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

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.


Certifications:


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.


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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.

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

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

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

Time has shown that smart investors have made their fortune by investing in equities in long term. None other asset class can match giving you such extra ordinary returns. Yes, its important for you to invest in right set of companies at right price with medium to long term perspective. If you think to invest in stocks for period of 6 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. Subscribe to Hidden Gems & Value Picks and start investing systematically keeping a real long term view.

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

Team - Saral Gyan

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

Posted by Saral Gyan at 11:45:00 AM
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