Saturday, February 23, 2013

EPC INDUSTRIE' LTD - REVIEW











This stock initially recommended ( HERE)  during August 2010 around Rs.61.At that time  I mentioned EPC as a potential take over target. As expected, one of India’s largest business group – Mahindra  and Mahindra (M&M) later took over this company  in February 2011.It is two year now and let us re look at the initiatives taken by the new management and its  future prospects.

                                                                            First of all , it was  two bad years for micro irrigation companies due to delay in releasing subsidies by various state governments.This resulted in serious working capital issues to companies operating in this sector.Mounting debt was the end result and due to this reason market cap of Industry leader Jain Irrigation nosedives.Earlier most of the  companies in this sector was following a business model which put the burden and responsibility of collecting subsidies from governments on the shoulders of companies itself and not on the farmers . They realized the risk of this business model  only after frequent cases of delay in the releasing  of subsidies in recent times.Now it is a transformation phase of this business model and company’s are now only helping the farmers and it is their responsibility to collect subsidy from the state governments.Normally ,as a result  of this change in strategy  ,sales  growth of  MIS shows lower growth during this transformation phase .Now most of the companies including Jain Irrigation is adopting this new  model and expecting significant improvement in business in another few quarters once this shift completes.
                                                                                         Being a pioneer in farming related business ,Mahindra’s took a careful step and begin with a prudent decision to start with the new model.Initially  ,to strengthen the capital base and support working capital requirements M&M infused further funds into EPC through a rights issue priced  @ Rs.40. Through this rights they hiked their stake from 38 % to 55 % ( M&M subscribed the unsubscribed portion of Schroder Credit Renaissance Fund ,as part of take over agreement)
                                                            Then ,M&M formed a new board and appointed well experienced executives to lead the company .Mr Ashok Sharma appointed as the ED and CEO of EPC .He is also serving as Chief Executive -Agri and Allied Business of M&M,Mr Subhash Modak as COO ( Vice president  M&M) and Mr Pavan Deolia as Head Sales & Marketing (General Manager- M&M ltd)

                                                               Under this new leadership ,company get a new direction and started  fresh initiatives to become a leader in agri space.First of all ,EPC amended  its object clause of Memorandum of Association to enable it to diversify into other agri related areas like seeds, fertilizers, pesticides, agri chemicals, tractors implements, pumps, greenhouses, power, fruits and vegetables, meat and poultry, dairy, aquaculture, marine culture, grains and fast moving consumer goods..etc.
                                                                                       Further the company increased its offering by adding new products in its portfolio including  pumps and new models of micro irrigation systems.This will help EPC to become a one stop shop for all MIS needs .Company started strengthening  its marketing network by adding dealers in un represented areas.
One drawback of this company during the erstwhile management was its inability to offer complete solutions rather than just selling MIS products.But company now started Agronomy Support Services  including Educating farmers in the areas of Introduction of new crops,Crop selection,pest and weed management ..etc. Agri Helpline is another new initiative by EPC for farmers .Farmers can call or mail for clearing any agri related doubts .If necessary, company’s expert will personally visit the farm and give advices free of cost. All these efforts will ensure a close relation with farming community and increase the brand value of EPC as a complete farming solutions provider.
New Initiatives
EPC recently started an agri show room ( a  one stop shop for all agro products and solutions ) in Buldhana district of Maharashtra.I believe it is only a first step of a long journey and company will start many such shops at various parts of India once they started own production of other items like Seeds,agri chemicals,green house accessories..etc.
Another most important development in the history of EPC is its recent tie-up with State Bank of India( SBI) .Last week ,company entered into tie-up with SBI  to finance farmers for micro irrigation systems.Considering the vast network of SBI even in the nuck and corner of India ,clinching such an arrangement with India’s biggest bank  is a very important development for EPC .For financing farmers ,even some market leaders are forced to start financing facilities for their own  which need additional capital end extra struss in their balance sheet .I strongly believe such a an arrangement materialized only because of the goodwill and credibility of Mahindra Group.( Read more details about this event HERE




Financial Performance and Change in Share Holding 

Even after following a conservative business model ,company could improve its business.During the latest quarter ,EPC reported a Sales of Rs.50 Cr ( Rs.40 Cr in same period last year) and a net profit of Rs.2.70 Cr (Rs.1.98 Cr) .This may not be a big figure but we should realise it is just a beginning for the new management and the initiatives they are taking now will need some time to deliver in its full potential. Change in share holding during the last one year is another point to note. Earlier about 34 % stake was held by Credit Renaissance Fund. ( who took preferential allotment to pump money for working capital during the time of old management).Now they exited completely and these shares are mopped up by reputed Institutional and Individual investors including Morgan Stanley,Reliance Capital,SCIL Ventures..etc.This means, exit of 35 % stake by one stake holder not increased  the level of floating stock in market .Another  source of supply coming to the market is from the remaining stake held by the old promoters .I strongly feel ,their exit is part of the take over  agreement  with M&M .At the end of December quarter old promoters (  Trenton Investments Co Pvt Ltd ) holding  934985 shares .Tracking the trend of trading of this stock for the past many years , I believe they are selling around Rs.140 and this is the only source of major supply at this point . Their holding may  be reduced  further due to selling in January and February.
                                                                           As I mentioned above about 85 % of shares are held by promoters and institutions in this company .Management is taking careful steps to develop EPC as a full fledged farming solution provider.At present , sales of micro irrigation systems are promoted by producers and central  and various states and government .I believe this scenario will change in another few years and due to scarcity of water and introduction of modern farming techniques MIS will be a necessity for farming and farmers itself will demand it .If everything goes well ,with an experienced management  with vision and ability to tap opportunities  , I strongly feel EPC will evolve as a front runner in Indian Agri space and become  a feather in the cap of Mahindra Group in another few years.CMP of EPC Rs.143 /-

Stock is expected to move to another range once the supply from old promoters absorbed.Hence recommending to tightly HOLD it for long term .

LINK TO VIDEO PRESENTATION BY CEO HERE

LINK TO COMPANY’S  NEW  WEBSITE HERE

53 comments :

  1. Once again a well researched recommendation.Thanks ji.

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  2. Thank you for sharing the source of webs.... Its really useful new insight for us (e.g. Indiawaterreview etc) to track many other related stories...
    Nithi

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  3. vpji u dont reply to queries
    atleast give me a view on CEEBCO ...many analysts say to buy and some saying to sell

    ReplyDelete
    Replies
    1. There are many similar stories like this in recent times including Zylog,Glodyne,Opto ..etc .I think CEBBCO is better in two counts ie,promoters stake and debt level.But it is a fact, in all these cases lot of shares held with big investors ( or pledged by promoters) came to market and it is floating in the hands of retail investors.This will restrict the gain in near future till these shares are absorbed by some biggies after an improvement in the financials of companies going through these type situations.Moreover in the case of substantial fall in promoter stake due to pledge selling I don't think promoters will show any genuine interest to run the business through the listed entity .Even if there is opportunities they may divert the business through some privately held companies .So keenly watch whether the promoters are taking any steps to hike their stake in the case of pledge shares sold cos and whether there is signs of improvement in business for others ,then take a decision.

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  4. please share your view about is this stock is good to purchase at this price??

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  5. Dear VP

    In the Micro Irrigation sector, another company Sturdy Industries has annual sales turnover of about 700 Cr vs that 150 Cr of EPC .. How do you see Sturdy industries going foward considering it's CMP is just Rs 3 and promoter holding is about 52% and it has been in the 2.5-4.5 range for about 2 years. I would be obliged if you give a detailed response ..thanks a long !!

    ReplyDelete
    Replies
    1. Already recommended to avoid Sturdy Industries

      See the below two postings

      http://value-picks.blogspot.in/2010/07/sturdy-industries-better-to-avoid.html

      http://value-picks.blogspot.in/2010/09/sturdy-industries-fooling-investors.html

      Delete
    2. Dear VP,
      I congratulate you for projecting so accurately on Sturdy industries more than 2 years back. Do you still hold the same view or situation has changed for the better for this company ? Your one line answer would be enough for me to forget Sturdy industries as an investement option.. thanks !!

      Delete
  6. Dear Sir ,

    What is your view for Gulf Oil Corp. Ltd. Hinduja fame after the co. bought biggest Lubricant Oil co in Uk through subsidiary ?

    ReplyDelete
    Replies
    1. Not tracking .Generally speaking - one should also consider the burden while taking over big cos in the form of debt ..etc .Take a decision only after analysing whether it is viable and affordable especially at a time of high interest rate situation.

      Delete
  7. Sir, I have very recently started reading through your blog. I really appreciate your knowledge and hard work in helping the community. Thanks for your valuable suggestions.

    I would like to know if it would be good to invest newly in this stock now, as you have suggested for a hold.

    Regards,
    Nithish Kumar

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  8. Dear vp sir,

    Can i buy epc at current cmp?

    ReplyDelete
    Replies
    1. I think you got what I means

      Do some home work on remaining stake with the old promoter ,last two months volume and volume in coming days and then take a decision.I can't say will it absorbed in a bulk deal as it happened in the case of shares held by Credit Renaissance.

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  9. Sir,

    How can we treat stocks with large Contingent Liabilities.

    I saw a company named Deepak Spinners(CMP:26, MCap:18 Crore,Contingent Liability:58 Crore)

    This quarter company posted Sales :80 Crore, PAT: 5 Crore, EPS: 7 Rs

    I was always lured by companies posting this kind Results & invested earlier but I ended up getting trapped in such investments.

    Please guide me as I made investments seeing good profit/eps in companies like SEL Manufacturing & Others & Eroded major portion of my Net Worth.

    Thanks,

    Nirupam Jain

    ReplyDelete
    Replies
    1. Should sense something wrong if there is huge profit but cash flow is big negative for many years and no dividend pay out .Don't jump in such cases without some deep digging .

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    2. VP, wat u mean by cash flow? could u pls expain ..

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  10. I have an observation:

    You said that Credit Renaissance has exited from the stock. Whereas in moneycontrol website I see that they till hold 34% stake.

    Would appreciate if you can clarify.

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  11. Exit completed only on January 8 ,2013 but share holding updated till 31 December 2012

    See the below link

    http://www.bseindia.com/markets/equity/EQReports/BulknBlockDeals.aspx?scripcd=523754

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  12. Yes indeed!
    Thank you very much

    ReplyDelete
  13. Dear vp sir,could u plz share ur view on cuppid rubber???
    Regards
    Jasim
    Dubai

    ReplyDelete
    Replies
    1. Thank you sir.i understud what u mean it.
      Regards
      Jasim

      Delete
  14. nice research work...sir can u tell me about claris lifesciences result update what is your view about that result
    thank u

    ReplyDelete
    Replies
    1. I think Claris' decision to sell major portion of its business is not positive .

      Delete
  15. Dear Sir ,


    What is your view regarding SEAMEC & INSILCO both are Multinationals kindly guide ?

    Thanks

    Regards

    ReplyDelete
  16. Dear VP,
    Which sector you expect to perform well despite of the overall sluggishness? Isn't good to shift to better companies than getting blocked our money in co's of currently slow-moving sectors?

    ReplyDelete
    Replies
    1. As a sector Pharma and Banking may out perform in medium term.Out performance is possible by individual companies from other sectors too.

      Delete
  17. KSP pumbs results are good!!!!! Thanks to bring this scrip to investors attention....
    NIthi

    ReplyDelete
  18. Dear VP,

    What is your view on JSW engergy. It has shown good no. in this quarter.

    ReplyDelete
    Replies
    1. Govt policy decisions are the need of the hour in power industry.

      Delete
  19. Sir, what do you think about Orbit Exports?

    ReplyDelete
  20. Dear VP sir,
    want to know your view on Godrej Ind after correction? I am holding 100 shares@240. Can I add @cmp or sell?
    Thanks & regards
    Abir

    ReplyDelete
  21. Dear vp gi,

    Is it the right time to enter into some beaten down stocks such as aarvee denim, sabero organics, heritage, acrysil?

    ReplyDelete
    Replies
    1. Reason is more important ,Prefer the last three .

      Delete
  22. Dear Sir , Whats your view on Jai Balaji Industries ?

    ReplyDelete
  23. Is "simran farms " book loss presently or Hold?

    ReplyDelete
  24. Dear Ajit

    We have discussed this matter in detail in recent times .Check the comments of recent posts.

    ReplyDelete
  25. it's very difficult to find all those without search box..

    ReplyDelete
    Replies
    1. Use the Search option available at the top left corner of the blog.Unfortunately only postings are available using this search ,comments not.

      Delete
  26. hi Sir,

    your view on Schneider and Speciality please. would you suggest a BUY. I have a 2-3 yr timeframe. Please advice

    ReplyDelete
  27. VP Sir,
    The promoters of Hi-tech Gears have been continuously adding the stock since last few weeks. Seems like they accumulating the stock which is available at very cheap levels and also they declareied div so they stand to benefit from it.

    Any thoughts as the company seems very good but cap goods sector is down and hence the price.

    Do you see good time for Gears/cap goods companies in long run like Hitech Gears, ELECON etc.?

    Thanks.

    ReplyDelete
    Replies
    1. Many quality companies from currently out of favor sectors are available at attractive valuation.But 99 % of our investors does not have patience to reap benefits by showing enough patience.While buying they will promise for a very long term hold,but in reality they will start asking ' why it is not moving ? ' after just 6 months or one year.There is many opportunities in capital goods and auto related sectors but that is not suitable for investors investors with a shivering hand.

      Delete
  28. Dear vp sir,

    How do you view denora results? is it a buy at current cmp?

    ReplyDelete
    Replies
    1. Result was not bad,but no clue about the order book.

      Delete
  29. Dear VP,

    De nora moving in lower circuit every day in low volums.
    What does it mean, in your opinion?

    Regards

    Vishnu

    ReplyDelete
    Replies
    1. May be due to over expectation about Result

      Delete
  30. what about your view on power cable sector. the entire sector now available at very atractive level pe multiple less three... please suggest me one of fundamentally strong stock for long term investment like diamond power or KEI Industries....

    ReplyDelete
  31. Same answer given to the comment of one Mr Suresh ,above.

    ReplyDelete
  32. Hi Valuepick,

    Post Strides Arcolab deal...the stock is correcting daily.With company expected to pay half of the money as dividend.
    As you are an informed investor, what is your thoughts on the reason for this selling?
    Do you advice a buy in this Stock?

    Regards,
    Vikas

    ReplyDelete
  33. Dear Vikas

    Reason may be two

    1) So far Promoters not clearly mentioned the dividend pay out ratio.

    2) After selling this business Strides will be a company with turnover less than Rs.1000 Cr .In recent times promoters diluting their stake in strides and at the same time hiking their stake in the other company Sequent Scientific .After selling out the major portion of the business of Strides ,in which company promoters will concentrate is another question.Promoters will hold 16174202 in strides and 17284511 shares in Sequent( post pref).This means they are only minority share holders with just 27 % stake in Strides now but holding more than 65% in sequent .

    These may be the main reasons.

    ReplyDelete

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