Nandan Denim

Did some analysis about nandan denim today , Thought to share with you people . I have heard dolly khanna has entered this company but i never thought to buy because of dolly khanna . Today i was researching about sangam india and found that sangam india was already in poly sector and now looking to enter into denim sector . They were giving more explanation in their annual report of denim business more than poly business . When a established company is looking to enter denim business then there should be really a great opportunity . This made me to think about this stock which dolly khanna entered earlier . So i researched about Nandan Denim then . Nandan denim equity is growing in the past 5 years while their debt has been reduced almost from 700 crores to 400 crores ( around) . Nandam Denim revenue has grown almost 20% CAGR , while their EBITDA is around 100 crores . Debt/ EBITDA = Takes around 3.5 years to completely finish the loan if they are paying full( not so high debt ) . The opportunity in nandan denim is they are having market share of around 9 % in the denim segment , Arvind mills is the leader in Denim segment and is having a market share of around 14% , which is not much far from Nandan denim . Nandan Denim is India's 3rd largest denim manufacturer . Also China is number 1 denim manufacturer while India is no 2 denim manufacturer . What is denim used for ? It is used in the process of making jeans pants or jeans clothes . India's population 70% right now is below 40 years . So with the age bracket , and usage of jeans in tier 2 and tier 3 can grow higher from here . Perhaps India follows western culture exactly but it takes time . Apart from all these , china denim price is around 2.65 while india's denim price is around 2.40 - 2.50 . This opens the door for Indian manufacturers globally . As of now nandan denim major revenue is from domestic market , but they have opportunity to fly globally too . India's textile industry is too big which contributes around 4% to the gdp , and the work force employed by textile industry is number 2 after agriculture . Hence there would be huge government support too . Regarding the valuations , the company is making around 100 crores of EBITDA and the market cap of the company is just around 400 crores . Which is way too cheaper . In next 5 years we can expect company to product a profit of 400 crores easily since there is a great opportunity .

People are welcome to share their views in this thread about this company

Have a great day !!!

 

Super Analysis of stock. I agree Nandan Denims has great potential. It has good management (Chirpal group) and is ambitious.

 

Why should one think a debt ridden stock is a great potential stock over other stocks that don't have debt.. any clues. sorry I might be wrong

 

Well let me explain what i think about debt driven company or a company without a debt .

Well usually what people tend to think is , if the debt is too much more than the asset value of a company then its a risky investment , when its via opposite they think its less risky .

Lets say a company called " A" which has assets worth of 100 crores and debt worth of 200 crores , but the company is making a EBITA of 50 crores . In this way you can calculate company can reduce their debt within just 4 years if they pay it fully , so i dont feel it as risky investment , without debt particularly a start up company cant grow into great revenues, the only purpose they are in stock market is to take money from investors in exchange for a stake and grow their company . This is a example which can suit nandan denim.

Lets say a company called "B" which has assets worth of 100 crores and debt worth of 75 crores( This is what people called less risky investment ) . Lets say company is making a EBITA of 7 crores every year . In this way the company would take nearly 10 years in order to reduce the debt . So this type of stock would move slowly unless there is some manipulation going on ( In India it happens often ) . So the investors return wont be great , to skip this( if the company does not make good profit in long term , they have to sell their assets in order to reduce their debt ) which would therefore make the company stock value to go lower .

People always tend to look at smaller picture ,like ( if the company has too much debt am not gonna enter) , (If the company has less debt i am gonna enter ) the value of a business entirely depends on the money they are making . Lets say a company worth of 5000 crores is just making 5 crores profit and selling in real market(not stock market) , would you invest on this company ? The ROI is just 1% . I may be wrong , you may say me that the company which you are buying which is worth of 5000 crores and makes just 5 crores profit is having a asset worht of 10,000 crores, but thats a asset play , its not a business to be frank enough . If you want to profit in a longer term from stock market, i prefer to buy business not the asset play . Because lets say am investing on a 5000 crore company which is making 500 crores of profit and is 5000 crores worth today . ROI is 10% , and the business ( has opportunity to grow ) thats the reason am buying the business . so todays 500 crores with 7% inflation , lets say in next ten years inflation grows in the same proportion , the products of the company(lets say they are selling newspapers for just 5 rs) . In 10 years with 7% inflation ( 8.5 Rs / paper) . Lets consider the company was making 2000 crores of revenue with 500 crores profit (5Rs/paper) , in 10 years with 8.5 rs paper cost 3400 crores of revenue , the profit would be worth of 850 crores after 10 years . Lets say i bought this business for 5000 crores , and with the profit they make today the company can be valued 8500 crores or even 20 times the profits based on volatility . So you can see the money i have invested has grown from 5000 crores to 8500 crores(This was just a example) . If the same business has been bought in recession which was selling at around 2000 crores, and they are worth 8500 crores after 10 years , its almost 4 times my money . Even in bank you can only grow your money 1.5 times during this time . Hence i always look for business which is gonna earn money in future .

Lets say few examples which industries i think would grow :

Media- Its going to be entirely online in few years , they are not gonna ask you to pay to read newspapers but they are gonna charge it with the advertisers . We are just charging advertisers 7$/ ad , while china with the same population is charging 35$/ ad . Lets say a american wanna advertise in asian countries , he would see which country is cheaper . You might ask why would americans wanna advertise in India . India has a population which can transfer into revenue . So if he wants to do a online business and want to grab more revenue he would obviously advertise alot of india compared to china which has almost the equal population but the paper cost ad is higher over there . Lets say a american business man is ready to give 8$/ad in india ( he compares it with china and knows its cheaper over here) , while indian companies inorder to grab the spot for the advertisement , they would obvisouly fight with the american advertiser in the cost , hence they would be ready to pay higher than todays level . These fights would obviously make Indian Media companies more revenue. So this is the industry i might i have my money on , coz the profit might jump from 7$/ad to even 35$/ ad , so if a company making 500 crores profit today might end up in 3500 crores profit . If you are buying a 500 crores profitable company for 5000 crores , then if the profits is going to jump around 3500 crores in next 10 years , then the value of your company which you bought for 5000 crores and the profit they derive is 3500 makes no sense . Hence the value is obviously gonna jump when they are making 3500 crores .

I dont straight away look at just the debt and get out . I look for companies with good stories and reasonable valuations .

 

And i just wanna add up one more thing , dont buy asset play companies in India . It wont work . If you are adding asset plays companies in USA it makes sense , but in india the management has to be very supportive . They need to sell their assets and give their share to shareholders . Instead of doing this management has a option . They might sell their asset and they dont need to give it to their shareholders too . Asset play companies works only if management , business is good . If it is not good , why would someone wants to sell their assets and divide their share with you ? I dont think none of the Indian companies can work in asset play . There are companies where business is running well , so they might sell their assets and divide it to their shareholders . But if the business is not well and is about to close , the asset play companies wont work . In USA if you had a case in a court , then its easy for you to get the money . But in India it takes your life to get back your money . See kingfisher for example,they have so much assets , but companies stock came only to 3 rs . It never went bankrupt , but they have assets but government is still supporting him . This is what it happens in India !!! So be careful with asset play companies in India . Dont just be curious and say i see a land near by neighbourhood , which belongs to XYZ company and it is worth 1000 crores but company is selling for just 50 crores . It might be a great return but when you will get it in your hand is a question . If you buy business with earnings ,even though the management is not good , if the business earnings grows the market value of the company goes up . Hence always try to invest in growth companies and not asset plays . I know few people who invested their entire savings , saying the neighbourhood land is worth this much , but the stock never moved ( they would have doubled their money in bank ). It is still at same place,perhaps going down since the business is not performing good .

 

Very gd explanation......a/w,where do u see Nandan Denim in two years?

 

I feel they can double or triple their market cap in next 5-8 years.I don't look for 2 years,am a long term investor and usually look for 5-10years duration.

If you are looking to double your money in 7 years in bank,I want to triple at least in 7 years.again this is the max duration, if the company is over valued in next 3 years,I may get out . depends on opportunities and valuations.

 

What if cotton prices rise ?

 

Well that's a good question,but you see nandan denim has a margin of around 10% for the last 5 years. If cotton prices are going to rise the company is still gonna make profit . That's the reason its always good to see the margins of each and every company you invest . If someone is having a revenue of 1000 crores and making just a Ebita of just 30 crores its only 3% margin. So if any of their raw materials gets increased company is gonna have loss in their statement . so its always good to see a good margin for each and every company.

(At the end of the day every thing depends on the style of a investor . Do what works for you and multiply your investment. )

 

@Investor2008 Impressed by your indepth analysis We should have more & more of these by more & more boarders !

 

@Inverstor2008: Amazing and impressive. Like to read more from you...

 

Amazing and inspirational.. Please share more similar stuff..

 

I missed buying at 70, can I buy at 160 now please advise

 

I am also thinking the same.

 

I Personally feel this is not a good rate to buy if you want a undervalued price . Around 100 was a good price for this company .(This is just my own analysis , its up to you to decide)

 

Hi, I had bought around 10K shares in 2008, but the stock was not performing. I sold everything for loss. But now since some big analysts bought it is moving. Why things like this happens. Thanks, Ramesh

 

Well analyst usually looks for undervalued stocks . In 2008 i dont know what was the total market cap of the company and how was it performing . Its very difficult to analyse the history . You cant make money with all stocks whichever you hold . Its like a life,there would be positive as well as negatives . Even Big Investors like Warren Buffet , Rakesh juhnjuhnwala has losses . No one cant be 100% right . But all the people who are investors , look for opportunities ( You should not buy a business which is declining : Example paper manufacturing business or telephone booth ) Instead you should buy a business which is growing ( Like Ecommerce ,Infrastructure) . You have to always see where there is room for the company to grow . In some business you can find something like rice(Eg: KRBL) . This business is a routine business and you can see this company is creating a branding for the rice industry . Till this generation you can see people are usinng unbranded rice . But branded rice there is a huge opportunity to grow . KRBL has one of the biggest production in rice sector as well as their margins are very high . When i see locally at my place , i can see that Kohinoor is selling for 11$ , and other basmathi rice companies which are listed in Indian companies are selling between 9$-12$ for 10 LB . But KRBL is the only one which has high profit margin and is selling for 14$ . You can see the production unit of KRBL is a competitive advantage . I am damn sure that KRBL cant be beaten in next 5-10 years timeline . So you have to buy routine and growing business , not declining business .

Also the valuations is more important . You are not gonna pay 20x PE for a company . It means you are just taking low income compared to bank . You have to earn more than you earn in your bank . So valuation depends on person to person . Warren Buffet has a different method,rakesh juhnjuhnwala has a different method , ramesh damani will have a different method ( Perhaps he bought amazon on future valuations , not on present valuations ) . But all of them try to buy a company which is very cheap , thats why they are successfull . Also not all the companies which they pay pick gives them the return . But sometimes they pick a company which is selling half the price of the true value . In coming years when the true value grows one time even , they get a 3x return . Thats the magic . Value and Price is more important while buying a company . If you are paying too high price ( Like flip kart,they are not making any money but extreme valuations) it does not make any sense . Only companies which makes profit stays forever when you see the history . Company which is at loss does not grow in long period or company who eats shareholders money does not grow forever . When you invest a capital inorder to grow revenue every time , the ROI is less and it does not make any sense .


Nandan was selling at 50 when i never knew , it might be before two years . But i caught it around 100 . I think if you would have bought even at 50 rs at 2008 and holded it for 7 years . Today its worth 150 rs . so your investment has been trippled in 3 years . I am damn sure nandan was available more cheaper than 50rs when you bought at 2008 . If you place your investment in bank you would have just doubled in 7 years time frame . So you can see a value there even if you holded. 2008 was a recession and no one should ever had sold the stocks coz the whole world was in recession . You have to sit patiently , and the stock market would grow more higher than the previous high . Its a nature , just like rain . Bear market is a rain . You cant think that rain will never stop(Do you think ? ) . You think rain would stop one day . Same thing belongs to stock market . Dont panic ever . If you loose one stock you just loose 1x but if other remaining stocks ( lets say 9) give you 2x returns . You still make 17 out of 10rs . Remember it

 

LIFE IS LIKE THAT ONLY Keep The faith and keep WALKING!

 

Vardhman textiles is best stock of textile industry.It has got leadership in qualty, productivity and efficiency in spinning ,weaving dyeing processing, garmenting,knitting yarns,sewing thread,acrylic fibre production and special steel.Financially sound with history of bonus and dividends. I am invested in this ,and as a stake holder is biased.U can study and discuss with your financial adviser before investing at weakness.RSWM is distant second and is reasonable good stock..Rest of compnies are weak and you can find out by going in history of other compnies.No need of following so called experts as they will lose their shirts with in two years for speculating in other textile stocks.