The Markets on the date stands at all time high and is in a structural bull phase between ALL THE HIGHS AND LOWs some of the shares stands at all-time high and some stands at a reasonable valuation. However, the market is full of surprises and has got some hidden jewel with a reasonable valuation which can turn out to be future multi-bagger. Few are the stocks that have exciting business modal and that are directly related to the Indian growth story. The stocks have a lower beta so they do not witness a lot of price movement and are free of speculations.
In terms of business fundamentals, the companies are sound and have a dominating stature in their sectors. Companies selected for the report have diversified business models and comes out from different sectors we expect the companies to outperformance consistently and have better fundamentals than its peers.
We have listed out few companies which are generally not trader fancy but are investment grade stocks with a potential to grow wealth and ensure capital safety. The motive of the report is to identify stocks that are directly related to India's growth story and which are direct beneficiaries of the capes cycle and growing demand of the India's population. The companies mentioned benefit from the government’s ‘housing for all by 2022’ plan on which the government is aggressively working, and on growing population and demand.
(RECO PRICE: Rs 615)
APAR Industries Limited (APAR) is engaged in the business of manufacture of conductors, transformer/ speciality oils and power/telecom cables. The Company's segments are Conductor, Transformer/Speciality Oils, Power/Telecom Cables, and Others. The Company's speciality Oil business has a range of products, which falls under approximately four categories, such as transformer oils, white oils and liquid paraffin's, industrial/automotive oils and process oils.
Company’s major products which are diversified in speciality oil, aluminium alloy conductor .electrical and telecom cable, ENI automotive lubricants.
APAR is one of the largest producers of Aluminium Conductors in the world.
Aluminium conductor steel-reinforced cable (ACSR) is a type of high-capacity, high-strength stranded conductor typically used in overhead power lines.
Looking at Apar’s exposure to power and transmission space, we expect the government’s thrust on the improvement of the transmission sector will augur well for Apar industries. Government’s initiatives like UDAY and Deen Dayal Yojana to improve the financial health of the state discoms which would enable them to bring out new orders and incur capex in the sector. The company is having a market share of 23% in conductors business and 45% in transformer oil business which gives a picture of strong stability in the market.
Apar is the second largest conductor manufacturer in India, after Sterlite Technologies Ltd, with the installed capacity of 150000 MTPA.
The company controls 23% market share in the segment. The division manufactures all types of bare overhead aluminium conductors such as All Aluminium Conductors (AAC), All Aluminium Alloy Conductor (AAAC), Aluminium Conductors Steel Reinforced (ACSR), Galvanized Steel Earth Wires and value-added alloy based conductors. PGCIL (power grid corporation India limited) is the largest client of Apar for conductors. It also sells conductors to BOOT contractors such as Adani Power, Reliance Infrastructures, JP Power, Jindal Power etc. The company supplies conductors to all top 25 global turnkey operators and leading utilities.
In the last 5 years, power generation capacity has grown by ~50%, whereas transmission capacities have increased by 30%. As per the 12th Five Year Plan, the future expansion in power generation capacity in India is planned around 88GW. In order to meet this capacity, investment in the transmission sector needs to be increased. Overall, an addition of 90,000 ckm of 765-220 kV lines, 154,000 MVA of substation capacity and 27,350 MW of national grid capacity is required in order to meet the 12th Five Year Plan. For this purpose, an investment of US$ 35 Bn is planned in the power transmission sector. Of this, about US$ 19 Bn is planned to come from Power Grid Corporation of India Limited. The remaining US$ 16 Bn, 46% of the total investments, needs to be secured from private players.
SWOT ANALYSIS :
STRENGTH: Huge market in India in the segment of speciality oils. par industries have global tie-ups with companies from different parts of the world. Has high operating margin, among the best in the sector.Good investment in R&D. Recently it has secured technical approvals from leading utilities for high-temperature conductors. High entry barriers for other companies. The synergy between the acquired and the parent company.
WEAKNESS: Constrained by capital requirements. High financial leverage compared to peers. Revenue concentration from few customers.
OPPORTUNITIES: Sector entry barriers to new-comers in respect to electrical norms. Weak cycles of the sector. Growing portfolio of other oils – white oils, industrial and process oils. Power transmission expected to lead the next phase of growth in the power sector.
THREATS: High breaking even in power cable segment. Highly regulated electrical sector. Environmental legislation on industrial wastes. Fierce competition from foreign companies.
TECHNICAL VIEW: APAR INDUSTRIES
CHART TYPE: DAY
TIME FRAME: 1 YEAR.
The stock is currently trading at 599.60 technically the share has stiff support at around Rs 570. Once the share prices cross Rs 650 the share shall resume its uptrend. The 30 DMA(S) stands currently at Rs 611 and 50 DMA(S) stands at 643, once crossing the level of 643 the share shall resume bullish trend.
We initiate coverage of the APAR INDUSTRIES with a ‘BUY’ rating with a target price of Rs 840 at a 21 PEx and an EPS of Rs 40. We expect the company to improve margins further and perform better than its key competitors like Sterlite tech.
(RECO PRICE: Rs 650)
The Company Alkyl amines chemicals ltd is in the business of manufacturing and marketing various speciality aliphatic amines, amine derivatives and other speciality chemicals for the last 30 years. The company majorly deals in alkyl-based chemicals which are used by pharmaceutical, agrochemical, rubber chemical & water treatment industries. In addition, the increasing product penetration in applications such as crop protection chemicals, surfactants, water and gas treatment is likely to propel product demand over the next few years.
The Company is involved in the manufacture of organic and inorganic chemical compounds. Its products include Methylamine, Ethylamine, Isopropylamine, Propyl amine, Butyl amine, Ethylhexyl amine, Cyclohexylamine, Diallyl amine, Dimethyl propyl amine, Di-Methyl butyl amine, Mono-nButyl amine, Diisobutyl amine, Hydroxylnovaldi amine, IminoBis Propyl amine, Methylamine Hydrochloride and Dimethylimidazolidone.
The global amines market (2015-2020) is estimated to reach USD 19.90 Billion by 2020 growing at a CAGR of 8.3% between 2015 and 2020. Around 60% of the amines based chemicals are used by pharmaceuticals and around 7-8% is used in agriculture purposes.
The company faces competition from Balaji amines, BASF India Ltd and Aarti industries
The Revenue of AACL rose from Rs 178.14 crore Q1 FY19 Y-O-Y basis to Rs 159.52 Q1 FY18. EBITDA rose from Rs 23.64 crore Q1FY18 to Rs 36.93 crore Q1 FY19. The company witnessed a rise in PAT from Rs 12.61 crore Q1 FY18 to 17.66 Rs crore FY19. The interest burden rose from Rs 1.87 to Rs 3.94 crore.
STRENGTH: The Company has a diversified product portfolio and has a huge presence in pharmaceutical as well as the agriculture sector. The margin improved to 19.1% in fiscal 2018 from 16.9% in the previous fiscal. This was supported by better operating efficiency due to debottlenecking, increased volumes, and stable ethanol prices.
Moreover, the global credit rating agency CRISIL has upgraded its rating on the long-term bank facilities of Alkyl Amines Chemicals Limited (AACL) to 'CRISIL A+/Stable' from 'CRISIL A/Stable', while reaffirming the rating on the short-term facilities at 'CRISIL A1'.
WEAKNESS: The company deals in a product which is commodity driven so it faces major fluctuations. The prices of raw material inputs, such as alcohol, and of the company's products, amines, are volatile, thus impacting profitability.
OPPORTUNITIES: The Indian amines industry in oligopolistic in nature and AACL is one of the leading players with over 100 products. The company continues to be the market leader in the ethylamine segment and among the leading manufacturer of methylamine, diethyl hydroxylamine, and dimethylamine hydrochloride in the country. It has commissioned a new methylamine plant at Dahej in March 2018. The additional capacity will help to further improve the scale, especially in the methylamine segment, leading to a better overall market position.
The company further plans to lower its debt burden and the Company's operations are working capital intensive with expected gross current assets about 134 days as on March 31, 2018, an improvement over 153 days a year earlier. This was driven by raw material inventory and debtors of 2-3 months. Operations are likely to remain working capital intensive over the medium term. However, the company remains optimistic to lower the working capital cycle and lower short and long-term debt burden which shall reflect in higher margins on Q-O-Q basis.
THREATS: ALKYL AMINES is a relatively highly levered company with a debt-to-equity of 47.93%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. However, company expects to lower its debt burden during the next two financial year FY20 & FY21
TECHNICAL VIEW: ALKYL AMINES
CHART TYPE: DAY
TIME FRAME: 1 YEAR
PATTERN: Higher top higher bottom, consolidation.
The share as of now is trading at Rs 650 due to pressure on the small-midcap the share is in the consolidation phase. The support stands at around Rs 590 ,the share is currently trading above 200 DMA (Exponential) , 100 DMA (Exponential) and has a positive expected view and has a positive MACD and RSI structure.
HOUSE VIEW: We expect a continuous sector demand growth at a CAGR of 8% a large part of the amines based chemicals are used in agriculture and pharmaceuticals. The governments will and expectation to double the agriculture based income shall also act as a big driver for the industry the market of pesticides is projected to grow at a CAGR of 10.17% during 2017-2022 period.
The stock is currently trading at Rs 650 at x19.12 and at an EPS of Rs 34.00 the stock is trading at 4.22 times of the book price which is reasonably priced from its peers.
We initiate our coverage of alkyl amines chemicals ltd with a ‘BUY’ rating with a target price of Rs 880 at x22(E) FY19 earnings and At an EPS 40(E).
CENTURY PLYBOARDS: CPIL
(RECO PRICE: Rs 226)
The key player of the industry CENTURY PLYBOARD has a market share of 25% in the organised ply board industry. Indian plywood industry is estimated at Rs 18,000 crore and is largely unorganised (nearly 75 per cent share of revenues).
The potential multibagger has been a key beneficiary of the GST .The company has also been into a diversified logistic business through the management of container freight stations the company has India’s first privately owned container freight station at Kolkata. The Company's units are spread across India in Joka (West Bengal), Guwahati (Assam), Kandla (Gujarat), Chennai (Tamil Nadu) and Karnal (Haryana).
The company is involved in the business of wood ply boards with additional product portfolio like block boards laminates, veneers, wooden doors, wooden floor products, wooden floors .century MDF etc. However more than 70% of revenue is generated from ply board business. The company is focusing on increasing its market share .The company plans to increase its primary focus to increase the margin and volumes with end to the capex cycle.
Century ply boards is expected to report net revenue CAGR of 17% to 2,896cr over FY201720E owing to healthy growth in plywood and lamination business, foray into MDF and particle boards coupled with strong brand and distribution network. On the bottom-line front, we expect CAGR of 16% to Rs 306crore over the same period on the back of strong revenue and better margins in MDF business.
The company further plans to increase its market share in organised players aggressively .However company gets huge competition from its competitor green ply industries.
STRENGTH: The Company is a major player in the organised ply board industry and has a dominance in the market .However 75% of the total revenue is generated from the unorganised sector. Instead of having headwinds for the whole industry co has managed to grow the top line at CAGR of 11% and bottom-line 35% in the past 5 year .Margins has stabilized at 18% over the same period of time .We expect the growth to improve further sale is expected to post 26% CAGR while pat is expected to grow at 34% CAGR in the time frame of FY17-20(E).
WEAKNESS: The majority of the market the company deals is unorganised (around 75% of the total market), the company is not able to tap the full potential of the segment. However the market share of the company is expected to rise with the market challenge and increase in production capacity with introduction to new product.
OPPORTUNITIES: With introduction of GST has been a booster to the industry the unorganised player are expected to see The average growth rate of the industry which was about five per cent till now was expected to grow at least by 25 percent year-on-year basis’s. Rate rationalisation will bring massive change for the organised sector of the industry which account for just 20-30 per cent of the estimated Rs 20,000 crore market.
THREATS: Major challenges being face by the ply board industry is the monopolisation of certain inputs for manufacturing plywood. Prepared from gurgan and kuring woods imported from Burma and Malaysia, it is a monopoly item. Another threats comes in from import of Chinese products in the industry, Threats from woods substitute made from agro waste such as bagasse. Lower operational efficiency and higher bargain power due to higher competition lead to pricing pressure.
CHART TYPE: DAY
TIME FRAME: 1 YEAR
PATTERN: Head and shoulder, consolidation phase
The long term supports of the company stands as of now at Rs 250 which shall act as resistance once crossed the share shall again enter into a bull phase on the long run.
We expect from the company to outperform amongst the segment. The company is also expected to introduce new segment in the decorative product line .The margins are expected to improve with start in the production facility of MDF at the new plant at Punjab .MDF is a high margin product of company.
We at AC AGARWAL SHARE BROKERS PVT LTD. We expect CPIL to report net revenue & PAT CAGR of nearly 17 per cent & 16 per cent respectively. We initiate our coverage on century ply boards with a ‘BUY’ rating with a target price of Rs 350 at x30 and at an EPS of 11.66.