Saturday, February 6, 2021

JAY KAY ENTERPRISES - MOVING INTO 3D PRINTING SPACE

 Many investors are ready to take higher level of risk for multi bagger return. It is not only a game of risk taking but testing our patience and conviction too. Though we are always looking for such opportunities, it came rarely in a market like India due to various reasons. Advanced technology is one sector many such multi baggers may born in future. But unlike US market, number of listed companies operating in upcoming futuristic sectors like Robotic Process Automation ,3D Printing, Genomics ..etc. are rare in India in listed space  .In this background let us look into a listed company which seems seriously venturing into 3D printing space . 3D printing is supposed to be the disruptive technology which will revolutionize ‘how the world manufacture’ in the future. In every bull market many companies change their line of business and attach the tag of hot sectors with their name  to lure investors for higher market cap . But why I look into this company is – It belongs to a business group with more than 100 years of tradition and their other listed company trading at a market cap of more than Rs.17000 Cr. 

The JK Group

The JK group founded by Singhania family in 1918. The family is currently divided into three main groups headed by Dr. Gaur Hari Singhania based in Kanpur, Shri Hari Shankar Singhania based in Delhi and Shri Vijaypat Singhania based in Mumbai .  The three men are cousins who now run independent businesses, which are technically and legally separate entities and have no cross-holdings or common directors and employees, sharing only the family history .( Courtesy : Wikipedia) .The company we are discussing belongs to  Gaur Hari Singhania group  and this group’s only other listed company is JK Cement which currently trading  with a Mcap of over Rs.17000 Cr. There are two other unlisted companies namely JK Technosoft and JK Cotton also belongs to this management.

Recent Developments in JAY KAY Enterprises .

 JK Enterprises ( FV.Rs.1)  may termed as a penny stock till the company announce its new plans  and its 52 week low price is less than Rs.3 with promoter stake of 32 %. Now management decided to hike their stake from 32 % to 52 % by subscribing additional shares and warrants through a preferential offer @ Rs.10. This fund infusion is for the purpose of setting up a 70:30 joint venture with EOS Singapore Pte ( Ultimate holding company is ElectroOptical Systems (EOS) GmbH – Germany.) EOS is one of the world leaders in 3D printing technology especially in metal and polymers. They are well known for Metal additive manufacturing, that is used in 3D printers to produce metal based products. The newly formed joint venture (70% stake with Jay Kay Enterprises and 30% with EOS) will be  named as NuMesh Labs and it is aiming to enter the business of 3D metal design, design optimization, 3D Consulting services, product prototyping and design for bulk printing.  In addition to this ,Jay Kay Enterprises also decided to invest in a print farm and the assets and infrastructure of this print farm will be directly under Jay Kay Enterprises itself .As per company press release “   With this new venture, Jaykay Enterprises will become an integrated player in the 3D Metal Printing market through its cutting-edge manufacturing technology.”

As per study and analysis done by E&Y for the company, In India,  metal 3D printing market is growing at  a CAGR of 33% to reach around Rs.1200 Cr by 2025, and sectors like Defence ,Aviation,Medical equipments ..etc which need high precision will contribute maximum to the growth of this Industry going forward. I believe this is the first listed company in India that took a bold and serious  move to serve 3D printing technology in India .

Points to Remember

Industry is at nascent stage in the world or at least in India .Though there is great hope about 3 D printing, technology is fast changing around the world and disruptions may happen even beyond our imagination. How our businesses adapt this technology for production  is a point to wait and watch , but I feel increasing wages and government’s aim to make India as a manufacturing hub for the world will aid faster adaptation of such technologies here. JK group not jumped into 3D printing technology overnight, in 2018 they acquired 27% stake in Nebula 3D services which is operating in 3D design , scanning and modelling services. I feel ,they studied the potential of this industry during past few years and now this  decision  for forward integration is a well thought one seeing the future potential . Promoters hiking stake substantially and the joint venture partner’s credibility and experience in this field are added positive points . Considering the huge potential of business (once more are more companies turn to  3D printing route in India) , support of well known JK group, personally I prefer to take some risk on Jay Kay corporation. With long business experience  of promoters, I believe , after gaining sufficient experience in component manufacturing using 3D printing technology , the print farm under the direct control of company may utilized for supplying parts for end user industries in future.

Whether this is worth at Rs.70 Cr market cap is upto you .Personally I believe  this stock is not for faint hearts or those checking the results on a quarterly basis (at least for next few quarters/years)  or taking investment decisions based on past performance , but only for those willing to forget even  the entire capital invested and with lot of patience for a potential multi bagger in an emerging industry in India. 

You can read recent company announcements in the following links :

Link 1 ( 4 Pages) 

Link 2

Since 3D printing is relatively a new technology , at least few of you may think  it is printing something on paper but it is a new production technology for manufacturing different things in a different way . Lot of articles and videos available in web about this and I am attaching link of few below.

Link 3

Link 4

Link 5

This is my personal thoughts on this company and not at all a buy recommendation. Do own due diligence /consult a SEBI registered advisor before any action.

Discl: Holding few shares , hence my views may be biased. All information (otherwise specified as personal views) taken from publicly available documents and company filing to stock exchange .



Saturday, July 11, 2020

MAYUR UNIQUOTERS - READY FOR A SECOND INNINGS ?






Till few years back Mayur Uniquoters was the  darling of investors and one of the biggest wealth creators in the history of  Indian equity market . Later, colour  of  this artificial leather manufacturer faded  due to reasons like muted growth in business and some family feud. It seems, after a gap of  few years , now situation again turning in favour of the company .

                                    Mayur is the largest player in the artificial (synthetic) leather market in India .Company’s products are mainly used in Automotive and Footwear industries. As a testimony to their product quality , this is the only Indian company supplying products to US and EU  based marquee OEM’s like Chrysler ,Ford, .etc .Its Indian client list includes who is who in the automobile and footwear industries like Maruti Suzuki, Hyundai motors (recent addition) ,Honda ,Mahindra, Tata Motors,Yamaha, MG,Bata,Relaxo,Paragon,Action, Khadim’s ,VKC..etc .  Share of exports to total turnover increased more than 150% in last 10 years . Strong R&D , fully integrated operations , concentration in supply to  quality conscious OEM’s helping the company to keep its margin at higher level and a strong balance sheet.

Global synthetic leather market is expected to reach $31 bn by next year .If we take the top five (on the basis of capacity) players in this industry , three out of five players are from China and Mayur is at second place only behind China based  Anhui Anli Material Technology Co. Because of its successful effort to concentrate in high margin products, Mayur is  one of  the most profitable companies operating in this sector in the entire  world. Synthetic leather are mainly two types- PVC based and PU based . Till now Mayur was present only in PVC based products with an 11 % market share in local market in an industry where lot of small players are competing . Even if the pricing power is limited in this Industry  ,Mayur generating good margin due to  their success in client selection who are willing to pay premium for quality .

                                               Mayur started its initiative to diversify into PU based artificial leather in 2014 . Rs.3500 Cr is the estimated market size of this product in  India as of now and this demand is mainly met through imports . Out of this figure 90% is imported from China alone. This is a huge opportunity Mayur is looking to tap. After facing many hurdles in project implementation and deadline changes , Mayur just started the production of this product now . This is high margin and  low competition product compared with PVC based artificial leather .Considering company’s already established good relation with customers ,Mayur is expected to capture sizable market share of PU product in coming years . Other than Mayur , there are only three small manufacturers in India for PU based products whose capacity all together is less than half of the capacity of Mayur.Anti China wave in many countries due to various reasons are also expected to act as a catalyst for a faster transformation.In last few years company lost few of its south based big customers mainly due to logistic related and other competitive disadvantages as its plant is located in Rajasthan. This is one reason for muted top line growth in past few years . In order to overcome this situation and increase the efficiency of service to south based customers , now company is planning to start a plant in Anantapur, AP

Major Headwinds :

·       Though the company reported better than expected performance in March quarter, there might  be some negative impact on business in recent times due to Covid Pandemic related production and demand disruption.

·       Family feud is an issue and one of the major reason for under performance of this stock. Son ( holding 15% stake ) of the major promoter resigned from the company in 2017 and now son-in-law is acting as next to  Suresh Kumar Poddar ( Chairman) . Any truce among family members will surely re-rate this stock.

Major Tailwinds

·       Integrated, R&D driven company in a growing Industry
·       Strong balance sheet with cash /Cash equivalents on book
·       There is lot of unorganized small players in PV based synthetic leather  segment, pandemic related issues will surely affect them most compared with companies like Mayur with strong balance sheet. If this situation prevail for a long time , it may result in consolidation in this industry and ultimately help the organised players in the longer term.
·       PU leather segment is a big opportunity and it may change the fortunes of the company going forward. Though the ramp – up may bit slow due to Covid issue,after many extensions , now they started the commercial production of this product
·       New customer addition – many major players in auto sector  in India are customers of Mayur, but not  Hero Motocorp . Company is in discussions with Hero and expecting positive outcome in a couple of quarters. In the export market, for the past five years or more  they are trying for first shipment to Mercedes. It got delayed due to various formalities like plant inspection. Approval..etc . As per latest con-call, this will happen  by last quarter of ongoing FY and it will be another feather in the cap of this company. Company is also in discussions with BMW and expecting positive outcome in near future
·       Government recently hiked the import duty of artificial leather from 10 % to 20 % ( 22% including surcharge) , this will surely help Indian companies to compete  in a better way with Chinese counter parts .
·       Cost of major raw materials are related with the price of Crude . Due to various reasons, crude price is expected to move in a range which will result in stability of RM cost.
·       In case of raw material, to avoid import dependency, company planning to start own production of P U resins in another one year.







     

 CMP Rs.221


Link to company website HERE



This is my few thoughts on Mayur Uniquoters and the decision is your’s  

   
Data source : Publicly available documents , con-calls and interviews of management.

Wednesday, May 22, 2019

Be Positive and Vigilant ....


We are now ready to welcome a new government. Whether it will be the continuity of the previous one or formed by new faces is the question in everyone’s mind. The last five years were mixed for investors. The first half was excellent with all round enthusiasm, participation from FII’s, Institutional and retail investors..etc. but the last one and a half year was no so good for market especially for retail investors due to signs of weakening economy, liquidity crisis, global issues..etc.  Unexpected currency note ban, implementation of GST without proper preparedness, introduction of long term capital gain tax , election related uncertainties, serious liquidity crisis in our economy ,  rise in crude oil price, trade differences between US and China ..etc are some of the concerns which affected our market in the second half this government. Though we are still not fully recovered from such macro headwinds, we can’t forget the strength of an economy with more than 130 Cr population if properly managed , supported and utilized by the upcoming governments. From the point of view of investors in equity market, we have passed many such acid tests during the past many years and many of our corporates weather the storm of such macro factors and emerge as winners.

                                                                                   The success of any investor depends on his/her ability to foresee the upcoming opportunities and make timely changes in their portfolio to gain out of such opportunities. Unfortunately one section of retail investors still believe, buy some stocks and wait for a long time is enough to make money out of it . We have discussed this subject many times in the past and advised to take investment decisions based on the changes happening in the company. It is a fact that  holding a stock without proper periodic review will not give any gain  and it may even results in enormous wealth erosion especially  in case of debt laden high risk companies which we invested with an anticipation of debt restructuring, asset sale..etc ( Though I am not recommended directly ,Ess Dee aluminum is one such stock we have discussed earlier in this genre ) .Having said  , debt restructuring was the investment rationale of few of these companies but it didn’t go through as expected mainly due to the sudden withdrawal of various types of debt restricting schemes  by RBI ( Read details HERE) .Then encouraged debt resolution process through insolvency and bankruptcy code taking too much time due to various reasons and this delay adversely affecting such troubled companies ability to survive. In case of small companies, resolution through IBC facing lot of challenges due to red tapism, lack of clarity in procedures, legal matters  ..etc resulting even in winding up of such companies itself . Situation of negative net worth for consecutive three years is really a bad sign and we should check the annual reports and foot notes of results of such vulnerable companies and act accordingly without any delay in order to save   at least part of our investment.
                                                                                            In my opinion, whatever be the macro factors, the stock market is here to stay and investors in growing companies will ultimately gain in the long term .So short   term opportunities should be utilized with a long term view and hold stocks which qualify your periodic checks and balances. Always prepare the portfolio according to your risk taking capacity and not based on the portfolio of your friend or neighbor.( Personally I advise  a balanced portfolio of stocks with  Compounders, growth companies ,deep value ones, high risk opportunities ..etc and the ratio of each category should depends on ones’ risk taking capacity)   . If you feel something wrong is going on or against our calculation or feel  we took a wrong decision ,exit at the earliest even in a loss without any hesitation. Better to avoid leveraged positions especially at the time of important macro events like election outcomes..etc

Happy investing        

Sunday, March 4, 2018

How To Make A Winning Long-Term Stock Pick ..


Courtesy : Investopedia 


Many investors are confused when it comes to the stock market — they have trouble figuring out which stocks are good long-term buys and which ones aren't. To invest for the long term, not only do you have to look at certain indicators, you also have to remain focused on your long-term goals, be disciplined and understand your overall investment objectives.
Focus on the Fundamentals
There are many fundamental factors that analysts inspect to decide which stocks are good long-term buys and which are not. These factors tell you whether the company is financially healthy and whether the stock has been brought down to levels below its actual value, thus making it a good buy.
The following are several strategies that you can use to determine a stock's value.
Dividend Consistency
The consistency of a company's ability to pay and raise its dividend shows that it has predictability in its earnings. It also shows that it's financially stable enough to pay that dividend (from current or retained earnings). You'll find many different opinions on how many years you should go back to look for this consistency — some say five years, others say as many as 20 — but anywhere in this range will give you an overall idea of the dividend consistency.
Examine the P/E Ratio
The price-earnings ratio (P/E) ratio is used to determine whether a stock is over or undervalued. It's calculated by dividing the current price of the stock by the company's earnings per share. The higher the P/E ratio, the more willing some investors are to pay for those earnings. However, a higher P/E ratio is also seen as a sign that the stock is overpriced and could be due for a pullback — at the very least. A lower P/E ratio could indicate that the stock is an attractive value and that the markets have pushed shares below their actual value.
A practical way to determine whether a company is cheap relative to its industry or the markets is to compare its P/E ratio with the overall industry or market. For example, if the company has a P/E ratio of nine while the industry has a P/E ratio of 14, this would indicate that the stock has an attractive valuation compared with the overall industry. But on the other hand one should also check whether there is any specific reason for such high P/E ratio like possibility of robust business growth in future..etc
Watch for Fluctuating Earnings

The economy moves in cycles. Sometimes the economy is strong and earnings rise. Other times, the economy is slowing and earnings fall. One way to determine whether a stock is a good long-term buy is to evaluate its past earnings and future earnings projections. If the company has a consistent history of rising earnings over a period of many years, it could be a good long-term buy.
Also, look at what the company's earnings projections are going forward. If they're projected to remain strong, this could be a sign that the company may be a good long-term buy. Alternatively, if the company is cutting future earnings guidance, this could be a sign of earnings weakness and you might want to stay away.
Avoid Valuation Traps

How do you know if a stock is a good long-term buy and not a valuation trap (the stock looks cheap but can head a lot lower)? To answer this question, you need to apply some common-sense principles, such as looking at the company's debt ratio and current ratio.
Debt can work in two ways:
  • During times of economic uncertainty or rising interest rates, companies with high levels of debt can experience financial problems.
  • In good economic times, debt can increase a company's profitability by financing growth at a lower cost.
The debt ratio measures the amount of assets that have been financed with debt. Generally, the higher the debt, the greater the possibility that the company could be a valuation trap.
There is another tool you can use to determine the company's ability to meet these debt obligations — the current ratio. To calculate this number, you divide the company's current assets by its current liabilities. The higher the number, the more liquid the company is. For example, let's say a company has a current ratio of four. This means that the company is liquid enough to pay four times its liabilities.
By using these two ratios — the debt ratio and the current ratio — you can get a good idea as to whether the stock is a good value at its current price.
Analyze Economic Indicators

There are two ways that you can use economic indicators to understand what's happening with the markets.
Understanding Economic Conditions

The major stock market averages are considered to be forward-looking economic indicators. For example, consistent weakness in the Dow Jones Industrial Average could signify that the economy has started to top out and that earnings are starting to fall. The same thing applies if the major market averages start to rise consistently but the economic numbers are showing that the economy is still weak. As a general rule, stock prices tend to lead the actual economy in the range of six to 12 months.
Evaluate the Economic "Big Picture"

A good way to gauge how long-term buys relates to the economy is to use the news headlines as an economic indicator. Basically, you're using contrarian indicators from the news media to understand whether the markets are becoming overbought or oversold.
The Bottom Line
Investing for the long term requires patience and discipline. You may spot good long-term investments when the company or the markets haven't been performing so well. By using fundamental tools and economic indicators, you can find those hidden diamonds in the rough and avoid the potential valuation traps.

Saturday, February 17, 2018

Managing The Risks In Value Investing ....

Courtesy : Investopedia

Value investing, properly executed, is a low-to-medium-risk strategy. But it still comes with the possibility of losing money. This section describes the key risks to be aware of and offers guidance on how to mitigate them.

Basing Your Calculations on the Wrong Numbers

Since value investing decisions are partly based on an analysis of financial statements, it is imperative that you perform these calculations correctly. Using the wrong numbers, performing the wrong calculation or making a mathematical typo can result in basing an investment decision on faulty information. You might then make a poor investment or miss out on a great one. If you aren’t yet confident in your ability to read and analyze financial statements and reports, keep studying these subjects and don’t place any trades until you’re truly ready.


Overlooking Extraordinary Gains or Losses

Some years, companies experience unusually large losses or gains from events such as natural disasters, corporate restructuring or unusual lawsuits and will report these on the income statement under a label such as “extraordinary item — gain” or “extraordinary item — loss.” When making your calculations, it is important to remove these financial anomalies from the equation to get a better idea of how the company might perform in an ordinary year. However, think critically about these items, and use your judgment. If a company has a pattern of reporting the same extraordinary item year after year, it might not be too extraordinary. Also, if there are unexpected losses year after year, this can be a sign that the company is having financial problems. Extraordinary items are supposed to be unusual and nonrecurring. Also beware a pattern of write-offs.

Ignoring the Flaws in Ratio Analysis

The problem with financial ratios is that they can be calculated in different ways. Here are a few factors that can affect the meaning of these ratios:
  • They can be calculated with before-tax or after-tax numbers.
  • Some ratios provide only rough estimates.
  • A company’s reported earnings per share (EPS) can vary significantly depending on how “earnings” is defined.
  • Companies differ in their accounting methodologies, making it difficult to accurately compare different companies on the same ratios.
  •  
  • Overpaying

One of the biggest risks in value investing lies in overpaying for a stock. When you underpay for a stock, you reduce the amount of money you could lose if the stock performs poorly. The closer you pay to the stock’s 
fair market value — or even worse, if you overpay — the bigger your risk of not earning money or even losing capital. Recall that one of the fundamental principles of value investing is to build a margin of safety into all your investments. This means purchasing stocks at a price of around two-thirds or less of their intrinsic value. Value investors want to risk as little capital as possible in potentially overvalued assets, so they try not to overpay for investments.

Not Diversifying

Conventional investment wisdom says that investing in individual stocks can be a high-risk strategy. Instead, we are taught to invest in multiple stocks or stock indexes so that we have exposure to a wide variety of companies and economic sectors. However, some value investors believe that you can have a diversified portfolio even if you only own a small number of stocks, as long as you choose stocks that represent different industries and different sectors of the economy. Value investor and investment manager Christopher H. Browne recommends owning a minimum of 10 stocks in his “Little Book of Value Investing.” Famous value investor Benjamin Graham suggested that 10 to 30 companies is enough to adequately diversify.

They recommend investing in  a few companies and watching them closely. Of course, this advice assumes that you are great at choosing winners, which may not be the case, particularly if you are a value-investing novice.

Listening to Your Emotions

It is difficult to ignore your emotions when making investment decisions. Even if you can take a detached, critical standpoint when evaluating numbers, fear and excitement may creep in when it comes time to actually use part of your hard-earned savings to purchase a stock. More importantly, once you have purchased the stock, you may be tempted to sell it if the price falls. You must remember that to be a value investor means to avoid the herd-mentality investment behaviours of buying when a stock’s price is rising and selling when it is falling. Such behaviour will obliterate your returns

Value investing is a long-term strategy. Warren Buffett, for example, buys stocks with the intention of holding them almost indefinitely. He once said, “I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.” You will probably want to sell your stocks when it comes time to make a major purchase or retire, but by holding a variety of stocks and maintaining a long-term outlook, you can sell your stocks only when their price exceeds their fair market value.
Basing Your Investment Decisions on Fraudulent Accounting Statements
After the accounting scandals associated with Enron, WorldCom, Tesco, Toshiba and other companies, it would be easy to let our fears of false accounting statements prevent us from investing in stocks. Selecting individual stocks requires trusting the numbers that companies report about themselves on their balance sheets and income statements. Sure, regulations have been tightened and statements are audited by independent accounting firms, but regulations have failed in the past and some unethical accountants have become their clients’ bedfellows.

Not Comparing Apples to Apples

Comparing a company’s stock to that of its competitors is one way value investors analyze their potential investments. However, companies differ in their accounting policies in ways that are perfectly legal. When you’re comparing one company’s P/E ratio to another’s, you have to make sure that EPS has been calculated the same way for both companies. Also, you might not be able to compare companies from different industries. If companies use different accounting principles, you will need to adjust the numbers to compare apples to apples; otherwise, you can’t accurately compare two companies on this metric.

Selling at the Wrong Time

Even if you do everything right in researching and purchasing your stocks, your entire strategy can fall apart if you sell at the wrong time. The wrong time to sell is when the market is suffering and stock prices are falling simply because investors are panicking, not because they are assessing the quality of the underlying companies they have invested in. Another bad time to sell is when a stock’s price drops just because its earnings have fallen short of analysts’ expectations.
The ideal time to sell your stock is when shares are overpriced relative to the company’s intrinsic value. However, sometimes a significant change in the company or the industry that lowers the company’s intrinsic value might also warrant a sale if you see losses on the horizon. It can be tricky not to confuse these times with general investor panic. Also, if part of your investment strategy involves passing wealth to your heirs, the right time to sell may be never (at least for a portion of your portfolio).

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