Mr Gaurav I never meant they are not exporting if you see the shipping bill the actual manufacturer name will be different but the export will be done in CLSE name that is called third party exports. Secondly the cash flow comparison made by you looks at one angle of cash generation that is good but in KRBL and LT foods please see the corresponding increase in the gross block from 2005 2014 and also look at the other assets secondly the claim about diabetic rice was retraced many times and nothing is clearly mentioned in the annual report. Mr Gaurav I am just trying to excise caution in this particular case hope a little more digging will reveal the real problem in this case Regards
Posts tagged Value Pickr
Forensics and the art of triangulation (29-08-2015)
A few months back I had written a note on Vakrangee highlighting the red flags. The note was based on the reported financials and some management claims regarding biz economics which were too good to be true. (some of the data may be a few months old)
No Free Cash Flow - While the Company has demonstrated strong earnings growth, the Company has not generated any free cash flow. High earnings growth with continuously -ve FCF is a red flag suggesting that earnings may not be real. Debt reduction that has happened over the last 1 year was also through equity issuance and not internal cash flows.
Increasing Working Capital requirements - Over the last 5 years, Vakrangee's net current assets have increased from 55 crs to 750 crs (13.5x increase) while sales have gone up from 295 cr to 1950 cr (6.5x increase). WC requirements increasing substantially faster than Sales is a red flag suggesting Sales may not be real.
High capex on government business
-Vakrangee incurred 228 crs in capex in FY14 (of which 197 crs is for Computers & Printers) towards the e-governance business. Vakrangee continuing to incur high capex for the government business does not make business sense considering the poor economics of the segment and low growth expected by the management.
-197 crs in capex for computers and printers suggests the purchase of over 20,000 computers in a 1 year period. This number would significantly exceed the company’s employee count (permanent and contracted – Vakrangee incurred 31 crs in employee costs in FY14 and as per the opex breakup does not have significant sub-contracting expenses). The high capex does not match with the current scale of the company’s operations and this is probably opex classified as capex to boost earnings.Vakrangee Kendra (VK) economics - too good to be true
-As per management, a typical VK requires very little upfront investment by the company with franchise bearing most of the capex and working capital costs. And a typical VK generates 10 lakhs in annual revenues with the franchise getting 70% share leading to 3 lakhs revenues per VK for Vakrangee. These numbers seem too high and are inconsistent with the realized economics of other companies such as FINO and ALW which have struggled in the BC business.
-In March 2014, Vakrangee had 3,853 VKs which generated approx. 900 crs in Revenue in the full year. This implies Revenue/VK of 23 lakhs which is substantially higher than the management estimate of 10 lakhs per VK. If we consider that the VK rollout would have happened over the year, the average revenue/VK number would be even higher. These numbers are staggeringly high and hence in all likelihood fictitious.Exaggerated claims on White Label ATM (WLA) business –
-Vakrangee has the license to install and operate 15,000 WLAs over a 3-year period (starting January 2014). Management claims the WLA ATM business will be extremely profitable. However, Vakrangee having installed less than a 100 ATMs over the last 14 months is contrary to management claims (http://www.npci.org.in/nfsatm.aspx). Management claims that they were trying to get RBI permission for new biometric ATM technology and hence the delay. This is difficult to believe considering all the other players (Tata, Prizm, BIT) have already started installing ATMs and now Vakrangee would have to make do with sub-par locations for their ATMs (location is the key driver of ATM transaction volumes). Vakrangee’s lack of progress on WLA ATM deployment is consistent with the market view that the WLA ATM business is economically unviable for most players (http://www.livemint.com/Industry/3YLmH9ZyWTIxjIchh8ed1K/White-Label-ATMs-struggle-to-stay-afloat.html)
-Management has guided at installation of 5,000 ATMs over the next 3 months and another 5,000 over the next 9 months. Even the largest ATM players have been unable to achieve such a pace of ATM rollout. This number seems fairly exaggerated. Should be verified 3 months down the line if the company is anywhere close to even achieving its rollout target. (The company had made this claim 3 months back - they haven't installed even 50 ATMs since then)Employee count inconsistent with claimed size of operations
-As per management, Vakrangee currently has 1064 employees (150-200 at the corporate-level, 800-900 at block level for managing 12,000 VKs and identification and deployment of new VKs). The employee count is inconsistent with their current pace of VK rollout (37 per day) and planned ATM rollout (50 per day) over and above their government business. This suggests that the overall scale of operations is much smaller than what the management claims.
The biggest red flag for me at that time was the company's capex on computers and printers of approx 20 lakhs per employee !!!! A clear sign of opex being shown as capex.
Granules India Ltd (29-08-2015)
The price is governed under SEBI ICDR regulations as per which issue price to be decided by the management subject to voting and few other rules like lockin period, 25/75 rule, 18 months limit etc. Details can be found the Granules 2014-15 AR!
Santosh Portfolio ..feedback/suggestions from members (29-08-2015)
Thanks Gautham, I agree with your thesis.
@NikhilJain, just take my views for what it is worth. We cannot take someone's exit multiple as base and arrive at PE. Market will not oblige us in both upside and downside. There is a HIGH price to pay for predictability and sustainability. If page can grow at 35% fo the past 6 years when the economy is not very good it can very well grow at at least 25% when economy leaps. So EPS after 10 years would be 1840. Coming to PE, I would say it will sustain 50 PE if the business maintains its current high ROCE, ROE, Dividend payout, Cash flow. Capex also would have been reduced by then. In which case the price would be 92000 plus dividends each year. I myself do not like to predict 10 years ahead. I would only go 3 years from now and I believe Page could be a doubler from here in 3 years and I'm happy with it.
Generally, companies like Page will be valued at "X times Sales". I would say page can command 7 times revenue. Currently it is at 10 times sales. So reverse engineering from my above paragraph, would Page attain a sales of 13000 crore in 10 years? Let's see. I think Page can command 25% market share. Market size for men, women, kids, swim wear in aggregate can be 75000 crore.
Very forward looking statements, so please feel free to sideline me.
@Donald and other admins, I think the last few opinions on page could be moved to Page thread.
Disclosure: I hold page in my concentrated portfolio and I'm not good at predicting stock prices, just that you wrote next 10 years from your view, I wanted to pitch in with my view. Of course, if the current business case changes I would exit.
Granules India Ltd (29-08-2015)
Price is not a choice or an option but a mandate and is decided by the SEBI rules which i have mentioned in my earlier post in this board . Promoters have no say in deciding this price except that they can influence the egm date - the effective date would be 30 days before the egm date .
Santosh Portfolio ..feedback/suggestions from members (29-08-2015)
about page, i agree its not a buy at this level. for some one who has been holding from a lower levels, i dont see any reason to switch. some points. i will keep it simple since most of us know page very well.
1. no meaningful competition.
2. some of the other names like bluedart,Gillette, jubilant foodwork etc trading at 100 plus pe. this is despite repeated under performance in several quarters. HUL with flat growth is trading at 50 pe. what it implies is that one can get out with minimal damage even in the event of bad result. ( page had its first bad (relatively ) quarter in q1 and the price didn't fall much.
3. in this overvalued market (even after this correction), where are other compelling buys in the high quality space? ( business with predictable earnings, scalability etc)
4. pays 40% of net profit (consistently) dividend. usually high growers dont give that kind of dividend.
5. i have seen tons of companies/instances where reported eps growth is a lot higher than sales growth. you can call it operating leverage, margin expansion or whatever. but this cant go on. in case of page, the profit growth rate has always been equal (more or less) to sales growth. this is one thing i like about page.
Paushak Ltd. – Alembic’s agrochemical business (29-08-2015)
Thanks Parth!
When you talk about the market size being 50000 MT, are you talking about domestic market or international market?
Also, your post confirms the previous info that the current capacity stands at 250MT/month. Although the further expansion will probably be gradual?
Were you able to get answers to any other questions from the list we had prepared?
Santosh Portfolio ..feedback/suggestions from members (29-08-2015)
Hi Aniket,
Thanks for pointing me to that wonderful article. I read it for the first time when Mr Khandelwal posted it and I'm still in awe after reading it for the second time.
Now, allow me to point out few things hiding in plain sight (at least that's what I believe).
This, I believe, applies to anyone looking to invest in Page at current price.
The professor says -
"Now, all that one has to do is to figure out it makes sense to buy the stock or not by calculating the expected return and comparing it to other opportunities available to you at that time."
In one of my previous posts I tried to arrive at a conservative eps after 10 years for page, which came out to be Rs 1140/share. For the sake of convenience, let's consider it to be Rs.1200/share.
The prof. mentions that he uses exit multiple of well below 20x. For Page, let's say it is 30x.
So we arrive at a conservative(?) price of
rs. 36000/ share. That's a 2.5x from current position. That's approximately a CAGR of 10% for next 10 years.
I believe, a new investor certainly has better opportunities available in the market.
Now, for those who hold from lower levels (I know you savvy folks have made great returns).
The professor says -
"One last point: If something is working for you, and you don’t have cash and if something else turns up and you like it a lot, then you should sell what’s working for you only when what you want to buy will give you a significantly higher expected return. Otherwise, just hold on to your great businesses and let them compound your capital for you."
Now, I agree that I don't hold page so it's really not my stock to worry about. But for the sake of learning, pray tell me folks, do you see any opportunities in the market that can provide significantly better returns than a 2.5x in next 10 years?
P.S. - Aniket and other boarders, I hope I'm not being over-persistent with my point. I just want to learn and improve myself.
Santosh, apologies for diverting from the main topic consistently.
Paushak Ltd. – Alembic’s agrochemical business (29-08-2015)
Hey guys, I attended the AGM, just some facts from the AGM:
1) The market for Phosgene derivatives in all is about 50,000 MT, whereas Phosgene Derivatives for Pharma Products are likely to be less than 20% of the total demand
2) Paushak has an annual capacity of approx. 3000MT which they may increase to 4000MT over the next 2-3 years (haven't chalked out any plans in particular).
Ramkrishna Forgings (29-08-2015)
@pjain Liked the write up. Thx. Can you pl compare RKFL with the other smaller peer - viz. MM forgings. They have marque clients in EU as well. Debt looks ok and valuations are cheaper. Of course, top line has been a bit flat last few qtrs but there is room for improvement. They came off a lower base and stabilising the expansion did a few quarters before. My guess is MMFL must be operating at about 75-80% util.
PS- got a small position in MMFL