Interview with Nikhil Nanda, JHS Svendgaard

Q: The sales are Rs 31 crore up about 90%, operating profit margin (OPM) improvement of 4% at this point, what has led to that?

A: Basically this has led to better efficiencies in terms of management of the capacities. We had put up huge capacities way back in 2008, they were not being fully utilised. We are getting better utilisation of the capacities in the current scenario. We expect the growth momentum to remain in there.

Even the new plants, which are coming up, are seeing a much faster ramp up than what we had initially planned or budgeted for. I think we have a very good going on the FMCG side, as far as the Indian market conditions are concerned.

Q: What was your average capacity utilisation in Q2 and what did it rise to in Q3?

A: We have been consistently moving up form somewhere like about 50% to 75% to 80% of the capacity utilisation over the year, when I say over the year meaning, starting last year to the current year.

Q: You last time told us that you have orders enough to reach 100% utilisation, by when do you think you will reach, will it be in FY12?

A: I think it will be safe to say that.

Q: Therefore, what kind of revenue growth you forecast for the current year, more importantly for FY12, when you will be utilising capacity?

A: In our case since the three units are getting merged and we will have the consolidated results at the end of the financial year. We have three plants primarily which makes toothbrushes, detergents and toothpaste and mouthwash, so we will have one of the units reaching or seeing close to 100% capacity utilisation. One of the units hitting a reasonable 70-80% capacity utilisation and the third one would also be starting up. So, we will see a substantial capacity utilisation of a reasonable percentage 30-40% at least to begin with in the next year. So, on a consolidated basis, the overall capacity utilisation for all across the plants on an average would be close to 65-70%.

Q: You have board approval to raise some money through GDR, ADR, what is the plan there, are you looking at some inorganic growth?

A: No, how it happens is that till last year, when the Sunset Clause for the tax units came in on March 31 in 2010, the units were not allowed for expansion. But in 2011 January, which is last month, the Ministry Of Finance has issued a clarification which says that the units which are already working in that area before March 31, 2010 can take up expansion in the products that they are manufacturing, which practically means from today we have nine years and two months of tax benefit available for any capacity increase we do.

On an average, it takes about a year to implement a project a one to one-and-a-half year. We still get eight years of clear time period for getting tax benefits even on the increased capacity. While most of our competitors including some of our principals to up their own plants, which have been set up way back in 2006, 2005 because the original Sunset Clause was not 2010 but 2007, so most of them came in 2005-06, they would finish their tax benefits by 2015.

So, even if they take up an expansion today, they will also take a one to one-and-a-half year. So, they will be left with only two-an-a-half years to recover the cost that they have incurred in terms of tax benefits which may not be substantial, while in our case it is eight years. So, we want to move ahead and grow capacities. Fortunately, the land we have bought currently is all on the main road. So the land behind us is land locked, so that is available for us to undertake any kind of expansions that we or our customers want us to do.

$Team TMP

Siva Group bets big on Usher Agro

Ace investor and entrepreneur-backed group already has holdings in KS Oils and Ruchi Soya

Serial entrepreneur and ace investor C Sivasankaran Group firm has thrown more weight in the agro sector. After having picked minority stakes in top domestic edible oil companies, a group firm has acquired over 8% in cereals company Usher Agro.

Siva Ventures' wholly owned company Aiwo Ltd, that is into health food restaurant and spa business, almost doubled its holding in Usher Agro over the last three weeks through open market purchases.

Earlier, the serial investor's group firms had hiked holding in Baring Private Equity and New Silk Route-backed edible oil firm KS Oils to close to 9%, making it the second largest institutional investor in the company behind New Silk Route that held little over 10% in the company as of end September. His group firms had earlier also picked stake in another large edible oil firm Ruchi Soya.

Usher Agro, that raised Rs 100 crore through a qualified institutional placement in late November, was rumoured two years ago to have initiated discussions with private equity firms such as Blackstone among others to sell a large stake.

Serial investor Siva had been active in picking stake in listed companies in India in either sectors in which his group already has a presence or as sectoral play (as in case of oil). Most recently, his group firm acquired a small stake in Sujana Towers, a company that is engaged in manufacturing telecom and power towers. This gels with Siva Group’s privately-held entity Siva Projects Engineering and Enterprises Limited, engaged in developing passive infrastructure for mobile communication towers and related services including operations & maintenance for tower operators.

These investments are coming as the broader valuations in the stock market has corrected sharply by around 10% after matching the highest ever level, last seen in January 2008.

$Team TMP

REI Agro Q3 results - In line with expectations

REI Agro had announced its Q3 results today. The company reported 960 crore in revenues and around 81 crore in net earnings for the Q3. While the numbers are significantly higher than the year ago period, the numbers show a gradual increase when compared with the Sep Qtr.

The interest expenses have once again increased from the previous quarter. The company has reported interest expense of around 73 Crore in Q3 compared to around 53 Crore in Q2. We expect that this spike is due to the increase in procurement that would happen at the peak season. The company has so far procured around 3.57 lac tons in the current peak season and aims to procure around 7 lac tons.

We expect the interest expense to moderate once the peak season procurement is over.

The company has also phased our of its leased capacities already and is completely moving towards operating only Own capacities. We expect the company to have Own capacities of 1.03 million tones by Apr 2011. The advantage of Own capacity against leased capacity is that the company will have absolute control over the Quality and the technology being used in the processing phase. As a result of this, the Head rice yield usually goes up.

The Head rice yield is usually 46% for leased capacities and around 52% for Owned capacities. With the Owned capacities coming in and with the leased capacities moving out, we expect the Head rice yield to move up by 3% in the Fiscal year FY '12. A 1% increase in Head rice yield directly adds 5 million USD to the bottom line, since the procurement cost of the paddy would remain unchanged.

The company has already reported a diluted EPS of around 2.4 and is well on course to meet our expectations of Rs 3 for the full year.

While everything with respect to the company looks promising, the only cause of worry comes from the point that the Basmati production in India and Pakistan has taken a hit. However, we continue to be bullish on this counter.

$Team TMP

Usher Agro ends a successful QIP

Usher Agro has successfully closed its QIP. The issue opened on Nov 24 and closed on Nov 29. It seems that the company had received several bids and the QIP response was adequate.

Finally the company has decided to allot 1.07 lac shares to the successful bidders who will be known in few more days from now.

The company has successfully raised 99.99 Crore from the share sale at a price of Rs. 92.62

$Team TMP

News on Edserv QIP and KP

Several media outlets have carried articles on involvement of KP in companies including Edserv and the mismanagement of the QIP. The mismanagement of the QIP stems from the point that the Sparrow India fund which was one of the institutions to take a stake through the QIP, exited the counter in weeks.

It is being alleged that the company had roped in a third party to get Sparrow India fund to the board so that QIP can be closed. While this has been news on the company, there are also rumors that KP continues to rig the prices of several companies and Edserv could be one of them.

The market reaction on Friday, where the counter tanked close to a 10% was on the above happenings and developments. However, the above news is reaching the broader participants only recently and hence the counter may continue to witness negative impact.

We have always advised that the counter will be very volatile and one should not have more than 10% allocation for this company to the portfolio or precisely say one can have somewhere around 7% or less. We continue to have the same stance on the counter and no immediate Buy or Sell is advised. 176 to 180 has been one of the strongest support and in fact the base for the last 1 year for the counter. The counter though can take a hit should be able to bounce back.

$Team TMP

Edserv – Allotment of shares and warrants

Edserv has informed that it has allotted Equity shares and Equity warrants to a clutch of investors. The company has allotted 3.36 lac equity shares to several entities. It has also allotted 11.68 Lac Equity warrants to BCCL and HT Media. BCCL has taken up 7 Lac warrants and HT Media has taken up 4.67 Lac shares in the company.

$Team TMP

Dainik Jagran Invests Rs 10 Cr In Edserve Softsystems

Publication firm Dainik Jagran has picked up a small stake in education and placement services firm EdServ Softsystems by way of conversion of warrants of Rs.10 Cr.

This is in addition to HT Media and Bennett Colman & Company (BCCL), who had also picked up stake earlier, all through equity warrants.

Through this, Edserv has now completed fund raising of Rs.130 Cr for pan-India expansion.

The entire fund-raising exercise included issue of 3.3 million fresh shares diluting the equity base by 22% of the post-paid equity capital, which at present stands at Rs.15.5 Cr.

Commenting on the completion of the fund raising exercise, Founder and Chairman of Edserv , S Giridharan told that the company is now well funded and is confident of achieving revenues of Rs.150 Cr and PAT of over Rs.40 Cr for FY 2011 and that the company will not go ahead with any more equity dilution. The founder has also categorically dismissed anymore equity dilution going forward, which is very much a positive sign.

$Team TMP

Insider Buying in Autoline Industries

Two of the promoter group entities – M Radhakrishnan and Shivaji t Akhade have been constantly buying into the counter of Autoline Industries in spite of the counter hitting 52 week highs.

M Radhakrishnan has increased his stake in the company from .53% at the end of June 2010 to .81% currently.

Shivaji T Akhade has increased his stake in the company from 4.6% at the end of Sep 2010 to 4.8% currently.

There are also few things that we have to share with you. One is that the company threw up a big party to RJ few weeks back to celebrate the success of the company. Two is that they are probably close to identify the developer for the land and that are said to be in advanced talks with Godrej Properties. And we are not sure if one and two are related in anyway.

$Team TMP

Arshiya announces Q2 results

The company reported a consolidated revenues of around 195 Crore and net earnings of 18 Crore and this compares with 178 Crore in revenues and 16.4 Crore in earnings for the Q1. There has been a steady growth in revenues and earnings and the growth is visible in both the regular Logistics division and its new Rail division.

The rail division continues to push the number by impressive percentage points, however on a lower base. The revenues from the rail division improved by 25% from 32 Crore in Q1 to 40 Crore in Q2. The company has been running its rail division with profits since it started few quarters back and not many can do it. It needs a lot of planning and strategy and that is something which Arshiya has proved to have again and again.

The company has reported an EPS of close to 6 for the H1. Our initial target for the full year EPS stands at around 15 and we continue to stay put with our targets. But for that, we would expect substantial addition in revenues and considerable addition in earnings from its first FTWZ which is currently operational.

The counter is currently available at a valuation of 18.5 times current year expected earnings and at around 12 times expected earnings for FY 12. We believe that the counter can trade at substantially higher valuations based on current year earnings itself.

$Team TMP

Spice results disappoints, fundamentals has already taken the backseat

On a standalone basis, the company has reported revenues of 204 Crore and net earnings of around 46 Crore. The company has booked 11.4 Crore in Other income and 20 Crore in exceptional items. This would essentially mean that the company had reported net earnings of around 15 Crore.

The basic issue with the mobile segment of the company is that it is facing the fate of what our Telecom players used to face. They used to add millions and millions of subscribers every month with the ARPU s going down. In a similar fashion while Spice mobiles is actually selling more and more mobile handsets every quarter, the revenues continue to fall due to the fall in ASP s – Average Selling Price.

The ASPs have fallen from 2200 to around 1800 in the last 1 year.

While the counter has provided incredible returns in a short term, especially with the run up from 100 to 150 levels, we have always been cautious on the counter. We have expressed our strong concerns already through the last 2 Flashback reports.

The fundamentals of the company have clearly taken a back seat and it’s only buzz and hard selling that has been moving the counter. It was precisely for that reason that we continued to be invested in the counter.

While we expect a short term correction in the counter, listing of Micromax, listing of Spice Digital and fund raising plans for the company can provide some support to the counter.

$Team TMP

Usher agro spins out good Q1 numbers - (NOT A TMP COUNTER)

Usher agro has reported total revenues of around 115 Crore, the highest ever quarterly number and net earnings of around 8 Crore. In comparison with a year ago period, the sales have risen by 63% and the net earnings is up by 47%. The growth in net earnings lagging behind the growth in sales is due to the additional interest expenses and depreciation. We expect this trend to reverse and the growth in net earnings will be better than the growth in sales going forward, with the expanded capacities coming into production.

Also, just as we noted in the report, the company’s revenues have been increasing basically on back of the improved utilization levels of the capacities it already has. And now, with the capacities expected to double either this month or next month, the company is expected to show gradual growth in numbers every quarter.

The company is June ending and the Q1 itself has been good for the company. Even with a run rate on net earnings, the company is expected to post 32 Crore in net earnings and the counter is currently trading at just above 6 times, which looks attractive.

$Team TMP

Globus Spirits provides stable earnings for H1

Globus Spirits has recorded revenues of 105 Crore and net earnings of 6.24 Crore for the Q2. The impact of capacity expansion is not visible on the results yet. However, it should be noted that Q3 and Q4 or the H2 contributes for 60% of the revenues and the margins are also better.

The company has posted an EPS of 6.8 for H1. With the H2 expected to be better than H1, the company should be able to manage an EPS of around 18 for the current fiscal. If the expanded capacities have an impact on the numbers, it could be even closer to 20 for the current fiscal.

The company currently trades at less than 10 times the expected EPS for the current fiscal and the valuations continue to be attractive for Globus Spirits. The company currently trades at around 13 times TTM earnings and it should be noted that none of the profit making alcoholic beverage companies trade at less than 20 multiples.

$Team TMP