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

Trading in illiquid shares only thru periodic call auction: SEBI

Courtesy :Business Line

Effective April 1, illiquid stocks would be traded only through the periodic call auction mechanism on stock exchanges instead of the existing order-driven system in the normal market, said SEBI.

Market regulator’s decision was based on the recommendations of its Secondary Market Advisory Committee (SMAC).

Call auction in these stocks would be done every one hour starting 9.30 a.m. on each trading day, said SEBI.

Once this is implemented, trading in illiquid scrips would be done through three distinct activities. The first activity includes order entry, order modification and order cancellation of 45 minutes duration. The second activity is for order matching and trade confirmation and would last for eight minutes.

The final seven minutes would be a buffer period for closing the current session and facilitating the transition to next session taking the total time for the call auction session to one hour. The first session would be randomly closed during last one minute of order entry between the 44th and 45th minute. This would be system driven.

SEBI said stocks having an average daily trading volume of less than 10,000 shares with the average daily number of trades of less than 50 and classified as illiquid by all stock exchanges (where the scrip had been listed) as criteria for illiquidity.

Exchanges have to review illiquid criteria of scrips at the start of every quarter.

These scrips can exit from the call auction mechanism to the normal trading if they have remained in session for at least two quarters and are not illiquid.

SEBI has mandated a price band of 20 per cent for illiquid scrips.

All unmatched orders at the end of an auction session would be purged, and in case the market wide index circuit-breaker is triggered, the session would be cancelled and all orders purged, said SEBI.

If the lowest selling price entered is less than or equal to the maximum buy price entered into by the same entity results into a trade, the regulator will impose a penalty on a daily basis and credit the investor protection fund.

SEBI has also decided to implement the pre-open call auction session in all exchanges with active trading and to all liquid scrips.

For more details click HERE

ANIL LTD - BUY

We have already discussed another stock from this same sector – Sukhjit Starch-around Rs.169 ( Old posting HERE) which reached a high of Rs.275 and currently trading around Rs.215.As in the case of Sukhjit ,ANIL LTD is a large listed player in starch and starch derivatives industry. This company belongs to Ahmedabad based ANIL group having diverse interest in Biotechnology,Food Processing ..etc.Company  manufacturing Native Starch, Chemical Starch, Modified Starches, Dextrins, Dextrose Monohydrate, Liquid Glucose, Corn Syrup, and Sorbitol ..etc. These products are mainly used in Textile,Pharmaceutical, Paper and Food & Beverages industries. ANIL exporting many of its value added products to various overseas markets.Recently company established an SPV to set up a mega food park in Vadodara ,Gujarat.Growth of user industries and price flactuation of raw material is points to note.For the past few months raw material price was high due to lower mansoon in last season.But company could report satisfactory performance with higher top line even its margin impacted due to this factor.Company reported a turnover of Rs.226 Cr v/s Rs.158 cr in December quarter alone .Net profit was flat around Rs.13-14 Cr .For the last financial year company reported a  turnover of Rs.645 Cr ,net profit of Rs.50 Cr and an EPS of Rs.52 /- .At current market price of Rs.199 , Anil is trading at a P/E multiple of just 4 which is at the lower end for a dominent player in this industry.A better mansoon in India for the next season  or an improved out look of corn production in international market  will help the company to reduce its raw material cost.At current market price I feel there is value in it.Recommending an entry for long term investors @ CMP RS.199 and any dip due to over all sell off in mid caps (if any) may take as a chance to add more .

Link to Company website HERE

HIKAL LTD - BOOK PROFIT

I have recommended a BUY on Hikal Ltd  @ Rs.269/- on March 18,2012.( For old Posting Click HERE) and requested to book partial profit around Rs.450 ( HERE) .After December quarter result currently it is trading around Rs.400 /- ,now requesting to sell the balance at current level and re enter later if it falls around Rs.300-320 .

BAMBINO AGRO / VIMAL OIL AND FOODS - RESULT UPDATES.

For the quarter ended December 2012, Bambino Agro reported a sales of Rs.56 Cr v/s Rs.54 Cr and a net profit of Rs.1.22 Cr v/s Rs.1.1 Cr compared with same period last year. This can be interpreted in either way .Critics may argue ,Company's Sales down in December quarter compared with just preceding September quarter .Even if there is some truth in it ,when we check the past sales trend of the company in detail ,sales figure is always higher in their September quarter for the past many years. From a loss of Rs.81 lakhs reported in December quarter company back to black in latest quarter with a profit of Rs.1.22 Cr. In my previous posting on this stock I clearly mentioned the attitude of promoters is the most important factor deciding the future of this stock.(Old posting HERE). If we read between lines ,I feel the two points which we get from today's BSE Submission is encouraging and pointing to the right direction.It is clear from the data that the promoters again hiked their stake in latest December quarter after hiking it in September.Now it is inching to the maximum permissible level of 75% .Another point is ,company today announced its plan to shift one of its  manufacturing facility  from Hyderabad to Indore.( Company operating more than one plant in HYD) .This will help the company to produce products from strategically located plants across India ( Hyderabad,Indore and Gurgaon ) .This will also help the company to save logistic costs especially at a time company started to pay much attention beyond southern markets.It also help to mitigate the power shortage related issues prevailing in AP.What I feel is, at last by now promoters  started to show some interest to grow the business of this company  and started to initiate  some logical thinking for that purpose .If it is so ,there may be even some dramatic improvement is possible with a merger of other group companies with the listed one  in future ..Recommending to HOLD the stock.

Disc:I have vested interest in BAIL

VIMAL OIL AND FOOD

Reported sharp improvement in latest quarter as follows:

Recommending a HOLD

For more details about this company check previous posting HERE
Disc:I have vested interest in VOF

AHLCON PARENTERALS / POLY MEDICURE - UPDATES

AHLCON PARENTERALS (INDIA) LTD

This stock recommended @ Rs.64 which is currently trading around Rs.360 /- ( Old posting HERE) reported better numbers in December Quarter under the new owners.Sales increased from Rs.20 Cr to Rs.27 Cr and net profit improved from Rs.1.68 to Rs.4.27 Cr .Those still holding this stock can continue to HOLD it .

POLY MEDICURE LTD

This stock recommended @ Rs.65 ( Adjusted to 1:1 bonus post recommendation) ( Old posting HERE) today hits its life time high @ Rs.490 .In  December Quarter company reported more than 100 % jump in bottom line .Those still holding this stock can continue to HOLD it .

THE CURIOUS CASE OF LACTOSE INDIA Ltd.

Many of our investors are vulnerable to market moods and taking decisions  based on crowd mentality mainly due of lack of conviction in stocks they are interested .Many of us  are only  investors in stock markets and not in companies or businesses and our investment decisions are subject to the opinion of the anchors of popular business channels.If we want to get more conviction we should spend more time to study the business,management ,future plans..etc..etc  of companies rather than spending  full time in front of the trading terminal.I am not sure how many of us are at least periodically looking into the published results of companies in which we are invested and reviewing our investment decisions based on company’s working or its future prospects.Percentage of  informed  investors are very small and most of us are interested to know the answer for only one question in every morning – Which stock will go up ‘TODAY’ ? .On a net basis ,result of such an action ( I don’t think it can be called as ‘Investment’) will be always  negative or negligible.On the other side ,there is no meaning in expecting same kind of return from each and every stock and should not hesitate to book loss if we feels  there is something wrong happening in a company and should not take loss booking is a failure of an investor .In the case of majority of retail investors the major reason for failure in stock market investing is their unwillingness to book loss .What I try to convey is only one point – if you are taking investment in stocks seriously you should spend more time to learn about the company and not to watch the minute by minute price movement of the stock of that company.

Let us come to the point mentioned in the headline of this posting.Lactose India is a small,unknown and unnoticed company listed in BSE( CODE -524202).This company operating in the niche market of manufacturing food and pharmaceutical grade lactose.Company’s turnover jumped from Rs.27 Cr in FY 2011 to over Rs.40 Cr in FY 12 .Even if many of you are not interested in the footnote of published results, I am reproducing below  the footnote attached with the September quarter result of this company  .( Click on the figure to read )

                                                    Let us take the point No.3 alone which indicating company received an amount of over Rs.10 Cr from a company named Kerry Ingredients Pvt Ltd .Lactose claiming that ,an amount of Rs.7.7 Cr out of this contribution is  meant for expansion of production capacity and balance Rs.3.3 Cr as an advance for goods to be supplied to Kerry. It is really an interesting deal especially at a time many companies are trying hard to find some customers for their products .We should note another important point that the amount Rs.10 cr was  sufficient to bought out this entire  company itself (Its market cap was below Rs.10 cr at the time of this deal ,which is now Rs.12 Cr).Just because of curiosity I checked the identity of Kerry Ingredients Pvt Ltd and realized that this company is owned by Kerry Group of Ireland ( Details HERE) which is a leading company supplying food and pharma ingredients to world market.Kerry is a listed company in Dublin  Stock exchange and its common stock is trading at a price of €38.10 (approximately Rs.2740) . To my surprise, In one of their filing to Irish stock exchange Kerry informed that  they have already acquired Lactose India Ltd !! .For  your reference ,I am reproducing the mentioned  portion of their investor presentation below :

An Irish publication named  ‘Irish Examiner ‘ also published this news item in their business section.( Link HERE) . More clues about this acquisition is available in the latest annual report of Kerry which is available in their website. Why Lactose India so far not disclosed this deal to BSE is the moot question. There may be many reasons and one possibility is like this .The Indian promoters are currently holding close to 29 % stake only in this company.If they have some plans to hike their stake before offering stake to Kerry ,disclosing the deal before hiking stake will force them to shell out more to hike stake.As per SEBI rules (link HERE ) pricing of preferential allotment depends on a market price linked pricing formula.This may be a reason for not  disclosing  the deal so far ,and theoretically speaking I don’t think such a disclosure is mandatory  till the company openly  accepting they have entered in such a deal and allotting shares to Kerry .Even if some one complaining to authorities for not disclosing price sensitive information , I am not sure what will happen if company plainly deny such a deal and argue that the news items published in a foreign country is not known to them and it is false) Anyway  I  strongly feel , as Kerry mentioned in their filing to Irish Stock Exchange, at least Lactose already reached in an agreement to sell majority stake to Kerry and it will be disclosed in due course.In an interesting development which we can read along with this story ,day before yesterday there was an EGM for Lactose India to approve the allotment of 1134000 warrants to promoters @ Rs.12.5 which will be converted into one equity shares each.On conversion of these warrants Indian promoters stake will be improved to 39.In last year annual report company mentioned it plan to hike its production capacity 4 fold from current 3000 Mt per year to 12000 MT per year.This massive capacity expansion may be backed by some assurance from Kerry Group.In September quarter (December quarter result not published so far) Company reported a net profit of Rs.42 lakhs v/s Rs.11 lakhs in June quarter.Currently stock is trading around Rs.17 which may sharply re-rate even from current level  if something happen as we expected.Anyway ,something is really cooking in it ,when it will be served to the public is a question.Since this information is based on data available in public domain and some assumptions ,I am not recommending it but only sharing some information  available with me .Take a decision after own due diligence .Lactose India is listed only in BSE and trading around Rs.17

Link to Kerry Group's website  HERE

Link to latest Annual Report of Lactose India HERE

Disc : Holding few shares.