Moneycontrol
Last Updated : Mar 07, 2018 12:26 PM IST | Source: Moneycontrol.com

Ideas for Profit: Keep track of these “turnarounds” irrespective of market fluctuations

A few well run companies have struggled in the recent past, but their latest quarterly numbers show signs of improvement.

Madhuchanda Dey

Market corrections are providing an opportunity for patient investors to accumulate interesting businesses. A few well run companies have struggled in the recent past, but their latest quarterly numbers show signs of improvement.

Albert David

Albert David, part of the Kolkata based ‘House of Kotharis’, makes pharmaceutical formulations, infusion solutions, herbal dosage forms, bulk drugs, disposable syringes & needles.

The company has three manufacturing facilities. The unit located in Kolkata is USFDA approved and the other two plants (Ghaziabad & Mandideep) are WHO CMP & ISO 9002 certified. Some of its bulk drugs are also certified by the UK and the European Council.

With an extensive network of stockists, Albert David’s products are available all across India. It is also present in approximately 35 countries.

In 2016, the company sold one of its brands ‘Actibile’ to Zydus Healthcare for Rs 55 crore.

The company has a small equity capital of Rs 5.71 crore supported by reserves of Rs 172 crore. Promoters own 60.9% of the company.

FY18 started on a difficult note as GST-related destocking dented first quarter earnings. But things have been improving since then.

With a market cap of just Rs.218 crore and a strong balance sheet, the stock trades at 0.7 times trailing market cap to sales.

Associated Alcohol & Breweries

Associated Alcohol & Breweries Ltd. is one of the largest distilleries in India and the flagship of the Associated Kedia Group.

AAB supllies extra neutral alcohol—a vital ingredient in alcoholic beverages—to many leading manufacturers under a special agreement.

It also bottles vodka and Scotch whisky for international brands. The company is present in all varieties of potable alcohols, country liquor, rectified spirits, extra neutral alcohol (ENA), distilled grain spirit and Indian made foreign liquor (IMFL) in the whisky, brandy, rum, gin and vodka categories.

It manufactures and markets in-house brands, such as Red & White, James McGill, Bombay Special (all whisky), London Bridge (gin) and Jamaican Magic (rum).

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The company has a lean balance sheet and is available at a reasonable valuation of 18 times FY18P earnings.

Clariant Chemicals India

Clariant Chemicals is a 51% subsidiary of Clariant International, the Switzerland headquartered global leader in specialty chemicals.

Clariant is India’s leading specialty chemicals company and is a major player in pigments, masterbatches (masterbatch is a solid or liquid additive for plastic used for colouring plastics or imparting other properties to plastics) and additives. The company earns 93% of its revenues from plastics & coating.

Clariant’s financials have been under pressure of late because of a major restructuring. The company expects to regain its growth as the restructuring is almost complete. Operating leverage is expected boost margins as utilization of various segments increases. The company has an added advantage of a strong and loyal client base of its parent.

As the company is debt free, any improvement in operating performance will reflect in the bottomline. The company has a track record of dividend payment and trades at 23 times FY19P earnings.

Elpro International

Elpro started off as a supplier of electrical parts like high voltage arresters & low voltage metal oxide varistors and was the only company outside the US to manufacture surge arresters and zinc oxide discs with GE technology.

However, intense competition hurt profitability, forcing the company to diversify into real estate.

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Elpro Real Estate is now a subsidiary of the company with a land bank of  1,18,770.40 Sq. Mts – 19% of this fully completed and 41% partially completed.

The debt to equity (short term plus long term debt) is 0.92. However, the company has recently raised Rs 100 crore through a rights issue, a part of which will be use to prepay debt.

Besides these main businesses, what is of interest to potential investor of Elpro is its 12.9% stake in PNB Metlife Life Insurance. The insurance company’s FY17 networth was Rs 2234 crore. On a conservative estimate (3 times book), the value of the stake works out to Rs 865 crore, which is more than the current market capitalisation of the company.

EPC Industries

EPC, a Mahindra & Mahindra (M&M) subsidiary, is a micro-irrigation system and component manufacturer based out of Nashik, Maharashtra. M&M took over the company in 2011 and kept infusing capital into it over the years.

EPC has also forayed into greenhouse farming & agri pumps to become a total agri solutions provider domestically. EPC is registered in 13 states under the subsidy programme in India.

India is a water stressed economy and will be water scarce by 2050. 70% of the water available will be used for agriculture and therefore there is a need for water efficient methods of irrigation.

Micro irrigation results in significant savings in water, labour, power, fertilizer & nutrition and results in productivity improvement as well.

There is a huge potential for micro irrigation. Of the 69 mn hectares of arable land, about 7.7 mn hectares are drip irrigated. Pradhan Mantri Krishi Sinchai Yojana aims at “Har Khet Ko Paani” (water for all farms) with mantra of “Per Drop More Crop”. The company is well positioned to benefit from government’s agenda to double farm income by 2022. EPC Industries is a debt free company. Given the quality of the management/balance sheet/macro prospects, the early signs of turnaround is a good time to start accumulating the stock.
First Published on Mar 7, 2018 12:19 pm
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