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Wednesday, September 20, 2017

Emmbi Industries - ROI @ 116% in 14 Months

Dear Reader,

We are pleased to inform you that our Hidden Gem stock of June 2016 - Emmbi Industries Ltd (BSE Code: 533161, NSE Code: EMMBI) which was released on 17th July 2016 has achieved its target price giving as on date returns of 116% to our Hidden Gems members in period of 14 months. We suggested Buy on Emmbi Industries at price of Rs. 109.50 on 17th Jul'16 with a target price of Rs. 220. Stock has achieved our target price, Emmbi Industries share has made 52 week high of Rs. 246.50 today and closed at Rs. 236.75 on NSE giving absolute returns of 116% to our Hidden Gems members, we advise our members to continue to hold the stock.

In Jun'17 quarter, net profit of Emmbi Industries rose 21.09% to Rs 3.56 crore against Rs 2.94 crore during the previous quarter ended June 2016. Sales rose 10.83% to Rs 59.23 crore in the quarter ended June 2017 as against Rs 53.44 crore during the previous quarter ended June 2016.

Below is the summary of Emmbi Industries Ltd shared by us under Hidden Gem stock - Jun'16 released on 17th July 2016.

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 Emmbi Industries.

1. Company Background:

Emmbi Industries Limited (earlier known as Emmbi Polyarns Ltd.) is one of the well established company in the field of woven polyethylene and polypropylene product manufacturing. The company is engaged in the manufacture and sale of FIBC (Flexible Intermediate Bulk Containers) and Woven Sacks and various woven polymer based products like Container Liners, Protective Irrigation System, Canal Liners, Flexi Tanks, Car Covers etc. Emmbi is an ISO certified Company, it has a fully equipped manufacturing facility located at Silvassa in the Union Territory of Dadra and Nagar Haveli.

The company products are mainly used in packaging, infrastructure, housing, disaster management and Hazardous waste disposal industry.

The company supplies these products to various customers in domestic as well as international markets. The major customers in the domestic market include multinational companies in FMCG sector. Internationally, the customers are major automobile manufacturers, major glass manufacturers, major cement manufacturers, leading seed manufacturer, players in the petrochemical industry, and various other international customers. Exports contributed 49% of total revenue in FY16 with major contribution from Europe (32%) and American markets (31%).

Emmbi exports to over 52 countries and is aiming to establish its own distribution network for overseas business in coming years. All its products are polymer based with polypropylene as its major raw material. In synthetic packaging, it manufactures polymer based flexible intermediate bulk containers (FIBC) that are both generalised as well as embedded with specific properties.

Emmbi was incorporated in 1994 by first generation entrepreneurs i.e. Makrand Appalwar and Rinku Appalwar, with initial years confined to trading of FIBC with the company venturing into manufacturing of the same in 1997 with a plant in Silvassa. In 2005, Emmbi installed and commissioned the polypropylene based packaging unit with a capacity of 6000 metric tonne.

In 2010, Emmbi got listed on NSE and BSE. The IPO came in at a price of Rs. 45 per share and the company garnered 39 crore, mainly for expanding its manufacturing facilities domestically. Post IPO, Emmbi expanded its capacity from 6000 tonne to 18200 tonne in a phased manner. Capacity utilization in FY16 stood at 83% (up from 65% in the previous year), leading to better operational metrics.

Emmbi’s product profile is classified into four main segments, out of which Advance Composites, Water Conservation Products and Agri products constitute the Value added products in product portfolio of Emmbi.

1. Specialty Packaging Products: General Purpose FIBC, Baffle Bag, and FIBC of Different Shape Container Liner, PWS & Films.

2. Advanced Composites Products: UN FIBCs, Anti Carcinogenic Packaging, Anti-Corrosive VCI Material, Water Sludge Separator, Fall Arrest, Geo Cell. Nuclear Plant Waste Disposal

3. Water Conservation Products: Canal Liners, Pond Liners, Check Dams, Flexi Tank.

4. Agri Products:  Crop Covers, Silage Incubator, Mulch Films, Shade Nets.

Future Growth Outlook

Global polymer consumption is expected to grow close to 4 times in two decades from 2000. Production of Polymer is expected to reach 540 million TPA in 2020 from 365 million TPA in 2010. The completely man-made nature of polymers makes innovation and creation of new materials virtually limitless. Moreover, advances in material technology are creating new applications for polymers, further fueling this growth.
India’s consumption of polymers is still a third of the global average and is significantly low compared to other countries like China and Brazil other than USA. As the country urbanizes and grows economically, we see a significant uptick in polymer consumption which is expected to augur well for Emmbi Industries.

With main thrust of Emmbi Industries on water conservation and agri products which are intended for domestic markets and are value added products, we expect significant increase in revenues from domestic sales compared to exports.

The company has set up the Emmbi Innovation Lab, an independent R&D Centre which has received approval for the Lab by the Department of Industrial Research, Science & Technology.

Emmbi focused efforts in product development has resulted in 11 patents, which gives Emmbi an edge over competitors in terms of product offerings and command better margins. Continuous innovation has helped company to increase its share of value added products in the product portfolio with shift in the product mix towards high margin contributors.

2. Recent Development: (as on 17th July'16)

i) Emmbi Industries gets recognition as R & D Centre by Ministry of Science & Technology – April 2016

The Department of Scientific and Industrial Research (DSIR), Government of India, issued Certificate of Registration on 19th April, 2016 w. e. f. 22nd March, 2016 recognizing Emmbi Innovation Lab an R & D Arm of Emmbi Industries Ltd as “In House R & D Unit”. The certificate is valid from 22/03/2016 to 31/03/2018 (3 financial years)

As per management, the recognition enables Emmbi Industries to avail number of fiscal incentives, the primary one being the ability to claim Weighted Deduction of 200% of the company’s total R&D expenditure subject to approval from Income tax department. Excise & Custom Duty Exemptions for the products patented by the company as per Govt. Notification No24 /2007 & 16 /2007 with the right terms & Conditions.

Emmbi Innovation Lab has filed Six Product Patents and Five process patents for various products & processes over the past 2 years.

ii) Emmbi wins “India SME 100 Awards, 2016” – April 2016

Emmbi Industries won the prestigious “India SME 100 Awards, 2016” presented by SME India Forum. Mrs. Rinku Appalwar, CFO of Emmbi Industries Ltd received the award from Shri. Kalraj Mishra, Hon’ble Union Minister of MSME, Shri. Suresh Prabhu, Hon’ble Union Minister of Railways, Govt. of India and Smt. Shika Sharma, MD & CEO, Axis Bank.

Emmbi Industries has won this award among total of 49023 nominations filed by SMEs from all over the country.

iii) Launch Of Positive Pressure Integrated Clean Room Facility for Food and Pharmaceutical Grade FIBC Packaging – March 2016

Emmbi Industries has started the construction of “Positive Pressure Clean Room facility for manufacturing of Food and Pharmaceutical Grade FIBC Packaging Material”

The project will take 10 to 12 months to complete and start the production. Total estimated cost of the project will be Rs. 10 Crores. Project will be funded by internal generation and debt from the banks. Company is constructing the building on the land which was already available with company.

This will help company to produce the Food & Pharma Grade products for the Export Market. This will enhance the value addition of the products, especially in USA as the New USFDA guidelines recommends the use of food grade material for packaging for the entire value-chain of Food and Pharma.

3. Financial Performance:

Emmbi Industries standalone net profit rises 28.82% in the March 2016 quarter

Net profit of Emmbi Industries rose 28.82% to Rs 3.71 crore in the quarter ended March 2016 as against Rs 2.88 crore during the previous quarter ended March 2015. Sales rose 14.15% to Rs 56.07 crore in the quarter ended March 2016 as against Rs 49.12 crore during the previous quarter ended March 2015.

For the full year, net profit rose 77.55% to Rs 10.60 crore in the year ended March 2016 as against Rs 5.97 crore during the previous year ended March 2015. Sales rose 13.32% to Rs 206.94 crore in the year ended March 2016 as against Rs 182.62 crore during the previous year ended March 2015.

Emmbi Industries standalone net profit rises 54.60% in the December 2015 quarter

Net profit of Emmbi Industries rose 54.60% to Rs 2.52 crore in the quarter ended December 2015 as against Rs 1.63 crore during the previous quarter ended December 2014. Sales rose 2.36% to Rs 52.87 crore in the quarter ended December 2015 as against Rs 51.65 crore during the previous quarter ended December 2014.
Going forward on the back of robust growth in profitability over next 2 years, we expect further improvement in return ratios.

We expect company will deliver sales CAGR of 19% with EBITDA growth of 22% over next 2 years considering robust demand and increase in sales contribution from value added products.

4. Peer Group Comparison:
5. Key Concerns & Risks:

i) Rise in Raw Material Prices - The rise in raw material price can impact operating margins of the company for its non-specialty products.

ii) Intense Competition – There are many organized and unorganized players in the Industry offering similar products without any pricing power due to which it’s a low margin business. Hence, it is important for the company to adapt new technologies, offer product innovation, identifying and meeting customer’s expectations in term of high quality, product services and performance to remain ahead of the competition.

6. Saral Gyan Recommendation: (as on 17th July'16)

i) In last few years, Emmbi has acquired substantial share in the international market for various packaging needs for products like Construction Aggregates, Chemicals, Seeds, Fertilizers, and Cement & Food Grains etc. Some of the high value added products which company manufactures for the international market includes Car/Automobile Covers, Container Liners, Anti Corrosive Packaging, Electrically conductive polymer based packaging, etc. To drive domestic growth, Emmbi introduced value added products in water conservation and agriculture space and increased its focus on marketing efforts to develop distribution network in rural India.

ii) Emmbi Innovation Lab i.e R & D arm of the company has received Certificate of Registration from the Department of Scientific and Industrial Research (DSIR), Ministry of science & Technology, Government of India, which is valid till 31st March, 2018. Govt recognizes the innovation carried out by Emmbi, this recognition enables Emmbi to avail number of fiscal incentives and will results in tax benefits to the company during next 3 years.

iii) Emmbi has recently started the construction of Positive Pressure Clean Room facility for manufacturing of Food and Pharmaceutical Grade FIBC packaging material with estimated project cost of 10 crores. This facility is expected to start production by April 2017 and will help the company to enhance the value addition of the products, especially in USA as the new USFDA guidelines recommends the use of food grade material for packaging for the entire value-chain of Food and Pharma.

iv) The company is currently present in 52 countries and is planning to increase its geographical reach to more than 65 countries in near future with increase in its products offering. The company has already launched several innovative products in last financial year whose applications can be found in food, safety, water conservation, agriculture, infrastructure, e-commerce, crop protection, hazardous waste management and solid waste management.

v) Company has registered sales CAGR of 28.81% and profit CAGR of 27.53% during last 5 years with significant improvement in ROE. The Company has been able to improve its working capital cycle from 170 days in FY15 to 130 days in FY16 owing to increased share of domestic business from 47% in FY15 to 51% in FY16, which resulted in efficient application of funds reducing interest burden & improving debt-equity ratio.
vi) As of Mar’16, promoter’s shareholding in the company is at 57.86%, promoters have increased their holding in the company by 5.49% during last two years. Increase in shareholding by promoters on every passing quarter indicates the confidence of management in robust growth outlook and business prospects, Company has not pledged any shares, Institution shareholding is nil in the company.

vii) Management has rewarded shareholders by paying regular dividend since last 5 years. The company paid dividend of Rs. 0.30 per share for FY15 and we expect management to declare dividend of Rs. 0.50 per share for FY16 considering significant increase in EPS during last financial year. As the company has recently initiated development of new facility with expected outgo of Rs. 10 crores, we find dividend policy suitable in terms of sharing profit with minority shareholders and retaining the balance for future growth.
viii) As per our estimates, Emmbi Industries can deliver PAT of 14.85 crores for full financial year 2016-17, annualized EPS of Rs 8.40 with forward P/E ratio of 13X for FY16-17. Company’s valuation looks attractive considering improvement in financials, better return ratios and robust growth outlook in domestic as well as export market over next 2 years.

ix) On equity of Rs. 17.69 crore, the estimated annualized EPS for FY 16-17 works out to Rs. 8.40 and the Book Value per share is Rs. 41.84. At current market price of Rs. 109.50, stock price to book value is 2.62.

Considering increase in sales contribution from high margin value added product, better working capital control with increasing share of domestic sales, tax benefits to company’s R & D facility during next 3 years and higher earning visibility in FY17-18 with upcoming food and pharmaceutical grade FIBC packaging facility, Saral Gyan team recommends “Buy” on Emmbi Industries Ltd at current market price of Rs. 109.50 for target of Rs. 220 over a period of 12 to 24 months.

Buying Strategy:
  • 60% at current market price of 109.50
  • 40% at price range of 87 - 92 (in case of correction in stock price in near term)
Portfolio Allocation: 3% of your equity portfolio.

To Read / Download Saral Gyan Hidden Gem - Jun'16 Research Report - Click Here

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. 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

Monday, September 11, 2017

Check Fundamentals & Not Share Price while Buying Stocks!

Dear Reader,

Why is a stock that cost Rs. 50 cheaper than another stock priced at Rs. 10?

This question opens a point that often confuses beginning investors: The per-share price of a stock is thought to convey some sense of value relative to other stocks. Nothing could be farther from the truth.

In fact, except for its use in some calculations, the per-share price is virtually meaningless to investors doing fundamental analysis. If you follow the technical analysis route to stock selection, it’s a different story, but for now let’s stick with fundamental analysis.

The reason we aren’t concerned with per-share price is that it is always changing and, since each company has a different number of outstanding shares, it doesn’t give us a clue to the value of the company. For that number, we need the market capitalization or market cap number.

The market cap is found by multiplying the per-share price times the total number of outstanding shares. This number gives you the total value of the company or stated another way, what it would cost to buy the whole company on the open market.

Here’s an example:

Stock price: Rs. 50

Outstanding shares: 5 Crores 

Market cap: Rs. 50 x 50,000,000 = Rs. 250 Crores

To prove our opening sentence, look at this second example:

Stock price: Rs. 10

Outstanding shares: 30 Crores 

Market cap: Rs. 10 x 300,000,000 = Rs. 300 Crores

This is how you should look at these two companies for evaluation purposes. Their per-share prices tell you nothing by themselves.

What does market cap tell you?

First, it gives you a starting place for evaluation. When looking a stock, it should always be in a context. How does the company compare to others of a similar size in the same industry?

The market generally classifies stocks into three categories:

• Small Cap under Rs. 1000 Crores 

• Mid Cap Rs. 1000 - Rs. 10000 Crores

• Large Cap above Rs. 10000 Crores

Some analysts use different numbers and others add micro caps and mega caps, however the important point is to understand the value of comparing companies of similar size during your evaluation. You will also use market cap in your screens when looking for a certain size company to balance your portfolio. Don’t get hung up on the per-share price of a stock when making your evaluation. It really doesn't tell you much. Focus instead on the market cap to get a picture of the company’s value in the market place.

IMP Note: This article is written to safe-guard our readers who are new to stock market, and make them understand about the actual facts. We keep on receiving mails from our readers regarding the price range of stocks we covers under our Hidden Gems or Value Picks service. The misconception in mind of new investors is regarding the stock price, majority of them believe that if stock price is less, like below Rs. 50 or even below Rs. 10, changes of stock price appreciation is very high and they can buy more no. of shares rather than buying a limited no. of shares of high priced stock. 

We started Hidden Gems annual subscription in late 2010 followed by other services like Value Picks, 15% @ 90 Days and Wealth-Builder, today we have a strong subscriber base covering almost all major states in India and from 20 other countries across globe. During the last 7 years we have interacted with several investors seeking multibagger return from stocks. 

It was 17th Dec 2011, we recommended Cera Sanitaryware as Hidden Gem stock of the month at price of Rs 157, later it went up to Rs. 450 in period of 15 months. Based on strong quarterly numbers, attractive valuations and consistent performance, we recommended buy again in the range of 400-450 which was taken as a surprise by our members as we received several queries and feedback.

Below are some of the common queries of our subscribers which often lead them to opportunity losses.

1. How come a stock priced at Rs 450 can generate Multibagger returns?
2. Cera is almost 3 times moving from 170 to 450, why are you suggesting buy again?
3. Where is the room to generate Multibagger return from this level?
4. I don’t like such high-priced stock, please give me stocks priced below Rs. 100.
5. I want to buy more no. of shares, hence please recommend low price stocks below Rs. 10.

Cera Sanitaryware touched its life time high of Rs 3315 this year, today stock closed at Rs. 2964.20, stock has given as on date returns of 1788% in 5.5 years from our initial recommendation and 560% return from our reiterated buy at Rs. 450, which was not liked by our subscribers.

The story does not end here, there is a long way to go. Our suggested stocks is with a view-point of 1-3 years at least and not just 6-9 months. If fundamentals of the company are intact, we would not suggest our members to do profit booking or exit. Investors who stayed away just because of high price simply missed yet another opportunity. We continuously recommended Cera during last couple of years to our members at much higher levels.

There is a general misconception among the investors that high priced stocks can't generate multibagger returns. They often think that high-priced stocks are overvalued. In terms of valuation, a 50 rupees stock may not be cheaper than that of a 1000 rupees stock. There is no co-relation between the valuation and market price of a stock. To understand whether a company is small or large, you must look at market capital of the company and not at stock price. To judge valuation you must have to look at Price to earning ratio, Price to book ratio, Price to sales ratio etc.

Lets try to understand this with an example, Tide Water Oil share price was Rs. 1450 on 1st Jan'12 (stock split and bonus issue adjusted price, actual price was 5800). Today the stock price closed at Rs. 5695.45 giving absolute returns of 293% i.e. almost 4 times in 5.5 years against double digit return of Sensex in the same period. We suggested Buy on Tide Water Oil and many of our subscribers might not have invested in it thinking that they can buy hardly 2 shares by investing Rs. 12,000 but now those 2 shares are actually 8 shares post stock split and issue of bonus share and share price is also near to the the recommended price.

There are many examples like above by which we can illustrate that there’s nothing called high price. Multibagger returns is not dependent on the current market price of a stock, so don't be afraid of investing in high priced stock. You need to look at fundamentals like future growth prospects of the company, PE ratio, PB ratio, ROE, ROCE, debt on books, cash reserves along with other parameters to judge a stock whether it is undervalued or overvalued. We agree with you that judging valuation is not an easy task. So, take expert’s advise when ever required.

Another misconception among investors is to buy more no. of shares. They often think that its better to buy more no. of shares of a low price scrip (ranging below Rs. 10 or say below Rs. 50) instead of buying less no. of shares of high priced stocks. They often think that low price stocks can generate multibagger return quickly. During last 5 years, we have reviewed existing portfolio of our members under our Wealth-Builder (an offline portfolio management service) subscription, we have noticed that many of their portfolio is filled with such low-priced stocks and most of those are in great loss because of poor fundamentals. You may think that a two rupees stock can easily generate multibagger returns even if it touch to Rs. 5 or 6. At the same time don’t forget that the same can even come down to Rs. 0 levels which can evaporate all your investment giving you 100% loss! In terms of valuation a two thousand rupees stock may not be expensive than that of a two rupees stock.

Lets try to understand this also with a simple example, Lanco Infratech is a well-known company from Infrastructure sector. At the beginning of 2010 the stock was around Rs 55. Today it is hovering at just Rs 1.00. Those who purchased the stock during 2010 are in 98% loss! Rs. 1 lakh invested in Lanco Infratech in Jan 2010 is valued at merely Rs. 2,000 today, a complete wealth-destroyer! Isn't it? Those who bought this stock at levels of Rs. 30 and later again at Rs. 10 or Rs. 5 to average out thinking that stock has came down from all time highs of Rs. 85 are still waiting to get their buying price back. There are many such stocks like Suzlon Energy, GMR Infra, GVK Power and Infrastructure etc which have continuously destroyed wealth of investors over a period of last 5 to 7 years.

We do not state that all low price stocks are wealth-destroyers, it all depends on the fundamentals of the company. So, do ensure that you check out the fundamentals and valuations while investing in stocks instead of looking at stock price. Please get out of the misconception that low priced stocks will fly high faster giving you extra-ordinary returns. Always remember that stock price is just a barometer, actual valuations of a company can be determined by its fundamentals.

If you wish to invest in fundamentally strong small and mid cap companies which can give you far superior returns compared to major indices like Sensex or Nifty in long term and help you creating wealth, you can join our services like Hidden GemsValue Picks & Wealth-Builder.

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.

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.

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

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

Wish you happy & safe Investing. 

Regards, 

Team - Saral Gyan

Sunday, September 10, 2017

Releasing Today! Wealth-Builder Portfolio Update - Sept'17

Dear Reader,

We continue to remain invested in high quality small and mid cap companies with strong fundamentals and increase allocation in these companies in case of fall in stock prices during market correction.We believe any major correction in current market must be considered as a buying opportunity. We expect cyclical stocks with strong fundamentals will continue to outperform going forward considering ease in interest rates, stable crude oil prices and higher spending.

Overall market sentiments were bullish since beginning of this year with continuation of positive news flows like uptrend of global recovery, decline in inflation, progression of good monsoon in the country and interest rate cut by RBI. With continuous buying by domestic Institution investors backed by strong retail inflows, Nifty moved above the psychological mark of 10,000 in the month of July. Currently, the PE ratio of Nifty 50 stocks is around 25.5 and is trading well above its historic average. However, with expectation of increase in earning growth in coming quarters which mainly got delayed due to demonetisation and later due to GST implementation, Nifty is expected to trade at similar valuations going forward.

High quality companies reporting 20-30% + annualized growth can deliver exceptional returns for the shareholders in long termIn case you have not yet started building a portfolio of high quality and high growth stocks for long term wealth creation, please find below the Wealth-Builder portfolio allocation for your reference.


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

Since inception, our Wealth-Builder portfolio has outperformed Nifty and Sensex by wide margin. Since 1st Jan 2013, Nifty has given returns of 66.9%, Sensex returns is 61.8% where as our Wealth-Builder portfolio has given returns of 346.5% to our members.


In terms of performance, 7 top performer stocks out of 16 of Wealth-Builder portfolio have given returns in the range of 90% to 735% since 1st Jan'13 that too when many of these stocks out of 15 were added in portfolio during last couple of years. Moreover, 10 stocks out of 16 have made 52 week high / all time high recently. We continue to hold these stocks as we believe these companies are registering good growth every quarter and doing all the right things to continue delivering robust top line and bottom line with strong operating margins.

There were few laggards also which have not performed up to our expectations and we exited these stocks and allocated the available funds to other good investment opportunities to ensure that Wealth-Builder portfolio continue to outperforms major indices by wide margin. 

Note: Wealth-Builder portfolio update - Sept 2017 will be released on 10th Sept'17 (by end of the day) and we will share the same with our Wealth-Builder members.


Wealth-Builder is our offline portfolio management service. Using Wealth-Builder, you can manage your portfolio like a professional.

1. You Plant – You will manage your money at your own. Using your own Dmat account, you will purchase and sell shares at right point of time.

2. We Nurture – We will guide you with detailed report suggesting which stock to buy, at what price to buy and of course how much to buy, when to sell and how much to sell. Based on our recommendations, you will create and modify your portfolio to maximize your returns on your investments over a period of time.

3. You Harvest – It’s a fact that equities can give you maximum returns compared to any other asset class if invested with a long term horizon (3 to 5 years and above). Investing in fundamentally strong small and mid cap companies ensures that you keep harvesting your money in form of regular and higher dividends year after year along with capital appreciation.

Below are the unique advantage and benefits of Wealth-Builder over conventional PMS and Mutual Fund:

1. You manage your money at your own without giving it to mutual fund or PMS with benefit of any time access to your portfolio.

2. You will not be charged any asset management fee, exit / entry load, administration charges. Only one time nominal annual subscription cost will be charged.

3. Wealth Builder ensures capital protection; your portfolio will not be over churned to earn higher brokerage like many brokerage houses.

4. Exposure to our well researched stocks - Hidden Gems and Value Picks.

5. Limited transactions – once or twice in a month, you can manage your portfolio giving only 30 – 60 minutes in a month without affecting your busy schedule.

Wealth-Builder ensures giving better returns compared to major indices like Sensex or Nifty.

Wealth-Builder subscribers need to replicate our recommended portfolio in exact proportion. For ex: If we recommend to invest Rs 50,000 in “x” company with portfolio allocation of 5% in Rs. 10 lakh portfolio, subscriber starting his portfolio with Rs. 2 lakh need to invest Rs. 10,000 in “x” company with similar portfolio allocation i.e. 5%. On monthly basis, we review Wealth-Builder portfolio and update our members in terms of any changes in allocation or exit / entries in stocks based on fundamental analysis and recent developments in these companies.

Start managing your equity portfolio like a professional, subscribe to Wealth-Builder by paying nominal annual fee of  Rs.20,000 for entire year.

Click here to subscribe to Wealth-Builder online. You can avail attractive discounts on our combo packs, click here for details.

In case if you are not comfortable in making online payment, click here to know about our other payment options and 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

Sunday, September 3, 2017

Visaka Industries turns 5-Bagger - ROI @ 422% in 2 Years

Dear Reader,

We are pleased to inform you that our Hidden Gem stock of June 2015 - Visaka Industries Ltd (BSE Code: 509055, NSE Code: VISAKAIND) which was released on 05th July'15 is a 5-Bagger stock for our Hidden Gems members who invested in it 2 years back. Our team suggested Buy on Visaka Industries Ltd at price of Rs. 128.15 on 05 July 2015 with a target price of Rs. 240. Stock has already achieved its target price and we informed our members to continue to hold it. Moreover, we informed our Hidden Gems and Wealth-Builder members to add the stock again at higher levels few months back. Visaka Industries stock has recently made its 52 week high of Rs. 713.80 on NSE and closed at Rs. 669.40 on Friday giving absolute returns of 422% to our Hidden Gems members in period of 2 years and 2 months.

In Jun'17 quarter, net profit of Visaka Industries rose 37.65% to Rs 22.96 crore against Rs 16.68 crore during the previous quarter ended Jun 2016. Sales rose 0.18% to Rs 340.72 crore in the quarter ended Jun 2017 as against Rs 340.10 crore during the previous quarter ended Jun 2016.

Visaka Industries stock has rallied by almost 180% over last 6 months mainly on account of improved fundamentals and strong growth forecast in coming years. The new business of the company, fiber cement boards is doing extremely well. The company offers its fiber cement board range under V-Next products (V-Board, V-Designer Board, V-Plank, V-Premium, V-Panel) which are gaining good acceptance. The strong portfolio of advantages makes the products widely endorsed and appreciated by arhitects and customers worldwide, many of them are replacing plywood which is a 20,000 crore industry. This provides a great long term opportunity to the company which is a pioneer in this segment.

Promoters of the company have increased their shareholding by ~3.6% to 41.22% in March quarter compared to 37.63% in Dec'16 quarter and further increased it marginally by 0.01% to 41.23% in Jun'17 quarter, promoters increasing their stake in the company gives confidence in terms of future growth prospects of the business. 

As per management, V-Next range of products can make a huge impact on the construction industry. With building material like V-Boards, the way of constructing homes, furniture will be changed. It will be faster, economical and more energy efficient. Recently, the company has launched a new roofing product called ATUM, a new age eco-friendly, energy efficient and energy generating roof. It is an integrated solar roofing system that serves as roof and also generates energy (a hybrid product). The set up of ATUM manufacturing unit will be done at Miryalguda, Telangana. Capacity of 60 MW per annum will be added in next 3 months with investment of Rs. 10 crores which will be funded through Internal accruals 

Moreover, value investors like Dolly Khanna and Anil Kumar Goel have also invested in Visaka Industries over last 12 months. Both of them have accumulated Visaka Industries in huge quantity. As mentioned in the annual report of the company, Dolly Khanna holding in Visaka Industries stands at 1,15,968 shares where as Anil Kumar Goel shareholding is higher at 2,20,000 shares (as of Mar'17). At current market price of 669.40, their investments is valued at whopping Rs. 7.76 crores and 14.72 crores respectively.  

Below is the summary of Visaka Industries Ltd shared by our team under Hidden Gem stock of June'15 released on 05th July 2015.

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 Visaka Industries.

1. Company Background:

Visaka Industries was established in 1981 to manufacture corrugated cement fiber sheets. With the initial production capacity of of 36,000 tons per year, the first factory in Patancheru, Andhra Pradesh commenced the commercial production of the cement sheets in 1985. The company diversified into textile yarn manufacturing in 1992. Visaka ventured into Airjet spinning technology & successfully established the factory in Nagpur to produce about 2000 tons of man-made fibre yarns per annum.

Headquartered in Hyderabad, Visaka Industries has 11 manufacturing facilities across India. These plants possess an aggregate production capacity (annual) of about 8,02,000 tonnes of corrugated cement asbestos sheets and 1,29,750 tonnes of fibre cement flat board products. The Company also comprises a spinning plant capable of producing 9,000 tonnes of yarn per annum. The Company’s manufacturing units are supported by nine pan-India marketing offices.

Visaka Industries is operating in two segments.

1. Building products - cement asbestos products and fibre cement flat products (V-Boards and V-Panels)
2. Textiles - Synthetic yarns

1. Building Product Division 

The Company’s building products division comprises of

i) Cement Asbestos, predominantly used in rural India and
ii) Fibre Cement Boards (non-asbestos) used in urban and suburban centres,

The Company possesses a strong distribution network comprising more than 6,000 retailers (rural and suburban markets). It derived 85% of its sales from these markets; the rest derived from institutional sales to governmental agencies, construction industry and poultry farms. The Company leveraged its superior marketplace knowledge by distributing directly to retailers as opposed to the conventional distributor-retailer model.

Cement Asbestos Products

The Company was the seventh largest cement asbestos product manufacturer in India in 1996; it is the second largest today. The Company’s Visaka and Shakti brands enjoyed favourable recall across India’s organised cement asbestos market. The Company’s cement asbestos product manufacturing facilities are dispersed nationally - four in Southern, one in Northern, two in Eastern and one in Western India - thereby ensuring that captive and emergent needs are adequately addressed, pan-India.

The Company has reached a capacity of 8,02,000 tonnes per annum. The Company’s asbestos products offer superior load-bearing capacity, transcending recommended standards. The division engages in periodic dialogues with governmental agencies, architects, engineers and farmers to access feedback that translates into product customisation.

The Company’s rich engineering competence is reflected through its ability of having designed and fabricated best-in-class cement asbestos machinery using verified pre-owned equipment at six of its eight plants, helping keep capital costs considerably lower than industry standards.

Fibre Cement Sheets (non-asbestos) – V-boards and V-Panels

The Company’s building products division also manufactures flat products like V-Boards and V-Panels. The Company possesses an installed capacity of 120,000 metric tonnes for V-Boards (fibre cement flat sheets) and 9,750 metric tonnes of V-Panels.

It possesses the second largest fibre cement sheet capacity in the country. The V-Board division runs on the state-of-the-art HPSC technology, which complies with rigorous ISO 14862-2000 norms.

Over the last few years, the use of flat products (V-Boards and V-Panels) revived on account of a superior price-value proposition. The product advantages were endorsed by architects and users. These products not only save time and money, but are safer and aesthetically better. The fibre cement board phenomenon is expected to radically change the way interiors and exteriors are perceived in India.

A shift in application from plywood, particle board and MDF boards to cement fibre sheets could catalyse demand, leading to onward use in false roofing, wall paneling, partitioning and in mezzanine flooring, among others.

V-Boards - The Company commissioned its V-Board business in May 2008, conveniently distant from its cement asbestos units. The Company’s V-Boards offer unmatched quality, style and durability, making it the ideal choice for internal and external applications like false ceiling, internal walls, mezzanine flooring, partitions and doors among others.

The offtake of cement boards grew, following enhanced product awareness, shift from timber products (due to advantages of fire, water and termite-resistance over plywood and particle boards), higher affordability, low maintenance costs, low installation costs, greater functionality, easy transportability (obviating the need for mixing on-site) and greater safety in seismic zones. These products are reinforced with top-ofthe-line HPSC technology conforming to ISO 14862-2000 norms.

V-Panels - This non-asbestos product is ideal for interiors (created using cement, fly ash and polystyrene beads), gaining preference over the years. This low maintenance and space-efficient product is positioned as a dry wall substitute, especially in earthquakeprone areas.

V-Panels are preferred on account of their superior size-weight ratio (lighter than bricks) and also sufficiently match wall strength with axial loads. The product is labour-efficient, can be erected by a few individuals and reused across locations.

Visaka possesses an installed capacity of 9,750 tonnes per annum. The Company’s customers for V-Panels comprise GMR Group, Punj Loyd, Shapoorji Pallonji, Soma Enterprises, TCS, Gujarat Ambuja port, Eenadu Group, Uranium Corporation of India and Larsen & Toubro India, among others. 

2. Textile Division

Visaka diversified into the manufacture of synthetic yarn in 1992. Its textile division manufactures yarns using state-of-the-art twin air jet spinning machines (Murata, Japan), 31 MTS machines (equivalent to 55,000 ring spindles). The quality manufactured is superior to conventional ring frame yarn.

The Company enjoys attractive scale; it possesses the single-largest twin airjet equipment installation in India and one of the biggest such installations in the world. The Company produced dyed yarns at a speed higher than the equipment manufacturer’s recommendation. The Company selected to specialise in the niche segment of a commodity business (polyester spun yarns as well as products from 30s to 76s counts – double yarn). The Company ventured into the manufacture of value-added customised yarn varieties that are relatively insulated from price-based competition. The efficacy of this strategy was vindicated through enduring customer relationships.

The Company’s domestic textile clients comprise industry heavyweights like Grasim Industries, Siyaram Silk, S. Kumar Nationwide, Shreekar Polyester, Puneet Syntex, Anand Silk Mills, G.M. Knitting Industries, D.C. Textiles, Kalpesh Synthetics and Raj Rajendra Industries, among others. Over 23% of the division’s production was exported to value-added fabric makers (used in sun umbrellas, venetian blinds, table linen and automotive fabrics).

Visaka invested in the world’s largest double yarn manufacturing plant based on twin air jet spinning. The unit developed mélange yarns, grindle yarns, high twist yarns and specialty yarns with different blend styles. The unit is the largest global facility using Murata equipment, reporting one of the highest global efficiencies. Seamless procedural control translated into Visaka being given an ISO certification as early as in 1995 and ‘Star Export House’ status in 2008. Yarns are environment-friendly and certified as per demanding OEKO-TEX standards. The Company’s stringent adherence to quality processes resulted in its ISO certification.

The Company’s air-jet yarns are marked by low pilling, no singeing and excellent dye pick-up, low picks per inch, low weaving cost, low value loss/fresher piece length, perspiration absorption, low shrinkage and smooth appearance value.

2. Recent Developments: (as on 05th July'15)

i) No. of Initiatives taken to strengthen growth and operating margins

Company expanded its capacity in a cost-effective manner. Company increased the cement asbestos capacity at its Rae Bareli plant by 20% to cater to the growing asbestos demand coming out of Northern and Eastern India. Company also added two MTS machines to its spinning units, increasing its capacity by 6%. This expansion was achieved at a marginal capital investment through the prudent procurement of preowned machines.

Company ensured that its Miryalguda manufacturing unit became self-sufficient in terms of power. It commissioned a 2.5-megawatt solar power plant, which addressed over 70% of its captive requirement, helping this unit counter power outages and curtail power costs.

Company also improved productivity and optimised costs wherever possible, company successfully de-bottlenecked production lines at its asbestos units, reporting an average capacity utilisation of 96% in FY 2014-15 against 80% in 2013-14

ii) Better future outlook with rise in demand from rural & semi urban markets

Company is planning to increase its Midnapore cement asbestos plant capacity by 20% to cater to the growing demand from Eastern India.

Company believes in pursuing incremental expansion rather than creating entire new units as the former calls for significantly lower capital costs and quicker time-to-market. With fibre prices forecast to remain stable for 2015-16, enhanced capacity utilisation will allow company to break even quicker.

The loss-making board segment of the company is expected to turn profitable and the spinning segment’s supplementary capacity will enhance profitability. With adequate capacity in place to cater to the expected rise in demand, utilisation levels are expected to improve, leading to higher volumes and turnover.

Besides, cement and fly ash prices are expected to remain flat while freight costs are expected to remain steady as diesel prices have declined. The increase in energy costs due to the power crisis in Telengana has been largely counter balanced by company’s newly commissioned solar power plant.

3. Financial Performance:

Visaka Industries standalone net profit rises 34.89% in the March 2015 quarter

Net profit of Visaka Industries rose 34.89% to Rs 6.07 crore in the quarter ended March 2015 as against Rs 4.50 crore during the previous quarter ended March 2014. Sales rose 18.81% to Rs 281.72 crore in the quarter ended March 2015 as against Rs 237.11 crore during the previous quarter ended March 2014.

For the full year, net profit rose 77.44% to Rs 21.24 crore in the year ended March 2015 as against Rs 11.97 crore during the previous year ended March 2014. Sales rose 14.74% to Rs 1013.10 crore in the year ended March 2015 as against Rs 882.92 crore during the previous year ended March 2014

Visaka Industries reports net profit of Rs 0.27 crore in the Dec 2014 quarter

Net profit of Visaka Industries reported to Rs 0.27 crore in the quarter ended December 2014 as against net loss of Rs 4.69 crore during the previous quarter ended December 2013. Sales rose 13.79% to Rs 212.60 crore in the quarter ended December 2014 as against Rs 186.83 crore during the previous quarter ended December 2013.

The company has entered into growth path once again with the improved market conditions. Revenue from operations increased by 14% to 1021 Crores from 892 Crores, PBDIT increased to Rs. 98.33 Crores in FY14-15 from Rs 62.65 crores in FY13-14. The capital expenditure for 2014-15 was Rs. 41 Crores, which was principally on account of setup of 2.5 MW Solar Power Plant at V-Boards & V-Panels Division, Miryalaguda and modernization cum expansion at Raebareli unit.

Promoter’s shareholding is low at 37.54%. However, we believe management is prudent and making sincere efforts to register 15-20% revenue growth in 2015-16, which, when coupled with tighter cost control, will enhance profitability and add value for shareholders.

4. Peer Group Comparison:
The leading players in the industry are Hyderabad Industries, Visaka Industries, Everest Industries and Ramco Industries. These companies account for 70-75% of industry capacity. Visaka Industries is trading at cheap valuations compared to its peers which are trading at relatively high valuations

5. Key Concerns & Risks:

i) Asbestos cement sheet sales are highly dependent on rural prosperity as the use of these sheets is highest in rural and semi-urban areas. In urban areas most houses are already pucca and the need for asbestos cement sheet is low. In rural areas, thatched roofs and tiled roofs are replaced by Asbestos cement sheet when affordable, as it has several advantages. Rural prosperity is highly dependent on agricultural productivity, which in turn in dependant on the monsoon. A poor monsoon impacts the demand for roofing in rural India.

ii) Chrysotile (Asbestos fibre), a key raw material in the manufacturing of Asbestos cement sheet, is entirely imported by all players. Exports are limited and imports are significant, exposing companies to a forex risk, which amplifies in times of depreciating domestic currency.

iii) Possible oversupply caused by the several capacities being added by most of the companies could lead to a price war. Rapid capacity expansions could lead to an oversupply situation, which could affect prices.

6. Saral Gyan Recommendation: (as on 05 July'15)

i) Cement asbestos products represent a convenient intermediate roofing product in rural and suburban India. Rural India accounts for ~70% of total population and ~ 50% of Rural India living in Kuccha & Semi Pucca homes provides a vast opportunity for Pucca houses. Thatched roofs need regular replacement and tiled roofs need continued maintenance. Therefore, once the economic conditions improve the first choice of the rural poor is to replace thatched or tiled roofs with affordable asbestos cement alternatives.

ii) The proposed National Gramin Awas Mission, under the aegis of the Rural Development Ministry, could become the blueprint for constructing houses in rural areas. The Central Government aims to build six crore houses - two crore in urban areas and the remainder in rural areas. The Union Budget 2015-16 has allocated Rs. 14,000 crore towards the programme to realise the dream of housing for all. With a revival in demand for cement asbestos becoming evident, the Company is concurrently planning to increase its Midnapore plant capacity by 20%.

iii) Building products divisions contributed 82% to the Company’s overall topline. This segment reported 18% revenue growth to Rs. 834 crore, production grew by 28% for the cement asbestos segment with a capacity utilisation of 96% (80% in 2013-14). Sales grew by 12.5% for the cement asbestos segment. Moreover, company achieved robust growth from V-boards, sales volumes for V-boards grew by 57% and exports grew by 109% in FY14-15. The Company expects the V-Boards unit will continue to post robust performance on account of growing product acceptance and increasing exports. Capacity utilization was at 67% in FY14-15, increase in capacity utilization will lead to higher revenue growth and operating margins going forward.

iv) Asbestos fibre, the key raw material for asbestos cement products is 100% imported and accounts for 60% of raw material cost of building products segment. Sharp fall in rupee in last 2 years led to increase in landed cost which impacted the segment margins. However, with rupee stabilizing, the prices are expected to remain flat going ahead. Besides asbestos fibre, cement and fly ash prices are also expected to remain flat. The increase in power costs due to power crisis in Andhra Pradesh and Tamilnadu would be offset by the company’s newly commissioned 2.5MW solar power plant which will further lead to improvement in EBIDTA margins.

v) Textile division contributed 18% to the company’s total revenue in FY14-15. Optimistic of the prospects of the synthetic yarn segment, the Company intends to add two machines, which will spike its capacity by 6%. The per capita man-made fibre consumption in India was 1.7 kilogram per annum in FY2012-13 against the global average of 10 kilograms per annum. The per capita man-made fibre consumption is expected to reach a level of 2.1 kilograms per annum by the end of 2015-16. It is also estimated that the domestic consumption of man-made fibre could grow at a CAGR of 5.2% during the period FY12-16 (Source: CARE Ratings).

vi) Company’s EBITDA and PAT margins are expected to improve as company is currently operating at lower utilization levels. Going ahead, if the demand improves, existing capacities will cater through higher utilization.
vii) Management has rewarded shareholders by paying regular dividends. Company has declared dividend of Rs. 5 per share for FY 14-15 and dividend yield at current share price is at 3.9 which increases margin of safety with limited downside risk.
viii) As per our estimates, Visaka Industries Ltd can deliver bottom line of 28 crores for full financial year 2016, annualized EPS of Rs. 17.6 with forward P/E ratio of 7.3X for FY16, valuation looks attractive considering margin expansion and increase in revenue with rise in demand of company’s products from domestic semi-urban and rural markets and exports.

ix) On equity of Rs. 15.88 crore, the estimated annualized EPS for FY 15-16 works out to Rs. 17.6 and the Book Value per share is Rs. 223. At current market price of Rs. 128.15, stock price to book value is 0.57.

Considering start of good monsoon season this year and expected revival in rural demand aided by government’s focus on low cost housing, Saral Gyan team recommends “Buy” on Visaka Industries Ltd at current market price of Rs. 128.15 for target of Rs. 240 over a period of 12 to 24 months.

Buying Strategy:
  • 70% at current market price of 128.15
  • 30% at price range of 100-110 (in case of correction in stock price in near term)
Portfolio Allocation: 3% of your equity portfolio.

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