I am choosing these five stocks for a long term portfolio:
1). International Travel House- A well managed tours/travel company, growing at a sustainably fast pace without debt or equity dilution, ITC progeny, 2% dividend yield at a valuation of 9 times.
2). HSIL- Owner of super brand “Hindware”, started retain foray “EVOK”, moving towards higher value added products, inorganic and organic growth, insiders buying. Expect revenue to reach 3000 crore in next 4-5 years.
3). Camson Biotechnology- The only player in organic farming space, bioseeds/biofertilizers are being accepted in the market, expansion plan, no debt… slightly risky at this stage, but if the company survive next 10 years, we cannot imagine the level of the stock price.
4). Gujrat Reclaimed Rubber- I always prefer companies in rubbish use. This is a well managed company, generating good amount of cash by using rubber scrap. Expansion plan on way, and decent dividend yield.
5). Venky’s- A transforming FMCG company, frozen food/food retail (Venky’s Express) is doing well. Marging should increase going forward due to increase in food protein prices. Soon India will move to factory processes chickens from neighbourhood butchers. Great management and decent cash flow.
Hi Rajesh, Thanks for your ideas. I was looking at Camson Biotech. Everything is interesting on this but the scalability. I am not able to infer details on the inputs to this biocides and bio-fertilizer. It is given in the products that the plant microbes are used as a biocides or bio stimulants. I am not sure about how scalable and efficient is the production of plant microbes to compete with the synthetic chemicals which are widely used as agro inputs. Could you please share some additional information on this?
Yes, in the first look, the purchase looks squandering of shareholders fund. But we have to appreciate that Venky’s is foraying into sports nutrition products. Venky’s Mass is a popular weight gainer. Its ablumen uses eggs produced by it. It has a decent portfolio in the niche. May be, its association with sports will be useful in marketing of these products.
Camson has developed hybrid seeds which is useful in organic farming. All the seeds are in the horticultural area where demand of organic vegetables/fruits is growing more in the first phase of organic farming. Some of the seeds have been well accepted in the market. Once a person buys its hybrid seeds, naturally they will shift to biocides and bio-fertilizers.In organic farming, weight of naturally occuring organic manures are basic difficulty. Due to transportation cost, it is impossible to enter organic manures market. Microbes based biocides and biofertilizers are easier to carry and can act as natural replacement/supplement to organic manures.
As organic farming is increasing and we see that even organic clothes are being accepted in the market, very soon many companies may claim its product to be organic- say some nestle or pizza hut starts claiming organic serving- it gives a larger pie to camson.
The best part of camson I like is negligible debt (heard promoter is debt averse). This is a boon for smaller companies, as it increases their chances of survival. But I hate their equity dilution… but growth has to be financed. If you hate debt, you have take equity or vice versa… growth has to be financed.
Even some institution has started taking interest in the stock. It is surprising for a company with 175 crore M-cap. I expect institutional interest only after 500 crore M-cap. However, Institutional acceptance gives additional belief in the company. This is particularly soothing for companies like camson, which is difficult to analyse and not easily amenable to prediction.
I thought this is a value investor forum…unclear how Venky falls in this category…I remember buying under 100 Rs just a few years ago…besides they seem to be wasting their money buying soccer clubs in UK.
“Value” has a different meaning to different investors.
When we analyse the balance sheet of Venky’s of last 5 years, a few point comes to mind. The company is growing consistently without infusion of additional equity/debt. In the last five years book value has increased from 129 to 291 @ 18% cagr. Sales has grown more than 2 times. The business model is low net profit margin model, but the profit margin is growing consistently. Whereas sales has grown merely 2 times in last 5 years, operating profit has grown 5 times and earning per share 6 times in last 5 years. Still the net profit margin is much less than 10% and there is possibility of growing profit margin in future based on new investment made and new business developments.The return on equity has increased from less than 10% in FY2007 to 27% in FY2011. Keeping in mind that dividend distribution rate is less than 10%, we can expect the eps to rise at a healthy rate. All these without equity dilution or debt financing.The new businesses it is entering, like Venky’s Xpress or Frozen food or Human health products or pet food is likely to increase the profit margin in future.
It is very difficult to value a company based on past stock market prices. Just a few months back it was touching 1000, however just a couple of years back it was well into 2 digits. There is no guarantee that in next few months it may not “retest” 2 or 4 digits stock price. We have to value the company today, and there I try to concentrate.
Applying the buffet’s principle of valuation, on retained earning the company has given a return of 92% in the last 5 years. It shows that the management can employ the retained earnings very profitably. Further, the new businesses are in nascent stage gives confidence that this reinvestment of retained earnings may continue for long. Further we can see that company is trying to increase its margin consistently without taking undue risk. The diversification company is undertaking is in related area… in frozen food, in restaurant, in nutrition products and sports nutrition product they are using eggs and derivatives of egg; which will help company to use something it is itself producing.
On traditional valuation parameters, the company is available at 1.3 times book & 6 PE. On Rs. 430 stock price, this equity bond is giving 12% return with 25% increase every year. I see the company as emerging FMCG company, and expect Stock market to re-rate the stock in next few years.
Various studies suggest that small cap value stock outperform the market by huge margin. This appears to be a small cap value stock. However, investor has to live with huge volatility. If one can live with volatility, it may be a great counter to be in.
Earning on retained profit is “42%” and not “92%”, which have been posted due to typing error.
Increase in per share earning from 2007 to 2011 is Rs. 66. During the time the company retained (and invested) Rs. 160 of shareholders earning. This retained earning has produced a return of (66/160)*100= 42% approximately. This is one the criterion used by legendary Buffet in stock picking. I believe in this criterion. A company is justified in retaining shareholder’s earning if it can invest it in a manner which produces above average result.
But I could not buy your story that they bought a football league to expand into sports nutrition segment. That seems pretty expensive marketing tactic to me. So I did a little bit search on their website and I found this comment from their MD:-
‘B.Venkatesh Rao] Genuinely speaking, we have not acquired Blackburn Rovers for any kind of brand mileage, but out of sheer passion and love for the game of football. We are delighted and humbled to be associated Blackburn Rovers, a team with whom we share many values and ambitions. But yes, this deal has eventually given us the recognition and mileage across the football loving countries.’
So basically these guys just used shareholder’s money to pay for their expensive tastes. And now he is defending it in retrospect with a lousy statement that it gave them recognition in football loving countries.
My next question would be how much stake does the management have in the company?
Was reading about camson - Attractive valuation - No debt - R&D driven products that is directly co-related to input cost (like industrials) - Looks like a good company.
AR shows that they were missing documents for abt 35 Cr of expenses last year and the increase in outstanding debtors for abt 35 Cr in the current financial year…
They were supposed to be supplying inputs for juice biggies in India like Pepsico and Coke - It looks like it has not taken off as planned.
Heard that Mr.Garg of KS Oils sitting on the board is a bad dev - (havent read the problems of KS Oils and him).
The concern on receivables were were answered in the AR itself, where the Director said that almost 30 crores have been recovered in the first few months of current year. Expansion plan appears to be on tract.
HDFC report is good in the sense that they are giving sufficient attention to the weaknesses of the company.
I came across the the following points in the annual report 2010, which really confused me to believe that if Camson is really a good company:
a) As per auditors report: Supporting documents relating to Rs 2,506 lakhs of expenses incurred during the year is misplaced / lost in transit and Internal audit system is not commensurate with the size of the Company.
b) There is issue with the sales tax return of the company.
c) The increase in raw material cost/quantity is not comparable to increase in sales from 2009 to 2010.
)- Sales of Seed increased from 79000 Kg to 140000Kg, but the seeds consumed has not increased in a similar ratio. Even if the company was doing contract manufacturing, the manufacturing +raw material expenses should have increased proportionally.
d) Demonstration expense of 14Cr, and business promotion expense of 11 cr and 14cr of rebates seem rather too high for a 80 Cr sales
e) Very low manufacturing expenses.
f) Research expenses have decreased
These figures look really out of proportion considering the overall sales and comparing it to other seed manufacturing companies. What are your thoughts on these?
Many of those concerns of AR 2010 have been answered in AR 2011. Still many issues remains. The company has negative cash flow from operating activity in 2011. Regarding the Sales Tax issues, it is common in any company making new product until various issues related to assessment of taxes are finalised. The steep fall is also making things worse… “does the market know something, we dont know?”. Well, it is likely to be a roller-coaster… Last month Forbes had choosen it as best 200 companies in Asia… but they are known to choose duds too.
imho the promoters have not debited the listed company’s books with the blackburn purchase.
please see the interview below…
also, couldnt find anything debited in books or annual report vis-a-vis the purchase
shareholders are not paying money for it and will benefit from Venky’s being a global brand. Similarly, Russian tennis player Elena Dementieva, ranked in the top 10 players of the world, also sports the Venky’s logo on her outfit. Given all this, only Rs 2 crs hit the P&L as Advertisement and Publicity expense for FY11
Regarding Camson…the stock price ran up in the past due to KS Oil promoter and then fell as he sold off his stake. But now he is no longer a shareholder…
the promoter is indeed debt-averse due to a past bad experience with a leading bank…
Will post more on this company later after collecting some data…
Are you guys still following Venkys? It has been one of the stocks I follow since long.
I believe Venkys has a kind of monopoly position in its business; unaffected by economic cycles (except bird flu). It deserves ten to fifteen multiple on a conservative basis.
With the consumption story of India intact and climbing more it makes Venkys poised to make the most of this. The potential for the poultry industry to grow remains huge with the per capita consumption of egg and chicken increasing. It is a company with excellent pricing power and structural volume growth potential.
I don’t think they have a monopoly as far as poultry products are concerned as there are much larger unlisted players such as Suguna which is nearly 2.5 - 3x their size. It is a commodity at one level, input costs are key to profitability - safe to mention that I have not tracked the company but am familiar with the sector. Feed costs (corn) have played spoil sport in the past and transmission of such price increases to end consumers are not immediate / in the same proportion. Also once in a while have to take write offs due to scares such as bird flu. Net net not a space which has a nice linear growth trajectory.
I don’t think they have a monopoly as far as poultry products are concerned as there are much larger unlisted players such as Suguna which is nearly 2.5 - 3x their size. It is a commodity at one level, input costs are key to profitability - safe to mention that I have not tracked the company but am familiar with the sector. Feed costs (corn) have played spoil sport in the past and transmission of such price increases to end consumers are not immediate / in the same proportion. Also once in a while have to take write offs due to scares such as bird flu. Net net not a space which has a nice linear growth trajectory.
