Panasonic Energy India Ltd

Panasonic Energy India Company Limited was  established in the year 1972 as Lakhanpal National Limited.

It is one of India's largest manufacturer of dry cell batteries .The company is headquartered in Vadodara in Gujarat .It has 2 manufacturing plants-one each in Vadodara & Pithampur (M.P)

 Panasonic Energy India holds the unique distinction of being the only battery manufacturers in India with complete Eco-friendly dry battery range.

The Company operates in three businesses: zinc carbon batteries, alkaline Batteries and flashlights. Zinc Carbon batteries presently account for most of the revenue.

The Company operates under the brand Panasonic.

Promoter :The Company is a part of  the Global  Panasonic Corporation,(holds 51% stake )manufacturer of audio-visual equipments, home appliances, electronic components, automotive electronics and environmental systems. Indian promoters (Lakhanpal group) hold 7.06%.

Dry Cell Battery Market in India:

The Indian market for Dry Cell Battery is now estimated at  2.2  billion  pieces by volume and Rs. 14 billion by value. The battery market has only a few players.

Market share:

Eveready 46%

Powercell ( part of Eveready) 5%

Nippo 30%

Panasonic 16%

Others 3%

The demand drivers and the potential offered by the presently low-consuming Indian market 

will continue to offer major potential for growth. 

Per Capita consumption:

India is one of the lowest consumers of batteries  with an average annual per capita consumption of 2. 

Comparitive figures for other nations are as below:

India: 2

Sri Lanka: 4.5

Brazil : 5

European Union:7

USA: 8

Japan :  20

Size wise Segments:

D Segment- Torchlights and radio- largely in rural India

AA segment-Remote Control , clocks, LED flashlights – both rural & urban

AAA segment- smaller size devices 

The segment pattern within the market has undergone change during the recent

 past as consumers shifted from the more expensive D size batteries to AA size

Battery category & % of market :

D  ----25%

C ---- 0.5%

AA ----- 67.3%

AAA ---- 7.2%

Technology wise segments:

The split of technology within the dry batteries market remained constant 

with zinc carbon batteries virtually possessing the entire market with 98 per cent share.

The alkaline batteries have minimal share of the market at 1% and are present in

only some premium urban outlets.

Rechargeable batteries, which have the balance 1% of the market seems to have

made its mark on a loyal customer base, but remaining stagnant.

Financials:

Equity : Rs.7.50 cr

Debt: Nil

Fixed deposits :Rs.16.17 cr ( as of March 31, 2010)

Year ended March 31, 2011:

Revenue ( nett of excise) : Rs.175.92

Profit before tax:: Rs.7.81

Profit after tax: Rs.5.50

EPS: Rs.7.34

Cash EPS: Rs.11.15

Dividend per share: Rs.2

Current market price: Rs.65

Market Cap: Rs.48.7 cr

EV: Rs.32.5 cr

Key positives:

1)                

1)   A growing need for portable power

2)      The advent & growing acceptance / requirement of a  number battery operated gadgets

3)      Batteries address everyday use and have enjoyed a non-cyclical demand . Demand has been 

largely untouched  during the past general downturns.

4)      Non cyclical demand ( to a large extent)

5)      Tremendous growth in Flashlights over the past 3 years to drive battery usage.

6)      The company is operating at about 50% of installed capacity and therefore there does not seem

 any immediate need for capex.

7)      Recently the company has made an amendment through a special resolution in its Memorandum

 of Association to include trading in Pansonic brand Digital camera, AV equipment, security cameras

, home appliances,beauty care personal products & Projectors. Initially, the company is expected to 

start with Digital cameras.

Key negatives:

1)      Dry cell battery market in India has been stagnant with a year over year growth of barely 1%.

2)      Large employee base of about 800. The company has been addressing this over the last 3 

years with VRS schemes.

3)      Price of the key raw material- zinc have been reasonably strong, though the impact of price 

rise in zinc has been cushioned by the appreciation of the INR vis a vis USD.

Key price catalysts:

1)      Growth in consumption in the Indian dry cell market

2)      Panasonic growing faster than competitors 

3)      Greater clarity on plans related to trading of Panasonic items ( mentioned above)

At the current market price of Rs.65, the company is available at an Enterprise Value of  less than 33 cr 

.The downside seems limited and more in the nature of the stock price being sterile . 

It presents a safe investment opportunity with decent prospects over a 18-24 month perspective. 

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. 

Morganite Crucible (India) Limited

Morganite  Crucible (India) Limited manufactures and markets silicon carbide and clay graphite crucibles, crucible furnaces, and foundry products. It is based in Aurangabad and operates as a 75% subsidiary of UK based  Morgan Crucible Co, plc.

Background:

The compamy was formerly known as Greaves Morganite Crucible Limited and changed its name to Morganite Crucible (India) Limited in August 2006.

Greaves Cotton Ltd  held 7,14,000 Equity shares of Rs 10/- each of Greaves Morganite Crucible Ltd , representing 25.5%  equity. Morganite Crucible Co.plc bought these from Greaves Cotton Ltd , at a price of Rs 150/- per share in mid 2006.

Promoter background:

Morganite Crucible (India) Limited is a subsidiary of the Morgan Crucible Company Plc. UK which has a long heritage of manufacturing quality crucibles and allied products, the Morgan group is diversified in various refractory materials including thermal ceramics, advance materials.

From medical instruments, aerospace, power generation and satellite communications to body armour, trains and fire protection systems: Morgan Crucible’s materials, technical and insulating ceramics and carbon, are fundamental components of many of the modern world’s sophisticated products. The company has  skills, design and technical expertise built over 150 years in the business.

For the year ended Dec 2010, the parent company had GBP equivalent sales of about Rs.7400 cr, pre tax earnings of about Rs.490 cr and post tax profit of around Rs.348 cr

Between July 2010 and June 2011, the stock has appreciated by about 50% on the  LSE.

Current Market cap is about Rs. 6075 cr & EV of about Rs.8000 cr. The stock trades at a 12-month trailing PE ratio of 20.

Product:

What is a Crucible?

A crucible is a vessel made of a refractory substance such as graphite or porcelain, used for melting and calcining materials at high temperatures.

In simple English, a crucible is a pot in which metals etc may be melted.

Advantages:Crucibles have the unique ability to melt, hold and transfer metal using a single vessel, while also allowing incompatible alloy changes to be made simply by switching vessels. This operational flexibility is unchallenged in the industry.

However, even when fixed within the furnace structure, crucibles offer significant advantages when compared to directly-heated fuel–fired furnaces and to electric resistance or induction furnaces with rammed refractory linings. These important benefits include:

1.Lower Metal Loss / Cleaner Metal

2. Alloy Flexibility

3.Significantly Reduced Downtime/Quick Replacement

With over 16 different brands, many different profiles and thousands of items to choose from, MorganMMS, the parent company has one of the most extensive crucible product ranges of any manufacturer, thereby giving users a number of options for their melting applications.

Key User industries:  Auto & Metal

Financials:

Equity: Rs.2.80 cr

Debt: Rs.10.50 cr

Year ended March 2011 ( Consolidated)

Revenue: 84 cr

PBT & Minority Interest: Rs.12.28 cr

NP: Rs.5.72 cr

EPS: Rs.20.42

Current market price: Rs.285

Market Cap: Rs.80 cr

Dividend: Last  declared in 2005. Since then the management has been using internal accruals to beef up capacity.

Key highlights:

1)      Last year, the company had expanded capacity to 6500 MTPA. Current expansion which is in progress with the installation of an additional kiln is expected to take up the capacity to approx 7100 MTPA by Sept 2011. Current production is around 45-50% of the expanded capacity.

2)      Currently the company also operates as a low cost manufacturing base for its worldwide operations  with exports contributing nearly 60% of standalone operations.

3)      The company has a 51% subsidiary, Diamond Crucible Company Ltd with operations in Mehsana, Gujarat which earned a revenue of approx Rs.15 cr and an operating profit of around Rs.3 cr in the year ended March 2011

4)      After buying 25.5% equity held by Greaves Cotton, the Morganite management has pursued expansion aggressively. Revenue on a standalone basis has increased at a CAGR of a little less than 40% over the last 4 years while net profit has grown by approx 45% over the same period, albeit on a small base.

5)      In the year ended March 2011, though revenue increased by 27% on both standalone and consolidated basis, profit after tax decreased due to increase in tax provision by about 50% , exchange loss and higher depreciation.

Valuation:

The stock trades at about 14 times trailing 12 month earnings.It may appear a wee bit expensive   if one takes into account  temporary blips en-route ( like the one last year).

However,the company is clearly on a firm growth path and if one considers the small floating stock (7 lakh shares), parent pedigree and the expected growth over a 2 to 3 year period, it appears a promising investment.

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. 

Saregama India Ltd- will this tune ever become melodious ?

Saregama India Ltd. is an enigma. It is the custodian of nearly half of all the music ever recorded in India. This makes the company  the premier Music destination for Indian Music and the most authoritative source of the region's musical heritage. Saregama has the largest music archive - and catalogue - in India. Yet, the company continues to flounder time and again and continues to be an eyesore.

The company owns over 3 lakh tracks-one of the largest musical archives owned by any company in the world. This archive covers 13 languages over 8 music categories ( e.g: classical, devotional, ghazal, old hindi film etc)

Going ahead ,Publishing segment holds the key to the fortunes of Saregama. In this,for usage of music content owned by Saregama, 3^rd parties pay licensing fees to the company. Similarly music societies like PPL, IPRS in India and MCS, PRS & BMG overseas receive publishing income from radio stations, tv, restaurants etc which they distribute amongst the music companies based on the usage of content owned by the companies.

Financials:

Equity : Rs.17.40 cr

Consolidated Debt : Rs.51.7 cr

Consolidated Revenue ( 2009-10) : Rs.118 cr

Consolidated Loss ( 2009-10): Rs.20 cr

Value of freehold land on books: Rs.65 cr

Investments: 15.45 lakh shares of CESC ( approx market price Rs.45 cr)

Current Market price: Rs.63

Market Cap: Rs.110 cr

EV: Rs.116 cr

Company History:

The proud history of Saregama stretches back over a century to 1901. Formerly known as The Gramophone Company of India Ltd. and more popularly as HMV (His Master's Voice), Saregama was established as the first overseas Indian Branch of Electrical & Musical Industries Limited (EMI), London. From producing the first song recorded in India in 1902 by the star of yesteryears, Gauhar Jan, having first taken root as an overseas branch of Electrical and Musical Industries Ltd (EMI), London. It subsequently metamorphosed into The Gramophone Company of  India  but was better known by its brand name HMV (His Master's Voice). The RPG group acquired the controlling stake in GCI in 1985 from EMI, and later lost the trade mark right to HMV after EMI pulled out of the company completely in 2000. It adopted its present avatar in 2000.

Corporate Set up:

The Company has its corporate office in Kolkata, and Business Units located in the four main metros, Kolkata, Delhi, Mumbai and Chennai. This keeps them close to the consumer, giving their  products a local relevance rooted in 27 languages and also gives Saregama the best sales and distribution network in the Indian market.

Saregama has a significant international presence as well, with offices located in the US, UK, UAE and Malaysia. In addition, we have sub-publishers representing our interests in a number of countries all over the world

Saregama's content is marketed overseas through two subsidiaries, RPG Global Music and Saregama Plc. Saregama Plc. focuses on the UK, USA, Europe, Canada, the Caribbean Islands and South Africa. RPG Global Music concentrates on the Middle East, South East Asia, Australia, and New Zealand.

Digital Expansion & other initiatives to broad-base business

Saregama pioneered expansion into the Digital domain. As far back as 2004, music from their catalogue was made available for digital download on global sites like iTunes, MSN Music, Napster, Real Networks, Musicmatch, Virgin Digital, eMusic Sound Buzz, etc. Saregama's music is also available on domestic digital stores like Indiatimes, Sify, VSNL and Bharti telecom.

Hamara CD is an innovative venture, a CD purchase site where you can compile your own customized song list on CD from Saregama's extensive catalogue, and have it delivered anywhere in the world.

Saregama now offers its consumer the opportunity to purchase albums online.

Film production, television software and children's edutainment are initiatives which promise new avenues of growth and expansion.

Saregama India Ltd is rapidly transforming itself from a music company into an entertainment company. While it has been intimately associated with the development of Indian music from its very inception and has a library of over 300,000 songs, it is now an emerging player in TV software, radio content, events, digital exploitation, and has recently signed mainstream films with leading directors..

The move makes sense as the music industry has been one of the worst casualties of the rapid technology advances, with its turnover declining at over 20 per cent per annum from Rs 1,200 crore 10 years ago to Rs 500 crore now. Churamani, however, says HMV’s revenues have been constant at Rs 125 crore for the past few years as it diversified into the digital format, started publishing, concerts and artist management.

Currently, Saregama’s revenue contribution from the physical format is 40 per cent. That is expected to go down to just about 10 per cent over the next five years as Publishing revenues increase .

Saregama plans to sell  music on memory cards and pen drives used in mobile handsets and computers. The target market is huge as nine out of every 10 cellphones sold in the country have a slot for memory card that support music uploads. Developments in the Indian Music Industry over the last decade: Indian Music industry has been one of the worst casualties of the rapid technology advances, with its turnover declining at over 20 per cent per annum from Rs 1,200 crore 10 years ago to Rs 500 crore now. Saregama’s revenues have been between  Rs110-150 crore for the past few years. Currently, Saregama’s revenue contribution from the physical format is 40 per cent. That will go down to just about 10 per cent over the next five years.

FM radio broadcasters have been contesting Phonographic Performance Ltd (PPL) since 2002 on the issue of royalty. PPL is the largest aggregator of music in the country, administering the broadcasting, telecasting and public performance rights on behalf of music companies. Its members include Saregama India, Universal Music India, Venus Records and Tapes Private Limited, Virgin Records, Times Music, Sony Music Entertainment India and Tips Industries, among others.

Indian telecom giant Bharti Airtel has now become the country's biggest music company, overtaking the industry leader Saregama, on the back of its music-related value-added mobile services, a top executive has said.     

Music Bharti, a couple of years back has become the largest music company in India, overtaking Saregama India Ltd by a huge margin in terms of revenue.Music Bharti,  provides music services like hello tunes, call-back tunes and music on demand to its huge subscriber base.

I do not have exact industry figures. However on the basis of extrapolation of past data and factoring in the current developments, my sense is that Music related Value added Services (VAS)  generate close to Rs.4500-5000 crore per year. This includes Ring back tones (RBT) and Internal Voice recording service (IVRS).

Much like other telecom operators, Airtel does not produce music, but earns revenues from music distribution via caller ringback tones, mobile radio and music on demand. Along with SMS, Mobile Music is the largest contributor to Airtel’s Value Added Services Revenue.If one assumes, that Music accounts for about 40-50% of Airtel’s Non-SMS VAS revenues, Airtel’s revenues from music related VAS services from the Indian operations should be approx Rs.900-1000 cr for the year ended March 2011.

Some recent global developments:

1)      Apple has last week agreed  to pay US$150 million in advance royalties to the four major labels for iCloud music rights.Apple, the maker of iTunes has agreed to pay each of the top record companies between US$25 million and US$50 million each in advance royalties. The iCloud is expected to offer users a means to store their iTunes-purchased music on the company's servers and then access those tunes from Web-connected devices.

2)      Google is also supposed to be at an advanced stage of negotiations with Music companies / labels  and it is widely speculated that the search company too could launch a licensed service by September.

3)      In another development about a month back,Warner Music Group Corp and Access Industries, the U.S.-based industrial group,  announced the execution of a definitive merger agreement under which Access Industries will acquire WMG in an all-cash transaction valued at USD 3.3 billion ( approx Rs.15,000 cr). The purchase includes WMG's entire recorded music and music publishing businesses. The purchase price of USD 8.25 per share represents a 34.4% premium over the volume-weighted average share price of USD 6.14 over the previous six months.

Negatives:

1)      Poor management with a uninspiring track record on all fronts ranging from corporate governance to profit delivery.

2)      Loss making subsidiaries- with the latest addition OPEN Media Networks losing close to Rs.20.7 cr last year.

3)      New copyright act proposed by Govt of India.

Positives :

1)      Saregama’s music library of 3 lakh plus songs  is an asset which can never be replicated.In the hands of the right management, monetization opportunities are huge.

2)      The key factor is demand generation and quick delivery of content (music library) in a profitable manner. This is underlined by the huge scale up in Music related VAS revenues of telecom service providers.

3)      The list of possible suitors ( this is pure speculation and the company may never change hands) is an interesting one - Telecom companies ( Airtel etc), Indian Music companies ( T-series),Global Music companies ( Warner), Integrated Media houses ( Bennett Coleman).

4)      As highlighted in Some global developments ( above )there seems to be a small shift for the better in the global environment for music companies.

5)      Promoter-Sanjiv Goenka seems to have his hands full with large capacity addition for CESC & Phillip Carbon Black which entail large investments. Moreover besides Saregama , the group does not have any presence in Media related businesses, so there does theoretically lie some possibility of a stake sale by promoters.

Valuation :

On the basis of a back of the envelope calculation, Saregama is currently trading at an EV of  about Rs.117 cr. If one figures in the free hold land even at  balance sheet valuations, the EV works out to just about Rs.50 cr. A management change ( if it ever happens), should happen at an EV of about Rs.350-450 cr, which should translate into a share price of around Rs.200 -250 per share. As mentioned above, management change may never happen in which case the scrip may be range bound with a negative bias unless there are some positive developments on the operating front or the music environment front.

At the current price of Rs.63, Saregama is a High risk investment, with some possibility of large returns.

 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.