Category: Company Analysis

Curios Case of Suzlon Energy

Suzlon is one of the leading global renewable energy solutions providers. It is a vertically integrated Wind turbine manufacturers. It also undertakes installation and Operation &Maintenance (O&M) of all Wind turbine sales. Operations include design development and manufacturing of all major components, including rotor blades, tubular towers, generators, control equipment, gears and nacelles. Apart from manufacturing, it offers a full gamut of wind project planning and execution services, including wind resource assessment, infrastructure and power evacuation, technical planning and execution of wind power projects. It also offers O&M services in India and overseas countries.

It is one of most public owned (in terms of % owned by general shareholders) and discussed stock in India.

Its revival is one of most interesting financial case studies, the company was struggling to pay its due for long time is not a hidden fact ,

In 2020 it went for it’s first recent debt restructuring

I have simplified in below table how the company went about it

Type Debt (INR Cr) % Total Treatment
Part A 5188 37.76% Rate Reduced, Term Extended
Part B 4,100.00 29.84% Convert to Equity (optional)
Part C 4453 32.41% Convert to Equity (Confirmed)

Below is proposal’s extract from their … Read the rest

Balaji Amines – A niche duopoly

When you a see a table like below in an annual report it immediately stands out. In 24 years

  • Sales are up – 100X
  • Profits are up – 155x

All at a decent ROE, no wonder long term shareholders / promoters have clearly acquired transformative wealth

 

Balaji Amines has come on my radar multiple times in last 10 years, however I gave it pass every time as I havent worked much on industry dynamics. But in 2020 while working on Diamines chemical idea I figured out that only Indian competitor creating capacity is Balaji Amines so I had to study them.

NB – I started tracking Diamines chemical idea in score card and we removed as valuations started to become lofty and after digging through I wasn’t able to figure out how will they remove supplier dependency, so we dropped the idea

The Balaji Amines annual report is must read for anyone who is invested in Amines, here are some of the key takeaways that are worth noting

Before take this course on what are amines and come back

Speciality chemicals is a rising tide

Specialty chemical market in India was valued at Rs. 2,357 billion in FY18 and … Read the rest

Neuland labs – Opening Remarks

Neuland labs is a 30+year-old Hyderabad-based Pharmaceutical company engaged in R&D, manufacturing and marketing of a wide range of bulk drugs, intermediates and custom synthesis of APIs

The Company operates in the market using two main business models –

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  • Generic Drug Substances (GDS) where they cater to the needs of the Generic players and
  • Custom Manufacturing Solutions (CMS) where they primarily work with innovators by helping them bring critical products to the market.
While they primarily have these two businesses, the expertise within them extends to both small molecules as well as Peptides.
GDS has further two divisions
  • Prime APIs This segment
… Read the rest

NBCC – Worth a Swing?

I learned the concept of Debt Capacity bargain from Prof Sanjay Bakshi vicariously and wrote on MOIL using the framework.

NBCC is looking like a similar opportunity e.g. in March 2020 it was available at a market cap of INR 2880 crore for few days, My calculations using optimistic and pessimistic average cash flow from operations are below

My Assumptions are

  1. Any bank would be comfortable with a interest coverage of 3X or even less given its a Mini Ratna government-owned company
  2. Have taken interest rate of 6% based on the latest GOI bond raising
  3. INR 750 crores cash consolidated level based on credit rating report and also this figure is similar to FY20 balance sheet number
  4. All cash is considered as excess cash( hence added to market cap) because they have a policy of executing projects against customer advances, which is also followed for real estate and redevelopment projects

 

Some other considerations positive

  • As a thumb rule in past investors have done well-buying business below 10 times their free cash
  • Decent dividend yield
  • they have an order book of INR 70,000 cr and counting. At 5% margin and assume they execute all the projects in the next 5-6
… Read the rest

Aarti Drugs – what to do with a fast 5 bagger?

Uncle Iroh is my favorite character in the animation series The Last Airbender

Uncle Iroh is known for his words of wisdom as he freely advises most of the other characters throughout the series, including his nephew Prince Zuko.

Zuko is preparing to battle General Zhao in an Agni Kai, a battle that will define their future, A Night before the battle Zuko asks for advice from Uncle Iroh to win this crucial battle.

Iroh’s reply was

Although his musings of wisdom are given within the constraints of the animated fantasy, most of his wisdom can be applied to one’s life and some in investing too.

Aarti Drugs Limited was established in the year 1984 and is part of Aarti Group of Industries, The Company is engaged in the manufacturing of

  • Active Pharmaceutical Ingredients (APIs)
  • Pharma Intermediates and Specialty Chemicals and
  • wholly-owned subsidiary- Pinnacle Life Science Private Limited focussing on formulations

For a company of its size (sub INR 5000 cr sales), it seems to punch above its weight targeting specific APIs / compounds and then gaining world dominance

 

And API is a tough business to be in

ADL has been continuously striving to keep its costs to minimum … Read the rest

Buffett’s $1 Test on ITC

ITC is the one stock today which is splitting investing community in half

 

It has got attention from even famed traders

 

As good students of history we will go back to what Mr. Buffett had to say on management efficiency

“Unrestricted earnings should be retained only where there is a reasonable prospect – backed preferably by historical evidence or, when appropriate by a thoughtful analysis of the future – that for every dollar retained by the corporation, at least one dollar of market value will be created for owners. This will happen only if the capital retained produces incremental earnings equal to, or above, those generally available to investors.”

1984 Shareholder Letter

Now let’s put ITC’s management to this test, steps are easy

  1. Calculate retained earnings of ITC (net profits – dividends)
  2. Sum retained earnings for rolling five years
  3. Measure market cap delta against every rupee retained

here is the result

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Granules India – A Value Migration Story

According to Adrian J. Slywotzky, “value migration” is the flow of economic and shareholder value away from an increasingly outmoded business design toward others that are better equipped to create utility for customers and profit for the company.

Mr. C Krishna Prasad, Chairman of Granules India gave us a glimpse into the future of the company and their aspiration to move into the upper echelon of the industry

Our Company is in the midst of an evolution. We have built a strong base business that will continue to grow as it gains defensible market share while expanding profit margins as more of the business comes from formulations and quality conscious customers.

While we are currently synonymous with large-volume products, we have taken several steps to move into more complex offerings. We have leveraged our existing capabilities to turnaround Auctus’ API operations which will be vital as we file ANDAs to expand our FD portfolio.

Annual report 2015

It’s one thing saying and its completely different thing delivering it, the below chart depicts their 10-year transformation journey

Many were willing buy generic viagra visit for more to pay because of the high cost of … Read the rest

Ajanta Pharma – Pivoting its fortunes

Let me refresh your memory from this 2015 chart on how Ajanta pharma, Granules India and Suven Life Sciences were operating in different sections of the industry

Five years and things have turned on their head in 2020

  • Ajanta Pharma – Started selling in regulated markets
  • Granules – Set upfront retail shop in the US
  • Suven – Has moved into API manufacturing at scale

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each of them had their own niche and slowly build complementary capabilities. Nothing depicts the pivot made by Ajanta pharma better than below chart

 

from no presence to getting 1/5th of their is sales … Read the rest

Bajaj Finserv – Markings from Annual Report FY20

In March 2020 we got an opportunity to add to scorecard a rock-solid franchise at about ~20 times earnings growing operations in high double digits run by an extremely smart management team with a long runway for growth.

Here are some of my highlights from their annual report

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NB – FY21 and numbers going forward for 12-18 months will not be great so caution before you jump to buy this one
… Read the rest

Cheap for a reason?

First disclosure – I am long on Ambika Cotton Mills and sitting on a decent paper loss. As the market cap of the company has nearly halved from its peak in Jan 2018

If someone looks at the company today it will look optically cheap

– 7 times earnings
– 75% of book value
– 50% of Annual Sales

with decent first level economics

– Mid teen ROCE
– Sales CAGR / Profit of ~10% for the last few years
– Now No long term debt with a continuous reduction in the last 10 years
– Knowledgeable and experienced promoter
– Selling a product out of commodity (Cotton) and still holding margins

Even the Credit agencies have a good opinion see the extract from the latest one

Highlights in bold mine

ACML enjoys strong pricing flexibility, aided by its premium positioning in the cotton yarn market and its adequate captive power facilities. This had resulted in stable operating margin at 17.7-19.6%, over the four years through fiscal 2019.Going forward, continued focus on operating efficiency to result in strong operating margin of 19.5 percent and cash accrual of around Rs.100 crore.

ACML continues to have a robust financial risk profile; … Read the rest