Sterling tools - medium to long term bet

Company Profile :-

Sterling Tools (STL), originally incorporated as a private limited company became a public limited company in October 1994. STL is engaged in the manufacture of high tensile (HT) fasteners mainly for automobiles and the reengineering industry at its plants situated at Faridabad (Haryana).

Why to Buy - 

1. Auto sector performance is improving and so is sterling tools performance will improve -

STL supplies to diverse segments like two-and four-wheeler passenger transport,goods transport, tractors and farm equipment. Over the years, its clientele hasexpanded to include most of the major automobile OEMs like Eicher, Escorts, Bajaj Auto, Maruti Suzuki, Hero Honda and Tata Motors. CV segment constitutes 29% ofs ales followed by farm equipment 22%; passenger cars 18% and replacement market 12%. The rest is accounted by engineering segment and exports.

2. One of the leading provider of fasteners in India and long growth story -

While mild steel fasteners are produced by the unorganized sector and used in general applications, high-tensile (HT) fasteners require a relatively superior technology and hence are chiefly manufactured by the organized sector. STL known in the industry for its indigenous development of requisite technical skill for 30 years has wide product range, which includes over 2000 types of fasteners. Today, it is among the leading OEM suppliers in India serving the needs of leading automotive companies in India, Europe and USA.

3. JV and export business has potential -

STL, in December 2009 entered into a 50:50 JV with Netherlands-based Borstlap Masters in Fasteners Group B.V, (FABORY). The JV aims to capitalize on the fast growing demand for non-automotive fasteners in the emerging markets in South Asia. The JV will be incorporated in due course and plans to trade under “Sterling FABORY.” FABORY has more than 110 branches and is present across 16 countries. It is a leading global distributor, technical service provider and supply chain and vendor management provider of fasteners, tools, and industrial supplies. Management is confident to do break even for JV in Financial year of 2015- 2016

Risks -

1. Heavily dependent on auto sector-

If any government policy change which hamper auto sector growth, can make adverse effect on fastener company sterling tools.

2. Top line is not growing - 

From last few quarters company has posted flat topline which is little worrisome factor.

View on stock -

Promoter holding of 70 %, Decline in finance cost, Good dividend payout, increase in bottom line despite flat top line last year, increased Auto numbers in recent months. Decent management are positive factors of the company which attracted us to dive into this company. At CMP of 320 company is trading at 13 PE of FY14. We recommend to buy the stock on dips around 280-290 range for investment of medium to longer term. 

EPC IRRIGATION - Long term pick

EPC industrie is a listed player in micro irrigation space which has been around since 1986 . EPC was acquired by Mahindra in 2011 and it is part of Mahindra's agri business group.

Why to buy
1.Huge opportunity size :Though micro irrigation(MI) has been around for 30+ years in the country , it has extremely low penetration .MI is considered superior to traditional flood irrigation as it leads to substantial water savings (30% +) and increased crop yield (20%-90% increase depending on the crop) .in India out of 65000+ hectares , only 5-6 million hectare so far has been covered by MI . additionally , the MI systems needs to be replaced or upgraded every 4-5 years , so continued demand is virtually assured. Organized players have 85% share of the market , 15% is shared by various marginal regional players . Jain irrigation has major chunk of the market followed by netafim, finolex  . EPC's market share is less than 5%  .The market is growing over 25% in past few years thanks mostly to the huge government (both state and central) subsidies to the farmers for installation of MI systems. subsidy can vary from 50% to 100% depending on the state.Budget outlays for this have been continuously increased realizing the benefits offered by micro irrigation when compared to the traditional flood irrigation which is prevalent in the country
2.Mahindra Muscle : Apart from infusing lot of cash via preferential allotment and subscribing substantially in the rights issue , Mahindra also has a formidable dealer/distribution network for its tractor and farm equipment business and enjoys lot of good will with the farmer community .Micro irrigation integrates very well with this business and this network is being leveraged already to market and distribute EPC's products.  Additionally , EPC has come up with its own retail format where MI products in addition to other agri inputs products from Mahindra are being sold . So far one outlet was opened in Maharashtra , not clear if this format has gained any traction or will be expanded nationwide .
From what i understand of MIS ,  there seems to be very little by way of differentiation in terms of products between the competing companies operating currently , Growth has been achieved by companies ability to reach out to farmers and their ability to sell the MI concept to them.Mahindra has a distinct advantage on this front . This has already started reflecting in the results of past few quarters post acquisition with company recording increased revenues.
 
3.Business model : EPC's business model is two pronged :Open market Sales and project sales
Open market sales : Sales are made through various dealers and channel partners . Dealers/channel partners make majority of the payment to the company upfront . The dealers make the sale to the farmers and will take the burden of following up with government on subsidy payments. This is different from the business models which companies in this space used to follow traditionally , where in the subsidy was directly given to the company upon sale to the farmer . This used to expose companies to delays in payments by the government and is the cause for the trouble which jain irrigation finds itself in today . Jain has also started following this model in Maharashtra since last year with some degree of success though at the cost of reduced sales (around 20-25% YOY degrowth)
Project Sales: EPC also sells/installs the MI system as part of any project deal . Most of the project work is through the state government projects like Gujarat green revolution company. the company usually get a 15-20% advance payment and rest is paid by the government upon completion . the risk here is the company is exposed to any delays in release of payment by the government . the duration of payment varies from state to state . From efficient - 45 days (Gujarat) to not so efficient - up to 6 months (TN and AP).
The company has recently entered in to an arrangement with SBI to provide loans for farmers who want to install company's MI system
Why not to buy
Growth dependant on Government policies :Most of the growth in the sector was kicked off by support from government subsidies . any reduction in government budgetary outlays for agriculture or irrigation could impact the sector as a whole . Though recently , MI has gained traction among the farmer community due to the proven benefits like Water savings and crop yield improvements when compared to traditional irrigation methods.
Delays in subsidy payments : any delay in release of government subsidies will have an adverse impact on the company . if you want to get a sense of how much this impacts look at jain irrigation (over 1500 crore receivable from various state government pending ). However the company seems to be keen on not making the same mistakes by following a relatively de-risked model  since Mahindra’s takeover.
Competition : the market is dominated by jain irrigation followed by netafim . there are other players like finolex and recently godrej industries has made a foray in to the market .
Our view :
 
On the valuation basis. stock has recently corrected from it's high to 170 and looks promising for investor to enter for longer term horizon. Since, Modi govt. is keen on revival of micro irrigation systems, we are positive on this sector and EPC could be the best bet from it. We initiate a buy call at CMP 170 for the target of 280 in over the period of 2 years.

courtesy - some content - valuepickr thread.

EXCEL INDUSTRIES - BUY

Excel  Industries is a group company of Excel Cropcare Ltd . Selecting this stocks at this point of time mainly on three reasons- improving business prospects of its existing specialty chemical segment,foray into Pharma Intermediates and the vast potential of its non core Enviro-Biotech Division. Company own three production facilities one each at Roha ,Lote  Parshuram( Ratnagiri Dt Maharastra) and Ahmedabad.

                                                                           

Under the specialty chemicals division ,company manufacturing Phosphorous Derivatives,Agro Chemical Intermediaries, Mining Chemicals..etc. Under the pharma intermediates division  ,till now company was mainly in Veterinary API’s but recently set up a new facility for human API’s at its existing Lote site .Products from this new facility is high margin products and expected to drive company’s NPM from current level once the commercial production reaches full swing. The most exciting part is its Enviro Biotech Division .

Financials

 

Company has started posting fairly decent results as profits have up 3 times from last QOQ. Further, their pharma unit is yet to start contributing in it. Hence, there is a very high chance that company will get re-rated from here as well. I am having a aggressive target in this company with the target price of 300+ in a year. Hence, I recommend to buy the stock at the CMP of 191.

courtesy for some content - valuepicks blog.

Arrow coated Products - the stock of the future

  

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World over countries are spending crores to reduce pollution and promote environment friendly products in many fields .This small company – Arrow Coated Products ( ACP) BSE CODE - 516064 -is one step ahead in this endeavor  from India .This company with self developed technology backed by strong R&D and many patented products is in a unique position in the efforts to save our earth. This knowledge based company possessing 28 patents across the globe for their various products.This  unnoticed  small company is manufacturing many products for the future and I believe Arrow Coated is a company with unlimited  potential and filled with many ingredients to become a multi bagger  if its promoters can utilise the emerging opportunities effectively.ACP operating through various strategic business unis(SBU) and subsidiaries. Its major products are Water Soluble Films(WSF),Bio Compostable Plastic,Oxy Fresh Packaging films.Mouth Melting Strips, RFID and Smart Card products..etc..

1) Bio-Degradable  Cast Water Soluble Films

This product  has unique characteristic of completely dissolving in water at room temperature if it came in touch with water beyond certain time period.. The dissolved film disappears in water like sugar and the ingredients of the film change their appearance but remain present as dissolved solids in water which can be washed or flushed out after use.It is completely bio degradable and safe for environment and with time to come the use of this film not only going to increase but also indispensable because of its bio degradability. Many countries are trying to reduce the usage of plastic and WSF is a good alternative for many uses of plastic. Packaging industry especially Agrochemicals, pesticides ..etc  offering large scope for this product in future. In this segment company supplying water soluble pouches for the Agrochemical industry at present.ACP also supplying different variants of this product for industries like Embroidery, Laundry Bags, dyes, pigments, specialty chemicals and consumer goods such as detergents and cleaning agents. Mandatory packaging of pesticides in bio-degradable pouches may even turn as a reality in future. ACP  is also  in advanced stage to develop some unique products for the pharma industry  based on WSF technology.

2) Mouth Melting Strips (MMS)

Mouth Melting Strips is another unique product  by ACP which got patent for its manufacturing technology.World over less than 5 companies are manufacturing this product. The technology invented by the company for making  Mouth Melting Strips (MMS) is an IP protected innovative technology, which involves embedding actives into or upon water soluble film in any form. Once dissolved, it will release the actives in precise quantity. These actives can be in various forms, like mouth freshening menthols, Active Pharma ingredients etc. The MMS manufacturing technology was  invented by Pfizer in 2010 and till date only less than 5 companies in the entire world  including Arrow Coated having the know how to produce this product .Even the multinational Johnson and Johnson depending Pfizer’s technology to produced Listerine Mouth Freshener Strips marketed by them .This indicating the uniqueness of efforts and success of ACP ,and because of this reason it may turn as a takeover target even by MNC players. This MMS project was actually scheduled to start in 2009 but delayed due to various reasons including complexity of product..etc.Now the company overcome the issues and decided to set up a plant with initial capacity of 2.8 Cr strips per annum .The amount raised through its recent rights issue will be partly utilized to set up this new manufacturing facility.

3) Digital Technology based Security Products.

Operations of company in this sector is through a  50:50 JV with Switzerland based Nagra ID S.A.This Joint venture company is named as NagraID Arrow Secure Cards Pvt. Ltd.Due to increasing credit cad fraud ..etc , in future more sophisticated technology based cards are expected to become popular in the coming years ,which will help the company going forward.

More details about this division is available in the website of this company  (HERE)

4)  Oxy Fresh Film
Oxy Fresh film is another innovation from ACPL .It is a post harvest packaging solution which aims to reduce  wastage in vegetables, fruits & flowers caused by deterioration. This technology not only increases the shelf life of vegetables & fruits but also helps to maintain their moisture level by naturally controlling the respiratory mechanism of vegetables & fruits.

 

 
This company was also in the field of trading of printing machinery till 2009 .Thereafter it discontinued this business and concentrating in  its core business.For the past 20 years  company spend lot of time and efforts to developed many products having  tremendous potential in future.This is just starting to commercialize many of its long waiting only now.Company following a strategy of commercializing a product only after it receives patent for its product in all major potential markets.I believe it is a wise strategy ,considering the nature of business.Now it is looking to utilize all its inventions by signing partnership/joint venture agreements with big companies especially outside India. Now it is a small company unnoticed by market players and equity research firms.But I believe the potential is beyond imagination if the promoters can replicate their success of product development in marketing side too.One thing is sure , it is not a company of ‘present ‘ but a company for future. As in the case of any industry where there is very few producers with patent protection and high entry barrier ,company reported excellent profit margins  in this year and stock currently trading at the PE around 12 which is lesser for the market leader in the niche segment. We expect arrow coated to trade at least at the PE multiple of 15. Hence, we recommend a buy call at the price of 147 for the target price of 180+.

Courtesy for some content to value-picks blog.

Steel-strip wheels - a must have stock in portfolio

Company Overview:
SSWL designs and manufactures automotive steel wheels since 1991 and is among the leading supplier to Indian & Global Automobile Manufacturers. The product range comprises Steel wheels for Two and Three Wheelers, Passenger cars, Multi utility vehicles, Tractors, Trucks & OTR Vehicles.
SSWL have set up state-of-the-art facilities and deployed an optimized manufacturing process which ensures that the quality and reliability of the products are maintained for their lifetime.
With Technical Collaboration with Ring Techs Co Ltd. (a 100% subsidiary of Sumitomo Metals Ltd., Japan) , SSWL have achieved world class Technical excellence in Wheel manufacturing.
The State of Art facilities of SSWL caters to widest range of Domestic & Global Automobile customers demands with highest quality standards benchmarks.
Strategic Partners:
1) GS Global Corporation (GSGC), South Korea 2) Sumitomo Metal Industries Ltd (SMI), Japan 3) Tata Steel Ltd through Kalimati Investment Company Ltd (KICL), India  

Risk factors:

• The maor risk company might face, as far as the stock price is concerned would be the very high debt, but that is because of nature of business, where they have to fulfill the orders received from the company. The Debt:Equity is close to 2.   
• Another challenge the company might face could be on account of cancellation of orders, in testing times for the clients.

Positives:
But still, with strong order book, I am expecting the company to grow at 20% CAGR in sales over next 3-4 years. Economy, not just in India, but especially Europe, will be a decisive factor for their growth, as it has lots of major clients from Europe. If it does grow well over next few years, we could see a very strong re-rating on the counter. Past year (FY'14), was absolutely flat for the company, with sales growing only 10% over FY13, and that too, because of superb performance in Q4, where they grew about 34% yoy. Net profit has been flat to negative, in past 2 years. Current annual EPS is around 16, which makes the stock trading at a P/E ratio of 16, which is not too high, looking at the strong client-tele, the company is having.
For risk takers and faith-takers we are having a buy call for the target of 400 in a year.

courtesy for some  content - kunal bakner.

mold-tek packaging update

Recently a well-known investor Dolly khanna started investing in this counter.
Our old recommendation here.

Revising target to 120.

HESTER BIOSCIENCE update

240 of hester bio target has come much quickly than anticipated. 
Old recommendation here. Revising target to 270.