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Shree Renuka Sugar Turn around story (18-11-2015)

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.

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MPS Ltd (18-11-2015)

Donald, Ayush, Rohit, Sandeep and all others — excellent work….you all are doing great service to the investor community and valuepickr has progressed very well — infact at that stage where hardly few forums have reached….such interactive sessions go a long way in building/raising our conviction as also challenging our analysis again and again to check whether we are on right track or not.

Although went through the entire 2 hour session at one go but wasn’t able to absorb entire thing well because of constraints of the device on which I heard (ipad)….but still was able to pick some queries which even I have went through at the time of doing research on MPS and therefore have answers for them….Thought of putting them here for members benefit….

(1) Rgdg. Mr. Nishith Arora’s previous venture which he sold off, it was International Typesetting Corporation (ITC) which was acquired by Infomedia in 2006 at INR 52 cr.. At that time its turnover was INR 16 cr..

(2) Rgdg. size of Mr. Arora’s BPO venture before acquiring MPS (which he is talking about as operated at high margins) and its margins, maximum scale which his BPO venture reached was INR 20.2 cr. and EBITDA margin range in which it worked was 35-46 % after first year minor loss.

(3) Rgdg. peer Innodata debt status, as at FY14 it was a net cash rich company.

(4) Rgdg. volume growth, although management is fairly transparent and seems perfectly genuine, there seems to be some disconnect here. With VP team now having detailed access to management, I seriously think we need a more clear answer to this by presenting the peer data points to the management. As I have pointed previously too in this thread, SPS is having no pricing pressures and from the YoY value growth that we are seeing for Newgen, TNQ, Amnet, Crest, etc. there seems to an almost impossible case for severe pricing pressure for them as for them to achieve such a value growth with severe pricing pressure that MPS management is talking about, their volume growth should be higher than 50 % YoY which is unlikely in this industry and at the scale they are operating. This is the only point on which I feel management’s words don’t match with actual figures that we are seeing and that we need to accept being genuine analysers.

Will go through the entire session again next week and in case have any other answers to fellow members’ queries will post them.

Rgds.

Discl. – Invested in MPS.

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NCL Industries – Resumption of growth? (18-11-2015)

More on the previous cement cartel:

http://wap.business-standard.com/article/companies/busted-cartelising-cement-firms-112062600067_1.html

This present cement cartel won’t need the BAI to bust it. Govt would by itself tale action if inflation starts increasing. Nonprofit bodies taking on unfair trade practices too have evolved over this period.

If locally elected govt too is part of this cartel. That’s a different story all together.

A note to VP members : Had this been 2008-09, these issues would have been discussed first before price projections.IMHO we are too drunk with mutibaggers and have lost that cynicism, that’s our first line of defense.

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STL Global Ltd. (532730) (18-11-2015)

project is at very prime location so the Revenue for both the parties (developer and the land owner ) will be so strong that any dispute will have to be resolved.

i know some one in delhi and he will be visiting the site probably next week.
will update here on the progress.
Disc- Invested

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Emkay Global Financial Services Limited (18-11-2015)

Hi,

Have a 5-15% allocation to the stock and bought at various points from 25-65 levels. So have a highly biased view and wanting some negative views. Highly illiquid . Its just for discussion.

Market Cap.: ₹ 175.97 Cr. Current Price: ₹ 72.00 Book Value: ₹ 45.77 Stock P/E: 10.10 Dividend Yield: 0.00% Face Value: ₹ 10.00 Listed on BSE and NSECompany Website 52 Week High/Low: ₹ 74.90 / ₹ 48.10 Debt to equity: 0.19 Debt: ₹ 20.62 Cr. Debtor days: 137.31

Positive Reasons for the Company

1) The erroneous trade costed them 35-40 cr of loss but did not affect the business in last 3 years. This indicates client relationships are strong.

2) More than 50-60% of the business comes from institutional broking where it has 200-250 clients. Also investment banking/pms operations slowly picking up.

3) They got back cash from the settlement in the erroneous trade and now are a net cash co with around 50-75 cr cash. ( A concern is why 42 cr of trade receivables)

4) High Promoter Shareholding and management has been focused mainly on the institutional broking. Although people consider Broking as a sad business but Institutional Broking is an interesting space where competition has reduced and in last decade it has become based on performance of the research/corporate access then relationships. Every MF has a detailed grading system. Emkay Global has inched up in the last few years in the grading.

5) Last two qtr consol PAT is 10 cr approx and current market cap is 170-180 cr. Can do 20-25 cr PAT possibly in current scenario is my bet and better in good times for the market. In that case its at a P-E of 7-9 times.

6) There are not many big players in the Domestic Institutional Brokers and the competition is reducing whereas flows into equity is increasing. Also to create a 200-250 client in institutional broking is tough. ( A good check is how many new institutional brokers have come up in last decade. There are more that have closed. )

7) My bet is insti broking / Investment Banking business for the company can grow big time if we have a bull market in next 3-5 years if not the current valuations are not expensive. Also some part of the belief in the biz is as am a consultant to another Institutional Broking Outfit for last 4 years.

8) There will be consolidation/takeovers though i doubt Emkay would be on the block but some other broker getting crazy valuation can be a lucky play. ( Antique , Fortune etc have been bought by a marquee name )

Negative Reasons

1) No Pricing Power. SEBI decided max a domestic fund can pay is .12% . There could be further regulations. No regulations for Foreign money.

2) Broking is a sad business especially the Retail Part. All major brokers are shifting more towards NBFCs and AMCs ( Edelweiss, India Infoline and Motilal Oswal)

3) If they lost money on an erroneous trade why can it not happen again. ( although instances are negligible. )

4) If markets were to correct and fall the business takes a hit.

Conclusion

If one believes Indian Equity Markets are to grow over the next few years – Emkay Global will be a direct beneficiary as its mainly institutional broking and investment banking. The stock is not expensive and the balance sheet is much cleaner today after 2-3 years.

Disclosure – Do not take this as a buy/sell recommendation. Do hold shares personally and vested interests. I am known to change my mind often with my positions so can sell or buy more on a whim :smile: also.

Would like to invite views on the risks involved in the company. Also what could be the better bets to go for in the same sector.

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NCL Industries – Resumption of growth? (18-11-2015)

This link was provided in another thread:

http://www.outlookbusiness.com/perspective/the-paradox-of-cement-in-the-south-1909

To know the real fact behind good numbers is important.

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Torrent Pharma Ltd (18-11-2015)

The innovator had purple colored nexium and they objected to anybody else using that same color. thats where Camber and DRL got stuck bcos the objections raised by innovator were upheld.

Torrent were not in purple color and so is spared from these objections. :grinning:

Many a times such small things make a big difference.

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NCL Industries – Resumption of growth? (18-11-2015)


This is not a issue to be taken lightly.It has happened before. Please check the below link. The companies involved in the cartel suffered after this.

I am rather shocked that a CFO would admit to this in public. How long do you think its going o take somebody ,for taking it to the court or commission??

http://m.thehindu.com/business/over-rs6300-crore-penalty-slapped-on-11-cement-firms-for-cartel-sale/article3555502.ece

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V-Mart Retail Ltd (18-11-2015)

Ex depreciation company has show decent growth in 1HFY16.
I personally feel it is best to look at V Mart at PAT + Depreciation level. There were lots of exceptional items in depreciation level last year (Depreciation was +ve in 2Q and 3Q FY15.)

Self funding now
The company has become FCF and is self funding now. I dont know of any retail company is India which is FCF +ve. That itself is a massive achievement.

New store additions
There were concerns on new store additions. Current store count is 122 up from 109 end of 2QFY16. So company has added 13 new stores in 3Q so far.

Disclosure: Invested recently

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Oriental Carbon and Chemicals Ltd (18-11-2015)

The stock has been sliding but on extremely low volumes –

http://www.moneycontrol.com/deliverable-volumes-price/orientalcarbonchemicals/OCC

From 23rd Oct to 17th Nov (16 trading sessions) , the stock fell from 570/- to 518/-. Some 26,000 shares were traded in delivery . This is just ~0.25% of total equity that changed hands in 9% fall. This also means just 0.015% daily average .

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