United Spirits remains a big player with capable management with the exit of Mallya. But the fly in the ointment remains the antcis of govt. When a company is faced with a lot of regulatory headwinds one has to be careful about valuing the business esp when earlier it was supposed to be a high quality business with a long runway. Now with the regulatory headwinds and some more expected, the quality of the business has been diluted to some extent.
HSIL is a company I had studied earlier mainly because of the building products division. Its products are top notch. Here the problem is about the other glass packaging business which takes the sheen away from the company. The best thing management could do would be to demerge the companies but while listening to last concall the sense I got was that the management was not too keen on it. I feel any investor who even has the brain of a peahen would know the benefits of a demerger and still I cant figure out why management is shying away from demerging the businesses.
GSFC is a company located in my city, As a company it remains vulnerable to a variety of factors ranging from monsoon to govt policies and I had earlier bought it as a technical bet. I think I was too early into it and got frustrated out of it due to lack of any significant movement. And just when I got out the move started. .Thats the way things go in markets. You will have your hits and misses but as long as your misses dont cost much and you make the most of your hits, you should be okay.
One of the feedback I get from ground level checks is that this season cotton sowing is going to be great. Cotton prices after having remained depressed for a long time have risen. I dont want to name stocks but the theme seems to be interesting to watch out for.
Two types of companies that come to my mind which could benefit from higher cotton crop sowing are:
i) Seed companies like Kaveri Seeds
ii) Higher sowing would lead to bumper crop provided monsoons are good leading to decrease in cotton prices. This should benefit spinning mills. Amarjothi spinning mills looks like an interesting candidate.
Disclosure: Not invested in any of them presently.
There is a risk here too. If you are from GSFC hometown you are also from Vadodara. We have our retail showrooms in Nasvadi, Karjan, Sankheda and other remote areas which rely big time on cotton prices.
Last year what happened in the district is that people didn’t sow lot of cotton because in 2015 cotton prices came out low. This caused farmers to divert their attention to other crops in 2016 leading to lower yield of cotton. This causes cotton prices to be good in 2016. Now this has meant that more farmers have sowed cotton in 2017. If yield is again good, prices can fall again. Though due to election season, expectation is cotton prices will increase from 2016 at least in Gujarat.
What about companies like Ambika Cotton which uses cotton as raw material and sell the manufactured product at a mark up. Will decrease in cotton prices lead to lower sales growth?
I remember to have read somewhere that the price of Pima cotton which Ambika imports is reducing and will reduce further due to bumper harvest. I feel Ambika should do good going forward. Yields have increased for Pima cotton in California.
@hitesh2710 HSIL Glass Division is formed to undercut the business of a cousin brother in the same space. They dont want the cousin to make money. This division will never be demerged
Even if they demerge the glass division into a separate company, their motive (if its true), still can be served. And they will get the benefit of huge revalutaion on their core sanitaryware business.
They would need the steady Cash Flows of Sanitaryware to manage the cash burn in Glass. With demerger, they will soon have to turn to Bank loans for this cash guzzling op and their purpose will get defeated after some years.
@hitesh2710 - this has been the input from some of my agro customers in Maharashtra as well, however they aren’t willing to share quantitative inputs - My mind gravitates to the effect this will have on Page Industries. They have managed to pass on the increase in prices of raw materials to their customers but never passed on the cost savings accrued during raw material price decreases. Page has stagnated at 13000-14000-15000 range for more than 2 years (painful to say the least with decreased earnings growth expectation by Mr. Market). Its EPS growth rate has been at avg CAGR 25-26% for last 4-5 years and has slowed down in last 1-2 years. Its PE multiple has steadily decreased from 85-90 to 62 currently owing to these reasons. The FY17 EPS, as per my expectation would be in range of INR 255-257 on optimist side. This still keeps its fair value at INR15300. Thus only a raw material price decrease could provide a necessary price trigger, if at all. These were my 2pence, your valuable thoughts are welcome
Here is a verbatim chat reply from one of my farmer friends
Preeti natraj :hate both these crops. Grapes is the fruit with highest pesticide usage of all fruits in India. Cotton is almost all gm seeds. Production will obviously be high but farmers will pay a heavy price within a decade. Cotton farmers make very little money anyways coz procurement prices have reduced. Shweta (my wife) being in Vidarbha will know bout this.
All the financials mentioned by you seem to be good compounding stories as you mention. The undervaluation that was there earlier has now gone post the recent run up in past 2-3 months. But as good core holdings one can keep these in radar.
I dont see page inds moving too much unless company starts reporting decent topline growth. Till growth resumes, I think the stock should remain range bound and will frustrate some long term investors.
Wanted to know your thoughts on Castrol. I hold a small amount and am looking to sell.
The following points make me think I should sell it.
I checked reviews of engine oils on amazon when I had to get oil changed in my bike. There were many more reviews for SHELL and MOTUL than Castrol, although personal mobility is a high focus area for Castrol.
BP has reduced its stake quite a bit recently.
There is very severe competition. I talked to the mechanic and the largest spare part shop in the city and they said there is no specific preference for Castrol.
Although widespread EV use is some time away, markets always discount the future. Given the decreasing volumes in commercial vehicles due to increase in drain intervals and the expectation of EVs, I don’t think it’s a very bright future.
Sarthak, I dont track Castrol so not much idea about the company. But it usually is considered to be a mature company which pays out a lot of dividends.
