Saturday 19 September 2015

SMRUTHI ORGANICS LTD - Turnaround Jackpot?

The Ace Investor
Smruthi Organics Ltd
  Listed on BSE: 590046
Currently trading around 150 with a market cap of around 50 crores.
Promoters hold 64.03% stake
Total Debt is around 40 crores, Total Reserves around 25 crores.

Smruthi Organics is a manufacturer and marketer of Active Pharma Ingredients (APIs).
Smruthi was established back in 1989.
Smruthi is having two manufacturing units, both at Solapur, Maharashtra.
Smruthi is right now headed by Mr Purushotam Eaga.
 Lets take a look at Smruthi's financial snapshot since 2005
Smruthi had a consistent growth from FY05 to FY12, Sales from 31.44 crores increased to 200+ crores and Net Profit of 1 crore became 10.64, The EPS boomed to 27.33 but then the unforeseen struck.

Smruthi was working with the giants of Pharma industry and supplying to companies like Mylan. Post 2012, Things became bad for Smruthi when drug batches of Mylan and Merck were recalled and in 2013 FDA had already put a ban on Smruthi Organics to ship its products to the USA and the revenues came down from 200 crores to 90 and later 75 crores.

If that was not all, There started the Labour unrest at its facility which impacted it last year and further this year. As of now the labour problems are sorted as per exchange filing.

However, There are two key positive takeaways in this.
1) A company's turnover grows from 30 crores to 200 crores.
2) The company worked with the industry giants.
These two points give clarity about the management's capability of building their business well.

FDA issues are faced even by Sun Pharma and now its owned Ranbaxy among many other big pharma companies in India. If resolved Smruthi can do wonders.

At present, Smruthi has taken the alternative measures.
Till it solves its issues with the FDA and the EU regulators the company has started exporting to other regions and markets.

Smruthi has stated in its latest Annual report that they have built a team to target unexplored markets of S.E Asia, Middle East, Latin America, and Africa.
It also states that the company has in the later part of FY15 stopped the manufacturing of low margin products and increased its focus on the high margin products.
Another thing mentioned in the AR is that the company is going to launch new products to expand its margins.

Recent financial performance of Smruthi looks attractive: After constant losses suddenly in March 2015 quarter company reported Sales of around 25 crores up from 12 crores QoQ and a Profit of 3.53 crores which included tax credit of 1.76 crores as against a loss of 2.63 crores QOQ, EPS soared to 9.69.

In the latest June 2015 quarter, While being hurt by another labour strike Smruthi managed about 17 crores as revenue and almost at break-even technically it reported loss of 15 lacs.

If we see what has changed financially, We will notice that the Operating Profit Margin of Smruthi which used to be around -4% or at +1 to +4% has consistently in the last two quarters been around 14%. Which means what was stated in AR is just not stated for the sake of it.

Here is a quick last four quarters snapshot for Smruthi.

From the above facts, We can easily smell a turn-around.
The AR also states that the company is closely working with FDA and EU authorities to resolve the issues at earliest and restart its exports.

Friends, The pharma sector is in such a bull market that on expectations of a turn around.
Jubilant Life rallied from 100 to 400 in no time and is sustaining there and only now a turn-around became visible there.

Let us assume the best case scenario, If we have any consistent four quarters like the March-15 quarter the annual EPS will come at 38.76, What if we assign a 20 times rating to that?
775 is the price we get.

Smruthi is a turnaround play and would require patience, However i see the management moving in the right direction and having built this company from a micro to a respectable enough entity to deal with industry giants. They (the management) are too smart to be ignored.

Recently the stock price has witnessed good action, And i think some smart investor apart from us is slowly buying the shares of this company.

Smruthi Organics matches all criteria of a perfect turn-around candidate as posted on the blog earlier (Link: Turnaround Stocks: U-Turn to High Returns)

 All in all, Smruthi Organics Ltd looks like a good pick for the portfolio.
Technically: it is looking really bullish, May flare up to a lot higher levels very easily before it starts reporting profits.
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 Smruthi Organics Ltd in my portfolio and hence my point of view can be biased. Readers should consult their financial advisory before any investments.


Thursday 17 September 2015

Happy Ganesh Chaturthi

॥श्री वक्रतुण्ड महाकाय सूर्य कोटी समप्रभा निर्विघ्नं कुरु मे देव सर्व-कार्येशु सर्वदा॥

^English Translation: O Lord Ganesha of the curved trunk and massive body, the one whose splendor is equal to millions of Suns, please bless me so that I do not face any obstacles in my endeavors.

Ganesh Chaturthi greetings to all readers !!

May Lord Ganesha bless us all.

Note: New stock will be updated on our blog this Saturday morning (i.e. 19 September 2015)

Monday 14 September 2015

Attention: New Stock
 I know everyone is waiting to read about a new stock on the blog, Wait is over guys!!
New stock will be updated on our blog this Saturday morning (i.e. 19 September 2015)
Happy Investing!

Tuesday 8 September 2015

Review 1.0

Review 1.0
Due to traveling and other commitments its difficult to update about the day to day movements in the stocks already discussed on this blog. So, here is Review 1.0 which is the 1st of its series where we will cover all the stocks discussed on the blog.

In short: This post is a periodic review about all the stocks discussed on the blog.
Rounded Off^

Average return per stock at peak is around 92.93% and Average return per stock at CMP is 30.68%
This has been clocked from Oct 2014 till now Aug 2015.

Be it 92.93% or 30.68% I think it's not bad in 10 months, Right?
Recently, Markets have crashed and a lot of stocks have fallen 50-60% but these short term corrections will not have any impact in the long-term if we invest in good companies.

This is a good time for shopping, And hopefully this month we will be shopping for our portfolio again!

 Hope you enjoy reading the blog, Cheers!

Saturday 5 September 2015

Can We Save Karthik?

Friends, Today being a weekend i was browsing Facebook and I saw one post from a friend about an accident :-

So this young man has met with an accident and the family even after using all the funds they had is falling short by 4 Lakhs.

I try to post investment wisdom on weekends but today I think if this person can be saved we should try to save him.

Very rarely we get a chance to directly help someone without any commercial or organizational third party being involved.

I have donated and done my bit, Kindly try to save him, The easy idea is don't go to watch a movie this weekend and donate the sum instead.

Here is the link: