Tata Metaliks

 

 

Established in the year 1990, Tata Metaliks began its commercial operations in 1994. Growing from strength to strength over the last two decades, the Company today has emerged as one of the biggest pig iron manufacturing and selling companies of India, with an annual production capacity of 345,000 tonnes.

 

 

 

Technicals: Excellent monthly breakout on the long term charts

 

 

 

Business Overview and key attributes

·         Efficient business for a commodity producer.

·         Company level ROCEs of 20% consistently over the last few years. Partly due to it being a low cost leader (efficient operations, backward integration with Tata Steel for RM) and partly because products command small premium in the market for relaibility.

·         Able to sub-contract some capital intensive back end processes to third parties (similar to operating leases); so actual ROCEs might adjusted might be tad lower but still easily high teens consistently.

·         Good management and Tata pedigree. Detailed reporting and disclosures with con calls. Zero corp governance risk.

·         Business mix changes from pig iron manufacturer to a ductile pipes manufacturer (both brands and profitable making decent ROCEs). However DI pipes is higher margin a large opportunity due to gradual share gain in applications.

·         DI pipes will be a major beneficiary from governments push to upgrade and build water infrastructure in the country.

·         DI pipes market has few players and Tata Metalliks gaining share over the last 2-3 years; now in high single digits and should increase further.

·         Company is doubling capacity in DI pipes over the next 3-4 years.

 

Competitive advantages

·         Reliable RM supplies from Tata Steel (related party transactions but nothing foul).

·         Access to Tata Steels S&M network and knowledge

·         Operate brands in both the business - Tata Efee and Ductura in pipes - both sell at a premium to competition due to higher quality and customer servicing.

·         DI pipes business has high barriers to entry - high capex and gestation, RM availability and diseconomies of scale for a new player. Process is also value add based relative to basic steel manufacturing.

·         Pig Iron is a key RM input for DI pipes; do a DI pipe player also has to set up a pig iron plant for captive use at competitive cost and availability

·         Srikalahasthi pipes (owned by elctrosteel) is the market leader in DI pipes but the group is in trouble (30% pledged); may benefit a stronger player like Tata Metalliks

Valuation

·         Company has traded between 6x and 15x PE over the last five years; currently trades at 9x.

·         As share of DI pipes in sales and profits continue to rise with better overall margins and ROCE; stock can rerate towards 15x over the next 5 years.

·         5% IRR can be driven by just PE expansion; another 10-12% should easily accrue from earnings.

·         Sales growth should be volume led with minimal price erosion risk - commodity cycle is weak right now and DI business is less susceptible to price erosion

 

 

WHY IT'S
BUY

1

High Management Efficiency with a high ROCE of 30.26%

2

Strong ability to service debt as the company has a low Debt to EBITDA ratio of 0.98 times

PBT LESS OI(Q) At Rs 88.00 cr has Grown at 409.26 %

OPERATING PROFIT TO INTEREST(Q) Highest at 21.72 times

PAT(Q) Highest at Rs 82.20 cr.

3

Stock is technically in a Bullish range

The technical trend has improved from Mildly Bullish on 27-Nov-20 and has generated 61.08% returns since then

Multiple factors for the stock are Bullish like MACD, Bollinger Band, KST and OBV

4

Rising Promoter Confidence

Promoters have increased their stake in the company by 4.97% over the previous quarter and currently hold 60.03% of the company

Promoters increasing their stake is a sign of high confidence in the future of the business

 

 

 

5

Market Beating Performance

The stock has generated a return of 30.45% in the last 1 year, much higher than market (BSE 500) returns of 18.45%

Sal Steel Potential Multibagger

will put a write up in some time

Sasken Tech: Good potential Multibagger

Established in 1989, Sasken Technologies Ltd (STL) is a leader in providing Product Engineering and Digital IT services to global tier-1 customers. It is a pioneer in creating IP and solution accelerators that have been a part of over 200+ commercially shipped unique products of globally leading OEMs. It employs 2000+ people, operating from state-of-the-art centers in India, Finland, and China and also has a presence in Germany, Japan, South Korea, UAE, UK, and USA. Sasken’s deep domain knowledge and comprehensive suite of services have helped global leaders maintain market leadership in Semiconductor, Automotive, Telecom, Consumer Electronics, Retail, and Automation. With 56 patents, STL has a reputation
of being a technology leader.

Suven Life sciences: potential multibagger (technical pick )

Technical pick with very strong fundamentals.

Roto Pumps - High potential Mulitbgger

Pumps & Valves segment contributes significantly to the growth of Indian economy. They have proved highly critical in productivity of the core sectors of the economy. The pumps and valves market in India provides an opportunity of  17,500 crore and is expected to grow at an annual rate of 7 to 10 % over the next few years.  Indian Pumps Industry. As per industry, Global pump market is estimated at USD 47 billion in 2014 and is estimated to reach USD 56 billion by 2017



Roto Pumps Ltd is a small-cap engineering company with a global presence in more than 43 countries. The promoter created history in 1968 by inventing a unique manufacturing process for machining the intricate profile rotor giving birth to Roto Pumps in India.

Roto Pumps makes progressive cavity pumps (PCP), twin screw pumps (TSP) and retrofit parts. Its PCP range includes industrial pumps, food pumps, dosing pumps, general purpose pumps and mining pumps which are used in sugar, agriculture, oil & gas, mining, paint, chemicals, food and many other industries. It has two manufacturing units and sells in over 45 countries. Strangely, with a global footprint, growth has been slow.



Roto Pumps has strong roots in manufacturing engineering and has over the years been able to develop efficient manufacturing processes both in the field of metal cutting and rubber processing. Spread over a combined factory area of 20,000 sq. meters, these units are equipped with sophisticated machine tools like CNC and other SPMs. These are also geared up with modern testing facilities including water and oil test bed with sophisticated data.


The continuous investments in precision instruments in in-house manufacturing facilities for critical components ensure 100% control over quality and customer satisfaction. Roto Pumps manufacturing units are certified for conformance with the ISO 9001-2008 quality surveillance systems. We are also in the process of acquiring ISO 14001 and OHSAS 18001 (Occupation, Health, Safety & Environment) certifications.



Roto pumps has expanded its reach (particularly in international markets) and added huge
manufacturing capacity with focus on high-value products and branding from last couple of years are now expected to yield results.


Roto Pumps derives around 65 - 70% of revenue from the exports market. It should benefit from any
industrial upturn that seems to be showing nascent signs of recovery globally.
In India also, company is looking at higher-order flows riding on government’s initiatives like Make
In India, Smart Cities Mission and reforms in the energy sector. Also, post implementation of the GST,

Roto Pumps has successfully registered itself with Abu Dhabi Water & Electricity Authority. The Abu  Dhabi Water & Electricity Authority researches and develops ways to more efficiently produce, distribute and consume water and electricity. The Authority offers water and electricity services to the people of  Abu Dhabi.  With this opportunity Roto Pumps Ltd will be able to showcase its range of high quality Progressive Cavity Pumps and Twin Screw Pumps suitable for the water industry and power sector.

Company has expanded its reach particularly in international markets and added huge manufacturing capacity with focus on high-value products and branding from last couple of years which are expected to yield better results in coming years. Roto pump built a strong market network & sell more than 70% of its products to US , UK, Germany, New Zealand & Australia combined with its clientele in India includes some of the most reputed companies across sectors such as Cairn India, ONGC, Reliance Industries, Indian Oil Corporation, Indian Navy & Coast Guard and Engineers India, attracts company's margins & profits.

Good monsoon, Make in India initiative, consequent high farm income, increasing urbanization, demand for housing in cities, safe disposal of waste/sewage & better sanitation, would benefit the ROTO PUMPS on account of strong brand presence in domestic agriculture pumps markets to enhance margins and profitability in coming years.

 90-110 levels for accumulation. 

Ucal Fuel Systems - good potential Multibagger

The auto sector remains in a sweet spot as apart from structural factors, (higher
discretionary spending, favorable demographics and lower penetrations) demand will also be
driven by good monsoons, the government’s focus on vehicle scrappage policy and the
implementation of the Seventh Pay Commission, which will spur automotive demand over the
next two years. The implementation of GST is also positive for the space benefiting most of
the companies


UCAL Fuel Systems offers fuel management systems for automotive sector and supplies products to two-, three- and four-wheeler manufacturers. These products include: carburettors for two-wheelers, gasoline fuel injection systems, engine management systems, products for diesel applications and emission control, pumps for high-pressure die-casting and precision manufacturing products. 


manufacturing facilities at five locations—three in Tamil Nadu, one in Pondicherry and one in Haryana— UCAL has been a preferred supplier for some of the top auto companies such as:



 Maruti Udyog, Hyundai, Cummins, Bosch, Mikuni, General Motors, TVS Motor Company, Bajaj Auto, Suzuki, Yamaha and Hero Honda Motors


The company has end to end in-house die casting capabilities from die design, development, testing and validation to mass production, which are produced with micron level accuracy. Further, the company has capabilities in both aluminum and zinc alloys along with a fleet of advanced, automated hot and cold chamber die casting machines ranging from 185 tonnes to 900
tonnes locking force capacity. The company's machinery base has significant flexibility to adapt to variations in product design. The company has also set up a full-fledged testing and inspection facility. All facilities are supported by in-house precision measurement labs and advanced inspection equipment.

The Government’s continued emphasis on domestic manufacturing through its “Make in India” program and other incentives, its continued focus on infrastructure and forecast of a normal monsoon are expected to have a positive influence on the auto and auto component industry during 2016-2018 and the company is geared to take advantage of the increased demand.emand.

Rules For Investors

In investing, we were told that “Buy and Hold” is one of the best ways to achieve superior investment gains. In other words one has to remain “patient” after buying a stock. But in my opinion this aspect largely ignores an investor’s “Entry” and “Exit” strategies and refers only to the “Patient” holding period. In my opinion “Patience” is required in all three aspects of investing which is Buying, Holding and Selling. Let us see why Patience is required in each aspect

Patience to Buy:

We as investors, most of the time get carried away by Good News flows specific to an economy, or a sector or a company. With the fear of losing away the next big investment opportunity, we chase stock prices which would have already risen based on “Good News” or “Good Results” specific to a company. By getting carried away with “Good News”, we tend to ignore the valuation aspect of each stock. And buy them after all the good news is factored in the price. Later we find out that the stock price is not moving any higher than what we expected it to be. Either it moves in a sideways direction or gets corrected significantly on seeing next set of quarterly results. But markets would have priced in it already. This may result in poor returns for an investor.

What makes us Impatient during this phase?

• Of losing the next big investment theme of the year
• Get carried away by single good quarterly results
• A Recommendation by a famous Guru or an Analyst
• News specific to a sector or a company which makes the stock ride high

What Should be Done in this Phase ?

• Analyze the result or good news and its potential impact on the fundamentals of the company before jumping the gun. Present valuation of the company compared to its fair value is also important. Otherwise gains maybe limited.
• Wait for a correction after a good news – Stocks eventually give back some of the gains
• My preferred buying period is when stocks are surrounded by bad news. Check whether the stock is priced at steep discount when compared to its estimated fair value at which it may trade when good news happens.

Patience to Hold:

The holding period is certainly the most difficult part because markets will truly test our patience by making fun of us. Markets will take their own time to price a fundamentally good stock up to its fair value but instead it will reward instantly, stocks with very poor fundamentals. At times, a fundamentally good stock may not move much in a year or two. But rather we will find several loss-making, or companies with poor cash flows or questionable accounting practices or companies with high valuations , etc.. become multi-baggers within a period of few months. That will make us to question our faith in “Value Investing” itself. But history has proven that there is no better investing method for wealth creation other than Value investing on a consistent basis. For example, the famous Value investor Mr. Warren Buffett never invested in “Dot Com” stocks in the 1990’s even though many of them gave huge returns and later eventually collapsed. Likewise, many Real Estate stocks gave huge returns in 2000’s but eventually collapsed post 2008. Even in present circumstances in 2016, majority of the stocks are rallying towards new 52 week highs or all time high levels. Some had posted good returns in 2014 and some gave good returns in 2015. Its difficult to pin point which stock will perform better in a particular year but it is imperative to follow the simple rule “Stocks Follow Earnings” as guided by renowned investment guru Peter Lynch. Although there maybe time lag for markets to acknowledge such good earnings growth in a company. Till then it pays to patiently hold on to such stocks.

To summarize, What makes us Impatient during this phase?

• Inability to see other stocks rising higher than the ones we hold
• Extended period of bad phase in a business cycle which frustrates investors to hop on to the stocks in good phase with elevated valuations

What Should be Done in this Phase ?

• Hold on to the stocks if there is no great damage to the balance sheet or its business model
• Buy and read books written by value investing gurus and calm ourselves that value investing works over time.

Patience to Sell:

Realizing the maximum gains out of an investment is the ideal goal of any investor. But whereas not many of us have the patience to hold on to the gains. Most of us get tempted by a few percentage returns in a particular period and sell out early. But once again, investors should be aware of the historical PE Ratios or Replacement cost or a reasonable estimate of the fair value of each stock before committing a “Sell” decision. At times, many investors also get frustrated when the stock moves in a sideways direction and sell out early. But it so happens that the stock starts its upward journey only after many of us sell it due to frustration. One should also remember it is very difficult to consistently sell a stock exactly at its peak price. So an investor should also be ready to sacrifice some of his unrealized gains when he decides on sell decision after knowing that the fundamentals do not justify the present valuation.

What Makes Us Impatient During This Phase?

• As soon as we realize quick gains (like 30-50% return), we tend to book profits in a fear of missing out such gains
• When our stock moves in sideways direction whereas various other stocks show rapid rise
• When a stock dives 20-30% from the purchase price, some investors sell them out of fear

What Should be Done in this Phase ?

• Understanding fair value of a stock, historical valuations, present fundamentals of the industry and company, investor sentiments surrounding the stock. These can help us guide in our “Sell” decision

Conclusion:

In my opinion, Patience in investing is required in all three phases such as “Buying”, “Holding” and “Selling” to achieve superior investment returns. To help us be patient, gaining knowledge about each individual stock, its fair value , its historical price patterns and valuations can be a good guide. Along with that, a preset mindset that excellent returns are achieved only with the holding period in excess of three years can also be of help.