PML Weekly – Bouncing off the 20 WMA. Hopefully the sideways movement is done. Fundamentals in the PML thread

Swelect Energy, Monthly – Long term breakout in a C&H or Inverted H&S sort of formation and trading above those levels last 3 months. Also has a flag formation on the weekly

New module plant of 500 MW has started production from Aug or so and should contributing to numbers in this FY, starting from this quarter.

Fundamentally, this year 100 Cr ebitda possible which is a 25% growth – that means its trading around 13-15x EV/EBITDA. Not cheap but not expensive either, considering at 500 MW nameplate capacity, this can probably do 150 Cr EBITDA next year and can potentially be valued 25x or 30x EV/EBITDA by then (if Waaree IPO lists well)

The company has also sold its alloys business (Amex alloys) for 110 Cr as of yesterday (pretty good valuation) to focus on modules and going forward a backward integration into cells as well. The company is also into EPC and IPP business so is somewhat in the entire value-chain, at a smaller scale than Waaree Energy which should be listing soon.

Risks:

1. Crash in module prices due to imports could mess up the payback period for the capex done. Import should probably get restricted in a couple of quarters
2. Risk of tech going obsolete. But this might be at least 7 years away as of now as the new plant has the latest tech
3. Our stated goal is 50 GW per year as per MNRE, we are already somewhere around 37 GW in capacity. High growth can continue for another couple of years but later on, if we don’t find export markets, there could be margin pressures as it doesn’t seem to be particularly hard to scale this business (somewhat reminds me of diagnostics businesses – although here there is scope of reinvestment by backward integration further down the value-chain and also scope for exports)

Disc: Have positions from 540 levels in Swelect. PML from 550 levels (No recent transactions. PML isn’t cheap at these levels)

It is difficult to comment on valuations as the promoter and potential acquirers may have different expectations and I cannot predict something very uncertain. Who will acquire it (may be conglomerates like Tata/Reliance or PE funds) and whether he will be able to change VIP’s fortune, is another uncertain variable. I prefer track record and certainty to the extent possible and I’m a happy shareholder of VIP’s competitor.

Planned exit by VIP’s promoter is due to succession issue and not due to industry prospects. Also, Investcorp selling small stake in Safari is a non-event as most of the PE funds have time frames and the quantity was absorbed by domestic funds. While there is significant increase in number of Safari’s shareholders holding share capital upto Rs.2 lakh, but change in percentage shares held by them is not significant.

As per the few research reports published in July or August, managements of both Safari and VIP indicated slowdown in growth at the beginning of Q2. I do not have any idea about growth rates in subsequent months. No industry is immune to short term fluctuations and luggage industry has also witnessed it in the past. However, I see long run way for growth in this industry with probably double-digit growth rate for a long period and not concerned about short term events in between.

Our investment horizons and view points might be totally different. Hence, please do your own due diligence and research accordingly.

is there a tool or site ? which offers Stage-Elliotwave analysis ?

Because of low PE , L T food was on my radar list too but I didn’t find any MOAT in the business. It is commodity business and we have have existing players in same business. Margins has been in range of 10-11% from long time. Any rational behind selecting L T food ? asking purely from knowledge perspective only.

Precisely for these reasons I exited the stock completely in good profit and entered Waaree Renewable Technologies Ltd.

Somehow, I was not comfortable given their leadership is ONLY in Gujarat. I may be completely wrong about this company and their future plans.