ROTO PUMPS LTD - BUY

 Roto Pumps ( BSE - 517500) started its operations in 1968 as a producer of progressive

cavity pumps , whose demand met by import till then.Company  also producing 

Twin Screw pumps and Centrifugal pumps in its two most modern facilities located

at Noida.Roto distributing its products around the globe and it has marketing offices in

Australia and UK.Recently company started a subsidiary in Germany .Company also

having strong marketing network in India.Progressive cavity pumps are used to pump

liquids with high solid content and flow needs to be controlled .These type of pumps are

generally used in industries like Beverages,Pharma,Food processing,dairy,Effluent and

sewage treatment and mining etc..Other type of pumps made by the company are used

in sectors like irrigation,agriculture..etc. More than  half of its sales coming from export

and this itself is a testimony for the quality of Roto’s products.Roto is going through a

capacity expansion programme and the benefits of this will reflect in the near future.

This is one of the cheaply valued listed player in this sector compared with KSB Pumps,

WPIL,Kirloskar ,Sakthi Pumps ..etc . Roto has  a tiny equity base of 3 crore

where promoters are holding almost 70%.Last year company posted a turnover

of Rs.76 crore and a net profit of Rs7.28 crore and an EPS of RS.24/- .On a continuous

basis ,for the past five years company steadily increasing its sales and net profit and

paying dividend without any interruption.Even in a difficult time for its user industries

company performed well.With a P/E multiple of just 4,Roto Pump is a safe bet for steady

return.CMP is Rs.99/-

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HOW A WEAK RUPEE AND FOREX LOSSES AFFECT YOUR STOCK ?

 COURTESY :ECONOMIC TIMES.

Last week, the Indian rupee touched an all-time low of Rs 57.32 against the dollar. While the Eurozone crisis is buoying the dollar, a combination of several domestic factors have weakened the rupee. In this quarter alone it has lost more than 12% against the dollar.

India Inc had got some relief when the rupee moved up from Rs 53.07/dollar to Rs 50.88/dollar in the fourth quarter of 2011-12. However, those gains have been wiped out completely because the depreciation in the April-June quarter (from Rs 50.88/dollar to Rs 57.16/dollar) has been far greater. So don't be surprised if several companies report forex related mark-to-market losses in the first quarter of 2012-13.

Differentiate between real and notional

Before you press the panic button, you need to understand how forex losses impact a company's bottom line. "Forex related losses have differing impact on different companies," says Dipen Shah, head of fundamental research, Kotak Securities. The forex losses reported by companies can be 'real' as well as 'notional'. Instead of clubbing all such losses under one head, you need to differentiate between the two.
Most of the companies that report forex related losses (and gains) are exporters who have taken positions in the forex market to hedge their future dollar earnings. For example, IT companies have forex related gains and losses in almost every quarter (depending on the rupee movement in that quarter).

While these exporters have to report mark-to-market losses in their hedging book in this quarter, this should not be treated as real losses. Why? Let us explain with an example.

Assume that an exporter has $100 million export earnings in a quarter and has hedged the full value at Rs 51 per dollar. Since the exporter can settle this transaction by giving delivery of goods, he is not making any real loss here. What he loses in hedging will be made up when he gets paid for the goods supplied.

However, this also means that the exporter will not get any additional benefit from the rupee depreciation. If he had not sold $100 million in the forward market at Rs 51 per dollar, he would have got Rs 57 per dollar. 

 "Exporters with hedged position will not be able to take advantage of the weakening rupee and, therefore, it is an opportunity loss," says K. Subramanyam, assistant vice-president, institutional clients, Asit C Mehta Investment Intermediates.

The situation remains more or less similar even if the exporter hedges the full year's export earnings. While one quarter's earnings can be settled by delivery, he will have to make provisions for the hedged positions of the remaining three quarters. The exporter will have to report it as a mark-to-market loss in his books.

However, the impact will only be temporary and he will benefit from the weakened rupee once the hedged positions expire. Also, if the rupee strengthens against the dollar in the coming quarters, those losses will become gains. But such mark-to market gains are also notional.

When losses are real

But this is not the case with companies that have foreign exchange liabilities-especially for companies that have not hedged their forex exposure or do not have a natural hedge in the form of export earnings.

"For exporters, it may be more like an opportunity loss, but for companies with un-hedged forex liabilities, it is a real loss," says Ambareesh Baliga, COO, Way2Wealth Securities. Some of these companies may try to avoid reporting it in this quarter's profit and loss account by capitalising and, thereby, directly taking it to the balance sheet. However, the loss still remains and they have to ultimately pay when these loans come for repayment.

The biggest impact of the rupee depreciation will be felt by companies that have taken foreign exchange loans during the last phase of the 2003-8 bull market. A large chunk of these loans are now due for conversion or redemption. More than $3 billion (Rs 17,150 crore) worth of foreign currency convertible bonds (FCCB) are coming up for redemption over the next three months . Since the stock prices of these companies are quoting well below the proposed conversion prices, the lenders may not opt to convert, but instead demand their money back. 

 Sectoral views

While the stock market has already punished the companies with un-hedged forex loans for this 'real loss', the market was not willing to reward the exporters. Even though the rupee depreciation benefits them, not all exporting companies have witnessed a big rally. There are several reasons for this.

First, export sectors like textiles are already facing a severe demand contraction and therefore, good performance can come only from more stable sectors like IT or pharma. Second, the exporters with hedged positions are not able to reap the entire benefit of rupee depreciation.

"Among the leading IT players, Infosys has the least hedged positions and therefore, will be able to benefit most from the current rupee depreciation," says Subramanyam. Third, the customers are also aware of the depreciation in the rupee and therefore, demand a part of the profit in the form of lower prices.

"A weak global environment and a weakening rupee can encourage clients to ask for billing rate cuts," says Ankur Rudra, sector lead, Ambit Capital.

Only the pharma sector is in a position to reap the maximum benefit from the fall in the rupee. The sector caters to the basic needs and its global demand is quite stable.

 
 

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WPIL - RESULT UPDATE

I have recommended  BUY on WPIL twice around Rs.190/- , which is now trading @ Rs.317/- .Today ,company declared very good results for the full year ended March 2012 ,where sales improved from Rs.219 Cr to Rs.361 Cr and net profit improved from Rs.16 Cr to Rs.23 Cr . EPS is Rs.29/- and a dividend @ 20% also declared. Full effect of company's big ticket acquisitions will be visible from this FY onwards .Requesting to HOLD  for further gains.

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GRANULES INDIA - BUY

 

 

Like my repeated BUY recommendation on KAVERI SEED COMPANY in last year from a level of Rs.272/- onwards  ,this year it is GRANULES INDIA  for the fourth time even after an appreciation of about  40 % from the initial rate.I strongly feel this Hyderabad based Pharma company is still ignored by the market participants.This 650 Cr company ( Consolidated) is operating in API’s,PFI’s and Finished Dosages.Last year Granules posted a net profit of Rs.30 cr , a growth  of 43 % over previous year. Its turnover showing a CAGR of 28% in last five years which is exactly double of the average industry CAGR in these period.In FY 2011-12 , revenue growth in API division is 20% ,PFI 27 % and FD 83%.Currently company having 6 API products with a production capacity of 18000 TPA ,40 PFI products with 18000 TPA and 14 FD products with 18 Bn .What is really exciting is the upcoming increase in this production capacities where company’s API production will rise by 20% PFI by 200 % and FD capacity by 300%. Granules already made firm arrangements with MNC’s to sell these expanded capacity.Result of this expansion will start to reflect from the second quarter of this financial year itself.In addition to this ,Granules formed a 50:50 joint venture with Belgium based Ajinomoto Omnichem to produce niche low volume high price API’s .This new facility will be completed by the end of 2013 at Visakhapatnam and start commercial production from next FY.Company having an ambitious target of  Rs.5000 Cr turnover by 2017.Granules posted an EPS of Rs.14.90 and declared a dividend of  20 % for FY 2011-12.

Currently promoters holding about 41 % stake and FII's and institutions another 35 % .In recent months promoters are aggressively hiking their stake through open market purchases which is another important point to note.

 STANDALONE

 

  

CONSOLIDATED FULL YEAR

Since company is exporting about 80% of its production ,depreciation of  currency  is also expected to help the company to improve its bottom line.A clean and transparent management with higher standards of corporate governance makes Granules India a preferred pick from the mid/small cap space.CMP is Rs.110/-

For old posting Click HERE

Dicl : I have vested interest in GIL

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LIBERTY SHOES LTD - WEAR THIS SHOES

 

  

Liberty Shoes Ltd is the second largest shoe manufacturer in India – next to Bata – with a production capacity of 50000 pair shoes per day from 6 units.Its facilities located at Karnal (Haryana) Paonta Sahib (HP)  and  Roorkee ( Uttarakhand)  .  Company having wide marketing network consists of 150 distributors, 400 exclusive showrooms and over 6000 multi-brand outlets. Liberty also exporting its products to more than 25 countries across the world.Its main brands are Force 10,Mark Free,Fortune,Coolers,Senorita,Windsor,Freedom, Footfun..etc. After few years of slow growth now company is again showing signs of revival.On a sequential basis Liberty increased its sales substantially in last four quarters.It improved from Rs.72 Cr to Rs.97 Cr during this period. In the latest March quarter company posted a profit of Rs.1.8 Cr . Here an important point to note is that , there was an extraordinary one time expense of Rs.3.23 Cr provided in this quarter.If we exclude this amount  ,NP will be more than 500 % compared with last year same quarter and more than 100% from December quarter.Now company is planning ambitious growth ahead.It is decided to merge its retail subsidiary LibertyRetail Revolution with Itself .For the next 3 years company having plans for expansion worth Rs. 500 Cr .Methods for fund raising not announced so far but indicated the chance of P/E funding route.For the last one month, its share price move from Rs.90 level to Rs.125 /- But after shifting the stock to ‘T’ group , it now corrected sharply and trading around Rs.95/-. Medium to long term investors may consider an entry at this level.

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VADILAL INDUSTRIES LTD - BUY

 

Vadilal group originally started its operations in Gujarat way back in 1907.Now its flagship company Vadilal Industries ( BSE CODE - 519156) is the second largest Ice Cream maker in India.Company is also a dominant player in frozen vegetables , ready to eat snacks, curries and breads. Company is producing Ice Creams  in  150 plus flavors and they are sold in a variety of more than 250 packs and forms. The range includes cones, candies, bars, ice-lollies, small cups, big cups, family packs, and economy packs.Vadilal operating two Ice Cream  manufacturing plants ,One  in Ahmedabad and the other in Bareilly.After the recent capacity expansion at a cost of more than Rs.100 Cr ,it manufacturing capacity reached at  375,000 lpd from 225,000 liters per day .After this capacity expansion Vadilal is now eying new markets beyond their traditional markets of Gujarat and Rajastan (excluding southern states and Mumbai and Goa). Its marketing arm is establishing  ‘ HAPPINEZZ ‘ Ice cream parlors through own and franchise route. 200 such retail outlets already in place and is planning to double it in next two years.Vadilal also planning to  add 3,000 retail points-of-sale in Uttar Pradesh alone, in addition to the 10,000 such points across North India. Last year company introduced four varieties Badabite, Flingo, Gourmet  and Ice Trooper in premium segment .Indian Ice cream market is worth Rs. 2,500 crore with an annual growth rate of  18 per cent. Considering the fact that the average consumption of Ice Creams in India is just 300 grms a person per year where it is 24 litres a person in several developed countries , the potential is very big for this business.Vadilal is a well known brand with sufficient infrastructure  in a business where establishing and maintaining a large cold chain is not an easy task for any new entrant. Moreover Vadilal is the company with lowest supply cost even compared with Multinationals.

                                                                                    As part of utilizing the  full potential of its cold chain ,company successfully extended its brand to Frozen vegetables,Fruit Pulps,Parathas,Fruits,Ready to Serve Foods ..etc under the brand name ‘VADILAL  QUICK TREAT’ .Even the current market size of these non ice cream products are limited ,company received very good response for these items from where it launched and planning to extend its market reach for these products too.Growing non ice cream sales will also minimize the impact of seasonality of operation in its business where more than 75 % of sales is currently from a single quarter ( March- June) due to the effect of summer.This  change in trend is visible in latest March quarter where company posted profit after many years.Only negative about this company is its high leverage due to the debt raised for recent capacity expansion.But even after providing the cost for this , company is generating decent profits. Promoters are now planning to reduce debt  with some dilution in equity.Since the company having low equity considering its size of operations and large promoter stake some dilution will not create any problem but ease its leverage to a large extent. Currently Vadilal is one of the lowest valued FMCG player .

                                                         For the last financial year ,Company posted  a sales of Rs.285 Cr , net profit of Rs.6 Cr and an EPS of Rs.8/-Considering its brand value,potential of the business and chances of benefits from recent capacity expansion Vadilal Industries is a company to perform well in future .An earlier de leveraging is a catalyst to re write its current valuation and any delay/shortfall  in Monsoon may act as  an Icing on the cake for the short to medium term.Trading both in BSE and NSE @ CMP is Rs.105/-

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UNITED PHOSPHORUS LTD - BUY

 

 United Phosphorous India’s largest Agrochemical company is trading @ Rs.111 which is close to its multi year low.Recent crash in share price is mainly on account of the CCI order against the company . CCI has levied a penalty of Rs. 252.44 crores on the Company for alleged violation of sections 3(3)(b) and 3 (3) (d) of Competition Act, 2002.UPL is a 7500 Cr company with operations in more than five countries and generating 75 %of its revenue from outside India.On a global level it is one among the largest five generic agrochemical makers.Company selling Insecticides,Fungicides,Herbicides,Rodenticides,Plant growth Regulators and Seeds under various brand names in USA,EU, Latin America  and  India.Last year company made two large acquisitions in Brazil - Sipcam Isagro Brazil and DVA Agro Do Brazil.Since Brazil is one of the biggest markets for Agrochemicals ,these acquisitions is expected to bring good result to UPL on completion of the business integration.In last FY , company posted a turnover of Rs.7654 Cr ,net profit of Rs.555 Cr and an EPS of Rs.12/-. Recently company announced a buy back of its shares with a maximum price of Rs.150/- share. Now company informed that it is  taking  steps to file appeal against the order of CCI before the Competition Appellate Tribunal.All negatives in this matter is already reflecting in its current price and any positive outcome from the Appellate Tribunal will boost its share price .Moreover the buyback will also act as a cushion from further fall in share price . I feel the current difficult time is only temporary  and company will come out of it soon and hence it is the best time to enter in it at current market price of Rs.111/- with  a long term view.

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