Wednesday, February 11, 2015

Sarup Industries

I had written a deep value investment idea for the partners in 2013. I had only invested in personal capacity and then sold most at no profit no loss.

I got a bit late in identifying the changes recently and again entered at 80 Rs levels post BSE announcements in Dec 2014, which I failed to notice and another on 6th of Feb, bought only after 10th Feb. Main proposition of the footwear company that started same time with same financial muscle as Relaxo, i.e. little to nothing, (and is 50 times smaller today than Relaxo) is a mall project. This project was held in suspended animation due to some conflicts, my guess and real estate slowdown.

The six floor mall project would have market value anywhere between 400 - 600 Crores. Even if Sarup gets 25% of the net constructed value, the company will derive 4 times its market cap.

Based on sale value of commercial shops in Model Town (which is one of the posh areas) part of Jalandhar, minimum price is 10,000 Rs/Sq. ft. and goes as high as 20,000 Rs/Sq.ft Constructed area is 3-4 Acres. Post construction 4-6 floors will be available for sale/letting. Based on worst case scenario as explained, company should either derive annuity income or get one off lump sum. Footwear business come free. 

http://www.bseindia.com/corporates/anndet_new.aspx?newsid=f6ce1d1d-d698-43c1-8836-a415cea1197b

http://www.emaarmgf.com/malljalandhar/location.asp 




Friday, February 6, 2015

Hairy (squared) Business - Radix Industries

Unique and thematic businesses are characterized by steep PE multiples, disregarding DCF or other sane measures of value.

This company (RADIX INDUSTRIES BSE: 531412) piqued my interest as it bids and sells hair ( remy hair ) donated in South Indian temples. 

Human hair sell for as much as 50 Lac INR per tonne. Industry size is roughly 2500 Crores INR.

This hairy business get more hirsute as I feel the company's share have already been cornered by promoters and their friends and family members indirectly leaving no value. Company is growing 100% YoY but the industry size / MCAP (300 Crores) of 8 times  leaves little room for appreciation for investors as promoters bought shares for 2 Rs but have artificially kept the price inflated at 300 Rs.

TTD sells human hair for Rs 77 crore





http://www.business-standard.com/article/sme/human-hair-being-smuggled-out-hurting-export-earnings-113121601072_1.html


http://articles.economictimes.indiatimes.com/2013-10-12/news/42968597_1_temple-hair-such-hair-tirumala-tirupati-devasthanams


Factor this: In 2011-12, the Tirumala temple earned nearly Rs200 crore out of its total revenue of Rs1,949 crore, from auctioning human hair. 

According to L.V. Subrahmanyam, executive officer of the Tirumala Tirupati Devasthanams (TTD) that manages the temple affairs, the projected revenue for 2012-13 from auctioning hair is around Rs150 crore, but going by the ever-increasing number of pilgrims flooding the temple, it is expected to surpass last year's.

http://www.dailymail.co.uk/indiahome/indianews/article-2154238/A-growing-industry-Devotees-spawn-empire-millions-donating-hair.html

http://www.ibtimes.co.in/a-hairy-business-that-is-booming-into-a-million-dollar-industry-532232


Disclosure: Not invested in Radix Industries.






Nucleus

Looking at Nucleus Software's massive eight years of yawning under performance made me look further back in its history. There is a lot wrong with the company and the company is generally compared with OFSS and Polaris. This may not be the right comparison, 80% of revenues of Nucleus are earned outside India.All continents account for nearly equal percentage of revenues now giving it multiple legs.















Annual revenues and Profits


Year
Revenues INR Crores
Profit After Tax INR Crores
2000-01
27
10
2001-02
40
10
2002-03
60
7
2003-04
54
10
2004-05
67
15
2005-06
94
28
2006-07
146
42
2007-08
288
61
2008-09
328
32
2009-10
291
38
2010-11
270
26
2011-12
282
35
2012-13
293
45
2013-14
346
64
2014-15
350E
65E



The company is dependent on a very narrow and niche segment with lumpy earnings and marked by absence of growth for multiple years at times.

- No Growth, Value Trap, Mediocre Management and a few more issues with the company.

Positives:

Intellectual Property, Product Based company, #1 in its Lending Niche, 103 / share cash (CMP 175)  in hand, which makes me feel its a bargain. That said, I may give the company up to 4 quarters to perform or out.

Disclosure: Invested.