Motherson Sumi Systems : A largecap with mega growth story

Overview:-
Motherson Sumi Systems Ltd., incorporated in the year 1986, is a Large Cap company (having a market cap of Rs 79749.12 Crore) operating in Auto Ancillaries sector.

Motherson Sumi Systems Ltd. key Products/Revenue Segments include Auto Electricals which contributed Rs 6640.60 Crore to Sales Value (94.01 % of Total Sales), Traded Goods which contributed Rs 216.60 Crore to Sales Value (3.06 % of Total Sales), Other Operating Revenue which contributed Rs 98.20 Crore to Sales Value (1.39 % of Total Sales), Sale of services which contributed Rs 72.90 Crore to Sales Value (1.03 % of Total Sales), Scrap which contributed Rs 17.10 Crore to Sales Value (0.24 % of Total Sales), Export Incentives which contributed Rs 15.40 Crore to Sales Value (0.21 % of Total Sales) and Job Work which contributed Rs 2.40 Crore to Sales Value (0.03 % of Total Sales)for the year ending 31-Mar-2017.

For the quarter ended 30-09-2017, the company has reported a Consolidated sales of Rs 13338.21 Crore, up 2.86 % from last quarter Sales of Rs 12966.82 Crore and up 33.14 % from last year same quarter Sales of Rs 10018.09 Crore Company has reported net profit after tax of Rs 552.97 Crore in latest quarter.

The company’s top management includes Mr.Arjun Puri, Mr.Gautam Mukherjee, Mr.Laksh Vaaman Sehgal, Mr.Naveen Ganzu, Mr.Pankaj Mital, Mr.Sushil Chandra Tripathi, Mr.Toshimi Shirakawa, Mr.Vivek Chaand Sehgal, Ms.Geeta Mathur, Ms.Noriyo Nakamura. Company has Price Waterhouse Chartered Accountants LLP as its auditoRs As on 30-09-2017, the company has a total of 2,105,289,491 shares outstanding.

Motilal Oswal has initiated coverage with a Buy rating on Motherson Sumi Systems, the auto ancillary firm, citing supportive global trends, strong growth visibility and financial discipline. It has set a target price at Rs 458 per share, implying 23 percent upside over Thursday's closing value.

The research house said the company has enviable track record of strong performance with unwavering focus on capital allocation. MSS has evolved as a partner of choice for all most all original equipment manufacturers (OEMs) in the world, reflecting in increasing share of business and market leadership in all the key businesses that it operates in.

It is in sweet spot to benefit from evolving disruptive global automotive trends, which would drive its next wave of growth, it feels.

Motilal Oswal said MSS is now entrenched in the virtuous cycle of “scale begets scale”, as it would significantly benefit from OEMs focus on vendor consolidation.

MSS has strong organic growth opportunities in international as well as domestic market driven by increase in content per vehicle, strong order book and entry in new markets/segment.

The research house estimates MSS’s consolidated revenues/EBITDA/PAT to grow 22/30/33.5 percent CAGR FY17-20. Consequently, it expects return on capital employed-RoCE (post-tax) to improve to 21.2 percent in FY20 (14.7 percent in FY17).

In May 2015, MSS had shared its Vision 2020, targeting revenues of USD 18 billion, RoCE of 40 percent and payout of 40 percent. Of USD 18 billion revenues, it was expected organic revenues of USD 12.4 billion and balance USD 5.6 billion through M&A. M&A has been strategic tool for MSS to strengthen its relationship with customers and get more share of business.

"While acquisitions will play key role to attain revenue targets, management is very clear that acquisitions have to pass its 40 percent RoCE hurdle rate in 4-5 years," Motilal Oswal said.

The Road ahead : -
Motherson Sumi Systems is the flagship company of the Samvardhana Motherson Group. The company was promoted in 1986 in JV with Sumitomo Wiring Systems and Sojitz Corporation of Japan.

MSSL had started out as a single product (wiring harness) company, but has since expanded its product range to include polymer products (through SMP), automotive mirrors (through SMR) and elastomers. The group has four divisions namely the wiring harness (15 percent), polymers (52 percent), mirrors (28 percent) and others components (5 percent).

The latest acquisition of PKC (100 percent owned) strengthens MSS presence in commercial vehicle wiring harness segment. The group operates 230 plants in 37 countries and employs over 1,00,000 people.

The latest investor presentation is detailed enough to give comfort to investors on the current status as well as future outlook.

MSSL has been able to integrate & consolidate the new companies very successfully and is heading towards its consolidated revenue target of $18 billion, 40% RoCE by 2020. Also, the Indian business is very small compared to the overall revenues as the clientele is wide and diversified across many countries.

Started in 1975, as a partnership between Late Mrs. Swaran Lata Sehgal and her son Mr. Vivek Chaand Sehgal, MSSL has grown into one of the largest provider of automotive components, operating 230 facilities in 37 countries and 24 joint venture partners.

The current status of the company looks decent, but investors have to understand that the debt is on the higher side due to multiple acquisitions.

Hence the high depreciation and interest cost, as seen in the quarterly results. The depr.+int. cost accounts for 38% of the net profits, which is quite large, but understandable due to continuous acquisitions over the years.

The company has informed that starting 2020, they would want to maintain the dividend payout at 40% of net profit. This would be very rewarding for the investors, who are interested in dividend growth stocks for investment.

At the same time, the stock has given good returns in the form of capital appreciation. The 10 year return is close to 1700%, a 5 year return of 560%, a 1 year return of 87%. No investor would be disappointed with these returns !!!

Future Prospects:

The company is growing at a decent pace and with the new acquisitions, MSSL is trying to capture a large share of the ‘vehicle wallet’. The company’s contribution to manufacturing of each full vehicle is tremendous.

The Revenue, Margins and RoCE are on a growth trajectory and there is scope for improvement only.

The company has loyal clientele spread across countries and companies, and recently MSSL has added Tesla, Bombardier, Alstom, Rolling Stock as their new clients.

With this outlook and positive framework, the company is well poised to grow by leaps and bounds, while rewarding the investors sufficiently, by means of capital gains as well as their new dividend policy.

Investors can choose this stock from a long term investment perspective and keep adding to the portfolio regularly, on large dips in the stock price.

Motherson Sumi: Rating BUY | Target - Rs 458 

Motherson Sumi has four divisions wiring harness (15 percent), polymers (52 percent), mirrors (28 percent) and others components (5 percent), operates 230 plants in 37 countries and has an enviable track record of strong performance with an unwavering focus on capital allocation.

It is in a sweet spot to benefit from evolving disruptive global automotive trends, which would drive its next wave of growth. The latest acquisition of PKC strengthened its presence in commercial vehicle wiring harness segment.

Premium valuations are justified considering sharp improvement in post-tax RoCE (around 21.2 percent in FY20 versus average around 13.4 percent in last 5 years) and the possibility of stronger than expected earnings growth. Value the stock at 25x FY20E consolidated EPS with target price Rs 458.

Next Read : S H Kelkar:India's Largest Fragrances maker
Previous Read: Mahanagar Gas: A Power Packed Gas Distributor

S H Kelkar:India's Largest Fragrances maker

Overview :
S H Kelkar & Company Ltd., incorporated in the year 1955, is a Mid Cap company (having a market cap of Rs 4337.90 Crore) operating in Chemicals sector.

S H Kelkar & Company Ltd. key Products/Revenue Segments include Chemicals which contributed Rs 686.37 Crore to Sales Value (99.87 % of Total Sales) and Scrap which contributed Rs .89 Crore to Sales Value (0.12 % of Total Sales)for the year ending 31-Mar-2017.
For the quarter ended 30-09-2017, the company has reported a Consolidated sales of Rs 220.83 Crore, down -5.60 % from last quarter Sales of Rs 233.92 Crore and down -9.41 % from last year same quarter Sales of Rs 243.78 Crore Company has reported net profit after tax of Rs 18.87 Crore in latest quarter.

The company’s top management includes Mr.Amit Dalmia, Mr.Amit Dixit, Mr.Dalip Sehgal, Mr.Jairaj Purandare, Mr.Kedar Vaze, Mr.Nitin Potdar, Mr.Ramesh Vaze, Mrs.Alpana Parida, Mrs.Prabha Vaze, Mrs.Sangeeta Singh. Company has BSR & Co. LLP as its auditoRs As on 30-09-2017, the company has a total of 144,620,801 shares outstanding.

S H Kelkar & Company Ltd. (SHK) is the largest Indian-origin Fragrances & Flavours (F&F) company in India. Its fragrance products and ingredients are used as a raw material in personal wash, fabric care, skin & hair care, fine fragrances and household products. Its flavour products are used as a raw material by producers of baked goods, dairy products, beverages and pharmaceutical products.

The company has a diverse client base of over 4,100 customers including leading national and multi-national FMCG companies, blenders of F&F ingredients while it also offers products under SHK, Cobra and Keva brands in the small pack segment.

Looking at 12-15% revenue growth in long-term

Expected Growth FY17-19E

·  Sales : 9.4% CAGR

·  EBITDA Margin Improvement: 267 bps

·  PAT: 20.6% CAGR

The Company reported a subdued set of Q2 numbers. In an interview with CNBC-TV18, Kedar Vaze, CEO of the company discussed the numbers in detail.Our guidance for H2 of FY18 remains the same, we will continue to grow 12-15 percent year on year in second half, he said.
According to him, sales in domestic market were down during July-August months due to goods and services tax (GST) but the momentum in the business is back to normal and the second half will be in-line with what is expected.
In a few months down the line, the management will be able to analyse whether they will recover the loss of sales in first half.
Good projects are coming in line which were held behind because of the GST and demonetisation. “We would see a flurry of product launches in second half,” he further mentioned

Pros

· Strong presence in the Fragrances & Flavours (F&F) sector characterized by high knowledge moat and significant customer stickiness

· 14% domestic market share in an oligopolistic market with an diversified customer base

· Robust growth in flavours segment and shift of mix towards more value added products in fragrances coupled with cost efficiency measures to boost bottomline growth. Additional upside could accrue from tuck-in acquisitions

· Indian FMCG markets (key end market for the F&F sector) poised for ~20% CAGR over the next four years driven by rapid increase in per Capita FMCG spending

· Presence in the small pack and tier-2 segment provides added edge over MNC competitors

Risks

· Sharp slowdown in domestic or global FMCG markets

· Inorganic acquisitions may not integrate or scale up as anticipated

·  Significant appreciation of EUR against the USD or INR against the USD

·  Volatility in raw material prices

Key Highlights

·  SHK is the largest domestic Fragrances & Flavours (F&F) player in India with ~14% market share in an oligopolistic industry

· Robust spurt in the flavours segment coupled with recovery in volume growth in the fragrances segment, mix shift in favour of more value-added products in the fragrances business and significant cost efficiency measures are envisaged to lead to revenue and PAT CAGR of ~9% and ~21% over FY17-19E, respectively

·  The company is trading at significant discount to growth adjusted valuation multiples of global peers, while additional upside could accrue from tuck-in acquisitions.

We initiate coverage with ‘BUY’ and a target price of INR 348 valuing the company at 33x FY19E EPS of INR 10.5

Next Read : PNB Housing : A Strong Leader in Housing Finance Industry
Previos Read:Motherson Sumi Systems : A Largecap with Mega Growth Story

PNB Housing : A strong leader in housing finance industry.

Overview :-

PNB Housing Finance Limited (PNBHFL) is a 30 years old public sector housing finance company (HFC), headquartered in New Delhi with branches in major cities across India. The company is promoted by Punjab National Bank and is registered with state owned bank and regulation authority of India - National Housing Bank (NHB).The company provides housing loans & loan against property as a part of its product portfolio and also holds the license to accept public deposits.

Company’s deposit program is rated CRISIL FAAA/Stable (Highest Safety) and AAA by CARE. Company is rated CARE AAA for bank loans long term and CARE A1+ for commercial paper program. Company's is rated CARE AAA, IND AAA with stable outlook by India Ratings (Fitch Group), CRISIL AA+ with negative outlook and ICRA AA+ with stable outlook for Bonds/Non convertible debentures.

Recently Stallion Asset Mgmt team met the Management of PNB Housing and spend the entire day with the whole top management. We got amazing insights about the housing finance Industry & the road Ahead. These are the 5 main takeaways from the meet.

1) Opportunity Size – The Run up in Housing Finance Companies has been very strong and we wanted to understand the opportunity as every company is coming out with exciting target’s, for example newly launched Piramal is targeting 15,000 Crores AUM FY 2020, Reliance Home has guided to Increase AUM by 57% CAGR from 13000 Crores now to 50,000 Crores by 2020, Kapil Wadhawan of DHFL guided in an Interview last week to more than double AUM from 90,000 Crores to 2,00,000 Crores in 3 years, & Finally Indiabulls Housing finance has guided for 30% CAGR AUM Growth. This is more important as these guidance are coming at a point when the supply to new housing is very weak & most builders are struggling with weak sales.

Sanjaya Gupta, the CEO of PNB Housing and a man whose one of the most passionate 54 year old guy i have seen has spend his entire life in the mortgage Industry told me that there is no doubt that supply is weak in the new retail housing this year due to factors like RERA & Demonetization but a lot of builders are started to line up projects next year, and FY2018 will be the inflection point for affordable housing in India. He also added that he will sweat his assets and ensure that they have reasonable growth. The whole Industry is looking towards affordable housing and the same point was repeated by Khushru Jijina on Wednesday on the launch of Piramal Housing finance that FY2018 will be a super Kicker for Housing Finance Companies as affordable housing really starts. We at Stallion Asset always verify the information and we spoke to a few builders in affordable housing & their reply was every top builder in major cities are definitely foraying and betting big on it. The model of Purvankara of having a separate low cost housing subsidiary has been well taken by the market & that’s the model they will work on.

2) Growth – We all know Housing Finance Industry in India has been growing at 18% historically, though the banks have been growing at just 15% and losing market share to Housing finance companies who are growing at 21%, but what about growth ahead. The Question was that if we break up the growth for last 15 Years there was a 10% Growth in Prices of Real Estate & 8% volume Growth, but now that there is no growth in Real Estate Prices, will the Industry be able to grow at 18%? The Answer was affordability for housing has improved as prices have been stagnant for last 5 years and with falling interest rates and subsidies on housing loan, they remain super bullish.

The most Important point i picked up during the Conversation was that only 20% of new registrations for house that happen are new houses (Seller is the builder), and the rest 80% are Consumer to Consumer transfer (Resale).

3) Competition- Since Competition has increase from New HFC’s as well as banks getting aggressive on retail lending, our next concern was will the Spreads sustain? There is pressure on the Salaried Class for spread as government banks are getting aggressive there but self employed remain 50% of Retail book for PNB Housing where competition is limited.

4) Loss Given Default & Credit Risk – We asked that there is a common phenomena and the one that we at Stallion Asset also believe that Profits for an NBFC are Front Ended, Whereas Losses are Back ended. Sanjaya Gupta Clarified that it all depends on the Credit Quality, and we at Stallion Asset learned from our visit that PNB Housing definitely has the best System in Place for credit Checks. When i asked Jayesh Jain, CFO of PNB Housing about the Loss given default, he told me its about 4% of NPA i.e. if the loan book is 10,000 Crores, assuming NPA is 1% of that i.e. about 100 Crores, in that case only 4 crores is real bad debt, the rest is recovered from selling mortgage.

5) Conclusion – The Growth in Housing Finance going forward is going to be a volume game, Raamdeo Agarwal of Motilal Oswal who himself runs a Housing finance company (Aspire) gave PNB Housing a thumps up, calling a 1 Lakh Crore ki Kahani. Valuation of most HFC’s are pricing in a pick up in affordable housing, the housing finance story is now depended on affordable housing story, but remember only 20% of housing sold in India is via builders and the rest 80% is by Consumer to Consumer. The conclusion of the meet was that if Affordable housing really picks up the HFC’s would grow at 30%, and if it doesn’t they will grow at 15%.


Motilal Oswal's  research report on PNB Housing Finance :
PNB Housing Finance’s (PNBHF) 2QFY18 PAT grew robustly by 51% YoY to INR2.08b, led by its strong AUM growth, YoY improvement in margins and lower C/I ratio (albeit off a high base). Disbursements grew 45% YoY to INR74b. While this is certainly a very strong performance, it was a tad lower than disbursements in 1QFY18, suggesting some impact of RERA, and possibly GST. Generally, the second quarter is seasonally strong in terms of disbursements for an HFC. AUM growth of 47% YoY was in line with estimates. The mix has remained largely stable on both QoQ and YoY basis. C/I ratio (calculated) declined over 1,200bp YoY and 160bp QoQ to 23%. The sequential improvement is commendable, in our view. One of the key factors driving this is improving employee productivity. As per company disclosures, both disbursements/employee and loans outstanding/employee have increased at ~20% CAGR over the past two years (note that this number does not account for off-roll sales staff). We believe continued operating leverage is key to RoA/RoE improvement, and thus, for valuations to sustain.

Outlook
PNBHF continues to deliver strong growth in its loan book. Increasing geographical spread and new branch openings (110 branches in FY20E v/s 66 in FY17) are expected to result in the loan book growing to ~INR1t by FY20 (37% CAGR). With the pace of investments slowing down, coupled with operating leverage benefits kicking in, the expense ratio is set to decline meaningfully. Credit costs, however, are expected to inch up marginally on account of portfolio seasoning. All these factors put together are expected to drive 41% PAT CAGR over FY17-20E, with RoE inching toward high-teens over the medium term. We upgrade our FY18-20 EPS estimates by 2-9%. Buy with a target price of INR1,750 (3.8x Sep 2019E BVPS, 22x Sep 2019E EPS).

Bonanza's research report on PNB Housing Finance

Recently, the stock price of PNB Housing Finance Ltd. (PNB Housing) corrected by ~17% from 52-week high of Rs.1,717 despite reporting good set of numbers in the recent quarters.  With a change in management in 2011, PNB Housing witnessed an impressive turnaround, with a robust loan CAGR of 60% during FY12-17, driven by increased market penetration, expansion into new territories, higher branch count coupled with increasing branch productivity. Consequently, its market share increased from ~0.5% to over 2%, making it the 5th largest housing finance company (HFC) in India. With a hub-and-spoke model and a central processing center (CPC), the company has ensured that branches focus only on loan sourcing, hubs focus solely on underwriting and the CPC focuses only on file processing. Unlike other HFCs, which are now focusing more on the affordable housing segment, PNB Housing caters largely to the middle and upper-middle class segment. Its average ticket size of Rs.3.2mn in home loans is ~30% higher than that of HDFC and IHFL.

Outlook

With impressive turnaround, expansion into new territories, well diversified portfolio, developed capabilities to underwrite, plans to further increase branch network, increase its presence in tier-II and tier-III cities in the southern and western regions and lowest funding costs, we value PNB Housing at 4.50x FY19E ABV of Rs.385.70 to arrive at target price of Rs.1,736, an upside of ~22%.

Next Read : Ramkrishna Forgings : Poised for healthy growth

Ramkrishna Forgings - Poised for a Healthy Growth

Overview :
Ramkrishna Forgings Limited was founded on 12th November, 1981. On a bed of integrity, fuelled by burning ambition. Years of staying true to our principles and tireless endeavour, we have produced rich results. We became a limited company on 25th May, 1995 and today we are an organisation manned by qualified and highly skilled people with state-of-the-art manufacturing facilities and international levels of quality control.


Our Company is a supplier to various sectors like Domestic and Overseas market. We are also a critical safety item supplier for Screw Coupling, Bolster suspension, Side frame keys and Draw Gear Assembly for Railway Coaches and wagon. We are a preferred supplier for OEM's like TATA Motors, Ashok Leyland & VE Commercial and we are also a global supplier for companies like Meritor to name a few

Ramkrishna Forgings (RFL) is the second largest forging company in India after Bharat Forge (BFL) with an installed capacity of 150,000MT. The Company primarily caters to Automotive, Railways and Mining sectors. RFL has almost doubled its capacity in last two years by expanding its press line capacity to 80,000MT in FY17, which aided the Company to enhance its market reach as well as clients base. With the major capacity expansion programmes are behind and visible rebound in global markets suggesting higher demand for forging products, we believe RFL is likely to witness a healthy traction hereon with the expected FCF generation of over Rs4.6bn during FY18-FY20E.

Bright Outlook for Automobile Segment Augurs Well

RFL derives 80% of its total revenue from Automotive segment (including exports) as auto volumes had been favourable over the years. Further, as India’s economy is set to witness healthy growth on the back of reforms and visible improvement in global economy, we expect demand for automotive parts to remain healthy and hence for forging works. Further, increased domestic investment in Railways and Mining will ensure incremental demand of RFL products.

Favourable Industry Structure

Total installed capacity of forging industry is ~4mnT, 87% of which falls under small (5,000-12,500MT) and 8% under medium (12,500-30,000MT) categories. Hence, capacity above 30,000MT forms only 5% of the industry and RFL is the second in this large category after BFL (domestic capacity is 400,000 MT). Hence, we consider RFL as the best alternative to BFL, which has already scaled up from supplying only rear axle assemblies to large and complex products like front axle beams and assemblies.

Margins Improvement on the Cards

Presently, RFL enjoys higher EBITDA margin from Ring Rolling segment (up to ~22-23%) due to complex nature of work and optimum utilisation. Going forward, we expect increasing contribution of exports (RFL foresees export revenue up to 42-45% in FY20E) and improved revenue contribution from press line (12,500MT) with higher utilisation will propel RFL to witness higher margins and better profitability. 

Healthy FCF with Least Capital Expenditure 

RFL has concluded its major expansion drive and is currently in the process of improving the utilisation of newly commissioned facility. We expect RFL to generate free cash flow of Rs4.6bn over FY18-FY20E aided by low capex requirement and healthy margins. Notably, RFL is currently in the process of enhancing its machining capacity by 5-7% through debottlenecking.

Latest Developments :

The Ramakrishna Forgings stock has been on a tear of late with a 40 percent gain in the last 3 months. The company also posted a very good set of earnings in the second quarter as strong volume growth drove revenues.

To know what is keeping the stock so active and the outlook going forward, CNBC-TV18 spoke to Naresh Jalan, MD, Ramkrishna Forgings.

When asked if an increase in raw material prices would impact their margins in second half, he said any  increase in prices would be passed on, so does not impact them but the only thing that impacts the balance sheet is the time taken by OEMs to decide on price hikes.

For the first half FY18 the revenues were up 58 percent at Rs 590 crore and margins were up at 19.6 percent versus 18.9 percent.The extraordinary jump seen in the revenues was because the compnay managed to increase their market share and content per vehicle on back of capacity expansions.

The company is into manufacturing of forging and pressing parts and majority of their revenues come from commercial vehicle segment, while 15 percent of domestic revenues come from Earth-moving and railways equipment. Exports to US, UK constitute of 27 percent of the revenues. The total capacity stands at 1.5 lakh tonne.

Jalan said the company has large exposure to Class 8 and Class 5 trucks in US market and their total exposure to exports currently is 30 percent and domestic is 70 percent but by FY18, it will be 35 percent exports and 65 percent domestic.

Moreover, realisations in the export market are higher by 100-150 basis points, he added. Both the US and UK market source largely from India.For the forging industry the hike in exports have increased by around 30 percent to the US market, said Jalan, adding that this momentum is likely to continue in 2018 as well.
In terms of tonnage, the company has already guided for 1.10 to 1.15 lakh tonnes in FY18 as compared to 80 tonnes done in FY17, which is a jump of 30 percent, he said. Total utilisation capacity stands at 1.50 lakh tonnes.

Therefore, utilisation in FY18 would be around 70 percent, he said. As utilisiation improves, there will be improvement in both bottomline and topline as overhead costs come down. By FY19 the utilisation would be closer to 100 percent, said Jalan.

When asked if they were looking at inorganic growth in terms of the stressed asset sales, he said the QIP done by company a few months back was with an intention of inorganic growth and they are cash ready to grab any such opportunity for a right price. The first place to look at would the NCLT cases, he said. 

Valuations Still Appear Attractive:BUY

Despite a sharp upsurge in stock price during last six months due to improving financials and healthy outlook, we believe that the stock still trades at attractive valuation considering a massive discount of ~50% in FY20E earnings against BFL. However, as healthy improvement in return ratios (RoE at 21% in FY20E) is comparable with that of BFL (23% RoE in FY20E), we expect the valuation gap to shrink in ensuing period. We initiate coverage on RFL with BUY recommendation and a Target Price of Rs975 (15.5x FY20 EPS).

Next Read : CANSLIM : One of the best method to pick stocks.

Previous Read : PNB Housing : A Strong Leader in Housing Finance Industry

CANSLIM : One of the best method to picking quality stocks

With the market hitting new highs, picking stocks has become even more difficult. Investors also face the eternal dilemma: should they go by the fundamentals of a company or decide on the basis of technical factors that help time the market? Putting the two together, say experts, can be a winning strategy.

“A combination of the two works better. Fundamentals give the conviction to hold the stock, and technicals provide attractive entry and exit points,” says A.K. Prabhakar,Head of Research at IDBI Capital Markets. If you are wondering about how to combine the two approaches, the CAN SLIM methodology is just the thing for you.

Developed by investor William O’Neil, CAN SLIM is a techno-fundamental strategy that helps pick quality stocks. This strategy focuses on companies that show acceleration in earnings because of innovation and suggests buying them before the stock price witnesses a major spike,” says Anupam Singhi, Chief Operating Officer, William O’Neil India (see graphic). For investors who cannot hold stocks for an extended period—more than five years—techno-fundamental strategy promises potentially better returns.

FUNDAMENTAL STRATEGY 

CANSLIM : Way to picking quality stocks, one of the best method 

What is it about investing? Why are so many people intimidated by it?

Is it because experts try to wall you with their intellect and skills,thinking you will be impressed when they talk in terms that make you feel completely clueless.

A great financial lesson is one which is spoken in terms so easy that even a child could grasp the concept.

Personal Finance and investing does not have to be difficult but so many people are turned off because they are intimidated by the notion that investment is risky and its a game only for professionals.

Well there is a seven step method out there for picking a winning stock, all you have to remember is one acronym CANSLIM.

CANSLIM represents the seven fundamental components, so lets dive in this strategy. 

CANSLIM CHECK LIST

------------------------------------

-----------------------------------

C = Current Quarterly Earnings per Share. 

O'Neil emphasizes the importance of choosing stocks whose earnings per share (EPS) in the most recent quarter have grown on a yearly basis. For example, a company's EPS figures reported in this year's April-June quarter should have grown relative to the EPS figures for that same three-month period one year ago.

Quarterly earnings per share must be up at least 18% or 20%, but preferably up by 40% to 100% or 200% or more , the higher, the better. They should also be accelerating at some point in recent quarters. Quarterly sales should also be accelerating or up 25% or more.

A = Annual Earnings Increases 

CAN SLIM also acknowledges the importance of annual earnings growth. The system indicates that a company should have shown good annual growth (annual EPS) in each of the last five years.

There must be significant (25% or more) growth in each of the last three years and a return on equity of 17% or more (with 25% to 50% preferred). If return on equity is too low, pretax profit margin must be strong. 

N = New Products, New Management, New Highs. 

Look for new products or services, new management, or significant new changes in industry conditions. And most important, buy stocks as they emerge from sound, properly formed chart bases and begin to make new highs in price. 

S = Supply and Demand Shares Outstanding plus Big Volume Demand.

Any size capitalization is acceptable in todays new economy as long as a company fits all the other CAN SLIM rules. Look for big volume increases when a stock begins to move out of its basing area.

L = Leader or Laggard. 

Buy market leaders and avoid laggards. 

Buy the number one company in its field or space. Most leaders will have Relative Price Strength Ratings of 80 to 90 or higher and composite ratings of 90 or more in bull markets. 

I = Institutional Sponsorship.

Buy stocks with increasing sponsorship and at least one or two mutual fund owners with topnotch recent performance records. Also look for companies with management ownership. 

M = Market Direction. 

Learn to determine the overall market direction by accurately interpreting the daily market indexes price and volume movements and the action of individual market leaders. This can determine whether you win big or lose. You need to stay in gear with the market. It doesn't pay to be out of phase with the market.


How CANSLIM is different from Conventional methods:-

Buy right, sell right
When picking stocks, price is most investors’ chief concern. Stocks that are available ‘cheap’, as indicated by a low price-to-earnings (PE) ratio, are preferred over ‘expensive’ scrips. But cheap stocks may be priced low for a reason, just like a high PE stock may be trading at a premium for a good reason.

“In pursuit of low PE stocks, investors sometime tend to miss out on some big winners,” says Singhi. Infosys is a case in point. Inf ..

But, Infosys turned out to be one of the biggest wealth creators in India’s stock market history. PE ratio, therefore, is not always the best indicator of stock price movement. The CAN SLIM strategy can be a better alternative to selecting quality stocks.

According to markets research firm William O’Neil India, whose model stocks have seen an average PE expansion of up to 130%, the market’s best-performing stocks debunk the over-reliance on PE ratios for astute stock selection.
Investors should not rely solely on the PE of a stock, instead look at high-quality businesses with sustainable competitive advantages, even if they are not ‘cheap’. CAN SLIM helps identify such businesses.

Now, buying stocks for capital appreciation is just the start. Selling them at the right time is equally important for booking profits as well as capital preservation. “Following stop loss is very important when you pick any techno-fundamental strategy,” says Jasani.

CAN SLIM methodology not only helps you pick stocks that have a greater possibility of seeing a price appreciation, it can help you stop loss in case a company’s fortunes take a turn for the worse—as was the case with Satyam. “As advised by CAN SLIM method, cutting losses at 8% can help investors protect their capital from a huge loss,” says Singhi.

or not to sell, CAN SLIM can help you make the decision. If the stock is still being bought by institutional investors, there’s a possibility of further upside to it. In such a case, say experts, hold it for at least eight weeks, before you decide to sell it.

For stocks that haven’t seen a sudden spike, the sell signals include trade volumes falling below 50-day moving average—indicating institutional selloff— negative news that can affect a company’s future growth and/or, weakening company fundamentals reflected in its quarterly numbers.

10 stocks picked by CAN SLIM
These stocks, identified using the CAN SLIM method, have witnessed increased traction from institutional buyers over the past few quarters.

Next Read :Kiri Industries :Is it a long term buy
Previous Read : Ramkrishna Forgings : Poised for healthy growth

Kiri Industries : Is it a long-term buy from chemical sector?

Kiri Industries

Specialty Chemicals including dyes and pigments - This is the buzzing sector in the market over the last one year. Unlike other chemical segments, Specialty Chemicals requires application-specific development, innovation, and marketing to specific companies in various geographies across the world.

Kiri Industries is one of the largest manufacturer and exporter of wide range of Dyes, pigments, intermediates, and chemicals. With a Rs. 1450 cr. market cap and a sales turnover of Rs. 900 cr. this company supplies to more than 50 countries. Kiri has 4 subsidiaries, 1 Joint Venture and 2 associate companies contributing to its revenues.

This company was doing extremely well before 2008, when it overleveraged its balance sheet with the acquisition of Dystar and JV with China-based Longsheng group. This increased the debt of the company to as high as Rs. 850 cr. by 2014–15, as it had to be funded from working capital and term loans which almost destroyed the company.

Company Profile :

Kiri Dyes & Chemicals Limited (KDCL) is an ISO 9001:2000 certified company engaged in manufacturing of reactive dyes which are called synthetic organic dyes used for cotton fabrics like garments, dress materials, bed-sheets, carpets etc. The company was incorporated in 1998 as a Kiri Dyes and Chemicals Private Limited by at Ahmedabad, Gujarat. Praveen A. Kiri and Manish P. Kiri promoted the company. All the products manufactured by the company have comes under in two groups, such as Reactive Dyes and Intermediate Dyes and also the products found global acceptance. The product range of the company comprises of more than 120 dyestuffs used by textiles, leather, paint and printing ink industries with total production capacity of 10800 MT per annum. The dyes are of basically colours like black, blue, red, orange, yellow and numerous variants of these basic colours identified by color index number internationally. The company equipped the R & D laboratories with sophisticated and technologically advanced equipment, were the highly skilled team of research chemists; engineers and technicians to serve deverse range of products of the company.

KDCL have four plants situated Gujarat, India in different districts and four different names such as Kiri Dyes and Chemicals Limited (100 % EOU UNIT), Survin Laboratory, Kiri Dyes and Chemicals Limited - Unit-II and Parkin Industries - II. The company started its overseas operations in 1999; KDCL exported its products to USA and Taiwan. An appreciation for the year 1998-1999, the company awarded outstanding export performance by CHEMEXIL and also the same was came to the company for 1999-2000 in 2001 the year. Trophy awarded to the company by Gujarat Dyestuffs Manufactures Association for export performance of more than Rs. 600 Lakhs for direct export of self-manufactured dyes & dye intermediates.

During the year 2002, KDCL obtained permission confirming eligibility of Kiri Dyes to become 100% Export Oriented Unit from Kandla Special Economic Zone. The company received prestigious Platinum Award from CHEMEXCIL for outstanding performance during the year 2002 - 2003 and became Government Recognized Trading House in 2003. The year 2004 was the turning point to the company, recognized as a Two Star Export House and converted it manufacturing unit into 100% Export Oriented Unit. KDCL obtained Environmental Clearance Certificate from the Ministry of Environment and Forest for further expansion. The company started strategic backward integration project at Padra, Dist. Vadodara in 2005 and in 2006 the commercial production of backward integration project with respect to Vinyl Sulphone Easter started at Padra, Dist. Vadodara was in ensured. Awarded by Clariant (India) Ltd as A class vender for outstanding performance as a Business Partner - Sourcing and its contribution in the growth of Clariant (India) Limited in the same year of 2006. KDCL got an ISO 9001:2000, a certificate for quality management system by ISOQAR in the year 2007 for manufacture and supply of dyes intermediates for its Unit located at Village Dudhwada, Padra, Vadodara. KDCL has one of the advanced and effective effluent treatment plants to ensure required outlet norms under the safety environment of the company and also responsible and bound to manage lands to protect and enhance wildlife and ecosystems.

Results :
KIRI INDUSTRIES LTD. has reported financial results for the period ended September 30, 2017.
The company has reported net sales of Rs.301.38 crores during the period ended September 30, 2017 as compared to Rs.297.04 crores during the period ended September 30, 2016.
The company has posted net profit of Rs.92.60 crores for the period ended September 30, 2017 as against Rs.86.09 crores for the period ended September 30, 2016.
The company has reported EPS of Rs.33.26 for the period ended September 30, 2017 as compared to Rs.30.92 for the period ended September 30, 2016.
The company has reported net sales of Rs.591.64 crores during the 6 months period ended September 30, 2017 as compared to Rs.613.56 crores during the 6 months period ended September 30, 2016.
The company has posted net profit of Rs.196.28 crores for the 6 months period ended September 30, 2017 as against Rs.167.27 crores for the 6 months period ended September 30, 2016.
The company has reported EPS of Rs.70.51 for the 6 months period ended September 30, 2017 as compared to Rs.60.09 for the 6 months period ended September 30, 2016.

The stock price of this company was at Rs. 877 in Feb 2010, after which it plunged to as low as Rs. 4 by Jul 2013.

China had a large market share of dyes and pigments in 2012–13. Since 2013, owing to crackdown on polluting sectors in China, the production started falling, and other Indian companies starting taking advantage of the situation. Kiri Industries utilized its facilities and realized higher margins and started paring down its debt. In 2015–16 the promoters infused Rs. 50 cr. by subscribing to warrants and have further fully-paid warrant allotment for a further infusion of Rs. 127 cr. This will increase the promoter shareholding from current 37% to 44.64% soon.

In the meantime, the debt also has reduced to Rs. 165 cr, a substantial reduction from Rs. 850cr. in two years, and the company plans to be debt free soon. This will help in increasing the margins further.

The financials of the company are good. The operating profit margins have been consistently increasing and are approaching the 20% mark. The major change that you will see is the reduction in the interest cost over the last 12 quarters.

This good performance is reflected in the stock price. The stock has returned 4200% in the last 5 years. That is a tremendous return for a multi-bagger !!!

Future Prospects:

• Revenue boost by implementing expansion projects for disperse dyes facility, various intermediate products and zero liquid effluent discharge project for the betterment of environment protection is on the anvil.
• Improving financials which are consistently on the upward trajectory, reduced finance costs, better-operating margins and better EPS will be a continuity from now on.
• Promoter shareholding increase to 45% will boost the investor sentiment.
• JVs and Associate Companies have started contributing to the revenues in a significant manner and their contribution is expected to be on the upswing.
• Kiri is fighting a legal battle for Dystar against the earlier promoters for a share of the profits for their shareholding and contribution to the turnaround of that company. The amount is in excess of Rs. 700 cr. If it goes through in Kiri’s favor, then Kiri would get windfall gains and if the process is resolved to complete satisfaction, we could see Kiri producing products from 14 more plants.
• With a FV of Rs. 10, P.E. of 13.5 and a diluted EPS of Rs. of Rs. 43.35 for H1 2017, this is one of the cheaper stocks in this segment compared to Thirumalai, Bodal, Pushkar or Akshar Chemicals.
• Extrapolating the same, with continuing performance, Rs. 1170 is a fair value target for the company by Mar 2018. In case, the Dystar suit is in favor of Kiri, then the stock can go much higher, to a target of Rs. 1400.

Next Read: LT Foods:A Royal Basmati Daawat
Previous Read : CANSLIM : One of the best method to pick stocks.

LT Foods : A Royal Basmati Daawat for investors.

LT Foods Limited is a branded specialty foods company. The Company is engaged in milling, processing and marketing of branded and non-branded basmati rice, and manufacturing of rice food products in the domestic and overseas market. Its geographical segments include India, North America and Rest of the world. Its operations include contract farming, procurement, storage, processing, packaging and distribution. Its rice product portfolio comprises brown rice, white rice, steamed rice, parboiled rice, organic rice, quick cooking rice, value added rice and flavored rice in the ready to cook segment. The Company's brands include Royal; Ecolife, an organic food brand that includes rice, pulses, oil seeds, cereal grains, spices, nuts and fruits and vegetables; Devaaya, which offers branded Basmati rice, with staples, such as Atta, Suji, Besan, Dalia, Poha and Maida, and Heritage, a basmati rice brand. Its brands also include Daawat, Gold seal Indus Valley, Rozana and 817 Elephant.

Research report by Angel Broking

LT Foods Limited (LTFL) is a branded specialty foods company engaged in milling, processing and marketing of branded and non-branded basmati rice and manufacturing of rice food products in the domestic and overseas markets. Its geographical segments include India, North America and Rest of the World. The major brands of the company are Daawat, Gold Seal Indus Valley, Rozana and 817 Elephant.

Market leadership with strong brand visibility:
LTFL’s flagship brand Daawat enjoys 22% market share in the branded rice market of India. The company has strong market share in North America selling Basmati rice under the brand name ‘Royal’. Historically, the company has been focusing on strong brand visibility, and in order to enhance brand visibility it spends on ad spends.

Wide distribution network:
Currently LTFL has an access to 1,40,000 traditional retail outlets and reaches to 93% of towns with over 2 lakh population and 3,000 wholesalers. Further, the company sells its products to premium hotels & restaurants (~50% share) and has an access to 6,000 foodservice outlets i.e. ‘DawatChefs Secretz”. Moreover, it has an access to 2,500 modern trade stores including 121 hypermarkets, 298 supermarkets and 1,462 mini markets. It is the 1st Rice Company to place Brown Basmati Rice in Medical Chains.

Diversified product portfolio catering to varied customers:
LTFL has a well diversified product basket, which caters to consumers of all income groups. The company is present in segments like Basmati rice, Speciality rice (non-Basmati) and Other food products. It is also consistently working on adding new products to its portfolio. LTFL has done JV with Japanese Snack Food major Kameda, which would launch rice based snacks in India. LTFL has recently introduced ‘Daawat Rozana GoldPlus’ brand.

Strong global footprint:
LT Foods is now an emerging global Foods Company with a focus on basmati and other speciality rice, organic foods and convenience rice based products. LT Foods has a global footprint, selling their flagship basmati rice brands i.e. Royal and Daawat into 65 countries. The company has established on ground presence in the US, Europe and Middle East in order to unlock the full potential of these territories.

In latest news on 1-Dec-2017,
Leading basmati rice firm LT Foods will invest USD 20 million for branding and expansion in Europe, as it eyes a six times increase in sales from the branded segment over the next four years.
The company is extensively working on expanding its geographical footprints and product portfolio in these markets and plans to invest USD 20 million with increased sales from the current 5,000 tonnes to 30,000 tonnes in the branded segment over the next four years, it said in a statement.
LT Foods, which sells basmati rice under Daawat brand, has been focusing on Europe as the next growth region and has recently opened a new plant in Rotterdam, Netherlands to cater to both Europe and UK.
"In the next two years we are eyeing to gain 5 per cent market share in the branded segment of this region with distribution expansion and continuous brand investments. This will help to take the growth to the next level and achieve the aspired targets," LT Foods Chairman Vijay Kumar Arora said in a statement here.

It will also introduce new packaging across all its Daawat rice variants for a fresh shelf presence by March 2018 in the region.LT Foods to invest $20 mn for branding, expansion in Europe
Mumbai, Dec 1 (PTI) Leading basmati rice firm LT Foods today said it will be investing USD 20 million for branding and expansion in Europe, as it eyes a six times increase in sales from the branded segment over the next four years.
The company is extensively working on expanding its geographical footprints and product portfolio in these markets and plans to invest USD 20 million with increased sales from the current 5,000 tonnes to 30,000 tonnes in the branded segment over the next four years, it said in a statement.
LT Foods, which sells basmati rice under Daawat brand, has been focusing on Europe as the next growth region and has recently opened a new plant in Rotterdam, Netherlands to cater to both Europe and UK.
"In the next two years we are eyeing to gain 5 per cent market share in the branded segment of this region with distribution expansion and continuous brand investments. This will help to take the growth to the next level and achieve the aspired targets," LT Foods Chairman Vijay Kumar Arora said.It will also introduce new packaging across all its Daawat rice variants for a fresh shelf presence by March 2018 in the region.
The company which has presence in 65 countries, clocked a consolidated revenue of Rs 3300 in financial year 2016-17.           

Outlook and Valuation:
Going forward, we expect the company to report healthy top-line CAGR of 13.5% over the next two years on the back of strong distribution network & brand, continuous expansion, wide product basket and addition of new products in portfolio. On the bottom-line front, we expect ~20% CAGR on the back of robust improvement in operating performance. We expect margin expansion on the back of better manufacturing efficiency, increase in scale and change in product mix. We initiate coverage on the stock with a Buy recommendation and Target Price of Rs 125+ (15x FY2019E EPS), indicating an upside of ~35% from the current levels.

Research report by Karvy

Robust Plan to Expand Business Internationally

Stronger Quarter with Improved Margin:
LT Foods Ltd has delivered strong set of consolidated numbers having recorded revenue in Q2FY18 at Rs.8531 Mn as against Rs.8290 Mn in Q2FY17 registering growth of 2.9% on YoY basis. The shares of basmati, organic and private label businesses as % of total revenue are on rise which stand at 62.0%, 10.0% and 18.0% respectively. EBITDA of the company in Q2FY18 grew 26.8% on YoY basis to Rs.988 Mn against Rs.779 Mn during the same quarter period last year thereby marking an improvement in EBITDA margin by 219 bps on YoY basis.

Increased share of branded business has helped EBITDA to improve. PAT of the company in Q2FY18 came in at Rs.364 Mn as against Rs. 267 Mn in Q2FY17 exhibiting growth of 36.4% on YoY basis and profit margin expansion by 105 bps on YoY basis. Improvement in PAT growth and PAT margin could be attributed to improvement in EBITDA and reduction in interest cost. From H1FY18 performance perspective, the company has come out with great showing having registered revenue/EBITDA/PAT growth of 5.4%, 15.0% and 22.4% respectively on YoY basis. In the process, it recorded improvement in EBITDA margin by 100 bps and PAT margin by 61 bps on YoY basis.

Revenue proportion of export and India business stood at 55: 45 which points to an improvement in India business. The company has been expanding its geographical reach in Europe and Middle East through commencing operations and acquiring popular brands in the region. The company has consistently been working on adding new products to its portfolios. It has entered into JV with Japanese Snack Food major Kameda to manufacture and market rice based snacks by the name of Kari Kari and has ambitious plan of generating revenue of Rs.1000 Mn in next five years leveraging on brand equity and distribution.

Valuation and Outlook
LT Foods Ltd, with strong brand and broad distribution platforms, has been able to gain share in branded business in India, Europe, USA and Middle East.
Its organic business has been growing fast in USA and Europe. Further, JV with Kameda for rice-based snacks Kari Kari and likely basmati rice export to Iran that is to begin from Dec.2017 provides for huge opportunities to scale up business.

Considering all these unfolding opportunities, we have upwardly revised our target price on stock for next 9-12 months at Rs.125+, which gives 35% potential upside.

Next Read: Edelweiss Financial Services a Long-term player
Previous Read :Kiri Industries :Is it a long term buy

Edelweiss Financial Services : A long term opportunity player in bfsi domain.

Edelweiss Financial Services

Edelweiss is in the financial services, providing services in Credit, Asset Management, Wealth Management, Distressed Asset, Insurance. With people pouring in an unprecedented amount of money into mutual funds, these companies are going to be biggest beneficiaries.

Edelweiss Financial Services Ltd has sold its Singaporean subsidiary Cross Border Synergy Pte. Ltd to commodity trading firm Searock International Pvt. Ltd for Rs 8.47 crore ($1.3 million), it said in a stock-exchange disclosure.
The share sale and the purchase agreement were executed in September.
Edelweiss held interest in Cross Border Synergy, earlier known as Edelweiss Commodities Pte. Ltd, through its wholly-owned subsidiary EFSL Comtrade Ltd.

As of 31 March 2017, Cross Border Synergy’s net assets were valued at Rs 54.9 crore, according to its annual report.Mumbai-based Searock International is in the business of trading bulk commodities, minerals and other products.
Chartered accountants Dhiraj Khandelwal and Amit Sharma are the promoters of the company, according to its website.
Financial conglomerate Edelweiss group’s main business lines are credit (comprising wholesale, retail, SME and agricultural financing), non-credit (comprising financial markets-related fee businesses, asset management and commodities), and life insurance. These businesses offer loans to companies and individuals, mortgage finance, commodity sourcing and distribution, stock broking, corporate finance and advisory, wealth management, third-party financial products distribution, and alternative and domestic asset management.

 Edelweiss Tokio Life Insurance on Thursday announced an equity capital infusion of Rs 670 crore from Edelweiss Financial Services and Tokio Marine to fund business expansion, develop its bancassurance channel, and explore inorganic growth opportunities. The company is a joint venture between Edelweiss Financial Services and Tokio Marine Holdings where Edelweiss Financial Services owns 51 per cent and Tokio Marine owns the rest 49 per cent. In February 2016, Edelweiss Tokio Life Insurance had Edelweiss Tokio Life Insurance had received Rs 527 crore in capital from Tokio Marine.

We are evaluating inorganic opportunities. Currently, there’s no transaction in the advanced stage and if there is a need, the promoters will be willing to invest more capital.”
Edelweiss Tokio Life Insurance looks to expand the number of branches to 180 from 110.
“Insurance serves the dual purpose of mobilizing long term savings into investments, and providing protection,” said Rashesh Shah, chairman Edelweiss Group.

“With the increasing financialization of savings acting as a significant growth driver for Life Insurance, Edelweiss Tokio Life has laid a strong foundation, and is well poised to take advantage of this growth opportunity.”

Along with insurance , Currently, Mutual Funds in India are owned by around 6% of Households and Mutual Funds AUM to GDP stands at 8%. This is similar to the situation in the US in 1985. US witnessed unprecedented growth in Mutual Funds AUM in 1982 to 2000 period, during which time their Index rallied up to 15 times from 100 to 1500. Currently, in US, 56% of households own Mutual Funds and the Mutual Funds AUM to GDP is at staggering 90%.

In the Credit division, Housing market finance and SME finance is growing rapidly in India, and this is expected to generate lots of revenues going forward.

Vijay Chopra of enochventures.com told CNBC-TV18, "I think that Edelweiss Financial Services is one of the best placed financial services companies today in the entire market. With an ARC, with an insurance business, as a broking business, they have diversified very well and my sense is that if somebody holds out with a longer-term perspective, this stock can even double in the next 3-5 years."
"Any kind of fund infusion happening in the company would definitely bring in more business provided that asset quality remains stable. So as of now, Edelweiss looks extremely wonderful on the charts as well. The diversification in business is what gives strength to this company. So definitely a hold and in a correction, if somebody wants, can buy as well," he added.

Hence I believe there is a lot of potential in India in the mutual funds and credit space and Edelweiss is rightly placed to gain an advantage of this.

Also, take a look at its recent financial performance

Sales and Net profit are growing by leaps and bounds. This is expected to continue for many years to come

In Summary : Edelweiss Financial Services is selected due to the long-term growth potential in the bfsi sector they are operating in. It has good capability to execute things at scale, which is a very important factor.

The management of  Rashesh Shah at Edelweiss is effective and have are experienced people in their respective fields and have the passion to grow the companies by leaps and bounds.

Next Read Aditya Birla Capital: A Big Boss of Financial Services.
Previous Read : LT Foods:A Royal Basmati Daawat