KIRLOSKAR OIL ENGINES LTD - BUY

 

Just before the general election , many investors are searching for stocks which may out perform if a stable government came to power .Since the uncertainty about the outcome  is higher we should think about the opposite side  too. What I means is , we should select stocks which will not under perform if the next government is not a a stable one ,too.Considering both these situations and the recent run up in many sectors like Engineering,Infrastructure ..etc ,it is not an easy task to select a good stock for this purpose.But still there is few stocks available at reasonable valuation which may out perform in a positive election outcome but will not fall much even if there is any negative outcome.This week let us look into one such stock – Kirloskar Oil Engine.

Kirloskar Oil Engine (KOEL) - is the flagship company of Kirloskar group . Company is the leader in diesel engines,agricultural pump sets and generators.Company’s operations are broadly classified into four divisions – power generation,Large Engines,Industrial engines and agri related.Company is a trusted name in power generator business with its most popular brand ‘Kirloskar Green’ Genset .In this series company manufacturing gensets with ranges varies from 5 Kva to 3000 Kva. Large engine division catering mainly shipping industry and marine applications and  manufacturing propulsion engines (Product range 1060 KWm to 3020 KWm ) .In the agriculture division company supplying diesel engines and pump sets  ranging from 3 hp to 130 hp. Company also making industrial engines in 20 hp to 800 hp category for industrial applications in mining,material handling ,construction,fluid handling ..etc. Even if many of these industries were in bad shape due to policy paralysis and general recession ,company reported consistent performance . After establishing leadership position in large gensets ,company recently introduced portable gensets in the lower KVA range.Company  also taking efforts to increase its export which increased 20 % in last year.

                                                                               KOEL is a company with strong balance sheet and good return ratios .It is a zeo debt company with good operating cash flow . Company declared 250 % dividend last year .Promoters holding close to 73 % stake and another 14 % held by large investors.In last FY ,company reported a top line of Rs.2357 Cr and a net profit close to Rs.200 Cr .

                                                                         Recommending Kirloskar Oil Engine as my pre-election pick @ CMP Rs.182 .Stock listed in both exchanges.


Link to Company website HERE 


Disc: It is safe to assume that I have vested interest in KOEL

VST TILLERS TRACTORS - UPDATE

VST TILLERS TRACTORS   recommended on 18 May 2013 @ Rs.340 .Today stock hits its life time high @ Rs.939 . Stock appreciated about 175 % in less than one year .Recommending to sell 1/3 of your holding and keep the rest as cost free

Read old posting HERE

IGARASHI MOTORS / ARROW COATED PRODUCTS - UPDATE

IGARASHI MOTORS INDIA LTD -  is a stock recommended earlier @ Rs.50  ( Link HERE) .Today it moved up by 20 % and closed @ Rs.162 . Recently company acquired by global investment firm Blackstone Capital Partners through Agile Electric Sub Assembly Pvt Ltd. Company's financial performance improved substantially in recent December quarter ( Sales improved from Rs.70 Cr to Rs.93 Cr and net profit moved from Rs.6 Cr to Rs.13 Cr .) . Introduction of  more hybrid vehicles and recovery in auto sales in foreign countries will help the company to report better numbers in future . More than this ,considering the current share holding pattern ( majority owned by an investment firm) we can't rule out the possibility of a stake sale in favor of  some bigger players .Company already have a joint venture with Robert Bosch GmbH ( the parent company of listed company BOSCH Ltd) .Read related news HERE  . Still recommending to HOLD the stock even after more than 200 % appreciation.

ARROW COATED PRODUCTS LTD



This stock recommended  with a detailed report about Six months back @ Rs.12.50 which now trading around Rs.42 . Because of its uniqueness ,in my previous report , I have mentioned it as a potential multi bagger .As expected ,company reported better numbers later and today  announced an exclusive supply Co-operation Agreement between Tsukioka Film Pharma Co. Ltd Japan ( Read it HERE which is self explanatory ) . Considering the niche products backed by patented technology ,I believe it is only a beginning .Still recommending to HOLD it for long term

For detailed report Click HERE

ORCHID CHEMICALS & PHARMACEUTICALS LTD. - BUY

Orchid Chemicals is a stock I recommended at higher price few years back . Later its financials worsened and stock price crashed to lower level due to its mounting debt.Company was trying to reduce debt through a CDR package but it delayed for a long time .Even without implementing CDR , company turned to EBITDA positive in latest quarter.Now  CDR package approved by the lenders ( Read the details HERE).  With this approval  company can now  complete the deal with Hospira ( Sale of  Orchid's active pharmaceutical ingredient (API) manufacturing facility in Aurangabad, Maharashtra, and an associated research and development (R&D) facility in Chennai which is pending since August 2012 ) ,  and concentrate in  other existing business (antibiotics API and oral formulations),and  niche therapeutic products. On sale of this unit company is expected to transfer 30 % of its business ,but profitability will improve due to reduction in debt and availability of much needed working capital. Considering company's strong R&D pipeline ,I believe company can regain the reduced business in another few years .Recently U. S. health regulator Food & Drug Administration (FDA) inspected its Irungattukottai, Chennai-based oral formulations facility  and approved it without any observations. Those with some risk appetite can BUY and HOLD this stock for long term.Stock is currently trading @ Rs.49

Link to Company website : HERE

Link to latest Annual Report HERE

Disc : I have vested interest in Orchid Chemicals.

V2 RETAIL - FROM Rs.1000 TO Rs.10 , WILL IT REVERSE FROM HERE ?

' Crisis' -  is a possibility both in life and business . Individuals /entrepreneurs approaching such situations in different ways .Some of us will try to run away from crisis and a minority will face such situations,learn from mistakes and came out with more success than ever.Let us look into business field .Last five years were very tough for entrepreneurs worldwide due to many reasons.Many well known industrialists shut their shops due to their inability to face challenges and we have many examples even from India for that in recent times .Let us look into an interesting story of an entrepreneur who is fighting for survival .

                                                                                     Vishal Retails ( Now V2 Retails)  , promoted by Ram Chandra Agarwal was a hot stock ever since its listing.Company  came out with an IPO  in 2007 @ Rs.270 which oversubscribed by a whopping 81 times.Stock hits a high of Rs.1001  in 2008 which now quoting around Rs.10. Reason for this sharp fall is very well narrated in the below link ,so I am not reproducing the same as such.

Reasons for Vishal Retai's Big Fall  ( Its is an old news item before sanctioning the CDR ,but it will help you to understand what has happened )  - LINK HERE

Read further only after reading the content of the above link.

 The Second Innings

What attracted me into this penny stock is the willingness of promoter to accept his faults and his confidence and hardwork  to succeed again . Company sold its old business to  TPG and Sriram Group in 2011 for Rs.70 Cr (liabilities to the extent of Rs. 823.20 Crores and assets of Rs. 393.78 Crores transferred in this deal )Ram Chandra Agarwal lost everything he had built over 24 years .But, like many others he is not ready to surrender.Now he is in the process of building brick by brick what he lost .He confesses that he had committed lot of mistakes in Vishal Retail ( Read it HERE : Ram Chandra Agarwal on What he learned from Vishal Retail's 10 big mistakes) . 

With the little corpus left after paying back major portion of debt and his personal savings he re started the same business with some differences and with lot of precautions to avoid his earlier mistakes.He changed the name of his company from Vishal Retail to V2 Retail ( V2 –Stands for value and variety).As on 31 October 2013,company opened 15 V2 retail outlets. Delhi (3),Himachal Pradesh (2),Bihar (5),Uttar Pradesh(1),Karnataka (1),Jharkhand(1) and Odisha(2). This time V2 store initially selling only textile items and aiming the middle class in Tier II and Tier III cities.If the recent sales figures are any indication ,he is doing the right thing this time .
 

 Click on the figure for a better view

In latest December quarter company reported a turnover of Rs.70 Cr which is an improvement over 100% compared with same period last year. On the bottom line company reported a profit of Rs.3.26 Cr v/s Rs 97 lakhs . Diwali and other festival sales falls in December quarter and this figure may not repeat in March quarter .But I strongly believe after a long gap of many years this company will report positive numbers in this full year. Promoters also exhibiting their confidence by pumping additional capital to the company . Board will meet on 21 March 2014 to consider the allotment of  3952720 shares to Mr.Akash Agarwal (son of Ram Chandra Agarwal ) who  just  completed  MBA from Luncaster University of UK and joined the company recently.

There is lot of negatives to avoid this stock  - history of failure in the same line of business,accumulated losses,pledged shares ( pledging of promoter holding  was a  pre-condition for sanctioning debt re-structuring package) ,contingent liabilities ..etc..etc,etc ).Against all these odds there is only one positive – attitude of promoter and his confidence and hard work to regain everything he lost.In a recent interview he express his confidence to make V2 among the largest 5 retail chains in India in next 5 years. Only time will tell the fortunes of Mr Agarwal in this second innings. If there is any truth in the proverb – “Well began is half done” ,this time he may succeed .I hope ,our B-school students will learn  the story of V2 and Agarwal  as a case study in few years down the line to understand the up and downs of business .

 Stock price appreciated recently  after the  declaration of its December quarter result ,but even now V2 is trading at the cost of a single glass tea or coffee.Whether to take the risk or not ,it is up to you .Stock is trading @ Rs.14  and listed in both exchanges.

 A must watch video in the below link

Rags to Riches  - LINK HERE

Link to Company Website HERE

 Suggested  Readings

1) The Second Innings -  LINK

2) V2 boss hopes to learn from Vishal mistakes, get second-time lucky - LINK

3) Vishal founder goes slow, steady with V2 Retail - LINK

Disc: I have vested interest in V2 Retail
# Information from publicly available documents have used to prepare this report  without extra verifications in some cases .So do own due diligence before acting on.

CANFIN HOMES - UPDATE

Canfin Homes earlier recommended @ Rs.145 hits its life time high today @ Rs.195 . This is one stock suitable for low risk takers and still recommending to HOLD it for long term

Old Posting HERE

SMS PHARMACEUTICALS LTD - BUY

After two years long bull run in pharmaceutical sector, it is not very easy to find stocks at reasonable valuation from this sector based on their past  financial performance.But based on the future growth potential ,still there is few pharma companies overlooked my market participants are available.This week let us look into one such company – SMS Pharmaceuticals.

                                                                                 This Hyderabad based API manufacturer and Contract Research and Manufacturing (CRAM) service provider came out with an IPO in 2007 @ a price of Rs.380 .Even this company went to public only few years back,promoters having vast experience in this field and most of the key persons behind this company was once  associated with  Cheminor Drugs . (An old time favorite pharma company in listed space promoted by Dr.Reddy's Lab which  later merged with Dr.Reddy’s Lab itself ). CMD and Joint MD of SMS were the key executives  in  the R&D division of Cheminor Drugs .SMS  mainly in the production of  Ranitidine HCl, Sumatriptan Succinate, Sildenofil Citrate, Omeprazole Magnesium, Ramipril, Almotriptan maleate, Gemcitabine HCl, Imatinib Mesilate and their intermediates. In addition to this about 20 products are in pipeline which either came out of patent recently or to be be come out in near future . Company have six manufacturing facilities located at Jeedimetla(two units) Bollaram ,Bachupally ,Kandivalsa and Khazippally and two  R &D facilities  at Gagillapur and Hyderabad  –all in AP.Two of its manufacturing facilities  are USFDA approved sites .At a time of stringent scrutiny process of US regulator and in the background of recent incident of loss of USFDA approval even for some big pharma companies ,SMS’s these two USFDA approved facilities are really an important asset for the company.In addition to USFDA ,its production sites are approved by other regulators from Japan,Germany and other European countries .Company exporting products to more than 70 countries across the glob and more than 50 % of income is coming through exports.SMS  is the larget producer of Ranitidine HCl in the World.

Recent Developments and Financials

Earlier in 2012-13 company sold one unit to Mylan Pharma for Rs.170 Cr .Using  this fund , company paid back part of its debt and an amount of Rs.46.5 Cr spend for buying  back of its own shares .SMS bought back  15 lakhs shares at an average price of Rs.262 . Balance of funds utilized for the upgradation  and expansion of its other facilities and for working capital requirements.Now post  completion of expansion ,company started to deliver good performance .In the latest December quarter SMS reported a jump of 100 % in top line to Rs.138 Cr and a profit of Rs.8.40 Cr against a loss of Rs.17 Cr.For the Nine month ended December SMS reported a topline of Rs.355 Cr and a net profit of Rs.9.44 Cr .On an equity base of Rs.8.47 Cr ,9 month EPS is Rs 11.10 ( ln last full year , if we exclude the other income component company was in loss and its operating cash flow were negative ) .Company started to report robust performance only from second quarter of this financial year after the completion of the expansion of all its manufacturing facilities ( See table below) .

                                     Click on the image for a better view
                          ( March 13 quarter profit was due to one time income)

I expect company will start to report full potential from next financial year onwards and FY 2014-15 may end with an EPS in the range of Rs.35-40 .Since public float is low ,liquidity is less in this stock.Promoters holding close to 64 % stake (NIL pledge) and big investors including GulfPharmaceutical Industries holding another 17.5 % stake.

Stock is currently trading @ Rs.240 which is far below its IPO price of Rs.380 and below its recent buyback price of Rs.262 . Since this recommendation is based mainly on the anticipated performance in future and its low liquid nature ,it is a high risk high profit kind opportunity and recommending only to those having capacity to take such a risk @ CMP Rs.240. Stock listed in both exchanges .

Link to company website HERE

Latest Annual Report HERE

Disc: It is safe to assume that I have vested interest in all stocks I am recommending.