Stock Analysis: Companies which are betting on massive investment

Hi All

Today I will talk about three companies all of which are betting on a massive investment. These stocks have a long gestation period, however, I am very confident 2 out of these will surely be able to product 2-3x return.

All of these company have four things in common

(i) Capacity expansion almost 2-3x of its current capacity
(ii) Massive capital expenditure for future expansion almost 2-3X of its Market cap
(iii) No fancy historical statement so the historical analysis is irrelevant for these companies as these are potential small cap companies from its current phase of Microcap
(i) due to small-cap and mid-cap crash, the company share price has dropped to almost 52 week low which makes it extremely attractive given above three fawith

witho above three themes in mind lets examind the three companies

Stock 1: Shri Keshav Cement & Infra Ltd (CMP: 81)

Market Cap: 41Cr
If you look at the past performance of this company then you won't find anything fancy to be honest. Profit has been all time low.

Lets now focus on the recent cash flow of the company . we can see that company has made massive investment in the plant and machinery which is almost 2 times its market cap of 40cr.

The company did disclose in its annual report that company it has set-up 20 MW Solar plant at Bisarahalli Village in Koppal, Karnataka. The project was financed by Bank and successfully commissioned in March 2018. Due to Karnataka State policy to promote Solar investment, company is exempted from Wheeling & Banking charges and cross subsidy charges for Ten years. Currently Wheeling & Banking charges are 7% and Cross subsidy charges are INR 1.52 per unit. The power cost is expected go down significantly and expect new revenues from selling excess power generated.

Just few days after that company also did the below BSE announcement:

With respect to the above stated subject, Karnataka State Government permitted M/s. Shri Keshav Cements and Infra Limited to sell the excess solar energy produced in open market.20 MW solar unit was commissioned in March 2018.

link :https://www.bseindia.com/xml-data/corpfiling/AttachHis/0a85df3d-878f-483f-a3c7-e193fa201bd3.pdf

Given this mega update, i do expect company to show much better financials going forward.

Stock 2 : Damodar Industries Ltd (CMP :100)
Market cap :110Cr

The Damodar group is in the textile industry for more than three decades which has helped the company to establish strong relationships with almost 500 customers such as Arvind Mills Limited, D Decor Exports Private Limited, Donear Industries Ltd, and Siyaram Silk Mills. Moreover, it has an established clientele in China, South Korea, Bangladesh, Europe, the United States of America, and Egypt. Also, the Damodar group has established relationships with suppliers such as Reliance Industries Ltd 

Now like above company, there is nothing fancy with the past performance of the company while looking at the cash flow , this company is also making a huge expansion which is almost 2 times its market cap which caught my eye.

DIL is undertaking capital expenditure to set up a manufacturing facility at Amravati, budgeted at Rs 172 crore, funded in debt-to-equity ratio of 2:1. Phase 1 of the facility became functional in May 2018 and phase 2 is expected to be operational in August 2018. The entire plant is expected to be commissioned in April 2019.

 The company has already commenced the land and site development work, building & civil work, etc. The company has already initiated procurement of plant and Machinery and looking forward to its delivery, erection and commissioning of the same. On the basis of the progress made so far, the implementation of the project is going as per schedule and barring unforeseen circumstances the project would be completed as per schedule


Stock 3 : Manaksia Coated Metals & Industries (cmp: 8.5)

Manaksia Coated Metals & Industries Ltd (MCMIL) was incorporated on March 25, 2010 and was a dormant company till October 01, 2013 when the coated metal division and mosquito coil division of Manaksia Ltd (ML) were transferred to it under the scheme of demerger.

MCMIL has a colour coating line capacity of 39,000 MTPA in Kutch, Gujarat. The company is also into manufacturing of mosquito repellent coils. MCMIL is setting up a 1,08,000 MTPA Continuous Galvanizing line (CGL) for manufacturing of Galvanized steel coils/sheets at its existing plant at Kutch, Gujarat at a cost of Rs.74.61 crore. The project is expected to become operational in Q4FY18.

PLEASE NOTE THAT I AM NOT A SEBI REGISTERED ANALYST. I HAVE HOLDING IN THESE COMPANIES AROUND CURRENT PRICE AND MY VIEWS MIGHT BE BIASED.

Stock Analysis: SREI Infrastructure Finance Ltd

Company name:  SREI Infrastructure Finance Ltd
CMP: 38
Stock P/E : 5.27


(1) Company Overview

• SREI Infrastructure Finance Ltd, a Kanoria foundation entity, is one of India’s largest holistic infrastructure institutions delivering innovative solutions in the Infrastructure space.
• It has been engaged in leasing and hire purchase / hypothecation financing of construction equipment and financing of infrastructure related projects. 
• The company has been in this business for nearly three decades, and with a customer base of 77,000 and over USD 7 bn of consolidated AUM. It is one of the largest player in the infrastructure segment.

(2) Key Businesses And Strategy

(3) This was the main reason for my recommendation.  In the 2018 annual report, we can see that a company has made fixed asset investment which is more than its market cap which was the main thing which caught my eye. Imagine a company with a market cap of 2,300 cr making an investment of 2700 cr.

We will now look into below what is company plans

Asset Finance Business

• Leading financier in the Construction, Mining and allied Equipment (“CME”) sector in India offering loans and leases for new as well as used equipment • Promoted and 100% owned by Srei Infrastructure Finance Limited which has over 27 years experience in CE finance 

• Over 32.7% market share1 and customer base of 64,000+ current customers2 

• Distribution network of 89 branches across 21 states, 77 additional satellite locations and an employee base of 2,005 employees2 

• Strategic pan-India penetration through 120 SEPs2,4 and 191 OEMs partnerships2 

• Present across Tipper, IT, Farm & Medical Equipment Financing segments 

• Gross Earning Assets of INR 254,171 Mn2 with a 2.5 year CAGR of 15% 

CME Financing Industry: Poised for Growth

 Better geographic reach 

 Offer faster TAT1 

 Tailor made schemes 

 Higher LTV2 than banks 

 Simple documentation 

 Flexible terms

 Key Business and Strategy

Well positioned to access customers in the growing Indian infrastructure financing sector

 Since FY11, CME financing industry was dominated by NBFCs and select Banks 

 Currently, SEFL is the only end to end solution provider across the entire CME value chain 

 Disbursements of SEFL are the highest among the top five CME finance companies 

Equipment Centric Model Pushed by Long Standing OEM Tie-ups

• Financing of new and pre-owned Equipment 

• Equipment maintenance assistance through spare parts financing 

• Deploying financed equipment to projects 

• Branded refurbished equipment financing solutions 

• 77 stockyards across the country offer exit services efficiently 

Srei Entrepreneur Partners (SEPs)

 Exclusive distribution partners, SEPs, help in sourcing customers and ensuring regular repayment  Local risk insight and ground presence facilitates: • Customer acquisition • Screening • Broadening of market coverage 

 120 SEPs across the country

(4) Key Investment Highlights

A- Strong Growth Outlook  

• Increased outlay for Infrastructure & affordable housing to boost demand for CME 
• CME Finance expected to grow at a CAGR of ~ 19% up to FY20 
• Srei being the market leader is best positioned to ride this growth

B- Diversifying within Core Business

• Expanding Segment CME - Material Handling Equipment, Tipper , Used Equipment and Spare Parts 

• Expanding the Asset finance portfolio beyond the traditional CME segment i.e, Healthcare, IT, Rural 

• Provide Asset life cycle solution 

• Moving towards complete digitized platform to enhance customer experience

C- Improving Underwriting

• Leverage experience of being into infra sector for the last 28 years

• Improved credit underwriting through better insight & data analytics through digitization 

• Strategy beyond Asset writing - Down selling of portfolio to increase income through velocity

D- Cost Improvement

Maximize return through 

• Focus on PSL portfolio – Increase Securitization 

• Optimise borrowings and explore alternate avenues of funding to reduce cost. 

• Operating Leverage – Larger scale will optimize cost 

(7) Company price

Company price has corrected from a high of 120 in Nov 17 to almost 50's while the company has continued to report good profit on continuous basis QoQ. This fall is more due to small cap crash rather than company fundamentals. This makes the company price extremely attractive.

When compared with Peers, its not only one of the cheapest P/E share available right now but also one which has been declaring consistent dividend and showing consistent profit growth

As we can see below, the company has continued to show a strong profit and sales growth despite a decline in stock price 

Given the strong investment made by the company and the recent correction in share price while company constantly displaying strong financials makes this company an extremely attractive in current market condition.

Please note : The above case study was more for educational purpose. I am not a SEBI registered research analyst and my views might be biased. I have no investment in above stock.

Stock Analysis: Ahlada Engineering

Website: http://ahlada.com/
NSE SME IPO : Open till 18th Sep

Its a must subscribe IPO...below are the details about the company and why i am super positive on it

(1) The company is in the business of manufacturing steel doors and windows (steel-frame) and we cater to customers across various segments and industries. They currently have our facilities spread across 3 manufacturing units in addition to one assembling unit and stockyard, with an area admeasuring 34,211 square yards on the outskirts of Hyderabad. Additionally, they are also in the business of manufacturing cleanroom equipment for our customers in the pharmaceutical, biotechnology and food industries.

Below are the products of the company

(2)  Gradually expanding our manufacturing facilities and have over the past decade, expanded the facilities to its current form and capacity. Presently, they have an installed capacity to manufacture 11,000 doors per month.

(3)  Revenues and profitability for the last three years are depicted below:

(4) Ahlada is shifting its focus from clean door to steel door. They have got a big order from Tata steel for Pravesh door brands and this is the main reason why they are going for the IPO so that they can scale up their operation and meet the order

https://www.business-standard.com/article/companies/ahlada-engineers-takes-ipo-route-after-exclusive-biz-deal-with-tata-steel-118091000378_1.html

Also go through the website which will give you further information about this order

http://www.tatapravesh.com/

Management wants to expand their door supply from 11000 doors to 36000 doors per month with the proceeds of this IPO. 

Below are the IPO Details

Issue Open Date

11-09-2018

Issue Close Date

18-09-2018

Listing Date

N/A

Face Value (Rs)

10.00

Offer Price/Range (Rs)

147.00-150.00

Issued at (Value)

Premium (140.00)

Issue Size (Retail)

1131900.00Shares@150.00/share

Issue Type

Public Issue (Book Building)

The asking P/E of this IPO is around 24 however if we focus on the massive expansion which is expected then Forward P/E is in the range of 6-7 which I think its extremely cheap and with strong order book giving the backing to the management, this looks an extremely lucrative IPO to apply for esp with TATA backing.

Please note that I am not a SEBI registered. This is an educational website and given that I am applying for this IPO too so my views might be biased.

Stock Analysis: Virinchi Ltd

Market Cap:  274.00 Cr.
Current Price:  91.10
52 weeks High / Low  153.50 / 79.90 

Virinchi Limited is a Hyderabad-based company. It is engaged in the information technology sector.

The company has expanded into the healthcare sector. It has set up a 600-bed super specialty hospital in Banjara Hills by making an investment of Rs 300 crore.The hallmark of the new facility of Virinchi Hospitals is customer centric technology applications, diagnostic facilities, molecular diagnostics and personalised medicine.

Vrinchi Hospital will have specialties in cardiac, ortho, nephro, neuro, emergency, cancer and transplantation. It will be equipped with several firsts in Indian healthcare industry such as 15,000 plus biomarker diagnostic lab, full spectrum radiology markers among other equipment.

There will be an insurance driven cashless hospital facility accessible to all sections of people. Differential pricing would be based on the type of room the patient uses.

Canara Bank and other lenders have given Virinchi Healthcare Private Limited Rs 70 crore. The remaining funds for the project were raised from internal sources.

Vrinchi Healthcare has employed 75 expert doctors, of whom about 30 are already on board. The total employment to be provided to paramedical and other supporting staff will be to the tune of 1,000.

Now going through the financials of the company, we can certainly see that its like a sitting duck at the moment trading extremely cheap with great potential

Few financials highlights 

Stock P/E: 7.58 
Dividend Yield: 0.00 % 
ROCE: 13.83 % 
ROE: 14.28 % 
Sales Growth (3Yrs): 36.40 % 
Change in promoter holding: 2.86 %
Change in promoter holding 3Years: 20.35 %

Company price in recent months has corrected by almost 30% making it an extremely lucrative investment.

Cash flow:

Lets first focus on the cash flow statement of the company in order for me to link the entire story. We can see that for a company which has a market cap of 274Cr, it has purchased fixed asset of almost its market cap in last 2yrs to expand its operation. This is indeed quite a substantial investment for a company of this size

 Quarterly result
We can see the effect of above investments in the increase in revenue and profit on a continuous basis in the company financials in last 4-5 quarters where it has consistently reported good numbers while share price hasn't reflected it yet due to the brutal fall in the small cap sectors recently.

We can also see that among all the peers it has it has one of the best ROE

Peers comparison

Overall i think its a very attractive investment but being small-cap its risky as an category. This company certainly shows the glow and with current P/E around 8 while recent promoter holding increase along with massive investments in fixed assets coupled with good financial performance, do you think the share price is trading cheap? i think yes

note: This is a educational website. I am not a SEBI registered advisor. My views on this company might be biased.