Riddhi Siddhi Gluco Biols Ltd

Mahesh Shah, independent financial analyst & investor, is the biggest evangelist for Corn Starch industry in general and Riddhi Siddhi in particular. He invests significant amount of time keeping himself and others updated on global trends, Indian industry issues, competition and follows Riddhi Siddhi like a hawk!

The following update is from his Starch Sector blog, where he updates regularly. The undervaluation picture for Riddhi Siddhi is very clear, and if the growth continues the stock could outperform. The long-term picture though, is a bit clouded because of the announcement of diversification into wind mills by taking on debt of 250 Crs.

Riddhi Siddhi Gluco Biols Ltd. - Q2 FY11 Results Analysis a Target Price Revised to Rs. 740

Riddhi Siddhi Gluco Biols Ltd. - Q2 FY11 Results Update

Industry a Starch (Corn Starch);BSE Code a 524480

Current Price a Rs. 495 /-;Revised Target Price a Rs. 740 /-

Target Price Period a Short to Medium Term

Equity Capital a 11.13 cr.

Promoter Holding a 57.99 % [43.06 % (Founders) + 14.93 % (Foreign Collobrator)]

Market Cap a Rs. 550.90 cr.

FY10 Sales a Rs. 747.15 cr.;FY10 Operating Profit a Rs. 121.49 cr.

FY10 Net Profit a Rs. 39.22 cr.

1stHalfFY11 Sales a 409.28 cr.;1stHalfFY11 Operating Profit a Rs. 74.23 cr.

1stHalfFY11 Net Profit a Rs. 55.77 cr.;

FY10 EPS a Rs. 34.78;1stHalfFY11 EPS a Rs. 49.88 (Not Annualised)

Annualised FY11 EPS based on reported 1stHalfFY11 Results a Rs. 99.76

Current P/E based on Annualised FY11 EPS - 4.96

Highlights of Q2 & First Half Results of Riddhi Siddhi :

Riddhi Siddhi Gluco Biols Ltd. reported its Q2 FY11 results on 13th October 2010. Results surpassed even the most optimistic projections, especially on the margins front. Let’s first look at the highlights of the reported numbers and then discuss the scenario for Riddhi Siddhi post 1stHalfFY11-numbers :

(1) Riddhi reported a topline of Rs. 206.52 cr. in Q2Fy11 which translates into a YoY growth of 25.49 % and a QoQ growth of 1.85 % . This topline of Q2FY11 is achieved inspite of closure of company’s Gokak Plant which remianed completely shut for 14 days in Q2 due to a KPCB order and attained normal operations 7 days after the reopening of plant which entails to a normal unoperational period of 21 days for the plant. Minus this hiccup, topline for Q2 could have been higher by atleast 22-25 cr.

(2) Riddhi reported a topline of Rs. 409.28 cr. in 1stHalfFY11 (April-September) which translates into a YoY growth of 27.54 % but a sequential decline of 3.66 % over 2ndHalfFY10 (October-March). Here, two important things need to be noted. First- historically, 1st Half is the leanest period for the company with 2nd Half always much better than 1st Half; Second- if company would have not faced Gokak plant closure, its 1st Half this fiscal would have been higher than 2nd Half of last fiscal which is a sign of robust demand scenario prevalent in the marketplace for company’s products.

(3) Riddhi reported EBITDA of Rs. 39.87 cr. in Q2FY11 which translates into a YoY growth of 70.24 % but a QoQ decline of 11.34 %. EBITDA margins expanded by a whopping 506 basis points YoY but shrunk 287 basis points QoQ. One important thing that needs to be noted here is that higher the contribution from value-added products higher will be the EBITDA margins and Q1FY11 was an exceptional quarter which experienced much higher contribution from value-added products. With introduction of few high-margin value-added products in polyols & baby-food segments planned to be launched in second half of FY11, EBITDA margins similar to Q1FY11 levels can very well be expected in Q4FY11.

(4) Riddhi reported EBITDA of Rs. 84.85 cr. in 1stHalfFY11 (April-September) which translates into a YoY growth of 101.45 % and a sequential growth of 9.11 % over 2ndHalfFY10 (October-March). Sequential rise in EBITDA on a half-yearly basis inspite of closure of company’s largest plant in 1stHalfFY11 as also the fact that 1st Half is the leanest period of operation is a heartning thing and signals robust margin scenario ahead in 2nd Half of FY11.

(5) Riddhi reported an Operating Profit (EBIT) of Rs. Rs. 34.99 cr. in Q2FY11 which translates into a YoY growth of 83.52 % but a QoQ decline of 11.64 %. Operating Profit Margin (OPM) expanded by a whooping 532 basis points YoY but shrunk 265 basis points QoQ. Again, QoQ shrinkage in operating margins is because, higher the contribution from value-added products higher will be the Operating margins and Q1FY11 was an exceptional quarter which experienced much higher contribution from value-added products. With introduction of few high-margin value-added products in polyols & baby-food segments planned to be launched in second half of FY11, Operating margins similar to Q1FY11 levels can very well be expected in Q4FY11.

(6) Riddhi reported Operating Profit (EBIT) of Rs. 74.23 cr. in 1stHalfFY11 (April-September) which translates into a YoY growth of 127.07 % and a sequential growth of 17.58 % over 2ndHalfFY10 (October-March). Sequential rise in Operating Profit on a half-yearly basis inspite of closure of company’s largest plant in 1stHalfFY11 as also the fact that 1st Half is the leanest period of operation is a heartning thing and signals robust margin scenario ahead in 2nd Half of FY11.

(7) Riddhi reported a Net Profit of Rs. 24.60 cr. in Q2FY11 which translates into a YoY growth of 168.85 % but a QoQ decline of 10.22 %. Net Profit Margins (NPM) have expanded by a whooping 635 basis points YoY but shrinked 159 basis points QoQ. NPM is largely influenced by contribution of value-added products as well as interest costs. Company has initiated an exercise from Q1FY11 to restructure its debt in such a way that interest costs can be reduced to minimum. Already interest & financial charges have reduced considerably in Q1 as well as Q2 and going forward this trend is expected to continue. Historically, not a single quarter has seen a double digit net profit margin for the company and to post a double digit NPM for two consecutive quarters is an extremely healthy sign which will go a long way in ensuring robust cash generation as well as provide ammunition for future growth.

(8) Riddhi reported Net Profit of Rs. 55.77 cr. in 1stHalfFY11 (April-September) which translates into a YoY growth of 290 % and a sequential growth of 124.07 % over 2ndHalfFY10 (October-March). Such a huge sequential rise in Net Profit on a half-yearly basis inspite of hiccups like closure of company’s largest plant in 1stHalfFY11 as also the fact that 1st Half is the leanest period of operation is a sign of beggining of a boom cycle for the company which has coincided with such a scale of operation that it will catapult the company into big league in a very short period of time.

(9) For Q2FY11, Riddhi reported an Earning Per Share (EPS) of Rs. 21.99 whereas for 1stHalfFY11 EPS stands at Rs. 46.59 excluding extraordinary items and Rs. 49.88 including extraordinary items.

(10) In Q2, the company paid Rs. 42.13 cr. as advance to suppliers of Wind Mill Infrastructure for its proposed foray into Wind Power Generation sector. Riddhi is planning to set-up 30-33 MW Wind Power Plants at Gujarat, Maharashtra & Tamilnadu and the plants are expected to be operational by March 2011. This foray is expected to reduce tax outgo significantly which will again add to bottomline in FY11 & FY12.

Scenario for Riddhi Siddhi post Robust Q2FY11 Results a Emergence of a Shrewd Leader :

While predicting the scenario for Riddhi Siddhi post Q1FY11 results, we had started with the proverb aWell Begun is Half Donea. The company met and even exceeded our expectations by surpassing entire FY10 Net Profit by quite a wide margin in first half itself. Hence, in Q2FY11, Riddhi has not ‘Half Done’ but ‘Fully Done’ and went ahead with a vengeance. This is the quality of a real leader a to talk specifically, a real ‘shrewd’ leader which not only knows how to maintain its leadership position in the operating sector but has the skill to exploit completely the favourable conditions of the operating sector to its full advantage. Hence, we begin our prediction of scenario for Riddhi post robust Q2FY11 results with the tag line aEmergence of a Shrewd Leadera. The scenario can very well get clear once we look from the following angles :

Let us discuss each aspect in detail as follows :

(1) Robust Q2FY11 results posted by Top 4 playes of the sector will compel PMS Managers entry into the sector :

It is not just Riddhi which is registering robust financials quarter after quarter. All the Top 4 companies of Indian Starch & Starch Derivatives sector including Anil Ltd., Sukhjit Starch and Gujarat Ambuja Exports (Maize Processing Division) are growing their topline and bottomline handsomely each quarter. The demand scenario of the sector is so promising that even the smaller players like Gayatri Bio, Universal Starch and English Indian Clays (Starch Division) are growing at a good pace. Here, we have not considered chinese counterparts which are also growing at a rapid pace each quarter.

Hence, it presents a case of global boom in starch & starch derivatives sector to which India is a significant participant as it is grossly underpenetrated. When you have such a global boom in an unpenetrated sector and that too when the sector has a concentrated structure, its companies can’t trade in lower single digit P/Es for quite long. The underownership factor will start catching up fast and because of limited avenues available for exposure to the sector because of its concentrated structure, shrewd fund managers will have no option but to start accumulating top 4 players of the sector.

PMS managers will be the first one to start such accumulation phase as they have much lower restrictions as also much higher expectations from their clients. To meet such expectations amidst bullish markets, PMS managers will now, from Q3FY11 onwards, start accumulating the top 4 companies of Indian Starch & Starch Derivatives sector in which Riddhi will occupy the prominent position amongst all its peers because of its leadership position as well as its relatively lower valuation. Recent run-up in Anil, Sukhjit and GAEL has made them relatively expensive as compared to Riddhi and nowhere in the world a leader of a booming sector can trade at a pathetically low p/e of 5. Hence, PMS managers’ entry from Q3 onwards is inevitable which is evident from the positive reports of leading broking houses like KR Choksey, Anagram, MF Global and SP Tulsian post Q2 number declaration by Riddhi. A company which was not on radar of many in FY10 has suddenly seen 4 simultaneous positive reports from leading broking houses of India which depicts the start of a discovery phase for Riddhi which will get into full swing by Q4FY11 when discounting to likely FY12 numbers will start.

(2) Impending Deal With Roquette as well as launch of New Products in Q3FY11 will act as a Trigger to significantly rerate the company :

By December 2010, two positive milestones are likely to be achieved by Riddhi.

First a Launch of New Value-Added products in Baby Food segment as well as Polyols segment…

Second a A JV deal with Roquette, the world’s third largest cornstarch player.

Launch of new promising products will help Riddhi sustain high margins in rest of FY11 as well as FY12 while deal with Roquette will ensure that its topline grows significantly in the years ahead. Each development is likely to rerate the stock significantly with the later development making Riddhi one of Asia’s prominent Starch & Starch Derivatives sector player.

(3) Power Sector Foray - a very shrewd Decision

In Q2, Riddhi’s management decided to foray into renewable energy segment and the pace of foray was so fast that within one month of shareholders’ approval, it paid Rs. 43 cr. as advance to wind mill infrastructure suppliers to commercialise the project by March 2011.

To give details of the foray, Company plans to set-up 30-33 MW windmills at Tirunelveli (TN), Pachav (Gujarat) & Satara (Maharastra). Planned Investment in this project is around Rs. 250 cr. which will be raised via 75% debt and the rest from internal accruals. There are no present plans of setting up a SPV for this project and it will be directly under Riddhi Siddhi Gluco banner. Project is likely to be commisioned by March 2011. Agreement is to be structured in such a way that suppliers will do the entire job including acquisiton of land, erection, maintenance and agreement with local SEBs. The net return on the project is expected to be around 12% and after deducting the interest cost of 8%, company should get around 3 to 4% returns without much work and land bank also gets appreciated in future.

This foray is meant for de-risking purpose and tax-saving purpose. Company wants to retain most of the robust cash likely to get generated out of the main business of the company to fuel future growth and for that it is foraying into power sector. Management’s contention is that although power project is likely to add only 25 cr. to the topline but the advantage for the company is that 80 % of 200 to 250 cr. investment that they will do in this project can be claimed back as depreciation. So, it is like, company is not paying the tax to the Government now and utilising that money for some investment which will start generating revenues immediately. By the time company is compelled to start making the tax payment, the new business would have generated enough revenues plus the assets. Company is adopting a shrewd policy to emerge as one of the most consistent as well as fastest growing Mid-Cap Company of India.

(4) Upward Revision in Future Financial Projections :

Robust Q2 numbers have necessited an upward revision in our previously projected financials of Riddhi. However, like before, we will again be conservative in our approach thereby leaving ample scope for the management of Riddhi to surpass even our revised projections. The revised projections are given below :

(in cr.) FY11 FY12 FY13

Sales 1056 1380 1870

OP 182.8 241.5 336.7

NP 96.10 128.8 177.6

After taking into account likely equity dilution in next two years, EPS for FY11 works out to be Rs. 86.34, for FY12 at Rs. 101.20 and that for FY13 at Rs. 118.40.

(5) Current Valuation :

At the current market price of Rs. 495, Riddhi is trading at a P/E of just 5.73 based on expected current FY11 numbers, at a P/E of just 4.89 based on expected FY12 numbers and at a P/E of just 4.18 based on expected FY13 numbers.

To add, Riddhi currently trades at a market-cap-to-sales of just 0.52 based on expected current FY11 topline of Rs. 1056 cr.,; at a market-cap-to-sales of just 0.46 (after taking into account equity dilution) based on expected FY12 topline of Rs. 1380 cr. and at a market-cap-to-sales of just 0.39 (after taking into account equity dilution) based on expected FY13 topline of Rs. 1870 cr.

Conclusion :

We are a fortunate witness of start of a ‘Boom Phase’ for Indian Starch & Starch Derivatives Sector and the Sector’s concentrated structure as well as nascent status is working to our advantage by giving us an opportunity to invest in it at our leisure as valuations are inching up only gradually and not vertically. However, this gradual rise in valuations is likely to now sustain only for a short period of time as one full fiscal of healthy topline growth accompanied by robust cash generation at net level and the prospect of continued topline & bottomline growth for next fiscal will compel the conclusion of gradual-rise phase and will initialise a vertical-rise phase for the sector from Q4FY11 onwards. Declaration of Q3FY11 results by top 4 companies of the sector could be the maximum time-limit untill which fund managers can continue with current accumulation-phase in the sector after which the ‘me-first’ attitude will start which will take the valuation of the sector to a respectable double digit p/e level based on FY11 earnings from the current grossly undervalued single digit p/e level.

This has to happen because its not just that valuation of the sector needs to come at a respectable level but they also need to catch-up with international run-up in prices of the players of the same sector. Lets cite here two examples, - first - of a company which is the world leader of the sector and second a a company whose business model is a replica of top 4 Indian companies especially, the leader Riddhi.

The world leader which we are talking about is Corn Products International a over the last 3 months its share price has run-up 34 % and is currently trading at all time highs.

The other company which we are talking about is Asia Bio-Chem Group, a chinese company which has almost the same business model as Riddhi with similar product lines and has the topline similar to that of Riddhi. Over the span of last 3 months its share price has run-up 40 % and is on verge of breaching all time highs.

Contrary to these, if we consider Riddhi, then its share price over the span of same last 3 months has run-up by only 28 % inspite of it trading at much lower p/e, mcap-to-sales as well as other valuation matrix relative to both the international companies. This disparity can’t sustain for too long as Indian Leader has to catch-up with international peers, if not with world leader then atleast with chinese counterpart.

Also, recent run-up in prices of Riddhi’s Indian peers has made Riddhi much more cheaper as compared to them and nowhere in the world a leader with double the capacity of closest peer can trade at a cheaper valuation than smaller peers. Lets take the simple example of 1stHalfFY11 Annualised EPS and pitch Riddhi’s peers Anil Ltd. and Sukhjit Starch against Riddhi’s valuation based on p/e commanded by each one of them based on annualised 1stHalfFY11 EPS.

Anil Ltd. Is trading at a p/e of 8.44 based on annualised EPS of 1stHalfFY11 while Sukhjit Starch is trading at a p/e of 6.18 based on its annualised 1stHalfFY11 EPS.

To our surprise, Riddhi is currently trading at a p/e of just 5.31 based on its 1stHalfFY11 Annualised EPS excluding extraordinary items and at a p/e of just 4.96 if we consider its annualised EPS by accounting extraordinary gains. A company which is a leader of the sector with topline more than double that of Anil Ltd. & Sukhjit Starch is trading at a steep discount to them… This is an anomaly which has to get corrected sooner rather than later and so if we look at any angle a whether the valuation and run-up of chinese counterpart with similar topline or valuation commanded by Indian counterparts with half the topline that of Riddhi, fund managers’ safest choice for exposure to the booming Starch & Starch Derivatives sector has to be Riddhi Siddhi Gluco.

Coupled with these, when we consider the robust performance of each of the player of the sector amidst the leanest period of operation for them being the first half, a rerating of the sector is evident and so Riddhi will be at a double benefit wherein it will get advantage of the sectoral rerating as well as its undervaluation-rerating over which underownership factor will weigh heavily which will enable a vertical rise in its valuations on spark of a smallest trigger.

To conclude, we still maintain the aSafest Buya status for Riddhi Siddhi with a upward revision in our previous target price of Rs. 615 to Rs. 740 at which it will trade at a p/e of just 8.57 based on FY11 conservatively expected EPS of Rs. 86.34 and at 0.77 marketcap-to-sales based on expected FY11 topline of Rs. 1056 cr. We have refrained from giving a base-price range in this report as we had done so in our last reports because we feel that significant rerating of the company is round the corner and could surely happen before the declaration of Q3FY11 numbers. The current gross undervaluation of the company is unsustainable and so depiction of a base-price-range will deprive of an opportunity of investment into this multibagger company once the rerating is in place.

Hi

Annualising half-yearly results may not be the right way as last 2 quarters were extraordinary in terms of margins. if you look at FY10 operating margins qoq, they were mostly in the 14-15% range. SoI did a bit of forward projections using a 15% operating margin projection, and keeping Interest, depreciation & taxes on the higher side. (Pls see below)

Riddhi Siddhi is indeed available at a forward PE of ~6x which is certainly cheap for a company growing at 25% plus with a RoCE of 20% plus. The Management is on record (AR 2010) that the company will grow at 30% for next 5 years at the least.

Riddhi Siddhi

Actual growth achieved

Projected Growth

Quarterly Results track

29.70%

26%

25%

25%

1QFY11

2QFY11

3QFY11E

4QFY11E

FY11E

Net Sales

202.77

206.52

241.99

286.75

938.03

Depreciation

5.49

5.13

8.69

8.69

28

Interest & Finance charges

4.52

3.36

8.56

8.56

25

PBT (Post Extra-ord Items)

39.35

31.64

19.05

25.76

115.80

PAT

31.17

24.60

13.33

18.03

87.14

Taxes

8.18

7.04

5.71

7.73

28.66

Tax rate

20.79%

22.24%

30.00%

30.00%

24.75%

PBIDT

49.36

40.13

36.30

43.01

168.80

PBIDT margin

24.34%

19.43%

15.00%

15.00%

18.00%

Net Margin

15.37%

11.91%

5.51%

6.29%

9.29%

FY11 Projections

CMP

Forward PE

Projected EPS

OPM

NPM

Realistic

476

6.08

78.24

17.39%

9.29%

Optimistic

5.14

92.64

20%

11.00%

Pessimistic

8.07

58.95

16%

7.00%

Though the windmill diversification is puzzling and is not making much sense, it cannot be denied theundervaluedness is very compelling,in current market conditions. Very few companies growing at 30% plus with a RoCE of 20% plus, may now beavailable at 5-6x.

Disclosure: I have bought a small quantity of Riddhi Siddhi

Thanks Arindam. The undervaluation case is compelling for a company of its quality, market leadership with high visibility into future growth. Especially in an overvalued market. I agree with you (Disc: have also bought small quantity with the recent market correction).

The only complaint was debt/equity is high at 1.35. Company has taken aggressive bets in the past to expand and pulled it off. From d/e close to 3 in FY06, it’s come down progressively to 2, to 1.5 and 1.3. Increasing cash flows from the business has enabled it to fund and reduce the debt, but this had meant lower margins & returns in previous years. Only in FY10, the company has shown 20% plus RoCE. Usual range was 12-16%. Just when the company could have consolidated at this level, harnesses economies of scale to post robust results, its venturing into what seems unrelated diversificsation!

Coy is now venturing into a 250 cr wind mill expansion funded mostly by debt. Coy already has 230 Cr debt. Though the company cites the reasons as diversification of risks, the real reason is the 80% depreciation benefit wind mills can claim in yr1.

This seems to put the company on a riskier path rather than a stronger wicket! Unless we can find out some compelling reasons.

I haven’t looked at details, but some quick observations:

1). We have seen many companies foraying into windmill power for tax benefits, but usually they are like 5MW capacities. This one is going for 30 MW at one go, which tells us there is some other purpose. (Could it really be diversification into a steady utility kind of business?)

2). I am told this windmill business is self-sustaining. You need to put up only 10-20% of initial capital. the rest is easily bank funded at 8% rate, and the coy can claim 80% depreciation in 1st year to save on taxes. The equipment supplier takes of care of land procurement, and setting up the plant. Returns are 12-15% range.

3). on the other hand, we know of wind mill forays that never produced enough power, due to locational problems with wind-speeds, etc. There are some risks in the game:)

There is a background to this whole (mis)adventure, perhaps.

Franceas Roquette Freres is in advanced talks to buyRiddhi Siddhi.The 77-year-old French company, the 3rd largest corn starch player is looking to raise its stake to 51% from 14.93% in Riddhi it already holds (2006). There is strong speculation that the deal may be signed by December 2010.

Roquette Freres is among the worldas leading makers of starch derivatives, used in foodstuff, adhesives and medicines, as well as the largest producer of polyols, used to make a wide range of products like chewing gum, candy and ice-cream.Its interest in Riddhi also stems from the companyas three production units in Karnataka, Uttranchal and Gujarat.

As per the ET news item,Roquette is likely to pay nearly Rs 150 crore for the 36% stake, a premium of up to 30% over the current market price, said the second person who is close to the Indian company. Roquette will then have to launch an open offer to buy 20% more in Riddi, which may cost another Rs 75 crore, he said.

The stock price has shot up from ~265 to 470 now. So Riddhi might get a higher price for the stake, perhaps 200 Cr.Could it be that Riddhi is betting on this additional cash to kick-start a self-sustaining utility business?? Then the question will be timing - why now? why not after the deal??

The only answer can be that Riddhi wants to save a substantial amount from this years profits in tax deductions and channelise that into funding the initial capital for this windmill foray. 80% 250 Cr30% tax rate =60 Cr. 8% interest outgo may mean 20 Cr. Resulting savings = 40 Cr. This 40 Cr is what it can channelise into funding the initial capital for the wind mill foray.

Quoting from Mahesh’s report,"In Q2, Riddhi’s management decided to foray into renewable energy segment and the pace of foray was so fast that within one month of shareholders’ approval, it paid Rs. 43 cr. as advance to wind mill infrastructure suppliers to commercialise the project by March 2011"

Where does this leave us small shareholders? Assuming this is the scenario that unfolds, how are we effected?Because of the 51% stake buy, there will be some equity dilution, perhaps in the range of 15-20%?? Can someone work this out?

On the other hand, the resulting open offer may push prices up and work to the advantage??

Hi Donald,

Thank you once again for this find. Looks good to me though the astounding numbers may not be sustainable.

A rerating is on the cards.

Windmill bus is self sustaining. The com might be forseeing huge cash generation in the coming year and hence may want to setoff with this. The landbank also wont hurt. With another 28% capacity left for increasing the production, they may not require capex in anything else.

Next week BSE will review the T2T segment and come with a new list. Riddhi Siddhi is expected to come out of the T2T segment which again will be a trigger for giving higher visibility to the stock.

Regards

Vinod

Firstly, Thanks Donald for bringing this post to this forum. It will give me a great opportunity to interact with fellow knowledgable boarders which will enable more sharp analysis and more reliable conclusion.

Disclosure first… Riddhi occupies a prominent position in my portfolio.

Now, Donald… before starting any discussions, what I will do is first post my initial reports on Riddhi Siddhi so that boarders can have a more deep idea about the entire thing… In the first report I have highlighted many aspects of the management as also of the sector without which it is impossible to judge this company. Also, my two sectoral reports on starch sector are a must read before making any kind of exposure to the sector. I will try to post them too on this forum.

Rgds.

Mahesh

Franceas advanced talks to buyRiddhi Siddhi Link: http://economictimes.indiatimes.com/news/news-by-industry/healthcare/biotech/pharmaceuticals/French-firm-eyes-36-more-in-Riddhi-Siddhi/articleshow/5938306.cms .The ** raise holds ** worldas ice-cream.Its companyas _** item,Roquette stake, ** said. _

Cr.Could ** Then deal?? ** _ report,“In ** it 2011” **_ effected?Because

My first report on Riddhi Siddhi titled ‘Riddhi Siddhi - A Multibagger in The Making Attached’

Sections of the Report :

Theme of the Report :

A Brief Overview of the Company :

Investment Rationale :

Micro Perspective

Macro Perspective :

  1. Evaluating Management of the Company

(a) Pre-startup & Startup Phase of Riddhi

(b) Vision for Acquisitions (Glaxo Plant)

© Vision for Acquisitions (Uniliver Plant)

(d) Capability of Handling Crisis Situations

(e) Whether Management Keeping up to spoken Words

(a) Pre-startup & Startup Phase of Riddhi

(b) Vision for Acquisitions (Glaxo Plant)

© Vision for Acquisitions (Uniliver Plant)

(d) Capability of Handling Crisis Situations

(e) Whether Management Keeping up to spoken Words

  1. Current Avatar of the Company

  2. Likely Future Avatar of the Company

Valuation Perspective :

  1. Current & Past Financials of the Company

  2. Likely Future Financials of the Company

  3. Valuation commanded by Company’s Peers

  4. Current valuation of the Company and its likely future Valuation

Conclusion

Macro Perspective :

  1. Evaluating Management of the Company

(a) Pre-startup & Startup Phase of Riddhi

(b) Vision for Acquisitions (Glaxo Plant)

© Vision for Acquisitions (Uniliver Plant)

(d) Capability of Handling Crisis Situations

(e) Whether Management Keeping up to spoken Words

(a) Pre-startup & Startup Phase of Riddhi

(b) Vision for Acquisitions (Glaxo Plant)

© Vision for Acquisitions (Uniliver Plant)

(d) Capability of Handling Crisis Situations

(e) Whether Management Keeping up to spoken Words

  1. Current Avatar of the Company

  2. Likely Future Avatar of the Company

Valuation Perspective :

  1. Current & Past Financials of the Company

  2. Likely Future Financials of the Company

  3. Valuation commanded by Company’s Peers

  4. Current valuation of the Company and its likely future Valuation

Conclusion

Riddhi-Siddhi-A-Multibagger-in-the-Making.pdf (71.3 KB)

My Second Report on Riddhi post robust Q1 numbers attached.

Riddhi-Siddhi-Q1FY11-result-Analysis.pdf (44.3 KB)

Attached is Part - I of My detailed report on Indian Starch Sector covering data of last 10 years.

Sections of the Report :

Last Fives Years’ Performance of Starch Industry as a whole

Percentage Contribution by each of the Listed Player to industry Sales & EBIDTA over last 5 Years

Q1’FY11 Performance of Starch Industry as a whole

Percentage Contribution by each of the Listed Player to industry Sales & EBIDTA (Q1’FY11 over Q1’FY10)

Current Valuation Commanded by each of the Listed Company (execept GAEL & EICL) based on price as on 13th August 2010

Last 10 Years’ Sales, EBIDTA, OP & NP Performance of Each of the Listed Company

Last 10 Years’ Expenditure Trend of Each of the Listed Company (except GAEL & EICL)

Last 10 Years’ Expenditure Viewed w.r.t. Sales & EBIDTA (of 3 Top Listed Companies)

Last 10 Years’ Margin Scenario of Top 3 Listed Companies

Last 9 Quarters’ Sales, EBIDTA, OP & NP Performance of Each of the Listed Company

Last 9 Quarters’ Sales, EBIDTA, OP & NP Growth % of Top 3 Listed Companies

Last 9 Quarters’ Expenditure Trend of Each of the Listed Company (except GAEL & EICL)

Last 9 Quarters’ Expenditure Viewed w.r.t. Sales & EBIDTA (of 3 Top Listed Companies)

Last 9 Quarters’ Margin Scenario of Top 3 Listed Companies

Brief Textual Overview & Analysis of the Industry asto Why It will Start Carving its Place in Every Portfolio meant for Growth

Brief Textual Overview of All Listed Players

Riddhi Siddhi Gluco Biols Ltd. - An Industry Outperformer

Anil Products Ltd. - An Industry Performer

Sukhjit Starch & Chemicals Ltd. - A Consistent Performer

Gujarat Ambuja Exports Ltd. - A Dark Horse

English Indian Clays Ltd. - A Sell-off Story

Universal Starch-Chem Allied Ltd. - A Possible Risky Winner

Gayatri Bioorganics & Tirupati Starch â A Complete Avoid

Starch_Sector_Tabular_Textual_Analysis_Aug2010.pdf (99.1 KB)

Attached is Part - II of My detailed report on Indian Starch Sector covering data of last 10 years.

Starch_Sector_Tabular_Textual_Analysis_Aug2010.pdf (95.8 KB)

Attached is Part - III of My detailed report on Indian Starch Sector covering data of last 10 years.

Starch_Sector_Tabular_Textual_Analysis_Aug2010.pdf (84.5 KB)

Attached is Part I of my Report on Indian Starch Sector vis-a-vis Chinese Starch Sector alongwith a brief study of per-capita starch consumption trend in an emerging country like China vis-a-vis per-capita Sugar consumption trend.

Sections of The Report :

  • Boom Phase in Chinese Starch & Starch Derivatives Sector evident from large-scale successful Fund-Raising by a major company as well entry of strong financial investors like Soros, Blackstone & Citibank into the sector

  • Per-Capita Starch Consumption Study of last Two Decades of China

  • A Brief Comparison of Indian Starch & Starch Derivatives Sector of 2010 with Chinese Sector of 1992

  • A Detailed Study of last two decades’ Sugar-Consumption Trend vis-a-vis Starch-Consumption Trend of China and India

  • Why Indian Starch & Starch Derivatives Sector is at an Advantage from Investment-point-of-view vis-a-vis Chinese Sector

  • Macro Valuation Aspect of Indian & Chinese Sectors ( Sector Valuation Considered )

  • Micro Valuation Aspect of Indian & Chinese Sectors ( Individual Companies Considered )

  • Detailed Evaluation of Selected Top Indian & Chinese Companies based on their Installed Capacities & TTM as well as Latest Reported Revenues, Gross Profits, Net Profit, GPM and NPM.

  • Conclusion

India_China_Starch_Sector_Analysis_September_2010.pdf (91 KB)

Attached is Part II of my Report on Indian Starch Sector vis-a-vis Chinese Starch Sector alongwith a brief study of per-capita starch consumption trend in an emerging country like China vis-a-vis per-capita Sugar consumption trend.

India_China_Starch_Sector_Analysis_September_2010.pdf (95.8 KB)

Attached is Part III of my Report on Indian Starch Sector vis-a-vis Chinese Starch Sector alongwith a brief study of per-capita starch consumption trend in an emerging country like China vis-a-vis per-capita Sugar consumption trend.

India_China_Starch_Sector_Analysis_September_2010.pdf (57.3 KB)

Now, after posting all the reports I have made so far on Indian Starch & Starch Derivatives sector as well as Riddhi Siddhi… Let me start with discussions on this forum rgdg. Riddhi Siddhi. I will again suggest everyone to first read all the reports and then only make any kind of exposure to Indian Starch sector.

I agree very well with the contention of Vinod rgdg. wind mill foray and even I believe that management is very shrewd and proactive and so it will surely be expecting a huge cash generation and has therefore ventured in this project. However, in an interview given to DNA, MD has stated that he has big plans for renewable sector which is slightly concerning as far as myself is concerned. But,i am not that much concerned as far as its main business goes and unlesssomething else other than already planned windmills are announcedI will not have negative views on the company because Ican’t ignorelast decade of management’s performance… and will therefore give benefit of doubt to MD.

Secondly, rgdg. Donald’s point that Open Offer will come… I don’t believe so because Roquette is planning a JV at subsidiary level and so no open offer will get triggered.

Even w/o open offer Riddhi is still available at a throwaway price and in my 12 years longcareer in equity markets I have rarely found an opportunity to invest in :

a leader of a Sector which itself is growing in two digits and is so unpenetrated that there is least downside to it…

user-industries of sector are growing handsomely and products of the sector are finding wider and wider applications every passing year in each of the user-industry…

there are just handful of companies available for exposure to the sector…

there is a recent precedent of M&A at 1.2x topline in the sector and based on that parameter, leader is grossly undervalued if we take FY11 minimum topine at 930-950 cr…

leader’s indian peers as well as asian peers are trading at a considerable premium to its current valuation…

leader with a minimum expected double digit growth expected over next 3 years is available at a lower single digit p/e…

Sonner or later markets have the habit of correcting disparities existing for one reason or other… the same can be expected with rgds. to Riddhi once Q3 results are out and discounting to FY12 numbers start. Accumulation Phase has already riped to make way for Rerating Phase and if it doesn’t happen sooner will definetly happen later… but it has to happen and Riddhi has to trade at minimum 7.5-8.5 p/e FY11 numbers and if management projects robust FY12 once Q4 is out then it will defenitely move on to TTM(FY11) double digit p/e.

Found a K R Choksey report on Riddhi Siddhi 14 Oct 2010. No mention of the diversification, or de-worsification:)

Excerpt from SP Tulsian update on Riddhi Siddhi, dated 22 Oct, 2010. (I am unable to find the link back form where I had downloaded the PDF)

  • As on 30th September, the companyâs networth was Rs.262 crore and net debt was Rs. 213 crore,mainly to finance the working capital needs of the company.
  • The company is foraying into wind energy business. It plans to establish 30-33 MW windmills byMarch 2011 in Tamil Nadu, Gujarat and Maharashtra, with an investment of Rs. 250 crore. Thiswill be a big tax shelter for the company, which is now being taxed at an average rate at 21.50%.
  • For FY11, the company is expected to report a turnover of over Rs. 800 crore and net profit ofabout Rs.100 crore, resulting in EPS of close to Rs.90 and cash EPS of Rs. 110. Thus, thepresent share price of 475 is being discounted by 5.2 times, of its current year earnings and on4.3 times its cash earnings.
  • Share at 475 is recommended a good investment bet which has potential to move to 550 in thenext six months.

ThisRiddhi Siddhi Anagram Finance research report (5 May, 2010) provides some insights into the business

Riddhi Siddhi stock story updated.

Now that all sides of the story are presented, it does look like a good story, nay an excellent story! It just might be the cheapest stock going around these days vis-a-vis the future potential!

Discl: I am almost a convert and have bought more on todays good correction. Looking toaccumulatemore.