They already sell in all the south markets. I believe they have a decent brand recall but obviously will get dwarfed by the biggies. Which is why i feel it is a specific 2019 stock story.
Posts tagged Value Pickr
Radico khaitan: a ignored spoiled child (04-10-2015)
Radico Khaitan is one of India’s oldest and largest liquor manufacturers. Formerly known as Rampur Distillery which was established in 1943. It was only in 1999, that Radico decided to launch and market its own brands, thereby embarking on a period of phenomenal growth. To further boost its production capacity of bottled and branded products, the company has tied up with bottling units in various parts of the country.
Radico Khaitan Ltd today has four millionaire brands in its portfolio. Radico’s flagship brand, 8 PM Whisky, launched in 1999, was a runaway success. In the first year alone, it sold one million cases – a record for any Indian or foreign brand operating in India. This also made it the first brand in the liquor industry to makes it to the Limca Book of Records. The other millionaire brands are Magic Moments Vodka, Contessa Rum and Old Admiral Brandy. Today Radico Khaitan has brands that straddle almost every market segment and price category.
Radico Khaitan is India’s oldest alcoholic beverage company. It entered the IMFL segment in 1999, with the launch of its flagship brand, 8PM. RDCK has three distilleries in Rampur, UP and holds 36% Interest in a JV in Aurangabad, Maharashtra. It owns six bottling units and maintains 27 contract bottling units. It holds 8% market share in the IMFL industry and ~24% market share in the CSD segment. The company offers all types of liquor, except for beer and wine, in regular and premium categories.
RADICO KHAITAN PRODUCT SPREAD
INDUSTRY OUTLOOK
The Indian liquor industry is a high risk industry due to higher taxes and innumerable regulations governing it. As a result, Indian liquor companies are suffering from low pricing flexibility and have insufficient capacities, which is consequently leading to their poor financial performance.
During FY2011 to FY2015 Indian liquor companies witnessed pressure at the operating level due to high competition and firm ENA prices. During the same period, various Indian liquor companies like United Spirits, Tilaknagar Industries, Globus Spirits and RKL reported EBITDA margin reduction of 1,255bp, 1,198bp, 850bp and 448bp, respectively. Also, the companies have high debt on their balance sheets, thus resulting in higher interest costs, and in turn lower profitabilities.
IMPROVING SIGNS
Liquor companies suggests that the industry has now bottomed out. It is now expected the industry’s pricing environment to likely get better going ahead due to the following reasons:
(a) Since the last two years, the industry has not received any significant price hike in its products due to delay in approval by state governments for the same.
Radico Khaitan has received price hikes in only a few states in the last eight quarters. Hence, the industry is now expecting significant price hikes in the coming financial year.
(b) The industry leader – United Spirits – is facing pressure at the operating level and the company has a huge debt on its balance sheet. Hence it is expected that the company’s new Management would shift focus on profitability over volume growth, which in would lead to increased scope for other liquor companies to hike prices.
Higher mix of Premium products to drive profitability for RKL
In the IMFL segment, more than 20% of the company’s volumes come from prestige and above products like Magic Moments Vodka and Morpheus Premium Brandy, and the balance from regular and others brands like Old Admiral Brandy, Contessa Rum, 8 PM Whisky etc. The company’s prestige and above brands command higher margins than regular and others brands. Since the last seven years, the company’s prestige and above brands’ volume has reported a CAGR of ~26% and their share in the product mix has increased from 7.9% in FY2009 to 20.7% in FY2015 and to 25.2% in Q1FY2016 due to strategic defocus on low margin products.
RKL is now more focused on selling higher margin products like Magic Moments Vodka and Morpheus Premium Brandy. Also, we expect volume contribution of prestige & above category products in IMFL segment to increase which would improve the overall margin for the company and result in higher profitability.
Raw material prices expected to ease
The price of extra neutral alcohol (ENA), a key raw material for the company, to remain stable and potentially even decline going forward. This is because sugar production during the October 2014 to May 2015 period has risen by ~16% yoy to 27.9mn tonne, which is an 8-year high production level. As a result ENA (a by-product of sugarcane) production too would be higher this year.
The procurement cost of petrol (excluding taxes) has reduced from ~48/liter in July 2014 to ~34/liter in July 2015 due to falling crude oil prices. Earlier, oil companies were procuring ethanol (to blend with petrol) at 44-45/liter when the procurement cost of petrol was around ~48/liter. Now, the price of petrol is around ~34/liter and ethanol costs around48-49/liter which makes it unviable to blend ethanol with petrol. Thus, this would cut down demand for ethanol and lead to a decline in its prices.
Wide distribution network with strong brands
RKL has a strong sales and distribution network with a presence in retail and offtrade outlets in the relevant segments in different parts of India. Currently, the company is selling its products through over 45,000 retail outlets and over 5,000 on-premise outlets. Apart from wholesalers, a total of around 300 employees divided into four zones, each headed by regional profit centre head, ensure an
adequate on-the-ground sales and distribution presence across the country.
LOWEST PER CAPITA CONSUMPTION IN INDIA AND FAVOURABLE DEMOGRAPHY
HIGHER FREE CASH FLOW AND REDUCING DEBT
According to latest company presentation, it is focusing on cash flows and have reduced debt fro 903cr to 849cr in fy15.
CHEAPER THAN MOST LIQOUR COMPANIES
RADICO KHAITAN IS TRADING AT SIGNIFICANT DISCOUNT TO UNITED SPIRITS AND WE CANNOT CONSIDER TILAKRAJ INDUSTRIES BECAUSE OF VERY BAD SHAPE OF CURRENT OPERATIONS.
KEY RISKS
1. Indian liquor markets are highly regulated and have many taxes.
2. Liqour price increase is a political calss generally.
further relevant views are invited
Disclosure: i dont own any equity in the dicussed scrip.
Alembic & Alembic Pharma (04-10-2015)
Is this kind of news might impact FDA body towards future approvals and stringent scan on the current products currently being shpped?
Deccan Cement : Dull company.Dull business.Big wealth creation opportunity (04-10-2015)
Nicely researched report.
one more thought is, building a capital requires huge quantities of cement and generally it would be better to acquire cement from 2-3 vendors who are large enough to provide in such huge quantities. Does Deccan cement currently have that capability? How does its capacity weigh when compared to giants in this industry.
OUT OF TOPIC: Also, investment thesis depending on capital construction may not be a safe idea, as we never know what Chandrababu Naidu would do while giving tenders to cement companies? Given that the opportunity is so huge, he may build a cement plant or buyout an existing one and up the capacity so it becomes captive plant for capital needs? Or Crony Capitalism may play a part here and all cement procurement tenders would go to some of his buddies’ business outfits. Again, as indicated, this is just to be careful thought as dealing with govt. orders will have its share of red-tapism, I do not imply that this will happen.
How does Sagar Cements look like in comparison to Deccan cements?
Deccan Cement : Dull company.Dull business.Big wealth creation opportunity (04-10-2015)
Very nice write up. But why would you think it can compete with UntraTech/ACC/India cements, are they not in a position to serve the demand of new construction? And what will happen after the capital construction boom slows after 4-5 years? Does the managament have inherent quality to expand the foot print and explore newer markets?
Deccan Cement : Dull company.Dull business.Big wealth creation opportunity (04-10-2015)
I have been wanting to write this for a long time, finally got around to it thanks to a long weekend , most of which was dry !
Deccan Cements is one of the smaller cement companies in the south. What impressed me most about the company is the financially disciplined conservative management and the
Lets begin with the most basic facts
Started in 1979 by a technocrat MB Raju
The plant started productionin 1982 current capacity is 2.3 million tonne per annum
The plant is 165 km from Hyderabad and appx 175 km to Guntur district, where the new capital of Andhra Pradesh ( Amravati ) is going to come up
The plant manufactures a wide variety of cements, including specialty cements. The regular grades of cement manufactured include OPC 43, OPC 53, PPC and PSC. Specialty cements produced include S53 for railway applications, SRC (Sulphate Resistant Cement), Low Heat Cement, Low Alkali Cement etc. ( source : Co website )
One of the main inputs in the production of cement is limestone. Deccan’s own captive limestone mine, having abundant high quality limestone, is contiguous to the plant premises
The other main input is power. Here also the company is more or less self sufficient with a Captive Thermal Power Plant (15MW), Hydro-electric Power Plant (3.75MW) and Wind Mills (2.025MW) under its fold.
Equity is only 7 cr
10 paid up
56% with promoters
No pledge. No warrants outstanding. No equity overhang
CMP 445. Mcap 311 cr
Long term debt as on 31st March 2015 was 116 cr. Thus total EV = 427 cr. I am ignoring short term debt on books as current assets > current liabilities by 50 cr
Thus EV per tonne in USD for Deccan is = 427cr converted to $ divided by 2.3 million = 28$ per tonne, which is way off the rates at which integrated cement plants have been valued in the recent past ( JPsold its plants to Ultratech for 140$/tonne . Lafarge recently sold 5.15 mt plant to Birla Corp for 5000 cr at an implied value of 149$/tonne )
Q1 2105 operating profit was 28.73 cr as compared to 6.42 cr in the same quarter last year
Last year the company sold 1.07 mt of cement against an installed capacity of 2.3 mt, implying a capacity utilization of 46%.
Even at this level of under performance, the company made 89cr of operating profit for FY15.
The EBITDA per tonne comes to 830/- for last year. Cement prices have since then firmed up and now realizations are upwards of 1000 per tonne.
Q1 EPS is 19.88 ( not annualized )
Stock already owned by IL&FS trust (9.5%) and UTI Midcap (5%). Institutional ownership is up by 10% over the last 4 quarters
Sagar cements releases monthly sales figures for themselves . Sales are up 18% yoy with accelerated growth in recent months. EBITDA per tonne is also up. Should apply to Deccan also.
what i like about the company
To the best of my knowledge , the company has not diluted the equity since its listing
Company increased its capacity from .3 mtpa to 2.3 mtpa without raising capital. It was funded from internal accruals as well as debt.
company has no capex planned in the near future
company generated 408cr as cash flow from operations between FY2010 to FY2015. This needs to be seen in the backdrop of the downturn of Andhra fortunes after the demise of YSR Reddy in 2009. Also, the subsequent Telangana issue has hampered growth in Deccan’s key markets
Out of 408 cr CFO, the company repaid loans worth 359 cr ! ( gives comfort on realness of the number )
By FY16 , the company is expected to be debt free.
The operations seem to be very efficient in terms of wage cost. Comparison of peer companies is as follows
Company name Wage %
Sagar Cements 4.56%
NCL 4.22%
KCP 3.84%
Deccan Cements 3.01%
The executive directors take the minimum wages as per the companies act ( source page 41, FY15 AR )
Company will benefit from its proximity to both Amravati and Hyderabad.
Construction of the capital will lead to a multi year boom for cement companies operating in the region. Search ‘Amravati Andhra Pradesh Capital ‘ on google images to see the image of the proposed city.
Valuation for FY19
Investment has to be made with a 3 year horizon
I am assuming capacity utilization will hit 80%
Sagar cements in their latest concall have indicated an EBITDA figure of 1500 per tonne in AP already. I am assuming it at 1200 per tonne in 2019
Debt will be zero.
Tax rate will be 25%
The number can look something like this
Total capacity : 2.3 mtpa
Capacity Utilization : 80%
Total sales : 18.40 mt
EBITDA per ton : 1200
Total EBITDA in lacs : 22080
Less Dep in lacs : – 2000
Less Tax in lacs: -5020
PAT in lacs : 15060
number of Shares in lacs : 70
EPS : 215
Given the potential for development in the region, capacity utilization of 80% seems reasonable.
Also, the company would have close to 400 cr of cash generated from FY16/17/18 operations. I also believe with no impending capex / loan repayments, the company may aggressively step up its dividend payout or go in for buybacks.
Sometimes , a boring companies in a boring business can generate a lot of wealth. I believe Deccan at this juncture merits closer viewing.
Mcap when posted : 311 cr
Disclosure : invested at these levels
Duke Offshore – Hidden Gem? (04-10-2015)
I also have investment here. Not very sure of moat and its competitors but when I saw work from defense then I took that as moat.
Also, I saw base for profit was very small for sept and Dec. So, if it could give positive results in coming qtr then we can hope of big gain. Old tender won still have time to expire so pretty safe. But I don’t know why its profit was low for sept and Dec qtr and why it posted very good result in March qtr!
Due to low liquidity, we can’t add big money here. Just 1 lakh rupees can buy nearly 2000 shares and most of the days, 2000 total shares traded.
I am also hoping gain from recent de freezing of oil fields by govt. Tenders for that will start in 3 months time from now. What do u think of that? Can it get anything from there?
Invested here.
Canfin homes ltd (04-10-2015)
Very insightful interview. I think generally real estate investment is a bit subdued and housing demand to own is on track. Interesting to hear his confidence that it can grow 33% or better until 2020. May be its little bit on higher side of expectation. Nevertheless, I think they are doing all the right things, lowering the cost of funds, increasing the foot print, maintaining the NPAs and also maintaining spreads. Additional boost from uptick in economy, housing demand from smart cities and housing for all policy, will be boost.
Can anybody share how is their service quality compared to say something like ICICI, HDFC?
Has their efficiency increased? are they more electronic now than earlier? They had a very old style customer service earlier, also documentation wise..These things are also equally important to stay ahead in the race…
Disclosure: Invested since last 2 years.
Satin Creditcare Network Ltd – Reaching out! (04-10-2015)
SATIN CREDITCARE NETWORK LTD :
http://www.satincreditcare.com/index.php
Satin Creditcare Network Limited (SCNL) was formed in 1990 as a Non-Banking Finance Company (NBFC) with the simple concept of providing individual loans to urban shopkeepers for tiny businesses by Mr. Harvinder Pal Singh. Since then the company has expanded and evolved into one of the leading microfinance institutions in India with its current geography in North as well as Central India.
SCNL provides loans to both urban poor and rural poor to meet their productive requirements in starting new business or for growing an existing business. The company’s microfinance operation is based on both Joint Liability Group(JLG) model as well Self Help Group model (SHG).
At present, SCNL has its strong presence and serves its clients throughout Bihar, Chandigarh, Delhi, Haryana, Jammu , Maharashtra, Madhya Pradesh, Punjab, Rajasthan, Uttar Pradesh and Uttrakhand . In addition to the above SCNL is also listed on Delhi, Jaipur, Ludhiana, Culcutta and National stock exchange recently.
It is backed by very strong financial institutions. Partners – http://www.satincreditcare.com/our-partner.php
Particulars 2011 2012 2013 2014 2015
Total Revenue (Cr.) 58.62 56.23 94 191 324
PAT (Cr.) 2.17 1.4 4 15.5 31.7
Total Assets (Cr.) 294 316 745 1115 2010
Book value was around 66/- as on March 2015.
SCNL received CARE Ratings of MFI 1 (MFI One) grading – the top most category in MFIs grading.
As on March 31, 2014, the Gross NPA percentage was 0.02% while Net NPA percentage was Nil.
Previous CARE report – http://www.careratings.com/upload/CompanyFiles/RR/Satin%20Creditcare%20Network%20Limited-07-21-2014.pdf
June 2015 results – http://www.satincreditcare.com/pdf/Financial-Results-June-15.pdf
Latest shareholding pattern – http://www.satincreditcare.com/pdf/Shareholding-pattern-Jun-2015.pdf
Latest Annual report – http://www.satincreditcare.com/pdf/Book-final-05.pdf
Many YouTube videos are also available – https://www.youtube.com/results?search_query=satin+creditcare
Positives:
India is a huge market for microfinance – it has more than 400 million poor seeking an opportunity to reduce their vulnerabilities, create assets and ensure income security. India’s microfinance sector is lauded as a savior of the poor and a good bet for investors.
According to industry reports, microfinance institutions (MFIs) would grow at an annual pace of 30%-35% over the next three years on the back of improved fund availability. MFIs have committed to opening at least 30 million bank accounts within a year through tie-ups with banks as part of the government’s ambitious financial inclusion plan recently announced.
More can be read at…
https://www.linkedin.com/pulse/microfinance-institutions-mfis-growing-breed-india-arup-das
Satin’s presence in underpenetrated north and central India micro finance market provides ample opportunity for sustainable future growth.
Good asset quality.
Points covered as above.
Negatives:
Satin (And even big brother SKS) was not given small bank license by RBI. If given, it would have helped satin to bring down borrowing cost, reduce political uncertainty and more lending flexibility. Anyways it is backed by strong muscles that liquidity won’t be any problem for Satin. Borrowing in last few months shows credentials.
More can be read at
http://www.business-standard.com/article/finance/becoming-a-bank-will-not-give-players-an-edge-in-micro-finance-space-s-dilli-raj-115093001195_1.html
I am not aware about competitive advantage satin enjoys in North and Central India, but overall market is huge and many companies can coexist and grow.
This is my first attempt of starting a new thread. Views are invited.
Disclosure: Bought few share at 190/- and its 5% of my portfolio.
Hitesh portfolio (04-10-2015)
companies are cheap for a reason. HFCs like Dewan Housing Finance and Indiabulls Housing Finance have corporate governance issues so are going cheap. am not tracking GIC HFC. Holding Repco in core portfolio.