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Thursday, August 25, 2011

Pitti Laminations: Time to dip in.

Pitti Laminations:
CMP: 40.65
Market Cap: 38.29Cr
Sales TTM (Twelve Trailing Months): 308.71Cr
Net Profit TTM: 11.29Cr
Total Debt 95.69Cr

Pitti Laminations has kept its promise and done well. Pitti Laminations in year ending March 2011 Reported Net Profit of: 8.48Cr (March 2010 Net Profit: 29Lakhs) 
We had predicted that exceptional(one time) expenses of 5.6Cr (related to GE account) in year ending March 2010 was the real reason for the drop in profits. This conclusion was drawn based on the fact that PBDIT Margins had infact improved in March 2010 as compared to March 2009.(Link to old post)

"Pitti is already on its way to recovery.. It has expanded its capacity and the value added products are improving its operating margins. Right now the one time exceptional expenses related to GE is distorting the excellent operating margin improvement."

The surprising part is the stock has not responded to the rise in profitability. The TTM (Twelve Trailing Months) PBDIT is 37.30Cr while current market cap is just: 38.29Cr)  Digging a little deeper we see that the promoters are planning for:
- Preferential allotment of Equity increasing their shareholding to 60% (from 42.84% - AR-2011)
- Equity of Pitti Laminations will increase from 9.44Cr to 13.50Cr thats a 43% increase in Equity.
- A 20% Open Offer of Equity from Public is also proposed after the Preferential allotment, this would theoretically increase promoter shareholding to 80%

So my belief is that the current stock price is kept low to ensure that the preferential allotment happens at a low price to the promoters. Most likely Pitti Lamination stock price will rise after preferential allotment (due to good results ) and the 20% additional open offer will not be successful (as stock price will be quoting at a price higher than the buyback rate.)

In addition to this there is some interesting data in the Annual Reports:

These extracts are from Annual report from year 2009 and 2010
In 2009 report the 2010 tentative earnings has been stated as 5Cr net profit and a decline in topline.
In March 2010 company reported a decline in topline and profit of 0.29Cr (The 5Cr exceptional expense related to GE .. otherwise the company would have reported around 5Cr net profit as predicted in Annual Report of 2009)

In 2010 Annual report
March 2011 net profit has been stated as 5Cr with topline of 227Cr
March 2012 net profit has been stated as 8.34Cr with topline of 264Cr

Now if we see March 2011 actual results Profit: 8.48Cr Topline: 255.64Cr
So somehow in the annual reports the Pitti Management is kind of giving away their future expected sales and profit figures..  Lets see what the March 2011 Annual report has to say.

The company management has predicted a 100% increase in net profits for 2012 (19Cr) and 200% increase in profits in 2013 (26.15Cr)

1. Company has increased its production capacity(10,000MT to 25,000MT)
2. They have hired Sanjay Srivastava from GE in their company.

Conclusion: Company is a well managed entity with a respectable client list. Promoters have expanded capacity and are now going to benefit from increased capacity utilization.  Considering the better earning prospects management is increasing their holding in the company from 42.8% to 60%. They are also planning for an "Open Offer" to the public after the preferential issue which could increase holding to 80%. The company management in the annual reports has been providing forward looking earnings numbers which have been true in the past and if true for the future ..its a great opportunity to Buy. I would say Pitti Laminations is a good buy as the Stock price are intentionally depressed (so that the preferential equity issue can be done at a lower price to the management) Giving individual investors a great chance to buy at prices where the promoters are willing to invest. Pls download the Annual Reports as they might not be available in the future.

PN: These are my personal views and opinion about publicly available information. Please do your own deep dive before investing

Annual Report 2011
Annual Report 2010
Annual Report 2009
Pitti Laminations Blog Archives


Anonymous said...

Hi.. I am regular reader of your Blog..
With respect to Jayant Agro, Whether the Foreign JV has broken? Promoters are buying 24% stake in subsidiary Ihsedu (formed for castor derivatives having substantial value addition).
(i) How do you see this news? (ii) Whether there is any conflict with way of doing business or any Corporate Governance issue?

I have tracked some stocks. Kindly let us know your views on Gitanjali Gems; Diamond Power & Graphite India

What'sUp Prahalad said...


as per March 2008 Annual report:

"During the year under review, the company subsidiary Ihsedu Speciality Chemicals Pvt Ltd. is pursuing new castor oil derivatives project. The estimated cost of the project is 60cr. Necessary technology transfer agreement for the same has been signed with foreign collaborator"

My take: I think the JV was part of the Jayant strategy to ensure that the plant meets the quality/quantity requirements.

I also know that the plant was actually sourced from China even though the JV was with Mitsui.

Generally in large deals clients (jayant) would expect a performance guarantee and when the performance guarantee is met then additional payments are done.. maybe the share investment by mitsui was part of the (loan from mitsui to jayant for buying the plant)

The buyback of equity after more than 12 months would make the transaction tax free.. and also there might be a premium paid once the performance targets are met..

I think we are at a cusp.. and interesting days lie ahead for Jayant agro.

Watch Jayant Agro's results carefully for the next few quarters..

=happy investing

Purushottam said...

Pitti for Year 2011 has profit of 29.24 Cr and out of which it is paying 13.47 Cr as interest. so that is 46.07% of profit is going into interest payment.
History for Last 5 years are 46.07%(2011) 52.10%(2010) 35.22%(2009) 28.13%(2008) 22.80%(2007).
So interest is constantly increasing and eating up major of its profits...

Do you think prahalad that increasing interest was reason for pref. allotment of shares...

As per annual report 2011." The proposed capital expenditure with an
estimated outlay of Rs.23 crores is mainly to
undertake de-bottlenecking operations and for
replacement of certain machines which are
being phased out."

So the money from allotment might not get used to reduce debt but go towards capital expenditure..

if we see the Depreciation to Gross profit from last 5 years.
9.35%(2011) 14.85%(2010) 8.99%(2009) 6.29%(2008) 4.52%3 (2007) we see their is increase from last 3 years.

So my guess is they might hit all targets in sales and profit for 2012 and 2013.. until and unless they do not reduce the interest stock is not going up..
More equity shares addition will decrease the EPS ...
So stock might lie in same price for long time..
your thoughts....

What'sUp Prahalad said...


Its always good to see that you have taken a lot of time to go through the results as well as thought through the process to its logical conclusion.

A thinking mind is really what we really need and I think you are already on your way.

1. Promoters if they were not interested could have easily come out with a rights issue or preferential offer to other investors.. why only to themselves?

2. Right now Pitti is quoting at a market cap equal to its PBDIT which is very cheap.
3. Depreciation has already increased which means the capacity expansion is already done. (good catch)

My take: Promoters see that Pitti is going to be a money spinner and want a "Larger" piece of the action.

Surely they cannot come to the market and state I want to increase my shareholding because promoters think the company is going to make tonnes of money ..

the "expansion cost" is a Fascade.. company has already done all that it wants and now wants a larger share of the pie.

Debt is good provided its used judiciously (like an individual taking a property loan, while a car loan is bad)

Pitti is in a position to import raw steel "Import" not buying from local market and then value add and export it.. It already is competent enough.

Yes.. we cannot be 100% sure but promoters issuing equity to themselves at market rates is good enough for me.

Think it over!!

=happy investing

Purushottam said...

Agree with ur view. I checked the Invetories to Total Assets . I see jump and also their is jump in Debtors...

History for last 5 years.

Inventories 85.06 34.08% 61.5 29.84% 62.6 29.85% 39.12 23.54% 28.97 24.06%
Sundry Debtors 67.55 27.06% 42.79 20.76% 46.76 22.30% 32.26 19.41% 27.43 22.78%
conclusion business is improving...

Purushottam said...

Forbes list of best under billion companies in india:


What'sUp Prahalad said...


I think I lost you out here.. how did you conclude that business is improving for pitti looking at inventories and sundry debtors..?

=happy investing

Purushottam said...

Normal Cycle is cash goes to buy inventory;inventory is then sold to vendors and becomes account receivable.Account Receivable when collected from vendors,then turns back into cash. CASH->Inventory->Account Receivable->Cash. This cycle repeats over and over again.. This cycle can tell great thing about business when history is studied... Looking into the history i said that..

Purushottam said...

For manufacturing companies the inventory and earning should have corresponding rise. It indicates the company is finding profitable ways to increase sales and has called for increase in inventory so that the orders are fulfilled.

Companies with inventories that rapidly ramp up for few years and then just as rapidly ramp down more likely are caught in high competition.

Pitti has gradual rise.

What'sUp Prahalad said...


Well inventory rise with growth in topline makes sense..

I had read in one of the books written by "motley fools"..

A companies strength in the market place is determined by its ability to expect customers to pay upfront while hold back payment to their suppliers .. which basically results in -ve Net current Assets

It also seems to be visible in "days of Working capital" -ve 20 for HUL.

HUL has sales of 20,000Cr (in 365 days/1 year) so -ve 20 days working capital is 1095Cr so the company can effectively have 1000Cr in its pocket just by getting paid upfront while holding back payment to its suppliers by about 20 days.. that's a cool 100Cr at 10% interest rates

Did not find any Indian FMCG companies with -ve working capital requirement. (godrej, MArico)

GAEL has smallest working capital requirement: 56 days (out of pitti,jayant)

Working capital requirements:

ADC : 209 days
AGC: 90 days
Agro Dutch 590 days
Aro Granite: 225 days
Batliboi: 41 days
Bhatinda: 79.33 days
Camlin fine: 141 days
Fresenius: 350 days
Hester bio: 236 days
IFB Agr: 14.6 days!!
Jayant agro: 74 days
Manugraph: 143 days
NHPC: -ve41 days!!
NILE: 92 days
Nitta: 83.14 days
Pitti: 135 days
Poona Dal: 13.82 days!!
Regency : 111 days
Ruttonshaw: 147 days
SKM Egg: 114 days
Superhouse: 89.77 days
Tata comm: 282 days
Univ cables: 115 days
Varun Ind: 120 days
Venkys: 50 days
VIP: 99 days

So looking at this list: NHPC, pooda dal, IFB Agro, batliboi are good stocks to buy !!

=happy investing

Purushottam said...

I remember VST industries:
As per balance sheet :


Sundry Creditors :17888.11
Unpaid/Unclaimed Dividends:268.44
Unclaimed/Unencashed Matured Deposits:0.08
Preference Share Redemption Account:0.18
Advances from Customers 11133.90
Security Deposits:2.55
Other Liabilities:23.20
Total liabilities:29316.46

The company has 178 cr as Creditors,when compared with the total of inventories, receivables and cash on the current assets (see the balance sheet) would still result in a positive working capital.
However, there is one item pertaining to Advances from Customers of Rs 111 cr in the above schedule which explains why working capital is negative. Without looking at anything we can say it has gr8 business model...

Stock came down to just 190 in 2008.
Last Six month return is also good...
Even now i belive it is a gr8 business.. just waiting for market to be foolish to send the price down.. :)

What'sUp Prahalad said...


Yes VST has a Working capital requirement of -ve 42 days.. so the company is generating cash just from operations..

-ve working capital also allows company to give out dividends at a higher rate..

By the way did you like any of the indian companies in Forbes best under 1 billion?

=happy investing

Purushottam said...

Prahalad: Just saw the frobes link yesterday.. Have not got time to check any of them.

What is your take on Cravtex.They have partnered with some of the most well known brands FILA, Johnson Health Tech, Dunlop and Panasonic.
FILA size in India is very small with just 15 EBO vs 900 for Adidas. That does not justify full front page advertisement.
Also Growth potential looks good.
Looks like another Page Industries...
I have not started in depth analysis.. But what is your take..

What'sUp Prahalad said...


It looks good but I dont think I will invest. Its a fad and you never know when it will change..

Its better to be invested in systems where the promoters have more at stake..

Cravex does have a small investor base.. and small equity base and high promoter shareholding.

FILA and Dunlop are well established brands no doubt.

=happy investing

nidrockz said...

whatsup,what is your take on hanung toys and riddhi siddhi gluco????i request you to go through photoquip india..financials seems great...

What'sUp Prahalad said...

Hanung Toys:
MCap: 260.57Cr
Debt: 546.76Cr
5yrs Avg Cash flows: -ve15.98Cr
Working capital: 246Days.

Dilution of Equity, High Debt, Working capital is high indicating stuffing of channels.. Avoid
Riddhi Siddhi Gluco:
Company has sold all its Maize Derivatives plant for 1250Cr to Roquette.. this is almost equal to Rs 1120/= per share.. But the deal is structured in such a way that the cash stays with the promoters and investors might get a special dividend (MIGHT) From next year you can expect poor results..

So its a play on the special dividend.. but riddhi will not have any assets .. AVOID
MCap: 18.94Cr
Sales: 61.17Cr
Net Profit: 5.22Cr

Idea looks good but .. Zero taxes (Strange)for year ending March 2011?. Zero dividend.
Looks interesting but would avoid

=happy investing

nidrockz said...

thanks a lot prahlad..super analysis from you..but i have already bought photoquip n hanung a week back..and yes yesterday i accumulated guj ambuja exports too on your advice..can you just go through infinite comp and international combustion and suggest me..i bought that recently too...

What'sUp Prahalad said...


why don't you first .. tell me what was your logic for investing in these (infinite comp and international combustion ) companies?

and then we can evaluate the stock from a fundamental perspective..

This review will help you with your evaluation process.. ie stock selection.

It will also help me and others on the blog to make this meaningful.. for everyone. (I think)

=happy investing

Anirvan said...

Dear Prahalad,

Very nice analysis by you. As you have good faith on NHPC, i would like your comment on SJVNL and comparison. Also what is your take on Cosmo Films?


nidrockz said...

prahlad jus look into both int combus n infinite..infinite has fallen a lot owing to the buyback..fundamentally very very great comp and look athe guidance they have given for 2012..itz jus amazing n available at a dirt cheap rate..so i accumulated..and coming to international combus,it is a debt free comp with a market cap of around 65-70 crores..small equity n very very great reserves..great dividend paying and posting consistently great results for the past 3 years..will be helpfull if you analyse it deeply..

nidrockz said...

prahlad jus look into both int combus n infinite..infinite has fallen a lot owing to the buyback..fundamentally very very great comp and look athe guidance they have given for 2012..itz jus amazing n available at a dirt cheap rate..so i accumulated..and coming to international combus,it is a debt free comp with a market cap of around 65-70 crores..small equity n very very great reserves..great dividend paying and posting consistently great results for the past 3 years..will be helpfull if you analyse it deeply..

What'sUp Prahalad said...


SJVN is a JV .. the good part is they have 500MW downstream hydro power Plant which is a "Peak/Merchant Power" plant and this can help it report higher earnings..

but NHPC has more value for money and increasing capacities..

if you have any additional views pls feel free to share

=happy investing

nidrockz said...

prahlad jus look into both int combus n infinite..infinite has fallen a lot owing to the buyback..fundamentally very very great comp and look athe guidance they have given for 2012..itz jus amazing n available at a dirt cheap rate..so i accumulated..and coming to international combus,it is a debt free comp with a market cap of around 65-70 crores..small equity n very very great reserves..great dividend paying and posting consistently great results for the past 3 years..will be helpfull if you analyse it deeply...

What'sUp Prahalad said...


Co promoters Sanjeev Gulati and Upinder Zutshi are selling.. I dont see any reason to buy. I always find IT companies hard to evaluate.. maybe because I used to work for an IT firm.
Value in IT firms is a moving target and its moving along with your people..

I prefer some fixed assets .. such as Tata communications. There is no difference between what Infinite, Wipro, Infosys, TCS or Happy minds does.. nothing!!

International combustion.. I dont know.. I try to avoid one time investments .. like Pitti is great but does not make the cut into a "Best buy" even though the value equation is good.

International combustion is fairly priced.. and I don't see much growth.. with energy prices on the rise..

=happy investing