Hi Donald,

I think you have misunderstood my point….I am not saying that management is saying any lies or something…infact I have been on record in this thread saying that management led by Mr. Nishith Arora has been one of the best and most ethical management I have seen in mid-cap cos…….otherwise MPS would have not formed more than 20 % of my family portfolio……but, some facts are facts that we need to accept…..as I have said in my last post and I repeat that ‘severe’ pricing pressures (which lead to good volume growth but muted value growth) seem to be absent in reasonable peers….SPS, I told before also, could be beneficiary of its parent….

Rgdg., Newgen, my analysis makes me believe that it is in the similar area as MPS (If I remember correctly, even Mr. Arora has told this in the MPS’s initial concalls)…..
link that you seem to have provided www.newgensoft.com — is this the same co. or affiliated co. of Newgen Knowledgeworks ?? I have always referred Newgen Knowledgeworks in which PEs are invested and I believe its website is — www.newgen.co — If I am wrong then pardon me but in all the mca filings that I have same website is referred.

TNQ also seem to be a very close l-t-l peer. Its YoY data I have provided before also — its 9 %, 32 % and 35 % for FY12, 13 and 14 respectively with EBITDA margins of 30.4, 23.3 and 42.3 % respectively.

Also, what I have understood of this industry is that when you say l-t-l you have to see the clients and segments it serves…..for ex., you can’t compare a player like Impelsys which is largely a platform play with MPS but otherwise what every player including MPS is eventually attempting is to plug the gaps in its offerings and offer maximum it can offer….In that sense even what Mr. Arora tells of his vision to approach its largest peer Aptara’s scale — even Aptara is present in other segments (XBRL) and serves those end clients (BFSI) which I don’t think MPS serves.

To conclude, evenif I see the most closest l-t-l comparable Indian peers like SPS, Newgen or TNQ, I don’t find ‘severe’ pricing pressure that could amount to a single digit organic growth post stabilisation period. This is the only disconnect I can find in story or, specifically speaking, management commentry otherwise the story seems compelling to me personally.
The biggest advantage that I see for MPS in this industry is its positioning…..which is slipping every passing year as its reasonable peers are growing that much faster……I see no point in comparing MPS with small peers which have sub-80 or -50 cr. revenues (in my initial posts I have given all the data points wrt different scale cos. Revenue CAGR and EBITDA margins)…..MPS surely is well positioned and its credibility is very high but organic growth has to start somewhere for it to be great wealth creator for all of us…..company’s operating matrix is excellent with Mr. Rahul Arora also specifically pointing to his focus on improving margins further in recent concall…..Mr. Nishith Arora — the great man behind building and divesting ITC at premium rates and then turning around MPS in style has taken the sole responsibility for crucial acquisitions thats also reassuring from investor point-of-view…..but two things we need to understand :
(1) Without Organic Growth story will struggle in long run,
(2) EBITDA margins of 35 % + that we see might settle for 25 or max 30 % range as company scales up (even Newgen at consolidated level seems to be operating at 30-32 % margins).

Rgdg. contacts, I think Varadha has some very good contacts in the industry.

Rgds.

( You can refer my September’2014 post in this thread in which I have given all the data points scalewise of different cos.)

@ravijain88
Thanks for the prompt reply. I appreciate it!

Any clue on today’s rally by Cupid, Anyone!

Thanks Mahesh as always for taking the discourse further. And providing answers to the gaps !

Yes, its a good idea to present Competition data points again to MPS Management, at Conference Calls and other interactions with Management consistently. We did raise this in the Mgmt Q&A at a first level – MPS wanted to see if FY15 stellar margins reported by SPS sustains in FY16 – before responding further on this point.

We do not find inconsistency in the Management commentary, atleast not yet. From our perspective these are the counter-arguments to your thesis.

1. We should be careful of comparing Apples to Apples. SPS fits the bill well as it serves the same Customer segment. Newgen doesn’t serve the STM market from what I could see, so that shouldn’t figure in any rational/objective peer comparison chart (http://www.newgensoft.com/customers/)
2. That almost all other players in STM Market report inferior margins than MPS gives credence to MPS observations on margin pressures faced
3. It is also consistent with the Publishing Industry dynamics – where most of the large Publishers are struggling with profitability/cost pressures
4. We suspect SPS higher margins have to do with a mix of two factors a) captive of Springer (there may be long term contracts) which accounts for 50% of the business b) better productivity/efficiency from automation tool-kits and processes

Any others competitors in STM Market with higher margins that you can point to?

Did you cultivate any contacts in the STM Technology Vendor space? We are now primed to extract the most out of any direct interaction with domain specialist folks

Sold my stake in IPCA labs in the price bump up today with modest gains 0f 8-9 percent. That makes IPCA holdings-zero.
Reason- near term trigger of probable USFDA clearance being granted to IPCA being priced in, in the last 2 days of up move ( I think so). Post this event…i do not see any substantial sales and profit recovery in the next 3-4 months. And even if it happens, the company looks richly valued.

Converted my IPCA holdings to DB Corp at CMP…..as i think the q3 results for DB corp are expected to be good due to Navratras falling in q3 this year as opposed to q2 last year.

Also with the implementation of 7th pay comission, advt. revenues are expected to go up (although that may take some time, probably 6 months kind of time frame)

The whole transaction makes- IPCA-zero, DB corp- 6% of total portfolio.

Shree Renuka Sugars (CMP 16 Rs.) is one of the largest sugar producers in the world, the leading manufacturer of sugar in India, and one of the largest sugar refiners in the world
Sugar:
The Company operates eleven mills globally with a total crushing capacity of 20.7 million tonnes per annum (MTPA) or 94,520 tonnes crushed per day (TCD). The Company operates seven sugar mills in India with a total crushing capacity of 7.1 MTPA or 35,000 TCD and two port based sugar refineries with capacity of 1.7 MTPA. The Company also has significant presence in South Brazil, through acquisitions of Renuka Vale do Ivai and Renuka do Brasil. Renuka Vale do Ivai was acquired on 19th March 2010 and is 100% owned by the Company. The Company currently holds 59.4% equity stake in Renuka do Brasil which was acquired on 7th July 2010. The combined crushing capacity of the Brazilian subsidiary companies is 13.6 MTPA. The Company is the only sugar producer globally with year round crushing due to complementary seasons in India and Brazil.

Ethanol:
The Company manufactures fuel grade ethanol that can be blended with petrol. Global distillery capacity is 6,240 KL per day (KLPD) with Indian distillery capacity at 930 KLPD (630 KLPD from molasses to ethanol and 300 KLPD from rectified spirit to ethanol) and Brazil distillery capacity at 5,310 KLPD.

KBK Chem-Engineering (100% subsidiary) facilitates turnkey distillery, ethanol and bio-fuel plant solutions.

Power:
The Company produces power from bagasse (a sugar cane by product) for captive consumption and sale to the state grid in India and Brazil. Total Cogeneration capacity increased to 555MW with exportable surplus of 356 MW. Indian operations produce 242 MW with exportable surplus of 135 MW and Brazilian operations produce 313 MW with exportable surplus of 221 MW.

The Company’s presence in the largest sugar producing country, Brazil and the largest sugar consuming country, India provides access to information on movements in market price and the know-how of the global supply-demand situation. The Company’s operations in Brazil are favoured by low operating cost, high scalability and highly conducive climatic conditions. The Company’s Indian operations are present in sugar rich belt of South and West India, ensuring high sugarcane yields and sugar recovery from cane. The strategically located port-based refineries in Gujarat and West Bengal states of India cover India, South Asia and Middle-East markets competitively.

Promoter:
Narendra Murukumbi’s rags to riches story is inspiring. He is only 46 years old and an IIM graduate. Approx. 10,000 famers became shareholder in company’s IPO which changed the relationship between the farmers and the sugar mill from supplier to that of a shareholder.

Annual results in brief (Rs crore)
Mar ‘ 15 Mar ‘ 14 Mar ‘ 13 Mar ‘ 12 Dec ‘ 11
Sales 5,744.20 6,522.40 6,395.40 6,362.10 5,381.80
Operating profit 176.30 140.00 594.80 738.80 542.40
Interest 336.20 318.20 367.10 369.90 272.70
Gross profit -156.00 -123.50 242.70 370.00 270.70
EPS (Rs) -3.18 -6.95 0.77 1.25 1.17

Shree Renuka is an innovative company and there are many things I like about the company:
– Leader in India’s fuel ethanol business with nearly 21% market share. New ethanol tenders are expected to price at Rs. 26
– Largest raw sugar refining capacity in India. Sugar refining capacity helps enhance the company’s asset utilization by processing raw sugar during off-season.
– The company is the second largest exporter of sugar from india with a presence in the Middle East, South East Asia and East Africa. It exports almost 20% of India’s international sugar trade
– The company directly markets sugar to institutional buyers instead of selling to wholesale agents and dealers. The company is a sugar ‘supplier of choice’ amongst companies that produce carbonated soft drinks, fruit juices, choclates, baby foods and dairy products. Its clients include Coca Cola, Pepsi, ITC, Britannia, Nestle and Cadbury, among others. The company sells premium refined sugar.
– Company enjoys certain advantages on account of its West and South Indian location. It has plants in Maharashtra and Karnataka. It enjoys a longer crushing season (over 200 days, starting from October to May), higher recovery (10-20% higher than other regions), proximity to port and lower sugarcane prices due to much lesser state interference in setting sugarcane prices.
– In order to diversify it’s revenue base, the company has acuired a 80% stake in KBK Chem-Engineering Pvt. Ltd. engaged in providing turnkey solutions (EPC contracts) in the field of distilleries, ethanol plants and biofuels.

Conclusion:

With the collapse of global sugar prices, financial performance started deteriorating and put the company to near bankrupt position.

But now it has started turning the corner in line with global prices and many Sops in the offing by Present government including Ethanol blending, export incentives and others.

The Company has witnessed a strong Revenue CAGR of 55% and EBITDA CAGR of 58% from FY2006 to FY2012. The strong financial performance has ensured consistent returns for shareholders with an average Return on Equity of approx. 20% from FY 2006 to FY 2012. The Company’s strong Management team has delivered consistently to ensure growth through successful completion of strategic acquisitions.
In addition to compnay’s efficient management, underlying reason for such a strong performce is sugar prices at global level almost tripled during this period from 11 c/lb to 35 c/lb. Considering cycle of 3-5 years in sugar sector prices have now bottomed out at 11 c/lb and again started rising above 15 c/lb. Up surge in sugar prices after consecutive surplus year after year has forced in efficient players out of market. And those who have survived will derive benefit in coming time with prices likely to touch upper end of cycle and may surpass 35c/lb in two to three years.

Shree renuka with improved efficiency and synergy is likely to repeat strong CAGR of 55% again for coming 3-to 5 years. Stock prices are likely to increase 8 to 10 times from present level of 16 Rs.