Secunderabad-based Premier Explosives Limited (PEL) is a small but growing company that will not appear on the radar of institutional investors. Its turnover for the year ended March 2009 was just Rs70 crore but it claims to be a manufacturer of the entire range of explosives and accessories in India. PEL claims to have the widest range of products and technologies in explosives and accessories. The company also undertakes complete drilling and blasting contracts in collaboration with associates having drilling and excavation resources. Its manufacturing units are based in Madhya Pradesh, Andhra Pradesh and Maharashtra.
Founded in 1980 by AN Gupta, a gold medallist in mining engineering, PEL is a company with a difference. Look at its enviable track record in research & development (R&D) work. PEL’s R&D facility is recognised as an established research centre by the Centre for Scientific and Industrial Research (CSIR) and for doctoral studies by Osmania University, Andhra Pradesh. In January 2007, the company had signed a long-term contract of Rs70 crore for 10 years (renewable for another 10 years) with Satish Dhawan Space Centre, Sriharikota (SHAR), belonging to Indian Space Research Organisation (ISRO) mainly for the operation and maintenance of the second propellant plant (SPP) project at SHAR. Recently, PEL has signed a memorandum of understanding (MoU) with the material science department of Gulbarga University for taking up R&D activities in the area of material sciences. The company has received a number of awards for R&D, environment conservation, industrial relations and technology. It won the prestigious Defence Technology Absorption Award 2007 from the Defence Research Development Organisation (DRDO), Ministry of Defence, Government of India.
PEL also has two joint ventures abroad—Premier Synthas (Turkey) and Premier Georgia (Georgia), mainly for manufacturing explosives and accessories. In August 2008, the company formed a joint venture with M/s VXL Technologies Ltd, Faridabad, called ‘VTL Premier Pyrotechnics Ltd’ for manufacture of pyrotechnic devices, fuses, etc, used for defence. The company also received a licence from the Indian government to manufacture propellants, pyros, hexanitrostilbene (HNS), hydrazinium nitroformate (HNF), a cyclic nitramine explosive called CL-20 and site-mixed explosives. This licence will help the company expand its product portfolio and the quantity of output ensuring higher revenues. Over the next two years, the company proposes to invest Rs50 crore for capacity expansion and backward integration, i.e., manufacturing raw materials used in the company’s products. Alongside, the company expects to obtain new orders as the Indian government proposes to increase defence expenditure by 33% for 2009-2010 and the fall in raw material prices could reduce manufacturing costs, currently (2008-2009) at 54.53% of the total cost.
The stock is trading at Rs66, which is not cheap. Its market-cap is 0.65 times its five-quarter sales (annualised) and five times its annualised operating profits. But its PE is 17—lower than 25 of Solar Industries. In FY08-09, PEL reported sales of Rs70.23 crore (a rise of 23% over the corresponding period the previous year); operating profit was down from Rs9.7 crore to Rs8.06 crore (-17%). For the June 2009 quarter, the company posted sales of Rs23.08 crore (up 51%) and operating profit went up 95% to Rs4.07 crore. Over the past five quarters, its sales have grown by an average 28%. Its operating margin averaged 13% over the past five quarters. It would be worth buying this stock at Rs45.
Stepping Up
Relaxo Footwear has an edge
Relaxo Footwear is in the humdrum business of making footwear such as Hawaii slippers, casuals, joggers and school shoes. Headquartered in Delhi, the company was founded in 1976. While foreign footwear companies have introduced a brand culture in India and are focusing on the rich and upper-middle-class, Relaxo is catering to the lower-middle-class and the lower-income group. In this segment, it is competing with Bata India, Action Shoes and Liberty Shoes.
Relaxo’s edge is based on low price, reasonable quality and large production capacity. Its manufacturing capacity, of 100 million pairs per annum, is second only to Bata’s. It also has the capacity to manufacture 300,000 pairs of Hawaii slippers per day which is the highest in India. Economies of scale enable the company to keep its product prices low. It also exports products to the US and the UK. Its financial performance for the past two quarters has been good. Sales have grown 30% and 31%, respectively, while operating profit has risen 80% and 102% in the March and June quarters over the same quarters of the previous year. The five-quarter average sales and operating profit growth are 33% and 42%, respectively. Its operating margin is low (11%) but the stock is really cheap. Its market-cap is 0.25 and 2.14 times its sales and operating profit. Following its robust quarterly performance, the stock has soared from Rs28 in March to Rs105 till date. Buy it at around Rs70.
UNQUOTED
Lesha Energy Resources (Rs71)
In the June 2008 quarter, the company posted sales of Rs67 lakh while in the following four quarters (September 2008, December 2008, March 2009 and June 2009), it posted zero sales. The company has been posting operating losses consistently, for the past four quarters beginning June 2008. Lesha posted operating losses of Rs1 lakh, Rs8 lakh, Rs4 lakh and Rs2 lakh, respectively and an operating loss of Rs9 lakh in the June 2009 quarter. In January 2008, the company is supposed to have terminated its steel business to deal in oil & gas after exploring various alternative business opportunities. As it happens, the stock price is another story. Lesha surged 673% between 20 February 2009 and
11 September 2009.
Natura Hue Chem (Rs19)
Chhattisgarh-based Natura Hue Chem is supposed to be engaged in organic farming of turmeric, chilli and ginger. It also claims to have diversified into the power sector. Beginning June 2008, the company posted quarterly sales of Rs2.29 crore, Rs1.14 crore, Rs2.15 crore and Rs5.89 crore, respectively. In the June 2008 and September 2008 quarters, it recorded operating profit of Rs4 lakh each, whereas in the December 2008 and March 2009 quarters, the company posted an operating profit of Rs10 lakh and Rs41 lakh, respectively. As you would expect, the stock price movement has nothing to do with these fundamentals. Between 24 March 2009 and 11 September 2009, the stock was up a humungous 784%. Are the regulators watching?
Street Beat stocks are selected stocks in the Moneylife database. Disclaimer: None of the stock information, data and company information presented herein constitutes a recommendation or a solicitation of any offer to buy or sell any securities. Information presented is general information that does not take into account your individual circumstances, financial situation or needs nor does it present a personalised recommendation to you. Individual stocks presented may not be suitable for you. Although information has been obtained from and is based upon sources, we believe to be reliable, we do not guarantee its accuracy and the information may be incomplete or condensed. All opinions and estimates constitute our judgement as of the date of the report and are subject to change without notice. This report is for informational purpose only and is not intended as an offer or solicitation for the purchase or sale of a security. Past performance is no indication of future results. Investors must do their own research before acting on them. Exit Strategy: Please exit if the stock closes 9% below the purchase price. This is called stop loss. However, if the market price is above the purchase price, exit if the stock falls by 20% below any day’s closing price. This is called stop profit.
The domestic tyre industry is in a revival mode, driven primarily by substantial demand improvement in the automobile industry, specifically in the commercial vehicles and replacement market. Phillips Carbon Black Limited (PCBL) is a major beneficiary of this revival. Carbon black is the key ingredient in making tyres.
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