Hello All,
Neo Corp International is a Technical Textile Company and it’s the leader in this Industry in India, which worth looking for the below reasons. Company is ISO 9001:2008 , ISO 22000:2005 & BRC/IOP certified.
1) It has very high CAGR growth rate of 38% for last 3 years and 34% for last 5 years which is huge and this attracts attention for this single reason.
2) NP CAGR is also good, which is 22% for last 3 years and 27% for last 5 years.
3)Although the promoter holding is less (24.11%) but Promoters have bought the shares from open market and increased their stake from 19 to 24% in last few quarters and pledged shares % came down in last few quarters.
4) Consolidated P/E is only 2.5, which is very much cheaper. A good holding company “VLS Finance Limited” (who has discovered gems like “Relaxo”) is silently accumulating the shares in this company and increased their holding from about 3% to 9-10% in last 1year. And it is still accumulating the shares from open market (please refer to the latest SAST updates in BSE)
3) OPM is about 11% and NPM is about 4 %( which would increase dramatically once debt is reduced).
4) ROCE is 20.58%, which is good considering the Textiles industry.
5) Company’s immediate future growth is very much visible with the company’s entrance to South America and overall demand outlook in world and India. The textiles business is going to be of big size in the world and going to have market share of 60% of overall textiles Industry.
Please refer to the well written Annual Report for further details on the business outlook and company’s operation (Company has installed SAP ERP for the better business operation maintenance which will show result in long term and also the innovative approach has started paying off with new and innovative products being made, company recognized as “Export house” by govt. of India for huge contribution in exports).
Risks/Negatives:
1) Promoter/management quality is not so good, not shareholder friendly, they declare dividend but never gets credited to the bank account (probably they send cheques but do not reach shareholders’ home)-any further details on promoter/management is welcome.
2) Historically IT dept raided them twice the most recent being in Feb 2015. Although the company mentioned that nothing incriminating docs/money found during raid but the IT raid itself a bad thing for shareholders. Most probably they will come clean and Tax pay % looks okay.
3) Recently Swiss govt. published name of Neo in the black money account holders’ list, however company clearly informed BSE that the account was opened for GDR but closed a long time ago. So this is not a problem but again these kinds of news hurt investors’ sentiment.
Future Outlook:
With good capacity, innovation power and growth initiative taken in South America and good demand of Technical textiles makes sure that company’s revenue is all set to grow at least CAGR 25% in next 2-3 years. If the reduce debt then NPM will also increase. So overall it looks like a growth machine.
Business operation wise it is all set to improve day by day , however company needs to improve financially and debt reduction should happen in near future.
As far as stock price movement is concerned, its fair value is around INR 70-80 , it is trading around INR 40 , so soon or later the stock price is going to increase to get its fair value and with big players like “VLS Finance” increasing their stake consistently , stock should get fair value sooner.
Immediate triggers:
1)Company is going to issue Convertible Warrants on preferential basis soon(actually it was approved by shareholder to issue them at INR 65 around Feb-March but for technical reason it got postponed and that should be done in this FY and is around the corner.
2) As the company’s revenue is growing at brisk pace, “Q2” result should be very good and that should help stock price moving higher.
3) Stock was trading on NSE via MPSE(Madhyapradesh Stock Exchange) but as per new rule of NSE, it is not allowed now. This has caused several companies to stop the trading on NSE. Our Neo has submitted the necessary documents to NSE and it should start trading on NSE as well which will increase the liquidity and bug players comfortable to enter this stock to unlock the value.
4) The stock got hammered recently to its name in the Swiss govt.’s list for black money , however the company has cleared the air and the account has been closed long time ago and also company has not file any case against Swiss govt. for disclosing the information so that Indian IT dept can access all information and Neo can come clean. This proves that nothing wrong in Neo with respect to black money and official announcement of this by IT dept should help stock getting strength.
5)Technicals: Although I do not have much knowledge on technical but high deliver % and high volume from this week suggests that any of the good news(may be Warrant issue) is around the corner and some big guys has taken informed decision and accumulating the shares of this company(could be “VLS Finance” again), so technically it should look good(technical experts here please give more input on technicals so that we can estimate immediate trend of this stock).
Company website: http://www.neocorp.co.in/
Neo Corp’s Official blog: https://neocorplimited.wordpress.com/
Chartered Accountant blog covering Neo Corp:
“http://www.charteredinvestor.blogspot.com/2015/04/neo-corp-international-ltd.html” (not allowing to post more than 2 links, so putting it within quote)
My sincere request to all the senior ValuePickrs(specially Hemant sir, Donald sir and others) to please check this company, study this company, understand their business and take this discussion go forward with healthy discussion so that we can understand the future potential of this company. Any healthy discussion/argument is welcome.
Disclosure: Invested.
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