Here’s wishing everyone a great
Diwali and a prosperous new year ahead. To enhance the prosperity further, let
me share some useful information regarding some stocks which you might want to
add to your Diwali shopping list:
Maxwell Industries
I had written about this way back
in February ’12, when it was quoting at about the same price as now. So in
effect there has been negligible movement in the stock over the last 9 months.
But then again, I am not particularly surprised since this is on expected
lines. However, what merits attention are a couple of things which they have
done since:
1. As
planned, they have started their own retail stores under the brand ‘Inners’
which would be an inner wear studio for all their inner-wear product at Kopar
Khairane, New Mumbai on August 15, 2012. And they followed this up a month
later with another store at Kalyan-Murbad Road, on September 09, ’12. Spread
across a typical carpet area of 300-350 sq ft, each store has an investment of
roughly Rs 15-20 lakhs. Nationally, the company has set a target of opening 100
stores in next three years. The plan is to soon move to Gujarat across major
cities like Ahmedabad, Vadodara, Surat and Rajkot with 8-10 such stores across
these cities. In Gujarat, the plan is to target the entire family. Hence, the
'Inners' store will have all kinds of brands including VIP, Frenchie, Feelings,
Brat and the French brand Eminence. This apart, the store will also offer other
accessories like socks and track pants. While the VIP, Frenchie and Feelings
brands cater to men's and women's inner wear segment, Brat is meant exclusively
for kids. Maxwell Industries is exploring both company-owned and franchised
formats of opening up the retail stores. At 'Inners' stores, the price range
will vary anywhere between Rs 70 and Rs 700 for various inner wear and
accessories of brands owned or managed by Maxwell Industries. So they have
indeed started executing their strategy of expanding and positioning themselves
in Tier2/3 towns and cities, which looks like a good start.
2. Their
ttm EPS has increased to 0.71 from 0.32 in Feb ’12 which shows a gradual
improvement, though in % terms, it is huge (more than 100%). This has brought
its ttm P/E to a more realistic level of 32 from 73 earlier. This is still way
ahead of its fundamentals at this point, but can be considered as a step in the
right direction. As the company’s performance improves, the P/E will come down
to a more realistic level reflective of its true valuation.
3. Reliance
Capital holds 14.55% stake in the company, bought @32, as of last quarter shareholding
disclosed. Besides this, the promoters hold 64%. So this may also fall in the
< 25% public shareholding category, depending upon the interpretation.
Given the above, this surely has
some way to go from current levels.
Indian Motor Parts and Accessories (IMPAL)
IMPAL belongs to TVS Group and
distributes auto parts and accessories. It has 50 outlets, 50 offices and market
products manufactured by 50 manufacturers to about 35,000 dealers across the
country. With this kind of network, considering the auto boom and the
replacement market, this is quite robust and healthy. One should not take this
company as a pure distribution or marketing company.
They have posted a topline of about Rs 250
crore with a PAT of about Rs 14 crore. This has translated in to an EPS of Rs
17 for first six months. Over the last 4 6-month periods, they have
consistently given EPS in the range of 30-42. In the last 6 months, they have
given a bonus of 1:1 thus doubling the equity and hence the EPS has halved. On
a pre-bonus equity, the EPS would still be 34.
Their equity is quite low at
about Rs 8.32 crore. They are holding about 13,90,000 shares in Sundaram
Finance, the present market value of which is close to Rs 134 crore. Apart from
that they have parked Rs 20 crore in liquid mutual funds. They also have some
other investments. All this put together comes to about Rs 155 crore against
their present market cap of Rs 330 crore. But even if we take their pure
financials, it has been a consistent performer. The five year growth chart of
the company shows that they have been continuously increasing their EPS. Also,
they are very good dividend payers with dividends ranging from 12-19/share over
the last few years. So this is a very consistent company with very good
performance. The set distribution network across the country gives a feeling of
comfort. From the current price of 400, it can surely give about 20% returns
from here, once the economy improves and auto sales start booming as they did
earlier.
Electosteel Steel
This is a part of the
Electrosteel group which also has another listed compnay called Electrosteel
Castings (EC). The company was promoted by EC to setup a 2.5 MTPA integrated
steel and ductile iron spun pipes project in Jharkhand, in a
technical-financial collaboration with Stemcor Mesa, the world's largest steel
trader with a network of 80 offices across the globe. The company came out with
an IPO is Sept. ’10 @11/share. The promoters hold 34.5% in the company along with
other major investors such as Stemcor (18.33%), IFCI (4.57%), IL&FS
Financial Services (3.43%). The parent company EC has been in the business of
manufacturing CI Spun Pipes for over four decades and D.I. Pipes since the last
15 years.
Electrosteel Steels (ESL) has
started trial production at its rebar rolling mill with bought out billets on
October 11, 2012. This production is part of ESL’s steel plant project, located
in the Bokaro district of Jharkhand. Recently, the company said it expected to
achieve financial closure for this steel project by end-November. The company
has also arranged and invested the balance funding required though equity of Rs
412 crore. The project, which is nearing official commissioning, will be the
first integrated manufacturing facility in the country which will produce steel
and also value added products such as ductile iron (DI) pipes. Slated to be
amongst the top five largest single location plants in India, the company said
it would have a product basket comprising other long products such as wire
rods, TMT bars and billets.
Recently in Aug. ’12, they
allotted 15.20 crores to the promoters EC @10/share. And the current price is
about 7, a discount of 30% to that price.
This is in the same mould as
Nagarjuna Oil Refinery which is also close to the commissioning of its plant
(the recent issues of the cyclone damage notwithstanding). In both the cases,
it is only a matter of time before the plants get on steam and start producing.
Though there may be a gestation period for the current investment, it must be remembered
that as the date nears, the price will start increasing to factor in the plant
output and the financials. So it is a call between significant/multi-fold
returns after a few months/years and the wait that the money would have in the
intervening period.
Specialty Restaurants
This is the only listed
restaurant in the Indian markets and as such enjoys a scarcity premium over
others who may have this business as a part of their other businesses (Sayaji
Hotels is a case in point. While it has a hotels as well as restaurant business
thru its wholly owned subsidiary Barbecue Nation, it enjoys a P/E of about 28
while Specialty Restaurants quotes at a P/E of about 38. Once BN is hived
off/sold/listed, it should enjoy much higher valuations than SH and SH should
also benefit from the value unlocking. There is no other listed restaurant/fine
dining listed company that I know of and I am not including Dominos here since
it has a fundamentally different business model).
SR came out with an IPO
@155/share in May ’12 and has only a very short history in the public domain as
regards its financials. However, what has surely made a lasting impact on the
public domain is its brand of restaurants and sweets outlets such as Mainland
China and Sweet Bengal among the notable ones followed by Oh! Calcutta, Sigree
and Machaan to a somewhat lesser extent but known all the same (it has a total
of 10 brands across 82 outlets). So the promoters appear to have a good feel of
the public pulse where food is concerned. The other promising factor is the
huge margins employed by the F&B business. In fact a majority of the
multiplexes today are saved by their profitable F&B business compared to
the lumpy fmls exhibition business. On the flip side, fine dining also comes
with its own costs which involve significant expenditure in real estate rentals
and the maintenance of luxury décor which is often a necessity for them. Here,
SR scores because of the "asset light model" that they follow by
leasing all of their properties and operated restaurants which allow them
optimize capital for growth. However, this also has the risk of increasing
rentals over time.
The other major factors which
plagues the industry in general and hence SR are high raw material costs,
inflation and wage increases of skilled and semi-skilled workers. The first
factor may be managed to a large extent by passing on the costs to the
well-heeled diners of the restaurants but the other is a real worry.
All in all, this is a proxy for
the much-vaunted public consumption story that is finding favor with investors
these days with the likes of Jubilant in the premium snack foods category and
Page Industries again in the premium in the inn-wear segment enjoying very high
valuations. Also, this sector has started attracting the attention of PE investors
who don’t appear to mind betting on the culinary tastes of Indians. SR is
currently quoting at about 178, not too high above the IPO price of 155. Given
the above environment, SR should surely do well in the period ahead.
Besides the above, there are a
couple of stocks which merit attention at the current time – Onmobile Global
and Pipavav
Defence. Both have good business models and are in growth areas. A
few hiccups in the near past have brought them down significantly. I have
already written about these earlier and things have not really changed since.
They present good investment opportunities on this auspicious occasion.
HAPPY MUHURAT TRADING!
