VALUE PICK - WATERBASE LTD.

About The Company & Products 

Waterbase Ltd. is a aquaculture company which started its operations in 1993 headquartered in Nellore, Andhra Pradesh.

The company is promoted by the respected Thapar Group. Thapar Group's past and present ventures include names like: KCT Coal, Crompton Greaves, Greaves Cotton, JCT, English India Clays, Ballarpur and many other companies.

The company as stated is into aquaculture and its main products are Shrimp Feed, Organic Feed and Processed Shrimp.

The feed mill of the company is into operation since 1993 and at present its capacity is 30,000 T.P.A. it is a smaller company when compared to Avanti Feeds which is more into prawn and fish rather than shrimp.

The Ace Investor - Value Pick

(BSE:523660) WATERBASE LTD.

Company listed on BSE, currently trading around 54 with a market cap of about 200 crores.

Promoter holding is at 52.47%, total debt on the books is at just around 12 crores as the company has reduced its debt.

The current price to earning ratio is around 11 and the stock looks very under-valued.

The company as mentioned above is into Aquaculture. Recent times for Shrimp industry has been bad, since the second half of CY2014 the industry is going through troubled times. More recently there has been news that Running mortality syndrome (RMS) is affecting the shrimp industry and India might miss the export target. But at the same time, there is a raw material shortage in Thailand which increases the chance of exports from Indian companies like Waterbase which is doing fairly well in troubled times.

The news about RMS and India missing the export target in the media has resulted in a correction in the share price of Waterbase, it was hovering around 95+ and now down to 50s so it is safe to assume that all bad news are now discounted and a healthy consolidation has already taken place.

Even in the testing times, Waterbase has reported good financial performance as for Dec14 quarter the company announced 10.45% sales growth and 30% profit growth YoY.

Check the annual result table below :-

Particulars	FY10	FY11	FY12	FY13	FY14	FY15
Period	12 months	12 months	12 months	12 months	12 months	Trailing
Sales	27.76	46.31	103.47	157.02	228.21	281.71
Operating Profit	1.20	4.09	10.47	12.05	23.74	32.33
OPM	-4.32%	8.83%	10.12%	7.67%	10.40%	11.43%
Other Income	0.61	0.8	0.66	0.58	1.38	2.13
EBIDT	-0.59	4.89	11.13	12.63	25.12	34.36
Interest	2.42	2.39	1.82	2.2	2.87	1.80
Depreciation	2.31	2.34	2.46	2.81	1.80	1.24
Profit before tax	-5.32	0.17	6.85	7.61	20.45	31.32
Tax	-0.38	-0.55	0.97	1.58	6.87	13.20
Net profit	-3.61	0.69	5.63	6.01	13.57	18.01
EPS	-1.46	0.28	2.19	2.34	3.52	4.66

As it can be understood from above result table, the company has turned around brilliantly in the last 5 years and even the trailing earnings show that in the testing times the company has performed well and exceeded the expectations.

Coming back to the industry, Aquaculture companies have requested the Andhra Pradesh govt. to take necessary steps to ensure seed quality as the vannamei shrimp farming seems to be under-threat from defective seeds by unauthorized hatcheries. It is feared that Vannamei shrimp could face the same problems as black tiger had years ago. I believe, that the govt. will be quick to act on it since there are no quarantine facilities in the state for the broomstick from the U.S. coming through port of Chennai.

Govt. policy plays an important part when any industry at whole is looking for a turnaround and for Aquaculture it looks awesome. Recent statement from A.P. C.M. N Chandrababu Naidu is: "Aquaculture to be a leading employment generator" at the Aqua Aquaria 2015 he asked officials and farmers to adopt the best technology and seeds to improve production so that sector could contribute Rs 2 Lac crores to the state's GDP by 2029. He also exhorted them to achieve a ten-fold increase in production in ten years to make the country leading one in aquaculture.

Another recent development is that the Chief Minister has also made a statement which states that aquaculture will get agriculture status in A.P. to increase fund inflows in the sector. A new aquaculture policy is also soon going to be announced to make A.P. the top exporter of marine products in the world.

Malaysian and Australian governments have expressed interest to work with the A.P. govt. in Aquaculture field R&D to improve feed and sustainability.

On the valuations front, as stated above Price to Earnings Ratio for the company is around 11. The key here is growth, Waterbase looks like Avanti Feeds of FY11 when Avanti had 200 crores sales and Net Profit of 4.28 crores. Now Avanti Feeds has transformed into a 1500 crores+ sales and 100 crores+ profit company.
At end of FY-11, Avanti Feeds too was hovering in the 30s and the 60s and now recently it was trading at 2000+.

All in All, I feel Waterbase is a value pick at current market price of 54. The future growth can make this a future Avanti Feeds, early to expect but i am really hopeful looking at the performance of the company. If we do not buy at these levels then we might have to buy after it would already have turned into a multibagger which is what has happened with many investors in Avanti Feeds.

Technically above 59 there is an medium-term triangle pattern breakout which suggests a target in triple digit but that is the technical charts part, this stock offers huge value for the long-term investors and hence a compelling buy.

Note: The above is not a research report but information as available on public domain and it should not be treated as a research report.

Registration status with SEBI: I am not registered with SEBI under the (Research Analyst) regulations 2014 and as per clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations”

Disclosure: It is safe to assume that i might have Waterbase in my portfolio and hence my point of view can be biased. Readers should conduct their financial advisory before any investments.

:Links:

http://www.undercurrentnews.com/2015/02/23/andhra-pradesh-shrimp-farmers-plead-for-quality-seed/

http://www.business-standard.com/article/pti-stories/aquaculture-to-be-leading-employment-generator-ap-cm-115022001076_1.html

http://timesofindia.indiatimes.com/city/hyderabad/Aquaculture-to-get-agriculture-status-in-Andhra-Pradesh/articleshow/46319606.cms

http://articles.economictimes.indiatimes.com/2015-02-23/news/59423287_1_aquaculture-sean-kelly-marine-industry

http://www.thehindu.com/news/national/andhra-pradesh/malaysian-team-calls-on-naidu/article7005026.ece

Technical Chart: http://photouploads.com/images/waterbasec.png