Gujarat Foils

CMP-55(BSE)

OVERVIEW

Gujarat Foils Ltd. is a part of the $7 Billion company, Topworth Group, and is the third largest manufacturer of aluminium foils and sheets in India. The company is listed in the Bombay Stock Exchange.They produce entire range of products from thin gauge sheets and coils for closure stock used in the Brewery and Pharmaceutical Sectors to bare foils like Fin stock for heat exchanger fins, tagger and lidding foil for the Food & Beverage Sector, as well as consumer house foil.They have increased capacity from 3400 TPA for sheet/coil in 1992, to a capacity 12600 TPA.
The Company's products have the following Certifications.

D.M.F. Type – III D.M.F. No. Assigned : 25725 for Strip Foil U.S.F.D.A.
D.M.F. Type – III D.M.F. No. Assigned : 25585 for blister Foil U.S.F.D.A.
ISO 9001:2008 Management System TUV
ISO 14001:2004 Environmental Management System TUV
OHSAS 18001:2007 Occupational Health & Safety Management System TUV


Sale have grown from 52cr in 2005 to 430cr in 2014 and NP from 0.29cr to 11.23cr in the said period.For the 9 months period in the current year Sales stand at 342 cr and NP of 8.79 cr.EPS for 9months in the current year is at 10.72 against full year EPS of 11.22 for mar 2014.

Compounded sales growth during last 3 years is at 24% and Compounded profit growth of 113% is quite impressive.ROCE is at 14.69% Debt equity ratio of 2.47 is a bit higher but may find relief with the expected rate cuts.

 

Solid Fundamentals be it Turnover or Net profit or NP Margins......

Im surprised that its actually languishing at rs 55..... Re rating CMP to be around rs 150-200 in next 12-18 Months.... This is a Multibagger allright..... 8)

 

I am also tracking Guj Foils. In one site I found a good write up about the Company. He has also set out the risk factors as follows:

"Major Risks:

1) Company is currently having very high debt, due to nature of business. The Debt:Equity is more than 2. However, the good thing is that, the debt has not increased for past 3 years. Also, the credit rating agency CARE has been continuously revising its bank facilities as the company's performance has kept on improving.

Here is the latest revision on Mar 11:
https://www.indian-commodity.com/corporate/care-revises-ratings-of-gujarat-foils-bank-facilities.aspx

2) With the Foil Industry showing signs of growth, number of new entrants are already there and more will be further coming in this sector. Cheap import from China after withdrawal of anti dumping duty resulting in cost competition in the Indian Market.

3) Due to the nature of business, and high capital requirement, the company is not paying any dividend in spite of making decent profits.

Talking about numbers, for the nine months ended Dec'14, the company has shown growth of 24% in sales and 33% growth in net profit, The company is likely to end the year with annual EPS of around 14, which means the stock is currently trading at a P/E ratio of less than 5. However, the above mentioned risk factors has been somewhere responsible for such valuations.

CAGR for last 5 years in sales has been 42% and about 101% in net profit which is an incredible achievement in such industry. It is also very tough to maintain good operating cash flow in such businesses. However, if one checks the data for past 2 years, it has been excellent."

There are also some negatives about the management according to comments in post.

https://fundamentalstockideas.blogspot.in/2015/03/gujarat-foils-will-patience-pay-someday.html#comment-form

 

Thanks Mr.emmanuel leorn and Srouta Mukherjee for the views.

 

Meanwhile GUJARAT FOILS is up by 5% at 58.55

 

Guj Foils moved up to 66.40 today

 

Toady 10% up at 68

 

This company is very similar to Kwality in terms of sales growth and debt growth.
Company's debt has increased Rs.30 crores in 2009 to Rs.170 crores in 2014.
Last five years,the total net profit earned is Rs.30.81 crores whereas Interest payments is whopping Rs.112 crores(4X of net profit).
Out of last 5 years,3 years company's cash flow is negative which is again a negative factor.

Considering all these and huge leverage of 2.47 times,company needs another 10 years to pay back the debt.No wonder why the market cap is Rs.50 crores when the sales is Rs.500 crores.

Similar to Kwality,where the sales is more than Rs.5000 crores but the market cap is just Rs.800 crores because of the debt growth is faster than the sales growth.

Atleast kwality has good ROE and RoCE of more than 20%,this company does not have that as well.

The problem with these companies is they have to be on the ventilator forever due to their limited entry or nil entry barrier.

P.S: These are purely my educational guesses,I am not an expert stock picker.Please do your own analysis before making any investment decisions.

 

All companies can not have MOATS..in this competitive markets.
I have already pointed out that D/E ratio is high.. nothing new..If the Company as it appears improves its profitability and plans for reduction of debt..It would be a high flyer.

 

Thanks Madam.

 

EQAXScore is only 56 out of 100. :-\

Pledging of Promoters is 25% , too high promoter pledging is a risk for the stock.

Turnover Rating is only 51 out of 100. The Turnover Rating measures the Volumes and Turnover of the stock on NSE and BSE.

SHP Rating is only 21, The SHP Rating measures how healthy is shareholding pattern of the company. Too high pledging, very less promoter shareholding, reduction in promoter shareholding reduce the SHP rating.

But
Price Rating os the stock is good i.e 88 means stock is available in its suitable{cheap} value , The Price Rating is a measure of how expensive a stock is with respect to its quality.

 

There are following major issues in Gujarat Foils Balance Sheet

1. The excise duty to Turnover ratio is less than 4.50 %. For a manufacturing company with less than 1 % exports, it should be more than 12 %. This shows that almost two third of the turnover is not manufactured by the company but only traded by it. It would be very significant to know what is actual production of the company against capacity of 12600 TPA.

2. The company is carrying inventory of about Rs 200 crores. The requirement of Inventory for Trading should be less. So for manufacturing operations, the Inventory appears more than its annual sales. This is abnormal. Why it continues to carry huge Inventory ?

3. The company has not disclosed following mandatory information in Balance Sheet (these information will show actual production or trading)

a. Power consumption per unit of Production

b. Purchase of goods traded

c. Stock of goods traded

4. The Power consumption during 2010-11 was about 72 lacs units. Now also it is almost same level. But the Turnover is double. So either the company has efficiently reduced energy use by 50 % (which is not reported in DR) or increased trading activity only (which is evident from Excise duty to Sales Ratio).

 

I would like to correct. The power consumption has in fact reduced from about 72 lacs units in 2010-11 to about 62 lacs units in 2014-15. This shows that actual production quantity is stagnant and only trading activity is increased over the years.