Sahyadri Ind came out with very good Q1 nos and seems interesting for medium term. Here is a small post…views invited
**Sahyadri Ind:**This company is into fibre cement roofing sheets and wind mills. The company has grown faster than the industry and now has an annual turnover of about 375 Cr. The wind energy segment of the company has been doing pretty well and they have been getting best wind mill awards for several years.
The roofing sheets sector has started going very well in recent times. Most of the companies have been able to grow well along with expansion in margins. Sahyadri has had poor performance over last 2 years but Q1FY13 has been fantastic a 28% growth in revenues from 125 Cr to 160 Cr and 82% growth in net profits from 9.2 Cr to 16.76 Cr. The company might be back on the track.
Valuations seem attractive at CMP of 72:
Stock is trading at aPE of just 4.
Stock istrading at 0.6 times its Book Value of 123.
Hi Ayush, wondering if you’ve looked at everest Industries in this segment. They are very consistent and have a 5 year CAGR of 33% in sales and 39% in net profit. The latest div was 70% and div yield over 3%. Debt is reducing consistently and d/e ratio under 0.3. A new fibre cement roofing plant would be ready in mid 2013. The p/e is modest as well around 6-7. It’s at a 52wk high though. The annual report is very impressive. This can be a great play on rural consumption.
btw…ever since I used the screener tool, it’s the first thing I go to when I need to do a quick pulse check. I would otherwise have to go to several places to get the half the info I get all at once here. Thank you!
I was looking at this industry as valuations are reasonable and it is kind of boring business with good return ratios. Moreover there is negativity surrounded by use of asbestos in the product which is seen as major risk factor. However, for last few days, whatever I have read and digested, it is not as major an issue as it is made out to be. I think Hyderabad industries limited (HIL) may bethe best pick in the industry
)- Market leader for many years, and production facilities spread out across the country (12 locations) which is critical for success as transportation cost forms substantial % of product cost
)- 5 year CAGR growth of 13% in topline and 34% in bottom line. Though margins have been fluctuating, 6-7% margins seems to be normalized margins.
)- Differentiated and innovative products such as AEROCON bricks and panels. Captured 56% market share in panels andis creating new categoryofproduct Aerocon bricks. Even though most of the competitors (everest, Visaka, Sahyadri) are there on the panel side, on the bricks side they do not seem to have presence.
)- Focus on green building and energy effieincy seem to be a differentiator, which I think makes lots of sense considering the focus government is providing to energy efficiency.
)- Healthy balance sheet with D/E of 0.3 and reasonably good return ratios (18-20% ROE on normalized basis)
)- CK birla group pedigree
)- Get a feel that they have strong R &D which helps them come up with new products at regular intervals.
)- Return ratios are good and havebeen derived fromdecent margins (6-7%), moderately asset light business (asset turnover of 2.2) and moderate leverage. Just about the right balance in my opinion! (i personally do not like ROE/ROCE driven by NPM/leverage as sustainability is an issue in both the cases)
)- Industry as a whole has very strong operating cash flows which looks like a big positive. Moreover, working capital requirement is mininal.
)- Mr. Abhay Shankar, CEO of the company seems to be dynamic and aggressive. He has chaled out plans to increase its turnover from 860 crores to 2000 crores by 2016. This indicates the growth oreintation of the company and management.
)- 3.6% dividend yield and trading at P/E of 5.7. Seems decent enough.
I am still digging further, but prima facie looks interesting to me.
On first glance sahyadri looks very cheap on conventional PE etc basis.
But the fly in the ointment seems to be very high debt.
long term debt of 87 crores plus short term borrowings of 58 crores. total debt of 145 crores for a company with total market cap of 70 crores. This seems to be a bit high. ebidta for fy 12 was around 47 crores. ev comes to 215 crores and ev/ebidta is 4.57
Now considering the market leader hyderabad inds, its market cap is 387 crores and ebidta for fy 12 was 107 crores. debt is short term debt of 69 crores plus long term debt of 35 crores and total debt is 104 crores. ev for hyderabad comes to around 490 crores. so here also ev/ebidta is 4.57.
It would be also interesting to compare other parameters like ev/sales etc for these companies.
Based on above valuations if one were to choose, I think the vote would definitely go to hyderabad inds as it is less leveraged, has market leadership and has a higher div yield.
However in case of asbestos companies, one sees that the run up is usually pan sector and almost all stocks will run up once the bull run starts.
Cement stocks can be best thought of as short term bets and should do well as interest rates goes down and construction improves. However are these good to hold for long term as cyclicals over long term do not make much money.
Going by all the three companies financials, it seems that their performance is quitesynchronizedwith margins peaking in 2007/08 then declining. EBITA margin for all the three companies are in the range of 8-10% with Hyd industries margin at highest. Even on cash flow basis Hyd Industries seems to be better, with registering positive FCF in 9 out of 15 years and overall producing more than 100 crs of FCF over last 15 years. On the other hand Everest industries registers negative FCF in 10 out of 15 yrs and on 15 yrs produced 50crs of negative FCF.
It seems that there is lot of capacity expansion since 2007. Hydindustriesnet block has increased by three times and Everestindustriesby 2x. So the most imp. point need to check is whether there is any excess capacity in the system.
Conclusion: It seems the industry frequently suffers from over capacity. So entry and exit need to timed properly.
I agree here that in the past, margins have been fluctuating and industry has faced both good times and bad times in last 10 years. however in my opinion, HIL’s complexion of business is changing. Currently, cement sheets business accounts for roughly 80-85%(commodity products)of the top line while by 2016, company intends to reduce it to 50% while rest 50% will come from green building products. Now some of the green building products (AAC blocks and Aerocon panels) are higher margin products than typical cement sheet business. Moreover, it will also reduce its dependence on rural economy and social infrastructure creation in times to come.
Another thing to be noted here is that Mr.Abhay Shankar has brought in a sense of urgency and aggressiveness (since 2006-07)which is reflected in the way he is trying to transform the company and reach the goal of revenue of 2000 crores by 2016.
Yes, HIL is probably the cleanest and the best. The best thing is that they are increasing the dividends and hence the stock has to perform in line with earnings. Also with bringing green products, they may be able to grow faster with sustainable prospects.However if we look at their long term growth track record, then they have been the slowest.
My interest in this sector is more from a short/medium term miscpricing perspective, I don’t think I would like to remain invested for long run and this is why I’m getting interested in Sahyadri. This co has done pretty well in past and if the sector is going to enjoy good times, then the stock looks mis-priced. They may end up doing an EPS of about 25-30 and if so, then stock is at less than 3 times earnings.
Some of the debt on Sahyadri is also due to their wind power projects.
Could you share link for annual report FY12 for this as i could not find it in BSE and also could not find website for this? I am interested to know why querter one profit is huge and where it is sustainable or not.
Stellar results by everest industries for this quarter. yoy profit doubles. No resolution to the 10 month old strike in one of the plants. In fact in a recent meeting one of the workers / union leader tried to knife the executives.
Everest Smart steel building is a faster method of construction as compared to the conventional brick n mortar construction. A testimony to this is the completion of the 60,000 sq. ft Ansal Institute of Management in Lucknow within a time span of 90 days. This feat has got Everest Smart steel buildings into the LIMCA book of records.
Smart Steel Buildings which played a major role in the completion of the Ansal API Project, are the new form of construction and Everest Smart Steel Buildings are the fastest systems of industrial construction today as they can be installed and relocated without much ado. Being in the construction industry for more than 75 years, Everest has introduced the most high quality building solutions for great architect designs by venturing in the field of Smart Steel Buildings.
Everest Smart Steel buildings are 100% customized, highly flexible, durable, and resistant to moisture, adverse weather conditions, earthquakes, termites and fire. They are also highly environment friendly. The building technology achieves faster results by speedy construction methods and quick erection. With the use of Everest Smart Steel technology, drawing plans can be translated into a ready-to-erect 3D work within a time period of a few days. The expertise provides accurate prediction of construction time as well as cost of manufacturing. Low maintenance costs, versatile use and ease of expansion are reasons why these smart steel buildings are the preferred method of construction in most developed nations for decades.
These Innovative Construction System would help builders and promoters to develop highly customized residence or commercial structures in the locations where regular construction is not possible
Not sure what the competition is in this category yet