BASANT AGROTECH - A PENNY STOCK WITH HUGE POTENTIAL

 

 

In general ,I am not a fan of penny stock investing  and only very rarely spending time to study such stocks. In our stock exchanges 99 out of 100 penny stocks are worthless and punters are playing with it.This is where innocent retail investors are loosing heavily and ends with holding stocks of companies which are existing only in paper .But this time it is an exceptional case and I am recommending this  stock because of the potential of the industry in which it is operating and run by a decent management.This company is known as a fertiliser manufacturer and it is getting the valuation of a fertiliser company in stock market .But it is more than that , and only very few investors are aware about its other business .This company having sizable operations in hybrid seeds and it is one of the very few listed stocks from this sector .All of us  are aware about the potential of agriculture/farming  ,and the sharp run up of stocks like Kaveri Seed Company and Advanta  is a testimony of investors expectation about this sector.Diminishing area of farming and increasing demand for food is the possible scenario and it can be tackled only through scientific farming techniques.Hybrid seeds is a vital part of this revolution and the major tool for all efforts to increase productivity.Since we have discussed this subject more than once in the past I am not elaborating .

Basant Agrotech is a company based at Akola (Maharastra) and a member of 130 years old Bhartia Group.Company having three divisions – Fertiliser,Seeds and power generation.company having five fertiser manufacturing plants located at Kaulkhed , Kanheri , Sangli, Hospet and  Neemuch.In seeds division company’s processing plants are located at Nagpur  and Kanheri  and its R&D and Biotechnology lab located at Kaulkhed.Basant manufacturing NPK and SSP fertilisers .Even this sector having potential ,due to government control and all other uncertainties surrounding in this sector  let us leave this part and concentrate more on the other business – seeds-which is showing a robust growth rate in past few years .In 2011-12 financial year  this division shows a growth over  30 %  and touched a turnover of Rs.61 Cr (seeds division alone). Company’s product list includes 15 vegetable seeds (Bitter Gourd,Brinjal ,Okra,Tomato,water melon..etc) more than 10 field crops (Corn,Green gram,Mustard,Paddy,Wheat,Sorghum,Gram..etc) and oil seeds like Groundnut, Soyabean,Sunflower ,cotton..etc). Now company is paying all efforts to develop its seed business which ensures better margin compared with fertiliser.Cash flow is expected to increase in proportion of the growth of seed business .Company is  now planning to expand its marketing reach for seed division beyond its traditional markets.30% increase of seeds  sales in last year is an  indication of its sincere efforts to develop this business.Recently company also started selling seeds through online in association with e-bay  to meet retail demand.

Financials and Valuation

Company posted a sale of Rs.276 cr and a net profit of Rs.7.6 Cr in FY 2011-12 .It is an interesting point to note that in last five years Basant increased its turnover and profit continuously in every year without any interruption.Its sales moved from Rs.110 Cr in 2008 to Rs.276 Cr in 2012.This stock is currently valued at a market capitalization  of  just Rs.36 Cr where its last year turnover is above Rs.276 Cr .Even If we exclude its entire fertiliser business  and consider only seed business it is trading  at a market cap of just  half of the turnover of this division alone.

Icing on the cake

Whenever we think about  a penny stock we never look at the dividend part.But here the case is totally different .This company having an uninterrupted dividend history for the past five years and it increased the dividend pay out in every year in last three years.Current year it paid 8 % .Even this this not a big amount it is an indication of promoters attitude towards minority share holders.In many cases promoters are splitting the FV of a stock just to create volume for their  easy exit . Here too it is an exception ,in last four quarters they hiked their stake by about  5%  which is now stands at 55% and out of this not a single share is pledged.Even in non promoter category , a corporate entity named Basant Capital Tech Ltd acquired 1.17 % stake in latest June quarter .Even if this firm is categorized as non promoters , a detailed study revealing that the directors of this entity is same as the promoters of Basant Agro.

 

Conclusion

Many retail investors are throwing money in stock market  by investing in penny stocks even without considering  whether the company is existing  or not.I request all of you (if you have such a tendency) to invest in stock like this one and not in stocks like  C*** Re******** .Here, it is operating in a sector with huge potential (seeds) which is showing very good growth,dividend paying,promoter hiking stake ..etc.Even in the case of fertiliser sector (which is now  its main business) I believe we will get a clear picture about subsidy policy  in near future which will end the uncertainty and help  the company to take informed decisions.In short , buy it and forget it ,you will get dividend  every year  and either the market identify its seed business or the management decides to unlock value by de-merging  its seed business into a separate company  ,you may blessed with unexpected gains.Considering managements efforts to grow the seed business we can’t  write off such a chance when the seed division reaches a critical size.Current market price of Basant Agro is just Rs.3.85 which is close to its life time low. Even in this year  70,00,000 equity shares of Rs. 1/- each at a price  of Rs. 7.75 per shares  allotted to the promoters on conversion of  warrants. Current market price is only half of it and at  this price nothing to loose considering the potential gain.But as a thumb rule, invest only  what you can forget , in penny stocks.

Link to the company's new  website HERE

SEQUENT SCIENTIFIC - UPDATE

Share holders of the company approved the issue of corporate guarantee for an amount of Rs.90 Cr for one of its subsidiary Sequent Penems Ltd .This subsidiary  implementing its ambitious greenfield penems ( Ertapenem, Imipenem and Meropenem)  manufacturing facilities  at Bangalore which is fast nearing completion.Final phase of this project is expected to complete in this FY itself.

For latest Annual Report Click HERE

Link to the company website HERE

HIKAL LTD / KAVERI SEED COMPANY LTD - UPDATES

 HIKAL LTD
 
I have recommended a BUY on Hikal Ltd  @ Rs.269/- on March 18,2012.( For old Posting Click HERE) .Today stock hits  its 52 week  high of Rs.438 before closing @ Rs.427 ,an appreciation of about 60 % in 6 months . Those with some risk appetite may still hold it for further gain in long term.


KAVERI SEED COMPANY 
This stock repeatedly recommended from a level of Rs.272/- onwards . Today KSCL hits four digit figure and closed @ Rs.1003 /- ( For old Posting Click HERE) . In today's AGM company approved the payment of dividend @ 40 % per share.

Requesting all my readers to stick with quality companies irrespective of  market moods. Concentrate in company specific growth prospects rather than macro environments and control the temptations to over trade in momentum markets using leverage/margin funding -  for creating  wealth in  long term.

GTS 2 ANSWER - SEQUENT SCIENTIFIC LTD.

 

Sequent Scientific is a pharmaceutical company owned by the same promoters of Strides Arcolab Ltd ( STAR).It is both in Animal Health and Human health Products - manufacturing Active Pharmaceutical Ingredients(API’s),Contract Research and Manufacturing Services(CRAMS) and also producing Specialty Chemicals.Company is the world’s largest producer of Veterinary Anthelmintic API’s and having strong alliances with Orffa B.V, which is amongst the world's largest veterinary pharmaceutical marketing companies. In human health category ,It is one of the largest supplier of Anti- Malerial API’s to CIPLA .Sequent having  700+ employees and 5 manufacturing facilities located at Tarapur,Mangalore,Panoli,Mahad and Ambernath.Its R&D centers are located at Bangalore and Mangalore with more than 120 scientists.In the human health segment , company’s products includes Albendazole,Ramipril,Artemether,Tenofovir,Glychocilic Acid,Artesunate..etc..More than 10 new API’s are in development stage like Bromfenac Sodium,Valporic Acid,Labetalol HCI..etc. In veterinary API division sequent manufacturing more than 20 products and many new under various stages of development.Company also producing many formulations under its own brand name for vetenary segment. As on March 2012 , company filed 33 Drug Master Files (DMF) and another 22 is under progressing .

After taken over by the promoters of Strides Arcolab in 2007,its turnover moved from Rs.68 Cr to Rs.335 Cr in just five years through organic and inorganic route. As on March 31, 2012, Sequent having  six subsidiaries and three step-down subsidiaries .Now , company is taking many steps to move into the big league. A multi faced strategy is in place and company is at various stages of implementing the same .Recently company completed its expansion at its Mangalore unit for human API’s .Expansion of its specialty chemical division also completed and its fruits are expected from the second half of the current financial year onwards.In FY 2011-12 ,company reported a sales growth of 18 % in specialty chemicals division and this year company will start exporting from this division . Last year company  also decided to enter into new sectors includes  Penems, Penicillin,Oncology and Phyto Pharmaceutical/Herbal Extracts  with a total capital expenditure of  Rs.164 Cr. Funding for  this capex will be through debt and internal accruals and the financial closure also completed. Its new USFDA standard facility at Panoli is expected  to contribute from the next FY .SSL has started implementing the Penems project  under its 84% subsidiary M/s. Sequent Penems Private Limited .The first phase of  this greenfield project will be fully operational by  the end of this FY. 

Through its another subsidiary Elysian Life Sciences (Mauritius) Limited,company started the cultivation of Artemisinin plant  in Africa.Leaf of Artemisinin is the key raw material for one of its best selling anti-malerial human API’s  ‘ Artemether’ . ‘Artemether’  is contributing almost 35 % of company’s revenue .Till now Artemisinin  leaf is  imported from China and Vietnam. So this backward integration will surely improve its margins going forward. These are some of the exciting facts about the company which will bring benefit in next few years .

Financials.

FY 2011-12 was an unfortunate year for Sequent .There were two accidents in two of their factories which took the life of few employees and resulted in production stoppage for many months. In September 2011 ,there was a gas leak incident at its Tarapur unit which took the life of 4 employees.  On February 03, 2012 a fire broke out in its existing Panoli facility which disrupt the production for many months.Now the company strengthened the safety standards  and just came back to the normal production schedule.As a result of these one off events ,its net profit nosedives from Rs.16 Cr to just Rs.1.5 Cr in last FY.In the latest  June quarter too it posted a loss of Rs.15 Cr .Out of this Rs.15 crore loss about Rs.13 Cr is due to foreign currency transactions.I believe ,going forward company will implement a proper hedging mechanism to minimize this risk. In my opinion there is no meaning in analyzing this company based on its past performance .The good days are just ahead as in the case of Granules India.

Some observations

I believe this is one of the very few listed pharma companies of its size remains  least researched by equity analysts and  investor fraternity .Even now, many investors are  not aware this company is a pharma company and it is owned by the same promoters of Strides Arcolab.You may wonder why this stock hits its 52 week high price even after reporting a huge loss of 15 Cr in first quarter !.In my view  there is a reason for this - even if this company having an equity base of Rs.22 Cr , all these shares are held by just 2000 share holders.Promoters are holding 56% and another 32% by HNI’s and other corporate entities.A close look on its recent share holding pattern indicating the signs of an accumulation in this stock .Normally such a trend is visible when the insiders having some positive information which is not available in public domain. While reducing their stake in the other listed company Strides Arcolab, promoters are also  hiking their stake in this company even through  open market  purchases.Due to the accumulation/cornering  of these informed sources its share price is ruling at higher level even after dismal performance in recent past.In addition to open market purchases, now the promoters are subscribing  21,00,000 warrants on a preferential basis. Two promoter group entities Agnus Capital LLP and Chayadeep Ventures LLP will subscribe 4.37 percentage each  which will take the total promoter share holding from 55.8 % to 60.47 % .

Conclusion

Now  company is going through a transformation phase  .It is now concentrating and paying much attention to high value niche human API’s and veterinary formulations.After about 5 years of acquisition, promoters are now willing to invest heavily in this company .Being the promoters of Strides,they have good experience in this field and good connections with foreign marketing channels.By implementing a prudent hedging strategy they can minimize the forex fluctuation related risks going forward.  Another possible milestone is the approval of USFDA for its Mangalore facility ,which is expected by the end of this FY.Since a major portion of its floating stocks already cornered and the process is still going on ,chances are very high for a sharp up move in its stock price once the new projects starts to contribute.We have seen this trend in many stocks in the past where there is very low floating stock and the available stocks with a  handful high profile investors. Here we can see such names like Lakshmi Mankekar, Satpal Khattar..etc. Based on many conventional valuation parameters like P/E ratio,Debt equity ratio ..etc  this stock is not a Buy . This company  shows huge loss in first quarter and we can’t rule out the same trend in few more quarters  ,but even after this loss Sequent currently trading near to its 52 week high which  is an appreciation of almost 200% from its 52 week low . From the filing to BSE it is clear that the promoters bought  shares from open market even above Rs.100/-. Their decision to subscribe shares in preferential issue even at high price is also indicating their confidence in the company.All together , this is a stock with  many ingredients  to become a  multi bagger  in future ,but you should also remember hunting for multi baggers always associated with a higher level of risk and  need enough patience .Take it or not , based on your risk profile. CMP is Rs.138/-

Disc : I have vested interest in this stock ,hence my views may be biased

GTS - 2 - WINNERS

RECEIVED 21 CORRECT ANSWERS, FROM THE FOLLOWING READERS

AKSHAY
ANANDAMURTHY K
AKHILESH JHAWAR
ANAND DESAI
DINI DANIEL
DEEPAK KUMAR PRASAD

GAJENDRA JAIN
HARSHIT GOEL
MATHEW K J
MADAN MOHAN
NARADASU BUJJANNA
NIRDOSH

PHANI

PERIAKARUPPAN V

PRAKASH K

SAI THILAK
SIVA KRISHNA

SUNIL BALE

SELVI
SANKARA NARAYANAN K
VAISHNAV

ZICOM ELECTRONICS - UPDATE

I have recommended a BUY on ZICOM ELECTRONIC SECURITY SYSTEMS LTD. @ Rs.38 /- on 23 October,2011.( For old Posting Click HERE) .Today it closed at Rs.76 /- ,an appreciation of about 100% in less than one year .Hold this stock  for long term for further gains.

GUESS THIS STOCK - 2

In the Series of 'GUESS THIS STOCK ' ,this is the second one.Try to identify it from the given clues and send the answer to my mail id valuepick@rediffmail.com. Name of winners ,name of stock and detailed report will be posted on next Saturday.No doubt ,as usual it is ABSOLUTELY FREE to all my readers.

 # This company  listed only in BSE

 # It is one of the world’s largest producers for one of its products.

 # Company’s sales increased 5 fold in last five years.
   

# Company changed its name and goes through a merger process in  last 10 years.

# There is another listed company owned by the same group , but both these are  independent entities (this is not a subsidiary of the other company or vice - versa)

 

# Company posted its highest ever loss in latest June quarter  but currently trading more than 100 % higher from its 52 week low price.

# Stock price touched 52 week high price in this month.

 

# Company skipped dividend in FY 12 , first time in last 5 years.

# Its free float market capitalisation is below half of its full market capitalisation.

# Now company is expanding its manufacturing facilities and venturing into new product categories very aggressively.
* Please don't expect  reply for  e-mails in this subject  (whether the answer is correct or not ).

INDAG RUBBER - UPDATES

 I have recommended a BUY on Indag Rubber @ Rs.95/- on July 2,2011.( For old Posting Click HERE) .Today it closed at Rs.245/- after touching its life time high of Rs.258 ,an appreciation of about 150% in 14 months . Those with some risk appetite may still hold it .Softening of raw material price may positively affect its profit margins in current quarter.

GODAWARI POWER AND ISPAT ( GPIL) - BUY

Companies showing resilience during the tough times of any industry surely deserves  special attention.Such companies will out perform in stock market when the fortunes of that particular industry turned around. Godawari Power and Ispat (GPIL)  is one such company which is operating mainly in Steel and also in Power.We are aware companies from steel sector is out of favor of the market right now due to various issues like shortage of raw material on account of mining related issues,interruption in  power supply and power cuts..etc.Even the demand is also soft now on account of lower construction activities ,we can’t ignore the steel industry as it has  a vital role in nation building.GPIL is the flagship company of Raipur based  HIRA Group .This is one of the very few companies in steel sector operating in the entire value chain which includes sponge iron, billets, Ferro alloys, captive power, wires rods, steel wires, fly ash brick..etc.Another  major factor distinguishing this company from others is the fact that this company is not spending a single rupee for purchasing power from outside .It is fully backed by captive power production facilities and also selling excess power  to others .GPIL also having captive mining facilities from two mines allotted for them which is minimizing the uncertainties related with iron ore supply.Now GPIL is increasing its pelletisation capacity from 600000 TPA to 1800000 TPA by setting up new Iron Ore Pellet plant and also setting up 50 MW solar thermal power project  at Jaisalmer ,Rajasthan.Financial closure for both these projects already completed and power selling agreement signed with NTPC.In the financial side company is posting excellent performance .In the latest June quarter GPIL posted a sales of Rs.602 Cr an increase of 22% compared with same period last year and a net profit of Rs.51 Cr, almost 65 % increase from last year and an  EPS is Rs.15/-. Company also declared a dividend of 25% for FY 2011-12. Promoters having 63% stake in this company .Steel industry is a power intensive one and there is every chance for shortage of power in our country for many years due to slow decision taking process in power industry.In such a situation ,companies backed by full captive power production facilities will get an edge over others.In addition to this, more than 80 % of its iron ore requirements are met by production from captive mines which ensure raw material supply amid tight supply situation due to mining ban and other environmental issues.In nut sell GPIL will be one of the biggest beneficiary of power and iron ore shortage in steel industry.It is one of the best mid cap  pick from this sector and eligible to include in your core portfolio with a long term view @ CMP of Rs.117/-. Stock listed both in BSE and NSE.