Stovec Industries Ltd - Manufacturer of Textile Printing


(avdhesh) #28

1 quarter result announced:very timid

http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/721DB479_C7B9_4EC4_88E3_0F62B0A89A39_081532.pdf


(Bheeshma Sanghani, PhD) #29

Essentially what Stovec does is makes printing machines and then provides the ink/catridges/spare parts and after sales service. These kind of companies are very stable as the fortunes of its customers are tied to the company where they have purchased the machines, inks and catridges from. In addition, SPG seems to be the gold standard in printing technology like Bose is in Audio. Companies that have products that are top of the line gold standards have a big advantage over their cheaper rivals - people aspire to upgrade to them and with any increase in capex budgets they generally do.

Stovec has an average return on assets of about 19% which is remarkable for a business that essentially serves the textile industry which has an average ROA of about 9%. This means its top of the line in ROA as well.

Having said that however, the part that may impede its growth is that it serves the textile industry which because of the inherent low returns is always going to look for low cost solutions. There are going to be very few players with high ROA’s ( Vardhaman Textiles, Indo Count) and only these guys will have Stovec in their plans. There is a natural limit to how much it can grow because of the economics of customers it supplies its machines to. Growth will happen but slowly. In fact, the textile industry is a littered with bankrupt firms. Research in predicting bankruptcy in Textile firms is a very active area of many a Phd thesis. Google “bankruptcy in the textile industry” and you will see what i mean.

I like this awesome company but i honestly i am shit scared about investing in it…


(abhimakk) #30

@bheeshma how are you reading the Q4 results, YOY the NP has increased nearly 9% which is lowest in recent years.


(slabana) #31

As I understand the business, the company is into assembling printing machines and manufacturing rotary screens and inks. It is a kind of business wherein once you sell the equipment, you will have repeat customers for selling screens and ink.

One thing which I am curious about is what is the operating life of a rotary perforated screen that the company is selling, which impacts repeat purchases.


(divan91) #32

Hello fellow VPs,

Any reason for a high P/E of close to 23? Or is it the industry standard?
It’s a bit weird when the pulse isn’t that strong for textiles.


(Ayush Mittal) #33

Sharing my notes from the AGM:

Discussion:

* Facility: China, Brazil are the only other facilities of the parent company.
* India is the only rotary machine manufacturing plant outside Netherlands. Parent co. doesn't have much presence of selling rotary machines in export market hence, growth opportunity is there for the Indian co to tap.
* Manufacturing time 3-4 months.
* Semi-automatic- R&D is in progress would also be developing indigenous fully automatic machine. Once, done it will open further export market. most of the machines are mechanical in India. People will progress from mechanical to semi-auto and then to fully-auto.

Stovec AGM Q&A:

* screen market in India about 200 Cr.
* 75-80 machines sold in best year, 20-25 in a worst year. Hence tough to give the number on market size.
* Royalty increased by 50%-> new products are being added. Some of the existing products (screens) have matured and have been facing competition.
* CAPEX- yes, have constructed a new shed (pre-fab) for increasing the capacity seeing the good demand for next 2-3 years.
* The Indian team was appreciated for fantastic product development over past 3-4 years. Due to which Stovec was able to increase substantial market share in India.
* Order book position is comfortable.

(rationalist) #34

Thanks Ayush.

What would be interesting is to understand the demand and market position in new set of digital printers. The market potential for the same is high and the textile industry is also moving towards more digital printing in the future. If they can get market leadership in digital printing then there is huge potential. They have also won international awards for the same.

http://www.indiantextilemagazine.in/digital-textile-printing/spgprints-and-stovec-all-set-to-launch-pegasus-evo-and-javelin-printing-machines/

Disclosure Invested


(Ayush Mittal) #35

@rationalist For sure digital printing is the new thing and will be more suited for shorter runs and better designs. SPG group seems to be already doing a lot in this area and may be able to benefit. However, it may take few years before it becomes material in overall scheme of things.


(Dhiraj Dave) #36

@ayushmit

Thanks for insightful note. I had invested in the company . I thought that Nickle (being major raw material for screen) price increase would adversely affect the company in medium term. However, despite in Nickle price the company is able to manage margin in recent past.

My second concern was about increased exposure of the company in sugar screen business which is loss making. I could not get any justification on same and that was also major discomfort for me. Do you have any view on sugar screen business?

But for Sugar screen, a very good company for compounding investment for a long term investor in my opinion.


(Satish) #37

I did check with a small scale textile mill and I was told that the life is in terms of number of meters printed(did not provide a number). Hence other than the ink even the screens themselves need to be replaced once in a while


(Satish) #38

Hi Ayush,

Could you get any color on their Investment is jaysynth dye? I wrote to the company within days of receiving the annual report but haven’t heard from them.


(Ayush Mittal) #39

@dd1474 - Yes, at times it gives a bit of dis-comfort to see the investments done in the sugar screen business + small investment in the ink company recently - however, I also feel that this is how MNCs operate. To be in some business or to remove some conflict they do pay a premium and the story may unfold over a longer period only. Anyways, its good to see that the sugar screen business has turned profitable and seems to be making decent profits. Based on the AGM interaction, it was not an highlight area.

@csatishk - they didn’t reveal much. Seems to be some long term strategic planning for future. They might be wanting to manufacture inks in India or may be its for digital ink.

Regards,
Ayush


(Dhiraj Dave) #40

That is good to know. Otherwise amazing business which is already wealth multiplier for investor (25X in 10 years.), Wish contnue to compound wealth for investor at same or higher rate in future as well. :airplane:


(Sujay Ghosh) #41

Read this part of management discussion in their latest AR.
http://www.spgprints.com/uploads/documents/Stovec/Reports-and-filings/3.-Annual-reports/Annual-Report-2016.pdf

[quote]
Graphics Printing

Indian Packaging and Label Industry continues to grow strongly and is also attracting international
attention. However, it has still not grown to the level of international packaging & label industries. The
increasing competition has driven printers to invest in newer and diverse printing and converting
technologies. In years to come, Printers who have technology and resources will be at added advantage
and can cater to a demanding consumer oriented market.[/quote]
So, can I assume they build printers & inks for printing Packaging and Labels? Then companies like Huhtamaki PPL, TCPL Packaging can use their products for printing!! If this is true, then the demand for the company can be linked to the performance of Textile, FMCG, Pharma sectors!!


(Sujay Ghosh) #42

Their technological expertise says “Metal Coating/Plating, Electroforming”. They state that,

http://www.spgprints.com/uploads/documents/Stovec/Stovec-Profile/stovec_profile-2014.pdf
Can we assume from this that this can help expand their portfolio of products later !!


(Ayush Mittal) #43

Company to divest the investment in subsidiary - https://www.bseindia.com/xml-data/corpfiling/AttachLive/8a56f0c2-b1ef-45df-8484-3a3e20d6eb09.pdf

For some investors it used to be a concern as the investment seemed un-related. Good that company is exiting.


(Dhiraj Dave) #44

Excellent development. As you correctly pointed out, this was my major concern and reason for exit. It would be good to watch further development in this counter.


(Ayush Mittal) #45

The amount is small in overall scheme of things. More importantly, they had been having surplus cash, lets see if they can put it to use for the growth of the company or may be increase dividends


(Sreekanthreddy9) #46

AGM will be held on 2nd may.Is anyone planning to attend?


(Indie) #47

I am researching on this company and have a few queries that I’m listing below. It’d be great if anyone on this forum has inputs on these.

  1. Does anyone have the breakup of how much revenue the company earns from sale of new machines as opposed to sale of consumables?
  2. I’m assuming consumables is a repeat business unless customers have cheaper sources in the market to acquire those consumables. How does the company ensure stickiness of its customers? (This can be a great source of economic moat)
  3. How many machines do they sell per year? Is that number growing? Additionally, what is their installed base?

In case anyone here is planning to attend the upcoming AGM, kindly put forth these questions to the management.

Thanks in advance.