Meera Industries : Worth a look


(Utsav Shrivastava ) #1

Meera inds ( BSE code : 540519 ) is a fairly simple business to understand. Basic details as follows

  • CMP : 65
  • Mcap : 25cr
  • 10 paid up
  • 3.92 cr equity.
  • 39.27 lac shares only
  • 71% promoter stake
  • Zero pledge
  • Recent IPO of 10,80,000 at 36/-
  • 10 year old co.

Debt position

  • Long term debt 3 lacs
  • Short term debt zero
  • Net current assets of 1.3cr which includes cash of 1.05cr. This does not include the IPO money of 3.88cr as that was done after 31st March 2017.

Now about the businesses…they are mainly into the manufacturing of Yarn Twisting, Winding and Heat-Setting Machine for textile industries. Company’s products are sold under the brand name “MEERA”.
MIL cater to the domestic market as well as Exports the products to continents like America, South America, Africa, Europe and Asia and major countries like Germany, Spain, Turkey, Thailand, Belgium, USA etc.
They have government recognized in-house R&D Center by Department of Scientific and Industrial Research, Government of India located within the manufacturing unit.

  • 1 plant in Surat speard over 1.6 acre appx
  • Has the capacity to do 30cr of machiney revenue at full capacity
  • Did 13.45cr of revenue , up 64% yoy
  • Did 1.75cr of EBIT…almost 13% margin, up 75%
  • Did 1.06cr of PAT…almost 8% margin, up 158%
  • 38% ROCE

What I like about this co is its unique combination of

  1. 1st generation technocrat entrepreneur who does business the way I would.
  2. No debt.
  3. Day receivable only 27 days.Apparently all sales are done on cash and carry basis and this 27 days refers to the L/C processing time
  4. Double digit opm
  5. All this at a plant which is currently operating at 45% capacity…full operating leverage yet to play out.
  6. High Promoter Ownership
  7. They have won several awards for R&D
  8. Out of 3.83 EPS, dividend payout was 1/- more than 25% which is unique for a small co.
  9. Young promoter. Dharmesh Desai, aged 44 years, has 19 years experience in the industry.
  10. Co has been able to break into the export market

Part of the IPO has been used to setup a showcase yarn manufacturing center using their own machines. As per bse announcement, this unit has begun in August 2017. This will work as a demo place as well as an independent profit center.
Co. has also planned a similar forward integrated setup in USA.

Product range : http://www.meeraind.com/products.html

Valuation projection

  • By 2020, I expect revenue at 50cr (30cr machinery + 20cr yarn), with 15% net magin
  • 7.5 cr pat
  • 19 EPS
  • you can arrive at your target based on what p/e you will give it

Now about the risks

  1. Key man risk
  2. Appreciating rupee risk can reduce export margins
  3. Yarn division sales yet to kick off ( will see early signs in H1FY18 )
  4. Ability to fund growth as i see existing capacities getting fully utilized by 2019
  5. Liquidity risk as its a SME segment stock

In conclusion, sometimes we see good companies getting listed in SME segment which remain unnoticed by the investor community. This is a interesting company which investors should track. I for one will be watching it closely to see if this can move up from nanocap to smallcap and onwards. If the company can keep up with its pace of growth showing the fiscal discipline that they have, this can definitely be a company to own for a long period of time.

Disclosure : I take concentrated bets, Meera is one of them forming close to 8% of my portfolio. I am a long only investor who doesnt sell unless the basic story turns. Any stock sale will be updated.


(ASP) #2

Need to know the percentage of sales in exports, as rupee is becoming stronger it will affect the export oriented companies.


(ASP) #3

Steps taken by company o beat rupee volatility.

Disc. Not invested


(Utsav Shrivastava ) #4

Answering your queries

  • Exports for FY17 were 58%, up from 18% in FY16
  • the pricing for each order is decided separately keeping $ at that date on mind
  • It takes 2 months for the machine to be shipped and the L/C money to come into the bank. This period is hedged
  • the company quotes sale prices at 5% buffer to the prevailing $ rate as on day of order. They got a big order this month ( http://www.bseindia.com/xml-data/corpfiling/AttachHis/c41066be-7347-43fe-8c32-4fd0fcb46c09.pdf )
  • Given that the Meera product is at least 40% cheaper than its overseas competition ( assume it is at 90% quality ), there is enough leeway for price increases in overseas markets

(a_anurag79) #5

What is market size of these machines? And what kind of setups will buy these machines?


(Utsav Shrivastava ) #6

Market size of these machines is huge as Meera machines are replacing conventional techniques to the latest ones thus saving space, labor cost and power.
Typical buyers would be medium scale guys doing between 25cr to 200cr revenue.


(Mathew Cherian) #7

Hi

What kind of moat or competitive advantage do they have?

Regards


(M S S Murthy) #8

Net profit margins for FY2017 has come to 8%. Can you kindly clarify on your 15% estimateed net margin for FY 2020.


(srinivasan) #9

@thestocklady, 1)the revenue growth of this company is rather dismal, except for the year just before coming for IPO(ie 2017). For 2013 to 2014 it was 5%. 14 to 15 it was 5%. 15 to 16 it was 2.5%, and suddenly boom, just before IPO it is 63% growth in revenue. Suddenly a donkey becomes a Zebra overnight ? Is this how a genuine business grows ? I can understand 10% to 20% growth not the 60%. Your comments on this ?
2)EBIT margin is only 9%(not double digit only single digit) if you exclude non-operating income.
3)Promoters are taking away 40% of profit as salary. Of-course this applies for lots of genuine and shady companies.
4)The most important thing is the Merchant Banker & Market Maker, the notorious “Guiness Advisors” who helped the promoters raise money. Looks like these guys are an excellent market-maker and operator. Thanks to fellow boader Gurjot for this link. Just read this link https://www.outlookbusiness.com/the-big-story/lead-story/a-lot-of-hot-air-1563
Iam highlighting from above link here:
(i) The biggest concern here is quality. Many promoters try to get listed so that they have access to a platform and can get involved in circular trading. Except a few genuine cases, most of the companies listed on the BSE SME index are bogus
(ii)In fact, most of the top-10 gainers on the index are floated by the same merchant banker. I call the merchant banker the magician of SME exchanges. The same banker was about to list his 16th company recently but withdrew the IPO after I wrote about it
(iii)The ‘magician’ referred to here is the Kolkata-based Kamal Kumar Kothari of merchant banking firm Guiness Advisors, which incidentally acted as the merchant banker for all four companies banned by Sebi
(iv)The company, which is reportedly into production, marketing, distribution of television serials, television programmes, films, video films and corporate films, barely managed ₹2 lakh-6 lakh in revenue between FY08 and FY11. Then, just before its IPO, this figure shot up to ₹2.9 crore in FY14, with a profit of ₹5.3 lakh the same year
(v)Had any of these companies gone to a private sector bank to raise capital, their requests would have been rejected outright. In comparison, the SME platform is cheaper and easier to crack, which explains why a glut of companies is cashing in on this trend
(vi)In the end, even the market makers are appointed by merchant bankers, who, in turn, work for the issuers for a fee. What stops the promoters and market makers from playing around with prices, then?
(vii)It will be interesting to see how the regulator and the exchange finally deal with tainted merchant banker, Guiness Advisors(these guys advised for MEERA INDUSTRIES also).
5)Finally do you think this sort of bet can take 8% of an investor portfolio. At max on 1 or 2% I feel. What do you say ?


(grohal) #10

Company exporting machines to emerging markets is fine but exports to Germany, Belgium, US etc. Is a bit too much to digest!


(M S S Murthy) #11

On 21st August 2017 a total volume of 18000 shares have been traded in just 4 transactions of 6000 3000 3000 and 6000 in Meena Industries . Though this cannot be said an unusual movement it is not giving too much comfort.As for the exports to Europe and US details can perhaps be sought from the company .


(Sumit 2.5 C) #12

Market Lot is 3000, what do you expect? :slight_smile:


(Utsav Shrivastava ) #13

The lot is 3000 so it will trade in lots of 3000 only.
18000 shares is almost .5% of the equity…which is at par or higher compared to most listed entities.

As for exports to developed countries , its not fair to ask the company to prove that they are genuine. If there is anything abnormal in the numbers we should highlight it. Otherwise its just throwing stones in the dark.


(srinivasan) #14

@thestocklady, 1)Have you anywhere seen a chairman message at the front pages of annual report, talk about, how his share price increased 50% in just 2 months in bold highlighted enlarged text ? Rest of his text about his business are all in small letters. Shows how much importance he gives to share price than his business. Isn’t it ?
2)In your opening post you say company would utilize full capacity and benefit from operating leverage. But however according to the annual report, the entire industry operates at not even optimum capacity level. So is the case with Meera industries also. How did you arrive at conclusion that even after all these years of operations, when whole industry doesn’t utilize full capacity, Meera industries alone will operate at full capacity in future ? Did you talk to management on this ?
3)Why are they expanding unnecessarily when they are not even able to utilize the existing capacity properly ? Is is because money is freely available from gullible investors ?
4)Get rich quick and fast investors, in which I also belong, should chase this company, trusting not the promoters vision, but the vision of Guiness Advisors. :slight_smile: What do you say ?


(Utsav Shrivastava ) #15

@srinii_mm…thanks for highlighting these issues.

Maybe the promoter got enthused by the value he created for his shareholders and wrote about the mcap increase in the AR. I have seen many new promoters make this same mistake ( PEL still does it…writing so many times in AR about how much wealth they created, CAGR returns , etc) . I am sure with maturity as a listed company this will not be seen again.

In terms of growth being recent ( possibly because of IPO ), the numbers justify what you say. Coming off a small base, I tend to ignore % rises since the previous years numbers were so small. Maybe it is years of hard work that Dharmesh could finally see paying off, which is why he came out with an IPO at this stage. If this is repeated in FY18 keeping the balance sheet as clean, I would then definitely sit up and take notice.

As far as Guiness is concerned, for me he was only a part player in the story , and for most practical purposes his role is over.

The purpose of initiating the thread is not as a recommendation for buying, but to solicit questions or weak links in my thesis. In this regard, I must thank you as you have raised various key points which I will track closely.

I look as SME investing as a means to do Private Equity investing in the listed space. Till the actual numbers come ( and not just over 6m, but over 2 3 years ), it is a leap of faith for me. But even if you get one right ( I have MRSS in my corner ) and if the promoter/story is genuine, then the rewards can make serious changes to your portfolio. Of course to make a meaningful allocation, one has to take a leap of faith.

Thus, I look at SME stocks as double edged swords which can cut both ways. Investors entering should keep this in mind and allocate accordingly.


(M S S Murthy) #16

Harping on value creation by way of better dividends bonuses, splits , investor concalls , presentations on the performance of companies, with the ultimate objective of improving the value of the investors as well as promotors own holding is a commonly practiced norm of many Indian Blue Chips like Havells , Symphony , Piramal Enterproses, Emami and many others .As long as this effort is supported by business performance and clean balance sheets this is a desirable practice from the point of view of retail investors.
In case of Meena Industries which is a Micro Cap investors may take all the care that is required to assess these factors. Request to the company for a concall in due course may be a good way for getting such insites.


(M S S Murthy) #17

After going a little deep into the Annual Report of the company I found some reassuring information . One about the credentials of the young promoter who is from NIT . Has worked in the related field, As Design Engineer and later as Product Head in reputed companies.From the profile we can surmise his experience in industry not less then ten years .
From the management discussion and analysis report it is apparent that not withstanding the small scale of operations due emphasis is given to R&D which is rare in India . One can give benefit of doubt to the entrepreneur for a better performance and his aspiration to become to become a global leader in textile twisting technology and machinery.


(Utsav Shrivastava ) #18

Meera has given 3 updates one after another

Update 1 : Yarn division started and order recd from South Africa
http://www.bseindia.com/xml-data/corpfiling/AttachHis/c41066be-7347-43fe-8c32-4fd0fcb46c09.pdf

Update 2 : Yarn divn crosses 1cr sales in 1st month
http://www.bseindia.com/xml-data/corpfiling/AttachHis/130ec240-e97b-4e7a-a9ef-4a24ca2fb08e.pdf

Update 3 : USA ops started and agreements signed with 2 clients there
http://www.bseindia.com/xml-data/corpfiling/AttachLive/99e76b77-f516-4bc5-a9fd-cc15e2487a97.PDF

Nice to see the story developing as per script

Mcap when posted : almost 40cr
Disclosure : Holding…looking to add on dips


(Deepak Saini) #19

Sharing some of pics which my friend as taken while visiting Meera Industries US office.



(Deepak Saini) #20

Meera Industries USA Facility
Meera Industry USA facility visit by my friend