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Lakshmi Machine Works Ltd - Management Call Highlights
Textile Machinery Division:
Order book is about Rs.1,400 Cr of which 30-35% would be active order book, up from 20-25% few months ago.
Most of the mills are back in operations and export of yarn has also picked up quite well.
Customers have re-started project discussion and expansion plans.
Order book has started to build up in Textile Machinery; however, 4QFY21 will show a clear picture of the capital expansion plans of the customers.
Textile Machinery utilisation is at 60-65%. Demand for spares have improved meaningfully over last 6 months.
Yarn and Garment exports from India is picking up which is a positive sign for the company’s customers.
*Many textile companies are earning super normal profits* and many are recovering losses that were suffered over a period of time during slowdown due to improved spread and uptick in demand.
Machine Tools Division:
Company is witnessing robust demand in Machine tools segment and has an order book with visibility of 3 months (normally 2 months)
Getting equal traction from Auto & Non-Auto Sector in this division.
Witnessing meaningful traction in exports rather than domestic market. This segment is also seeing benefit from China +1 strategy.
Defence & Aviation sectors have taken a back seat.
Capacity utilisation of this division would be upward of ~80%
Other Highlights
India is been seen as a potential substitution to China for sourcing by other Eastern & Western countries as part of China+1 strategy .
China has around 120mn spindle capacity and India has 50mn spindles capacity. Bangladesh is close to 15m spindles market and Vietnam is 5mn spindles market.
Export enquiry have also picked up as markets like Bangladesh, Vietnam , Pakistan , Turkey , Uzbekistan have also benefited from diversification from China. Bangladesh is the largest market for LMW. However lot of export order have adverse credit terms and LMW is selective in picking orders.
Irrespective of subsidies, if demand improves and continues for more than 6-12 months, the sector will see capacity expansion in near future.
Textile players will take benefit of PLI scheme as most players are running at full capacity and will need expansion, also low tax rate will also improve economics.
Government has provided lot of support to sector like MSME classification, PLI, reduction in custom duty for input of man made fibre, support during COVID through various liquidity measure.
Symphony View CMP 984
Symphony Limited, and its subsidiaries are engaged in manufacturing and trading of residential, commercial and industrial air coolers, both in the domestic and international markets. Symphony products have been endorsed by industrial giants like General Electric (US), Lear Corporation (US) and Walmart (US).
Strength
Brand Leadership:
Symphony in the market leadership around 50% in FY 2019-20 in their segment. 70+ Models offer for FY19-20. INR 240 Cr spent in brand buildings in last ten years out of 240 Crs INR 94 Cr spent in last 3 years. Symphony launched and marketed industrial and commercial coolers, manufactured for the first time in India. The company no longer just cools residential spaces; it is empowered to cool virtually all spaces- interior or exterior – anywhere. The Indian air-cooler market has been growing at a CAGR of more than 11% in the last five years.
Benefit of Global warning with less maintenance. The price-value proposition, lower energy consumption and effectiveness in dry areas make air coolers superior to air-conditioners.
Residential and industrial air cooler markets have been growing with a CAGR of approximately 20% and 8% respectively in the past four years.
Financial
Debt free company, consistent ROE around 28% and ROCE around 29%. Liquidity position is also sound in the company average debtor receivables around 31 days, Inventory turnover 21 days. Operating profit margin in the FY 19-20 was around 27%. Operating cash flow was also good in March 2020 and it was continuously increasing trend in YoY. Strong promoter holding around 75%, FIIs hold around 4.4% and DIIs hold around 10.6% in Sep 2020.
Revenue in March 2020 was around INR 1,103 Cr Vs. 844 Cr in March 2019 therefore up by 30% in YoY. PAT was around INR 230 Cr Vs. 130 Cr in March 2019 therefore up by 77% in YoY. Last 5 year sales growth was more than 17% and PAT growth was more than 11%. EBITDA in FY20 was around INR 248 Cr Vs. 168 Cr in March 2019.
Risk Product Risk: Air-cooling products may lose their relevance. An economic slowdown prompted by the coronavirus outbreak could impact offtake eg. Q1FY20 was almost wiped out and Q2 recovery was also muted mode and Q3 will also be uncertain due to monsoon period and winter period where cooler doesn’t work in the humid environment.
View Strong support at INR 900/840 level. Share is in bullish zone and above 1000 will lead to the next target of 1050/1100. After Feb 2021 share should also good performer as Q1FY20 and Q1FY21 wiped out due to lockdown impact. Long term investor can continue with the company and any corrections will give good opportunity to add.
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*Deepak Nitrate* (DNL) CMP 910 View*
It is well diversified with presence across three segments viz. Basic Chemicals (BC), Fine and Specialty Chemicals (FSC) and Performance Products (PP).
The group has recently ventured into Phenol-Acetone segment through its 100% subsidiary Deepak Phenolics Limited. 
The group enjoys strong competitive positioning in most of the product categories and has a strong client base and caters to over 900+ clients in over 40+ countries
*Financial*
- ROE and ROCE is around 37% and 46% respectively (Very Positive)
- P/BV - 7
- Forward PE - 20 (Positive) fair as per industry benchmark
- Q2FY21 YoY growth topline growth down by 2% but bottomline growth up by 10% (Positive)
- Operating profit is around 28% which is increasing trend on QoQ (Positive)
- Debt is reduced by more than 30% in Sep 2020 quarter (Very Positive)
- Promoter holding is around 45.7% which is good and stable
*Key Positive*
- Liquidity is too sound, The company is expected to have healthy liquidity with annual cash accruals of over Rs. 500 crore over the medium term as against debt repayments of Rs 50-70 crore per annum and annual Capex of around INR 250-300 Crs.
- DNL is the market leader in most of its businesses. In the FSC segment, continuous investment in research & development (R&D), and integrated operations have made DNL establishing its relationship with key customers for supplying Xylidines, Oximes, Cumidines, Nitro Oxylene, which find application in pharma, personal care and agro-based chemicals. In basic chemical business, the group is the largest player in India for supplying sodium nitrite/nitrate (market share of 80%), fuel additives (75%) and nitro-toluene (50%).
- No customer contributes more than 7% to total revenues indicating diversified customer profile.
- strong operating cash flows in very quarter.
- Operating profit margin is also upward in every quarter.
- One third of its net revenue is from exports, providing geographical diversity. The group maintained a strong revenue growth rate (CAGR of 19% in the past five fiscals.
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*Risk*
- The domestic phenol sector faces steep competition from imports primarily from Taiwan, South Africa and USA. These players have an advantage of large capacities (in excess of their demand) and government support. For safeguard of domestic player Govt levied Anti Dumping duty. Any changes for Govt stance will impact the company operating profitability.
*View* Share is currently trading at 910 with near to their all time high. Share has given strong return in past 7-8 months. Those who are holding can continue with the company for long term basis. Those who want to add can add at CMP and if it correct 840/820 add more (market correction) target price can be 980/1050 in short to mid term.
*Brokerage Radar*
*HUL* Brokerage: Motilal Oswal | Rating: Buy | LTP: Rs 2,399.95 | Target: Rs 2,750 | Upside: 14 percent. The Broking house remains positive on the company from a medium-term perspective, encouraged by robust earnings growth potential beyond the near term owing to its portfolio and execution strengths and significant synergies in FY22E as a result of GSKCH. These factors suggest premium multiples are likely to sustain.
*Orient Cement* Brokerage: AnandRathi | Rating: Buy | LTP: Rs 84.30 | Target: Rs 100 | Upside: 18 percent. With 8m-ton capacity now, the company’s further expansion plans at Devapur and Chittapur remain on hold due to uncertain demand and management’s focus on a lean balance sheet. The trade demand has picked up post-Diwali. Non-trade demand mostly arises from road projects, while infra projects continue to face funding issues. With petcoke unavailable and higher prices, management said H2 power cost would rise 12-15%; other expenses would be normal. However, it talked of profitability being unscathed, with EBITDA/ton at current highs.
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*BPCL* Brokerage: Emkay | Rating: Buy | LTP: Rs 377.40 | Target: Rs 490 | Upside: 30 percent. With Vedanta, Apollo Global Management and Think Gas (promoted by I Squared Capital) reportedly among the interested parties (IPs), BPCL's disinvestment process is currently at the stage of evaluating bids. RFP and SPA will be issued post the selection. If the buyer decides to sell off investments (like PLNG, IGL, Oil India, upstream, etc.) and is able to source funds at ~7% cost, it can still buy BPCL at Rs 500 per share, as residual dividend income of Rs 35 billion would be sufficient to service annual cost of funding.
*KPR Mill* Brokerage: ICICIdirect | Rating: Buy | LTP: Rs 876.20 | Target: Rs 1,100 | Upside: 25 percent. ICICIdirect continues to remain positive on KPR due to its competitive advantages due to lower power & labour cost, vertically integrated operations, focus on value-added products and robust balance sheet. Higher proportion of garmenting enhances the overall margin profile as the segment yields margins in the range of 22-23% while high asset turnover would translate into RoCE improvement by 370 bps to 23% in FY20-23E. The new textile policy is expected to aid in improving global competitiveness of Indian exporters. Broking house like KPR as a structural long term story to play the apparel export space.
*Navin Fluorine* Brokerage: ICICIdirect | Rating: Buy | LTP: Rs 2,548.90 | Target: Rs 3,040 | Upside: 19 percent. The company has outlined capital expenditure for setting up a multi-purpose plant (MPP) with an outlay of Rs 195 crore. The capex will be undertaken by its wholly owned subsidiary, Navin Fluorine Advanced Sciences Ltd at Dahej, Gujarat. The new capacity is expected to come on stream during H1FY23 and will create opportunities for new products in life science and crop science sectors in the specialty chemicals business. The company has already identified potential 12 new products of which five are going to be commercialised initially, which find application in crop protection. This new capacity would retain a mix of 50:50 among life science and crop protection in the long run. The management expects better margins for this new venture with an asset turn of 1.35-1.45x.
*Sun Pharmaceutical Industries* Brokerage: Sharekhan | Rating: Buy | LTP: Rs | Target: Rs 660 | Upside: 12 percent. Sun Pharma’s Specialty business is witnessing improved traction. Pick up in the US specialty business coupled with likely traction from sturdy new product launch pipeline, would fuel the growth of the US business. Moreover, geographic expansion/increasing penetration for specialty portfolio, in markets other than the US, would also aid the growth of specialty portfolio. Healthy growth in chronic therapies along with new launches gaining traction and a possible improvement in acute therapies is likely to fuel growth in the domestic formulations business.
#sunpharma #BPCL #HINDUNILVR #ORIENTCEM
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Company Overview: Gland Pharma
(Gland) is one of the fastest growing global pure-play companies in
the injectables space. Gland sells its products in more than 60 countries across 5 continents. U.S. accounted for 67% of total sales while India accounted for about 18% sales and balance 15% came from Europe, Canada, Australia and Rest of the World in FY20. The company’s key molecules include Heparin Sodium Injection, Enoxaparin Sodium Injection, Rocuronium Bromide Injection, Daptomycin Injection, etc.
Gland follows the B2B business model in exports and B2C in domestic markets. 96% of revenues in FY20
came from its B2B business.
Investment Rationale Injectables space – high growth, niche area with few competitors – According to IQVIA Consulting and Information Services India Pvt. Ltd. – 2020, the share of injectables in the global pharma market is increasing at a rapid rate. Injectables are becoming the preferred way of administering drugs. Gland being a global pure play injectables producer, stands to benefit from the high growth in this segment.
Niche products with limited competitors - 40% of Gland’s key molecules have only 5 competitors;
another 40% have 4-10 players. Only 20% of the company’s products have more than 10 competitors.
With fewer players in this space, the company faces a lower risk of price erosion.
Impeccable track record on compliance – Despite having a very high proportion of sales from complex
generic injectables from US, Gland has maintained an impeccable track record on compliance.
The company has not received any warnings or observations from the USFDA in the last 5 years.
#GLAND
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