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Saturday, August 23, 2014


Scrip Code: 507717 DHANUKA
CMP:  Rs. 432.55; Buy at current levels.
Medium to Long term Target: Rs. 687; 
STOP LOSS – Rs. 398.00; Market Cap: Rs. 2,163.59 Cr; 52 Week High/Low: Rs. 468.95 / Rs. 127.30
Total Shares: 5,00,19,500 shares; Promoters : 3,75,09,175 shares –74.99 %; Total Public holding : 1,25,10,325 shares – 25.01 %; Book Value: Rs. 71.15; Face Value: Rs. 2.00; EPS: Rs. 19.24; Dividend: 140.00 % ; P/E: 22.40 times; Ind. P/E: 23.93; EV/EBITDA: 17.07.
Total Debt:  33.01 Cr; Enterprise Value: Rs. 2190.39 Cr.

DHANUKA AGRITECH LIMITED:  Dhanuka Agritech Ltd was incorporated in 1985 and is based in Gurgaon, India. The company was earlier known as Dhanuka Pesticides Ltd and changed to Dhanuka Agritech Ltd in 2007. The company, in April 2010, declared split in its face value from Rs. 10 to Rs. 2. Dhanuka Agritech Limited is engaged in manufacturing, marketing, and trading various types of pesticides. It offers herbicides/weedicides, insecticides, fungicides, miticides, and plant growth regulators/stimulants in various forms, such as liquid, dust, powder, and granules. The company also generates electricity through wind mills, as well as provides seeds. It serves farmers, planters, and pest control operators. Dhanuka Agritech manufactures a wide range of Agro-chemicals like herbicides, insecticides, fungicides, miticides, plant growth regulators in various forms- liquid, dust, powered and granules. The company has pan-India presence through its marketing offices in all major states in India. It has a network of more than 7,000 distributors/dealers selling to over 75,000 retailers across India and reaching out to more than 1 crore farmers. The company has technical tie-ups with 4 American, 5 Japanese & 2 European Companies. Dhanuka’s target customers are primarily farmers. Dhanuka Agritech Limited is locally compared with Monsanto India Ltd, Sabero Organics Gujarat Ltd, Insecticides (India) Ltd, Advanta Ltd, Camson Bio-Technologies ltd, Dhanuka Agritech Ltd, Kaveri Seeds Co Ltd, Sabero Organics Gujarat Ltd, Excel Industries Ltd, Punjab Chemicals and Crop Protection ltd, Rallis India Ltd, Insecticides India Ltd, Bayer CropScience India ltd, UPL Ltd, Bharat Rasayan Ltd, Meghmani Organics ltd and Globally compared with Monsanto Co of USA, Du Pont (E.I.) De Nemours (DD) of Delaware, FMC Corporation of Pennsylvania, Sumitomo Chemical Co Ltd of Japan, Syngenta AG of Switzerland, Vilmorin & Cie of Paris, Bayer Aktiengesellschaft of Germany, KWS SAAT AG of Germany, Sakata Seed Corporation of Japan, Yukiguni Maitake Co Ltd of Japan, Akikawa Foods & Farms Co Ltd of Japan, Hob Co Ltd of Japan, Hokuto Corporation of Japan, Kaneko Seeds Co ltd of Japan.

Investment Rationale:
Dhanuka Agritech Ltd (DAL) is a leading player in the agrochemical sector. Dhanuka Agritech Ltd is engaged in the businesses of Agro-Chemicals & Seeds producing under Dhanuka Agritech Ltd and its pharmaceutical ingredients are produced under its Dhanuka Laboratories Ltd. Dhanuka’s target customers are primarily farmers. In April 2014, company announced the receipt of approvals for its innovative product registered under the section 9(3) of the Insecticide Act of India, these approvals gives DAL the exclusive rights to sell the products in Indian markets. These products will be launched in this kharif season. The management has also filed for licenses for 6 new products and is confident of launching at least 2 products each year in the coming 3 years. Of these 6 products 3 will be of herbicide, which is a fast growing category in the agrochemical space. Specialty products contribute two‐third of the revenue while generic products contribute one‐third of its revenue. The company have received the approvals for two products under section 9 (3) – Mortar which is insecticides for paddy, vegetables and is produced in-house, & second product is Sakura herbicides for soybean produced by tie up with Nissan. Mortar would be launched in this month of Aug’14 and Sakura in Rabi season. There is one product more under section 9(3) of the Insecticide Act of India herbicides for sugarcane which produced in association with Nissan which is likely to be launched in second half of FY15. During the year, Company is in process of launching few products under section 9(4) of the Insecticide Act of India. Pager a insecticides for cotton and vegetables was launched in July’14 and Jackal insecticides for multiple crops will be launched in Sept’14. All above products are likely to drive the growth in second half of the year. According to the estimates from Crop Care Federation of India (CCFI), 85 % of annual crop losses are due to pest infestation, diseases and weeds. Pesticide penetration in India is very low, about 0.6 kg per hector as against its global peers of 5‐17 kg per hector. With the government’s focus on increasing the MSP (minimum support prices) for key crops like rice, wheat, maize, sugarcane etc. will lead to higher farm income and will provide an incentive for farmers to use more pesticides to improve their farm yields. Dhanuka Agritech’s has long standing tie ups with leading chemical companies of the world such as Nissan, Sumitomo, Chemtura, DuPont, FMC etc. Technical sources and expertise from these MNC’s along with their formulations will help the company to develop its own manufacturing plants. These products command higher margins and this is reflected from the company’s superior EBITDA margins which are about 16 % as compared to industry average of 14 %. For MNCs, DAL comes as a preferred choice due to its profound understanding of the Indian agrochemical market, its nationwide distribution network and strong farmer contact. So far DAL, its 25 products from its partners out of which 6 are among the top 10 revenue contributors. Majority of the new products in the pipeline will be coming from such tie‐ups. DAL’s asset light business model has enabled it to achieve superior asset turnover ratio as well as return ratio’s compared to its peers. The more capital intensive technical manufacturing process has been consciously avoided. Management’s priority still remains on leveraging its marketing and distribution network which is one of the largest in the country. It has also built a robust team of sales and marketing workforce which has fostered strong relationship with the farmers. Last year, it had roped in superstar Amitabh Bachchan as its brand ambassador. This marketing exercise has improved DAL’s brand visibility, increased brand recognition and had a positive influence on the target audience. Over the last few years management has taken measures to reduce the working capital which has resulted in strong operating cash flow making company nearly Debt free on balance sheet. Company’s higher profitability gives the flexibility to invest its cash back into the business for further expansion or development of new products. Company’s RoCE has consistently been maintained above 30 % which is higher than its peers in the industry. Tax rate for FY15 is expect to be under MAT however it would increase in FY16 as company is exhausting its MAT credits. Company’s management has more than 40 years of experience in this field. These all factors augers well for Dhanuka Agritech Ltd.

Outlook and Valuation:
Dhanuka Agritech Ltd bagged itself a place in the prestigious ‘Forbes Asia – 200 Best under a Billion lists’ for the third time in last four years in Asia – Pacific region. The Company is actively taking up the cause of Food security & Farmers interest in various forums & industry bodies like CII, ASSOCHAM and FICCI. Company's marketing team has taken many initiatives to strengthen the Brand image by signing Shri Amitabh Bachchan as Brand Ambassador. Globally, the Agro-chemical Industry is dominated by MNCs such as Syngenta, Bayer, Monsanto, BASF, Dow and Dupont which accounts for nearly 75 % by value of the overall $4,200 Cr Industry. These Companies are the principal innovators in this industry, and have invested heavily in R&D with an aim of reaping the rewards from it in form of patent protection. Dhanuka Agritech Ltd, currently has production facilities at Gurgaon, Sanand and Udhampur, with cumulative capacity of over 35,900 tonnes of solids & granules and over 11,000 kilo liters of liquids. Company is currently planning its capacity expansion at Gurgaon and Udhampur units, involving capex outlay of around Rs. 7 crores. Company has bought 10 acres (4,35,600 sq.ft)) of land at Keshwana in Rajasthan for setting up its new manufacturing unit, which will be of International standards with maximum automation. The expected capex will be around Rs. 45 to Rs. 50 crores. This unit is expected to be operational by the end of 2014 and this will triple its existing manufacturing capacity. Agro Chemicals sector is vital for the food and nutritional requirement of any nation, and so this sector remains the principal source of livelihood for more than 55 % of the population in India. In comparison to the other countries, India faces a greater challenge, since we have only 2.3 % share in world's total land area; India has to ensure food security for all of its population, which is about 17.5 % of world population (world population as on 2013 estimates was 718.4 cr and India was 126 Cr). India has the 2nd largest area under agriculture (179.9 million hectares) in the world with major crops such as paddy and wheat. India has achieved five-fold increase in food grains production from mere 50.8 million tonnes in 1950-51 to an all-time record production of 257.4 million tonnes in 2011-12. However, the food security and sustainability concerns have become much more severe today due to many challenges like fast rising population, diminishing arable land, rising cost of inputs, limited technology reach, increasing losses caused by insect pests and weeds and so on. Agro Chemicals play an vital role in this. Agro-chemical business is divided in two parts - 'Technical' manufacturing and 'Formulation' manufacturing. a) 'Technical' or 'Active Ingredients' manufacturers: These are essentially the manufacturers of raw materials for making Agro-chemicals, very similar to API manufacturers in Pharmaceutical Industry. This is quite asset intensive business and requires significant capital expenditure and serves mostly B2B segment. b) 'Formulation' manufacturers: These are manufacturers of final product from technical grade pesticides (the usable form of pesticides). This is quite an asset light model and serves mostly B2C segment. Domestic Agro-chemical Industry is expected to have a bright future due to favourable macro factors mainly due to increasing minimum support price (minimum price of agri-commodities set by Government of India); lower current penetration of Agro-chemicals in India, and MNREGA led labour shortage leading to increased herbicide usage. The Government of India is also launching several programmes, including 100 % seed treatment campaign, increasing food grains production, special focus on enhancing production of fruits and vegetables. The National Food Security Mission, National Horticulture Mission, Bringing Green Revolution in Eastern India and such other programmes are likely to increase the demand for Agrochemicals. The Rashtriya Krishi Vikas Yojna is having a provision for giving subsidy to farmers for appropriate plant protection measures. The Government policy for Minimum Support Price (MSP) and Fair & Remunerative Price (FRP) as in sugarcane is a good incentive for saving crop losses due to pests to have assured economic return. The MSP and FRP have been increased year after year. And Dhanuka Agritech Ltd gains out of it. The company's inherent strength lies in its asset light business model which has led to higher Return On Asset than the industry. The management’s focus on building strong distribution network along with collaboration with major global chemical players and introducing high‐margin specialty products, has paid rich dividends to the company and this will continue in the years to come. Company will keep on adding new products every year through its collaborations and is continuously on the look out to bring the latest technology to Indian farmers. With nearly Debt free balance sheet, sound financial backing and experienced management team, with healthy revenue visibility, sustainable margins and ability to monetize innovative products due to strong relationships with global giants given its huge distribution network makes Dhanuka Agritech an attractive buy. At the CMP of Rs. 432.55, the stock is trading at its all-time high P/E of 19.22 x FY15E, 16.38 x FY16E. The company can post EPS of Rs. 22.50 for FY15E and Rs. 26.40 for FY17E. One can buy DHANUKA AGRITECH LIMITED with a LONG TERM target price of Rs. 600.00 for Medium to Long term investment and for the SHORT TERM PLAYERS it should be Rs. 500.00 

SALES ( Crs)739.50887.401,082.601,487.70
NET PROFIT (₹ Cr)93.10112.40132.10180.60
EPS ()18.6022.5026.4036.10
PE (x)22.6018.8016.0011.10
P/BV (x)6.305.104.103.00
EV/EBITDA (x)17.7014.5011.508.10
ROE (%)31.3030.0028.3030.05
ROCE (%)34.6033.6034.9037.7

I would buy DHANUKA AGRITECH LTD for Medium to Long term for target of Rs. 600.00 and for the Shorter term the target would be Rs. 500.00. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of ₹ 398.00 on every purchase(Why Strict stop loss of 8 % ?) - Click Here

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Friday, August 15, 2014


My India Proudly soars high today...
Free & Independent...
May the Joy of Freedom embrace all of us always.
Happy Independence Day to You ALL !!!

वन्दे मातरम् सुजलां सुफलां मलयजशीतलाम् |
सस्य श्यामलां मातरम्
शुभ्र ज्योत्स्ना पुलकित यामिनीम्
फुल्ल कुसुमित द्रुमदलशोभिनीम्
सुहासिनीं सुमधुर भाषिणीम्
सुखदां वरदां मातरम् ||

“India is a the Cradle of the human race, the birth place of human speech, the mother of history, the grandmother of legend, and the great grandmother of tradition. Our most valuable and Astrictive materials in the history of man are treasured up in India only!” – Mark Twain 



Wednesday, August 13, 2014


*Atul Auto quotes ex-split basis from September 12, 2014. Company declared split in face value of its shares from Rs. 10 to Rs. 5.00 .

Scrip Code: 531795 ATULAUTO
CMP:  Rs. 649.50; Buy at current levels and on declines.
Short Term Target: Rs. 700; Medium to Long term Target: Rs. 800; 
STOP LOSS – Rs. 597.55; Market Cap: Rs. 712.60 Cr; 52 Week High/Low: Rs. 687.90 / Rs. 143.15
Total Shares: 1,09,71,600 shares; Promoters : 60,42,405 shares –55.07 %; Total Public holding : 49,29,195 shares – 44.93 %; Book Value: Rs. 83.52; Face Value: Rs. 10.00; EPS: Rs. 31.05; Dividend: 75.00 % ; P/E: 20.091 times; Ind. P/E: 21.53; EV/EBITDA: 12.28.
Total Debt: ZERO Cr; Enterprise Value: Rs. 682.29 Cr.

ATUL AUTO LIMITED:  ATUL AUTO Ltd was incorporated in 1986 and is based in Rajkot, Gujarat, India. The company was earlier known as Atul Auto (Jamnagar) Pvt. Ltd and changed its name to Atul Auto Pvt. Ltd on Aug 1994. The company, in May 2012, gave bonus of equity shares of Face value of Rs. 10 each fully paid up in ratio of 1 new for every 2 equity shares held- the company issued 36,57,200 equity shares as Bonus. Atul Auto Ltd recently on June 26, 2014 declared split in its face value from Rs. 10 to Rs. 5. Atul Auto limited manufactures and sells front engine and rear engine passenger, loading three wheeler auto rickshaws and its spare parts primarily in India. It offers goods carriers; passenger carriers; and special purpose vehicles such as chicken carriers, trippers, water tank carriers, soft drink carriers, mobile shops, hoppers, and bio hazard and vegetable vending vehicles that have applications in courier services, industrial products, laundry construction, dairies, caterers, FMCG distribution, LPG distribution, etc. The company provides its three wheelers under its brands namely: Atul Shakti, Atul Gem, Atul Smart, and Atul Gemini–Dz brands. The Company is also involved in the generation of electricity with a wind turbine generator at Gandhavi Village, Gujarat. The company has 150 exclusive dealers, more than 100 sub-dealers, 14 regional offices and 3 training centres in 16 states of India. Company exports its 3 wheelers in CBU/SKD/CKD conditions and as per the requirement of Importer. The company also exports its products primarily to Nigeria, Kenya, Egypt, Tanzania, and other African countries. The Company has its plant at Village Shapar at a distance of 18 kms from Rajkot. This plant commenced its commercial production from July 1992 and at present has an installed capacity is 48,000 vehicles per annum. Atul Auto Limited is locally compared with Bajaj Auto Ltd, Hero MotoCorp, Swaraj Mazda Motor Corp, Scooters India Limited, Automobile Corporation of Goa Limited, Commercial Engineers and Body Builders and globally compared with Aftab Automobiles Ltd of UAE, Ford Motor Company of USA, Harley-Davidson Inc of USA, Tesla Motors Inc of USA, Thor Industries Inc, Mitubishi Motor Corp of Japan, Bayer Motoren Werke AG (BMW) of Germany, Piaggio & C. SpA of France, Porsche Automobil Holding SE of Germany, Renault Societe of France, Volkswagen Aktiengesellschaft of Germany.

Investment Rationale:
Atul Auto Ltd is one of the key three-wheeler manufacturing companies in India. It has its manufacturing facility at Rajkot in the state of Gujarat. The company has production capacity of 48,000 units. In the last few years the company has improved its market position in the domestic 3- wheeler industry with incremental market share in the 0.5 tonnes goods as well as passenger carrier segment and is the third largest player in 0.5 T three wheeler industry and is expanding its distribution network beyond Gujarat, increasing its capacity and launching new products. Atul Auto, was struggling to maintain its monthly run rate of 1,000 units till 2009, and was dismissed as a fringe player, whose presence was largely restricted to Gujarat. But it all changed for the company after it started making rear mounted engines for three wheelers and focused on tier-II and tier-III cities. The company launched various variants to its vehicle line which helped company and now it commands a market share of 7.3 % as against less than 1 % five years ago, and has posted an average volume growth of 17 % in trailing four quarters compared with industry's average of 2 %. Atul Auto has defied all market hurdles & is growing consistently. Atul Auto has aggressively expanding itself and plans to launch more new variants, which will boost its top line and being a debt frees company will strengthen its bottom-line. With the bigger players catering to urban markets, Atul Auto saw opportunity in tier-II and -III cities and built its strategy around them. For instance, it customized its products to meet the expectations of smaller cities and rural areas. The customization included capacity to bear overloading, higher mileage of 35 a litre and a warranty of 24 months against 14-16 months offered by its competitors. This strategy worked for Atul Auto as sales started trickling in from other states other than Gujarat - the western state now contributes 40 % to its sales. States like Kerala and Assam contributes 7 % to its sales now, and the company is planning to make inroads into West Bengal and Tamil Nadu. Atul Auto invested around Rs. 12 crore to double its installed capacity from 24,000 units a year ago to 48,000 units a year in Rajkot. It is now building a new facility in Ahmedabad with an investment of around Rs. 100 crore, which would add another 60,000 units a year which will be ready in the next 18-24 months. The capital expenditure would be funded by internal accruals and the balance sheet is likely to remain Debt Free. Besides the Ahmedabad facility, the company is exploring the opportunity to increase its export share, where realisations are higher. The company is in discussions with several distributors in Africa. Atul Auto has been expanding its distribution network for the past few years. Expansion in dealer network in new states has enabled the company to grow above industry rate resulting in an increase in market share from 2.64 % at the end of Mar’07 to 3.81 % at the end of Mar’13. Going forward, the Company is going to explore new geographies coupled with new product offerings in the pipeline and anticipated increase in the capacities. At present Atul Auto Ltd exports are negligible, but there is huge potential in the under-developed or developing countries like Sri Lanka, Bangladesh, Malaysia, Kenya, South Africa and Brazil where reasonable transportation is an issue. Atul Auto is currently exporting in five African countries including South Africa and Kenya. It is also exporting in Bangladesh under a technical tie up. The company has planned to invest in Sri Lanka and proposal for that has been already been filed to Sri Lankan government in 2012. Atul’s specialised focus has clearly paid rich dividends to its shareholders and is evidenced by market share gains. With further capacity addition and new petrol product launch, Atul can efficiently tap export markets along with urban market in India and, thereby, continue the strong growth momentum.

Outlook and Valuation:
Atul has attained a pan-India presence over the past three to four years, establishing its brand in new markets and gaining market share, which grew from 2.0 % in FY09 to 7.7 % in FY14. However, one of the major shortcomings of Atul has been the lack of petrol engine products, which is more in use in urban areas. Management has guided to have a new petrol engine product, which will be launched in the next 9 to 12 months; going forward, it is believed that Atul’s volumes are likely to remain on the uptrend and the petrol product will give a boost to the export volumes. Atul Auto’s growth trajectory has been impressive with volumes growing at 40 % CAGR in FY09-14 even as the domestic three-wheeler segment has grown at about 7 % CAGR over the same period. Volumes have been improving on the back of added dealerships and increasing geographic presence along with market share gains in existing markets. Atul’s volumes have grown in both the passenger and goods carrier segments, where Atul has benefited from the launch of its rear-engine vehicle Atul Gem in 2009, which has helped to serve a wider audience. Currently, Atul is present in nearly all states barring Tamil Nadu and West Bengal. Also, the dealer’s network comprises 190 primary dealers and 110 sub-dealers across the country. The management has guided that the number of primary dealerships will rise to around 240 by the end of FY15E. This is likely to help meet the management target of 20 % volume growth for FY15E. In a segment that offers little scope for product differentiation, Atul has been able to carve out a niche for itself focusing more on providing good after-sale service and product customisation. So far, Atul’s management has been cautious with respect to capacity expansion. However, with continued volume growth, Atul will soon reach ahead of capacity in case demand revival is strong. The management is in the process of finalising the location for the new plant. The facility is likely to be fully operational by FY17E. Capex requirement for the project is likely to be around Rs. 150 crore, to be funded through internal sources without resorting to debt. The Indian auto industry has been recording tremendous growth over the years and has emerged as a major contributor to India’s gross domestic product (GDP). The industry currently accounts for almost 7 per cent of the country’s GDP and employs about 19 million people both directly and indirectly. The passenger vehicles production in India is expected to reach 10 million units by 2020–21. The industry is estimated to grow at a compound annual growth rate (CAGR) of 13 per cent during 2012–2021. In addition, the industry is projected to touch US$ 30 billion by 2020–21. Atul Auto has continued to outperform the industry which is facing demand related challenges amidst economic slowdown. The company has not only been able to maintain healthy performance at the top-line but at the profitability front as well. Though the significant part of the current top-line growth was largely contributed from the volume growth, it is expected that the realization to improve as well going forward. The company expects to exhaust the increased capacity by next fiscal. In addition, the geographical expansion plans and wider product line which are like to materialize over the period of 4-8 quarters are likely to result into robust financial for the company. In addition the company is working on a significant expansion of installed capacities from 48,000 units to 1,08,000 vehicles by 2014 which can be seen as a major driver. The project for Sri Lanka is still under consideration but the opportunities are huge there. Atul’s specialised focus has clearly paid rich dividends as evidenced by market share gains. With the further capacity addition and new petrol product launch, Atul can efficiently tap the export markets along with urban market in India and, thereby, continue the strong growth momentum. The company, in May 2012, gave bonus of equity shares of Face value of Rs. 10 each fully paid up in ratio of 1 new for every 2 equity shares held- the company issued 36,57,200 equity shares as Bonus. Atul Auto Ltd recently on June 26, 2014 declared split in its face value from Rs. 10 to Rs. 5 with its 1st September 2014 as its record date for splitThe stock split will increase the liquidity among the public shareholding from currently of 49,29,195 shares of face value of Rs. 10 to 98,58,390 shares of face value of Rs. 5 each. Adjusted basis, the stock could trade between the price range of Rs. 371 to Rs. 400. The sharp rally in the stock price over the past two years has reflected the same. However, looking at the strong growth potential coupled with a strong balance sheet, robust return ratios, Atul Auto looks good buy and can reached Rs. 1100 in one years time (i.e. Rs. 550 after split). At the current market price of Rs. 649.50, the stock is trading at a PE of 17.50 x FY15E and 13.78 x FY16E respectively. The company can post Earnings per share (EPS) of Rs. 37.10 in FY15E and Rs. 47.10 in FY16E. One can buy ATUL AUTO LTD with a Short term target price of Rs. 685.00 and for Medium to Long term investment it can be Rs. 800.

SALES ( Crs)363.00429.00523.00642.00
NET PROFIT (₹ Cr)25.9029.8040.7051.60
EPS ()23.6027.2037.1047.10
PE (x)18.8016.4012.009.50
P/BV (x)6.605.203.902.90
EV/EBITDA (x)11.309.807.906.40
ROE (%)34.9031.5032.3030.60
ROCE (%)48.0042.5043.7041.60

I would buy ATUL AUTO LTD for Medium to Long term for target of Rs. 800 and for the shorter term the target would be Rs. 700.00. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of ₹ 597.55 on every purchase(Why Strict stop loss of 8 % ?) - Click Here

*Dear Reader friend, if you enjoyed this article, please do share it with your Friends and Colleagues through Facebook and Twitter, and drop in your valuable thoughts in comment box.. 



Sunday, August 3, 2014


*As the author of this blog I disclose that I do hold ADANI PORT & SEZ LTD in my investment portfolio.

Scrip Code: 532921 ADANIPORTS
CMP:  Rs. 259.25; Buy at current levels.

Medium to Long term Target: Rs. 285; STOP LOSS – Rs. 238.50; Market Cap: Rs. 53,667.34 Cr; 52 Week High/Low: Rs. 293.85 / Rs. 117.95; Total Shares: 207,00,51,620 shares; Promoters : 155,25,38,715 shares –75.00 %; Total Public holding : 51,75,12,905 shares – 25.00 %; Book Value: Rs. 45.09; Face Value: Rs. 2.00; EPS: Rs. 9.74; Dividend: 50.00 % ; P/E: 26.61 times; Ind. P/E: 31.72; EV/EBITDA: 18.01.
Total Debt: Rs. 8,266.77 Cr; Enterprise Value: Rs. 65,211.13 Cr.

Adani Port and Special Economic Zone LTD: The Company was incorporated in 1998 and is based in Ahmedabad, Gujarat- India. It was earlier known as Gujarat Adani Port Limited and was set up as a Special Economic Zone at Mundra. Gujarat Adani Port Ltd was then merged with Mundra Special Economic Zone Ltd in April 2006 and the company was renamed as Mundra Port and Special Economic Zone Limited, to reflect the nature of business. In January 2012 the company board renamed the company as Adani Port and Special Economic Zone Ltd. Adani Port and Special Economic Zone Ltd is a subsidiary of Adani Enterprises Limited from September 2010 and this company engages in the development, operations and maintenance of multi product special economic zone and related infrastructure in India. The company came with an IPO on November, 1st 2007 offering 4,02,50,000 equity shares of Rs. 10 each for Rs. 440 per share raising Rs. 1,771.00 Cr. The object of the issue were to achieve the benefits of listing on stock exchanges & to raise capital for construction and development of basic infrastructure and allied facilities in the proposed SEZ at Mundra; to utilize the funds for construction and development of a terminal for Coal and other Cargo at the Mundra Port; for contributing towards investment in Adani Petronet (Dahej) Port Pvt Ltd, Adani Logistics Ltd and Inland Container Pvt Ltd. The shares got listed on November 27, 2007 at Rs. 770 a share. The company declared split in face value of its shares from Rs. 10 to Rs. 2 on 17 May 2010. The company through its Mundra port located in Gulf of Kutch, India provides cargo handling & other value-added port related services. It operates port infrastructure facilities of bulk cargo at Dahej, Gujarat, handles bulk, liquid and containerized cargo, single point mooring, storage, and transportation of cargo by road, rail and pipeline. Adani Ports and Special Economic Zone Limited, together with its subsidiaries, develops and operates ports and port based infrastructure in India. The company operates a port at Mundra, Gujarat; a dry bulk terminal located in Dahej, Gujarat; a bulk and container handling terminal at the port of Hazira, Gujarat; and coal handling terminals at the port of Mormugao, Goa and Visakhapatnam in Andhra Pradesh. It also operates 4 bulk terminals with 15 berths to handle dry and liquid bulk cargo, 3 container terminals with 6 berths, and 2 offshore single point mooring facilities for handling crude cargo at the port of Mundra; a dry bulk cargo terminal with 2 berths at the port of Dahej; and 1 bulk terminal with 3 berths to handle dry and liquid bulk cargo, and 1 container terminal with 2 berths to handle container cargo at the port of Hazira. In addition, the company is developing a bulk terminal located in Kandla, Gujarat; a rail corridor; and road and highway projects. Further, it offers port services, including marine, handling intra-port transport, storage, other value-added, and evacuation services for terminal operators, shipping lines and agents, exporters, importers, and other port users; and infrastructure leasing and logistics services at the Mundra Port through its surrounding infrastructure. Additionally, the company provides multi-modal cargo storage-cum-logistics services; and non-scheduled (passenger) services through its aircrafts. The company also operates container trains on specific railways routes; and provides multi-model cargo storage and logistics services through the development of inland container depots at various locations. It operates a fleet of approximately 2517 vessels. In addition, APSEZL provides nonscheduled (passenger) services through its aircrafts. The company has sixteen subsidiaries as of March 2014. Adani Port and SEZ ltd is locally compared with Essar Ports ltd, Gujarat Pipavav Port Ltd, Pipavav Defence and globally with Avia Solutions Group Ab, DP World of UAE, Gemadept Corp, Kuwait and Gulf Link Transport Company, Luka Rijeka d.d, Wesco Aircraft Holdings Inc, Isewan Terminal Services Co., Ltd of Japan, Azuma Shipping Co., Ltd of Japan, Meiko Trans Co., Ltd of Japan, Rizhao Port Co. ltd; Shenzhen Chiwan Wharf Holdings Ltd.

Investment Rationale:
Adani Ports and SEZ is a part of global Adani Group, founded in 1988, India’s leading business houses with revenue of over $8.7 billion. Group’s logistics division denotes a large network of ports, Special Economic Zone (SEZ) and multimodal logistics - railways and ships. Adani owns and operates three ports – Mundra, Dahej and Hazira in India. The Mundra Port, which is the largest port in India, benefits from deep draft, first-class infrastructure and SEZ status. Adani is also developing ports at Mormugao and Kandla in India. India has a coastline of 7,517 kilometers (excluding the Andaman and Nicobar Islands), and with a port industry that has grown dramatically in past decade. India at present has 13 Major Ports and 187 Non-major Ports with total cargo traffic tonnage handled of about 934.88 mmt for the fiscal year 2013. Indian Ports handle approximately about 95 % of India's total trade in terms of volume and 70 % in terms of value. Most cargo ships that sail between East Asia & America, Europe and Africa passes through Indian territorial waters. Port traffic in India is set to rise about a CAGR of 15.9 % over FY12-14 and about 5.5 % for Non- major ports & about 22 % for major ports. It is estimated that in FY17 the cargo traffic may touch 1,758 million metric ton. India’s total external trade is estimated to have grown to $ 79,100 Cr in FY13 implying a CAGR of 17.7 % since FY06. The total volumes are expected to increase further as India continues its economic expansion, with real GDP growth in India is expected to be at an average of 7.3 % and 8.0 % per year for next 5 and 10 years from the fiscal year 2014, respectively, this will make India one of the fastest growing economies in the world. The consequence of strong GDP growth results in rising energy demand, and India currently meets about 75 %, of its total crude oil demand by imports. India’s crude imports touched 185 mmt in FY13 implying a CAGR of 8.7 % over FY07-13, and private ports have been good at attracting crude import traffic and Petroleum, oil and lubricants traffic at both major and non-major ports added up to 353.2 mmt in FY13. APSEZL is the largest private port in India in terms of volume. It handles the third highest container traffic in India and also handles the world’s largest fully mechanised coal terminal with a capacity of 60 MTPA. In FY13, Mundra port alone handled cargo traffic of 72. 3 MMT, from which container traffic contributed the most followed by Coal and Edible Oil, Chemicals and Petroleum, oil and lubricants. APSEZL at its port of Mundra handled 82.13 million tonnes of cargo in financial year 2013, a growth of 28 % year to year. Compared with the major as well as non-major ports of India, it ranks 2nd in terms of total cargo and container cargo handled during the year under review amongst all government owned commercial ports. The Special Economic Zone Policy was framed in April, 2000 with an objective to increase the exports, attract Foreign Direct Investment and to accelerate the economic growth of the country. The company's Multiproduct SEZ of 6,473 Hectare area at Mundra is the largest notified SEZ in the country.  The Exports from Mundra SEZ up to March, 2013 comes to about 7,357 Crores (cumulative). Mundra SEZ with its multi-modal connectivity including road, rail, sea port and airport is expected to attract more and more investments in the coming years. Further, based on approval from Government of India (GoI), the company has set up a Free Trade Warehousing Zone (FTWZ) in an area of 168.41 Hectare at Mundra. The development activities in the FTWZ SEZ have been initiated. The key success factors of the APSEZ is the strong availability of Draft Depth and Waterfront, it is closest port to Northern hinterland, the cargo generation is from its parent firm, they have long term cargo contracts. This makes the APSEZ a good pick in the port sector.

Outlook and Valuation:
Adani Port is the largest private Port in Indian with No.1 position in container cargo. Adani Ports is strategically located for global trade. Situated on the northern coast of the Gulf of Kutch on the west coast of India, it provides a convenient international trade gateway to Europe, Africa, America and the Middle East. Mundra has a deep draft (12.5 - 17 meters) which enables large vessels like panamax and super post panamax carriers to dock alongside its berth. The port has the world’s largest fully mechanised coal terminal with a capacity of 60 million tonnes per annum (MTPA). APSEZ is the only private sector port operator with presence across six ports in India. The company’s aim is to increase annual cargo handling capacity from 112.8 million MT in 2014 to 200 million MT by 2020. Company has its Economic Moat (A competitive advantage that one company has over the other companies in the same industry – by Warren Buffett) and with its expanding moats indicates a very strong sign of a future Multi-bagger stock. Recently, APSEZ acquired Dhamra Port Company Ltd (DPCL), located in Odisha a JV of Tata Steel and L&T Infrastructure Development Projects (L&T IDPL) for about Rs. 5,500 cr. Dhamra Port was commissioned in May 2011 with an 18 km approach channel and a dedicated 62.7 km rail link to Bhadrak. The DPCL as operator had been awarded a concession by the Odisha government to build & operate the port on Dhamra River in Bhadrak district for 34 years including 4 years of construction. This concession period may be extended by two additional terms of 10 years each. The first phase of construction was started in March 2007 with an investment of Rs. 3,500 Cr and following the acquisition the second phase of development will be initiated with 90 days and completion targeted in 30 months. This Port has two fully mechanized berths capable of handling coking coal, steam and thermal coal, limestone and iron ore. In FY14, Dhamra handled a total cargo of 14.3 million tonne. It also has 63 kilometers of private rail connectivity. Dhamra being a port outside federal government, DPCL is free to set its own rates. In comparison, rates at the Union Government controlled ports are set by the Tariff Authority for Major Ports (TAMP). Importantly, it is capable of allowing super cape size vessels, the biggest of the dry bulk ships with a capacity to load as much as 1,80,000 tonnes of cargo to dock. Dhamra after completion will be biggest success so far on the eastern sea board. This expansion will allow Dhamra Port to exceed 100 million tonnes of cargo capacity by the year 2020 and therefore allow Adani Ports to fulfil its stated vision of becoming a 200 million tonne Port business well before 2020. ADANI PORT is among the largest beneficiaries of an increasing demand-supply mismatch in India’s port capacity. APSEZ’s competitive advantages and attractive location plus connectivity provides a strong visibility of traffic for APSEZ. It should be noted that 90 % of APSEZ’s estimated traffic comprises of coal, crude oil, and container. Of this, coal and crude oil are not likely to see any impact from global macro concerns, while container traffic should continue to benefit from the shortage of capacity on India’s west coast. Amongst its other projects, the company sold its 100 % in the Abbot Point Coal Terminal (Australia) to its promoter group, Adani family. The equity portion in Abbot Point acquisition was around $235 million and rest was in debt, the entire equity and debt portion is transferred to the Adani family. The decision to sell off Abbot was to focus on the high growth Indian Port and logistics sector and to maintain its leadership position in India. Despite been in a capital intensive business, the debt situation for APSEZ is at very comfortable level at 0.89. Since inception, Mundra Port & SEZ (MPSEZ) has posted 35 % CAGR in revenue and with the stable cash flows from assured cargo and minimum working capital investment, it would be very important for the APSEZ to make more sensible capex in the future for growth. Based on the SOTP valuation method the value APSEZ comes at Rs. 285 per share, implying an upside of 10 % from current levels. The value of Mundra Port (core operating asset of APSEZ) alone comes at Rs. 147 per share, constituting 51.57 % of total value of APSEZ. Mundra Port, given its strategic positioning & diversified mix of cargo, enjoys competitive advantage and has a deeper economic moat & is expected to deliver strong volume growth. The company having delivered a strong track record of maintaining superior realization & margin in past and is expected to perform on track and the company has emerged as the preferred port due to superior infrastructure and technology, which facilitates faster transit of cargo, thereby reducing the overall cost of handling for logistic companies and end users. At the current market price of Rs. 259.25, the stock is trading at a PE of 25.41 x FY15E and 17.51 x FY16E respectively. The company can post Earnings per share (EPS) of Rs. 10.20 in FY15E and Rs. 14.80 in FY16E. The SOTP (sumoftheparts) valuation of Adani Port & Sez comes at Rs. 285. One can buy APSEZ with a target price of Rs. 285.00 for Medium to Long term investment

SOTP Valuation :-

Business Subsidiary
Value Per Share (in  ₹ Rs.) 
Mundra Port
Adani Petronet (Dahej) Port 
Adani Mormugao Port 
Adani Hazira Port 
Adani Vizag Coal Terminal 
Ennore Container Terminal
Adani Kandla Bulk Terminal 
Dhamra Port
Adani logistics
Cash & cash equivalents

SALES ( Crs)3,576.604,824.006,509.107,867.30
NET PROFIT (₹ Cr)1,623.201,739.602,102.003,062.20
EPS ()8.108.4010.2014.80
PE (x)31.9030.8025.5017.50
P/BV (x)7.806.105.004.00
EV/EBITDA (x)25.9021.8016.4013.10
ROE (%)29.4026.1021.7025.40
ROCE (%)9.4012.0013.8015.00

I would buy ADANI PORTS & SEZ LTD for Medium to Long term for target of Rs. 285.00. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of ₹ 238.50 on every purchase(Why Strict stop loss of 8 % ?) - Click Here

*As the author of this blog I disclose that I do hold ADANI PORT AND SEZ LTD in my investment portfolio.



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