AVT NATURAL MULTIBAGGER

I was suppose to post this last week. it was saved as a draft.

AVT Natural Products Ltd. is one of the finest, high quality, profitable, well managed and niche company based in Kerala. This is a 100% EOU. The various businesses of this agri company are Marigold Oleoresins, Spice Oleoresins & essential oils, value added beverages (mainly Decaffeinated tea). They have recently ventured into specific health suppliments (nutraceuticals). For more info check, http://www.avtnatural.com/  
 

The company belongs to the AV Thomas group which consists of business in diverse areas such as Plantations, Tea, Spices, Rubber, Leather, Food ingredients, biotech, etc. One of the group companies is AVT McCormick, a 50:50 joint venture between AVT and McCormick & Co Inc. of USA.  

PRESENT DAY NUMBERS  
CMP on Day15 Aug2014: Rs 43.25          Market cap: 650 crores          BV: 12          FV: 1          
Revenue FY14: 271 cr (FY13 255 cr)   Net profit FY14: 51 cr (FY13 50 cr)   EPS: 3.35 (FY13: 3.32)
Debt: ZERO    

BRIEF HISTORY
AVT Natural was formed in 1986. It started with Marigold cultivation on 200 acres of land, and has since gone up to 35,000 acres producing 100,000 metric tonnes of flowers with the support of 30,000 loyal farmers.

MULTIBAGGER POTENTIAL
1. The company has delivered 3 consecutive years of PAT of 50 CR plus (this during when global conditions have been challenging)
2. The company is a "Zero Debt" company as on 31st March 2014 (they walked the talk of becoming a ZD company as stated in their AR 2 years back)
3. Compounded profit growth has been around 32% over the last 10 years and RoE has been around 35% during the same period
4. The company has been maintaining a healthy dividend payout of over 20% over the last 10 years (with the exception of a couple years)
5. For the first time in its history, they clocked a revenue of 90 CR in Q1FY14; it is not far when QR will be 100 cr plus stepping up the threshold
6. The company has diversified into health supplements under the brand name "Optim Health". The launch was done in few select cities just recently.
For more into check, http://www.optimhealth.in/    

INTERESTING INFO
1. AVT Natural featured in the Forbes list of 200 best companies under a billion dollar revenue in the asia pacific region (in the year 2012)
2. The contract farming model followed by AVT is regarded as one of the best. Their endeavor is to ensure "Quality at source"
3. They have been audited and certified for Quality by BUREAU VERITAS in accordance with ISO 9001:2008
4. AVT has a win-win relationship with the farmers maximizing net returns to the farmers and ensuring quality produce for the company at optimum price.

MY TAKE
AVT Natural is already a proven SUPER MULTI BAGGER. From a stock price of 40 paisa in the year 2002 (adjusted for splits and bonuses) to a life time high of 50 rupees in the year 2015; this has multiplied investor wealth by approximately 110 times in a matter of 12 to 13 years.  
Even if we were to split the stock performance into 2 separate time periods; this stock has been a multibagger twice. 40 ps in year 2002 to 8 rs in 2008 (a 20-bagger); and 4 rs in 2009 to 40 rs in 2014 (a 10-bagger).

Now the million rupee question is "Will it became a multibagger  ?". I do believe it has all the potential and capability to become a multibagger yet again from the 40 - 45 levels. Tremendous strength in the existing product portfolio, uniqueness of the business model, proven management capability, and diversification into new but associated business areas; should ensure that the financial and business performance and growth should continue into the foreseeable future. At a PE of around 12 and PB of around 4 this could still become a wise investment idea.

A strong and robust potential multibagger!!  

DATAMATICS GLOBAL MULTIBAGGER POTENTIAL

Datamatics Global Services is a company founded by Dr. Lalit S. Kanodia, an indian IT industry pioneer with a Doctorate from MIT, USA. Datamatics helps large global companies in managing their end-to-end application life cycle and business processes. Their next generation solutions span Document management, Portal management, Publishing solutions, Data warehousing & analytics and several others. For more info check, http://www.datamatics.com

Datamatics client footprint is spread across all four major continents, Americas, Asia, Europe and Australia. The company is a trusted partner to many Fortune 500 companies and help them power their business process automation by creating next generation solutions.

PRESENT DAY NUMBERS
CMP on Day20 Aug2014: Rs 58.40       Market cap: 350 crores         BV: 59            FV: 5        
Revenue FY14: 733 cr (FY13 550 cr)     Net profit FY14: 48 cr (FY13 26 cr)  EPS: 8.2 (FY13: 4.4)
Debt: 80 cr (on consolidated basis)       Current assets and cash balances: 160 cr (approx)

BRIEF HISTORY
Datamatics was one of the early companies in the indian IT industry. The company was founded in the year 1975. This was the first indian IT company to win "International Asia Pacific Quality Award" in the services category in the year 2007. Over the last 2 - 3 decades the company has won several awards and recognition in areas such as Quality, Corporate governance, HR, Job creation, etc

PAST NUMBERS

The above results are for standalone accounts of the company)

The consolidated revenue numbers are much higher than the standalone the standalone accounts. Still I prefer to stick with standalone numbers . As can be seen from the balance sheet it has very little debt and the company has surplus funds invested in mutual funds. So on a net basis it can be considered as a debt free company. Revenue growth in the recent years has been subdued and company’s profits have averaged around Rs. 20+ crores. - Chart from Dec 2013. 

MULTIBAGGER POTENTIAL
1. Revenues of Datamatics grew by 24% in FY 2013; significantly higher than 10.2% growth of the overall industry
2. Remarkable achievement in the growth of the acquired company Cignex
3. Cignex revenues grew from 99 cr to 193 cr in the 2 years after acquisition
4. Datamatics has maintained an excellent and consistent profit growth during the last 4 years.
5. The company's reserves (excluding revaluation reserves) as per balance sheet increased from 268 cr in FY13 to 306 cr in FY14
6. Except for 2-3 years, the dividend payout ratio has been in the range of 40% over the last 10 years

INTERESTING INFO
1. Datamatics Global Services was voted as India's "Most respected software company in corporate governance" at the 5th Annual India leadership conclave & India affairs Business leadership awards.
2. The company has delivery centers in 7 cities; Ahmedabad, Mumbai, Nashik, Delhi, Bangalore, Chennai and Puducherry
3. The company has overseas subsidiaries in Germany, USA, UK, Australia, Switzerland, Mauritius and Singapore
4. The export revenue of the company is 86%
5. Prior to founding Datamatics in 1975, Dr. Kanodia was one of the persons instrumental in setting up TCS in 1967

MY TAKE
From an investment perspective, Datamatics ticks all the boxes. It is a fine IT company; superb track record, consistently profit making, excellent promoter pedigree, financially stable, wide range of clients, management execution capability and more than anything; deeply deeply undervalued.

A million rupee question? Why on earth is this stock available so cheap? Market cap of 350 cr.
This is a question to which I have no answer. Mr Market has missed out on this one(thus far).

A company with 700+ cr annual revenue, 48 cr net profit, current assets worth 160 cr, dividend paying; solid, stable and robust in every which way. I am reasonably sure that this stock cannot continue to be ignored for ever. This is a great time to buy, hold and sit tight. Bright and profitable future ahead. For the company and its stock holders.

This belongs to Warren Buffett philosophy: Great Quality business at a reasonable (read, rock bottom cheap) price. An inevitable potential multibagger!!

Cupid Ltd ( Good potential multibagger )

Cupid Ltd -

Innovation is one of the best weapon to change a company’s fortunes. You take a problem and solve it, uniquely, and you are done. One such pharma company is male and femalecondom manufacturer Cupid Ltd. that has relied on Innovation to come out of woods. Cupid, is a condom manufacturer and the only Female condom manufacturer in India with its unique design approved by UNFPA/WHO and FDA. Cupid is only the second company in the world whose female condom has been approved by WHO & UNFPA. Being the sole manufacturer (which it manufactures from its UNFPA / WHO approved sinnar factory) in india and second only in the world, the market opportunity is very big, especially from WHO which is reflected in the various orders the company has started receiving in last few months. What is exciting about this company is that it is continuously innovating its product line. Although it has been manufacturing male condoms for a long time, but, keeping its promise with innovation they have been tinkering that product and trying to improve on it. Their R&D efforts in this regards bore fruits and last year they were granted a patent for their uniquely shaped specialty male condom. Cupid offers various types of condoms such as Plain, Dotted, Multitextured, as well as its newly developed female condoms. Some of its brand names are Green-Love, Big-Dom, Hi-life,and Black Cobra.

Past Imperfect, Future perfect: The Company had been struggling with lumpy earnings profile. The reason was the R&D resources being put on these innovations and more importantly their over-reliance on Govt. of India for orders. With their Female Condoms getting WHO approval Cupid entered into a Long Term Agreement to supply Male and Female condoms to the UN Population Fund (UNFPA).
The Quantity and value of each consignment will vary from time to time as per UNFPA’s global procurement requirements. The orders have started flowing from different countries across the world like Africa, Denmark etc. Cupid also markets its products in Russia, Australia, Turkey, Nigeria, Jamaica, UK, and Italy. The margins on these orders are very good too (though a number cannot be put across as the margins are also dictated by the kind of packaging associated with the orders). Last year the company was expecting an order from Govt. of india (that did not materialize), which is expected to fructify in this year. This would also help in further topline growth. Cupid Female condoms have been approved by WHO-UNFPA in 2012 and by South African Bureau of standard (SABS) in July, 2013. Currently Cupid is selling this condom in Indonesia, Brazil, Mozambique, Ivory Coast, Netherland, South Africa and India. Cupid’s customers apart from WHO and Govt. of India include Cipla and DKT. Cupid is anticipating large volume orders from South Africa, Brazil , NACO (National Aids Control organization) and Ministry of Health, New Delhi during financial year 2014-2015. The Company’s products are well recognized in the market and are best in terms of quality and standards.

               Earlier, the company used to have debt of more than 7cr in 2009-10 and debt to equity of more than 1 but the company is now debt-free. The promoters have also increased their stake from 36.9% to 48.81% (and the pledge has reduced from 41% to 18%). As per my interaction with the company’s management (Most of the research presented here is the result of my interaction with the management), starting this FY, the company’s earning profile will improve significantly (With no capex planned for next two years) and most importantly would become more stable and predictable. As this happens company plans to start paying dividends too. Management was saying that earlier all their internal accruals were being used to repay debts and invest in R&D (and therefore, no dividends – even Chairman did not accept salary, good capital allocation). Now as they start reaping the benefits of it, the company would start rewarding shareholders too (the management acknowledged that whatever is good for minority shareholders is automatically good for the promoters – being the largest shareholders). As per the company’s management, this year the company will “easily” surpass its all time high turnover. More importantly the bottom-line would be great, thanks to its WHO orders. The Nov last year’s contract would be up for renewal in Oct and the value of that would be keenly watched (they expect it to be better than previous order). The management is noticing strongest ever order inflow in the history of the company. 

BSE : 530843 ; CMP : 18.67 ; FY15 and FY16 expected EPS : 8.5 & 10 ; Short term Target : 80 in 5-6 month. 

UPDATE: Please book 25% of your investment and let it sit cost free. ( cmp 77 )

Dear readers, im considering a buy of Cupid Ltd at around Rs. 23 per share and sharing the following the views with you all. Hope this is beneficial for you in analysing this stock:

Summary of Investment Logic :

Expected EPS of FY15 = 8.5 and FY 16 = Rs.10.
Company manufactres and sells Male and Female condoms.
Female condoms are the latest innovative product launch by Cupid Ltd and it is getting good orders for this product.
Recently company started getting orders from WHO and these orders are going to improve with times to come. More orders are expected in 4-6 weeks from WHO.
Main raw material rubber is showing decline in prices so raw material price decrease also will boost profit.
Company has significantly reduced its debts so that is going to further add to its margins and net profit.
Promoters have increased their shareholding which show confidence on the part of promoters.
At CMP of 28.67 it is trading at just a PE of 2.8 on FY 16 and 3.4 on FY15 expected EPS basis.
Target = 80 in 5-6 months on the basis of 8 PE on FY 16 expected EPS.
It is FMCG company and most FMCG companies trades at 25+ PE so attaining a PE of 8 on FY16 basis is very easy and very conservative estimate.
Very good brand names and distribution all over India and abroad.
Condoms are recession free, inflation risk free, non cyclical business. It needs stringent quality controls so less competition from unorganised segment.
Company is on the path of turnaround. So it may see strong re-rating.

Force Motors flying time? Multibagger

Force Motors Ltd. (Force Motors) is an automobile company specializing in
manufacture of MUV, LCV, SUV and Tractors. It also expertise’s in design,
development and manufacture of automotive components and aggregates. It has
technical collaboration with Daimler AG, Germany in respect of multi-purpose
vehicles. The company started its first commercial production in 1958 from
manufacturing location in Goregaon, Mumbai. While undergoing many transitions
over last five decades it always maintained high standards of technological
excellence and quality.



Key rationales for accumulating Force Motors:

1) Force Motors is a vertically integrated automotive company catering to niche
markets of Middle East, Asia, Latin America and Africa. It’s ever increasing
diversified product portfolio is developed on principles of engineering
expertise, utility, performance and value. Over the last five decades it has
collaborated with leading global automotive companies to develop in-house
expertise for design, development and manufacture of automobiles, their
sub-systems, components and aggregates.
2) On an average 80% of vehicles sold by Force Motors is in the category of
LCV, UV and SUV segment while tractors constitute around 15%. It’s most
popular vehicle is ‘Traveller’ which was originally designed and produced by
Mercedes Benz AG, Germany as ‘T1 Transporter’. It has been making small
but steady foray into small commercial vehicles segment under brand name
of ‘Trump 40’.

3) Force Motors has capacities in place to handle upturn in utility and
commercial vehicle demand on economy returning back to growth trajectory.
Last couple of years had been difficult for automobile industry particularly
for utility and commercial vehicle manufacturers. Macro-economic situation
has changed rapidly over last quarter. Eye catching pick up is noticed in
industrial and manufacturing activity. General sentiments have also improved
dramatically since new Government took charge. The company is well
positioned to handle growth of 15 to 20 percent for next three years.

4) The company has set up ‘Advanced Technology Centre’ at Akurdi for engine
and vehicle testing. It undertakes project work on design, development and
up gradation of engine configurations in various displacements and capacities.



5) Force Motors also manufactures Diesel Engines. To augment engine
manufacturing capacity it is setting up next generation engine manufacturing
and testing facility in Tamil Nadu, which is expected to be completed by
January 2015. According to management this new facility will be used for
supplying engines to a new global passenger car manufacturer in India.


6) Force Motors has been assembling the Mercedes Benz engines and axles
for all its C,E,S and M class cars and SUVs built in India. Its Pune facility is
used for assembling and testing of Mercedes Benz engines for the passenger
cars made in India.

7) Promoters have been aggressively hiking their stake in the company. In last
six months they have raised their stake twice. They acquired 6.30 lacs of shares
of the company on February 17, 2014 and again 4.20 lacs shares on 31st of
July’2014. The total holding of promoter group now stands at 59.72% of the
paid up capital up from 51.75% as on 16th of February’2014.

8) Force Motors stands on firm balance sheet. It is net debt free, sitting on
cash and cash equivalents of around Rs. 219 crores as on 31st March’2014.
Capacity expansions and setting up of new plants have been primarily funded
through internal accruals. The company is sitting on cash per share of around
Rs. 150.

9) Revenue grew at a CAGR of around 21% in last 5 years, despite strong
headwinds in commercial vehicle space. Last two quarters has seen aremarkable turnaround particularly on profitability margins. Q1FY15 saw sales
revenue rise by 8.30% y-o-y and PAT by 35.94% y-o-y. Operating margins which
was a grey area for Force Motors has improved due to better blended
realization, stable input costs and higher operational efficiency.

10) The stock is available cheap at P/BV of 0.60x (ttm basis) and P/E of 8.95x
(ttm basis) at cmp of Rs. 563. Benefits of capacity expansions leading to
operating leverage along with higher operational efficiency on back drop of
improving economy is likely to play out in next three years.
11) Assuming the company is able to sustain its growth momentum picked up
in last two quarters, we expect Force Motors to deliver over 20% revenue
growth in FY’15. Based on annualized PAT margin of 3.73% (same as in FY’14);
its FY’15 EPS works out to be Rs 70.70. Valuing the company at P/E multiple
of 10x for FY’15 which is at good discount to industry average the target
stock price comes at Rs 707.
I recommend buy and accumulate on ‘Force Motors’ for a target price of Rs 707 in the short. Long term target 2500.  ( Safe investors can book 50% once doubles at 1400 and leave it cost free in your portfolio )
YE March (Rs. Crores) REVENUE EBITDA PAT EBITDA % PAT % EPS (Rs.) P/E (x)
FY12A 2,089.38 125.44 824.33 6.00% 39.45% 625.61 0.90x
FY13A 2,016.37 97.52 14.28 4.84% 0.71% 10.84 51.93x
FY14A 2,081.56 156.65 77.69 7.53% 3.73% 58.97 9.54x

Himalaya International - 'MODI' fying Business. ?

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As you are aware ,we all are interested to get penny stocks which can give multi bagger returns.But in practice it is not an easy task and it is not possible to decide in advance that a stock will become multibagger. This will happens when many positives comes together and only over a period of time.If we take 10 penny stocks ,hardly one or two may turn as multibagger and even our capital may loose in the rest. ne more important point – never buy this stock if you have no patience to wait for long time and you are not ready to loose even your capital. 
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The Sector

In a country like India ,food processing a is a sector with huge potential.Weather and atmosphere conditions suitable to produce wide variety of food items like  fruits,vegetables,pulses ..etc makes India as one of the most futuristic country in this segment.Large domestic population and comparatively cheap labor offering good scope for this sector for many more years.We have already discussed many stocks from this sector like Tasty Bite Eatables ,DFM Foods,Heritage Foods,Britannia ..etc and most of them already turned as multibaggers.

                                                      

  

The Company 

In this week ,we are looking into BSE listed Himalaya International Limited (HIL) .Company is jointly promoted by Mr. Man Mohan Malik and Mr.Sanjiv Kakkar. Based on the installed capacity HIL is one of the largest food processing company in India.HIL producing,processing and selling Mushroom , Vegetables,Cheese,various types of sweets and appetisers,yogurts...etc.Company selling products under the brand ‘Himalaya Fresh’ and also doing private label business.For sourcing raw materials including vegetables and mushrooms company made contract farming arrangements with local farmers in addition to own cultivation.Company’s main production facilities are located at Ponta Sahib ( Himachal Pradesh ) and Vadnagr ( Gujarat) – the home town of Shri Narendra Modi.In last financial year Shri Narendra Modi Inaugurated Himalaya’s new factory at Vadnagar which costs around Rs.160 Cr and the single largest provider of job for the locals.  

           Narendra Modi Inaugurating Company's new plant at Vadnagar
https://www.youtube.com/watch?v=oHX9ZHO2zTg#t=266 

Financial Performance

In FY 2012-13 ,Company reported a turnover of Rs.112 Cr , net profit of Rs.20 Cr and an EPS of Rs.3.90.Out of its 51 Cr equity promoters holding around.35.44 % and other large share holders ( > 1 %) holding around 23 % stake in this company .Promoters recently subscribed  896100 shares at a price of Rs.11 on a preferential basis.Company targeting massive increase in top line with increased capacity utilisation in its Gujarat plant.

Conclusion

There is lot of skepticism around this company for the past many years. Its never ending capacity expansion ,relatively large equity base ,non payment of dividend ..etc may be the major reason for that.In addition to this ,since company supplying products to overseas markets  and concentrating in private label business , brand visibility in India is less which is also a reason for commanding lower P/E.Company’s failure to maintain relationship with global food and agribusiness conglomerate, JR Simplot Company with whom Himalaya earlier formed a 50:50 joint venture and later called off may be another reason for investors apathy.In 2013 company decided to  allot 12.5 million warrants to Trydin America LDC but the same not materialised ( Read it HERE)  .Instead of this , in last few months the company allotted 896100 shares to Himalya International Inc. NJ, USA (Promoter Group). As per company version, non payment of dividend is for conserving resources for recent massive capacity expansion.

   

  

Click on the above image to read MD’s  explanation for some of the negative events related with the company.

Even if company may  not be a great success in marketing side ,it has built a fully integrated sizable capacity for production of mushrooms, french fries, onion rings, appetisers, mozzarella sticks , fruit yogurts and cans of soups.Now it is the time to concentrate in marketing efforts and brand building.Since company claiming its major sales from overseas ,that itself through private label and online stores selling Indian ethnic food items,
there is practical difficulties to check the genuinity of sales figures provided by the company .
  
 Check product listing in Amazon.com HERE 

Check product listing in another selling point HERE 

But I believe ,Its production facilities itself deserves much valuation compared with the current market cap of just Rs.66 Cr. The sector in which company operating is one with huge potential and the reported numbers are very good.A possible change in power equations post election may augur well for Himalaya International.Even without this  factor stock of a food processing company below 3 P/E seems very cheap where the average industry P/E is close to 15.

If everything is correct and company can materialize its future plans ,stock may turn as a dark horse from current level of just Rs.13 in next few years.Stock listed only in BSE with scrip code 526899

uggested readings

1 ) In pictures: Narendra Modi opens the largest chilled & Frozen food Project of India at Vadnagar

2) CM inaugurates India’s biggest food processing plant in Vadnagar

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Notes : 

1) As I mentioned at the beginning ,investing in penny kind stocks always risky and advisable only for high risk takers.

2) Many of the information provided above taken from publicly available sources,company claims and projection which is prone to higher degree of errors and I have no guarantee about its accuracy .Assumptions arrived on such factors  may result in wrong judgements and hence requesting self study before acting on this recommendation.

3) I have vested interest in HIL

https://www.youtube.com/watch?v=LslS45Rjr7k#t=134

News on  Inauguration of plant 

This stock recommended earlier around @ Rs.12 declared its result today . More than the published result ,company decided to write off an amount of Rs.16 Cr  on account of  expired goods due to termination of its joint venture with Simplot . ( Read the details of Board decision HERE ) .Frankly speaking , quantum of  this amount is beyond my expectation . Stock is currently trading around Rs 15.80 .Recommending to book Profit /Loss and considering this factor, a  re-entry may consider only  at a lower level