A couple of factors that should impact MSS

1) joint venture between Johnson control and Yanfeng is a good competitor in interior business. This may affect revenues of MSS

2) slowdown in Brazil and China will again affect revenues of MSS

Disc :- I had shorted futures contract yesterday that has been settled today. Looking to buy (equity) if it corrects further. This is not a buy/sell recommendation. Please do your own due diligence

Following are some key points from the latest concall July 30, 2015 (for better understanding of Skipper as Business):

1) Going forward we also are in the process of setting up three more units of PVC pipes. The first one will be in Sikandrabad near Delhi, second one will be in Guwahati in North East and the third one will be in
Hyderabad, Telengana. (In my view, clearly indicates Nation-wide rolling of plans)

2) CPVC is a product that was missing from Skippers range for a long time primarily because we were
not finding the right partner for supplying us the raw materials for this product. As you might know,
CPVC is a product which is produced, the raw material is basically produced by only four global
manufacturers, one in America which is Lubrizol one in France which is Arkema and two in Japan
which are Sekisui and Kanika, so recently Skipper tied up with Sekisui for support of this raw
material and now Sekisui has started supplying the raw material to us and we are manufacturing the
pipes in India, which is the same model followed by Astral and Aashirvad with Lubrizol of US.
Interestingly Sekisui is the only other company apart form Lubrizol which is NSS certified so this is a
certification which is received by the company, this is a US certification and that carries a lot of
weight in the water segment. Because Lubrizol and Sekisui are the only two manufacturers of NSS
certified raw material our product also automatically becomes that much more respected in the
market. Now going forward with the addition of CPVC we will be looking to penetrate the plumbing
market in India in a big way. This is going to complete our basket of sorts which apart from CPVC
will also have UPVC and SWR pipes so now we will be able to bid for complete projects basically
which we were not able to earlier. On top of this the Wavin tie up that we have entered for
polybutylene pipes which we have also recently done that is the most advanced plumbing system
which is available in India right now, in fact in the world right now and Wavin has chosen us as its
partners in India and initially they are going to be supplying us this complete system from the UK
plant but the idea is that going forward will be manufacturing that in India itself under Wavin
licensing.

3) Polybutylene will probably not happen this year that will probably be part of the capex plan for next year.

4) Our order book is pretty much split 50-50 right now, 50% for exports and 50% for domestic and
where domestic ordering is concerned as of now almost we can say 90% of our domestic order are
from PGCIL. (In my view, there is too much dependency on one buyer- Power Grid Corporation)

5) We are qualified for the highest range possible in power grid. In fact in Power Grid Skipper is the
single largest tower supplier right now.

6) Our capacity utilization is 90% plus.

7) We require marginal capex because every year we increase capacity by about 20% in our T and D
division and so that’s doesn’t require much capex because most of the fixed infrastructure is already
available with us. Approximately between 20 to 25 Crores.

8) Because typically the order inflows generally happen in Q3 and Q4, Q1 and Q2 in fact we are just
happy to maintain the order book level even then the company has secured approximately 150 Crores
of new order from export market even in Q1 which is generally not seen in regular Q1 and Q2.

9) Yes, we have already started delivering on export order which is in fact, this year we should see
significant, export being a significant part of the top line, last year was only below 15% but this year
we expect at least 30% to 35% top line coming from export business, definitely share of export
revenue is going up and in terms of the order, you asked about the cycle of the order I mean how long
the order is….

10) The delivery period typically for export order is between two to two-and-a-half some of our orders are
already in the second year one which we have recently secured they will be delivered over the next
three years.

11) PVC as I mentioned earlier we have already commissioned a new plant in Ahmedabad with a capacity
of 10,000 tonnes which will augment the existing capacity of 12000 in Kolkata and we expect that
with further three new plants which we are adding in this financial year our capacity will be close to
about 40,000 tonnes by the end of this financial year; this is in line with our target to reach One Lakh
Tonnes by FY’18.

12) Typically what happens in the infrastructure project, all infrastructure projects including transmission
project they see a reduced activities during the monsoon month so from April onwards basically
project contractor starts reducing their inventory at site which is why the offtake becomes very low in
Q1 and Q2 but towards the end of Q2 really the requirement, the push starts coming from the project
site for the material, so typically that is what happens every year but even if you compare the quarter
numbers to quarter of last year there is a significant improvement.

13) You also need to account for the fact that PVC as a product has a lower working capital cycle also as
compared to our T & D products, so while this might happen to some extent wherein our engineering
product business commands an EBITDA of more than 15% and this might look at somewhere around
13% -14% but because of lower interest impact, we will definitely see the pact being maintained and
bettered going forward.

14) In a consolidated basis the company is growing at, the plans to grow at more than 20% to 25% every
year and while there is absolutely no dearth of orders in the T&D business the PVC business with its
rapid expansion on a pan-India level we do not see really any major obstacles in getting the numbers
that we are looking at.

15) Yes, in fact the company is very conscious about increasing debt so for our expansion plans over the
next two to three years we do not envisage adding to the long term debt of the company at all. So
really whatever debt we have will be in line with the existing debt repayment schedule, so we are not
looking to add any kind of debt for future expansion.

16) Yes, as I mentioned approximately 50%, 1200 Crores is from export business and another 1200
Crores odd is from domestic business, out of which you can assume 1000 Crore plus from PGCIL.

17) We also export certain portion to Europe as well as Africa and also Nepal so those countries also form
part of our export order book. Of course the lion’s share goes to South America and approximately
you can assume it to be an even split between the three countries as of now, so I would say between
30% and 35% for all three countries.

18) So the monopole capacity which is expected to be commissioned in Q2 of this year, the initial starting
capacity will be somewhere around 15000 tonnes for being a engineer fabricated product the capacity
can vary slightly but then tentatively around 15000 tonnes will be added to our overall capacity of
175000 tonnes of T&D capacity and we are at discussions with many of these utilities and they have
shown keen interest in this, so we expect good response for it once the unit comes up. The products are already across being used in various utilities in the transmission side as well as in the telecom
side. That market is already there.

19) PGCIL follows a policy that whatever projects they win on in the TBCB route those projects they
split the contract between supply and construction, so if you look at a Lakh Crores in total the total
basket approximately 40,000 Crores is expected to come upon TBCB route. Now in that going by the
past trend PGCIL has been securing 50% of all contracts that have been there in the TBCB and also
some of the private developers like Sterlite and Essel even they sometime adopt the policy of towers
purchases separately and construction separate. If I assume 75% of the TBCB route business to be
split up with tower separate and construction separate then perhaps 40,000 Crores 75% we can look at
30,000 Crore of transmission business to be coming up on this split model basis.

20) No in fact we have witnessed that due to flat demand for the last couple of years we have seen
actually lot of non serious players going out of business, so competition scenario as of now I would
say less competitive than what it was may be perhaps two year ago.

21) So the new units which are coming up in Sikandrabad which is UP that would have a capacity of
roughly around 8000 tones per annum to start off with in phase one. The Guwahati unit we are
looking at a capacity of about 4000 tonnes per annum and the Hyderabad unit in Telengana that is
going to come up with a capacity of about 6000 to 8000 tonnes also. The idea is to reach capacity of
about 40,000 tonnes by the year end and as you can imagine in the PVC industry adding on capacity
is not very difficult because all you need to do is add extrusion line, so these are the first phase
capacities that we are looking at and then going forward we would start augmenting further capacities
in these units as and when required. In fact in all probability we will be able to commission all three of them or at least two out of them in Q2 and the other last one within Q3.

I hope above points will provide some understanding of Company’s business and give base to dig more about the Company.

Hi,

This stock came under my radar a few days ago and started reading about it. I was about to start a thread on the same so thank you @hssodhi198 for taking this initiative.

Now coming to the company, I have a few points to add:
1. In the power transmission sector, the line of work is as follows:

a) PGCIL or one of the state discoms come up with a tender for a line which is generally an EPC project. The tender is on L1 basis after come technical requirements are fulfilled. This company is new to the EPC part of the business although they have been the suppliers for a long time. So for them to expand in this space they need to get sufficient experience to participate in tenders. Some companies generally take the JV route if they are not qualified, so we need to know how is the management planning to do this.

b) The EPC business is a very slow process with many extensions and delays in payments from the discoms. This is effect the working capital of the company if they plan to expand further in this space.

1. General procedure for finalizing a tower for full fledged manufacturing consists of a on ground test where in the actual tower is made and forces are applied on the tower to know if it can withstand the loads. I donot what capacities are present with this company. This is also the area where companies like KEC have an advantage i.e. they have manufacturing, testing as well as EPC business and they have been running for a very long time. So if we are bullish on electrification of India why not invest in market leaders, where the scope of additional capex is also limited.

2. The segment of PVC pipes for water and angle sections for power transmission are totally unrelated. What is the rationale for selecting this combination of businesses?

3. To whom does the company currently sell their power transmission sections to? I have had a rough go through the annual report but couldnt find any names. If information is present on this please share.

Cheers!!

Disc: I do not hold any stocks of this company. Currently tracking it closely.

Hi All,

I am aware we have already had an intense discussion on the issue of Royalty payment in Kaveri Seeds thread and our admin team is currently pruning the thread to ensure forum guidelines are adhered to.

However, this recent article (shared by one of our forum members on the other PF discussion thread) had some key aspects, and if these turn out to be true (or) if these materialize, the dynamics for some of the seed companies including Kaveri could change:

http://www.livemint.com/Politics/dVswDy3kCTNFl3wswTKEPO/BT-Cotton-sales-by-CICR-may-bring-down-seed-cost-of-farmers.html

Summary of the article –

1. On 19th August, Ministry of agriculture has written a note to PM informing that CICR can proceed with domestic varieties of BT Cotton, as Monsanto’s patent on gene Mon 531 or Cry1 had expired in US in 2012.
   Note for new readers: What is Mon 531? – “The Mon 531 Cry 1 is the gene added to cotton seeds to provide protection to the cotton plant from the attack of bollworm, the most commonly found pest on the cotton plant. The presence of this additional gene makes the cotton seed variety a BT or biologically modified variety.”

2. Since 2012, countries like Pakistan have already developed 31 new varieties of BT Cotton seeds and made it available to farmers.

3. Agriculture ministry has further asked ICAR(Indian Council of Agricultural Research) to develop BT Cotton variety seeds and provide it to farmers.

4. Keshav Kranti, Director of CICR(Nagpur) says they have developed 21 varieties of BT Cotton and are gearing up to make these available for farmers by 2017.

5. These Indian BT cotton varieties can be reused for next year’s sowing in-case the farmer was not able to use it in the current year.

6. The Indian variety to be made available at 150/kg compared to 2000/kg as charged by Monsanto licensed varieties.

Monsanto’s comments on the above points: (Have copy pasted to ensure I don’t misrepresent anything)

“Monsanto has various intellectual property rights covering its cotton technologies in India. The MON 531 event (BG I) which expresses the Cry1AC gene has not been, in itself, patented in India by Monsanto,” a spokesperson for Mahyco Monsanto Biotech (India) Pve Ltd said in an emailed response. “However, Monsanto does enjoy proprietary rights over the MON531 event pertaining to regulatory data, biological materials, trade secrets, know-how and the like. The technology registrant also has proprietary rights and corresponding obligations over technologies commercialized under its registration/approvals for MON531 granted by regulatory authorities such as GEAC and applicable Indian laws”

“The MON 15985 event has MON 531 as a component to which Cry2Ab has been added, providing additional mode of action, and leading to wider spectrum of insect control. Monsanto has been granted a patent in respect of the MON 15985 event in India. We claim proprietary rights over the MON 531 event by virtue of the various buckets of rights available to us and hence our claim has to be viewed from a holistic perspective rather than a singular patent lens.”

“Further, we receive trait fees in consideration for our technology solutions and services to Hybrid Cotton Seed companies. We believe in the power of innovation and partnerships to help farmers benefit. To this effect, MMB has collaborated extensively with over 45 Indian seed companies to ensure India’s cotton farmers have the widest choice of hybrid Bt cotton seeds while providing the technology to a broad spectrum of cotton see companies,” said the company in its response.

My comments/questions on the above points:

1. On 19th August Ministry of agriculture has written a note to PM informing that CICR can proceed with domestic varieties of BT Cotton, as Monsanto’s patent on gene MON531 or Cry1 had expired in US in 2012.
If the patent had expired in 2012, why did any of our Private/Government organizations not develop Indian BT Cotton seed variety all these years?

2. Since 2012, countries like Pakistan have already developed 31 new varieties of BT Cotton seeds and made it available to farmers.
How effective are these BT cotton seeds compared to the ones sold by Kaveri/other seed companies?

4. Keshav Kranti, Director of CICR(Nagpur) says they have developed 21 varieties of BT Cotton and are gearing up to make these available for farmers by 2017.
Same question as above – 1. Effectiveness? 2. They are talking about launch by 2017. Will CICR have the capacity to meet the overall seeds demand?

5. These Indian BT cotton varieties can be reused for next year’s sowing in-case the farmer was not able to use it in the current year.

6. The Indian variety to be made available at 150/kg compared to 2000/kg as charged by Monsanto licensed varieties.

Do cotton seed companies have the pricing power? I mean lets assume there are 2 varieties available in the market. CICR’s cotton seed priced at 150rs and Monsanto licensed variety(Jadoo, Jackpot,ATM,etc) at 1500-2000rs. Will farmers continue to buy Monsanto licensed version which he has been buying for the last few years? Now the farmer also has the added incentive of the ability to reuse the seed in the NEXT sowing season. will this incentivize him to switch?

More importantly, what is the likelihood that government will pursue this option? This being a politically sensitive issue(read farmer suicide) my feeling is this initiative will have government support.

Having said this, nothing is going to change immediately for Kaveri/anyother seed companies. CICR itself is foreseeing this launch only by 2017. But market discounts future events vs past performance.

Dear Admin team: The intention of this post is to have a discussion on some of the above points. If this post doesn’t adhere to forum guidelines please feel free to do anything that is appropriate.

Thanks,
Ravi S
Disc – Kaveri forms ~7.5% of my PF

For a great company we should not wait for the dust to settle, history is evident there are recalls bla bla in the automobile sector. Yes if you look at valuation then it’s OK for what price you wanna to buy.

But as Warren Buffet suggest always buy when it’s blood on the street.People selling on panic should be blessing in disguise if one want to buy the stock for portfolio if not sudden then gradually.