Safety is guaranteed in a stock screened by three veterans
Generally speaking, the interest of the three stalwarts of the stock market, Vijay Kedia, Sanjoy Bhattacharyya and Prashant Jain, in a stock is a clear indication that the stock scores well on all parameters such as safety of capital, growth potential, management integrity etc.
We can rest assured that not only is our capital safe and sound but there are good prospects of pocketing hefty gains from the stock.
If you are bullish on India, you have to be bullish on the power sector
Vijay Kedia’s logic for buying stocks is so simple that it is laughable.
When Nikunj Dalmia looked him in the eye and demanded to know why he (Vijay Kedia) had bought Apar Industries, Kedia’s answer was refreshingly simple.
“If you are bullish on India, you have to be bullish on the power sector. If you are bullish on the power sector, you have to be bullish on the transmission and distribution system. Apar Industries belongs to these sectors”, Vijay Kedia replied with his characteristic wide smile.
Vijay Kedia’s logic may be simple but the gains that he enjoys are hefty. He has already pocketed gains of 40% since he made the investment.
Vijay Kedia increases stake in Apar Industries
When I first reported on the matter in November 2014, Vijay Kedia’s holding stood at 200,000 shares. Today, the holding stands at 400,191 shares, clearly implying that Vijay Kedia regards the stock as being undervalued and as having the potential for more gains.
Prashant Jain’s HDFC MF also hikes stake in Apar Industries
Prashant Jain, the whiz-kid fund manager at HDFC MF, is another staunch believer in the prospects of Apar Industries.
As of 30th September 2014, the holding of his fund stood in Apar stood at 14,03,716 shares. This has swelled to 26,57,150 shares as of 30th September 2016.
Sanjoy Bhattacharyya’s Ocean Dial Fund checks into Apar
Sanjoy Bhattacharyya, the doyen amongst value investors, is known to be a stickler for quality when it comes to picking stocks. The veteran puts every stock through a strict strainer before giving it the green signal.
His Ocean Dial Gateway to India Fund has scooped up a massive chunk of 454,066 shares of Apar on 16th November 2016 at Rs. 560 each.
Robust Q2FY17 results
Apar has justified the confidence reposed in it by the ace investors by reporting robust results.
While the top-line remained flat, the operating profit surged 14.84% and the net profit rocketed 82%.
| APAR INDUSTRIES LTD – FINANCIAL RESULTS | |||
| PARTICULARS (Rs CR) | SEP 2016 | SEP 2015 | % CHG |
| NET SALES | 1264.29 | 1244.22 | 1.61 |
| OTHER INCOME | 4.26 | 1.89 | 125.4 |
| TOTAL INCOME | 1268.55 | 1246.11 | 1.8 |
| TOTAL EXPENSES | 1163.98 | 1155.05 | 0.77 |
| OPERATING PROFIT | 104.57 | 91.06 | 14.84 |
| NET PROFIT | 45.66 | 25.06 | 82.2 |
| EQUITY CAPITAL | 38.5 | 36.86 | – |
(Source: Business Standard)
Corporate presentation and earnings’ presentation throw light on future prospects
Apar has issued a corporate presentation and an earnings presentation which throws considerable light on its future prospects.
The core points made in the presentation are that Apar is:
– A Global leader in Conductors and Transformer Oils;
– With established presence across diverse businesses
– And multiple growth drivers in place
– Capacity in place to fuel future growth. . .
– Moving up the value chain to drive profits
UDAY, the game changer for the entire power sector
UDAY (Ujwal DISCOM Assurance Yojana) is expected to catapult the entire power sector into a higher orbit.
The power sector is expected to receive investment of about $250 Billion over the next five years. In FY 2017 itself, transmission projects worth more than Rs 50,000 Cr would be up for bidding to increase power evacuation capacity in the country.
One can confidently expect Apar Industries to receive some of the bonanza given that it is a dominant player with a stellar reputation in the market place.
Apar is “Poised to fire on all cylinders”: Edelweiss
Edelweiss has recommended a buy of Apar with the confident assurance that it is “poised to fire on all cylinders”. The core logic is as follows:
“With revival in power T&D, we estimate Apar to clock 9%,24% and 33% CAGR in revenue, EBITDA and PAT, respectively, driving RoE to 20.8% in FY18E from 16.5% in FY16. We maintain ‘BUY’. At current level, the stock is available at 12.2x FY17E and 9.3x FY18E EPS.”
Apar is “Ahead of the pack”: Emkay
Emkay has also given succinct logic in support of its buy recommendation:
“We expect government initiatives like 24 x 7 power for all, UDAY to revive DISCOMs, and increased focus on laying transmission lines to augur well for Apar and trigger an uptick in Apar’s revenue
– Apar has a market share of 23% in the conductor business and 45% market share in the transformer oil business. Given its strong market position, it is best placed to cash in on any pick-up in demand emanating from growth in the power sector
– Apar’s operating cash flow (OCF) has recorded a 58% CAGR during FY11-FY15 from Rs.478 mn in FY11 to Rs. 2,984 mn in FY15. It has used this OCF to reduce debt from Rs. 9,843 mn in FY12 to Rs. 4,942 mn in FY15. Leverage was 0.68x in FY15
– We expect the growth in transmission & distribution sector to propel demand for Apar’s products. We expect revenue/EBITDA/PAT CAGR of 10%/13%/39% over FY16-18E. Given its healthy growth prospects, dominant market position and strong financials, we feel Apar is undervalued. We value Apar using SoTP method. Our target price works out to Rs 586, implying 12.9x FY18E EPS and 5.8x FY18E EBITDA
Apar has an “Improving financial performance & healthy balance sheet”: GEPL
GEPL Capital has also come out with all guns blazing in favour of Apar Industries. Their logic is also worth noting:
“Company has strong presence in domestic power sector & especially in power T&D sector. The outlook for transmission sector looks promising due to various government initiatives. In last few years, power generation capacity has grown by 50% whereas a transmission capacity has only increased by 30%. This indicates that transmission capacity has been lagging power generation capacity. This has resulted into a huge transmission capex laid down by government in 12th & 13th five year plan. Government to incur Rs 2.6tn worth of investment in 13th 5 year plan (FY18-FY22), an increase of 44% from 12th 5year plan. Also, other government initiatives like Power for all, UDAY scheme, IPDS & DDU scheme to further improve the health of power sector. Moreover, government step to end PGCIL privileged positions in power transmission sector & allowing participation from private players will further ensure level playing field & thus further increases the scope of business for companies like Apar Ind. Going ahead, management believe that government to award project worth of Rs 500bn in coming quarters & this will augur well for company going ahead.”
Apar is at inexpensive valuations given its RoE and growth visibility: Stewart & Mackertich
Stewart & Mackertich has emphasized that Apar Industries is presently quoting at 11.94 FY18E EPS which is dirt cheap in the present day and ago when all sorts of junkyard stocks are demanding exorbitant valuations. Apar deserves a PE of 15x given its increases in margins ROE, and growth visibility is the opinion of the wizards at Stewart Mackertich.
Confidence in the power sector is shared by Vallabh Bhanshali and Ashish Kacholia
Vallabh Bhanshali and Ashish Kacholia are also gung ho about the prospects for the power sector in the wake of UDAY though the duo has preferred to back Genus Power, a manufacturer of electrical equipment.
Power sector is reaching “critical mass”: SMC Investments
DK Aggarwal of SMC Investments has opined that the power sector will be off to a good start soon due to soft coal prices, visibility of regular supplies and expectation of easing financial stress on balance sheets.
“The more the economy grows, the greater will be the opportunities for the power sector. Going forward, the government’s resolution to provide uninterrupted power to all on a 24X7 basis is expected to drive robust energy growth in the coming years,” he has opined and given cogent facts and figures in support of his proposition.
Is Veto Switchgears also a beneficiary of UDAY?
At this stage, we have to ask the pertinent question whether Veto Switchgears is also likely to benefit from the bonanza that will be unleashed by UDAY?
It may be recalled that Brahmal Vasudevan, the whiz-kid founder of Creador Capital, has invested a massive chunk of his personal capital in Veto Switchgears.
Veto Switchgears also reported blockbuster Q2FY17 results and appears to have the wherewithal to give multibagger gains in the foreseeable future.
Conclusion
We have to compliment the three stalwarts, Vijay Kedia, Sanjoy Bhattacharyya and Prashant Jain, for a brilliant stock pick. Apar Industries is in the unique position today where even without the expected power sector reforms, it is doing extremely well and notching up robust results. If the reforms do come through as expected, the stock is certain to soar into orbit and post hefty gains to the delight of all concerned!
Forget about Apar Industries, its a long term bet. Consider the situation today. Water is a scarce commodity. Particularly in the farming sector. This company makes the film that lines ponds and canals so that water does not percolate into the soil below. If a farmer has land and wants to create a lake he just needs to dial Emmbi Industries. This company will create a lake with a film below which will leave the farmer smiling. Emmbi Industries is a diverse multiproduct company in the woven plastics business. It is in fact the world’s largest manufacturer of woven plastic fiber. The woven plastic “cloth” has immense and diverse areas of usage. Starting from simple e-commerce packaging and HDPE bags for bulk solids, other products finds its way into specialised areas such as nuclear waste, packaging of carcinogenic products, packaging of highly corrosive chemicals, crash proof packaging for use inside aircrafts, water conservation applications such as portable tanks, pond and canal liners etc. Now about its financials. Present topline is 210 crores, out of which 50 percent comes from exports. From a topline of 75 crores in FY11, in FY16 ended with 210 crores. EBIDTA in the same period increased from 7.3 crores to 27 crores. EPS, from 1.5 to 6. ROCE from 8.5 to 16 and ROE from 5.8 to 15.5. And in this FY, an expansion is ending which will increase its size by one third more. This expansion is for catering to the American markets for FDA specification for packaging of fruits and vegetables. The management is lead by a highly motivated husband and wife team, both engineers and MBAs and carry on the business in a very conservative manner. The factory at Silvassa employs 1500, who work round the clock. The company has an in house R & D Lab, which has been recognised by the Government of India and has produced very innovative products. The lab has filed for 11 patents. A dividend paying company, its Debt to Equity stands at 0.8 and at the current stock price of 119, at a market cap of 210 crores, and trades at a PE of 15. Considering the immense opportunities the company has, and potential benefits of the patents, I feel the stock is undervalued and can be bought at the current price for a target of 200 to 300 for the next two years. In fact if you are from Bombay or Pune, you can meet the company officials at an exhibition that is going on in Pune called Kiran 2016, where they have displayed all their products. The exhibition is from 14th to 18th December 2016.