclosure trademark of Uniply over 10 years.
stock. Readers must do their own research before Future Growth Path
investing in the company. With the hive-off of the Plywood business into UV board, Uniply is now a
64
pure turnkey interior infrastructure unorganized sector accounts for the

project company doing MEP work bulk of the work and increasingly
for both residential and commercial customers are showing preference
spaces. Vector is the key business for large branded players having
which the company would be large project execution capabilities.
channelizing. There is immense The company is also focused on
scope and opportunity in the water management systems,
interior infrastructure and building particularly, sewage treatment. It
solutions space. It’s a very claims to have developed a better
unorganised player dominated sewage treatment technology with
space. There is a preference of both the help of some German engineers
corporates and real estate builders which can be used instead of the
to deal with a single large turnkey conventional technology currently
building solutions player like Uniply being used in the Indian markets. It
rather than dealing with multiple is looking to set up a large treatment
organised players doing small pieces plant in its home base Chennai over
of the same work. Uniply is filling a next 6-9 months. The opportunity
key vacuum in the whole size in this space is around `50-70
commercial and residential space. billion.
prefabrication work are done
Uniply already has marquee in-house at the company’s plant Financial and
corporate names as clients and keep while 20% is done on site. So the Valuations
getting bulk of the orders from structures can be delivered at a Comparing the future earnings of
repeat customers. In addition the quicker pace and hassle free. Vector Uniply with its past track record
company has been aggressively has brought along with it several would be like comparing an apple to
entering into newer unchartered key positives to the project delivery an orange. The growth the company
territory of affordable housing in capability of Uniply - Specialists - is showing in its Vector business is
which it has already bagged an Its Electrical, HVAC and BMS remarkable. Just to give a sense, the
order of `450 crore from Southern teams provide plug-and-play company has been showing close to
India. As of date, Uniply has order infrastructure; Turnkey - Specializes 100% revenue growth over the last
book worth `1500 crore across in complete design and build four quarters. And margin
projects which would be executed solutions for corporate offices and expansion is visible in the EPS,
over the next 12-18 months. These residential projects too; Alliances - which has almost shown 2-3x
are high margin projects having Engaged with premium brands in growth YoY over the last four
margins in excess of 18%. Nearly Italy, Turkey, China and India for quarters. The company had clocked
30-40% of this order-book would be executive and lounge seating; revenue of `275 crore in FY17 and
executed before end of FY18. The Customers - Its clients include Tata management expects to close FY18
company is also venturing into Consultancy Services, Pfizer, ICICI with more than `400 crore revenue
online furniture stores in Bank, Citibank, Goldman Sachs, JP with margin expansion added on to
collaboration with leading Morgan, Morgan Stanley, Tata it. Considering that affordable
e-commerce players. Motors, Volkswagen etc.; housing is a huge opportunity, the
Infrastructure - 1,00,000 sq.ft. sky is the limit for the company. The
DNA of Vector Mumbai factory with imported company has recently hired the
Projects equipment (Germany) for ex-head of infrastructure of TCS to
The company caters to commercial woodworking and carpentry. head its vector business. With a
space spanning IT, pharma, market capitalization of merely
financial institutions and There is very less competition to `1000 crore and revenues expected
manufacturing sector. It has speak off and some existing to increase multi-fold over the next
delivered 1,500 projects spread over competitors are Shapooji Pallonji, few years, the market seems to be
an area of 10mn sq.ft., 80% of the Space Matrix (Singapore), etc. The awaiting a few more quarters.
65
Neuland Laboratories Ltd.

BSE Code: 524558; NSE: NEULANDLAB; Face Value: `10; Market Cap (`Cr): 791; CMP: `840
S
pecialty pharma is getting high focus in the overall healthcare
system, be it innovations, manufacturing, distribution
administration of drugs or health care planning by governments.
Most of the new molecules being developed and drug delivery
technologies are centered on these segments. Given a high
technological barrier and demand-supply mismatch, specialty segments
Purvi Shah normally command premium pricing for patented products and relatively
Equity Analyst – Pharma Sector lesser price erosion in generic segments. Given a number of patent expiries
Active in the markets 10 years in the next couple of years, generic players present either in back-end or
front-end will gain immensely. Thus, API players who have aligned their
She is an equity analyst tracking focus towards specialty segments stand to gain.
pharma sector for a decade. Initial
eight years worked on the institutional Though specialty pharma is defined differently by sections of the industry,
front and since last two years on the consensus is drugs which are used to treat a variety of complex and
retails and HNI front; tenacious and chronic conditions. Certain sections of the industry categories, specialty
loves to learn new things. drugs as meeting all the three ‘H’ - high cost, high complexity, high touch.
These segments are technology intensive and often include injectibles,
inhalers, infusions, transdermal among others. A significant part of
My Mantra specialty drugs are biological (based on living organism), especially in
Read, read and just read, increase oncology, rheumatoid arthritis and multiple sclerosis.
your knowledge and bandwidth to learn
new things and take your own About the Company
investment decisions. Neuland is a 30-year-old Hyderabad-based player engaged in the
manufacturing of a wide range of bulk drugs, intermediates and custom
manufacturing. The company has built a strong product pipeline and
transformed itself from a low-end API manufacturer to high-end
products, hence significantly changing its margin profile. Most of the
new APIs that are under development and recently filed are from
specialty segments. The company is the first and the sole DMF holder of
9 products and the only competitor in case of the six products. The
end-product (finished dosages) market size for DMF filed in the US is
pegged $22bn, while products under development relate to an end-
product market size of $3.5bn. A pure API player like Neuland can
expect huge opportunities due to - drugs going off patent and leading to
a surge in demand from generic drugs and most integrated players
(formulators) have limited resources to produce multiple batches of
different products (often in small-to-mid size quantities). Hence, players
Disclosure like Neuland, with a niche to focus on complex products, will see a
The author is NISM certified research analyst. She strong demand and value in the business. The transformation process
and her family have a no position in the stock.
which started a couple of years back, will reflect in Neuland’s financial
performance in the next couple of years when key drugs go off patent
66
and open up attractive Key Risks The company has recently

opportunities for the company. Demand risk: The API business is undergone the USFDA inspections
This will help Neuland differentiate dependent on the requirement of and came out clean with minor
itself among the local peers and formulation players, which often observations.
command better valuation. The causes inconsistency in off take. Delay in product approvals: Delay in
balance of portfolio among high Thus, a quarter-on-quarter approvals of finished dosages may
value and high volume products performance may fluctuate. lead to a delay in off take for API and
will help it see a faster growth in Quality compliance risk: The may slow down projects’ execution
earnings. We believe the stock will stringent quality norms prescribed by under CMS business. On the other
see a gradual re-rating on the back the key regulatory agencies lead to hand, an early genericisation of key
of strong product pipeline and risks of recalls, production delays drugs may provide an upside risk for
improved return ratios. and ban on manufacturing activities. the company.
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67
Star Paper Mills Ltd.

BSE Code: 516022; NSE STARPAPER; Face Value: `10; Market Cap (`Cr): 440; CMP: `280
S
tar Paper Mills is engaged in manufacturing of paper and paper
related products. Established in 1938, the company is a part of
the Duncan Goenka Group. To source its raw material the
company owns about 34953 hectares of land on its books. The
company has also started a Clonal Technology Programme with
the intention of increasing the yield per unit area. The company has
Mukesh Prajapati developed fully automated greenhouses and hardening chambers at Tapri
Runs his own Pharma Business for production of colonial plants. The company has an annual capacity of
Active in the markets 9 years 75000 MTPA with a pan India dealer network of 50. The company has
shown an intention to expand its capacity of three lakh colonial plants per
annum to 64 lakh colonial plants per annum in the next 5 years.
Financials
The 5-year sales CAGR has been 9-10%. The company has turned
profitable in the past three years showing a 96% CAGR over the said time
frame. Its EBIDTA margins have been around 22%; posted positive PAT
since 2011, 2017 and for 6 months in 2018. PAT margins have been
healthy at 15%+. The company has shown consistent YoY improvement in
EBIDTA and PAT. ROE and ROCE of the company are very high. Recent
improvements in profitability and returns since 2015. Debt in its books
with long term borrowings around `8 crore. As of September 2017, the
cash on the books is `10crore along with quasi cash investments at `47
crore. The fixed assets (including land bank) stand at more than `400
crore.
Valuations
The company has a market cap of `440 crore and TTM EPS stands `38/
share giving it a TTM P/E of about 7. Its peers such as Kuantum, NR
Agarwal, JK and the likes of West Coast etc. are trading near 10-12. Thus
Star is the cheapest available paper asset in the industry. With the
revaluation of its land bank the company’s book value is bound to
increase. As of H1FY18 liquid assets of `47 crore, cash of `6 crore, bank
of `4 crore leads the total cash assets of the company at `57 crore. This
gives the company an absolute comfort as far as balance sheet strength is
concerned. This covers over 1/4th of the current Market Cap.
Triggers
Disclosure Raw material costs: The company has been benefiting from the falling
The author is not a registered analyst under SEBI prices of wood-pulp across the country. RM cost (% of sales) has come off
stock. Readers must do their own research before from 52% to 32% in the last three years. The company is bound to benefit
investing in the company. as it has captive resources for wood pulp.
68
India’s GDP at
a glance
First trillion took 60

years (1948-2008),
Power costs: The company has made the high margin value added
religious efforts to curtail its power products. The tissue paper market is next took 7 years
cost. From about 39% of sales in one area the company looks to focus (2008-2015), Third
2012 the cost stands at 22% as of on. This market, as per reports, is
2017. With the company’s increased growing at more than 15% CAGR Trillion will take 5
focus on cost saving and operational and is likely to continue to grow in
efficiency these costs are unlikely to double digits till 2020. Consumption (2015-2020), and
overshoot beyond control. of tissue paper in India has been on Fourth Trillion will
the rise ever since 2015-16.
Industrial Tailwinds: The paper take 3 years (2020-
industry as a whole was given a Conclusion
tailwind as some south based paper Given the future of paper 2023).
mills had to shut down due to consumption coupled with an
stretched balance sheets and overall steady demand Star is in a
leveraged positions. Also, water strategically capable position to The Sensex has
shortage and labour issues affected a grow above the industry. With
lot of the operations of existing highest industry margins and nearly grown 100x in 32
paper mills. Besides, on the zero leverage with a strong balance years, at 15% CAGR.
recommendation of a few top sheet, the company will be able to
players the government is looking outpace the competition in the next
up at the anti-dumping measures to 18-24 months. There has been an
curb cheap Chinese imports which indication from the management as
will give boost to domestic players. well to focus only on value added
China, as per recent reports, has products and operational efficiency.
been cutting down on production of Bringing the cost of operations
paper and paper boards due to its down has been the sole focus of the
recent stringent environment promoter, which has yielded good
policies. This will enable a good results in the last 12 months. Going
demand, supply balance globally. forward, this is likely to continue
and given the valuation, stock looks
Focus on operational efficiency and attractively priced. Even at a flat
optimal product mix: The company growth of the current year – a `40
has indicated that it will run at EPS and P/E sectoral respectable
100% capacity and focus only on multiple can take it to places.
69
Akme Star Housing Finance Ltd.

H
ousing for all by 2022 is a vision of the government and
HFC views itself as an important contributor to this effort.
Housing Finance companies have been strong value
creators in the past decade with 20-25% CAGR return
driven by secular growth opportunities in the housing
finance space. Housing sector contributes a major chunk to the country’s
Pawan Sharma GDP and has witnessed steady growth. The main growth drivers are rising
A chartered accountant and equity income, increasing urbanization, housing shortage, tax benefits, etc.
investor Viewing the long term demand from the housing industry, the finance
Active in the markets 11 years minister has granted infrastructure status to affordable housing while
presenting the Budget 2017-18. The new measure is bound to reduce cost
He is very passionate about equity, a for developers and attract investors. Given India’s low mortgage
voracious reader, spiritual to the core. A penetration levels, the secular trend will continue for many years. This is a
sports lover, he believes in maintaining multi year story. There are many players in this space, but I have chosen
a healthy work-life balance. this second rung player.
Investment Rationale
My Mantra I like the company on the following basis - This is one of the least
Invest in equity regularly, in all leveraged company among its peers; The debt equity ratio is only 0.37
seasons whether bull market or bear while others are leveraged to the extent of 10-11 like Dewan Housing
market; Invest for long term as the 10.16 and LIC housing 11.41 etc; Akme’s capital adequacy ratio is also
magic of compounding is 8th wonder; highest among peers. The company is required to maintain capital
Read a lot; Increase your knowledge adequacy of 12% on its risk weighted assets as per NHB regulation;
every year by 20%, wealth will
Company has maintained a consistently high level of capital adequacy
automatically increase; Follow
over the last few years; The capital adequacy ratio for the financial year
successful investors, read their
ending 31st March 2017 was 109%; Promoters are very optimistic about
experience and learn how they made
future growth hence they inducted more capital into the company recently
such as huge wealth; Learn from your
- the company has allotted 435000 warrants to promoters and non
mistakes, or even try to learn from
promoters @ 84 on 30th November 2017 Board Meeting; Due to small
others mistakes; Not investing in equity
base and sectoral tailwinds it is growing at very rapid pace, last three years
is more risky than investing in it,
average sales growth was 34.85% and profit growth was 56.19% (61% for
remember you need to beat inflation;
last 5 years). ROE of the company is low (6.98% average last 3 years) due
and lastly, don’t trade, don’t
to higher capital, it would increase in the future when it will start
speculate, don’t leverage.
leveraging the balance sheet; and recently company has got a sanction
letter of `5 crore term loan from an AU small finance bank.
The company got listed on the SME platform of BSE in the year 2014-15
Disclosure with an issue of 1600000 equity shares at the rate of `30. The company
The author is not a registered analyst under SEBI was migrated to BSE main board on 15th June 2017. The company has
stock. Readers must do their own research before also issued bonus shares on 10th March 2017. The company is Udaipur
investing in the company. based and it is run by very good educated promoters - Dr Mohan Lal
70
Last 20 years
stock performance
Nagda, CA, CS & ICWA PhD and shareholders as per the latest list.
Nirmal Jain, a CA rank holder and
ICWA. ML Nagda was Legal & At CMP of `117 the stock is trading SBI up ~10x,
Compliance head of Hindustan at valuation of price to book of 7.22
Zinc, when the company was sold which seems little stretched, but HDFC up ~100x,
to Vedanta, he took VRS and looking at strong growth, sufficiently
started his own venture. Under his capitalized (CRAR of 109), sectoral
HDFC Bank up
guidance and vision the company tailwinds, well educated, and focused ~1000x.
got the license from the National promoters, it can generate a
Housing Bank. Promoters have multifold return from here also.
skin in the business and holding
53.05% as on 30th Sep 2017. Risk That’s the difference
Promoters are increasing their Economic slowdown: Primary between ordinary
shareholding for last two quarters. threat to housing finance companies
It has increased from 51.87% arises from the economic downturn and extraordinary.
(March 17) to 53.05%. Promoters and slowdown in employment
have very good reputation in this opportunity.
Only shows up in the
area. The future outlook of the long term.
company is to expand its area of High interest rates: The demand for
the network and business activities home loan being rate sensitive can
and one such step taken in this negatively impact demand if the
direction is the opening of rates are increased. It may also
corporate office in Mumbai with impact repayment commitment of
the Management’s aim of existing loans and an increase in the
development of business. NPA.
Shareholding & Adverse development in real estate

Valuation sector: Adverse development in real
There is no institution/ mutual fund estate sector causing delay and
holding. Amit Arora of Eleven default in completion of projects
Dimension funds is holding 1.75% may cause a setback to the new and
of the company as on 30th Sep existing loans, and subsequently
2017. The company has 487 cause an increase in the NPA.
71
Vishnu Chemicals Ltd.

BSE Code: 516072/ NSE VISHNU; Face Value: `10; Market Cap (`Cr): 502; CMP: `380
V
ishnu Chemicals has started its operations in 1990 in a very
small way with a turnover of òne crore manufacturing
various specialty chemicals, including Chrome chemicals like
Sodium Dichromate, Potassium Dichromate, basic chrome
sulphate and Yellow Sodium Sulphate. During the last 27
years, the company relentlessly strived to strengthen its position in the
Jagadeshwar Rao market place by differentiating from its competitors through intense focus
Executive Director, Saaketa on quality and on upgrading technologies. The sheer focus on new
Consultants Ltd. technologies and unchallenged quality made it achieve turnover of almost
Active in the markets 20 years `500 crore and earned the market place in 50 countries across the world.
The company competes in the international market with the companies
from Europe, North America, Russia and Kazakhstan.
My Mantra
My suggestion to new equity Vishnu Chemicals has now become a market leader in production, sales
investors is Read and Read a lot on and customer support of chromium and other specialty chemicals across
equity investments before taking a India and the company derives its core competence from its world class
serious plunge. There are umpteen manufacturing facilities in Hyderabad, Vizag and Bhilai, backed by state
number of books available on the of the art research capabilities. Vishnu Chemicals Technology
subject. Development Centre supported by a superlative analytical development
facility also offers services in custom synthesis, contract research, and
contract manufacturing to fine chemical and pharmaceutical clients.
Exceptional quality standards, continuous improvement of processes,
technical excellence and innovative solutions are what helped the company
to gain market in both domestic and international markets. Company’s
prominent domestic, industrial users include Strides Shasun Ltd., and
Sudarshan Chemicals Ltd.
Mr. Krishna Murthy is the Chairman and Managing Director of the

company and is one of the key architects in developing the organization
and is instrumental in transforming the company from a single product
to multiduct, multi market company. His vision, commitment and
dedication to achieve better milestones is the driving force behind the
company’s journey for the last 27 years. He, together with his family,
holds 75% of equity. His dominant shareholding and no immediate plans
to dilute his stake demonstrates his confidence in future growth for the
company.
Disclosure The company achieved a Revenue CAGR of 16% during the last 10 years.
The author is a SEBI registered research analyst. However, the profitability of the company failed to register the similar
He is not presently invested in this stock.
growth due to the continuous capex the company has been making in
creating new manufacturing facilities and operating processes and
72
“Stock market
acquiring new companies. During appears to be quite confident of
FY15-16, though the company has better financial performance in the corrections, although
done higher turnover, its next two years. They are quite painful at the time,
performance on the profitability hopeful of considerable reduction in
front suffered a setback due to the cost of production after rationalizing are actually a very
foreign exchange advantage to their the operating processes by resorting
global competitors. The company to new technology and optimizing healthy part of the
has been facing competition from the product mix. Management has whole mechanism,
countries like Russia, Kazakhstan, set for itself a revenue target of
Turkey and South Africa and their `1000 crore by FY19 from the because there are
currencies were depreciated current `440 crore, which the
significantly due to fall in prices of company feels quite possible due to always speculative
crude oil and many metals and the capex made by them in the excesses that
minerals. Thus the company is earlier years with corresponding
affected by cheaper imports in the improvement in profitability. The develop, particularly
domestic market and by better company successfully withstood
realization for their competitors in many storms earlier and hopefully, during the long bull
global markets. During FY15-16, they would hopefully come off the market.”
South African Rand depreciated by present crisis too quite successfully.
18%, Kazakhstan’s Tengeby 87%, The fact that they withstood the
Russian Ruble by 10% and Turkey worst currency depreciation in – Ron Chernow
Lira by 15.5% and this massive competing countries and preparing
depreciation in currency value of themselves for future growth
competing countries has had a adequately demonstrates their
crippling effect on the bottom-line resolve to take the company to even
of the company for both FY15-16 better heights in the coming years.
and FY16-17. Due to continuous
capex and adverse movements in Risk Factors
foreign currency and acquisition of The currency value of competing
Solvay Vishnu Barium Pvt Ltd, countries continued to be
there was a significant increase in unfavorably valued against Vishnu
short term borrowings and working Chemicals in global markets. This
capital requirements. continues to be a risk factor.
However, the company hopes to
However, while the situation on the neutralize that disadvantage by
foreign exchange front remained improving their operating processes
adverse even today, the management and rationalizing cost structure.
73
Gulshan Polyols Ltd.

BSE Code: 532457/ NSE GULPOLY; Face Value: `5; Market Cap (`Cr): 84; CMP: `88
G
ulshan Polyols Ltd is an Agro processing company with a
turnover of `500 crore FY16-17. Its product lines consist of
Sorbitol, MD, DMH, animal feed ingredients like gluten,
germ and enriched fibers mainly meant for cattle, aqua,
animals, etc., mainly maize and Rice processing, Native
Starch, ENA and HFRS. It’s a sub-400 crore market cap outfit which is
Dhaval Parikh trading at 7X its FY 16-17 cash profits. It is a multi-locational, multi-
A value Investor product company having a consistent profitable record for decades
Active in the markets 10 years together. It has been a cash rich company because of its clientele mainly
MNCs, FMCG and top-notch corporate. In the last five financial years
Apart from his passion for stocks, he is company has generated free cash flow of more than `235 crore and the
also a technology geek, loves nature entire cash has been ploughed back in the company to create productive
and an avid birder. His photography assets of grain based businesses. Capex programme is 100% over.
arsenal consists of a Canon EOS 60D
with EF 400mm f/5.6L lens. Trekking Clients
compliments birding and so he is a It’s customers’ line reads like ‘Who’s Who’ including Colgate, Unilever,
trekker too. Also a die hard cricket fan Dabur, Asian Paints, Wipro, KansaiNerolac, Berger Paints, Pidilite,
and plays Carrom and table tennis. Britannia, Henkel, ITC, TNPL, Cadila, IPCA, Pfizer, Novartis, Merck,
Glenmark,AstraZeneca, Bata, Lakhani, Relaxo, Sintex, BASF, a host of
paper mills and pipe manufacturers. The company enjoys a long term
My Mantra relationship with its clientele for more than two decades.
Never buy a stock without doing
your own thorough research. Once you In two of its products, the company enjoys market leadership, i.e. Sorbitol
are convinced about the stock, there is and Calcium Carbonate. Both businesses are more than 25 years old. In
no need to go about checking the price the last 3-4 years, the company saw an opportunity to enter grain based
on a daily basis. There is no point in businesses and set up many verticals. Beauty of grain based businesses is
searching for new stocks every day. that nothing goes waste and apart from main products, plant generates
When your existing stock picks are gluten, germ, enriched fibers which are used for cattle, poultry, piggery,
performing well, stick to them or add aqua based units. In FY16-17 it sold these by products worth `75 crore,
more. It is your own conviction that which is expected to double to `150 crore in FY18-19 as it has
made you buy the stock in the first commissioned two new plants.
place so stand by yourself. After all, as
Tony Robbins says, it is in your The company has at least 8 locations where the plants are located.
moments of decision that your destiny Prominent among them is Muzaffarnagar based facilities which is on 65
is shaped. So think for yourself acres of land. Here the company has a Calcium Carbonate Plant, Native
and don’t let others do it for you. Starch Plant catering mainly within a radius of 150 kms to numerous
paper industry units. The plant capacity is 60K tonne pa.
Disclosure
The author is not a registered analyst under SEBI It has got a rice based MD and DMH plant running at optimum capacity.
stock. Readers must do their own research before In FY16-17 they set up a rice based High Fructose Rice Syrup (HFRS) and
investing in the company. Brown Rice Syrup unit which is completely an import substitute and first
74
in India saving around US$20 their brand, Golden Deer for Rum industry in view of the paper
million pa. Another important thing and whisky is already on for the last industry doing well.
is that the company got its products two years. The ENA plant incurred
certified from Germany. And they a project cost of over `100 crore and During FY16-17, the company
have started exporting to developed ready to go into commercial generated a cash profit of `55 crore
markets like the USA and Australia. production shortly in the current on a tiny capital of `4.69 crore.
quarter itself. ENA is a high entry The promoters hold around 59%
Muzaffarnagar facility is the only barrier business and business and more than 16% is held by
facility in India which has got dual parameters are quite promising. Reliance Mutual Fund and Antara
feed, i.e Corn and Rice at one place. Here again the company will have Evergreen Fund. More than 4% are
Sorbitol is their main product by products of gluten, germ, in physical mode, leaving a floating
generating around `250 crore enriched fibers and also Dry Ice stock of just 20%. The beauty of
turnover from Bharuch, Gujarat. which will be manufactured by the business is that in FY18-19 it
The plant has a capacity to process recovering carbon dioxide and will have a turnover of `1000/
80K MTPA corn and this capacity compressing the same into Dry Ice. 1100 crore and out of which 90%
will be expanded in the near future will be grain based mainly corn /
to cross 100K pa. This plant is most All three main locations, i.e. maize and rice. And these
modern and meeting all pollution Muzaffarnagar, Bharuch and businesses will have around `150
norms. It is worth noting that Chhindwara are equipped with crore worth of products as by
Sorbitol is exported to over 35 captive power plants, making them product which are mainly animal
countries worth `70 crore. self sufficient power wise. Three based, i.e. germ, gluten, enriched
years back the company entered the fibers and dry ice.
The company has been able to enter business of setting up of Satellite
grain based ENA Plant with 60 PCC plants and have set up half a Conclusion
KLPD capacity located at dozen such plants. Prominent Last year the company had a
Chhindwara, Madhya Pradesh. Raw among their customers are ITC, turnover of `500 crore. It plans to
material is rice and can be changed Orient Paper and two units of achieve a turnover of `750 crore in
to other grains as well. This unit has Basundhara Group, Bangladesh. FY18 & `1100 crore in FY19.
a distillery, bottling unit and captive The company expects to set up Altogether stock looks very
power plant. Seed marketing of more such plants in the paper interesting at this juncture.
75
Mallcom (India) Ltd.

M
allcom (India) Ltd. is engaged in the business of
manufacturing, export and distribution of Personal
Protective Equipment (PPE) which have been
categorised as Fall Protection, Head Protection, Face
Protection, Eye Protection, Ear Protection, Hand
Protection, Body Protection, Warning Protection, Hazard Protection, Feet
Laxmikant Ramprasad Protection products and equipments. Company’s products include helmets,
Kabra PVC gloves, synthetic gloves, leather gloves, textile gloves, latex gloves,
Managing Partner of Plutus Capital Nitrile gloves, body protection equipments for light and heavy industries,
Management LLP winter protection, hotel and hospitality industry, healthcare industry, metal
Active in the markets 25 years free shoe, winter shoe and premium shoe, feet accessories, harnesses and
accessories etc. Mallcom has been synonymous with innovation, quality
In the late 90s, when everyone was and reliability for more than 30 years to grow faster than the market, in the
busy investing in IT companies he kept business of PPE manufacturing.
himself away from the boom and did
his first major investment in a Raymond Company is Internationally recognised as the leading Personal Protective
group company J.K. Chemicals Ltd., Equipment manufacturer, totally dedicated towards manufacturing a wide
now known as J.K. Investo Trade Ltd. range of equipments, designed to give people the protection they need in
and also delisted from BSE, which their lives and workplace. Company derives almost 75% of its revenue
proved to be a game changer in his life. from the exports.
He identified this stock as a “Cash
available at deep discount”, which
The company’s operations are spread across four factories located at
proved to be right in the long run.
Kolkata Leather Complex, Bantala, 24 Parganas (South); C.N. Roy Road,
Kolkata; Sector1, FSEZ, Falta, 24 Parganas (South) and Integrated
Industrial Estate, Haridwar, Uttarakhand. With an annual production
My Mantra
capacity of more than 12,00,000 pairs, Mallcom is the leading safety shoe
Most people start buying shares
manufacturer and distributor from India. With production facilities
thinking they will make `4k or 5k a day,
covering more than 70,000 sq ft area in two locations, Mallcom’s shoes are
but that cannot change your life. What
widely accepted in Asia, Latin America and Africa continent. Mallcom
can change your life is spotting a
has a vast experience in providing key solution for Hand Protection suiting
multibagger stock and making `2 crore
the application requirement from driving gloves to Welding applications to
or `5 crore over many years. Also, you
Cut Resistant and using Hi Tech Para Aramid Fibers.
cannot consider stock market investing
to be a hobby. It should be considered
Valuation
as a full-time activity because
Company’s total revenue grew from `90 crore to `255 crore over the last six
hobbies always cost you money.
years and profit after tax has grown from `2.04 crore to `9.3 crore during the
same period. During FY2016-17, the company continues to focus on
Disclosure strengthening its front-end operations and achieved standalone sales and
The author is not a registered analyst under SEBI PAT of `257.65 crore and `9.29 crore as against `275.86 crore and `7.63
stock. Readers must do their own research before crore respectively in the previous year. The consolidated income and PAT of
investing in the company. the company for the same year was `255.66 crore and `10.09 crore as
76
against `276.47 crore and `9.38 demands. The company has a first the automotive manufacturers
crore respectively for the previous mover advantage and strong brand increasingly focusing on worker
year. The basic and diluted value of its product range and safety, the growth of the industry
consolidated and Standalone EPS of marketing in domestic market. will bolster the growth prospects of
the company was `16.16 and `14.89 the personal safety equipment
respectively in FY2017 as against Opportunities market in the coming years.
`15.03 and `12.23 in FY16 The PPE market is characterized by The price differential between the
respectively. Company’s Book value the presence of a limited number of organized and unorganized players
stands at `115 per share as on PPE manufacturers and is is likely to be reduced in view of
FY2017 and has been paying moderately competitive, thus there successful implementation of GST
dividends consistently. Though in the is adequate scope for gaining by providing a level playing field.
1st quarter of FY2018 company substantial market share of the PPE Make In India initiative coupled
reported slightly muted sales and market both in India and overseas with the GST is expected to be a
profitability of `48.98 crore and market. Market research analysts at game changer for the sector. The
`1.81 crore respectively, however, we Technavio have predicted that the market for PPE is in the nascent
strongly believe that the same was on personal protective equipment stage due to lack of awareness about
account of implementation of GST. (PPE) market in India will grow workforce health and safety. While
steadily during the next four years the construction activity lagged
On conservative estimates, we and post a CAGR of about 13% by early in the period, heavy
expect the company to grow at the 2020. This market research analysis construction activity is expected
market pace of 13% year on year identifies the rapid growth of the through 2018. The high cost
basis till FY2020. With this construction industry as one of the associated with the workplace
company is likely to report a sales primary growth factors of the PPE hazards coupled with the launch of
turnover of `400 crore, PAT of `17 market. With rapid urbanization, industry specific PPE by the
crore and EPS of `25 per share in the country is witnessing an companies is contributing towards
FY2020. Company derives increasing demand for infrastructure boosting PPE adoption in India.
approximately 2/3rd of its total and real estate projects that will lead
revenue from exports, thus to the growth of the construction Risks And Challenges
providing the ample opportunity for industry. The Government of India The nature of the business has been
the company to leverage on its has also planned a number of traditionally a low margin and high
market reputation to expand its development projects, including the working capital intensive coupled
scale of operations to meet future construction of bridges, roads, and with competitive conditions and
demands in the domestic market. regional-level infrastructure. This customer preferences. High
will result in the increasing demand manpower costs, stringent labour
Promoters Holding & for construction equipment and laws, and shortage of skilled
Debt Position will, in turn, propel the demand for workers may cause pressure on the
It is 74%, thereby showing strong personal protective equipment such margins. Strategies like product
promoters’ interest in the company. as hearing protection, hand and arm innovations or modifications require
The company has also started the protection, and foot and leg huge investments. These strategies
process of merging its 100% protection. With the growing entail higher costs and higher risks.
material subsidiary into the listed demand for the commercial, Also, the weak operating
entity, thereby passing the benefit to passenger vehicles, and three- and profitability margin is sensitive to
the Mallcom shareholders directly. two-wheelers, the automobile incentives provided to the sector by
Mallcom is a long term debt free industry in the country will witness the government and its’ agencies. As
company confirming the solid exponential growth in the coming company mainly caters to the
financial and liquidity position years. Increased investments by international market, the operations
providing ample opportunity to major automakers and the focus of are subject to risk arising from
leverage on its fundamentals and the government to introduce fluctuations in exchange rates with
market reputation, to expand its sophisticated technology will also reference to currencies in which the
scale of operations to meet future foster this industry’s growth. With company transacts.
77
Prima Plastics Ltd.

P
rima Plastics is a designer and manufacturer of plastic
moulded furniture like chairs, crates, stools, tables, etc. It has
three manufacturing units in India – Daman, Kerala, and
recently commissioned plant in AP; sales through 400
distributors and 5000 dealers. India production revenues were
`87 crore out of total `135 crore in FY17 and total India capacity stands
Abhijay Sethia now 11,500MT. The company set up a 50:50 JV with a partner in
Managing Director, SJC Ltd. Cameroon for similar products in 2006, with an initial equity investment
Active in the markets 6 years of one crore. No further investment since then, while capacity is now at
8500MT from 4500MT initially. Finally the company also set up a 90%
He loves to read, travel and meet new owned subsidiary in Guatemala in 2017, with a 2250MT capacity, at an
people. His ambition is to be a learning investment of `3.2 crore.
machine, always.
All The Drivers in Place
The situation - capacity expansion done, minimal capex going ahead, and
My Mantra the stock price down 35% from the peak due to a few weak quarters
There are no shortcuts. You have because of demonetization and GST. FY18 capacity is now at 18000MT
to put in the long hours, but checking vs 12250 in FY17, up by 48%. This should drive topline from `135 crore in
Moneycontrol 10 times per day doesn’t FY17 to almost `180-190 crore by FY19 when all capacities are fully
count. Remember, Sachin didn’t make utilized. Additionally margins are higher outside India, driving blended
100 centuries by looking at the margins up as well. FY17 margins were 13%, conservatively assuming
scoreboard. similar margins despite operating leverage, gives FY19 EBITDA of `24-25
crore. Proof of execution ability comes from its selection as a vendor by
Walmart as well as the Swachh Bharat Abhiyan.
Capital Allocation
This is the real reason we like the management team. No debt on the
balance sheet while driving revenue CAGR of 15% last 5 years, with an
EBITDA CAGR of 23%. Cameroon JV was set up for one crore
investment from Prima and local partner each, and today generates `77
crore revenues overall (Prima owns 50%), with total PBT of `12 crore. In
fact, they received a `5.1 crore dividend in FY17. All on one crore
investment. Next, the management first tested the central American
market through direct exports. Then, when demand was established,
decided to set up a company in Guatemala to save on logistics costs. Kept
90% equity and gave 10% to their distribution partner to ensure incentives
are aligned. On the `3.2 crore investment, expect a turnover of `20-25
Disclosure crore by FY19, with EBITDA of 20%.
stock. Readers must do their own research before Ability to Suffer/Learn
investing in the company. The management had started another business line of Aluminum
78
“There are several

things that can
create an alpha -
stock buybacks are
one. High dividend
yields are another,
especially nowadays
because the stock
market yields more
than the banks and
Composite Panels (ACP), but this Brazil at 32, the US at 109. There the tenure treasury.
did not work out and the company are serious industry tailwinds here.
made losses for a few years. After it But by and large, it
was evident this was not turning Risks tends to be
out, the management wasted no Exports are settled almost entirely
time in shutting this line down and in USD rather than any fancy companies with a
exiting. They are not married to an African or Central American
idea forever. This also had the currencies. So the only FX risk is on
strong cash flow,
benefit of lifting ROCE from 12% the $. Political risks are always there rising sales,
in FY13 to a robust 31% in FY17. in exotic EM countries, but they
So the economic engine of the have executed flawlessly since 2006. accelerated earnings,
business is running very well, with There is also a RM risk with a profit margin
capacity expansion driving return polypropylene the key raw material,
on capital even higher, while being crude linked. Prima showed expansion.”
maintaining a pristine net cash pricing power by retaining margins
balance sheet. They have never when crude fell, but the ability to
diluted equity either. increase ASPs will be tested in a
– Louis Navellier
Brent bull market.
Long Runway For
Growth Valuation
India plastics furniture market is At the current market cap of `250
estimated at `3500 crore, with crore, an investor is getting a debt
unorganized segment accounting for free balance sheet with potential to
50%. Prima has a 7 % market share produce `20-25 crore in clean cash
of the organized segment already. flow post tax by FY19. There aren’t
So yes, this too comes under the many multiple expansion trades left
much hyped “unorg to org” in this market, but this is a
tailwind. Additionally, plastics candidate. Promoter’s holding is at
consumption in India is at 10kg/ 58%, no pledging, and close to zero
capita, while in Africa/Central institutional ownership with a 25%
America even lower. China is at 45, dividend payout as well.
79
Inditrade Capital Ltd.

I
nditrade Capital, along with its subsidiaries, is engaged in the
business of retail Broking (securities and commodities), Agri
commodity financing and micro finance. Started in 1992, the
company has a strong presence in South India and has undergone
several transformational changes by expanding into new
geographies, adopting state-of-the-art technology, strengthening credit and
Ravi Jain risk management systems, creating new products and strengthening client
A business consultant and value relationships through service focus. At present, its Microfinance business
investor is 55% in Tamilnadu and 45% in Maharashtra. In Microfinance Inditrade
Active in the market 11 years is in the process of acquiring a Chennai based established company
Varam. Given Below is the brief overview of its business segments:
An MBA Finance and CFA from CFA
Institute, USA, the author has been Retail Broking (equity, commodity, currency, insurance): As part of the
investing in the stock market since retail broking business, Inditrade offers its clients one-stop access to related
2007 and has earlier worked with a services such as depository, derivative and commodities trading.
leading institutional Equity Research
Company. Some of his multibagger Agri-commodity Financing: Through its subsidiary JRG Fincorp Limited,
stocks are Eicher Motor, Astral Poly, the company offers funding against exchange traded non-essential
Wim Plast, Nilkamal, Thirumalai commodities, such as soya and rubber, for short durations, ranging from
Chemicals, Uniply Industry, Cupid one month to three months. The typical profile of its clients in this
Limited, Stylam, Meghmani Organics,
business is commodity buyers and traders and those involved in
and Amulya Leasing etc.
processing.
Micro-finance: The company is also involved in the micro finance business

and credit to semi-industrial clusters. One of the company’s target
geographies is Sholapur, where it launched its operations from. The
company offers funding to those who seek to set up traditional businesses
and require capital to purchase basic equipment such as sewing machines,
etc. and for their working capital requirements. The company is now
consolidating its business in Maharashtra and offering micro finance in the
districts of Pandharpur, Akalkot and Wai. Further, the company looks
forward to expanding this business to the Chennai, Andhra Pradesh and
Coimbatore-Kerala regions.
Investment Thesis
Over the years, Inditrade Capital has consistently re-invented itself and is
now looking to drive growth through commodity financing business under
Disclosure new management. The company is continuously leveraging on the
The author is not a registered analyst under SEBI commodity expertise and strengthening its commodity financing business.
stock. Readers must do their own research before The acquisition of Edelweiss Agri-commodity trading business widened its
investing in the company. geographic presence to Western, Northern and Southern Indian markets.
80
Mark Ratings and the maximum

credit provided to a single borrower
is `30,000 over a period of one year.
The entire process from collecting
KYC information to disbursement
of the loans are all conducted
digitally and collection of the loan
repayments is undertaken on a
weekly basis.
Digitized Disbursement
The company aims to implement a
Further, its model of lending has appropriate time, i.e., when the completely digitized loan
been well received due to its various commodities arrive post-harvest. disbursement and collection process,
attractive facets – funding to the The company believes that with the including client prospecting, eKYC,
extent of around 95% compared to gradual professionalization of tracking GPS locations, credit check
bank funding of 70-80% against warehouse network in the country, etc. which is expected to be positive
goods, faster processing of funds the need for financing should for the company.
and attractive rates. exponentially grow and Inditrade
plans to work in collaboration with Strong Promotor
It is estimated that the entire such professional warehouse service Provides Conviction
organized Agri-commodity providers. The company had strong Sudip Bandyopadhyay acquired
financing market is around four network in the southern markets of Inditrade Capital through his
lakh crore out of which only India and post-acquisition of the company JunoMoneta Technology
12-18% is served by banks and Agri commodity trading business of and controls 72% shareholding. He
financial institutions. Inditrade Edelweiss group it has got good is the company chairman and has a
believes that this is a significant presence in the West and North very strong track record. His
opportunity and the business can be India. execution capabilities are well-
exponentially grown in the next known. Besides his other
couple of decades given company’s Secured Business achievements, he is famously
degree of expertise in the Model credited to build Reliance Money
commodity business. (Inditrade was Inditrade commodity financing from scratch and leading the
one of the first to start participating business is secured as the company company’s rapid expansion in
in the commodity exchanges and has a qualifying pre-condition that different verticals like retail stock
commodity trading business). It has requires the commodities which are broking, distribution, and NRI
the vision to become a leading held as security be placed in money transfer services etc.
Agri-commodity financing player, exchange recognized warehouses.
largely facilitating post-harvest Funds are provided against the Valuation
financing of non-essential, receipt from the warehouse. The company is trading at an
exchange-traded commodities and is Additionally, the goods are required attractive valuation of 2x price to
targeting to have a total loan book to be sold in the futures market for a book value (vs NBFCs sector
of `3000 crore by 2021, the majority time frame that mirrors the term of valuation of 4-5x) and offers good
of which would be from commodity the funding, through the Inditrade upside potential on account of
financing business. commodities broking arm. Further, sector tailwind, huge opportunity
the maximum exposure to a single size, small base, strong network,
Well Placed to Grab client ranges between `3-5 crore. In aggressive loan book target (`3000
the Opportunity micro finance business, the credit crore by 2021) and high execution
The company is well placed to offer worthiness of the borrowers is capability of management. Key risk
attractive financing options to the established with the help of rating includes low disbursement, and
market participants at the agencies like Equifax and High potential NPAs etc.
81
Centum Electronics Ltd.

BSE Code: 517544; NSE: CENTUM; Face Value: `10; Market Cap (`Cr): 864; CMP: `725
C
entum Electronics, founded in 1994 by Apparao Mallavarapu
in Bangalore, is engaged in the manufacture of Advanced
Microelectronics Modules, Frequency Control Products,
Printed Circuit Board Assembly (PCBA) and Resistor Networks
catering to the communications, military, aerospace, transport,
industrial and medical electronics markets. Centum has been co-developing
Sanjay Prajapat products for more than a decade with ISRO and DRDO (one can find data
Partner at a Surat based Investment firm relating to products developed by Centum for DRDO on government sites)
Active in the market 5 years and has been an active partner in the major missions by ISRO. During the
fiscal year 2017, the company acquired majority stake (54.1%) in France’s
He believes in ‘Investing as protection Adetel Group with the same line of business, to accelerate growth, fill
of Capital and generation of return on product portfolio gaps and establish their international presence.
that Capital’. He comes from a family
where the stock market is a synonym The Business Oerations
for ‘Satta’ and still considered a taboo. The company has its operating units in Bengaluru, and with the aim of
He finds there is no formula or fixed set consolidating some of these units and future growth, has constructed facility
of metrics to determine a company. of 1,50,000 sq.ft. at Bengaluru Aerospace Park, Devanahalli. Centum
strategic Electronics is the key partner for DRDO in co-developing products,
and several international defence companies, and also for ISRO having
My Mantra delivered critical electronics for major satellite programs over the last decade.
Having an investment philosophy
for me is an ongoing process and it Centum EMS: Addresses high-mix low-medium volume products in the
requires time and years of learning and defence, aerospace, industrial, medical and telecom segments. The offerings
refining what we learn from the hits and include box builds, system integration, PCBA, test, environmental screening
misses over the years. Analyzing a and repair & return services.
business is like solving a puzzle, having Centum Rakon: Joint Venture between Centum Electronics and Rakon
numerous moving parts. We need to Limited, New Zealand, engaged in manufacturing of FCPs (Frequency
analyze each moving part and viewing Control Products). Rakon has leading market positions in the supply of
it as a whole, make the investment crystal oscillators to the GPS, telecommunications network timing/
decision. synchronization and aerospace markets.
Centum Adetel: Adetel offers design services and operate in the same
market segment as Centum and have integrated facilities in Europe and
Canada.
Management, Awards/Credentials
The board of the company comprises of professional and extremely talented
Disclosure personnel having decades of experience in their respective fields. Centum
The author is not a registered analyst under SEBI Electronics, listed in “Forbes Asia’s Best under Billion list” has Apparao
stock. Readers must do their own research before Mallavarapu at the helm, who has received “Electronics Man of the Year
investing in the company. award 2014-15” by ELCINA-EFY. Centum Electronics was awarded on in
82
November 2017 by Centre for strategic electronics in India has been focus on self-reliance, ISRO has
Military Airworthiness and growing steadily at 15%, fueled by initiated to completely outsource the
Certification (CEMILAC) as a the expanding budgetary allocation PSLV launch and integration. Due to
recognized center for “Design and for Defense sector. increased focus and huge
Development of Avionic systems/ requirements, Defence PSUs and
LRUs/Modules for Military Revenue from ‘Offsets’: The Defence Ordnance factories are more actively
Airborne applications”. Procurement Policy has resulted in partnering with private sector to
suppliers of defence products to meet the requirements. The modified
Financials India looking to buy from high Defence Procurement Policy also
The company has reported a quality Indian companies in order to shows greater focus towards ‘Make
consolidated revenue of `7645.4 fulfil their offset obligations. This has in India’ and ‘Self Reliance’ which
million (standalone- `3979 million) placed Centum in a position to will prompt foreign companies to
and PAT of `312 million benefit largely in strategic electronics partner with Indian companies.
(standalone- `308 million) for the segment in the coming years.
year ended 31st March, 2017. Acquisition of Adetel Group: The
During the year, Centum Rakon Capacity expansion: The company company recently acquired a
India Private Limited has registered has planned to invest `200 crore in majority stake of 54.1% in Adetel
revenue of `744 million and incurred its recently inaugurated Devanahalli Group, France in two tranches (June
a loss of `0.69 million while Centum facility in phase manner for capacity and November, 2016) to strengthen
Adetel Group S.A. has registered expansion by way of spending on its manufacturing capacity and
revenue of `3052 million and posted infrastructure, land acquisition and establish a wider, more international
a profit of `7 million. As of 31st equipment as all the facilities are presence.
September, 2017, the total debts on running at full capacity. This facility
the balance sheet were `2342.8 is expected to consolidate some of Risks and Concerns
million and cash and cash the company’s units and result in an Huge government involvement and
equivalents were `227.4 million.The expansion of its products and design dependency on policies
return ratios, though on a declining offerings. Working capital cycle: Due to the
trend due to ramp up in costs due to complexities in the ordering process
new facility and recruitments, are at Reputed And Strong Clientele Base: and approval of defence contracts,
a decent level with ROCE and ROE Centum’s clear and process driven delays in deliveries are experienced
of 14.80% and 15.16% respectively focus on product design and creating which in turn affects the working
and are expected to improve with value for its customers has over the capital cycle.
better operating margins and offset years resulted in continued patronage Poor performance by the JV and
orders through a new facility at from domestic and international sector slowdown: Centum Rakon,
Aerospace Park. industry leaders like Thales, Rafael, engaged in manufacturing FCPs has
ABB, Bharat Electronics, HAL, been struggling with its financial and
Key Rationales Ericsson, Nokia, Samsung and the in all destroyed shareholders’ wealth.
Focus on Defence Sector under likes. Capital Intensive Business
Make in India: India is the biggest
importer of defence equipment Developments with ISRO and Conclusion
importing thrice as much as China DRDO: Centum has been engaged With credible Aerospace & Defence
and Pakistan. Defence sector has in the development and production (A&D) sector initiatives, sound
been identified as a priority sector by of new products with ISRO since business model and capacity
the Government under Make in 2001 & DRDO labs since 1998-99 expansion, thrive to invest in next
India initiative. Currently, self- and thus has consistently been a generation technology and strong
reliance in defence production in partner for almost all projects of relationship with international
India is at 35%, which with further ISRO since 2003 including customers and partners and
indigenization and procurement Chandrayaan-1 and Mars Orbiter associations with domestic agencies,
policies shall create huge Mission. Due to increased Centum Electronics is well placed to
opportunity. The production of requirements and the government’s drive the core growth of the business.
83
Muthoot Capital Services Ltd.

BSE Code: 511766; NSE: MUTHOOTCAP; Face Value: `10; Market Cap (`Cr): 1330; CMP: `640
M
uthoot Capital Services (MCS) is amongst the very few
established players in the growing 2- wheeler financing
space - the segment where finance penetration is still at
just around 35% and is increasing at a steady pace,
especially post-demonetization. Despite its small size, it
has battled on multiple fronts over FY13-17; losses in its 3-wheeler portfolio
Harshvardhan Agrawal and the subsequent unwinding of the business, loss of trained employees to
An investment analyst at a boutique new entrants like Hero Fincorp and TVS Credit and stabilizing its portfolio
investment firm based in Mumbai of “recovery agencies”. As a result, despite showing AUM growth of
Active in the market 10 years CAGR 29% its bottom line has grown at CAGR of merely 4% over
FY13-17. All this is likely to change on the back of intense management
efforts and improving business dynamics. Successful expansion outside
My Mantra Kerala, synergistic benefits from Muthoot Fincorp (unlisted group
Learn the tips and tricks of the company), technology adaptations to improve loan turnaround time and
trade, but play your own game. foray in new products will ensure 30% loan book CAGR over FY18-20e.
Don’t imitate or replicate others. On the other hand, relentless focus on recoveries through its own staff as
well as recovery agencies is likely to ensure credit costs to the tune of
200bps and aid earnings CAGR at 32% over FY18-20e.
Special Situation Play

The company has recently raised fresh capital by QIP in November at
`605/share. Prior to the capital raise the company was trading at 3.8x PB
multiple, however, post the raise its multiple has come down to 2x. Now
that the capital raise is out of the way, Muthoot won’t need any further
dilution for at least 2-3 years and would still be able to grow at 30%
CAGR. Given the current run-rate in 2Wheeler financing space combined
with the company’s plan to foray into consumer durable financing, by
leveraging its 2Wheeler and gold loan (parent company) branches, the
stock is likely to be a re-rating candidate. Plus the current price which is
not very far away from capital raise price, offers a limited downside.
The Industry
The Indian 2Wheeler industry is one of the largest in the world; with over
17m sold every year. However, only 35% are being financed. Crisil
estimates that this would grow to 40%+ over the medium term. Further,
2W disbursements in FY17 had been at just `163bn (for both NBFCs and
banks), with Muthoot Capital disbursing `13b, just 8% market share. 2W
Disclosure industry is expected to grow in single digit (8%), however due to increasing
The author is not a registered analyst under SEBI financial literacy, easy financing options and availability the financing
stock. Readers must do their own research before penetration is expected to increase to 40%+ over the next 5 years, this
investing in the company. would result in 2W financing industry growth of 16% CAGR.
84
“Several things go
together for those
who view the world
as an uncertain
place: healthy
respect for risk;
awareness that we
don’t know what the
future holds; an
understanding that
Why Muthoot Capital? confident to bring down to 4-5%. the best we can do is
Muthoot Capital is largely a 2W RoA and RoE are respectable at
financier focused in Southern 2.6% and 18.5%.
view the future as a
India. At present, it has only 3.7% probability
of the market in terms of volume, Levers For Growth distribution and
and the larger presence is in Kerala. Business expansion into northern
The company has a plan to expand India along with increasing finance
invest accordingly;
in Northern India (this year would penetration. Leveraging parent’s insistence on
be the first year where company branch network in regions where defensive investing;
sales can shoot up due to Durga parent has presence at the same
Puja and Diwali). Market share in time expanding into territories
and emphasis on
terms of volume of the company is where parent has limited presence. avoiding pitfalls. To
expected to increase to 6% by Penetration in the parent’s customer me that is what
FY22, from 3.5% in FY17. The set has been just at around 25-30%.
company largely caters to self Focusing on data analytics and
thoughtful investing
employed category where income trying to penetrate into the parent’s is all about.”
proofs are not documented and/or customer set (low hanging fruit).
have undocumented income Looking to reduce dependence on – Howard Marks
sources. Resulting in higher yields, banks for borrowings. The
but also higher credit costs, additional capital raise would
resulting in RoA of 2.6%. Loan enable the company to negotiate
book of Muthoot is just at `1200 better pricing from banks.
crore and has grown at 32% CAGR
since FY12. Being a 2W financier, Risks
yields are high at 25% with spreads Reckless lending under the guise of
and margins at 14% and 16% loan book growth; Parent/
respectively. Asset quality has been promoters have multiple businesses;
on the higher side with GNPA at this is the only listed business, but
6.2%, however, comparing the not the biggest one. Rating was
same with BAF (5.2%), SCUF (6%) downgraded due to some
seems not very high, also recent observation against the parent by
spike is due to regulatory change RBI in respect to RE dealings and
and the management is quite public deposits.
85
Lasa Supergenerics Ltd.

BSE Code: 540702; NSE: LASA; Face Value: `10; Market Cap (`Cr): 396; CMP: `175
L
asa is the demerged entity from Omkar specialty chemicals.
It manufactures primarily veterinary API products. The
manufacturing base of Lasa group is located at Mahad, in
the Konkan region of Maharashtra. It specializes in ‘catalyst
chemistry’ and manufactures anthelmintic/ veterinary API
products with the largest production capabilities and product categories
Hemant Rajput in India. It is promoted by Omkar Herlekar, who is a Bachelor of
A value investor Science and Master of Science (By Research) in Chemistry from the
Active in the market 12 years University of Mumbai and holds 19 process patents to his credit.
He openly claims that though it’s his Business - Multi-Product Capability - Diverse mix of over 15 niche APIs
12th year in the markets, he learned the (veterinary, animal and human) meets the demand of potential new and
true essence of investing four years existing customers. Vertically integrated manufacturing infrastructure
back when he came across a that helps in switching the product mix in response to the changing
valuepicker investing forum. market demands. R&D - Research carried out to improve quality of
existing products and develop new processes for existing products. A
focused R&D program to build pipeline for consistent growth. An Active
My Mantra R&D program to develop a broad portfolio of veterinary, animal and
Valuations and scale of human health APIs. Strictly conforms to process research within its labs,
opportunity are two important factors including process optimization at kilo lab, pilot plant and
while taking the buy decision. Buying characterization of related substance synthesis. Over seven ‘process
an A+ stock at not so good price ends patents’ in the pipeline.
up giving mediocre returns. Price to be
paid is the most important factor. This Advantage Over Peers-
is also the most complex part of the • Backward integration - helps to keep the production cost low.
decision as it depends on various • Catalyst backed products - Expedites the manufacturing, reducing the
factors. A laid out process and update cost further.
in the process based on outcome after • Catalyst process patents - Safeguards from competition matching the
applying the process helps to increase cost advantage.
the probability of success. With • Stringent regulatory norms - Give the advantage over peers.
experience it should keep getting
better. Growth And Valuations
It was acquired in 2012 and at that time revenue was one crore. In last 4
years it has grown to `200 crore, and sales growth trajectory has been an
exceptional year on year. As per the guidance from management same
run rate will be maintained during the entire current fiscal. Lasa is
expected to have the revenue of more than `250 crore in the current
Disclosure fiscal. There are two factors which can improve the profitablity going
The author is not a registered analyst under SEBI forward. One that long term debt has been reduced from `83 crore to `46
stock. Readers must do their own research before crore and second because of backward integration in new unit which
investing in the company. commenced recently. EPS for H1FY18 is at 6.87 and if we do not count
86
community. Though Omkar so far

has not done anything like that still
management actions need to be
tracked. Pravin still holds nearly 6%
in Lasa (apart from inter
transferable between Omkar
Herlekar and Pravin Herlekar). In
the past Pravin Herlekar has been
selling his stake in Lasa and we can
assume there can be selling pressure
from him until he sells his entire
remaining stake. Omkar has guided
to maintain his stake (36%) in Lasa.
the effect of above mentioned two Risks Conclusion

factors, then too it will have EPS of Earlier Pravin Herlekar, promoter Given the terrific growth in the past
14 in the current fiscal. In FY19 of Omkar Chemicals has broken the and expected growth in foreseeable
new unit will start contributing trust of shareholders by selling the future company is available at very
with the new products to the sales. shares of OSCL despite guiding cheap valuations of 14 PE and 1.7
As per guidance from management about not reducing the stake, it was times sales for FY18. It starts looking
revenue growth for next 2-3 years repeated quite a few times and was mouth watering when it compares
are expected to be 20-25%. not taken well by the investor with competitors like Sequent.
87
Aimco Pesticides Ltd.

A
imco Pesticides, incorporated in 1987, is a leading company
in the field of agrochemical manufacturing, formulation and
marketing. The company is a major player in insecticides,
fungicides and herbicides segments in India. Aimco is
promoted by Pradeep P. Dave and it is a manufacturer of
various technical grade pesticides, and markets its products under the brand
Ankush Raghuvanshi name ‘Aimco’. Today, it is one of the leading companies manufacturing
Partner in an investment firm Chlorpyrifos, Triclopyr and its formulations. It has been the second
Active in the market 5 years company, globally, to produce certain products after leading MNCs. Its
in-house research and development facilities at Lote-Parshuram are
He likes to travel, watch movies, eat recognized by DST (Department of Science and Technology), Government
good food, play poker, spend time with of India, since 1996. Aimco is also a government recognized export house.
family and be flexible in his schedule.
What are the numbers telling?
Till 2017, at the time of evaluating investment opportunities -
My Mantra • Growth: (5 year CAGR); Sales (-13%); EBITDA -128%, PAT - loss to
A person must be passionate profit
about markets. He should have a thirst • Margins: EBITDA consistently improving to 12.5%
for understanding business models. To • Operational Efficiency: Net fixed asset turnover stable around 15
achieve right framework, he should • Financial Leverage: Debt free business
read good literature, interact with the • Cash Conversion Cycle: Stable around 100 days
right set of people, develop the • Profits to Cash Flows: Profits getting converted to cash, as depicted by
required emotional temperament. One comparing cumulative addition figures for both over the past decade
must understand that any professional • Return on Equity: Above 20% for last 3 years, due to profit uptick
career/degree requires few years’ • Dividends: No dividend paid in last 10 years, due to turn around and
experience and similar is the case now growth capex
with investing in the markets. • Valuations: Around 17 times TTM PE
Reasons for Turn-around

Phase 1- 2008-2014
• Conduct R&D activities to build a product portfolio
• Obtain required registrations in the respective markets for sales
• Commercialize production by optimizing processes to achieve low costs
per unit; Investment of considerable time, intellectual and financial
resources to build products
Phase 2- 2014-2017
• Conduct sales and distribution activities to enhance sales and generate
Disclosure free cash flows
The author is not a registered analyst under SEBI • Leverage the product portfolio built by R&D, got required registrations,
stock. Readers must do their own research before got a positive market response, their manufacturing costs reduced by
investing in the company. optimizing processes
88
Is it sustainable? Growth Opportunities Downside Risks

To make money for long-term the The company has done a Product/Technological
company needs to have sustainable preferential issue of size 8.33 crore, Obsolescence- Current products
competitive advantages. at an issue price of `168 per share. witnessing traction, may become
R&D Abilities: Ability to develop Promoters have subscribed to the irrelevant with incoming of
innovative products in pesticide issue. On the basis of current gross substitutes. Hence constant need to
sector block, size of issue depicts capacity innovate and find required
Regulatory Knowledge: Company would be probably expanded to solutions. The company invests
exports its products and hence double the current one. Promoters consistently in R&D and is having
appropriate knowledge for getting putting in the capital also depicts knowledge expertise to navigate the
registrations is required confidence of the management. A problem; Forex Risk - Since
Registered Products: Getting future phase would be scaling up the company derives earnings from
regulatory approvals and subsequent current capacity, in response to exports, USD depreciation can
products registered is a time catering market demand, to leverage impact realizations. However, the
consuming process. Hence, having on existing product portfolio. risk is manageable by entering into
products which have got regulatory Consistent building up of product forward contracts; Raw material risk
approvals acts a significant time portfolio would increase potential - Increase in prices of raw materials
barrier. market size and growth prospects. is absorbed by manufacturing
Competent Promoter: Pradip Dave, This variable needs to be monitored specialized, high margin products,
founder has headed PCMA and actively as time progresses. which command pricing power;
fought for its well-being on different Industry risk - Demand slowdown
occasions. He is well known in the Management due to weather patterns can occur.
industry because of his knowledge Competence Hence the company has a broad
and experience in pesticides The ability to turn around from a product portfolio with diverse
business for two decades. In this rough phase, by building an arsenal applications and export to multiple
industry, key questions like ability of products, which required geographies. Also, it maintains an
to innovate, product category significant time period and efficient supply chain. These act as a
selection, regulatory knowledge, financial resources, and mitigant to demand slowdown.
geographic selection, cost strengthening the balance sheet
optimization would all be a function demonstrates managements Valuations
of intellectual competence. Strong intellectual and operational Currently the company is available at
track-record of promoter acts capabilities. Also, strong track TTM 17 PE. It is debt free. On the
Manufacturing abilities: The record and two decades of basis, earnings growth of
company has set-up a fully experience of the founder, Pradip 25%CAGR, with a PE between 15 to
automatic liquid formulation plant Dave, signifies possession of 20, one can expect an IRR of 20% to
having capacity of 2 million liters relevant expertise in Pesticide 30% over the next three years.
per annum. Due to the backward industry. Management is having
integration, the company has an growth mindset. They have Theme
edge over other manufacturers by invested in innovation and are Innovative company, producing
being able to supply a wide range of doing capacity expansion. They high-margin products and catering
pesticide formulations to the have also created a professional to a niche export based market.
farmers management structure to cater to R&D based products and regulatory
Backward Integration: It growth. They have settled their approvals provide it a strong
manufactures certain raw material debt obligations and no major defense; current phase is to leverage
in-house, enabling it to produce at corporate mis-governance issues its product portfolio and enhance
lower costs. have come into light. They hold growth by scaling up capacity.
Switching Costs: It has a range of above 52% stake and hence has a Promoter putting capital for
product portfolio, giving the higher probability of their interests expansion via preferential issue
customer a one-stop solution, which being aligned with that of the further adds confidence and
enhances the customer stickiness company. provides a floor to market price.
89
Datamatics Global Services Ltd.

BSE Code: 532528; NSE: DATAMATICS; Face Value: `5; Market Cap (`Cr): 773; CMP: `140
T
his is a Bet on Business, on Jockey who is running the business
(Lalit Kanodia & Rahul Kanodia). Datamatics is a global
provider of Consulting, Information Technology (IT) and
Business Process Outsourcing (BPO) services. The company is
focused on delivering value through integrated solutions for
data intensive business processes that help enterprises across the world
Ashish Golechha overcome their business challenges. These solutions leverage innovations
Project finance professional in technology, knowledge of business processes, and domain expertise to
Active in the market 9 years provide clients a competitive edge.
He is super passionate about stocks, As a strategic partner, Datamatics helps its clients transform into a truly
family and life. According to him, if a digital, data-driven enterprise and empowers them to take advantage of the
person has a child like passion and digital revolution to innovate, differentiate and grow. Leveraging cutting-
ability to learn in markets and thinks like edge technology, Datamatics solutions radically improve performance and
Arjun (Focus & Focus) he can go a reach of client enterprises; delivering accelerated time-to-market for new
long way ahead. His wife tells him that products and services, enhanced customer responsiveness, maximized
he loves stocks more than he loves her, productivity and efficiency in business processes, and lower total cost of
but for him stocks are passion, ownership.
whereas wife is life.
Datamatics is a trusted partner to several Fortune 500 companies globally
for managing their end-to-end Application Life Cycle and Business Critical
Processes. Datamatics’ next-generation solutions and the services span
across a section of industries including banking & finance, healthcare,
insurance, manufacturing, market research, publishing, retail and
international organizations.
Investment Rationale
The current flavor in the IT industry is that of Robotic Process
Automation and Artificial Intelligence. The media is replete with articles
on these two subjects. Datamatics had foreseen the impact of these two
technology waves and have been working on both of them for several
years. Consequently, it is technologically ahead of its competitors in this
area. These two technologies have been embedded in several of
Datamatics software products including i-Q and i-Bridge. RPA is the next
productivity revolution across the world. RPA has the potential to
dramatically improve customer experience by automating the process,
reducing errors, extending service hours, speeding up processing and
Disclosure enabling employees to focus on the customer with trickier issues that
The author is not a registered analyst under SEBI genuinely require human intervention. Datamatics solutions use iBots, a
stock. Readers must do their own research before family of intelligent robots, to offer improved business efficiency and
investing in the company. effectiveness by emulating human actions and decision making and
90
automating them, without making significance for Datamatics, since robots to obtain and populate
changes to the underlying systems this product has been well information across multiple
and processes. Datamatics’ clients appreciated by the transport software application and enables
across sectors have been able to vertical. The platform has been two- way transfer of information
realize tangible benefits with its selected by the Swedish between any two systems without
innovative approach towards smart Transportation Infrastructure the use of an API.
automation, which include provider for collecting real time data • iCM Migrator robot automates
increased productivity, reduced from various sensors in the the content migration process
cycle time, improved accuracy, infrastructure spread. With across multiple ECM platforms. It
compliance and consequently Datamatics gaining strength in the provides an intuitive Graphical
reduced cost. Automatic Fare Collection (AFC) User Interface (GUI) that
segment, it should be able to facilitates an easy way of defining
Acquisitions to leverage iMobile for its customers in the migration parameters. It also
enhance reach and this niche segment. The growing exports the content automatically
portfolio world of IoT and convergence of along with Metadata, Security,
Datamatics is constantly on the SMAC and Smart Systems is Roles & Groups in a secure
lookout for new technologies and changing how companies do manner, thus reducing the
businesses that can enhance its business. The world, as Datamatics migration cycle time by 30 % to
presence in the IT and allied sectors knows it, has transformed and is 40%.
as well as bring in new technologies redefining the imperatives and • iClass is an intelligent automatic
and solutions in a bid to stay ahead opportunities for future growth. document classification robot that
of the curve. • TechJini: In July this year, uses big data and text analytics.
• ‘nSights’: Datamatics acquired Datamatics has signed a definitive The classification process is based
1Key suite of products from agreement to acquire a controlling on a hybrid approach that
MAIA Intelligence in the Business stake in TechJini. TechJini is a combines machine learning, rules,
Intelligence space. This product leading software services and content analytics. It makes
has been rechristened as nSights company with a presence in the use of historical data to make the
suite. It caters to strategic, tactical US, and has a specialized focus on system auto learn the
and operational data analysis and digital experiences and mobile classification rules and then use
reporting needs of multiple based web application the same for auto classifying
vertical industries. It also provides development and maintenance incoming documents.
dashboards for smart devices. services. The objective of this • iConcile offers banks a smart and
• ‘iMobile’: To keep pace with the acquisition is to further strengthen fully integrated robot that allows
new digital ecosystems, Datamatics’ mobility offerings them to automatically reconcile
Datamatics acquired AppearIQ, a through TechJini’s range of smart bank statements. The smart
product from Appear Network. technology solutions. automation process involves
AppearIQ, a leading Mobile Ahead of the curve with the aid of converting auto downloaded bank
Application Development revolutionary products: Today, statements to standard MT940
Platform (MADP) helps its global several of Datamatics’ products format, matching them against
clients to extend their enterprise leverage the power of Intelligent SAP entries and showing the auto
software to the mobile world. It Robots (iBots) to enable business matches while listing down the
operates on a free and open- operations to remain agile and cost mismatches for manual
source SDK and is ready to be effective through rapid automation intervention.
used by anyone from anywhere. It of manual, rule based processes.
enables mobile application • iBridge: This is an award Why Datamatics?
development and manages winning smart process It is available at extremely cheap
multiple applications in real -time. automation software robot that valuation when compared to the
Post-acquisition, AppearIQ has can make complex and tedious industry on P/E or P/B or EV/
been rechristened as iMobile. manual effort based processes fast, EBITDA basis. Nearly debt free
This acquisition holds greater accurate and user friendly. It uses company.
91
Cords Cable Industries Ltd.

BSE Code: 532941; NSE: CORDSCABLE; Face Value: `10; Market Cap (`Cr): 172; CMP: `125
C
ords Cable Industries (CCI) is one of the largest
manufacturers of Control and Instrumentation Cables (C&I)
in India, supplying to various end users, like Metros,
Refineries, Capital Goods and Real Estate sectors, Power,
Airports, Railways etc. With the revival expected in both
government and private capex cycle, CCI is in a sweet spot to capitalize on
Ujjal Paul the upcoming opportunities from end user industries.
Co-founder ShareBazaar App, and a
value investor Cords Cable Industries was established in 1987, founded by industry
Active in the market 15 years professionals Devendra Kumar Parashar and Naveen Sawhney with an
objective of catering to a growing requirement for high quality customized
He is one of the few Bengalis who cables. In 2008, it was the only Cable manufacturer in the Asia-Pacific
never liked Hilsa fish, Mishti Doi and Region to be listed by Forbes magazine in its ‘Asia’s 200 Best Companies
Football. Fascinated with the movie Under a Billion List’. But owing to some differences between the
The Pursuit of Happyness he started his promoters, Naveen Sawhney, who is the current Chairman, purchased the
journey in 2006 with a Sub Broker as an stake of other promoter and chalked out a new growth strategy. The
equity dealer. In 2009 he invested company diversified its client base by gradually reducing its dependence
`25000 in stocks which has on the power sector (mainly thermal sector) and moving to high growth
compounded and he has a decent sectors like Metros, Dedicated Freight Corridors, Hydrocarbons.
portfolio now.
Business Turnaround
The various initiatives taken by the new management have resulted in a
My Mantra business turnaround in last two years. The share of the power sector is
It is very simple. Don’t trade.
expected to come down to 9% in FY18 from around 36% in FY16
Around 90% individuals who trade the
resulting in better working cycle. This transition from the power sector,
stock market end up losing money. You
which was typically a low-margin business, high-margin businesses like
only need to know a few things to make
Hydrocarbons, Metros, DFCs etc. has resulted in margin expansion. Net
money from your investments - What to
profit has almost doubled from `2.7 crore in FY15 to around `5 crore in
buy?; When to buy?; When to sell?; Go
FY17 which is further expected to go up in coming years.
where others won’t go; Don’t trust your
broker; Devise a battle plan; Have
Huge Opportunity
an “Exit” strategy.
Cords is expected to see a huge demand coming from various sectors like
Hydrocarbons, Dedicated Freight Corridors, Metros, Fuel Gas
Desulphurization, Fertilizers etc. As per a Supreme Court order, all
refineries need to comply with BS-VI by 2020 which itself represents an
opportunity of `300-400 crore for Cords over the next 3-4 years. The share
of hydrocarbons sector is expected to reach 25% in FY18 from 9% in
Disclosure FY16. All metro projects throughout India use cables supplied by Cords.
The author is not a registered analyst under SEBI Looking at the ongoing projects and Government’s increased thrust on
stock. Readers must do their own research before new Metro projects in various cities, Cords is in a sweet spot to capitalize
investing in the company. on this huge opportunity. Additionally, Cords will also benefit from the
92
ongoing investments happening in 50-55% in revenues from the power single vendor, but since last three
the Freight Corridor Projects. The sector few years back. Since the years the company has gradually
total opportunity size of these sector was going through a bad started sourcing it from multiple
projects is roughly `300 crore over patch and also due to its untimely vendors. In the past, the company
the next 4-5 years. payment cycle, trade receivables used hedging mechanism to secure
were as high as 35% which resulted itself from fluctuating raw material
The benefits of operating leverage in a higher working capital cycle. prices but it did not prove
to kick-in with the ramp up in The management has consciously beneficial. Now, the products are
capacity. Cords break-even level is diversified its client-base by priced based on average monthly
around 45% of the capacity reducing its dependence on the rates and accordingly the price
utilization. Currently, it is operating power sector. Debtor days has now changes are passed on to the
at around 55-60% utilization levels. reduced from 125 days to 95 days customer. This keeps the company
With huge demand coming from and it is expected to go down largely insulated from the
various sectors, the utilization levels further in FY19 to around 75 days. fluctuations in the copper prices.
are expected to improve further and The company is expecting
this along with focus on higher contribution in revenue share to Outlook and Risks
margin products will result in increase from the following With the capex cycle reviving from
margin expansion. With current segments (with none of the both government and private sector,
utilization levels and prevailing segments accounting for more than the company is in a sweet spot to
commodity prices, the company can 25% of the revenues): cater to the burgeoning demand for
achieve a turnover of `600 crore Hydrocarbons - 25%; Railways, specialized cables. With capacity
with minimum capex. While Metros & Freight Corridors - 15- utilization at around 55-60% and
revenues are expected to grow at 20%; Fuel Gas Desulphurization - with minimum capex planned, the
25% CAGR, the bottomline is 5-10%; Cement - 5-10%; Renewable company’s topline is expected to
expected to grow much faster at a Energy - 5%; and Infrastructure - grow at a CAGR of 25% for the
CAGR of more than 50% over the 20-25%. next 3-4 years and bottom line is
next 3 years. expected to grow even further at a
Risk Mitigation CAGR of more than 50%. The only
Diversified client-base with low Copper is one of the major raw risk that we see is the reversal in
dependence on the power sector to material for Cords and it accounts infrastructure spending both from
improve working capital cycle - for roughly 50% of the revenues. the government and the private
Cords had an exposure of around Earlier, it used to source it from a sector.
93
Rama Vision Ltd.

R
ama vision is an old family run business which is currently
involved in Baby and mother care products and they’re trying
to venture into FMCG space very briskly as it is very
rewarding. Rama vision has tie ups with many international
brands and it also is the exclusive distributor of many such
brands. Basic business of Rama vision includes procuring goods of
Aashav Patel international brand and marketing them across India by setting up a
A student and Small cap investor distributor (wholesaler) network and promoting their brands to retailers.
Active in the market 5 years Lately, management focus has shifted towards FMCG products which
would likely have higher opportunity as the contribution of FMCG to
He is particularly interested in success revenue is increased from FY15 - 17% to FY17 - 36%. Also, management
and failure pattern of all enterprises is rigorously attaining exclusive marketing rights of many international
because he likes to learn from their brands in FMCG segment.
success and especially their mistakes.
Also, Small cap and Nano cap Product Portfolio
fascinate him the most because they Mother and baby care division include - exclusive importer of renowned
move are not directly related to the brands like Pigeon (Taiwan), Palmers (US), Farlin etc., recently got
markets and even during the bullish distributorship of GRACO which is a premium brand in stroller, child chair,
phase, the returns generated could be etc. It also ventured into mosquito repellent via its own brand- Quito Mos
higher. which is outsourced to manufacture and labelled as in house brand. The
food division includes brands like Real Thai, Raavi, Orion, Kihndo,
Tamraind House, Kewpie, Mister potato, etc. Most of the brands are
My Mantra renowned and management is trying to penetrate these brands deeper across
Avoid tips from all the sources and the country. Also, the company assures long term rights of all such brands.
this would solve half of the problems;
Stop the expectations of earning Investment Rationale
multi-bagger stocks every fortnight • Raw-material cost as a % of sales is falling drastically and this indicates
rather, the focus should be on that if such low levels sustains, incremental rise in topline will be flowing
minimizing the downside and directly into EBIDTA as Rama vision being a trading company doesn’t
enhancing the knowledge as much as have any fixed asset requirement to grow constantly.
possible. Stop blindly copying the • The interest cost is negligible and hence, company might have just
renowned investors, it’s better to started earning better margins, which reflects in falling raw-material cost
understand their perception about an in proportion to sales.
investment thesis and investing • The company has recently acquired the rights of FMCG brands and
rationale. hence, it was in a brand building state, but once the presence of brand is
appreciated by customers, increasing sales might not be hard.
• The company also got exclusive rights of ‘Mustela’ brand which is
Disclosure priced at a premium and there is no authorized seller for the same.
stock. Readers must do their own research before Business Module
investing in the company. The company prefers to sell more via retailers and respects the hard work
94
put in by them, hence never give

any emphasis to online sellers. The
management feels if they shift to
online selling, the market will
consolidate and prices of goods will
ultimately decline. Also, the
company provides regular training
to retailers associated with the
company. The company has a good
distribution network and ensures
that retailer margins are maintained
around 27%, whereas distributor
margins are around 7%.
for several newer brands in the
Product pipeline is another most portfolio like Palmer, Farlin. Also,
interesting part because the the efforts to penetrate the FMCG
company now has exclusive space are commendable. This is the
dealership of Mustela brand which testimony that going forward, there
is Russia based ultra-premium would be no succession issues with
brand and usually trades at a the company. The promoters’ stake
premium. This brand is 8-10x is 51%, which reflects that
expensive compared to brands like promoters’ interest are aligned with
Jhonson & Jhonsons. Currently minority shareholder’s interest.
there is no licensed distributor of “Stressed Assets
this brand and retailers procure it Concerns
from grey market and hence, The company’s past tract record has
Higher Than The Net
opportunity size to cater this brand been very volatile in terms of sales as Worth Of Indian
is huge. Reviews of its products are well as operating margins. If this
remarkably good, especially the continues, it’s difficult to gauge the Banks” says
brands like Palmers, Pigeon. Along future outlook of the company. Also,
with the offline customer base, the company’s provision and contingent
McKinsey. Some of
company is also monetizing the liabilities are on higher side and the PSU banks are
upcoming tide of online shopping. needs clarification from management
and constant monitoring. If the bound to go bust
Outlook FMCG segment doesn’t generate
Recent quarter finally the company proper revenue despite ploughing
with pathetic asset
showed a significant profit higher capital into it, it harms long quality.
compared to previous loss making term fundamentals of the company.
quarters registering superb 10%
operating margin and 5% net Conclusion
margin. Also, the company is on its The company has done well in the
way to reduce debt, which would last 10 years with sales scaled up to
increase the bottom-line going `33 crore from less than `4 crore. It
forward as interest outgo reduces. has survived and grown with very
Mr Arhant Jain, who is the son of little debt. The distribution network
the original promoter of the is Pan India and well entrenched
company Satish Jain is taking keen now and management expects
interest in the business and with his momentum in the revenue part. At
dynamic approach, the company `18 crore market cap it’s an exciting
was able to bag distribution rights nano cap.
95
Pennar Industries
BSE Code: 513228; NSE: PENIND; Face Value: `5; Market Cap (`Cr): 488; CMP: `71
P
ennar Industries is one of the leading engineering organizations
in India, well known for its expertise in providing engineered
products and services. The company established its first
manufacturing plant in 1988 at Isnapur, near Hyderabad with an
installed capacity of 30,000 MTPA to manufacture Cold Rolled
Steel Strips (CRSS). Since then the company has grown both organically
Sourabh Mehrotra and inorganically and currently has an annual production capacity of more
Practicing Chartered Accountant than 350,000 MTPA, manufacturing precision engineering products such
Active in the market 15 years as: CRSS, Precision Tubes, Railway wagons / Coaches components,
Pre-Engineered Building Systems, Sheet Metal Components, Road Safety
He is equally passionate about financial Systems, Hydraulics and Warehousing solutions. The company board is
markets and pets especially dogs. headed by chairman Nrupender Rao, who is an alumnus of IIT Kharagpur
and Purdue University, USA and Aditya Rao, the vice chairman & MD, an
alumnus of Cornell University, USA.
My Mantra
Research and understand the Pennar Industries has a pan-India presence with seven manufacturing
company and its business before facilities situated across the country. These facilities include laser cutting,
investing. Read, the company’s Annual plasma cutting, transfer presses and CNC machines that enable it to make
Reports for the past 5 years. Write products of very high quality.
down the main reasons for investing in
a company and evaluate at suitable Business Units of Pennar
intervals whether the reasons are still Systems and Projects: Railway Coaches and Wagons components and
valid. Do not hesitate to book a loss if Solar Mounting Structures.
the reasons for investing in a company Industrial Components: General Engineering and Automotive
are no more valid. Never invest with Components for the Industrial, White Goods, Hydraulics and Automobile
borrowed funds; Learn from books sectors.
written by the stalwarts; Some of the Precision Tubes: Electro Resistance Welded and Cold Drawn Welded
best bargains can be had when Tubes used by the Automobile and Power sectors.
everyone else is selling and try to Steel Products: Cold Rolled Steel Strips and Formed Sections used by the
attend the AGM of the companies Automobiles, General Engineering, Infrastructure and White Goods
invested in and listen in to its sectors.
concalls.
Subsidiaries
Pennar Engineered Building Systems Ltd. (PEBS) – listed on BSE and
NSE. CMP is `99 and Pennar Industries holds a 53.98% stake in PEBS.
It’s into Pre-engineered building systems, Structural and High Rise Steel
Buildings, Roof Top Solar, Solar EPC
Disclosure Pennar Enviro Ltd.: Industrial Water Treatment Solutions, Water
The author is not a registered analyst under SEBI Treatment Chemicals, Fuel Additives
stock. Readers must do their own research before Customers: Pennar has a huge client base of more than 500 which
investing in the company. includes the leading companies in India like Eicher, Alstom, Ashok
96
as cold rolled forms, engineering

components, pre-engineered
building systems, water treatment
and renewable.
The company has set up a

subsidiary in Houston, USA, to
substantially increase the current
exports of $4 million by supplying
products and offering engineering
solutions, which require design and
local assembly.
Leyland, Bajaj, Thermax, F L treatment and automobile sectors in It has divested its 28MW solar plant
Smidth, Godrej, Integral Coach the country. Both the topline and to Greenko for `100 crore. This
Factory, Modern Coach Factory, bottom line is expected to grow at amount will be used to reduce the
BHEL, BEML, Nagarjuna 30% CAGR over the next few years debt of the company.
Constructions, L&T, Lanco, Tata as guided by the management at the
motors etc. to name a few. latest AGM. The company has low debt of `307
crore which should further reduce
Financials The management has worked out a by `100 crore (due to sale of solar
ROCE for the preceding year is five-year strategic plan for each of plant).
18.11%. The company has the businesses, headed by a sector
improved its sales and profit growth expert and plans to achieve a The company has a robust order
during the past 3 years. The current turnover of `6,000-6,500 crore over book. Its announced order wins in
year planned capex of the company the next five years. The expansion Oct 2017 of `238 crore and in
is `60 crore, which is being funded plan is for products and services November 2017 of `210 crore
entirely by internal accruals. having an EBITA >10 % and ROCE across its various units and
>20% subsidiaries. The company has
Investment Rationale sufficient operating leverage to
The company is at an inflection Diversified from the low margin execute the orders.
point and poised to take advantage legacy business of cold rolled steel
of the high growth in infrastructure, strips (CRSS) to a number of high The company has an enviable client
railways, solar power, water margin value added products such list, robust order book and is well
positioned to take advantage of the
Yearly (Consolidated) `Crores sector tailwinds present in its lines
Mar-2017 Mar-2016 YoY % Diff TTM of business. It is available at a
Total Income 1542.16 1306.67 18.02% 1707.94 reasonable price/earnings multiple
of 18.
Op Profit 166.96 147.78 12.98% 176.68
PBT 87.86 94.04 -6.57% 91.84 Risks
Taxes 29.32 35.80 -18.10% 31.01 Need to closely track future results
Net Profit 46.65 43.85 6.39% 49.87 to determine whether they are in
line with management guidance;
Compounded Sales Compounded Profit Return on Equity Low Promoter holding of 36.37%;
Growth Growth It has not paid dividends till date.
5 Years 4.82% –5.55% 10.03% Management has clarified that they
do not believe dividend to be tax
3 Years 9.76% 22.26% 9.66%
efficient and may consider buy back
TTM 23.98% 8.58% 9.08% of shares at a later date.
97
Globus Spirits Ltd.

BSE Code: 533104; NSE: GLOBUSSPR; Face Value: `10; Market Cap (`Cr): 412; CMP: `164
E
stablished in 1992, Globus Spirits Limited (GSL) is engaged in
manufacturing, marketing and sale of Indian Made Indian
Liquor (IMIL), Indian Made Foreign Liquor (IMFL), Bulk
Alcohol and contract bottling for established IMFL brands.
The company has a well established presence in the IMIL
segment and set to become a Pan-India IMIL leader with the launch of
Dipendu Nandi distilleries in Bihar and West Bengal. GSL currently operates three modern
An individual investor and fully integrated distilleries at Behror in Rajasthan and Samalkha and
Active in the market 10 years Hisar in Haryana. It is one of the largest and most efficient grain based
distilleries in India with highest alcohol recovery per unit of grain. GSL
New ideas excite him and he is always has a manufacturing capacity of 150 million bulk liter (BL). Apart from
on the lookout for new companies who production of ENA, distilleries have modern bottling facilities equipped
could be a dark horse. A sports loving with annual capacity of 15 million cases. The bottling plant caters to its
person, especially Cricket, always own production of IMIL and also offers contract manufacturing for
ready for it with no excuses. bottling of brands like Officer’s Choice and McDowell’s No.1 for leading
IMFL players like United Spirits and Allied Blenders Distillers (ABD).
My Mantra Over the years, GSL has successfully got transformed from a grain-based
Study the company before bulk alcohol manufacturer to a 360° alcohol beverage (alcobev) segment
investing because in any case if you player. GSL covers the entire value chain of alcohol manufacturing
went wrong you would be able to know undertaking an array of operating activities from manufacturing extra
and would learn something from it and neutral alcohol (ENA) to contract bottling to marketing and selling IMIL
please don’t blindly follow anyone, no and Indian made foreign liquor (IMFL).
one is 100% accurate in this
market. GSL is the No. 1 private player in Rajasthan IMIL with 32% market share
and No. 2 private players in Haryana with a 11 % market share. Major
IMIL brands of the company include Nimboo, Heer Ranjha, Ghoomer
and Goldee. Promoters holding is at 56.8%. Also the company has a very
healthy balance sheet with a Debt/ Equity ratio of 0.6x as of H1FY18.
IMIL contributes 40% to revenues, followed by bulk alcohol contributing
37%, IMFL contributing 13% and other contributing 8%.
Capacity Expansion To Drive Volume

The company invested `250 crore in Bihar and West Bengal putting up
capacity of 27KLPD and 33KLPD in FY17. West Bengal capacity
commenced in Feb-Mar 17 which is likely to ramp up in FY18E driving
volumes. Key reason for entering West Bengal is that it is an alcohol deficit
Disclosure market where the overall demand surpasses supply. Therefore, their
The author is not a registered analyst under SEBI foremost target here will be to bridge the demand-supply gap and rapidly
stock. Readers must do their own research before scale-up sales volume. The grain prices are lower in West Bengal compared
investing in the company. to North India, while ENA realizations are better, resulting in higher
98
spread between grain and ENA

price, which will help in higher
margins once this unit ramps up.
Led by ramp up in WB, H1FY18
revenue is up 38%, and this trend is “There are a few
expected to continue.
investment
Restart Of Bihar Unit managers, of course,
Can Help
Currently the Bihar unit is shut due who are very good
to a ban on new licenses. Globus
has got a favorable court order to
- though in the short
restart the unit and use it to sell run, it’s difficult to
outside the state, it is expected the
company will be able to restart this determine whether a
unit in FY18 which will drive great record is due to
revenue and EBITDA in FY19. This `60 crore to revenue and `15 crore
unit can add `150-200 crore to the to EBITDA by FY20E. Radico luck or talent. Most
top line (20% of total FY18) and Khaitan is valued at 2x EV/Sales,
`20 crore to the EBITDA (30% of hence this venture is comparatively
advisors, however,
the total FY18). As no additional cheaper. are far better at
cost is required, hence this will add
directly to the volumes. Strong Cashflow generating high fees
Its working capital cycle is almost than they are at
Recovery in Haryana & negligible (near 0 days) entailing
Price Hike in Rajasthan strong operating cash flows. Also, generating high
Past few quarters Haryana volumes given all the expansion is complete returns. In truth, their
were under pressure, which has capex will be minimal over the next
started to improve from Q2FY18 2-3 years. All the cash flow from core competence is
and is expected to continue, also in earnings will be used to reduce its
Rajasthan a price hike of 5-10% is debt going forward. Current debt of
salesmanship.
awaited, which should come soon. around `250 crore can be almost Rather than listen to
Both these factors are expected to half by FY20, which will make the
help the revenue and margins in balance sheet look even better. their siren songs,
H2FY18. investors - large and
Growth in operating profit +
IMFL segment is to be a next major reduction in debt + cheap valuation small - should
growth driver and will lead the makes it very attractive. Globus did
company to more of a consumer a TTM PAT of `7 crore and a TTM
instead read Jack
business image. The company hired Cash Profit (PAT + Depreciation) Bogle’s The Little
Vijay Rekhi (who served as the of `45-46 crore; it is quoting at
Managing Director of United 10.6x its TTM Cash PAT, going Book of Common
Spirits until April 19, 2011, and forward with full ramp up of WB Sense Investing.”
known to have build all its brands) facility, restart of Bihar unit and
to head ‘Unibev.’ It is a subsidiary start of IMFL sales under ‘Unibev’
of Globus Spirits which will venture we expect meaningful EBITDA and – Warren Buffett
into southern states with a launch PAT growth which will drive the
of four brands. This segment can stock performance. Globus offers a
contribute 5% of total revenue by strong FCF yield at the current
FY20E. It will potentially contribute price.
99
Associated Alcohols & Breweries Ltd.

I
t has been an eventful year for the liquor and distilleries sector. In a
sector where the majority of the counter sales happen through hard
cash, demonetization came as a blow. The sector was already trying
to cope with the drop in sales, then came the ban on sale of liquor at
highways and then GST. Amidst these strong headwinds a company
which bravely stood the test of time was Associated Alcohol & Breweries
Raj Kumar Agarwal Ltd (AABL).
A value Investor
Active in the market 20 years Established in 1989 AABL is one of the largest distilleries in India. It is
engaged in the business of bottling vodka and scotch whisky for large
He loves shortcuts... likes to learn more reputed international brands. AABL has ten lines, bottling operations in
through interaction rather than being two different sections. The company supplies Extra Neutral Alcohol (ENA)
bookish and very passionate about to many leading manufacturers under a special licensing agreement. In
humour and music. IMFL (Indian Made Foreign Liquor) segment the company has an
understanding with reputed companies like Diageo, which buys a total of
55-60% of the total IMFL produced by AABL. The company is setting up a
My Mantra multi pressure ENA plant which will completely replace the old plant and
Looking at a business like a increase its production capacity from the present 42 Million Litres Per
“baniya” makes the shortest and the Annum (MLPA) to 65 MLPA. The multi pressure ENA plant cuts down
most effective way of taking the stages in manufacturing and thus improves process efficiency.
investment decisions.
Manufacturing Capabilities
AABL has nearly two decades of expertise in manufacturing of fine
liquors. It is one of the select few companies to produce extra fine grade
triple distilled grain spirit. This is a popular feedstock for manufacture of
various domestic and international IMFL brands. Flexibility to
manufacture spirits via both grain and molasses routes - AABL’s dual
route capability allows the company to shift from one source of raw
material to another to suit availability as well as price trends. This enables
the company to be a consistently low cost producer of alcohols.
Brands: London Bridge Gin, James McGill Whisky, Red & White
Whisky, Bombay Special Whisky, Jamaican Magic Rum, Central
Province, and Titanium Vodka are the popular brands from AABL; Brands
contract- manufactured by AABL: Smirnoff Vodka, the world’s leading
Vodka; Captain Morgan Rum - The number 3 spirit brand by volume in
the US, number 7 worldwide; HAIG Scotch Whisky - a fine Whisky from
Disclosure the oldest family in Scotland; Masterstroke - The latest brand of liquor
The author is not a registered analyst under SEBI company Diageo-Radico; Glen Drummond Single Malt - First locally
stock. Readers must do their own research before bottled single malt premium scotch whisky in India; and Royal Classic
investing in the company. Whisky - A Scotch blended grain-based Indian Made Foreign Liquor.
100
New Initiatives
The company is in the process of
setting up a 2 MW biogas fueled
cogeneration power plant with a
new 20 tons/ hour boiler at a cost of
around `110 million. The new “Smart investing
co-generation power plant will offer
AABL several advantages. Captive doesn’t consist of
power at drastically lower costs;
High pressure steam when passed
buying good assets,
through the turbines is transformed but of buying assets
into low pressure steam that can be
used to generate ENA. This will well. This is a very,
improve the quality of the product
and cut fuel costs; CO2 Plant: The
very important
fermentation of molasses or grain distinction that very,
results in the emission of carbon
dioxide. Normally this carbon very few people
dioxide is let off into the atmosphere initiatives help conserve energy,
as waste from the production improve production efficiency and
understand.”
process. AABL is now setting up a add to the revenue stream, put
plant to collect, pressurize and sell together they represent a complete – Howard Marks
CO2 to industries that use it as a revamp of the company’s
feedstock. This will directly add to production facilities, that will (*1946, American
the bottom line of the company and reduce processing costs. investor and writer)
generate another stream of revenue.
Reverse Osmosis Water Treatment Financials
Plant - Fresh water is a vital AABL has been consistent in its top
ingredient in the production of high line for last three financial years.
grade alcohol. Reprocessed and The company has reported a topline
treated water is used to economize of `296.58 crore for March 2017.
the process. Conventional recycling Topline for Q1FY18 has been
methods result in wastage of water `86.26 crore, a 28% jump QonQ
and using a Reverse Osmosis Water compared to Q4FY17. The net
Treatment Plant is ideal. AABL is profits jumped in the corresponding
setting up a Reverse Osmosis water quarter from `4.57 crore to `7.38
treatment plant with a 1,650 m³ crore. AABL posted a topline of
capacity per day. `64.44 crore for Q2FY18 with net
profits of `6.04 crore. Sales numbers
The Benefits of this generally improve in Oct-Dec
Plant quarter for the sector and AABL
The plant reduces the amount of can post a further improvement in
waste effluent by treating it, thus its Q3 earnings.
reducing the environmental impact
of the process. Recycled water will Conclusion
meet around 60-70% of the The company is expected to grow at
requirement of the plant, thus a CAGR of 25-28% for the next 5
drastically reducing dependence on years. The stock provides an
bore wells, and cutting electricity interesting investment option if one
consumption. While each of these has a view of next 3-5 years.
101
Panacea Biotec
BSE Code: 531349; NSE: PANACEABIO; Face Value: `1; Market Cap (`Cr): 1658; CMP: `243
P
anacea Biotec is one of India’s leading research based health
management companies with established capabilities in R&D,
manufacturing and marketing of pharmaceutical formulations,
vaccines and Biopharmaceuticals. The company’s state of the
art manufacturing facilities for vaccines and pharmaceutical
formulations comply with the international regulatory bodies like the US
Hemanshu Srivastava FDA, BfArM Germany and WHO-cGMP standards. The product portfolio
Research Analyst at Quant Capital includes highly innovative prescription products in niche therapeutic areas
Active in the market 5 Years such as diabetes and cardiovascular management, oncology, Nephrology &
transplant management, osteoporosis management, gastrointestinal care,
He believes in extensive reading, pain management products and pediatric immunization. The company has
delving into the business model, established sales and marketing set-up in India and exports its products to
gauging in the business prospects and more than 30 countries. Panacea Biotec is the fifth largest vaccine producer
having a conscious look into the in India and fifteenth largest biotechnology companies in India. It is
company’s financials before investing amongst the top 60 pharmaceutical companies of India as per the AIOCD
and let time and patience work their AWACS (MAT March 2017) sales data.
magic. He is an avid football fan, travel
enthusiast and a pet lover (have 2 Products
daughters, Pug named Nifty and Top selling brands of Panacea include Glizid, PanGraf, Mycept, Cilamin,
Beagle named Nyla). Panimun, Bioral, PacliALL, Livoluk and Nimulid. The company has been
one of the largest suppliers of vaccines to UNICEF/ Government of
India/PAHO (Pan American Health Organization). Vaccines product
portfolio includes Easyfour-TT (DTwP-Hib-TT), Easyfive-TT (DTwP-
HepB-Hib), Easysix (DTwP-HB-Hib-IPV) and Novohib (Heamophilus
Type B conjugate vaccine IP). Panacea Biotec is a vaccine segment play in
the healthcare space, with the company strengthening its footprint in the
domestic market through enhanced penetration in existing products and
through new launches such as Easysix (launched in March 2017 and
generated revenues of `200mn as of June 2017). Current capacity
utilization levels are <40% levels and offer scope for enhancement. We
expect a ramp-up in Essex vaccine, especially in the private domestic
markets taking advantage of the high birth cohort in India.
Business Growth
Panacea would focus on an export-oriented model through partnerships
with UNICEF, GAVI, MSF, PAHO, etc. in the EM geographies resulting in
a robust growth of the vaccine segment coupled with enhanced focus on
Disclosure private vaccine markets in the markets through a partnership model.
The author is not a registered analyst under SEBI Panacea has entered into a long-term contract with UNICEF for the supply
stock. Readers must do their own research before of 10mn doses of Easyfive-TT in FY17 and with PAHO for the supply of
investing in the company. 5mn doses of Easyfive-TT through December 2019 with overall value of
102
generics landscape, as all the

products offer good potential.
Conclusion
Domestic formulations business has
been stagnated over the past 5 years,
posting de-growth of 1.5% CAGR
over FY12-17. Below industry
average field force productivity,
NLEM & FDC impact and lack of
big ticket launches in the Indian
markets over the years have resulted
in a lackluster performance.
Strengthening R&D initiatives by
the top management with focus in
USD 21mn. Panacea has won Asian pacific and African region. complex product space such as
tenders worth `144mn for supply of On the formulations front for diabetes, oncology, ophthalmology,
bOPV to GoI for FY18E and has developed markets, Panacea has a etc., an enhancement in the field
participated in GoI and UNICEF decent small set of ANDA filings force productivity and ramp-up in
tenders for further supply of bOPV. with the US FDA with 3 approved the existing product basket places
Production of bOPV at its Baddi and 3 pending approvals [Treanda Panacea’s domestic formulations at
plant has commenced. The vaccine (Bendamustine Hydrochloride), an inflection point with robust
facilities at Baddi and Lalru have Namenda XR (Memantine growth prospects going ahead.
been inspected by WHO in Hydrochloride) and Abraxane Business offers tremendous
December 2016 and should receive (Paclitaxel)]. Panacea follows a prospects despite a weaker balance
the WHO pre-qualification for partnership based model in the US sheet, low return ratios, high debt
bOPV going ahead. The vaccine and has launched Prasugrel (partner and high valuations. Looking
segment offers an interesting take for Apotex) in FY18 and Rizatriptan beyond these weaknesses, we believe
an investor given lower competitive Benzoate ODT (partner the prospects at hand outweigh them
intensity, high barriers of entry and Bionpharma). Other product under as attaining a critical mass in vaccine
superior margin profile. Panacea has development is Doxorubicin operations, domestic ramp-up and
attractive near term options at its Liposome. Panacea has 23 products niche ANDAs in the US markets
doorstep in the form of expansion under development for the US could materially enhance the
of field force for its Easysix vaccine, markets. The company has set its profitability of the business and
high value export contracts in the eyes on complex to manufacture and enhance the balance sheet.
EMs and higher capacity utilization niche ANDAs following a
at its plants. partnership model. With the Risk
oncology block at Baddi being Key risks to our hypothesis is the
Panacea is expediting development approved by the US FDA, we expect ability of the business to come back
of other critical vaccines, including the filings in the Onco segment to to profitability, margin expansion,
the pneumococcal vaccine conjugate pick-up traction going ahead. Going improvement in return ratios and
(NucoVac), dengue vaccine ahead, the complex oncology filings reduction of debt. Panacea’s top 10
(DengiAll; in-licensed from NIH of would be the key to look at to products contribute 80% to their
USA), Japanese encephalitis and validate Panacea’s R&D capabilities topline and any weakness in these
Sabin IPV (sIPV) vaccine, which we and its endeavors to establish itself. products can hamper growth
expect to be launched over FY21E With the recent ANDA filing of prospects. Enhanced competition in
in the Indian markets. The newer gAbraxane, Panacea does validate the global vaccine arena, particularly
projects offer prospects for entry into our hypothesis and with more in the projects under development
other Emerging Markets (EMs) with complex filings flowing in, Panacea for Panacea like Dengue and
high birth cohort (3-5mn) such as could be a good bet to play in the Pneumococcal conjugate.
103
Super Crop Safe Ltd.

S
uper Crop Safe Ltd. (SUCROSA), incorporated in 1987, is a
well-known name in Agro chemical industry. The company
manufactures products ranging from technical grade pesticides
and formulations of insecticides. Its products are sold to some of
the marquee names in Agro chemical sectors like Meghmani
Organics, Excel Crop etc. The company’s manufacturing unit and Bio-
Mukesh C. Shah Division is located at Himatpura in Bilodra about 65 kms away from
Managing Partner, Dhanadyaksha Ahmedabad on 20,000 sq. yd. land. The company has recently established
Advisors LLP in-house R&D facility. Research team is developing a sustainable
Active in the markets 30 years Botanicals and active pharmaceutical ingredients (API) for Ayurvedic,
Herbal and Microbial Therapeutics (Nutraceutical & Nutri-therapeutic).
Products developed as a result of this R&D activity will be marketed with
My Mantra the existing strong marketing network of the company.
Focus on learning the process and
consider investing as a serious Sector Outlook
profession rather than coming with a An Area with mammoth growth potential. India is the fourth largest
mindset of making money overnight. global producer of Agro chemicals after the US, Japan and China.
Read books and watch videos from Generating a value of US$4.4 billion in FY15, the Indian Agro chemical
experts, and never stop learning. Use industry is expected to grow at 7.5% per annum to reach US$ 6.3 billion
the power of social media to connect by FY20. The Indian Agro chemical usage pattern has not changed much
with fellow investors. Every investment in the past decades with insecticides contributing a majority 60%, followed
you do should be an outcome of by herbicides at 16%, fungicides at 18% and other products contributing
pre-defined rules of entry and exit. the remaining 6%. The increasing farm labour cost is boosting the usage of
Execute a buy/sell order only if you’re herbicides while growing demand for fruits and vegetables is driving a
convinced. Designing an investment strong growth in fungicides consumption in the recent years. Moreover,
strategy, building conviction is a herbicides and fungicides are expected to grow faster in the coming years
complex process and requires deep than insecticides.
analysis of various factors. Patience
is the key to successful investing. Business Model and Management Strategy
The company operates in three verticals of Agro chemical sector -
insecticides, fungicides and herbicides. Insecticide contributes 60% of the
sales, while, fungicides and herbicides contribute 27% and 13% to the sales
respectively. Company has adopted two way strategies for the next phase
of growth. First, products developed as a result of R&D activity will be
marketed with the existing strong marketing network of the company, so
that it can cross sell multiple products without bearing the additional
marketing cost. Second, it is focusing on high margin, low competition
Disclosure products like Spirulina and Super Gold.
guidelines. He and his family have no position in
the stock still readers must do their own research Spirulina is the only nutrient supplement which is a complete food as per
before investing in the company. WHO. Spirulina is used as food supplement all over world on a daily basis
104
company has seen a jump of 74.38%

on its net profit to `2.56 crore vs
1.47 crore in the corresponding half
year for the previous year. On an
annual basis, the company posted a
4% jump in its revenue to `74.98
crore in FY17 as against the revenue
in the previous fiscal. The EBITDA
of the company has increased 63%
to `5.08 crore in FY17 compared to
FY16. PAT has also increased 140%
to `2.87 crore vs `1.2 crore. As
stated earlier SUCROSA has
adopted two way strategies, through
which it’s profit has grown by 95%
CAGR growth in last three years
and 32% CAGR growth in the last 5
in different forms like Tablet, Agro Industries Development years.
Capsule, Powder, Health drink, Corporation Ltd (MAIDC); it has
Noodles and other many food earned `1.61 crore of revenues from Risk Factors
preparations. WHO claims that 1 this agreement in FY17. Warren Pesticide demand is linked to
gm of Spirulina provides a similar Buffett has once said, “Invest in monsoon and in years of poor
amount of essential vitamins to businesses that buy commodities and monsoon demand goes down
1000 gms of common fruit and sell brands.” Clearly, this company drastically. Genetically modified
vegetables. Clearly this product has has changed its strategy and focusing crops are made with inbuilt
immense opportunity and on building brands like Superlina resistance towards pest that reduces
SUCROSA is preparing itself to and Super Gold. This will help in the demand for Agro Chemicals.
reap benefit of this product. Right passing on higher raw material cost There are relatively low entry
now it is supplying this product only without losing volumes and retain barriers due to the commodity
to it’s institutional clients and soon some benefits in times of softer raw nature of business. However,
it will launch in retail space by material price. SUCROSA has mitigated this risk
brand name of “Superlina”. Super by using advanced technology,
Gold is a licensed product which Financials strong distribution network and
has been developed from root level On the financial front, SUCROSA image turnaround from B2B to B2C
to formulation level in Bio division, posted a 24% decline in its revenue company.
which is done by only a handful to `34.07 crore in the first half of
companies in India. It increases the FY18 from `42.23 crore in the same Conclusion
reach of roots in crops to absorb quarters of the previous year. Post Future demand for Agro chemical is
more fertilizers and water which applicability of GST w.e.f. 1st July, expected to grow at a good pace.
remains untouched otherwise. 2017, revenue from operations is SUCROSA has well-established
Recently, GST council has reduced disclosed net off GST. Accordingly, infrastructure, in-house R&D
GST rates on fertilizer from 12% to the revenue from operations and capabilities and reputed customer
5%, which is a beneficiary step for excise duty expenses for the quarter base. The company expects to
farmers as well as manufacturers. and half year ended 30th September commercialize at least 1-2 R&D
2017 are not comparable with the products which have better ROC and
The company has built 2000 MT previous periods presented in the should generate the free cash flows.
manufacturing capacity for Super results. The company’s EBITDA has Management is also implementing
Gold. In FY17, the company has increased by 59.63% to `3.66 crore various marketing strategies to
entered into an institutional sales vs `2.29 crore in the corresponding counter the competition and increase
agreement with The Maharashtra half year for the previous year. The its topline and bottomline.
105
Simplex Casting Ltd.

S
pecialty Casting Company and one of the few companies who
can do casting of more than 65tonnes. (Entry barrier due to
technical knowledge – very few companies can do such kind of
skilled labor work). Continuous Casting Machines for smaller
casting installed recently to smoothen the variation in quarterly
top line performance. Increase in spending on the Railways / Defence by
Nishit Golchha the government, Make in India Programme and Export Orientation of
Owner of Mohur Investment and companies is good for greater margins.
Consultancy Pvt. Ltd.
Active in the market 15 years Simplex Castings (SCL) is engaged in manufacturing of heavy engineering
castings in various grades (in cast, machined & assembled condition) for
all industrial sectors (both from domestic & international markets). The
My Mantra company manufactures all kinds of castings be it grey iron castings, steel
Kindly follow the golden rule of castings, alloy cast iron or stainless steel casts.
‘margin of safety’ of ace investor
Benjamin Graham. SCL is complete one stop shop for all engineering component
manufacturing needs, castings, forging, fabrication, machining, assembly,
equipment building, in-house testing, EPC division, and designing facility.
It possesses well equipped manufacturing facilities such as Cast Iron
Foundry, Steel & Alloy Foundry, Heavy Engineering & Fabrication Plant
for equipment building, structural fabrication, assembly facility. Each plant
is associated with modern machining facilities. And a central machine
shop with several machine tools including large number of CNCs, EPC
Division to take up Turn-Key Projects, design wing with modern computer
setup and aided tools etc. The company’s plants are situated in Bhilai,
Raipur & Rajnandgaon, the central part of India, most mineral rich and
densely industrialized province in India. These units undertakes the entire
manufacturing process in-house.
Wide Range of Products

Simplex Castings manufactures various grades (in cast, machined & assem-
bled condition) for all industrial sectors (both from domestic & international
markets) like Steel Plants, Power Plants (Thermal, Hydro, Wind), Railways,
Mines, Cement, Chemical, Oil, Defence, Sugar, Earth Moving , Machine
Tools, Heavy Valves & Pumps Castings, Ship Building etc. From user
industry wise, of the total sales, steel sector accounts for 35%, railways
account for about 45%, and remaining 20% is from various industries like
Disclosure mining/construction/wind mill/cement /sugar equipments etc.
stock. Readers must do their own research before Within the casting products, the company manufactures carbon and alloy
investing in the company. steel castings upto 45000 kg, grey iron castings upto 65000 kg and ductile
106
and C.G Iron castings upto 15000 kg steel industry is major used-industry Technologies worth `6.5 crore.
for varies industries. List of some of for the company. Secondly, the
the products and some of the company will benefit from the Aggressive on Export
industries these products serve are as “Make in India” policy. The Front
under: Sinter car pallet body, ladle, Government has unveiled a series of The company is working
gear wheel, girth gear, rolling mills policy initiatives to enhance public aggressively on the exports front
stand, chocks, grinding ring and investments in the infrastructure which is expected to be around 15%
balls, drop balls, pallet body, cooling sector, especially roads, railways and of net sales in FY17 as compared to
plate, coke oven flate plate, cooling ports. This initiative is now acquiring around 10% in FY16. Due to its
plate, slag plant etc for steel industry; the stature of a national movement pure concentration on quality,
Truck frames, axle housing, gear to promote manufacturing expertise technology upgradation and
wheels, magnet frames, suspension in India, in line with global quality improvement, the company has
tube, driving arm, wheels, control benchmarks. Besides, the received repeat orders from Altos
arm, axle box etc for Railways; Valve government has also enhanced the Hornos de México, S.A.B. de C.V.
components, Rotor Hub, Grinding ease of doing business in India, (AHMSA) for Coke Oven
ring, Pump casing, Cross Beam, mill attracting enhanced foreign capital, Components, Diesel Locomotive
base, pump casing, shutters, coal technology and human expertise. Works for Truck Frame and
nozzels etc for Power plants; Mill The Make in India initiative aims at Claudius Peters for Gypsum/
head, Kiln tyre, Kiln support rollers, enhancing manufacturing through Cement Mill Component.
bearing housing, support rollers etc investment, innovation, and by
for cement plants; Bearing Rollers, building best-in-class manufacturing Plan to diversify
head stock, crown pinion, mill head, infrastructure. The initiative is The Government of India is
girth gear, support rollers, trash turn expected to revive the manufacturing encouraging self-reliance in the
beam etc. for Sugar Industries; Valve sector and make it self-reliant. defence sector; and is also
components, wheels, butterfly valves, encouraging Indian private sector
Gate Valves, disc, door, pump Expected Orders from players to manufacture defence
bodies, suction bell castings, Railways equipment. The country currently
separator body, compressor body etc The Government of India is aiming imports significant quantity of steel
for Oil and Gas sector; Earth moving to target higher investments by castings annually to meet its defence
equipment castings, cross beam, prioritizing the decongestion of requirements, reflecting high
support rollers, hub wheel castings, heavy haul routes and speeding up demand and huge potential for the
liner plate, gear wheel, sigma line trains. The Railway Ministry has Indian steel industry. Keeping an
pan etc. for Mining industry; earmarked an investment of eye on the future, the company is
Machining tools, Machining guides, USD133.5 billion over five years planning to extend its expertise to
floor plates, machine columns etc. ending 2019. This initiative by the develop new products and expand
for M/C tools segment; Gear boxes, government will definitely lead to its footprint in the global aerospace
fly wheels, bearing housing, chillers, more orders from Railway sector in and defence value chain.
counter weight, pedestal housing etc. future. With the planned
for other sectors. investments in Railways being lined Valuation
up, strong orders are expected. All We expect the company to finish the
Steel Industry is the 3 plants of the company are capex cycle in the current year with
Reviving qualified by Indian Railways for increased capacity and growth. We
Due to support from government casting of all railway equipment expect net sales and PAT of `222.27
and focus on the use of domestic orders. In FY2016, the company crore and `5.59 crore for FY18 and
steel and revival in global demand bagged a prestigious order from `259 crore and `13.3 crore for
coupled with cutting of Chinese Jindal Rail Infrastructure. It also FY19. The current market price of
capacities, Indian steel sector is bagged orders from Mazagon Dock `130 discounts FY19 projected
reviving and the recovery can gain Shipbuilders and Garden Reach earnings by 9.66 times. The
strength as domestic infrastructure Shipbuilders & Engineers worth `22 company’s book value was `138.88
and industrial capex picks up. The crore, and from Primetals as of March 2017.
107
Ajmera Realty and Infra India Ltd.

BSE Code: 513349; NSE: AJMERA; Face Value: `10; Market Cap (`Cr): 1097; CMP: `325
A
jmera Realty is among top 100 best developers having
delivered significant volumes of projects in the last five
years. It has established itself over 49 years of trust and has
a strong presence in and around Mumbai, Pune,
Ahmedabad, Surat, Rajkot and Bangalore as well as an
international project in Bahrain. Ajmera group has enriched 45 million sq.
Hemanshu Shukla ft. Of space in the country.
An IT professional and a value investor
Active in the market 10 years Demand and Outlook
The Indian real estate market, the second largest employer in the country,
is currently one of the most attractive investment destinations in Asia
My Mantra Pacific accounting for over 50% of the total investment activity in the
Keep it simple and be humble country and is slated to grow 30% in the next decade. Real estate sector,
is the way for wealth creation. i.e. housing, retail, hospitality and commercial is expected to grow from
USD93.8 billion in 2014 to USD180 billion by 2020 and 853 billion by
2028 backed by rising income levels, FDI from $ 24.20 billion in FY16 to
$25 billion in FY22.
Projects
Residential Mumbai: The Company has vast potential in the freehold land
bank of 100 acres at Ajmera I- Lands, Wadala. This project is Mumbai’s
most interconnected integrated new age living destination. Wadala is
Mumbai’s fastest growing suburb. Important places like Vashi, CST,
Santacruz, BKC are at a distance of just 20 minutes. Out of 100 acres, 25
acres is marked for open parks, about 35 acres is already developed and
around 12 acres is under development. In 12 Acres project, i.e. Aeon,
Zeon and Treon are Hirise tower comprising of 2, 3 and 4 BHK
apartments offering a lifestyle of immaculate splendor adorned with one
acre clubhouse on the podium and 10 levels of parking. About 25 acres is
still spare for future development. Other Mumbai project that nears
completion in FY18-19 is Ajmera Pristine-Borivali, Ajmera Yogi Dham JV
in Phases, Kalyan (40 building), Aeon, Zeon, Ajmera Heritage City
Khardi Shahapur Thane (100 acres township).
Banglore: Electronic City is the prominent real estate destination. Stone

Park II and Annex are one of the magnificent projects in Bangalore
providing ultra modern amenities. Both are at the final stage of completion.
Disclosure Ahmedabad: Ajmera Enigma and Casa Vyoma are two landmark projects
The author is not a registered analyst under SEBI of Ajmera at Ahmedabad. Vyoma is spread across 6 acres at Vastrapur, a
stock. Readers must do their own research before grand lifestyle & Hi-end expectations of aristocrats of Ahmedabad. Pune:
investing in the company. Ajmera Aria (Koregaon Park), Koregaon Park (Wagholi). Commercial: It
108
has 66 acres at Kanjurmarg, and

exploring the potential after
receiving the final DP 2034 plan.
Kanjurmarg is identified by
Maharashtra as a central business
district like BKC. Development of
this land will be mix of residential
and commercial with more towards
commercial, with 70% allocated to
office approx 210 lakh sqft at 110 per
sqft rent, rental income to be 230 *
1.5 FSI= 300+ crore per annum.
This would start to accrue from
FY2020. This would be apart
commercial and residential sale Financial payable days > receivable days
revenue potential from this parcel. Three years CAGR in sales is about depicts free cash generating
Another commercial offering is 55% and profit is around 40%, debt business model with the execution
Ajmera Summit, BKC ANNEX, to equity is 0.6 & current ratio is efficiency too. Considering the
Mumbai. Affordable Housing: 3.8 which is very respectable, cash untapped potential in unutilized
Ajmera Realty plans to develop reserve about 410 + crore, land 25 acres Wadala, 66 acres
10,000 affordable homes in the next OCF>PAT-FY16, overall EBITA Kanjurmarg, and 100 acres
10 years in the Mumbai margin is 45% & PATM of 28% in Kharadi will augur well for the
Metropolitan Region (MMR). The latest quarter is highest. Fixed years ahead.
focus on areas like Kalyan, Asset turn is 3.9 from meager 0.5
Ulhasnagar and Khardi and have past 3 years is a massive Risk
projects starting at just `10 lakh. improvement in execution % and Slowdown in real estate sector.
Krishna Stationary & Xerox

Dealers in: A to Z Office & Computer Stationary Suppliers,
New Year Diaries, Xerox, Colour Xerox, Offset Printing,
Spiral & Comb Binding, Ink & Toner Cartridges,
New and Refilling, Ribbon Refilling
Harji: 9869797299 | Tel: 022-65805010 | Fax: 022-66562607
105, Mumbai Samachar Marg, Shop No. 35A, Gr. Floor, Near Stock
Exchange, Opp. Bharat House, Fort, Mumbai – 400 023.
109
Inditrade Capital Ltd.

I
ndia has been in the throes of a bull-run for some time now, being
propelled along by the adrenaline in the global liquidity created by
quantitative easing in the world’s largest economies, as well as the
realization that it is one of the few global and Emerging Market
economies that is capable of delivering growth and productivity
gains with a stable macro outlook and limited external vulnerabilities.
Porus Vazifdar With the government at the helm, having reached midway in its 1st term,
A value investor one can expect a pick up in government expenditure and business-friendly
Active in the market 10 years policies, leading to stimulation of economic growth and reduction of
poverty. It is said that the first signs of improvement in an economy are felt
in its financial sector. As markets improve and mature, financial
participation increases, leading to more perceptible growth in the financial
sector. Banks, NBFCs, stock brokers, investment bankers, ARCs, asset
managers, money exchangers etc. are bound to participate in this growth
and see increasing revenues and profits.
Growth, as aforesaid, will be marked in the case of well-managed and

well-marketed entities. Banks, of course, are at the Frontline, catalyzing
and partaking of the growth. Let us look at the next layer of financial
services firms for long term opportunities in India, i.e. the broker-lender-
investment banker-wealth manager type of setup. The broking industry has
undergone a structural change in the recent past, what with the reduction
in brokerage rates and competition brought on by discount and online
brokers. Size now matters and entities need to ensure that they have a full
suite of products, keep costs low, maintain high client acquisition numbers
and grow both fund and fee based revenue streams. Increased investment
in technology is imperative to maintain market share, manage risk
effectively and to penetrate new frontiers. The largest opportunity,
however, exists in the lending segment. This model, which typically starts
off with lending to existing relationships and then expanding products and
markets has the capacity to grow exponentially. The expected expansion in
credit, both personal and business, is set to grow this market. When
investing in such entities, it certainly helps to find positive triggers and
hence time one’s entry into the stock. One such important trigger is a
change in management.
Inditrade Capital Limited (“Inditrade”) is the erstwhile JRG Securities

Disclosure Limited, which underwent a name change pursuant to the business being
The author is not a registered analyst under SEBI bought out by purchasers lead by Sudip Bandopadhyay around December
stock. Readers must do their own research before 2016. The new owners have purchased 71.77% from private equity player
investing in the company. Barings India, its wholly owned subsidiary, Duckworth and others.
110
Indications of the change in hands

were evident from the March 2016
quarter, when Juno Moneta
Technologies Private Limited, a new
promoter entity acquired 71.06% of
the equity share capital as a non-
promoter entity. Sudip
Bandopadhyay is the erstwhile head
of Reliance Money, Destimoney
Securities etc., i.e. he is a veteran in
this market segment. The high
promoters’ stake is an indication of
skin in the game and a positive sign
for a long term investor.
Inditrade is a South India based

business consisting broadly of Stock
Broking & Wealth Management, favorable external factors like the providers. Exchange traded and
Agri Commodity Financing and India growth story, young accredited warehousing has virtually
Microfinance. The traditional full population, aspiring middle class, no quality and quantity risk.
service broking business was growing prosperity and under-
inherited from the JRG Securities penetration of equity markets. Inditrade has acquired the Agri-
Limited and operates on a branch commodity trading business of
ownership cum franchisee model Inditrade is also a professional Edelweiss Commodities, thereby
with around 380 touch points. It player in Agri-commodity financing widening their offerings and giving
operates in the areas of equity and in South India, largely facilitating it additional expertise, access and
commodity broking, trade finance post harvest financing of non- reach in West, North and South of
and wealth management. Like other essential, less-perishable, exchange- India. The company plans to scale
players in the industry, they have traded commodities, wherein they up the book to `. 300-400 crore in
been using digital transformation see significant opportunity to grow its subsidiary JRG Fincorp Ltd. To
initiatives to drive business. It the business exponentially in the safeguard its capital while financing,
follows the established market next couple of decades. Agri- Inditrade has a qualifying pre-
model and offers products and commodity financing is still highly condition that requires the
services across a wide spectrum, unorganized with local money commodities which are held as
viz. Stock & commodity broking, lenders and traders providing the security be placed in exchange
investment in financial products, bulk of the financing. Banks and recognized warehouses. Funds are
insurance, lending against shares / financial institutions have very provided against the receipt from
commodities / mortgage / cash limited presence in the Agri-value the warehouse. Additionally, the
flows. The broking model can chain. Secured lending against goods are required to be sold in the
operate as a strong hook to develop commodities is planned to be futures market for a time frame that
the customer base for various extended in a manner whereby price mirrors the term of the funding.
products. Inditrade’s broking arm is risk is also minimized through the Introduction of commodity options
already playing a huge role in use of exchange mechanism. trading by regulators would
securing the loan book. Service and Further, with the gradual certainly aid liquidity attracting
technology are additional professionalization of the more investors in the commodity
differentiating factors, which warehouse network in the country, market. Additionally, possibility of
Inditrade is using to its advantage. the need for financing should institutional participation in
Their focussed broking and exponentially grow and Inditrade Commodity exchange could add a
distribution business is ready to plans to work in collaboration with fillip to the commodity futures
scale-up and take advantage of such professional warehouse service market. All in all, the Agri-
111
commodity value chain in India has as some of the pitfalls of lending to against either obsolescence or
seen reasonable development in this segment are now out in the extinction. Inditrade is growing its
terms of transparency, technology open and adjustments to the lending businesses using a mix of organic
and trading activities and the next process can be put in place. and inorganic means. Its buyout of
two years should see a pickup by all Inditrade aspires to build an overall Edel Commodities, Tree
players. loan book of `. 3,000 crore by 2021. Microfinance and Varam
Microfinance illustrate this very
Inditrade’s microfinance business After looking at the business mix well. The emphasis on technology
has been kick-started by the and readiness to grow, let’s have a augurs well for its risk management
acquisition of 67% stake in Tamil quick look at some numbers - efforts and portrays the fully-
Nadu based Tree Microfinance Annual income, excluding committed thinking of its
Limited [now known as Inditrade extraordinary sale of investments management.
Microfinance Limited (“IMT”)] in and subsidiary increased by 66%.
2016. Having received RBI approval Operating expenses increased by Conclusion
in March 2017, the company will 53%, leading to Operating Profit In the NBFC, with a lending rate of
focus on the entrepreneurial growth of 146% from 2015-16 to approximately 14%-15% and a cost
heartlands of industrialized semi- 2016-17. A significantly lower write of funds at around 12%, the
urban regions and currently has off of bad debts coupled with the resulting NIM of 2%-3% is
operations in Maharashtra and higher operating profit have reasonable at this point in its
Tamil Nadu. The company plans to contributed to PBT rising from a journey. One can expect to see
build a loan book of `100 to 150 loss of `9 lakh in 2015-16 to a profit increasing NIMs as the lending
crore by March 2018. IMT will of `763 lakh in 2016-17. Operating book increases beyond critical mass,
implement a completely digitised income and profit have grown in Q1 enabling the NBFC to issue rated
loan disbursement and collection and Q2 of 2018 and settled higher instruments at lower cost, like
process, including client prospecting, than that seen in the earlier year, Commercial Paper. The recent
eKYC, tracking GPS locations, spurred by an increase in all revenue raising of Tier II capital, though
credit check (through Equifax and lines, especially financing. The small, is a step in the right direction,
High Mark Ratings), and money interest cost is now increasing as the giving the NBFC the ability to better
transfer to bank accounts. This company takes on loans to fund the leverage its capital. Like any
should enable the business to reduce growing lending book. However, Q2 business in the initial stage,
both cost and risk simultaneously, seems to be a quarter of Inditrade’s expense ratio of around
enabling a profitable start. consolidation, with muted qoq 80% is high and must be monitored
variances. for decline. Investor confidence can
The recent acquisition of 80% stake be boosted if JRG Fincorp Ltd., the
in Varam Capital Private Limited, a Often, in evaluating a new or NBFC, is made a wholly-owned
‘new generation microfinance growing business, it is the non- subsidiary and the minority interest
institution’ is another step in that financial and not-so-obvious factors is bought over. The current trading
direction and will add another `90 that turn out to be very important. activity in the commodity business,
crore to Inditrade’s microfinance Once the environment is a given, no doubt gives some P&L support
loan book. Varam’s ‘paperless’ the placement of the investee’s and can also leverage the
processes are the right fit and will business in that environment can commodity lending infrastructure.
dovetail into Inditrade’s digitised determine its direction of growth. However, it also creates P&L
lending process, furthering their Inditrade is well placed to exploit uncertainty and its eventual
initiative of transparency in lending. the increasingly positive cessation will ensure more stable
IMT’s foray into microfinance has environment with its steady broking profitability. The turnaround in the
come at a time when some of the business, focussed and niche NBFC business, new management coupled
sheen has worn off the industry due lending for Agri commodities and with renewed focus and clear
to the recent incidence of high bad/ risk-based approach to base-building activity makes the
doubtful assets on their Balance microfinance. This diversity of Inditrade Capital Limited a scrip to
Sheets. This is a blessing in disguise, business is the first line of defence own in the future.
112
Maha Rashtra Apex Corporation Ltd.

M
aha Rashtra Apex Corporation is promoted by Pai
family (Promoters of Kurl-on Mattresses). Earlier this
company had an NBFC license, which was subsequently
revoked by RBI due to some technical reason. This stock
looks attractive because of one investment that they
have on their books, i.e. they have a 38 % stake in Kurlon Ltd. From April
Abhishek Jain 1, 2014, apart from real estate land bank and one plant, entire mattress
Small cap Investor business were transferred to wholly owned subsidiary, Kurlon Enterprises
Active in the market 15 years Limited. Subsequently, in Sept 2015, Motilal Oswal PE fund invested `90
crore in Kurlon Enterprise Ltd. for 10% (adjusted for PAT target) stake in
Fond of investing in the blue chips of the company at a valuation of `900 crore. As a result, Kurlon Limited has
tomorrow a 90.0 % stake in Kurlon Enterprises and thus Maha Rashtra Apex has
33.5% of effective stake in Kurlon Enterprise Limited.
Sheela Foam Trigger

Sheela Foam got listed recently. For FY17, Sheela Foam has `1750 crore
of revenue, market cap of `8400 crore which gives them a Price to Sales
ratio of nearly 5. Adjusting for the non branded business, the valuation of
the Indian business will be much higher. Gautam Chand said that
Sleepwell has 22% market share in organized foam and coir market,
whereas Kurlon has a 18 % market share.
What’s Cooking?
FY17 turnover for Kurlon is `1034 crore. The EBITDA margins, net
profit margin, working capital cycle and return ratios of Kurlon is same
as Sheela Foam. Also, both the companies are debt free. Thus, we can
safely assume a P/S multiple of 4.0x, we get a market cap of `4000
crore (This is in line with the expectation of the top manager of the
Motilal PE fund whom we speak to offline). He also said that the IPO
of Kurlon will be done within 1.5 years, work related to the same has
already started and Deloitte is the auditor of Kurlon Enterprise Ltd.
Hence, the 33.5% stake of the Maha Rashtra Apex in Kurlon Enterprise
is valued at `1330 crore.
Conclusion
Pai is the promoter of both the companies and 33.5% stake is a sizeable
stake. Promoters have a 61 % stake in Maha Rashtra Apex and trying to
Disclosure increase this holding. Considering all this, 40% holding company discount
The author is not a registered analyst under SEBI can be given to the value of this investment, thus 60% portion i.e. `800
stock. Readers must do their own research before crore can be the potential market cap of the company which translates to
investing in the company. `575 of stock price vs. `89 as of now in a bull case scenario.
113
Modison Metals Ltd.

M
odison Metals is the flagship company of the
Modison group and is engaged in the manufacturing
of low, medium and high voltage electrical contacts,
which are specially made tipping points that make
and break electrical current. It is a leading
manufacturer of electrical contacts for high, low and medium voltage
Yashasvi Bhuta (HV, LV & MV) switch gears in India and internationally. It has a
An entrepreneurs and value investor presence from silver refining to producing electrical contacts, materials
Active in the market 10 years to finished contacts. As per the management, in HV segment, it is a
near monopoly player in India (market share of more than 80%) and in
He is a raw material supplier to a lot of LV segment it is the largest player. Furthermore, it is the only company
listed companies. in India and one of the few in the world with presence in all three
segments i.e. HV, MV and LV.
Modison Metals enjoys a strong brand position and is known for its
quality products in the electrical industry. Electrical contact
manufacturing is a technology intensive business and Modison Metals
acquired the technological know-how through a technical alliance with
Doduco, Germany, a global leader in electrical contact manufacturing. LV
& HV contributes nearly 65% and 35% respectively to the overall revenues
of the company. Modison Metals has installed capacity of 450 thousand
arcing electrical contacts and sf6 circuit for HV &MV and 33 tonnes per
annum of LV contacts at its Vapi plant. Modison Metals has strong and
established customer base, including leading global and Indian switchgear
manufacturers like Larsen & Toubro, Anchor Electricals, Siemens,
Alstom, ABB, etc. It has a leadership position in LV (30% share) and MV
(80% share) markets, a near monopoly share in HV segment. The
company faces competition from foreign companies like AMI Doduco,
ElecktroMetall outside India, however, in the domestic market company
is the market leader.
Strong Brand Position

The promoters of Modison Metals have more than three decades of
experience in the electrical equipment industry. Mr G L Modi (an
electrical engineer by qualification) is the founder of the group
companies. Modison Metals enjoys a good brand position in India being
the sole domestic manufacturer of medium to high voltage electrical
Disclosure contact parts and caters to large players in the electrical industry.
The author is not a registered analyst under SEBI Rajkumar Modi has an experience of more than 15 years, presently looks
stock. Readers must do their own research before after the medium and high voltage segment of the company and export
investing in the company. activities of the company.
114
Expertise And (Renova Group) to float a joint

Technical Know-How venture company in India to
Electrical contact manufacturing is manufacture and sell jointly with
a technology intensive business. The their technology, precious metal
powder oxidation process is a products for electronic and
capital intensive business and automobile industry in the month
requires years of R&D to develop a of July. Father in Novemeber
product with required functional Modison Metals has entered into an
specifications. Modison Metals has agreement for acquisition of key
high-precision manufacturing assets for High voltage contact
facility for all the three voltage business from DODUCO, with the
categories at one place. The latest patent and 5 years exclusive
company has state-of-the-art production rights.
facilities for manufacturing electrical
contacts and is continuously New Product For existing business key customers
working towards automation of Development are being developed in HV segment
processes for an increase in quality The company has upgraded paving way for the upward
and has a tool shop for creating refinery, which has improved both movement in HV segment for
different molds required for capacity and capability with an which company has recently signed
manufacturing different ability to make 999 silver to 9999 an agreement for acquisition of key
specifications of electrical contacts. silver. It has become the cornerstone assets for HV business from
Modison is the only company in for growth, as additional products DUDCO along with the related
India with such capabilities and one can be addressed through this patents and 5 year exclusivity
amongst two in the world with such capability. With these added eyeing the opportunity in Indian
capabilities. capabilities new product, silver salts T&D space with USD100bn
has been fully developed in a record expenditure envisaged in 12th five
Technological time of 6 months demonstrating the year plan.
Obsolesce execution capabilities of the
Electrical Contacts typically have management. The company has Upgradation of Aging
long life cycles and significant developed key 5 customers for this Electric Networks
technological changes are generally diversified business which has end In 2017, Blackstone Group LP
infrequent. And the company has application in life science products, declared an investment of USD100
earmarked a certain percentage of fine chemicals and electroplating. billion towards the refurbishment
their yearly revenues to R&D The similar effort in the of aging infrastructure across the
activity. development of “Silver Powder” US. The investment is backed by
will facilitate entry into the the Saudi Arabia Public Investment
The product range includes: LV renewable energy market. The Fund under the Strategic and
contacts – contacts based on silver company expects that within 12-14 Policy Forum. Also the U.S.
cad-oxide, bimetals, silver nickel months the “Silver Powder” shall be Federal Transit Administration
etc. for various current ratings for developed which in turn shall help declared a funding of USD 647
control gears and switchgears; MV the company to leverage the fast million towards the Peninsula
contacts – supplies contacts for growing market of Renewable Corridor Electrification Project
SF6 based switchgears; currently in energy. (PCEP) from San Francisco to
advanced stages of developing Tamien. In North America
contacts for vacuum switchgears; The company is in the process of company has entered into a
HV contacts – arcing and non- launching flatware business which strategic exclusive partnership with
arcing contacts. The company has will be positioned as a lifestyle Electrical Contacts International
developed and supplied contacts product. Modison Metals has signed and the product quality is
for up to 800kV rating switch MOU with Ekaterinburg Non- established with most of the
gears. Ferrous Processing Plant, Russia, company’s products being
115
customers Modison has achieved

significant market shares.
Valuations
Modison metal appears expensive
on depressed earning and Roce
trading at a PE of 22X. However,
on further diving into the operations
and nature of the company’s
business one realizes that the
manufacturing process i.e the power
oxidation process is such that to
manufacture 1 unit of silver base LV
contacts inventory of 4 units of
silver has to be maintained, which
compels Modison to carry an
inventory of 6-8Mt of silver which
qualified. This will help the policy, which further mitigates the leads to a notional loss in P&L
company to gain traction in North risk. The powder oxidation process affecting the financial ratios
America market. The initial focus requires 4x the amount of silver in optically. If we exclude the notional
is on LV electrical contacts where the process line for every 1 unit of profit/loss from the silver inventory,
the company has a significant cost output. Hence, the company’s the operating margins are largely
advantage over its peers in US. historical performance was marred stable in the range of 14-16%. And
However the company is actively by notional losses recognized on the ROE which looks depressed at
working to get entry into HV account of steadily declining prices 9.5% would jump to a respectable
market and take advantage of the of silver. However, with 14 %. The key variables that drive
opportunity in upgradation of the stabilization in the prices of silver, the earnings performance of the
power transmission network in in the recent quarters, the company are volumes which are
USA. The company has also company’s EBITDA margins have linked to the growth of switchgear
appointed representative in Brazil, returned back to normalcy at industry and secondly the volatility
mainly for HV business which is around 14- 16%. in Silver price, which has however
likely to help it to increase its now more or less stabilized.
footprint in the coming years. Competition From
Chinese Products Investment Rational
Exposure to Modison is facing competition from Modison Metals presents a unique
Fluctuation in Prices Chinese players in the price- monopolistic way to gain from the
Modison Metals has an conscious LV segment. Where the electrification drive of the NDA
arrangement with suppliers like Chinese low-voltage electrical government’s various schemes such
Hindalco and Hindustan Zinc to contacts are being supplied at a as the UDAY, TBCB, renewable
procure silver on monthly basis price equivalent to raw material energy thrust, Smart grid projects &
wherein prices are reset on monthly cost, however the relatively better DDUGJY (Deen Dayal Upadhyay
basis linked to LME prices. At the quality of products gives Modison Gram Jyoti Yojna) and housing for
time of procuring an order from metals an edge. In the medium- and all. It will add impetus to power and
the customers, the company high-voltage segments, the switchgear industry vis-à-vis the
negotiates on the pricing of its unorganised Indian players are electrical contacts industry, also
products depending upon the importing complete switchgear opportunity on incremental exports
prevailing input prices. This partly assemblies killing the domestic to the American markets along side
mitigates raw material volatility demand for the electric contacts. implementation of GST would take
risk. Furthermore Modison Metals But due to the inferior lineament the company to a different growth
follows order based production and quality-consciousness of the trajectory.
116

E
stablished in 1989 Associated Alcohols & Breweries Ltd
(AABL) is one of the largest distilleries in India headed by
the Kedias of The Associate Kedia Group. The company has
got the facility to blend and bottle both India made foreign
liquor and country liquor, the core and focus has been
mainly on the country liquor segment. The company has added a
Ashish Dey premium range of IMFL brands to its portfolio. The company has a
Small cap Investor great relationship with liquor majors which buy almost 60% IMFL
Active in the market 30 years produced by AABL and the remaining is used for direct supplies to
branded suppliers across the country, apart from manufacturing its
He invested `3000 in Unitech and sold owned brands.
it at a bounty of 80 lakhs.
AABL has some of the top selling brands under its kitty. Top AABL
licensed brands are: Blackdog, Smirnoff Vodka, Captain Morgan Rum,
My Mantra HAIG Scotch, Royal Crown. Many of these brands are owned by United
Make sure you put 10 hours of Spirits. AABL apart from licensed brands also started a range of own
reading every week. Reading is a strict brands like, Central Province whisky and Titanium rum.
necessity for an investor. Aim for a
26% CAGR where your money doubles The Positives
in 3 years and grows 10X in a • Have remained almost zero debt, despite tripling its turnover in last six
decade. years, during the same period the operating margins have moved up
from 5% to 14%.
• Global majors like Diageo and Pernod Ricard are vacating the mass
market space and are focusing on the premium segment of the market,
which opens up an opportunity for players like Associated Alcohol to
capture the market in the mass segment.
• Realizing the strengths of the company, Diageo has entered into an
exclusive manufacturing and marketing arrangement for a number of its
mass market brands in Madhya Pradesh with AAB. Under this
arrangement the brands like Bagpiper, Blue Riband, Directors Special
and Green Label are included. AABL will manufacture and market
these brands and their sub brands for payment of a fixed monthly
royalty. This in my view opens up a `100 crore turnover opportunity for
the company and if executed successfully can also lead to similar
arrangements for other adjoin states as well.
Valuation & View

Disclosure The stock currently trades 8.5x FY20 estimated Ebidta and less than
The author is not a registered analyst under SEBI 1xFY20 topline. The company will be steadily reporting 20-22% ROE and
stock. Readers must do their own research before will remain low on leverage as working capital management is pretty tight.
investing in the company. Over a period of 3-5 years, the stock can surprise one big time.
117
Prima Plastics Ltd.

R
ising income and growing awareness have boosted the sales
of branded furniture in Indian market. The plastic molded
furniture industry has been a good beneficiary of the same.
The popularity of plastic furniture has grown since it offers
features unavailable in conventional wooden and metal
furniture, such as easy maintenance, light weight, durability and various
Ankit Kanodia attractive features (such as shapes, designs). There exist around 30
Partner, Smart Sync Services producers of polypropylene (PP) chairs in India, though 30% of the top
Active in the market 7 years producers generate almost 75% of the market share. But still, plastic
consumption in India is very insignificant compared to developed
He owns a timber saw-mill in countries. However, government’s focus on providing affordable housing
Gandhidham, Kutch where he deals in and infrastructural development has paved the way to a niche demand for
Pinewood, imported from New Zealand. plastic molded articles. Prima Plastics is one such company which
recognizes this and is geared for the growth ahead.
Prima Plastics Limited is one of the major market leaders (fourth largest)
in the Plastic Molded Furniture industry in India. It is present in western
and southern part of the country since 1995. They have a strong
distribution and dealers’ network, particularly in the western part of the
country. They have been conferred the Top Export Award since 1996 from
PLEXCONCIL India in the “Molded Furniture Category” with an annual
turnover of more than USD$15 million dollars. They design and
manufacture plastic molded furniture from chairs, baby chairs, dining
tables, stools and tepoys in a wide range of attractive colors. They also
export to USA, Africa and the Middle East. Export forms between 15-20%
of the recent total revenues and exports’ share is increasing over the years.
They are a dominant player (probably No 1) in Central African molded
plastic industry. Its strong brand, improved product-mix and expanded
reach has created a competitive advantage for them over the local players
in the same market. Since the market in that region is growing at a healthy
rate of around 15%, Prima Plastic is surely going to be one of the prime
beneficiaries. As the company expands its reach and explore in different
categories, the margin profile is increasing in the recent years.
Investment Rationale:
Margin expansion plus strong earnings to further improve the cash flow
and Balance Sheet. Increasing revenue contribution from international
Disclosure business and better operating leverage should lead to margin expansion
Sebi registered, have vested interest in the stock. and earnings growth. Hence, expansion both domestic and international
would ideally be funded through internal accruals only. Hence at the
consolidated level, debt equity ratio should remain largely under control.
118
“More money has

probably been lost
by investors holding
a stock they really
did not want until
they could ‘at least
Domestic market scope, value company and its business. But,
migration from unorganized to ideally when you are in a business come out even’ than
organized economy: As explained of consuming commodity and
earlier, there is a huge scope of selling brands, you have a financial from any other single
eating up the market share of cushion of passing either fully or reason. If to these
unorganized players in the industry partially the rise in cost to the
as the economy is gearing up to consumers. Prima Plastic is thereby actual losses are
become more and more organized. able to keep the margin intact. But
The organized industry pie would there is always a lag between the added the profits that
surely increase and smaller players time when the input cost rises and might have been
like Prima Plastic would surely be the time when the prices of the
among the biggest beneficiaries. finished goods are raised. made through the
Foreign Subsidiary Expansion: Foreign Exchange Fluctuation: As proper reinvestment
Central African molded plastic the company draws a significant of these funds if
industry is growing very rapidly on amount of business through
an average growth of 12-15% exports, it is to be kept in mind that such reinvestment
annually in the recent years. Prima fluctuation in foreign exchange rate
being one of the largest players is can adversely impact a company’s had been made
gaining good grounds over there. performance. when the mistake
Improving product mix, expanded
reach and strong brand would Valuation and Outlook was first realized, the
further propel its growth and The company should easily grow by
further improve the health of the a decent double digit rate for at least cost of self-
Balance Sheet. the next few years. At the current indulgence becomes
price, Prima Plastic trades at P/E of
Risks 23, which in isolation is a bit on the truly tremendous.”
Raw Material Prices: Major raw higher side, but when we compare it
material for plastic furniture to Supreme (P/E of 41) and
manufacturers is polypropylene. Nilkamal (P/E of 25), it becomes – Philip Fisher
Price of polypropylene is directly reasonable. Moreover, with the
correlated to crude prices. History expansion plans and earnings
teaches us that it is impossible to growth which is visible in the near
forecast crude’s trajectory, so this is future, we expect the stock price to
one uncertain terrain for the rise up from the current level.
119
Kamat Hotels (India) Ltd.

K
amat Hotels (India) Ltd. is a turnaround story of an
interesting business, in a promising industry. The company
is founded and owned by a maverick entrepreneur, Dr.
Vithal Kamat who is a second-generation businessman
belonging to a family that has been in the hospitality
industry for last seven decades.
Kaustubh Dattatraya Kamat Hotels owns and operates eight properties spread across four
Agashe brands viz
Director, Sales (Client Partner) • Orchid – Business and MICE (Meetings, Incentives, Conventions, and
Active in the market 12 years Events)
• Lotus – Resorts and Leisure
An IIM-A graduate, he is passionate • Jadhavgadh and Mahodadhi Palace – Heritage collection. Heritages sites
about value investing and teaching. He (Fort, Palace) turned into a hotel
has managed to spot a few multi- • VITS – budget hotel. Also extends spread via franchise model and
baggers (at least 6-7) and have been timesharing model, consulting/training of Hotel Management.
able to execute 2 of them for his
personal portfolio. He likes Chess, Key Highlights
Mathematics, Solving Puzzles/ • Promoters hold 61%. The founder is known to be a maverick and a
Problems and finds a lot of similarities fighter who has overcome many challenges in his business journey. He
between these and the investing world. has not left, or given up or shied away from facing challenges. The next
generation of the founder is actively managing the business. Thus a
significant business interest and hence skin-in-the-game.
My Mantra • Signs of turnaround. Income from operations grew 3.9%. The company
Mark Twain said: ‘Get your facts turned profitable – from a loss of `86 crore to profit of `40 crore.
first, and then you can distort them as Expenses have come down from `163.7 crore to `142.25 crore –
you please’. The same is true about reduction of 13%, which directly contributes to the profits. Before
investing. Get your core investment exceptional items – the company’s loss last year was `5.5 crore vs profit
philosophy right first; and then apply it of `22.2 crore this year. Cash from operations grew 24.9% from `53
as per your prudence/judgment. If you crore last year to `66 crore this year. Finance costs (interest expense)
have to sustain and grow for the rest of reduced by 33% from `39.5 crore last year to `26.5 crore this year.
your life, sound investment philosophy Successfully negotiated with lenders to restructure the loan.
is absolutely mandatory. So, don’t try
any shortcuts, even if they are available Concerns
and often seem attractive. Eventually • Book value of equity is negative (-70 crore)
they will take away from you more • 70% of promoter holding has been pledged (i.e. 41% of total equity)
than they helped you earn. • No new asset creation or expansion in last couple of years
Disclosure Hotel/Hospitality Industry Overview and

The author is not a registered analyst under SEBI Trends
the stock still readers must do their own research • Lean phase in Hotel/Hospitality industry since 2007-08
before investing in the company. • Now recovering slowly after 10 years of downturn
120
• Nationwide hotel occupancy Palace. Affordable Heritage Sites is smaller hotels in Tier 2/3 cities.
highest in 2016-17 since 2008 a unique differentiator of Kamat
• Foreign tourist arrivals have been Hotel. While other large and Summary
growing impressively in the last super-luxury hotels do have heritage Kamat Hotels is at the cusp of a
few years hotel sites in their portfolio, they are turnaround. The company is not yet
• Average Room Rate (ARR): not affordable. The other smaller out of difficult phases and there are
Approx `5500 for premium and hotels do not have heritage hotels. many issues to be addressed.
`2500-3000 for budget However Kamat Hotels has two However, the management actions
• Occupancy Rate (OR): 63% in heritage hotels in their portfolio so far signal that they are facing the
premium and 70% in budget which are affordable. With the challenge and make the turnaround
increasing trend of destination happen. The company will benefit
Outlook weddings or other family events, from the buoyant environment and
• Analysts peg Oàt 67-70% over these two hotels could turn out to be turn around in the sector. The
the next three years a major attraction for domestic and company is well poised to take
• Room tariffs should rise at a better foreign tourists. With proper advantage of that, with some good
pace than the 2-3% seen in the last positioning and branding these brands, hotel locations, expert and
12-18 months. hotels have a good potential to committed management and
• This in turn should improve increase their RevPAR substantially. favorable financing terms from the
RevPAR (revenue earned per lenders. The stock has already
available room) —a key ingredient Revenue Heads responded to the potential
in determining operating margins Room Revenue: Number of rooms turnaround and has moved up from
of hotels. is most likely going to be constant in 52-week low of `27 to `120 now.
coming years. However % OR and Investors are banking on the fact that
Business Metrics ARR improvement is likely to the management is taking all the
Average Room Rate varies for happen, leading to increase in effort to turn around the company
various properties. For Orchid revenue. (successfully negotiated with lenders
Mumbai, a premium hotel, it is Food and Beverages: The founder the financing costs/terms, brought
close to `6000. For Orchid Pune, a of Kamat Hotels, Dr. Vitthal down the debt burden from `550
mid-level hotel it is `2500. For Fort Kamat, started his career by gaining crore to `450 crore in last 1 year,
Jadhavghadh, a premium heritage good experience in their family turned profitable and started
site, it is `6000+. Overall the ARR business i.e. restaurants. Hence the generating healthy cash flow. The
is at par with the industry or slightly group has very good and significant stock is still trading at attractive
better. experience in operating large-scale valuation (FY1718 P/E of 7X) and
restaurants. Food and Beverages is there is significant upside left.
Occupancy rates for Mumbai based one of their strengths. F&B benefits
hotels is very good – in the range of when % Oìncrease. Further potential
75-85%. O`for Pune based hotels Other Revenue: Kamat Hotels has stock appreciation
are low – between 35-55% and need also started developing VITS brand may come from
improvement. The good part is that through franchise model. They • Improvement in business and
any % increase in O`would directly provide other hotels the training and profitability – More likely
contribute to the profitability since processes and management • Entry of a key investor/ financial
most of the operating costs are fixed oversight and earn a management investor – Likely
and already taken care of. fee or training fee or royalty (by • Strategic sale of assets and
letting them use Kamat Hotels consolidation of core business –
RevPAR – revenue earned per brand). They also work with these Less likely
available room: As Oìncrease the franchises to develop time sharing • At a market cap of only `300
RevPAR would increase. Kamat model – which is still being crore, this company is also a
Hotels can also use Pricing lever for experimented by the industry. Dr. potential target for other large
some of the niche hotels – such as Kamat’s personal image and brand players or strategic investors, once
Fort Jadhavgadh and Mahodadhi would be a major draw in getting the turnaround is complete.
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Majestic Research Services & Solutions Ltd.

M
ajestic Research Services & Solutions Ltd. (MRSS) is a
Digital insights market research (MR) company with
focus on Implicit Research. To put it in simple terms, its
research involves not asking the respondents, the
questions directly, but using technology to make
inferences. They use various quantitative and qualitative techniques for
Partha Pratim market research. Few of these are digital tracking, eye tracking, sensory
Mukhopadhyay research (smell, touch, taste), virtual reality, communities. They source
A value investor technology from various technology partners and are sort of technology
Active in the market 20 years aggregators. Their focus on implicit research and usage of technology is
where they differentiate themselves from the existing MR agencies like
Nielsen and others. Their USP is designing questions, interpreting data
and presenting it to the client in a usable format. The Target audience for
MRSS is all those companies who are already doing MR by converting
them to opt for Implicit research. These are relatively easier/less difficult
to convert as they already believe in the need for research; as compared to
getting clients on board, to go for their first MR assignment. Some of the
marquee customers include Google, HPCL, Land Rover, Myntra,
Unilever, Cipla, Marico, Bosch, HDFC Bank, GMR, Disney, State
tourism corporations, among others.
Huge Growth Potential

Traditional MR is a `6000-8000 crore industry in India. Social MR/
government research, etc. is another `20,000 crore size potential. Most
existing companies don’t have implicit research capabilities and are not
very focused on it. Currently implicit research is 5-10% for the industry
while for MRSS it is 25-30% of revenue. Majority of MR industry revenue
in India is contributed by the Consumer companies while globally it’s
more evenly spread out across other industries as well. 5% of ad spending
in India goes towards MR, while globally this number is 10-15%. All this
signifies huge industry growth potential, which, along with the increasing
shift towards implicit research, augurs well for MRSS.
Promoters
Promoters Raj Sharma and Sarang Panchal are two of the most focused
promoters that I have ever come across. Raj is the Chairman and CFO
and has a couple of decades of professional/entrepreneurial experience
Disclosure spearheading product launches, international business development and
The author is not a registered analyst under SEBI customer management functions. He is also the co-founder of Majestic
the stock still readers must do their own research MRSS, the parent of MRSS. Sarang Panchal is the CEO and has over
before investing in the company. two decades of experience in the fields of market research, alternate
122
construction, strategy, consulting and minority shareholders are acquisition has come dirt cheap
and e-commerce. He used to head aligned. and is integrating well, only time
the Customised Research practice will tell about their capabilities to
for A-Pac region at AC Nielsen. Improvement in Cash grow inorganically. Sarang Panchal
They are completely hands on with Generation is the key for MRSS from a
their business and have always been One key concern at the time of business perspective and hence is
ahead of the curve and proactive listing of MRSS was the high also the key man risk. Nonetheless,
when it comes to putting building receivables days and hence MRSS is building robust processes
blocks in place for future business insufficient cash generation to fund and also strengthening mid/top
growth. For instance, while their working capital. However, over time level management bandwidth by
organic business has been growing receivables have come down from recruiting industry veterans to
at 100%+ (on a small base) and 300+ days in Mar’15 to 160 days in mitigate this risk. Majestic MRSS,
continues to have strong growth Mar’17 and further to 100 days as the parent is also in the market
potential, they don’t want to rest on of Sep’17. This has led to OCF research space, largely catering to
their laurels and get complacent. improving from a negative `72 lakh the geographies outside India. A
They are on the lookout for in FY15 to a positive `.4 cr+ in large part of its revenue comes
overseas acquisitions in the MR FY17. With minimal capex/ from low end work being
space and have closed an investment requirements, this has outsourced by other MR agency
acquisition in Singapore recently in largely percolated down to high and in that sense there is a limited
Aug’17 (the acquired company is FCF generation. overlap between MRSS and
called Majestic Research Services Majestic MRSS. Lack of liquidity
Asia Pte Ltd – erstwhile Market Financials in the counter - this should be
Probe), which opens up the entire MRSS has grown at revenue/ taken care of once it migrates to
South East Asian market for them. EBITDA/EPS CAGR of the main BSE platform.
It also gives them an opportunity to 104%/156%/132% over FY15-17E.
bid for government contracts in This exponential growth has been Valuations Cheap
Singapore worth SGD10 mn pa. accompanied by significant Despite Strong Run Up
Icing on the cake is that this improvement in the balance sheet as MRSS boasts of strong promoter
acquisition was made for `3.1 well, thereby focusing on earnings pedigree, long and wide runway,
crore. (Which included `2.6 crore quality rather than just blindly strong balance sheet and cash
of cash) for a company with `23 chasing growth. It’s a debt free flows, robust return ratios (50%+)
crore revenue, which says a lot company now vs. 0.3x gearing in and attractive valuation. It is
about their ability to close potential FY17, has improved receivables focused on the niche and fast
acquisition targets at attractive days (as indicated earlier) and its growing space of Implicit market
valuations. RoCE has gone up from 17% in research and is the only listed
FY15 to 40%+ in FY17. This strong company in the market research
Sarang Panchal (who joined as a improvement in financials is likely space in India. It checks all the
professional) has recently been to continue with expected revenue/ boxes of what I look for in a
allotted 30,000 shares at 250/- (post EBITDA/PAT CAGR of company before investing. While it
1:1 bonus). Overall promoter 71%/78%/80% over FY17-20E, is up 6x in the last one year and
holding is 60%+ and there could be with RoCE crossing 50% and strong 60x (Yes!) since it got listed in July
plans to give ESOPs to top FCF generation. Singapore 2015, the story has just begun. It
management personnel over time. acquisition financials have not been trades at an attractive valuation of
Also, all key personnel have a factored in, and to that extent there 19x/12x FY19/20 earnings with
variable compensation structure is further upside to these numbers. potential earnings CAGR of 80%
which is linked to individual goals, over FY17-20E. This is without
organization goals, with strong Risks factoring in numbers from
focus on cash flows (linked to Expensive acquisition or longer Singapore acquisition, which itself
collection of receivables). All this than expected time to integrate has a potential value of 60-70% of
ensures that interests of majority acquisition(s). While Singapore current marketcap in my view.
123
Kokuyo Camlin Ltd.

BSE Code: 523207; NSE: KOKUYOCMLN; Face Value: `1; Market Cap (`Cr): 1350; CMP: `135
C
amlin started operations as Dandekar & Co with Horse Brand
ink powders and tablets in 1931, and shortly started producing
Camel Ink for fountain pens. It was incorporated as a private
company in 1946, and was converted into a public limited
company in 1988. In May 2011, this 85 years young Indian
bride, wed locked with the 105 years young Japanese stationery giant
Singaraju R. Kokuyo Ltd. Now, the promoter’s holding in Kokuyo Camlin is 74.99%
He holds a bachelor’s in Electronics (Kokuyo Ltd – 73.75% & Dandekar family – 1.24%). According to the deal,
from Madras University. Quit his job very Kokuyo’s innovative new office stationery products, world class R&D and
early to pursue own business; now strong presence in Asia is supplemented with the expertise, reach and brand
running a finance venture and also a
equity of Camlin. The deal happened @ `.110, valued Camlin
proud farmer. A maverick, part-time
approximately 2X of sales and 25 times of EBIDTA as on 31st March
investor rooted in value investing
principles. 2011.
Active in the markets 15 years Kokuyo, Who?

Kokuyo is a USD$3 billion, national stationary brand in Japan. Their
famous dotted ruled line notebook called “Campus” is sold 20 million units
My Mantra annually, which means every single student in Japan buys at least one
Always think and learn valuations, Campus notebook every year. The KOKUYO brand is iconic for Japanese
what a private business owner would students. Since its foundation in 1905, Kokuyo had been successfully doing
offer to buy out the whole company business only in Japan—in 2010, only 3% of their revenue came from the
vis-à-vis what the market offers market outside Japan. But the world is rapidly changing, even for a
currently; Always think long-term; company which didn’t change for 100 years. The company has now shifted
Usually being last/lost in the information its course drastically. They want to make-up for the lost opportunity—
chain, that’s the biggest edge a small quickly! The 2010 annual report states their ambitious goal to increase the
investor can boast of; Behave as the overseas sales revenue to 30% of the total by 2022. Ever shrinking Japanese
business owner, not as the stock domestic market adds to the woes of this good old giant, which has decided
owner; stop renting stocks and to venture out into the flattening world. Their primary market is Asia and
start owning businesses. they have been investing in China, Vietnam, and India. India with its 1.3
billion population and best of demographic profiles makes an attractive and
the key market for Kokuyo.
Building Capacities & Capabilities

Kokuyo Camlin Ltd (henceforth, KCL) currently operates with five
manufacturing units. Vasai, Maharashtra: Markers, Ball pens, Correction
Products and Adhesives; Taloja, Maharashtra: Inks and Adhesives;
Tarapur, Maharashtra: Hi-Polymer Leads, Colours; Jammu, J&K: Colours;
Disclosure Patalganga, Maharashtra: The new jumbo plant, recently commissioned in
The author is not a registered analyst under SEBI April 2017, will manufacture an extensive range of over 200 product SKUs.
stock. Readers must do their own research before KCL has shipping warehouses at 29 locations in all states in India,
investing in the company. supplying to mammoth three lakh-strong distribution channel across the
124
nation. In the last few years after the enjoys a lion’s share of the market
takeover, KCL moved to be more of (for instance art stationery and
a professionally managed geometry boxes). The brands are the
organization. Kokuyo Team was topmost assets, the new promoters
focusing on extension of the want to leverage to the maximum.
distribution network and To keep them relevant, Camlin
streamlining of the operations and spends about 3% of its top line into
make sure that the Camlin & Camel marketing out of which 70% goes to
brand remain strong. Marketing & above-the-line (ATL) marketing
branding initiatives like Camel Art activities and balance 30% into BTL
Contest (CAC), the flagship art promotions. The current media
competition of the company, is well strategy is 80% TV and 20% social
received. Leveraging the power of media.
IT, the company launched a web
based portal—SAMPARK— for Encompassing Product
distributors, to plan supplies and over 200 product SKUs (stock Range
inventories more efficiently. keeping units) and will also have a The wedlock makes KCL rich in
Introduced KAIZEN, the Japanese R&D facility for inks, adhesives and product line-up covering almost the
philosophy and the concept of plastic injection molding. The plant entire gamut of stationary universe,
continuous improvement in – spread over 56,000 sq m – is the covering—fountain pen, ink, stamp
manufacturing processes. largest among Kokuyo group inks, adhesive paste, gum, sealing
stationery factories in Japan, China, wax, chalks, drawing instruments,
To boost innovation and market Vietnam and Thailand. With this writing instruments, office
dominance, a R&D center was plant, Kokuyo Camlin has combined stationery, adhesives, notebooks, fine
opened up at Andheri, with a highly the production facilities that were art, hobby art and scholastic
experienced and qualified team. distributed within Maharashtra products etc. KCL claims that it has
Determined to focus only on core thereby creating a total production one of the largest product portfolios
business, in March 2014, KCL sold floor space which is twice in size in the industry spanning over 2000
its stake in ever losing subsidiary compared to the combined floor SKUs. Unlike Camlin there is no
Camlin Alphakids (pre- schools space of existing factories. The plant brand which has a comprehensive
under the Alpha Kids brand) to Dilip has a complete end-to-end portfolio across categories and hence
Dandekar & Associates. Provision of production capability and this would has different competitors in different
`4.8 crore has been taken for result in a reduction in the sub categories. In colours, KCL sees
diminution in value of investments production and logistics costs with Faber Castell as the nearest
in the subsidiary company. enhanced production efficiency. This competitor, Classmate in Geometry
plant increases the capacity of KCL Boxes, Cello in pens and pen pencils
The Patalganga Plant by 40% and will be the strong and Pidilite in Adhesives.
The company in April 2017 has foundation to power the next phase
commissioned a new plant at of growth at KCL. Along with Its product portfolio falls under three
Patalganga with an investment of contribution from Patalganga plant, distinct heads with each consisting
`100 crore; located near the Nhava KCL expects to cross a turnover of of innumerable items on offer:
Sheva (JNPT) port, this will serve `1000 crores by 2020. Students and education products;
both as a hub for domestic as well as Fine arts & hobby products; Office
international demand, primarily Iconic Brands products.
from Japan. Kokuyo Camlin The equity of the Camlin and
products lead in segments like Camel brands are just too strong! Both Kokuyo and Camlin have
markers, mechanical pencils, Brands Camlin & Camel have very complementary product portfolios.
crayons, etc., and all these items will high top-of-mind recall in India, The strategy is to increase the
be manufactured at the new plant. especially in those sub-segments of portfolio of KCL through line
The new factory will manufacture the stationery category in which it extensions.
125
Financials its mighty brands. Notebooks under and stationery materials. The
In August 2013, the company Camlin brand, already having strong government’s ambitious Sarva
mobilized `103 crore through a presence in the Southern and some Shiksha Abhiyan will also see huge
rights issue or shares @ `33, mainly Western markets, is making a full- investment of `60,000 crore spend
to fund the capex at Patalganga. fledged appearance nationally. Also that in turn will benefit the
Now that has successfully been done the parent Kokuyo introduced its industry. Increased allocation of
with, the company doesn’t have any iconic “Campus” brand notebooks funds on educational sector has led
major capex in near future. It has a through its 100% subsidiary Kokuyo to a higher consumption of
reasonably strong balance-sheet: In S&T Co.Ltd, in marketing alliance stationery and allied products and
Q2FY2017, D/E ratio at 0.4, with with KCL. As the name suggests, also a shift from substandard
90% of the gross debt of `95 crore is the brand will target college-goers. quality products to superior quality
of working capital management. branded products. This has
The reserves and surplus of `215 Innovative Product attracted increased presence from
crore are relatively large compared Launches both local and global players.
to the paid up capital of `10 crore; Kokuyo is a major player renowned Rivals in the business have deep
but the bulk of the reserves (80%) is for its notebooks and innovative pockets and are capable of waging
made up of share premium reserves. stationery products in the Japanese a long battle for leadership. In this
Still in H1FY2017, the trade market.Now with help from scenario, the new owner Kokuyo
receivables firming up compared to Kokuyo, KCL is unleashing an will help to take Camlin to the
trade payables indicates the exciting array of new & innovative next level.
company is still having difficulties to products such as: pin-less stapler,
collect its trade dues without calibrated scissors, range of flexi Government Thrust
extended time offer. files (first-of-its kind), mechanical The Indian stationery market is
pencils (also called pen-pencils), closely co-related to the literacy
KCL also buys out finished goods cartridge-enabled fountain pens, levels in general and the education
stock from associates and other stitch-less binding notebooks etc. sector in particular. The
vendors for resale on a large scale. Also the efforts are continuous to Government has made education a
Manufactured sales accounted for a bring synergy by more key thrust area with a target to
slice over 75% of all sales, while indigenization of raw materials and increase literacy rate from 70% in
trading, sales rang in the balance adoption of advance technology 2011 to 85%. Sarva Shiksha
25%. So far, the company appears to from parent to accelerate the pace Abhiyan (SSA) is Government of
generate comfortable margins with growth. India’s flagship programme for
traded goods while manufactured achievement of Universalization of
sales are mostly operating at a loss. The Indian Stationary Elementary Education (UEE) in a
In this context, it makes eminent Market time bound manner, mandating
sense to market more bought out The `20,000 crore stationery free and compulsory education to
sales. But the big capex spending industry in the country is poised the children of 6-14 years age
indicates that the management is for innovation and to register group, a fundamental right. SSA is
confident of striking positive CAGR growth of 15% in the next being implemented in partnership
numbers with its manufacturing few years. It remains highly with State Governments to cover
activities. fragmented and almost 70-80% the entire country and address the
unorganised. Camlin has 3 sets of needs of 192 million children in 1.1
Notebooks – New consumers – students, artists and million habitations. The last few
Thrust Area office- goers, of which students are years have witnessed rapid growth
Despite the strong brands and its the biggest segment. Industry in the education sector, with
market leadership in many schools watchers see a tremendous remarkable increases in number of
and coloring products, Kokuyo potential for growth in the secondary schools, colleges,
Camlin is still a laggard in domestic market as the country universities, as well as in increase
notebooks. But now it’s looking to has nearly 22-24 crore students in student enrolment and Gross
recreate the magic in notebooks with studying and require notebooks Enrolment Ratios (GER).
126
GST – A Game Changer Stationery Retailing More than a century old experience
The Indian stationery market is The stationery retailing market in of promoters; Extensive Product
characterized by the heavy India is still largely (~90%) Range; Dominant position in the
dominance of unorganized characterized by mom-and-pop market segment; The new jumbo
component as much as upto 70- stores, each one serving a catchment plant at Patalganga; Restructured
80%; and so accordingly will be radius of no more than two km. But and revamped operations (supply-
susceptible to the sweeping there are large organised players chain effectiveness / R&D focus /
changes of GST (along with emerging who are adding new reduction in fixed cost / product
DeMon), hugely benefitting the dimensions to pen and paper sales. innovations & tech adoption with
organised players. GST rate on There are a handful of brands that parent support / indigenization of
stationary products widely falls in have gone national, like: Future raw component) Capex done – soon
all slabs, but it’s 12% GST on most Group’s Staples and Reliance to reflect in numbers. On a flip side,
of the products like coloring Retail’s Office Depot, Reliance the rise in crude oil prices and the
matter, pens, inks, paper and Timeout, Hyper city etc. These rupee depreciation may impact the
paperboard, pencil, pencil stores are now fun shopping margins as it imports most of the
sharpener – from KCL’s stable. destinations with options for raw material which are derivatives
Earlier, with VAT – 6%, Excise – creativity and gifting. Or take some of crude oil.
2% and a plethora of other taxes, it of the ultra-premium stationery
mostly looks like the status quo brands / Indian online start-ups like Valuations
— GST not adding much to the The Paper Company, Paperbox, Many times businesses take time to
cost of stationery products in the Rubberband, LetterNote – are all mature. My sense is, after Kokuyo’s
12% slab. But now GST will upping the game where quality and take over, things are changing at
increase the tax compliance costs, aesthetics is the name of the game, KCL—little slowly but surely! After
along with the other compulsorily even dealing in some of the world’s coming under the Kokuyo fold,
provision of employee benefits like most popular stationery brands like KCL has already doubled its
ESIC, Provident Fund, Gratuity Rifle Paper Co, Sloane Stationery, turnover from `330 crore in
etc. – all will add to the costs for Midori etc. Industry watchers say FY2010 to `650 crore in FY2017.
unorganised sector up to 20% and that Indian premium stationery With GST and the Govt’s focus on
tremendously reduce the undue brands have only just begun the the education sector, KCL is poised
price advantage enjoyed by them journey. The customer profile too is to grow at a faster clip of about
so far. This will be hugely changing. The well-heeled executive 20-25% with the margin expansion.
advantageous to the value for is ready to spend anything up to As such, Kokuyo Camlin is a clear
money brands like Camlin to gain `2,000 on an exclusive diary or a turnaround case and, looking at
market share from the unorganised luxury pen. Customers are getting current ROE & PE is of little use.
segment. When the prices of raw less price sensitive and more brand The way to study is Mcap, EV,
materials had gone up last year, the and quality conscious. There will be Price to Sales, etc.. CMP @ `.135,
big manufacturers were unable to a paradigm shift in consumer buying Mcap @ `.1350 crore, going at
increase the price due to killing behavior in next ten years. The 2xsales is cheap. Brand driven
competition from the unorganised Indian gifting and office stationary consumer business, going cheap in
sector who imported cheaper industry is estimated to be in the a strongly emerging consumer
goods in their labels from China. range of `5000 crore and growing at economy like India—is really
Now with GST and also with 30% per annum. enticing! Still a rare, low hanging
China gradually losing its cost MNC fruit in the consumer space.
advantages, this pricing pressure is Key Strengths Possibly, a core portfolio candidate
expected to go away and eventually Well established market leader in – for a 3-plus year view. Seeing
ensuring a healthy competition. Indian stationery; Strong(est) brand what happened to other strong
But all this benefit of GST will be connect and association; Extensive consumer brands in Indian
possible and realized only after the and pan-India supply and markets, KCL should do well—is
full-fledged implementation of the distribution network; Synergistic the logic. In one word: HUL of
E-Way Bill, from April 2018. backing of MNC parent Kokuyo; Indian Stationary + Bird of Gold.
127
MIRC Electronics Ltd.

BSE Code: 500279; NSE: MIRCELECTR; Face Value: `1; Market Cap (`Cr): 1115; CMP: `48
M
IRC has been in business since 32 years with its brand
‘Onida’, run by a management team which is separate
from the promoters. Promoters own 57.7% stake in the
company. Onida’s 40% sales come from tier-I cities and
metros, while the rest comes from mid-segment
consumers mostly in semi-urban areas. The company offers trade margins
Jehan Bhadha of 20% to e-commerce players, 28% to dealers in tier-1 cities and 25% to
A practicing equity analyst dealers in tier 2/3 cities.
The company has a clear strategy to focus on core business and exit
non-core activities, which should provide a major boost to profitability.
My Mantra The company is looking to monetize non-core assets worth `160crore to
Anyone with basic common sense, become debt free in future. Onida is the only company which has survived
100% commitment, hard work, 3 decades in the consumer durables market, whereas others like Akai,
introspection, learning and a never say Thomson, Toshiba and Sharp have exited the Indian markets from most of
die attitude can create wealth in the consumer durables segments. This is because of Onida’s emphasis on
whatever field one subsumes. Life and R&D as well as its understanding of the Indian consumers’ needs
markets will often keep beating you comprising sound, quality and looks. The most important components of
down. Your dreams can only be a TV are its panel and microprocessor. There are just 2 companies globally
achieved if you fight back every time who have the technology to manufacture each of these components
you are pinned down, learn from respectively. All the B2C brands in India and globally purchase the panels
your mistakes and rise again. and microprocessors from these same companies and thus the only
differentiating point in a television is the brand perception, looks and
sound quality. Onida’s USP is its value for money brand perception, good
looks and best in class sound performance.
Product Mix
ACs make up for 52% of the company’s revenues, TVs form 41% and
Washing Machines form the balance. ACs are entirely imported from
China while the company manufactures TVs and Washing Machines at its
factories in Wada, Roorkee, and Haridwar. The company is currently
operating at just around 25% capacity utilization based on one shift and at
much lower levels if one considers two shifts. In a single shift, the
company can churn out 8 lakh TVs annually, while it currently
manufactures 2 lakh. The company manufactured 1.2 lakh units of
washing machine last year.
Disclosure Turnaround
The author is not a registered analyst under SEBI Over the last decade, the company lost market share due to (i) lack of
the stock still readers must do their own research focus on core segments of TVs, ACs and Washing Machine and
before investing in the company. diversification into non-core segments like mobiles and LED lights, (ii)
128
with unorganized competition as

they avoided taxes while Onida
was required to pay excise and
sales tax. Now the company
should benefit post GST. Also the
company has a large factory in
Wada, Mumbai, which can now
cater to all states without any
additional sales tax burden.
• The company may also consider
entering into contract
manufacturing as it has the huge
spare capacity. (Dixon has
showcased that even contract
manufacturing can be a great
business)
Conclusion
The above triggers should enable
the company to grow its top line at
rising competition and the • The company is also planning to 10-15% going forward. The
aggression of e-commerce based monetize non-core assets worth company’s market share in TVs
sellers, (iii) an unfortunate fire `160 crore, which comprises of and ACs is at 4-5% and is targeting
accident in 2012 which involved old vacant factories, warehouses to increase it to 7-8% in coming
their entire washing machine and excess land and buildings in years. The first half results indicate
factory getting burned down which prime locations in Mumbai. The strong momentum with EBITDA
also claimed lives of 11 people and company is waiting for an uptick margins improving from 1.7% to
rendered the factory unusable for in real estate prices to dispose of 7.4% in the first half of FY18
the next two years. these assets which will result in while on the bottom line front, the
turning the company debt free company has turned around
Over the past couple of years, the soon (Current debt at `157 posting a profit of `8 crore against
company undertook certain steps crore). a loss of `8 crore for the
towards restructuring the business • Company’s ad spends are at 1.5% corresponding first half of the
in order to regain its lost glory. of sales and is targeting to year. The company trades at less
These steps include – increase it to 3%. than 2X TTM EV/Sales as against
• The company has roped in an 3.5x for Hitachi & 4.2x for
• In order to add new revenue industry veteran from the Whirlpool leaving decent scope for
streams, the company had entered consumer durables leader LG - re-rating.
into the business of mobiles and Vivek Saran in FY16 as head of
LED lights. However, these sales to lead the Onida brand Concern
businesses continued to make aggressively in the market. Vivek The white goods industry is fraught
losses and hence the management comes with a rich experience of with excessive competition from
decided to discontinue these over 18 years in the highly companies all across the globe
businesses. competitive consumer durable having set up their bases in India. If
• The company retrenched around industry, with a proven track this competitive intensity further
two-third of its work force by record in sales and marketing. increases with new companies
giving a golden handshake for Prior to this, he was working at entering every year and no signs of
which it incurred a cost of `16 Whirlpool as the regional sales any consolidation, MIRC’s growth
crore in FY17. Post this company director-West. plans could take a hit and the thesis
has automated a lot of processes. • The company had been struggling may not play out.
129
CMM Infraprojects Ltd.

NSE: CMMIPL; Face Value: `10; CMP: `85
R
oad construction under PMGSY was at 130kms/day in
2016-17 against average of 73 kms/day during the period
2011 to 2014. In 2017-18, under PMGSY, the government
aims to construct 57,000kms (`200bn+) of roads at an average
rate of 156km/day, up by 20% yoy, to provide connectivity to
16,600 eligible habitations. Ministry of Road and Transport constructed
DB 8200 kms of roads in FY17. PMGSY is being implemented across the
A value investor country, particularly, in the States having a historical deficit of rural roads
Active in the market 5 years (Assam, West Bengal, Odisha, Bihar, Jharkhand, Madhya Pradesh,
Chhattisgarh, Rajasthan, Himachal Pradesh, J&K and Uttarakhand).
Affordable Housing will also swing construction demand in the sector;
expected annual construction $60bn. An estimated investment of $5 bn for
urban infrastructure over 5 years. JNNURM covers 63 cities with $15 bn
planned outlay in next 7 years; estimated Budgetary support of $23 bn over
the next 5 years for improvement in rural water supply & sanitation.
About the Company

CMM Infraprojects has an experience of over 37 years in executing works
contracts in building construction for government, PSUs and corporates in
MP, Odisha, Maharashtra, Chhattisgarh, Rajasthan and Gujarat. In
2007-08, CMM diversified into roads and executed EPC projects in MP for
MPRDC, MPRRDA and state PWD under Pradhan Mantri Gram Sadak
Yojana (PMGSY) and Major District Roads (MDR). The company started
in 1979 with Mr Kishan Mundra taking over in 1997 after the demise of
his father. Revenues clocked that time stood at `1.4 crore. The company
raised net `16.5 crore during its IPO. The company is primarily into the
EPC works for buildings, roads and irrigation. Madhya Pradesh
contributes about 74% of the revenues while the rest comes from
Maharashtra (17%), Chhattisgarh, Haryana, Goa and Uttar Pradesh. Till
2008, the company worked only as a building contractor and diversified
into roads in 2009 with PMGSY. From 2015, it started with district roads
and also water and irrigation projects.
Financials And Projections

The company has grown at a CAGR of 40% for the last 18 years. The
company aims for a sustainable Ebitda of 8.5-10%. The order book stood
at `683 crore as on November 2017. Currently, the split between verticals
Disclosure stands at Roads 55%, Buildings 35% and Irrigation works at 10%. The
The author is not a registered analyst under SEBI company aims to have an order book of `1000 crore by March 2018.
stock. Readers must do their own research before Going forward to enhance margins, the company aims to have roads as
investing in the company. 75% of order portfolio and rest in buildings and irrigation. Capex to the
130
tune of `35 crore has been done in

the last 3 years. FY17 total debt
stood at `42 crore and an FD worth
`10 crore. The company has a
bidding pipeline worth `400 crore.
It has also started bidding for
projects in the Northeast, where
margins tend to be higher. The
company will be in MAT for a year
more post which it will start paying
25% tax.
Key Risks
Regarding the capabilities to execute Delay in project awarding and
projects, for building orders worth payments by central and state
`100 crore, roads worth `150 crore governments and over dependence
and canals worth `60 crore can be on government bodies for fresh and
done by them on their own. It can repeat orders.
also bid for road projects upto `300
“The market does
crore with a JV. The company Investment Rationale not beat them. They
employees 45 permanent staff of Diversify into high growth
which 22-25 are engineers. The segments: beat themselves,
company is also contemplating • Foray into newer segments such as
appointing new auditors and are in affordable housing, station
because though they
talks with Grant Thornton. The development for metros have brains they
company has a credit rating of BBB • 3x growth expected in order book
by Crisil, Care and ICRA. The over the next 5 years with focus on cannot sit tight.”
company projects revenues of about Government road projects
`270 crore for FY18e with PAT – Jesse Lauriston
margins at 4-4.5%. Emphasis on high value contracts: Livermore
• Focus to bid for large ticket size
Key Projects Already orders in roads and buildings EPC also known “Great
Executed • Graduate to bid for MORTH and Bear of Wall Street”
East Coats Railway HQ, NHAI road contracts on (1877 – 1940,
Bhubaneshwar; Indian Institute of strengthening qualification American stock trader)
Info Technology & Management, • JV route for bidding to ensure
Gwalior; Sheopur Khatoli NH entry into high value (> `3bn)
Section, MP; Provision of Sewerage contracts such as with Keti
system into SADA and NP3 pipes, Construction Ltd.
Gwalior; Restructuring and • Will bid for margin accretive road
modernization of irrigation network, EPC projects with an experienced
Sheopur (MP); 100 bed hospital, design team in the medium term
Chimur; 100 bed hospital at Ujjain;
Residential for CRPF Technology and In-house
Accommodation, Nagpur; designing:
Residential complex for Urban Poor The company plans to implement
under JNNURM, Indore; SAP in the next financial year to
Residential platform for East Coast strengthen reporting systems and
Railways, Bhubaneshwar; Mahakaal become an integrated construction
Temple, Ujjain; and Harsiddhi player executing broad spectrum of
Temple, Indore. projects in- house.
131
Emmbi Industries Ltd.

BSE Code: 533161; NSE: EMMBI; Face Value: `10; Market Cap (`Cr): 385; CMP: `230
E
mmbi Industries (Emmbi), a technical textile company, having
started in 1997 as a B2B player in commodity kind product
- FIBC bags (application in bulk packaging), has reshaped
itself into a “need based R&D” driven company
manufacturing products under 4 product verticals each falling
under distinct brand umbrella. Emmbi now has filed 14 patents, has more
Nav Bhaiya than 40 products, has more than 200 clients and 44% of revenue is from
An avid investor exports. Out of 44% export revenue, 75% comes from regulated markets
After joining CA, he decided that he will (America, UK & Europe – This itself speaks for the quality of product).
never get into an Assurance / Audit and Now, let’s go back a little in time and understand what excited me to invest
work as an Equity Research Analyst. in Emmbi and what’s in store.
However, after qualifying, Audit was his
first job. He kept trying to get an equity What excited me to invest in Emmbi
research analyst’s job but never got Emmbi appeared on my screener in September 2015 and following are the
one. One fine day, he quit his job to few highlights which made me invest in the company-
start his own and after that there is no • Company was growing in mid-teens and available at roughly 0.30 times
looking back. of sales.
• Company was trading at roughly `32 rupee/share, i.e., available at a less
than 10 P/E.
My Mantra • Company added 3% of Market cap in Intangible assets, taking total
Market teaches new things every Intangibles to Market cap at roughly 4%.
new day. Ironically, all the successful • Capacity utilisation was at 68%, implying another `100 crore revenue
investors have their own different style. can be achieved without any cupcakes.
The only thing common is ‘their own • Promoters’ buying from open market made it all the more exciting
conviction’. One can borrow ideas, but (Promoter shareholding increased to 57.78% in September 2017 from
don’t borrow conviction. Build 47.10% in September 2010).
your own!
Investment in Emmbi has fared well so far and has been 7x in roughly 26
months. However, this wasn’t mere undervaluation play. It’s mostly
because of the promoter’s Makrand Appalwar and his wife Mrs. Rinku
Appalwar, a 1st generation entrepreneur, passion, hard work, clear
understanding of “twin value-creation lever”, i.e., top-line growth and
simultaneous expansion in margins. Starting as a trader of FIBC bags in
1994, they started manufacturing in 1997 with `5 lakh capital and a team
of 30 (20 still work with the company) and now employ more than 1500
people.
Disclosure Reshaping of Emmbi

The author is not a registered analyst under SEBI Emmbi reshaped itself from a manufacturer of FIBC bulk packaging to
stock. Readers must do their own research before one having 4 product verticals: Speciality Packaging – estimated global
investing in the company. market size is USD30bn. Currently this vertical accounts for 33% of
132
revenue; Advance Composites -

Estimated global market size
USD36.5bn. Currently accounts
45% of revenue; Water
Conservation - Estimated global
market size is USD2.5bn, this
vertical accounts 18% of revenue.
The company is focussing on
creating branded products – like
Pond Liners & Flexible Tanks –
marketing under “Jalasanchay”
Brand; Agro Polymers - Estimated
global market size Is USD4 billion.
Currently accounts for 6% of
revenue. Products are marketed
under the brand “Krishirakshak”. - range is designed with the focus on crore with similar 18% kind of
the concept of “Crop Protection at margin. Both the expansion will
Sensing an opportunity in 2015, Physical Level”. Emmbi Aquasave start contributing FY18 onwards.
Emmbi Industries started building is a result of dedicated trials for
channel partners & invested in more than 8 years focused on the Smart Innovation
distribution network. Right from saving loss of water by perculation. Emmbi’s in-house Innovation Lab is
creating “Dr. M” as the company’s Emmbi CleanTec is a special certified R&D centre where a team
mascot to engage better with manufacturing system for of 34 people work day-in and
customers, marketing innovative, “contamination-free production”. day-out to come-up with “need
branded products, training, channel The products produced under this based” innovative products. Emmbi
partner’s employee under a 15 day range are used for food & pharma- through its “Innovation Lab” has
certification program to coming up grade applications. started coming up with following
with innovative products every “need based” innovative products:
quarter with a focus on need based What’s in Store Now? Aroma Lock - This is a unique
R&D (under “Emmbi Innovation Understanding of following set of FIBC that has a special lining that
Lab”), Emmbi has taken all the measures will help understand how seals in the aroma of food stuff. For
right steps at the right time. will financials look like by 2020: industries that rely on the aroma of
Company targets to increase the Following are the two expansions the final product to be a major
contribution from B2C business – Dedicated Pond Lining selling point, this product is a
from 7% to 20%+ by 2020. Manufacturing Unit, which at its perfect solution. There are a lot of
peak utilization generates `100 opportunities for the product in
From a commodity crore top-line and 18% EBITDA industries like Coffee, Tea, etc.;
product player to margins. Management expects to Wool Pack - Wool Pack has been
a branded product utilise roughly 40% of capacity in designed and developed by Emmbi
player the 1st year & reach peak capacity Innovation Lab, for contamination
Emmbi has created following utilisation by 2020. Imagine, `7 free packaging of wool, based on
umbrella of brands for itself crore worth expansion generating `7 standards defined by various Wool
– Emmbi Jalasanchay is a brand crore worth operational profits in Exchange Authorities across the
which deals in the products which the 1st year itself. Isn’t really that globe; Poultry Curtain - This is a
are used for the storage, smart!!! Also, the domestic market low-cost light polarizer to improve
transportation & conservation of potential of this product lies the growth of chicks and expected
water. Most popular products between `15,000-20,000 crore. annual market size is roughly `20
among these are Pond Liner, Dedicated Food & Pharma crore; Upcoming products – Patents
Flexible Water Tank, Check Dam & Packaging Unit which at its peak for 3 new products have been filed
Lapeta Pipe. Emmbi Krishirakshak utilisation will generate roughly `40 and management expects to start
133
commercial production by last stabilise at 90 days working capital Conclusion

quarter of 2017-18. The three cycle by 2020. To conclude, let’s understand how
products are Animal Discharge the numbers will look like by 2020.
Route, Water Landing Strip and High Interest Cost The company reported roughly
Anti-Evaporation Cover. The company has high debt on `230 crore in top-line. With both
account of promoters being 1st the expansion reaching peak
Some Downsides generation entrepreneurs, high utilization by 2020 and with
Long Working capital cycle: Peak working capital requirement, improving realization/kg via value
working capital cycle of the further capex on the borrowed added products, my expectation is
company stands at 170 days money and absence of sufficient that company’s “net” top-line will
roughly. This is majorly on account operating cash flow. Roughly be north of `400 crore. EBITDA
of advance payment to raw material one-third of EBIT goes into margin is expected to improve from
supplier, credit sale (roughly 2 servicing interest. The management current 13% to above 14%,
months debtor period) and high has put a two-way solution to generating an operational profit of
inventory levels (roughly 3 months). control higher debt and interest roughly `56 crore. With
This leads to additional interest cost cost. With a focus on reducing depreciation & interest around `13
which dents profitability of the working capital cycle, getting a crore and average tax rate at 25%,
company. The management has better credit rating and re- PAT works out to be roughly `32
justified advance payment as it helps negotiating better interest rates crore. This at current valuation (I
in availing better raw material from lenders, management is expect price multiples to rise
prices. Also, management has by working hard to check both the further as 14 filed patents start
focussed effort brought it down to amount of debt and interest rate getting approval) garners a market
120 days. With a focus on B2C simultaneously. B2C cash and carry cap of somewhere close to `1,000
business, which is cash and carry, business will further ease the crore. Not to forget, by 2020
and rigorous management of pressure. Although, there has been management will be well
inventory and creditors, some improvement, it’s a work-inexperienced with all current
management expects to reduce the progress right now and hopefully expansions which has a bigger
cycle by 10 days every year and better days aren’t far away. market potential.
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134
Salzer Electronics Ltd.

BSE Code: 517059; NSE: SALZERELEC; Face Value: `10; Market Cap (`Cr): 316; CMP: `225
S
alzer Electronics Ltd is one of the leading players in Electrical
Solutions in India. It was established in 1985 by Mr. R
Doraiswamy, in technical collaboration with Salzer Schaltgerate
Fabrik, Germany. SEL is a leading player offering total and
customized electrical solutions in Electrical Switchgears, Wires &
Cables, and Energy management business and building segment. While
Manish Sarda the electrical switch gears and cable business constitute nearly 85% of
A value investor and entrepreneur turnover the remaining comes from building segment and energy
Active in the market 20 years management. While the company started with one manufacturing facility
in Himachal Pradesh, it now has five manufacturing facilities, located in
Coimbatore and Himachal Pradesh.
My Mantra
To build and preserve wealth, Leadership
from stock markets one needs to have Salzer is the market leader in rotary switches, Pu application switches,
own conviction. As it is rightly said torrential transformers and PVC wiring ducts. Salzer is the largest supplier
‘You can borrow an investor’s idea but of rotary switches and enjoys 25% of market share in domestic market.
you cannot borrow his conviction’. Salzer has a marketing arrangement with Larsen and Tubro Ltd. since
New investors should focus on 1993 for distribution of its switches in domestic market. Salzer has access
learning the process on how to invest to more than 350 distributors. The company is also the only approved
independently rather than coming with supplier of nuclear power corporation.
a mindset of doubling money the very
next day. There is also absolutely no Strong Customer Base
substitute for reading in the SEL is identified as the preferred supplier by General Electric and
investing world. Schneider. SEL also supplies to various domestic blue chip companies like
BHEL, Nuclear Power Corporation of India, and is the largest supplier to
Indian Railways for rotary and load break switches. The company remains
a proxy to play the above companies growth with an expected upswing in
the economy.
Advanced Engineering Capabilities

SEL has strong engineering capabilities backed by in house R&D team
and in-house tool-room equipped with Swiss and German machinery, for
manufacturing of dies and tools required for new products and repair &
maintenance of its existing moulds. It has technical collaboration with
M/S. Plitron Manufacturing Inc., Toronto, Canada to manufacture
Toroidal transformers. SEL has forged a strategic alliance with C3
Controls, in the electrical switch gear space in the US, for the
Disclosure manufacture of contactors.Since April last year they have started the
The author is not a registered analyst under SEBI commercial production of three phase dry transformers in technical
stock. Readers must do their own research before collaboration of trafomodern.
136
Risks
Electrical equipment industry is a
highly competitive industry. Also
Chinese products are picking up in
India and are very competitive.
Tough competition can result in
margin contraction.
Conclusion
The company has regularly made
investments in research and
developments resulting in the
turnover rising from about `200
crore in 2013 to `365 crore in 2017.
The profits have risen handsomely
from `7 crore to `17 crore in FY17.
Present turnover consists nearly added products to customers The management is confident of
80% domestic and 20% of exports. alongside specialized products like growing the revenues and profits by
The company is aggressively trying elevated traveling cables, hoist 20-25% for the next 3 years and has
to increase exports through various cables and other similar cables in given a target of `1000 crore
channels. In the wires and cable the segment. In the building product turnover by 2021-22. With higher
segment they started with branding division they have been successful in margin value added products and
for Larsen & Toubro and presently signing some annuity contracts with fixed cost model, operating leverage
they are branding for companies like the major builders like Shobha will ensure much higher double
Crompton Greaves, Texmo, Efab Developers, Reddy Structures, IJM digits EBITDA margins than
etc. In the last 2 years they have also Infrastructure and Pyramid historical one. Overall an interesting
started to focus on providing value Constructions. stock available at fair valuations.
Paanchve
Lekh Tandon has been associated with the Indian
film industry since 1947. In this gripping book
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Lekh Tandon describes his experiences of meeting
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legendary actor Prithviraj Kapoor, and learning the
Lekh Tandon Ki Zindgi ropes of film-making under Kedar Sharma and Raj
Kapoor; his associations with Shammi Kapoor,
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Khanna, Raj Babbar, Rekha, Rajesh Khanna,
Madan Puri, Ajit, Pran, Gulzar and many more; his
Meet the man who gave Indian friendship with Abrar Alvi, Shailendra, Jaikishan
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hits like Professor, Amrapali, Dulhan Wahi Jo Piya
Shah Rukh Khan. Man Bhaye, and Agar Tum Na Hote to his credit.
Biography of Lekh Tandon
Yes, the little known fact is Credited with some of the memorable soap operas Author: Krishna Kumar Mishra
that Shahrukh Khan faced the when he entered the small screen with his path Hardcover: 384 pages
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137
Shemaroo Entertainment Ltd.

BSE Code: 538685; NSE: SHEMAROO; Face Value: `10; Market Cap (`Cr): 1350; CMP: `415
S
hemaroo Entertainment Limited (SEL), established in 1962, is
promoted by the Chairman, Buddhichand Hirji Maroo. SEL has
its presence across different verticals of movies and the
entertainment business, including content aggregation, acquisition,
film production and subsequent distribution of the movie rights to
be monetized through the broadcasting channels (like television, home
Dhiraj Dave entertainment), new media (internet/ Value Added Services) and home
A full time investor video (VCD/DVD). The company also has a tie-up with many content
Active in the market 25 years providers in the industry. SEL’s content library has more than 3500 titles (of
which more than 443 are perpetual rights for Hindi movies) including new
Post graduation, started his career with and old prominent Bollywood movies and also titles in various other
a BSE Broker and was trading in the regional languages like Marathi, Gujarati etc. The company has raised
Ring (open cry system) for the broker equity through IPO of `.120 crore during September 2014. SEL acquires
during August 1994 - March 1995. After perpetual right as well as aggregate rights, which are limited by period,
that, while closely monitored market, geography or medium or all aggregate rights form the largest piece of
investment was restricted due to acquisition and drive the business volumes. Perpetual rights bring stability
employment restriction. He is a full time and drive higher ROI as the asset value of the perpetual right have always
investor since 2012. followed the media inflation every 5-year cycle.
Business
My Mantra Theatrical, Television and overseas release generate 90- 95% of the revenues
Always remember Hanes and in the first cycle of launch, where SEL is not typically present. In the first
Rabbit. The objective shall be slow cycle, SEL is present in the ancillary revenue streams like New Media and
and steady to the goal than to Home Video movie distribution, which contribute towards the remaining
jump. 5% to 10% of the revenues. SEL typically participates in the second and
subsequent cycles of film magnetization. SEL classify its business mainly in
two segments. Traditional media and New Media.
Traditional Media
Traditional media includes Broadcast syndication, Home entertainment and
other business accounting for almost 78% of revenue of SEL during FY11
to FY17, this business has grown at CAGR of 13.8%. Revenue is linked
with television industry growth. As per KPMG FICCI Indian Media report
(2016), the Indian television industry is expected to grow by CAGR 15% per
annum to `1098 billion by 2020, with both advertisement revenue as well as
subscription increasing by 15%. However, with increased availability on free
data, business dynamics with higher number of young generation audience
Disclosure moving out of TV with “Cord-cutting”, the business is facing major
The author is not a registered analyst under SEBI challenges; it would continue to account for the largest share in
stock. Readers must do their own research before advertisement budget in India for the medium term. SEL is expected to
investing in the company. grow at marginally higher than industry growth in this segment.
138
New Media working capital requirement. While ability time and again to remain in
New Media business broadly gets receivable days for traditional sync with changes in consumer
sub-categorized in Internet related business are around 180 days, same preferences and emergence of new
business, Mobile Value Added for new media business is around technologies (Book library to video
Service (MVAS) and other New 120 days. Further, EBITDA margin library to CD/DVD distribution-
media platforms (like IPTV/ in new media is also higher than broadcast right syndication- new
interactive services. Nearly 50% of traditional media due to higher media). Management has
new media business come from operating leverage in new media. demonstrated its ability to take
Mobile VAS and other forms of While on acquisition, large capex rational decisions even if it means
content consumed by the subscribers outflow happens up front, SEL acting counter cyclical or not bowing
of telecom companies. This is a continues to get the inflow over the down to industry imperative.
mostly subscription based revenue remaining life of copyrights which Further, management generally aims
where the user pays for the content. has limited operating cost. Pre-tax IRR of around 18%, while
SEL and telecom operator share acquiring content and hence acted
revenue in proportion of 30-40 or Free cash flow generating business conservatively when content market
60-70 if the content is hosted on the from FY18 observed aggressive pricing.
telecom operator’s platform. If the The management could visualize the
content is hosted on SEL’s platform, massive change in consumption Key Risks
the revenue share is 60-70% in favor pattern in video viewing. Hence, Inability to convert content in cash
of SEL. Balance 50% of new media they proactively decided to increase flow: While the company has
business comes from the Internet. the content of perpetual rights in the managed various disruptions in the
66% of this stream (i.e. 33% of new library. Perpetual Hindi movie rights industry, nevertheless, the sector has
media business) comes from which have been just around 165 in seen major change in technology,
YouTube. It is an ad supported FY10 (33% of the total Hindi movies which has made various players
model where YouTube shares library of the company) has which could not adapt to new
50-55% revenue it receives on increased to 443 movies in FY17 environment obsolete. Data
advertising on SEL’s content. SEL (47% of the total Hindi movie library consumption not translating in
runs a number of channels with of company). As per management, revenue growth: During Q1FY18
different type of programming the company has achieved a critical management call, there was
(Comedy scene, songs, full movies, mass of content on various internal discussion about the advertisement
regional language content, kids parameters. In order to achieve this allocation by media companies being
content, devotional music etc.) and critical size, the company has raised lower than viewership growth on
gets viewers for its content. debt, utilized internal cash YouTube specifically. The
generation and also raised equity. management has also said that in
Key growth drivers SEL Management defines this period early 1990s when TV penetration
The Increased Share of New Media as an investment phase when content was increasing, growth in the TV
Over the last 5 years, share of acquisition is higher than the advertisement budget has also seen
perpetual content is increasing in consumption. From FY19, the lag of 1-2 years and expect a similar
total revenue of the company. The company expects cash flow trend in digital advertising. However
share of new media has increased generation would not only be same may pose major threat to the
from 4% during FY12 to 22% during sufficient to provide for new content success of the SEL business plan.
FY17. With reduction in data cost requirement, it would also start
(both in broadband and mobile) and retiring debt. This, coupled with a Summary
increased availability of high speed higher share of new media is also The company is trading at TTM P/E
network, the maximum demand likely to result in a lower working of 17.5times. Given the expected
growth is expected from video capital requirement. It is expected to high growth of around 20% in
viewing which is likely to show more be free cash flow generating business. revenue and 25-30% in net profit
than 35% growth next 3-5 years. SEL over next 2-3 years, the company
would benefit from this factor due to Robust Management share price is likely to observe similar
higher EBITDA margin and lower Management has demonstrated its growth in next 2-3 years.
139
Oceanaa Biotek Industries Ltd.

O
ceania Biotek Industries Ltd. (OBIL) is engaged in the
shrimp hatchery business, having two hatcheries based in
Poombuhar, Naggatipatnam, Tamil Nadu with a total
capacity of approximately 650 million seeds. OBIL belongs
to the Oceanaa group, a business conglomerate based in
Chennai, which was founded in 1994 by Joseb Raj, a first generation
Zafar M entrepreneur. The Oceanaa Group is engaged in multiple areas of
A passionate investor in Small cap operations across different industrial sectors including manufacturing and
companies export of premium quality processed fruits and vegetables, fruit purees and
Active in the market 15 years concentrates for international markets; the entire product cycle of a wide
range of frozen marine & aquaculture products, etc. In addition, it is
He is a Chemical Engineer by involved in the field of Information Technology, as well as running an
profession and has a passion for the active Charitable Trust.
equity market. His area of interest is
finding multibagger in micro/small cap The Shrimp Hatchery Business
stocks where the promoter has fire in Shrimp hatchery operations involve the mating of broodstock (adult
his belly. shrimp), spawning of the eggs, incubation & hatching of eggs, and
nurturing of the hatchlings till such time as these hatchlings (called a seed)
are sold to the shrimp farmer. After leaving the hatchery, these seeds are
then transferred into ponds where they grow to full size at which stage
they are harvested & processed at shrimp processing plants and packaged
for sale/ export. In India, shrimp farming got a boost when in late 2008
the government permitted the farming of the Vannemei species in India for
the first time. The advent of specific pathogen free (SPF) broodstock and
the inherent favourable attributes of Vannamei, along with advances in its
culture technology, have made large scale production possible at very low
costs, leading to explosive growth in the sector.
Brief history of operations

OBIL came out with an IPO at par in March 2014 in order to fund the
setting up of a food testing laboratory and got listed on SME platform.
Later that year, OBIL decided to leverage the promoter’s 2 decades long
experience in the shrimp industry and put up its first shrimp hatchery of
400 million seed capacity at Poombuhar. To fund the same it raised funds
via a preferential issue at `50/- to non-promoters. OBIL also started
trading in shrimp seeds. Post it’s own hatchery going on stream, OBIL
started scaling down the seed trading business and concentrating on
Disclosure scaling up it’s own hatchery operations where it could exercise maximum
The author is not a registered analyst under SEBI control on the quality and bio-security aspects. OBIL has a well-equipped
stock. Readers must do their own research before Microbiology, Analytical Chemistry, and Molecular Biology Lab to
investing in the company. analyze samples for bacteria, viruses, antibiotics, pesticides, and water
140
chemistry, among other tests. The salinity of water, pH, rainfall and
company’s lab is equipped with other climate parameters – this
cutting edge automation and online requires close monitoring, quick
tracking of samples. It is currently decision making and decisions so
fully engaged in support of the taken have to be implemented
company’s own hatchery within extremely short time frame
operations. In 2016 OBIL came out to ensure a favorable outcome. This
with a 7 for 10 bonus issue, taking requires tremendous technical skills
its equity up from `6 crore to `10.20 and experience in the hatchery
crore after which it migrated to the business. In the case of OBIL
main board of the BSE. In early however, this major risk is mitigated
2017 OBIL went in for an to a large extent by the
acquisition of another hatchery mushrooming of unauthorized management’s vast experience in the
having rearing capacity of 250 shrimp hatcheries, leading to shrimp hatchery business. OBIL
million seeds and having large pressure on seed prices, poorer wishes to expand the hatchery
maturation facilities. The quality seed supplied by these business, and eventually span the
acquisition was made by way of hatcheries is leading to the entire shrimp sector. How it
share swap rather than cash rejection of some export manages this expansion while
consideration, thus taking its equity consignments by the European keeping equity and debt in check
up to the current level of `13.57 Union and the US, as traces of needs to be closely monitored.
crore and bringing down promoter anti-biotic residues have been
shareholding in OBIL to 39.07%. found in them. This has led to The group has other unlisted
The company is currently debt free. calls for a ban on import of companies in similar lines of
shrimp from India. The Coastal business, i.e. shrimp hatcheries,
Why the company is Aquaculture Authority (CAA) & shrimp farming & shrimp
interesting? state fisheries departments have processing.
• The shrimp industry in India has started cracking down on
been on a scorching growth path unauthorized hatcheries. Valuation &
ever since the government • OBIL management has shown Conclusion
permitted the farming of itself to be shareholder friendly, OBIL has reported topline of
Vannamei Shrimp in late 2008. paying out dividends as soon as `23.28 crore for the first six months
Demand for seed is expected to the company turned profitable of the financial year with bottom
keep increasing at a good pace and also declaring a bonus issue line of `2.18 crore. It appears on
going forward too. in 2016. track to report a topline of `45-50
• OBIL is part of the Oceania • OBIL has ambitious plans to crore for the year and bottom line of
group, with its promoters having expand not only the hatchery `4-4.5 crore (previous year `36.70
more than two decades of business, but eventually span the and `2.70 crore respectively). The
experience in the shrimp hatchery entire shrimp sector, including recent run-up in the stock price to
business / shrimp industry. They shrimp processing and exports, `95 however, makes it seem richly
are thus well placed to handle any and may possibly enter the shrimp valued at present. Nevertheless,
eventualities. Besides, the seed feeds business too, making it an given the exciting prospects of the
business is driven by relationship integrated player across the shrimp industry, and the company’s
with farmers, and though OBIL shrimp value chain. Currently the own ambitious plans, OBIL
itself has been in the business Oceanaa group as a whole already deserves to be closely tracked by the
only since 2014, it derives the has a presence across the entire investor community. Readers may,
benefit of a more than 2 decades sector barring the feeds business. take an appropriate investment
long relationship of the decision after deeper study of the
promoters with the shrimp Concerns company and its prospects, while
farming community. Hatchery operations are very not forgetting to keep an adequate
• Though there has been a sensitive to changes in temperature, margin of safety.
141

E
stablished in 1989 Associated Alcohols & Breweries Ltd
(AABL) is one of the largest distilleries in India headed by the
Kedias of The Associate Kedia Group. The company has
presence in every aspect of the value chain - All varieties of
portable alcohols, country liquor, high quality rectified spirits,
extra neutral alcohol, extra fine triple distilled grain spirit, IMFL in
Pratik Mukasdar whisky, brandy, rum, gin, and vodka categories; Also bottling Scotch
An investor and entrepreneur Whisky for international brands. The promoters hold 58.45% stake and
Active in the market 5 years some 5 Marwari guys hold 2.22% stake together. Registered Office of
AABL has been in Kolkata and two Kolkata financial market entities
A Marwadi who left his CA course Garnet Tradelink and Attic Dealcom both having same directors hold
midway, did an internship with a local another 20%, almost. That means almost 80.67% equity out of total 1,80,
broker to learn basics of research, in 00,000 shares are with promoters and others leaving only approximately
early 2013 heard Raamdeo Agrawal 34.8 lakh shares with small shareholders.
and became a passionate long term
investor. His goal is to build a global Business
financial corporation over the coming As the leading distillery in India, Associated Alcohols and Breweries Ltd.
two decades with a presence in wealth is the only company to have a presence in every aspect of the value chain.
management, asset management and From Extra Neutral Alcohol (ENA), potable alcohol, grain spirit (extra
corporate advisory. fine grade, triple distilled), rectified spirit and Indian Made Foreign Liquor
(IMFL). The company not only markets its own brands but manufactures
IMFL and Scotch Whisky for many Indian and international companies.
My Mantra The only company to bottle single, malt Scotch Whisky in India. Top
Be optimistic; always firmly believe AABL licensed brands are: Black Dog, Smirnoff Vodka, Captain Morgan
that wealth is going to get created in Rum, HAIG Scotch, Glen Drummond, and Royal Crown. Many of these
the market in the long term; Try to brands are owned by United Spirits Ltd. AABL apart from licensed brands
understand the power of compounding; also started a range of own brands like: McGill Whisky, Jamaican Magic
Read and try to develop qualities such Rum, Bombay Special, London Bridge Gin, Red & White Whisky. The
as humility, patience, discipline and, company has a great relationship with liquor majors which buy almost
fearlessness; Try to know and develop 60% IMFL produced by AABL and the remaining is used for direct
what works for you and make it supplies to branded suppliers across the country, apart from manufacturing
your own investing philosophy. its own brands.
The company has its facility in Indore. It has the largest grain base
distillery of three crore litres p.a. The company is increasing its distillery
capacity to seven crore litres per annum in the coming years. The company
will consume 10 acres for this `80 crore expansion out of its available land
Disclosure parcel of 125 acres. The project is expected to be fully on stream starting
The author is not a registered analyst under SEBI 2020-21. The capacity expansion will make it possible to double the ENA
stock. Readers must do their own research before capacity with a 50% increase in asset investment, strengthening our overall
investing in the company. competitiveness. This will also get the operating leverage into play. The
142
company intends to consume 60%

of the expanded ENA production in
the manufacture of country liquor
(captive value-addition), 20% of the
output in the manufacture of IMFL
and the rest in merchant sales to a
“Every Business is
large customer. In view of this Manmade. It is a
proposed material allocation, the
incremental production is virtually result of individuals.
pre-sold.
It reflects the
Focus On Personalities and the
Transformation
In 2016-17, 20% of the company’s Business Philosophy
revenues were derived from IMFL;
only 3% of IMFL revenues were
of the founders and
premium. By 2020, the company those who have
expects to increase the proportion
of IMFL revenues to 50%; 50 % of directed its affairs
the company’s IMFL revenues are
expected to be derived from the first time in the last many years
throughout its
premium varieties. Going ahead, in FY16. The management has also existence. If you
the company expects that the launch given 1:1 bonus. For full year 2018 it
of the competitively-priced Central can be expected that last two want to have an
Province Whiskey and Titanium quarters should be good, means
Triple Distilled Vodka will EPS of 14+ should be on the cards.
Understanding of any
progressively carve out market share Business, it is
and enhanced realizations. Key Risks: Anti-alcohol stance of
Approximately 60% of IMFL is the government; Delay in important to know
taken by United Spirits and Radico expansion; Unfavorable
Khaitan. development in key clients like USL
the *’Background of
and Radico Khaitan. the People’* who
Valuations
The trailing PE of the company Conclusion started it and
adjusted present fiscal half yearly Irrespective of stock market
earnings comes around 25 mes. conditions, the consumption theme
directed its Past and
However the company has delivered is one of the best investment the Hopes and
a staggering growth of 39.33% PAT themes. One major hype has been a
CAGR between FY13-17. Topline liquor ban here and there, but in Ambitions of those
CAGR for the same period was reality, major tax revenue for both
13.52%. With the scheduled capex, central and state governments are
who are planning its
we expect this rate to maintain as from liquor and tobacco sector and Future.”
operating leverage will play its role. no one in the world kills the goose
On a PEG basis the company is that lays the golden eggs. Associated
trading at less than .8X its 5 year Alcohols & Breweries Ltd (AABL) – Thomas Rowe
profit growth, which seems to be is one attractive opportunity in the Price Jr
sensible. The company is market, with such great growth and
maintaining RoE of above 25%, wonderful positioning in the value
which is very attractive. The chain it should be trading at really
company also paid a dividend for premium valuations.
143
Nath Bio-Genes (India) Ltd.

BSE Code: 537291; NSE: NATHBIOGEN; Face Value: `10; Market Cap (`Cr): 860; CMP: `490
A
griculture sector share in the GDP is around 18% and it is
the backbone of Indian economy. We’ve heard slogans like
“Jai Jawaan Jai Kisan”, “Annadaata Sukhibhava” etc., but
today’s government is focused on increasing rural income
and ensuring that there is more stability as far as Agri
income is concerned. Thus, no portfolio is complete unless it has one or
Swarn Saklecha more agriculture stocks in it. The sector has on one end Agrochemicals
An entrepreneur and investor in Small and seeds at the other end. My pick is most experienced seed company of
Cap companies India, almost as old as the industry itself– Nath Bio-Genes Ltd.
Active in the market 8 year
Before I start my simple note I wish to put the views of a couple of Fund
He is always in learning mode and managers who echoes the bullish sentiment in the Agri sector. Kenneth
believes in sharing stock ideas as well Andrade: “I think there is a very large opportunity in rural India. There
as the reasoning behind investing with are a lot of places in that economy. I think fertilizer is probably the largest
every interested person. His father and consumed product out there. You have got Agrochemicals on one end and
some leading investors are his mentors you got seeds at the other end, but more importantly 50% of the entire
who enrich his knowledge with their farmer’s expense goes into labour and if the stated intent of the
vast experience. government is to double the per capita of the farmer by 2022, you are
going to see a lot of wage inflation down there.”
My Mantra Sunil Singhania: “Agri is a big theme. The government is focussed on
Equity is a wonderful asset class increasing rural income and ensuring that there is more stability as far as
to create wealth in the long run. As an Agri income is concerned. We have a good forecast for monsoon and also
investor, you have to buy a business,
there is a clear focus of the government to increase irrigation facilities so
not a stock. You must have the vision to
the vagaries of monsoons are behind us. All this would mean that rural
build conviction, the courage to buy
income would rise and therefore all Agri-based themes, whether it is rural
and a patience to hold. Capital is more
consumption or Agrochemicals or fertilizers should start to see much more
important so every investor should look
stability and growth as we move forward”.
for a margin of safety before
investing.
About the Company
The company belongs to well diversified Nath Group and was founded in
1979. Nath Bio-Genes is a veteran in the seed industry, with an established
brand name in key crops such as Cotton, Paddy, Wheat, Maize, Bajra etc.,
including vegetable seeds such as Okra, Tomatoes, Chillies, Brinjal etc. and
has presence in oil crops such as cotton, Mustard seeds and sunflower.
Apart from the seeds Nath Bio is also focusing on Crop Supplements like
“Win-chi-win” a bio growth enhancer and “Bio-energy” an organic
Disclosure natural nutritional supplement. Its seeds are sown over 40 lakh acres; it
The author is not a registered analyst under SEBI works with 15,000 seed growers over 25,000 acres farmland. Nath is
stock. Readers must do their own research before research-driven seed company keeping product, research and marketing as
investing in the company. attributes of success strategy going ahead.
144
Power of Equity
Film actor Rajesh Khanna In 1963, Godrej paid òne lakh
bought an iconic bungalow on to buy his first house, a 2916
Carter Road in Mumbai for sq.feet apartment at Usha
`3.5 lakhs in 1970. His heirs Kiran, Carmichael Road, in
sold it for `85 crores. The tony South Mumbai. In 2011
The Opportunity property has multiplied by he sold it for `25 crore. Money
Hybrid seed market in the country is 2428 times or an annualized multiplied by 2500 times over
valued at a whopping $1.5 billion. return of 19.38% over 44 48 years or an annualized
Apart from a big domestic market years. return of 17.70%.
Nath Bio is also planning to establish
its presence in overseas markets.
Recently the company has launched
Fusion Bt cotton seed products in
the Philippines. It is also targeting
overseas markets in SAARC and
East African countries. Nath Bio
with its associated companies was
awarded 100 acres to develop a mega
food park where it owns 20% equity;
this business is expected to generate
revenues starting 2018. With its
strong R&D the company claims to
hold a portfolio of winning products
and now focused on marketing to
reap the benefits.
Samudhra Mahal in Mumbai is In Dalal Street, Mumbai a sq.
Financial and another expensive property. A feet was `100 in 1980. After
Conclusion flat purchased in 1970 at `700 34 years, it sells at `27,000
Nath Bio earned revenue of `170 per sq.ft was sold at `1,18,000 per sq.ft. Money multiplied
crore in 2016/17 and posted `16 per sq.ft in 2013. Money by 270 times in 33 years.
crore profit registering 11% growth multiplied by 168 times in 43 This works out to an
over last year. Recently management years. This works out to an annualized return of
guided for a growth of 25% to 30% annualized return of 12.66% 17.90%.
year on year in revenue as well as
profit backed by improved margin
due to product mix and focused
marketing.
So the year ahead seems full of

opportunity for the company to
prove its forte. The seed industry in
India offers a magnificent
opportunity and Nath Bio is still a
small cap. With a path set for its
growth, we can expect a stellar
performance and decent returns.
145
Perfect Infraengineers Ltd.

NSE listed SME player; CMP: `26
P
erfect Infra is NSE listed SME player; IPO came in November
2015 for fresh issue of 2,508,000 shares priced at `23 per
share; aggregating up to `6 crore. Mainly involved in HVAC/
MEP Turnkey projects which constitutes 82% of their total
revenue in FY17. Other than this Sale of services constitutes
12% of revenue; Cross selling of Electric panels for their existing clients
Rajiv Mehta helps them to generate another 5% of revenue. In recent years
A value investor management decided to stop taking subcontract which impacted the
Active in the market 20 years growth in their topline but operating margins improved from 16% in
FY15 to 21% in FY17.
He is the founder of Value Creators and
brings in substantial years of financial Promoter’s Background
and entrepreneurial experience to the For the most part, microcap companies are small, young companies, with
firm. He is a large investor in various short operating histories. Successful microcap investing is similar to
listed and unlisted companies across successful venture capital investing as in both the cases the bets are on
the sectors. founders (on people). The show runner of Perfect Infra are dynamic
personalities Nimesh Mehta and Mrs. Manisha Mehta. Nimesh Mehta has
exceptional engineering, costing and marketing skills. In May 1996 started
My Mantra with employee’s strength of 20 people, it is now 300 employees all over
The most important thing in India. Mrs. Manisha Mehta completed her CA in her first attempt. She
investing is handling your enjoys excellent relationships with Bankers, Finance Institutions and
temperament and accommodating Merchant Bankers.
your investing style. In a bull market,
seeing your investments rise is no way Future Aspirations
to validate your level of intelligence. In SunTrac USA and Perfect Infra Engineers Ltd. have announced their
fact, it can be extremely dangerous to collaboration agreement to manufacture SunTrac’s Hybrid Climate
your wealth because Bull markets can Systems and Smart Panels, first of its kind in India, for distribution in the
force investors to abandon a good Indian and global markets. On our conversation with CEO of SunTrac
process. FOMO (Fear of missing out) Rich Cooley during his India visit, we found him to be a passionate
is a powerful motivator and causes technocrat who has been working on this product since a long time and
smart investors to do stupid things. succeeded in getting a patent in Feb’ 2010 in US (U.S. Patent #7665459).
With so many unknowns in the He looks at India as a great opportunity not only as a manufacturing base
investing world, it’s important to but also as a big market; and considers this tie up as a first step towards his
manage risk, limiting downside, global aspirations.
while protecting upside.
Merits of installing ‘Perfect-SunTrac’ Hybrid
Climate System
Disclosure • In an Air Conditioning System, electricity, mainly gets consumed by the
The author is not a registered analyst under SEBI Compressor. Perfect SunTrac Hybrid Climate System enabled Air
stock. Readers must do their own research before Conditioner would work on solar energy as well as electricity. It uses
investing in the company. external energy from the Sun using smart panels to meet the energy
146
required by Compressor partially SunTrac’s global order flow, stands at `11 crore. Additional
along with managing the heat including Middle East/North `5 crore was raised to fund new
level. As a result, it reduces Africa regions, Australia and project that will take the total
electricity consumption by the Asia. SunTrac needed a debt to `16 crore against the
Compressor up to 40%; reducing manufacturing base outside US. equity size of `9.6 crore (D/E =
and creating positive effects for They are trying to follow a dual 1.7). Any elongated delay in cash
the environment. This is a manufacturing center model flow from the new project might
monopoly product and Perfect which can serve both sides of the impact the bottom line
Infra will be the 1st company in world. negatively.
India to manufacture. • For this project Perfect Infra has
• This is a very low maintenance incurred a capex of `10 crore. Out Market Potential
and heavy built product. of which `5 crore has been • Broadly A/C market is segregated
Warranted for 10 years but can funded through debt and rest `5 in following category: Window
easily last more than 20 years. It crore by equity infusion through ACs, High Wall Splits, Floor
is priced around `1,75,000 per preferential allotment to Non Mounted Units, Cassettes,
unit; which company claims to Promoters in August 2017; issued Inverter ACs, Ductables and
be an attractive price for 18.82 lakh shares at the rate of Packaged Units, VRV/VRF Air
consumers on life cycle cost `27 per share. Condition System
analysis basis. • After this preferential allotment • The Perfect Suntrac Hybrid
• SunTrac India claims that by - Share capital of the company system would be suitable for VRV
installing just 10,000 SunTrac increased to `9.6 crore and (Variable Refrigerant Flow) Air
panels, customers can save promoters holding decreased from Condition Systems and Chillers
39,000,000 kWh of electricity 65.55% to 52.68%. for a big setup like Industrial unit
annually, which is equivalent to or large Residential projects,
3,026,048 gallons of gasoline Valuation which requires A/C above 10 ton
consumed. Perfect Infra is a `25 crore market capacity.
• In 2016, a SunTrac System was cap company trading at `26 per • VRV air conditioning system is
integrated and tested with a high share, with Price to sales multiple the next potential area of growth.
efficiency Daikin 2 Ton DC of 1.5x. Even if the company
inverted variable speed mini-split achieves 30% capacity utilization Scaling Up
system. Goodman/Daikin for its new product, the topline can Possibilities
conducted the evaluation, and show an increase of more than • Tie up with OEMs to put this
compared the two weeks’ worth 100% from the current levels of `17 device inbuilt in VRV/HVAC
of data (one week with the panel crore in FY17. This new product is Units offered to the market.
and one without), at identical expected to have margins in the • Tie up with finance companies so
ambient conditions. range of 15% - 20%.. It’s an that clients/end users can pay in
interesting microcap where the sky EMI equivalent to their monthly
Perfect Infra Tie-up could be the limit. energy cost saving.
with SunTrac • Perfect Infra will manufacture
• In August 2017, Perfect Infra tied Concerns Hybrid device compatible with
up with SunTrac to bring Hybrid • This is a product concept; above 10 ton A/C capacity, but
climate systems and smart panels production has started at their at a later stage a miniature form
in India. With this collaboration Navi Mumbai plant, but of this device can be launched
Perfect Infra will be the only acceptance of this product in the for 1 to 5 ton A/C at a lower
manufacturing unit of SunTrac market is yet to be proved. price
outside of the USA, and will be • Trading lot is of 6000 shares so • The installed capacity is about
marketing and distributing liquidity would be an issue, till the 5000 units per annum, but it can
SunTrac products under the time scrip migrate to the main easily be doubled by simply
“Perfect-SunTrac” name. board of NSE platform. doubling the shift time (Source -
• Perfect will be positioned to fulfil • By the end of FY17, total debt Management Interaction)
147
Autoline Industries Ltd.

BSE Code: 532797; NSE: AUTOIND; Face Value: `10; Market Cap (`Cr): 209; CMP: `100
A
trailblazing story! That’s how Autoline Industries Ltd.
(Autoline) describes its journey of two decades in the auto-
industry. From a turnover of meager `11 lakh during the year
of incorporation, 1995-96 to over `800 crore in 2012-13, the
story of this Pune based auto-components manufacturer
actually looked trailblazing, however, the fiscal unfortunately proved to be a
Saurabh Jain year of U-turn instigating a trend of falling turnover and weakening
Senior analyst with Sushil Finance profitability for years, in a row. The slowdown in the auto space appeared as a
Active in the market 7 years speed-breaker and their dependence on Tata Motors put brakes on their
growth. The sales fell to nearly `300 crore in 2015-16 and the bottom-line
turned blood-red with losses deepening beyond `50 crore. The company
My Mantra succumbed to a severe liquidity crisis, which not only snatched away the
Start as early as possible, hold as profits, but led to compromises on the order inflow as well.
long as possible’ or rather say, ‘Invest in
your twenties, hold in your thirties and The Company
you could retire in your forties’. Once Autoline is one of the largest sheet metal components manufacturers
you have developed a good conviction primarily engaged in designing and manufacturing of a wide range of
on a story, do more of your homework, products weighing from a gram to 400 kilograms including assemblies
which will help you with the right and sub-assemblies like loadbody, outer-door-assembly, roof assembly,
allocation because looking back after floor assembly, foot control modules, parking brakes, door hinges, cab
successful findings the only regret stay and cab tilt, exhaust systems, tubular structures, fabrications, etc; the
which will remain with you is your product catalogue boasts over 2,500 products. The company owns
allocation. Unfortunately, I got to second largest tool-room in the auto-hub of Pune and one of the most
learn this quite late. advanced robotic welding facilities. It operates through 11 manufacturing
facilities scattered across Pune, Dharwad, Uttarakhand and Chennai; 9
of these facilities are built on company’s own land totaling over 120,000
sqmt. The clientele include General Motors, Volkswagen, Ashok
Leyland, Fort Motors, Fiat, Mahindra, Cummins, Nissan and Daimler
along with, of course, Tata Motors which still continues to be their
largest customer.
Turnaround Initiatives
During the recently concluded fiscal, the company took a number of
initiatives to optimize the operations and derisk the business while
making all the possible attempts to bring the pace back. These initiatives
include consolidation of facilities in order to monetize the excess land
coupled with the objective of bringing in operational efficiency, cost
Disclosure savings and streamlining the supply chain management. A number of
The author is a SEBI registered Research Analyst, other cost saving initiatives, including supplier rationalization, inventory
owns the stock in his personal portfolio and also
recommended to clients. management, system improvement, revision of credit periods have been
undertaken during the year. The impact of such cost-reduction programs
148
would actually be visible when the Autoline Industrial Parks Ltd. the near future will substantially
turnover will embark the growth which holds a piece of land of 104 reduce our working capital burden
trajectory. On the other hand, the acres at Chakan, Pune and is in the and we will be once again ready to
additional facility at Dharwad and process to set up a township under take fresh orders.”
new set up in Chennai went Special Township Project. The site
operational during the year which is situated in the centre of Chakan’s Outlook
marks the company’s foray into auto hub, opposite Bajaj Auto Ltd, The company doesn’t need to
new geography and open up novel on the proposed 8-lane invest anything substantial to
business opportunities. Another Ahmednagar-Talegaon Road to reclaim a top-line of `800 to `1,000
positive development during the JNPT/Mumbai. The company has crore which explains the current
year was its major customer raising recently executed an MoU with under-utilization of assets and no
its monthly committed business Poddar Habitat Pvt Ltd, a requirement for capex over the next
from `16 crore to `40 crore. These subsidiary of listed entity Poddar few years. For the current fiscal,
incremental dispatchers have Housing & Development Ltd. the company is targeting a turnover
already started from October, 2017 Although the project has been of over `400 crore and has plans to
– will be a great support for the delayed by several years but now double it by 2020. Though the
top-line during the current fiscal with RERA and GST behind and current turnover is primarily driven
and growth next fiscal. environmental clearance in place by the committed orders from its
and strong hands of fast growing major customer, the management is
In order to derisk the business from listed company, it is all set to keen on diversification to reduce
dependence on auto and Tata kick-start during the current fiscal. the over dependency on its major
Motors, in particular, the company The project is likely to fetch them customer and auto-sector - most of
has identified various non-auto an estimated `350 crore over the the actions are in line with a drive.
projects which can be started on next 10 years. These frequent cash The management expects the
existing infrastructure with low inflows would not only ensure a bottom-line to turn black next fiscal
investments; some of these are new healthier working capital and is targeting a lower double
customers including Hyundai management and accomplish debt digit EBITDA margin by 2020.
Constructions, Tata Hitachi and repayment obligations but will also Further, following the ongoing
new product lines such as pollution present an opportunity to debt-restructuring programs and
control units, railways products, strengthen the capacities and repayment plans, and cash flow
tooling projects and other sheet capabilities, going forward. With from AIPL, the company can post
metal components, etc. The over more than half a dozen robust bottom-line by 2020,
company has also designed and is infusions over the last couple of thereby, setting up a road map for a
developing an e-cycle which is a years by the promoters helped the good turnaround story, and of
niche and growing market in the company sail through the severe course, a multi-bagger in making.
country. Although, the agenda of liquidity crisis. Allotment of equity Nevertheless, the risk of slowdown
diversifying to non-auto businesses on preferential basis to the in commercial vehicle space and
has been on radar for several years promoters and other business dependence on a single large
now but, the management says that partners to the tune of `48 crore at customer should not be ignored by
they have products ready now. `81 per share is at the final stage. the investors.
Nevertheless, the working capital
issue has kept their hands tied all In the words of Umesh Rao, MD of Conclusion
these years. Going forward, as the company: “Autoline has sailed With so many positive
working capital pressure eases through a very tough phase and we developments lined up and most of
gradually, the company would be believe that the worst is behind us. the negatives factored into the stock
able to capitalize these niche With recent infusions, committed price it would not be unfair to
products. orders from Tata Motors (especially conclude that Autoline is out for a
when they are under the vendor long drive now, which might turn
Lifeline consolidation phase) and the out to be a return of that trailblazing
Autoline also holds a 44 % stake in anticipated closure of land deal in story, again.
149
Kriti Industries (India) Ltd.

T
he company operates under Plastic segment in over four
verticals, such as agriculture, building products, micro
irrigation and infrastructure. Its agricultural products
include rigid polyvinyl chloride (RPVC) pipe and fittings,
casing pipe, polyethylene (PE) coils, sprinkler systems,
submersible pipe, suction and garden pipe. Its building products include
Amitabha Chatterjee soil, waste rainwater (SWR) drainage pipe and fittings, chlorinated
Small cap investor polyvinyl chloride (CPVC) and plumbing pipe and fittings, and garden
Active in the market 15 years pipe. Its micro irrigation products include micro irrigation lateral (inline
and online), sprinkler systems, and RPVC pipe and fittings. Its
He leads a powerful, great yet a small infrastructure products include RPVC ring fit pipe (elastomeric) and
WhatsApp group with like minded fittings, high-density PE (HDPE) and medium-density PE (MDPE)
investors and together they do a lot of pipes and fittings, permanently lubricated (PLB) telecom duct and micro
research and scuttlebutt about small duct. Kriti Auto & Engineering Plastics Private Ltd. is the subsidiary of
cap companies. the company.
We were actively doing scuttlebutt of another PVC company by

approaching the dealers, distributors and even other peer or competitors
of the company. While discussing with a large PVC player, Kriti propped
up as that PVC giant liked Kriti so much that they resorted to an
acquisition offer to the promoters at over `100 when it was quoted at just
`35. The promoters declined the offer as they have a vision to take it to
the top cream league. That was it for us. Started glancing through the
company and voila it looks to be an absolute bargain with all the multi
bagger ingredients.
We are not going to delve much into the past as last 10 years number
would include numbers of Kriti nutrients which got demerged few years
ago. Least interested to speak about this coming quarter’s number or next
year’s result. The company would probably on a conservative estimate
deliver sales of about `700 crore by FY20-21 with Ebitda margins of
10%. Keeping interest cost, depreciation and tax aside from `70 crore
Ebitda, we get a profit after tax of over `37 crore. Company in 2017
delivered a top line and a bottom line of `380 crore and `8 crore
respectively.
PE metric ain’t a sane stuff here to value a company. Most companies

Disclosure are valued at sales to market cap and they tend to quote at 2-3x at least.
The author is not a registered analyst under SEBI Astral, Finolex, Supreme though much bigger, but all quote at nearly
stock. Readers must do their own research before 3Xsales. Even if Kriti gets 1 time sales in next 3 years, the value comes at
investing in the company. `700 crore or `140 per share. Kriti is probably the most efficient cum
150
cheapest bet in the entire PVC industry are concerns of the

arena. industry on a whole and also of
Kriti particularly. The ability of the
Points of Attraction company to further improve its scale
• A company with strong, of operations and profitability with
widespread distribution network the realization of envisaged benefits
and established operation is a of recent expansion and
leader in states like MP, modernization capex will pave the
Chhattisgarh, Rajasthan with way for the company going forward.
over 50% market share.
• Company in spite of having a Financials
negligible profit making The company ended its FY17 with
subsidiary where they invested sales of `387 crore and a bottom
`10 crore earlier, Kriti still does a line of `8 crore. On an overall “Buy when everyone
return on capital of about 30%. capital employed of `92 crore they
Return ratios would further better did an EBIT of `24 crore which is else is selling and
up once the capacity utilization stunning. A ROCE of 27% for such hold when everyone
increases and the subsidiaries a small cap only suggest how
attain scale to put up better amazing capital allocators they are. else is buying. This
numbers. Also the auto division turnaround
• The company is venturing into with sales of `22 crore and a tiny is not merely a
newer territories with more value PBT of 5 lakh. With scalability, catchy slogan. It is
added products. Company’ brand ROCE would further spike up. The
“Kasta” has got a very high company added `18 crore in Net the very essence of
brand recall among dealers and block vs an incremental addition of
distributors. `3 crore in debt. As mentioned successful
• We are very bullish on the earlier they seem to have mastered investments.”
domestic consumption stories the art of doing business through
and also on the migration from Float or on their suppliers money.
unorganized to organized With the post GST migration era
industry. Kriti with a clean, from unorganized to organized and – Jean Paul Getty
conservative and visionary tailwinds of Housing boom, Kriti (1892 – 1976,
promoters-a perfect fit to both the at .6 times EV to marketcap and is Anglo-American
themes. the cheapest domestic consumption industrialist)
• The company has probably one story by a big margin. Not to forget
of the best cash conversion cycle its leadership status in the states it
in the industry. The classical operates in.
show of getting stringent with
your receivables and meaner on Conclusion
the creditors front. We are fascinated by the
management, its way of conducting
Concerns efficient operations and vision for
Susceptibility of profitability to the next 10 years. The company
volatile raw material prices, which is should deliver over a 25%
closely linked to international crude consolidated growth for next few
oil prices, seasonality associated years. PAT is expected to rise
with demand of Kriti’s products, disproportionately as contributions
oligopolistic supply market of its from value added products and
raw material and intense high margins segment starts. A safe
competition in the plastic pipe long term bet.
151
Kernex Microsystems (India) Ltd.

Embarking on TCAS led-growth: Why Kernex Microsystems could very

well be a potential 5-10 bagger.
E
stablished in 1991, Kernex is an ISO 9001:2008 certified
company with expertise in software, hardware development
and Systems Integration. They are presently engaged in the
Ashish Sharma business of conceptualizing, designing, developing,
Customer Experience, Strategy at manufacturing, installing and maintaining of Level crossing
MakeMyTrip.com protection systems and anti-collision systems for the railroad sector in
Active in the market 5 years India and abroad.
Investment Thesis
My Mantra The Indian Railway is conducting trials on an indigenous and cost-
There is no substitute for own effective anti-collision technology, which can help avert accidents that take
conviction and research. Reading place due to the driver’s error. The indigenously-developed technology will
annual reports and keeping abreast of cost one-third of the European system and can be installed on much larger
the sector is a great way to build numbers of trains. This new system is called TCAS (Train anti-collision
conviction. device). It will mainly deploy Radio Frequency Identification (RFID) tags
every kilometer on a railway track and a TCAS system on the railway
station, which will gather data from RFIDs. A radio tower will transmit
this data to the engine of a train and a TCAS computer on-board it will
display the data. TCAS will have two main functions. If an engine exceeds
its speed on a certain section, then there will be warnings generated for the
driver. If the driver fails to respond, the brakes will apply automatically.
Secondly, a train can send an SOS message to another or to a railway
station and vice versa to prevent an accident.
Only three Indian companies have been selected to bid for TCAS: HBL
Power systems (listed), Kernex-Micro systems (listed) and Medha Servo
(unlisted). The new technology will undergo extensive and rigorous trials
before its introduction. Final set of trials expected to end in 2017. While
there has been a delay on the part of the Railways in commercially
inducting TCAS, the commercial launch appears to be on the anvil. The
Indian Railway network in the fourth largest network in the world
comprising 119,630 km. Theoretically TCAS can be implemented on the
entire length - Rolling stock has 11,100 engines / locomotives while TPWS
(the costlier version of TCAS) is implemented in only 100 trains. Cost is
Disclosure approximately 10 lakh per km.
He is not a registered analyst under SEBI
guidelines. He and his family do hold shares in the
company, so kindly do your own research before The railways have already budgeted `240 crore for TCAS in the pink
investing in the company. book for south central railways in 2017-18 (to be split across all three
152
players eligible to bid for these

orders. Kernex might get the
second biggest order going by the
size of trials being executed by the
three vendors.
For a micro-cap, with a market

capitalization of only `50 crore, the
TCAS orders could signify the
beginning of a turnaround in the
fortunes of the company which has
been marred by delays in the
railways business and misfortune in
its overseas Egypt business. This
TCAS implementation story can be Promoter’s since the company was struggling
played through HBL Power systems Background to secure incremental borrowing
also. But it is a bigger company and The promoter group holding is for the past 2-3 years.
the risk-reward appears better for quite fragmented and this 40/33%
Kernex. stake is split across various family Valuations
members (Bloomberg shows ten The company is currently loss-
Margin of Safety plus family members across making and expected to turn around
Sale of 10 acres of land near generations). In October 2016, the on the basis of TCAS
Hyderabad airport (close to CEO & MD Lt Col Raju resigned. implementation and rollout.
Wonderla). Kernex is trying to sell Krishnam Raju (designation
its 10 acres of property and plant Director in-charge) has taken over Risks & Concerns
close to the new Hyderabad the day to day operations of the The key risks for the company is
airport. This sale alone can fetch company. He is a US educated (U delay in receiving orders from
an amount close to 50% of current Penn) next gen young guy Indian Railways. The second risk is
market cap conservatively. shouldering the turnaround of the that of execution. Any new player,
(Assuming `4,000 per square yard). business. The promoter group trying to enter the market will have
Thus ensuring a high margin of appears to have sold some stock to undergo 3-5 years of extensive
safety to the thesis. and given a loan to the company trails and interoperability tests
before being inducted as a vendor.
Hence, there is minimal risk of new
FY 2018-18 FY 2018-19 FY 2019-20 competition entering the market.
Sales 50 200 400
Kernex has an ongoing dispute with
EBITDA @ 12% 6 24 48
Konkan Railways for an arbitration
Depreciation 3 3 3 amount worth `348 crore against
Interest 4 4 4 Konkan Railways. The proceedings
PBT –1 17 41 are going on and the company is
expecting to settle this soon. The
PAT –1 17 41
company is confident to settle for at
least 10%-20% of the amount (`34
40% 40% 20%
crore – 70 crore). Any favorable
Total Oder Size (Cr) HBL Power Medha Kernex judgement could provide an upward
FY 2017-18 250 100 100 50 risk to the thesis. As per AR, due to
FY 2018-19 1000 400 400 200 lapses in compliance issues, this is
placed in trade to trade segment in
FY 2019-20 2000 800 800 400
NSE & BSE.
153
Universal Cables
BSE Code: 504212; NSE: UNIVCABLES; Face Value: `10; Market Cap (`Cr): 660; CMP: `190
U
niversal Cables is engaged in the manufacturing of electrical
and other cables, capacitors, conductors and others. Other
Group companies: Listed entities include Birla Corporation
and Vindhya Tele. The financial performance of Universal
cables continues to show significant improvement. The
sales and ebitda has grown at an impressive 7% and 31% 5 year CAGR
Vaibhav Gupta respectively. The pat improved from a loss of `5 crore in FY13 to profit of
Analyst and small cap investor `28 crore in FY17.
PAT margins in FY17 were at a 5 year high. The net interest paid has
reduced by 19% YOY which has significantly improved the cash flows.
In `Crs FY13 FY14 FY15 FY16 FY17 CAGR ttm

Net Sales 619 615 694 749 818 7% 966
Growth NA –1% 13% 8% 9% 18%
EBITDA 25 (5) 25 75 74 31% 84
EBITDAM (%) 4.1% –0.8% 3.6% 10.0% 9.0% 8.7%
PAT (5) (40) (35) 20 28 NA 25
PAT margins (%) –0.7% –6.5% –5.0% 2.6% 3.5% 2.6%
Q2F18 sales rose by 31% to `256 crore while EBIDTA was `27 crore vs
`21 crore. EBIDTA margin stood at11%. PAT `7.8 crore vs `11 crore
YOY. EPS 2.26 vs 3.29 YOY. The company generated a FCF of `54 crore
for FY17 vs `38 crore YOY.
Cash Flow
FY13 FY14 FY15 FY16 FY17
Cash from Ops (2) (35) (5) 46 73
Cash from Investing (22) (25) (6) (0) (16)
Cash from Financing 24 62 11 (44) (61)
Free Cash Flow (25) (64) (15) 38 54
Disclosure
He is not a registered analyst under SEBI Well positioned to take advantage of improving the economic and market
guidelines. He and his family do hold shares in the
company, so kindly do your own research before environment. Focus on reshuffling the product mix has been favorable for
investing in the company. the bottom line.
154
good business potential.

Rights issue
In 2015, the company had raised Exports: With the management
`59 crore via rights which were increasing their focus on exports,
mainly used to repay debt. The debt the company’s under utilization
has reduced from `340 crore in would be taken care of. By
FY15 to `273 crore in FY17. participating for international bids,
Management is exercising volumes have significantly
austerities in all spheres of its increased.
operation to improve productivity
and focusing on repayment of the is catering to the OEMs and the Capacitors: With the increasing
debts gradually from internal infrastructural segment such as the demand for power, the capacitor
accruals. With the demand for railways, steel plants, ship building demand outlook looks good and
power on the rise in lockstep with and mining industries. The optimistic. The product portfolio
the economic growth, there is no renewable energy constitutes the comprises of LT & HT Capacitors
turning back in the power growth major volume of business where the and also Automatic Switched
trajectory which would further company has a leading market Capacitors for which the demand is
unlock large opportunities for which share. in an uptrend.
the industry has been patiently
cooling its heels. The renewable The Co caters to a niche market Universal has diversified its product
sector is becoming increasingly cost segment which is gaining rapid base by including harmonic filters,
competitive. Universal has a major acceptance in various applications special type RC & C filters to cater
footprint in the renewable sector including the world wide trends in to the domestic and overseas
and equipped with sufficient environmental safety, low toxic markets.
installed capacity to cater to the emissions in fire conditions.
increasing demand. Non current investments: Universal
Medium Voltage Power Cables: cables holds shares in Birla Cables,
Segmental The demand for MV power cables Birla corp and Vindhya tele worth
Power Cables & Capacitors: FY17 has been moderate. Competition `522 crore while the market cap of
revenue was `909 crore vs 841crore remains intensive coupled with universal cables is `650 crore.
yoy; excessive capacity. Initiatives taken
by the government, such as IPDS, Peer Comparison: Universal is still
EHV Power Cables: demand had UDAY & DDUGJY, would be a the cheapest in terms of valuation
registered a healthy yoy growth. The positive for the segments’ growth amongst its peers. It trades at 22x
rising cost of real estate is favouring and demand. ttm pe and 8x ev/ebitda while KEI
underground power transmission as trades at 32x ttm pe and finolex
compared to overhead power Low Voltage Cables: The LV power cables trades at 25x ttm pe with 18x
transmission lines. The EHV power cable market continues to be ev/ebitda.
cable demand is still in the prelim cluttered with small and
stages and undoubtedly the demand unorganized players despite an Name of No of CMP Market
would increase more sharply in the extensively large market. Currently Co shares Value
years ahead. The company has 2 there are no expansion plans since (Crs)
VCV lines at the maximum installed it’s a low margin category. Birla 39 lkh 60 23.4
capacity is geared to increase its Cables
production volume for this market Light Duty Wires & Cables: The Birla 2.96 1100 32.6
segment; demand for winding wires and flat Corp lkh
submersible pump cables are
Vindhya 34.54 1350 466
Rubber Cable for OEM’s: expected to be on the rise. Currently Tele lkh
Universal has an impressive developing a new category of
Total 522
portfolio for the specialty cables and winding wires for which there is a
155
Andhra Petrochemicals Ltd.

T
his company is is the sole producer of Oxo Alcohol in India,
which was promoted by The Andhra Pradesh Industrial
Development Corporation (APIDC) and the Andhra Sugars
Limited in 1994 to produce 30000 MTPA of Oxo Alcohols at
Vizag, AP. The plant is strategically located next to HPCL
Refinery since the feedstock for Oxo Alcohol (polyproplene) is made
Gurudatta Kamath available by HPCL from the refinery. Subsequently, Andhra Sugars
A Chartered Accountant having Limited became the promoter of APL and the capacity has also been
experience in the field of analytics for increased by 73000 MTPA. APL employs the technology from M/S Davy
last 10 years and an avid follower of Process Technology, London, UK. Oxo Alcohol requires propylene as a
market and happenings for last 20
feedstock. It is hydro formulated to produce normal-butyraldehyde and
years.
iso-butyraldehyde which are hydrogenated to produce n-butanol and
Active in the market 20 years isobutanol. The product mix includes 2 ethyl hexanol (2EH), n-butanol
(NB) and iso-butanol (IB). The major applications of Oxo alcohols are
plasticizers, paints, coatings & adhesives, lubricant additives, and
My Mantra chemical intermediates.
The one thing I’ve learned being in
the market and which will allow the Capacity and Current Situation
young investor learn faster is that market APL has estimated demand of Oxo-Alcohols at 2,20,000 MTPA, with a
can humble you many times so keep healthy growth rate of 8% to 10% per annum, in general, which is a good
your ear and mind open. This allows you opportunity for the Company with existing capacity of 80,000 MTPA,
to learn new things and meet with considering the huge demand-supply gap in the country.
people to understand their perspective
of the world, country and APL has gone through many cycles of under-utilization of their capacity
companies which you can track. for different reasons. Couple of reasons which were impairing their full
capacity utilization was unavailability of feedstocks from HPCL due to
many reasons like plant optimization, multiple cyclones at Coastal Andhra
etc. Moreover, many of the Middle East and Far East companies like
Petrobas started dumping the end products from Malaysia/Singapore/
Saudi Arabia region. This hampered their operations and they were not
able to make profits for a long time. This also did not allow APL to
increase the pricing in spite of the huge demand, supply gap existing in the
Indian Market.
What is changing for APL

In 2015-16, these two factors have been reversed, which is helping the
company tremendously. Currently, there are no constraints in the
Disclosure Company’s production capability with Hindustan Petroleum Corporation
The author is not a registered analyst under SEBI Limited (HPCL) able to meet full Propylene requirement. Sales realization
stock. Readers must do their own research before is also expected to improve over time, firstly on account of Anti-Dumping
investing in the company. Duties imposed by Government of India on imports from certain
156
“Unless a company
has some kind of an
economic moat,
predicting how much
shareholder value it
countries. This appears to be some allow them to introduce value will create in the
positive development for the added products in India adding to
company. the margins of the company.
future is pretty much
Though planned, without this a crapshoot,
Valuation expansion, APL can still command
The price uptick in n-Butanol and a valuation of `900 crore by March regardless of what
2EH is expected to remain firm 2019 as compared to the current
resulting in bumper profits for the market capitalization of `500 crore.
the historical track
next two years. I expect the revenue record looks like.
and net profit to touch around `450 Few Risk Factors
crore and `65 crore in 2017-18 and • Indian and Foreign players may Looking at the
`550 crore and `90 crore in 2018-19 start Oxo alcohol plants and
and if the expansion plan goes create over capacity resulting in
numbers is a start,
through, the revenue and net profit subdued pricing of end products. but it’s only a start.
can rise to approx. `1200 crore and • Inability to get assurance from
`200 crore, with 75% capacity HPCL for sourcing the Thinking carefully
utilisation by 2020-21, providing a feedstock – Propylene which will
safe cushion/margin of safety at hamper the production plans.
about the strength of
current price. Also, this is without • Crash in prices of its end products the company’s
any expansion plan which is on the in international market making it
drawing board and expected to attractive for users to import. competitive
advantage, and how
Year Q2 Q1 2017 2016 2015 2014 2013 2012
2018** 2018* it will (or won’t) be
Sales 20000 18000 58264 57245 19101 29157 64407 73593 able to keep the
(MT)
Sales 146.60 129.27 328.90 335.65 140.26 259.29 562.76 597.15
competition at bay, is
(Cr `) a critical next step.”
NP 19.16 0.62 (7.36) (24.08) (44.51) (25.67) 3.12 30.01
(Cr `)
– Pat Dorsey
Looking at the capacity utilization and the price realization, APL is all set to achieve
record profit from their operations in 2017-18 and subsequent years.
*Assuming 90% capacity utilization (as per sources)
** Assuming 100% capacity utilization (as per sources)
157
Satin Creditcare Ltd.

BSE Code: 539404; NSE: SATIN; Face Value: `10; Market Cap (`Cr): 2413; CMP: `410
S
atin Creditcare is a large microfinance company providing
collateral free, micro credit facilities to economically active
women in both rural and semi-urban areas. Satin Creditcare
Network Limited (“Satin”) was conceptualized and founded in
1990 by HP Singh, a qualified Chartered Accountant with over
25 years of experience in the retail finance industry. In around 27 years
Vivek Bothra since its inception, Satin today is India’s second largest MFI (as of Jun
Full time IT professional working in 2017) having started its journey with individual micro loans to urban
Large MNC and part time writer of shopkeepers. Today, the company has an established, scalable and a
Investment blog www.tankrich.com sustainable business model. On a consolidated basis, Satin had an AUM
A crazy movie buff, so crazy that his of `4,493 crore as on Sep 30, 2017. SCNL offers its clients a variety of
friends gifted a life size poster of Shah loan products under the MFI segment. The company also offers a bouquet
Rukh Khan with his face on it on his of financial products in the Non-MFI segment (comprising of loans to
wedding MSMEs), and business correspondent services & similar services to other
financial institutions through TSL, a business correspondent company and
an 88% subsidiary of SCNL. In April 2017, SCNL also incorporated a
My Mantra wholly owned housing finance subsidiary for providing loans to the
Don’t be fixated on a style when affordable housing segment further diversifying its portfolio.
you are starting, try various methods
and principles as there is more than What attracted me to Satin?
one way to bell the cat. Try different Skin in the game - In spite of continuous equity dilution the promoters
investment styles and observe continue to hold 35% of equity by providing regular infusions matching
what works for you. private equity. Apart from this the company provides very detailed investor
presentations.
Lending to unbankable – Satin targets the segment where traditional banks

can’t reach - Micro borrowers. This sort of lending requires expertise as
there is no collateral, company has to carefully analyze and use of credit
and cash flows on daily or weekly basis. The repayments are daily /
weekly / fortnightly and in cash therefore require much localized
knowledge difficult to master.
Stupendous profitable growth [Pre Demonetisation] –Some key metrics

FY14 H1FY17
Gross AUM – 3.5X INR 1056 Cr INR 3751 Cr
No of Branches – 2.7 X 199 544
Disclosure
Active customers – 3X 800K 2.4 Mn
guidelines. He and his family have a position in the Diluted – EPS – 2.3X 6.67 15.76
stock. Readers must do their own research before
investing in the company. Net NPAs – 12X 0.01% 0.12%
158
Profitable Diversifications – A rebuilding business. Positive

scaling business correspondent aspect was that the management
business, Taraashna sources high did not lose focus on
yield MFI loans that qualify as strengthening business
priority sector lending for banks • Increased number of branches
and has partnered with Ratnakar through the post demonetisation
Bank and Yes Bank to route these phase
high yield loans. In 2014 it earned • Applied for affordable housing
`2 mn as income which increased finance licence
to `18 mn in 2015 contributing 5% • Tied-up with Capital First to
to the bottom line. I had expand into non Micro finance
reservations that this was a products
promoter owned entity; however collections now with cash out of
the management alleviated this systems and unlikely to be Valuations
concern by merging this into Satin. replenished soon the industry was The current market cap of the
looking at dire consequences, Add company is `1800 crore.Not easy to
Joint Liability group – Peer to that a double whammy of a put an earning number for next FY
Pressure to maintain discipline - In lending oriented, very high levered (2018). However, if I do a
Joint Liability Group, the borrowers business a 10% Net NPAs can wipe hypothetical exercise that
make a group among themselves out complete equity of the business demonetization robbed off two
and the microfinance institutions and it almost did for many MFIs year’s profits and FY19 should be a
give loan to that group. One person Hold that 10% number in mind a normal year, then the company
in that group is appointed as leader 10% Net NPA number on AUM of should be earning 2.5% (ROA) on
of the group and each person is 4000 crore is 400 crore. Satin’s net `6,000 crore AUM which is `150
responsible for the loan taken by worth prior to funds infusion was crore and at 15-18 times earnings
any member of the group. If any `662 crore. In a normal year like may be valued between `2250 crore
one person in the group defaults, FY16 Satin earned 60 crore now to 2700 crore.
then other group members will have even if 25% of the NPA number
to pay for that. ends up as the actual NPA the As someone who is invested I will
business has gone back by 1.5-2 year continue to monitor below
My theory at the start of initiating at a minimum due to deliverables
the position was when diluted demonetisation. • Steady reduction in Net NPAs to
earnings and AUM are growing at pre demonetisation levels in next
70-80% every year with negligible How did company 2 quarters (Less than 1 %)
NPAs. In 3-4 years a significant overcame this black • Disbursements growth to pre
value would be built and paying swan demonetisations levels (25% +)
25-30 times diluted earnings is • Funds Infusion - `464 crore was • Progress of Housing Finance arm
cheap. I had seen this with SKS infused in current financial year to
(now Bharat Financial Inclusion) recapitalise business with a 30 Some of the key risks that come
and other MFI lenders as long as I crore contribution from promoters with investing in high levered
keep a keen eye on lending quality • Digitisation – About 16% of companies – NPAs: Although there
[Net NPAs]. current disbursements are now are RBI guidelines banks and NBFC
cashless with aim to increase this continue to use their discretion on
Enter Demonetisation number to 40-50% by end of reporting them. If the company has
On 8 November 2016, the FY18 with digitisation of substantially under reported NPAs
Government of India announced branches then investors can be taken for toss;
the demonetisation. This was a • Focus on collections – With Unable to grow: The company is
watershed moment for the industry, collections Normalised to 99% in well funded now and if it’s unable to
the lending cycle for micro finance most states in Q2FY18, the grow then there is significant risk to
is very small with often daily cash company can now re-focus continue to be valued like currently.
159
Kirloskar Ferrous Industries Ltd.

K
irloskar Ferrous Industries Ltd (Kirloskar Ferrous), part of
the Pune-based Kirloskar group and one of the largest
integrated manufacturers of foundry grade pig iron, is a
play on multiple levers for earnings growth. Having
successfully integrated backwards over the last 5 years, the
company is now aggressively trying to ramp up its casting business,
Hitesh K which is one-step ahead in the value chain. The company is the only
Partner, Aksa Capital Indian manufacturer of Euro-VI castings, a segment that requires an
Active in the market 12 years immense amount of time and resources to have a breakthrough with the
customer and get the product quality right. With all capacities and
capabilities in place, there is enough room to double casting volumes,
My Mantra which not only enjoys superior margins but also has high operating
Investing is pure common sense. leverage. This besides, scope to reduce rejection rates in the Euro-VI
It is important to build one’s own casting business from the current 5-10% to the industry average of 3-5%,
conviction, else market volatility will leaves room for supernormal earnings growth. If some of the discussions
cost you a lot. It’s perfectly fine to that the company is currently engaged into crystalizes into orders, the
make mistakes and pay a price for it, profile of the company could instantly change from a commodity pig
so as to benefit from the learning in iron business to a specialized castings manufacturer.
the long run. Every individual has a
unique style of investing, which is Kirloskar Ferrous has 2 business segments- Pig Iron manufacturing plant
aligned to his personality. You got to in Hospet with a capcity of 390,000 MTPA and; Ferrous Casting plant in
discover yours as you make Hospet and Solapur with a compined capacity of 150,000 MTPA.
progress in this field.
Pig Iron Business: No doubt, Pig Iron is a commodity business with very
limited bargaining power. However, Kirloskar Ferrous stands out in this
industry because of its integrated nature of operations. Over the last 5
years, the company undertook various backward integration projects to
tackle volatile input prices, and enhance the efficiency of its plant. It first
sets up a sinter plant to use iron ore fines, instead of iron ore lumps in
the blast furnaces (iron ore fines are 20-25% cheaper when compared to
lumps). The company later set up a hot blast stove which helped to
reduce the consumption of coke, another highly volatile input used in the
manufacturing of pig iron. The benefits of these projects are reflected in
the numbers. From FY12 to FY17, while the company’s revenues haven’t
grown much, its EBITDA margins have expanded from 10% to 15% on
the back of increase in gross block from `6 billion to `10 billion.
Disclosure Kirloskar Ferrous is managed by a professional team under the

My firm Aksa Capital Advisors LLP is registered as leadership of Mr. Gumaste, who is a Metallurgical Engineer from
an Investment Advisor with SEBI
REC-Surathkal and has been with the Kirloskar group throughout his
career. No company other than Tata Metaliks will be close to Kirloskar
160
Ferrous. This is evident from the

fact that, over the past 5 years,
despite the stress in the industry,
Kirloskar Ferrous operated its pig
iron plant at more than 60%
utilization, while at the same time
consistently improving operating
margins and positive cash flows
from operations.
Castings Business ~ business hasn’t

done well in the past, partly
because of the concentration
towards the tractor industry in the
initial period, and partly because of
large product development/
learning cycle involved in
specialized Euro-VI castings.
Kirloskar Ferrous’s casting plant at

Hospet, which houses two-third of
the total casting capacity, enjoys
the benefit of backward integration rates are as high as 15-20% in the as per the management, it has only
in the form of ready availability of initial period of commercialization. been coming down over the period.
molten pig ironand captive power This stretches the product
generation capacity of 11.5 MW. development/learning cycle, With all capacities and capabilities
Casting business has exhibited making the entire process both time in place, there is enough room to
lackluster growth in the past for 2 and capital intensive. Having double casting volumes; since the
reasons. Firstly, the casting unit invested considerable amount of casting manufacturing process is
was initially set up to cater to large resources in developing these energy intensive operating leverage
casting requirements (> 50 kg, specialised castings, today will kick in with the ramp up in
cylinder block, head and housing) Kirloskar Ferrous is the only volumes; further, every incremental
predominantly for tractors. The company in India to make Euro-VI reduction in rejection rates in
volumes and capacity utilization castings. Euro-VI castings business will
was hence linked to the tractor straightaway flow into the bottom
cycle. Secondly, over the last 5 Some of the key points to note are, line.
years, the company has been the dependence on Tractors has
investing lots of time and resources significantly reduced over the years. Despite the castings business being
in developing a large Euro-VI Tractors contributed to more than one step ahead in the value chain,
castings for MHCV engines 60% of the castings volumes prior its contribution to profits is still not
catering to the export market. This to FY14 which now stands at only meaningful. The company does not
is an extremely challenging one-third of the business. The give segmental breakup of profits,
business to crack, given the company has successfully but as per the management it is the
stringent quality requirements of diversified into other heavy pig iron business which has still
these components, which finally automobile categories. It has also been a major contributor to the
find their application in engines. commercialised its Euro-VI profits.
The rejection rates are quite high in castings catering to the
this segment. While the global requirements of Daimler and Hino. Since the value of the company lies
average rejection rates in Euro-VI The rejection rates with these in the castings business, we will stay
castings are 3-5%, the rejection customers still stand at 5-10%, but focussed on the castings segment.
161
Some interesting points to note are them crystallizing into orders is

– Kirloskar Ferrous’ gross margins high. Hence, at 80% utilization of
are directly proportional to the pig iron business and 75%
castings volume. The realizations utilization of casting business, at
from castings have been steadily prevailing market rates the
inching upwards in the recent company can comfortably do a
quarters coupled with improving topline of close to `19.0 billion and
volumes. Having understood the EBITDA of `3.7 to `3.8 billion. At
delta in the casting business, the big current enterprise value of `14.3
question remains, can the castings billion, the stock is available at a
volume significantly ramp up. The EV/EBITDA of 4x as against
management in their FY17 AGM did industry peers of 10-14x. The
indicate that they have added 3 new company has consistently had a
clients in FY18 but their contribution convert the coking coal into coke. dividend payout of more than 30%
to volumes will be restricted to 6,000 While the company will remain over the past 5 years. The current
to 8,000 MTPA. Nevertheless, they exposed to volatility in coking coal dividend yield stands at 1.8%.
are in advanced talks with a few other prices, which are also imported just
clients, of whom one has a like coke, the volatility of coking Risks
significantly large requirement for coal prices is relatively lower when Well, the biggest risk to the entire
Euro-VI castings, enough to take compared to that of coke. However, thesis is an ongoing electric vehicle
Kirloskar Ferrous’ castings capacity here the company is looking to revolution, which will make the
utilization to 80% plus. While it is benefit from the potential to conventional engine irrelevant.
not certain when and the likelihood generate captive power which will Kirloskar Ferrous’ entire casting
of winning these new clients, the size make its unit in Hospet self business predominantly caters to
of the opportunity is significant, not sufficient in terms of power large engine components. While
just in terms of scale, but also requirement. Kirloskar Ferrous is there hasn’t been any major
significantly better margin profile, also exploring to bid for iron ore showcase of electric vehicles in the
given the operating leverage that exist mines to keep itself immune to price heavy and off-road vehicles
in this business. volatility. While the management category, which is the segment that
has shared these plans, it is still Kirloskar Ferrous focuses on, the
Another lever for earnings growth uncertain in terms of time lines. risk remains. The magnitude of risk
is the scope to reduce the rejection With only working capital debt of depends on where you are in the
rates. When Kirloskar Ferrous has `840 million and a debt-equity ratio world with what type of resources
managed to not only survive, but of less than 0.2x, the company has and infrastructure and government
also improve its margins, in the ample financial flexibility to carry policy framework, because that will
worst possible products of the steel out these plans, which should help decide pace and direction.
value chain, there are less concerns improve profitability further.
on its ability to bring down its The second concern is
rejection rates in the Euro-VI Valuation management’s conservative
casting business to industry average It is more prudent to look at this approach towards pursuing growth
of 3-5%, the benefits of which will business from its earning potential opportunities. The significant
straightaway flow into its bottom on a steady state basis, rather than portion of earnings growth in the
line. This could be an added delta the trailing earnings. While it is last 5 years is because of backward
that could significantly boost the certain that the management is integration and improvement in
company’s earnings. seriously trying to ramp up processes. However, the aggression
volumes in the castings business, it to sweat the capacities was missing.
Plans to Tighten the is difficult to put any timelines into Nevertheless, the recent pickup in
Value Chain it. However, given that the talks economic activity across the globe,
Kirloskar Ferrous is now exploring with some large customers are in should help garner some new
to set up a coke oven battery to advance stages, the likelihood of business in the castings segment.
162
Focus Lighting and Fixtures Ltd.

Listed on NSE Emerge; CMP: `175
T
here is a famous quote that best wealth is created when a
quality nanocap thanks to its ethical workaholic promoter with
a large personal stake i.e skin in the game executes well in a
sector where size is good, ROCE is good and nano cap
becomes first small then mid cap and market cap keeps on
rising with every result. It applies the best way for this company. Focus
Vivek Gautam Lighting & Fixtures products (started in 2005) provide a wide range of
A value investor products which includes recessed adjustable spotlights, recessed
Active in the market 12 years downlights, surface mounted spotlights, surface-mounted / suspended
downlights, system based spotlights / wallwasher, track-mounted
He loves betting on intelligent fanatics spotlights, etc. each with different working capabilities. I have invested in
who are young, visionary and 2017 in a quality nanocap Focus Lighting & Fixtures which came with
aggressive. IPO@45 in April 2017 at NSE EMERGE, the first listed pure play LED
lighting company IMHO. I like it at the current market price due to:
My Mantra • Low market cap of `56 crore vs huge up size of providing turnkey LED
There’s no better thing than solution to all the leading retail stores like Shoppers Stop, Raymond,
reading in the world to shape up as a Park Avenue, Fossil, Reliance stores, BMW and others.
better investor. Also ensure you make a • Annualized expected EPS of `22 for FY18 resulting in low PE of less
good networking as that would help in than 8 that too under the present raging bull market condition. ROCE of
killing the mental blockages and 53% & ROE of 51% (Source - Screener)
delusional biases. • The promoter Amit Sheth has a 75 % stake; he is young, energetic first
generation entrepreneur; he is in the right age of 40s who is in this
business for the last 15 years easily tackling China import threat. The
family has been in the lighting business for 50 years still having shops in
Mumbai oldest lighting market Lowerchawl.
• The Products are designed in Germany, moulds prepared as per their
design and now two manufacturing units are being established in
Bhiwandi and Ahmedabad.
• Focus on quality, R&D, innovation, and control on manufacturing,
extended warranty of 5 to 8 years
• Own brands of PLUSLIGHT & TRIX and pan India presence.
Risks
The import threat from China, though recently GOI has imposed 20% anti
dumping duty; Small size of company; Poor liquidity in SME market;
Tech obsolescence threat; And competition from bigger players.
Disclosure
The author is not a registered analyst under SEBI Conclusion
stock. Readers must do their own research before It’s still early days for the company, but things seem very promising for this
investing in the company. unnoticed micro cap.
163
Royal Orchid Hotels Ltd.

BSE Code: 532699; NSE: ROHLTD; Face Value: `10; Market Cap (`Cr): 535; CMP: `180
T
ourism in India accounts for 9.6% of the GDP and is the 3rd
largest foreign exchange earner for the country. It is expected
to grow at 16% CAGR. There are multiple growth drivers in
the tourism and thereby in the hotel industry. The government
has allowed 100% FDI under the automatic route in the
tourism and hospitality sector, including tourism, construction projects
Abhishek Basumallick such as development of hotels, resorts and recreational facilities.
Individual Investor
Equities has been an enduring love for International hotel brands are targeting India. Carlson group is aiming to
him since 2000. He has come to realize increase the number of its hotels in India to 170 by 2020. Hospitality
that the markets mimic life and has majors are entering into tie ups to penetrate deeper into the market, such
grown to appreciate its complexities. as Taj & Shangri-La entered into a strategic alliance to improve their reach
He figured that investment & market share by launching loyalty program aimed at integrating reward
temperament is what differentiates the program customers of both hotels. Berggruen Hotels is planning to add
good investors from the bad ones and around 20 properties under its midmarket segment ‘Keys Hotels’ brand
always trying to hone his temperament. across India by 2018. Hilton plans to add 18 hotels pan India by 2021,
along with 15 operational hotels under its brands namely Hampton, Hilton
Garden Inn, Conrad, Hilton Hotels & Resorts & DoubleTree by Hilton.
My Mantra Marriott International plans to open 30 new luxury hotels.
A stock is a part holding in a
business. If the business does well over In June 2016, the Indian government approved 150 countries under the
time, your stock will do well. Try to buy Visa on Arrival scheme to attract additional foreign tourists. During
stocks in businesses which you Jan-Sept 2017, a total of 10.67 lakh tourists arrived on e-tourist Visa as
understand. Keep things simple, do not compared to 6.75 lakh during the months of Jan-Sept 2016, registering a
try to go for complicated businesses growth of 71.0%.
which you do not understand. Invest
with a long term (5 years plus) time Foreign tourist arrivals (FTAs) in India increased 15.5% to 71.20 lakh
horizon. But long term investment does compared to 61.63 lakh in the same period. Medical tourism is another
not mean that you invest and then major area of growth. The country is witnessing 22-25% growth in
forget about it. medical tourism. The Indian government has also released a fresh category
of visa – the medical visa or M visa, to encourage medical tourism in
India. Indian medical tourism is expected to reach USD8 billion by 2020.
Domestic expenditure on tourism has grown significantly. Indians are

travelling much more frequently for both business and leisure and has been
aided by better connectivity of Tier-II cities by the low-cost airlines.
Meetings, Incentives, Conferences and Exhibitions (MICE) segment is
Disclosure another key growth segment.
stock. Readers must do their own research before Company Overview
investing in the company. Royal Orchid Hotels Ltd (ROHL) is a 31-year-old company which owns
164
and operates hotels in India. This is causing significant uptick in

occupancy rates across the industry.
It is promoted by Chander Baljee, Given that new properties take
who is a IIM Ahmedabad alumnus between 2-3 years to come up, the
with over 40 years of experience in next phase will see hardening of
the hotel industry. Key brands ARR (average room rates). Hotels
include Royal Orchid (five-star), with a good brand name with pan
Royal Orchid Central (four-star), India presence and in the affordable
Regenta Hotels (four-star), Royal luxury segment (3-5 star) would be
Orchid Suites (service apartments) in great demand.
and Regenta Inn (budget hotel). It
currently operates 47 hotels across Risks
India with plans of reaching 50 in Lack of revival in domestic growth
FY18. can hinder growth. Increase in
supply through formal or informal
ROHL operates in 33 cities with a channels (like Airbnb, oyorooms
1.4 lakh loyalty members. etc) can keep a lid on AR`. Any
Management is planning to grow geopolitical incident can severely
more by management contracts UK’s Bespoke Hotels recently. impact foreign tourist inflow. Large
which is an asset light business Under the agreement, Royal Orchid and foreign brands coming into
model. It requires no upfront capex will now offer its guests hundreds of India can provide stiff competition.
and can break even at the operating hotel options across multiple global
level within 1 year. GST for hotels markets and Bespoke will promote Conclusion
with room rates between `2501-7500 the Indian hospitality firm to its The company seems to be in the
has been reduced from 21% to 18%, guests. ROHL has two land parcels initial stages of an industry
which is expected to provide a boost that it may dispose off – one in turnaround. It was a loss making
by increasing overall affordability. Tanzania and another in Mumbai. company between 2012 and 2016 at
If it can do so, it may reduce its debt both PBT and PAT levels. Debt has
Currently, the company manages significantly. been reducing over the years and
3269 rooms and is operating at a management is focused on reducing
utilization of 76% in Q2FY18. It What is Changing? it further. In 2017, it has made a
expects to add 300 rooms this year The hotel industry is slowly turning turnaround and posted a profit.
and another 1000 rooms in FY19. around after many years of sluggish With better times for the industry,
or negative growth. New supply has fortunes for the company seems to
The company signed a pact with been low, and demand is inching up. be looking up.
Financials
Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17
Sales 129.35 140.16 119.27 152.13 160.56 160.30 142.04 147.75 158.53 162.53
Operating Profit 50.12 42.81 25.29 40.45 26.15 21.97 –17.08 19.87 20.51 21.22
Profit before tax 46.71 29.30 8.86 17.08 –2.43 –9.08 –44.31 –5.79 –2.80 2.19
Net profit 32.27 19.99 6.97 12.22 –2.63 –7.75 –37.49 –3.87 –1.30 2.47
EPS 11.85 7.34 2.56 4.49 –0.97 –2.85 –13.77 –1.42 –0.48 0.91
Borrowings 63.13 105.28 217.77 234.67 288.33 256.85 133.10 90.63 82.33 88.70
Other Liabilities 71.79 64.72 76.77 84.76 137.44 121.94 98.09 98.09 105.19 103.70
165
RKEC Projects Ltd.

Listed on SME Exchange; CMP: `145
R
KEC Projects Limited was incorporated on April 01,2005.
The company’s core business is designing and undertaking
construction projects such as Bridges, Ports, dams, high-rise
structures, airports, cross water, roads, highways, Oil and
gas Pipelines, complexes and environmental structures
across India. Civil construction of marine work (60%), highways (30%),
K J B Mathew bridges (10%) are contributors to the company’s turnover.
Businessman
Active in the market 10 years. During the last decade, the company has undertaken and successfully
completed many construction projects in India covering Andhra
Comrade, engineer, business lad, Pradesh, Tamil Nadu, Gujarat, Odisha, Rajasthan and Maharashtra. In
planter & a passionate equity market addition to them, it has expanded its presence to three more states,
follower Kerala, Uttar Pradesh and Manipur, with ongoing projects. The
company has entered into projects for a diverse range of clients like
defense sector, Railways, Ports, Adani Port, Vedanta Ltd, IVRCL
My Mantra Limited, Rashtriya Ispat Nigam Limited and ESSAR. They have a good
Don’t follow any tips. Do your own track record for timely completion and minimum cost overruns. They
study and buy with own have developed their own fleet of construction equipment for earth work,
conviction. piling bridges. It possesses Marine Equipment worth `30 crore, which is
capable of executing major offshore piling works. The advantage of
having own, ancillary services cannot be understated. RKEC is one
amongst very few contractors in the country to possess Jack Up Barge of
capacity 500 MT.
Promoters And Projects

Mr. Radhakrishna Garapati is the Chairman and Managing Director. He
has over 3 decades of experience and specialization in civil and
Mechanical construction works. His two son in laws is also helping him
in the business. The company has so far completed 81 projects, worth
over `1049 crore and currently handling seven projects amounting to
`705 crore. The company has been executing onshore and infrastructure
projects since 1985 and offshore works since 1994.
Financials
Revenue increased from `57 crore in 2014 to `197 crore in 2017. PAT
increased from one crore to 13 crore. Revenue and PAT showed CAGR
of 36 and 86% in last four years. Company has shown strong financial
Disclosure performance during FY17 as it has posted strong operating & net profit
The author is not a registered analyst under SEBI margin of 14.38 % & 6.66% respectively during FY17.
stock. Readers must do their own research before
166
Defense Play
The company entered Aerospace & Alan Farley’s rules for a swing trader
Defence Segment by acquiring
technology in June 2017. In
consonance with the focus of PM A lan Farley had famously declared that the 200-day
moving average divides the investing world in two. Bulls
and greed live above the 200-day, while bears and fear live
Narendra Modi on ‘Make in India’
the company has entered the below. Sellers eat up rallies below this line and buyers come to
the rescue above it. Known as master Swing trader Alan has
‘Aerospace-Defence-Security
widely written about his swing-trading techniques and has
(ADS)’ field with the intent of given some rules. Out of that 15 rules are presented here –
making indigenous products,
initially focusing on Unmanned Rule 1: If you have to look, it isn’t there.
Aerial Systems (UAS), civil and Forget your college degree and trust your instincts. The best trades jump out of
military survey, Robotics, nowhere and create a sense of urgency. Take a deep breath, then act quickly
specializing in analytics and before the opportunity disappears.
decision support systems, other Rule 2: Trends depend on their time frame.
niche technologies and numerous Make sure your trade fits the clock. Price movement aligns to specific time cycles.
other by products developed during Success depends on trading the right ones.
the R&D phase. This vertical can Rule 3: Price has memory.
add a significant amount to topline What happened the last time a stock hit a certain level? Chances are it will
and bottomline in the times to happen again. Watch trades closely when price returns to a battleground. The
come. Director General Naval prior action can predict the future.
Projects (DGNP), Indian Oil Rule 4: Profit and discomfort stand side by side.
Corporation Ltd, Purvanchal Find the setup that scares you the most. That’s the one you need to trade. Don’t
Vidhyut Vikas Nigam Limited expect it to feel good until you take your profit. If it did, everyone else would be
trading it. Wisdom from the East: What at first brings pleasure in the end gives
contributed 85% of the turnover
only pain, but what at first causes pain ends up in great pleasure.
during the 2016-17. During 2016-
Rule 5: Stand apart from the crowd at all times.
17, the rapid execution of work at
Trade ahead, behind or contrary to the crowd. Be the first in and out of the profit
Cochin Port Trust contributed to
door. Your job is to take their money before they take yours. Be ready to pounce
more than 50% of turnover (`106 on ill-advised decisions, poor judgment and bad timing. Your success depends on
crore). This is a threat as well as the misfortune of others.
the strength.
Rule 6: Short rallies, not selloffs.
Shorts profit when markets drop, so they start to cover. This makes it a terrible
Conclusion time to enter new short sales. Wait until they get squeezed and shaken out, then
The company plans to execute an jump in while no one is watching.
order book of `500 crore in next Rule 7: Manage time as efficiently as price.
two years. I expect the company to Time is money in the markets. Profit relates to the amount of time set aside for
generate an IRR of 20%. The analysis. Know your holding period for every trade. And watch the clock to
company is confident of achieving become a market survivor.
a turnover of `2000 crore in the Rule 8: Trades that work in hot markets destroy accounts in cool ones.
next 7 – 10 years. EBITDA margins Stocks trend only 15% to 20% of the time. Price ranges cause grief to momentum
should remain in the range of traders the rest of the time.
15-18%. Increasing government Rule 9: Control risk before seeking reward.
focus and reforms in the Wear your market chastity belt at all times. Attention to profit is a sign of
infrastructural and industrial sector immaturity, while attention to loss is a sign of experience. The markets have no
is a big advantage for the company intention of offering money to those who do not earn it.
going forward. The company offers Rule 10: Big losses rarely come without warning.
good value compared to its peers You have no one to blame but yourself. The chart told you to leave, the news told
like NILA Infra, RPP Infra and you to leave. Learn to visualize trouble and head for safety with only a few bars
Simplex Projects. RKEC can be a of information.
good bet at current market price.
167
Freshtrop Fruits Ltd.

BSE Code: 530 077; Face Value: `10; Market Cap (`Cr): 204; CMP: `169
F
reshtrop Fruits Ltd. has been a leading and consistent supplier
of grapes and pomegranates from India to supermarkets in
Europe for more than a decade.
While quality and food safety have been at the forefront of the
company’s motto, the company has established a healthy
relationship with a wide network of growers spread across several
Sreeselvanarayana V V locations. This helps keep the consistency and quality of fruit supply at
Active in the market 17 years. competent rates.
He loves reading about achievers and
Seeking to harness the existing backward linkages and with a view to bring
their methodologies and loves to watch
the same high standards of quality and food safety to the processed
anything that stimulates thought
domain, Freshtrop has recently established a state-of-the-art juice
process.
processing plant at Nasik, Maharashtra, about 180 km from Mumbai.
Recent Progress
My Mantra
As per the recent disclosure (link give below) dated 13-Sep-2017, the
It’s important to cover a lot of
company decided to venture into the production and distribution of
aspects about a company than to cover
Ready-to-drink (RTD) beverages. This segment is expected to be a solid
a lot of companies and a miniscule
boost to both top-line as well as the bottom-line as there is hardly any
amount of knowledge about each of
incremental investment/cost incurred to bring this new segment to life.
them. Also important to understand how
much time each investment takes to
History
play out than to keep looking at the
The company was incorporated as a Private Limited company on 30th
price each day.
September, 1992, at Ahmedabad in the state of Gujarat. It was converted
into a Public Limited company on 22nd September, 1994.
Freshtrop was one of the first companies in the corporate sector to enter
into exporting fresh fruit to developed countries. The company has played
a pioneering role in establishing exports of grapes and pomegranates from
India to Europe.
The Company’s focus on building and maintaining networks of growers at

several different locations has enabled it to become a consistent and
dependable supplier for the past 15 years. Freshtrop has continuously and
successfully supplied to demanding Supermarkets such as ASDA, Tesco,
Marks & Spencer, Albert Hynes, DelHaize, Carrefour, Migros and several
others.
Disclosure
The author is not a registered analyst under SEBI Awards
stock. Readers must do their own research before The company has won several awards right from 1994 to 2008 and some
investing in the company. of those are given below:
168
• APEDA Award | 1994-1995 3-5 years making this compelling

• APEDA Export Award | 2005- investment case.
2006 “Based on my own
• APEDA Export Award | 2006- To support the above thesis,
2007 Promoters have proved to be quite personal experience
• CNBC Emerging India Award - competitive so far in transforming
By ICICI and Crisil | 2007-2008 the company from being a mere
– both as an investor
fruit exporter to turning it into an in recent years and
Valuations and possible FMCG brand.
Outlook an expert witness in
The stock trades at around 23.5 Allocation
times the current earnings and at • 10% to 15% of one’s capital at
years past – rarely
around 21 times the Mar 2019 around `100 – `130 average cost do more than three
estimated earnings and hence price.
certainly does not look to be cheap • 3%-4% at the current market price or four variables
here for value investor. However, to ensure (assuming the price
what this doesn’t take into account doesn’t fall) any rally in stock
really count.
is the new RTD segment which price is not missed. Everything else is
pitchforks the company into the
FMCG category as the company Risks noise.”
forays into the shelves of multiple • Labor: Unavailability of high-
cities across the country along with skilled labor
its massive export market (which • Macro: – Martin Whitman
contributes upwards of 80% today). • Ban on any of the fruits from
India – For instance Mango
What the above effectively means is, Pulp was banned in Europe
the valuations that are apparent at before 2015. The lifting of this
this point in time should not be ban proved to be a boost to
taken at face value due to Freshtrop that year
• Earnings getting a boost due to • Adverse export policies and
RTD segment other regulations
• Any impending fall in price due to • Competition from European
macroeconomic effects (not in market and other geographies/
company’s control) nations
• ForEx fluctuations
The above notwithstanding, the • Outbreak of diseases affecting
revenues and profits are expected to plants and produce
grow at around 20% - 22% and • Unseasonal / Inadequate rainfall
13%-15% respectively over the next • Management losing focus
169
Websol Energy Systems Ltd.

BSE Code: 517498; NSE: WEBELSOLAR; Face Value: `10; Market Cap (`Cr): 340; CMP: `132
W
ebsol Energy founded in 1994 is a leading
manufacturer of photovoltaic monocrystalline solar
cells and modules in India. This is a very simple
commoditised industry and the profitability of the
company is entirely dependent on the scale of
operations and utilization of the available capacity which is a function of
Ravi S the underlying demand. The role of Websol in this industry is to supply
An individual investor Solar Panels and Modules to the customers.
About the industry
Very passionate about equities, Scale of operations: Websol with a current capacity of about 200 MW is
aspiring to be a full time investor. Aided one of the few companies in this sector with significant scale and the
by liquidity through the bull market he is capacity is set to reach 250 MW by Q3 FY18 and subsequently to 300
amongst the many investors who get MW later. A company would increase capacity when the current plant is
the false sense of comfort that he is on fully utilized. Underlying Demand: The governmental support to this
the right track. sector is two pronged: 1. Increase in tenders in the next few years to
augment installed solar capacity. 2. Anti Dumping duty (Final order
awaited) against Chinese manufacturers. Supply issues: Off-late China has
My Mantra been dishonouring a number of deals priced at a lower rate and also
Stay grounded. Money doesn’t customers are likely to face logistical issues
belong to you, it belongs to Mr Market.
You may be successful today only Quality Concerns
because of the bull market. Longevity is Unless it is a very large tender, it wouldn’t invite interest of a tier-1 supplier
more important than playing a from China. Tier-2 suppliers often do not have superior product quality and
cameo. this would hurt IRR calculations. The installed capacity of solar power is
expected to reach 100 GW by 2022 from the present capacity of 12GW and
the present government has been taking all the right steps to ensure the
installed capacity reaches 100GW. As a result, underlying demand was
never a problem in India, but the local manufacturers were hurt because of
Chinese dumping. Broadly we have two categories of markets that operate:
The Utility - B2B and offers low margin, largely dependent on scale of
operations. The Rooftop - B2C and offers high margin. This is a lucrative
market and Websol has recently set-up a subsidiary to focus on this segment.
How do the numbers stack-up?

Websol with a Market cap of about `350 crore trades at an EV of about `500
crore. With increased capacity coming in the company it can post a PAT of
Disclosure about `50-55 crore so we are looking at a forward PE multiple of 6-7. This is
The author is not a registered analyst under SEBI a sector which faced headwinds in the form of heavy dumping from
stock. Readers must do their own research before Chinese players (> 80% of the panels are imported) - Likely to change with
investing in the company. imposition of Anti-Dumping duty.
170

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“Successful Investing takes

time, discipline and

(Market related data as on January 5, 2018)

fRoM thE EDItoR’S DESk

Such an outperformance has also led to a higher valuation of small cap

The world of small-cap stocks can be a dangerous minefield for the

The retailers had been looking forward to some quality content

and this Special Initiative

Readers, Indian Economy & Market categorically 1

states here that this is not a recommended list 0.9

Altogether 90 brilliant and passionate minds have worked tirelessly to come

– Krishna Kumar Mishra

First Special Initiative

ISBN No.: 978-81-929515-2-2 Dhruv Shah Intrasoft Technologies ............. 22

Knowledge, Wisdom &

Investing is nothing but a

What is your recipe for selecting Multibagger Stocks?

What has been your learnings in the markets and where

be able to and willing to adapt In my case, my evolution as a better investor became

A college dropout by choice who entered markets at age of 14,

A die-hard stock picker, Soumya Malani has completed his

Together they conduct “Sharebazaar Workshops” Pan India and

Small-Cap Stocks in the markets. In our ShareBazaar Workshops, often

five crore with his unscrupulous means. But how

Thoughts on Companies with High PE Ratio

updated with the happenings around, along with your

Thoughts on – Demonetisation, GST and Modi Government

BCL Industries and Infrastructures Ltd.

Disclosure Long-Term Story

“Invest in the small

Why 3P and not 1P?

Som Distilleries & BrewEries Ltd.

Disclosure Southern Plans

weather provides all year demand Big Facts

HIL Ltd. (formerly Hyderabad Industries Ltd.)

working spaces for her citizens. used conventionally in the

Vishnu Chemicals Ltd.

Volleyball is his other passion… “true to Why is the space so interesting?

Sodium Dichromate, a hexavalent salt, is the key starting material -

long term arrangement with Ramky Acid (non-metallurgical) and

PTC Industries Ltd.

“My view is that I am

Worth Peripherals Ltd.

the entire automated system that is

I always tell young analysts or fresh market participants that

Globus Spirits Ltd.

My Mantra Current Updates

increase utilization levels in

services will be in excess of `1000

Tyche Industries Limited

V-Mart Retail Ltd.

Expanding Very Prudently

Low Risk From The Online Competition

operations. Without focusing on

IMP Powers Ltd.

• The company has orders worth over `600 crore in hands

Liberty Shoes Ltd.

Peninsula Land Ltd.

Welspun Enterprises Ltd.

Key Investment Themes

Precision Wires India Ltd.

What are Enameled Wires?

The major raw material is copper which is procured domestically both