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

ANSWER FOR THE QUESTION IS .....

It is happy to say that the response for my request to find out a company with the given specifications in last weeks posting was overwhelming.Out of the received responses 26 readers send the correct answer.Answer for the question is SIMRAN FARMS LTD.I believe none of  other companies listed in BSE satisfying all the mentioned conditions .

Congratulations for all who spend time to find out  the answer.

 All those who send correct answer  accepting  that the valuation of SIMRAN FARMS is very cheap and at the same time expressed their  opinion about the reasons for such a low  valuation.So let us look into its details.

For my old posting on this same company click HERE

THE INDUSTRY

The Indian meat consumption statistics as follows -   Buffalo meat about 23.33 percent, cattle 17.34 percent, sheep 4.61 percent, goat 9.36 percent, pig 5.31 percent, poultry 36.68 percent and other species 3.37 percent.The Indian poultry industry is estimated at USD 3.6 billion and it is growing at a CAGR of 10%. Currently India is the third largest egg producer and one among the six largest producers of broilers in the world.chicken meat production grew from 939 thousand tons in 1999-2000 to 3 million tons in 2011-12 and going forward  it is expected to increase sharply  due to shift from consumption of other meats to chicken on account of health concerns.

LISTED COMPANIES FROM THIS SPACE

On a standalone basis three listed companies are operating in this sector viz,Venky’s India , Srinivasa Hatcheries and Simran Farms.On the basis of turnover Simran ranks the second next to Venkey’s India .Due to the sheer size and fully integrated operations no meaning in comparing Venky’s and Simran.So only a comparison between Simran and Srinivasa make some sense.The second largest company Simran is valued at just Rs.10 Cr market cap but the next player trading with a market cap of  Rs.64 Cr !.

 WHY LOW VALUATION ?

IMPACT OF INSUFFICIENT MONSOON

Even the company posted an EPS of Rs.5/- in first quarter alone, its share price didn’t move anywhere.The major reason for this (in my and many of the readers’ opinion ) is the expectation of a sharp rise in feed prices in the coming quarters .The two major components of broiler feed is Maize and Soya and its farming area may shrink due to insufficeient  rain  in this season.On account of this reasons prices of this commodities already shot up and this will surely impact the profitability of Simar in coming few quarters.

LOWER PROMOTER HOLDING ?

Some investors shared their concern over the low promoter holding of 35%

WHAT WE CAN EXPECT AHEAD

The first reason is a reality and there is every chance for a lower profit or even a loss in next few quarters .But on the other side this fact is known to all market participants and to a great extent it is  already discounted in the current market price. I am not sure  how much the recent revival in monsoon will help , if it is significant one can even expect some positive surprise.As I mentioned in last posting ,this company have already seen these type of up and downs and one of the few listed companies  surviving and growing over 22 years in this industry which is not a small thing.Regarding the stake of promoters – 35%  promoter stake in a company is neither bad nor aggressive.Before we thinking about why they are not hiking their stake even it is available at a cheap valuation we must look at the recent change in their attitude too.Even this company is existing for the past 22 years it never paid dividend for 20 years.But in last year it paid a 10 % and surprisingly even on a lower profit it decided to pay 8% in this year too.This clearly indicating their changing attitude and I believe in near future they will merge their privately owned companies one by one into the listed entity.In such a case they can easily hike their stake and need not buy it from open market.Also.a  higher price due to open market purchase will not help them to ensure a favorable merger ratio even if it is not decided only on the basis of stock price.If such a move happens that will be a game changer  for Simran .Company will become an integrated entity with   feed production and production of medicines and vaccines for chicks along with core activities .Value added products from chicken may also a possibility at a later stage which will surely increase profit margins going forward..

At present market is ignoring many positive factors and projecting only the near term hiccups and valuing the  company at a throw away price of less than Rs.10 Cr for the entire company . I am looking this price rise of feed and occurrence of some bird flue cases  in the past as a natural entry barrier and this will help to weed out small players from the business .Such cases will ensure survival of only the fittest.It is a fact that ,only very few companies surviving even in organized sector mainly because of such uncertainties and it is one of them which is here for last 22 years and increasing their business at a rapid pace .If any sharp fall happens from here due to any knee jerk reaction to the next quarterly result ,true value investors  can look into it. It is one of the very few stocks from small cap space giving comfort even at current price level  based on minimum downward risk and decent dividend yield .Remember , contra decisions and sufficient patience is the father and mother of multi baggers.

LINK TO THE RECENTLY LAUNCHED WEBSITE OF THE COMPANY HERE

Notes :

 This same stock   once recommended in June 2010 @ Rs.30 and thereafter hits a high of Rs.86 in November 2010 and now back to the previously recommended level.

 I have vested interest in this stock , hence my views may be biased ,do own due diligence before investing.

SABERO ORGANICS GUJARAT LTD - BUY FOR LONG TERM

Sabero Organics Gujarat is an agrochemicals manufacturer promoted by Chuganee family.Company producing various fungicides, herbicides , insecticides and other speciality chemicals. Company having manufacturing facilities in Gujarat,Jammu Kashmir ,Tamilnadu and marketing offices in Europe, Brazil, Argentina, Phillipines and Australia other than various parts of India..Sabero's products includes Acephate, Mancozeb, Chlorpyriphos, Glyphosate, Dichlorovos, Methamidophos and Propineb.A major portion of its products are exported to various countries in their own brand names and also supplying products to other companies including well known MNC's.About 65% of its total sales is generated from exports and company's major asset is its product registration of more than 250 products in 50 countries.Company having many products registrations and strong presence in Brazil which is one of the biggest agrochemical markets in the world.Sabero came to limelight in recent past after the acquisition of the company by south based Murugappa group .'Murugappa group'is a well reputed business group from South India with deep knowldge in Agriculture related businesses along with others.Success of companies like Coromandel International and EID Parry is best example for their expertise in this field.Other listed companies from the same group includes Carborundum Universal,Cholamandalam Investment,Tube Investment,Coromandel Engineering..etc
Coromandel bought this company at a steep premium of 80 % to then prevailing market price and the deal concluded @ Rs.160/- per share.Also it paid Rs.38.47 extra per share as a non compete fee to the promoters of Sabero.Coromandel's strong marketing network is a big boost to Sabero where the largest customers are more or less the same.Management expertise and deep pockets of Murugappa group is added advantages.Due to lower capacity utilisation and higher overhead costs Sabero posted losses in first two quarters of this FY.In a recent interview Mr.Kapil Mehan MD of Coromandel indicated that they have took over the management of Sabero only in third week of December and their first priority is to enhance the capacity utilisation.He also mentioned that they are expecting the company will back to black in another two quarters. Earlier in FY 2011, Sabero posted a turnover of Rs.412 Cr and a net profit of Rs.10 Cr.I believe the massive capacity of its plants and the ability of Murugappa group will create  a multibagger from current price of Rs.55/-

AGRO TECH FOODS - A NEW DAWN ?

 

Agro tech Foods is a  subsidiary of  one of the world’s largest , US food major ConAgra Foods .

This company was originally promoted by  Mr C N Balu in 1986 and started operations in Karnool Dt of Andhra Pradesh.In the earlier stages,company’s business was limited only in the processing of edible oil ,mainly sunflower. Company had a marketing alliance with ITC and  its products were sold  mainly in the brand name of ‘Sundrop’ .Later ITC took equity participation in this company and its name changed to ITC Agro. In 1997 ConAgra took major stake in this company . But even after this stake sale ITC hold about 30% stake in this company. Even with a majority stake ,ConAgra was not aggressive and not interested to bring any of its popular international offerings to Indian market through this company. This may be because of  two reasons .First one is the presence of ITC in its management itself .Even if ITC held some interest in this company , during this period they were trying to enhance their presence in Indian food market through the parent company itself. In one sense ,ITC itself is a potential competitor for Conagra .Sensing this ,Conagra seems to be reluctant to introduce more products from their international brands through a company shared with the future competitor. Secondly .Indian market was not prepared to accept RTS /snack food type offerings at that time ,which also limited its scope here. But now India has grown a lot and the habits of  Indians changing very  positively for accepting the products of a company like ConAgra . What is positive at this juncture is the decision of ITC to completely exit from this company . Now ITC is selling their stake through market operations and some mutual funds are accumulating this stock. Big investors like Rakesh Jhunjunwala already entered in this scrip in the past . Currently ITC’s  holding in this company is  very limited and it is expected to exit completely in this quarter itself. At present Agrotech foods offering only limited products which includes Sundrop edible oil, ACT II Popcorn , Sundrop Peanut Butter, Healthy World Quick Dried Tender Green Peas, Crystal  sunflower oil ..etc.  Now the circumstances are very favorable for aggressive launch of its well accepted products in vast  Indian market  , and it is every reason to believe ConAgra can’t  ignore  this  market for long time . Supported by a world leader,  Agro tech foods may turn as a multibagger even from current alltime high level .The  moot question is the attitude of Con Agra towards this company going forward .Risk takers with patience may go for it at  CMP  Rs.327/-

KILPEST INDIA LTD - NEW RELATIONS ,NEW POSSIBILITIES.

Even if it is a 38 year old company ,its turnover is still below 20 Cr.But this Bhopal based Pesticides and Agrochemicals company-KILPEST INDIA LTD- is growing steadily over the past few years.Sales improved from last years  Rs.15 Cr to Rs.19 Cr in FY 2010.,NP also improved from Rs27 Lac to Rs.49 lac. In the small base,export also grew by 115% in last year .No doubt ,the sector in which it is operating having good potential but only time will tell whether the promoters are able to scale up the business to a respectable level.Kilpest is the producer of Pesticides
(CYPERCOT,KIDON,KILDOFAR,KILTHION..Etc) , fungicides (KILTAF,AJOMIL,BLAST..Etc) .
To align with  the latest  trend  in agri sector ,company also started to concentrate  in Biological products which include  Bio Pesticides ,Bio Fungicides ,Bio Fertilizers ,Plant growth stimulators ..etc Company is now seriously exploring opportunities in Medical Genomics using Biotechnology.For this purpose ,recently company signed an agreement with Spanish company BIOTOOLS to establish a joint venture in India with 51:49 participation.This facility is indented to carryout research and development of innovative products and technologies in the clinical, molecular biology and Agfood areas. Company’s plans are very big and chances in these fields are very vast , but the past history of the promoters not giving much confidence .Only high risk takers with long term view  can try with some amount with which you are ready to forget.CMP is Rs.15/-

NOT A RECOMMENDATION ,JUST AN INFORMATION

 

 

Reading the stories of companies came back to glory  from the brisk of collapse is always interesting ,encouraging and thrilling. Other investors can learn many lessons from such stories. But in many such cases ,promoters of such companies are unwilling to share their experience in bad days with media or even to the minority share holders. We can find many such companies in listed space like Jain Irrigation, Orchid Chemicals, Diamond power infrastructure..etc. Recently I came across an article about a company which is going through rough weather for past many years, in a financial journal. I am unable to predict whether this company will come back to black in near future or not,but I consider the willingness of the MD to face the media after a long gap is an indication of some favorable developments in the company. Don’t consider it is a recommendation to BUY the stock of this company ,but ,just take it only as a sharing of  information to those who could not read the article. I know ,many of you will stop  reading  this post ,just after hearing the name of the company .Anyway it is INDAGE RESTAURANT AND LEISURE LTD.

STORY IN NUTSHELL

Most of the investors are aware that the happenings in debt ridden  Indage Group – mainly Indage Vintners Ltd-which is now  fighting for survival. Indage Vintners  is managed by Renjith Chougule  sibling of  Vickrant Chougule the MD of Indage restaurant and Leisure Ltd . No doubt, both are running independently .Indage Restaurant and Leisure is running restaurants in five genre viz, Quick Service Restaurants(QSR),Casual dining, Wine Cafes and Bistros, Fine Dining and Pubs, and Resorts and Hotels.Under QRS it is operating Gracia’s Pizza Chain with 20 outlets (Remember ,the market leader Jubilant Foodworks having 300 +) .In casual dining ,it has a master franchise agreement with South African dining chain  NANDO’S  and running three  restaurants in this brand name. under ‘ Wine Cafes and Bistros’ it is running ‘IVY’- in  Seven different locations. Under ‘Fine Dining and Clubs’,company running  Japanese restaurant ‘Tetsuma’ and ‘Athena’ and ‘Prive’ clubs in Mumbai and ‘Zaha’in Pune.Under ‘Resorts and Hotel’ segment ,company running ‘Hotel Shalini Palace in Kolhapur(only palace resort in Maharastra) and ‘Tiger Hill’ resort in Nasik. Positioning in these different segments clearly indicating that the company operating in almost all levels of hospitality industry.

Then what is wrong with ?

In FY 2008 ,company posted a turnover of Rs.24.6 Cr and a net profit Rs.3.1 Cr. Thereafter company’s operations de railed , and it could not service its debt of close to  Rs.30 Cr. Reduction in  spending of people due to the fear of  recession in that period added fuel to the fire. Even if it is working as a separate entity ,the bad image of Group mainly due to the problems of Indage Vintners adversely affect companies business plans and further expansion. In FY 2009 ,company posted a turnover of Rs.25.3 Cr and a net loss of Rs.12.35 Cr.

Current Situation

As mentioned in the beginning ,there was no information about the company’s financial plans or results in public domain after the declaration of December 2009 results. In the above mentioned article ,the author indicates that the company posted a loss of Rs.8 Cr in March 2010 full year which is a reduction from the loss of Rs.12.35 Cr in FY 2009.Now company is trying for a  debt restructuring and induction of a strategic partner. It also changing its business model  and trying to expend through franchise route pan India. Company is also  going to start two Nando’s outlets one each in Bangalore and

Chandigarh  in November 2010. Management expecting a turnover of  Rs.40 Cr in this FY and back to black in FY 12 provided the debt restructuring is cleared .

My opinion

1)      Company have lot of problems and the opportunities are equally big

2)      MD of the company is young (38 years) and enough time to learn from the mistakes and prove himself.

3)      The Industry in which company is operating have huge potential in India and companies from such a sector may get premium valuations in stock market going forward.(After the publication of the mentioned report itself share price rallied from Rs.8/- to Rs.14/-)

4)      Managements willingness to share information with the public after a long gap  is really a positive sign

5)      The franchise model business development in food chain business have great potential in a country like India

6)      If the company is not able to restructure its debt in reasonable time ,its net worth may be in a pathetic situation going forward.

7)      It is not easy to find out a good partner before the image of the group improves(after emerging a clear picture about Indage Vintners)

8)      MD’s five is target is a sale of Rs.200 Cr and a net profit of Rs 55-60 Cr is really ambitious and no chance to materialize.

9)      At present management has  reached a stage where they can at least imagine and dream something about future -is really positive.

10)   Non filing of information like financial result  to stock exchange may invite penal action

Conclusion

I personally believe that , if setbacks in business happened even after the hard work of management and only because of some reasons beyond the control of  management ,god will give atleast one chance to come back, provided such a collapse is not  purposefully created by the management to cheat other investors or related parties.

ALL THE INFORMATIONS AND ASSUMPTIONS ARE BASED ON A REPORT WRITTEN BY Mr V KESHVDEV IN OUT LOOK PROFIT

COURTSY : OUTLOOK PROFIT

Once again  I would like to indicate that this is not a recommendation to BUY or NOT TO BUY ,Study yourself  and take a decision .CMP is Rs.14/-

                                  

DE - NORA (INDIA) LTD - WILL IT BE A MULTIBAGGER ?

MNC’s always enjoying premium valuations in Indian

Stock market ,especially companies operating from niche

space.De Nora India (DNI) is a niche company commanding a

market share of about 75% where it is operating , but

overlooked by the investor fraternity- may be because of  the

complex nature of business in which it involved .

This company is a 51.25% Subsidiary of Gruppo De Nora

of Italy ,the world leader in design,erection and

commissioning of electrochemical plants. DNI’s main business

includes coating of anode and Cathode using in Chlor Alkali

plants and corrosion systems used for preventing corrosion

in SAW pipes ..etc. Along with this ,company is also supplying

electro-chlorination equipments for purifying water  for

drinking and Industrial purpose. The erstwhile Mercury Cell

technology used in our country is now gradually converting

into Membrane Cell technology, which is opening huge

chance for company’s product. Even if the new cells need

not require coating in the initial few years of operation it

should be coated periodically thereafter which is a big

opportunity for the company. In last  year DNIL introduced

Platinized  Titanium Anodes  for  surface  finish application

in India .Company’s factory located at Goa is equipped with

most modern facilities and it is getting full support of its

parent company. Lying of large network of pipelines in oil

and gas sector,building of new bridges ,different type of

concrete protection requirements ..etc are expected to

bring good business for company’s Cathodic protection

division.On the negative side ,company’s business

have some cyclical nature,and is related with the fortunes

of Chlor Alkali industry which is now  started showing revival.

Secondly there was an order against the company  by the

Directorate General of Supplies and  Disposals, Ministry of

Commerce and Industry which restricts the company from

business with certain  government departments for a

period of five  years  .But, DNI  challenged this order and

in last month got an order stating that the time period

reduced to just one year starting from 22.02.2010.

Even if it may slightly affect the

performance in very near future,there is good scope

for its business in private sector and also in export front.  

FINANCIALS

DNI’ financial year ending is in the month of December.

Last financial year witnessed one of the worst performance

in recent past where company posted a turnover of Rs.13.45

Cr and a net loss of Rs.33 Lac(excluding other income).

But ,for the qtr ended June 2010 alone company posted a

sales of Rs.4.74 Cr v/s Rs.2.29 Cr and a net profit of

Rs 1.20 Cr v/s .58 Cr. Half year EPS is Rs.2.14 v/s Rs.1/- .

Company is very liberal in dividend payment which paid 50%

in 2004 ,70% in 2005 ,69% in 2006,58% in 2007,25% in 2008.In

2009, due to loss company skipped the dividend and it is

expected to give higher yield in this year due to better

prospects. Considering the support from the parent

company which is the world leader, revival in the user

industries ,chances of a turnaround performance ..etc

company may turn as a multibagger going forward.

CMP is Rs.79/-(Trading in both NSE and BSE)