Rapicut Carbides

1)      Rapicut Carbides is promoted by a group of experienced technocrats and is into the production of tungsten carbide products . Rapicut Carbides stands for "Rapid Cutting Carbides”. Its products include metal cutting tips, special and formed tips, wire drawing dies and wear parts. For the mining sector, it manufactures tungsten carbide drill steel inserts, coal auger and integrated drill steel rods. Its products find application in the automobile, mining, rock drilling, oil exploration and general engineering industries. RCL is diversifying its product-mix by adding other powder metallurgical products, like indexable inserts and more value added products. It will also manufacture extrusion rods, coupling sleeves, adaptors and cross bits mainly used in underground tunneling work. For the ball bearing and fastener industry, it will manufacture cold heading dies

2)    ROCE 3yr avg: 34.83%             Return on equity: 23.88%             Return on assets 3years: 37.32%

        The company has increased its sales from 10 to 40Crs in 10 years(cagr in sales of 17%).The company also increased its profits at 17% cagr for the last 10 years.The company had a net operating margin of 15-16%.

        This year the company faced two challenges. First, the mining sector from which majority of its revenues come from didn’t do well. Secondly, the main raw material tungsten is imported. Last year tungsten prices were at higher levels. This along with the rupee depreciation affected the operating margins. The company could do an OPM of only 12% last year

3)      75% of the revenues come from mining sector & its largest customer is Neyveli Lignite Ltd. which accounts for around 15% of the turnover. RCL’s customer base comprises companies including SAIL, TATA Steel, BHEL, Neyveli Lignite, Mineral Exploration Corporation, etc. Around 35% - 40% of sales are coming from PSU's. (The expected outperformance of PSUs under NDA govt could be a positive). The remaining 1/4th sales come from the Industrial Sector. 

4)      According to the management, there are only 4 cos. which are manufacturing Tungsten products in India.

       Sandvik - http://www.sandvik.com/en/

WIDIA - http://www.widia.com/widia/en/products_main.jhtml

        Electronica - http://www.electronicagroup.com/

Rapicut Carbides - http://www.rapicutcarbides.com/

Sandvik & WIDIA are MNC's. These cos. make tungsten tools & equipment whereas Rapicut only manufacturers consumables. So they don’t cause much competition to Rapicut and we can easily say that the company is operating in a niche area

5)      The comapny manufactures consumables for Coal, Granite and O&G sectors. These consumables have a short life span & after certain hours of usage, they need to be replaced. So the company’s product are in market demand like a consumer durable. The Import Duty on the products that Rapicut manufactures is 12.5%. So I dont perceive any threat from Chinese imports.

6)      The company has a good dividend payout ratio of over 20%and offers a dividend yield of 4%. The company has been a consistent dividend payer for the past 6 years and has continuously been raising the dividend paid

  

7)      The company is undergoing a CAPEX plan of 5 year (FY12-17) worth 5.5Cr. (75% is a term loan from SBI @ 12.5% floating and rest through internal accruals). This is the result why the interest expenses has increased 

8)      The company's registered office & factory property in Ankleshwar measures 3000 sq. meter (4 acres) and has a market value of approx. Rs.3 crs

9)      One of the promoters Chetan G. Cholera has bought 50000 shares of the company through open market purchase in the month of May. This shows the confidence of the promoter in the company’s potential

10)  The company has a low equity base of 5.37 cr that too after giving bonus 3:2 last year.This was the only instance of equity dilution in the past 10 years

This small cap company that consistently grew faced a temporary sluggishness. Even when the user industry was doing very badly, the company could maintain its sales. The fortunes of this company are tied up to the domestic mining sector & once the mining activities come back to full swing, the company will be back into its glory days.

 The tungsten(company imports 50% and rest sourced from local scrap dealers)  prices that were ruling high last year has started cooling. The rupee is also stabilizing. This would help the company improve its operating margins. At the current price of 38 rs, the EV of the company is below 25 crs and market cap is just 20 crs. That makes this company a good bet on India’s Industrial Sector Growth

Pitti Laminations

·         Pitti Laminations Limited is a manufacturer of electrical laminations and a one stop solution provider for critical sectors. Manufactures electrical laminations up to a diameter of 1300 mm (51") for application in industrial motors, DC machines, alternators, traction motors, pumps, train lighting generators, aeronautics, medical diagnostics equipments, windmill generators, laminations for specialised applications, die-cast rotors, assembled stators and built-up rotors duly balanced. The companies products are used in sectors such as  Power Generation, Transportation, Mining, Industrial motors, Locomotives, Aerospace, Automobile, Oil & gas

·         Pitti has two manufacturing facilities, which are located on 18 acres of own land at Nandigaon village,Hyderabad, Andhra Pradesh. It completed the expansion of the Hyderabad facility in March 2012. This has taken the overall capacity to 30,000 tpa laminations, 2,000 core-dropped machined stator frames and 3,000 machined components. (capacity was 10000 tpa in Jan 2008).

·         FY2008-13 revenue and EBITDA CAGR of 13% and 17% , respectively . The sales and profits were growing at a CAGR of 28% in the last 3 years prior to FY14

·         The company has about 25 clients.The list of clientele includes reputed engineering and electrical concerns such as GE,Otis, Siemens, Cummins, BHEL, Cromptons, ABB, Alstom, Andritz and others. The company has been an outperformer in the industry  till 2012. But due to bad global economic scenario its exports got affected. Even thought the sales are growing on the domestic front, the international exports has come down drastically. GE contributed to more than 70% of the company's sales.Postpontment of orders by GE and company's main dependence on them was the reason for fall in exports.

·         In 2012, the company alloted shares to promoters at 39.15rs. This took the promoters share from 40% to 60%. The company came out with open offer at 41. SEBI directed the company to increase the open offer and the issue is in supreme court now. Even if the open offer is not raised, we have a cusion of 41 rs as a support.

·         This year the company spent 16 crs on improving its maching facility and to remove bottle necks in the line. This Q2, the management has indicated that the company doesn’t plan to raise more debt or equity. The interest payment and debt levels of the company has come down sharply QOQ. The money spent on machining facility will show its effects from Q1 FY15 and allows the company to target consumer segment. Gross block in plant and machinery has increased from 6100 to 9150 in 2 years

·         Last year the company’s capacity utilization was 64% and this year due to bad export orders, the utilization would be around 50%. So I don’t see any reason for the company to do more capex in near term.The management wants to make Pitti a 1000 cr turnover company in next 4 years(currently 350 crs) while maintaining the EBITA margins.

·         Being in Andhra Pradesh, the company used to face 6 hr daily power cuts. The management says that power is no more an issue for the company.

·        Recently the company has entered into new geographies such as Australia and Brazil . They have also ventured into casting business through Pitti Castings . As per the management,the company has been developing several new products, commercial supply to begin in this financial year.

·         The last quarter of this financial year saw the exports picking up again.Also the addition of  Chittaranjan Locomotive Works (CLW) to the clients list enables the Company to enter the railways sector in India.

·         The company is a net exporter. Though the main raw material(high quality steel ) is imported, the export revenues are twice as much import bills. The company plans to maintain Balanced exports and domestic orders to a healthy 50:50 level

·         Even when the user industry is going through such bad times, the company never reported a loss in any quarter. The overall demand outlook from the Indian power sector is to improve going forward driven by various initiatives undertaken by the government to facilitate commissioning of stalled projects. The company also expects the exports to go up and aims a turnover of 20000tpa for FY15.As the capacity utilization goes up, there should be a disproportionate increase in the top-line and the bottom line.In 2011, the company reported its best ever numbers and an eps of 17 rs.At the cmp of 40 rs, the company is available at a market cap of 60 crs  Any improvement in the user industries will help the company go back into its original growth orbit.One should watchout for its case with SEBI regarding open offer

Disc:-Hold few shares of Pitti Laminations (mainly for academic purpose)

MTEDUCARE

1)  MT EDUCARE is the company that owns the 25 year old coaching services brand Mahesh tutorials. The company initially used to provide coaching to Class Xth students of Maharastra State board. But over the years, it has expanded to various other coaching fields too. Now the company Operates under three business verticals – School, Science and Commerce; Diversified product offerings catering to students right from Std. VIII to students appearing for Engineering and Medical Entrance Exams (including IIT Entrance), exams for CA course and MBA aspirants

2)   The best part about MTEDUCARE is its asset light model and negative working capital. The company runs its coaching classes in rented spaces. So it doesn’t need to spent much on capital works. Being into coaching Industry, the company receives the tuition/coaching fees in advance. So it has a negative working capital

3)    The brand MAHESH TUTORIALS is highly reputed in Mumbai. When I contacted a few in Mumbai asking about the tutorial, all had heard about it and said that the institute has good reputation. It is to be noted that Consumer review websites like www.mouthshut.com doesn’t have any negative reviews on Mahesh Tutorials and people are praising the coaching

4)    The company has 226 coaching centres in 138 locations(As on dec 2013). Majority of this is in Maharastra. Now the company is moving into states like Gujarat , Karnataka etc and has presence in 7 states and Union territories. The number of locations has been growing at a CAGR of 26%

5)    Last year the company acquired 51% stake in IIT coaching provider Lakshya(option to buy the rest 49% within 2018). This is a high margin business that will help the company improve its operating margins. The company plans to take Lakshya brand to other states as well(now only in Punjab and Haryana)

6)    Revenues grew 21% and PAT grew 61% CAGR in the past 3 years. Margins showed an improvement of 300 bps(from 8 to 11%). The company has a good ROE of over 20% and is debt free.

7)   The company has set up a PU College in Mangalore. The company spent 50 crs in setting up the campus. The management wants to sell this asset and want to focus back to its asset light model. This is very positive for the company. We can conclude that company don’t have any capex going forward and selling of the PU College can bring in about 70crs. As per the management, they plan to use this money for growth(organic as well as inorganic)

8)  The company has introduced INK coaching for students in class 6^th to 8^th. This model is an two way interactive model where the student can attend class via internet. The company has 28 terminals that can cater to 6000 students. The students enrolled in this program are prospective candidates for coaching in 9^th and 10^th class. So this model not only brings revenue but also does customer acquisition for other models.

9)    The company has a capacity utilization of about 44%.This gives the chance to get more revenues by enrolling more students without any additional expense. The company can leverage its brand and grow.

10)  The company is now focusing on tie ups with PU colleges in Karnataka. It has already made 9 tieup’s and plans to take it to 30 within 3 years. In this model, the students of a college will be automatically enrolled for company’s coaching. The college provides infrastructure and they get a revenue share of 15%. The company is clearly focusing on this asset light system for its growth going forward.

11) The company’s topline showed a growth of  20%(QOQ). But bottom line didn’t grew in that proportion. The management clarified that, because of the new PU College in Mangalore, the company had made more provision for depreciation and that it turn affected bottom line. Once the PU college is hived off, the company will be reporting the same growth in bottom line

12) Going forward the management has guided a 20-25% revenue growth in FY15. Management has so far been able to meet their guidances(projected 200 cr for fy14 and they did it)

13) The company has a very good dividend payout ratio. The company stated that they aim to have 50% payout when they came with IPO(including DDT). The company also has a very good operating cash flow.

14) As per CRISIL,the coaching industry will grow at 15% till 2017. The number of students appearing in school board exams and various competitive exams will be rising. More disposable income with the families and more thrust on quality education, getting students wont be an issue for a coaching institute like Mahesh . It can grow eating into the market share of unorganized players

15) Career launcher may come out with its IPO. This would have a positive impact on market cap of comparable ones like MTEDUCARE

At the cmp of 100 rs, the company is available at a market cap of less than 400 crs.On the expected EPS of 6.5rs for next year, the company is expected to give 3rs dividend. So it’s a dividend yield of 3% on forward earnings. The company is debt free and has cash and cash equilants of 40cr. At a p/e of 19, this is not a stock that is cheap.But i beleive quality will always remian expensive just like what Asian Paints did throughout its life time.On an EV of 360 crs, this professionally managed company operating in the sunrise Education Sector is a worth putting some money.The stock has been range bound and has not moved in the Namo rally.The stock can only move up once it crosses its the multiple tops made at 110 levels

Disc:-I have holdings in MTEDUCARE

KOVAI MEDICAL CENTER AND HOSPITAL

The Indian healthcare industry is rapidly growing and is being fueled by large investments from existing corporate hospital chains as well as new entrants backed by private equity investors. Health care is going to be a major sector that stimulates the economic growth. Healthcare industry is an evergreen industry and due to health insurance and medical tourism, the sector should see consistent growth. As per the Planning Commission's High Level Expert Group (HLEG), health care industry in India is affected by lack of bed capacity which is presently 9 beds per 10,000 persons and is much lower than the global standard of 29 beds per 10,000 persons. 

Kovai medical center is a super speciality hospital located in Coimbatore.  The company through its subsidiary “Idhayam Hospital” operates another speciality hospital in Erode. The company has two satellite centres at Ramnagar and Erode.  Kovai Medical Center and Hospital Limited started with 150 beds in July, 1990.Over the past two decades, the Center under the visionary leadership of Dr. Nalla G Palaniswami has grown into a giant in the healthcare industry in India. This was acknowledged by the center receiving the award for the best hospital in the non-metro category by the ICICI Lombard and CNBC

The hospital has all most modern facilities including Open heart surgeries ,Steroid free Kidney transplants, Knee replacements, Hip replacements ,Clot dissolution for brain strokes, Blood component therapy, Arthroscopic surgeries, Laparoscopic surgeries etc. In the last 10 years, the net sales of the company grew from 40crs to 320 crs. The company has more than 25% compounded sales growth, profit growth and ROE for the past 5 years. Another important point is that the hospital has 90% bed utilization. With addition of more and more departments with high end facilities, I believe the company will continue to show the past growth along with margin improvement. There are chances of company going for inorganic growth by acquiring small hospitals. Seeing the potential, the promoters have been consistently buying shares of the company. At the cmp of 150 rs, this professionally managed hospital is available at a market capitalization of 160 crs. The hospital is situated in a 20 acre plot in coimbatore. The market capitalization is just the land value of 20 acres in coimbatore. At a p/e below 8, I find value in this company. The daily trading happens in few hundred shares. So buying should be done in a staggered manner. 

Heritage Foods

                                         

Heritage foods(India) Ltd  is a leading dairy company promoted by Mr Chandra Babu Naidu ,which produces and markets milk and milk products under the brand name of “Heritage”. The company has strong regional footprint in the southern states of Andhra Pradesh, Tamil Nadu, Karnataka, Kerala, Maharastra and Orissa. Company having four divisions- Dairy Business, Retail Business, Agri Business and Bakery Business. It has ‘farm to fork’ approach to business through the Dairy and Retail, and reach out to over 15 lakh customers every day.

The Historical financial performance of Heritage Foods (India) Ltd. was marked by increased losses from Retail Business as they were in their early stages. The Retail Division started in 2007 used to eat most of the profits of dairy division.Since FY 2013, with almost stable raw milk prices and increased product prices there has been a substantial jump in EBITDA and net profits. All this had improved the net worth and have helped the company cut down on its debt and finance costs

DAIRY DIVISION

Company sells Milk and Milk Products including Ghee, Paneer, Ice Cream, Cooking butter, Lassi, Doodhpeda, Fresh Cream, Curd etc. It is very difficult for any company to set up such a large supply chain which is crucial for the success of any company in Dairy business.Company also exporting Heritage Pure Ghee and Heritage Butter in Bulk and Consumer Packs from two of its units located at Tirupati and Chittoor. Currently there are 1176 parlors with an average shop area of 100sft to sell its value added dairy products across south India.

ü  The company is the only packaging partner (curd) for Nestle in South India, and one of their   only 2 Indian dairy packaging partners

ü  1 in Curd sales in India

ü  3 in regional Ice-cream company and among the top 10 in India (started only 3.5 years back)

ü  1 in Butter Milk sales in India

ü  2 in Lassi sales in India

ü  1 regional company in ghee (not incl. in value-add. Products) and among the top 5 companies in India 

ü  Widest range of dairy products (22) in India

 (FY2013 Revenue:Rs12686mn EBITDA:Rs1219mn Capital Emp:Rs1523mn)

RETAIL DIVISION

Under the retail division, company is selling Groceries ,fresh fruits and vegetables. Under the brand "Farmers Pride”, company offers a full range of staples like rice, pulses, spices , dry fruits..etc . The company has 71 company managed own ―Heritage Fresh stores in South India

 (FY2013 Revenue:Rs3266mn EBITDA:Rs-173mn Capital Emp:Rs585mn)

AGRI BUSINESS DIVISION

Agri division activities are based at Chitoor (Andhra Pradesh), Kolar (Karnataka), Krishnagiri (Tamil Nadu) Medak and Nalgonda in Andhra Pradesh .Company having two pack houses one at Mattam and other at Mulugu. Heritage also having a Poly Green House facility for Production of Vegetable Seeds for supplying to farmers engaged in contract farming.

ü  50% supplies to Heritage Fresh i.e 21 MT/day

ü  Commercial sales of 22 MT /day

ü  FY2013 revenue of Rs399mn

The company has Air-conditioned and humidity controlled pack houses with cold storage facilities and ripening chambers at 2 strategic locations with a combined capacity of 300MT per day.Through Agri Business Division, the Company has strong presence in contract farming of vegetables and fruits. These items are selling through its own retail stores.

BAKERY DIVISION

ü  Manufactures a range of breads, puffs, pastries, puddings and custards

ü  FY2013 revenue of Rs41mn

    

      Bakery Division is relatively a new initiative of the company ,Currently this division operates only in Andhra Paradesh and the company is planning to expand it. This division runs Hyderabad’s first Premium Bistro as “ Heritage Bon Sante Bistro” in Jubilee Hills.

RENEWABLE ENERGY

Heritage Foods Ltd has in association with Mahindra EPC Services Private Limited has commissioned a 2.34 MWP Solar Power Project at IPH, Masjid Adavi Village, Mulugu Mandal, in Medak district near Hyderabad on September 29, 2013, under REC mechanism and to meet for the captive energy requirement.

ü  Turnover in Q3FY14 was Rs. 2.30 mn.

ü  Capital Employed for Renewable Energy division Rs 162.63mn

Without the loss making retail segment , the dairy division alone is capable of posting  more than 60 crs PAT.This is more than 25 rs EPS. There have been many instances where rumours came about the company hiving off the retail division to enhance share holder value. If this happens, we can expect significant appreciation in share price. Hatsun agro, a comparable company that manufactures Arun Ice creams trades at a P/E of more than 30 while Heritage with a better setup is available below 9 P/E. I expect the company to post consistent profitable performance in the coming years as it belongs to the great Indian consumption story.At the cmp of 205 Rs, its worth putting some money into this company

Note:-I have vested interests in HERITAGE FOODS and its safe to assume that i am holding it from lower levels

Speciality Restaurants

Speciality Restaurants is the owner of restaurant brands like Mainland China, Flame & Grill, Machaan, Oh! Calcutta, Sigree and Haka.The company came out with its IPO in 2012 at 150/-Rs, but couldnt perform as expected. As a result, the share price mostly traded below the IPO price. Company has many positives like a professional management under the leadership of Anjan Chatterjee with vast experience in this field, proven execution skills ,rapid expansion ,asset light business model with good cash flow,excellent brand loyalty ,low debt etc. It has more than 100 stores in the names mentioned above .The company plans to open 15 to 16 restaurants in the next fiscal. They are also planning to target middle east by getting into Dubai

The company takes 120 days to setup a restaurant and another 6 months for its breakeven. For logistics the company has made tieup with Just Dial.The company's perfomance in the past few quarters have been flat.As we know, this business perfoms best when economy is in the boom. Due to subdued economic activity, the amount of money spent by people in luxuries like outside dining has come down.To maintain the footfalls into the restaurants, the company didnt go for any price increse.This caused a fall in operations profit margins. Also the same stores growth remained flat

Looking into the financials one may not find the company attractive. But once the economic activity picks up, more and more people will dine outside and it will be huge positive for branded restaurants like Specialty. At the cmp of 118, its worth putting some money if one beleive in the future of branded restaurant business

Disc: No Investments in Speciality Restaurants

Repco Home

Repco Home Finance Ltd  is a leading low to medium ticket size home loan financing company predominately based in tier 2/3 cities of southern India. Promoted by the State-owned Repco Bank Ltd in 2000, Repco has grown from strength to strength with its loan book clocking nearly 42 percent CAGR in the last 5 years.The compunded profit growth for past 5 years is about 40% and ROE is 22%. The company has maintained a robust NIM of 4.6 percent along with a healthy spread of  3.2 percent.

Repco has 102 branches and satellite centres, with ~90% located in Southern India.They are expanding footprint by selectively setting-up new branches in the states of Maharashtra, Gujarat, Odisha and West Bengal. Loans to salaried and non-salaried borrowers constitute 46% and 54% of loan book.The company has an Experienced board and management team with many of them being IAS officers.As of 31st december 2013, the company on an employee strength of 411 has a net worth of about 7000 million.The company has a net NPA of under 1.3%(2.3% same time last year).With strong focus on recoveries, there has been a continuous improvement in the asset quality over quarters.The interesting thing about Repco is that it has no exposure to developer loans.It sources 65% of its funds from banks and rest from NHB and parent bank

The company also considers IIR (Installment to Income Ratio) while lending and average IIR ratio since the last 5 years stands at 50 percent of the gross monthly income of borrowers. The company has, since

inception, written-off merely Rs3.9 crore as bad-debts out of its strong cumulative Rs3500 crore loan book

They has been able to successfully operate branches in tier 2 and tier 3 cities at low costs ensuring the commercial viability of such branches. The average breakeven period for branches in Tamil Nadu is less than 1 year whereas for others it varies between 18-24 months.

 The promoters hold nearly 38% in the company.Another 20% is in the hands of FII's and DII's. Funds like Citigroup,Reliance Capital and SBI are holding shares in the company. Going forward the demand for affordable housing and housing loans will increase in India. This gives Repco ample scope for aggressive growth. At the cmp of 308 rs, the stock is trading at a p/e of 18. But considering the consistent good results given by the company, one can look into the stock and add it into portfolio