Very nice write up. But why would you think it can compete with UntraTech/ACC/India cements, are they not in a position to serve the demand of new construction? And what will happen after the capital construction boom slows after 4-5 years? Does the managament have inherent quality to expand the foot print and explore newer markets?
Posts in category Value Pickr
Deccan Cement : Dull company.Dull business.Big wealth creation opportunity (04-10-2015)
I have been wanting to write this for a long time, finally got around to it thanks to a long weekend , most of which was dry !
Deccan Cements is one of the smaller cement companies in the south. What impressed me most about the company is the financially disciplined conservative management and the
Lets begin with the most basic facts
Started in 1979 by a technocrat MB Raju
The plant started productionin 1982 current capacity is 2.3 million tonne per annum
The plant is 165 km from Hyderabad and appx 175 km to Guntur district, where the new capital of Andhra Pradesh ( Amravati ) is going to come up
The plant manufactures a wide variety of cements, including specialty cements. The regular grades of cement manufactured include OPC 43, OPC 53, PPC and PSC. Specialty cements produced include S53 for railway applications, SRC (Sulphate Resistant Cement), Low Heat Cement, Low Alkali Cement etc. ( source : Co website )
One of the main inputs in the production of cement is limestone. Deccan’s own captive limestone mine, having abundant high quality limestone, is contiguous to the plant premises
The other main input is power. Here also the company is more or less self sufficient with a Captive Thermal Power Plant (15MW), Hydro-electric Power Plant (3.75MW) and Wind Mills (2.025MW) under its fold.
Equity is only 7 cr
10 paid up
56% with promoters
No pledge. No warrants outstanding. No equity overhang
CMP 445. Mcap 311 cr
Long term debt as on 31st March 2015 was 116 cr. Thus total EV = 427 cr. I am ignoring short term debt on books as current assets > current liabilities by 50 cr
Thus EV per tonne in USD for Deccan is = 427cr converted to $ divided by 2.3 million = 28$ per tonne, which is way off the rates at which integrated cement plants have been valued in the recent past ( JPsold its plants to Ultratech for 140$/tonne . Lafarge recently sold 5.15 mt plant to Birla Corp for 5000 cr at an implied value of 149$/tonne )
Q1 2105 operating profit was 28.73 cr as compared to 6.42 cr in the same quarter last year
Last year the company sold 1.07 mt of cement against an installed capacity of 2.3 mt, implying a capacity utilization of 46%.
Even at this level of under performance, the company made 89cr of operating profit for FY15.
The EBITDA per tonne comes to 830/- for last year. Cement prices have since then firmed up and now realizations are upwards of 1000 per tonne.
Q1 EPS is 19.88 ( not annualized )
Stock already owned by IL&FS trust (9.5%) and UTI Midcap (5%). Institutional ownership is up by 10% over the last 4 quarters
Sagar cements releases monthly sales figures for themselves . Sales are up 18% yoy with accelerated growth in recent months. EBITDA per tonne is also up. Should apply to Deccan also.
what i like about the company
To the best of my knowledge , the company has not diluted the equity since its listing
Company increased its capacity from .3 mtpa to 2.3 mtpa without raising capital. It was funded from internal accruals as well as debt.
company has no capex planned in the near future
company generated 408cr as cash flow from operations between FY2010 to FY2015. This needs to be seen in the backdrop of the downturn of Andhra fortunes after the demise of YSR Reddy in 2009. Also, the subsequent Telangana issue has hampered growth in Deccan’s key markets
Out of 408 cr CFO, the company repaid loans worth 359 cr ! ( gives comfort on realness of the number )
By FY16 , the company is expected to be debt free.
The operations seem to be very efficient in terms of wage cost. Comparison of peer companies is as follows
Company name Wage %
Sagar Cements 4.56%
NCL 4.22%
KCP 3.84%
Deccan Cements 3.01%
The executive directors take the minimum wages as per the companies act ( source page 41, FY15 AR )
Company will benefit from its proximity to both Amravati and Hyderabad.
Construction of the capital will lead to a multi year boom for cement companies operating in the region. Search 'Amravati Andhra Pradesh Capital ' on google images to see the image of the proposed city.
Valuation for FY19
Investment has to be made with a 3 year horizon
I am assuming capacity utilization will hit 80%
Sagar cements in their latest concall have indicated an EBITDA figure of 1500 per tonne in AP already. I am assuming it at 1200 per tonne in 2019
Debt will be zero.
Tax rate will be 25%
The number can look something like this
Total capacity : 2.3 mtpa
Capacity Utilization : 80%
Total sales : 18.40 mt
EBITDA per ton : 1200
Total EBITDA in lacs : 22080
Less Dep in lacs : - 2000
Less Tax in lacs: -5020
PAT in lacs : 15060
number of Shares in lacs : 70
EPS : 215
Given the potential for development in the region, capacity utilization of 80% seems reasonable.
Also, the company would have close to 400 cr of cash generated from FY16/17/18 operations. I also believe with no impending capex / loan repayments, the company may aggressively step up its dividend payout or go in for buybacks.
Sometimes , a boring companies in a boring business can generate a lot of wealth. I believe Deccan at this juncture merits closer viewing.
Mcap when posted : 311 cr
Disclosure : invested at these levels
Duke Offshore – Hidden Gem? (04-10-2015)
I also have investment here. Not very sure of moat and its competitors but when I saw work from defense then I took that as moat.
Also, I saw base for profit was very small for sept and Dec. So, if it could give positive results in coming qtr then we can hope of big gain. Old tender won still have time to expire so pretty safe. But I don't know why its profit was low for sept and Dec qtr and why it posted very good result in March qtr!
Due to low liquidity, we can't add big money here. Just 1 lakh rupees can buy nearly 2000 shares and most of the days, 2000 total shares traded.
I am also hoping gain from recent de freezing of oil fields by govt. Tenders for that will start in 3 months time from now. What do u think of that? Can it get anything from there?
Invested here.
Canfin homes ltd (04-10-2015)
Very insightful interview. I think generally real estate investment is a bit subdued and housing demand to own is on track. Interesting to hear his confidence that it can grow 33% or better until 2020. May be its little bit on higher side of expectation. Nevertheless, I think they are doing all the right things, lowering the cost of funds, increasing the foot print, maintaining the NPAs and also maintaining spreads. Additional boost from uptick in economy, housing demand from smart cities and housing for all policy, will be boost.
Can anybody share how is their service quality compared to say something like ICICI, HDFC?
Has their efficiency increased? are they more electronic now than earlier? They had a very old style customer service earlier, also documentation wise..These things are also equally important to stay ahead in the race...
Disclosure: Invested since last 2 years.
Satin Creditcare Network Ltd – Reaching out! (04-10-2015)
SATIN CREDITCARE NETWORK LTD :
http://www.satincreditcare.com/index.php
Satin Creditcare Network Limited (SCNL) was formed in 1990 as a Non-Banking Finance Company (NBFC) with the simple concept of providing individual loans to urban shopkeepers for tiny businesses by Mr. Harvinder Pal Singh. Since then the company has expanded and evolved into one of the leading microfinance institutions in India with its current geography in North as well as Central India.
SCNL provides loans to both urban poor and rural poor to meet their productive requirements in starting new business or for growing an existing business. The company’s microfinance operation is based on both Joint Liability Group(JLG) model as well Self Help Group model (SHG).
At present, SCNL has its strong presence and serves its clients throughout Bihar, Chandigarh, Delhi, Haryana, Jammu , Maharashtra, Madhya Pradesh, Punjab, Rajasthan, Uttar Pradesh and Uttrakhand . In addition to the above SCNL is also listed on Delhi, Jaipur, Ludhiana, Culcutta and National stock exchange recently.
It is backed by very strong financial institutions. Partners - http://www.satincreditcare.com/our-partner.php
Particulars 2011 2012 2013 2014 2015
Total Revenue (Cr.) 58.62 56.23 94 191 324
PAT (Cr.) 2.17 1.4 4 15.5 31.7
Total Assets (Cr.) 294 316 745 1115 2010
Book value was around 66/- as on March 2015.
SCNL received CARE Ratings of MFI 1 (MFI One) grading - the top most category in MFIs grading.
As on March 31, 2014, the Gross NPA percentage was 0.02% while Net NPA percentage was Nil.
Previous CARE report - http://www.careratings.com/upload/CompanyFiles/RR/Satin%20Creditcare%20Network%20Limited-07-21-2014.pdf
June 2015 results - http://www.satincreditcare.com/pdf/Financial-Results-June-15.pdf
Latest shareholding pattern - http://www.satincreditcare.com/pdf/Shareholding-pattern-Jun-2015.pdf
Latest Annual report - http://www.satincreditcare.com/pdf/Book-final-05.pdf
Many YouTube videos are also available - https://www.youtube.com/results?search_query=satin+creditcare
Positives:
India is a huge market for microfinance – it has more than 400 million poor seeking an opportunity to reduce their vulnerabilities, create assets and ensure income security. India’s microfinance sector is lauded as a savior of the poor and a good bet for investors.
According to industry reports, microfinance institutions (MFIs) would grow at an annual pace of 30%-35% over the next three years on the back of improved fund availability. MFIs have committed to opening at least 30 million bank accounts within a year through tie-ups with banks as part of the government’s ambitious financial inclusion plan recently announced.
More can be read at...
https://www.linkedin.com/pulse/microfinance-institutions-mfis-growing-breed-india-arup-das
Satin’s presence in underpenetrated north and central India micro finance market provides ample opportunity for sustainable future growth.
Good asset quality.
Points covered as above.
Negatives:
Satin (And even big brother SKS) was not given small bank license by RBI. If given, it would have helped satin to bring down borrowing cost, reduce political uncertainty and more lending flexibility. Anyways it is backed by strong muscles that liquidity won’t be any problem for Satin. Borrowing in last few months shows credentials.
More can be read at
http://www.business-standard.com/article/finance/becoming-a-bank-will-not-give-players-an-edge-in-micro-finance-space-s-dilli-raj-115093001195_1.html
I am not aware about competitive advantage satin enjoys in North and Central India, but overall market is huge and many companies can coexist and grow.
This is my first attempt of starting a new thread. Views are invited.
Disclosure: Bought few share at 190/- and its 5% of my portfolio.
Hitesh portfolio (04-10-2015)
companies are cheap for a reason. HFCs like Dewan Housing Finance and Indiabulls Housing Finance have corporate governance issues so are going cheap. am not tracking GIC HFC. Holding Repco in core portfolio.
Canfin homes ltd (04-10-2015)
Ayushji it's not opening can u Pl Give crux of it....
Alembic & Alembic Pharma (04-10-2015)
Karnataka state drug control department found that alembic drugs viz azithrol and Althrocin are of lower quality and asked pharmacy outlets and hospitals not to stock and prescribe them
http://www.pharmabiz.com/NewsDetails.aspx?aid=90822&sid=1
Not sure about the consequences but looks like one of a case
Disc: not invested but tracking
Portfolio for stable long term growth (04-10-2015)
Companies which operate in good industries. Good industries are the one which keeps growing at decent space. If underlying industries keep growing, it's very easy for good companies to maintain the growth momentum above industry average. (Many times, business momentum is more important than brilliance of the mgmt)
Huge Market Size: If market size is large it can accommodate number of players. Margin pressures are less. In large markets dominant companies can keep growing even after industry matures at the expense of weak companies.
Companies have track record of past performance; good RoE / RoCE. non cyclical. Moderate MCap.
Possibly companies have triggers for Revenue , Margin, PE Expansion.
My portfolio is as below.
I am not overly worried on companies being expensive or portfolio being concentrated.
- Repco - 25%
- Granules - 25%
- Page - 20%
- PI Industries - 15%
- Torrent Pharma - 15% ( new entry to portfolio)
Over a period of time want to add one more company at 10-12% of portfolio by reducing 5% from Granules (weight has gone up due to recent price appreciation) and couple of percentage from others.
GRUH Finance – mini HDFC (04-10-2015)
technicals says it is a sell below 240 !