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Tuesday, July 19, 2011

GAEL: Gujarat Ambuja Exports Year Ending March 2011

GAEL (Gujarat Ambuja Exports Limited) as most of you are well aware is one of my recommended "Best Buy's"
CMP: 28.30
Market Cap: 391.54Cr
ROCE: 17.01%
Debt Equity: 0.46
Long Term Debt: 9.77Cr

 Here we will have a look at the annual result of GAEL for year ending March 2011.

The year ending March 2011 has been good to GAEL. 
1. Let us start with a "Year on Year" Comparison.
- Topline (Income) has increased by  38.31% to 1951Cr
- PBDIT has increased by 32.01% to 155.10Cr
- Net Profit has increased by 56.75% to 94.10Cr

looking at these numbers that Operating margins are stable (since PBDIT increase (32.01%) matches the 38.31% increase in topline)

Financial parameters such as Lower Taxes it seems has played a major part as Net taxes paid has actually dropped (25Cr as compared to 29.99Cr [2010])even as the PBDIT has expanded. Even Interest payments as percentage of sales growth is lower. So Good financial management has enhanced GAEL Results. (Zero taxes for the Uttarakhand plant could be the driver for lower tax burden..)

2. One must look a little deeper as GAEL has 4 divisions with different (Profit margins) Cotton Yarn(6.44%) , Maize Derivatives(19.85%) , Agro-processing (3.69%) and Windmill(53.36%) The revenue mix for GAEL in March 2011 has been towards the lower margin product. 
- Agro Processing as % of sales: 67.95% [2011] compared to 62.34% [2010]
- Maize Processing as % of sales: 20.83% [2011] as compared to 24.38% [2011]

So GAEL produced more of lower margin products hence the slight decrease in margins. 

Please note Maize division sales increased from 346.8Cr[2010]  to 406Cr[2011]  its just that the Agro Processing division increase in sales was much higher 879.43Cr [2010] to 1325.70Cr [2011]

3. Maize Derivatives business is the money spinning division of GAEL and Maize Derivatives division reported profits of 80.65Cr out of total PBIT of 146.72Cr 
Maize division contributed more than 50% of profits of GAEL while responsible for only 21% of GAEL Sales.. 
Maize division also saw improvement in Profit margin from 12.95%[2010]  to 19.85% [2011] which is more than 690 basis point improvement in margins.

4. Another interesting observation is "Prior Period Items" the numbers reported (for past 2 yrs) invariably match up with the taxes paid in the Quarterly results of March. So GAEL has been front loading the expenses for the past 2 years.. reducing the Q1-Q3 Profits. Infact for March 2010 we did mention in this blog the 10+Cr positive development between Audited and unAudited March 2010 Quarterly results (Link) ..


Few points worth mentioning from the latest Annual Report (2010-2011)

- Company shares in Demat form are just 40.92% out of which 18.84% is held by Promoters.. shares with public (HNI and individual investors)  in demat form is 13.5% .. So actual  liquidity is pretty low for GAEL shares. (Free Float with HNI, Individual investors: 53Cr)

- Long Term debt is 9.77 Cr (TUFF loans from Govt for Spinning division) 
- Book Value for Rs 2 Face value share is 36.60 [30.39 in 2010]
- Management states: The core activity of the company has gradually been shifted from oil seed extraction to corn processing activities over a period of last few years.
The company has acquired sufficient expertise in this segment and looking to the growth potential of this segment, the company is putting one more corn processing plant. This would eventually replace this segment as the core segment instead of agro processing segment.
The shift has positive impact on the top as well as bottom line in the FY 2010-11. In fact the two corn processing units of the company are the top performers in FY 2010-11." 


- Non Conventional Energy: "The Board of Directors is glad to inform that the Company successfully completed projects of generating power from BioGas for its Corn processing units at Himatnagar & Sitarganj. The Company has installed Bio Gas Engine at both the units for power generation. This initiative also takes care of carbon reduction and environmental friendly approach of the Company. The project is forward integration of the Bio Gas generation from the Corn processing effluent. With the success of these projects, the Company has put additional infrastructure for the bio gas generation at both the units. The generation of additional bio gas has already begun in F.Y. 2010-11 and the Company is also putting engine at each unit for forward integration of bio gas into power in the current F.Y. Such projects are capital incentive and their sustainability is based on CDM/ VCS revenue from such project."

- GAEL has 21Cr of cash in hand, 77Cr of investment in stocks and Bonds,  478Cr of Reserves, Long term debt of just 9.77Cr. Cash Flow from operations is 65Cr[2011]



Conclusion: 
GAEL at CMP of 28.3 Market cap of 391Cr, Book Value: 36.60 is a deep value stock. Management is focused on moving from low margin (5%)"Agro Processing" to higher margin (20%)"Maize Derivatives" business. With increase in Maize Derivatives capacity of current plants and setting up of new capacities GAEL is all set to see better days ahead. Promoter holding is a confidence building 63.95%. Demat levels are low [40%] and actual free float is closed to 14-20%. Investment can be considered for the long term at these price points. 

PN: These are my personal views about GAEL based on my interpretation of publicly available data.

31 comments:

Anonymous said...

What'sUp, I really appreciate your conviction and reserch about this stock.Even if I track your blog long time , I didnt bought this share becasue of my broker and friend circle ( They have different view about managment quality). I am sure after your entry into this stock..this could be one of the under perfomer in your portfolio.I really surprise if you have this much knowledge about this industry/company ..then why you fully depedning on public source for information ?? why you are not trying to contact with managment ??? i belive if you meet managment then you will get more idea about their plan..I appreciate your comments. Thanks for sharing your knowledge to small investors like me .

What'sUp Prahalad said...

Anonymous:

Well its great that you have such good family circle and brokers who give you sincere advice..

Can you please share a few of your broker's advice and maybe we can compare which stock performs better.

GAEL has increased its earnings by 50% from 60Cr to 94Cr..

Credit Rating is impeccable..

As far as I see this is a good investment.. worth holding for long term for value unlocking.

So once again Anonymous Pls Share one of your broker recommendations and we can keep track of the same right here along with GAEL.. in the blog.

I had also by chance met a banker and he recommended that the management is very good and company has good finances as they do deal with GAEL.

So the only way to make sense of these discussions is to have another stock recommended and compared with GAEL on a long term basis..

Stocks Under perform and Over perform based on not fundamentals but Demand and Supply.

Right now Demand for GAEL is low as its a below the radar stock..

With 100Cr net profit I am certain with time GAEL will be valued at a more realistic valuation.

Over time I expect GAEL to be a Rs100 Share

With my current holding cost down to less than Rs 10 I have no problem holding on as I will get good tax free returns along with stock appreciation.

=happy investing
whatsup-indianstockideas.blogspot.com

km said...

Dear Prahalad,

I am still holding Nile currently trading at Rs.242/-. Previously you had suggested that you would choose to sell at a higher price. Now the Market cap is at 72 crores , while the sale proceeds of Rs. 58 crores they would get for selling the glass division. The book value of lead divison is approx Rs.48 crores.Should we wait for a price where market cap would touch Rs.100 crores or do you expect a price higher. Please help by sharing your thoughts.
Regards
Murali

Anonymous said...

what'sup,

Please study Astral poly and Gandhi special Tube. Both my broker recamented.I bought it lower rate and still holding as per their advice for better return. They visited companyies and talk with managment and convicned storyies. I appreciate your comment about these stock

Kalpesh said...

after a long time seeing a post from you...gr8 work n thnx for sharing such info for freee....really a gr8 efforts..thnx

What'sUp Prahalad said...

KM:

if you see the last March 2011 quarter was responsible for 9Cr Net Profit and NILE Reported 7.17Cr net Profit for year ending March 2011

So the results are Lumpy..

Also with fuel price hike almost a certainty it will curb demand for automobiles..

It seems the Govt has agreed in principal to deregulate Diesel also.. so it is going to get worse for auto and auto parts manufacturers including NILE.

I would sell.. at these levels..

=happy investing
whatsup-indianstockideas.blogspot.com

What'sUp Prahalad said...

Anonymous:

Both Astral Poly (CMP: 200 MArket Cap: 449Cr) and Gandhi Special Tubes (CMP: 117 Market Cap:172Cr) are a Sell.. as they are fully valued..

Gandhi special tubes with 3 decades of experience and sales of 100Cr is a sell for sure along with Astral Poly

My question to Anonymous would be: if GAEL does not draw you to my blog.. which stock is of interest to you that draws you to my blog?..

All my recommendations are based on valuations and "Cheap" valuations specifically.. So It would be interesting to know which stock draws you to my Blog??

=happy investing
whatsup-indianstockideas.blogspot.com

Anonymous said...

What's Up,I am interested in your blog 1) Jayant Agro 2) IFB agro

What'sUp Prahalad said...

Anonymous:

Jayant and IFB Agro both are great stocks to invest in..

Did you read the latest Annual report for IFB Agro?..

IFB AGro is planning to reach Zero power use from state electricity board and energy saving of 11Cr WOW!!

Jayant Agro is also a game changer.. Great Picks.

=happy investing
whatsup-indianstockideas.blogspot.com

Anonymous said...

Hi prahalad,
I think its not fair to take a sell call on astral only from value perspective..It is story which needs to be tracked from growth perspective..The market size of the segment is going to grow multifold,as shifting from metal pipes to CPVC and plastic is the future..

What'sUp Prahalad said...

Anonymous:

I have been living in the same house for the past 10yrs and our previous house is more than 20 yrs old but I dont remember buying or replacing pipes ..

So a product which when bought lasts for the next 10 yrs or more .. is definitely not a growing business proposition..

We need a consumable.. product..
GAEL, Jayant, NHPC and Tata Communications all produce consumables.. which end on a monthly or daily basis..

That is one reason I donot like Housing companies.. (You have sold a house and you loose a customer.. not gain..)
It would be good to get hold of REIT (Real estate Investment Trusts) which then lease the property .. as there is not much that will change for the next decade .. while rent is paid on a regular basis..

Astral is already very well priced.. so I would avoid.

=happy investing
whatsup-indianstockideas.blogspot.com

km said...

Dear Prahalad,

I have Lakshmi energy and foods collected at Rs.60 levels. They are exporters of Basmati rice trading currently at a 52 week low of Rs.32.5 and a P.E of 3 and a book value of Rs.110. I would like to average this considering good monsoon and favourable rice export policy. My opinion is that it trade atleast on par with book value in an year's time. Please let me know your views .
Regards
Murali

What'sUp Prahalad said...

Murali:

Lakshmi looks good at 52 week lows but keep a watch on the interest and debt load.. working capital requirements are pretty high..

With a debt of 800Cr and market cap of 200Cr enterprise value of 1000Cr for a 1200Cr sales company does not look cheap.. at 60 it was expensive..

most of the debt is working capital .. and they have tonnes of inventory .. but keep a good watch.. promoter holding is also below 50 ..

Watch taxes paid and watch interest payments..
FII have been dumping the stock ..

at 30 it is fairly valued..

=happy investing
whatsup-ndianstockideas.blogspot.com

km said...

Thanks Prahalad. Very valuable inputs. I also sold Nile at Rs.235/-.
Seems like its back to 200 levels. Will it be a good trading bet if it dips below 200 levels? Your views most valuable to me.

Regards
Murali

What'sUp Prahalad said...

KM:

I am not much of a trader.. so really dont know how to call it..

I would buy when the stock is cheap..
ie 140 levels..

=happy investing
whatsup-indianstockideas.blogspot.com

Wanderer said...

Prahalad, you have been writing about this stock for quite some time now. On 11-Nov-2010, we also saw this company make a 52w Hi of 51.3 from where it has tanked to CMP of 27.9 (implying 52w high is approx 85% from CMP).

Lets assume the company continues to do about 600 crores every quarter and does about 4.5% margin. That would mean approx 110 crores of profit in FY12 or an EPS of approx 8 per share. Now, at current valuation (approx 4x TTM P/E), GAEL could trade at 32, but clearly you have been vouching for more. That is only possible when a PE re-rating happens. JVL is trading at 5x P/E, Ruchi Soya at 16x, KS Oils at 4x P/E, Amrit Banaspati at 9x...there is a clear differentiation in terms of valuation and Mr. Market knows what it is doing.

What is your case for a PE re-rating in this script?

What'sUp Prahalad said...

Wanderer:

I see margin expansion as the trigger for PE rerating ..
As GAEL moves from lower value added (low margin)products (like solvent extraction) into higher value added (high margin) products such as "Maize/Corn Derivatives

infact in the march 2011 annual report the management clearly states..
"The core activity of the company has gradually been shifted from oil seed extraction to corn processing activities over a period of last few years.
The company has acquired sufficient expertise in this segment and looking to the growth potential of this segment, the company is putting one more corn processing plant. This would eventually replace this segment as the core segment instead of agro processing segment.
The shift has positive impact on the top as well as bottom line in the FY 2010-11. In fact the two corn processing units of the company are the top performers in FY 2010-11."

We just need to be patient with the position..
=happy investing
whatsup-indianstockideas.blogspot.com

Wanderer said...

not quite convinced with the PE re-rating response. i think some big guys need to buy this for that kind of re-rating to happen. if that's not happening, then this is a counter where you are losing money. for people like me who are 100% invested in equities and choose only 3-5 stocks, this is a big loser. there has been a huge (notional) loss of capital in this counter. however, if i am not wrong, the stock made a 52w low in august last year from where it rallied. can the magic happen again this year?

km said...

Dear Prahalad ,
I hold Ennore Coke which was suggested as the next Guj NRE Coke in terms of potentiality . They are indirectly owned by Shriram EPC management. It appears trial run of their coke manufacturing is completed and expected full productivity in the coming years. The price has halved from my purchase price of Rs.85/-. I need your opinion on prospects of Coke business in the current world scenario so that I may think of averaging Ennore coke at current price.

Regards
Murali

What'sUp Prahalad said...

KM:

I would stick to the basic necessities.. as I said you need a house but you buy a house only once..

So is with demand like roads and infrastructure.. you build them once it lasts for 10-15 yrs..

I would suggest that we concentrate our energies on the Best buys as they all produce consumables.. which are required on a daily basis..

Steel.. cars.. coal .. are tough calls according to me..

=happy investing
whatsup-indianstockideas.blogspot.com

Anonymous said...

Hi Whats up, I would like to hear your comments on the following stocks?

1.KS Oils- now at an attractive price of 13. Mr Sivashankaran has taken stake around 40 rupees..Will it be a multibagger once their backward integration is complete?

2. Ruchi Infrastructure- CMP around 15- This has infrastructure for oil storage in major port terminals and in future, Logistics sector will be an upcoming one in India.
Thanks for your time,
regards.

Anonymous said...

whatsup...for a long time now you have been asking for a better alternative to GAEL with regard to investment. try page industries. or hawkins for that matter. or zydus wellness. or puneet resins. all of these stocks have been multibaggers in the past and they will continue to do so in the time to come because of high roce, almost no debt, dividend paying, great management and earnings growth very much in line with the valuations they have.

What'sUp Prahalad said...

Anonymous:

Hawkins is good brand but the last hawkins pressure cooker I bought was 15 yrs back when I got married and it still works!!

1,00,000 invested in GAEL (4081 shares) gives me an Earning of 27,750 (Rs 6.8 per share) and Dividend of 2449/=(RS 0.60)
1,00,000 invested in Hawkins (60 shares) gives me an earning of 3600 (EPS:60)and dividend of 2400/=(dividend 40 per share)

Mind you the probability of Hawkins going down is high since its PE is 28.48 while GAEL has PE of: 3.58

keep in mind whether you buy toothpaste from Colgate, HLL or dabur you end up using Sorbitol from GAEL (most likely) and it can ride on the marketing strength of their brands.

Same is the case of Shaving creams, Chips, soups, noodles, ice creams

The only thing GAEL has to do is keep running its plants efficiently so that they are price competitive..
=================================
HAwkins dividend payout of 77.4% of its earnings while GAEL dividend payout only 10.3% which means 2 things

- Dividend payout might not be sustainable (while GAEL 5yrs avg dividend payout is 15% 50% higher).(Hawking 5yrs avg divided payout ratio is: 64.35%)
- No additional capacity being created which means very small topline growth
=================================

The question boils down to risk.
- In GAEL Risk of loosing is less.. while there is upside potential.
- In Hawkins Risk of loosing is more .. while there is upside potential.
===========================
=happy investing
whatsup-indianstockideas.blogspot.com

What'sUp Prahalad said...

Anonymous:

Page Industries: CMP: 2592, MArket Cap: 2,891Cr Sales: 491Cr PBDIT:102Cr, Net Profit: 58.55Cr
Promoter shareholding June 2011: 60.06%
Individual shareholders june 2011: 3.95%

Promoter shareholding June 2010: 61.82%
Individual shareholders June 2010: 3.37%

Promoter shareholding June 2009: 64.47%
Individual shareholders June 2009: 2.8%

Promoter shareholding June 2008: 72.35%
Individual shareholders June 2008: 1.56%
==================================
Page Industries is being all setup for Distribution!! I heard that Fruit & loom Berkshire hathway group company is getting into business in India. Page is a Strong SELL
==================================
I dont know how many "Chaddis" does one buy worth 200 bucks a piece ..

If you earn 250 bucks a day (7604 per month) .. you are well above the poverty line ..
in India 50% of the people are below poverty line.

India's Per Capita income is 1000 USD ie. 3750 per month.

C.K. Prahalad made "bottom of the pyramid" famous and that is what everyone targets..

=happy investing
whatsup-indianstockideas.blogspot.com

playing4fun said...

Hi whatsup,
I am a regular reader of your blog..
I post by the name playing4fun in MMB..I have posted my reply for hawkins & page in mmb..Also previouslyI had a discussion with you regarding astral poly..My quote for hawkins.that the market is nowhere near saturation for hawkins..stands true for astral poly as well..Also there is a structural change that is happening from pvc to cpvc & astral is going to be leader of that segment..and is likely to create huge wealth for its share holders..

b-lal said...

I have gone first time to your Blog. very well written.

all the very best...

Anonymous said...

Hi Whats up..Can you pl throw some light for my previous query- KS oils and Ruchi infra when time permits...thanks in advance

What'sUp Prahalad said...

Anonymous:

KS Oil is issuing equity like nobody's business.

Equity is the most expensive form of financing as you have to service it for the lifetime of the company.

Debt can be paid but equity has to be serviced throughout the life of the company. Any company which is liberal in issuing Equity is going to destroy value.

KS Oil Equity:
2006: Equity: 8.45Cr Debt: 87Cr
2007: Equity: 22.09CrDebt: 100Cr
2008: Equity:33.24Cr Debt: 284Cr
2009: Equity:35.63Cr Debt: 931.8Cr
2010: Equity:40.90Cr Debt: 1477Cr

As per 2010 balance sheet there is 71Cr of share application money.. which means there is going to be further dilution.

Company has also been increasing its debt.. so in past 5 yrs Equity has increased by 5 times while debt has increased by 17 times.

It is a strict avoid.

Ruchi Infra is also not interesting.

=happy investing
whatsup-indianstockideas.blogspot.com

What'sUp Prahalad said...

Anonymous:

if you are looking for infrastructure look at Railroad and the company to watch is "Gateway Distriparks"

For Telecom its Tata Communications

=happy investing
whatsup-indianstockideas.blogspot.com

Anonymous said...

Dear Whatsup, Thanks for your views on KS oils...today it crashed and now it is in single digit.

What'sUp Prahalad said...

Anonymous:

You are most welcome.. I think its just that we need to look at any stock from various point of view..

which then helps us decide to buy sell or hold.

old blog link to do basic valuation:
http://whatsup-indianstockideas.blogspot.com/2010/05/question-and-answers.html

=happy investing
whatsup-indianstockideas.blogspot.com