My top 5 Picks

@Aditi – about Modison Metals…

Just gone through the AR 2014 … Few question…

  1. Seems company has huge gap between Operating Cash Flow and Declared profit… Reason?

  2. Very little traction either with Supplier or Customer … Very low Payable and High Receivable… Why? Is it because they sit as a contractor in the middle of big suppliers and big buyers? If yes, then they have weak negotiation ability with both… Isn’t it?

  3. Inventory is also at about 120 days throughout … How will they generate commensurate cash flow if the nature of business is like this?

  4. What is their total capacity? Assume zero price increase form current level … what is the highest turnover they achieve in 2015, 2016 assuming 100% utilization?

Good to have answer to these questions… If possible?

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I could get some insights from their “Care Rating”

http://www.careratings.com/upload/CompanyFiles/RR/Modison%20Metal%20Ltd-04-17-2014.pdf

I have copy pasted some data which explains 1-2 aspects of your queries … will dig deeper for more information

In the medium and high voltage segment MML is the sole manufacturer in India.

MML has its plant located in Vapi with an installed capacity of 450 MTPA for manufacturing of electrical contacts and SF6 circuit breakers. It faces competition from foreign companies like AMI Doduco, ElecktroMetall and Louis Renner outside India.

MML enjoys a good brand position in India being the sole domestic manufacturer for medium to high voltage electrical contact parts and caters to large players in the electrical industry viz L&T, Siemens, ABB, Areva, Crompton Greaves.

Liquidity Profile

Working capital cycle of the company was high at 153 days in FY13 (147 days in FY12). The operating cycle increased due to an increase in inventory holding period caused by high stock of Silver to be maintained by the company. Average working capital utilization of the company was moderate at 52.91% for the twelve

months ended January 2014, leaving cushion to tide over uncertainties.

MMLâs sales concentration on top ten customers during FY13 was near

ly same at 70% of the total sales. The concentration was mainly at its top three domestic customers (L&T, Anchor Electrical and Crompton Greaves) who accounted for 49% of sales in FY13 vis–vis 52% FY12 . MMLâs high dependence on selectcustomers leads to customer concentration risk.

Thanks for updating Aditi.

This company may be a safe bet for debenture / CP as low risk of Inventory obsolescence, high quality of receivables and quality management team. But ultimately it is a processing company which buy XYZ and converts it to PQR at a margin with very little traction on most sides of the competitive landscape. And it’s fortune is tied to commodity cycle and would always be WC heavy. I can’t foresee a high cash flow pumping out by company even at a moderately predictable rate.

SF6 (sulphur hexafluoride) is a potent greenhouse gas and it’s heavier than oxygen and creates health hazard. So many new Power Manufacturers are replacing it with Oil and other variety of circuit breakers.

It doesn’t pass my filter… Too many loose ends to merit further analysis for time being. There are opportunities for higher return at commensurate level of risk.

But if you have better insight, surely can share and my opinion may change.

Best of luck!

Graphite India

http://graphiteindia.com/View/investor_relation.aspx

Corporate presentation July 2014.

I think this company has a fantastic way of communicating with investors.

Besides numbers/financial data they regularly update investors on sector, their specific performance within the sector, future plans, recent achievements… I wish more mid size companies could be so organized and transparent.

Hi Aditi,

If we look at the last 10-years trend, the operating margins of Precision Wires have fallen, what could be the reason for that? This is despite increase in sales and not much increase in gross block (that could have be attributed to lower capacity utilization due to recession etc.)

I think it is largely because of high competition, and slow payment cycles…

Only last 2-3 years they have started manf. some specialized cables…

They have been very conservative and not expanded as well.

I think FY 14-15 will be one to watch for if they show improvement.

Hi Aditi,

I completely agree with you on Precision Wires and Modison Metails. Did research on both, and managements are quite good. Though have to wait until the business cycle turns.

As indicated earlier, I hold Ador Fontech, a bit expensive though their earnings have been quite resilient, and this site has detailed research and management interaction with them, so something to look into, though the stock has run up by 50% from the lows.

I hold Timken India also, they too have been showing resilient earnings, though the stock has doubled from the lows.

I like your approach on buying companies with good management, at least capital preservation chances are high for our hard earned savings.

Are you looking into any other companies that fit the good management criteria though have not run up much in this upturn?

Hi

I have a long list but nothing in my immediate price range, I will compile entire list with my target buy Price and post.

I waited for above 2 stocks to fall also for 2 years then entered when price matched my expected entry price.

I do think buying cheap helps create a moat so in case there is an error (Like i think i made in Ador Welding-markets made it possible for me to double and exit)

Aditi…went through your picks. You seem to have a fascination for welding industry or nearby ones. Perhaps, you follow the principle, buy only what you understand. In comparison, I tend to buy anything in which there is value but I am also guilty of leaving early in many of my picks. Awaiting your target entry for 2 stocks. On precision, I am going to take a deeper look this week

Precision wire : plans to diversify into control cables and overhead power line conductors"

I got this from moneycontrol comments , absolutely unverified.

Should wait till 29th Sept , AGM : will know for sure buy then, with a book value of 187 per share, i think there is lot of intrinsic value. Further have plenty of reserves to expand with internal accruals (cash rich company) . Viewing their past excellent standard in manufacturing, expansion in this sector would give a steep upward trajectory to the company_._

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Precision wire : plans to diversify into control cables and overhead power line conductors"

I got this from moneycontrol comments , absolutely unverified.

Should wait till 29th Sept , AGM : will know for sure buy then, with a book value of 187 per share, i think there is lot of intrinsic value. Further have plenty of reserves to expand with internal accruals (cash rich company) . Viewing their past excellent standard in manufacturing, expansion in this sector would give a steep upward trajectory to the company_._

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Anybody attending the AGM on 29th September, 2014 at 2.30 PM, at the Hall of The

Mysore Association, 1st Floor, 393, Bhau Daji Road, Maheshwari

Mysore Association, 1st Floor, 393, Bhau Daji Road, Maheshwari

Udyan (King Circle), Matunga (Central Railway) Mumbai -

AGM ofPrecision wire(29thOct'14 ) was addressed by Mr. Mahendra Mehta CMDKey Highlights by Capital Mkt;

Company's winding wires are used in electrical equipment industry, capital goods, white goods industry and auto and in auto ancillary industry and general engineering.

Broadly of the total sales, about 20-25% comes from auto and auto ancillary business, 15% from white goods and other general engineering business while rest come from electrical equipment industry.

As per the management, the current judgement on Coal sector in India, would once again delay the things by another couple of months and things should see improvement in power sector which are linked to coal, only from Jan'15 onwards.

Many industry players are substituting copper with aluminium wires in winding wires. Company currently is in the business of winding wires manufactured only from copper. It would require some adjustments to shift it to aluminium. However management is not upbeat on this shift. According to them, the current economic scenario and sluggishness is making players to think of cost cutting measures from all sides. As and when things improve copper wiring will continue to dominate in winding wires business.

The company currently is a net importer. However it plans to increase its exports and would like to have a natural hedge on the rupee. There was a forex loss of about Rs 2.5 crore in FY'14 due to rupee fluctuations.Company is operating at around 65% of the installed capacity and going forward it can reach the capacity utilization to level of around 120% without any major capex.

As per the management, profit margins are adversely affected due to lower capacity utilization and current low economic activity level and not due to high or fluctuating raw material prices. As per the management, the margins will improve as the company gets the economies of scale advantage. Copper prices will not play any significant role in margin outlook for the company, though its importance can't be ignored.

Overall, management is hopeful for things to start picking up from Q4 FY'15 onwards.

Sorry AGM date was 29th Sept 2014

They also addressed the question of liquidity and said they will consider split / bonus … no commitment…but if they do it would be great for the stock

Graphite India has become a subsidiary of Emerald Company limited after it acquired 58% of equity capital (Source : BSE). I think this is the company involved:http://emeraldgroupasia.com/

Can anyone throw some light on this acquisition? The board meets on 10th November for quarterly results.

Hi Aditi,

Any idea why Modison fell over 10% today on high volumes? Do you think with the rapid fall in the prices of copper, they might face the problem of inventory loss?

Their main inventory is Silver, I think they would have losses on that inventory.

Just on a side note , they are opening Bullion, mainly silver retail shop in Mumbai.

This may be a plus for them.

Thanks Diti for writing such a detailed note in 2014, who knew this would be picked up by some one in Oct2017.

I would want to know do you have any news/update on the frenzy in Graphite India? Is this fundamentally supported? I read it has something to do with less supply from China?

At CMP is this still a recommended buy/sell?

Does any one have a view on the order list of Graphite? All views are more then welcome please enlighten :flashlight:

@Diti16
Precision wire :- Are they manufacture cable for automotive industry? How much percentage comes from auto segment?
Is there probability to catch any share from EV disruption?

Thanks
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