Fundamentally, co is doing great. But I think as Promoter, some kind of explanation should have been filed with the exchanges. It is not legally required but some clarification as to why the sale happened. Would give clarity to investors, ie may be from long term perspective, Rahul will be responsible for SG Finserve and that’s why he sold and other son would be responsible for APL Apollo. (just my view, I may be wrong).
Posts in category Value Pickr
Galaxy Bearings (05-09-2023)
This is from last years AGM,
important points highlighted
1.exports contributes 72% to revenue vis a vis 28% by domestic
2.Margins are volatile due to fluctuation in price of raw materials
3.Quarter 1 is generally lean as orders are mostly from international clients
4.capacity utilisation of 80 %
5.17 cr capex planned opf which 5 cr was utilised
6.expanded customer base in last few years
7.exports mainly to Germany,Italy,Us,Turkey and UAE
8 .Automotives contribute 60%, Agro equipment 15 % ,Industrial equipment 15%
Bharat bijlee Ltd (05-09-2023)
Yes,that is true sir, Also Ace investor Ashish kacholia is a shareholder in the company…
Bharat bijlee Ltd (05-09-2023)
Promoter holding is 33.9%
Bharat bijlee Ltd (05-09-2023)
Update from Automation Expo at Mumbai, Maharashtra
Bharat Bijlee’s servo drives leverage in import substitution
Bharat Bijlee has launched its synchronous AC servo drives and motors portfolio two years ago with its technology partner, Germany’s KEB Automation. BB is the first domestic company to offer an indigenized portfolio and aims to leverage demand arising from import substitution. It is used for cyclical applications that need accurate positioning. End-user industries are plastics, printing & packaging, metals, textiles and machine tools. It is usually priced at a 50% premium to the regular motors.
Bharat bijlee also showcased Synchro Connect – Smart IIoT (industrial internet of things) Gateway,’ strengthening its digital offering. It enables user to receive real-time data from machines, meters, and drives. Other highlights included Bharat bijlee’s IE5 category electric motors, which is one of the most energy-efficient motors range.
Raymond – The Complete Man (05-09-2023)
Finally, Raymond Ltd is attracting attention from big fund houses (in particular, those firms mentioning that past concerns on governance etc are gone now)
Cupid Ltd – Helping the world play safe! (05-09-2023)
Cupid’s sales growth and margins peaked in March 2017. Thereafter sales have shown a jump in FY20 but stagnated since then. Last 10-year sales CAGR is 19 % but last 3-year CAGR is almost zero. Management has indicated no growth in revenue and profits for FY24 as well. Clearly, business is very lumpy by nature. For example, in FY21, Brazil business was more than Rs.50 crore but in FY22, it was Nil. In FY23, South Africa contributed Rs.43 crore but in FY22, it was nil or very small. Such lumpiness is not good for stock valuation.
Margins have declined from 41 % in FY17 to 26 % now. Q1 FY24 was worse, with margins at less than 10 %, part of it due to a penalty for quality issues. But even excluding the penalty, margins were sub-20% which are lower of the range.
Over the years, capex has been minimal, gross block is Rs.73 crores. Most likely, an old, depreciated plant produces products that just about meet minimum quality standards to help bid for tenders. The recent penalty on account of quality issues could be a reflection of this.
ROE / ROCE is good in the range of 20 % plus aided by low denominator. Dividend payouts have been okay at around 30-40 %, which indicates management has been able to sweat the existing assets well but has refrained from deploying more money into the business.
Going ahead, the IVD business can take off meaningfully only from FY25 if at all, not before. In this, the management expects Rs.50 to Rs.100 crores business per year from FY26, and though the margins in this are said to be good, it will also consume Rs.30 to Rs.40 crore working capital per year. The U.S. business too will not happen before FY25, after which the company expects about Rs.8 crores of revenue in the first year. And, though the long run potential here is much larger, it will also be a tougher market. The current management, with their reluctance to make investments in branding, distribution, or technology, may not be best placed to realize its full potential.
This brings us to the point that only an ambitious, aggressive management can realize the potential of the business. But at the current share price, management’s stake sale efforts are unlikely to find any takers.
Current market cap is Rs.500 crores but free cash is around Rs.100 crores, so business is valued at around Rs.400 crore. It generates around Rs.20 crore of free cash flows per year, so excluding cash in hand, current valuation is about 20X the CFO, or a 5 % yield. Will someone pay Rs.400 crores for a business which generates Rs.20 crore of FCF and has less than Rs.100 crore of assets? Generally, buyers justify M & As on grounds of intangibles – brands, technology, distribution network et al but here there are none. Cupid’s assets are registrations and approvals, but the existing ones have been fully harvested and impending ones are at least couple of years away. And when the promoter is on record saying he is expecting “minimum Rs.300 per share”, it is unlikely someone will pay anything close to the current market price to buy the promoter stake.
The only other trigger is a possible buyback. Though Cupid has Rs.100 crore cash, note that a company can buyback only up to 25 % of its capital & reserves, which comes to around Rs.40 crore in this case. With Rs.40 crores, Cupid can buy back 8 % of its equity at say Rs.400 per share. This is a good proportion but does not help promoters exit the company, which is necessary for the business to realize its potential. At the most, it will help retail investors liquidate a part of their holding.
(Disc.: Holding)
Dhruv consultancy (DCSL): a feasibility study – a path of stones or a smooth highway? (05-09-2023)
About the company: Dhruv Consultancy Services Limited (DCSL), incorporated in 2003 is a leading infrastructure consultancy firm specializing in highways and bridges. It offers design engineering, project supervision, maintenance, and advisory.
The company has 15% market share in the Indian Infrastructure Consultancy segment. The Company’s clients primarily comprise of government agencies like MoRTH, NHAI, UPEIDA, PMGSY among others. DCSL was present only in two/three states 3/4 years back (predominantly Maharashtra), now company has expanded its presence in over 25 states.
Products and segments:
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It provides Authority’s Engineer, Independent Engineer and Supervision consultants (this was ~70% of revenues in FY23, EBITDA margins are in 10-15% range). As projects are tendered by government or government agencies, it is difficult to have governments own personnel in all projects. Hence, government agencies outsource this to agencies like DCSL. It has completed 1400km of Construction Supervision and is currently working on 2000 kms of highways all over the country. Revenues is billed on quarterly basis however there is lag of 45-60 days as invoice is raised post expense incurrence. Company has to incur expenses on resource mobilization few days/weeks before even the project kicks off. Resources/spending involved is rental paid on stay and commute of of personnel and other equipment’s used. However good things is that almost all of the onsite staff is on contract basis. So as soon as contract ends there is sharp fall (~80%) in numbers of staff, rent and/or salary paid. ~70-80% of contracted revenue is earned in 2.5 to 3 years, while rest is earned during defect liability period (also called as maintenance period) which is about 60 months. During maintenance period staff deployed will be only 20% of what was deployed during construction.
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Detailed Project Report (DPR) also called as design engineering: It is a feasibility study covering: economic analysis, design of highway and structures, preparation of tender documents, land acquisition, forest clearances and utility shifting, environmental and social impact assessment. It has completed detailed project reports of 2000 kms. Revenue is recognized based on milestone basis. 15% of revenues and margins in 20-25% range.
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Advisory business such as traffic survey – DCSL has robust expertise in carrying out technical audits using high-tech machineries namely Network Survey Vehicle (NSV), Falling-weight deflectometer (FWD), Horizontal and Vertical Retro reflectometer, Mobile bridge inspection unit (MBIU) and Automatic traffic counter-cum-classifier (ATCC). 5% of revenues and margins ~30%.
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Others: design services, design of highway, design of structures that mainly provided for private contractors (margins ~40%).
Industry landscape: 20-25 consultants, top/tier-1s are Intercontinental Consultants and Technocrats Private Limited , RV Infrasolutions, Sa Infra, LN Malviya infra, and Dhruv Consultancy. Many of the smaller consultants have fallen off from bidding process as government tightened the requirements in the past few years. So main contenders are limited to less than ten owing to size and other requirements.
I want to highlight various red flags and risks. Please note that I have reached out to company for some of the questions and I am awaiting the response:
Red flags:
- Unbilled revenue (43 crores as of FY23) and receivables (18 crores) was ~75% of revenues (81 crores in FY23). I don’t understand why do we have such high numbers in unbilled revenues as they mention billing cycle is about 90-120 days. This also does not tie-up with their statement that unbilled revenues are mainly from IHMCL (~5% of revenues) and DPR (~15% of revenues). Hence, both segment account for 20% of revenues but unbilled revenue is over 50% of revenues.
- One of the promoter Prutha Pandurang Dandwate is continuously selling shares.
- Related parties are in adjacent or similar areas of business. In fact, in one of the interview company’s management talked about acting as financing support to related or relative’s companies who shall execute projects on their behalf (sub-contracting?)
- Couple of independent directors resigned two months back: https://archives.nseindia.com/corporate/DHRUV_05072023125805_OutcomeREG30DCSL.pdf
- Many relatives in board/senior management
Risks:
- Cash flows are highly concentrated and exposed to government agencies
- Political regime change in upcoming elections may result in change in transparency (in bids/tenders and payments) and pace of order flows
- Low liquidity in the stock
Order book: Order book is ~270 crores to be executed over next 3-years. Company expects 150-200 crores of order inflow during current financial year driven by pre-election increased activity. Company has already received 50 crores plus orders in the last two months. I have summarized below some of the recent orders below:
| Date of filing | Type | Order size (crore) | Contract period (month) |
|---|---|---|---|
| 30 August 2023 | Authority Engineer | 7.0 | 78 |
| 25 August 2023 | Independent Engineering Services | 6.0 | 48 |
| 23 August 2023 | DPR | 3.8 | 12 |
| 16 August 2023 | Independent Engineering Services | 9.4 | 48 |
| 31 July 2023 | Independent Engineering Services | 7.4 | 48 |
| 21 July 2023 | Project Supervision Services Agency | 1.2 | 12 |
| 15 July 2023 | Independent Engineering Services | 5.6 | 60 |
| 14 July 2023 | Independent Consultancy Services | 1.4 | 36 |
| 11 July 2023 | Authority Engineer | 9.7 | 84 |
Source: company exchange filings available on NSE
Talent mix: 300 engineers out of 400 total staff. CV of personnel needs to be on Infracon website (a government portal). Person cannot move anywhere before the completion of the project. 25% senior and 75% junior staff. 70% of staff is onsite and on contract basis.
Entry barriers – moderate levels
- Minimum Technical requirements for tender participation: an extract from tender terms below:
“The two parts of the proposal are Part1: Technical Proposal and Part2: Financial Proposal. For a given EPC Project, Stage -1 of the Evaluation shall consider the evaluation of the Technical Proposal (i.e. Part 1). The firms scoring the qualifying marks (minimum 75%) as mentioned in RFP shall only be considered for further evaluation. Under stage 2, the financial proposal of such firms as selected above shall be opened and evaluated. Proposals will finally be ranked according to their combined technical and financial scores as specified in clause 5 of section 2. The weightage of Technical and Financial score shall be 80% & 20% respectively. The final selection of the firm shall be based on the highest combined score of Technical and Financial Proposal”
Source: https://infracon.nic.in/WriteReadData/consultantprojectsAETWO/605_File3378349816.pdf
DCSL’s technical score has improved from 88 points 3-4 years back to 95 recently. I believe strong peers are close to ~97. DCSL expects to close the gap with its strong peers soon.
- Financial strength and size requirements: Tenders contain minimum size and experience requirements for participation:
Source: https://infracon.nic.in/WriteReadData/consultantprojectsAETWO/605_File3378349816.pdf
DCSL mentions that now their size is allowing them to have no cap on maximum orders they can get.
Requirement of bank guarantees another constraint for smaller players. Extract again below from tender:
“Bank Guarantees: PERFORMANCE SECURITY 7.1 The successful consulting firm shall have to submit a Bank Guarantee (BG) for an amount of 3% of the Contract Value within 15 days of issue of LOA. The BG shall be valid for a period of 92 months i.e. upto 2 months beyond the expiry of the Contract period of [90 months].”
Source: https://infracon.nic.in/WriteReadData/consultantprojectsAETWO/605_File3378349816.pdf
Financial snapshots from screener.in:
Short-term (1 to 3 years) growth trigger: Increased order flow is likely this year as India goes into election year.
Medium term (3 to 5 years) growth trigger: Company has started bidding for international projects which are of larger ticker size (20-25 crores vs. 7-10 crores in India). Margins of international contracts is higher than domestic contracts. Counterparties on international contracts are multilateral institutions like world bank, ADB etc. However, this shall start fructifying only from 12-18 months down the line.
Recent key development: Company has issued preferential allotement of shares to some non-promoters at 63 rs.
Sources: Company filings such as annual reports, conference call scripts and other announcements by the company on exchanges (mainly NSE).
Disclosure: I have initiated position in the stock just last week (between 28th August to 4th September). It accounts for less ~1% of my portfolio.
Disclaimer: I am not a financial advisor and nor a SEBI registered Analyst. The content shared here is only for learning purpose. All the names mentioned here are for example and learning purpose. I may buy more, exit or partly sell the stock/bonds without any prior intimation.