Overall I think this is a good company to invest in, although lower entry points might be available in future as wage revisions are expected to kick in.
I think the major risk is in Europe which is a major market for them. Also, they supply to international tyre makers who might also see a slowdown. There is certainly a slowdown in India as far as car manufacturers are concerned. This could extend to other sectors as well.
I do not see any reason for a PE rerating but overall its a good company to have in your portfolio. I believe margins might be lower in Q2 which could be a good entry point.
Also, the synthetic rubber story needs to be investigated as it is a high margin business. I wasn’t able to find any numbers but if more of the sales is going to be high margin then that could result in a PE rerating.
I am kicking my backside for this … Last month, Donald pointed me to this and it was at 1410. I put in a buy order at 1400 which did not get executed!! Look where its gone now and I wasl “anchored” to that silly 1400 not to be able to buy on the way up!!
This is a lesson I learnt the hard way too, when I used to fail to re-evaluate the buy range for the stock say 6 months down the line my initial buy. The 2 specific lessons I learnt
1). Whenever I want to put fresh money into an existing portfolio stock, I now look at the prospects of earnings and cash flow 12 months from that point of purchase. I do a fresh valuation exercise. I have seen this helps remove price anchoring in the mind. And I have to thank Ayush for this - for drilling this in me - everytime we used to talk about what are the most interesting opportunities - at the current moment - based on next 4 quarters, 12 months down the line!!
2). Then when I find Conviction in the stock is HIGH, and undervaluation in the stock isHIGH - go ahead and buy. for the quantity I want to buy I have learnt to even overpay by 5-10 Rs (if I am not getting the quantities) with staggered buys. Similarly on the way down, with jittery markets, I have learnt to try and squeeze 5-10 Rs less on staggered buys. Practical advise picked up from Ayush’s dad!
Same boat as you Abhishek for both Ajanta & Guj Reclaim. I got only 5 & 7 shares respectively at my higher limit. I still remember thinking at that time that I probably overpaid for both. And then classic price-anchoring set in. Whenever I looked at their price to buy, they were always higher.
One more thing which deluded me was being illiquid stocks, the days when I had not looked at them, they seem to have fallen quite a bit from my purchase price. That lulled me into a belief that one of these days I will get my qty at my price The day never came.
Both these stocks are my 3rd-4th highest percentage gainers, while I have a paltry 10K inv combined.
Someday I will go through the capital-allocation thread which Donald drilled into me during our first email interaction. Work has been keeping me quite busy.
Having said that, so as not to be a further victim of price-anchoring, do any of you think there is enough steam leftby way of increasing EPS or PE-reratingin Ajanta or Gujreclaim to increase my inv. size to a modest level? Considering so much time/effort it takes to identify a good pick, I won’t mind overpaying if it’s a long-term buy-it forget-it story.
ps: Donald, pls keep a watch on investingkitten. Abhishek, Ashwini and me have warned him on his blogspammy comments.
I don’t think we need to worry too much about missing the boat. Government if it continues what it is doing now, there is a good possibility of market coming down. Government never disappointed us recently on bringing down the market. Diesel and price hikes are going to be on the menu soon.
The stock has crashed after disappointing Q4 results. And now it is trading at around 8 times FY 2012 earnings.
Donald ji, Ayush â would you advice buying at these levels?
I was looking at the common size P&L and almost every
other cost head has gone up in Q4 â 2012. The power and fuel cost, employee
costs and other expenses might be up due to new plants being commissioned and
just beginning production. In my opinion, this should just be a temporary phenomenon
and the stock now provides decent opportunity for investment.
I would think so too…in addition may be some forex related stuff too perhaps??
Also i noticed a slight drop on a q-o-q basis; i dont know if this is a seasonal effect or from lower rubber prices.
Additionally, does anyone know how the impact would be from a lower rubber price? I would assume they have to lower their price as well and that could impact margins…currently rubber prices are ~15% down y-o-y and future outlook seems to be pointing towards further declines. I know that they have managed to move up the value chain a bit but they would continue to have some amount of commodity exposure.
Summarizing, i would say one shouldnt forget the 30% revenue growth and 45% PAT growth achieved on a full-year basis and an RoCE of 45%+. Perhaps, people who are in touch with the Co could do a quick check with the Co?
the profitability has been affected due to some onetime things like - Loss of machinery and production due to fire (part of it would be recovered via insurance in coming times), One time bonus to employees etc, currency fluctuation due to appreciation of rupee and some exp due to expansion. The exp has been done at the end of the qtr and the co should be able to grow in coming qtrs.
If we look at the full-year performance, we should be quite happy with GRRP results. Ayush has mentioned the reasons for slippages in Q4, which look to be one-off.
The company seems to have changed its policy of no hedging (since they quote forex fluctuation among reasons for Q4 slippage).We should find out more on the forex-handling strategy of GRRP given the continuous rupee depreciation.
Meanwhile, things look good for the company for FY13. Even at a very conservative 30% growth projected the company is available at <6x 1 year forward (CMP 1455). The company has been exuding confidence of clocking up a much higher growth rate in the coming year. Long-term investors in GRRP should remain invested and can add at current levels and every decline. Please look at teh track record and projections, below.
We are attempting a Management Q&A first or second week June.
Disc: I remain invested in GRRP and have a significant share. I am looking to add more, but in no hurry
Since you guys track the company closely since long…one macro question… whats the outlook on rubber prices, are they likely to remain stable or show ascending/descending trend going forward.
Mixed trend inrubber Hindu Business Line Physicalrubber priceswere mixed on Tuesday. Major grades ruled steady on supply concerns amidst scattered transactions. The undercurrent appeared weak following the sharp declines in the global market. Sheet rubber closed flat at Rs 194 a kg,... See all stories on this topic >>
I was referring to Ayush’s comments on currency fluctuation. I believe he has spoken to Management post the results and had summarised Management’s comments on the performance slippages.
… Last month, Donald pointed me to this and it was at 1410. I put in a buy order at 1400 which did not get executed!! Look where its gone now and I wasl “anchored” to that silly 1400 not to be able to buy on the way up!!