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Showing posts with label Fundamental Analysis. Show all posts
Showing posts with label Fundamental Analysis. Show all posts

Tuesday, November 21, 2023

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 have a reader base covering almost all major states in India and from 20 other countries across globe. During the last 10 years we have interacted with several investors seeking multibagger return from stocks. 

It was 17th Dec 2011, we covered 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 suggested adding it up 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 8196 this year and currently trading around Rs. 7650, Cera is a 50-Bagger stock in 12 years from our initial coverage and is a 18X stock 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 2-3 years at least and not just 6 to 12 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 held Cera for long term and suggested complete profit booking to our members in the stock around 3500 - 4000 levels in 2017.

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 cap 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, market cap to sales ratio etc.

Lets try to understand this with an example, Rajratan Global Wires share price was Rs. 54.77 on 30 Nov 2017 (stock split and bonus issue adjusted price, actual price was 639). Today the stock price is at Rs. 1225 giving absolute returns of 2137% i.e. more than 22 times within 5 years against double digit return of Sensex in the same period. 

We suggested Buy on Rajratan Global Wires at price of Rs. 639 under Hidden Gems service on 30 Nov 2017 and if any of our subscribers have not invested in the company thinking he/she can get only 15 shares by investing Rs. 10,000 has made a big mistake. Today those 15 shares have increased to 175 shares on account of bonus shares issued by the company in the ratio of 4:3 in 2019 and later stock split of 1 shares into 5 shares (face value of Rs. 10 to Rs 2 per share) in March 2022. And the current share price of Rs. 850 is still very high for those who looks at low price stock. We advised partial profit booking in Rajratan Global Wires to our Hidden Gems at Rs. 1300, booking returns of 2270% (almost 24X) in period of 5 years.

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, EV/EBITDA, 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 many portfolio of our members under Wealth-Builder 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. 10. At the same time don’t forget that the same stock 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 was a well-known company from Infrastructure sector. At the beginning of 2010 the stock was around Rs 55. After 10 years, it was hovering at just Rs 1.30 and today its not operational any more. Those who purchased the stock during 2010 are in 100% loss! Rs. 1 lakh invested in Lanco Infratech in Jan 2010 was valued at merely Rs. 2,000 in 2020, 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 10 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 micro, 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 Nano ChampsHidden Gems & Value Picks & Wealth-Builder.

The stocks we reveal through Nano ChampsHidden 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.

Team - Saral Gyan

Thursday, May 25, 2023

Value Pick - Technocraft Industries - ROI of 50% in 2 Months

Dear Member,

We are pleased to inform you that our Value Pick stock - Technocraft Industries Ltd (BSE Code: 532804, NSE Code:TIIL) which we recommended on 19 March 2023 at Rs. 1165 has achieved its target price of Rs. 1750 in just 2 months.

Technocraft Industries stock made its all time high of Rs. 1779.35 recently and closed at Rs. 1753 today giving absolute returns of 50% to our Value Picks members in period of 2 months. We have not suggested any profit booking in the stock to our members, as we expected the company to perform well in coming quarters. Technocraft Industries will report its March quarter results on 29 May 2023.

Below is the report of Technocraft Industries Ltd released by our team as Value Pick stock on 19 March 2023, the report was shared with all our Value Picks members.

1. Company Background:

Technocraft Industries Report
Technocraft Industries was established by two IIT Graduate brothers as a partnership firm in 1972 which later converted to a private company in 1991. Technocraft Industries India Limited was initially focused on manufacturing high precision and sophisticated Drum Closures products for domestic markets but later the focus shifted to exports. The company was recognized as an export house by the government of India in 1979 and that’s when the company started establishing its subsidiaries in USA and Europe to cater the local market. In the year 1994, the company started expanding the product portfolio by acquiring Maharashtra Steel Tubes Ltd which was into manufacturing of Steel Pipes. Steel Pipes were hugely imported in Europe and to cater the opportunity, the company opened an office in United Kingdom at that time. Following the path of diversification, the company entered into manufacturing of cotton yarn in 1997. The yarn division was focused on manufacturing and export of 100% cotton ring spun yarn and was accorded a 100% EOU status.

Today, the company operates its business activities broadly in 3 divisions:

  • Drum Closures
  • Scaffolding & Formwork
  • Textiles (Cotton Yarn & Garments)

i) Drum Closures - The company is one of the leading manufacturers of Drum Closures worldwide and has established a worldwide market share of around 36% excluding China. The company is reputed globally for its quality and range of products it offers for drum closures. The company supplies drum closures to most leading drum and drum part manufacturers in the world including - B-POL, Drum Parts Inc, Mauser Group worldwide, Schutz Group worldwide and August Berger Metallwarent Gmbh. The ultimate end-user industries predominantly include oil and gas, packaging, chemicals, and food and beverages.

ii) Scaffolding & Formwork - Next big division of the company is Scaffolding and Formwork. Scaffolding is a temporary structure used to support people and material in the construction industries, real estate and any other large structures. It is usually a modular system of metal pipes or tubes, although it can be from other materials also. Formwork is the term given to either temporary or permanent molds into which concrete or similar materials are poured. This segment earns around 70% of it’s revenue from the overseas market. Scaffolding division is the second highest profit generator for the company, next to only drum closures.

iii) Textiles (Cotton Yarn & Garments) - The company has a State-of-the-art cotton yarn spinning mill equipped with fully automatic sophisticated technology from Germany, Switzerland, Japan and Spain near Mumbai. The plant is producing 30000 kgs of yarn per day on 61000 spindles installed and exporting to markets like South East Asia, China, Far East, Africa, Europe and Latin American countries.

Technocraft industries also deals in Fabric and Garments production. This division is moving towards a turnaround resulting from structural changes undertaken by the company to improve operating efficiencies. Being part of a diverse group, the Company has access to the latest trends in the European markets, thus enabling it to offer high quality products and latest fashions with Indian prices in a very short lead-time. As a result of this, 56% of total garments produced is exported to European, Asian and Latin American market.


The company is equipped with various certificates obtained for various divisions which ensures quality of products. Following are listed to name a few:

  • IS/ISO 9001:2015 Certificate of Pipe division
  • EN 1090-2:2018 Welding certificate for Steel products
  • EN 1090-3:2019 Welding certificate for Aluminum products
  • EN ISO 3834-2:2006 Welding certificate for Metallic materials
  • TechEuro-II props certified as per EN 1065:1998
  • TechEuro-III props certified as per EN 1065:1998
  • Certificate of Approval for Japanese Industrial Standards
  • TUV Austria OHSAS 18001:2007 certificate for Garment division
  • TUV Austria EN ISO 9001:2015 certificate for Garment division
  • TUV Austria EN ISO 14001:2015 certificate for Garment division
  • OEKO-TEX Standard 100 certificate for Garment division

Management Profile:

Mr. Sharad Kumar Saraf (Chairman cum Managing Director) - Mr. Sharad Kumar Saraf holds a degree in Electronics Engineering from IIT Bombay, graduated in 1969. Before founding the company, Mr. Sharad underwent one year industrial training in Germany in 1970 and returned to form Technocraft. Mr. Sharad has held various positions in different public organizations like Federation of Indian Export Organisations (FIEO), Confederation of Exporting Units (CEU), Indo-Romanian Chamber of Commerce, The Council of EU Chambers of Commerce in India etc.

Mr. Sudarshan Kumar Saraf (Co-Chairman cum Managing Director) - Mr. Sudarshan too is a IIT Bombay graduate holding a degree in Mechanical Engineering is responsible for directing all the engineering operations of the group. He was conferred the distinguished service award for the year 1999 by the Institute of Technology, Bombay. He pioneered the development of interval thread rolling process and built tools which were introduced in America which enabled the customer to save on labor cost and gain better yield.

Mr. Naveen Kumar Saraf (Director and CEO) - Mr. Naveen holds a degree from University of Manchester in Mechanical Engineering. He led the diversification of group into value added scaffolding and formwork which now holds a valuation of USD 80 million by the firm. He envisioned the diversification into engineering services outsourcing segment which is run through a subsidiary and employs more than 500 engineers in India, USA, Canada, UK and Germany. He is an active member of Young Presidents organization (YPO) and The Indus Entrepreneurs (TIE).

Mr. Ashish Kumar Saraf (Director) - Mr. Ashish Kumar Saraf holds a bachelor degree in commerce from University of Mumbai and a Masters in Textile Technology degree from Manchester University. He also completed a course on Cotton Management from Rhodes Institute, Memphis, USA.

2. Recent Developments / Market Outlook: (as on 19 March 2023)

i) Technocraft Industries Board of Directors approved the Buyback Proposal

The Board of Directors of the company at its meeting on November 14, 2022, has inter-alia approved the proposal of Buyback.

The proposal to buyback not exceeding 15,00,000 (Fifty Fifteen Lakh) equity shares of face value of Rs. 10 of the Company (representing 6.13% of the total number of equity shares in the paid-up share capital of the Company) at a price of ~1000 (Rupees One Thousand Only) per equity share payable in cash for an aggregate consideration not exceeding 150 Cr (Rupees One Hundred Fifty Crore Only). The buyback opened on 1 February 2023 and closed on 14 February 2023.

In accordance with the provisions of Regulation 24(iv) of the Buyback Regulations, the equity shares bought back by the company during the tendering period were extinguished. Post extinguishment of 15,00,000 equity shares of the company, the total number of shares were reduced from 2,44,61,687 (Prior to the Buyback - as of the Record Date, being December 30, 2022) to 2,29,61,687.

ii) Global Steel Drums market is expected to grow at CAGR of 4.5%

The global steel drums market is expected to hit USD 22.5 billion by 2029, expanding at a CAGR of 4.8% from 2022 to 2029. Increasing global trade and investment in efficient transport are expected to support the market growth in the forecasted period. Increasing global demand for food supplies and pharmaceutical segment produce is expected to take a major share in transport. With more demand for drums, closure’s demand will follow. Each drum requires one set of closure and may require gaskets and clamps for better fitting which are also produced by the company. With a variety of drum closures range according to the needs of the customer, the company is expected to strengthen its hold of the market.

iii) Global Scaffolding market is expected to grow at a CAGR of 6.3%

Global scaffolding market is expected to grow at a CAGR of approximately 6.3% from 2020 to 2027. Increasing FDI in construction in the Asia Pacific region and supportive government regulations and policies are driving the scaffolding market. The Indian government in its annual budget emphasized majorly on capital expenditure and development of infrastructure around the country. This construction will induce the demand for scaffolding and formwork division produce.

iv) The Indian Textile & Apparel Exports has a 4% share of the Global Trade

The Indian textile market is expected to be worth more than USD 209 billion by 2029. For perspective, the market stood at USD 152 billion in 2021.

India is the world’s largest producer of cotton. Estimated production stood at 362.18 lakh bales during cotton season 2021-22. Production for next crop year is expected to be around the same volume as it was in preceding crop year. Domestic consumption for the 2021-22 cotton season is estimated to be at 338 lakh bales. Cotton production in India is projected to reach 7.2 million tonnes (~43 million bales of 170 kg each) by 2030, driven by increasing demand from consumers. Also, export of textiles grew by a healthy rate of 9%. Hence the demand, revenue and profits are expected to grow in future.

The government has targets of raising the share of the manufacturing industry in Gross Domestic Product up to 25% by 2025. The introduction of PLI schemes is a way to push towards the goal. Currently, the sector contributes about 14.43% in 2021. The Indian manufacturing sector is steadily moving toward more automated and process-driven manufacturing, which is projected to improve efficiency and enhance productivity. Also, the push towards “Make in India” is expected to help the government achieve or reach close to the target.

3. Financial Performance: (as on 19 March 2023)

Technocraft Industries Operating Margin
i) Quarterly Results Analysis: Quarterly consolidated revenue and consolidated profits of the company are showing impressive results. The company managed to increase its quarterly revenue for the period ending June 2022 by 33% compared to last year and by 8% in September 2022. Although quarterly revenue for the period ending December 2022 dipped compared to same period last year, the company managed to improve profit by 33% mainly due to improved operating profit margins. The chart shows the improvement in operating margin over the quarters

In Dec’23 quarter, while the Drum Closure business saw pressure on the profit margin due to increased cost of materials, ocean freights and other inflationary impact on consumables & services along with pressure on demand, the Scaffolding business performance witnessed substantial improvement. The company is observing strong demand for its product and as a result there is substantial increase in Revenue and Margins.

The Textile segment of the company observed pressure on revenue as well as on margins due to increased cost of raw material (Cotton) & reduced price of finished product (Yarn)

Technocraft Industries Assets
ii) Balance Sheet Analysis: During the year, the company reduced its long term borrowings in order to reduce the interest costs and instead shifted towards more short term loans. On analyzing further, we can observe the nature of short-term loans are majorly in the nature of Packing Credit. Packing Credit is a short-term loan facility which a manufacturer can use to fulfil orders. This loan can be used to acquire raw materials required for a particular shipment and paid back when the amount is received from the customer, hence these are generally without security.

As illustrated in the chart above, there is a consistent increase in value of assets held by the company. Both fixed and current assets are following the same trend. The company has slightly improved debtor days and inventory days indicating efficient use of funds.

4. Investment Rationale: (as on 19 March 2023)

i) Technocraft Industries has designed and developed the next generation technology for manufacturing of drum closures. It also manufactures all its gaskets and clamps and offers a full range of drum closure products to its clients. With patented technology, there has been substantial reduction in manufacturing costs, improvement in quality and this has helped the company to become the second largest global manufacturer of steel drum closures. Technocraft Industries is the second largest manufacturer of steel Drum Closures and continues to enjoy a worldwide market share of about 36% (excluding China). The company produces a wide variety of closures and related equipment ranging from fully automatic flange insertion systems to cap-sealing tools. The company caters to all leading steel drum manufacturing companies of the world.

ii) Technocraft Industries is also a leading Indian manufacturer and distributor of scaffoldings and formwork systems. The company has been supplying scaffoldings to global markets for over 20 years. Despite the volatile nature of construction and allied activities, the Scaffolding & Formwork (S&F) market is thriving in India and is expected to see brighter times ahead. With the demand rising in the wake of ongoing and future projects, S&F manufacturers are keeping pace with the construction industry. The company has strategically located state-of-the-art manufacturing facilities with installed capacities of 40,000 MT and 25,000 MT in India and China, respectively. The company is positioned as an end-to-end solution provider owing to its well-integrated manufacturing capability. The company supplies its products to a diversified set of end markets including oil & gas, power, refineries, petrochemical, infrastructure and commercial construction.

iii) Looking at the Indian government’s focus on rapid infrastructural development across the country by constructing railways, roads, bridges, dams, airports, power plants and many more, construction is expected to grow at a fast pace. Contractors have started adapting newer technologies, faster systems, advanced concrete techniques and better and established management tools. Engineered formwork systems are built out of prefabricated modules with a metal frame - usually of steel or aluminium - and covered on the application (concrete) side with material having the wanted surface structure (steel, aluminium, plastic, timber, etc)

iv) The company has entered into manufacturing of sophisticated engineered formwork systems for building, construction and infrastructure projects in India. The company has state-of-the-art manufacturing plants in India and is well placed to play a larger role in the construction growth in India and overseas, with a network of offices at Mumbai and overseas.  The company’s product ‘Mach One’ is a very lightweight Formwork system made of high quality aluminium extrusion with admirable strength to take on the site conditions. Mach One aluminium forms are best suited for construction of residential units and mass housing projects. As per industry reports, 80% of the total cost of scaffolding is attributed towards labor cost that is involved in loading and unloading and erection and dismantling of scaffolding. With Mach One, the company has made this cost more efficient by making the entire system lighter without compromising on the required strength.

v) The company has a yarn division having consolidated capacity of around 87,000 spindles. The company produces a variety of products ranging from NE 20 to NE 40, carded and combed varieties of cotton yarn. The spinning mill is equipped with world-class Swiss, Japanese, German, Spanish equipment.  Currently, the company exports around 55% of garment products mainly in Europe, Asia, Latin American countries etc. This company has made significant structural changes in this division like grey cotton yarn operations are now based in Amravati which is cotton growing area and has cost effective operations and has shown substantial improvements in revenue as well as profits. In Murbad, the company now produces only value- added high margin products like melange yarn and fabric. These are also generating substantially better revenue and profit. Overall, this division has now been re-engineered and all loss making products and locations has been plugged by the company.

vi) Technosoft Engineering Projects Limited is a subsidiary of the company. It is a global technology services company offering broad-based engineering, designing and IT services using a variety of client-partnership models for delivery. Technosoft Engineering Projects client base spans various industry verticals including heavy machinery, automotive, aerospace, manufacturing, oil & gas, high-tech, telecom, healthcare and financial services. The company’s client base is widely spread globally including many clients from US, Canada, UK and Germany. This subsidiary has a strong team of over 300 engineers and designers located worldwide. Its engineers and designers are equipped with state-of-the-art hardware and software tools, including tools for 3-D modeling, Finite Element Analysis and process simulation.

vii) The consolidated revenue of the company is consistently increasing over the years and the same trend is followed by the profits. As illustrated in the charts below, revenue has reached around 2000 crore in FY22 and is expected to surpass even that in FY23. The consolidated profit is also expected to grow with expected turnaround in the textile division. With improved operating profit margins in last few years, profit jump looks higher than the revenue.

Technocraft Industries Revenue & Profits

viii) Infrastructure projects have taken pace globally after a slowdown during the pandemic period. Infrastructure industry growth will induce the demand for scaffolding and formworks. The innovative scaff shelter product recently introduced by the company which erects temporary labor shelters within a few hours will be in demand with new projects. The company claims to set up an on-site facility for 100 workers in 7 days with its scaff shelter facility. The scaffolding and formwork made by the company is considered to be a premium product due to its quality. In recent years, the market has seen a shift towards premium and more reliable products, especially in long term projects. Hence, the company has an advantageous position with a reputation of being a manufacturer of high-quality products.

ix) Technocraft Industries is upgrading and expanding its capacity in the textile division. As mentioned earlier in the report, the company has implemented structural changes in the textile division to improve operating efficiency. The company expects a turnaround in this segment in future and if turned profitable, it will bring big boost towards margins and overall profitability of the company. Moreover, through the textiles business the company has diversified its business operations by reducing its dependence on other divisions.

x) Technocraft Industries has a strong track record, the company has achieved sales CAGR of 15%, profit CAGR of 21% with ROE of 16% over the last 5 years. At current price of Rs. 1165, the company is available at price to book value of 1.94 and is commanding PE multiple of 9.4 on trailing 12 months basis. The company has improved debtor days, inventory days and creditor days in FY22. These ratios indicate better utilization of funds and efficiency in operations. Moreover, current ratio over 2 times, interest coverage ratio over 16 times and comfortable debt to equity of 0.34 times indicates fundamental strength of the company.

xi) Post completion of buyback, the promoters shareholding in the company is at 74.61 percent. As on Dec’22, institution shareholding in the company is 4.79 percent, out of which alternate investment funds hold 4.02 percent stake (Aequitas Equity Scheme holds 1.05 percent and Abakkus Emerging Opportunities fund hold 2.97 percent) and foreign portfolio investors hold 0.77 percent stake in the company.

5. Key Concerns & Risks: (as on 19 March 2023)

i) Global recession concerns: As per the world bank, economies around the world will be facing challenging times in the coming period. The world bank predicts the US economy to grow by only 0.5% and Europe market growth to remain flat or zero. The company’s majority revenue is earned by exports and US and Europe are considered to be their largest markets. Slowdown in these economies is going to affect Technocraft’s performance.

ii) Weakening of INR: Indian rupee has touched an all time low against US Dollar in October 2022. 70% of the revenue of Technocraft comes from export sales and the US Dollar is considered to be the predominant currency in global trade. This weakening of INR can impact the operating margins of the company in large competitive markets.

iii) Loss in Fabric segment: The company has been constantly reporting losses in Fabric segment. Garment industry is considered to be one of the most populous industries in the world and this is affecting the overall profitability and overall operating margins of the company. Although the company has almost halved the losses in FY22 compared to FY21 with increased turnover by 64% in the same period, the losses are expected to widen in FY23 based on the limited segment wise information provided by the company in December quarter results.

6. Saral Gyan Recommendation: (as on 19 March 2023)

The company focus is to grow its position in each of its core businesses which is Drum Closures, Scaffolding, Engineering & designing Services and Textiles. The company sees the Drum Closure division growing at a robust pace and is one of its core focus areas. The company is working strongly and increasing the sales and profitability in China which is one of the main growing markets for Drum Closures division. Scaffolding business is also expected to do well considering Government initiatives such as RERA, Affordable housing, Smart Cities etc. which is expected to bring a transformational shift and boost growth of the Indian real estate industry. The company believes that this division has strong future prospects due to anticipated growth in infrastructure and affordable housing construction demand in India as well as globally. Moreover, the company has implemented structural changes in the textile division to improve operating efficiency. The company expects a turnaround in this segment in future and if turned profitable, it will bring a big boost towards margins and overall profitability of the company.

Considering consistent increase in profits and margins in the past with significant increase in net worth of the company (net worth as at 31 March 2016 was Rs. 553 crores which has substantially increased to Rs. 1330 crores as at 31 March 2022), planned capacity expansions in the textile division and diversifying into plastic drum closures to drive future growth, expected volume growth in the scaffolding division with increasing thrust on infrastructure development and reasonable to attractive valuations of the company, Saral Gyan team recommends “Buy” on Technocraft Industries (India) Limited at a price of Rs. 1164.55 for a target of Rs. 1750 over a period of 12 to 24 months.

Buying Strategy:

  • 60% at current market price of 1164.55
  • 40% at price range of 900 – 1000 (in case of correction in stock price)

Portfolio Allocation: 3% of your equity portfolio.

Nano Champs Hidden Gems Value Picks Wealth-Builder
If you wish to invest in fundamentally strong micro, 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 Nano ChampsHidden GemsValue Picks & Wealth-Builder.

The stocks we reveal through Nano ChampsHidden 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.
Moreover, under our Wealth-Builder service, we encourage our members to replicate our Wealth-Builder portfolio by investing in selective high quality small and mid cap companies. We believe, investing in Wealth-Builder portfolio with regular portfolio review from our end can help you achieve market beating, very good returns over a longer team and help you take care of yourself and your family needs, which ultimately lead to a healthy and wealthy life after retirement.

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Saturday, February 11, 2023

Kabra Extrusion Technik - Our 9-Bagger Stock in 4 Years

Dear Reader,

We are pleased to inform you that our Hidden Gem stock of Oct'18 - Kabra Extrusion Ltd (BSE Code: 524109, NSE Code: KABRAEXTRU) is a 9-Bagger stock for our Hidden Gems members in period of 4 years. 

Our team suggested Buy on Kabra Extrusion Technik Ltd as Hidden Gem stock at price of Rs. 72.15 on 30 Dec 2018. Kabra Extrusion Technik stock price made all time high of Rs. 645 recently and closed at Rs. 620 on Friday giving absolute returns of 760% i.e. almost 9 times returns in a period of 4 years against double digit returns of Sensex & Nifty in the same period.

We picked Kabra Extrusion Technik as Hidden Gem stock when the company's market capital was 230 crores, today its almost a 2,000 crore market cap company.

Below is the summary of Kabra Extrusion Technik Ltd shared by our team under Hidden Gem stock - Oct'18 report released on 30 Dec 2018.

1. Company  Background (As on 30 Dec 2018)

Kabra Extrusion Technik Ltd
Kabra Extrustion technik Ltd. is the flagship company of Kolsite group and one of the largest players in the plastic extrusion machinery known for its innovative offerings. The company specializes in providing plastic extrusion machinery for manufacturing pipes and films. It has two manufacturing locations in Daman. The plastic extrusion machinery industry’s prospects appear positive in the long term. 

The Kolsite group is known for being the pioneer of various technologically advanced plastic extrusion solutions. Kolsite group under its roof has 4 flagship companies dealing in different avenues like extrusion machinery, master batches, secondary packaging.

Kolsite group of companies: 

▪ Kabra Extrusion technik Limited (KET) 
▪ Plastiblends India Limited (PBI) 
▪ Maharashtra Plastic & Industries Limited (MPI) 
▪ Kolsite Corporation LLP – Agency Division (KCLLP) 

Kolsite Group commenced its operations in the year 1962 at a small factory in Tardeo that had a total area of 800 square feet. Mr. SV Kabra left his traditional business and ventured into the plastics Industry. In 1962, the industry was at a very nascent stage, and he decided venture into processing and while processing he faced various issues with the machinery which eventually encouraged him to manufacture machinery for plastic extrusion. 

The group entered into joint ventures with the Global players of this field to soon become a leader in Plastic Extrusion Machinery in India. Since then, the company is known for being the pioneers of various technologically advanced plastic extrusion plants. The group has completed 55 years of its existence.

The company has global presence in ~90 countries. Kabra Extrusion technik has one of the largest sales & services network in India and equally efficient agencies in South Africa, Turkey, Middle East, South East Asia & Latin America. This helps the company to cater broader spectrum of clients and enhance its capabilities as a manufacturing company. 

Kabra Extrusion technik has 2 state-of-the manufacturing facilities with a combined area of about 83820 sq. m. These facilities consist of Administration Buildings, Govt. recognised in-house R & D Unit, Quality Testing Units, Machine Tool Equipment & Paint Shop. The company has one of the largest R & D team in the Plastics Machinery Industry with more than 45 dedicated engineers working in different areas of processing, manufacturing, application development, design, controls and automation.

Mr. SV Kabra is the Chairman and founder of the Kolsite Group of companies and has been the main driving force behind its growth over the last 54 years. In 2013, he was awarded with the Outstanding Achievement Award at Vinyl India 2013 conference for his pioneer work in the domestic plastic industry. He has been on the management & executive councils of many reputed plastics organizations in India. SV Kabra has done BA in Economics (Honours) from Mumbai University. 

Mr. SN Kabra is the co-founder of the Kolsite Group and Vice-Chairman and Managing Director of the company. He holds a degree in Mechanical Engineering and has strong techno-commercial experience. Since 1960s, he has been instrumental in defining company's strategies, business goals and overall development initiatives.

Global Plastic Industry Growth Outlook 

The global plastics industry is witnessing continuous shift of manufacturing bases to lowcost countries specifically India. This coupled with rise in the number of new manufacturing establishments are building India’s image as a prime driver of growth in the plastics industry.

The plastic pipe industry has registered a 15% growth and is likely to maintain the same growth rate in coming years. Within the industry, the organized plastic pipe segment is estimated at around 60%, and is likely to register even higher growth driven by shift from unorganized to organized segment and government focus on agriculture, micro-irrigation, low cost housing projects and pick up in infrastructure growth.

Moreover, packaging sector is one of the major consumers of plastics followed by agriculture and infrastructure. Flexible packaging has been the fastest growing sectors in the packaging industry over the past 10 years driven by changing lifestyle patterns of growing middle class and focus on convenience and sustainability. Further, this segment is expected to grow exponentially going ahead. 

Flexible packaging is the most economical format of packaging, preserving and distributing goods, beverages, pharmaceuticals and products demanding extended shelf life. Management highlighted that the global market for flexible packaging is expected to grow at an annual average rate of 3.4% during the 2015-2020 (over 20% in case of India) period reaching USD 248 million. Food packaging occupies over 70% of the world consumer flexible packaging market and is growing by 4.0% on average in volume terms.

Currently, while North America dominates the global flexible packaging market, however Asia Pacific is expected to catch up owing to increasing disposable incomes and rising demand and changing packaging trends in the end user segment. Significant increase in demand for beverages, packaged foods, pharmaceuticals and personal care products are the growth drivers in India and neighbouring countries.

2. Recent Developments (As on 30 Dec 2018)

i) Promoters increased stake in the company through open market purchase – Dec 2018

During Sept’18 quarter, promoters have increased their stake in the company by 0.4%. Promoters continue to increase their stake in Dec’18 quarter also through open market purchase. Refer to pdf file for  the details of transactions made by promoters since Aug’18.

ii) Kabra Extrusion technik & Battenfeld Cincinnati extend cooperation – Nov 2018

Kabra Extrusion technik Limited & Battenfeld Cincinnati, Germany (world’s leading extrusion machinery manufacturer) have announced further extension of their cooperation beyond 2026.

The two companies have been in partnership since 1983 and the existing technology agreement, valid until the year 2026 has been extended further by enlarging the scope and making it more comprehensive and inclusive. Gerold Schley – CEO and Dr. Henning Stieglitz – CTO of Battenfeld Cincinnati along with S V Kabra - Chairman and Anand Kabra Managing Director of Kabra Extrusion technik Ltd were in discussion for the last few months, on the ways to create a platform and understanding between the two companies, so that the cooperation extends beyond 2026 and is mutually beneficial to both the companies.

iii) Kabra Extrusiontechnik enters a strategic partnership with Unicor GmbH – Oct 2016

Kabra Extrusion technik Limited & Unicor GmbH entered into a strategic partnership to provide a fully integrated extrusion solutions for the Indian & global plastics corrugated pipe industry.

The collaboration plans to make corrugated pipe machines in India using Unicor expertise with Kabra Extrusion technik manufacturing capabilities to offer value for money solutions in India as well as other strategic markets. 

Unicor has unique expertise in providing customized solutions for customers. The company has been in business for over 30 years and enjoys Global leadership status with strong customer base in more than 50 countries. Unicor’s range of products include various types of machines for all applications – electrical, medical, automotive, water, sewer pipes etc. with pipe diameters from 3 mm until 2400 mm. Unicor’s products are extremely versatile, aimed at providing higher productivity and better energy efficiency. 

iv) Kabra Extrusion technik enters a joint venture with Extron Mecanor – Oct 2016

Kabra Extrusion technik Limited & Extron Mecanor inked a joint venture to provide a One Stop Shop approach to extrusion solutions for the global plastics processing industry.

Extron Mecanor from Finland is a pioneer in pipe socketing & belling solutions. Extron-Mecanor has unique expertise in providing customized solutions for customers. It has been in business for over 35 years and making sales in nearly 50 countries. Besides high quality machinery, they provide guaranteed after sales service and have expertise in working out the best solutions. Extron-Mecanor’s product range includes solutions for pipe belling and socketing, Pipe, rain gutter, profile packaging, and seal ring inserting.

3. Financial Performance (As on 30 Dec 2018)

Kabra Extrusion technik standalone net profit rose 663.87% in the Sept 2018 quarter 

Net profit of Kabra Extrusion technik rose 663.87% to Rs 9.09 crore in the quarter ended September 2018 as against Rs 1.19 crore during the previous quarter ended September 2017. Sales declined 9.94% to Rs 46.56 crore in the quarter ended September 2018 as against Rs 51.73 crore during the previous quarter ended September 2017. 

Kabra Extrusion technik reports standalone net loss of Rs 2.36 crore in the June 2018 quarter

Net Loss of Kabra Extrusion technik reported to Rs 2.36 crore in the quarter ended June 2018 as against net loss of Rs 2.33 crore during the previous quarter ended June 2017. Sales declined 8.05% to Rs 43.73 crore in the quarter ended June 2018 as against Rs 47.56 crore during the previous quarter ended June 2017.

Kabra Extrusion Technik Financial Performance

As per our estimates, the company will perform better over next 2 years with increase in Government spending with higher focus towards agriculture and infrastructure sector to boost rural growth

4. Peer Group Comparison (As on 30 Dec 2018)

Kabra Extrusion Technik Competitors

5. Key Concerns / Risks (As on 30 Dec 2018)

i) Domestic extrusion machinery segment is highly fragmented, characterized by presence of various small and micro players which limits pricing power. Therefore, the company is exposed to competition from domestic players and imported extrusion machinery. Also, the segment is technology-intensive and is susceptible to the risk of technological obsolescence. However, the same is mitigated partly through company’s technological tie-ups and collaboration with international players such as Battenfeld-cincinnati (Germany), Unicore Gmbh, Extron Mecanor, Penta Srl Italy. 

ii) The demand for extrusion machinery is linked to the capital expenditure (capex) programme of plastic products manufacturers. The performance of the company depends on the growth and demand in the end user industries i.e. plastic pipes, irrigation and agriculture pipes and flexible packaging and their capex cycle. Any slowdown or delay in the capex of these industries can have negative implications on the company’s business.

6. Saral Gyan Recommendation (As on 30 Dec 2018)

i) The plastic pipe industry has registered growth of ~15 percent and is likely to maintain the same growth rate in coming years. Within the industry, the organized plastic pipe segment is likely to register even higher growth driven by shift from unorganized to organized segment. Moreover, government focus on agriculture, micro-irrigation, low cost housing projects and pick up in infrastructure growth will augur well for overall demand of plastic pipes. Moreover, packaging film industry is also expected to grow at a healthy rate, driven by food industry, personal care and pharma products. Kabra Extrusion technik being the largest player in the plastic extrusion machinery with diversified product portfolio backed by strong management team is expected to be the direct beneficiary. 

ii) The company continued its focus on marketing activities and strengthening its agent network by participating in various trade fairs and exhibitions. It has made significant inroads in many new markets. During FY17-18, the company participated in exhibitions like PlastIndia, Plast Eurasia, Plastic & Rubber – Indonesia, Plast Alger, etc. to showcase its product portfolio to strengthen its geographical base as well as clientele. The company demonstrated live and launched Smart Faktory – A digital extrusion platform at PlastIndia show - 2018. Smart Faktory is a value adding part of production process, generates real customer benefits by exploring new opportunities from smart data to ensure real time control & decision for optimisation of product as well as operations.

iii) The company has also initiated effective steps to widen its products portfolio by entering into joint venture with M/s. Penta SRL, Italy. Joint venture company, Penta Auto Feeding India Ltd. has already started manufacturing and supply of auto feeding systems. The company has also undertaken manufacturing of belling machines through its subsidiary, Kabra Mecanor Belling Technik Pvt. Ltd., and manufacture corrugators with technology from Unicor GmbH, Germany. The company has also imported technology to manufacture flat-drip laterals extrusion lines from Metzerplas Industries Ltd., Israel. 

iv) The company has registered sales CAGR of 8.3%, profit CAGR of 18.9% with ROE of 11.3% over last 5 years. We expect company performance to improve going forward with increase in capex in micro-irrigation, low cost housing sector and pick up in infrastructure growth.
Kabra Extrusion Technik  Return Ratios
v) Kabra Extrusion technik has ventured into corrugated pipes with its collaboration with Unicor. Corrugated pipe is one of the fastest growing segments in the pipe industry considering its higher acceptance over cement pipes in sewage and drainage applications. The company has also introduced other new products like pipe extrusion lines for foam core pipes, co-rotating twin screw extruders and compounding machines and lines for lead free compounds and processing applications. Expansion of the product range across the value chain is expected to augur well for the company in medium to long term. 

vi) Kabra Extrusion technik through constant R&D and Innovation has introduced several products and solutions for the first time in the plastic extrusion industry since 1970. Moreover, the company is having global collaborations and technical tie ups with the leading companies in plastic industry, as Battenfeld-Cincinnati (GermanyAustria-USA), Penta SRL (Italy), Greiner (Austria), Unicor (Germany), Extron Mecanor (Finland). Long term partnerships with global suppliers for access to latest technology and to increase product offerings will support company to stay ahead of the competition. This is critical as technological obsolescence could be a key risk in the industry. 

vii) The company is serving business requirement of many reputed players in the plastic pipe and flexible packaging industry. Companies like Supreme Industries, Finolex Industries, Astral Poly Technik, Uflex, Ashirwad Pipes, Prince Pipes Systems etc are clients of Kabra Extrusion technik. As end industry grows with rise in demand and shift of business from unorganized to organized players, Kabra Extrusion technik with its diversified client base and strong execution track record is expected to grow as well. 

viii) As on Sept’18, promoter’s shareholding in the company is 57.09% without pledging of any shares. Promoters have increased their shareholding by 0.4% over last 6 months, increase in shareholding by promoters is positive indicating their confidence in future growth prospects of the company. Institutional shareholding in the company is low at 1.19%.
Kabra Extrusion Technik Promoter Shareholding
ix) The company is paying regular dividend to its shareholders. It paid dividend of Rs. 2 per share for FY2017-18. At current price, dividend yield is 2.78 percent. Moreover, the company has rewarded shareholders by issuing bonus share in the ratio of 1:1 in the year 2010. 

x) As per our estimates, Kabra Extrusion technik Ltd can deliver net profit of Rs. 23.45 crores in FY 2019-20 with annualized EPS of Rs. 7.35. At current price of 72.15, stock is available at forward P/E multiple of 9.8X based on FY19-20 earnings. Company’s valuation looks attractive considering expected increase in its profitability with rise in Govt spending towards improvement in rural infrastructure with focus on low cost housing and sanitary facilities. 

xi) On equity of Rs. 15.95 crore, the estimated annualized EPS for FY 19-20 works out to Rs. 7.35 and the Book Value per share is Rs. 73.19. At current market price of Rs. 72.15, stock price to book value is 0.99.

Considering secular growth opportunity in the agriculture and infrastructure industry with government focus on micro-irrigation, low cost housing projects and infrastructure development, double digit growth expected in flexible packaging industry driven by rising demand of packaged food products, personal care products and pharmaceuticals, company’s strong track record in installation and after sales service of plastic extrusion machinery, rich product portfolio, experienced management team with back up of global collaborations with the leading companies in plastic industry and and a debt free balance sheet, Saral Gyan team recommends “Buy” on Kabra Extrusion technik Ltd at current market price of Rs. 72.15 for target of Rs. 145 over a period of 12 to 24 months. 

Buying Strategy: 

▪ 80% at current market price of Rs. 72.15 
▪ 20% at price range of Rs. 55 – 60 (in case of correction in stock price) 

Portfolio Allocation: 3% of your equity portfolio 

To Read / Download Saral Gyan Hidden Gem - Oct'18 Research Report - Click Here

Kabra Extrusion Technik Ltd is 1 out of those 65 multibagger stocks which have given returns in the range of more 200% to 9900% returns to our subscribers in period of 3 to 10 years. Team of equity analysts at Saral Gyan put lot of efforts & smart work to identify Hidden Gems (Unexplored Multibagger Small Cap Stocks) and Value Picks (Mid Caps with Plenty of Upside Potential) which not only grow your capital at a healthy rate but also ensures to guide you to make lump sum investments during bear phase of the market so that you make maximum out of your investments during bull phase of the market.

Also Read : Hidden Gems SIP Returns of 395% Vs Small Cap Index returns of 181%

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