Dear Reader,
We are pleased to inform you that our Hidden Gem stock of Sept'14 - Asian Granito India Ltd (BSE Code: 532888, NSE Code: ASIANTILES) has given absolute returns of 111% to our Hidden Gems members within period of 24 months. Our team suggested Buy on Asian Granito India Ltd at price of Rs. 98.35 on 29 Sept'14 with a target price of Rs. 200. We are glad to inform our readers that target is achieved today, Asian Granito stock made its 52 week high of Rs. 219.90 today and closed at Rs. 207.30 giving absolute returns of 111% to our Hidden Gems members.
In Mar'16 quarter, net profit of Asian Granito India rose 30.34% to Rs 5.67 crore as against Rs 4.35 crore during the previous quarter ended March 2015. Sales declined 4.60% to Rs 225.75 crore in the quarter ended March 2016 as against Rs 236.64 crore during the previous quarter ended March 2015.
For the full year, net profit rose 21.42% to Rs 17.57 crore in the year ended March 2016 as against Rs 14.47 crore during the previous year ended March 2015. Sales rose 5.79% to Rs 869.35 crore in the year ended March 2016 as against Rs 821.75 crore during the previous year ended March 2015.
Below is the summary of Asian Granito India Ltd shared by our team under Hidden Gem stock recommendation - Sept'14
1. Company Background:
Asian Granito India Limited (AGL) was
incorporated in 2002 as a manufacturer of ceramic tiles, by Mr Mr. Kamlesh
Patel and Mr. Mukesh Patel. Since then the company has extended production
capacities as well as the product range. AGL is engaged in the business of
manufacturing, outsourcing and trading of ceramic wall and floor tiles. The two
manufacturing facilities are located at Idar and Himmatnagar in Gujarat. The
company has also acquired 49% stake in Amazon Ceramics Limited located in
Himmatnagar, Gujarat. Apart from this, the promoter group has also acquired
stake in Gujarat based 3 tile manufacturing
units resulting in an aggregate capacity of ~36.00 million sqm per annum. The
company markets its tiles under the established brand names like ‘AGL’,
‘Bonzer7’, ‘Bellissimo’ etc.
AGL has an extensive
marketing and distribution network which comprises of over 3000 dealers and
sub-dealers covering each and every state of the country. Company has also open
more than 60 + exclusive showrooms under ‘AGL tiles world exclusives’ for
showcasing its product range. AGL currently enjoys healthy footprints in around
47 countries. The company has produced 13 crore square meter of space décor
under their leadership. AGL has eight states of art ultra-modern plants
manufacturing world class Tiles, Marble & Quartz in Gujarat. Company’s
facilities are ISO 9001:2008 and ISO 14001:2004 certified and are fully
equipped with latest technologies to give contemporary touch to its products.
Products
- Ceramic wall, ceramic floor and vitrified tiles
- Digital polished glazed vitrified tiles and digital wall tiles
- Marble and quartz
Business
Segment: Tiles
Tiles segment contributed 82% (Rs. 703 crores) of total revenues in 2013-14.
The Company added 300 dealers and sub-dealers during the year (total 2,800). The
Company’s total tile production capacity stood at 81,000 square meters per day
including outsourcing at the close of 2013-14. Asian Granito has raised its
production volume eight times during last 11 years and nearly 97 per cent of
revenues were derived from within India.
Company has also widened its international
footprint over the years. Company now exports to 47 countries, possibly the
largest number of countries exported to by any Indian tile company. The Company
has also commissioned an international retail outlet in Johannesburg, possibly
one the first such instances ever undertaken by an Indian tile brand, which we
hope to replicate in Italy and China.
The Company entered into a joint venture with
Panaria which will provide technical know-how to enhance product quality and
access to global markets through its proprietary distribution network while
Asian Granito will continue providing world-class products around a competitive
price-value proposition.
Company introduced Carrara white tile
claimed to be as the world’s whitest unglazed vitrified tiles in larger format.
Carrara White echoes its superiority over traditional marble flooring in terms
of whiteness and superior aesthetics & truly stands apart as the world’s
whitest tile that is easy to install as compared to the marble flooring.
The Company’s acquired ISO 9001:2008
and ISO 14001:2004 certifications for its state-of the-art manufacturing
facilities, reflecting procedural consistency. The Company’s CE certification
and status as an IGBC member, vindicates its excellence in the realms of export
and environmental sustainability
Business
Segment: Marbles and Quartz
Marbles and quartz segment contributed 15% of total revenues in 2013-14.
Asian Granito accounts for a sizeable share of 45 per cent of India’s
engineered stone market. The Company offers slabs in the 3,025x1,225 square millimeters
segment, which enjoys a lot of popularity as it addresses large sized
requirements. The Company’s products were marketed to real estate, infrastructure,
hospitality, education and health sectors. Company’s marble and Quartz segment
achieved gross revenue of Rs. 126 crores in FY 2013-14 compared to Rs. 96
crores in 2012-13.
The Company offered a variety of more than 1,200
designs to broaden the element of choice for the consumers. The Company has
more than 60 dedicated marketing executives looking into this division, the
largest in India. The Company’s products are available in more than 20
locations across the length of the country.
During last financial year, average realizations
grew by 10 per cent to Rs. 150 per square feet. The company reported a value
growth of 25 per cent corresponding to a volume growth of 5-10 per cent. The
business is expected to do better due to government stability and increased
infrastructural spending. The Company plans to increase segmental revenues to
Rs. 250 crore by 2017.
2. Recent Developments: (as on 29 Sept'14)
i) Outcome of Company’s
Board Meeting – 30th August 2014
Board of Directors of the Company at its meeting
held on August 30, 2014, has framed a Committee of Directors to analyze the
matter on allotment of warrants by way of Preferential Issue and after due
study, the Committee will suggest the ways and means and various options in
next four - five weeks.
ii) Asian
Granito India Ltd opens 50th ‘AGL Tiles World Exclusive’ showroom in Aurangabad
– 18th April 2014
Asian Granito India Ltd
(AGL), one of India’s top five ceramic tile manufacturers, has opened its 50th
‘AGL Tiles World Exclusive’ showroom in Aurangabad, Maharashtra. The company’s
sixth exclusive showroom in the state of Maharashtra, the Aurangabad showroom
will feature never-seen-before collections of a wide range of wall and floor
tiles of superior quality and unparalleled variety under a single roof.
The company has launched its AGL Tiles World
Exclusive’ showroom in partnership with M/s Swastik Tiles based at Aurangabad,
Maharashtra.
With an aim of giving shape
to company’s dream project of having a
strong retail presence pan-India, Asian Granito India Ltd. has successfully
already opened 49 exclusive showrooms in cities like Mumbai, Delhi, Jaipur,
Bangalore, Chennai, Ahmedabad, Nagpur, Amravati, Gonda (Uttar Pradesh),
Udaipur, Nasik and Jalandhar till now. With the opening of this showroom in
Aurangabad, the number of AGL tiles world exclusives has gone up to 50 outlets
Company plans to ramp up
its retail business by opening 100 new exclusive AGL Tiles World stores. Company
is confident to double the existing number of ‘AGL Tiles World Exclusive’
stores all over India in this financial year
iii) Asian Granito acquires shares of AGL Industries –
03rd March 2014
Asian Granito India
has acquired 100% shares of AGL Industries to become its wholly owned
subsidiary. AGL Industries, a company incorporated under Companies, Act 1956
having its registered office at D-702, Seventh Floor, Ganesh Meriden, Opp. High
Court, S G Highway, Ahmedabad, Gujarat and is currently engaged in business of
agriculture products.
iv) Asian Granito takes contract manufacturing route
to capacity expansion – 7th Mar’13
Tile maker Asian Granito Ltd has chosen the contract manufacturing
route to add capacity as the demand for ceramic tiles is expected to firm up in
the ensuing fiscal after recording muted growth this year.
The Ahmedabad-based firm is tying up with some 15 contract
manufacturers to add capacity of about 25,000 sq mt each day in the next six
months. It currently operates six manufacturing units of its own with a
combined output of 81,000 sq mt a day in and around Ahmedabad.
“We are investing about Rs. 300
crore to put in place a network of contract manufacturers, including on
modernizing their facilities. We are funding this expansion through our own
accruals,” A.P. Manojkumar Vice-President (Sales and Marketing) told.
Asian Granito is the amongst the top seven or eight companies in the
organised tile manufacturing sector after H. R. Johnson, Kajaria, Nitco and
Somani. The domestic tile market is estimated at Rs.18,000
crore; it registered lower growth of 11 per cent this year as against 14-15 per
cent in the previous fiscal.
The company will consider setting up its seventh manufacturing unit in
the South, either in Andhra Pradesh or Karnataka, depending on the availability
of gas. Tamil Nadu is company’s biggest market, followed by Kerala and Andhra
Pradesh. If company get adequate gas supply, company may consider setting up a
9,000 sq mt a day unit at a cost of about Rs. 70
crore.
3. Financial Performance: (as on 29 Sept'14)
Asian
Granito India net profit rises 31.37% in the June 2014 quarter
Net profit of Asian Granito India rose 31.4% to Rs 33.5
million in the quarter ended June 2014 as against Rs 25.5 million during the
previous quarter ended June 2013. Sales rose 12.2% to Rs 1762.4 million in the
quarter ended June 2014 as against Rs 1571.4 million during the previous
quarter ended June 2013.
Asian
Granito India net profit rises 62.53% in the March 2014 quarter
Net profit of Asian Granito India rose 62.53% to Rs 59.0
million in the quarter ended March 2014 as against Rs 36.3 million during the
previous quarter ended March 2013. Sales rose 22.1% to Rs 2523.4 million in the
quarter ended March 2014 as against Rs 2066 million during the previous quarter
ended March 2013.
For the full year, net profit declined 17.4% to Rs 141.4
million in the year ended March 2014 as against Rs 171.1 million during the
previous year ended March 2013. Sales rose 7.3% to Rs 7591.4 million in the
year ended March 2014 as against Rs 7081.2 million during the previous year
ended March 2013.
Company has shown a
turnaround performance in last 2 quarters and we believe it will continue to
deliver robust bottom line compared to last year with better sales realization
of its value added products.
Asian Granito Ltd has taken
no. of new initiatives to increase the proportion of value-added tiles in its
product mix from 25.00 percent in 2013-14 to a projected 30 per cent in two
years with a corresponding increase in average realisations and profitability
4. Peer Group Comparison:
i) Rising competition: Lured by the demographic profile and improving prospects of housing
and construction sector, many foreign companies are entering India with a view
to leverage the opportunity. RAK Cermics, leading global player in ceramic tile
sector, is expanding and is growing at 50% over the last two years. Monalisa
Tiles, the third largest tile manufacturer in the world, is venturing into
India with an initial investment of USD 25 mn and plans to open 15 stores in
FY15. Thus, rising competition is not likely to allow significant improvement
in profitability going forward.
ii) Rising power and fuel cost – hindrance to
accelerate expansion:
Power and fuel is the key cost for manufacturing tiles accounting for more
than 12% of total sales of the companies. Rising issues on availability of gas
and increasing unit power cost is leading to higher cost for the domestic
companies. Companies are shifting their focus on improving their revenue mix
towards value added products to mitigate this risk.
iii) No major entry barriers in business: Tiles
business have no major entry barriers. Product quality and designs also does
not provide much resistance to competition. Hence branding is the only unique
selling point for the companies to improve their recall in the minds of
consumers. With rising disposable income, consumers increasingly prefer branded
products. We believe that company has shifted its focus to offer value added
products by increasing product mix & advertising spends to build strong
brands and increasing brand awareness and offerings by opening retail outlets
across country
6. Future Outlook: (as on 29 Sept'14)
Indian tiles sector, despite being the third largest tiles market,
is growing at the fastest pace amongst top five markets in the world. The
growth of Indian tile sector of 14% CAGR over CY08-CY14 is more than 2x world
average CAGR of 6.9% over the same period. Per capita consumption of tiles in
India is lowest among the top five countries, providing immense potential for
growth.
The key catalysts for rising consumption of tiles are second
largest and young population (median age of 25.5 years in 2010), rising
disposable income and increasing urbanization. Consumerism is likely to fuel
the demand for ceramic products, which are discretionary in nature. Tier-2 and
Tier-3 cities are likely to lead the demand growth and urban / metro cities
will add with replacement demand.
As per Cushman and Wakefield, the total housing demand is likely
to be 88.78 mn units by 2017 owing to urbanization and increasing population.
It expects 2015 to be the inflection year for commercial real estate sector, as
demand is likely to surpass supply due to expected improvement in economy. It
estimates Hotel inventory to increase by over 65% by 2017 and approximately 22
mn sq ft of new mall supply to be added to the top eight cities by 2015.
India holds 3rd position in the world consumption of ceramic tiles.
Despite this, it is among the fastest growing tiles market with consumption
CAGR of 14% over CY08-CY12 against world average CAGR of 6.9% over the same
period, as per Ceramics Wolrd Review. Indian consumption of tiles reached 681
million square meters (msm) in CY12 against 403 msm in CY08. As per the
industry, global ceramic tiles is likely to reach 18,154.1 msm by CY18,
signifying a CAGR of 8.9% over CY12-CY18.
Increasing construction activity in China and India are likely to
drive the growth of global ceramic tiles sector. If we assume that the Indian
ceramic tiles sector will continue its 14% CAGR till CY18, the Indian ceramic
tiles sector is likely to reach 1495.9 msm, 2.2x its current size.
Tiles being a volume play, expansion are inevitable. To leverage
the current opportunity and tackle with surplus capacity situation, most
companies are going slow on organic expansion plans and are eyeing to partner
with unorganized sector which constitutes ~50% of the total sector.
For organized players, the cost of capacity expansion is reduced
and the already available capacity enables immediate revenue generation
lowering the payback period. For unorganized players, there is a ready market
for their production as organized players are recognized by their brands.
India has been increasing its market share in total consumption
over the last few years. Its market share in world consumption increased from
4.8% in CY08 to 6.2% in CY09. This is the largest gain in share after China
which grew its share by 515 bps over the same period, considering the top four
countries. Despite increase in market share, the per capita consumption of
tiles is lowest for India at 0.54 sq mtr against China’s 3.07 sq mtr, Brazil’s
4 sq mtr and Iran’s 4.84 sq mtr.
This shows that the potential for growth in Indian tile sector is
exponential, which increases its attractiveness in global landscape. In our
opinion, the market share of Indian ceramic sector is likely to reach 8.2% in
CY18.
Increasing construction activity in China and India are likely to
drive the growth of global ceramic tiles sector. If we assume that the Indian
ceramic tiles sector will continue its 14% CAGR till CY18, the Indian ceramic
tiles sector is likely to reach 1495.9 msm, 2.2x its current size.
Tiles being a volume play, expansion are inevitable. To leverage
the current opportunity and tackle with surplus capacity situation, most
companies are going slow on organic expansion plans and are eyeing to partner
with unorganized sector which constitutes ~50% of the total sector.
For organized players, the cost of capacity expansion is reduced
and the already available capacity enables immediate revenue generation
lowering the payback period. For unorganized players, there is a ready market
for their production as organized players are recognized by their brands.
India has been increasing its market share in total consumption
over the last few years. Its market share in world consumption increased from
4.8% in CY08 to 6.2% in CY09. This is the largest gain in share after China
which grew its share by 515 bps over the same period, considering the top four
countries. Despite increase in market share, the per capita consumption of
tiles is lowest for India at 0.54 sq mtr against China’s 3.07 sq mtr, Brazil’s
4 sq mtr and Iran’s 4.84 sq mtr.
This shows that the potential for growth in Indian tile sector is
exponential, which increases its attractiveness in global landscape. In our
opinion, the market share of Indian ceramic sector is likely to reach 8.2% in
CY18. Increasing construction activity in China and India are likely to
drive the growth of global ceramic tiles sector. If we assume that the Indian
ceramic tiles sector will continue its 14% CAGR till CY18, the Indian ceramic
tiles sector is likely to reach 1495.9 msm, 2.2x its current size.
Tiles being a volume play, expansion are inevitable. To leverage
the current opportunity and tackle with surplus capacity situation, most
companies are going slow on organic expansion plans and are eyeing to partner
with unorganized sector which constitutes ~50% of the total sector.
For organized players, the cost of capacity expansion is reduced
and the already available capacity enables immediate revenue generation
lowering the payback period. For unorganized players, there is a ready market
for their production as organized players are recognized by their brands.
India has been increasing its market share in total consumption
over the last few years. Its market share in world consumption increased from
4.8% in CY08 to 6.2% in CY09. This is the largest gain in share after China
which grew its share by 515 bps over the same period, considering the top four
countries. Despite increase in market share, the per capita consumption of
tiles is lowest for India at 0.54 sq mtr against China’s 3.07 sq mtr, Brazil’s
4 sq mtr and Iran’s 4.84 sq mtr.
This shows that the potential for growth in Indian tile sector is
exponential, which increases its attractiveness in global landscape. In our
opinion, the market share of Indian ceramic sector is likely to reach 8.2% in
CY18.
7. Investment Rationale: (as on 29 Sept'14)
i) Company is shifting the manufacture of low-value
tiles to its outsourcing and joint venture partners while selecting to
allocate its captive capacities towards the manufacture of value-added tiles.
This progressive value-addition (larger format, thicker vitrified tiles,
double-charged, nano finish and increase in digital machines from one to seven
to a projected ten in 2014-15) is expected to reflect in rising average realizations,
quicker offtake and increased profitability in the near future.
ii) Apart from manufacture of value added tiles; the
Company will market these in a correspondingly uplifting environment. The
Company expects to generate at least Rs. 250 crore revenues by increasing the
number of exclusive shops through which these tiles can be marketed, from 50 to
80 in 2014-15.
iii) Up-gradation of credit rating by ICRA A-/A2+ will
also help the Company to negotiate debtor with banks and to introduce new
financial products in the market. Going forward, the Company’s focus on
value-addition is expected to strengthen liquidity.
iv) The Company increased its product capacity (direct
and outsourced) on the one hand; during the last financial year, it also
embarked on a number of initiatives to introduce value added products (digital,
textured and larger products) – from 12 per cent of its product mix in 2013-14
to a projected 30 per cent during 2014-15.
v) Company’s management aims to achieve revenue of Rs.
1000 crores by this financial year with significant improvement in operating margins. Company
extended its average realisations range from a peak Rs. 340 (2012-13) per
square metre to Rs. 360 (2013-14) per square metre and expect to take this
growth to Rs. 375 (2014-15) per square meter in the current financial year
which will help company to improve its profit margins. Moreover, company
is focusing more on brand building since last few years. Company estimates
2.5% of sales spend for brand building in 2014-15 compared to 2% in 2013-14 and
1.5% in 2012-13.
vi) Currently, the market cap of Asian Granito is 223
crores against annual revenue of Rs. 854 crores in FY 13-14. Company trades at
trailing PE of 15 with market cap to sales ratio of 0.3. However, peer group
companies like Kajaria Ceramics, Somany are trading at trailing PE in the range
of 35 – 40 with market cap to sales ratio above 1. Higher valuations of peer
companies are mainly because of strong bottom line with better operating and
profit margins and low debt on books. During last couple of years, Asian
Granito profit margins were declined due to high debt on books and lower
operating margins which seems to the key reason for stock trading at lower
valuations. However, we expect that company bottom line will improve
significantly in near future considering new initiatives taken by the company
during last 12 months and help stock price to get re-rated in terms of
valuations.
8. Saral Gyan Recommendation: (as on 29 Sept'14)
i) If you look at financial performance of the
company during last 5 years, it shows a poor performance which will not
encourage investors to invest in such a company. Company EBITDA and PAT margins
shows a declining trend from FY 09-10 to FY 13-14, poor performance in terms of
important ratios like ROA and ROE and increase in debt to equity ratio.
Moreover, promoter’s shareholding is low at 37.52% which further raises doubt
on management interest in the company.
ii) However, if we look at recent initiatives taken
by the management like opening of exclusive showrooms for strengthening retail
business, shifting focus towards value-added products for increasing average
sales realization & profitability, planning higher expense allocation
towards brand building, outsourcing and joint venture
partnership to increase capacity of value-added tiles, we believe Asian
Granito will be a turnaround story going forward
iii) Low promoters shareholding and high debt on
books is a concern for us. However, we consider Asian Granito as our contrarian
bet considering change in business approach by the management and favourable
economy for companies in construction sector. Company has performed well in
terms of top line and bottom line growth during last 2 quarters. Considering
no. of initiatives taken by the management, we believe operating margins will
continue to improve during next 4 to 6 quarters
iv) Peer group companies like Kajaria and Somany are
better placed in terms of profit margins but with trailing PE above 35,
valuations seems to be on higher side. We believe company like Asian Granito is
reasonably valued at trailing PE of 15 and will be the direct beneficiary in case
of increase in profit margins. With market cap to sales ratio at 0.3, increase
in profitability can re-rate the stock in terms of valuations going forward
v) The advent of low-cost affordable housing,
emphasis on providing total sanitation for every household by 2019 and the
planned introduction of metro rail networks in Lucknow, Nagpur and Ahmedabad
are expected to spur tile offtake. Moreover and the allocation of Rs. 7,060
crore towards the development of 100 ‘smart cities’ and the intended
establishment of seven ‘industrial cities’ as per Union Budget 2014-15 indicates
strong demand for construction material including tiles. Being one of the
largest manufacturers of tiles in India, AGL will be the direct beneficiary
vi) As per our estimates, Asian Granito Ltd (AGL) can
deliver bottom line of 227 million for full financial year 2015 – 16,
annualized EPS of Rs. 10.05 with forward P/E ratio of 9.8X for FY 2015-16,
which makes stock an attractive bet at current market price for long term
investors
vii) On equity of Rs. 225.83
million, the estimated annualized EPS for FY 15-16 works out to Rs. 10.05 and
the Book Value per share is Rs. 125.62. At current market price of Rs. 98.35,
stock price to book value is 0.78
Considering good future prospects and reasonable
valuations of the company compared to peers, Saral Gyan
team recommends “Buy” on Asian Granito India Ltd at price of Rs. 98.35 for target of Rs. 200 over a period of 12 to
24 months
Buying Strategy:
- 60% at
current market price of 98.35
- 40% at
price range of 80-88 (in case of correction in stock price in near term)
Portfolio
Allocation: 4% of your equity portfolio
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Regards,
Team - Saral Gyan.