ValuePickr Forum

Meera Industries : Worth a look

I think u r confusing me with someone else. How do u even know all the stocks I own? Anyways, better not to talk about personal holdings/stock picking etc, as we don’t know each other, and our field of work and expertise is completely different, so better not to go into that.

As far as inventory is concerned, each machine is built only against a confirmed order and advance. The company works on concept of just in time inventory stocking. Also, the non critical capital intensive work is outsourced.
In fy19 the company has brought some of the work in house by purchasing some critical machines ( see announcement ). This should shore up assets and margins both.
The company is looking to triple capacity by taking over next door premises also. In case the co buys it, you will see a big increase in assets and consequently lower roa and roce. In case they lease it, you will see even higher roa and roce.

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Meanwhile Meera Industries secured new orders from three new countries.

China - NANTONG GOD OF HORSES THREAD CO.
Mexico - MURTRALEON, S.A. DE C.V.
Brazil - TNAX INDUSTRIA E COMERCIO DE CABOS SINETICOS LTDA

The company got entry in Chinese Textile Machinery market which is dominated mostly by western world, which is a very good development. They export to 26 Countries now.This will further strengthen Meera’s Brand Value worldwide.

Another set of great numbers from Meera.

h2fy19 (comparing with h2fy19, standalone)
Revenue :arrow_up_small:57 % from 1184 lacs to 1862lacs
Ebitda :arrow_up_small:62% from 224 lacs to 364 lacs
Ebitda margin :arrow_up_small:…19.5% compared to 18.9% last year
Pat :arrow_up_small:63% from 150 lacs to 244 lacs
Pat margin 13.1 % compared to 12.6%

Meera fy19 (consolidated, comparing with fy18)
Revenue :arrow_up_small:66 % from 2194 lacs to 3642 lacs
Ebitda :arrow_up_small: 91% from 370 lacs to 709 lacs
Ebitda margin :arrow_up_small:from 16.8% to 19.4%
Pat :arrow_up_small:99% from 247 lacs to 492 lacs
Pat margin :arrow_up_small: from 11.2% to 13.5%

Consolidated eps…12.5

Meanwhile Meera bagged domestic order (from Creative Textile, a Leading Textile Group from Mumbai) of Rs. 1.68 crore. Too good, huge headroom for Meera to grow.

Long term loans and advances , inventory and short term loans is the place where red flag is occuring

Where is the provision for warranty. How many cos sell machines and do not provide warranty.
Try comparing this with other cos which make machines. Eg Praj

Meera is exhibiting it’s next generation models at World’s largest Textile Machine Exhibition to be held in ITMA 2019 at Barcelona, Spain between 20th - 26th June 2019. :+1:
https://www.textileassociationindia.org/meera-at-itma-2019/

ITMA is the trendsetting textile and garment technology platform where the industry converges every four years to explore fresh ideas, effective solutions and collaborative partnerships for business growth. Organised by ITMA Services, the upcoming ITMA will be held from 20 to 26 June 2019 in Barcelona at Fira De Barcelona, Gran Via.

https://www.textileworld.com/textile-world/features/2019/03/barcelona-welcomes-global-textile-industry-to-itma-2019/

https://www.innovationintextiles.com/itma-2019/

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There are numerous drawbacks/risks/open questions with investing in this stock. Here is a list:

Despite profits going up from 2.5 to 5 crores in FY 19, the Trailing 12-month P/E is around 20. Price to book value is around 7. This is expensive.

Over the last 2-3 years, we have already seen microcaps rally due to increased profits and P/E expansion, however, when profit growth tapers down, price reduces drastically taking TTM P/E to single digits. A price reduction of 50% at the least has been seen over the last few months in numerous stocks. The same might happen with Meera.

The case for Meera has numerous open questions. What products does their machine manufacturing division actually produce? What is the market size for these products? Who are the major players locally and abroad? Looks like Meera has hit a niche opportunity, what exactly is it? Why is it sustainable and why should it be considered a moat, how can it enable growth? Making statements like the following means nothing:

“Meera’s machines cost substantially lower than European machines. On the other hand European machine will have some higher automation. Meera operates in the gap between the costlier European (high end) machines and low cost low end machines”

I read that Meera either makes technical textiles or makes machines that can help make technical textiles. That is hard to believe. There is another company, Fiberweb that makes technical textiles: They have spent 20 crores for machinery that can manufacture spun bond textiles, 20 crores for melt blown textiles and another 50+ crores for flat bond fabrics. While Fiberweb is a poor quality stock riddled with corporate governance concerns, the numbers spent on machinery cannot be far off from truth. Meera has net assets of 4 odd crores, what does it exactly do with respect to technical textiles?

Why do Meera’s machines cost lower? Is it because of low cost labour? Is it labour intensive ? If yes, how so? Material cost should not differ substantially between countries, so where is the competitive advantage?

While profits have doubled year over year, cash has not, because the incremental cash generated has gone towards increased working capital requirements (more inventory on books). Hypothetically, if Meera wants to expand, how will it fund expansion?

Let’s assume that profits double from 5 crores to 10 crores next year. P/E for today’s price as of next year will be 10. Can Meera grow from there? If not, expect a rapid correction in price. Today’s price is still expensive.

Look at the price and volume charts for a moment, around why timing is so important in illiquid stocks like Meera.

The stock was clearly manipulated upwards to around 400 in Feb 2018. (At around 400, a 2.5 crore profit (as of March 2018) generating company was valued at around 150 crores). Volumes were much higher as the stock price was going up. Retailers usually get attracted to rapid price increases with high volumes and high delivery rates. This is easily achieved by operators who buy and sell amongst themselves raising prices and delivery rates. Post the peak, stock hits daily lower circuits with abysmal volumes and within days, stock has lost 50% + from the peak. Even if one wanted to sell, one could not till a 40% drawdown occurred. This is not a good situation to be in. If one wants to park their money here, do get the entry/exit points right.

Also, why would anyone want to invest in stocks that are sub 100 crores in market cap and overpriced plus illiquid, when you have numerous midcaps and small caps that have corrected severely, and which can offer very good returns even in the short term? Even the bluest of the blue chips like Tech Mahindra can also give decent appreciation (plus dividends and buybacks), so the case for risky investments is not strong.

Finally with respect to technicals: The stock has consolidated between 175-225 for the last year. That could just be the operator accumulating stocks. So, an uptrend to 300-350 is not ruled out. But that will make the stock even more expensive and increase the risk of (not) being able to bail out on time.

On an unrelated note (not related to Meera), there are just 2 reasons for investing in a micro/nano cap, according to me: a) You get a very low price (Heads I win, Tails I do not lose much kind of a situation) while technicals support and you understand the dynamics behind potential future revenue growth. b) You know the promoters personally very well and can vouch for their integrity and competence (Integrity first priority and competence next). But then again, that’s just me.

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Upcoming FPO

Hey guys,

I am a small individual investor and I am really interested in this company but I don’t own any shares due to the lot size and minimum investment. I am thinking of attending the AGM and meeting the management before I invest. Does anyone have a suggestion as to how how I can attend the company’s AGM without being a shareholder? I tried writing to the CS of the company but she hasn’t responded yet and it has been a week. Is there anyone here who owns shares in this company and is not going to the AGM willing to make me their proxy?
Thanks!