Banco Products

I want to highlight an auto ancillary company named Banco Products. Here are the highlights:

  1. Though the auto industry is down the sales and profitability of the company is intact and is still showing good profits in worse environment. This year can be bad too.

  2. Dividend for FY 13 is 5% on current market price.

  3. Sales of 1000+ crores whereas the market cap is just 260 crores.

  4. Cement plant in tanzania is being constructed. Now the valuations of cement companies are not high so we can expect some conservative PE even in future. But for Banco this can give some diversification. We dont know how the Cement plant will do going forward so that is one risk.

  5. Banco has acquired a company called NRF in europe. This can do well after recession in europe is over.

Why am i suggesting now:

I say buy if you guys can spot it at throw away valuations like 200 crores market cap etc. The reason for that is because the promoters have managed the company well and in future we can expect them to do well once we see recovery in the auto sector.

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Banco has come out with good q3 fy 14 and 9M fy 14 results as compared to earlier period.

period q3 fy 14 q3 fy 13 9M fy 14 9M fy 13 fy 13 (12M)

sales 264 228 880 782 1027

op 26 12 102 77 90

NP 22 6 80 55 61

eps 3.2 0.8 11.2 7.7 8.6

Current price is around 55-56 crores. Market cap is around 400 crores. (In hindsight logic of Rakesh the initiator of this thread was spot on-- stock has nearly doubled… )

Company had poor Dec 12 and March 13 quarters because of which the stock got a pasting. But now with three back to back good quarters company it seems is on track now. Comparing the standalone and consolidated figures, we can make out that both the divisions are firing quite well.

Interim dividend of Rs 1.70 has been declared with recent quarters. Promoters have 67% stake, no pledging.

Company is based at Baroda and makes radiators, gaskets etc. It also has cement plant somewhere in Tanzania and some biochemical division (?spirit plant) also. The latter two I would consider as Lynch’s deworsifications. But the main business seems to be doing well now.

Coming to valuations, company could do eps for fy 14 of around 14 plus per share. based on that, a company with sales of 1000 crores plus and a dominant position in their niche seems to be attractive.

Technically stock seems to be forming a weekly cup and handle formation… Breakout for this as shown in attached chart is 65. If successful target could be 95. On positive side, stock is consolidating above its 200 day exponential moving avg of 50 after a sharp upmove from 33 to 67 followed by the current correction.

disc: took a starter position to keep track.

attached chart shows weekly line chart with comments put up.


BANCO LTD

Company is a manufacturer of radiators which are used in commercial vehicles, off the road vehicles, and passenger vehicles in exports markets. Majority of the sales is from supply to OEMs.

Over the years as a measure to derisk its business model, the company has reduced the revenue contribution from automobiles to the overall revenues by focusing on non auto sectors like railways, power sector, earth moving and construction segment etc.

Subsidiaries of the company include NRF BV Netherlands, Kilimanjaro Biochem Ltd, Lake Mineral Mauritius and Banco Gaskets. (spun off in 2012)

NRF manufactures aluminium, brass and copper radiators, marine heat exchangers, oil coolers, air coolers, and automotive air conditioning products. It was a client of Banco for 15 years and was acquired at below book value at a cost of 17.7 million euro against net current assets of 24.8 million euro.

DIVERSIFICATIONS

Banco invested 3.5 million USD in Kilimanjaro Biochem which manufactures potable alcohol.

It also planned to invest 12.3 million USD into greenfield expansion of cement capacity in Tanzania.

Both these diversification were done few years ago. Thankfully for investors this has not caused any grief in terms of a drag in profits.

FINANCIALS

CMP 55, market cap 400 crores.

Outstanding 7.15crores shares of face value of Rs 2 each.

Promoter holding 67.88%, no pledging.

Debt on March 13 was 174 crores which has come down to 150 crores in H1 fy 14 ended Sep 13.

Cash and equivalents at march 13 was 20 crores which has gone up to 46 crores in H1 fy 14.

Net debt has come down from 154 cr in march 13 to 104 cr in Sep 13 ended half year.

Company has already declared and paid interim dividend of Rs 1.7 per share during current year.

Book value for fy 14 likely to be around 60.

Last few years figures

Year 2010 2011 2012 2013 9M 2014 9M fy 13

Sales 466 871 1018 1024 867 765

Net profit 78 65 76 61 80 55

9M fy 14 eps is 11.25

Full year it can post eps of around 13-14 per share.

Based on this it is available at a PE of around 4.

Quarterly performance

Qtr

Sales

NP

Q1 fy 13

268

27.5

Q1 fy 14

307

28

Q2 fy 13

275

21.62

Q2 fy 14

300

29.8

Q3 fy 13

223

5.85

Q3 fy 14

260

22.7

9M fy 13

766

55

9M fy 14

867

80

March 13 qtr had sales of 242 cr and net profit of 6.35 crores.

Company had two consecutive poor quarters in terms of profitability and margin viz Dec 12 and March 13. But since past three quarters it seems to have gotten on track in terms of profitability and margins and it is highly likely that this trend continues in March 14 qtr as well.

Dividend payout ratio has been traditionally high in the range of 25%.

INVESTMENT THEME

Investment in Banco Ltd is based on the theme of undervaluation cum turnaround.

Positives are that the company seems to be getting its act together since past few quarters after a lackluster fy 13. If March 14 quarterly results come out expectedly good then there is chance of some rerating happening in the company.

Company has a good dividend payout policy.

Currently it is available at around 4 PE.

Negatives are the diversifications that the company has made in cement and alcohol.

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I was checking Banco from time to time. It was a pet pick of RD who loves to buy stocks which gives good Div when tanks and also has the potential to go up after a while. Banco is one such stock. In bad times it underperforms but investor gets a good Div. and due to poor control over pricing, its profits swings around. So Banco is not a growth stock, in my opinion such stocks should be bought in bad time and MUST be SOLD in good times.

Valuepickr is slowly converting into an operator’s paradise. Speak Banco and its up 13% since. Speak Muthoot, its up 19%. More such pump and dump will be played especially because its a free site.

Serious suggestion to Admin - Ask for log in each time someone wants to view anything here. This will not totally prevent pump and dump, but at least you’ll know exactly how many are lurking around each day. Those that have not registered and are regulars will come in the registration fold.

Hitesh posted on Banco on 13rd Feb. Then there was reco. on Guj Samachar on 3rd March. Till 20th March, there was little spurious activity. But after Hitesh’s second elaborative post it has spurted. It is getting very confusing and dangerous.

The main theme in Banco is turnaround cum under-valuation play. The company & its subsidiaries has posted good results amid very poor economic growth and de-growth of auto industry.

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Admin,

fully agreed with Rahul Chauhan’s suggestions.

speaking of myself, i am a daily visitor to this forum for over last 1 year or so but have seldom taken the liberty of login to read the posts and have almost never participated in the discussions (baring a small post on PI AGM in Aug’13).

A compulsory login together with mandatory contribution to the forum from all participating members will go a long way in protecting the grace & quality of the forum. The mandatory contribution part will immensely help silent observer like me to do the hard work and improve the investment skills over a long term.

the main reason for me not actively participating in discussions are (1) i feel i am far less knowledgeable than seniors & other regular participants and (2) my language & vocabulary is not good enough to express my opinion. reading the last post by Donald on Code of Conduct has given me the courage to shed excuses and will now try to start contributing to the forum to best of my capabilities.

Even if we see the volume it is huge. This seems to be matter of concern.

We should keep the forum free i.e. without control… as much as possible. Even after login if there are price spurts then how do you defend that ? start collecting more data or investment for each person.

Only concern should be that people are not using it for price manipulation. Disclosures are enough for that purpose.

Moreover there are lot more scrips which gets discussed not all move up. There are lot more participants in the exchange…

O god…‘operator’s paradise’!! Those are too strong words to be used for a forum.However,I too am seeing the rising trend of stocks at VP being lauded almost immediately…TElxsi shot up within days of Hitesh bhai’s reco.,Alembic P. shot up within days of Donald mentioning that the co. remains a buy on dips,MU keeps getting re-rated,Astral keeps getting re-rated,Kaveri seeds too.And many others.
Conversely,there is merit in Pankaj’s point as well…stocks like Munjal Showa,TVS Motors,KRBL,Marksans Pharma,Dynametic Tech.,Ceat,etc. have also had very good runs recently & most of them are hardly even discussed at VP!! I think its pretty natural for ‘informed circles’ to have eyes on VP forum,especially given the success ratio of their ‘picks’.As Donald mentioned a few weeks back,a well-known analyst ‘knew’ them beforehand.
My greater concern is: Is VP getting the deserved credit on the scale it deserves? And in a lower voice: Do Donald,Ayush & co. even care about ‘recognition’ much? (Aren’t they very happy to analyse cos. & reap the rewards? :slight_smile: :wink: )

Disc.: Thanks to Hitesh bhai,I took some positions in Banco yesterday.

I think its not proper to blame Valuepickr or its contributor to blame, Its grateful that they are doing the hard job and giving us inputs, the market is in so much momentum in the midcaps and as it can be coincidence, its one of the fantastic website. By blaming we should discourage the people from contributing.

I don’t think anybody is being blamed here.

Also, I think that it is just a coincidence that the stock went up immediately after discussing here. Operators can drive any stock and an operator would not need to read through the posts here to drive a stock up. Many of these stocks have been discussed since a long time here and on a frequent basis.

Hitesh, also discussed Unichem couple of days back where in he spoke about a probable technical break-out as well. Now if a stock would give a technical break out with rising volumes then it will in all probability move further upwards. That can’t be attributed to operator activity again!!!

I think let us focus on the constructive discussion of stocks and new stock ideasthat the Valuepickr community is known for rather than venturing away.

The stock ideas which are taken forward for brainstorming are quality stocks in which a lot of hardwork and quality analysis is being done by the contributors. More often than not such quality stock ideas would get rewarded in the market at some point of time. On top of that there are good practices in terms of adequate disclosures and specific notes in terms of avoiding certain stocks and not to construe the discussion or personal holding as a recommendation. Hence lets give due credit to Valupickr contributors and analysts.

Also, as a forum becomes popular people are bound to follow it blindly sometimes (even if a stock is not recommended and just discussed)despite adequate disclosures, and despite best efforts of the contributors. If they are doing so then I am sure they are doing that as an individual decision taken by them and the risks thereof solely lies with them and not the forum or its contributors in this case.

I think the main problem with us at VP is that we have tunnel vision when it comes to seeing stocks spurting.

Look at the broad universe. this is a bull market which is broader based then seen in the earlier upmoves. Once the high quality ones have run up sharply the next in line will take their turn to run up.

our problem is that we focus only on the stocks we discuss. If the stock in question is good its going to go up sooner or later.

as mentioned in earlier post a lot of other stocks too have run up.

its no use trying to find operator influence in each and every stock spurt.

there may be some MF guys/HNI portfolio manager lurking on this forum as some unidentified guys. When they see something attractive they might press the buy button. There’s no way to stop this. And after all why stop them? Sooner or later earnings and earnings in most cases will be reflected in stock price.

The merits and risks of banco have been amply discussed. For those who wanted to study it further there were annual reports of company, old research reports etc.

MAIN ADVICE REMAINS NOT TO CHASE PRICES. LET STOCKS CONSOLIDATE (as in case of banco…it spent a lot of time around 55 before move.) AND STILL IF THE STOCK RUNS UP A LOT, LET IT GO AND WAIT FOR NEXT GOOD PICK.

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as far as I know no one can view any post of valuepickr without logging in.

coming to pump and dump – I dont like the tone of your post.

The guys who post their stock picks spend a lot of time and effort in picking their stocks and trying to find attractive stocks which have upside potential. (You can go through the track record of the guys before loose comments.)

And then comes a guy like you who loosely uses the words “pump and dump” without realising its full meaning.

If you cant contribute meaningfully to the forum then atleast refrain from using loose language.

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Joint family business, handled by old patriarch and his three sons.One son looks after the African businesses and other two Indian business.

Subsidiaries-

A)Business- Cement

Banco is a new entrant to the cement business,does not have any prior experience.The Banco cement plant that in Tanzania is going to go online for production at the end of April 2014,if no further delays happen. Currently the plant is 90 percent complete. Plant capacity will be around 1500/tons per day(less compared to others).Company is in process of setting up a strong dealer network.

Competition:

1.Hiedelberg 2.Lafarge(not doing so well) 3.Tanga cement(Simba brand) 4.Arm cement (rihno brand) amongst others.

Business outlook- The demand for cement is high in the domestic market and especially for exporting to Mozambique.The plant capacity utilization is expected to be very high at-least for next two to three years.

Rumor- One of Africa’s richest man(Nigerian) also planning to set up a huge cement company in Tanzania.If he decides to ,market dynamics will change for all players involved.

B) Alocohol:

Banco is old hand at this business andis doing well. They have capacity of around 22,000 litres per day.

Competition:

Kilombero - The companies sources it’s sugar from ,Kilombero Sugar comapny. Kilombero itself has gotten into manufacturing of Alcohol with 2x capacity of Banco.Production of the same has started in the last three months or so.

Business outlook- Market demand is high and room all players to do well.

Rumor- Plans to venture into sugar cultivation business. They have to partner with the government to set up this business, it may take time.

Discl: Not invested.

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Further …

1). It has a captive coal powered plant of 10 MW .They produce excess power than will be required for cement biz and is available to be sold to the local electricity board.

2.Alcohol-They have a Co2 purification plant as well.

Sorry for the double post mods.I can’t figure how to edit my previous post.

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thanks dhaval d for the updates.

this has been the missing link for me… getting info about the african subsidiaries has been difficult.

I tried to contact the management but couldn’t make much headway.

Now will try during the agm a few months away to talk to someone in the loop.

Rahul, Please be careful in using words like “operator’s paradise”, “pump & dump” on this forum. We have practiced a pure culture at Valuepickr and would not like to get it spoiled. Admin please take a note.

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Regarding Banco’s alcohol foray, their project division had commissioned this project and while doing that, they felt like owning it and just got into it.