Notification as per EMMBI on Institutional Investor meeting.
1f7c90d4-1db7-4cd6-b274-05ae4318bc33.pdf (154.7 KB)
Basically what @saravananb is trying to put across is in spite much hue and cry by management emmbi is not a innovation led product company with competative advantage but basically it remains a commodity business working on cost arbritrage. Hence it should attract lower PE than present.To large extent this is true.But in some cases if the cost arbritrage remains
Indicate for say five to seven years it can be a very good 12 to 15%kind of compounder. This is at the best a slow compounder in present format.But launching of new products and larger size of opportunity there can push this compounding to higher teens.
Some positives now
If we look at screener data from QonQ basis company has shown gradual increase in debt but at the same time fixed assets also have increased proportionately resulting in linear increase in top line and bottom line.This indicates that management is at least honest in deploying borrowed funds.But as said earlier paying dividends however marginal they may be is hard to explain.
Also barring last four quarters interest out go and net profit were almost same only in last four quarters one can see net profits overtaking interest out go on quarterly basis.
As per management interview they will not be doing any capex for next two to three years and during this time newly added 100cr capacity of pond liner and canal liner will be utilised.This will add another 8 to 10 cr to the bottom line directly pushing up the esp to almost 14 to 16 range.Markets may be factoring this while valuing this company between 160 on lower side and around 220 on higher side.On forward PE range of 11 to 15.But since this will take at least another two years to come true presently valuations appear rich.
Also how oil prices pan out is very crucial for future performance. Stellar performance of this stock over last few years coincided directly with low oil prices.
When this question was put to management they were confident of ability to pass on incremental cost to buyers.We have to wait and watch on this front.
Why not compound capital with established players by taking less risk than risking everything in a dark area?
There are many compounders in the market. I am not in an expert in predicting what will happen to this company after 10 years. All I saying is that, leverage will harm and company is facing some difficulty in cash conversion. If the products are left in inventory for a long period during down markets it will make a collateral damage.
I am trying to understand how the new products will fetch higher margins. I have read all their conference transcripts where the management said that their sales would grow in the range of 15-20% yoy. So far so good. When we dig deeper, it is coming at the cost of leverage. The depreciation would hit the bottom line in the coming years because itâs a capital intensive business. In other terms, itâs not an asset light model.
I believe growing earnings at the rate of 25% - 30% over a long period is an extremely optimistic case and rare.
Let us run thought experiment, we are in 2020 and their revenues hit 400 crores. If we are expecting an EPS of 14 to 16 thatâs a growth of 33.33% which according to me far-fetched.
I believe that the debt will be cut down to a small level this quarter but again the management will leverage their balance sheet saying that they are working on a new product and it will over in 2-3 years. I see pattern happening over a long period. I would recommend users to analyze Glenmark Pharma to understand the fine difference and draw parallels.
It might be interesting to see FIIs buying and feeling good. But in the long run will it create wealth through their cash flows and not leverage?
In my understanding, the rate cut cycle is over, the coming months will show increasing interest rates. Though I am not a good market timer, it is coming. Things will get interesting. Valuations will always win!
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I believe the management is honest about the oil impact. There is a no impact I think. I doubt their capital intensive nature of the business, capex, and leverage.
Beware when a stock price goes up 5% or above without any reason on a daily basis. These are microcaps and a small change could lead to outburst in their stock prices. Never worry about missing these ideas. There are lots of ideas in the market. I am warning everybody to exercise caution in this overvalued market. Do not regret later.
Keep your exposure limit to an extent that you can bare.
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Just had a chat with an experienced value investor. He just told me that valuations are at this level because of too much institutional money hiding in this stock. In a way, he implied that the negative news are discounted. The real acid test will come when the earnings recovery does not come and interest rates start to inch up.
Institutional holding is currently 7.3%. Hidden Champions fund is the only institution currently invested.
Most of the shares are held by non institutional investors.
In my view, some additions might be possible. Some existing players will average out during the recent drawdown. New FPIs could have entered but we will not know when they will exit. Price could be manipulated easily if there is a sudden surge. I am wondering why this company is getting a rich valuation when compared to quality companies trading at a fair evaluation in this market.
Moreover, Emmbi had confirmed that there is no material event that took place in the past 2 days that is responsible for sudden surge in stock price. In my view, it is classic case of pumping demand.
I
The sudden spurt recently was surprising.
Just figured that the recent surge can be attributed to the recommendation made in Money control website.
Yes, thats definitely possible. I sometimes wonder if such recommendation services have their investment divisions which invest before releasing these recommendations. Or there are Chinese walls?
There are Chinese walls in place. We can give a benefit of doubt. Just wondering how much these institutions could manipulate a stock by clubbing with the operator. Time will answer a lot of questions.
Which institutions are you referring to?
Could not comment because of SEBI regulations. I would recommend you to do a little bit of ground work.
I understand your hesitation to share the names of institutions. But, I was asking you the type of institution you were referring to- Mutual funds?
If regulations prevent you from sharing such information please guide me.
Not mutual funds. HNIs might play a huge role.
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Isnât this true for all small caps.Till the time sufficient liquidity is absent and stock is not on the rador of large institutions it is at the mercy of HNI investors.Future of the stock after initial rally is solely dependent on financials of the company.Emmbi is fast reaching a market cap where role of individual HNI is becoming insignificant.And if a true large long term HNI checks in that may be good for the stock also.Lets wait and observe this company for few more quarters and comment on operational and financial performance only.
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I agree to your point. I am concern is centering on the price that already factors in future growth. There are no answers for the questions that we are asking.
For instance, if we are telling it a niche, why we donât see the variables reflecting in margins?
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Increasing Debt
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Mediocre working capital management
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Increasing capex
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Operating cash flows not sufficient to fund its growth due to which they rely heavily on debt
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High interest paid towards the debt
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High management remuneration
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Inventory days are high, cash conversion cycle is also high provided they get a portion of their revenue through exports
Whatâs the excitement about? Whatâs the niche in a global level? I am just trying to understand.
What would make hidden champions to take a stake in such a company? I believe people who had invested in this company for a long time could come up with an answer.