Candidates for 25% quality-growth for next 2-3 years


#1

Thanks for starting the very educative portfolio-restructuring thread. I am posting for the first time in this thread. I built a portfolio with objective similar to the headline of the thread. I think the stocks in the portfolio can be good discussion point in terms of their growth prospects. The stocks are
1 Advanced Enzyme market cap Rs.4622.49 crore (weight 30%)
2 Alphageo market cap Rs.592.40 crore (Weight 15%)
3 Caplin point labs market cap Rs.2657.85 crore (Weight 5%)
4 Infibeam market cap Rs.5885.85 crore (weight 10%)
5 Intense technologies market cap Rs.328.59 crore (Weight 10%)
6 Intrasoft market cap Rs.651.80 crore (Weight 6%)
7 Moldtek packaging market cap Rs.531.11 crore (Weight 2%)
8 Rishi techtex market cap Rs.20.52 crore (Weight 2%)
9 Strides Shasun market cap Rs.9826.09 crore (Weight 10%)
10 Tasty bite market cap Rs.923.76 crore (weight 10%)
TOTAL MARKET CAP Rs.26,040.46 crore
I hope each of these scrips have potential for more than 25% growth for the next 4-5 years.

The portfolio is selected keeping in view the vast addressable market, durable moat, simplicity of businesses etc. The ideas/analysis/criticism of each of these companies or any other company that deserve a place here are welcome.
The market cap of each company in the model portfolio is indicated so that the performance can be measured at any given time, ideally every quarter. The performance is proposed to be measured individual company wise and the total market cap of the portfolio. I have also assigned weightage to each company based on my conviction on the stock. The idea is Few bets, Big bets and infrequent bets. The weight can be assigned to any size of portfolio like 1 lakh to 10 lakh or 20 lakhs to arrive at the quantity of stocks. Portfolio composition and the weightage to individual companies is not rigid and is open for discussion in the forum.
Market is full of opportunities and portfolio is flexible to accommodate better and exciting ideas/opportunities. It is proposed to accommodate maximum of 12 stocks to keep the portfolio manageable. Existing stocks can be replaced with new ones based on the performance of the stocks if they fail to meet the expectation.
The model portfolio idea is for learning purpose only and should not be construed as recommendation to invest.
Please do your due diligence before taking investment decision.

Thank you
Disclosure: I have investments in all the above shares and my views may be biased


Portfolio Re-Structuring/25% CAGR quality-growth for next 2-3 years
Bouquet of stocks likely to provide 20-40% compounded returns over the next 3-4 yrs
(krishna pavan) #2

I am also a new user.
I am holding caplin point laboratories in my portfolio and pretty much confident of 25 percent growth for next 4 to 5 years because this company is entirely different in compared with other companies. They are entering USA market which is more lucrative market.
One more point I like to discuss that “they are focussing on IV formulations” .
Claris life sciences sold 75 percent of IV formulations to Baxter at 4500 cr. So there is a great scope for rerating of stock.
If you see market cap of claris is just 1900 cr . Less than caplin point laboratories then you can imagine that caplin point laboratories can be sold at what price.
Moat : they have created a biggest distribution channel in Latin America this is very difficult to create by any company in next 4 to 5 years.


(Donald Francis) #3

Please use this thread for ideation purposes. (but make the effort to go beyond just naming candidates that you hope/think/know passes the growth test - there’s more to it thatn just growth, right?)

Ideally we are supposed to slot in prospective candidates in a certain category along the lines of categories suggested - because the aim is not to stock-pick, but to be able to construct a all-weather portfolio that fares better in different market conditions/cycles in play. Which means some segments of portfolio are there to provide stability, at any point of time/cycle - there would be 2-3 segments that will hold off well, and the like.

Please maintain that discipline, so that this doesn’t become another direction-less thread. Lets hold ourselves accountable to the objective of the thread.Those of us who try and take the trouble of some thinking-through and edit our posts, suitably, we will be richer for that attempt, I can guarantee that.


#4

I would like to provide little background about the companies for including them in the portfolio.
As somebody said RICHES ARE IN NICHES.
The first two companies Advanced Enzyme and Alphageo are operating in niche areas and they are big players in their field. Advanced Enzyme has no capex plans for the next couple of years and the return ratios should improve. Alphageo has lot of visibility of its earnings and the biggest player in its field.
Regarding Caplin Point, I concur with the above post about its unique advantage.
Coming to Intrasoft, Infibeam and Intense, these are new age businesses and growing at a scorching pace. The commonality about these three companies is that all three are growing without burning cash. All are capital light businesses and are at an inflection point.
Moldtek packaging is a company with unique advantages and is a market leader in its space i.e plastic packaging and IML Printing.
Strides Shasun is a company with many positive triggers lined to be played out
Tasty bite is now a Japanese owned company and is expanding its market to UK. It is well established player in supplying to QSR which a customer stickiness business.
Regarding Rishi Techtex I posted a update in the thread "RISHI TECHTEX hidden gem in small cap"
I invite comments from the boarders
Disclosure: I have invested in all the above companies and my views may be biased and should be viewed in that light.


(Growth_without Debt) #5

Caplin - One has to play on their niche marking strategy instead of USA branded drug income (which might be after 2019). Even they get FDA approval of the site, they will do Contract Manufacturing for other company in a way of site-transfer. However, their focus on improving marking strategy (sourcing cheap from China and selling higher price in small country where big player is not interested) is the real growth driver in near future.
Alphageo - Revenues might fluctuates on government policy on exploration. Stock price already run ahead of growth…mean reversal is possible!. Good point - capital light structure and profit margin might improve further in future. Niche in seismic data analysis


(Gurjot) #6

For any long term investor, looking at an investment from 5-7 year perspective, this would be valid if
those niches have a big opportunity in decent market size (> 25000 cr) or part of rapidly growing (>15% CAGR) market.

If a company is operating in a niche business with current revenue of 500 cr where total potential revenue can only be 3-5k cr, then you can roughly imagine what max market cap the company can get to.

Just operating in a niche business is no guarantee of big riches. Would be good if you can explain the opportunity/market size of some of these companies as well.


#7

Advanced Enzyme is in enzymes market it has its production facilities and market presence in USA and India.
The enzymes market is in initial stages of its growth. It is an industry in its growth phase and has huge entry barriers. There are only handful of big companies in the field. The market size is enormous and will grow well in view of the advantages it offers. Some estimates of the market size and opportunity in a research report are reproduced here:

Geographical distribution of the Global Enzyme Market
North America dominates the Global Enzyme market accounting for ~41.5% of the global enzyme demand in 2012, implying a market size of $2.1 billion. Western Europe, Asia Pacific and other regional markets accounted for 21.2%, 21.6% and 15.7% of the Global Enzyme market in 2012. Between 2002 and 2012, the share of North America and Western Europe in the Global enzyme market has been gradually declining, while that of Asia Pacific and other regional markets including Central & South America, Eastern Europe and Africa /Mideast has been on an upswing. The fastest growth in industrial enzyme demand will occur in the world’s developing countries, such as those of the Asia/Pacific region and Central and South America as these areas have not yet adopted the same level of technological development or enzyme use as have countries in North America and Western Europe, and consequently there remains a greater opportunity for market penetration to increase. This trend is expected to continue going forward, with Asia Pacific becoming the second largest enzyme market by 2017, and further outpacing Western Europe by 2022. However, even by 2022, North America shall continue to be the largest regional market, accounting for ~34.8% of the global enzyme demand, with the Asia Pacific region, Western Europe and other regional markets accounting for ~18.1%, ~29.2% and ~18.0% of the market size respectively. Demand for enzymes in the Eastern Europe is also expected to be above average.

Global Industrial Enzymes market
Industrial enzymes constitute the larger portion of the world enzyme demand accounting for ~$3.6 billion, or ~70.8% in 2012. The global demand for industrial enzymes is expected to grow at a 5-year CAGR of 5.6% to reach ~$4.8 billion in 2017 and 10-year CAGR of 5.7%, to reach a size of $6.3 billion by 2022. The strongest demand for industrial enzymes shall be experienced in the sub-segments of food and beverages and animal feed. On a regional basis, Asia Pacific and Central & South America will achieve the fastest growth for Industrial enzymes, going forward till 2022. These areas have generally not experienced the same degree of enzyme technology penetration as is found in North America and Europe, and consequently will realize stronger growth as continued industrialization and rising per capita incomes favour greater enzyme consumption.

North American Enzyme Market:

North America is the largest regional enzyme market globally, accounting for over 40 percent of world demand in 2012. Enzyme demand in North America is heavily concentrated in the United States, which alone accounted for 90 percent of regional demand in 2012. Other promising markets can be found in Canada and Mexico as well, with demand expected to increase in Canada above the regional average, as strong growth in specialty enzymes drives gains. Overall, enzyme demand in North America will advance 4.3 percent per year to over $2.6 billion in 2017. While advances in specialty enzymes will help drive strong overall market growth, enzyme demand will be restrained by the relatively mature nature of most North American industrial enzyme markets, with the maturation of the grain-based ethanol biofuel production market in the US contributing to a significant portion of the slower growth.
The United States is the largest consumer of enzymes in the world, accounting for over 37 percent of the global and 90 percent of the regional demand in 2012. All enzyme markets are found in the US due to the diversity of its advanced economy. Easy access to capital and a business climate that favors both constant productivity enhancements and cost reductions also make it a natural location for the introduction of new applications. Going forward, enzyme demand in the US will advance 4.2 percent annually to $2.4 billion in 2017, as strong growth in specialty enzymes offsets slower growth in biofuel production and maturity in most industrial enzyme markets. Biofuel production enzymes, in particular, will experience much slower advances in demand as the industry matures and future increases in grain-based ethanol consumption mandated under federal law are lower in percentage terms than in years past. Most enzyme types will experience mode rate to strong growth, with cellulases doing particularly well due to the development of the cellulosic ethanol industry. The largest portion of enzyme demand in the US is accounted for by the industrial enzyme segment, which reached $1.3 billion in 2012. Industrial enzymes include a wide variety of markets such as animal feed, cleaning.

Indian market for Enzymes
Though, the market for enzymes in India is relatively small US$ 105 Million in 2012, but will be the fastest growing in the world through 2017. Advances will average more than 10% per year through 2017, driving demand to $173 Million. As with most other markets in the Asia / Pacific region, demand is concentrated in industrial enzymes. However, the rapid development of India’s pharmaceutical and chemical industry is starting to change this, and specialty enzyme demand will outpace industrial enzyme demand going forward.Enzyme demand in India is concentrated in industrial enzymes, particularly the cleaning product (detergent), food and beverage, and textile and leather markets. However, even within these industries, enzyme usage rates are significantly below the developed economies of Japan, North America and Western Europe. To a large extent, this can be traced to the government policies that have made it disadvantageous for companies to grow above a certain size, and restricted access to foreign capital for modernization and roductivity enhancements. Consequently, smaller companies have lacked the assets and financial resources to modernize their operations with the newer, more efficient technologies that make greater use of enzymes. As the economy is slowly opened to increased foreign direct investment, enzyme usage rates should continue to improve.In specialty enzymes, around half the demand is in the Research and Biotechnology space. Strong growth will also be seen in research and biotechnology as the government seeks to promote development of the biotechnology sector to showcase the country’s technological prowess, and Indian pharmaceutical and biotechnology companies increasingly seek to make inroads into the developed markets of the United States, the European Union and Japan by investing in advanced technologies. This same trend will also benefit the biocatalysis market.

Alphageo is in seismic services field and a recent report of HDFC explains the market opportunity of the sector.
http://hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3020462

There is lot of scope for both these companies. These companies operate not only in niche areas but also have moat and CAGR of 25% should be possible.


#8

The information on market size for Advanced Enzyme Tech presented above is too technical. The following data may help in understanding the market:
Based on the type of end-user industries, the global enzyme industry can be categorised into two segments-industrial and specialty enzymes. The industrial enzymes segment includes enzymes which cater to F&B, detergents, bio-fuel, animal feed, textile and other industries;the specialty enzymes segment consists of products which cater to pharmaceuticals, research and biotechnology, diagnostics and biocatalysts. Both the industrial and specialty enzymes segments are expected to grow over the next few years. Global enzyme demand is forecast to grow at a CAGR of 6.9% to $11.3 bn from $5.8 bn over 2010-20. Specialty enzymes are likely to witness a CAGR of 7.5%, higher than the forecast of 6.5% CAGR for industrial enzymes. Growth in the specialty enzymes segment is likely to be driven by diagnostic and research and biotechnology enzymes,which in turn will be fuelled by an increase in the number of people gaining access to medical facilities in developing nations and healthcare reforms in the US. Demand for industrial enzymes is expected to be bolstered by the animal feed segment and the F&B segment.

Currently, the Indian enzymes industry is at a nascent stage and penetration across end-user industries is low. Several factors such as price-sensitivity and lack of awareness among end-user industries, and the government’s failure to strictly implement environmental laws have impeded the industry from fully realising its growth potentials.At present, there are approximately 17 players in the Indian enzyme market. Most of these companies focus on producing value-added enzyme products based on simpler formulations. However, the entry of foreign manufacturers has led to availability of quality products in the domestic market, which provides clients with a choice of more innovative solutions. The domestic industry is increasingly eyeing the international markets -most of the enzyme products manufactured in the country are exported, and some of the major players are establishing base in foreign markets. Pharmaceuticals, textile, detergent, F&B, and leather and paper industries are the primary consumers of enzyme products in India. Each segment is at a different stage of growth. The pharmaceutical segment is at a nascent stage. Leather and textile processing segments are relatively mature, whereas the detergent segment is growing. The bio-Industrial (primarily enzyme products) market in India was worth ₹7.7 bn in 2013. The industry has registered 15.1% CAGR over 2004-13. The industry is expected to continue to grow to $295 mn in 2020 from $96 mn in 2010at a CAGR of 12%.
F&B segment is expected to drive growth for industrial enzymes Enzymes used in F&B processing currently account for the largest share (over 20%) of the overall demand for industrial enzymes. Along with animal feed, the F&B segment is likely todrive the demand for industrial enzymes in the coming years. With a CAGR of 8.4% over 2010-20, the animal feed segment is estimated to be the fastest growing among all segments within the enzymes industry, followed by the F&B segment which is expected to grow at a CAGR of 7.5% over 2010-2020.The F&B industry is estimated to grow to $2.7 trillion by 2020 from $1.8 trillion in 2010at a 4.1% CAGR over the period.Developing countries are expected to drive this growth. Increasing disposable income and rising living standards in these nations are leading to greater per capita F&B consumption, and increasing demand for high quality processed foods. In developed nations, increased consumption of ready-to-eat products and organic foods is expected to propel growth. Enzymes have a variety of applications across dairy, starch processing, baking, malting and other industries within the F&B segment. With the growth in F&B consumption, increasing emphasis on food quality and demand for organic foods, the need for enzymes from this segment is expected to grow significantly.
In India, robust economic growth, expansion in middle class population and increase in health awareness have led to demand for high quality food. This has fuelled growth of the food processing industry, which is forecast to grow at a CAGR of 5.8% over 2007-15. With expanding growth,the industry is likely to become more organised, which is expected to contribute to steady demand for enzyme products.
The information is sourced from a research report by CRISIL and is posted only for understanding the market potential of enzymes and is not to be construed as recommendation to invest.
Please refer to the original post which is revised.


(Rahul Deshmukh) #9

 Yes Bank plans to raise Rs.10000 crore through various private placement options. The bank seems to be on the right track to deliver excellent results going forward.

 Multi Commodity Exchange of India will soon introduce Options trading. Some HNI has bought a Rs.300 crore stake via preferential allotment. With ‘dabba’ trading coming to a halt, there exists a big opportunity for this company. Its share price could double in two years.

 Intellect Design Arena has recently given a growth guidance of 16-22% for the next few years. The stock is available at attractive levels and could double in two years.


(Prasad India) #10

Hi all,
The demonetization along with GST is going to squeeze out the informal sector. Effected parties include APPARELs, TRANSPORT, Real Estate, Small Jewellers, PVT. Educational societies etc in a big way. Even it will impact informal lenders also.
The black marketeers will devise new ways again to do same. The new govt. may withdraw new 2000/- and 500/- as lot of cashless ways of transactions are already in place. If UPI of NPCI is successful, the govt this time may demonetize with extra ease.

The survivors will be those who will formalize their business. The industry (efficient) leaders who face tough competition from informal sector stand to gain the most.
Will they be from Plywood, Apparels, Logistics, Real estate, Jewelers, Tyre Re-treaders or MFI/SFB ?
It is better if we can throw some light on them.


#11

Good point made, the Kirana stores are affected considerably and modern grocery stores like Future Group are already seeing positive traction as per the Kishore Biyani’s talk with CNBC



Thank you


(Sid Shin) #12

Based on their earning power in the recent years (average roe with zero to moderate leverage) the following stocks are likely to provide 25-40% compounded returns over the next 3-4 yrs.

(Base price as on 26/12/2016, when I made this list)

Rank based on undervaluation. As a group, the top 50% should return better returns than the bottom 50% in this list.

RANK … SCRIP

1 … SAKUMA EXPORTS LTD
2 … LYPSA GEMS & JEWELLERY LTD
3 … ELNET TECHNOLOGIES LTD
4 … SUPERHOUSE LTD
5 … VIPPY SPINPRO LTD
6 … ASHOK ALCO-CHEM LTD
7 … KANPUR PLASTIPACK LTD
8 … GUJARAT AUTOMOTIVE GEARS LTD
9 … NITIN FIRE PROTECTION INDUSTRIES LTD
10 … ZENITH FIBRES LTD
11 … IST LTD
12 … ARO GRANITE INDUSTRIES LTD
13 … KPIT TECHNOLOGIES LTD
14 … SNL BEARINGS LTD
15 … MINDTREE LTD
16 … LT FOODS
17 … ALBERT DAVID LTD
18 … DIVYASHAKTI GRANITES LTD
19 … JULLUNDUR MOTOR AGENCY (DELHI) LTD
20 … INDIAN TONERS & DEVELOPERS LTD
21 … CHEMBOND CHEMICALS LTD
22 … REDINGTON INDIA LTD
23 … MAZDA LTD
24 … SUKHJIT STARCH & CHEMICALS LTD
25 … CHAMANLAL SETIA EXPORTS LTD
26 … APM INDUSTRIES LTD
27 … G M BREWERIES LTD
28 … SAMKRG PISTONS & RINGS LTD
29 … CENTURY PLYBOARDS
30 … TORRENT PHARMACEUTICALS LTD
31 … ATUL AUTO
32 … MAYUR UNIQUOTERS LTD
33 … DAMODAR INDUSTRIES LTD
34 … HDFC LTD
35 … MIRZA INTERNATIONAL LTD
36 … KESAR TERMINALS & INFRASTRUCTURE LTD
37 … INDAG RUBBER LTD
38 … SHILPI CABLE TECHNOLOGIES LTD
39 … TALWALKARS BETTER VALUE FITNESS LTD
40 … NATH BIO-GENES (INDIA) LTD
41 … ALEMBIC PHARMACEUTICALS LTD
42 … CONTROL PRINT LTD

Thanks,
Sid

P.S - this is my first post in this esteemed VP forum. Pardon if this falls short of the expected quality!


(csteja) #13

Can you explain how DeMo (and GST) squeeze the informal sector ? Just want to know your though process. Assuming hardly any black money is recovered after DeMo, I don’t see how small jewelers lose out. They will again start doing the same black cash transactions. On the other hand, the organized jewelry will feel the heat if the transaction size is more than 2L.


(csteja) #14

Would like to know your rationale behind Intellect Design Arena. It has very bad job reviews and employee feedback from what I read online.


#15

We have to examine potential of future earnings more than the record of earnings in the recent past. Past earnings may be useful in shortlisting the potential stocks. Your list of stocks is too big. Based the information you have gathered on these stocks and your understanding of their businesses, you may shortlist the stocks to about a dozen. In my opinion about ten to twelve stocks would be a right balance to take advantage of good growth stocks and diversification to take care of any stock specific adverse developments. And provide the positives and negatives of each of the selected stocks.


(Sid Shin) #16

@nagesh_reddy the list is mostly a value play. most of us in this forum focus mostly on businesses which are on the cusp of high growth or are growing rapidly. but decent, established and somewhat boring businesses with consistent performance year after year can contain huge value when underpriced. And exaggerated underpricing do happen time to time when markets fall or some quarter numbers are bad.

The list assumes - a non-commodity business with zero to moderate leverage - with consistent return on equity over the years will most likely have similar returns in the next 3-5 years atleast. (Unless their industry is under disruption or there is black swan that we are not aware of).

Now, knowing the approximate return on equity capital in the coming few years, it’s easy to calculate the intrinsic price. For e.g a business with an average roe of 15% over the years…we can expect it to deliver a compounded return on equity of at least 12% over the next few years. A business which returns 12% can be expected to trade at a price to book of about 2.75. so if it is trading at say 1.5 p/b …we can safely assume it is underpriced and expect the price to correct on the upside in the next 3-4 years. In the above scenario, the price of this security after three years would be around 2.75×1.09^3 = 3.56 (using 9% as the discount rate in the DCF model). with a current price of 1.5, the return expected is 3.56/1.5= 2.3x …so a 2 to 2.5 bagger in the next 3-4 years. This assumes 12% roe. Anything more would be a bonus surprise.

Thanks,
Sid


(Peabody) #17

Hi Sid,
Interesting. How did you get p/b of 2.75 if ROE is going to be 12%.Want to understand for my knowledge


(yudiagg) #18

I agree. Can we have the basis of every numeric assumption made pl.


(Sid Shin) #19

@Peabody for the 12% roe example 2.75p/b - (actually 2.6) is using DCF with a discount rate of 9%.

@yudiagg it mostly assumes average returns over the last few years with 5-10 percentage points margin of safety.


#20

I have replaced Rishi Techtex with Vivid Global due to comparatively more conviction on Vivid. On alphageo board/thread I placed a link to a research report which is very informative. More about Vivid Global on its thread.