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

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%

Through Nano Champs, Hidden Gems and Value Picks, we are providing you opportunities to invest in micro, 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 Nano Champs, 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 to 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.

Start building your equity portfolio by making educated investment decisions, subscribe to our Hidden Gems, Value Picks, Wealth-Builder, Nano Champs annual subscription services. Click here to know more about our services and discounts applicable on combo packs.

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

Regards,
Team - Saral Gyan

Our Services: Hidden Gems | Value Picks | 15% @ 90 DAYS | WEALTH-BUILDER

Posted by Saral Gyan at 11:00:00 PM
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Tuesday, January 17, 2023

Why Share Price is Not Important 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 subscriber 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 recommended Cera Sanitaryware as Hidden Gem stock of the month at price of Rs 157, later it went up to Rs. 450 in period of 15 months. Based on strong quarterly numbers, attractive valuations and consistent performance, we recommended buy again in the range of 400-450 which was taken as a surprise by our members as we received several queries and feedback.

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

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

Cera Sanitaryware touched its life time high of Rs 6450 last year and currently trading around Rs. 5500, Cera is a 40-Bagger stock in 11 years from our initial recommendation and is a 12X 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 1-3 years at least and not just 6-9 months. If fundamentals of the company are intact, we would not suggest our members to do profit booking or exit. Investors who stayed away just because of high price simply missed yet another opportunity. We 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 capital of the company and not at stock price. To judge valuation you must have to look at Price to earning ratio, Price to book ratio, Price to sales ratio etc.

Lets try to understand this with an example, 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. 1225 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 recently 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, cash reserves along with other parameters to judge a stock whether it is undervalued or overvalued. We agree with you that judging valuation is not an easy task. So, take expert’s advise when ever required.

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

Lets try to understand this also with a simple example, Lanco Infratech 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 Hidden Gems, Value Picks & Wealth-Builder.

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

At Saral Gyan, team of equity analysts keep on evaluating small and mid cap stocks to explore the best Hidden Gems and Value Picks of stock market. Saral Gyan - Nano Champs, Hidden Gems and Value Picks are the micro, small and mid cap stocks with high probability to become multi-bagger stocks in future and a path for our investors to create wealth through equity investments in a long run.

Please write to us at sales@saralgyan.in / info@saralgyan.in in case of any queries.

Regards,
Team - Saral Gyan

Our Services: Hidden Gems | Value Picks | 15% @ 90 DAYS | WEALTH-BUILDER

Posted by Saral Gyan at 7:24:00 AM
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Thursday, January 5, 2023

Rajratan Global Wire - Our 24-Bagger Stock in 5 Years

Dear Reader,

We are pleased to inform you that our Hidden Gem stock of Oct'17 - Rajratan Global Wire Ltd (BSE Code: 517522) is a 24-Bagger stock for our Hidden Gems members within period of 5 years. 

Our team suggested Buy on Rajratan Global Wire Ltd at price of Rs. 54.77 on 30 Nov 2017 (stock split and bonus issue adjusted price, actual recommended price was Rs. 639 with target of Rs. 1250). The company rewarded shareholders by issuing bonus share in the ratio of 4:3 in 2019 and later did a stock split of 1 shares into 5 shares (face value of Rs. 10 to Rs 2 per share) in March 2022. Hence, every 3 shares held by our members have increased to 35 shares. Rajratan Global stock price made all time high of Rs. 1410 and closed at Rs. 997 on Friday giving absolute returns of 1720% i.e. more than 18 times within 5 years against double digit returns of Sensex & Nifty in the same period.

We advised partial profit booking in Rajratan Global Wires to our Hidden Gems members recently at Rs. 1300, booking returns of 2270% (almost 24X) within period of 5 years. Rajratan Global Wires has delivered CAGR of more than 90% to our Hidden Gems members.

Below is the summary of Rajratan Global Wires Ltd shared by our team under Hidden Gem stock - Oct'17 report released on 30 Nov 2017.

1. Company Background

Multibagger Stock Rajratan Global Wire
Established in 1988 by Mr Sunil Chordia, Rajratan Global Wire Ltd (Rajratan Global) is a market leader in supply of tyre bead wire in India. The company along with its subsidiary Rajratan Thai Wire Company (Rajratan Thailand) has around 40% share of the Indian tyre bead wire market. The company earlier entered into the Joint Venture with Gustav Wolf (Germany) for gaining technical know-how, later in 2003 shareholding held by Gustov Wolf was bought back by the promoters. The company commenced international operations in 2008 by setting up a plant in Thailand through a wholly owned subsidiary Rajratan Thai Wire Company. The company is second largest manufacturer (by capacity) of automotive tyre bead wire in India and only player manufacturing tyre bead wire in Thailand. Along with tyre bead wire, the company also manufactures other specialized steel wires (black wires) like rope wires, spring wires, auto cable outer etc. Steel wire rods is the primary raw material used for manufacturing by the company.

Rajratan Global has 2 manufacturing facilities, one in India and another in Thailand.
Rajratan Global Wire Capacity

Rajratan Global is a long term supplier for almost all major tyre manufacturers in India and is the market leader in the automotive tyre segment since 2012. The company has long term standing relationship with marquee clients.

Rajratan Global Clients:
Rajratan Global Wire Cients

Products Description:

i) Tyre Bead Wire 

Tyre bead wire is high carbon bronze coated steel wire used in all kinds of automobile tyres, tyres of earth moving equipments and aircrafts. The main function of bead wire is to hold the tyre on the rim and to resist the action of the inflated pressure which constantly tries to force it off. The bead is the crucial link through which the vehicle load is transferred from rim to the tyre. It significantly affects the safety, strength and the durability of tyres.

Bead wire is a drawn steel wire, which is manufactured from quality wire rods with high carbon content. Bead wire’s surface is coated with copper or bronze which ensures proper adhesion with the used rubber compound. 

Bead wire being a crucial component in any kind of tyre manufacturing, the company always ensure that not only the best of raw-material goes into its manufacturing, but that it also goes through toughest of quality tests. The company specializes in bead wire of customized tensile grades as per the requirements of its clients. Besides bead wire, it also produces high carbon steel wire and uncoated wires of varying specifications for different applications. 

2) High Carbon Steel Wire 

High carbon steel wire is popularly known as black wire. It is a drawn steel wire which is manufactured from quality wire rods with high carbon content. With a wide range of usage, black wire plays a vital role in many industries from automobile and construction to engineering industries. The company manufactures high carbon steel wire in its stateof-the-art plants and employ world-class patented heat treatment processes.

The high carbon steel wire manufactured by the company are of two Grades: 
1. Spring / Rope grade confirming to Grade I, II & III. 
2. Rolling quality / flattening quality grade.

2. Recent Development (30 Nov'17)

i) India’s Tyre Market to witness a CAGR of over 9% during 2016-2021 

India’s tyre market is forecast to witness a CAGR of over 9% during 2016-2021, according to the report of Research and Markets, a leading international market research agency. As per the report, titled “India Tyre Market Forecast & Opportunities, 2021, India ranks among one of the largest tyre markets in the world. Growing automobile sales coupled with expanding automobile fleet are the major factors boosting demand for tyres in the country. 

Though the replacement tyre demand had majority share in 2015, the OEM tyre demand is expected to outpace replacement tyre demand during 2016-2021 with more than 60 tyre manufacturing plants spread across the country. 

Moreover, with favorable inflationary scenario, expanding middle class population and increasing national disposable income, tyre sales across all the automobile segments are expected to grow in the coming years. As per report, presence of major automotive OEMs such as Ford, Hyundai, Honda, Mahindra, Maruti Suzuki, TATA, BMW, etc. has been hugely contributing to the sales of tyres in India. 

Two-wheeler tire segment, which accounts for a volume share of over 50% in the country’s tyre market is also expected to maintain its position as the largest tyre segment over the next five years, adds the report. 

ii) India imposes Anti-Dumping Duty on select Tyres from China 

In Sept 2017, India has imposed an anti-dumping duty on a certain types of unused radial tyre for trucks and buses for the next five years in an attempt to protect the domestic tyre industry from low-cost Chinese imports.

The duty slapped on “new/unused pneumatic radial tyres with or without tubes and/or flap of rubber (including tubeless tyres) having nominal rim dia code above 16 (inch),” ranges between $245.35 to $452.33 per tonne, according to a notification by the Central Board of Excise and Customs.

Earlier, the Directorate General of Anti-dumping and Allied Duties had suggested such as levy on Chinese imports which are dumped in India for a cost below normal value. While the duty does not ban the import of these goods, it is meant as a tool that levels the field between the foreign and domestic industry.

This is a positive development as tyre industry gets nearly 55 percent of its revenue from trucks and buses radial tyre.

3. Financial Performance (30 Nov'17)

Rajratan Global Wire consolidated net profit rises 30.61% in the Sept 2017 quarter

Net profit of Rajratan Global Wire rose 30.61% to Rs 5.76 crore in the quarter ended September 2017 as against Rs 4.41 crore during the previous quarter ended September 2016. Sales rose 24.54% to Rs 90.44 crore in the quarter ended September 2017 as against Rs 72.62 crore during the previous quarter ended September 2016. 

Rajratan Global Wire consolidated net profit declines 43.26% in the June 2017 quarter

Net profit of Rajratan Global Wire declined 43.26% to Rs 3.58 crore in the quarter ended June 2017 as against Rs 6.31 crore during the previous quarter ended June 2016. Sales rose 5.92% to Rs 71.08 crore in the quarter ended June 2017 as against Rs 67.11 crore during the previous quarter ended June 2016.

Rajratan Global Wire Financial Performance

The company performance in Jun’17 quarter was subdued mainly on account of increase in input cost and lower offtake due to GST. However, it managed to post better Sept’17 quarter results by increasing its product prices due to rise in of raw material cost.


4. Peer Group Comparison (30 Nov'17)
Rajratan Global Wire Peer Group Comparison

5. Key Concerns / Risks (30 Nov'17)

i) Steel wire rods is the primary raw material used for manufacturing by the company. Increase in steel prices can adversely impact the operating margins of the company. As per management, the company passes on 60-100 percent of the higher raw material prices to its customers.

ii) Sluggishness in automobile demand globally can impact tyre industry, this can have a direct impact on revenue growth of the company.

iii) Steel wire Industry is highly fragmented and competitive. Any adverse development in market conditions, trade or government policies, foreign exchange fluctuations may impact company’s performance.

6. Saral Gyan Recommendation (30 Nov'17)

i) The growth outlook for Indian tyre industry looks promising with imposing of antidumping duty on a certain types of unused radial tyre for trucks and buses for the next five years and expected rise in domestic automobile sales going forward. This will augur well for the company being a market leader in India with 40% market share in automotive tyre bead wire segment and preferred supplier of more than 15 major tyre manufacturers in India and abroad. Moreover, growth momentum is expected to sustain in Thailand with addition of new clients like Bridgestone. 

ii) With rise in demand, Rajratan Global expanded its Thailand plant capacity from 24,000 MT to 26,400 MT last year. The company has planned further expansion of 9,600 MT over next 2 to 3 years to meet the growing demand for the company’s product. Moreover, the company has also invested in a new warehousing facility which is expected to help Rajratan Thailand to maintain sufficient inventory levels. Increase in minimum stock volume is being prioritized which will ensure efficient delivery performance.

iii) The company’s Thailand operations are in sweet spot. The company is sole manufacturer of tyre bead wire in Thailand and enjoys significant logistic benefits as major tyre manufacturers are located in close proximity. Thailand is one of the largest producers of natural rubber making it a market of choice for global tyre manufacturers. Presently there are around 20 tyre manufacturers in Thailand out of which 5 are Japanese and Taiwanese, providing good opportunity for Rajratan. The company is preferred supplier of Global OEM’s, major Japanese clients includes Sumitomo, Bridgestone and Yokohama. Recently, the company gets into agreement with Bridgestone and expect good revenue growth with rise in orders in coming quarters.

iv) The company continue to target 100% share of business in Thailand, it’s a sole supplier to companies such as Otani Radial, ND Rubber, Siam Rubber, Hihero, Union, BKF & Camel. Moreover, the company is continuously growing its exports market, it’s a largest supplier to the Sri Lanka tyre market with strong foot hold in other South East Asian countries like Vietnam and Malaysia.

v) Rajratan Global has registered sales CAGR of 2.8% and profit CAGR of 45.2% with ROE of 12.9% over last 5 years. The company has reduced its debt significantly over last couple of years with increase in operating margins.
Rajratan Global Wire Key Financial Ratio

vi) Rajratan Global has experienced core management team with strong Industry connect. Mr. Sunil Chordia is the Founder and MD of the company. He steered Rajratan Global towards significant growth in the tyre bead wire business and helped the company receive international approvals in short span of time. He possess over 27 years of experience and holds BSc, DCMA and MBA (finance) degrees. Mr. Yashovardhan Chordia looks after Thailand operations. He has worked as consultant for 3 years at Levers for change, he has experience in working on turn around projects for various sectors like Steel, Refinery, Refractory and Plastic.

vii) As of Sept’17, promoter’s shareholding in the company is at 63% out of which 16.41% shares is pledged. Promoters increased their shareholding by 0.72% in Sept’17 quarter, promoter’s shareholding in Jun’17 quarter was at 62.28%. Institution shareholding in the company is at 7.86%.

viii) The company is paying regular dividend since 2007. The company has paid dividend even during the years when it was in losses. The dividend yield is at 0.23%. 

ix) As per our estimates, Rajratan Global can deliver PAT of 21.71 crores in FY17-18 and Rs. 27.98 crores in FY18-19 with annualized EPS of Rs 49.89 and Rs. 64.32 respectively. At current price of 639, stock is available at forward P/E multiple of 9.9X based on FY18-19 earnings. Company’s valuation looks attractive considering strong earning visibility on account of planned expansion & robust growth outlook for tyre industry.

x) On equity of Rs. 4.35 crore, the estimated annualized EPS for FY18-19 works out to Rs. 64.32 and the Book Value per share is Rs. 244. At current market price of Rs. 639, stock price to book value is 2.62. 

Imposition of anti-dumping duty for 5 years and robust growth outlook of automobiles is expected to augur well for Indian tyre manufacturers in medium to long term. Considering company’s leadership position in domestic tyre bead wire market, continuity in growth momentum in its Thailand business with addition of new clients, planned expansion over 3 years to meet growing demand and attractive valuations of the company with comfortable debt level, Saral Gyan team recommends “Buy” on Rajratan Global Wire Ltd at current market price of Rs. 639 for target of Rs. 1250 over a period of 12 to 24 months. 

Buying Strategy:
  • 70% at current market price of 639 
  • 30% at price range of 520 - 550 (in case of correction in stock price in near term) 
Portfolio Allocation: 3% of your equity portfolio.

To Read / Download Saral Gyan Hidden Gem - Oct'17 Research Report - Click Here

Rajratan Global Wire 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 protection of your capital during market downturn.

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Posted by Saral Gyan at 11:45:00 AM
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