Thursday, 5 February 2015

VALUE PICK - NARMADA GELATINES LTD.


About The Company & Products
  Narmada Gelatines Ltd. formerly known as Shaw Wallace Gelatines Ltd established in 1961 was taken-over by Late Shri Manu Chhabria and is now owned by Dubai's Jumbo Group under the leadership of his elder-daughter Kiran Chhabria.

 The company is one of the leaders in manufacturing of Gelatin in India, company also manufactures Ossein, Bone Meal Products and Animal Feed Grade - Di Calcium Phosphate. 

Narmada offers various types of gelatin which are used in many industries including some recession proof industries. Pharmaceuticals and Cosmetics: Gelatin is used in hard capsules, soft capsules, micro capsules, tablets and other coating applications. It is also used in suppositories and as a plasma substitute for medicines. Gelatin is also used in cosmetics such as bath oils, skin creams and moisturizing lotions.  Edible & Nutraceuticals: Gelatin is widely used in deserts and confectioneries such as ice-cream, marshmallow, candies, jellies, custard etc. The use of gelatin as an economical natural medicine for bone related diseases such as arthritis is increasing, it is also used in protein shakes and nutritional bars. Industrial: The manufacture of several coated and bonded abrasives including industrial grinding wheels use gelatin specially made suitable for high bonding of silicon carbide and aluminum oxide grains. Other extensive applications include use in manufacture of extra hard printer rollers, cork compositions and water dispersible pesticides. Photography: Gelatin is used in production of photographic film and paper. 

Narmada's plant is located at Jabalpur in Madhya Pradesh and has a capacity of 2,400 tonnes per annum and company certifications include: ISO 9001-2008 by BVQI, ISO 22000-2005 by DNV, EDQM, HALAL, KOSHER.

Company's awards tally: Award for ossein export by Capexil 1975, National award for import substitute by The Govt. of India 1992, Export performance award from Madhya Pradesh Industrial Corporation 1994, Highest gelatin export award by Capexil 1995, National award for outstanding contribution to environment to an employee 1998, Award for Gelatin export by Capexil 2001, Award for Gelatin export by Capexil 2004.
 
The Ace Investor - Value Pick
(BSE:526739) NARMADA GELATINES LTD.
Company listed on BSE, Currently trading under 220 with a P/E of around 8, Market Cap is about 110 crores, Promoter holding is strong at 75%, Company is virtually debt free and has good amount of reserves on its books.

   The company as pointed above supplies to two major recession proof sectors one is Pharmaceuticals and the other is Food Products (Edible) which is a major positive point for the company. We are really bullish on the pharma sector and food sector like everyone else is but there are very limited opportunities to directly play the two sectors therefore the focus is on proxy-plays to these recession proof sectors. 

Narmada's multi-national competitor Nitta Gelatine is exporting 50% of its production and is heavily dependent on exports while Narmada is supplying almost 97% of it to the domestic market which includes many big pharmaceutical companies either directly or indirectly.
   
One of Narmada's clients is a small company called Sunil Healthcare Ltd which is engaged in production of gelatin capsules for reputed brands such as Glaxo, Ranbaxy, Sun Pharma, Wyeth, Intas, Alembic, Cadila, Dabur, Solvay & Panacea Biotech. Sunil depends on Narmada for almost 50% of its total gelatin requirements and in Nov 14 company announced that they are adding more capsule manufacturing machines to increase their production by 30% as they are very bullish on the demand of gelatin capsules in the long-term. Though the positive impact of Sunil Healthcare's expansion plan will be minor on the top line of Narmada but it gives an idea on how industry players are looking at the gelatin capsule prospects.
 
Narmada recently announced Dec-14 quarter results which look really stable and company has maintained healthy OPM, Below is detailed financial performance table for the company over the years.
Particulars
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
Sales
46.11
50.33
52.86
56.22
68.34
83.71
90.93
106.47
121.80
130.46
Operating Profit
3.26
2.93
4.78
7.14
10.65
12.56
14.52
15.13
21.70
24.21
OPM
7.07%
5.82%
9.04%
12.70%
15.58%
15.00%
15.97%
14.21%
17.82%
18.56%
Other Income
1.84
1.26
1.13
1.37
1.39
1.40
1.18
2.19
1.92
2.60
EBIDT
5.10
4.19
5.91
8.51
12.04
13.96
15.70
17.32
23.62
26.81
Interest
0.69
0.41
0.27
0.29
0.46
0.10
0.01
0.17
0.10
0.06
Depreciation
1.27
1.58
1.30
1.36
1.48
1.57
1.73
1.74
1.83
1.90
Profit before tax
3.14
2.20
4.34
6.85
10.10
12.28
13.96
15.41
21.69
24.86
Tax
0.73
0.07
1.72
2.48
3.50
4.07
4.60
4.87
6.29
8.59
Net profit
1.87
0.93
2.38
4.34
5.86
8.18
9.47
11.06
15.40
16.26
Adjusted EPS in
3.12
1.55
3.97
7.23
9.77
13.63
15.78
18.43
25.67
27.10
Dividend Payout
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
 

As it can be seen above company has maintained consistent top line growth and has paid dividends consistently since last 10 years, It has also maintained healthy OPM of over 15% since last 6 years while its expensive competitors Nitta Gelatines,India Gelatines & Sterling are highly unstable financially.

NARMADA GELATINES LTD is extremely undervalued at P/E of under 10, As per my understanding this zero debt company with such a massive promoter stake and low float should trade at significantly higher valuations as it is the only listed gelatine company with stable financial performance.

The risk for the domestic gelatin manufacturers is cheap imports of gelatine and capsules from China but the risk is temporary as China has maintained its "cheap made in china class" by pushing chromium contaminated gelatin made from tannery waste into India. This issue was reported by Indian Drug Manufacturer's Association and by various researchers to DGCI (Drugs Control General of India) during last year but the then govt. failed to take any actions against the imports, I think MODI govt. which has a Pharma Vision to make India one of the best exporting pharma market should be taking action against Chinese imports soon, both to promote domestic production as well as protect the patient population.

Narmada can turn out to be a huge wealth creator for the long-term investors.
 It has started rallying recently as it reported stable earnings and Nitta reported poor set of numbers.

 Value investors should latch on to Narmada Gelatines at current market price of under 220 for a long-term price target of 1000+.

Note: There is a major technical breakout in the stock above level of 250, So there is no problem in entering at higher levels for long-term.

46 comments:

  1. entered at 224 with small quantity

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  2. this is a real good pick ace.. i am tracking this company since 2012 and invested when it was trading at below 100 levels.. even at this price it is still cheap and can easily go to four figure mark from these levels

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  3. View on asian granito and sankrg piston??

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    Replies
    1. asian granito looks ok... not tracking samkrg

      Delete
  4. Niita Gelatin is the only gelatin comp. I knew, this sector is over saturated with existing players, though not many there is lack of pricing power, lets see if the management will break out

    ReplyDelete
    Replies
    1. Nitta is loss making if you take consolidated numbers, if you take standalone numbers it is trading at a P/E of 45 while Narmada is trading at P/E of around 8.

      Nitta had environmental issues while Narmada has no such issues and last year Narmada gave bonus to its shareholders.

      Delete
  5. Long term means how many Months or years,could you plz give clarification on Time duration to reach this Target(1000) --Narmada Gelatins Ltd

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    Replies
    1. Can happen within 1 year too, Nitta Gelatin if we take standalone numbers is trading at 45 P/E.

      Delete
  6. whats you view on vidhi? is it still a hold? I am already in good profits after you recommendation

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  7. BRGHT FEW TODAY ... WILL BUY MRE 2MRW .... :-)

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  8. some of your other picks are below your recommended price though i am not worried as i have invested for long term. i understand that both correction and consolidation is part of this market but can you pls share your current views on richa, gujauto, shilp, ybrant?

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    Replies
    1. Except ybrant nothing is below reco. price.

      All are buy and hold, Recently posted update on Guj auto, Shilp, Ybrant after they announced quarterly results.. Will post update once richa is out with results.

      Delete
    2. thanks for the reply ace.. good to have your views feel assured

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  9. whats your view on tanla solutions?

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  10. Dear AI ... once again very much thanks to you for sharing the superb stk of JAN2015 , and the better part is that u post blog in mkt hrs as others plays preopen mkt ,,, U suggest at 220 ... i got it 600 @ 228 ,,, as ur last stks lika SKM - NGL - YBRANT - RICHA - DYNEMIC , this will for sure give me gd return in a days ... i can bet for it

    MODI make in INDIA n in upcoming budget ,,,,, pharma sector shd get smthng for sure which will boost the confidence of mine in NARMADA GEL

    Purab...

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  11. Whts your view on mold teck technology? ?

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  12. Sir , please comment on KEC intl and SMS pharma

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  13. Comments on stel holdings and Williamsons

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  14. Sir, Kindly share your view on " Shirpur gold Refinary" I am holding since 2010 @ 190 -300 shares. and till hold for 3 years. than what should be the target. also share on Ybrant to entered at 46 Level.

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  15. Sir,

    Kindly share your view for "Shirpur Gold Refinary" I am holding since 2010 @ 190 rate and till hold for 3 years than what should be the target ?

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  16. Hi Ace ...thanks for guiding us . Really appreciate your efforts in finding stocks which one would have not even noticed .
    Your research work is highly commendable. Have been making good profits by just following you,
    Hope to rock with this stock to

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    Replies
    1. Hi Ankit...thank u so much for appreciating... Hope u keep profiting

      Delete
    2. Hi Ace, can you please comment on Suven Lifesciences and Tech Mahindra?

      Delete
  17. Why Ybrant is 20% down and can we invest in this for long term.

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  18. Hi Ace
    What happened in Ybrant as it LC by 20% ...i have bought at 54/-..Can it be bought at LC to make avarage...what u say...anything negative with company as LC is with huge volume...Pls Advice

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  19. What should we do with Ybrant digital? It just hit LC!

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  20. Fresh Update on Ybrant: http://theaceinvestor.blogspot.in/2015/02/ybrant-digital-ltd-update.html

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  21. Hi Ace, can you please comment on Suven Lifesciences and Tech Mahindra?

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  22. I am a new investor just trusting on you I have invested in Narmada gelatin @231 but its constantly going downwards I request you to guide me what to do as have limited financial resources.

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    Replies
    1. You call yourself an investor, You have purchased one stock at 231 a day or two earlier and it is now trading at 217 and you want guidance about the same? Is this how long-term investments work out?

      And do not trust on me, See the facts posted above and invest only if you agree with the rationale.

      I try to post as thorough findings as i can but all the investors can read more and more data and take decisions.

      Delete
  23. Please guide me on Narmada gelatin

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  24. Narmada gelatine is going downwards day by day till which level we all should hold the stock.

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    Replies
    1. As said already i cannot give day to day price specific updates brother, If you have purchase i believe you have purchased on the fundamental story then please either believe it or take your call.

      It is a really good long-term stock.

      Delete
  25. the day you have told the stock ; it is just going down ; the opm have dipped ; share has corrected fron 230 to 150; you must advice wht to do ; should it be held or sell out as there is fundamentl change in sector ; pls advice the poor investors

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    Replies
    1. In the long run i don't see a problem but right now it has been trading weak.. Cannot advice you, But i would prefer to hold it for 2 more quarters personally.

      Delete
  26. sir i realy appriciate your answering the question ; you are truely a excellent fundamental analysist ; i would go on to say much better than rakesh jhunjunwala ; your stock pics have been just too good in long term and even short term ; people like you are rare to get ; appriciate you work ; keep it up

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