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Thursday, October 13, 2016

SOLAR INDUSTRIES INDIA LTD: READY TO EXPLODE !!!

Scrip Code: 532725 SOLARINDS
CMP:  Rs. 681.10; Market Cap: Rs. 6,163.28 Cr; 52 Week High/Low: Rs. 759.45 / Rs. 567.06
Total Shares: 1,80,98,011 shares; Promoters : 1,32,08,207 shares – 72.98 %; Total Public holding : 48,89,804 shares – 27.02 %; Book Value: Rs. 95.87; Face Value: Rs. 2.00; EPS: Rs. 18.99; Dividend: 225.00 % ; P/E: 35.70 times; Ind. P/E: 53.69; EV/EBITDA: 20.09 times. Total Debt: Rs. 400.34 Cr; Enterprise Value: Rs. 6,526.58 Cr.
   
SOLAR INDUSTRIES INDIA LTD: The Company was founded in 1983 and is headquartered in Nagpur, Maharashtra, India. The company was earlier known as Solar Explosives Limited and changed its name to Solar Industries India Ltd in 2009. Solar Industries India Limited is an explosives manufacturing company. The Company manufactures, supplies and exports industrial explosives and initiating systems. It manufactures various explosives products, such as Slurry and emulsion base explosives, bulk explosives, detonators, pentaerythritol tetranitrate (PETN) and accessories. The Company's products include Large Dia slurry Explosives, Small Dia Emulsion, Small Dia Slurry Explosives, Solar Detonators, Supreme Detonators, Supreme Electric Detonators, Economic Sod, Eco Det, Cord Relay, Cast Booster and Detonating Fuse. Its products are used across mining and infrastructure sectors. It also offers high melting explosive (HMX) and HMX Compounded products to the defense sector. The Company has 25 manufacturing plants eight states in India and three in overseas locations. The Company offers its products to 42 countries across the globe. The Company has manufacturing facilities at Zambia, Nigeria and Turkey. The company came with an IPO in 1980 with an offer of 4,41,000 equity shares of Rs. 10 each at par. The company has not declared any bonus. Company has declared Split in face value of its shares from Face value of Rs. 10 to Rs. 2.00 on May 16, 2016. SOLAR INDUSTRIES INDIA LTD is locally compared with Premier Explosive Ltd, Indo Gulf Industries, GOCL Corp Ltd, Hardcastle & Waud Manufacturing Co Ltd, UPL Ltd, CDET Explosive Industries Private Ltd, Salvo Explosive & Chemicals Pvt Ltd, Thangavel Match Ind, Vetrivel Explosives Pvt Ltd, Dai-Ichi Karkaria Ltd globally compared with Saudi Explosive manufacturer of UAE, African Explosives (Tanzania) Ltd of Tanzania, Austin Powder Company of USA, Maxam Brasilia LTDA of Brazil, Maxam Corporation of Spain, African Explosives (Ghana) Ltd of Ghana, Davey Bickford of France, Elviemak Sa of Greece, European Federation of Explosives Engineers of UK, Fabchem China Ltd of china, Biafo Industries Ltd of Pakistan, Hyflux Ltd of Singapore.

Investment Rationale:  
Solar Industries India Ltd (SIIL) founded in 1995, is one of the largest comprehensive explosives & initiating devices manufacturing company in India. Solar Industries India Limited has grown to become India’s largest manufacturer of Industrial explosives and explosives initiating systems and spreading its presence to global markets with manufacturing plant at Zambia, Nigeria and Turkey. Solar Industries India Ltd manufacturing facilities span in 19 Locations across India with 3 manufacturing units in Overseas with distributors network in more than 40 countries. The company offers high quality and services that are backed by stringent safety standards, a robust infrastructure companies including the recognized names like Coal India Ltd, Singareni Collieries company Ltd, Vedenta, Tata, Sasan Power, L&T, and many more. Solar Industries products includes Cartridge explosives, Detonators, Detonating cord, Cast booster, Multi-layer Shock Tubes, Underground Bulk, Explosives for military Application, Pyros, Propellants, Ammunitions. Industrial explosives comprises of cartridge explosives, bulk explosives, ANFO based explosives, which includes boosters and PETN as well as accessories for explosives such as safety fuses, detonating fuses and detonators. The global explosives market is largely driven by bulk explosives. The mining industry is the largest consumer of industrial explosives, with coal mining demand dominating over others, due to increasing demand for coal. Other segments that utilises explosives include limestone and metal mines besides infrastructure segments like roads, dams, canals and tunnels. Despite India’s huge reserves of various natural minerals, the share of the mining and quarrying sector as a percentage of Gross Domestic Product (GDP) has declined from 2.8 % in FY 2010-11 to 2.1% in FY 2013-14 (Provisional Estimates). This decline came against the backdrop of various judicial pronouncements and the Justice Shah Commission Report, which led to the suspension of several mining leases or closure of mines. The revival of the mining sector is now linked to providing a level playing field between domestic and foreign investors. The proposal is aimed not only at remedying the problems in the sector but also at creating an enabling environment based on sound principles of transparency and efficiency. Once the mining sector is back on track, the explosives industry is set to witness a new phase of growth. Also the Government has set an excavation target of 1.35 Billion Tonnes of coal by FY 2020. According to the plans firmed up by Coal India along with the Union Coal Ministry, total output envisaged for Coal India’s subsidiaries is about 900 Million Tonnes and other proposed New Projects for is about 100 Million Tonnes. Its plans for each of the subsidiaries are in place, though, and it also envisages opening up 70-100 mines to achieve the FY 2020 target. Iron Ore mining industry is currently facing some hurdles in securing approvals to restart mines, especially in the three states of Odisha, Karnataka and Goa. Nevertheless, once these mines begin production, iron ore output is set to grow at a robust pace of 10 % during FY 2015. Against an output of 140 Million Tonnes in FY 2014, domestic production is set to reach 155 Million Tonnes in FY 2015. Some positive developments that are imminent include the renewal of leases for mines in Goa, the formation of a new government in Jharkhand, issuance of clearances and permits in Odisha and revival of mines in Karnataka. India was the world’s largest arms importer, largely due to lack of domestically produced arms. To reduce significant outflows of valuable foreign currency as well as to promote domestic growth of the industry, the Government presented the Defence Procurement Policy in FY 2013, under which all Government procurements would need to have a minimum 30 % of such purchases with indigenous content. This has opened up new business opportunities for the explosives sector in India. Budget 2015-16 has also provided an outlay of Rs. 2,46,727 Cr for defence. The Government’s ‘Make in India’ initiative, seeking to promote self-reliance, indigenisation, technology upgradation and achieving economies of scale and developing capabilities for exports in the defence sector, will also open up a large window of opportunity for the explosives sector. These developments will cumulatively facilitate the emergence of a more efficient and productive coal sector. This will, in turn, trigger greater demand for the explosives which is good for this industry. SOLAR INDUSTRIES LTD commands a dominant volume market share of 25 % among more than 40 players in 1 mt Indian explosive market in which large 6 player’s accounts for 75 % market share and tedious licencing procedures act as high entry barriers. Explosives industry clocked a combined volume CAGR bulk & cartridge explosives of 9 % while Solar Industries Ltd’s combined volume CAGR bulk & cartridge explosives was 16 % over FY09-FY16. Solar Industries will continue to outperform the industry, given the various triggers in domestic and overseas markets. Unlike capital goods, explosives are industrial consumables and to a large extent immune to the vagaries of intense cyclicality faced by its main user industry i.e. mining. This can be witnessed from the fact that SIL’s combined volume CAGR for bulk and cartridge explosives has been 16 % over FY09-FY16 as against coal production CAGR of 3.8 %, iron ore production CAGR of -5.8 %, and lignite/limestone production CAGR of 2.9 % /4.0 %, respectively, over the same period. SIL is well placed with its recent addition in licensed capacities due strategic acquisitions of M/s Blastec (India) Private Ltd & M/s Emul Tek Private Ltd. The current licensed capacity in this segment stands at 3, 00,000 MT. As per the management, volumes from tender business are also expected to improve significantly, with increased focus of government on Coal India and Singareni Collieries to increase their mining volumes. SIL’s newly commissioned facility at kothagudam (Andhra Pradesh) along with two new facilities at Barbil (Odisha) & Kota (Rajasthan) will also contribute significantly to the volume growth. SIL has achieved superior volume growth compared to the industry. The same trend is expected to continue and SIL’s bulk volumes can grow at a CAGR of 24 % to 2,82,014 MT in FY16-18E, Cartridge volumes are expected to grow at 12 % CAGR over FY16-18E. With the improvement in the realisations is mostly due to increase in exports as cartridge fetches higher realisations in the export market. As per management, both cartridge volumes and realisations are expected to improve from here, on account of higher demand from domestic private infrastructure players, private miners and continued up-tick in exports. SIL has witnessed improved demand from the defence segment from Q4FY16. The current order book of the company in this segment is now Rs. 80 crore. The same is executable by H1FY18E. SIL had already executed Capex of Rs. 200 crore in this segment for setting up a production capacity of 50 tonne per annum (TPA) of HMX and 10,000 propellants. The same was utilised to set up a capacity of 2500 propellant and 50 TPA of HMX. Going ahead, the company has capex plans of Rs. 50 crore in FY17E and FY18E to increase the propellant capacity from 2,500 units to 10,000 units and HMX capacity from 50 TPA to 100 TPA. The integrated pinaka rocket launcher facility is likely to come up in the next four or five months. The management is confident of winning orders in this segment as it believes that the upcoming facility addresses an area where there are capacity constraints, especially the ordnance factory board (OFB) end. SIL is also planning to foray into manufacturing of bi-modular-charge systems (BMCS) for artillery guns. BMCS is a crucial component required to propel the shell out of the barrel, this was so far imported, mainly from France. In last one year around 10 lakh modules were imported. BMCS can increase the rate of firing, especially for a gun like Bofors. Ordnance Factory Board's (OFB) plans to have a dedicated factory for making BMCS Could not take off after being conceived 15 years ago. The government now plans to open this area to private players. SIL has already applied for necessary licenses in this segment and is waiting for the approval. SOLAR INDUSTRIES LTD being one of the leaders in the industry has very strong footing and has strong cash flow which thrusts the growth for the company, and strong financials with sustained cash flow makes it attractive for long term investment.

Outlook and Valuation: 
Solar Industries India (SIL) is the largest manufacturer of industrial explosives and explosive initiating systems in India. The Nagpur-based company has licensed capacity of 4,02,000 tn with its plants across the country. The company’s offerings include bulk and packaged (cartridge) explosives, apart from a wide array of initiating systems comprising detonators, detonating fuses and cast boosters. SIL currently owns and operates the world’s largest single-location manufacturing capacity for cartridge explosives besides India’s largest manufacturing capacity for bulk explosives. Over the past three decades, SIL has gradually expanded its product offerings from cartridge to bulk explosives and from detonators to detonating cord and cast boosters. The recent addition to its vast bouquet of products were multi-layer shock tubes, underground bulk explosives, explosives for military application, pyrotechnics, propellants and ammunition developed through intensified efforts of state-of-the-art R&D centre. Hence, SIL has significantly widened its bouquet of products and is today a one-stop-shop for industrial explosives. Currently, SIL has 25 manufacturing facilities, spanning 10 states across India and 3 overseas units - in Zambia, Nigeria and Turkey. It also supplies to corporate giants such as Steel Authority of India, Oil and Natural Gas Corporation, Tata group, Adani group, Jindal group, Vedanta, Reliance Power, NHPC, Aditya Birla Group, etc. SIL is the largest exporter of explosives from India, supplying to more than 22 countries. The company has also taken a strategic leap into the defence sector recently through the execution of some early orders in this space. Looking forward, the defence foray offers immense scope for growth. Solar Industries is the India’s largest manufacturer of industrial explosives and initiating systems. Having complete explosives range with a presence across product value chain. It has the World’s largest single-location cartridge manufacturing facility at Chakdoh near Nagpur. It is the India’s first private sector company to obtain the licence for setting up manufacturing facilities for HMX (a warhead explosive) and HMX compounded products. SIL has displayed similar attributes in the past decade since its listing on the bourses. SIL became the largest player in 1 mt domestic industrial explosives market over a period of past 10 years with its volume market share at 2.5 x from 10 % in FY06 to 25 % in FY16. SIL has grown at higher-than-industry rate over the same period. SIL’s average volume CAGR across bulk and cartridge explosive, detonator and detonator fuse was 13 % over FY09-FY16 against Indian explosives industry’s average volume CAGR of 7 % over the same period. The company successfully managed to keep competition at bay on account of its ability and intention to keep investing in the business, rationalise the cost structure to remain cost-competitive in fact it achieved the leadership position by going for backward integration, widening its product portfolio and maintaining strong client relationship. SIL offers the widest portfolio of products with end-to-end solutions and maintains its numero uno position as an industrial explosives and initiating systems supplier to largest consumer of explosives in the country, Coal India, for the past few years. SIL satisfies nearly 30 % of the explosives requirement of Coal India. Moreover, after opening up of India’s defence sector for private players, the company is eyeing multibillion dollar Indian defence space which is being catered to by either government owned defence establishments or through imports. After consolidating its position in India, the company successfully moved to other big explosive-consuming markets by setting up plants in Zambia, Nigeria and Turkey over the past five years. It is now in the process of setting up a plant in South Africa. The company has realised the importance of global opportunity (more than US$10bn) and taken steps to grab the share through overseas expansion and focus on exports. SIL possesses wide moats in the form of industry leadership, significant entry barriers, optimal product mix and carefully pre-planned capacity additions to benefit the most from the revival in mining & infrastructure activity. Even in the export & overseas business, SIL has just scratched the surface of growth, with many more un-penetrated markets yet to be explored. New business segments like defence business will further solidify SIL’s business model at a time when government’s prerogative is to indigenise defence manufacturing, which will allow SIL to scale the defence business at a faster pace. Even during times of moderate business environment, SIL had witnessed robust revenue CAGR of 40 %, over FY12-16, backed by a strong 15 % volume CAGR (bulk + cartridge) coupled with capacity expansion and market share gains. This speaks for the pedigree of the management and business model that has evolved over time and reiterates our confidence on the company to capture onto the upcoming opportunity with the revival in industrial activity. Hence, SIL is a rare combination of excellent growth track record, proactive management, conservative leverage approach, expanding margins & return ratios and a 20 %+ growth guidance from the management for the next three years. The company is expected to generate better cash flows with cash flow from operations (CFO) improving from Rs. 157.3 crore in FY15 to Rs. 210 crore in FY18E. CFO is likely to remain subdued in FY17E due to higher capex of Rs. 135 crore in FY16-17E. The same is likely to continue as the management has guided for higher capex of Rs. 200 crore for FY17E-18E. The FCF is also expected to grow to Rs. 50 crore in FY18E. The CFO/EBITDA, a measure of quality of earnings, is also expected to stabilise at 0.5 x in FY18E. With the robust performance, the company looks forward to a future full of promise. All the sectors which form company’s consumer caucus - mining, infrastructure and construction - are witnessing policy changes that are expected to result in structural strengthening and phenomenal growth. This gives plenty of reason to be optimistic. The defence sector too, which is moving strategically from imports to domestic sourcing of its requirements, has opened up colossal opportunities for company. At the current market price of Rs. 681.10, the stock is trading at a PE of 32.74 x FY17E and 25.22 x FY18E respectively. The company can post Earnings per share (EPS) of Rs. 20.80 in FY17E and Rs. 27.00 in FY17E. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also. 

KEY FINANCIALSFY15FY16FY17EFY18E
SALES ( Crs) 1,344.701,532.801,757.402,149.80
NET PROFIT (₹ Cr)147.40166.10188.30244.80
EPS () 16.3018.4020.8027.00
PE (x)39.7035.2031.1023.90
P/BV (x)7.506.705.805.00
EV/EBITDA (x)24.2020.7017.9011.20
ROE (%) 20.5020.2020.1022.50
ROCE (%)16.2018.0018.5020.60

As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % on every purchase(Why Strict stop loss of 8 % ?) -  Click Here

*As the author of this blog I disclose that I do not hold  SOLAR INDUSTRIES LTD in my of the portfolios.

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Disclaimer
This is a personal blog and presents entirely personal views on stock market. Any statement made in this blog is merely an expression of my personal opinion. These informations are sourced from publicly available data. By using/reading this blog you agree to (i) not to take any investment decision or any other important decisions based on any information, opinion, suggestion, expressions or experience mentioned or presented in this blog (ii) Any investment decisions taken if any would be his/hers sole responsibility. (iii) the author of this blog is not responsible. 


As a Disclosures I Confirm that : 
I confirm that I shall not deal or trade in securities mentioned in this article within thirty days before and five days after the publication of this article. I also confirm that I will not deal or trade directly or indirectly in securities mentioned in this article in a manner contrary to the ideas put forth in the article. I have not received any financial compensation for writing this article.
 

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Monday, October 3, 2016

COSMO FILMS LTD : FULL PACKAGE !!!

Scrip Code: 508814 COSMOFILMS
CMP:  Rs. 382.70; Market Cap: Rs. 743.97 Cr; 52 Week High/Low: Rs. 411.40 / Rs. 176.85
Total Shares: 1,94.40,076 shares; Promoters : 84,58,439 shares – 43.51 %; Total Public holding : 1,07,05,241 shares – 55.07 %; Book Value: Rs. 234.01; Face Value: Rs. 10.00; EPS: Rs. 49.61; Dividend: 100.00 % ; P/E: 7.71 times; Ind. P/E: 6.95; EV/EBITDA: 11.67 times. Total Debt: Rs. 422.39 Cr; Enterprise Value: Rs. 1,141.57 Cr.
   
COSMO FILMS LTD: The Company was incorporated on October 7, 1976 and based in New Delhi. Cosmo Films Limited is a manufacturer of semi-finished products of plastics. The Company is engaged in the manufacturing of bi-axially oriented polypropylene films (BOPP) and thermal films. The company came with an IPO in 1980 with an offer of 4,41,000 equity shares of Rs. 10 each at par. The company gave bonus in March 2003 in ratio of 1:1, and has not given any Split in face value of its shares. COSMO FILMS operates through two segments: Packaging Films and Others (Equipments and Parts). Their geographic segments include India and outside India. Its product portfolio consists of packaging films, including print and pouching films, barrier films and overwrap films; lamination films, including dry (thermal) lamination films and wet (print) lamination films; label films, including pressure sensitive label stock films, direct thermal printable films and wrap around label films, and industrial films, including synthetic paper, and tape and textile films. The Company has manufacturing facilities spread across India, the United States and Korea. It has a manufacturing capacity of over 136,000 metric ton per annum of BOPP films, approximately 40,000 metric ton per annum of thermal lamination films. COSMO FILMS Ltd is locally compared with Xpro India Ltd, Uflex Ltd, Fenoplast Ltd, Caprihans India Ltd, Glory Films Ltd, Essel Propack Ltd, Huhtamaki PPL Ltd, Jhaveri Flexo Industries. Globally compared with Avery Dennison Corporation of USA, Ball Corporation of USA, Berry Plastics Group Inc of USA, Crown Holdings Inc of USA, Packaging Corporation of America of USA, Seal Air Corporation of USA, British Polythene Industries PLC of UK, Huhtamaki Oyji of Finland, Smurfit Kappa Group Plc of Ireland, Vetropack Holding AG of Switzerland, Polyplex (Thailand) Public Company Ltd of Thailand, The Pack Corporation of Japan, Lock & Lock Co., Ltd of South Korea, Greatview Aseptic Packaging Company Ltd of China, CPMC Holding Ltd of Hong Kong, Mpact Ltd of South Africa, Nampak Ltd of South Africa.

Investment Rationale:
Cosmo Films Ltd, established in 1981, today is one of the global leaders and manufacturers of Biaxially Oriented Polypropylene (BOPP) films used for packaging, labels and lamination applications. The company is the largest exporter of BOPP films from India and is also the largest producer of thermal lamination films in the world with plant cum distribution centres in India, Japan, Korea & the U.S along with global channel partners in more than fifty countries. Cosmo Films, being a professionally managed Public Limited Company has a strong presence in flexible packaging films. In speciality films segment beside thermal films, wet lamination, synthetic paper, high barrier films, coated films are key products. Cosmo is the largest producer of thermal lamination films in the world. In commodity, Cosmo manufactures tape and textile films as well as packaging films. Within the packaging segment, company manufactures films such as heat sealable, plain, metallized, opaque films as well as speciality films such as stable slip film, low SIT films, high hot tack films, low COF films and extrusion coat able metallized films. In labels Cosmo has almost a complete range of films for wrap-around, in-mould and self-adhesive applications in transparent, metallized and opaque which can work with almost all kinds of printing inks. Companys products are popular in domestic and overseas markets. Cosmo is the only company acting as a one-stop shop for laminating solutions i.e. the films and the laminating equipments. In India with economic growth and rising personal disposable income which are the growth drivers for the consumer goods sector, in turn improves the demand for packaging. The Packaging industry is expected to grow around 10-12 % CAGR in the medium term. With Growing rural demand, retail push, planned investments by large MNCs in the FMCG business and with the strong fundamentals of the Indian economy, will boost the growth in FMCG and this will consequently boost the growth for packaging. As per Indian Brand Equity Federation (IBEF), FMCG industry in India is expected to grow at a CAGR of 14.7 % between 2012 and 2020, which will also help the growth of the packaging industry. With the increasing penetration in the rural and semi-urban areas along with the Government initiatives to boost the rural infrastructure is likely to improve the demand for FMCG products, thus in turn would indirectly will benefit the specialized flexible packaging players like Cosmo Films, who offers value addition in the form of both product specific like high speeds on product filling lines, insulation from heat & moisture, high strength for supporting long distance transportation, holographic images etc. & custom designed packaging solutions like brand image protection, protection from counterfeit and cost effectiveness. The management has indicated that certain trends like - use of plastic tubes instead of metal tubes and PET bottles instead of glass bottles would drive its addressable markets. Recent trend of using pouches instead of rigid packs for hair/edible oils would expand its market size further. There is expected to be a strong growth in packaged food industry, change in pack format from rigid packaging to flexible packaging, balanced demand-supply scenario will keep pricing power stable over the medium term. Cosmo’s capacity expansion and product mix strategy will yield better operating performance and superior earnings growth in the industry over the next few years. Cosmo Films is one of the lowest cost BOPP manufacturer and is the fifth largest player in the world. The company manufactures packaging films, lamination films, label films and industrial films for various packaging applications. Cosmo Films has a business model based on business to business (B2B) with strong presence in global and domestic market. The company caters to clients in more than 100 countries with a major presence in USA, Europe, Japan and India. With a diversified client base and complete solution to packaging sector, Cosmo has positioned uniquely to tap increased opportunities in the BOPP films industry. The company sources polypropylene (a key raw material) from domestic oil & gas companies like RIL, IOC, HPCL and imports from Middle East (10 per cent). Raw material cost is 64 % of operating revenues and the company doesn’t get benefit of lower input cost in the P&L due to cost plus operating model. Sustainable improvement in EBITDA margin is largely dependent upon product mix strategy, better capacity utilization and efficiency in operation (like savings in power cost and automation reducing man hours etc.). Cosmo Films enjoys significant entry barriers in specialty films segment. The company has built unique small size production lines for specialty films to offer customized and innovative product for premium consumer products. Notably, specialized films are selling 2.5x premium to traditional BOPP films, a key profitability driver over the long term. The company is one of the lowest cost manufacturer of BOPP films in the world. The difference between manufacturing BOPP films in India and China is very minimal. Moreover, import duty of 7.5 % along with freight cost attached to imported films makes import an unattractive option for domestic BOPP end-user industries. Hence, BOPP films imported from China will not adversely impact pricing power and supply scenario in domestic market. COSMO FILMS being one of the leader in the industry has very strong footing and has strong cash flow which thrusts the growth for the company, and strong financials with sustained cashflow makes it attractive for long term investment.

Outlook and Valuation:


Cosmo Flims is a leading manufacturer of BOPP films and specialty films with 20 % market share. The company offers cost-effective innovative packaging solutions to leading FMCG and global brands. Over the years, the company expanded product portfolio to improve profitability and growth. Its products include newer products like thermal, coating and metalizing films besides the traditional BOPP films. The company has three manufacturing facilities in India and one each in Korea and USA. It caters to clients in more than 100 countries with major presence in USA, Europe, Japan and India. The company derives 50 % sales from export market and balance 50 % from domestic market. Out of export sales, 70 % is value-added high margin specialty films. The Global BOPP demand is estimated to be 72 lakh MT growing at 5-6 % annually with balanced demand-supply situation. Domestic BOPP Films industry has grown 12 % CAGR aided by strong growth in flexible packaging industry over the last five years. During FY12-13, the industry saw sharp decline in profitability due to intense pricing pressure and significant over-capacity leading to lower utilization. Cosmo Films and other players in the industry also witnessed steep decline in gross profit margin and EBITDA margin during the same period. Now, pricing, profitability and demand-supply trends have reversed in FY15-FY16. At present India’s BOPP production is estimated at approx. 5 lakh MT per annum. Domestic BOPP consumption is approx. 3.5 lakh MT per annum and export from India is about 1.1 lakh MT per annum. The Indian BOPP Industry has been growing at almost double of India’s GDP growth rate. Current demand-supply scenario coupled with capacity utilization shows reasonable stable trend on pricing power front. In order to benefit from attractive industry outlook, Jindal Poly and Cosmo Films are expanding BOPP capacity over the next two years by 30000 MT and 60000 MT respectively. There is a strong growth in packaged food industry, change in pack format from rigid packaging to flexible packaging, balanced demand-supply scenario will keep pricing power stable over the medium term. Cosmo’s capacity expansion and product mix strategy will yield better operating performance and superior earnings growth in the industry. Cosmo Films is also working towards operational efficiency by cost-containment measures. The company will save power cost around Rs. 15 crore and Rs. 25 crore in FY16 and FY17 respectively due to change in power procurement from State grid to long-term power purchase agreement (PPA) from private players and lower power consumption. Upgradation of manufacturing facilities will increase automation in plant operation and reduce power consumption per unit of production. We believe that power cost-saving / automation measures along with efficient raw material procurement make Cosmo Films the lowest cost BOPP film manufacture in the world. Moreover, refinancing of existing loans at lower rates will reduce interest cost in coming years. The company has net debt of Rs. 390 crs, of which Rs. 220 crore are foreign currency loans with natural hedge in the form of exports revenues and financial hedge. Its major competitors are Jindal Poly (210000 MT), Max Films (54000 MT), Nahar Poly (30000 MT), Taghleef UAE (410000 MT) and Terofan (132000 MT). We believe full-fledged BOPP films product portfolio, lowest cost of production and diversified client base are key strengths to sustain profitability and improve market share. Cosmo Films has a lean working capital across business cycles, reflecting underlying superior business operation. The company has improved core working capital as percentage of net sales from 14 % in FY14 to 11 % in FY15, aiding to operating cash flows. The company has announced a capacity expansion of 60,000 MT costing Rs.200 crore funded by internal accrual and debt. The company has already obtained financial closure on the project. Post the expansion, installed capacity is expected to increase to 1,96,000 MT by January 2017. It is expected that the free cash flows to increase driven by core operational performance. The company has healthy balance sheet with reasonable leverage like decline in net debt to equity from 1.4x in FY14 to 1.2x in FY15. The lean working capital cycle, reasonable balance sheet leverage and healthy free cash flows are a rare combination in a slow industrial growth environment and makes one of the reason of better investment candidate. At the current market price of Rs. 382.70, the stock is trading at a PE of 6.98 x FY17E and 6.10 x FY18E respectively. The company can post Earnings per share (EPS) of Rs. 54.82 in FY17E and Rs. 62.73 in FY17E. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also.  

KEY FINANCIALSFY15FY16FY17EFY18E
SALES ( Crs) 1,646.781,620.621,766.471,943.12
NET PROFIT (₹ Cr)27.6696.24106.57121.94
EPS () 14.2349.5154.8262.73
PE (x)22.766.545.915.16
P/BV (x)1.651.381.120.93
EV/EBITDA (x)9.304.784.223.74
ROE (%) 7.2721.0918.9318.01
ROCE (%)18.1529.0628.7228.31

As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % on every purchase(Why Strict stop loss of 8 % ?) -  Click Here

*As the author of this blog I disclose that I do not hold  COSMO FILMS LTD in my of the portfolios.

**Dear Reader Friends, if you enjoyed this article then please do share it with your friends & colleagues through Facebook and Twitter, also do drop in your valubale thoughts in comment box...
So, grab a fresh hot cup of coffee, turn on your net & browse on to www.bhavikkshah.blogspot.in & take out few minutes to get to know the most interesting world of investment... Till then HAPPY INVESTING, don't forget to Share !! 

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Disclaimer
This is a personal blog and presents entirely personal views on stock market. Any statement made in this blog is merely an expression of my personal opinion. These informations are sourced from publicly available data. By using/reading this blog you agree to (i) not to take any investment decision or any other important decisions based on any information, opinion, suggestion, expressions or experience mentioned or presented in this blog (ii) Any investment decisions taken if any would be his/hers sole responsibility. (iii) the author of this blog is not responsible. 


As a Disclosures I Confirm that : 
I confirm that I shall not deal or trade in securities mentioned in this article within thirty days before and five days after the publication of this article. I also confirm that I will not deal or trade directly or indirectly in securities mentioned in this article in a manner contrary to the ideas put forth in the article. I have not received any financial compensation for writing this article.
 

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Friday, September 23, 2016

IGARASHI MOTORS INDIA LTD: ALL GEARED UP !!!

Scrip Code: 517380 IGARASHI
CMP:  Rs. 730.65; Market Cap: Rs. 2,236.40 Cr; 52 Week High/Low: Rs. 759.75/ Rs. 375.00.
Total Shares: 3,06,08,444 shares; Promoters : 2,62,76,684 shares – 85.85 %; Total Public holding : 43,31,760 shares – 14.15 %; Book Value: Rs. 96.19; Face Value: Rs. 10.00; EPS: Rs. 21.89; Dividend: 55.00 %; P/E: 33.35 times; Ind. P/E: 50.61; EV/EBITDA: 17.29 times.
Total Debt: Rs. 44.13 Cr; Enterprise Value: Rs. 2,170.61 Cr.

IGARASHI MOTORS INDIA LIMITED: Incorporated in 1946, and is based in Tamil Nadu, India. Igarashi Motors Ltd started by Eiji Igarashi who established a private company in Kawasaki, for the production and sales of D.C. motors for toys and model ships. It has been developing and manufacturing small D.C. motors, for more than fifty years. In India the company was established in the year 1993 in a joint venture with Crompton Greaves for development, production and sales of DC motors, DC motors with accessory, and assembly service like end cap-case-armature. The company has developing and manufacturing small DC motors for more than fifty years and has done pioneering work in product development, improvement and testing for the creation of new manufacturing technologies. The design-development-technical departments are in Japan, China and India dedicated to providing better technology and realizing the creation of highly efficient small DC motors. Igarashi Motors India Ltd came with a public issue of Rs. 2.77 Cr of Rs. 10 each at Rs. 10 each in 1994 to part finance its 100 % Export oriented Unit to manufacture permanent magnet DC micro motors, the total project cost was Rs. 10 Cr and was listed on 19 May 1995. Till date company has not given any bonus or splits in face value of its shares. Motors produced by Igarashi Motor Sales are designed in accordance with ISO 9002 regulations to ensure quality products with optimal functionality. Before, during, and after production, their motors are subject to intense quality controls and testing methods to ensure reliability & Design FMEA and Process FMEA are extensively used to secure efficiency and dependability. Igarashi products includes -DC Motors: Flat Type Motors, Round Type Motors, High Voltage Motors ; Gear Motors: Planetary Gear motors, Spur Gear motors, High Voltage Motors, Armatures. Igarashi Motors has developed an international presence as a means of providing quality product to companies throughout the world. With sales offices, manufacturing facilities and distribution centers worldwide. During 1997-98, the company has expanded capacity of Rotors by 1.5 million nos there by taking the capacity to 3.5 million nos and then to 6 million nos in 1998-99. The company was certified QS 9000 in November 1998 and the Quality System has been upgraded to conform to the latest edition of QS 9000 with effect from January 2000. During 2002-03 Crompton Greaves Limited have divested their holding in favour of Igarashi Electric Works. Since Igarashi Electric Works (HK) ltd have acquired 30,99,993 equity shares of CG Capital & Investments Ltd, the Board changed the name of the company to Igarashi Motors India Limited. Its subsidiaries worldwide includes: Heng Gang Yat Yue Industrial, Heng Gang Igarashi Electrical Works, Igarashi Motor Sales, LLC USA, Igarashi Motoren Germany, CG Igarashi Motors Ltd India, Zhubai Igarashi Electric Works China, Hanamaki Nippa Industrial Ltd, Igarashi Electric Works Ltd, Yat Yue Industrial Ltd, Igarashi Electric Works Ltd. IGARASHI MOTORS INDIA LTD is locally compared with Minda Corp Ltd, Majestic Auto Ltd, PPAP Automotive Ltd, Motherson Sumi Systems Ltd, REIL Electricals, Remsons Industries, Denso India Pvt Ltd, Talbros Automotive and Globally compared with NGK Spark Plug Corp of Tokyo, Sumitomo Electricals of Tokyo, Panasonic Corp, Nippon Seiki Corp, Riken Corp.

Investment Rationale:
Igarashi Motors India Limited incorporated in 1946, is engaged in the business of auto components for automobiles. The Company offers electric micro motors and motor components. The Company is engaged in the production and export of permanent magnet direct current (DC) motors for automotive sector specifically for passenger cars. The Company's DC motors include SQ-2846, SQ3264, SQ3657, SQ3365, SQ-3655, SQ-2848, SQ-3458, 3657 and 3665. The Company's products' primary application is Electronic Throttle Control (ETC). The Company has produced over 500 million DC motors for usage in actuator application/systems in passenger cars. The Company's holding company is Agile Electric Sub Assembly Private Limited. The Company's ultimate holding company is Igarashi Electric Works Limited. The company specializes in the design and manufacture of small, permanent magnet DC motors and gear motors. The Indian auto industry is one of the largest in the world with an annual production of 23.37 million vehicles in FY 2014-15, following a growth of 8.68 % over the last year. The automobile industry accounts for 7.1 % of the country's gross domestic product (GDP). The Two Wheelers segment with 81 % market share is the leader of the Indian Automobile market owing to a growing middle class and a young population. Moreover, the growing interest of the companies in exploring the rural markets further aided the growth of the sector. The overall Passenger Vehicle (PV) segment has 13 % market share. India is also a prominent auto exporter and has strong export growth expectations for the near future. In FY 2015-16, automobile exports grew by 15 % over the last year. In addition, several initiatives by the Government of India and the major automobile players in the Indian market are expected to make India a leader in the Two Wheeler (2W) and Four Wheeler (4W) market in the world by 2020. The industry produced a total 14.25 million vehicles including PVs, commercial vehicles (CVs), three wheelers (3W) and 2W in April-October 2015 as against 13.83 in April-October 2014, registering a marginal growth of 3.07 % year-on-year. The sales of PVs grew by 8.51 per cent in April-October 2015 over the same period last year. The overall CVs segment registered a growth of 8.02 % in April-October 2015 as compared to same period last year. Medium & Heavy Commercial Vehicles (M&HCVs) registered very strong growth of 32.3 % while sales of Light Commercial Vehicles (LCVs) reduced by 5.24 % during April-October 2015 year-on-year. In April-October 2015, overall automobile exports grew by 5.78 %. PVs, CVs, 3Ws and 2Ws registered growth of 6.34 %, 17.95 %, 18.59 % and 3.22 % respectively in April-October 2015 over April- October 2014. India’s automotive industry is one of the most competitive in the world. The Indian auto-components industry has experienced healthy growth over the last few years. Some of the factors attributable to this include: a buoyant end-user market, improved consumer sentiment and return of adequate liquidity in the financial system. The auto-components industry accounts for almost 7 % of India’s Gross Domestic Product (GDP) and employs as many as 19 million people, both directly and indirectly. A stable government framework, increased purchasing power, large domestic market, and an ever increasing development in infrastructure have made India a favorable destination for investment. The Indian automotive sector has the potential to generate up to US$ 300 billion in annual revenue by 2026, create 65 million additional jobs and contribute over 12 per cent to India’s Gross Domestic Product, as per the Automotive Mission Plan 2016-26 prepared jointly by the Society of Indian Automobile Manufacturers (SIAM) and government. It is expected that the global automotive industry vehicle volume to cross from the current 75mn vehicles per annum to cross 110 mn by 2022, the share of automotive production in Asia was 33 % in 2000 which went upto 50 % in 2012 and is likely to be upwards of 55 % by 2020. Vehicle sales in Europe are expected to remain stagnant between 15 to 18 million annually and the main growth is expected in Asia pacific and to an extent, in Americas. The fixed investments in automotive capacity in Asia pacific is estimated to be 60 % of the total global investment, out of the 110million vehicles estimated for 2022, approximately 90 % is expected to be pure Internal Combustion Engine (ICE) vehicles while the balance 10 % will be a combination of electric vehicles and hybrid electrical vehicles. The Government of India encourages foreign investment in the automobile sector and allows 100% FDI under the automatic route. Some of the major initiatives taken by the Government of India are: Government of India aims to make automobiles manufacturing the main driver of Make in India initiative, as it expects passenger vehicles market to triple to 9.4 million units by 2026, as highlighted in the Auto Mission Plan (AMP) 2016-26. In the Union budget of 2015-16, the Government has announced to provide credit of Rs. 8,54,000 Cr (US$ 127.5 billion) to farmers, which is expected to boost the tractors segment sales. The Government plans to promote eco-friendly cars in the country i.e. CNG based vehicle, hybrid vehicle, and electric vehicle and also made mandatory of 5 % ethanol blending in petrol. The government has formulated a Scheme for Faster Adoption and Manufacturing of Electric and Hybrid Vehicles in India, under the National Electric Mobility Mission 2020 to encourage the progressive induction of reliable, affordable and efficient electric and hybrid vehicles in the country. The Automobile Mission Plan (AMP) for the period 2006-2016, designed by the government is aimed at accelerating and sustaining growth in this sector. Also, the well-established Regulatory Framework under the Ministry of Shipping, Road Transport and Highways, plays a part in providing a boost to this sector. The government initiative and investments and the potential makes the auto mobile sector lucrative and makes the prospectus of the Igarashi Motors even brighter. It is expected that the growth to be driven by numerous factors like strong economic growth; continued population growth; expansion of the middle class; strong rainfall and an increasingly favourable regulatory environment makes Igarashi Motors best choice from this sector.

Outlook and Valuation:
Igarashi Electric Works, Ltd. since its establishment in 1952 has dedicated itself to the development, manufacture and sale of products specially designed to meet the needs of its customers. To maintain full satisfaction, the company has grown and established new manufacturing and sales organizations in USA, Germany, China, India, and Hong Kong, as well as maintaining its continued presence in Japan. The company has developing and manufacturing small DC motors for more than fifty years and has done pioneering work in product development, improvement and testing for the creation of new manufacturing technologies. Motors produced by Igarashi Motor Sales are designed in accordance with ISO 9002 regulations to ensure quality products with optimal functionality. Before, during, and after production, the motors are subject to intense quality controls and testing methods to ensure reliability. Design FMEA and Process FMEA are extensively used to secure efficiency and dependability. Igarashi offers a wide variety of motors in different sizes and shapes. One can select their small and high performance motor from flat type, round type or geared motors. Custom designs and value added components often lead to complete sub-assemblies and assemblies. Igarashi work with their network of suppliers to further facilitate the incorporation of their motor into their product by creating a complete assembly that can readily be adapted to production requirements. Discussions with Key customers indicate that the average number of electric motors per global vehicle will move up from 20 to 25 Electric motors per car to 35 to 40 Electric Motors per car in the next three to four years. Dynamics in development of electric motors for these actuators continue to remain strong. Electric motor performance parameters, specifically related to new technologies resulting in lower weight, smaller volume, lesser current fuel consumption and favourable overall cost. Due to stringency of fuel efficiency and emission norms, electric motors for aforementioned actuators is likely to go up steadily over the next years from the present level of 1 to 2 motors average per global vehicle to 3 to 4 motors average per global vehicle. The key applications, in this space continues to be Electronic Throttle Control valves in engines including air control valves, Exhaust gas recirculation valves, Waste gate actuators and Bypass valves in Turbo chargers & fluid control valves for thermal management applications. The market for these motors is estimated to grow at more than twice the rate of the vehicle growth. On financial side, Igarashi Motors Ltd achieved a turnover of Rs. 125.40 Cr for the 1st quarter of the FY 2016-17 as against Rs. 108.65 Cr in the corresponding quarter of the previous year, an increase of 15.41 %. During the quarter, net profit increased by 21.60 % to Rs. 18.99 Cr from Rs. 15.61 Cr in the corresponding quarter ending of previous year. During the quarter, EBIDTA stood at Rs. 34.47 Cr as against Rs. 30.26 Cr in the corresponding period of the previous year, up by 13.93 %. Profit before tax (PBT) stood at Rs. 28.84 Cr in Q1 FY17 against Rs. 23.98 Cr in the corresponding quarter of the previous year, up by 20.24 %. EPS of the company stood at Rs. 6.20 in Q1 FY17 against Rs. 5.10 in the corresponding quarter of the previous year. Net Sales and PAT of the company are expected to grow at a CAGR of 12 % and 17 % over 2015 to 2018E; respectively. Highest market capitalization among its peers, Igarashi has huge market capitalization of 2094 Crs. Domestic institution are gradually attracting towards the company. Igarashi has very less debt to equity ratio of 0.17 and good interest coverage ratio of 16.75. Continuous increasing positive cash flow from operating activities. Company has very less interest outgo which has further lowered down in last year. Company dividend pay-out has increased by 23.87%.  Igarashi has Operating profit margin of 19.78% for FY15-16. Igarashi has Net profit margin of 14.33% for FY15-16. Company has developed an international presence to provide its quality product and services worldwide. At the current market price of Rs. 730.65, the stock is trading at a PE of 29.81 x FY17E and 26.16 x FY18E respectively. The company can post Earnings per share (EPS) of Rs. 24.51 in FY17E and Rs. 27.92 in FY17E. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also.

KEY FINANCIALSFY15FY16FY17EFY18E
SALES ( Crs) 385.07444.98507.28573.22
NET PROFIT (₹ Cr)48.9563.6475.0385.47
EPS () 15.9920.7924.5127.92
PE (x)45.0934.6929.4225.83
P/BV (x)8.807.506.135.22
EV/EBITDA (x)22.4417.3414.9213.17
ROE (%) 19.51 21.6220.8220.21
ROCE (%)39.2944.2942.0340.22

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*As the author of this blog I disclose that I do not hold  IGARASHI MOTORS INDIA LTD in my of the portfolios.

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Disclaimer
This is a personal blog and presents entirely personal views on stock market. Any statement made in this blog is merely an expression of my personal opinion. These informations are sourced from publicly available data. By using/reading this blog you agree to (i) not to take any investment decision or any other important decisions based on any information, opinion, suggestion, expressions or experience mentioned or presented in this blog (ii) Any investment decisions taken if any would be his/hers sole responsibility. (iii) the author of this blog is not responsible. 


As a Disclosures I Confirm that : 
I confirm that I shall not deal or trade in securities mentioned in this article within thirty days before and five days after the publication of this article. I also confirm that I will not deal or trade directly or indirectly in securities mentioned in this article in a manner contrary to the ideas put forth in the article. I have not received any financial compensation for writing this article.
 

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VIEW THE POWER POINT PRESENTATION ON

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