Stovec Industries Ltd - Manufacturer of Textile Printing

Stock Opportunities Untested - but worth a good look
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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 !!

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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.

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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.

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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

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

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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.

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Hello. Anybody attended the AGM? While all the ratios and profitability is good, the growth seems to be lacking. Any guidance or expectation from the management?

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Minutes of the 44th AGM held on May 11, 2018

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Thanks for sharing this. Unfortunately, the minutes do not contain the answers to the Investor queries. Anybody else who attended the AGM could highlight the company’s views on the said queries?

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Can anyone also throw light on the huge increase in group management expenses paid to the holding company (Page 69 of 2017 annual report).

Group management expenses in 2016 is INR 52,65,393
Group management expenses in 2017 is INR 3,29,34,470

In the 2016 annual report this same head was classified as “communication expenses” paid to the holding company!

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The sugar screen business sale is perplexing. The year it turns profitable, they sell it to Veco B.V., another subsidiary of the parent co. In FY18, the galvanic segment (sugar screens business) recorded PBT of ~ INR 3cr. The business was sold for INR 10 cr = 3x PBT. Seems irrational!

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While not investor now, but have invested in stock almost 18 months back. I think while valuing sugar business, one need to compare same over a cycle of 5-7 years. The company hardly made profit on sugar business. So rather then assuming last year profit as normal, I would considered it to be exceptionallly good (based on my limited understanding of the company).

I am enclosing latest 6 years data of Segment wise sales and EBIT.

Rs Lakhs 31-12-2012 31-12-2013 31-12-2014 31-12-2015 31-12-2016 31-12-2017
Sales 7,291.99 7,686.01 9,411.10 15,532.03 18,851.34 21,008.15
Textile consumable and machinery 6,226.92 6,673.63 7,918.73 12,863.62 16,080.92 17,694.20
Graphic products 508.10 478.04 566.21 801.33 875.83 971.70
Galvanic 556.96 534.34 926.16 1,867.07 1,894.59 2,342.24
EBIT 1,104.55 1,567.93 1,793.08 3,256.86 3,596.60 4,533.56
Textile consumable and machinery 1,055.34 1,498.01 1,739.55 3,102.43 3,352.52 3,991.24
Graphic products 168.40 156.52 202.20 378.98 344.87 446.20
Galvanic -119.19 -86.60 -148.67 -224.56 -100.79 96.12
EBIT Margin %
Textile consumable and machinery 16.95% 22.45% 21.97% 24.12% 20.85% 22.56%
Graphic products 33.14% 32.74% 35.71% 47.29% 39.38% 45.92%
Galvanic -21.40% -16.21% -16.05% -12.03% -5.32% 4.10%
Capital Employed 4,351.27 5,041.27 5,761.44 7,086.86 8,547.24 11,107.10
Textile consumable and machinery 1,573.56 1,420.89 1,719.15 2,112.52 3,265.57 5,503.81
Graphic products 215.63 241.52 235.38 258.06 282.64 242.67
Galvanic 723.30 774.48 2,266.69 2,537.61 2,082.14 1,996.42
Unallocated 1,838.78 2,604.39 1,540.22 2,178.67 2,916.89 3,364.19
ROCE% 25.4% 31.1% 31.1% 46.0% 42.1% 40.8%
Textile consumable and machinery 67.1% 105.4% 101.2% 146.9% 102.7% 72.5%
Graphic products 78.1% 64.8% 85.9% 146.9% 122.0% 183.9%
Galvanic -16.5% -11.2% -6.6% -8.8% -4.8% 4.8%

understand Galvanic segment is related to Sugar business. I would also seek some idea about PBT of 3 Cr from Sugar business. As per AR 2017, the company report EBIT of Rs 0.96 Cr from Galvanic business. Also, during last 6 years, Average EBIT from Galvanic business is Rs -0.97 Cr on average sale of Rs 13.54 Cr providing Negative EBIT margin of -7.19% over last six years.

Hence, in my opinion, Stovec sale of Galvanic business is a good development for the shareholder of the company.

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55%20PM

14%20PM30%20PM

Hi Dhiraj,
Please find above the results for FY18 -
Q1 PBT = -55 lakh
Q2 PBT = 62 lakh
Q3 PBT = 121 lakh
Q4 PBT = 88 lakh
For the period FY18 = INR 2.16 cr. Moreover, the trend is excellent and on a run rate extrapolation of the previous 9 months, we could have expected INR 4-5 cr in PBT from this segment.

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So, EBIT is around 2 cr for Fy18. Since the company is debt feee, EBIT and PBT would be almost same. It is 5 time best profit at EBIT(PBT) level. There might be view that cycle is just turning around and may remain on positive side for couple of years. The other view is the business is not great if we look at past 6 years data. It is upto individual to take view and either side could be correct from rationality. Personally, my view is sugar is not great based on past financial.

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Fellow participant , Did the Board inform in the AGM, in detail why there is a sudden jump in CAPEX in the FY ending DEC 2017 . capex is Rs 19.6 crore which is very large when we compare the exisiting block of Rs38 crore.
Why there was a sudden fall in figures the advance from customers to Rs 2.45 [2018)crore from 10.6 crore (2017).
Is there any change in the business terms so far as advances are concerned , by the co during the year.
Friends I am new to this place , pls forgive me , If I have done something wrong .
Thanks

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I couldn’t go to the AGM. The increase in gross block should be due to the expansion undertaken by the company. The decrease in advance from customer might be indicating lower demand or orders in the near term.

3 Likes
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Thanks Ayush Sir for your feedback !
Fellow participants , did some one amongst us, attend the AGM this year , Pls update any info , if the co had shared any detail !
Last time in the year ended 2010 and 2014 , there was a jump in capex and following which there was noticable growth in the forthcoming years , lets see how it turns out to be in the forthcoming years this time .
However the advance from customers figure depicts a different story as rightly observed by Ayush sir.
This needs to be explored .
Thanks !

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I was researching about this company and in going through the annual report, I was curious about some points. if anybody has any views/info, kindly share

  1. Besides Stovec Industries, Is SPG Prints operating directly or via any other subsidiary in Indian market for the area of operation of the company (Printing)?
  2. I also noticed that Royalty payment % was increased in 2017 as compared to 2016. What is the % now that they are paying to SPG Prints?
  3. Is Stovec industries having any plans to enter Digital printing space with support from SPG Prints? Is SPG prints handling this business directly or through any other subsidiary for India?
  4. In the overall 177 Cr sales of Textile machinery and consumables, what is the breakup of Consumables and Machinery sales? Is it available from somewhere?

Thanks in advance.

Nikhil

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Hi,

Is any one has answers for above… These are very valid questions but unfortuneatly i dont have any answers.

Also, is there any reason for such a depressed multiples like 15 PE for a company with MNC parentage , 20+ PAT, good volume growth, 20 +roce, 0 debt …

Is it liquidity is the reason.??

Also for Stovec and in general all companis : Is listing only in BSE effects tge valuations if yes, what way and to whst extent??

Thanks

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