First of all, we must pay tribute to the stock picking ability of Dolly Khanna aka Rajiv Khanna. Long before NAMO came on the scene and ceramics and sanitaryware become the buzzwords, Dolly had grabbed a massive chunk of Cera Sanitaryware’s stock. It is much later that the other stock pickers woke up to the potential of ceramic and sanitaryware stocks and put out a buy on them.
Dolly Khanna’s latest stock pick is Asian Granito, a micro-cap with a market capitalisation of only Rs. 363 crore. In the December 2014 quarter, she scooped up a chunk of 3,82,454 shares. The investment is worth Rs. 6.11 crore at the CMP of Rs. 160.
The quickest way to get a grip on Asian Granito is to read the interview of Bhupendra Vyas, Chief Operating Officer. In that, Bhupendra Vyas points out that Asian Granito is among the top five ceramic tile manufacturers in India. He states that the company manufactures and markets interior and infrastructure products like vitrified wall and floor tiles, marble and quartz stone. It was established in the year 2000 and has grown its manufacturing capacity 40-fold in 14 years, from 2500 square meters per day in the year 2000 to over 1 lakh square meters currently (including outsourcing). It is also pointed out that company exports to nearly 42 countries worldwide.
Bhupendra Vyas also explains that the growth of the ceramic industry is dependent on the growth in sectors like hospitality, construction, corporate spaces, residential premises etc. One area of opportunity is the huge middle class population of India with its increased ability and desire to spend with more disposable income on hand. He adds that the challenges for the industry come from increasing input costs and the steep rise in energy costs. The overall slowdown in the economy, which has brought about a slump in the real estate and construction sectors, has indirectly affected the ceramic industry as well, he says.
Daljeet Kohli of IndiaNivesh has also conducted a detailed study of the ceramics industry and of the various players in it. In particular, he has compared Kajaria Ceramics and Somany Ceramics with Asian Granito.
Daljeet’s report reveals that while Kajaria and Somany are expected to have impressive sales CAGR during FY13 to 16E of 18% and 22% respectively, Asian Granito will lag behind with 5.4%. Also, while Kajaria and Somany are expected to report an EPS CAGR from FY13 to 16E of 25% and 24.9% respectively, Asian Granito may report a EPS CAGR of (-) 2.6. If you look at the actual figures of ROE for FY13, Asian Granito lags behind with 6.8% as against the impressive 32.5% for Kajaria and 23% for Somany.
|Overview of Asian Granito’s figures|
|(Figures in Rs Cr)||2014||2013||2012|
|Profit Before Tax||22.49||25.38||27.01|
|Profit After Tax||14.14||17.11||18.05|
|Operating Profit Margin (%)||8.57||10.20||11.10|
|Net Profit Margin (%)||1.86||2.42||2.89|
|Earning Per Share (Rs)||6.26||7.71||8.41|
|Core Ratios Of Asian Granito||2014||2013||2012|
|Operating Margin (%)||7.72||9.05||9.82|
|Net Profit Margin (%)||1.68||2.14||2.56|
|Return on Capital Employed (%)||8.11||10.51||11.65|
|Return on Net Worth (%)||5.19||6.79||7.79|
Apart from poor ROE’s, Asian Granito has also a bit of debt in its books. Also, the promoters’ holding is low at 37%.
In the past, Asian Granito’s poor return ratios was priced in because while its P/E for FY13 was only 3.6, its peers, Kajaria and Somany, commanded P/Es of 25.9 and 18.8%.
However, at the moment, Asian Granito is quoting at a P/E of 24x based on the TTM EPS of Rs. 6.62.
We must also bear in mind that Asian Granito has surged quite a bit in the recent past. In the last one year, the stock has given a return of 370%. The six month return is 118% and the three month return is 56%.
Whether Dolly Khanna’s magic wand will propel Asian Granito to higher orbit or whether it will run out of breath over excessive expectations from it remains to be seen.