Pochiraju Industries

Stock Opportunities
1

Pochiraju Industries

Operates in three business segments - Agriculture, Pharma and Bio-tech

Market cap of INR 53.52 cr against FY 14 revenue of INR 120 cr

Low D/E Ratio - 0.16

GOM % = 30%

Completed construction of Phase I and Phase II of its bio-tech unit in Shamirpeth, Hyderabad

Plans to set up agricultural bases in Africa

Plans to expand in agri operations like logistics, infra and distribution

Financials
2009-03 2010-03 2011-03 2012-03 2013-03 2014-03 TTM
Revenue INR Mil 358 433 554 724 1,089 1,197 1,337
Gross Margin % 38.8 37.4 34.3 36.9 36 28.9 30.8
Operating Income INR Mil 102 115 121 149 69 111 129
Operating Margin % 28.6 26.5 21.8 20.5 6.3 9.3 9.6
Net Income INR Mil 97 113 117 149 52 104 123
Earnings Per Share INR 5.44 6.28 6.54 7.86 2.75 5.48 6.52
Dividends INR
Payout Ratio %
Shares Mil 18 18 19 19 19 19
Book Value Per Share INR 48.91 54.4 62.83 65.58 71.06 71.06
Operating Cash Flow INR Mil 50 125 117 133 75 75
Cap Spending INR Mil -25 -32 -80 -6 -6
Free Cash Flow INR Mil 25 93 37 133 70 70
Free Cash Flow Per Share INR 1.41 5.18 1.96 7.06 3.69 3.69
Working Capital INR Mil 379 264 301 308 349 650
Key Ratios -> Profitability
Margins % of Sales 2009-03 2010-03 2011-03 2012-03 2013-03 2014-03 TTM
Revenue 100 100 100 100 100 100 100
COGS 61.24 62.58 65.66 63.12 63.95 71.13 69.22
Gross Margin 38.76 37.42 34.34 36.88 36.05 28.87 30.78
SG&A 6.29 5.08 4.77 5.26 8.92 6.88 6.16
R&D 3.97 2.27 0.87
Other 7.48 6.71 7.79 7.14 18.54 11.85 15.01
Operating Margin 28.59 26.47 21.78 20.51 6.32 9.27 9.62
Net Int Inc & Other
EBT Margin 28.59 26.47 21.78 20.51 6.32 9.27 9.62
Profitability 2009-03 2010-03 2011-03 2012-03 2013-03 2014-03 TTM
Tax Rate % 4.84 1.91 2.9 24.33 6.65 4.17
Net Margin % 27.21 25.96 21.14 20.51 4.78 8.66 9.22
Asset Turnover (Average) 0.43 0.5 0.54 0.55 0.71 0.71
Return on Assets % 11.6 12.93 11.32 11.19 3.41 6.18
Financial Leverage (Average) 1.1 1.03 1.14 1.25 1.26 1.33 1.27
Return on Equity % 12.76 13.73 12.31 13.41 4.29 8.03
Return on Invested Capital % 13.18 13.67 11.59 11.27 3.53 9.84
Interest Coverage
Key Ratios -> Growth
2009-03 2010-03 2011-03 2012-03 2013-03 2014-03 Latest Qtr
Revenue %
Year over Year 21.06 27.93 30.65 50.29 9.99 62.86
3-Year Average 26.48 35.94 29.26
5-Year Average 27.31
10-Year Average
Operating Income %
Year over Year 12.06 5.25 23.07 -53.68 61.38 64.15
3-Year Average 13.22 -15.66 -2.75
5-Year Average 1.64
10-Year Average
Net Income %
Year over Year 15.51 4.19 26.75 -64.95 99.08
3-Year Average 15.11 -22.65 -4.01
5-Year Average 1.25
10-Year Average
EPS %
Year over Year 15.44 4.14 20.18 -65.01 99.27 81.25
3-Year Average 13.05 -24.06 -5.72
5-Year Average 0.15
10-Year Average
Key Ratios -> Cash Flow
Cash Flow Ratios 2009-03 2010-03 2011-03 2012-03 2013-03 2014-03 TTM
Operating Cash Flow Growth % YOY 147.56 -6.44 14.07 -43.57
Free Cash Flow Growth % YOY 267.93 -59.99 259.8 -47.77
Cap Ex as a % of Sales 7.07 7.46 14.41 0.51 0.42
Free Cash Flow/Sales % 7.04 21.38 6.69 18.42 6.4 5.21
Free Cash Flow/Net Income 0.26 0.82 0.32 0.9 1.34 0.57
Key Ratios -> Financial Health
Balance Sheet Items (in %) 2009-03 2010-03 2011-03 2012-03 2013-03 2014-03 Latest Qtr
Cash & Short-Term Investments 14.87 2.12 2.26 0.93 0.48 0.13 0.13
Accounts Receivable 12.14 15.8 16.88 16.88
Inventory 8.83 8.25 6.37 4.68 6.76 12.17 12.17
Other Current Assets 22.86 19.61 17.81 3.64 4.2 22.1 22.1
Total Current Assets 46.56 29.99 26.44 21.4 27.23 51.29 51.29
Net PP&E 38.65 53.33 58.69 62.7 56.39 46.28 46.28
Intangibles 2.84 2.7 2.36 2.36
Other Long-Term Assets 14.8 16.68 14.87 13.05 13.68 0.06 0.06
Total Assets 100 100 100 100 100 100 100
Accounts Payable 0.16 0.17 0.14 0.14
Short-Term Debt 8.8 8.8
Taxes Payable
Accrued Liabilities
Other Short-Term Liabilities 1.44 0.7 0.72 0.48 4.8 5.97 5.97
Total Current Liabilities 1.44 0.7 0.72 0.64 4.97 14.91 14.91
Long-Term Debt 7.65 2.1 11.33 19.38 14.83 8.67 8.67
Other Long-Term Liabilities 1.07 1.18 1.18
Total Liabilities 9.09 2.81 12.06 20.02 20.87 24.76 24.76
Total Stockholders' Equity 90.91 97.19 87.94 79.98 79.13 75.24 75.24
Total Liabilities & Equity 100 100 100 100 100 100 100
Liquidity/Financial Health 2009-03 2010-03 2011-03 2012-03 2013-03 2014-03 Latest Qtr
Current Ratio 32.24 42.57 36.63 33.65 5.48 3.44 4.32
Quick Ratio 24.46 25.54 27.8 26.29 4.12 1.82 3.17
Financial Leverage 1.1 1.03 1.14 1.25 1.26 1.33 1.27
Debt/Equity 0.08 0.02 0.13 0.24 0.19 0.12 0.16
Key Ratios -> Efficiency Ratios
Efficiency 2009-03 2010-03 2011-03 2012-03 2013-03 2014-03 TTM
Days Sales Outstanding 175.07 132.53 115.64 97.92 71.73 83.68
Days Inventory 123.46 99.92 74.65 57.52 45.98 69.27
Payables Period 3.66 2.89 2.25 1.88 1.31 1.11
Cash Conversion Cycle 294.87 229.56 188.04 153.55 116.4 151.83
Receivables Turnover 2.08 2.75 3.16 3.73 5.09 4.36
Inventory Turnover 2.96 3.65 4.89 6.35 7.94 5.27
Fixed Assets Turnover 1.1 1.08 0.95 0.9 1.2 1.4
Asset Turnover 0.43 0.5 0.54 0.55 0.71 0.71
2

Law of diminishing returns - at this size if their RoE is barely above capital, would’nt that fall with further expansion ?

unless the value is much lower than the book, this prima facie does not look like a moat business - unless they have some IP/land bank that can be monetized.

3

The biggest risk in such companies is Quality of Promoter.

One such metrics which give some relief is dividend payout

For this company

Div payout is nil

Tax out is almost nil which makes you wonder if the profit is real

Promoter holding is low

Operations in Africa. Can’t rely on the financials posted by the company

4

On a positive note the total debt as per screener is about 30 cr and interest payment is 5 cr+

Need to check the AR

So apparently the company has made Capex and is already paying interest on the debt which could be one reason for lower returns but that still doesn’t explain why tax payout is almost nil