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Wednesday, June 12, 2019

Roto Pumps: Our 7-Bagger Stock - ROI @ 610% in 7 Years

Dear Reader,

Our equity analysts published Hidden Gem - Aug 2012 research report on 5th Aug'12 and shared it with all Hidden Gems members. Hidden Gem stock of Aug'12 was  Roto Pumps Ltd (BSE Code: 517500) and our team recommended buy at price of Rs. 21 (adjusted split price, actual recommended price was Rs. 105) and in 7 years, stock is a 7-Bagger stock for our Hidden Gems subscribers. Roto Pump Ltd even after severe correction in small caps during last 16 months is giving absolute returns of 610%Roto Pumps stock price closed at Rs. 148.95 giving absolute returns of 610% to our members within period of 7 years.

In March 2019 quarter, net profit of Roto Pumps rose 30.83% to Rs 5.39 crore against Rs 4.12 crore during the previous quarter ended March 2018. Sales rose 2.71% to Rs 38.97 crore in the quarter ended March 2019 as against Rs 37.94 crore during the previous quarter ended March 2018.

For the full year, net profit of Roto Pumps rose 78.74% to Rs 15.30 crore in the year ended March 2019 as against Rs 8.56 crore during the previous year ended March 2018. Sales rose 17.08% to Rs 127.76 crore in the year ended March 2019 as against Rs 109.12 crore during the previous year ended March 2018.

Below is the summary of Roto Pumps Ltd shared by our team under Hidden Gem research report - Aug'12.

Company Background

Roto Pumps is an engineering company with global focus. With presence in over 40 countries, company aims to provide localized solutions in application engineering, deliveries and sales support.

As a positive displacement pump manufacturer, company continuously endeavors to increase our pump basket to cater to wide spectrum of industries and applications. Roto Pumps basket consists of Progressive Cavity Pumps, Twin Screw Pumps, Dosing Pumps, Food Pumps and General Purpose Pumps.

Company greatest asset is the application expertise gained in the last 40 years in providing fluid engineering solutions to thousands of customers worldwide.

Company’s manufacturing infrastructure spans over 20000 sq. meters and is equipped with machine tools like CNC and other SPMs. The units are certified with ISO 9001-2000 quality surveillance systems and it has the coveted ATEX certification. One of the focus area of company’s manufacturing is the Research and Development. This facility is equipped with state-of-the-art testing equipment, captive machine shop and design centre. 

Infrastructure 

Roto Pumps has strong roots in manufacturing engineering and has over the years been able to develop efficient manufacturing processes both in the field of metal cutting and rubber processing. Spread over a combined factory area of 20,000 sq. meters, these units are equipped with sophisticated machine tools like CNC and other SPMs. These are also geared up with modern testing facilities including water and oil test bed with sophisticated data.

The continuous investments in precision instruments in in-house manufacturing facilities for critical components ensure 100% control over quality and customer satisfaction. Roto Pumps manufacturing units are certified for conformance with the ISO 9001-2008 quality surveillance systems. We are also in the process of acquiring ISO 14001 and OHSAS 18001 (Occupation, Health, Safety & Environment) certifications.

Research and Development

Roto Pumps Research and Development facility is the concrete realization of its philosophy of providing cost effective fluid engineering solutions. It translates concepts into prototypes and prototypes into final product. Our Research & Development team was also instrumental in helping the company to get its product accredited to ATEX certification. 

This facility is equipped with state-of-the-art testing equipment, a captive machine shop and design centre. The design centre is equipped with 3D designing software (solid works) and also deploys advanced software for flow analysis, mechanical strength and cost optimization. Staffed with highly qualified and experienced professionals, the Roto Pumps R&D centre is playing a critical role in helping the company maintaining its leadership by continuously upgrading the technology as well as expanding the product range. 

Sales Network

Roto Pumps Ltd marketing head office is in Noida, India. Company has its branch offices and warehouses in United Kingdom and Australia to cater to the large Europeon markets. It has also established prominent distributors all over Europe, Middle East, South East, Far East and North & South America. Recently, company started a subsidiary in Germany. 

Recent Developments (05th Aug 2012)

1. Increasing product reach by offering Innovating Solutions to Customers

Roto Pump is actively participating in events related to pump industry to add new customers. Company has recently invited its existing and new clients from different geographies to attend events like STAI India scheduled from 24th – 26th Sept 2012 at Hyderabad, India and Weftech 2012 scheduled from 1st – 3rd Oct 2012 at Louisiana, USA.

2. Roto Pumps Capacity Expansion

Roto Pumps Ltd, manufacturer of progressive cavity pumps and twin screw pumps, started capacity expansion plan two years back. The expansion was taken place on the plot allotted to the company by Greater Noida Industrial Development Authority.

The Authority has allotted us 20,000 sq. metres of land in Sector Ecotech-XII. Company planned to start civil works on the expansion project by 2009-end and commercial production was expected to start by end of 2011.

Company has imported machinery to the tune of Rs 5 crore for capacity expansion. The project was funded through internal accruals and bank loans.

Roto Pumps products are widely used abroad in sectors like oil and gas, pharmaceuticals, food industry and especially in waste water treatment plants. The company is also planning to diversify its business.

Financial Performance (05th Aug 2012)

Roto Pumps net profit rises 93.94% in the March 2012 quarter 

Roto Pumps net profit rose 93.94% to Rs 25.6 million in the quarter ended March 2012 as against Rs 13.2 million during the previous quarter ended March 2011. Sales rose 44.36% to Rs 24.57 million in the quarter ended March 2012 as against Rs 17.02 million during the previous quarter ended March 2011. 

For the Audited full year, net profit rose 34.88% to Rs 72.7 million in the year ended March 2012 as against Rs 53.9 million during the previous year ended March 2011. Sales rose 28.43% to Rs 759.9 million in the year ended March 2012 as against Rs 591.7 million during the previous year ended March 2011.


Roto Pumps net profit rises 87.41% in the December 2011 quarter

Net profit of Roto Pumps rose 87.41% to Rs. 25.3 million in the quarter ended December 2011 as against Rs. 13.5 million during the previous quarter ended December 2010. Sales rose 36.76% to Rs. 212.74 million in the quarter ended December 2011 as against Rs. 155.56 million during the previous quarter ended December 2010.

Key Concerns & Risks (05th Aug 2012)

1. The Indian market is becoming intensely competitive with cheap imports from China predominantly in the simple water handling pump market & presence of multi-national companies in the high end of industrial segment.

2. The Indian companies would have to continuously invest in R&D, Manufacturing and Product Technology in order to improve product efficiency and cost effectiveness to retain and grow their market share.

3. There is going to be pressure on margins due to steep increase in input costs & Interest rates. The Government approach to rein in the Inflation is having a dampening effect on the growth of the economy and sluggishness towards reforms is hampering the inflow of Foreign Investments.

4. Cheap Imports backed by favorable commercial terms from China pose a definite risk to the Domestic industry.

Saral Gyan Recommendation (05th Aug 2012)

1. Steady growth in Indian economy especially increased investments in infrastructure & development projects will continue to provide enough opportunities. International market also offers good opportunities in niche market despite sluggish economic scenario.

2. Roto Pumps valuations are attractive compared to other listed players like KSB pumps, WPIL, Kirloskar and Shakti pumps. Roto pumps is trading at PE of 4.5 whereas other companies like KSB pumps and WPIL are trading at PE multiple of above 14 and 16 respectively.

3. In terms of revenue, Roto pump is a smaller player compared to its peers. With recent capacity expansion programme; there is enormous potential for the company to scale up its business. Another positive about the company is its operating margins, Roto pumps operating margins are better compared to other listed companies in the same segment.

4. As per our estimates, PEL can deliver bottom line of 96 million for full financial year 2012 – 13, annualized EPS of Rs. 31 with forward P/E ratio of 3.4 X for FY 2012-13, which makes stock an attractive and safe bet at current market price.

5. Company has paid regular interim dividends to share holders since last 7 years, dividend payout is increased from 100% in 2005 to 250% in 2011.

6. On equity of Rs. 30.91 million the estimated annualized EPS for FY 12-13 works out to Rs. 31 and the Book Value per share is Rs. 99.61. At current market price of Rs. 105, stock price to book value is 1.05 and with dividend yield of 2.4%, valuations are attractive with limited downside risk.

Considering attractive valuations and the growth potential of the company, Saral Gyan Team recommends “BUY” for Roto Pumps Ltd. for a target of Rs. 220 over a period of 18-24 months.

Buying Strategy:

  • 50% at current market price of 105
  • 50% at price range of 83-85 (If stock price falls during market correction)
To Read / Download Saral Gyan Hidden Gem - Aug'12 Research Report - Click Here

As on date, Roto Pumps is giving returns of 610% and is a 7-Bagger stock for our Hidden Gems members within 7 years. Moreover, there are total 49 Hidden Gems stocks out of 87 published by our equity analysts till Dec'18 which have given returns in the range of 100% to 1900% to our members during last 8 years.

Through Hidden Gems and Value Picks, we are providing you opportunities to invest in such small / mid cap stocks today. Infosys, Pantaloon, Dabur, Glenmark were the small cap stocks in past and today are the well known companies falling under mid and large cap space.

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

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 6 months or 12 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.

Small Cap Index has not delivered negative returns for 2 consecutive years in past 16 years

We believe this is a blessing in disguise because for the first time in many years, several small companies having robust business fundamentals are available at attractive valuations. Do you know in last 16 years, small cap index have not given negative returns for 2 consecutive years. In 2018, BSE Small Cap Index has given negative returns of -23.4% and since beginning of this year, index is down by another -0.7%. Below is the table which indicates Small Cap Index returns YoY since 1st April 2003 (the data is available from April 2003 onwards only in BSE).
Whenever, Small Cap Index delivered significantly high negative returns in a particular year during last 16 years, it has delivered double digit positive returns the very next year. While Nifty and Sensex which are hovering near their life time high, Small & Mid Cap Index have underperformed by wide margin. The divergence between Sensex / Nifty and Small & Mid Cap Index will not last for long going forward considering valuations gap emerging between large caps in comparison to mid & small cap stocks.

Its important to understand that long term gains come in equities with such short term pain. We have seen such a severe correction in small and mid cap stocks after 2011. With continuous fall in stock prices during this year,  valuations of many small and mid caps become attractive to reasonable. In fact, many good companies are available at valuations which look very attractive considering the earning growth these companies are expected to deliver over next 2 years. This is not the time to sell in panic, but to accumulate good companies available at discounted valuations. Moreover, we believe broader market has already bottomed out in Feb 2019 post Pulwama attack and is now forming a base, hence we can see renewed buying interest in small & mid caps once sentiments improves. Bad sentiments will not last for ever, its time for long term investors (2-5 years) to start accumulating good quality stocks which after a long time are becoming available at attractive valuations.

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Also Read: 
i) Download Potential Multibagger Stock 2019 Report for Free!
ii) Are you Investing in Potential 5-Bagger in 5 Years Stock? 
iii) Six High Quality Small & Mid Cap Stocks to Buy Now

Wish you happy & safe Investing!

Regards,
Team - Saral Gyan.