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Dr Vijay Malik by Dr Vijay Malik - 1w ago

The current section of “Analysis” series covers Kanchi Karpooram Ltd a manufacturer of camphor and its derivatives like gum rosin, value-added resins and fortified rosin. The company is based in Kanchipuram, Tamil Nadu.

“Analysis” series is an attempt to share with all the readers, our inputs to the company analysis submitted by readers on the “Ask Your Queries” section of our website.

Kanchi Karpooram Ltd Research Report by the Reader (Tejas Vaid)

Respected Sir,

I am a new reader of your blog, which I discovered a few days ago. Currently, I have done my own analysis on a company called Kanchi Karpooram Limited (Also attach file herewith).

Kanchi Karpooram Ltd is a Terpene and paper chemicals manufacturing company.

I am sending you this analysis because I want to learn how to dig deeper into the analysis of the company, which will definitely make me and others learn more.

I would appreciate your help & expert comments on my analysis.

Thanks,

Tejas

About Kanchi Karpooram Ltd:

Incorporated in 1992, Chennai base commodity chemical company

  • Market capitalization: ₹111 Cr
  • Share price: ₹269
  • Debt – ST Bank Debt ₹23 Cr
  • Enterprise Value: ₹134Cr
  • Earnings per share: ₹36.6 Vs. 7.3

Kanchi Karpooram Ltd is a Terpene and Paper chemicals chemical company. It produces:

  • Turpentine-based chemicals like Camphor (Religious use),
  • Dipentine (a by-product use as paint solvent),
  • Iso Bornyl Acetate (Fragrance formula of soaps),
  • Sodium Acetate Trihydrate (a by-product use as a dye intermediate) etc. &
  • Synthetic Resin like Gum rosin and its derivatives such as Fortified Rosin (use in the paper industry),
  • Ester Gum (use as a soluble food additive),
  • Phenolic / Maleic Resins (use in inks)

Kanchi Karpooram Ltd has its factory at Kanchipuram, Tamil Nadu.

Credit rating of Kanchi Karpooram Ltd:
  • CRISIL (May-2018) B+ (Note: before the FY18 financials were finalized)
  • India Rating (Mar-2017) BB-
  • SMERA (April-2016) BB-

Further advised reading: Credit Rating Reports: A Complete Guide for Stock Investors

Sales mix of Kanchi Karpooram Ltd (FY17, FY16):
  • Domestic (99%)
  • Export (1%)

Raw material requirements of Kanchi Karpooram Ltd:

It Imports huge raw materials woods of laurel tree (Kapur tree) & pine tree.

Promoter-management of Kanchi Karpooram Ltd:

Overall promoter stake – 41.67%

  • Suresh Shah (MD) – Stake (8.14%) – Remuneration (₹20 Lac)
  • Dipesh Jain (WTD – Son of Suresh – B. Tech (Chemical Engineering) – Stake (5.14%) – Remuneration (₹19 Lac)
  • Arun Shah (WTD) – Brother of Suresh – B.com – Stake (0.93%) – Remuneration (₹11 Lac)
  • K C Radhakrishnan (CFO) – Stake(0.7%) – Remuneration (₹15 Lac)

Further advised reading: Steps to Assess Management Quality before Buying Stocks

Installed capacity of Kanchi Karpooram Ltd – As per F20Y11:

Other businesses of board of directors of Kanchi Karpooram Ltd:
  • M/s Suresh Industries – Related party transaction ₹1.12 Cr (FY17) Vs. ₹0.91 cr (FY16)
  • M/s Ambika Industries – Related party transaction ₹0.93 Cr (FY15)
  • Lotus Intermodal Logistic

Further advised reading: Why Management Assessment is the Most Critical Factor in Stock Investing?

Industry analysis of Kanchi Karpooram Ltd:
  • Intense competition from the domestic manufacturers as well as imports: The camphor industry faces stiff competition, with the presence of many domestic players as well as imports from China. The company also faces intense competition from international and domestic players in its other product categories such as perfumery chemicals, fragrances and flavours.
  • In 2016, the global camphor tablets market was $88 mn, of which Asia specific market was $32 mn (36%).
  • Indian annual camphor consumption as 7500 MT (As per FY2010-11 annual report)
Financials of Kanchi Karpooram Ltd: 1) Sales growth:

Over the last 8 quarters, the sales of Kanchi Karpooram Ltd grew at a CAGR of 15%

The sales increased because of the following reasons:

  • Reason 1: In FY17, Kanchi Karpooram Ltd installed new plant & machinery (P&M) and increased production capacity
  • Reason 2: Kanchi Karpooram Ltd added new clients & new products or tie-ups with a tie-up with any chemicals
2) EBITDA:

EBITDA of Kanchi Karpooram Ltd in the fourth quarter of FY18 vs fourth quarter of FY17 rose due to fall in other expenses

The EBITDA increased due to the following reason:

  • Reason 1: Other expenses in 4Qs of FY18 Vs. 4Qs of FY17 reduced might new big client
3) Earnings before tax:

Kanchi Karpooram Ltd had constant earnings before tax (EBT) in 4Qs of FY18 vs. 4Qs of FY17

  • Reason 1: New fix client to give constant order to Kanchi Karpooram Ltd
4) Yearly growth ratios:

5) Debt to equity ratio:

Kanchi Karpooram Ltd had a quarterly fall in debt/equity trend (Almost low debt company).

Further advised reading: How to do Financial Analysis of Companies

6) Total receivables/Sales of Kanchi Karpooram Ltd:

Almost nil

7) Gross fixed asset:

Read on: How to Assess Operating Efficiency of Companies

Peer analysis of Kanchi Karpooram Ltd:
  • Mangalam Organics Ltd:
    • Terpenes (90% FY17 sales) and Synthetic Resin (10% FY17 sales) segments; FY18 sales ₹244 Cr Vs. FY17 sales ₹197 Cr
    • Camphor is the primary product, contributing 80% of Terpene sales, presence through distributors and retail outlets (also online presence)
  • Saptagir Camphor
    • Only produces Turpentine-based chemicals FY17 sales ₹200 Cr
  • Camphor & Allied Products (Oriental Aromatics) – Largest camphor manufacturer; FY18 sales ₹506 Cr Vs. FY17 ₹467 Cr
    • Camphor & Isoborneol (32.2%) – ₹163 Cr
    • Perfumery Chemicals (49.5%) – ₹250 Cr
    • Other (19.3%) – ₹93 Cr
    • Total manufacturing capacity in excess of 10,000 TPA – Consumes wood

Further advised reading: How to do Business Analysis of a Company?

Author’s Response

Hi Tejas,

Thanks for sharing the analysis of Kanchi Karpooram Ltd with us! We appreciate the time & effort put in by you in the analysis.

Let us analyse the financial and business performance of Kanchi Karpooram Ltd over FY2010-2018.

Financial and business analysis of Kanchi Karpooram Ltd:

While analyzing the financials of Kanchi Karpooram Ltd, an investor would note that in the past, the company has been able to grow its sales at a rate of 20% year on year. Sales of the company increased from ₹29 cr. in FY2010 to ₹115 cr in FY2018. For the last four quarters ended in Dec. 2018 i.e. from Jan-Dec 2018, the company had reported sales of ₹182 cr.

While analysing the performance of the company in the past, an investor would notice that the journey of Kanchi Karpooram Ltd has been quite eventful. The sales of the company increased significantly during FY2010-12. Sales increased from ₹29 cr in FY2010 to ₹49 cr in FY2012. However, after FY2012, the sales almost stagnated for the next five years. By FY2017, the company increased its sales only to ₹59 cr. Since FY2017, Kanchi Karpooram Ltd has witnessed a sharp increase in sales when the sales for the last four quarters ending Dec. 2018 have increased to ₹182 cr.

Such intermittent periods of good performance and stagnant performance in the sales growth of Kanchi Karpooram Ltd have also extended to the profitability of the company as well. An investor would notice that the operating profit margin (OPM) of Kanchi Karpooram Ltd has been following a cyclical pattern.

In FY2010, the operating profit margin (OPM) of Kanchi Karpooram Ltd used to be 12%, which declined sharply to 4% by FY2012. Thereafter, OPM increased again to 12% in FY2014 only to decline to 4% in FY2015. Since FY2015, OPM has been increasing and has reached 22% in FY2018.

Such a fluctuating pattern of profitability indicates that Kanchi Karpooram Ltd lacks the ability to pass on the changes in its raw material costs to its customers. Because of the weakness in its pricing power, whenever the raw material prices increase, the company finds it difficult to increase its product prices. Therefore, the company has to take a hit on its profitability. In the times of declining raw material prices, the company is able to show improvement in its profit margins.

However, due to weak negotiating/pricing power, the company has witnessed its profit margins decline repeatedly in the past. In FY2012 as well as in FY2015, the OPM of Kanchi Karpooram Ltd declined sharply to 4% whereas a few years back, the company used to have OPM of 12%.

Further advised reading: How to do Financial Analysis of Companies

An investor would appreciate that usually, the companies operating in non-differentiable/commodity type products face such weak pricing power over their customers. In such industries, the customer can easily replace the product of one company with the product of another company without any significant impact on the benefits derived from it. Moreover, when the products are simple/low in technology, then usually, such industries attract a lot of competition both from local manufacturers as well as from imports.

Kanchi Karpooram Ltd seems to face such a situation in its business where its key products camphor and its derivatives are simple commodity type products and face a lot of competition from manufacturers in India as well as imports. As a result, the company finds it difficult to pass on the increase in raw material costs to its customers. The customer can easily replace the products of Kanchi Karpooram Ltd with other manufacturers. Therefore, during the times of increase in raw material costs, the company has to bear the costs itself and its profitability suffers.

Further advised reading: How to do Business Analysis of a Company?

The credit rating agency, CRISIL, in its Oct. 2015 report for Kanchi Karpooram Ltd highlighted that the company faces intense competition.

In FY2012, the profitability of the company came under severe pressure and as a result, the company reported a net loss in the year.

While analysing the company, an investor comes across multiple sources of information, which have highlighted the difficult business situation of Kanchi Karpooram Ltd including the risk of raw material price changes as well as intense competition resulting in its poor pricing power.

In FY2012 annual report, while explaining the reasons for the net loss, Kanchi Karpooram Ltd highlighted that it faced a double blow of increasing raw material prices and decreasing final product (camphor) prices. As a result, the company could hardly do anything to prevent losses.

FY2012 annual report, page 9:

The credit rating agency, CRISIL, highlighted this aspect in its April 2014 report for Kanchi Karpooram Ltd.

In Sept 2015, another credit rating agency, SMERA, highlighted that the business model of Kanchi Karpooram Ltd is exposed to the risk of changes in raw material prices.

Further advised reading: Credit Rating Reports: A Complete Guide for Stock Investors

Similarly, in March 2017, credit rating agency, India Ratings, pointed out the attention of stakeholders towards fluctuation in EBITDA margins of Kanchi Karpooram Ltd due to inability to pass on raw material costs.

In FY2011, Kanchi Karpooram Ltd pointed out to the shareholders that supply of its key raw material is volatile and the situation is further complicated by the wide range of uses for this raw material.

FY2011 annual report, page 24:

Considering the above discussion, an investor would appreciate that Kanchi Karpooram Ltd does not enjoy any strong competitive advantage over its peers. The supply of the company’s key raw material is volatile, which leads to frequent periods of high prices. Due to the simple and commodity nature of Kanchi Karpooram Ltd.’s product, it faces intense competition and as a result, it does not have any pricing power to pass on increases in raw material prices.

Therefore, an investor would notice that in the past the company witnessed periods of good profit margins, which were soon followed by periods of very low-profit margins and even net loss in FY2012.

As a result, an investor should keep a close watch on the recent improvements in the profit margins of Kanchi Karpooram Ltd and monitor closely the prices and supply of its key raw materials. This is because whenever there is an increase in its raw material prices, then Kanchi Karpooram Ltd may face difficulties to pass on the costs and it may again witness a decline in its profit margins like in the past.

Over the years, Kanchi Karpooram Ltd had a tax payout ratio of 30%-35%, which is in line with the standard corporate tax rate prevalent in India.

Further advised reading: How to do Financial Analysis of Companies

Operating Efficiency Analysis of Kanchi Karpooram Ltd: a) Net fixed asset turnover (NFAT) of Kanchi Karpooram Ltd:

When an investor analyses the net fixed asset turnover (NFAT) of Kanchi Karpooram Ltd in the past years (FY2010-18), then she notices that the NFAT of the company has improved significantly from FY2011 to FY2016. The NFAT increased from 8.92 in FY2011 to 18.58 in FY2016.

While analysing the financials of the company, an investor would notice that during FY2011-2016, Kanchi Karpooram Ltd has not done any major capital expenditure (Capex). During this period, the company spent about ₹4-5 cr on capex, which seems to be the maintenance expenditure on existing plant & machinery. Therefore, an investor would appreciate that the entire sales growth from ₹29 cr. (FY2010) to ₹56 cr (FY2016) has come from the utilization of spare capacity available in the existing manufacturing plants.

Investors would appreciate that this utilization of previously unutilized capacity to grow sales is called operating leverage. This, in turn, leads to the improvement of operating efficiency of the company, as it is able to produce more goods from using existing infrastructure.

When an investor analyses the credit rating report prepared by India Rating for Kanchi Karpooram Ltd in March 2017, then she notices that even in 2017, the company had a lot of unutilized capacity in its existing manufacturing plants.

Therefore, during FY2011-2016, the NFAT of Kanchi Karpooram Ltd improved because of the utilization of spare manufacturing capacity (operating leverage).

Moreover, an investor would notice that the NFAT of the company, which has been in the range of 18-19, is very high..

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One of the key methods to generate significant wealth from stock markets is to buy & hold fundamentally sound stocks over long periods of times extending to years and many times to decades. However, such long investing duration invariably contains periods of exuberance & distress where the market price rises & falls significantly. It leads to strong emotional reactions from investors that make holding stocks for the long term a difficult proposition.

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The workshop would cover basics of investing and simultaneously focus on key concepts needed for stock analysis both for a beginner and seasoned stock investor. I believe that a person does not need to have an educational background in finance to be a good stock investor and the workshop has been designed keeping it in mind.

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Experience/Feedback of participants of past workshops:
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To understand the teaching methodology, you can watch FREE Sample Video (16 min) of the workshop where we have discussed the basics of balance sheet along with fund flow analysis here:

A Glimpse of Peaceful Investing Workshop: Understanding basics of Balance Sheet: Fund Flow Analysis - YouTube

The agenda of the workshop:
  • In-depth fundamental stock analysis focusing on management, financial, business, valuation analysis and operating efficiency assessment of companies with examples of real companies using publically available information.
  • Analysing & interpreting annual reports with the balance sheet, cash flow statement, profit & loss account and other important sections of the annual report.
  • Analysis of quarterly result updates, credit rating reports
  • Deciding on the buying price of a company with assessment of margin of safety in the investment
  • Deciding about selling a company from the portfolio
  • Creating a portfolio of stocks with discussion on ideal number of stocks, position sizing of each stock, adding new stocks and selling existing stocks
  • Using online available tools like screener for stock selection, analysis and shortlisting stocks for detailed analysis
  • I would share my experience of investing in different stocks with success and failure stories along with investing mistakes.
  • Key guidelines for part-time investors who have a day-time job

Starting the workshop early is essential considering the vastness of the subject and for making available sufficient times for queries and interactions.

Guiding study material would be provided to the participants.

Please note that I do not recommend technical analysis for stock selection and therefore, technical analysis would not be covered in the workshop.

  • Date: July 28, 2019
  • Time: 8:00 AM to 6:00 PM
  • Venue: The Muse Sarovar Portico (Kapashera)  (Website) (Google Map)
  • Address: 88-89, Bijwasan Rd, Kapas Hera Extension, Kapashera, New Delhi 110037 Phone: +91 11 49099999

Charges:
  • Please visit the registration page to know current charges: Click Here
  • We follow dynamic pricing. The charges increase as the seats fill up and as the day of the workshop approaches. Therefore, investors who register early get lower pricing.
  • Per participant [includes lunch (Veg/Non-veg/Jain food) and two tea breaks]. The Jain food would be veg preparations without onion and garlic.
Directions:
  • The Muse Sarovar Portico (Kapashera) is located near the airport and accessible via Old Delhi-Gurgaon Road or Najafgarh-kapashera road.
  • Nearest metro station is Dwarka Sector-21.
  • Please avoid confusion with multiple other hotels of Sarovar group in Delhi with similar sounding names.
Meal Plan:
  • 10:30AM: Tea/coffee and cookies
  • 1:00PM: Buffet lunch (a selection of veg, non-veg and Jain items). Jain food would be the preparations without onion and garlic.
  • 3:30PM: Tea/coffee and cookies

Mineral water, writing pad and pencil would be provided.

Time Schedule:
  • 7:45AM to 8:00AM: Registrations
  • 8:00AM to 10:30AM: Introduction. In depth fundamental stock analysis focusing on management, financial, business, valuation analysis etc. with examples of real companies
  • 10:30AM to 10:45AM: Tea break
  • 10:45AM to 1:00PM: Analysis continued, interpreting annual report, credit rating and other company reports
  • 1:00PM to 1:30PM: Lunch
  • 1:30PM to 3:45PM: Buying and selling decisions. Assessment of margin of safety in the investment. Discussion on portfolio creation. Using online available tools like Screener.
  • 3:45PM to 4:00PM: Tea break
  • 4:00PM to 6:00PM: Q&A. Sharing personal investing experiences with success and failure stories. Guidelines for part-time investors who have a day-time job.

Drinking water, writing pad and pencil would be provided.

Please note:

The workshop has limited seats. The registration details were first shared over email with the friends who have pre-registered for the workshop. The registrations are being accepted on first come first serve basis.

The registration once done, is not cancellable. However, the ticket is transferable. If due to any circumstances, you are not able to attend the workshop, then you may transfer your ticket to someone else who may attend the workshop. In case of a transfer of ticket, kindly inform in advance by email at vijay.malik@drvijaymalik.com

P.S. To pre-register and express interest for the stock investing workshop in your city click here

The post [Launching] New Delhi “Peaceful Investing” Workshop, July 28, 2019 appeared first on Dr Vijay Malik.

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All of us are aware about the usefulness of excel templates in stock analysis. These templates help the investors in quick analyses of the data as it presents the data in easily comprehensible formats like a dashboard.

We use a customized excel template to analyse stocks as per our preferred parameters by using the data downloaded from screener.in website. This template acts as a dashboard of key analysis parameters, which help us make an opinion about any stock within a short amount of time (sometimes within a few minutes). We have used this excel template and the analysis output in many stock analysis articles published on this website. You may read about various stock analysis articles written by analyzing companies using the excel template in the “Author’s Response” segment of the “Company Analysis” articles on our website.

In the past, many readers/investors had asked us to provide the copy of this excel file. Due to repeated requests from investors about sharing the excel template, we provided our customized excel stock analysis template, which is compatible with screener.in and provides stock data as a dashboard, as a paid download feature.

Investors who wish to get the customized excel stock analysis template may download it from the following link:

Since the initial launch, many investors have used this template and provided their feedback & views about the excel template.

Users/Investors’ Feedback about the Stock Analysis Excel Template:

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Stock Analysis Excel Template Version 2: A comprehensively updated version

Now we have updated the Stock Analysis Excel Template to incorporate our additional learning from doing various stocks analysis over recent years and we present it as the latest version of the excel template.

The structure and sample screenshots of the updated stock analysis excel template file (version 2) are as below:

1) Analysis sheet: This updated (version 2) sheet presents values of more than 60 key parameters in the form of a dashboard. These parameters cover analysis of profitability, capital structure, valuation, margin of safety, cash flow, creation of wealth, sources of funds, growth rates, return ratios, working capital and operating efficiency etc.

Having a quick look at these parameters in the form of the dashboard helps in quick assessment about the company, its historical performance and its current state of affairs.

Screenshot of larger resolution output of the Analysis Sheet: Click Here

Updates in this comprehensively revised Excel Sheet (version 2) over the previous version (1.6):
  • Added the section of various expenses as a percentage of sales (Raw material, Power & Fuel, Employee Costs, Selling and Admin Costs, other manufacturing expenses and Other expenses as a percentage of sales).
  • Added working capital cycle (days) calculation based on inventory and trade receivables.
  • Added rows for trade receivables and inventory and the calculation of total funds consumed in/released from receivables and inventory over last 10 years. It is helpful in quick assessment of one of the key reasons for differences in PAT and CFO.
  • Brought together the data of CFO, Capex, FCF, Total Debt, Share Capital, Dividend Payment and Cash + investment on the upper section of dashboard. This is essential to analyse the cash movements in the company in any year. E.g. in case, the company had a negative FCF, then investor can immediately see the sources of funds to meet negative FCF. In such cases, the company may have raised more debt, which will increase total debt. OR the company may have raised additional equity, which will show as increase in share capital. OR the company may have used existing cash, which will show as decline in cash + investment. Similarly, if a company has positive FCF, then it may show as an increase in cash + investment OR as decline in total debt OR high dividend payments or buyback (decline in share capital). The presence of these data points at the top section of the dashboard helps in quick assessment of flow of cash in the company over the years.
  • Added a calcuation of Free Cash Flow to Equity (FCFE), which is calculated as (FCF-interest expense). FCFE calculated in this manner indicates the surplus cash out of CFO remaining after meeting capital expenditure (Capex) and all interest payments (both capitalzied as part of capex as well as the interest expensed in P&L)

It is advised that investors should read the following article provides details of all the parameters provides in the Analysis sheet, their description, their method of calculation and their interpretation: Complete Details: Stock Analysis Excel Template (Screener.in)

2) Description sheet: This sheet contains details about description and interpretation of about each of the more than 60 parameters. It is advised that investors should read this sheet in detail before starting with the analysis of companies by using this template.

Read the complete details of the Description Sheet: Click Here

3) Instructions sheet: This sheet contains details about the steps by step apporach to get started with this sheet on screener.in website, change in settings for Microsoft Excel to resolve common issues and other instructions for the buyers.

Screenshot of the Instructions Sheet: Click Here

See the step by step guidefor uploading the excel sheet on Screener.in with screenshots: How to Use Screener.in Export to Excel tool

4) Version history: This sheet contains details about the changes/updates made in each of the new versions of the sheet.

You may read about various stock analysis articles and see the screenshots of the excel template in the “Author’s Response” segments on the following link: Stock Analysis Articles

How to Download this Excel Template:

After you have purchased the excel template at the following page (Stock Analysis Excel Template version 2), you may download the excel in any of the three methods:

  1. After the payment is successfully done on Instamojo (or PayPal), you will be taken to a page showing the successful completion of your order. On this page, you will be given a link to download the excel file.
  2. After the order is successful, you will receive an email from us containing your order receipt and payment details. This order receipt will have a link to download the excel file.
  3. After successful order, you will get an email from us containing your username and password to log in at premium.drvijaymalik.com. You may log in to your account using these details and then download the excel file from My Account > Downloads

If you still face any challenges in downloading the excel file, then you may email us at vijay.malik@drvijaymalik.com, detailing the issues that you are facing. We would be happy to help you out.

Using the Excel Template on Mobile Phones:
  • Investors may use the app “Google Sheets” to open the excel template on mobile devices.
Key Instructions to the Buyer:

1) This excel sheet is for the sole use of the buyer from www.drvijaymalik.com. Any copying and sharing of this excel sheet is strictly prohibited.

2) This purchase is limited to the current version of the excel sheet only. Any future updates/versions of the excel sheet need to be bought separately.

If in future, because of any reasons, Screener changes the format of data it provides in the “Data Sheet” or makes this template invalid, then I would not be able to provide resolution of the issues in this excel template.

In such a scenario, I might come up with a new version of the excel template. However, the new version needs to be bought separately by the users.

3) In the original versions of the excel template sheet, all the formula links were locked for editing. However, after request from investors, now all the formula links are unlocked. Nevertheless, I suggest that investors should not make any change to any formula/sheet in this excel workbook. Any change might lead to corruption of the formula links and might lead to erroneous results

4) Links to detailed articles on drvijaymalik.com have been provided under each formula segment in the “Description” sheet, which you may read to learn more about each of the analysis parameters.

In case you have any further query after going through the article links shared in the “Description” sheet, then you may ask your query on www.drvijaymalik.com as a comment to the “Ask Your Queries” page.

5) Detailed interpretations and descriptions of each of the parameters used for analysis on “Dr Vijay Malik Analysis” sheet are provided in the “Description” sheet

6) Please read the “Description” sheet thoroughly before analysing the data of any company.

7) Steps to use the excel template sheet are detailed in the “Instructions” sheet.

8) Target Company:

The aim of the analysis is to find a debt free company, which is growing at a reasonable pace with sustained/improving profitability margins, which has been showing improvement in operating efficiency and has been generating positive Free Cash Flow over the years.

If an investor is able to find such a company that is available at a cheap price (P/E ratio < 10), then investment in such a company has a high probability of creating wealth for the shareholders.

All the best for your investing journey!

Regards,

Dr Vijay Malik

Frequently Asked Questions

Q. I had purchased a previous version of this excel template in the past. Will I get this newer version for free or any discount on purchase of this newer version?

Ans: Unfortunately, as mentioned earlier, the purchase of any version of excel template is limited to that particular version only. An investor needs to purchase new/updated version of the excel template separately. There is no discount based on previous purchases.

Q. If I purchase the excel template today and Screener team makes any changes in their website afterwards, which make this excel template invalid, then will you provide me any resolution for this error? Or in such a case, will you provide me a new compatible excel template for free?

Ans: As mentioned earlier, the purchase of any version of excel template is limited to that particular version only. In case, Screener team makes any changes to their website, which make this excel template invalid, then we would not be able to help you as we do not intend to provide any continued support to keep the excel template active. In such a case, we may or may not come up with a newer version of excel template. However, the newer version of the excel template needs to be purchased by investors separately.

Q. What are the updates/new parameters in this updated version of Excel Template (version 2) over previous version (1.6)?

  • Added the section of various expenses as a percentage of sales (Raw material, Power & Fuel, Employee Costs, Selling and Admin Costs, other manufacturing expenses and Other expenses as a percentage of sales).
  • Added working capital cycle (days) calculation based on inventory and trade receivables.
  • Added rows for trade receivables and inventory and the calculation of total funds consumed in/released from receivables and inventory over last 10 years. It is helpful in quick assessment of one of the key reasons for differences in PAT and CFO.
  • Brought together the data of CFO, Capex, FCF, Total Debt, Share Capital, Dividend Payment and Cash + investment on the upper section of dashboard. This is essential to analyse the cash movements in the company in any year. E.g. in case, the company had a negative FCF, then investor can immediately see the sources of funds to meet negative FCF. In such cases, the company may have raised more debt, which will increase total debt. OR the company may have raised additional equity, which will show as increase in share capital. OR the company may have used existing cash, which will show as decline in cash + investment. Similarly, if a company has positive FCF, then it may show as an increase in cash + investment OR as decline in total debt OR high dividend payments or buyback (decline in share capital). The presence of these data points at the top section of the dashboard helps in quick assessment of flow of cash in the company over the years.
  • Added a calcuation of Free Cash Flow to Equity (FCFE), which is calculated as (FCF-interest expense). FCFE calculated in this manner indicates the surplus cash out of CFO remaining after meeting capital expenditure (Capex) and all interest payments (both capitalzied as part of capex as well as the interest expensed in P&L)

It is advised that investors should read the following article provides details of all the parameters provides in the Analysis sheet, their description, their method of calculation and their interpretation: Complete Details: Stock Analysis Excel Template (Screener.in)

P.S.

  • Please note that screener.in uses the data from capitaline, which is a reasonably good source of data. However, before taking the final investment decision about any company, it is advised that the investor should cross-check the data from the annual report of the company as the annual report is the most accurate source of the data available in the public domain.

The post [Updated Version 2] Stock Analysis Excel Template (Screener.in) appeared first on Dr Vijay Malik.

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One of the key methods to generate significant wealth from stock markets is to buy & hold fundamentally sound stocks over long periods of times extending to years and many times to decades. However, such long investing duration invariably contains periods of exuberance & distress where the market price rises & falls significantly. It leads to strong emotional reactions from investors that make holding stocks for the long term a difficult proposition.

Therefore, the patience to hold stocks in fluctuating markets requires very high level of conviction from the investor in her investing decisions.

“Peaceful Investing” workshop aims to focus on stock selection and analysis skills, which would make us much more confident about our stock decisions. It would ensure that our faith would not shake with day to day market price fluctuations and we would be able to reap true benefits of stock markets to fulfill our dream of financial independence.

The workshop would focus on the fundamental analysis of stocks with a detailed analysis of various sources of information available to investors like annual reports, quarterly results, credit rating reports, online financial resources like screener.

The workshop would help an investor learn in-depth analysis of stocks that would help her make her own opinion about the strengths & weaknesses of any stock. The participants would be able to use the stock analysis with their preferred stock selection approach like value investing or growth investing.

The workshop would cover basics of investing and simultaneously focus on key concepts needed for stock analysis both for a beginner and seasoned stock investor. I believe that a person does not need to have an educational background in finance to be a good stock investor and the workshop has been designed keeping it in mind.

What past participants say about the workshop:

Thanks Doc for the great session. Your energy level for continuous 11 hours was mindblowing. One of my best day of my life spent worthly. Highly recommended for anyone practicing value investing. Reading the Ebook helped a lot to utilize the full potential of the workshop. Thanks

— Ramkumar R (@RRamkumar_IN) September 12, 2018

I’m highly indebted to you for the wealth of knowledge you shared with us. The fees is minuscule compared to the knowledge gained and experience of being with you

— Ethical Investments (@ethicalinvests) July 30, 2018

Workshop on value investing by @drvijaymalik was an eye opener from the start. Simple ideas and analysis shared by the Dr made the workshop easy to follow and practice. The man is made with a different element though as he spoke non stop for 12 hrs. Hats off!

— Abhay Pandit (@abhaypandit94) July 30, 2018

Experience/Feedback of participants of past workshops:
  • “Peaceful Investing” workshop held in Pune on Feb 10, 2019: Click here
  • “Peaceful Investing” workshop held in Hyderabad on Dec 9, 2018: Click here
  • “Peaceful Investing” workshop held in Chennai on Sept 9, 2018: Click here
  • “Peaceful Investing” workshop held in Mumbai on July 29, 2018: Click here
  • “Peaceful Investing” workshop held in New Delhi on May 13, 2018: Click here
  • “Peaceful Investing” workshop held in Bengaluru on Feb 25, 2018: Click here
  • “Peaceful Investing” workshop held in Dubai on Oct 6, 2017: Click here

To understand the teaching methodology, you can watch FREE Sample Video (16 min) of the workshop where we have discussed the basics of balance sheet along with fund flow analysis here:

A Glimpse of Peaceful Investing Workshop: Understanding basics of Balance Sheet: Fund Flow Analysis - YouTube

The agenda of the workshop:
  • In-depth fundamental stock analysis focusing on management, financial, business, valuation analysis and operating efficiency assessment of companies with examples of real companies using publically available information.
  • Analysing & interpreting annual reports with the balance sheet, cash flow statement, profit & loss account and other important sections of the annual report.
  • Analysis of quarterly result updates, credit rating reports
  • Deciding on the buying price of a company with assessment of margin of safety in the investment
  • Deciding about selling a company from the portfolio
  • Creating a portfolio of stocks with discussion on ideal number of stocks, position sizing of each stock, adding new stocks and selling existing stocks
  • Using online available tools like screener for stock selection, analysis and shortlisting stocks for detailed analysis
  • I would share my experience of investing in different stocks with success and failure stories along with investing mistakes.
  • Key guidelines for part-time investors who have a day-time job

Starting the workshop early is essential considering the vastness of the subject and for making available sufficient times for queries and interactions.

Guiding study material would be provided to the participants.

Please note that I do not recommend technical analysis for stock selection and therefore, technical analysis would not be covered in the workshop.

  • Date: June 9, 2019
  • Time: 8:00 AM to 6:00 PM
  • Venue: The Mirage Hotel (Website) (Google Map)
  • Address: Andheri – Kurla Road, Marol, Andheri East, Mumbai, Maharashtra 400059. Ph. 022-66721234

Charges:
  • Please visit the registration page to know current charges: Click Here
  • We follow dynamic pricing. The charges increase as the seats fill up and as the day of the workshop approaches. Therefore, investors who register early get lower pricing.
  • Per participant [includes lunch (Veg/Non-veg/Jain food) and two tea breaks]. The Jain food would be veg preparations without onion and garlic.
Directions:
  • Hotel Monarch Luxur is located between the MG Road and Cubbon Park metro stations and is at a walking distance from MG Road metro station.
  • Car parking is available at Hotel Monarch Luxur for all the participants.
Meal Plan:
  • 10:30AM: Tea/coffee and cookies
  • 1:00PM: Buffet lunch (a selection of veg, non-veg and Jain items). Jain food would be the preparations without onion and garlic.
  • 3:30PM: Tea/coffee and cookies

Mineral water, writing pad and pencil would be provided.

Time Schedule:
  • 7:45AM to 8:00AM: Registrations
  • 8:00AM to 10:30AM: Introduction. In depth fundamental stock analysis focusing on management, financial, business, valuation analysis etc. with examples of real companies
  • 10:30AM to 10:45AM: Tea break
  • 10:45AM to 1:00PM: Analysis continued, interpreting annual report, credit rating and other company reports
  • 1:00PM to 1:30PM: Lunch
  • 1:30PM to 3:45PM: Buying and selling decisions. Assessment of margin of safety in the investment. Discussion on portfolio creation. Using online available tools like Screener.
  • 3:45PM to 4:00PM: Tea break
  • 4:00PM to 6:00PM: Q&A. Sharing personal investing experiences with success and failure stories. Guidelines for part-time investors who have a day-time job.

Drinking water, writing pad and pencil would be provided.

Please note:

The workshop has limited seats. The registration details were first shared over email with the friends who have pre-registered for the workshop. The registrations are being accepted on first come first serve basis.

The registration once done, is not cancellable. However, the ticket is transferable. If due to any circumstances, you are not able to attend the workshop, then you may transfer your ticket to someone else who may attend the workshop. In case of a transfer of ticket, kindly inform in advance by email at vijay.malik@drvijaymalik.com

P.S. To pre-register and express interest for the stock investing workshop in your city click here

The post [Launching] Mumbai “Peaceful Investing” Workshop, June 9, 2019 appeared first on Dr Vijay Malik.

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The investing resources section at our website contains five eBooks and one Stock Analysis Excel Template. Recently, we have received many requests from investors whether they can purchase all our eBooks and Stock Analysis Excel Template (Screener.in) as a combined package. The investors have mentioned the following reasons in their requests:

  1. It would be easy to purchase all the eBooks in one single order instead of adding each of the eBooks in the cart individually or purchasing the eBooks in different orders.
  2. Any possible price benefit in case an investor buys all the eBooks and the Stock Analysis Excel Template (Screener.in) together.

Based on the multiple request received in this regard, we are launching two packages: “Analysis Package” and “Knowledge Package”, which offer the ease of ordering as well as price benefit when the eBooks/Excel template are purchased together.

Analysis Package:

This pack consists of the all the eBooks and the Stock Analysis Excel Template and provides the following contents:

and all of our eBooks:

  1. “Peaceful Investing” eBook (₹1,500/-)
  2. Company Analysis (Vol. 1) (₹1,000/-)
  3. Company Analysis (Vol. 2) (₹1,000/-)
  4. Company Analysis (Vol. 3) (₹1,250/-)
  5. Company Analysis (Vol. 4) (₹1,500/-)

The total price of all these products when purchased individually is ₹11,250/- (All Inc.). However, as a part of “Analysis Package” the eBooks and the Excel Template are offered at a price of ₹8,000/- (All Inc.).

Download “Analysis Package”: Click Here

Knowledge Package:

This pack consists of the all the eBooks and provides the following contents:

  1. “Peaceful Investing” eBook (₹1,500/-)
  2. Company Analysis (Vol. 1) (₹1,000/-)
  3. Company Analysis (Vol. 2) (₹1,000/-)
  4. Company Analysis (Vol. 3) (₹1,250/-)
  5. Company Analysis (Vol. 4) (₹1,500/-)

The total price of all these eBooks when purchased individually is ₹6,250/- (All Inc.). However, as a part of “Knowledge Package” these eBooks are offered at a price of ₹5,000/- (All Inc.).

Download “Knowledge Package”: Click Here

Frequently Asked Questions

Q. I have already purchased the stock analysis excel template and some of these ebooks. Will I get any rebate or discount if I want to purchase this package?

Answer: Unfortunately, there are no rebates or discounts based on previous purchases.

Details of the Contents A) Details of the Excel Template: B) Details of our eBooks:

1) Peaceful Investing – A Simple Guide to Hassle-free Stock Investing: contains the following articles:

  • Getting the Right Perspective towards Investing
  • Choosing the Stock Picking Approach suitable to you
  • Why I Left Technical Analysis And Never Returned To It!
  • Shortlisting Companies for Detailed Analysis
  • How to conduct Detailed Analysis of a Company
  • Understanding the Annual Report of a Company
  • How to do Financial Analysis of a Company
  • 7 Signs to tell whether a Company is cooking its Books: “Financial Shenanigans”
  • Self-Sustainable Growth Rate: a measure of Inherent Growth Potential of a Company
  • How to do Valuation Analysis of a Company
  • Hidden Risk of Investing in High P/E Stocks
  • How to earn High Returns at Low Risk – Invest in Low P/E Stocks
  • 3 Principles to Decide the Investable P/E Ratio of a Stock for Value Investors
  • How to do Business & Industry Analysis of a Company
  • Is Industry P/E Ratio Relevant to Investors?
  • Why Management Assessment is the Most Critical Factor in Stock Investing?
  • Steps to Assess Management Quality before Buying Stocks (Part 1)
  • Steps to Assess Management Quality before Buying Stocks (Part 2)
  • Steps to Assess Management Quality before Buying Stocks (Part 3)
  • 3 Simple Ways to Assess “Margin of Safety”: The Cornerstone of Stock Investing
  • 7 Important Reasons Why Every Stock Investor should read Credit Rating Reports
  • Final Checklist for Buying Stocks
  • 5 Simple Steps to Analyse Operating Performance of Companies
  • How to Monitor Stocks in Your Portfolio
  • Understanding & Interpreting Quarterly Results Filings of Companies
  • How Many Stocks Should You Own In Your Portfolio?
  • Trading Diary of a Value Investor
  • When to Sell a Stock?
  • 3 Guidelines for Selecting Stocks Ideal for Retail Equity Investors
  • How to Use Screener.in “Export to Excel” Tool

2) Company Analyses (Vol. 1): This eBook contains our viewpoint about the following companies:

  • Omkar Speciality Chemicals Limited
  • MRF Limited
  • Wonderla Holidays Limited
  • Divi’s Laboratories Limited
  • Caplin Point Laboratories Limited
  • Nandan Denim Limited
  • Kovai Medical Center and Hospital Limited
  • Nile Limited
  • Bhageria Industries Limited
  • Ishan Dyes & Chemicals Limited
  • AksharChem (India) Limited
  • Machino Plastics Limited

3) Company Analyses (Vol. 2): This eBook contains our viewpoint about the following companies:

  • Granules India Limited
  • Srikalahasthi Pipes Limited
  • Indo Count Industries Limited
  • Ruchira Papers Limited
  • Tvs Srichakra Limited
  • Poddar Pigments Limited
  • Mbl Infrastructure Limited
  • Ultramarine & Pigments Limited
  • Emmbi Industries Limited
  • Jenburkt Pharmaceuticals Limited
  • IST Limited
  • Vikram Thermo (India) Limited
  • Chaman Lal Setia Exports Limited

4) Company Analyses (Vol. 3): This eBook contains our viewpoint about the following companies:

  • Maithan Alloys Limited
  • Balaji Amines Limited
  • Bharat Rasayan Limited
  • Finolex Industries Limited
  • Finolex Cables Limited
  • NOCIL Limited
  • Skipper Limited
  • Garware-Wall Ropes Limited
  • Dynemic Products Limited
  • PIX Transmissions Limited

5) Company Analyses (Vol. 4): This eBook contains our viewpoint about the following companies:

  • KNR Constructions Limited
  • Globus Spirits Limited
  • Sutlej Textiles and Industries Limited
  • GM Breweries Limited
  • Albert David Limited
  • Stovec Industries Limited
  • Bodal Chemicals Limited
  • Nesco Limited
  • Cupid Limited
  • Mahanagar Gas Limited
Important aspects of Stock Analysis Excel Template (Screener.in)

1) This excel sheet is for the sole use of the buyer from www.drvijaymalik.com. Any copying and sharing of this excel sheet is strictly prohibited.

2) This purchase is limited to the current version of the excel sheet only. Any future updates/versions of the excel sheet need to be bought separately.

If in future, because of any reasons, Screener changes the format of data it provides in the “Data Sheet” or makes this template invalid, then I would not be able to provide resolution of the issues in this excel template.

In such a scenario, I might come up with a new version of the excel template. However, the new version needs to be bought separately by the users.

3) In the original versions of the excel template sheet, all the formula links were locked for editing. However, after request from investors, now all the formula links are unlocked. Nevertheless, I suggest that investors should not make any change to any formula/sheet in this excel workbook. Any change might lead to corruption of the formula links and might lead to erroneous results

4) Investors may use the app “Google Sheets” to open the excel template on mobile devices.

Important aspects of Company Analysis eBooks

The opinions expressed in the articles are formed using the data available at the date of the analysis from public sources. As the data of the company changes in future, our opinion also keeps on changing to factor in the new developments. Therefore, the opinions expressed in the articles remain valid only on their respective publishing dates and would undergo changes in future as the companies keep evolving while moving ahead in their business life.

These analysis articles are written as a one off opinion snapshots at the date of the article. We do not plan to have a continuous coverage of these companies by updating the articles or the book after future quarterly or annual results. Therefore, we would not update the articles or the book based on the future results declared by the companies.

Therefore, we recommend that the book and the articles should be taken as an illustration of practical application of our stock analysis approach “Peaceful Investing” and NOT as a research report on the companies mentioned here.

The articles and the book should be used by the readers to improve their understanding of our stock analysis approach “Peaceful Investing” and NOT as an investment recommendation to buy or sell stocks of these companies.

How to Download the excel template and/or the ebooks after purchaing the package

After you have made the payment, you may download the e-books in any of the three methods:

  1. After the payment is successfully done on Instamojo (or PayPal), you will be taken to a page showing the successful completion of your order. On this page, you will be given links to download the e-books.
  2. After the order is successful, you will receive an email from us containing your order receipt and payment details. This order receipt will have links to download the e-books.
  3. After successful order, you will get an email from us containing your username and password to log in at premium.drvijaymalik.com. You may log in to your account using these details and then download the e-books from My Account > Downloads

If you still face any challenges in downloading the e-books, then you may email us at vijay.malik@drvijaymalik.com, detailing the issues that you are facing. We would be happy to help you out.

Key Instructions to the Buyer:
  1. These e-books are for the sole use of the buyer from www.drvijaymalik.com. Any copying and sharing of this e-book is strictly prohibited.
  2. The books are in portable document format (pdf) and would require a compatible software like Adobe Acrobat Reader or any other compatible software for reading it.

All the best for your investing journey!

Regards

Dr Vijay Malik

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The current section of “Analysis” series covers Kokuyo Camlin Ltd a leading manufacturer of stationery & related products owning brands Camel and Camlin. The company is now a subsidiary of Kokuyo Co. Ltd of Japan.

“Analysis” series is an attempt to share with all the readers, our inputs to the company analysis submitted by readers on the “Ask Your Queries” section of our website.

Kokuyo Camlin Ltd Research Report by the Reader (Sunny Kambiri)

Hello Sir,

I need your guidance in the attached research report that I have made completely myself.

Many thanks in advance.

Regards,

Sunny

Background of Kokuyo Camlin Ltd:

Camlin is an 80+ years old company started and owned by Dandekar family. It was incorporated as a private company in 1946 and was converted into a public limited company in 1988. The company and promoters have worked hard in creating a cult brand ‘Camlin’ that is a very well known in the stationary category. The company has a presence in multiple categories with stationary and has been a hallmark of good quality product for decades now. While the Dandekar promoters have created Camlin into a well-known and reputed brand, the operational side of the story has not been very pleasing. While sales have shown consistent growth for the past 10 years (CAGR 10%), profit margins have been fluctuating a lot and have been flat for 10 years. The company even slipped and made losses in FY 2013 and 2014.

Kokuyo:

In 2011, Japan stationary mammoth KOKUYO, a $3 billion company took over Camlin from Dandekar family and bought out all their holding @110 Rs/share approximately 2X of sale in 2011. The current KOKUYO holding in the company is ~73.5% and Dandekars only have 1.5%. Kokuyo has focused on Japan all its 100+ years’ history and has had a great record of accomplishment. Back home, in the last 5 years recently, while topline has shown steady growth, bottom-line has tripled. They have also dramatically reduced their interest costs by repaying the debts. Clearly, very good execution capability. However, since the Japanese market is saturating, Kokuyo, rightly so, is looking at markets with higher growth prospects. This endeavour brings them to India.

Why Kokuyo Camlin Ltd: 1) Operational efficiency:

As expected, KOKUYO has been serious about turning around the business from the moment they took over the operations. In the pre-Kokuyo term, Camlin had five different manufacturing units Vasai, Maharashtra: Markers, Ball pens, Correction Products and Adhesives; Taloja, Maharashtra: Inks and Adhesives; Tarapur, Maharashtra: Hi-Polymer Leads, Colours; Jammu, J&K: Colours; Patalganga, Maharashtra. As per the available information, some of these manufacturing units were a big drag on companies operations. Kokuyo is hence has come up with a jumbo manufacturing unit at Patalganga which will be manufacturing all 200 SKU that KCL sells. Moreover, the capacity will also take care of some requirements in other markets like Japan and hence will be a major export unit for Kokuyo. Recently, they also introduced KAIZEN, the Japanese philosophy and the concept of continuous improvement in manufacturing processes. The plant is a state of art manufacturing unit, which has been built with an investment of 100+ cr. The plant also houses a highly capable R&D centre to meet future trends and needs for the company.

Link to the video, which has all the details on the new manufacturing unit. (YouTube)

Read on: How to Assess Operating Efficiency of Companies

2) Kokuyo Camlin Ltd sells nonproductive assets:

KCL in 2014 sold the alpha kids pre-school chain that was a drag on the company’s books.

The company is also in the process of shutting the other five manufacturing units, once the Patalganga unit is fully operational and settled. This will help the Japanese mammoth to further sharpen its focus on operations, which are of great importance in today’s competitive market.

3) Great brand of Kokuyo Camlin Ltd:

Kokuyo has no plans to dilute/shut the Camlin brand. In spite of being a big brand itself, Kokuyo aims at building and leveraging the strong brand recall that Camlin garners in Indian consumers. This is a great positive for KCL going forward. Camlin brand stands for a great quality product at a good value (price), a proposition loved by Indian consumers.

4) Huge opportunity for Kokuyo Camlin Ltd:

India stationary market is a ₹20,000 cr market growing at 15%. Given the fact that there is +24cr student strength that is pursuing an education in India + pool of artist and office goers AND increase in discretionary spends, which will, in fact, upgrade the spends on stationary, it is face to assume that the market will continue to grow in double digits moving forward.

Further, it is too be noted, that almost +60% stationary market in India is unorganised and with the push on GST and other measures by the government, there is a huge value migration play that is waiting to happen.

Further advised reading: How to do Business Analysis of a Company?

Valuation analysis of Kokuyo Camlin Ltd:

If we look at the PE and ROE, nothing makes sense. This is mainly because of losses and low efficiency that the company has exhibited in the last few decades.

However, with Kokuyo coming in, this is expected to improve significantly. In the first phase, the company has focused on increasing sales and has doubled the same in the last 3-4 years. Now, for the past 5-6 quarters, the company has been focusing on operational efficiency. This can be clearly seen in the net profit margin which has gradually increased from 1% (Dec 16) to 9% (Dec 17 and Mar 18).

Through scuttlebutt, I have gathered information that KCL distributors were offering 15days credit period until now, which has now officially reduced to 7 days only. This is further expected to reduce to ‘advance only’ system, something that KCL’s competitors like Faber Castle are following today. This is further free up working capital of the company.

The PE of the company at today’s EPS of 0.98 comes up to 100. This is very high and confuses my valuation attempt. I am worried as this PE will be corrected in the future and normalized as we move forward, irrespective of the company’s performance. Thus keeping the price low.

However, if I use other methods, like Sales to Mcap, then that currently stands at 1.5 X. This for a huge brand, in a growing category and with an MNC running the engine looks very low. Once operational efficiency starts kicking in and KCL having more money to spend on branding, a company of this profile should trade at 3x to sales (which in itself is expected to grow at 10-15% CAGR for the next 3-4 years).

Hence, assuming sales grow from 630crs (FY18) to 900crs (FY21) and efficiency on margins is maintained, the company should trade at 3x sales i.e. 900 X 3 = 2700cr Mcap.

This is roughly 2-3X return (pessimistic scenario) from current Mcap of 1000cr only.

Further advised reading: How to do Valuation Analysis of a Company?

Kokuyo Camlin Ltd: Category overview in India: Stationery types:

Stationery products are required by everyone from school to organizations. The target consumers of this industry are schools and offices. The stationery industry can be classified into two sectors.

1) School stationery:

It consists of a wide range of stationery products used by teachers and students in the schools. It includes popular stationery products like notebooks, erasers, pencils, rulers, sharpeners, writing boards, exam boards, graph book, pencil boxes, geometry boxes, notebooks covers, glue sticks, maps, children paper clips and binders, pencil grippers, calculators and many more.

2) Office stationery:

Products include correction products, book/magazine racks, business organizers, card holders, cash boxes, clipboards, dampers, desk calendars, desk organizers, document holders, glues, glue sticks etc. Other products include letter openers, message pads, stick-ups, plastic paper clips, paper trays, paperweights, pen holders, trays, stands, pen holders, cases, pocket planners, punches, rubber bands, scales, rulers, scissors, stamp pad inks, stamp pads, staple removers, staple pins, staplers, tapes and dispensers, and telephone diaries etc.

3) Writing instruments:

It includes ball pens, correction fluids, pens, tapes, synthetic, PVC  Erasers, fountain pens, gel pens, highlighters, inks, markers, 0.5 and 2 mm pencils, micro tip pens, pen refills, pen sets, pencil leads, roller pens, sharpeners, marking pens.

4) Computer stationery:

It comprises of printer toners, computer CDs, floppy disks, computer paper, printer ink, printer cartridges, CD covers, etc.

Author’s Response

Hi Sunny,

Thanks for sharing the analysis of Kokuyo Camlin Ltd with us! We appreciate the time & effort put in by you in the analysis.

Let us analyse the performance of Kokuyo Camlin Ltd over the last 10 years.

While analyzing the past financial performance data of the company, an investor would notice multiple aspects:

  • The name of the company used to be Camlin Ltd until FY2011. In October 2011, Japanese company Kokuyo Co. Ltd bought a majority stake in Camlin Ltd. Therefore, from FY2012 onwards, the name of the company was changed to Kokuyo Camlin Ltd.
  • While reading the past annual reports of the company (the company website has annual reports from FY2004 onwards), an investor realizes that the company has always had subsidiaries under it; however, in many years, the company decided to publish only standalone financials as the financial performance of its subsidiaries was very insignificant. For example in FY2009, the company chose to publish only consolidated financial performance despite having two subsidiary companies, Camlin North America INC, USA and Camlin International Limited:

FY2009 annual report, page 56:

Moreover, when an investor studies the financial position of the subsidiary companies in the FY2009 annual report, page 66, then she realizes that the subsidiary companies have very insignificant business activity with very low assets, liabilities, sales turnover and net profit/loss.

Further advised reading: Understanding the Annual Report of a Company

  • From FY2010 onwards, Camlin Ltd formed another subsidiary Camlin Alphakids Ltd for its new business activity of pre-school education. Therefore, the company started preparing consolidated financials from FY2010 onwards.

FY2010 annual report, page 89:

We believe that while analysing any company, the investor should always look at those financials of the company that represent the business picture of the entire group. Therefore, while analysing Kokuyo Camlin Ltd, we have analysed standalone financials for FY2009 and consolidated financials from FY2010 onwards until FY2018.

Further advised reading: Standalone vs Consolidated Financials: A Complete Guide

Financial and business analysis of Kokuyo Camlin Ltd:

While analyzing the financials of Kokuyo Camlin Ltd, an investor would note that in the past, the company has been able to grow its sales at a rate of 8-9% year on year. Sales of the company increased from ₹284 cr. in FY2009 to ₹630 cr in FY2018. The trend of the sales growth of the company over the last 10 years seems consistent where the sales of the company have grown for almost each of the past 10 years. However, when an investor analyses the profitability of the company over the last 10 years, then she notices that the sales growth of the company has not translated into profits for the shareholders.

While analysing the operating profit margin (OPM) of Kokuyo Camlin Ltd over the last 10 years (FY2009-18), an investor notices that the OPM of the company has been highly fluctuating. The OPM has ranged from a high of 9% in FY2010 to operating loss in FY2013. Moreover, the profitability performance becomes worse when the investor focuses on the net profit margin (NPM) of Kokuyo Camlin Ltd for the past 10 years (FY2009-18).

The company has reported NPM varying from a high of 4% in FY2010 to losses in three years (FY2012, FY2013 and FY2014).

Further advised reading: How to do Financial Analysis of Companies

An investor would appreciate that such fluctuating profit margins indicate that Kokuyo Camlin Ltd does not have pricing power over its customers. The company seems to find itself unable to pass on increases in raw material and other costs to the customers. As a result, whenever the input costs increase, then the company has to absorb it on its own, which leads to a reduced profit margin.

Moreover, the fact that the company had to report operating and net losses in multiple years indicate that the company operates in an industry with intense cutthroat competition. In such industries, usually, the products are a commodity in nature and there are many suppliers. As a result, whenever, a customer finds that the price of the product of any company has gone up, then she can easily use the product of another company.

The stationery industry seems to be one such industry, where if the price of products e.g. a pen increases beyond a point, then the customer can easily replace the pen of one company with the pen of another company without any material impact on the functionality. As a result, the stickiness of the customer with a product of any particular company or brand seems low. Therefore, the companies find that they do not have the ability to increase the prices of their products to maintain their profit margins whenever raw material/input costs go up.

Further advised reading: How to do Business Analysis of a Company?

The credit rating agency, CRISIL in its May 2014 report for Kokuyo Camlin Ltd highlights this aspect of the business:

The near commodity nature of most of the products coupled with many brands/manufacturers including unorganized players and cheaper Chinese imports has led to a situation where even the well-known brands/companies report losses in times of high raw material/input costs. The companies are not able to pass on an increase in input prices instead; they have to reduce prices due to cutthroat competition.

An investor gets to know this aspect of the business of Kokuyo Camlin Ltd in its FY2018 annual report, page 47:

The investor notices that the credit rating agency, CRISIL, in its report of Kokuyo Camlin Ltd in February 2019 has highlighted this aspect of the business. CRISIL also points out the fact that the low-profit margins of the company lead to a situation where even a slight change in raw material costs affect the profitability in a big manner.

Further advised reading: Credit Rating Reports: A Complete Guide for Stock Investors

However, while analysing the business performance of Kokuyo Camlin Ltd, when an investor reads the past annual reports, then she notices that the situation of poor pricing power of stationery manufacturers is not a recent development. In fact, the company has highlighted this tough aspect of this business since long as the company has had years in which it reported losses in the previous years as well (FY2005 and FY2006).

The below table of the financial performance of the company over FY2002-2008 taken from FY2008 annual report, page 55 shows that the company has had such fluctuating profit performance previously as well.

In the above table, an investor would notice that in FY2004, the company reported a sharp decline in its profits, which was followed by net losses in FY2005 and FY2006.

In FY2004, the profits of the company declined by about 60% to ₹1.89 cr from ₹4.44 cr in FY2003. The company explained to the investors that despite the increase in sales, the company reported losses. The company said that the losses are due to increase in input costs and the company is not able to pass on these costs to the customers due to intense competition.

FY2004 annual report, page 5:

The business situation worsened in future and the company still could not pass on the increase in input costs to the consumers. As a result, the company reported losses in FY2005 and FY2006.

FY2005 annual report, page 10:

The management accepted that the state of the competition in the industry is so severe that despite all attempts by the management to cut costs and improve efficiencies, it is finding itself helpless to control losses.

FY2005 annual report, page 10:

Over the years, the competitive situation in the business did not improve. In FY2011 annual report, when the profitability of the company witnessed a decline, the company acknowledged that currently there are many Indian and international players who are attempting to sell to the Indian consumer. This has led to a great availability of choice for the consumer but in turn, it has taken away the pricing power from the manufacturers.

FY2011 annual report, page 19:

Further advised reading: How to do Business Analysis of a Company?

This year of reduced profitability (FY2011) was followed by three consecutive years of net losses for the company (FY2012, FY2013 and FY2014). The company lamented its inability to pass on costs to customers in FY2013.

FY2013 annual report, page 13:

The company attempted various cost reduction measures but despite all its attempts, it again reported a loss in FY2014.

FY2014 annual report, page 11:

Looking at the above situation, an investor would appreciate that the times of increasing raw material costs/commodity prices are bad for Kokuyo Camlin Ltd because it is not able to pass..

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Dr Vijay Malik by Dr Vijay Malik - 1M ago

The current section of “Analysis” series covers Sreeleathers Ltd, one of the leading footwear companies in India based out of Kolkata. Sreeleathers Ltd deals in formal and casual footwear of men, women and kids as well as in leather accessories.

“Analysis” series is an attempt to share with all the readers, our inputs to the company analysis submitted by readers on the “Ask Your Queries” section of our website.

Sreeleathers Ltd Research Report by the Reader (Kalyani Wadnere)

Hello Sir,

Everyone has a transferable commodity – knowledge. Sharing your unique expertise and making introductions for someone creates a lasting legacy. – Marsha Blackburn.

I could not have better words to express after going through your website. Thank you so much for sharing valuable knowledge through your articles and workshop with aspiring investors like us. Your articles not only enhance us with immense knowledge but also inspires to do the hard work.

I attended your Peaceful Investing workshop last month in Pune. It was a great learning and inspiring too especially researching the company in depth and reading annual reports.

This learning made me search for fundamentally sound companies and I came across Sreeleathers Ltd. I have done my analysis and have a few queries. Request you to give your valuable and in-depth analysis on the same.

Attached is the analysis of the company.

Regards,

Kalyani Wadnere

About Sreeleathers Limited:

The company is engaged in the business of dealing in all kinds of footwear and leather accessories. It is also engaged as a retailer and wholesaler of footwear and leather articles. The Company has around 30 retail outlets (including outlets owned by franchise), spread over nine states including West Bengal, Bihar, Jharkhand etc. Sreeleathers Ltd sells its products mostly within India with insignificant export income.

Financial data of Sreeleathers Ltd for last 10 years:

Further advised reading: How to do Financial Analysis of Companies

Peer analysis of Sreeleathers Ltd:

Sreeleathers Ltd.’s sales growth (5 years and 10 years) is higher than the sales growth of its peers. Its net profit margin (NPM) is 15%, which is much higher than the NPM of its peers.

(Source: Screener)

Further advised reading: How to do Business Analysis of a Company?

Management Analysis of Sreeleathers Ltd: 1) Remuneration of key management personnel of Sreeleathers Ltd:

Promoter’s salary is increased along with an increase in profits whereas other key personnel as if CFO and company secretary salary is very low and last 2 years the increment of their salary has been negative. In addition, the number of employees has been reducing. The employee count has decreased from 62 in 2015 to 34 in 2018.

Remuneration increment details –

Annual Report 2017 page no. 6:

  • Satya Brata Dey (Managing Director): 150%
  • Bijoy Kumar Roy (Company Secretary): -10.78%
  • Sujay Bhattacharya (Chief Financial Officer): -11.67%

Annual Report 2018 page no. 7

  • Satyabrata Dey (Managing Director) 60.00%
  • Bijoy Kumar Roy (Company Secretary) 9.52%
  • Sujay Bhattacharya (Chief Financial Officer) -6.10%

The company is not paying a dividend since 2015. Can we assume that it is not shareholder friendly as well? Please input with your views

Further advised reading: Steps to Assess Management Quality before Buying Stocks

Annual report 2018 page no. 7 states:

The Company’s PAT has grown from Rs. 1340.30 lacs to Rs. 2137.18 lacs an increase of 59.45%, against which the average decrease in remuneration is 19.78% this has been achieved by better manpower utilization.

The increase in profit margin is because of cost-cutting (employee). Profit margin increasing at 67% CAGR. Is it sustainable?

2) Related party transactions of Sreeleathers Ltd:

The company purchases goods and sells goods to itself M/S Sreeleathers. Can you clarify on this?

Annual Report 2018 page no. 71 (Related party relations)

a) Purchase of goods by Sreeleathers Ltd:

M/S Sreeleathers 48,270,083.55   38,198,784.00   21,074,502.00

b) Sale of goods by Sreeleathers Ltd:

M/S Sreeleathers 59,833,647.00   21,717,843.00   15,164,742.00

Further advised reading: Why Management Assessment is the Most Critical Factor in Stock Investing?

Checklist of analysis parameters for Sreeleathers Ltd:

Further advised reading: Final Checklist for Buying Stocks

My queries and/or concerns:
  • No mention of capacity utilisation or units sold in annual reports.
  • The company does not seem to be employee friendly.
Author’s Response

Hi Kalyani,

Thanks for sharing the analysis of Sreeleathers Ltd with us! We appreciate the time & effort put in by you in the analysis.

Let us analyse the performance of Sreeleathers Ltd over the last 10 years.

Financial and Business Analysis of Sreeleathers Ltd:

While analyzing the financials of Sreeleathers Ltd, an investor would note that in the past, the company has been able to grow its sales at a rate of about 20% year on year. Sales of the company increased from ₹22 cr. in FY2009 to ₹141 cr in FY2018.

While analysing the profitability of the company, an investor would notice that the operating profit margin (OPM) of Sreeleathers Ltd has consistently improved over the years.

The OPM was 2% in FY2009, which increased sharply to 13% in FY2010. The significant change in the OPM in FY2010 is essentially due to a major corporate restructuring in the company and the promoter group.

Further advised reading: How to do Financial Analysis of Companies

Earlier the name of the company used to be Cat Financial Services Limited (CFSL). In FY2009, in an amalgamation scheme, the company merged itself with three other promoter group companies: Deys Holding Pvt. Ltd., Deys Finance Pvt. Ltd and Shree Leathers Pvt. Ltd.

FY2009 annual report, page 4:

As part of the amalgamation, CFSL got the business of footwear and leather accessories and the company has maintained it as the core line of business. Therefore, it seems that financials of the company from FY2010 onwards show the performance of the footwear business. CFSL changed its name to Sreeleathers Ltd in FY2011.

If an investor analyses the trend of the operating profit margin of Sreeleathers Ltd from FY2010 onwards, which represents the footwear business, then she notices that the OPM of the company has consistently increased from 13% in FY2010 to 21% in FY2018. Such significant improvement in the profit margin indicates a few aspects of the competitive strength of Sreeleathers Ltd:

  1. The company has the ability to pass on the increase in its raw material/purchase costs to its customers.
  2. The company has the ability to sell more footwear at higher prices as displayed by rising sales revenue with improving profitability.

The ability to pass on an increase in costs and simultaneously increase sales revenue is a good aspect for any business.

Further advised reading: How to do Business Analysis of a Company?

The net profit margin (NPM) of the company has followed a pattern similar to the OPM. The NPM of Sreeleathers Ltd has improved from 1% in FY2009 to 15% in FY2018.

The tax payout ratio of Sreeleathers Ltd is consistently in line with the standard corporate tax rate applicable to companies in India.

Operating Efficiency Analysis of Sreeleathers Ltd: 1) Net fixed asset turnover (NFAT) of Sreeleathers Ltd:

When an investor analyses the net fixed asset turnover (NFAT) of Sreeleathers Ltd over last 10 years (FY2009-18), then she notices that the NFAT of the company witnessed a continuous improvement year after year. The NFAT has increased from 0.20 in FY2009 to 0.89 in FY2018.

The improvement in NFAT is a result of a significant increase in sales from ₹22 cr to ₹141 cr over FY2009-2018 without any major capital expenditure by the company during this period. If an investor notices the capital expenditure done by Sreeleathers Ltd over FY2009-18, then she notices that the company has spent only ₹8 cr in this period.

Read on: How to Assess Operating Efficiency of Companies

An investor would appreciate that a large increase in sales without any major capital expenditure can be a result of one of the following situations.

  1. One situation can be that Sreeleathers Ltd has not seen an increase in the number of footwear sold over FY2009-18 and the entire six-fold increase in sales is a result of the increase in the price of the footwear.
  2. Another situation can be that Sreeleathers Ltd had a large amount of unutilized capacity of shoe manufacturing in FY2009-10, which it has been utilizing over the years increase its sales from ₹20 cr to ₹141 cr.
  3. Still another situation can be that Sreeleathers Ltd does not spend on manufacturing shoes in-house. Instead, it outsources the shoe manufacturing. As a result, it can easily meet additional demand for its shoes by letting its vendors make more shoes and supply them to Sreeleathers Ltd to sell in its stores.

While looking at the pricing of the shoes at the website of Sreeleathers Ltd (click here), an investor would notice that the price of shoes is lower than what we commonly see for various other branded shoes. Therefore, the possibility of the first situation seems low that the six-fold increase in sales for the company over the last 10 years is only the result of a six-time increase in the price of footwear.

This leaves an investor with the second and third situations described above.

While reading the past annual reports of Sreeleathers Ltd, an investor notices that the company has not disclosed its manufacturing capacity in any of the annual reports from FY2009-2018, which are available on its website. Therefore, it is difficult for an investor to ascertain that the increase in sales of the company without any capital expenditure is because of utilization of previously unused capacity available with the company.

An investor would appreciate that any company, which previously had a lot of spare unused manufacturing and has now started utilized it, would need more employees to put the spare capacity to use. In the case of Sreeleathers Ltd, over the last four years, FY2015-2018, the sales of the company have increased from ₹67 cr in FY2015 to ₹141 cr in FY2018. However, an investor would notice that during this period, the number of employees has declined from 62 employees at the end of FY2015 to 34 employees at the end of FY2018.

Further advised reading: How to do Business Analysis of a Company?

Therefore, an investor would understand that the probability of an increase in sales of footwear by making more footwear in the unutilized manufacturing capacity of the company is low. Moreover, when an investor reads the disclosure of the company related to the number of employees, then she notices that the company has permanent only in showrooms, godown and administrative office.

FY2018 annual report, page 41:

Further advised reading: Understanding the Annual Report of a Company

Therefore, it may indicate that the company has kept showrooms, godown and administrative office under its direct control and the company has outsourced/contracted out the manufacturing activity of footwear to other suppliers.

Moreover, while going through the previous annual reports of Sreeleathers Ltd, an investor notices that in the annual reports for FY2012 and FY2013, the company has disclosed that it sources shoes from small scales shoe manufacturers.

FY2012 annual report, page 5:

FY2013 annual report, page 6:

Therefore, it might be possible that Sreeleathers Ltd has been sourcing most of its incremental requirement for footwear to meet increasing demand from other vendors including small scale and cottage industries. In case, this is the real situation, then it is possible that Sreeleathers Ltd could increase its sales revenue by six times without incurring any significant capital expenditure to increase manufacturing capacity.

An investor should note that the above discussion on the likelihood of possible scenarios is based on assumptions along with the analysis of publicly available information in the annual reports of Sreeleathers Ltd. For more clarity, an investor may contact the company directly to understand the situation.

Advised reading: How should investors contact Companies/Management for clarifications or additional information?

2) Inventory turnover ratio of Sreeleathers Ltd:

An investor would note that over the years, the inventory turnover ratios (ITR) of the Sreeleathers Ltd has been ranging from 11-14 during FY2009-18. Such a trend of ITR indicates that the company has kept its inventory management under control and as a result, not allowed money to be unnecessarily stuck in working capital.

3) Analysis of receivables days of Sreeleathers Ltd:

An investor would notice that over the years, receivables days of Sreeleathers Ltd have declined from 9 days in FY2010 to 2 days in FY2018. This reduction in the receivables days for the company has not been a smooth line improvement. Sreeleathers Ltd witnessed its receivables days increase to 20 days in FY2012, which may indicate that the company relied on giving a higher credit period to its customers to increase its sales.

Further advised reading: How to Assess Operating Efficiency of Companies

In the information memorandum filed by Sreeleathers Ltd to Bombay Stock Exchange (BSE) in May 2013, the company provided the names of its largest customers.

Information memorandum, May 2013, page 28:

An investor would appreciate that the major customers of Sreeleathers Ltd are companies, which may be the distributors, retailers/resellers of the shoes. An investor would appreciate that such corporate buyers will ask for a credit period from footwear manufacturers like Sreeleathers Ltd and the company may have to give a higher credit period in order to generate higher sales.

Nevertheless, FY2013 onwards, the receivables days of the company started improving and in FY2018, it declined to 2 days. Such low receivables days indicate that most of the sales for Sreeleathers Ltd take place with an upfront payment. It may indicate a shift in the business model of the company from earlier dealer/distributor/reseller led model to current direct sale to end consumer.

Investors may contact the company to understand more about the shift in its business practices over the last 10 years if any.

An analysis of receivables days along with inventory turnover indicates that Sreeleathers Ltd has been able to keep its working capital requirements stable and under control. It means that Sreeleathers Ltd has been able to convert its profits into the cash flow from operations without the money being stuck in working capital. An investor observes the same while comparing the cumulative net profit after tax (cPAT) and cumulative cash flow from operations (cCFO) of the company for FY2009-18.

An investor would notice that over FY2009-18, Sreeleathers Ltd has reported a total cumulative net profit after tax (cPAT) of ₹80 cr. whereas during the same period, it reported cumulative cash flow from operations (cCFO) of ₹88 cr indicating that it has converted its profits into cash.

It is advised that investors should read the article on CFO calculation mentioned below, which would help them understand the situations in which companies tend to have the CFO lower than their PAT and the situations when the companies tend to have CFO higher than their PAT.

Further advised reading: Understanding Cash Flow from Operations (CFO)

Margin of Safety in the Business of Sreeleathers Ltd: 1) Self-Sustainable Growth Rate (SSGR):

Further advised reading: Self Sustainable Growth Rate: a measure of Inherent Growth Potential of a Company

Upon reading the SSGR article, an investor would appreciate that if a company is growing at a rate equal to or less than the SSGR and it is able to convert its profits into cash flow from operations, then it would be able to fund its growth from its internal resources without the need of external sources of funds.

Conversely, if any company attempts to grow its sales at a rate higher than its SSGR, then its internal resources would not be sufficient to fund its growth aspirations. As a result, the company would have to rely on additional sources of funds like debt or equity dilution to meet the cash requirements to generate its target growth.

An investor would notice that Sreeleathers Ltd has witnessed an SSGR ranging from 4% to 6% over the years. However, the sales growth achieved by the company over the years is 20%, which is higher than its SSGR. Therefore, investors would expect that the company would have to raise debt from additional sources to fund its growth. However, in the case of Sreeleathers Ltd, the company has remained debt-free for almost all of the previous 10 years (FY2009-18).

While reading the SSGR article shared above, the investor would notice that the fundamental concept in SSGR is that a company needs to..

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The current section of “Analysis” series covers Sharda Motor Industries Ltd, one of the leading manufacturers of the automobile exhaust system, seat frames, seat covers and white goods parts in India.

“Analysis” series is an attempt to share with all the readers, our inputs to the company analysis submitted by readers on the “Ask Your Queries” section of our website.

Sharda Motor Industries Ltd Research Report by the Reader (Suranjit Sarkar)

Sir,

I have tried to analyze a company named “Sharda Motor Industries Ltd “. Please provide your views/recommendations and valuable feedback.

Regards,

Suranjit

About Sharda Motor Industries Limited:

Sharda Motor Industries Limited is primarily engaged in the manufacturing and assembly of auto components and white goods components. The Company serves as a ‘Tier I’ vendor for some of the major automobiles and electronics original equipment manufacturers (OEMs). It has ‘state of art’ manufacturing facilities across thirteen locations in seven states of India. The Company’s product range includes exhaust systems, catalytic converters, suspension systems, sheet metal components and plastic parts for the automotive and white goods industries.

Sharda Motor Industries Ltd sells its products mostly within India with insignificant export income.

The Company has two associate companies:

  1. Bharat Seats Ltd (shareholding: 28.66%)
  2. Relan Industrial Finance Ltd (47.12%)

and two joint ventures (JVs), both having 50% holding each

  1. Toyota Boshoku Relan India Pvt Ltd
  2. Toyo Sharda India Pvt Ltd.

The JVs provide a profit of ₹1 cr and associate companies of ₹8 cr and is materially insignificant compared to the parent company’s operations.

Financial analysis of Sharda Motor Industries Ltd:

  • cCFO>cPAT for 10yrs implies funds not being stuck at WC.
  • Working capital is majorly funded by trade payables, amount written off is very less to nil as they are supplying to a few fixed OEM customers who are funding the working capital by advances.
  • In 10 yrs., Sharda Motor Industries Ltd has generated ₹784 cr cash from its operations, which it used to do capex of ₹422 crs leaving behind free cash of ₹363 crs.
  • In those 10 yrs., Sharda Motor Industries Ltd paid dividends of ₹64 cr, the interest of nearly ₹100 crs, and reduced debt by ₹85 crs and rest remain as cash in the balance sheet. In future, it needs to be seen what the company does with this cash since it has repaid all borrowing now and is completely debt free.
  • In 2018, Sharda Motor Industries Ltd has generated operating cash of ₹156 cr (before tax) and ₹182 cr in 2017
  • Maintenance capex is of nearly ₹22 cr to ₹26 cr out of which ₹10 cr to ₹15 crs spend is in R&D equipment maintenance. Therefore, every year it is generating free cash of ₹120 cr to ₹130 crs.
  • Repaid borrowings of ₹225 cr from 2014, has repaid all borrowings by 2018 and is completely debt free now. The company is paying dividend regularly and the payout can increase after now being debt free.
  • The balance sheet is full of liquid cash. Current financial assets of ₹300 cr (₹105 cr investments and ₹122 cr receivables and ₹74 cr cash)
  • Trade payables are ₹185 cr (which is more than its profits) and inventory is ₹85 cr and ₹122 cr receivables. Very less to nil working capital requirements to run a business.
  • Long-term investments of ₹2 cr (in associate and JVs) which market value is ₹154 cr as on 31 March 2018. Associate companies/JVs are giving decent profits every year (with almost negligible assets).
  • Property, plant and equipment (PPE) of ₹175 cr currently at 2018.

Further advised reading: How to do Financial Analysis of Companies

Sharda Motor Industries Ltd was increasing debt from 2009 to 2014 to fund its capex within its capacity and repaid off fully from 2014 to 2018 and currently, it is debt free. Fixed asset turnover is in rising trend after completion of capex. Both debtor days and inventory turnover are steady and stable.

Further advised reading: How to Assess Operating Efficiency of Companies

I think it is mainly because of contracts/arrangements with fixed reliable OEM customers.

Therefore, because of the top three OEM customers, the company is steady in most of the parameters.

Average fixed assets employed by the company in the last 6 yrs. is approximately ₹245 cr and working capital of nearly ₹30 cr. So total assets employed is ₹275 cr (245 +30). In addition, it is generating free cash of ₹130 crs every year implying return more of 45% (130/275).

Current profit & loss statement:
  • Revenue = ₹1155 cr,
  • PBT = ₹116 cr,
  • PAT = ₹88 cr,
  • other expense breakup = ₹138 cr (₹58 cr of hire labour charges is the main component followed by ₹13 cr power and fuel, ₹14.44 cr R&D maintenance expense, ₹8 cr of legal expense)
  • What is ₹8 cr of legal expenses? Isn’t it high?

Employee benefit expenses are of ₹82 crs and ₹58 cr of hire labour charges in other expenses suggests the company is hiring labour on contractual basis instead of permanent employees for maybe cost optimization.

  • Finished goods sold (2017, 2016, 2015) in crs
  • Metal parts = 937,833,784
  • Fabric = 201,180,147
  • White goods = 19,21,28
  • Total = ₹1158 cr, ₹1035 cr, ₹960 cr
  • Exports = ₹31 cr (2016), ₹29 cr (2015)

Exports are insignificant compared to indigenous operations. Metal parts constitute nearly 80% of products sold and is main driver of revenue.

Details of raw material and components consumed (2017, 2016, and 2015)

  • Steel = ₹196.33 cr, 189, 177
  • Fabric = ₹139.01 cr, 108, 102
  • Others = ₹327 cr, 299, 285
  • Total ₹662 cr (imported=20%, Indigenous=80% and is generally in that range for previous years also)

As imports are bigger than exports hedging policy is being followed by company and rupee depreciation will affect it adversely which management also mentioned in annual reports.

Upon analysing above table, it seems that Sharda Motor Industries Ltd benefits directly when its raw material (RM) prices decrease which directly flows to its operating profit margin (OPM) and consecutively to net profit margin (NPM). NPM has improved recently as interest reduced due to company repaying debt early. So going forward when RM prices increase, it will directly affect its margins, which can lead to losses as it is at the mercy of huge OEMs and cannot transfer the price rise. Sharda Motor Industries Ltd has repeatedly communicated about this issue in many years. How can we find what type of pricing arrangements it is having with its customers?

Further advised reading: How to do Business Analysis of a Company?

In addition, we can see that self-sustainable growth rate (SSGR) is negative territory to 1% but as money is not being stuck in working capital, therefore, we can correlate that it falls under (C) class of companies in the SSGR article. In such cases, SSGR can’t be considered, as sales are growing at 15% CAGR and PAT as 25% for the last 9 yrs. and the company is debt free generating excess cash than its reported profits.

The company mentioned about their customers in the previous year’s annual report (AR):

2016 AR:

“Your Directors take this opportunity to express their grateful appreciation for the excellent assistance and co-operation received from its customers i.e. M/s. Hyundai Motor India Ltd., M/s Mahindra & Mahindra Ltd., Cummins Power Generation, M/ s. Tata Motors Ltd., and M/s. Bharat Seats Ltd”

2015 AR:

“Your Directors take this opportunity to express their grateful appreciation for the excellent assistance and co-operation received from its customers i.e. Hyundai Motor India Ltd., Mahindra & Mahindra Ltd., M/s. Samsung Electronics India Ltd., M/s. Tata Motors Ltd. and M/s. Bharat Seats Ltd.”

Further advised reading: Understanding the Annual Report of a Company

It seems after 2015 M/s. Samsung Electronics India Ltd ceased to be their customer and added new customer Cummins Power Generation.

From the above table, it seems both associate and JVs are immaterial compared to operations and assets of SMIL.

Management analysis of Sharda Motor Industries Ltd:

Shri Ajay Relan and Shri Rohit Relan are sons of Smt. Sharda Relan. Shri R.P. Chowdhry is the father-in-law of Shri Ajay Relan.

Remuneration of the promoters is much on the higher side.

2018:

As per the company’s annual report, the remuneration ceiling as per the Companies Act is ₹12.5 cr.

  • Being 10% of net profits of the Company calculated as per section 198 of the Companies Act, 2013 – How do they arrive at this figure?

Aashim Relan (COO and son of Shri Ajay Relan) Graduate in Economics major from “Emory University, Atlanta (U.S.A), 6 years in the company, joined on 28.06.2012, age 27 years, no previous employment is taking ₹1.28 cr as remuneration, which is pretty much high for any fresh joinee. I may be wrong here and it can be corporate rates. Please correct.

2017:

Total promoter remuneration of ₹7.1 cr (that too upon the demise of promoter N.D. Relan from 2 June 2016. Therefore, the remuneration would be much higher than reported) on PAT of ₹60 cr implies 12.8%.

While in the annual report, they have mentioned the ceiling being 10% of profits of ₹8.2 cr as per AR 2017 – How do they arrive at this figure?

  • An average Salary increase of non-managerial personnel is 12%
  • An average Salary increase of managerial personnel is 22%
  • (Shri Ajay Relan remuneration increased by 52%)

2016:

₹5 cr remuneration to promoters against net profit after tax (PAT) of ₹31 cr (16% of PAT)

  • The average increase in remuneration of all employees during the year 2015-16 was 14%,
  • Revenue from operations for 2015-16 has increased by 6%.
  • The Profit before tax increased by 46.5% during the year. However, profit after tax has decreased by 5.26%.

Percentage increase on remuneration of KMP: (i) CFO – 8% (ii) Company Secretary – 11%, (ii) Shri N. D. Relan – 9.98% (iii) Shri Ajay Relan – 10.02%

2015:

The average increase in remuneration of all employees during the year 2014- 15 was 20%. The revenue from operations of 2014-15 increased by 7%. The profit before tax increased by 55.89%.

(ii) Shri N. D. Relan-8% (iii) Shri Ajay Relan-(17%) (iv) Smt. Sharda Relan-89% (v) Shri Rohit Relan-89%

It seems promoters are drawing salary much higher than general remuneration policy followed by other companies.

Further advised reading: Steps to Assess Management Quality before Buying Stocks

During FY 2015, the company has entered into an joint venture agreement with Toyo Seat Company Limited, a foreign body corporate, incorporated in Japan, for the purpose of design, development, evaluation, manufacture and supply of four wheeler seat components including devices and high tensile strength frames for automobiles in India for domestic and export purpose and procurement and export of seat parts from India. A new company namely “Toyo Sharda India Private Limited” has been incorporated.

Sharda Motor Industries Ltd consistently have not spent its due amount in CSR activities citing silly reasons:

  • Amount to be spent for CSR 2018 = ₹1.16 crs
  • Amount unspent = ₹1.05crs

Management explanation: Certain planned projects of capital nature carrying a large amount of expenditure could not be executed due to regulatory and technical hassle.

  • Total Amount to be spent for 2017: ₹64.54 Lakhs
  • Amount unspent: ₹49.54 Lakhs

Management explanation: Reasons for that can be extensive research made by the Company on the different focus areas, identification of the suitable and impactful programs, initiating long-term projects, which could not be capitalized during the year. However, the scale of CSR activities undertaken by the Company during the financial year has significantly increased. CSR spend of the Company during the year has increased by almost 50% vis-a-vis last year (2016).

This was also the case with previous years.

Shri Pradeep Rastogi, Chief Financial Officer of the company, has resigned from the office of Key Managerial Personnel (i.e. CFO) w.e.f. 10 August 2016 and Shri Vivek Bhatia has been appointed as Chief Financial Officer at his place w.e.f. 10 August 2016. It might be a normal thing but it raises a few doubts.

Promoters’ stake is very high at 74% and shares are held in the name of individuals seems very encouraging. Promoters have their own skin in the game and dividends might increase soon.

Sale of goods:

Domestic sales are recognized on the transfer of significant risk and rewards of ownership to the customer, which takes place on dispatch of goods to the customers from the factory. Export sales are recognized at the time of the clearance of goods and approval of Government authorities.

So products might be rejected although the accounting might have been done for results although chances may be very less.

Depreciation is provided using the written down value method.

It seems the company has extended the useful life of the plant & machinery beyond as per Companies Act, which will boost profits in terms of lower depreciation rates. Is this valid? However, the company is using the same depreciation method for years. Need your views upon that.

Non-current investments in associate companies (2) and JV (2) of ₹2 crs from 2014 onwards and remains the same. Recently invested Windage Power Company Private Limited in fully paid up 17,500 (March 31, 2017: 5700 and April 01, 2016: Nil) Equity shares of ₹10 each. The company does not mention it as a related party.

Total non-current initial investment of ₹2 cr amounts to the total market value of ₹154 cr now.

Current investments & deposits = ₹114 cr in mutual funds, ₹22 cr of cash and equivalents

Profit share of associate companies = ₹8cr and JVs = ₹1 cr.

One aspect to monitor is what the company does with such amounts of cash. It could not go on capacity expansion and reinvest at such high rates to sustain future growth as its customers are fixed and demand will be driven by them. Whether it will be given to stakeholders or the associate company “Relan industrial finance ltd”, will play the spoilsport needs to be seen.

Loans from Promoters:

The company has taken loans earlier from the promoters and related parties but they carried the same interest rates as market rates. The management also communicated this in a transparent manner and gets evident from related parties as well. Currently, no outstanding loan as of 31st March 2018.

Further advised reading: Why Management Assessment is the Most Critical Factor in Stock Investing?

Major Customer: Revenue from three customers of the Company’s manufacturing & trading business are Rs. 928.7cr (March 31, 2017 ₹913.95crs) which is nearly 80% of total revenue. Because of these customers, they are having steady business and steady OPM.

As communicated in the annual report:

“In case of sales, the Company has limited its credit exposure to OEMs and dealers by providing a maximum payment period up to 60 days. However, Company need not required to provide for any risk allowance on account of trade receivable being bad and not recoverable as the amount of outstanding pertaining to trade receivables, which exceeds the credit period allowed by the Company is less than 2% of the total outstanding from them. Trade payables are non-interest bearing and are normally settled on 90-day terms”

This may be the reason for having very less working capital requirements and stable cash flow business in spite of being in a cyclical industry. As write-offs are nil, CFO is more than PAT and long order visibility due to heavy reliance on these OEMs. This is a double-edged sword and it could devastate the company if any customer moves out.

Contract between associate companies and parent company:

It seems it is in all types of transactions with Bharat Seats Ltd.

Relan Industrial finance is in stockbroking services and is using parent company’s cash for broking in stock markets. Although broking is a commission based business but much a case of concern and risk of burning cash. Would like to know your views on that.

As per the Independent Auditors’ Report:

“According to the information and explanations given to us, discrepancies noticed on such verification between physical stocks and the book records were not material and these have been properly dealt with in the books of account.”

“Further, there were no undisputed outstanding statutory dues as on the last day of the financial year concerned for a period of more than six months from the date they became payable except duty of custom of Rs.6.59 lakhs”

Further advised reading: Understanding the Annual Report of a Company

The same pending amount in from 2015 but no explanation is given in the annual report.

1) The company has taken leases from its promoters and related parties. How to find out whether the rates are as per market rates? Although other two leases have expired and not renewed except lease from M/s. Sharda Enterprises. Lease Agreement was renewed on 01.07.2015 and is valid until 30.06.2020.

  • The Company had taken a guesthouse on non-cancellable lease from Smt. Sharda Relan. Lease Agreement was valid until 31.01.2017. Lease Rental amounting to ₹50.25 Lakhs (March 31, 2016: ₹60.10 Lakhs) has been debited to Statement of Profit and Loss. No lease renewal after that.
  • The Company has taken a Factory Premises on non-cancellable lease from M/s. Sharda Enterprises. Lease Agreement is valid until 17.10.2017. Lease Rental amounting to ₹84.42 Lakhs (March 31, 2016: ₹84.14 Lakhs) has been debited to Statement of Profit and Loss
  • The Company had taken a Factory Premises on non-cancellable lease from M/s. Sharda Auto Solutions Pvt Ltd. Lease Agreement was valid till..
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It is an information service (not an advisory service), which lets the subscribers know what % of our portfolio has been invested in each of the stocks and what stocks we are buying currently. Buy/sell transactions list includes the stocks that we have bought recently along with the prices at which we bought them.

The “Follow My Portfolio” service is to act as an information source to subscribers about the stocks that we are buying currently. This is an information source to subscribers to know what stocks we believe are currently within our buying range so that they may choose to take a decision accordingly.

The “Follow Dr Vijay Malik’s Portfolio with Latest Buy/Sell Transaction Updates” service involves:

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  2. Access to the premium section containing updated details of our portfolio and the list of all the transactions from the start of this service (July 30, 2016) until date during the subscription period, at the following link: https://premium.drvijaymalik.com/portfolio/
Updates on portfolio performance as on March 31, 2019:
  • At March 31, 2019, the portfolio consists entirely of small cap stocks as per AMFI classification (Dec 2018)
  • I started building the portfolio on August 8, 2011, on joining my first job after MBA (2009-11). Since August 8, 2011, the portfolio has generated an annualized return (CAGR) of 34.16% against annualized returns of:
    • BSE SmallCap Index: 9.24%
    • BSE MidCap Index: 12.04%
    • NSE Nifty: 11.32%
    • BSE Sensex: 11.35%
  • During FY2019, the portfolio has generated returns of 12.71% against:
    • Decline in BSE SmallCap index of 11.57%
    • Decline in BSE MidCap index of 3.03%
    • Increase in NSE Nifty of 14.93%
    • Increase in BSE Sensex of 17.30%
  • During FY2019, We had a total of 50 transactions in the portfolio, which included 49 “Buy” transactions and one “Sell” transaction.

The below table contains the yearly performance history of the portfolio:

Investors may learn more and subscriber to the “Follow Dr Vijay Malik’s Portfolio with Latest Buy/Sell Transaction Updates” by visiting the following link:

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It is highly recommended that investors read the Frequently Asked Questions (FAQs) at the subscription page to understand the terms & conditions and contours of this service. Please note the following disclosure/FAQ:

Q. Would you be sharing your complete portfolio and transactions or partial?

Important Disclosure: We disclose the details of the portfolio of my family (my wife and I). My wife, due to her association with Newgen Software Technologies Limited (Newgen) has been allotted shares under their employee stock options plan (ESOPs). Our holding and transactions in the shares of Newgen are covered under the insider trading guidelines of SEBI, Newgen as well as other company policies of Newgen Software Technologies Limited. Due to restrictions applicable under the above mentioned insider trading and other policies, we find ourselves unable to do the dissemination of our holding and transactions in the shares of Newgen Software Technologies Limited. Therefore, we would continue to disclose our equity portfolio composition, transactions and portfolio performance updates, consisting of my & my wife’s portfolio excluding the position in the shares of Newgen Software Technologies Limited. At any point of time, subscribers should note that we may have positions in the shares of Newgen Software Technologies Limited.

Details of the stocks in the portfolio as per the disclosed format, are shared with the subscribers. Absolute amounts of portfolio/stock holdings in INR are not disclosed. Percentage holding of each stock in the portfolio at market prices is disclosed.

Transactions are regularly updated on the portfolio page as per the format shared. Moreover, as part of this service, details of every new transaction would be shared with subscribers at the end of the day.

All the best for your investing journey!

Regards,

Dr Vijay Malik

The post “Follow My Portfolio” Performance Update for FY2019 appeared first on Dr Vijay Malik.

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