Zydus Wellness: A New Chapter

Zydus Wellness completed 100% acquisition of stake in Heinz India for Rs 4,595 crore.

This includes the brands Complan, Glucon D, Nycil Talcum Powder and Sampriti Ghee, 2 large manufacturing facilities in Aligarh and Sitarganj and teams devoted to operations, research, sales, marketing and support. Heinz India also has a strong distribution network of over 800 distributors, more than 20,000 wholesalers covering 29 states.

Valuation of Heinz India:
– Valuation of Rs 4,595 crore
– Revenue of Rs 1,150 crore
– EBITDA of Rs 225 crore
– 4x EV/Sales
– 20.4x EV/EBITDA
– 6-7% growth rate

Deal Comparison:
– This deal is inexpensive compared to GSK Cons (6x EV/Sales and 30x EV/EBITDA)
GSK is the market leader in the Rs 7,000 crore domestic health food drinks segment, with Horlicks holding a 49% market share, followed by Mondelez’s Bournvita at 11% and Complan at 7%.

Post Merger:
– Revenue will increase by 3 times to Rs 1,700 crore
– EBITDA of Rs 340 crore
– EBITDA margin 20%
– Aim to achieve double digit growth

Competitive Advantage:
– Iconic brands Complan, Glucon D and Nycil, which have a legacy of over 50 years
– Two #1 brands in the market, Glucon D and Nycil

Industry:
– Health Food Drinks (HFD) segment grows at 6%, whereas some of the other Food & Beverage (F&B) category grows at 16%, Ambit Capital reported
– The slow growth is forcing incumbents to exit the segment

Fund Raising:
– Zydus issued shares on a preferential basis to True North (Rs 1,000 crore), Pioneer Investment Fund (Rs 100 crore), Cadila (Rs 1,175 crore), Zydus Family Trust (Rs 300 crore). The issue price is Rs 1,382.
– Zydus raised debt by issuing NCD for Rs 1,500 crore.

Management:
– Dr. Sharvil Patel, Chairman & CEO, is associated with the company since 1997
– Dr. Patel has doctorate for his research work in Breast Cancer at John Hopkins, Bayview Medical Centre, USA

Investors:
– Promoters hold 72.5% of the company
– Matthews India Fund holds 3.8% of the company
– Reliance MF holds 3.1% of the company
– Azim Premji holds 3.5% of the company

Valuation:
The Promoter Group and Private PE invested Rs 2,575 crore, or at Rs 1,382 per share.

Tube Investments of India: Staying Focused…

Post restructuring, Tube Investments of India (TI) is a pure-play manufacturing company from the Murugappa Group, one of the oldest business houses of India.

The company’s business interest span across products like steel strips, tubes and tubular components, bicycles and fitness products, chains for automotive and industrial applications, metal formed parts for automotive, railways, industrial gears and automotive dies.

TI has 17 manufacturing units located close to the major manufacturing hubs with Just In Time (JIT) supply capabilities, 5 depots and 35 warehouses located across the country.

The company operates under 3 business divisions namely
1. Engineering
2. Bicycles
3. Metal Formed Products

Engineering Division:

ti-tubes

TI manufactures high precision, safety critical CDW and ERW tubes, tubular components, large diameter tubes for hydraulic cylinders and off-road applications, and special grade Cold Rolled Steel Strips (CRSS).

Products:
– Cold Drawn Welded (CDW) Precision tubes
– ERW tubes
– Tubular components
– Cold Rolled Steel Strips (CRSS)

Comp. Advantage:
– Preferred Indian supplier and market leader in high-precision CDW tubes
– Strategic supplier for application-specific special grade CRSS
– Only manufacturer with 4 plants proximately located to customers in key geographies

TI is setting up a new plant to make precision steel tubes at Rajpura with a capacity of 11,000 tons per annum. The estimated capex is ₹ 77 cr and is likely to be commissioned by early FY19.

TI derives 45% of its revenues from this division. TI manufactured 245,000 tons of large diameter tubes in FY17. The long term average margin for the engineering division is 6,000 / ton.

Cycles Division:

ti-store

TI Cycles manufactures and markets a wide range of bicycle brands, fitness equipment and accessories. The bicycle range include standard commute bicycles to premium bicycles for kids, the health conscious, the urban commute and performance cycling. TI’s brands command a leadership position in India.

TI Cycles is the 2nd largest bicycle manufacturer in India with a marke share of 36%. TI has large dealer network across India with 10,000 touch points, 3 strategically located manufacturing plants and 13 warehouses.

TI’s brands include BSA and Hercules in the standard segment and Roadeo and Montra in the premium segment.

ti-brands

TI Cycles launched renowned Belgian-based Ridley cycles in the price range of ₹ 25,000 to over ₹ 80,000. TI Cycles has licensing agreement with Ridley and Schwinn. TI Cycles distributes brands like Cannondale, GT and Mongoose. These premium cycles are available at ‘Track & Trail Sports’ retail outlets.

ti-track

Ciclo Cafe opened at Gurugram and Hyderabad. TI’s larget state-of-the-art cycle manufacturing plant at Rajpura, Punjab commenced production.

ti-cafe

TI derives 30% of its revenues from this division. TI sold 4 mn bicycles in FY17.

Metal Formed Products Division:

ti-metal

TI manufactures auto and industrial chains, fine blanking components, motor castings and metal formed products for automotive, industrial and railway segments. TI has 10 manufacturing units 14 warehouses located in proximity to automotive and industrial hubs of India.

Comp. Advantage:
– Preferred supplier for manufacturing safety-critical components for automotive industry
– Market leader in automotive and industrial chains
– Preferred supplier for roll-formed doorframes
– TI’s flagship Diamond, Razor & Rombo brands are tuusted for their quality and consistency

TI derives 25% of its revenues from this division.

Management:
– Mr. Ramkumar, MD, brings in 37 years of rich experience that includes 25 years serving the company in various capacities
– Mr. Ramkumar holds an MBA from IIM, Ahmedabad.
– Mr. Vellayan Subbiah, MD, has over 23 years of experience in consulting, technology and financial services
– Mr. Subbiah holds an MBA from the Univerysity of Michigan and an engineer from IIT

Investors:
– Promoters hold 49.9% of the company
– HDFC MF holds 8.1% of the company
– L&T MF holds 1.9% of the company
– Reliance MF holds 1.4% of the company
– Gagandeep Capital holds 2.2% of the company
– Shamyak Investment holds 1.3% of the company

Shanti Gears is a 70% subsidiary of TI.

Valuation:
22-Jun-2018:
At the CMP of ₹ 223, the rate of return is 9.0% based on pre-tax earnings to market cap. TI is available at .9x times of sales to market cap.

25 Jun 18
#ENAM Securities bought 11.7 lakh shares of Tube Investments for ₹26 crore, or at ₹ 222 per share.
Promoter Group Ambadi Investments sold 0.8% at ₹ 222 each in order to meet cash flow requirements.

Source: Company
Idea2Analyse: Mr. Sivanandam Balakrishnan

Astec LifeSciences: A bet on Godrej Agrovet

On Aug 10, 2017, Godrej Agrovet bought 2.08 lakh shares of Astec at an average price of ₹556.
On Aug 11, 2017, Sundaram Mutual Fund bought 3.07 lakh shares of Astec at an average price of ₹542.

Godrej Agrovet is a game changer for Astec, has ambitious plans and this will drive growth.

Astec LifeSciences is a subsidiary of Godrej Agrovet. Astec is a producer of agrochemicals and pharmaceutical intermediates. Astec operates in the off patent proprietary segment with a focus on fungicides. Astec has over two decades of experience in the chemical industry.

Astec has three production plants and an R&D site in India. Astec has a team of scientists and chemists focused on product development and process optimization.

Astec derives 85% of its revenues from agrochemicals and 15% from pharma intermediates.

Products:
Astec manufactures fungicides with a special focus on Triazole fungicides. These products are used on paddy, fruits, vegetables, cereal, potatoes and soyabean to control various types of fungal diseases. Astec’s pharma intermediates are mainly used in the manufacture of antifungal pharma products.

Astec has 214 product registrations across 32 countries including 139 product registrations in India.

Astec derives 83% of its revenue from its top five products.

Clients:
Astec’s clients includes 6 of the top 15 agrochemical companies in the world, including Syngenta, Makhteshim Agan, Nufarm, UPL and Cheminova.

Astec also offers contract manufacturing services and has excellent relationships with multinationals.

Astec derives close to 60% of its revenue from its top five customers.

Indian Agro-chemical Industry:
India is the fourth largest manufacturer of agro-chemicals. The Indian Agro-chemical industry is estimated to be around USD 4.3 billion.

India holds the second largest agricultural land after USA. However, 60% of total land area under agriculture (157 million hectares) has been stagnant for a while now. This implies that India needs to produce more in less area – a significant improvement in productivity is required.

India’s consumption of agro-chemicals is amongst the lowest in the world. It is measured that annual crop loss in India due to pest attacks is close to ₹50,000 Crore.

Japan’s pesticide consumption per hectare stands at 11 kgs, USA stands at 4 kgs, whereas India stands at a low of 0.58 kgs.

Contract manufacturing business holds immense promise for the Indian Agro Chemical sector. Molecules worth $5 billion will go off patent in the next 5 years.

Investors:
Godrej Agrovet holds 56% of the company
Vijay Kedia holds 1% of the company
Sundaram Mutual Fund holds 1.5% of the company

 

astec-graph

Tata Elxsi – A bet on driverless cars

Tata Elxsi Limited (TEL) is a niche software design company. The company’s core services include Embedded Product Design (EPD), Industrial Design and Visual Computing Labs. TEL provides services to sectors such as automotive, broadcasting, communications, consumer products, defence, healthcare, media & entertainment and semiconductor. It has 4452 employees across India, USA, Europe, Japan and Malaysia.

Clients:
– TEL works with 10 OEM’s and 25 Tier-1 suppliers in the auto segment
– TEL’s top automotive clients include Ford, Jaguar Land Rover, Isuzu, Nissan, Tata Motors, Mahindra, Continental, Bosch, Lear, Visteon, Delphi and Magna
– TEL’s top broadcasting clients include Comcast, Time Warner Cable, Sky and BT
– TEL works with top 2 set-top box companies and top 3 MSO’s in the broadcasting segment
– TEL’s top device clients include ST Micro and Entropic

Management:
– Mr. Ganapathy Subramaniam, Chairman of TEL, has over 30 years of experience in the IT industry
– Mr. Ganapathy is also the head of TCS Financial Solutions, a strategic business unit of TCS
– Mr. Madhukar Dev, MD & CEO of TEL, has over 26 years of experience in the IT industry
– Mr. Madhukar holds an MBA from IIM Bangalore
– Attrition rate is one of the moderate in the industry
– The management is very good at capital allocation
– Good dividend payout
– Able and honest management

Investors:
– Promoters hold 44.6% of the company
– Mutual Funds hold close to 1.9% of the company
– Wasatch Small Cap Fund holds 1% of the company
– Macquarie Fund holds 1% of the company
– LIC holds 1.2% of the company

Stock Picks: Astral Poly Technik Ltd

Astral Poly Technik Ltd (APTL) is engaged in manufacturing CPVC (Chlorinated polyvinyl chloride) and PVC pipes/plumping systems for residential and industrial applications. APTL was established in 1999 to manufacture plumbing and drainage systems in India. It has 3 manufacturing plants at Santej, Dholka and Hosur.

Key Facts:
– Organized players accounting for 65% of the piping market. Astral is the second largest organized player
– Astral earns 41% of its revenue from CPVC pipes, 33% from PVC pipes and 26% from Adhesives
– Astral has a total pipe manufacturing capacity of 127,762 tonnes (capacity utilisation is 68%)
– Astral is setting up a new pipe manufacturing plant in Ghiloth, Rajasthan
– Astral acquired two adhesive and sealants manufacturing companies UK-based Seal It Services and Resinova Chemie
– Salman Khan has been the brand ambassador for Astral

Clients:
– Top industrial clients include Reliance Industries, L&T, Adani, Grasim, NTPC, JSW Steel, Essar Steel and Cadila
– Top corporate clients include TCS, Wipro, Indian Oil and Sundaram Finance
– Key clients in the real estate space include Lodha, Hiranandani, Sobha, Tata Housing, Ajmera, and Kalpataru
– Key clients in the Hotels space include Marriott, Hyatt, Taj, ITC, Trident, Holiday Inn, Le Roral Meridien, The Imperial, and The Courtyard

Management:
– Sandeep Engineer is the Managing Director of Astral. Under his leadership, Astral’s market cap grew from $10 million to $1 billion in the last 7 years
– Sandeep has been praised by distributors for his humility and humbleness
– Sandeep has received EY Entrepreneur of The Year award
– Sandeep has received ET Inspiring Business Leader award
– India’s most trusted pipe brand by TRA
– Expanded its distribution network and product range
– Able and good management

Investors:
– Promoters hold 59% of the company
– Mutual Funds hold close to 5.6% of the company
– Setadview Capital holds 3.9% of the company
– ABG capital holds 2.8% of the company
– Treeline Asia Fund holds 3% of the company