Posts tagged Value Pickr
Aarti Pharma Labs (25-06-2024)
Im creating a research report on corporate governance on this company, can someone help me improve my understanding so far.
Hetal Gogri is appointed as MD along with Narenda Salvi
Mr Rashesh and Mr Rajendra Gogri (Who seems to be the most capable ones serving as MD in Aarti Industries) are appointed as Non Ex Directors,
Apart from Narenda Salvi, MD doesn’t seem to have any Pharma experience though she has an IIM Ahmedabad degree with Engineering background.
Moreover, During Concall Mr Rashesh was giving most of the answers while the MD was passed on with softball questions.
Lastly, regarding renumeration it was quite normal compared to peers KMP salary to Median employee wages
Please help me improve my understand!
Thanks
Burger King ~ Whopper of an Opportunity (25-06-2024)
on account of IND AS 116 accounting where they have to derive interest and depreciation from lease payables payables separately.
Piramal Enterprises Ltd (25-06-2024)
Ownership being transferred to Anand Piramal
Anutham Realty 99.9% owned by Anand Piramal
C673AAA8_D388_4519_990A_C97BE90E4A7F_142542.pdf (2.8 MB)
Sealmatic India Limited (25-06-2024)
Sealmatic India Limited
Sealmatic India Ltd manufactures mechanical seals, seal supply systems, pumps, valves, motors and high precision mechanical engineering spares and assemblies. The company designs and manufactures engineered mechanical seals and sealing support systems, used in rotating equipment, including pumps, compressors, mixers, steam turbines and other speciality equipment.
Product Profile:
a) Engineered Seals
b) Mechanical Seals
c) Standard Cartridge Seals
d) Supply System & Components
e) Gas-Lubricated Seals
f) Split Seals
g) Pusher Seals
h) Elastomer Bellows Seals
i) Metal Bellows Seals
The products are used in various industries like Oil & gas, refinery, petrochemical, chemical, pharmaceutical, fertiliser, power, mining, pulp & paper, aerospace, marine, etc. The Company is an Original Equipment supplier to KSB, Flowserve, Sundyne, KEPL, Andritz, KBL, RuhrPumpen, Wilo, SPX, Seepex, Düchting, ITT (USA), BHEL, Circor, Idex, Egger, PMSL, MSL, Xylem, Metso, Atlas Copco, Netzsch, Burckhardt, Idex, etc.
The Company has presence in 53+ countries including USA, Sweden, UK, Germany, Italy, Japan, Norway, Switzerland, Denmark, Netherlands, Australia, France, etc. As per 2023 AR, 62% of the revenue is generated from exports. The company’s margins are higher in the domestic market where it deals directly with end-users, while in exports, margins are lower due to dealing with distributors.
Sealmatic IPO came last year in Feb 2023 at a price of Rs. 225/-.
Financials:
Sealmatic has been a consistent performer, last five year financials on screener-
The growth has not been spectacular, but consistent. Operating margin has been hovering around 25%, though less than 20% in FY 2024. Cash flow of the company has been negative throughout.
The company has proposed maiden dividend of Rs. 1 [10%] in the current financial year. Presently the company’s market cap is 614 crores [CMP Rs. 678].
Fresh Investment:
The company has invested in new manufacturing facility which is likely to increase the capacity by 60%. It is continuously investing in research and development to evolve as a sealing technology leader, and Sealmatic India’s vision for the next five years is to become the fourth player in the global mechanical seals market, with a strong product portfolio and understanding of the business. The company has developed strategic partnerships in high growth areas within the UAE, Thailand, and the USA.
Operation &Maintenance Business:
The company is heavily investing in O&M business. The company explained in a concall,
“The reason being is that a huge amount of money is being invested into the O&Ms and project business. So that is going to remain until 2026. Once we start our O&M business which is more profitable as compared to any other business for us. So that ratio between inventory and sales realization will be much more better than what we see today. So that is the answer to question one and as regards to O&M business as I partly answered in the first aspect of this answer. O&M business will as I mentioned in many occasions that it will start from 1st April 2026 because the investment that we have made over the last year and the years that will ensue from today will make us realize more O&M business as we speak starting from 2026. And the profitability as we all know that on the O&M business is far far higher. It’s a business of you know proprietary. So once your mechanical seals go fitted as an original equipment you are there to enjoy the benefit of the annuity business which will remain the lifetime of the equipment which is 25 to 35 years depending on the type of equipment we are talking about. So that business is secured as I see today that we are investing into an O&M business which will result into a strong O&M business.
……
On a not very scientific but I can give you a ballpark arrangement to this kind of business. So when you typically invest into any project which is you know sometimes below your cost of raw material but when you are doing O&M business so you are going at the first fit as a OEM to the end user say for example a company like Reliance or a BPCL or HPCL so your revenue generation gross margins are hovering in the range of 85% to 90%. So that’s the kind of, margins we are talking about.”
Transcript of the concall is attached herewith-
Sealmatic-Concall.pdf (488.5 KB)
Certification:
The company has received various certifications like nuclear, marine work, DGQA, Ministry of Science & Tech, EU FDA, Russian TRCU, ASME U certification for pressure vessels etc.
Valuation:
In the last 4 years, the company topline and bottomline has grown at 20% CAGR. The company is presently valued at 62 times P/E, almost 7 times book value and almost 9 times FY 2024 sales. Thus, on various value parameters the company is excessively valued.
Reasons for Investment:
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New capacity has come in line, which may give a jump to the topline and bottom line as expected by the management.
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The area in which is company is operating is dominated by multinational players. Make in India theme will help the company in capturing bigger domestic market share with better profitability.
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The promoters are well experienced in this line of business- The promoter Mr Umar Balwa was the founding promoter of Burgmann India Pvt Ltd which was a subsidiary of Feodor Burgmann Dichtungswerke GmbH & Co KG in the years 1993. Burgmann India Pvt Ltd was a joint venture between Feodor Burgmann Dichtungswerke GmbH & Co KG and the Balwa family with 51:49% equity participation. Mr Umar Balwa successfully led the company in India with a sizeable market share until 2007, when the parent company Feodor Burgmann Dichtungswerke GmbH & Co KG was taken over by the Freudenberg Group and under a friendly agreement the Balwa family sold their 49% shares in the company to the parent organisation.
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O&M business, which is likely to start contributing from 2026 onwards meaningfully may become a game changer.
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The business area of defense and nuclear is now well open to the company by achieving the certification of ISO 19443 which is nuclear and DGQA defense. Further, marine sector certification can open naval sector to the company.
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The management is expecting 60% topline growth with 24-26% EBITDA in FY2025 as per concall talk. On this expected growth, in my view higher valuation is not exorbitant.
RISK:
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The company is generating negative cash flow, which may affect its financials.
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Though the market is lucrative, it is very competitive. KSB Ltd. entering into mechanical seals manufacturing for captive use plus aftermarket. SKF (SKF AB), John Crane (Smiths Group Plc.), and Flowserve Corporation are the leading market players. SKF holds the largest market share, as per the mechanical seals market report. Some of the other leading players include Trelleborg AB, EnPro Industries Inc. (Garlock Gmbh), Dover Corporation (Waukesha Bearings), SHV (ERIKS Group), Freudenberg SE, Tenneco Inc, Fenner Group Holdings Limited (Hallite Seals).
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Future plans are mere estimates/guess; they may not materialise.
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Investing in Microcap company may results in 100% capital loss.
Disclosure:
Invested and biased.
CreditAccess Grameen: Traditional MFI model, efficiently operating at scale (25-06-2024)
IMHO, it is not negative for CreditAccess in terms of creating more competition. They have one of the lowest NPAs, a very good collection efficiency and a good network in tier 2 and tier 3 regions. So far, they have been going into regions where there is not much competition. The opportunity is still huge. With the govt push, it could actually benefit CA with the customer base expanding more rapidly.
Meanwhile, it will take a long time for other players to enter and eventually hit NIMs of CA.
I find valuation of CA is now a bit more attractive than early this year. They have been growing their book value consistently without taking any hit or having any controversy.
Disc: Invested and biased. Might add a bit more.
Important metrics to predict stock price (25-06-2024)
How eva ryc use to predict stock price
EVA (Economic Value Added) and RYC (Residual Income Model) are both financial metrics used to assess company performance and, to some extent, predict stock prices. Here’s how each can be applied:
Steps to Use EVA for Stock Price Prediction:
Calculate NOPAT: Determine the net operating profit after taxes.
Determine Capital Invested:
Calculate the total capital invested in the company.
Estimate Cost of Capital:
Find the weighted average cost of capital (WACC).
Calculate EVA:
Use the formula: [ \text{EVA} = \text{NOPAT} - (\text{Capital Invested} \times \text{WACC}) ]
Analyze Trends:
Analyze EVA over multiple periods to identify trends in value creation.
Forecast Future EVA:
Project future EVA based on historical trends and expected company performance.
Estimate Intrinsic Value:
Use the projected EVA to estimate the intrinsic value of the company’s stock. A positive and growing EVA suggests a potentially higher stock price.
RYC (Residual Income Model)
The Residual Income Model values a company based on the idea that true economic profit is what remains after deducting the equity cost of capital from the net income.
Steps to Use RYC for Stock Price Prediction:
Calculate Net Income:
Determine the company’s net income.
Determine Book Value of Equity:
Find the book value of the company’s equity.
Estimate Cost of Equity:
Calculate the cost of equity using models like CAPM.
Calculate Residual Income:
Use the formula: [ \text{Residual Income} = \text{Net Income} - (\text{Equity Capital} \times \text{Cost of Equity}) ]
Analyze Trends:
Analyze residual income over multiple periods.
Forecast Future Residual Income:
Project future residual income based on historical trends and expected performance.
Estimate Intrinsic Value:
Use the formula to value the equity: [ \text{Intrinsic Value} = \text{Book Value of Equity} + \sum \left( \frac{\text{Expected Residual Income}}{(1 + r)^t} \right) ] where (r) is the cost of equity and (t) is the time period.Key Considerations Of Historical Data: Accurate historical financial data is essential for calculating EVA and residual income.
Key Considerations
Historical Data:
Accurate historical financial data is essential for calculating EVA and residual income.
Forecasting Accuracy:
Projections of NOPAT, book value of equity, and residual income must be realistic and based on sound assumptions.
Market Conditions:
External market conditions and macroeconomic factors should be considered as they can impact future financial performance.
Conclusion
Using EVA and RYC to predict stock prices involves understanding the company’s ability to generate value over and above its cost of capital. Both methods focus on economic profits rather than accounting profits, providing a clearer picture of true value creation. By forecasting future values and trends, investors can estimate the intrinsic value of a company’s stock and make informed investment decisions.
Important metrics to predict stock price (25-06-2024)
How nopat uses to determine the stock price
Net Operating Profit After Taxes (NOPAT) is a key metric used in financial analysis to determine the intrinsic value of a company’s stock. It provides a clearer view of a company’s operational profitability by excluding the impact of debt and non-operating income and expenses. Here’s how NOPAT can be used to determine the stock price:
Calculate NOPAT:
NOPAT = Operating Income × (1 - Tax Rate)Operating Income is derived from the company’s income statement.
Determine Free Cash Flow (FCF):
FCF is derived from NOPAT and considers capital expenditures (CapEx) and changes in working capital.FCF = NOPAT + Depreciation & Amortization - Change in Working Capital - CapEx
Estimate Growth Rates:
Determine the expected growth rate of FCF based on historical performance, industry trends, and company projections.
Determine the Discount Rate:
The discount rate (often the Weighted Average Cost of Capital or WACC) is used to discount future cash flows to present value.
Forecast Future Cash Flows:
Project FCF for a certain number of years into the future (typically 5-10 years).
Calculate the Terminal Value:
After the forecast period, estimate the terminal value, which represents the value of all future cash flows beyond the forecast period.Terminal Value = Final Year FCF × (1 + Long-term Growth Rate) / (Discount Rate - Long-term Growth Rate)
Discount Future Cash Flows and Terminal Value to Present Value:
Use the discount rate to bring all future cash flows and terminal value to present value.Present Value of FCFs = Sum of (FCF in each year / (1 + Discount Rate)^Year)Present Value of Terminal Value = Terminal Value / (1 + Discount Rate)^Final Year
Calculate Enterprise Value (EV):
EV = Present Value of FCFs + Present Value of Terminal Value
Determine Equity Value:
Subtract net debt (total debt - cash and cash equivalents) from the enterprise value to get the equity value.Equity Value = EV - Net Debt
Calculate Stock Price:
Divide the equity value by the number of outstanding shares to determine the stock price.Stock Price = Equity Value / Number of Outstanding Shares
Example Calculation
Let’s assume a hypothetical company with the following data:Operating Income: $100 Million Tax Rate: 30%Depreciation & Amortization: $10 million CapEx: $20 Million Change in Working Capital: $5 Million Expected FCF Growth Rate: 5%Discount Rate (WACC): 10%Long-term Growth Rate: 3%Net Debt: $50 Million Number of Outstanding Shares: 10 million
Calculate NOPAT:NOPAT = $100 million × (1 - 0.30) = $70 million
Determine Free Cash Flow (FCF):FCF = $70 million + $10 million - $5 million - $20 million = $55 million
Forecast Future Cash Flows (assuming a 5% growth rate for 5 years):Year 1 FCF = $55 million × 1.05 = $57.75 Million Year 2 FCF = $57.75 million × 1.05 = $60.64 Million Year 3 FCF = $60.64 million × 1.05 = $63.67 Million Year 4 FCF = $63.67 million × 1.05 = $66.85 Million Year 5 FCF = $66.85 million × 1.05 = $70.19 million
Calculate Terminal Value (at the end of Year 5):
Terminal Value = $70.19 million × (1 + 0.03) / (0.10 - 0.03) = $1.034 billion
Discount Future Cash Flows and Terminal Value:
Present Value of FCFs = $57.75M / 1.10 + $60.64M / (1.10^2) + $63.67M / (1.10^3) + $66.85M / (1.10^4) + $70.19M / (1.10^5) ≈ $236.6 Million Present Value of Terminal Value = $1.034 billion / (1.10^5) ≈ $642.3 million
Calculate Enterprise Value (EV):
EV = $236.6 million + $642.3 million ≈ $878.9 million
Determine Equity Value:
Equity Value = $878.9 million - $50 million = $828.9 million
Calculate Stock Price:Stock Price = $828.9 million / 10 million shares = $82.89 per share
By following these steps, you can use NOPAT to help determine the intrinsic value of a company’s stock.