Thursday, July 14, 2011

IVP Ltd - from value to growth


IVP Ltd is a part of the Mumbai based Allana group.

Transformation: 

Till around 4 years back , IVP  used to manufacture  vanaspati, vegetable oils, and foundry chemicals. It also produced spark plugs & industrial ceramics.IVP, over the past 3-4 years has exited from all non- profitable businesses to ensure that performance of the profitable business (Foundry chemicals) does not subsidize the loss making ones.

The company has more or less re-invented itself as a focussed Foundry Chemical & Foundry coatings organization.

Manufacturing plants: Tarapur ( near Mumbai),Jamshedpur & Bangalore .

Promoter background:

Allana group holds 70.60% stake in IVP. Allanasons, the group’s flagship company is  India's largest exporter of processed food products and agro commodities. The Company has been designated as the Five Star Trading House by the Government of India  and  is  India's single largest exporter of frozen meat, processed/frozen fruit and vegetable products.

The Allana group bought IVP from the Tatas in 1983 and have not missed a dividend since then except in 2007 when the process of business transformation began.

Financials:

Equity : Rs.10.32 cr
Debt : Rs.5.23 cr
Current Market price : Rs.45 ( ex –dividend)
Market Cap: Rs.46.44 cr
EV: Rs.51.67 cr

Year ended march 2011:
Revenue: Rs.130.15 cr (67% growth y-o-y)
Profit before tax & exceptional items: Rs.7.01 cr
Net profit : Rs.3.18 cr 
EPS: Rs.3.08
 Dividend: Re.1.50 share

Business snapshot:

Foundries form the heart of any manufacturing based economy.

The  business  of  IVP Ltd is concentrated on the Indian foundry sector.

What do Foundry additives do ?

IVP manufactures products for  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  the foundry industry after China.
IVP’s performance is directly linked to the the industry growth, in terms of  overall  casting tonnages.

Key positives:

1)      The company has expanded capacity at its Tarapur plant at a capital outlay of Rs.3 cr. Increased production will throw up economies of scale and savings in  per unit cost going ahead. Current capacity utilization is about 50% of expanded capacity.
2)      India is expected to be the 3rd largest Castings manufacturer in the world with production crossing 1.6 cr tonnes by 2014-15.
3)      Revenue growth in 2010-11 was 67% of which 31% was on account of higher volumes and the balance due to increased realization
4)      An amount of Rs.3.25 cr was paid to workers at the Reay Road plant as a full and final settlement. Now there are no pending permanent worker / casual workers related disputes and all old staff have been adequately compensated thru VRS / OTS.
5)      The Reay Road plant has been non operational since June 2006 and the standing charges have been ganwing at the overall profitability.Management has made a small start towards  using the storage facilities at Reay Road plant  for third party rentals ( liquids/oils etc) to get a steady stream of income. This is expected to scale up gradually and one can expect a steady annual income stream of about Rs.4 to 5 crores over the next 12-18 months.
6)      Re. the core business now ( foundry chemicals) about a year and half back , they got Mr. Deendayal Vyas ( ex President – M/s. Gargi Huttenes Albertus Pvt. Ltd.) on board as President to grow the business.He is a foundry chemical industry veteran with 30 years of experience and a large part of the growth seen over the last one year must be credited to his efforts

Challenges:

1)      The IVP Reay Road  plant location is just off the main road which leads to Reay Road station. Around a year back all the slums on both the sides of the road were relocated by BMC so the location has good potential. Also the Monorail is expected to pass through close vicinity of the plant.
2)      To a naked eye the land appears to be roughly  3 to 3.5 acres . The challenge is that it is partly free hold and part BPT ( Bombay Port Trust) land so they have to give a declaration to BPT every 6 months or so about the usage of the land. If they decide to make commercial use, BPT will charge market rate for conversion so that’s a grey area about monetization of that asset.
3)      Key raw Materials are Phenol,MDI, Furfuryl alcohol – are all petroleum based ; so any large fluctuations in crude price can strain margins.
4)      Contingent liabilities ( disputed) are about Rs.12 cr on account of Sales tax/ Excise and BPT charges of about Rs.5 cr.
5)      Sundry debtors are high and at around 35% of gross sales. Comparable number for Foseco is 25%

 With India emerging as  manufacturing hub for a host of industries , overall casting tonnages are likely to see growth. At the current market price of Rs.45, IVP offers a good investment opportunity .

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. 

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