SREE RAYALASEEMA HI-STRENGTH HYPO LIMITED (SRHHL)

UNDERVALUED GEM

SREE RAYALASEEMA HI-STRENGTH HYPO LIMITED (SRHHL)

SREE RAYALASEEMA HI-STRENGTH HYPO LIMITED (SRHHL)

NSE CODE: SRHHYPOLTD, BSE Code: 532842) (CMP: Rs.148)

COMPANY PROFILE

Sree Rayalaseema Hi-Strength Hypo Limited (SRHHL), is a part of the TGV group. It is the only Indian manufacturer of Calcium Hypochlorite and is front ranking producer of Stable Bleaching Powder (SBP), Monochloro Acetic Acid, Chloro Sulphuric Acid, Sulphuric Acid. It is one of the few companies in the world that are dedicated to research and development of products in water treatment and purification. It generates power through wind mill power units located in Tamil Nadu and a 10 MW thermal power plant at Gondiparla in Andhra Pradesh.

SRHHL is internationally recognized as the provider of unmatched quality products through its world-class sodium process technology developed through highly skilled in-house research and development team. It has grown to become a global leader in exports too.

A state-of-the-art technology developed through in-house R&D efforts helps the company in manufacturing the Sodium Dichloroisocyanurate - SDIC. The Certificate of Merit awarded by CHEMEXCIL for outstanding export performance reinforces its status as a recognized export house. Sree Rayalaseema Hi-Strength Hypo Ltd. has a distinctive edge in the manufacture of this product, thanks to the twin advantages of indigenous raw materials availability and supply of some specialized chemicals by Sree Rayalaseema Alkalies and Allied Chemicals Ltd. The company is also a front-ranking producer of Monochloro Acetic Acid. Manufactured by the scientific crystallizer technology, the product meets international quality standards. Monochloro Acetic Acid is used by all leading manufacturers of Non-Steroid Anti-Inflammatory Drugs, other pharmaceuticals, pesticides, organic chemicals etc.

INDUSTRY OVERVIEW

Without water, life is impossible. I would rephrase it and put it as without CLEAN and SAFE water, life is impossible. However there is less and less of clean and safe water available per person. Water treatment is something that touches nearly every individual or industry in one way or another as the water treatment industry seeks to bring impure water up to potable standards or better. And as the human population continues to grow exponentially, the need for clean water will grow with it. Responding to this trend, water treatment has changed considerably in the last 50 years and new advances and developments continue to shape the market. However, there has been various regulations regarding providing clean water, but with each new regulation, there has been restrictions on the use of certain chemicals and increased use of others. And as population will increase, providing clean water will become an increasingly difficult problem. Thus even if the water treatment chemicals industry is considered as a mature market, it still is that one sector that adapts and expands in response to market opportunities.

 The various chemicals that SRHHL manufactures are

(1) Calcium hypochlorite: Calcium hypochlorite is an extremely versatile sanitation and disinfection product. SRHHL's Aquafit is a high grade calcium hypochlorite which has very wide applications in swimming pools and drinking water treatments. It is one of the few in the world and the only in India to manufacture and export calcium hypochlorite of 65%- 70% min chlorine content. A state-of-art sodium process technology developed through in-house R&D efforts has helped SRHHL to manufacture the product with chlorine content of 65%-70%. It is one of the few in the world and the only one in India, to manufacturer and export Calcium Hypochlorite of 65% - 70 % Min Chlorine content. 

(2)Stable Bleaching Powder: Due to its multi-dimensional properties, it finds ready application in a range of industries such as textiles, paper, leather, aquaculture and sugar industry. It is even used for water and sewage treatment.

(3) Monochloro Acetic Acid: SRHHL is a front-ranking producer in this product. It is used by all the leading manufacturers of Non-Steroid Anti-Inflammatory Drugs, pharmaceuticals, pesticides, organic chemicals, etc.

(4) Sulphuric Acid: It is used in steel, heavy chemicals and fertilizer industry.

TRIGGERS

• The demand of Calcium Hypochlorite is growing in domestic and international market.

• Most of the raw materials are easily available locally thus saving their logistic cost. SRHHL has a distinctive edge in the manufacture of this product because of indigenous raw material availability and supply of some specialized chemicals by Sree Rayalaseema Alkalies and Allied Chemicals Ltd.

• The Government of India and the State Governments are very focussed towards cleaning of Ganga and huge capital has been allocated to Namami Gange Programme and this company is a direct beneficiary of this programme.

• Promoter has increased stake by 2.23% in March Quarter which signifies the confidence of the promoter in Company’s growth

• It is available very cheap compared to peers like Aarti Industries, Vishnu Chemicals.

• It is trading near its book value, and PE is also very low compared to peers

ANALYSIS

SRHHL has a small equity of just 15.49 crores. Companies with small equity and good business models and products are always a good buy. If you look at the Company’s share book value works out to Rs.136.16 and its P/BV ratio stands at just 1.09x, which is attractive.  SRHHL is quoting at almost its book value which again makes it a good buy. Its PE is 11.28 compared to the industry average of 19.75. Company has also paid 15% dividend which makes it more attractive. Company also holds 23.55% stake in Sree Rayalaseema Alkalies & Allied Chemicals Ltd and 17.45% stake in Roopa Ind.

Sree Rayalaseema Hi-Strength Hypo plans to expand its synthetic organic chemicals capacity at Gondiparla village in Kurnool district of Andhra Pradesh. The estimated cost of the project is Rs 150 crore. This seems good as after the complete expansion, its calcium hypochlorite capacity will triple, leading to higher sales and higher profits, thereby increasing profitability for its shareholders. During the year, three streams of its Calcium Hypochlorite plants were shut down for scheduled maintenance. It tried to recover the loss of turnover by achieving higher turnover from other segments.

Now if you compare the sales and the market capitalization of SRHHL, the sales is almost 2 times the market cap. This makes it even more an attractive buy. In addition to this when the capacity expansion is complete, the sales will almost triple, which will makes the investment in this company at the current valuation even more attractive.

FINANCIAL SNAPSHOT

Company has an equity capital of Rs.15.49 crore supported by reserves of Rs.195.44 crore. Company has posted profit of 18.35 Cr in FY17. Company has posted an EPS of Rs 11.86 in FY17. Company is available at PE of just 11.28 while industry PE is 19.75. Company is also declaring dividends from last 2 years. Promoter has increased stake by 2.23% in March Quarter, now promoter holds 57.54% stake in the company, which signifies the confidence of the promoter in Company’s growth. For Q1FY18 company has reported strong numbers. Its net profit soared 65.89% to Rs.5.01crore from Rs.3.02crore on 25.69% higher sales of Rs.119.27crore fetching an EPS of Rs.3.24. Currently, the stock trades at a P/E of 11.5x. 

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Agri-Tech (India) Ltd: Undervalued stock

Agri-Tech (India) Ltd: Undervalued stock

(NSE Code: AGRITECH, BSE Code: 537292) (CMP: Rs.60) (FV: Rs.10)

Agri-Tech (India) Ltd (Agritech) is a group company of the Aurangabad-based Nath Bio-Genes, which was demerged from Nath Seeds Ltd in 2004 to focus on agri sector activities. 

The Company’s value emerges from the following 3 verticals

1) Agri-Tech Holds holds 15.6 lacs shares of Nath Bio Genes valued at approx 51.5 cr.

2) Agri-Tech owns 500 acres Land bank near Paithan in district Aurangabad, the market value of which is Rs.110 crore (valued as per the recent sell transaction of 90 acres for Rs.20.4 crore by the company in Q4 FY16.

3) Agritech holds 66% stake in Paithan Mega Food Park Pvt Ltd (PMFP), along with 34% stake with Nath Bio-genes. Agritech’s valuation of PMFP works out to approximately Rs.70 crore

The project is supported by the Government of India (GoI) for the State of Maharashtra. Mega Food Park (MFP) is a concept and scheme developed by the Ministry of Food Processing Industries (MoFPI), Government of India with the objective of providing adequate infrastructure for food processing industry to enable fresh investments into the food processing and also enhance employment opportunities in rural areas. MFP to have a Central Processing Centre (CPC) supported by Common infrastructure and Primary Processing Centres (PPC) and collection centres. Facilities like warehousing, cold storage, etc. are expected to become operational in the next financial year.

Agri-tech India has equity capital of just Rs.5.94 crore supported by reserves of around Rs.41.95 crore.  Market Cap of the company is just 35.8 Cr, it becomes a serious re-rating candidate as the total valuation from the 3 verticals totals around Rs.230 crore while the Company’s market cap just Rs.35.8 crore and it is a debt-free company.

The promoters hold 46.3% of the equity capital, 17.7% stake is held by HNI’s and Corporates. Book Value of the company works out to be Rs 80.63 and trades at 0.75 Price/Book. In Q1FY18 it posted a profit of Rs 16.18 cr against loss of 14 lacs in Q1FY17. The profit is due to sale of land, so it is due to other income otherwise it would have posted loss.

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ADVANI HOTELS & RESORTS (INDIA) LTD

ADVANI HOTELS & RESORTS (INDIA) LTD

 (NSE CODE:  ADVANIHOTR, BSE CODE: 523269) (CMP: Rs.64.4)

Advani Hotels & Resorts (India) Ltd., is a public limited company incorporated in March 1987. The Company has been promoted by Mr. Sunder G. Advani and Mr. Haresh G. Advani. The promoters have been in the hotel industry for more than 35 years. 

Caravela Beach Resort is one of the finest luxury beach hotels in Goa. As one of the first few five star hotels in Goa, it enjoys the distinct and unparalleled advantage of proximity to the beach, high ceilings that are an architectural treat and vantage points that offer breath-taking views of the sea, sand and is in the midst of lush greenery around the property. These features result in Caravela Beach Resort offering the rare experience of secluded beauty and virginal beaches and environs whilst keeping you in touch with all the modern facilities.

Located on the serene white sands of Varca beach, the 200-room,  resort is sprawled over 24 acres of lush tropical lawns. Each of the hotel’s guest rooms, suites and villas have private balconies that overlook either the ocean, the landscaped gardens or the pool, one of Goa's largest. The hotel also features a 9-hole golf course and an Ayurveda Centre, differentiating it from other standard five-star resorts in Goa

INDUSTRY OVERVIEW

Hotels are an important component of the tourism industry as they contribute in the overall tourism experience through the standard of facilities and services offered by them, which has evolved over the last decade. The Indian hotel industry has seen a significant growth in room inventory across categories from upscale luxury to limited services and boutique and budget hotels. The occupancy has continued to grow from both domestic and international travelers in both the business and leisure segments. With the continued growth in India's GDP, rising per capita income and increased inspirational spending, the Indian hospitality sector is expected to grow much faster than most other countries. The Central and State Government have realized the importance of attracting affluent tourists, which will benefit the hotel.

Indian Economy

India’s projected GDP of well over 8% makes India the fastest growing economy in the world. The Services Sector constitutes about 58% of India’s GDP. This is good news for the hospitality industry. When GDP grows, there is an increase in disposable income and families can afford to spend on discretionary items, such as leisure. Corporates can also spend more on conferences, morale building get-togethers. Goa is the ideal location for all of these activities.

GOVERNMENT INITIATIVES

·        The Union Cabinet has approved the MoU between the Ministry of Tourism of India and the Ministry of Trade Industry and Tourism of Colombia to boost cooperation in the field of tourism between the two countries.

·        The Central Government has approved the MoU between India and Cambodia to promote bilateral tourism between the two countries.

·        Last year, the Ministry of Tourism sanctioned Rs.844.96 crore to the States and Union Territories (UTs) for developing tourism destinations and circuits, which include projects relating to Product/Infrastructure Development for Destinations and Circuits (PIDDC), Human Resource Development (HRD), Fairs and Festivals and Rural Tourism.

·        The Heritage City Development and Augmentation Yojana (HRIDAY) programme, approved by HRIDAY National Empowered Committee, is aimed at eight mission cities including Varanasi, Mathura, Ajmer, Dwaraka, Badami, Vellankini, Warangal and Amaravati for a total cost of Rs.431 crore.

·        The Government of India (GoI) plans to cover 150 countries under the e-visa scheme by the end of the year besides opening another airport in the NCR region.

·        Under ‘Project Mausam’, the GoI has proposed to establish cross cultural linkages to revive historic maritime cultural and economic ties with 39 Indian Ocean countries.

TRIGGERS

• Available at PE of 33.76 while industry PE is 60.49

• Promoters hold 50% and Delta Corp holds 35% in the company

• DMart Promotor Radhakrisan Damani, who is known for investing in companies which eventually become multibaggers, also holds a big chunk in the company

• Enterprise Value many times more than Market Cap + Debt, cheapest compared to peers

• Net profit increasing year on year and is virtually Debt Free

• Big Beneficiary of GST as GST Council decided that 18% Tax will be levied for room rent of Rs 2500- Rs 7500 as most of its rooms fall under this category.

• GST on restaurants also reduced from 28% to 18%, so golden era has started for the company.

• Company has over 100,000 square feet FSI available for their hotel to undertake any expansion, such as a, additional rooms, a villa development, sangeet hall, new spa etc, which could yield additional revenue streams for the existing hotel unit.

• Company works on strong margins of 40% and generate good cashflows

FINANCIAL OUTLOOK

The equity capital of the company is Rs.9.24 crore and has reserves of around Rs.28.49 crore, the Debt on the company is very negligible just 4 crore and is expected to be Debt free this quater.  The promoters hold 50.17% of the equity capital, 35.45 % is held by Delta Corp which is very famous for running casinos in GOA, and ace investor Rakesh Jhunjhunwala holds big chunk in DELTA CORP. DMart Promotor Radhakrisan Damani, who is known for investing in companies which eventually become multibaggers, also holds a big chunk in this hotel.

During FY17, Advani Hotels posted sales of Rs.59.64 crore with PAT of Rs.8.79 cr compared to PAT of 6.40 crore in FY16. Company has posted EPS of Rs 1.9  in FY17 compared to EPS of 1.39 in FY16. It is a regular dividend paying company and has paid a dividend of 40% for FY17. Currently, the stock trades at a P/E of 33.76 while the industry PE is 60.49. It is available very cheap compared to peers. Expected EPS for FY18 is Rs. 3.5, so it is available at forward PE of just 18. This stock is not participated recent stock market bull rally, so its a Re-Rating candidate. 

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MOLD-TEK TECHNOLOGIES- A MNC COMPANY

MOLD-TEK TECHNOLOGIES-  A MNC COMPANY

(NSE CODE:  MOLDTECH, BSE Code: 526263) (CMP: Rs.52)

Mold-Tek Technologies Limited (MTTL) is a leading Engineering Services provider in India. Headquartered in Hyderabad, MTTL specializes in providing IT, Civil, Structural and Mechanical Engineering services to its clients located across the globe. It has a strong team of world class resources with a variety of skill sets and is complemented by two subsidiaries in USA- CrossRoads Detailing Inc., Avon, IN & RMM Global Inc., Akron, OH. Mold-Tek serves over 200 clients in varied verticals across North America, Europe, Asia Pacific and Middle East. It has consistently helped clients cut down design and development costs of Civil, Structural, Mechanical and Plant design engineering projects by 30-40% and delivered technologically superior output to match and exceed expectations.

Mold-Tek has an in-house software development team, quality control training and troubleshooting facilities. Mold-Tek is the only listed, most well established company in the country providing civil engineering services. It is the fastest growing mechanical engineering services provider in the field, with core expertise in Automotive, Poles & Towers and Oil & Gas domains. Leaving no stone unturned, Mold-Tek has entered the most potential cloud services business and is reaping benefits in the EU and US markets. It is one of the two silver partners of Sales force in South India and the only SKUID partner for the entire EU and Asia. With such an edge over other outsourcing firms, Mold-Tek's IT division has seen more than 100 clients, in just 2 years.

Investment Rationale

" Key beneficiary of uptick in the US Mold-tek Technologies Limited (Mold-tek Technologies) derives key earnings through it's core services from clients based out of the US. The US markets is showing decent traction in key verticals like civil/structural, MES(Manufacturing Execution Systems) and IT services and this augurs well for Mold-tek Technologies.

" The growth in the US economy is reflected in increasing demand for the company's services in civil/structural and MES domains. During the year, the company has entered the latest segment of civil/architectural engineering services - BIM (Building Information Modelling) which is widely being used in all major residential/commercial/ industrial structures. The company has received 'silver partnership' status from salesforce.com, the leading cloud computing company in the world.

" Impressive performance expected to continue in future as well. The financial improvement in numbers continued in FY'17-18 as well. We expect that with demand set to improve for the company's services in civil/structural and MES domains, along with high growth coming from the Building Information Modelling segment, the growth momentum is expected to continue in future as well. Various expansion plans in place The company's Nasik branch is well established and a 200 per cent expansion is being taken up there to enhance overall capacity.

" The PEMB(Pre-engineered Metals Building) sector which had been lagging over the last five years is showing signs of improvement, auguring well for the company's revenues. The recent entry into the latest segment of Building Information Modeling and growth the cloud computing segment should contribute in a big way over the coming years.

" Clean Balance Sheet Mold-tek Technologies has a clean Balance Sheet and has significant asset value in the books recorded at historical book value. Decent dividend payment track record. The Company has a decent dividend payment track record. On the back of expected improvement in performance coupled with a strong Balance Sheet, the dividend figure (on the back of better earnings) can be even higher going forward Performance.

Future Outlook According To Management

The company has opened a new branch in Chennai, Tamil Nadu recently to further enhance its capacity in Civil Engineering Services. The branches opened in Vijayawada and Pune are performing well and will be growing further in next quaters.

In Mechanical Engineering Services apart from Automobiles, company is adding clients in other domains including Telecom, Railways and Industrial Automation. Company is also discussing with other Structural Engineering Services in North America for possible accusitions/ Joint Ventures to enhance the operation.

Financial Snapshot

Company has delivered awesome results in Q4FY17  Sales up 55.73% / PAT up 99.72% / EBIDTA up 75.49% compared to Q4 FY16. Company has an equity capital of Rs.5.31 crore supported by reserves of Rs.23.74 crore and Debt is only 7.73 crores so virtually Mold Tek Technology is a debt free MNC company.

Result Update of Q1FY18

Company has delivered awesome results in Q1FY18 with 12.68% higher PAT at Rs.1.51crore on 26.22% higher income of Rs.17.52crore fetching an EPS of Rs.0.56. PAT on QoQ basis surged 113.26%.

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