Stock ideas presented at IAS Summit 2024
[Speaker] : [Stock Idea]
Arvind Kothari: Indotech Transformer Link
- When the cycle starts, it lasts for years, and the power cycle should last longer this time as well.
- The multi-year capex cycle has just started; current solar capacity is 82 GW, and the target is to have 300 GW by FY30; wind capacity will be expanded from 43 GW to 140 GW by FY30.
- 10% of the overall transmission capex is in transformers, and 25 to 30% of that cost will be in transformer components.
- Company: Indo Tech Transformer. This company was acquired by the Shirdi sai Group, and they have experience in the transformer space.
- All the units are backward integrated, and 70% of the components are manufactured in-house.
- The order book is at 700 crore, and the focus is on exports.
Kumar Saurabh: ADF foods Link
Business Segments: Processed Foods & Distribution
Processed Foods:
Brands: Ashoka (60% of revenue), Truly Indian, Soul
Products: Ready-to-eat/cook items, frozen foods, spices
Capacity: 28,000 MT
Key Markets: US, UK (99% export)
Growth: Ashoka (29% in 5 years), Truly Indian & Soul expanding
Distribution:
Supports brand entry into supermarkets, crucial for core business growth.
Capex:
Brownfield: ₹100 crore revenue potential
Greenfield: ₹200-300 crore potential
Total Potential: ₹400-500 crore in additional revenue
Growth Vision:
Revenue Goal: Double from ₹500 crore to ₹1,000 crore, driven by capex and distribution growth.
Risks:
Raw material prices, supply chain issues, management performance across cycles, currency fluctuations.
Valuation:
Even with 18% growth, potential PAT of ₹125 crore; exit multiples of 30-34x could yield 16-20% CAGR.
Technical Analysis:
Stock in consolidation; potential breakout above ₹260
Rajiv Agarwal: J&K Bank Link
Key learnings from the presentation:Jammu Kashmir Bank
- New management came in, and the bank became interesting to look at.
- Incorporated in 1938 with a dominant presence in J&K with a 58% market share in the area for loans; it has a 63% market share for deposits in J&K
- Asset quality improved drastically after the new management; its GNPA came down from 9.1% to 3.9%.
- The bank is well capitalized, so there is no need for any dilution in the near term.
- J&K’s economy is on a high growth path. GSDP is expected to double from FY24 to FY28.
- The J&K government has given guarantees for unsecured loans to its employees, which has improved the delinquencies for the bank.
- Baldev Prakash, the new MD & CEO, started expanding outside J&K for secured housing finance.
- Bank is currently trading at 1x P/BV; management guided for 4000 crore PAT in FY28 with 20% RoE.
- The J&K election outcome may impact the thesis.
Ishmohit Arora: Deepak Fertiliser Link
Volatile to Consistent: Deepak Fertilizer
- Whenever business margins become consistent despite the volatility in the past, then those businesses create huge wealth for investors. Past examples, like Neuland and Garware Hi hi-tech
- In Deepak Fertilizers, the volatility of the margins is going down as business is getting backward integrated.
- Here, the product mix is changing from fertilizers to mining chemicals and industrial chemicals; the fertilizer revenue contribution has come down from 80% to 45% now.
- In the TAN business, they are moving forward with integrating explosive chemicals, similar to Solar Industries.
- Their margins are becoming consistent to 18–20%.
- After the capex, they will have the capacity to meet 60% of India’s domestic requirements.
- Fundamental triggers are ammonia prices going up, TAN spreads increasing, and support from the government with an increase in import duty
- During FY25, they can do 950 to 1000 crore PAT if commodity prices remain stable; so they are trading at a 12-13x PE ratio.
Vihang Naik: Mahanagar Gas Link
Business model
It produces gas, maintains infrastructure, and sells it to end users.Business strengths
1.Monopoly Business in the commercial capital of India
2.Rare utility with Pricing Power
3.Low capital intensity
- Monopoly Business: It dominates its sector in India’s commercial capital.
- Unique Utility & Pricing Power: Offers a rare utility with significant pricing power and low capital intensity.
- Overlooked Opportunity: Comparable to “Drishyam,” where the potential is hidden; focus on CNG amid the EV hype, particularly for Mahanagar Gas.
- Strong financials:
5-Year Average ROCE: 30%
5-Year Earnings CAGR: 19%- Financial Health: Debt-free with negative working capital, trading at 13x forward earnings.
- EV vs. CNG: Compare CNG registration trends with EV registrations to showcase the ongoing demand for CNG vehicles.
Investment thesis – Good financials, negative working capital and cheap valuations-trading at 13x forward earnings.
EV vs. CNG: Compare CNG registration trends with EV registrations to showcase the ongoing demand for CNG vehicles
Ekansh Mittal: Repco Home Finance Link
- Repco Home Finance: Out of favour + Potential Earning Growth + Potential Rerating
- Housing finance company focused in tier 2 and tier 3 cities
- South dominant company with more than 50% loan book from Tamil Nadu
- Change in management with new MD& CEO came in Feb’22
- The loan book growth is just 3% for last 4 years as company is in transition phase; they were making various changes in IT and changing sales generation from DSA to In house; created separate collections vertical in the company
- In brach expansion they added only 9 branches during FY19-22; now management is guiding to add 40 new branches every year
- In future PAT growth could come from Loan book growth + reducing opex + write backs of excess provisions
Ravi Jain: Wockhardt
Puneet Khurana: CCL products Link
Declining Profit Margins: Gross profit margins dropped from 50% to 41% between 2022-2024. EBITDA and PAT margins are at a decade-low.
Increased Inventory Days: Inventory days surged from 118 to 212 days.
Rising Debt Levels: A significant increase in debt, exacerbated by a 70% increase in net block over the last two years.
Raw Material Price Surge: Robusta coffee prices have tripled in the last two years, leading to a substantial rise in raw material costs.
Contract and Working Capital Stress: Higher raw material prices have led to shorter contract durations, increased default risks, and working capital strain.
Significant Capex: The company has embarked on a major capex plan, with ₹1,000 crores invested between FY21 to FY25 to double capacity, primarily funded by debt.
Underlying Investment Thesis
Volume Growth, Capacity Utilization: With capacity additions complete, the focus shifts to maximizing the utilization of these assets.
Stable Demand: No significant impact on demand; potential for domestic growth.
Margin Reversion: Raw Material Prices: Anticipated margin improvement as raw material price effects stabilize, albeit with a lag due to long-term contracts.
Product Portfolio Shift: Strategic shift in the product portfolio to enhance margins.Key Concerns
Declining Cash Conversion Cycle: The extended cash conversion cycle is a critical area of concern, impacting liquidity and financial stability
Rusmik Ozha: Poonawala Fincorp Link
Poonawala Fincorp
- First phase of growth happened from fy22 to fy 24.
- Management has a vision for FY2025 to be among top 3 NBFC for consumer and small business finances
- Company had 4 products before they took over and now their product basket has gone up more than 10 products
- Branches have gone down as it reduces cost and they are moving towards digitally.
- PAT has consistently moved up
- From FY24 the company has started moving to another phase. New management team joined in June july 2024
- Management like Mr. Arvind Kapil, Mr. shriram Iyer, Mr Vikas Pandey, Mr Veeraghavan Iyer and Mr. harsh kumar they all veterans are from HDFC bank who joined the company.
- The second phase FY24-FY29
- Aspiration dor 5-6x AUM over next 5-6 years
- Solidify – Expand – Scale
- They have introduced new products such as Consumer Durable, PL prime, shopkeeper loans and used CV’s
- This company is trying to replicate the same business model as Bajaj Finance.
- Built the organization for scale and det foundation for next 5-10 years.
- Growth of AUM by 30-35% in FY25e and after that to grow by 35-40% for next 5 years
- They have invested heavily in next 4 quartere to build new offerings and strengthen the collection side
- Move away from co-lending arrangements to own lendings
Lalit Rathi: Maharashtra seamless Link
Some Key Learning:
- Company works in 3 business segments: seamless pipe sector and major contribution from oil and gas segment. Second segment is ERW pipe and third is renewable power and rig
- 51% market share in seamless pipes and 18% share in ERW pipes
- This company is proxy play on oil exploration; India’s oil and gas exploration market is $20bn and expected to reach $100bn in next 6 yrs
- Seamless pipe cost is 15% of exploration costs so TAM of $15bn in seamless pipes. There are only 3 companies in India
- Key triggers: debt free, improving corporate governance by removing old corporate guarantees and ICD to related parties, focus on export market, capex of 850 for next 2 yrs which can generate revenue of 2000 crore
- If govt discontinue the import dumping duty then could be a risk for the company.
- Company can do 8000 crore revenue and 1600 crore EBITDA in FY26.
- The company name is Maharashtra Seamless
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