Pragnesh's portfolio

=I had added
…Anup engineering and
… Stylam industries in last 2 months

=My updated portfolio with avg buy price

1…Acrysil…(Rs 190.97)…(7.8%)
2…Astec life … ( rs 1017.39 )…(6.6%)
3…Lt food …( rs 45.18 )…(6.5.%)
4…Kei ind…(rs 405.25 )…(6.3%)
5…Moldtek pack…( 259.20 )…(5.9%)
6…Ganesha eco(Rs 515)…(5.9%)
7…Beta drugs(277.18)…(6.0%)
8…Paushak …(rs 2615)…(5.8%)
9…Apcotex …(Rs 191.62 ) …( 5.5%)
10…Grauer&weil …(Rs53.06 )…(5.5%)
11…Anup…(636)…(5.5%)
12…Stylam(1072)…(5.5%)

13…Jenburkt ph…(.rs 620 )…(4.31%)
14…kpr mill……(rs745)…(4.3%)
15…Ion ex ……(rs652.14 ) ……(3.5%)

16…Ratnamani …(.rs 1298 ) …(2.35%)
17…Auro lab …(rs 68.72 ) …(2.0%)
18…Suven phar …(rs 251.64) …(1.9%)
19…Ccl products …(rs 270) …(1.9%)
20…Alkyl amine@ (791.56)( after split)@( 1.4%)

21…other stocks… …( 3%)
Ice make
bajaj finance
ambika cotton,
Minda industries
Jamna auto
Rajoo engineer
Emmbi ind
Rain industries

=Portfolio is 87 % up of invested amount

(Investment is done in staggered manner from sept 2017 to uptil today with buy and hold approach

HOLDING OLD STOCKS AND BUYING NEW STOCKS FROM FRESH CAPITAL)

4 Likes

Pragnesh, could you also give some insights or research analysis on Beta Drugs which is on SME board but seems promising, congrats for your performance

BETA DRUGS

Following points are summerized from concall and telephonic talk with management and medical representatives

Primarily focused on new molecule

1…Export@15%
2…CRAM @50%
3…Branded@25%
3A…injectables@55%@direct hospil
3B…oral@45%@distributers
4…API@18%

1…25% of the products are manufactured under own brand (Adley)

2…75% under other entities’ brand names;


MOAT

1…LOW COST PRODUCTION
=We are one of the very few backwardly integrated companies

2…LESS CAPEX REQ. AS COMPARED TO NATCO,SHILPA
Because

A=we have only onco products
=Very few(probably only) company in india is totally focused on onco
=onco.products are less in quantity and more costly
=Shilpa n natco have antiviral,cephalosporin lines also

B=They have main business in usa also,so they require huge asset

=So our Roe is better

3…CRAM/CMO
=New products
We just tell this is our basic price.

=What attracts them is that we are continuously developing new molecules, which attracts them

4…BRANDED BUSINESS
=Hospital network
=Doctors prescription

=Earlier I(Mr ashutosh) have worked for Torrent, I have worked for DRL, I have also worked Ford. So,
we were the only company who started their business right from scratch.

=So, we know the nitty-gritties of the market and how we can capture those hospitals. However, the strategy for
different-different hospitals is different. So, our market intelligence is good.

=The team which we have recruited in last couple of years those are all experienced people, and they are having
very good association with the chief pharmacist of those hospitals. We have a target list of
hospitals. We have the market intelligence, what exactly is happening in those set of hospitals,
and then we are targeting it accordingly.

=Before last year, we hardly had any presence like
around 40 to 50% of the corporate hospitals.

=But with our efforts last year, we have made our
presence in almost all the corporate hospitals.

=Some states we are doing
pretty well, like we are in top 1 to 10 and some states we are picking up very nicely

=We have certain brands which have
become number one position in India

5…R N D

= We are totally a research and development-based company.

= We focus ourselves towards
developing new molecules to be the first one to come up with the molecules which are
becoming off-patent both in API and formulations.

= So, we are not based on the raw material being procured from outside parties. The strategy is very simple and clear.

=If the molecule is
getting off-patent, the API needs to be developed first, the batches need to be taken for
formulations first and then when they are becoming off-patent, it should be launched as the
first one to be launched to Indian market

=Our R&D is the main key success towards our growth.

=15-20 yrs ecperienced r n d team
=gradually in coming forward years, it will be around 2% to 3% we will be
spending on the R&D front, right

6…Why big companies will not enter on only onco plant

1=Big companies make other products also as onco products are very less quantity.

So if big companies make other products in same plant,they have less ROE

For them,it is better to outsource onco products from other companies.

2…Mostly big companies have huge usa business.
=So they require more expense on plant for usfda maintenence

FUTURE GROWTH

1…API plant started in 2017

2…Set up Oncology Plant in UZbekistan

3…incresing network of branded business

4…Our major focus towards TKIs and our own API expansion

1 Like

HOW COMPOUNDING WORKS?

Invest X amount for 20 yrs

Suppose your return is 15% cagr

U will double in 5 yrs

Now

1…It takes 15 years for X amount to compound at Rs 8X

2…But it takes only 5 yrs for 8X amount to become 16X
(from 15th to 20th yr)

So ,in last 5 yrs you get return that u achieved in first 15 yrs

BUT THIS ONLY HAPPEN WHEN U DONT SELL N STAY INVESTED

1…SO STAY INVESTED

2…ITS THE LAST YRS THAT GIVE MAXIMUM RETURN, NOT INITIAL YRS

5 Likes

Adding RACL geartech

@Pragnesh Our stock selection matches to a degree :). One common stock we have got it LT foods. I have it for past 1.5 yrs. Bought it around Rs. 50-55 when there was a good margin of safety. I like this business because of being a part of essentials for human being, brand, they are launching good products, They are in European market where there is scope for better margins, Above all impressive cash flow in past FY20 and FY21, Stock trading at about 5 times the annual cash flow for last year etc.

There are concerns around muted sales growth and very low 4-6% Net profit margin. These aspects are making me consider the trimming of the position.

It would be very interesting to understand your views, investment rationale and stock being terrible under-performer…

Thanks
-Manohar

For L .T .foods

1…Muted sales growth was due to corona impact on HORECA segment

2…Its net margin is low but operating margin is stable at around 10% since last 10 yrs (fluctuating operating margin indicates commodity business)

Even D mart has low margin

I think stable or increasing operating margin with sales growth is more important than absolute % of net margin

3…ROE = NPM×Asset turnover

Company can also increase its ROE by increasing turnover even with low net profit margin.So i m keeping eye on its sales growth and how company utilises its asset for next few yrs( i dont consider quarterly results very useful)

LT foods stock has not much appreciated in last few yrs as compared to my other holdings

HOWEVER IT IS STOCK THAT HAS UNDERPERFORMED AND NOT THE COMPANY.

Company has shown

1…Superb profit growth in last 5 yrs
2…Decreasing D/E ratiio
3…Stable margin
4…Increasing branded business
5…Adding new products, new market

I normally keep underperforming stock for minimum 5 yrs before taking decision

Disc…invested since 2018 with avg price of Rs 46 and seen many ups n downs.

2 Likes

Hello Pragnesh,

Could you please share your thoughts behind adding Raclgear to your portfolio ?

Lt foods need to hold rice for long time as they sell rice that is 1 year old or 2 year old. If they hold rice for minimum 1 year with 10% profit margin then this business is not a good business but a bad allocation of capital.

They have good brands of rice but long inventory hold and low opm are bad for business. According to screener they inventory days of 700 days.

For example, if i sell one candy per day of Rs 1 with 50 paise per margin that is 50% margin. If i sell one candy for 700 days i estned profit of Rs 350. Where as Dawat on Rs 400 bag will earn Rs 40 only.

Disc: this is general observation and not a recommendation. I am not an expert. No holdings.

1 Like

1…Basmati industry need aging for aroma
So it requires avg 250 days aging
(700 days is exceptional in 2021 due to corona)

So it is not specific to l t foods but it is industry norm

2…As basmati industry is working capital intensive business(huge inventory period),it is non attractive business that attracts few competitiors

AS PER PETER LYNCH GOOD GROWTH COMPANY IN BORING INDUSTRY GOVES GOOD RETURN IN LONG TERM

3…It is only working capital and not long term asset that is allocated for aging of rice .
It is not bad allocation but industry requirement.

1 Like

I will share it in short time

RACL GEARTECH

(Material is collected from annual report concall,valuepicker)


GROSS BUSINESS PROFILE

47%@ two wheeler
16%@ Tractors

70% export
57% Europe
43% asia pacific

A=40-45 %
2 wheelers niche, high end bikes of 600+ cc,

B=20%
agri mainly exports,

C=13%
=New segment Recreational vehicles like snow scooters, snowmobile

1= gears (majority)
2=suspension, Break and handle parts.

MOATS

1…Pricing power

A=: International business

Domestic OEMs face challenge on pricing. We also face some challenge. But in overseas OEMs the issue is different. Our market is niche and unlike domestic market OEMs, we don’t face that much issue. 1% - 2% doesn’t matter much.

=Whenever we sign an agreement with new customer, we also sign an agreement with customer to reduce pricing for first 3 years but after that there is not such issue.

=Focus on higher margins International business- RACL’s concious shift from domestic to International OEMs has insured higher margins & lesser competition which it would face in domestic auto industry. RACL generates Operating Margins of 20% plus which is very high for an Auto Component company. 70% of revenues generated from exports

B=Quality

Our MNCs customers are not much under price pressure. There is not much issue here. . Foreign buyers are more focussed on quality than prices. Their risk is more on quality as they procure product 7000 kms away. In India, there is not the case. Overseas buyers takes 3 – 4 months for procurement. They will never hurt you for 1 – 2% price. Their risk is more on 100% of confirmed quality and delivery.

2…Niche/Luxury product

=As a product, we chose niche product like luxury markets which doesn’t slow down. Our product is for bikes of 1 liter and above. It doesn’t cost less than 30,000 – 40,000 EUR. The person buying such product is not salaried class.

3…Quality and Timely delivery

Operating in niche space, quality and timely delivery is key which they are proud of.

=Its very imp
Their labour costs are high. If line dries up for 1 hour, they loose
millions of dollar.

4…Promoter-Technology guy

=How did we acquire such prestigious customers? Main advantage is that top leadership, is an engineer. Normally, other cos have top management who just talk about numbers. BMW (for bikes) got confident meeting me. For those customers, main issue is the right product at the right time with right technology. We were offering them solution. We work with the customers to make product cheaper without compromising from technology. It always starts with humble nos.

5…Technology know-how and core tech team

…Core technical team
has been with them for 2-3 decades. Technical capability doesn’t come overnight. It comes with sustained effort. This has happened because we nurture our people. We give them a positive work environment. We create a kind of a family culture. And this leads to technical capabilities.
(Corporate culture as a moat… Probably hard & time consuming for somebody else to replicate)

…All clients are biggy
Typically, in such situations, the supplier gets squeezed. But this is not what happened in RACL’s case, indicating there is something more to this business than being just an also-ran auto ancillary player.

=Lets think about it. Why would multi-billion dollar companies let a tiny supplier like RACL make high margins and high ROE, when they might as well go to other auto-ancillary co’s and give them lower margins?

=Know-how is a competition reducer. The longer it takes to learn how to do what your company is doing, the fewer competitors will be around to do it for less.”

=Basically, they were saying, employees at their manufacturing plants have built their skill set over several decades. Plus, the machinery is prohibitively expensive. Even if another ancillary co. does put up the money to buy costly machinery, they will need to go through a learning curve, which could take many years.
The other option is to poach a ton of employees from RACL, which is less likely because a lot of RACL’s employees have been around for decades and seem to be quite loyal to the co

6…The supply chains of global customers are considered super-efficient. A BMW or a Kubota, would want their suppliers’ plants to be in and around their own plants. But that is not the case with RACL. Forget being close to the customer’s plants, their plants are not even close to the port. RACL’s plants are located around Delhi, which is hundreds of kilometres away from the nearest port. If large OEMs are okay with a gear vendor being located hundreds/thousands of miles away (which is reflected in RACL’s growth over the last few years), it tells us something about RACL’s competitive advantage

7…High entry barrier

=Gear manufacturers is most difficult post CrankShaft, plus heavy investment + technology. High barriers to entry. Hence 30 years in company, we understand fully and not many enter this space

=Opportunity for growth is tremendous as more outsourcing is the way forward, gear manfg is highly capital intensive,

8…Low cost
.India has competitive edge due to low cost and labor competitiveness ,

9…USP/ Differentiation of RACL

=Approach for competetion - competetion exists in China, Japan, Thailand and EU etc in all sizes - RACL takes competetion specific approach - e.g. Japan is too slow in prod dev(4+ yrs), China has quality challenges/perception, EU is not cost effective any more - India and RACL at advantages

10…R N D
=We develop the product with customer R&D, which gets good value for money to customer + margins to us. We also give our own ideas so that we get value addition, we have team of engineers. We are not doing Product R&D, hence u may not find R&D as major expense. We invest in process R&D and invest in people where 15% work here.

FUTURE GROWTH

(500 Crs revenue @2025 guidance is a safe target and we are on track.)

1…New customers

=Add a new big customer every 2-3 years. Develop a customer - Build a relationship over time - Develop technology for them - Then comes the boost in sales from the custome

=Every year we keep on adding new customers. Last year we added Schaefler which is a big company. All our clients are growing and none of our clients have left us. They are scaling up organically.

=One more important point I feel is that till date the growth were driven mostly by the old customers, as their business were growing or they were adding more parts from RACL. The revenue will start flowing now from the new customers, and this will drive the next phase of growth.

=We 1st get customers, then do capital investment

=We are always hungry for new customers

=Domestic market: 2021
Added
A…Escorts Kubota (agri tractor),

B…TVS (in their apache bike + 300cc BMW bike) and

C… Kawasaki (which earlier had joint venture with Bajaj; now manufacturing alone) in Indian business segment.

Export market additions: 2021

D…CFMOTO (2-wheeler, KTM has tied up with CFMOTO to enter into China market, RACL had relation with KTM and are providing fully furnished gearbox to them),

E… Moto Guzzi (2-wheeler high end Italian motorbike company, owned by Piaggio, they have had a long relationship with Piaggio),

F…ZF (new client; biggest auto parts manufacturing company globally; entered Chassis component of passenger car (for both electric and conventional cars) which is a new segment; first Indian company to supply fully finished parts to passenger cars to ZF),

G… Man trucks (Europe’s second largest CV manufacturer); New capacity: 50% will go to ZF and rest will go to Man trucks.
MAN Trucks (old client till the time they exited India) - RACL have huge order from them and the capacity expansion shall be utilized for them too. Trucks are not going to get converted into Electric anytime soon, as management indicated.

H…We created Entire drive or kinematics of the e-scooter for the european scooter is something we are working on. They came to us few years ago this was outside our competence zone back then but in last 3 years we ramped up. We invest where customer demands. This electric scooter will be on our drive train. We will be a single source for the next 10 years. If they are saying certain volumes, they will commit to it

I…For EV, We are working with client whose details will be out in next 3- months and the whole world will know , cant specify which country the client belongs to, they are big player and has presence in Europe, USA, China, Japan and in India too (most likely could be Toyota or VW)

2…New products

=They mentioned in the opening remarks that they do chassis, braking & suspension components apart from gears

=New Initiatives- Entered into an agreement with a European 4 wheeler player as a Chassis Supplier. Tie up with domestic 2 wheeler player for gear components.

=Our core competence is gear manufacturing and the size of operation we are, as of today, we
really want to stick to our core competence or allied products, which are very similar to our
core competence. We’re producing gears so some precision parts or break parts or suspension
parts, which requires critical machining. And, incidentally, this area is where it is capital intensive,

3…New segment

=We have already invested capital expenditure for new
projects and futuristic technologies to enter into the Premium Passenger Car segment through one
of the largest players in the market.

4…Scalability
RACL has several multi-billion dollar clients. BMW, for example, sold bikes worth 21000 Crs in 2019. And RACL’s annual sales is a paltry 1% of BMW’s. And this is just from one client. Will RACL be able to scale up their business multi-fold across geographies and across clients? Time will tell.

5…china effect

=lot of shift is happening from China where environment issues and increase in labour costs have caused lot of shake up.

6…Futuristic projects

A=On ZF- this product that they are doing wasn’t there in the market till 2015 and they want to be “big” in this. This product is vehicle agnostic.

A new, EV/ICE agnostic, product in which they want to be big and have taken BMW as the first customer and have “2-3 more projects” for a different end customer, with ZF in place. Discussions with other customer
also going on. This says a lot!

B…E-Scooter- They worked with ‘a European major’ for the last two and a half years and have developed this with them.

And now they are saying that value addition in this product is higher than the fuel.

A contract for 10 years that too single source is massive. This highlights the OEM’s trust in RACL’s quality and supply reliability.

These are futuristic projects with the world’s largest and best OEM’s. They are making themselves EV immune brilliantly.

Associating with such OEMs and a company like ZF, they should remain ahead in the curve. These product developments with ZF for BMW and “a European major” are a testimony to that.

C=Austria ZF client, chassis components, top end premium car. BMW 7 series car. We are entering in car segment. This will be futuristic 2022 car. (this is their entry into premium passenger car market)

7…Export

export% of sales increasing

2010@17%
2013@31%
2016@50%
2019@58%

8…Long term contracts

Many of these contracts are very long term nature contracts running over say 10 years with commitment towards volumes.

9…For BS VI, we have already developed products and technology. Quality levels will improve for BS VI. Business share has increased because of that. We in fact got more business because of BS VI.

10…EV

=By next year, 3-4% of our revenue will be from components which end up in EV. One of our clients is launching e-scooter in Europe

=EV gears are going to be high precision, higher technology required for manufacturing. Gross profit margins will be much more. Technology is different. Investment is also much higher. All our New technology and capex is EV friendly

=For EV, We are working with client whose details will be out in next 3- months and the whole world will know , cant specify which country the client belongs to, they are big player and has presence in Europe, USA, China, Japan and in India too (most likely could be Toyota or VW)

=…E-Scooter- They worked with ‘a European major’ for the last two and a half years and have developed this with them.

11…Margin improve
One key difference that has happened in FY20 & FY21 is on margin front - reaching to 25% from mid teen -

A=biggest factor is export mix increasing and

B= .Outsourcing of capital intensive jobs( heat treatment, forging press etc

=40% work for forging press work is done now in-house (earlier 100% were outsourced), improving raw material consumption and cost efficiency. Management are thinking of adding some more internal capacities.

=Heat treatment have high cost and having higher overhead, they are mostly oursourced.

12…Cyclicity

=Another aspect that stands out is decoupling from industry cyclical nature - Last 3 years has been good for them both top line

CAPEX

=We have planned a Capex of Rs. 50 Crore for FY 22. We did 50 last year and we are going to do another 50 for Capex this year.

=The ongoing expansion is on account of the
new orders received by the company from new customers in export market. The installation of the machinery is in line with
order specifications provided by the new customers.

=Expansion: Plant is already ready; end of 2021 will start production. Volumes will start coming in 2022

=…Normally companies will first invest and then they start hunting for customers. RACL
doesn’t do this. We first hunt customers and then make investments so that our investments
are never idle, although there’s a little bit of gestation period.

= Capex is 3 fold,

A… first of all it is for creating capacity for existing product,

B… creating capacities for
new customers and

C…modernization of existing plant and machine.
=Let’s not forget we are a 30 years old organization, so we have to continuously upgrade our existing equipment also, we
have to take care of the life of the machine also. If we carry the dead machines with us, or we
keep on spending extra money on maintenance then we can claim to be a high technology
company.

=

EXPANSION

A=Incidentally, we are not much present in low end cars or low end bikes. We deal in luxury
segment and premium bikes. So, the utility of our present capital equipment, for the next 10-
15 years will be fairly in these areas itself.

B=The new investments are being done in a judicious
way that all those equipments should be adaptable to EV also. And that’s how we have created the product mix.

=Our free cash flow has been on weaker side because we are doing capex. WC is on higher side.
For manufacturing, why keep free cash, invest in capex. Keeping money in banks not healthy for shareholders.
At some stage, need to invest keeps reducing. Today Asset turn is 1.4x, in future, it will move up. % of capex at some stage will go down

=Capacity expansion during an industry down cycle
The co. announced Capex worth 50 Crs in FY2020 AGM. This is at a time, when their fixed assets were 100 odd Crs. Why would a co. that sells non-compulsory goods, increase capacity by 50% during a pandemic? It is not like they are selling roti, kapda, makaan, or anything close to that.
I think it is because they have high visibility for future orders, from clients, which is why they are taking such a huge risk of putting up 50 Crs, that too, 3/4th of it through debt.

…EV IMPACT

=EV risk management was made clear in this concall(DDIT V)
1 ) Delay
2) Diversify
3)EV technology(precision+noise)
4) EV investment
5)Value

A…DELAY

…Delay impact through
a) Right customer segment selection : Premium bikes , off-roaders , Heavy Commercial etc
b) Relentless reduction in cost to ensure RACL is last man standing even in declining industry

=In EV also, throughout the world when it comes – it will come in phased manners like public transport, passenger vehicles, commercial vehicles and then tractors (we are not sure if it will come or not).

.=.We are present in tractors and luxury bikes. When you bike 1.5 liter bike, you don’t buy for price or mileage, you buy for acceleration and noise. I asked the same question to BMW – they said that we have supply for the contract till 2033.

B…DIVERSIFY
…Diversify into product segment which are fuel neutral
a) New/ incremental capital allocation to Chassis and Suspension system - ZF
b) E- axle drive for scooters - beyond Transmission system to motor and power electronics ?? - A bit surprised as this is very R&D intensive

C…EV Technology

C1…EV has gears
=Fortunately for us, even if EV comes, EV is not without gear. Even E – rickshaw has 4 gears. They have reduction gears. We are supplying to EV cars model of the largest tractor manufacturer of India. We are supplying them gears.

C2…Precision of gears
will increase manifold in e-vehicles. Investments have been into doing precision gears which makes less noise which is required in EVs

…In ev, since the gear operates at higher RPMs and torques than ICE, it would need higher precision

C3…Noise
=Value will come down for gears in EV but quality is many folds higher. Noise has to reduce for EVs. That is the reason we are investing a lot in technology. Even in fueled emission, noise emission is also a norm in EU and developed cos.

D…Investment for EV
…We are investing in that so that when EV comes, we are present. We always think 2 - 3 years ahead of competition

…Incidentally, we are not much present in low end cars or low end bikes. We deal in luxury
segment and premium bikes. So, the utility of our present capital equipment, for the next 10-
15 years will be fairly in these areas itself. The new investments are being done in a judicious
way that all those equipments should be adaptable to EV also. And that’s how we have
created the product mix.

E…Value
Less volume,more value

My last question is that as you have earlier mentioned that as the gears shift from ICE to EV,
the precision etc., that goes up substantially and hence, the value of gear is higher. But also,
I believe the number of gears reduces substantially between an ICE and electric vehicles.
Gursharan
Singh
…So, that is a great thing that I have to produce less and earn more, then what is the harm in
that. ICE gear, I’m selling at Rs. 100 and an EV gear I sell for Rs. 500. So, that is a great thing

EV RISKS

A…LESS VOLUME IN EV

=How does view EV disruption in RACL : no of components that EV requires is far less than Traditional vehicle
"An electric car doesn’t need a clutch, it also doesn’t require gears. Electric vehicles don’t feature a multi-speed gearbox like conventional petrol or diesel vehicles. Instead, they have just one gear. This is because they can achieve much higher revs than a standard fuel engine. A conventional car can usually reach around 4,000-6,000 revs per minute (rpm), whereas an electric motor can achieve up to 20,000 rpm.

=The gear volumes would go down, nobody made any comments about that. Transmission would only need 1 gear we have known this for many months now (please check out the RACL concall notes or transcripts). Conclusion being drawn is that since the gear operates at higher RPMs and torques than ICE, it would need higher precision

B…GEAR OBSOLETE

=There are six major alternative of power drive configuration …

In 3a both transmission and differential gear system are required , in 3b , 3c , 3d etc gear component keeps on reducing
while in 3 e and 3f design power drive system it is nearly gear less
It is too early to understand how transmission system will evolve … but it is declining industry and hence ZF etc are outsourcing big time to smaller players …

NEGATIVES

1…Domestic growth
=Domestic sales haven’t grown for us. Reason for it? The main reason is that we were late into Hero’s and Bajaj’s of the world and these companies have their family member’s company supplying to them. They have been established since long and we were in trouble in 1990s and 2000s. All OEMs are doing vendor consolidation. We missed boat because of that. When we took over, all these vendors had already consolidated.

= We have also taken strategic decision to not enter domestic mass markets in big way. There are few things where there is discussion happening. End of the day we have to ensure growth.

= Our focus is equally on domestic market also. Coming year, domestic market shape has to change in a big way. Electric mobility will come big way in mass bikes.

2…Receivable days have increased and debt has also increased?

=Receivables have increased coz of exports proportion increasing in sales because 60 days is the shipping time for exports. Receivables are including of GST leading to higher receivable days.

=Being located at north part of india, it takes 15 days for material to reach the port.

3…Equity dilution

=Company has diluted 8% equity during the past 2 years. Most of the capex has been funded through debt, however, the company has also repaid significant long term debt taken for earlier expansions.

=The Company has issued and allotted 5,00,000 Equity Shares of the face value of 10/- each on Preferential allotment basis through Private Placement on 3rd July 2019, at a Price of 72.50/-

4…Working capital intensive nature of operations

=Being in auto ancillary industry, the operations of the company are working capital intensive in nature.

=The company has to
maintain inventory of around 3.5 months with large product range (more than 500 products under regular production).
Significant inventory (around 50%) levels are in the form of stores and spares. These are mainly consumable being used in
production process and are reusable; however having a life of less than 1 year. Also, to cater the demand of major
customers, company stocks inventory at its warehouses near customers’ factory for uninterrupted flow of products with
minimum transit time.

=Credit period of close to 2 months is allowed to domestic customers, contributing 30% of total
operating income, while collection from overseas customers, which contributes 70% of total operating income, usually happens in 3-4 months

5…Cyclicality nature of the automotive industry

=The automobile industry is highly cyclical in nature and automotive component suppliers’ sales are directly linked to sales of
auto OEMs. Furthermore, the auto-ancillary industry is highly competitive with the presence of a large number of players in
the organized as well as unorganized sector. While the organized segment majorly caters to the OEM segment, the
unorganized segment mainly caters to the replacement market and to tier II and III suppliers.

7…Customer concentration

…RGL has moderate concentration risk with top five customers contributing ~85% revenue in FY20 (PY: 71%).

,

FINANCIALS

1…Cfo>pat
Cfo=140cr
Pat=83cr

2…fcf%…capex
2021=(-)/50cr
2020=2.8%/28cr
2019= (-) / 31cr
2018= (-) /14cr
2017= 2.1% /6cr
2016= 3% /6cr
2015= 1.8% /2cr
2014= (-)

3…ROE
2021@24
2020@20
2019@14
2018@14
2017@11
2016@11
2015@11

4…OPERSTING MARGIN

2021@25%
2020@20%
2015@15%
2014@13%
2012@10%
2010@12%

5…PAT(avg) growth rate
Last 5 yrs@>30%

6…Sales growth rate
Last 5 yrs@15%

7…D/E RATIO@1

= our Debt-Equity Ratios are very healthy. I think we are still less than the industry
norms, we are only 1.00. Even banks say that 1 - 1.5 should be the Debt-Equity Ratio and we
are still hovering around 1 which is healthy. And as we have told time and again that we are
a capital intensive industry and produce high technology products for which we need
matching technology. So, that way, we are at a healthy level, and we intend to maintain the
same place

8…receivables%
2021=27%
2020=25%
2019=27%
2018=30%
2017=27%

9…debtor days
2021=99
2020=92
2019=98
2018=109
2017=98
2016=27
2015=58

9 Likes

Added RACL and more BETA drugs

Will update portfolio in short time

My updated portfolio with avg buying price and Average time of purchase

1…Acrysil…(Rs 190.97)…(7.4%)…(dec 2020)
2…Beta drugs(314)….(7.4%)…(April 2021)

3…Astec life … ( rs 1017.39 )…(6.2%)…(Aug 2020)
4…Lt food …( rs 45.18 )…(6.1.%)…(Dec 2018)
5…Kei ind…(rs 405.25 )…(5.9%)…(Dec 2019)
6…Moldtek pack…( 259.20 )…(5.5%)…(April 2019).
7…Ganesha eco(Rs 515)…(5.5%)…(Feb 2021)
8…Racl(Rs 511)…(5.5%)…(oct 2021)
9……Paushak …(rs 2615)…(5.4%)…(June 2020)
10…Apcotex …(Rs 191.62 ) …( 5.1%)…(May 2019)
11…Grauer&weil …(Rs53.06 )…(5.1%)…(July 2018)
12…Anup…(636)…(5.1%)…(May 2021)
13…Stylam(1072)…(5.1%)…(Aug 2021)

14…Jenburkt ph…(.rs 620 )…(4.0%)…(Nov 2018)
15…kpr mill……(rs149)…(4.0%)…(oct 2020)
16…Ion ex ……(rs652.14 ) ……(3.3%)…(Dec 2019)

17…Ratnamani …(.rs 1298 ) …(2.2%)…(Feb 2020)
18…Auro lab …(rs 68.72 ) …(1.8%)…(Oct 2018)
19…Suven phar …(rs 251.64) …(1.7%)…(Aug 2020)
20…Ccl products …(rs 270) …(1.7%)…(Feb 2019)
21…Alkyl amine@ (791.56)…( 1.3%)…(June 2020)

22…other stocks… …( 2%)…(2017-2018)
Ice make
bajaj finance
ambika cotton,
Minda industries
Jamna auto
Rajoo engineer
Emmbi ind
Rain industries

=Portfolio is 107 % up of invested amount

(Investment is done in staggered manner from sept 2017 to uptil today with buy and hold approach

(HOLDING OLD STOCKS AND BUYING NEW STOCKS FROM FRESH CAPITAL)

1 Like

Adding Somany home innovation ltd

Dear Pragnesh,

Here is my thesis about a closely tracked stock. I am looking for opinions if I am thinking in the right direction or not.

Kwality Pharmaceuticals Limited is an India-based holding company. The Company manufactures and exports pharmaceutical formulations in liquid orals, dry syrups, tablets, capsules, sterile powder for injections, small volume injectables, ointments, external preparations and oral rehydration solution (ORS)

While the Stock has run up from 100 rupees to 900 rupees according to the latest results:

Sales : 300 Crore

PAT : 94 Crore

I believe the remarkable performance by the company calls for a discussion.

Management has maintained it is able to repeat its first-half performance which means a PAT of FY PAT of 180cr+.

This translates into EPS of 180 and pe of 4.63 with an industry avg PE of 26 (Bulk Drugs).

Further 2 plants will get commissioned in next few months.
Company has also mentioned that due to Remdesivir and Propofol - it has gained a lot recognition in the international market and got PHARMACEUTICAL INSPECTION CO-OPERATION certificate.
According to even basic calculations, this stock deserves a PE rerating because of

Stellar performance
Margin expansion
Confidence in repeating the performance for the coming years.
Hope to get your view point on this situation.

I have not studeied company yet

So sorry as i can not reply yr answer

I want to ask

Why there is sudden jump in operating margin and profit in sept quarter from opm 11% to 43%

Is it sustainable?

Kindly reply

Thanks

1 Like

Well, what changed was operating leverage kicked in and in times of uncertainty the company used its low cost of production and good quality products to gain global recognition - gain certifications - get its products registered and push its high margin products across new geographies.

In terms of sustainability well the company has guided for a strong order book and announced Capex for 2 new plants ( funded by earnings) - Pointing towards multifold growth.

would love to understand some anti thesis pointers as well if anyone has any.

Adding pix transmisdion

1 Like

My updated portfolio with avg buying price and Average time of purchase

1…Acrysil…(Rs 190.97)…(6.8%)…(dec 2020)
2…Beta drugs(314)….(6.8%)…(April 2021)
3…SHIL…(Rs 406.50)…(5.7%)…(Nov 2021)
4…Astec life … ( rs 1017.39 )…(5.7%)…(Aug 2020)
5…Lt food …( rs 45.18 )…(5.5%)…(Dec 2018)
6…Kei ind…(rs 405.25 )…(5.4%)…(Dec 2019)
7…Moldtek pack…( 259.20 )…(5.0%)…(April 2019).
8…Ganesha eco(Rs 515)…(5.0%)…(Feb 2021)
9…Racl(Rs 511)…(5.0%)…(oct 2021)
10……Paushak …(rs 2615)…(5.0%)…(June 2020)
11…Apcotex …(Rs 191.62 ) …( 4.7%)…(May 2019)
12…Grauer&weil …(Rs53.06 )…(4.7%)…(July 2018)
13…Anup…(636)…(4.7%)…(May 2021)
14…Stylam(1072)…(4.7%)…(Aug 2021)

15…Jenburkt ph…(.rs 620 )…(3.7%)…(Nov 2018)
16…kpr mill……(rs149)…(3.7%)…(oct 2020)
17…Ion ex ……(rs652.14 ) ……(3.0%)…(Dec 2019)

18…Ratnamani …(.rs 1298 ) …(2.0%)…(Feb 2020)
19…Auro lab …(rs 68.72 ) …(1.7%)…(Oct 2018)
20…Pix…(rs 890)…(1.7%)…(dec 2021)
21…Suven phar …(rs 251.64) …(1.7%)…(Aug 2020)
22…Ccl products …(rs 270) …(1.7%)…(Feb 2019)
23…Alkyl amine@ (791.56)…( 1.3%)…(June 2020)

24…other stocks… …( 2%)…(2017-2018)
Ice make
bajaj finance
ambika cotton,
Minda industries
Jamna auto
Rajoo engineer
Emmbi ind
Rain industries

=Portfolio is 112 % up of invested amount
(Investment is done in staggered manner from sept 2017 to uptil today with buy and hold approach

(HOLDING OLD STOCKS AND BUYING NEW STOCKS FROM FRESH CAPITAL)

3 Likes