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Saturday, July 14, 2018

6 Steps to Explore Best Stocks for Investment

Below are the 6 Important Steps to Explore Best Stocks for Investment

Step-1: Find out how the company makes money
Step-2: Do a Sector Analysis of the Company
Step-3: Examine the recent & historical performance of the Stock
Step-4: Perform competitive analysis of the firm with its Competitors
Step-5: Read and evaluate company’s Financial statements
Step-6: Buy or Sell

Step-1: Find out how the company makes money

Before you decide to invest in a company’s stock, find out how the company makes money. This is probably the easiest of all the steps. Read company’s annual and quarterly reports, newspapers and business magazines to understand the various revenue streams of the firm. Stock price reflects the firm’s ability to generate consistent or above expectation profits/earnings from its ongoing/core operations. Any income from unrelated activities should not affect the stock price. Investors will pay for its earnings from its core operations, which is its strength and stable operation, and not from unrelated activities. Thus, you need to find out which operations of the firm are generating revenues and profits. If you do not know that you are bound to get a hit in future.

Warren Buffet once said that “if you do not understand how a company makes money, do not buy its stock- you will always end up loosing money”. He never invested even a single penny in technology stocks and yet made billions and billions of dollars both during tech bubble and bust.

Step-2: Do a Sector Analysis of the Company

First is to figure out which sector the stock is in. Then, figure out what all factors affect the performance of the sector. For example, Infosys is in IT services sector, NTPC is in Power sector and DLF is in Real Estate sector. Half of what a stock does is totally dependent on its sector. Simple rule-Good factors help stocks while bad factors hurt stocks.

Let’s take an example of airlines industry. The factors that affect it are fuel prices, growth in air traffic and competition. If fuel prices are high, tickets would be expensive and hence fewer people will fly. This will hurt the airlines sectors and firms equally. This would make the sector less attractive because there would be less scope for growth of the firms.

The idea is to find out the good and bad factors for the sectors and figure out how much they will affect the stock and how. What we are really looking at are reasons that will make stock price good or bad or a company look more or less valuable, even though nothing about the company changes. This will give you a broader view whether the stocks will do well or poorly in the future.

Step-3: Examine the recent & historical performance of the Stock

By performance we mean both operational and financial performance of the company. Take out some time to find out how the company has done in its business over the years. Were there issues with its operations such as labor strike, frequent breakdowns, higher attrition or lagging deadlines? If any company has a history of serious problems, it does not make a good buy because chances are high it may have similar problems again. History is a good predictor of future! It is also extremely important to find out the historical financial performance of the company – growth in revenues, profits (earnings), profit margins, stock price movements etc.

Step-4: Perform competitive analysis of the firm with its Competitors

This is most important step in analyzing a stock. Unfortunately, most of the retail investors do not bother to do this. It takes time to do this step but it worth trying if you don’t want to loose your money. Many investors buy a stock because they have heard about the company or used the products or think companies have excellent technologies. However, if you do not evaluate or compare those features of the company with other similar firms, how will you figure out whether the firm is utilizing them effectively or is better/worse than others? We also need to find out whether company is growing rapidly or slowly or has no growth. We would like to cover couple of financial ratios here in brief and explain how to use them to figure out a good stock.

P/E: Price-to-earnings ratio is the most widely used ratio in stock valuation. It means how much investors are paying more for each unit of income. It is calculated as Market Price of Stock / Earnings per share. A stock with a high P/E ratio suggests that investors are expecting higher earnings growth in the future compared to the overall market, as investors are paying more for today's earnings in anticipation of future earnings growth. Hence, as a generalization, stocks with this characteristic are considered to be growth stocks. However, P/E alone may not tell you the whole story as you see it varies from one company to another because of different growth rates. Hence, another ratio, PEG (P/E divided by Earnings Growth rate) gives a better comparative understanding of the stock.

PEG = Stocks P/E / Growth Rate
We do not want to go into the calculation part as values for P/E are available on internet for most of the companies.
A PEG of less than 1 makes an excellent buy if the company is fundamentally strong. If it is above 2, it is a sell. If PEG for all the stocks are not very different, one with lowest P/E value would be a great BUY.

Step-5: Read and evaluate company’s Financial statements

This is the most difficult part of this process. It is generally used by sophisticated finance professionals, mostly fund managers who can understand different financial statements. However, there are few things that even you should keep in mind. There are three different financial statement- balance sheet, income statement and cash flow statement. You should focus only on balance sheet and cash flow statement.

Balance Sheet: It summarizes a company’s assets, liabilities (debt) and shareholders’ equity at a specific point in time. A typical Indian firm’s balance sheet has following line items:

• Gross block
• Capital work in progress
• Investments
• Inventory
• Other current assets
• Equity Share capital
• Reserves
• Total debt

Gross block: Gross block is the sum total of all assets of the company valued at their cost of acquisition. This is inclusive of the depreciation that is to be charged on each asset.

Net block is the gross block less accumulated depreciation on assets. Net block is actually what the asset is worth to the company.

Capital work in progress: Capital work in progress sometimes at the end of the financial year, there is some construction or installation going on in the company, which is not complete, such installation is recorded in the books as capital work in progress because it is asset for the business.

Investments: If the company has made some investments out of its free cash, it is recorded under it.

Inventory: Inventory is the stock of goods that a company has at any point of time.

Receivables include the debtors of the company, i.e., it includes all those accounts which are to give money back to the company.

Other current assets: Other current assets include all the assets, which can be converted into cash within a very short period of time like cash in bank etc.

Equity Share capital: Equity Share capital is the owner\'s equity. It is the most permanent source of finance for the company.

Reserves: Reserves include the free reserves of the company which are built out of the genuine profits of the company. Together they are known as net worth of the company.

Total debt: Total debt includes the long term and the short debt of the company. Long term is for a longer duration, usually for a period more than 3 years like debentures. Short term debt is for a lesser duration, usually for less than a year like bank finance for working capital.

One need to ask-How much debt does the company have? How much debt does it have the current year? Find out debt to equity ratio. If this ratio is greater than 2, the company has a high risk of default on the interest payments. Also, find out whether the firm is generating enough cash to pay for its working capital or debt. If total liabilities are greater than total assets, sell the stock as the firm is heading for disaster. This debt to equity ratio is extremely important for a company to survive in bad economy. What is happening now-a-days should make this extremely important. Companies having higher debt ratio have got hammered in the stock market. Look at real estate companies- their stocks are down by almost 90% from all time highs made in 2007 - 2008. This is because they have high debt level which means higher interest payments. In case of liquidity crisis and global slowdown, it would be extremely difficult for such companies to survive. Remember, a weak balance sheet makes a company vulnerable to bankruptcy!

Step-6: Buy or Sell

Follow all the steps from 1 to 5 religiously. It will take time but worth doing it. If you do it, you won’t have to see a situation where you loose more than 50% of stock value in a week! Buying or selling will depend on how your stock(s) perform on the above analysis.

If you find it difficult to follow above steps to explore high quality stocks with strong fundamentals, leave it to us. Simply subscribe to Hidden Gems (Unexplored Multibagger Small Cap Stocks) and Value Picks (Mid Caps with Plenty of Upside Potential) and start building your portfolio of high quality small and mid caps to get rewarded in medium to long term.

The stocks we reveal through Hidden Gems & Value Picks are companies that either under-researched or not covered by other stock brokers and research firms. We keep on updating our members on our past recommendation suggesting them whether to hold / buy or sell stocks on the basis of company's performance and future outlook.

Subscribe to Hidden Gems & Value Picks and start investing systematically. 
Avail attractive discounts by subscribing to our combo packsclick here for details.

Do contact us in case of any queries, we will be delighted to assist you.

Wish you happy & safe Investing. 

Regards, 
Team - Saral Gyan

Tuesday, May 1, 2018

Hidden Gems & Value Picks 2017 Vs Small & Mid Cap Index

Dear Reader,

At current situation, how does one know the right stock to invest in and that too at the right price which will ensure strong returns in the long term? This will be a question that will be the uppermost in the minds of most investors wanting to allocate part of their funds towards stocks. Especially in light of the heightened volatility in the markets in the past.

For instance, take a look at the period between 2005 and early 2008. During that time, there was a general sense of euphoria prevailing in India what with the country consistently logging in growth rates of 9% plus and the stock markets zooming to 21,000 levels. And then this optimism snapped.

The global financial crisis reared its ugly head and sent global economic growth and world stock markets including India into a tailspin. Suddenly there was nervousness all around. Forget bad stocks with bad fundamentals, retail investors in India were loathe to put in their money even in good companies available at attractive prices fearing that prices will fall down further. Then 2013 dawned, signs of recovery began to be noticeable and stock markets surged once again. And with stable government in place, major indices Sensex and Nifty made all time highs this year.

Before the demonetisation event, India was on the track of recovery with factors like normal monsoon, seventh pay commission, public infrastructure investments and low crude oil price favouring it. However post demonetisation and later with implementation of GST last year, we have seen sluggish growth till Sept'17 quarter followed by significant earning growth in Dec'17 and Mar'18 quarters. We firmly believe that implementation of various reforms by the government over last 2 years will help Indian economy to grow at a faster pace in coming years.

Since beginning of this year, we have seen significant fall in stock prices with correction in major indices of nearly 10% from all time highs followed by sharp recovery with rally of more than 7% in April 2018. Corrections in bull market are healthy and give opportunity to invest. Such corrections in bull markets do test your patience and conviction. If you expect a straight-line appreciation in stock markets, that is not going to happen. Profit bookings at regular intervals bound to bring the indices lower. Such opportunities must be considered to add good quality companies available at lower prices.

The idea really is not to time the markets. That is a feat best left to speculators. For long term investors, even at present when overall valuations of companies seem on the moderate side, there will still be stocks that they can look to add on to their portfolios. These stocks if picked at the right price by proven approaches can turn into multi-bagger opportunities.

We are pleased to share that Hidden Gems (Unexplored Multibagger Small Cap Stocks) and Value Picks (Mid Caps with Plenty of Upside Potential) recommended by our equity analysts in 2017 have outperformed small and mid cap index by wide percentage points ensuring much better returns for our members.

Below is the performance update of small and mid cap stocks recommended by us in 2017 under our Hidden Gems and Value Picks subscription service:
As illustrated in the table above, average returns (as on date) of Hidden Gems stocks recommended in 2017 is 34.5% compared to small cap index average returns of 17.3%. As on date, Hidden Gems stocks are outperforming small cap index by 17.2%.

Our Value Picks stocks of 2017 also outperformed Mid Cap Index. Average returns (as on date) of our Value Picks stocks is 41.1% compared to average returns of 13.8% of mid cap index, out-performance of 27.3%.
At Saral Gyan, team of equity analysts keep on evaluating small and mid cap stocks to explore the best Hidden Gems and Value Picks of stock market. Saral Gyan - Hidden Gems and Value Picks are the small and mid cap stocks with high probability to become multi-bagger stocks in future and a path for our investors to create wealth through equity investments in a long run.

Under our Wealth-Builder service, we encourage our members to replicate our Wealth-Builder portfolio by investing in selective high quality small and mid cap companies. These companies are reporting 20-30% + annualized growth and got their due share of re-rating and delivered exceptional returns to our members so far. Since 1st Jan 2013, Nifty has given returns of 78.4%, Sensex returns is 76.8% where as Wealth-Builder portfolio has given returns of 316.4% returns to our members. In case you have not yet started building a portfolio of high quality and fundamentally strong growth stocks for long term wealth creation, please find below the Wealth-Builder portfolio allocation & performance update for your reference.

We believe, investing in Wealth-Builder portfolio with regular portfolio review from our end can help you achieve market beating, very good returns over a longer team and help you take care of yourself and your family needs, which ultimately lead to a healthy and wealthy life after retirement.

We also take this as an opportunity to inform our readers that our Combo - 2 (Annual subscription of Hidden Gems, Value Picks and 15% @ 90 Days) is the best selling subscription service at Saral Gyan, we have registered maximum subscription of Combo 2 since beginning of this year followed by Combo 1 subscription which includes Wealth-Builder (an offline portfolio management service) also. We keep on updating our members on our past recommendations suggesting them whether to hold / buy or sell stocks on the basis of company's performance and future outlook.

Now you can add power to your equity portfolio by investing in best of small & mid cap stocks - Hidden Gems & Value Picks. Avail attractive discounts by subscribing to our combo packs. Below are the details of our annual subscription charges, simply click on SUBSCRIBE! link to subscribe to our services online using debit / credit card or net banking facility.

SARAL GYAN
SUBSCRIPTION SERVICE
ANNUAL SUBSCRIPTION
PRICE
PAY ONLINE 
CARD / NET BANKING 
Hidden Gems
Rs. 10,000
Value Picks
Rs. 6,000
15% @ 90 Days
Rs. 4,000
Wealth-Builder
Rs. 20,000
Combo 1: HG + VP + WB + 15%
Rs. 32,000
Combo 2: HG + VP + 15%
Rs. 16,000
Combo 3: HG + VP
Rs. 14,000
Combo 4: HG + 15%
Rs. 12,000
Combo 5: VP + 15%
Rs. 9,000

In case if you are not comfortable in subscribing online, you can make the payment through cheque / cash deposit / NEFT transfer in any of our bank and writing back to us sharing transaction details. Click here for bank details.

Do contact us in case of any queries, we will be delighted to assist you.

Wish you happy & safe Investing. 

Regards, 
Team - Saral Gyan

Saturday, April 28, 2018

Value Pick Stock - HIL Ltd - ROI @ 90% in 7 Months

Dear Reader,

We are pleased to inform you that our Value Pick stock of Aug 2017 - HIL Ltd (BSE Code: 509675, NSE Code: HIL) which was released on 24th Sept'17 is giving as on date returns of 90% to our Value Picks members. We suggested Buy on HIL at price of Rs. 1155.35 on 24th Sept'17 with a target price of Rs. 1680. Stock has already achieved our target price and we advised our members to continue to hold the stock. HIL stock price made its 52 week high of Rs. 2278.70 on NSE yesterday and closed at Rs. 2195.95 giving absolute returns of 90% in period of 7 months.

Below is the summary of HIL Ltd shared by us under Value Pick stock - Aug'17 released on 24th Sept 2017.

1. Company Background:

HIL Ltd, formerly known as Hyderabad Industries and part of the C.K. Birla Group., is engaged in providing complete building solutions. HIL manufactures fiber cement sheets, AAC (Autoclaved Aerated Concrete) blocks, AAC panels, C – boards, ceiling tiles, among others. It is the market leader in the cement fiber sheets products with a share of 23%. Its asbestos products are marketed under the brand Charminar and non- asbestos products are marketed under the brand Aerocon. Both the brands have strong recall in the industry. Charminar - a leading fibre cement roofing solution for the last six decades. Aerocon—a Superbrand alongside HIL itself is a green product line that offer advanced building materials such as blocks, panels, c-board and ceiling tiles. HIL is also the only company in India to receive CE (Communaute Europeenne) certification to sell blocks in Europe.

The company has recently forayed into advanced polymer products manufacturing plastic plumbing products namely CPVC (Chlorinated polyvinyl chloride) and uPVC (unplasticized polyvinylchloride) pipes. The company also has operations in thermal insulation products which are used in fertilizer, petrochemical, power and cement industry.

HIL has 17 manufacturing plants across the country, supported by ~2,000 stockists, 3,500 retailers and 59 sales depots. Apart from these, the company also has four wind power units with an aggregated capacity of 9.35 MW in Gujarat, Rajasthan and Tamil Nadu.

HIL’s R&D department, recognized by the Department of Scientific and Industrial Research (DSIR), has developed and patented many products and processes. Further, green practices are built into every facet of HIL's operations including raw materials, processing, energy and end products. The company has received numerous awards, including the prestigious CII GreenCo GOLD award for creating a global benchmark in green practices at its plant in Golan, Gujarat, the largest blocks plant in Asia. It has also qualified for carbon credit under a United Nations programme for the manufacture of AAC blocks. Its products have been used in several Indian Green Building Council (IGBC)-certified buildings as well as top-rated Green Rating for Integrated Habitat Assessment (GRIHA) constructions.On a standalone level, the company achieved a net profit of Rs. 54.6 crore on an operating income of Rs. 1,053.6 crore during FY2017.

2. Recent Development: (as on 24th Sept'17)
i) Favourable demand outlook for fibre cement sheets over the medium term

With 2 consecutive years of good monsoon, better farm output and more disposable income is expected in the hands of rural customers. Hence, roofing sheet business is expected to see good growth for the next two years.

Moreover, higher GST on steel sheets of 28%, compared with 18% on asbestos cement sheet, will give cement sheet manufacturers the extra edge. Also, the asbestos industry competes with steel roofs, as prices of steel sheets have risen in the past year due to higher steel prices, we expect HIL to be the direct beneficiary.

ii) HIL wins Asia’s Most Trusted Building Material Brand for 2016

HIL was bestowed with the title Asia’s Most Trusted Building Material Brand for 2016 by IBC INFOMEDIA (A Division of International Brand Consulting Corporation, New Jersey, USA).

This award recognizes companies / brands as Most Trusted in its industry category based on current year market standing. Its evaluation process is based on an Asia-wide, quantitative, qualified consumer survey, expert-analysis and attributes-based qualitative brand research.

3. Financial Performance:

HIL standalone net profit rises 17.57% in the June 2017 quarter

Net profit of HIL rose 17.57% to Rs 36.87 crore in the quarter ended June 2017 as against Rs 31.36 crore during the previous quarter ended June 2016. Sales declined 0.04% to Rs 427.48 crore in the quarter ended June 2017 as against Rs 427.63 crore during the previous quarter ended June 2016.

HIL standalone net profit rises 30.51% in the March 2017 quarter

Net profit of HIL rose 30.51% to Rs 5.86 crore in the quarter ended March 2017 as against Rs 4.49 crore during the previous quarter ended March 2016. Sales declined 0.85% to Rs 257.06 crore in the quarter ended March 2017 as against Rs 259.26 crore during the previous quarter ended March 2016.

4. Investment Rationale: (as on 24th Sept'17)

i) HIL is the market leader in asbestos cement sheets used for roofing, and its brand Charminar, which commands nearly 23% of the market and contributes near 70% to its total sales, can deliver double-digit growth for the next two years after a muted to negative sales growth during the past few years considering favourable business growth prospects.

ii) Over the years, HIL has used the ACS business as a cash cow and developed several other building products likes pipes and fittings, AAC blocks, tiles, wall panels, mezzanine flooring panels and partition blocks. Currently, it sells all these products under the brand Aerocon. These are businesses which are going to be the real growth drivers for the company and show exponential growth according to the management. AAC blocks or fly ash bricks business (15% of total sales) is growing at 50% for the past three years due to sand shortage. The company strategy of diversifying into non-asbestos products is likely to drive the growth going forward. We are positive on the company strategy of establishing itself as a one stop building solutions provider.

iii) GST rates for cement fibre sheets has come down from 28 percent to 18 percent. Moreover, higher GST on steel sheet of 28 percent which gives a great competition to company’s cement fibre roofing solutions is a strong positive for HIL. Moreover, with implementation of GST, unorganised segment will get consolidated and the market share of organised sector will increase which will augur well for HIL.

iv) HIL enjoys dominant market share in most segments. Despite the impact of demonetisation during Q3 of FY2017, the company has posted robust growth in earnings with strong cash flows during FY2017. Moreover, HIL debt to equity ratio is low with past capital expenditure being largely funded through internal accruals.

v) With the increasing thrust on rural development and rural housing, the fibre cement sheet industry is likely to grow at 6-7% CAGR over the next 2 years. Demand prospects for the near to medium term is likely to remain strong aided by expected growth in farm output with better monsoons, and loan waivers schemes in few regions. HIL being the market leader is in a sweet spot to harness the improved demand opportunity.

vi) The company has paid uninterrupted dividend since 2005. The dividend pay-out increased from Rs. 2.50 per share in FY2005 to Rs. 20 per share in FY2017 with rise in net profits. The dividend yield at current market price is 1.7%.

vii) HIL has demonstrated better financials over last couple of years which is expected to improve going forward. The company has registered sales CAGR of 6.6% and profit CAGR of 82.8% with ROE of 12% over last 3 years.

viii) As of Jun’17, promoter’s shareholding in the company is 40.99%, promoters have not pledged any shares. Promoter’s shareholding is same since March 2014. Institutions shareholding in the company is low at 2.22%.​

5. Key Concerns & Risks:

i) Rupee depreciation along with increase in raw material prices may impact the profitability of the company. In the event of adverse raw material cost, the profitability is likely to come under pressure.

ii) Good monsoon and improving rural income are the key drivers for the demand of roofing materials. Any weakness in demand can lower company’s utilization levels which in turns can impact the company’s profitability.

6. Saral Gyan Recommendation: (as on 24th Sept'17)

At current market price of Rs. 1155.35, HIL is trading at trailing 12 months price to earning multiple of 13.9. As per our estimates, HIL is expected to deliver PAT of Rs. 68.5 crores in FY17-18 and Rs. 83.9 crores in FY18-19 with annualized EPS of Rs. 91.8 and Rs. 112.5 respectively. At current price of 1155.35, stock is available at forward P/E multiple of 10.3X based on FY18-19 earnings which makes HIL a good investment opportunity considering better earning visibility and strong growth prospects for the industry. 

Considering company's performance which is likely to turn around strongly helped by domestic macro factors such as increasing thrust on rural development and rural housing, rising income of rural India, lowering raw material prices, GST implementation and a good monsoon, Saral Gyan team recommends "Buy" on HIL Ltd at current market price of Rs. 1155.35 for target of Rs. 1680 over period of 12 to 18 months.

Buying Strategy:
  • 70% at current market price of Rs. 1155.35
  • 30% at price range of Rs. 1000-1040 (in case of correction in stock price in near term)
Portfolio Allocation: 3% of your equity portfolio.

An opportunity missed an opportunity lost. If you have patience and want to add extra power in your portfolio, start investing some portion of your savings in fundamentally strong small and mid cap companies - Hidden Gems & Value Picks.

Time has shown that smart investors have made their fortune by investing in equities in long term. None other asset class can match giving you such extra ordinary returns. Yes, its important for you to invest in right set of companies at right price with medium to long term perspective. If you think to invest in stocks for period of 3 months or 6 months, we suggest you to stay out of stock market because you are not investing, you are betting on volatility of stock market which could be risky.

The stocks we reveal through Hidden Gems & Value Picks are companies that either under-researched or not covered by other stock brokers and research firms. We keep on updating our members on our past recommendation suggesting them whether to hold / buy or sell stocks on the basis of company's performance and future outlook.


Add power to your equity portfolio by investing in best of small and mid cap stocks - Hidden Gems and Value Picks. Its our mission to ensure that you reap the best returns on your investment, our objective is not only to grow your investments at a healthy rate but also to protect your capital during market downturns. Now you can avail attractive discounts by subscribing out our combo packsclick here for details.

Do contact us in case of any queries, we will be delighted to assist you. 

Wish you happy & safe Investing.

Regards, 

Team - Saral Gyan

Friday, April 20, 2018

Radico Khaitan Ltd - 15% @ 90 Days - Feb'18 Target Achieved

Dear Reader,

Radico Khaitan Ltd was recommended as 15% @ 90 Days stock at price of Rs. 353 on 25th Feb'18 with target price of Rs. 415 (upside potential of 17.6%). We are pleased to inform that Radico Khaitan has achieved its target price within period of 2 months, stock made 52 week high of Rs. 452 today and currently trading at Rs. 443.

As 15% @ 90 Days service is based on buy to sell and gain strategy, we informed our members to book complete profits in Radico Khaitan at Rs. 446 pocketing returns of 26.3% within period of 2 months. The profit booking call was sent to our member over email along with notification over SMS.

To view/download 15% @ 90 Days stock recommendation of Feb 2018, click here

Imp Note: We do not suggest our members to put all their savings in 1 or 2 stocks to make quick bucks, diversified portfolio is must to have while investing in equities. Our 15% @ 90 Days stock is recommended on the basis of technical analysis (chart patterns) and there is no guarantee of getting 15% returns within 90 days. However, probability of our 15% @ 90 Days stocks achieving their target price is high.

We suggest our members to allocate only 2% of their equity portfolio in our 15% @ 90 Days stocks and do a higher allocation in our Hidden Gems and Value Picks which are the companies backed with strong fundamentals and can reward investors with handsome returns in medium to long term.

To know more about our 15% @ 90 Days annual subscription service, click here.

Annual subscription charge of 15% @ 90 Days service is INR 4,000. To subscribe to our 15% @ 90 Days service online (using debit / credit card or net banking facility), click here.

You can also subscribe to our other services i.e. Hidden GemsValue Picks and Wealth-Builder and start investing systematically. Now you can avail attractive discounts by subscribing out our combo packsclick here for details.

Do contact us in case of any queries, we will be delighted to assist you.

Wish you happy & safe Investing. 

Regards, 
Team - Saral Gyan

Sunday, April 15, 2018

Sahyadri Industries - ROI @ 79% within 8 Months

Dear Reader,

We are pleased to inform you that our Hidden Gem stock of July 2017 - Sahyadri Industries Ltd (BSE Code: 532841) which was released on 30th August 2017 has given returns of 79% to our Hidden Gems members within period of 8 months. Our team suggested Buy on Sahyadri Industries Ltd at price of Rs. 173.45 on 30 Aug'17 with a target price of Rs. 330. We are pleased to inform our readers that Sahyadri Industries stock made its 52 week high of Rs. 324 on  Friday, 13th April'18 and closed at Rs. 309.90 giving absolute returns of 78.7% as on date to our Hidden Gems members within period of 8 months.

The company has declared its Dec'17 quarter results on 14th Feb'18 which were better than our expectations. Sahyadri Industries reported net profit of Rs 4.30 crore in Dec 2017 quarter as against net loss of Rs 3.22 crore during the previous quarter ended Dec 2016. Sales rose 18% to Rs 57.21 crore in the quarter ended Dec 2017 as against Rs 48.50 crore during the previous quarter ended Dec 2016. The revenue for Dec'17 is net of GST, however the same for Dec'16 is inclusive of excise duty.

If we look at valuations of Sahyadri Industries, we find the stock attractive even at current levels when compared to other players in the Industry. Currently, Sahyadri Industries is trading at 12 months trailing PE multiple of 12.9 whereas bigger players from same sector like Everest Industries, HIL and Visaka Industries are trading at trailing PE multiple of 17.3, 23.1 and 18.7 respectively. Moreover, Sahyadri Industries has maintained best operating and profit margins in the Industry over larger peers during last 4 quarters as illustrated below.
Improved performance with complete turnaround by the company over last 4 quarters shows the management efforts towards increasing operational efficiency and reducing debt with better cash flows from operations. Sahyadri Industries operating margins in Dec 2017 quarter stands at 20.2% which is much better compared to other larger players. Moreover, the company has delivered highest operating as well as profit margins during last 4 quarters when compared to peer group companies.

With increasing thrust of Government on rural sector growth, Sahyadri Industries is expected to be the direct beneficiary. We believe Sahyadri Industries will continue to achieve robust business growth in coming quarters with increase in Government spending towards affordable housing and manufacturing of toilets for rural population.

At current price, stock seems to be significantly undervalued compared to other players in the Industry with significant upside potential. With favourable Industry outlook, Sahyadri Industries if continue its stellar performance like that of last 4 quarters, can turn to be a multibagger stock for long term investors.

Below is the summary of Sahyadri Industries Ltd shared by our team under Hidden Gem stock of July'17 released on 30th August 2017.

Note: This report is shared only for the purpose of information and not an investment advice. Kindly carry out your own due diligence in case of investment in Sahyadri Industries. 


1. Company Background:

Sahyadri Industries Ltd is a flagship company of the Patel Group based in Pune, Maharashtra. Sahyadri is an ISO 9001:2008 certified, SAP enabled company and is a player in the building material space in India for over 6 decades now. The company is mainly engaged in manufacture of fibre cement corrugated and flat sheets and non-fibre cement flat sheets. The company is also into manufacturing of fibre cement roofing sheets under the brand Swastik, Mezzanine application sheets under the brand Cemply, cellulose fibre cement boards under the brand EcoPro, and Cemply Swachhalay - an innovative Green Toilet Technology made for Swachh Bharat Abhiyan

Sahyadri Industries was incorporated in the year 1994. The group founded by Late Shri. L. B. Patel, who ventured into the trade to timber and building materials, sensing the urban and rural needs for developing shelters to people of all income groups way back in 1947.

The company started its operation as a roofing sheet producer under the brand Swastik. Today the company offers innovative, specialized and futuristic products to bridge the gap between international advancement and technological offerings. With a product portfolio comprising of roofing solutions, well integrated interior and exterior building systems, security doors, power generation and sustainable materials, Sahyadri Industries offers new technologies for metropolitan, urban and rural spaces in India and South Asian, Middle East and African countries.

The sheets are being manufactured by using most modern manufacturing techniques and the latest process control equipments. These sheets are lighter in weight compared to other boards, used in similar applications. They have a good life because the raw materials used are mostly minerals and do not disintegrate or lose their integrity easily.

The company is catering to different geographies, various plants have been set up in Maharashtra, Gujarat, Tamil Nadu and Andhra Pradesh which altogether produce 50,000 MT of roofing materials and 8,000 MT of cement boards every month. Manufacturing plants of the company are strategically located near highway, down freight zones and closer to ports like JNPT, Cochin and Chennai which makes access for exports and imports easier and feasible.  The company has 12 depots across India.

The company is also operating 31 windmills situated in the states Maharashtra, Tamilnadu & Rajasthan with the total capacity of 23.2 MW.  Indian Wind Power Association adjudged the company’s wind mills as Best Performing Wind Farms in the Years 2006-07, 2007-08, 2008-09, and 2010-11.

In a six decade journey, the company has developed range of products across different verticals.

1. SWASTIK  - The company manufactures cement roofing sheets for rural sector under the brand of Swastik The company has built roofs that last longer and are non-corrosive. Swastik provides a complete range of roofing solutions; we offer over 100 roofing accessories with a diverse range of colours to match everyone’s need.

2. CEMPLY - The company ventured into flat sheets and cement doors under the banner Cemply for a variety of applications. The sheets find many applications in both interior and exterior designs, like industrial, commercial, and residential construction spaces.

3. ENTASAFE - The company launched anti-theft doors by the name Entasafe for the urban homes. Entasafe doors have superior strength, aesthetic looks and come with advanced security features, can be customised as per customer needs.

4. ECOPRO - The company introduced innovative product under brand EcoPro - a building material which is wood-free, light-weight and asbestos-free alternative to conventional materials and asbestos products. EcoPro meets the standard set on all platforms, making it an innovative brand to accelerate the development of building material industry.

5. SILBUILD – It is a speedy, innovative and sustainable building solution to enable cost effective quality construction. The systems are factory produced, transportable and erect on site pre-engineering building techniques.

6. SWACHALAY - Swachalay Toilet Blocks units are modular in design and supplied in the form of a kit. It can be erected on site within an hour, ready for comfortable and hygiene use. Swachalays are green toilets made of 35% fly ash and is based on dry wall technology with no use of wartar, sand and bricks in the construction. These safe and secure toilet units are ready for sanitary fittings to be installed before use.

7. SWASTIK KUKDOOKOO - Swastik Kukdooko is a backyard poultry structure. The unit provides better health and hygiene to the chickens helping farmer with an alternative source of income.

2. Recent Developments: (as on 30 Aug'17)

i)  Normal Monsoon & GST to Augur well for Company’s Roofing Sheet Business

Data for the last 15 years shows that there's a high correlation between monsoon and sale of roofing sheets with some lag in India. Post two consecutive years of poor monsoon in 2014 and 2015, last year was relatively better, with better farm output and more disposable income in the hands of rural customers. With monsoon expected to be above normal this year also, we expect roofing sheet business will see good growth for the next two years.

Moreover, higher GST on steel sheets of 28%, compared with 18% on asbestos cement sheet, will give cement sheet manufacturers the extra edge. Also, the asbestos industry competes with steel roofs, as prices of steel sheets have risen in the past year due to higher steel prices, we expect Sahyadri Industries to be the direct beneficiary.

ii) Launch of Innovative Products to Reduce Dependence on Seasonal Products

Fibre cement roofing sheet is a seasonal business. The company is now focusing to reduce its dependence on seasonal products. Under new initiatives, the company has launched some of the innovative products like Cemply Swachalay and Swastik Kukdookoo.

Cemply Swachalay - Swachalay is the ideal green toilet developed by the company to support Govt initiative – Swachh Bharat Abhiyan: These modular toilet blocks can be installed and ready to use in less than 1 hour. Made using cemply fibre cement sheets and doors and swastik roofs, these safe, secure toilet units are ready for sanitary fittings to be installed before use. Cemply Swachalay is ideal for use in residential, school, tourist spots and inhabitants from the tribal or hilly terrains.

Another uniqueness of this innovative green toilet technology is that it does not use water, sand, brick and mortar, typically used in conventional construction. Raw materials used for making the toilets is slag and fly ash which is a byproduct of the thermal power stations hence saving the environment. Swachalay received the ‘Innovative Green Toilet Technology’ Award in 2015 in India Sanitation Summit organized by India CSR Group, held at PHD Chambers, New Delhi.

Swastik Kukdookoo – It is a backyard poultry structure developed by the company to support Indian famers and women to earn a reasonable amount every month as revenue from poultry. The Kukdookoo units provide better health and hygiene to the chickens. It is a DIY (Do-It-Yourself) kit and can be easily set up by 2-3 people at help. A new concept in Poultry production that can yield higher revenue opportunities for the poultry farmer.

3. Financial Performance: (as on 30 Aug'17)

Sahyadri Industries net profit rises 103.40% in the June 2017 quarter

Net profit of Sahyadri Industries rose 103.40% to Rs. 11.37 crore in the quarter ended June 2017 as against Rs. 5.59 crore during the previous quarter ended June 2016. Sales declined 12.09% to Rs. 93.88 crore in the quarter ended June 2017 as against Rs. 106.79 crore during the previous quarter ended June 2016.

Sahyadri Industries reports net profit of Rs 3.38 crore in the March 2017 quarter

Net profit of Sahyadri Industries reported to Rs. 3.38 crore in the quarter ended March 2017 as against net loss of Rs. 1.05 crore during the previous quarter ended March 2016. Sales declined 21.79% to Rs. 61.07 crore in the quarter ended March 2017 as against Rs. 78.08 crore during the previous quarter ended March 2016.

For the full year, net profit reported to Rs. 3.18 crore in the year ended March 2017 as against net loss of Rs. 10.90 crore during the previous year ended March 2016. Sales declined 28.12% to Rs. 258.60 crore in the year ended March 2017 as against Rs. 359.78 crore during the previous year ended March 2016.

The company has posted strong profit growth in Jun’17 quarter. Sahyadri reported net profits of Rs. 11.37 for Jun’17 quarter against net profit of Rs. 5.59 in Jun’16. We expect company will turn around its performance completely during this financial year by reporting profits during next 2 quarters against losses reported for Sept’16 and Dec’16 quarter last year.

4. Peer Group Comparison: (as on 30 Aug'17)

Sahyadri Industries is a smaller player with market capital of ~166 crores operating in fibre cement sheet business. The company has posted strong profit growth in its June quarter with expected turnaround during this fiscal year, which makes it attractive compared to other listed players in the Industry.

5. Key Concerns & Risks:


i) The main raw materials for fibre cement products are cement, pulp, fly ash and imported fibres. Any hike in prices of cement or fibre may have adverse impact on the margin of the company.

ii) Rural schemes like MNREGA, Indira Awas Yojna, etc. play a vital role for the business of the company. Any change or decrease in spending by the government on these schemes could reduce the purchasing power of rural people. A poor monsoon could also have adverse effect on the demand for roofing in rural India.

iii) There is limited pricing power due to large number of players operating in fibre cement products and hence pass through of increased costs is not possible.

6. Saral Gyan Recommendation: (as on 30 Aug'17)


i) Manufacturing plant of Sahyadri Industries at Vijaywada was set up and expenses were capitalized by the company during the last financial year. Similarly, Chinchwad plant of the company was also set up in the FY15-16. The company has incurred large amount of capital expenses for the same, both the plants commenced its manufacturing activities. However, with lower utilization of these plant’s capacity and higher fixed expenses and capital cost, operating margins were eroded as the company was not able to recover its fixed overhead expenses. Hence, the company posted net loss of 10.9 crores in FY15-16 and net profit of Rs. 3.2 crores in FY16-17.

ii) As monsoon plays a vital role in growth of rural economy, market conditions for roofing sheets was adverse due to poor monsoon in past. Last year was relatively better, with better farm output and more disposable income in the hands of rural customers. With monsoon above normal this year also, we expect roofing sheet business of the company to see good growth over next two years.

iii) Due to depressed steel prices in previous years, coloured steel roofs were preferred over asbestos roofing for Industrial and warehousing applications which impacted the growth of fibre cement sheets manufacturers. However, with rising base metal prices which are expected to remain firm, we believe cement sheet will be preferred choice for construction activities going forward. Moreover, higher GST on steel sheets of 28%, compared with 18% on asbestos cement sheet, will give cement sheet manufacturers the extra edge and hence Sahyadri will be the direct beneficiary.

iv) Fibre cement roofing sheet is a seasonal business as industry as a whole depend upon seasonable of demand. Considering downturn in housing and infrastructure sector in past, company has taken new initiatives over last few years to insulate it from seasonability of demand for traditional products. The company started evolving its product line by introducing high margin non-infrastucture related products. Cemply Swachalay and Swastik Kukdookoo are some of the products launched under this initiative. Sahyadri has tied up with several self-help groups such as Dilasa Janvikas Pratishthan to make Swastik Kukdookoo available across India.

v) The company has registered sales CAGR of 4.5% with ROE of 4% over last 5 years. The company’s financials were impacted in past due to high capital expenses incurred towards expansion. The company has reduced its debt significantly over last 2 years.
vi) Due to company’s subdued performance in last couple of years, the management has taken various initiatives and cost control steps. These measures are likely to bring in gradual increase in turnover going forward. The company also intend to focus on increasing its overseas markets share by offering innovative and unique building solutions. As per future plans, innovative product extension, green environment friendly products, and applications like infill walls, solid walls, dry-wall construction system, wall cladding, mezzanine applications, fast-track housing solutions, roof-underlay would be on priority list of the company.

vii) As of Jun’17, promoter’s shareholding in the company is at 66.44%. Promoter’s shareholding is same without any change since March 2015. Promoters have not pledged any shares, Institution shareholding in the company is negligible at 0.01%.

viii) For FY 2014-15, the company paid dividend of Rs. 1.50 per share. The company has not paid dividend later as company incurred losses mainly due to slowdown in rural economy and capacity expansion taken at Vijaywada. With recent turnaround in performance, we expect company to pay regular dividends going forward.

ix) As per our estimates, Sahyadri can deliver PAT of 16.65 crores in FY17-18 and Rs. 19.53 crores in FY18-19 with annualized EPS of Rs 17.4 and Rs. 20.4 respectively. At current price of 173.45, stock is available at forward P/E multiple of 8.5X based on FY18-19 earnings. Company’s valuation looks attractive considering robust growth outlook for cement sheet business with uplift in rural economy over next 1 to 2 years.

x) On equity of Rs. 9.56 crore, the estimated annualized EPS for FY18-19 works out to Rs. 20.4 and the Book Value per share is Rs. 123. At current market price of Rs. 173.45, stock price to book value is 1.3.

Government’s initiatives with focus on rural economy will help in improving disposable income in rural India, and that will have positive impact on the company’s business of roofing and other building materials. Considering rise in rural spending with favourable monsoon, company’s plan to reduce its dependency on seasonal products by introducing high margin non infrastructure related products, increasing focus on exports, and company’s improved business fundamentals with robust growth outlook, Saral Gyan team recommends “Buy” on Sahyadri Industries Ltd at current market price of Rs. 173.45 for target of Rs. 330 over a period of 12 to 24 months.

Buying Strategy:
  • 60% at current market price of 173.45
  • 40% at price range of 130 - 140 (in case of correction in stock price in near term)

Portfolio Allocation: 3% of your equity portfolio.

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