Hipolin Ltd –Residual brand recall play

Opportunity Background :

1970: started manufacturing detergent powder on a small scale, for supplying the domestic market

1994/95: Public issue  issue @ Rs.50 per share

1998: added dental hygienic products and comsetics to product range ( for exports-contract manufacturing)

Primary industry:Detergents

Network :700 agents and distributors nationally with large concentration in Gujarat followed by Maharashtra.

Exports : to Russia, Ukraine, UAE and Africa.

Manufacturing facilities : 40,000 Sq.Mt. (9.89 ACRES) plant involed exclusively in the manufacture of detergents (lowfoam powders for indistrial use and high- foam formulations for domestic consumption), with built up area of 5900 Sq. Mt

Plant location : In close proximity to Tata Motors-Nano plant in Sanand, Gujarat.

Products : Hipolin Gold Powder, Hipolin Power Hipolin Liquid, Hipolin Super Blue Cake, Hipolin Yellow Powder, Hipolin Toothbrush, Hipolin Toothpaste, Hipolin Salt

Production capacity : 14,000 tonnes / annum

Market positioning: marginal

Detergent Market in India: Approx 12,000 cr and growing 10% annually

Over the years, Hipolin has been unable to withstand the onslaught of not only MNC’s but also domestic  players like Ghadi & Nirma. Some of the key issues it has faced are:

1)      Lack of aggressive & professional management

2)      Single manufacturing location- makes it unviable to service distant markets like West Bengal, UP & Bihar where the brand enjoys a good recall

3)      Unability to absorb rise in input costs at the same selling price to maintain market share due to weak balance sheet.

4)      In the current year ( 9months ended 2010), sales have decreased by about 25% and the company has made a loss of 0.47 cr

Financials:

Paid up equity capital : Rs.3.13 cr

Debt: Rs.3.59 cr

Market price : Rs.33

Market cap: 10 cr

EV: 13.59 cr

Positives:

1)      Traditionally strong regional influences play out in the Detergent market in India. Hipolin has a good brand appeal in a particular region. Even today the brand has residual recall. A larger FMCG company that can leverage on the recall and increase its footprint in a particular region will be able to benefit from acquiring it.

2)      Sanand plant ( approx 9.9 acres), which is located in very close proximity to the Tata Nano factory

3)      Out of the last 10 years, the company has paid dividend for 8 years

4)      Promoters have been buying in small lots from the open market

Though  Hipolin is not a traditional value play, the value it hold in terms of the residual brand value of Hipolin and land at Sanand is conservatively speaking about thrice its current EV. Will the monetization happen ? if so, when? There are no ready correct answers to these question currently.

Nothwithstanding the above,Hipolin Ltd is an interesting company largely from a brand value perpsective.

High risk, high return play.

At the time of writing this report, the author /his family have an investment interest in the stock mentioned above. Under no circumstance does the information in this report represent a recommendation to buy or sell the above-mentioned stock.  This report has been prepared and issued on the basis of publicly available information, internally developed data & other sources believed to be reliable. This is just a suggestion solely for information purposes and does not constitute a solicitation to any person to buy or sell a security. While the information contained therein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Readers using the information contained herein are solely responsible for their actions and are advised to satisfy themselves before making any investments.

Bharat Fertiliser Industries Ltd -High risk play

Bharat Fertiliser Industries Ltd  BSE Code : 531862 ( listed since 1963)

Core Business : Production of Single Super  Phosphate (SSP)  in Granulated and Powder form along with Alum in Liquid and 

Solid Form.

Plant location :Village Kharivali, Taluka : Wada ,Thane district, Maharashtra ( This is close to Pen)

Installed capacity :  132000 TPA (SSP) and 99000 TPA (GSSP)

Paid up Equity Capital: 5.29 cr 

Debt : Nil

Market price : Rs.48

Market Cap: Rs.25 cr

2009-10:

Revenue : 22.8 cr

NP : 5.41 cr

9-months ended Dec 2010:

Revenue : 16.78 cr

NP : 4.64 cr

Reasons for poor performance of the fertilizer business:

Difficulties  in arranging Imported Raw Material namely Rock Phosphate  and Sulphur.

Working capital constraints due to delay in receipt of Fertilizer subsidy.

Future of  the Fertilizer business:

1)The Company is exploring the possibility of a  Marketing Tie-up arrangements with Rashtriya Chemicals & Fertilisers,Ltd 
and Deepak Fertilisers & Petrochemicals Corporation Limited during 2010-2011 for manufacture of SSP/GSSP Fertilizers.

2) The company plants to utilize surplus funds from the Real Estate business for working capital for its fertilizer plant and 

also for replairs / maintaneance /modernization of fertilizer plant and equipment.

BIFR :

Due to erosion in net worth ( accumulated losses exceeded 50% of the net worth ) the company was declared a BIFR case.

Subsequently as the Net Worth turned positive at Rs. 193.03 Lacs as on 31/12/2009, the company had approached  BIFR and 

prayed for discharge from purview Sick industrial Companies  (Special provisions Act) 1985.

 The Bench III of Board for Industrial and Financial Reconstruction at  its hearing held on 29/03/2010, dismissed the reference of the company

 as non-maintainable. The company is pursuing the matter with BIFR.

Turnaround reason:

The company owned 6.25 acres of land at Majiwada in Thane. This plot is adjacent to Lake City Mall, just about 1 km from 

Jupiter Hospital,3.5 km from Thane station and 0.5 km from the Mumbai-Nashik highway.

The company is developing a self sufficient purely Residential complex called ‘ Shiv Sai Paradise’ at this location

Amenities : Club house with swimming pool,Health Club, Library, Indoor/outdoor games, Multi purpose hall, garden with 

jogging track, chidrens play area, Seniors area, Podium parking, paved internal roads.

Number of proposed buildings : Total 10 ( 1st phase: 5, 2nd phase:3, 3rd phase:2)

Total approx saleable area : 

1st phase: 3.35 lakh sq.ft

2nd phase: 2 lakh sq.ft

3rd phase: 0.85 lakh sq.ft

1st phase:

This includes 2 towers of 17 floors , 1 tower of 12 floors ( all ready ) and 2 towers of 21 floors ( expected possession between

 Dec 2011 and March 2012)

Ready for possession: approx 1.90 lakh sq.ft 

Of the above, already sold : approx 1 lakh sq ft

Total proceeds realized since launch of project from the 1 lakh sq ft: approx 40 cr

Available for sale now with immediate possession : 90,000 sq ft ( rate quoted is Rs.6700 psf excluding floor rise, parking, 

other charges)

Expected to be ready for possession by March 2012: 1.45 lakh sq ft ( rate quoted for bookings is Rs.5800 psf excluding floor 

rise, parking, other charges)

2nd phase :

Work expected to commence anytime. This involves 2 towers of 17 floors each. Possesion expected end 2013

3rd phase:

Dates not announced.

Cash flow probability:

1st phase:

Income already booked in 2009-10 and 2010 till Dec : approx 40 cr

Expected to be booked between Jan 2011 and June 2012 ( i.e 6 quarters): approx 130 cr ( this is based on the conservative 

assumption that the company is able to sell about 7500 sq ft per month @ 5500 psf).

Balance expenses pertaining to the 1st phase should in most probablity get booked between Jan 2011 and Dec 2011 

( i.e 4 quarters): approx 14.5 cr ( 145000 sq ft X Rs.1000 psf )

Expected revenue per quarter between Jan 2011 to June 2010 ( may not be spread evenly) : approx 21.50 cr

Expected expense per quarter between Jan 2011 and Dec 2011 : approx 3.62cr

2nd phase:

It is too early to look into the positive cash flows from the 2nd phase.

We will restrict ourselves to the expense flows on this.

Assumption : work commences from April 2011 and carries on for 10-12 quarters. We’ll be conservative and expense out 

the amount over 5 quarters i.e April 2011 to June 2012 ( i.e 5 quarters): approx 30 cr ( 200000 sq ft X Rs.1500 psf ) i.e: 6 cr per 

quarter

Expected inflows / quarter: 21.50 cr

Expected outflows / quarter : 3.62 cr + 6 cr + 2 cr ( miscellaneous) : 11.62 cr

Assuming they pay tax @ 33%, PAT / quarter should not be less than 6 cr.

The same cycle will play out thereafter with 2nd phase earnings kicking in and 3rd phase expenses moving out.Here it should

 play out better as expected 2nd phase earnings are around 110 cr and 3rd phase expenses and others not more than 20 cr

DISCLAIMER:

All numbers above in the cash flow are not based on Management data and are based on reasonable assumptions made 

by the author and may not be accurate. Kindly do your own due dilegence before investing.

Other plans:

1)  Development of an SEZ in partnership with a Foreign partner at its 120 acres of free hold land at Kharivali.

2)  Redevelopment of its building at Flora Fountain in Mumbai. Expected area post redevelopment is about

 12,000 sq ft.

Negatives & risks:

The company has said that it intends to use free cash flows from real estate business to augment its fertilizer operations.

The company has not been disclosing segment related data in its results

The company primarily uses income from inventory sale to fund development costs and hence any delay in inventory sales can have  a severe negative cascading  effect.

Valuation & concluding summary:

Notwithstanding the above, the entire valuation argument gets summed up in the current Enterprise Value of 25 cr

High risk with a possibility of high return.

At the time of writing this report, the author /his family have an investment interest in the stock mentioned above. Under no circumstance does the information in this report represent a recommendation to buy or sell the above-mentioned stock.  This report has been prepared and issued on the basis of publicly available information, internally developed data & other sources believed to be reliable. This is just a suggestion solely for information purposes and does not constitute a solicitation to any person to buy or sell a security. While the information contained therein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Readers using the information contained herein are solely responsible for their actions and are advised to satisfy themselves before making any investments.

 

Foseco India ltd- Casting a spell !

Foseco India ltd

Business Segment: Metallurgical Chemicals

Installed capacity: 29627 tonnes

Year of operation : 55^th year

Product portfolio : over  400 complex  products comprises resins, coatings, feeding systems, ferrous  and non-ferrous metal treatment products and greensand additives.

Market share : approximately 23%

Manufacturing plants : Two- Sanaswadi,  Pune  and  Puducherry-both  are  accredited   to   the international IS014001:2004, environmental management ISO9001:2008, quality standards and OHSAS 18001:2007.

Number of employees: 195

Foseco worldwide , has been associated with the metals Industry for over 75 years  and is acknowledged as a world leader in the supply of consumable products  for use  in  the  foundry  industry with presence in  32  countries  and  major facilities  in  Germany,  USA, UK, Brazil, China, India,  South  Korea  and

Japan.  

Promoters :Foseco is a part of the Ceramics Division (Vesuvius) of Cookson Group  plc, UK which owns 75% stake in the company

Business snapshot:

Foundries form the heart of any manufacturing based economy. 

The  business  of  Foseco  India Limited is concentrated on the Indian foundry sector. 

It is acknowledged as the  only company in the country that possesses the capability of  offering the  widest  range  of  solutions for  producing  casting  of  the  highest standards  in  terms of quality, surface finish, soundness,  integrity  and dimensional  tolerance.  Its  focus is on  adding  economic  value  through improved  process  capability,  casting  yield,  resource  utilization  and efficiency  and  development of new business  opportunities. 

What do Foundry additives do ?

Foseco manufactures products for steel and foundry industry which are used as additives  and consumables in the form of granulated flux, alloy additions, and granulated fluxes which improve the physical properties and surface qualities of castings. These help to reduce the cost of melting, moulding and casting for various ferrous and non ferrous metals.

Foundries  typically  produce  castings that go  into  different  end  user segments.  These  segments  can  be  broadly  classified  into  automotive, construction,  heavy machinery, general engineering and mining.  There  are more  than  5,000 foundry units in India, having an installed  capacity  of

approximately  7.5 million tones per annum, the majority of  which  (nearly 95%) fall under small-scale industry category. In terms of production,  the Indian  foundry industry is the sixth largest in the world after  the  USA,China,  Japan, Russia and Germany, whilst in terms of the number of  people

employed  and production units, India is the second largest player  in  thefoundry industry after China.

Foseco’s performance is directly linked to the the industry growth, in terms of  overall  casting tonnages.

An example of how Foseco products add value:

One such product from the Foseco stable is "Turbostop", which is a specially designed and engineered "Contoured Impact Pad" (CIP). Till the invention of "Turbostop" the normal process in casting of steel was that molten steel would flow from a ladle and hit a flat impact pad kept at the bottom base of the vessel known as Tundish. The flow of steel after hitting the impact pad was not susceptible to control, this affected the time upto which the molten steel could be retained in the Tundish. Unless the molten steel could be retained for an ideal time - the non-metallic inclusions would not float and would not be capable of removal, resulting in poor quality steel. With Turbostop this difficulty is overcome

Valuation:

Foseco is an investors dream stock in terms of dividend payout. The 6 year dividend record is as follows:

2005 : Rs.17 ( EPS : Rs.19.19)

2006 : Rs.18 ( EPS : Rs.22.96)

2007: Rs.17 ( Rs.28.37)

2008: Rs9.50 ( Rs.22.86)

2009: Rs.9 ( Rs.18.04)

2010: Rs.17 ( Rs.30)

An increase in gross block in 2008 & 2009 saw dividend payout ratio reduced to about 40% as the company expanded capacity. The overall performance in those years was also affected by the overall economic slowdown.

Paid up Equity capital: Rs.6.39 cr

Debt : Rs.11 .05 cr

Revenue : 188 cr ( 2009: 127 cr)

PBT : 29 cr ( 2009: 19 cr)

PAT: 19.3 cr (2009: 12.5 cr)

EPS : Rs.30 ( 2009: Rs.19.5)

The company is currently operating at about 70% of its installed capacity  of 29627 tonnes and hence there does not seem any immediate need ( at least for the next 2 years)

Performance for Year ended Dec 2010:

Revenues : 188 cr

PBT : 28.98 cr

PAT : 19.29 cr

EPS : Rs.30

At the current price of Rs.450, the company trades at a PE of 15 times 2010 earnings.

With India emerging as  manufacturing hub for a host of industries , overall casting tonnages are likely to see growth . Foseco with its competitive technological advantage, good dividend payout, and shareholder friendly management could be considered as a good long term investment on dips.

At the time of writing this report, the author /his family have an investment interest in the stock mentioned above. Under no circumstance does the information in this report represent a recommendation to buy or sell the above-mentioned stock.  This report has been prepared and issued on the basis of publicly available information, internally developed data & other sources believed to be reliable. This is just a suggestion solely for information purposes and does not constitute a solicitation to any person to buy or sell a security. While the information contained therein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Readers using the information contained herein are solely responsible for their actions and are advised to satisfy themselves before making any investments.

Stovec Industries Ltd - Printing success !

Stovec is engaged in textile and graphics printing market.

Plant  location: Ahmedabad, Gujarat.

The land size around 3.45 lakh square feet while the plant built up area is about 97000 square feet.

Products : The Company operates in four business segments: screens, industrial machinery, graphics product and chemicals.

Its product range includes :

1)      Rotary Printing Machines for textiles

2)       Rotary Screens and Chemicals for textile printing

3)       Anilox rollers  for graphic printing

4)      Screens for graphic printing

Consumables (Screens )are marketed to the domestic market.

Machinery products are sold both to domestic markets and also exported.

Exports constribute about 12-13% of total sales.

Main domestic markets: West ( Ahmedabad,Surat, Mumbai), south ( Bangalore, Tirpur, Erode) & North ( Amritsar & Delhi)

Market position: Technological and market leadership in the segments that it operates.

Main promoter: Stork Prints BV , Netherlands

Stork Prints is owned 61.5% by Bencis Capital partners, an independent European investment company & 38.5% by Stork, Netherlands whose core activities are systems, components and processes for the Aerospace industry.

Promoter shareholding: 71%

Financials:

Paid up equity capital : Rs.2.09 cr

Debt : Nil

Fixed Deposits: Rs.12.50 cr ( as of Dec 31, 2009). The figure may be higher as of Dec 31, 2010.

Year ended Dec 2010:

Revenue: Rs.61.20 cr

PBT : Rs.10.80 cr

PAT:Rs.7.20 cr

EPS : Rs.34.55

Dividend per share : Rs.10.30

Current market price : Rs.309

Market Cap :  Rs.64.5 cr

New Developments and future prospects:

In 2010, Stovec expanded its product portfolio with the addition  of Sugar Screens to the current product range. The existing textile printing machines and rollers plant had enough capacity to manufacture sugar screens as well. The sugar screen market has an approx 20,000 units annual demand in India. The company has also commenced manufacture of digital inks for the textile industry. In the current year, Stovec sold sugar screens worth Rs.2.6 cr.

Last year, Stovec's parent company, Netherlands-based Stork Prints shifted its textile printing machines business to the Ahmedabad unit completely.  

The recent expansion of its textile capital goods manufacturing capacity like printing machines and printing rollers will enable the has enabled the company to also aggressively tap the Chinese market in addittion to overseas markets like Turkey, Brazil, Europe and Russia which the company already services.

The company last year, expanded its textile machine manufacturing capacity from 10-15 machines to 25-30 machines per annum .  

Stovec commands a 55% plus market share in the for the supply of rotary screen printing machines and rotary screens for the textile printing industry. The  Rotary printing machines and loop steamers manufactured by Stovec  are suitable for all types of fabrics - from most delicate georgette and chiffon saris to knitted fabrics including hosiery and terry towels.

The company also augmented its label printing consumables capacity at its Ahmedabad unit to some extent.

There is a huge growing market for label printing, especially among fast moving consumer goods (FMCG).  Stovec’s next  focus of expansion after machinery business is likely to be the  label printing consumables and coating applications .

The company is currently available at a PE ratio of  about 9. Dividend yield is  about 3.3% .Given its market leadership in its line of business, strong technological capabilities due to parent linkage and growing demand for its products, Stovec presents  a good investment opportunity at current price of Rs.312

At the time of writing this report, the author /his family have an investment interest in the stock mentioned above. Under no circumstance does the information in this report represent a recommendation to buy or sell the above-mentioned stock.  This report has been prepared and issued on the basis of publicly available information, internally developed data & other sources believed to be reliable. This is just a suggestion solely for information purposes and does not constitute a solicitation to any person to buy or sell a security. While the information contained therein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Readers using the information contained herein are solely responsible for their actions and are advised to satisfy themselves before making any investments.