ValuePickr Forum

Shilpi Cable Technologies - at 2 times PE definitely worth a look!

Key positive points in a nutshell
Company growing at a scorching pace going from 0 in 2008 to a 1000 crore turnover in less than 6 years
Ambitious plans to scale up to $1 billion in revenue by 2018 and entering other segments such as UPS, inverters, switches and batteries
Trading at a PE ratio of about 2!
Management takes an extremely modest salary with each of the 2 promoters only taking home 24 lakhs each
ROCE stands at 30%
Last 5 year track record has been stellar with 60%+ CAGR in sales and 55%+ CAGR growth in profits
Largely undiscovered company with very little mutual fund holding
Key Negatives in a nutshell
Subsidiaries form about 50% of total turnover and in the last quarter form 85% of the profits but there is little or no information about their financials in the annual report
Very little information about expansion plans
Almost 60% of promoter shares are pledged and promoter holding is only 44%



ABOUT THE COMPANY
Shilpi Cable Technologies is in the business of manufacturing RF Telecom cables and other cables which are primarily used in the telecom, automotive and consumer durable industry
They have 2 plants both located in the north within 60 km of Delhi where these products are manufactured.
The facility is located in a 10 acre campus out of which 6.5 acre remains unutilized, plenty of area for expansion
The company has a capacity to produce 850,000km of wire and 9000 km of feeder cable
They have an impressive approved customer list of almost all major telecom companies such as airtel, vodafone, aircel, bsnl, mtnl, tata and reliance and among autos they do business with honda, leyland, eicher, hero, tata, maruti amongst others
A third each of the business comes from telecom and autos and the balance third comes from other segments
More than 95% of the business is domestic and the company is a net importer to the tune of 300 crores or about 30% of their total sales
EXPANSION PLANS
Plan to set up a copper processing facility in SE asia
They have recently set up sales offices in Nigeria and Tanzania and plan to set up an office in UAE to expand their business by increasing the share of exports
Have an ambitious plan to grow to $1 billion in revenue but 2018 but the plans are not laid out in detail.
Plans to enter electronics segments such as inverters and UPS, storage devices such as lithiom ion batteries and other products such as switches
However these plans have not been clearly laid out yet.
KEY RATIOS
ROCE = 30%
NPM is 6.3% in 2013 against approx. 4.3% in the last 3 years (last 4 quarters margin stands at 6.8%)
PBIT% is consistent in the last 5 years between 10.5 and 11%
Working capital days has decreased from 110 to 85 days in the last 4 years
However creditor days have reduced from 103 days to 95 days
Interest cover has increased consistently in the last 4 years from 2.18 to 3.15 times
Debtors stand at a worrying 134 days and the company holds in excess of 2 months of inventory
Debt stands at a comfortable 135 crores but more than 85% of it is on account of working capital. The company is not capital intensive clearly justified by 30% Return ratio
VALUATIONS
Valuations have run up sharply from 25rs per share to 44 rs per share but at 2.4 times trailing earnings I still think the stock is very cheap
At 220 crore valuation the company is also trading at only 1.25 book value
However, the company has not been paying a dividend in light of the rapid expansion it has been doing and planning going forward
Promoter holding stands at only 44% but almost 60% of this holding pledged which increases risk
No mutual fund holding in the company



Anybody here who knows more about the industry? Would love your views on this business. Would also be a good idea to do a little bit of scuttlebut to find out more! Ill post a little more about the industry trends in a couple of days, in the meanwhile, it would be nice to get some reactions!

Disc: looking to initiate a starting position on Monday. Barring the high pledging, the opportunity looks exciting!

Some of the major questions that run through my mind to which I didnt have answers

1). How are the margins improving despite increase in rupee dollar and a shilpi imports most of its raw material?

2). Why are the inventories and debtor days so high?

3). How fast is the RF cable market growing and how fast is it expected to grow?

4). What position and market share does shilpi have in this business?

5). What proportion of sales comes from RF cables?

6). Can they give a few more details about how they plan to grow 6 fold in the coming 4 years?

7). What will their financing needs be in the next 2 years? How do they plan to fun such aggressive expansions?

8). Going forward how much of sales is likely to come from exports?

9). Who are the major competitors in this business (listed and unlisted)?

10). When do the promoters plan to release pledged shares?

I think they are cooking the numbers.

3 Likes

I just came across this video. This interview definitely does not inspire a lot of confidence!

Positive side is FIIs have already taken some positions in SC last quarter.

Negative is, I happen to have a look at the IPO Prospectus, and they have clearly mentioned that there other subsidiaries are loss making units for few years.

Also, one of the objectives of the SC IPO was to transfer some cash to their other subsidiary below is the text

6). A substantial portion of proceeds from the proposed issue shall be used forinvestment in the Companyâs subsidiary in which the Promoters Group also has asubstantial interest.

We plan to invest a sum of Rs. 500 Lacs (which is more than 9% of the net proceeds fromthe issue) in our subsidiary company, M/s Shilpi Cabletronics Limited which will use thismoney to improve its working capital position. We have not yet decided the form in whichwe shall make this investment. We cannot gurantee that the amount that is proposed to beinvested will yield the intended benefits.

7). The Company has made and may in the future make additional capital

commitments to its subsidiaries, affecting its liquidity and capital resources.

The Company has made significant capital investments and other commitments to supportcertain of its subsidiaries. The Company may make additional capital expenditures in thefuture, which may be financed through additional equity or debt, including through the debtof subsidiaries. If the business and operations of these subsidiaries do not perform asexpected, the Company may not derive the anticipated benefits on its investments, andthese investments may be required to be written down or written off. Additionally, certainloans and advances due to the Company may not be repaid or may need to berestructured. Any of these developments could have a material adverse effect on theCompany’s business and financial condition.

10). Loss making Group companies****There are certain Group Companies which are incurring losses for some of the last 3 years.

http://www.moneycontrol.com/news/ipo-issues-open/avoid-shilpi-cable-ipo-mlr-securities_531198.html

It got listed in May 2011 guess at a premium of Rs. 59.

I am not sure if they are cooking up the numbers as am not good at reading balance sheets, but reading thr prospectus does not give me confidence in the managements abilities.

Let me know if this information helps…

**
**

Sujit.

The reason I am pointing out about the subsidiaries is because am not sure if its allowed or if the money can be directed to other firms this way. As a shareholder of one company I would not like my money to go another subsidiary if am not going to earn from it.

And they are already loss making, why raise an IPO for different unit to feed them.

And if other subsidiaries are loss making, this shows managements ability, Sebi should not allow them to raise money as they are not able to run profitable business.

Just my thoughts…

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Some negatives that I have missed out that I came across when going through old news archives:

1). No dividend announcement in the 5 year history of the company despite healthy profits

2). Grade 1 “poor fundamentals” rating assigned by CARE during the IPO

3). Technology partners sold out their shares back to the Indian promoters during the initial phase of the JV itself.

Another point which bothers me is that to this date, I am yet to come across a genuine value creating company such as Ajanta or Mayur which gives such bullish forward projections of growth however optimistic they may be. My understanding of good managements are that they always want to surprise the markets positively rather than negatively.

Please be careful with this one. I feel I need to reconsider my position!

Admin, Id like to apologize for starting a new thread without doing my full research. Will be more careful next time!

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Dear Abhishek,

I am thankful you bought up this company, already invested in this company, in research such company do come up because of their numbers.

A conclusion on this company weather this is worth investing or not or is a fraud would be helpful to us and other fellow investors.

A doubt - FIIs are considered as smart and savvy investor. With all the negative that is there in the public domain about this company, why have they invested in it since last quarter?

A clear understanding on two points is crux on this script

  1. An analysis on how the numbers are cooked up if are cooked, are they showing sales to subsidiaries in their books and subsidiaries are loss making.

  2. Most negative news are from IPO days which was well 3 years ago. Are these negatives relevant now with same intensity.

There is another piece of information I would like to bring out.

The FII that had earlier invested in Shilpi - Sparrow Asia Diversified Opportunity Fund had also been involved in the controversy regarding share price rigging

Sparrow had also invested money in Winsome Diamonds, the company that has a number of cases pending against it.

Sparrow has made a number of investment in Indian small caps along with Leman and Davos International fund. Davos and Leman along with 2 other FII’s have recently invested in Shilpi. Davos, Leman and Sparrow all share the share office address in Mauritius as per annual report of Shilpi.

Another thing which I could not understand is that the MD of the company is a Mr. Gupta however, there are 3 other Guptas as top shareholders but not as promoters. Dont understand the reason why.

The numbers all look so great but all these skeletons in the closet make me really nervous. I dont think the company is cooking numbers. Its not so easy to do so. But until some of these questions are answered I will chose to stay away.

2 Likes

Adding on above:

Sparrow has been involved in Koutons

where in it burned it fingers badly.

http://www.gauravblog.com/?tag=sparrow-india-diversified-opportunities-fund-invests-he

Holding above 1% in Granules

http://www.valueresearchonline.com/stocks/shareholding_pattern.asp?code=7381

sold 5 lac shares of Gayatri Projects on 23-5-14

http://niftyfutureking.com/content.php?page=6

Sparrow has stakes in many other unheard firms. All these investments except granules(which i dont track) dont seem admirable or inspire confidence.

Lets see what in store in results, read somewhere its on 24th may.

Source : Annual Reports 2011, 2012 , 2013

2011 - 100% shares of Shilpi Cabletronics were acquired

2012 - Shilpi Cabletrnonics was amalgmated with Shilpi Cables

2013 - 100% shares ofShilpi Worldwide JLT were acquired

Now, how do we find out if the transactions were profitable for shareholders i.e at what price were these units bought and were they loss making or profit making and rational behind acquiring them

Also, if someone could do apple to apple comparison of the Financial Highlights tables from all three ARs? The numbers are not exactly same, they have done some tweaking - my assumption was once financial statements are printed in AR they should be pasted as it is in the next years AR…may not be anything major, just that am no expert in Financials so didn’t understand, and want someone else to take a look too.

Sujit.

March results were great for the company

As against sales of 244 crore in March 2013, march 2014 sales are 663% - 171% jump

As against net profit of 19 crore in March 2013, march 2014 net profit is 28 crore - a 47% jump.

Am really not able to make up my mind! At 2PE with this kind of growth is it worth taking a small position despite all the negatives?

Results have been good, though no dividend.

One observation would be worth noting that peer companies like Diamond Power Infrastructure is quoting at 3.x pe. Its growth for past 3 years has also been 35% +CAGR. Benchmark company like finolex is quoting at 12 pe, without much growth.

Hence this sector as a whole is undervalued in terms of pe.

I am in a dilemma weather to consider standalone or consolidated result for calculating shilpi`s pe. As on consolidated results of 1.x forward pe this is a undervalued growth stock in undervalued sector. However on taking standalone basis pe of 7.x pe valution seems appropriate.

http://www.multibaggerstocksindia.com/2013/10/shilpi-cable-technologies-stock-analysis.html

pe band in 2012 was 1.6 to 8.25.

Shilip Cable technologies is promoted by the shilpi group which is 30 years old. This particular company was started in 2006 and seems to be the largest in the group. Unfortunately despite the size of the company it is not listed on Wikipedia. Visibility on the institutional side is low. Company has very aggresively grown 6x over 4 years and if the latest quarter is any consideration this company is larger than Finolex cables.

Top Cable manufacturing companiesin India:

PolyCab - FY2012 turnover was 4350 Crores

Sterlite Technologies - FY2014 was 2609 Crores

Finolex Cables - FY 2014 was 2440 Crores

Havells cables business - FY 2014 1930 Crores (only for cables)

And the latest quarter of Shilpi cables is 859 Crores giving it a run rate revenue of over 3200 crores probably making it the second largest cable company in the country.

The big issue here is that 87.57% of the promoters’ stock is pledged to the banks. Promoters own about 34.04% of the company and the rest is owned by the public. FIIs own about 13.71% of the company.

What happens if the promoter’s shares are called by the banks?

Why do promoters pledge shares? In order to provide security for the debt of the company?

Thanks.

After reading Basant Maheshwari’s book, this stock makes me uncomfortable. According to Basantji, dividends and tax payments are the only cash outflows in a company that can be verified and taken at face value. He therefore talks about being cautious with any company which doesnt announce dividends and has an abysmally low tax rates as there are chances of number fudging. I am not saying that Shilpi is fudging numbers but things look a little too good to be true and I am willing to miss out on gains in case they materialize in exchange for a good nights sleep.

I was in this stock and saw the rise from 40s to 80s and the dramatic collapse from 80s to 40s. The pledge, absence of dividends and low tax rates made me uncomfortable. Moreover, there were too many ‘Chinese whispers’ in various boards and I bailed out booking a micro profit

The below link provide the complete overview of RF feeder cables

http://www.communicationstoday.co.in/index.php?option=com_content&task=view&id=1862&Itemid=49