Saturday, September 28, 2013

R J BIO-TECH LTD -- UNKNOWN PROMOTERS BUT UNLIMITED POTENTIAL








RJ Bio-tech is a newly listed company in Indian Stock Market .This stock listed in BSE’s SME platform on last Thursday.This is a pure play seed company listed in BSE after a gap of five years.Even if the size of company is small at present ,potential of the industry and the consistent growth it reporting since inception deserves a close look.RJB belongs to Aurangabad based RJ group having business interests in Agri and Hatchery related fields. This is the first listed company from this group  . RJB producing a wide variety of seeds broadly classified into three categories – Vegetable seeds,Field Crops and Oil seed crops.
In each category ,company selling large variety of seeds like Cotton,Mustard,Sunflower,Wheat,Maize,Paddy,Bajra,Brinjal,Melons,Okra,Chilly,
Tomato,Cucumber,Onion,Spinach,Beans,Gourds..etc. ( For complete product list Click HERE ) .Such kind of a diversified portfolio not offered even by some front line seed companies in India.This much products helping the company to operate across different states in India according to the requirement of regional farming needs and preferences.Company claiming that they have  already established a strong production, storage and marketing network across 10 states consisting of R&D lab,farm area of 55 acres for R&D experiments,700 seed growers and 3 seed processing facilities with an installed capacity of 14 MT per hour ,9 product testing points,40000 square feet storage facilities...etc. Company’s R&D facility at Pharola got the approval of Department of Scientific and Industrial Research,Government of India.RJB selling its products through more than 1000 dealers in these 10 states.Company effectively leveraging the marketing network  of  group company – Maruti Fertochem (production capacity  1,27,000 MT per annum ) -which is operating in fertiliser segment .RJB tied up with Mahyco Monsanto for its Bollgard II BT cotton variety and the product developed through this technology  will be commercialised during the kharif season of 2014.Company entered into a marketing tie-up with Monsanto Holdings for marketing their Maize Hybrids.RJB signed an MOU with Directorate of  Rice Research ( DRR) Hyderabad for commercialising Hybrid paddy developed by DRR across India which will happen in 2014-15 


                                                      It is evident from the listing of this company in BSE SME that the current size of operations are small.But company established a good frame work in past few years and now it need to capitalise on that.It established a good infrastructure even though many of them are on a lease basis due to scarcity of working capital.Now the money raised through this IPO is proposed to be utilised mainly for working capital requirements. Even the size is small RJB is reporting steady growth since the beginning,which reported a CAGR of 78% in Sales from 2007-2008 to 2011-2012 and a CAGR of 110% in net profit in the same period. Its sales grow from mere Rs.90 lakhs in 2008 to Rs.16 Cr in 2012 and net profit shot up from Rs.1 lakhs to Rs.55 lakhs. Even its cash flow is negative at present,I hope it can be addressed  if the promoters can show more professionalism going forward.

                                                                                       The potential of Seed Industry is robust in India .Any company needs minimum 4-5 years to commercialise a new variety of seed from R&D level after going through long experiments,assessment and approval from various government authorities ..etc.On this background company’s portfolio of 55 type hybrid seeds in 8 field crops and 16 vegetable crops is not a small thing.As I mentioned earlier If the promoters can capitalise the infrastructure they built and tap the potential of the Industry ,RJ Biotech may bring good reap to its investors.Stock is currently trading in BSE ( Scrip Code- 536456) under MT group .As per new listing norms ,stock will come out of  trade to trade segment  after the completion of 10 trading sessions .Current Market price is Rs.23 

Link to company website HERE



 
 



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* Since it is a newly listed company , gathering information was not very easy .So some data taken directly from company  published documents . So it may be biased.


Sunday, September 22, 2013

WOCKHARDT LTD - TIGHTROPE WALKER




Price movements of some stocks are always violent and such stocks are the favorites of high risk traders ,investors and operators.But it is rare to see such stocks in BSE ’A’ group.Normally low float ‘B’ group stocks are showing such extreme movements with low volume.Such stocks are not suitable for an average investor and it is equal to playing with fire.These type stocks are capable to create millionaires or beggars in short span of time.Wockhardt is one such rare stock from ‘A’ group ,showing such  a movement in past few years. We will get a clear picture about its price movement by checking the high and low price recorded in the past few years.From a low of Rs.68 in 2009 ,its share price touched a high of Rs.2166 in 2013. Even we take the case of 2012 to 2013 only ,it reported a low of Rs.251 and Rs.2166 in this short period itself

Actually Wockhardt  is not a small company based on many parameters. It is one of the largest Indian pharma company and a pioneer in Indian Bio-pharma space with a turnover of more than Rs.5000 Cr and a net profit of over Rs.1500 Cr.Company having more than 200 patents  globally  and selling more than 500 products in US market.It is the company won the maximum number of patents awarded by India Government in pharma space for 4 years in a row. Company is the largest Indian and third largest generic pharma company in the UK market.Wockhardt is also the largest branded generic pharma company in Ireland.Company operating 12 manufacturing facilities across the globe  ( 9 in India,1 in USA,1 in UK and 1 in Ireland) .Many of you may surprise why the stock price of such a company with good credentials showing sharp swings in short span of time especially from pharma sector which is generally known as a safe sector for steady gain.  

                                                                                      Now let us look into the reasons and current situation.In 2010, even its existence  was a  big question mark  when the Mumbai high court admitted a winding-up petition filed by the company’s foreign currency convertible bond holders.Actually sharp appreciation of Indian Rupee created headaches for Wockhard from both sides and negatively affected its business (Unlike many Indian pharma companies ,contribution of overseas earnings is very high in case of Wockhardt.It is as high as 80% of its total turnover) and ability to payback FCCB amount .To escape from this do or die situation ,company forced to sacrifice a part of its hospital business , the entire nutrition business and animal health business ..etc.In 2009-10 Wockhardt’s debt equity ratio was at an alarming level of 5.5 which now reduced to just 0.4 . In 2012 FCCB holders withdraw the winding up petition .This default and repayment created big fluctuations in its share price during 2010-1012 period.2012-13 was a fantastic year in the history of Wockhardt .Company reported a consolidated sales of Rs.5610 cr ( Rs.4351 Cr in previous year) , net profit of Rs.1594 Cr ( Rs.343 Cr)  and an EPS of Rs.146.00. Then the next blow came in 2013 in the form of USFDA inspection.Wockhard received a warning letter from US FDA due to violation of CGMP and data integrity issues .This prevents company from exporting products from Waluj facility and on this news ,share price started to crash from a level of Rs.2100 level.Again it received a Form 483 on its Chikalthana unit .. 483 is a form used by the US FDA to document and communicate concerns discovered during their inspections. After issuing 483 ,company will get certain time to correct the mistakes and comply with the standards of USFDA .If USFDA satisfied with the corrective steps they will withdraw 483 and if not , ban export from the facility .Wockhardt now claiming that they have taken every steps to avoid a ban and appointed US based third party consultants to advice the company in  ensuring CGMC standards,as requested by USFDA itself .It is reported that M/s. Lachman GMP Consultant INC USA has appointed for this purpose.Company also changed the head of its quality control department and requested to report the new QC head directly to MD in order to avoid delay in taking and implementing decisions.

                                                                                  Whether the company will survive the storm or not is the question now. It is expected to receive a final verdict on this subject within two months.Either the stock will go back to Rs.250 level or come back to Rs.1500 level based on the final decision of USFDA in this matter.If we check the history of the company ,promoters never repeated one mistake more than once.( This is the first USFDA related issues with Wockhardt in its history and inspections of both plants happened almost simultaneously) .If they are fortunate to escape this time ,I hope company will never look back on USFDA related issues anytime in the future . Till June quarter almost 100% of promoter holding were pledged ,but in last month they released entire pledge and recently even hiked their stake through open market purchases.Now promoter stake is almost near to the maximum permissible limit ie,75% .If we exclude the USFDA related issues ,Wockhardt is the cheapest  pharma stock which is trading with a P/E multiple of just 4 .At CMP of Rs.590 ,this stock is suitable only for investors who are willing to play with fire.Either your investment will multiple or it will become half or below in another 6 month or one year.

Recent Concall Transcript HERE

Link to Company Website HERE

Disc: I have vested interest in Wockhardt

Thursday, September 19, 2013

PANACEA BIOTEC LTD - UPDATE

Panacea Biotec  recommended earlier @ Rs.108 which is currently trading around Rs.136. Loss of business due to WHO related issues clearly mentioned in old posting (  HERE).After a long waiting company today published an Important announcement in this matter ( Read it HERE) which is self explanatory .Recommending to HOLD the stock for long term.

Sunday, September 15, 2013

PAPER PRODUCTS LIMITED - BUY









FMCG Companies are evergreen favourites of Investors .It is mainly because of their ever growing business backed by strong brands ,wide market reach and good cash flow ..etc.But in many cases FMCG companies always commanding premium valuations and ruling at high P/E multiples .Proxies of FMCG companies are another better option to benefit from the growth of FMCG companies .Paper products is one such company  which supplying packaging materials for many of the top brands in India.PPL is a subsidiary of Finland based Huhtamaki Packaging Worldwide which is operating in more than 30 countries and one of the largest 10 packaging solution providors in the globe.Huhtamaki holding about 61 % stake in PPL through its holding company Huhtavefa BV.In India ,company commanding about 60 % of market share in premium flexible packaging  business and its client list includes all major players in FMCG sector like Britannia, Cadbury, Castrol, Coca-Cola, Dabur, Emami, Eveready, GSK, Godrej, Hindustan Unilever, ITC, Marico, Nestle, Pepsi, Perfetti, P&G, Tata Tea, TTK-LIG and Wipro..etc  In fact ,It is a one stop shop for FMCG companies for packaging needs and its products includes  Flexible Packaging, Specialized Cartons, Packaging Machines, Holographic Options, Gravure Cylinders, Polyethylene Films and Coated Materials, Shrink Sleeves, Heat Transfer Labels, Pressure Sensitive Labels, Metalized Paper and Wrap Around Labels ..etc.  In many sub sectors of FMCG , flexible packaging is  replacing conventional rigid or glass based packaging.Growing trend of processed food market and penetration of un tapped rural markets by personal care companies are expected to increase the use of flexible packaging going forward. Supported by one of the world leader as its parent, PPl will be the biggest beneficiary of this changing trend in India. Company  showing steady growth in the past and  distributing dividend in every year. In FY 2012-13 PPL reported a top line of Rs.900 Cr ,net profit of Rs.45 Cr and an EPS of Rs.7.20 . Company’s stock price is now trading around its 52 week low price .For the past few weeks PPL’s Indian promoter is continuously buying shares from open market.I think,this MNC stock is a good proxy to participate in  the  Indian consumption story without taking higher level of risk @ CMP Rs.61.

Link to Parent Company's website HERE  

Link to PPL website HERE

Saturday, September 14, 2013

Saturday, September 7, 2013

LUMAX AUTO TECHNOLOGIES LTD - LONG TERM BUY




 

  
Sharp crashes in market always creates panick situations ,especially in retail investors . Main reason for such a fear is – investment using leveraged funds and lack of conviction and confidence in  the company where  we invested.Only a small minority loving such crashes and taking it as an opportunity to buy quality companies at cheap rates.We must realise that the share price of any company depends mainly on two factors – one is  the business growth of that particular company which in many case depends on the over all growth of economy and the other is the over all mood of investors in stock market.In a market/economy situation like the current one  many prophets are appearing in business channels and predicting  the index targets as 5000,4000.3000 and so on.Hearing such targets we are not ready  to think whether the stock price of  a specific company already reflecting a major portion of negatives or not and take action accordingly.On the other side ,while buying stocks in such dooms day we should not  expect return from next day onwards but take it as an opportunity to grab quality names at throw away prices for creating wealth in long term.Buying in small lots  at various levels will help to get stocks  at a reasonable average in such volatile times.The main point to remember in a situation like this is – never invest using leveraged and time bounded funds and never expect return from the very next day onwards.

                                                                         Many good auto ancillary companies are now trading around their life time low prices which offer good opportunity for long term investors. Lumax Auto Technologies ( LAT) is one such company  which supplying two wheeler chassis, Adjustor Motors  ,Exhaust systems & Mufflers, Fork & Handle Bar Assemblies, Petrol tanks, , Auto lightings ..etc to two and three wheelers.Company is a major supplier to Honda Motors,Bajaj Auto,Piaggio,Tata Group ..etc from its 6 plants located across India. Even if there is slowing demand in auto industry in general,two wheeler companies are not much affected and Honda Motors – major customer of  LAT – reporting good growth.Company’s financial performance is stable even in this tough times which reported a consolidated top line of Rs.766 Cr , net profit of Rs.41 Cr and an EPS of Rs.30. in FY 2012-13.Stock is currently available at Rs.92 with a P/E multiple of  just 3 .Company is consistently paying decent dividend ,paid 60 % each in last three years. It is a good opportunity for those having enough patience .Stock is listed both in NSE and BSE and trading @ Rs.92.


Link to Company website HERE

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