Category: Company Analysis

Annual Review – CERA

Previously I have written on CERA here & here

Let’s try and summarize key messages from 2015 annual report

The headlines

  1. Sales up by 23%
  2. Net profits up by 30%
  3. 3,51,000 equity shares issued on preferential basis
  4. Company also entered into competitive tiles market with exclusive tie up with manufacturers of tiles
  5. Company has set up Wind Turbines of 11.825 MW and 1.00 MW Solar Plant which will generate about 90 % of the requirements and it will offset against monthly consumption of energy bill

Management focus

The growth of your Company, much above the market growth, is largely on account of its continued efforts in leveraging the high brand value and product optimization besides deeper penetration in tier 2 markets. These efforts are further fortified by strong and structured marketing efforts, good product quality and after-sales service, and backed by a very loyal distribution network across India.

 

Increasing distribution strength – This is helps company to push new products (like tiles) through existing channels

Improving Product quality – Especially as many products sold are not made in house

Marketing

Your Company’s two-pronged aggressive marketing push of mass media advertising over television and print and partnering with industry organisations like

… Read the rest

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Annual Review – Ajanta Pharma

Firstly pharmaceutical is a space which I have started learning recently (2 years) and therefore it’s obvious that some of inferences that I will make in below review could be wrong

Secondly , Ajanta pharma as a business kept coming to my radar for last 3-4 years but I kept ignoring it due to my limited knowledge in pharma space, its only last year when I did earnings power box analysis and found that this company is in wealth maximising quadrant 2 then I became owner

Ajanta Pharma is a speciality pharmaceutical company engaged in development, manufacture and marketing of quality finished dosages in domestic and international markets.

For someone new a key snapshot to understand company, Keep it handy

Ajanta-1

The company has clear strategy is each of the above markets

  • India, Asia, Africa – Would drive incremental growth (which has been decent for past decade)
  • LATAM & USA – Would drive exponential growth if the management gets its strategy right

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Annual Review – GRUH Finance

If you’re not getting better, you’re getting worse

With above motto today we are starting a new category of posts “Annual report Reviews”

An annual review is a perfect exercise as

  1. most companies produce a look back report (called annual report) with details once in a year
  2. it gives enough gap for business to progress on stated objective thus helping investor to observe business’s Moat (whether it is expanding or contracting)
  3. it helps us answer many of our question we get while are reviewing quarterly results – e.g. where is business putting capex, it the product portfolio or customer mix is changing
  4. Finally I bet if your write these reviews for 5 business for 5 continuous years than you will expand your understanding of business and the key metrics that drive the business

And what better company than GRUH finance limited to start this exercise

Some companies produce outstanding annual reports and GRUH is definitely part of that tribe.

To get a good grasp of GRUH’s business read this post and come back

Let’s start

First the core numbers,

Disbursements still remains a small percentage of total number of household in India and average ticket size has gone down

GRUH

… Read the rest

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Paying for growth – Symphony

We did post on Symphony in April taking a leap of faith by paying for growth and adding it to then our public portfolio. This is going to be a very short post as we examine how valuation changes in high growth companies

 

Flash back April 2014 – Symphony per share valuation on 2013 reported numbers

paying for growthOur logic to add Symphony to model porfolio was simple , Sustainable growth basis per share value was calculated at 843 as per 2013 reported numbers (Note Symphony reports June to June FY) which was well below market price that time giving us an adequate margin of safety if company kept growing

Now lets come back to Symphony per share valaution based on 2014 reported numbers

 

paying for growth

Now pay close attention to per share instrnic value a whopping 50+% increase in sustainable earnings per share value, followed by  a very close 47%+ increase in instrnic value per share on FCF basis
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Evaluating Moats through Floats

Firstly some disclosures the idea of evaluating moats through floats was inspired from this amazing post from Professor Sanjay Bakshi

Secondly the candidate chosen to be evaluated is borrowed from Amit Arora ‘s blog – Poddar Developers Ltd

Now lets begin, Poddar developers ltd is a small Mumbai based real estate developer interestingly the Group is focusing on the value housing segments in Mumbai, within the MMRDA region.
Value housing or Affordable housing as it commonly called has huge demand in India. Poddar developers have a significant presence in Mumbai suburban region through multiple projects, you can access details here

So much so for our candidate now lets quickly define FLOAT – It is other people’s money which company holds temporarily. Durable FLOAT is something which becomes a cost less revolving fund for the company. The common sources for FLOAT are

– Trade payables (Look for companies who buys at Credit but sell in Cash )

– Customer Advances

– Deferred taxes (Companies having advantageous tax situation – unlikely to be durable)

Durable FLOATS create higher ROE and ROCE for the companies,  reason – they are using other people’s temporary money to run their operations

How to calculate FLOAT for … Read the rest

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Suven Life Sciences – The Embedded Triggers

First of all pharmaceutical business is not my forte, this analysis was done to learn a new industry

About Company – Suven Life Sciences, in the business of design, manufacture and supply of Bulk Actives, Drug Intermediates & Fine Chemicals, catering to the needs of global Life Science Industry.

Business Segment

1. CRAMS – Contract Research And Manufacturing Services – This segment accounted for 95% of the Company’s top line in 2013-14; the business grew 20% CAGR over the 10 years leading to INR 514 crore. This is a very high margin business, reason company is having high ROCE, ROE

2. New Chemical entity – Cash guzzling unit of the company , 338 crore has been spent on drug discovery till 2014, the expected outflow in next 3-4 years is going be high as well as 1 molecule is entering phase 2 and three others in IND and phase 1. Important note no revenue realised till date

3.Formulations development – Suven is engaged in the development of formulations, an extension of its business model. The Company expects to develop and collaborate with a partner, out-license the product in exchange for royalties and revenues. The Company expects to focus on niche … Read the rest

Avoid investing in business with poor economics

MNG - 0

  Economics matter – Manugraph

  India

 

 

 

“When a management team with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.” – Warren buffet

A company with clean and transparent management running a business with bad economics is a bad investment choice. In today’s post we will try to explain this with example of Manugraph India

About Company

Established in the year 1972 by its founder Mr. S. M. Shah, Manugraph India Ltd is India’s largest manufacturer of web offset presses. In India, Manugraph ranks as Numero Uno in the manufacture of web offset presses. With a whopping 70% market share and quality presses ranging in speeds from 35,000 – 70,000 copies per hour, Manugraph presses are present in nearly all major publication houses. For more details visit their website here

Our Method – Inferring management communication to share holders via annual reports

Here goes our analysis of annual reports and persistent economic problems articlated by management

– Inability to pass rise in cost to customers

– Inability to control wage / employee benefit cost

36th Annual report (2007-08)

Read the  Management discussion and Analysis … Read the rest

Symphony – Understanding Competitive advantages

Previously I have written about how to identify stock investments

Like Peter Lynch here

Using Pause and Play here

By following smart money here

One of the pointers in Ten point investment map is to identify whether company has sustainable competitive advantages. Many of the investors have this question on how to define/find competitive advantage of company. We will try to ascertain competitive strength of  Symphony Ltd one of our top picks in Model Portfolio.  I am borrowing heavily from Warren Buffet’s letters to his shareholders.

1.  Will Company be in business for next 10 years ? Is there a big market to address – Symphony limited makes air coolers, also known as evaporative cooler, swamp cooler, desert cooler and wet air cooler, works on the evaporation technique; it uses the hot air in the room and water to generate cool air.  This is what I picked from there 2012-13 Annual report

In India,about 132 million households live in hot dry climatic regions (about 54% of the total) and about 11 million households live in moderate climatic regions. This represents an aggregate 143 million households (58% of total) of potential customers.

So we can safely assume that there is a … Read the rest

Why V mart could be next Walmart

We recently added V mart to our model portfolio

The organized retail sector, which consists of only 5% of total retail market, is estimated to touch 15% by 2025. India has few organized players like Pantaloon Retail, Shoppers Stop, Vishal Retail, Koutons, Trent, Subhiksha, Reliance Retail, More, Spencer, V Mart

Now why V mart is different

1. V Mart is focusing only on Tier II & III  Cities, Currently they have 90+ stores in northern India.The company plans to add up atleast 25 stores for the coming few years. In these cities it pays average rent of just Rs 25 per square feet compare this to 150-200 which pantaloons is paying

2. The average sales per sq ft has increased from Rs.507 in 2011 to around 710rs now.The management is confident of increasing the same to even higher rates by meeting the aspirations of people by proving quality fashion at affordable prices.

3. 5 year sales growth 31.35% 5 Profit growth 37.61% are very impressive numbers

4.  Very impressive debt ratio of 0.25 leader in it’s industry

5. V-Mart is first organized store in most of the towns it enters, which gives it the first mover advantage.

 

Stay-on free … Read the rest

The wait list Investing – Example of Selan Exploration

We added Selan exploration to model portfolio recently here is my detailed analysis.

About

SELAN is engaged in oil exploration and production of crude oil and natural gas. The seismic data acquisition being undertaken for the Company’s oilfields has been completed. The Company’s oil fields are located in Bakrol, Indrora and Lohar oilfields in the State of Gujarat. The Company also has Ognaj oilfield and Karjisan gasfield situated in the State of Gujarat.

 

Now first of all if you don’t understand E&P business its better you avoid this one. This is a complex industry which requires detailed study.

Look at the production levels for company

Year Lohar Indora BAKROL  TOTAL
OIL GAS OIL GAS OIL GAS OIL GAS
(1000 Tones) mm3 (1000 Tones) mm3 (1000 Tones) mm3 (1000 Tones) mm3

2004

2.64

0.04

0.79

0.04

5.54

0.13

8.97

0.2

2005

2.82

0.04

0.86

0.04

6.16

0.14

9.84

0.22

2006

2.63

0.04

0.74

0.03

7.02

0.16

10.38

0.24

2007

3.87

0.06

0.81

0.04

9.58

0.22

14.27

0.32

2008

4.98

0.08

0.98

0.04

13.4

0.31

19.36

0.44

2009

6.07

0.1

0.69

0.03

33.85

2.31

40.61

2.44

2010

5.76

0.1

0.64

0.03

29.28

10.26

35.67

10.39

2011

5.83

0.1

0.56

0.03

21.16

… Read the rest

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