Time to be cautious

NIFTY: Near 8700
SENSEX: Near 28000

As earlier post was really short here I am writing this for better understanding of what I mean.

Nifty at current levels is near 24 p/e, US Index S&P 500 at current levels is near 24 p/e too. For any index, 24 p/e cannot be value territory for investors. Couple that with the lack of sufficient earnings growth in the market, It becomes ripe for a crash. We have so far avoided the crash because World Economies are printing money and sustaining their Economies, That is what US QE is (layman wise) and now they are going towards Hiking instead of Easing. We have a very strong Government at Center, We can see things improving after decades of misrule but the problem is at the Global Front.. Even US elections are around the corner and if Donald Trump sails through which I feel is possible, He is not much liked by the markets. Having said that, I would avoid making a DOOMSDAY commentary here which actually is a probability but no one can time it, I would suggest Investors to stay focused and Investment or Portfolio wise go behind stocks which are seriously in the value territory rather than buying bloated names at astronomical valuations because when Market cracked last time, Mega Bull Stocks like Educomp got finished while under valued stocks went under correction to emerge as a Multibagger in the Future. So Investors should be very cautious in the market right now.

What is at 24 P/E might go up further and trade at 28 P/E but I hope readers understand the Risk and Reward here. Disclosure: I Look to increase small position out of profits in Nifty 7000 December Put which is trading at Rs 25 right now. Hypothetically If Global Markets crack 30% and we follow suit, Nifty could get close to 6000 and in that case Nifty December 7000 Put should trade close to 1000, That is if anything of that sorts happen by December 2016 Expiry, Otherwise it is going towards ZERO so All in All its a Total Gamble with 100% risk and with low "probability" of returns buts thats just a Small Trade with Reward in favorable situation being really good.

Time to be cautious

Nifty is trading at almost 24 p/e, S&P 500 (US) is trading at near 24 p/e too.

We have events like USA Presidential Elections coming up, Donald Trump not liked much by market.

We are not under valued at current valuations and markets do come back to undervalued territory.

While experts are going berserk with SENSEX 1,00,000 by 2020 views on the street I think investors should adopt a cautious approach right now and buy only really undervalued stuff rather than investing in risky companies, I am not saying time to Panic Sell but just be cautious because it is better to be safe than sorry.

Paper Sector up next

In market cycles it is often seen that the four dogs of market: Sugar, Fertilizer, Drilling/Offshore/Shipping, Paper move one after another or altogether and the Paper would be the last in the cycle which would mean short/mid term bullishness of market is over (what is technically called a TOP).

Sugar up tick has been done, Fertilizer somewhat moved, Drilling/Offshore started today, Paper seems to have started now.

In paper, valuation wise cheap names look like: Star Paper, Kuantum Paper(BSE), Nirvikara (not profitable but dirt cheap mcap, Damani ji invested).

The run in paper will not be as much as Sugar at all and should be capped at about 20-40% returns from CMP at max.

Mirza International Ltd - Making in India for the World

Hope readers enjoyed the Weekend GST Puzzle.

Received 29 correct answers.

Right answers given by: Sumit Sahota, Amit Saini, Dipak, Ravish, Jigar KK, Arvind, Manoj Gadhia, Krishna Sharma, Jaidev, Atul Singhania, John, Nidhi Jain, Ankush Sharma, Sachin Jain, S Mathews, Laxman Raghavan, Rahul Sharma, Vijay, Nifty King, Harshad, Viren Patel, Siraj Ahmed, Isryil Ahmed, Umang, Jatin Rathore, Sandeep Sinh, Vijay Bhatia, Utsav , Jigar Punamiya.

The Ace Investor

Mirza International Ltd

  Listed on both NSE: MIRZAINT & BSE: 526642
Currently trading around 91 with a market cap of around 1100 crores.

Promoters hold 73.78% stake.
It has a Total Debt of around 190 crores.

Mirza International Limited is one of India's leading manufacturer and marketer of leather footwear and finished leather.

Incorporated in 1979 as Mirza Tanners Pvt Ltd by 2010 Padma Shri awardee Irshad Mirza & Rashid Mirza. Today the company has grown to almost 1000 crores with established footprint across 30 countries

The company supplies to many international brands and also owns international brands such as "Redtape" and "Oaktrak".

Almost 70% of the business of the company comes from overseas sales and out of that almost 60% of the total overseas sales are from United Kingdom out of which 15% are from own brands.

Apart from United Kingdom and rest of the world, Mirza International is very bullish on USA and has been expanding and growing in the region.

The revenue from USA in FY15 was 84 crores growing at CAGR of 119%. The FY16 detailed presentation is yet to be shared for further information.

The company initially had big plans to sell its brand in India but when exports posed as an attractive opportunity the company did change tracks and started focusing on exports which has helped them rise to this size today. Back in the 2000s Mirza International hired Salman Khan to endorse the brand Red Tape.

The company also says that RedTape is the only Indian brand to sell globally and earn significant revenues. It appears to be true because other companies have only managed to supply to global players and have never really took the risk of brandishing their own label.

Coming to the quality of shoes, I had purchased Red Tape shoes and they look and feel premium compared to the price we pay and it does enjoy good reception overseas and in India. Oaktrak brands reception in overseas market is good too.

The company actively sells its products in India and overseas via retail as well as e-commerce.

https://www.amazon.co.uk/Oaktrak-Winterhill-Leather-Chelsea-Oxblood/dp/B008HF7K4E

The above Amazon UK link shows one particular Oaktrak boot, if you take a look at it you can make out that the products of Oaktrap & Redtape are well priced, great in quality and also liked by people. Do read the customer reviews over there.

The key negative here would be the dependence on UK in particular.

With Brexit becoming a reality and pound coming down crashing, Companies which export to UK don't stand to benefit, But if we use common sense, after Brexit the Brits are not going to stop wearing shoes, infact trade between India-UK can be increased further.

Meanwhile, the pound crash may impact the company's profit margins to some extent if not properly hedged for currency risks at the same time there has been a new development that is the amalgamation of a debt free promoter owned company named Genesisfootwear Enterprises Ltd, with the amalgamation having taken place the company has shown remarkable improvement in bottomline because Genesis is a debt free cash generating company.

http://www.mirza.co.in/schemeofamalgamation.html

Coming to the financials let us take at last 10 years Annual Results of the company :-

Consistent topline growth and consistent. Extreme stress can be seen on the bottomline of the company during the period of Global Recession of 2008-2010 after which the sentiment revived. However, even during that period the company has not dipped into losses.

At current price of 91 the stock is trading at p/e of 12.62 while Bata trades at 45 p/e, Liberty trades at 30 p/e, Relaxo trades at 50 p/e, Lawreshwar trades at 20 p/e.

Looking at the branding, the products, I feel re-rating is possible in this case.

Stock has corrected this year and doesn't look on the expensive side but it is trading near the 52 week low right now.

March quarter results for Mirza was really good with significant increase in bottomline and profit margins after the amalgamation. Should keep eyes on June quarterly results too if similar trend is seen the EPS will be increase further this FY and the Brexit pound crash negative impact would mostly be visible in September quarter.

Recently news is that the Govt. is ready with an incentive package for the leather sector http://economictimes.indiatimes.com/news/india-unlimited/csr/policy/make-in-india-incentive-package-for-leather-sector-on-the-anvil/articleshow/53176474.cms

Next week from Monday, the Monsoon session of Parl will begin and Market expects that GST will sail through this time. GST is positive for the sector at whole.

All in All I feel there is value in Mirza International at CMP.

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 Mirza International Ltd in my portfolio and hence my point of view can be biased. Readers should consult their financial advisory before any investments.

:Links:

Mirza Website

2015 Annual Report

Old Salman Khan ad for Red Tap

Screener for Mirza

Can You Guess This Stock? Weekend Exercise

Guess This Stock ::

1) Consecutive annual topline growth since last 10 years.

2) Current price of the stock is under 190.

3) GST beneficial for the sector.

4) Bollywood super-star has had association with the company for endorsement.

5) Company has consistently paid dividend for more than last 10 years.

6) P/E of majority of the companies in this sector is atleast double than subject company.

7) Stock has corrected more than 10% in Calendar Year 2016.

8) Current Market Cap under 2000 crores.

9) This particular company might be avoided by readers from minority community in India.

10) Aur CLUES nahi milenge!

11) Told ya, No more clues!

Email your answers on theaceinvestor@gmail.com. Right answer with a write-up along with your name will be posted on the blog.

15th July 2016 - 2:00 PM.

Snowman Logistics Ltd up 50% in two months.

I wrote about Snowman Logistics Ltd and prospects of the cold chain industry on 9th April 2016.
Snowman was trading at Rs 60 back then, Today Snowman rallied to Rs 90.

Snowman is up by 50% in just two months.

I am keeping a close eye on Snowman as GST is back in focus again with Monsoon Parl. Session starting soon. 

Here is the link to Snowman 9th April post

Hope readers are enjoying reading the blog.

KM Sugars more than double in 30 trading sessions.

I wrote about KM Sugar Mills being an interesting penny stock in the buzzing sugar sector on 31st May 2016 when the stock was trading at Rs 7. Today the stock made a high of Rs 14.40.

Stock is up 105% in just 30 Trading Sessions from 31st May 2016.

Here is the link to KM SUGAR post

Hope readers are enjoying reading the blog.

KM Sugars proved to be a golden penny for us but always remember Penny Stocks might be injurious to wealth.

Sugar crosses 20 on ICE - Track Kothari Sugar

Sugar futures crossed 20 considered to be a psychological barrier after having fallen from highs of 19.90 something.

The price currently is around 20.05 on the Intl. Commodity Exchange today. Sharply up today again.

Even as today sugar stocks took a break from regular rallies, Rajshree sugar updated yesterday at 70 was locked up in the upper circuit at 89.45 almost 30% up in one day.

One can focus on Kothari Sugars (NSE:KOTARISUG) now trading at 19.50 for similar moves.

Ugar Sugar Works up 76% in 8 Days keep eyes on Rajshree, Dhampur

When i first wrote on 3rd June 2016 about Ugar Sugar Works Ltd. The stock was trading at a price of 33 and after that corrected to levels of around 30 with constant selling by Renuka Sugar which held 50 lac shares.

Now today it has moved to 58+. That's almost 80% rally in few days.

As the sugar prices continue to go up internationally or hold stable, The sector theme is playing out well.

With the market gung ho on the entire sector I feel it will now be good to take a look at stocks which have not moved much such as Dhampur Sugar (CMP 120) and Rajshree Sugar (CMP 70).

GTS Weekend Answer: DCM Shriram Industries

Hope readers enjoyed the Weekend GST Puzzle with the chart.

Received 79 Answers out of which 18 answers were correct.

Right answers given by: Clayton Dsouza, Saif Khan, Amit Saini, Dinesh M Bohra, Ravish, CA Navneet Aggarwal, Puran Choudhary, Jayesh C, Ravi Multani, Pratik, Arun Negi, Raju NVM, Tush Agarwal, Krishnan Kannan, Lakshman Easwaran, Jyotiprakash Punmiya, Manoj Gadhia, Amit Malik.

Congratulations guys, well cracked!

The right answer is: DCM SHRIRAM INDUSTRIES LTD listed on BSE with code: 523369.
CMP: 166.65

The above chart shows a 10 year trendline breakout and a 6/7 years cup and handle breakout on the weekly charts of DCM SHRIRAM INDUSTRIES LTD.

DCM Shriram’s business primarily comprises of sugar, alcohol, power, chemical and rayon.
Under the sugar business the company produces sugar cubes & sachets, breakfast sugar,
refined sugar, etc. whereas under the alcohol business it manufactures a range of distillery
products like bulk alcohol, portable and country liquor products. The rayon business of
the company comprises of manufacturing a range of rayon and nylon based products
and chemicals. 

Under the chemicals business DCM Shriram offers a range of aromatic chemicals, drug intermediates and other chemicals. 

In the rayon business part company manufactures a product called Nylon Tyre Cord Fabric for which the Government last year has imposed dumping duty on imports from China which should be a positive for the company. NTCF finds application in different kinds of automotive tyres such as Bus tyres, Truck tyres, Two and three wheeler tyres, LCV, tyres and cycle tyres.

FY2016: Net Sales were 1216 crores out of which almost 55% was from Sugar and ENA/Alcohol. 24% was from Industrial Fibers and 21% was from Chemicals.

FY16 net profit was at 34 crores with EPS of 19.59. At cmp of 166.55 P/E is at 8.5.

Positives: The company has a positive book value at 140, The market cap is just 290 crores against sales of 1200 crores. Promoters have been increasing stake and have increased to 44.52%, another 38% lies with entities like LIC and HB Stockholding which have been holding the stock since more than 5-6 years which makes it almost 83% out of 17 crores shares are locked. Company has always paid dividend when in profits except for once in 2007 when company reported 1 crore net profit. P/E wise the company looks inexpensive and if Sugar story unfolds well then at forward eps looks very cheap.

Negatives: Total debt on the balance sheet is at 349 crores (73 crores long-term and 276 crores short-term) though it does not look huge compared to other sugar companies. Topline growth has been missing after FY14 which might suggest that the company might have already exhausted itself to the top but its only two years yet after a good healthy growth rate for 7 years. Reported results are very erratic with FY15 having just 5 crores bottomline, while FY14 had 29 crores.

This company is a result of division of DCM group family, I have not gone deep into management pedigree so cannot comment on that. Not very sure about Sugar capacity of the company on some websites it is mentioned as 33000 TCD and on some 12000/14000 TCD is the number.

This looks good as a diversified sugar company with a good focus on aromatic and other chemicals.

Sugar is the hottest sector right now and it seems that the sugar sector rally might just have started, and with added dimensions of Chemical and Industrial fiber this company might be a good option to consider providing better safety to volatile goverment policies and cyclical business risks at the same time coming with risks like volatile results and low margins in other businesses.

Another good diversified sugar stock is DCM Shriram Ltd which is the other division of the same DCM group focused on Sugar sector, Agri sector and Chemical sector.

Just wrote about DCM Shriram Industries because technical chart suggests that breakout can take the stock to good heights with Sugar sector buzzing, if the company's Q1-FY17 performance is impressive compared to Q1-FY16 that would mean the company may have a gala year ahead if Sugar story unfolds as expected.

Note: As I have not dug deep into the company I would be glad if readers can take up the task.

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 DCM Shriram Industries Ltd as well as DCM Shriram Ltd in my portfolio and hence my point of view can be biased. Readers should consult their financial advisory before any investments.

:Links:

DCM website

DCM screener

DCM Shriram Industries latest quarterly results

Anti-Dumping news

DCM latest shareholding pattern

Valuepickr Link for Sugar Sector