Pressman Advertising - Potential Multibagger ( Stock Analysis)

Pressman Advertising Ltd. (prev. Nucent Estates Ltd.) is a full-service advertising agency providing a package of services in advertising, public relations, design and digital services to its clients. The company has a network of offices in many major cities in India. Through a merger of Pressman Advertising Ltd. with already listed Nucent Ltd., the current entity happens to be the only listed full-service advertising company in India as of now.

It is one of the oldest & largest Indian advertising agencies, and sole agency in listed space. The space is dominated by large multinationals. The business model is good, high margin, without much capital requirement and scalable. The financials of the company is good, not much debt, great dividend yield (5%). Management is good. Appears to be safe bet, and can pay handsomely if some Indian agency is able to establish itself globally.  

Pressman Advertising is a very old Indian Advertising agency promoted by one Suchanti, who had a great reputation in advertising community. Now the company is run by his sons, all looks well qualified. Unlike other indian advertising agencies (Rediffusion, Chaitra etc.), they didnt merge themselves with multinationals and maintained separate existence. Lately they acquired a listed defunct construction company, merge themselves with that, and changed the name to their name. It happened in October 2013. The company is a very small company (40 crores revenue) but large for a business having big margins. Company is valued around 1 times sales, and 12 times earning. Negligible debt. Margin is good and ROE is excellent. Dividend yield is 5%, and dividend coverage is around 2.5 times.

My interest on the stock is for these reasons-

(1) My inherent bias for service sector, particularly in high margin businesses.

(2) The business is scalable without much capital infusion.

(3) ROE is likely to be high for incremental capital deployment.

(4) Economic recovery shall result in higher advertising spend.

(5) They are doing the right things in terms of moving towards digital advertising, financial communication, PR work etc. Their client list is good.

(6) The sector is largely unorganized at this point of time, and any organized company taking foothold in this sector can be rewarding.

 and finally the basic question- Is it possible that in a few years time, some Indian advertising agency can stand in comparison to US advertising agencies like Lintas, Leo Burnette ?  

Some of the services offered by the company include

• Financial Advertising – such as advertising financial information in mass media.
• Government Advertising – such as tourism promotion, tender solicitations, recruitment advertisements, etc..
• Corporate Advertising
• Brand Advertising

My only concern is that the top-line remains stagnant. 

 They clients include several respected A group listed companies and many  B group companies. 

Note: I have already invested in since last 6 months  at 22rs. There has been a sudden jump in this stock since last 20 days. New investors be cautious at current levels. 

KSE Ltd ( Good potential Multibagger )

KSE is a 50-year-old company that makes a range of livestock feed in high volumes, coconut oil from coconut oil cake and refined edible oil. It is the largest manufacturer of cattle feed in India. As forward integration, in 2000, KSE entered milk procurement, processing and marketing of milk and milk products selling under the name of KS PAAL, KS ghee, KS curd and butter milk which became popular in Trichur, Ernakulam, Malappuram and Alleppey districts by 2002. In 2008, it started ice-cream production in Tamil Nadu. In 2010, KSE started ice-cream production in Vedagiri Kottayam (Kerala) to cater for the Kerala market.




In a normal year, almost 62% of the company’s profits come from the cattle feed business, 29% from copra processing and solvent extraction business and about 9% from dairy business. For the quarter ended 30 September 2014, KSE’s net sales were Rs234.40 crore (Rs199.03 crore) and the net profit was Rs17.49 crore (Rs1.67 crore). For the year ended March 2014, net sales were Rs807.20 crore (Rs698.25 crore) and net profit was Rs15.37 crore (Rs4.65 crore).

According to KSE, its strengths include nearly half a century of experience, market leadership, consistent quality, wide distribution network and financial strength. The threats, as it sees, are possible entry of multinationals, subsidy on animal feed being granted by government, indirect price control by government over milk, switching of crop by farmers from oil seeds and grains, severe shortage of manual labour (cattle feed and solvent extraction are highly labour-intensive) and import of cheaper oils for industrial consumption.



Over the past five quarters, the average growth in sales was 12% and the growth in average operating profit was 172%. The average operating margin is 4%. The debt-equity ratio is 0.34. Cash earnings per share were Rs59.78. The book value of the share is Rs150.84. However, income and profits are volatile quarter-on-quarter.
 
The dividend distributed for FY13-14 was a golden jubilee dividend of 200%; in the previous two years, the dividend distributed was 100% and 110%. The share price rose from a 52-week low of Rs181.15 on 15 January 2014 to a 52-week high of Rs 585.00 on 21 November 2014, thanks to a large jump in profit in the September quarter. The share was trading at a price of around Rs 570.00 on 19 December 2014.

The shareholding pattern for KSE includes 32.53% with the promoters and 67.47% with the retail investors and general public. Despite the recent run-up, the valuation is low.



The market-capitalisation is 0.15 times sales and 2.91 times operating profit, based on trailing four quarter results ending September 2014. For FY13-14, the return on net worth was 32% and the return on capital employed was 39%. The stock is worth buying for the long term, even though profits may be uneven and stock price may disappoint, in the short run.




Note: This share is strictly for long term purpose. Do not expect any short term fireworks. The volumes are very low because of  100% DELIVERABLES.

Sources: Annual report, Money control & Crisil. 

Market Outlook for the Week Ahead 20-26 Dec 2014

The market may remain volatile next week as traders roll over positions in the futures & options (F&O) segment, as the near month December 2014 derivatives contracts expire on Wednesday, 24 December 20014. The stock market remains closed on Thursday, 25 December 2014, on account of Christmas.

NTPC will be in focus ahead of a meeting of the company's board of directors on Tuesday, 23 December 2014, to consider a proposal for issuing bonus debentures to the shareholders of the company. NTPC on 18 December 2014 said that it is keen to reward its shareholders for their continued support as the company has entered its 40th year of operations.

All eyes are on the fate of key reform bills pending in parliament. The fate of several crucial bills hangs in a limbo due to several disruptions by the Opposition over the alleged forced conversion row in the Rajya Sabha. With just two days left for the winter session of Parliament to end, the chances of the passage of the Coal Mines (Special Provisions) Bill, 2014 in the Rajya Sabha and the passage of the Insurance Laws (Amendment) Bill, 2008 in both the houses of parliament, look bleak. The winter session of the parliament concludes on 23 December 2014. The government had planned to get Insurance Bill and the Coal Mines (Special Provisions) Bill, 2014 passed in parliament during the winter session. The Coal Mines (Special Provisions) Bill, 2014 has been passed in the Lok Sabha, but the Bill is yet to be tabled in Rajya Sabha where the government is in minority. The bill allows the government to enforce rules and guidelines for auction/allocation of 204 coal blocks cancelled by the Supreme Court in September this year. According to media reports, the government is looking at taking the ordinance route for the Coal Bill.

The government may have to wait till the Budget Session of the parliament for the Insurance Bill. It may be recalled that the Parliamentary Select Committee in its report tabled in Rajya Sabha on 10 December 2014 agreed a composite cap of 49% on foreign investment in the insurance sector, which includes all types of foreign investment as opposed to the 26% foreign direct investment (FDI) allowed at present. Finance Minister Arun Jaitley had said in his maiden budget speech in July that the composite cap in the insurance sector should be increased to 49% from the current level of 26%, with full Indian management and control.

A steep slide in global crude oil prices over the past few months augur well for India. Deregulation of diesel price announced by the Indian government in October 2014 and a sharp decline in global crude oil prices over the past few months will help reduce the government's fuel subsidy burden and help contain its fiscal deficit. The steep slide in global crude oil prices will also help India in containing its current account deficit and fuel price inflation. India imports 80% of its crude oil requirement. However, a weakness in rupee against the dollar will restrict the benefit of falling global crude oil prices to that extent. A weak rupee raises the cost of imports.

Meanwhile, a mid-term economic review tabled by the finance ministry in parliament on Friday, 19 December 2014, stated that the backlog of stalled projects needs to be cleared more expeditiously, a process that has already begun. There are stalled projects to the tune of Rs 18 lakh crore (about 13% of GDP) of which an estimated 60% are in infrastructure, according to the mid-term review. The finance ministry also said that adhering to the fiscal deficit target of 4.1% of GDP in 2014-15 is a major challenge. The report stated that the government is committed to meeting the fiscal targets for 2014-15, despite the difficult odds engendered by a combination of factors. A pick-up in economic activity in the second half of the year is critical to prevent a slippage and to meet the overall fiscal deficit target during 2014-15.

According to the fiscal challenges pointed out by the mid-term view, the tax base was weaker than expected, thanks to unanticipated moderation in inflation. The revenue projections were over-optimistic. The budget was unduly burdened by a legacy of carried-over expenditures. Moreover, the deficit target of 4.1% of GDP for 2014-15 represented strongly pro-cyclical fiscal policy-consolidation when growth was below potential.

In Europe, Greece's parliament holds a second vote on Tuesday, 23 December 2014, to choose a new president, with a two-thirds majority required for the election of Prime Minister Antonis Samaras's nominee, Stavros Dimas. Dimas failed to gain enough support in the first round of polls held on 16 December 2014. If the parliament fails to elect a new head of state in three attempts, snap elections will be called that the anti-austerity Syriza party is projected to win.

Re-post: Salzer Electronics ( SEL) High Potential Multibagger

Note: This is a re-post. Here is the big report. I have already invested in this company back is August. Here is the LINK 




Electronics industry is one of the fastest growing manufacturing industries in the world. The demand in expected to reach USD 500 Billion by year 2020. The electronic industry in India constitutes just 0.17 % of the global electronic industry. Hence it is miniscule by international comparison. However the demand in the Indian market is growing rapidly and investments are flowing in to augment manufacturing capacity.



Salzer Electronics is a Coimbatore-based market leader in rotary switches, with more than 40% market share in India. It is also the largest producer of cable ducts in the country. It manufactures single phase transformers and switch gears along with isolators and panel accessories that are purchased by many blue chip companies, including Railways and Nuclear Power Corporation. The products are also exported to more than 30 countries and to world leaders like General Electric and Schneider Electric. The company has four manufacturing facilities and has a marketing and distribution agreement with Larsen and Toubro, which holds a 30% equity stake in Salzer. The recent success of the company in energy saving street lighting and wireless meter reading systems in southern India can be a game changer for it.




Larsen and Turbro (L&T) is the single largest shareholder of the company with a 26% stake and two directors on SEL’s board. SEL has a marketing tie-up with L&T and derives around 40% of its total revenues through the L&T channel. The other big clients of the company include General Electric and Schneider Electric. In the switchgear segments, exports constitute around 41% of the company’s revenues. With a gradual revival in the domestic capital expenditure (capex) cycle in the key industries and an improvement in the project spending, the management expects a strong growth in the company’s earnings in the next two to three years. The company has bagged a prestigious order worth Rs106 crore from the state government of Tamil Nadu under the Integrated Urban Development Scheme for executing energy efficient projects under the public-private partnership model and expects more deals in the coming year. Overall, the management is quite optimistic of delivering over 20% CAGR in the top line in the next two years.


After a stagnant net income growth over FY2012-14, SEL is well poised to deliver a CAGR of around 50% in the earnings over FY2014-16.The stock trades at 10.6x and 7x FY2015 and FY2016 estimates respectively based on our quick earnings estimates. On a cash earnings basis, the stock trades at 6.6x and 5x FY2015 and FY2016 estimated earnings. SEL is a consistent dividend paying company with a pay-out of around 20% (the company maintained the pay-out ratio even when its earnings growth was muted). The current Debt to equity for the quarter is at 0.14. Given the significant improvement in the earnings and the fact that L&T is its largest shareholder and marketing partner, we believe SEL deserves a better valuation multiple. I expect a 25-30% potential upside to the stock price in the next six months.

CRISIL recent rating is A2+ which clearly indicates the soundness of the company fundamentals which are likely to improve further.

Note: This has already gone up a lot in the last few days. New investors be cautious at current levels. 

Crude Oil Price Crash – Winners, Losers, Risks and Concerns

Brent crude oil prices have collapsed by nearly 30% from November beginning till date. Even the common man is aware of such a price crash which has made him happy by way of massive reduction in petrol and diesel prices. In the investing community, most analysts are at most bullish with the crude oil price fall as it is supposed to be extraordinarily beneficial to the Indian economy as much of the crude oil requirement is imported by India.

Market Reaction:

But has the all mighty Market taken it positively ?? The answer is a big negative.

1) The precipitous fall in crude oil since November beginning was approximately 30% till date, but NIFTY was trading at 8324.15 in the beginning of November and is currently at 8111 (at the time of writing) which is a LOSS of approximately 2.56% .
2) Indian Rupee versus the US Dollar have weakened by approximately 3.1% since November. If a fall in crude oil price is expected to benefit Indian economy through savings in foreign exchange, Indian rupee is supposed to have strengthened against US dollar.

 still feel with a time lag somewhere down the next few weeks / months markets will follow crude oil prices southwards. Apart from the broader market indices following crude oil prices, there should be winners and losers in few sectors out of crude oil price crash.

Winners (With Caveats):

Oil Marketing Companies (OMC’s) - Needless to mention, the immediate beneficiary has been the Oil Marketing Companies (OMC’s). But in UPA-II regime itself, petrol has been completely deregulated and diesel prices has been partly deregulated with small monthly hikes. The steep price crude oil price crash had enabled BJP government to completely deregulate diesel prices much earlier than anticipated. But still there is Kerosene and LPG prices which has to be decontrolled. Most of the big gains from diesel price decontrol seems to have been already factored in the recent price rally in oil marketing companies. But, these OMC’s also have Refinery operations and the near 30% price crash since the beginning of this quarter will have a substantial inventory write-down in the current quarterly results.

Airline companies - The decline in aviation turbine fuel (ATF) prices will certainly benefit airline companies such as Jet Airways, Indigo and SpiceJet as fuel expenses makes up almost 41-45% of their operational revenues. This already had a knee-jerk reaction on the stock prices of some of the listed airline stocks. But given the weak demand and entry of several new carriers such as Air Asia, Air Pegasus, etc.. who are in the process of expanding routes may trigger a “fare ware” and the sustainability of expected margin improvement beyond one or two quarters is very difficult in my opinion. Any benefits arising out of low ATF costs, may eventually be passed on to the passengers to grab market share. Unless, the present high losses forces some leading Airline company to scale back or shut down their operations which can benefit other players by way of increase in “Load Factor”, there may not be much benefit due to lower ATF costs. But thats a different case altogether.

Interest Rates:

But a prolonged low crude oil price, will definitely have lower inflationary expectations which can support the cause for lower interest rates . This can of course lead to rally in bond markets and to some extent banks and primary dealers in Indian debt market can benefit out of their treasury operations . This can improve business sentiments starting from second half of 2015 and can revive the prospects of much needed investment cycle in the economy .

Losers:

State and Central Governments:

Crude oil price crash lowers the subsidy burden of the government but it also reduces the tax inflow for both State and Central governments which is charged on petroleum products. As per provisional figures, in FY 2014 State and Central governments collected approximately Rs. 230,000 crores together  by way of Excise & Customs and Sales Tax / VAT on Petroleum products. It may be noted that most of these taxes are a percentage of the value of the petroleum products. In the event of (as is the case currently), prolonged lower oil prices will mean lower income for State and Central governments. The lower subsidy burden out of diesel price decontrol is good for Central Government but its not the case with State Governments.To plug such gaps, Governments may hike taxes or by some other means which can only be burdened on its citizens, to raise its income. In my opinion this could largely nullify the expected benefits out of lower crude prices.

Standalone Refineries and Petrochemical Companies:

As mentioned earlier, the steep price crash within a single quarter will result in massive inventory write-down for refineries. Normally refineries maintain 15-18 days of Inventories, but when prices collapse at a rapid pace the high cost of inventory bought few days back becomes less worthy.  The impact on stand-alone refineries such as MRPL or CPCL will be enormous. It is worth stating that Indian oil Corporation Ltd. had reported an inventory loss of around Rs. 4000 crores in Q2 of this fiscal. But the impact will be much higher as the percentage of price fall is much more compared to last quarter.

Similar is the case with various stand-alone petrochemical companies. Given the weak demand in the country, any reduction in raw material feed costs will eventually be passed on to the end users and most petrochemical company margins will clearly be dependent on supply-demand factors rather than fall in crude oil prices.

Risks and Concerns:

Contagion Risk:

The biggest loser out of this oil price crash are some of the leading oil producers including Russia, Iran, Venzuela, Nigeria, Canada, Arab Countries, etc..To be more specific, Russia which is also part of the so called BRIC nations is the most affected. The stock market is crashing heavily, currency have collapsed and interest rates have spiked. There is a risk of contagion spreading to emerging markets including India as foreign investors will try to cut down on the losses by booking profits in other profitable markets such as India. If we remember, a small country called Greece, went into a crisis which caused enormous pain for global markets in late 2011 and mid 2012.

Geopolitical Concerns:

It may also be noted that oil revenues form a considerable chunk of government expenditure in various countries. The recent fall in crude oil will restrict their governments from social spending and other economy boosting expenditures which will only result in slow down of economies.This may also lead to geopolitical risks as in the past wars in Major oil producers have helped Oil Prices to spike. Not necessarily due to oil price hike but investors consider geopolitical fallouts as negative for markets.

Conclusion:

Under a weak global environment with subdued demand for various products , the recent fall in crude oil prices can only result in subdued margins for producers, escalate the weakness in global economic environment further due to lower incomes for governments, disaster for few countries such as Russia resulting in contagious risks spreading to other markets and above all raising the risks of geopolitical fallouts . It is very difficult at this stage to pinpoint which sector can be a major beneficiary out of this crude oil price crash . Some of the sectors like OMC’s and Airlines have already re-rated as a result of crude price crash. But sustainability of such rallies need to be seen in the coming months . Still, the Demand in India for various crude oil derivatives are weak and margins are weak as well due surplus capacities worldover. Until demand improves, lower crude prices will eventually be passed on to the consumers without much impact on margins.

Market Outlook for the Week 15 December 2014

                                                         
                                                                       

Wholesale price index (WPI) inflation data for November 2014, corporate advance tax for the third installment of 15 December and developments in the ongoing winter session of parliament are the domestic factors that will be closely watched during the forthcoming week. Among global cues, all eyes will be on the outcome of the Federal Open Market Committee (FOMC) monetary policy review and snap election in Japan and Greece's presidential elections.

Apart from domestic and global economic data, trend in global markets, investment by foreign portfolio investors (FPIs), the movement of rupee against the dollar, and crude oil price movement will dictate near term trend on the bourses.

The market will on Monday, 15 December 2014 react to data on CPI inflation for November 2014 to be released after trading hours on Friday, 12 December 2014. Inflation is seen easing further in November 2014 and growth in industrial production is seen improving a bit in October 2014. The annual rate of inflation based on the combined consumer price indices (CPI) for urban and rural India is seen easing further to 4.4% in November 2014, from 5.52% in October 2014, as per the median estimate of a poll of economist carried out by Capital Market.

The annual rate of inflation based on the wholesale price index (WPI) is seen easing further to 1.2% in November 2014, from 1.77% in October 2014, as per the median estimate of a poll of economist carried out by Capital Market. The government will release the inflation data based on wholesale price index (WPI) for November 2014 at 12:15 IST on Monday, 15 December 2014.

Corporate advance tax payment for the third installment which is due on Monday, 15 December 2014, could provide clues on Q3 December 2014 corporate earnings. Advance taxes are collected in four installments -- 15% by 15 June; 40% by 15 September; 75% by 15 December and 100% by 15 March.

Shares of PSU OMCs will be in focus as these companies will review fuel prices on Tuesday, 16 December 2014 based on the average imported oil price in the preceding fortnight.

Meanwhile, the Indian government intends to get the Insurance Laws Amendment Bill that seeks to enhance foreign investment limit in the capital starved insurance sector passed during the ongoing winter session of parliament. The Union Cabinet recently approved the official amendments to the Insurance Laws (Amendment) Bill, 2008 and introduction in the Rajya Sabha when the bill is taken up for consideration and passing. The Parliamentary Select Committee in its report tabled in Rajya Sabha on 10 December 2014 agreed a composite cap of 49% on foreign investment in the insurance sector, which will include all types of foreign investment as opposed to the 26% foreign direct investment (FDI) allowed at present. Finance Minister Arun Jaitley had said in his maiden budget speech in July that the composite cap in the insurance sector should be increased to 49% from the current level of 26%, with full Indian management and control.

Also the government is reportedly likely to introduce the constitutional amendment bill for goods & services tax (GST) during the ongoing winter session of parliament.

The US Federal Reserve will release the industrial production data for November on Monday, 15 December 2014. Japan reports fourth-quarter Tankan business confidence on the same day.

On Tuesday, 16 December 2014, the Bank of England (BOE) publishes the results of stress tests of UK banks alongside its twice-yearly Financial Stability Report. On the same day, the HSBC China manufacturing PMI for December 2014 will be declared.

On Wednesday, 17 December 2014, the BOE publishes minutes of its Monetary Policy Committee's December meeting, when the benchmark interest rate was held at a record-low 0.5%.

The Federal Open Market Committee (FOMC) next undertakes monetary policy review at a two-day meeting on Wednesday, 16 December 2014 and Thursday, 17 December 2014. The policy meeting will be keenly watched for any hints on the timing of interest rate increases in the world's biggest economy.

On Friday, 19 December 2014, the Bank of Japan will announce monetary policy at the end of a two-day meeting in Tokyo. The bank kept its policy unchanged in November after increasing monetary easing on Oct. 31.

Meanwhile, Japan faces a snap election on Sunday, 14 December 2014 with Prime Minister Shinzo Abe's “Abenomics” on trial. Greece's presidential elections will be held on Wednesday, 17 December 2014.

MOIL: An Exceptional PSU

Manganese Ore India Ltd (MOIL) operates 10 mines. Six of these are located in the Nagpur and Bhandara districts (Maharashtra) and four in the Balaghat district (Madhya Pradesh) and extract manganese dioxide. Manganese dioxide is used by dry-battery industry and to make ferro-manganese and related alloys which are used in the steel industry.

MOIL has itself set up ferro-manganese plant (capacity of 10,000TPY—tonnes per year) and electrolytic manganese dioxide (EMD) plant (1,000TPY) for value addition to manganese ore. It plans to expand the capacity of ferro-manganese plant and is setting up a new silico-manganese plant through joint ventures with Rashtriya Ispat Nigam Limited and Steel Authority of India Limited. MOIL fulfils about 50% of the total requirement of manganese dioxide ore in India which is over 1,093,363 tonnes. Sandur Manganese produces about 300,000 tonnes in a year.

MOIL’s financial performance has been steady. For the quarter ended September 2014, MOIL’s quarterly sales were Rs242.87 crore (Rs226.78 crore), up 7.10%, and its quarterly net profit was Rs111.14 crore (Rs90.57 crore), up 22.71%. For the year ended March 2014, MOIL’s annual sales were Rs1,021.28 crore (Rs967.12 crore), a rise of 5.60%, and its annual net profit was Rs509.56 crore (Rs431.72 crore), an increase of 18.03%. With a market share of 50%, it is the largest producer of manganese ore in India.

Over the past five quarters, the average growth in sales was 3% and the average growth in operating profit was 10%. MOIL works at a higher operating margin of 47%. Its future prospects appear bright due to the government’s strong stress on infrastructure development which will boost the demand of steel in the country; in turn, this will increase the demand of manganese ore as well.

The shareholding pattern of MOIL includes 80% with the government, 7.13% is with foreign institutional investors, 2.58% with domestic institutional investors and the remaining 10.29% is with the retail shareholders.

MOIL is a dividend-paying company for many years; this year, it has already paid interim dividend @40% in January 2014. The board of directors of the company has recommended a further final dividend @35%. Thus, the total dividend for FY13-14 works out to 75% compared to 55% in FY12-13.

What I really like about the stock is its valuation. At a time when it is virtually impossible to get a mid-cap or large-cap stock with a low valuation relative to its performance, MOIL’s market-capitalisation is 10.64 times operating profit, based on trailing four quarter results ending September 2014. The return on net worth is 16% and the return on capital employed is 15%, as the company is debt-free. The face value of the MOIL’s share is Rs10 and its book value is Rs186.15. The share price had risen from a 52-week low of Rs210.50 on 10 February 2014 to a 52-week high of Rs341 on 26 May 2014. The share was trading at around Rs312 on 4th December 2014 and is an attractive buy at the current market price.