Lawreshwar Polymers

Stock Opportunities
1

Hi All,

This is my first post in valuepickr as well as a stock compelling analysis. I tried my level best for composing this analysis. Consider this as a novice guy analysis and please let me know about my mistakes.

About Company:

Lawreshwar polymers is a 20 year old company , which is a managed by Rajasthani based promoters ramesh chand agarwal and his family. The Company is engaged in manufacturing of light-weight hawai chappals, canvas shoes, polyvinyl chloride (PVC) shoes, synthetic leather chappals and fancy chappals. The Company offers its products under the **LEHAR **brand.

Reasons for selection:

The reason behind selecting this stock is because of the segment which is operating i.e Footwear. I felt i understand their business model. The company is consistently reporting good numbers in terms of both sales and EPS from the last 3 years. Promoters pedigree is also good, they are continuously increasing their stake even in the current September they increased their stake by purchasing from open market at 14.30rs. Currently the share price is quoting at 15 rupees and commanding a PE of 11. Considering the returns provided by other listed peers such as Relaxo,Bata,Superhouse over the last three years, which is more than 500%, i feel there is clear scope for further growth in this segment for Lawreshwar Polymers.

Financials (Crores):

2012 2013 2014

Sales 52.8 68.46 77.05

EBIDT 4.45 5.41 6.47

Interest 1.46 2.16 2.50

Profit 1.22 1.37 1.78

EPS 0.89 1 1.30

Positives:

1). Promoters increased their stake from 58% to 64% in the last financial year i.e March 2014. There is no pledging. Total 1.3cr shares exist with a face value of 10rs. One more promoter ram chand agarwal is doing open market purchase very regularly.

2). They bought a land and factory by paying 11 crores last year and is part of capacity expansion and it will be commenced this year. This should reflect from 2014 Q3 onwards. They specified it as to meet the growing demand and which is good for future growth.

3). Stcok is trading at .67 times of book value.

4). Their brand LEHAR is a known one across india.

5). All the listed players are quoting at good premiums though not directly comparable to Lawreshwar Polymers currently.

Negatives:

1). The interest component is much higher 2.5cr, which is more than their profit. Considering the expansion plans seniors please comment.

2). Very small player compared to its peers

3). No dividend history

4). There is a fire accident happened in the year 2008.

*Consider this as a biased report as i am holding very few shares for tracking purpose.

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2

Hi,

Thanks for bringing the un-noticed small cap.

Other than debt every things seems to be good on face.

Took small position today and considering it for Long term.

3

Hi Chaitu,

It’s a nice writeup for your debut story - gives enough detail to decide whether to dig further or not. Congrats!

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write up

Thanks for your encouragement, which gives me motivation to work further. Please let me know if you feel any thing negative from the company side. I am convinced but seeing the market downtrend i am little bit scared to increase my holding.

5

Reading your writeup, I felt like it was a company that bloggers like valuepick or acetrader (who seem to have some following) would write about. A relatively unknown/out of favour company that seems to be getting on the growth path. I agree with Sateesh’s opinion above.

(disc: not invested)

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Hi HG,

What it attracted is more on the promoter buying, i had seen the same in freshtrop fruits limited as well. When the promoter aggressively buys either he knows the company turnaround or some ill thoughts on price rigging.

I curiously watched and initiated a position when the freshtrop promoter started buying from open market at 27rs by knowing the company turn around performance and i also explored the company further and initiated a meaningful position and i benefited from that decision. I am expecting the same from Lawreshwar as well. Similar story i had for prima plastics though not on promoter front.

8

Disclosure: Not invested.

There are two major red flags which I think you should be aware of:

a) The company manufactures footwear and requires low grade PVC granules which are then used to create foamed bases of footwear. There were purchase related under billings which happened very regularly to avoid taxation. I came to know of this from a supplier.

b) The company launched its own brand of Mobile Phones (Lehar) imported from China and failed horribly.

9

:))

Strange to know the reason behind freshtrop fruits upper circuit…people had forgotten the the fact that promoter alloted himself at a price of 11 or 13 rupees nearly 6 lakh shares i think, which caused the equity dilution and did little buy between 27-37.

But in case of Lawreshwar Polymers promoters had increased the stake from open market purchase rather than equity dilution. Once the expansion comes to play will result in increasing the sales as well as EPS then i can expect dividend as well.

10

Hi Anant,

Can you please elaborate more on these points, which will help me to take a decision on whether to increase the position or hold it currently.

Thanks,

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Hi Chaitu,

It would also help if you can dig a little further and check if the promoter buying from market is actually not relatives exchanging hands. You can drop me an email using VP and we can discuss it further.

12

Hi Anant,

I verified the regulatory fillings as well as annual report and confirmed it. Please share your findings via chaitanya.jasty@gmail.com. it helps in taking the decision.

Thanks…

14

There appears a rumor that Relaxo is purchasing a stake in Lawreshwar polymers…I don’t have any evidence to prove the above claim.

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Buying by relaxo is a rumor. Good to see the stock i suggested at 16 levels now trading at 35 levels. Similarly as discussed freshtrop moved up more than 5 times and prima is also doubled.

16

One red flag is that OCF’s are not keeping pace with EBITDA/PAT - they are erratic. I can understand FCF’s but OCF’s being negative in a consumer business is something I do not get.

Again, capital allocation skills given the lehar mobiles experience is something to worry about.

17

Recently share price is moving fast…is there any updates…
Price moved up 4 times from my original recommendation but financials are not picked in the same manner,
currently valuations are stretched and thinking of exiting…any opinions…

18

Is that above news reason for recent rally? But these brands are not new I think. Any other updates?

Disc: Taken small position

19

I am planning to meet the CEO of the company. Let me know if anyone has any questions.

20

The footwear Industry is growing at a fast pace. Let us have a look at footwear manufacturers quarterly sales figures.

Screenshot (2)
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Last year the Government increased custom duty on imported footwear. Further, the make in India push is also helping the Indian manufacturers. There is a demand of extending PLI scheme to leather/footwear manufacturers, and it is expected that the scheme may be extended.
E-commerce has reduced the power of middlemen in the distribution channels and increased the power of manufacturers.
The valuation of Lehar looks very attractive. In TTM it has done a sales of 175 crores with 4 crores of net profit. Thus at a market cap of 68 crores, it is valued around 2/5 of sales and around 17 times earnings. If growth can be maintained, it looks like a decent bet.
[Disclosure- Invested]

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