|Top Investment Ideas – November 2017|
|Company Name||Sector||Market Cap (INR Cr.)||CMP (INR)*||Target (INR)||Upside (%)|
|BASF India Ltd||Chemicals||7404.69||1714.05||2122.00||23.80%|
|Minda Corporation Ltd||Auto Ancillary||3037.11||145.10||208.00||43.35%|
|Pearl Global Industries Ltd||Textiles||318.83||147.20||207.40||40.89%|
|Rallis India Ltd||Chemicals||4598.95||236.45||295.00||24.76%|
|* Price as on 7th Nov 2017|
BASF India Limited
Dahej Plant to drive revenue growth:
Post the commencement of Dahej operations in FY15, the gross block of the company increased to INR2032.02 Crore, the revenue growth was not in tandem with that. However, the Dahej Plant stabilized in the last 2 years and technical issues have also been resolved. Over the next 3years, based on the plant capacity, the plant can add INR2840 Crore to the manufacturing revenue. This can be a key trigger for EBITDA expansion going forward. The commencement of Dahej site will also reduce the company’s reliance on imports to cater to the domestic market.
Agrochemical business will auger well:
The agrochemical business looks promising. On the back of normal monsoon, agricultural solution business grew by 8% last year. The crop protection business faced pricing pressure due to eroded margins of generics, however that was partly offset by cost saving measures taken by the company. The company also received approval for 11 new crop protection products. The products will give the company enough room for growth as it will increase the scope to serve larger base of farmers
Demand from Automotive Industry looks positive:
BASF produces chemicals for automotive industry which provides protection against corrosion, overheating and frost. Some chemicals also reduces noise, vibration and harshness in both two-wheeler and four-wheeler vehicles. These products have official approvals from most manufacturers in the automotive industry. The company also produces automotive coatings for cars of all types. The coatings and fuel lubricant teams won many awards from key customers like Ford Motors and Mahindra. Going forward the Automotive Industry is expected to do well. This will result in higher growth for the company. Sales of Functional Materials & Solutions grew by 8% last fiscal benefiting from the growth of the auto industry.
Restructuring operation will give further impetus to growth:
As part of strategic portfolio management, the company divested the Industrial Coatings business to AkzoNobel and the Leather Chemicals business to the Stahl Group. The leather business witnessed challenges due to stringent pollution norms implemented by the Government. Such divestments will help the company to focus resources on profitable growth opportunities in the future.
Minda Corporation Limited
Minda Furukawa: A turnaround strategy with long-term visibility intact:
Minda Corp. Ltd. (MCL) acquired 51% stake in the Japan-based Furukawa Company, under its Driver Information and Telematic segment. This JV known as Minda Furukawa, is largely engaged in supplying wireless harness & steering roll connectors to Japanese PV manufactures Maruti Suzuki, Honda and Renault Nissan.
However, after acquiring the stake, this joint venture faced headwinds in the initial phase with EBITDA margin falling to negative territory in FY17 on the back of an unprofitable product pipeline for Renault Nissan and increasing raw material prices. To make this unit profitable the management had outlined a turnaround plan which consisted of stopping the unprofitable Renault Nissan supply by end of Q1FY18, renegotiating the raw material prices with suppliers and reduction in royalty payments to Furukawa. Hence, the management expects this entity to turn profitable and sustainable in the long-term backed by the implementation of stringent crash safety norms and BS6 norms.
Minda Corp is poised to grow through acquisitions and JVs:
The Company is keen to increase its presence domestically and globally through acquisitions and JVs. Minda Corp’s strong free cash flow helped it to grow through organic and in-organic way earlier and expects to grow further through additional investment to increase their product offerings. Apart from that, the management’s strong focus on R&D certainly gives a competitive edge over its peers while strengthening its presence in the industry.
Robust Current Order Book:
MCL has reported a strong order book under the three major business verticals it is operating in. Under the Safety & Security Systems, it has registered a figure of INR1270 crore while reporting impressive figure of INR1614 crore and INR71.59 crore under Driver Information & Telematics and Interior Systems respectively.
Pearl Global Industries Limited
Multi Location Manufacturing Facility:
Global apparel sourcing market is witnessing a shift from China to other low-cost Asian countries, primarily Bangladesh, India and Indonesia. The Company (PGIL) already has a strong manufacturing presence in leading sourcing nations such as India, Bangladesh and Indonesia. Each of these countries exhibits certain core advantages like low raw material cost, employee benefit etc.
Global Clients and Full Capacity Utilization:
They have a total capacity to manufacture around 5.5 million garments per month .Their revenue structure is primarily export based, with a major contribution coming from exports to the United States. They are associated with global clients like GAP, Banana Republic, Kohl’s, Macy, Ralph, Lauren, Tom Tailor, Next and others. They have total manufacturing capacity of 35 lakh pcs of garments on a per monthly basis plus outsourcing capacity of 12 lakhs garments annually.
They have largest in-house embroidery facilities. In North India they have 500 machines and another 100 installed in Bangladesh. Their in-house washing capacity is established in North India and Bangladesh with a capacity of 50,000 pieces a day and 35,000 pieces a day, respectively. A garment dyeing facility has been established in Bangladesh, with a capacity of 10,000 pieces a day. These three factors will help them to improve their bottom line.
New Capacity Expansion:
Currently company is investing INR23 Cr to increase their capacities in Bangladesh by 25% (3.5 lakhs pic annually), which will increase the revenue by INR100 Cr. They are also planning to start their operation in Vietnam from this year onwards, which will add another INR100 Cr mileage in their revenue.
Rallis India Ltd
Rallis launches new products at regular intervals:
The company makes a point to launch at least three products each year. Rallis benchmarks its performance through an internally defined parameter called Innovation turnover Index (ITI) which measures the contribution by new products introduced in the last four years to the revenue of the present year. This year however the innovation turnover ratio fell from 11% to 7% mainly due to exclusion of certain brands like Taffin and GeoGreen from the list of ITI and slower than expected performance of some newly launched products like Duton, Hunk and Origin. Recent launches are well accepted but are yet to draw large volumes. However with the help of healthy distribution network the company will regain traction in the domestic market.
Metahelix’s performance is a key growth driver for the company:
Rallis is targeting to increase it’s share of non pesticide business in total sales from current 31% in FY17 to 40% in FY18. The non pesticide portfolio comprises of seeds and agri services. Rallis is focusing on establishing its own seed brands in various segments of cotton, rice, maize, millet, wheat and mustard. During FY2016, the company increased its stake in Metahelix to 100%. The subsidiary reported 15 per cent growth in net sales and 55% growth in PAT in FY17 mainly from corn and millet. In FY17 the sales volume grew 35% over previous year. The company expects the sales from seed division to grow by 20% in FY18. It touched 3.5 million farmers through Product Differentiation Activities (PDA) & Pre–Season Activities (PSA). Metahelix commands a market size of 3% in the domestic seed market and going forward this segment would grow further.
Rallis is partnering with leading companies for contract manufacturing:
Rallis is partnering with leading companies in the business segments of crop protection chemicals, Specialty Chemicals, Polymers and Intermediates .They have been qualified for couple of new business in contract manufacturing. A capex of INR40-50 Crore has been allocated for the CRAMS facility at Dahej for which supplies will start soon. It is about to supply two molecules. Production of the first molecule started in Q1FY18. This would generate an incremental revenue of INR50 Crore with an estimated EBITDA margin of around 20 per cent in FY18.