Value Pick - The Mandhana Retail Ventures Ltd - Being Human-CMP 194

The Mandhana Retail Ventures Ltd

  Listed on both NSE: TMRVL & BSE: 540210
Currently trading around 194.75 with a market cap of around 440 crores.

Promoters hold 42.95% stake.
It has a Total Debt of around 19 crores.

The Mandhana Retail Ventures Ltd (TMRVL) is the demerged branded clothing business of Mandhana Industries. TMRVL is in the business of design, manufacture, retail, distribute: men, women, kids clothing & accessories as the Global Licensee of the brand Being Human till atleast 2020.

Being Human Clothing needs no introduction, The fashion brand under the Being Human NGO run by one of India's biggest superstar Salman Khan. The NGO with its philanthropic activities hasevolved wonderfully over the years. Its fashion venture Being Human Clothing has also done great. 

Today TMRVL operates: 60 EBO (Exclusive Brand Outlets) stores of Being Human across India and 5 EBOs overseas in Nepal, West Asia, France, Mauritius. The company as per reported data as on Oct end 2016 had 650 Point of Sales in Total for Being Human by EBOs, MBOs, Franchisees and Online partnerships.

The company now wants to focus on Tier II, Tier III cities by opening 100 new Being Human stores in the next two-three years as well as focus on going global as per news reports.

As per recent Media Reports quoting the management. The company besides Being Human is keen to get into similar business partnerships with other celebrities not only with Bollywood Starts but also the Indian Sports Fraternity by releasing their labels and paying them royalties.

Lets now take a look at financials and valuations of the company :-

As you can see TMRVL is undervalued compared to two of its peers,  TMRVL is available at a P/E of 14x with Market Cap to sales of 1.85 while Indian Terrain trades at a P/E of 31x and KKCL trades at a P/E of 25x.

Both Indian Terrain and TMRVL have similar percentage of promoter stake pledged. So that should not be a major driving force in the rating mismatch.

At valuations of 30x TMRVL should trade at 417. That is a potential upside of 111% against current price of 197.

TMRVL enjoys the advantage of indirect and direct marketing and endorsement by Salman Khan as he sports the Being Human Clothing all the time at Public Appearances as well as in his movies. The key negative here would be the dependence on one brand Being Human and the Brand's dependence on one man Salman Khan.

However, The company's plan to tie up with other celebrities can negate this risk and dependence on Being Human Brand.

Plus: Salman Khan's friendships get him a lot of Models (other bollywood celebs) for this brand,  If Salman can get someone like SRK to also endorse the brand its going to get a lot of hype.

As per latest Shareholding Pattern filing for quarter ended March 17- Rakesh Jhunjhunwala holds 12.74% stake and Ramesh Damani holds 1.03% stake. Recently, ChrysCapital acquired 3% stake at Rs 200 per share.

Technically on the charts: If we plot the daily line chart we have a sort of falling wedge breakout in TMRVL which activates on closing above 200.

All in All, I feel this is a good under valued opportunity available in the market as the stock has not run up at all. With Salman's Tubelight releasing this Eid on 23rd June it can be another trigger for the stock. Tubelight has a Cameo of Shah Rukh Khan and both the superstars are going to be seen together on the silver screen after 10 years.

Kesoram Industries - Trusted Technology – Solid Strength

CMP = 144

Kesoram Industries is part of the BK Birla Group and one of the oldest conglomerates in India since 1919. It has grown from strength to strength with diversified presence in the cement, tyre and rayon yarn.

Birla Shakti Cement 

Kesoram Industries operates two cement manufacturing plants with a combined capacity of  7. 5 million metric tons. 'Birla Shakti Cement' is the flagship brand of cement division and others brands  'Kesoram' and 'Vasavadatta' are also well established over long period. The cement manufacturing plants are located at Sedam in Karnataka 'Vasavadatta Cement Plant' and Basantnagar in Andhra Pradesh 'Kesoram Cement Plant'. Both are catering to regional demands in Andhra Pradesh, Maharashtra, Karnataka, Goa, Kerala, Madhya Pradesh, Telangana, Chhattisgarh and Tamil Nadu. The plants are strategically located near company leased limestone deposits in the states of Karnataka and Andhra Pradesh. Its cement grinding units are also located close to captive power plants. Further, Kesoram procures much of its fly ash from NTPC which has power plants in close proximity to both the cement plants.

Cement division is accredited with ISO 9001, 14001, 18001 and 50001 standards and it is only “Greenco Platinum Certified by CII” plant in the country.

'Birla Shakti Concrete' is the ready mix concrete (RMC) brand of  Kesoram Industries with annual capacity 6.5 lakh cubic meters, it is the largest ready-mixed concrete and aggregate production plant in India. It also offer consulting, research, trading, engineering and other services according to customer requirement. It is the first plant in India to offer customers a mobile application for placing orders.

http://birlashakticoncrete.in/index.html

Birla Tyres

Kesoram tyre manufacturing facility at Balasore was originally set up in 1991 with technology sourced from Pirelli UK, the world-renowned tyre manufacturer. Today Birla Tyres meticulously developed in house technology ensures that the Balasore factory manufactures a wide range of tyres for commercial Vehicles, light commercial vehicles, tractors, construction vehicles, and 2 and 3 Wheelers. 

It is one of the few tyre companies in India that offers complete range of tyres across all vehicle sectors under 'Birla Tyres' brand name. It is among the top six tyre manufacturing companies in India.

http://birlatyre.com/index.php

http://rubberasia.com/2017/02/13/indian-tyre-industry-formidable-growth/

Investment Rationale 

Kesoram Industries owns very strong business and well recognised brands like Birla Tyres (Tyre division) and Birla Shakti (Cement   division). Its business was performing very well (EPS was above 50) and stock was trading in the range of Rs 400 - 500 in year 2006 - 08. Company went for setting up an ambitious greenfield project at at Laksar (Haridwar) to produce 250 MT of truck tyres per day with cost around 1000 crores. Company get caught on wrong foot due to recession during 2008 and later slow down of business growth in cement and automobile sector. Debt burden keep mounting until last year when Aditya Birla group has raised its stake to get ownership control in Kesoram Industry. After that new promoter K Mangalam Birla has taken several restructuring process to trim the debt and make the company profitable.

http://www.dnaindia.com/money/report-kesoram-industries-hives-off-rayon-business-as-kumar-mangalam-birla-gets-ownership-control-2194822

The truck and bus radial tyre plant at Haridwar was sold to J K Tyre for Rs 2,200 crore to get rid of a much delayed project carrying high debt burden.

Hiving off its rayon and transparent paper business to unlisted entity, Cygnet Industries, a wholly-owned subsidiary for Rs 480 crore 

Loss making heavy chemical business sold off and divestment in listed companies ( cross holding) at market prices aggregated approximately Rs 470 crores.

After above steps debt and interest came down significantly near to half. Now debt is well manageable at par with industry peers with similar sales and production capacity.

Low rubber prices and positive growth in auto  sector are the major trigger for the tyre business of the company and company supply contract with major auto OEMs in India as well as abroad.

Company has already started the  production of radial tyres for two wheeler, three wheeler and car radial tyre from Balasore new plant. The production of commercial vehicle radial tyre  will start in coming quarters. It is high margin tyre segment which will further enhance the tyre business profitability. 

In cement business, the company sources limestone from its two leasehold mines (one each at both the locations) against royalty payment.

The company meets the entire power requirement for cement manufacturing from its captive coal based power plants, while it sells the surplus power generated (if any) from the plant in the open market.

Company is expected to be a key beneficiary of a cement demand revival in Andhra Pradesh and Telangana where growth of infrastructure will be very high due to creation of new state.

Company has developed a good market for RMC (Ready Mix Concrete). Penetration of RMC has been low at about 8 per cent in India  (USA: 88 per cent; China: 33 per cent; Brazil: 32 per cent) because retail sales comprise mostly of bag cement. It gives good growth possibilities in RMC segment.

Going forward with government’s focus on infrastructure and affordable housing, Housing for All' by 2022, where 11 crore houses have to be constructed at an investment of $ 2 trillion. The cement industry's medium to long term outlook is very optimistic as demand for cement is likely to get boost from industrial and commercial segments as well as from mass housing and mid-income housing schemes across the country.  Cement demand is likely to improve, resulting in higher capacity utilization. Demand from rural market is also expected to rise as better than expected monsoon as well as strong government push for the rural sector will improve rural income. The government has also increased its budget allocation for the IAY (Indira Aawas Yojana), PMGSY (Pradhan Mantri Gram Sadak Yojana) and MNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) that have the potential to further improve cement demand. 

Further details reports on Housing growth, Infrastructure growth,  Commercial real estate growth, Development in Metro, Roads, Airports, Urbanisation and industrialisation development in the country and Government Initiatives towards New Schemes are given in below link

https://www.ibef.org/download/Cement-January-2017.pdf

Conclusion

Kesoram Industries has very good assets,  strong brand name in cement and tyre segment, business network across the country and  capable promoters.  New promoters has taken every step to bring back the company on track. Significant reduction in debt and interest cost has given very clear visibility that company will make turnaround in coming quarters. The cement industry is expected to continue the growth trajectory for long term because government pushing infrastructure development at full stretch. In the recent past tyre sector has shown good momentum coupled with low cost of rubber and improvement in vehicle demand.  Kesoram Industries at cmp 144 is giving very good investment opportunity for mid to long term. It can be given allocation 10 -20% and bought + /- 10% from cmp.

Pennar Industries Limited - Engineering Excellence

CMP : 51

Pennar Industries Limited is one of the top leading engineering company with expertise in providing engineering products and service in India and abroad. It manufactures precision engineering products like cold-rolled steel strips, special steel, precision tubes, railway wagons /coaches, pre-engineered building systems, sheet metal components, auto components, road safety systems, hydraulics parts, warehousing solutions, water treatment chemical & project solution and oil additives. Company has diversified itself from a steel manufacturer to a high value added diversified products manufacturer. The company is continuously expanding its manufacturing facilities to add new products to its portfolio.

http://www.pennarindia.com/media/Corp%20brochure.pdf


https://www.youtube.com/watch?v=v3H9ztW6E_w

Pennar offers products and solutions through four strategic business units Systems and Projects, Industrial Components, Steel Products & Tubes. Company has three subsidiary companies Pennar Engineered Building Systems Limited (54 %), Pennar Enviro Limited ( 51%) and New Era Enviro Ventures (Karimnagar) Private Limited.

Systems and Project

Systems and Projects  includes three business sub segments

1) Railway  Wagons and Coaches

 2) Solar module mounting structure

 3) Storage Solutions

Main clients for this segment  includes L&T, Tata power solar, Navalakha, Lanco Solar, ABB, Schneider Electric solaris. In railway segment company mainly serves to Integral Coach Factory, Southern railways, Texmaco, Besco.

Above are business highlight from Q3FY17 investor presentation.

Industrial components

The business of Industrial components for Pennar consists of  Press Metal components for Automotive and White Goods. The addressable market size of Industrial Components business is estimated to be over Rs 50 bn. The products offered includes A/C compressor shells, 4 wheeler parts such as car seating system assembly, parts for two wheelers such as disc brakes, and parts for heavy vehicle filters.

Hydraulic Cylinders for different industrial application, earth moving equipments and automobile industry.

Main clients for this segment  includes some leading companies like Bailey, Tecumseh products, Emerson Climate Technologies, Endurance Technologies, India Nippon Electricals, IFB, Fleetguard Filters, Wabco India, Brakes India etc.

Steel Products

Steel Products segment consists of Cold Rolled Steel Strips (CRSS) which includes special steels, Cold Rolled Formed Sections (CRFS) used for building products, infrastructure and auto profiles, road safety systems, precipitator and sheet piles.

Steel Products segment is giving service to major customers in the industry such as Lloyds Insulation, Alstom Projects, Lanco Infratech, FL Smidth, Thermax, Johnson Lifts, Adani Power, VECV, L&T, Ashok Leyland and many others.

Precision Tubes

This segment  manufactures (1) Electric Resistance Welded (ERW) pipes, (2) Cold Drawn Welded (CDW) tubes, (3) Air Preheater (APH) tubes, and (4) Indian Boiler Regulations (IBR) tubes.

Products are catered to Automobile, Power, Manufacturing, Structural & General Engineering and several others. The segment has major presence in Tamil Nadu, Karnataka and Maharashtra. The key clients in this segment are Mahindra, Volvo, Eicher commercial vehicles, Hyundai, TVS, Tata Motors, Ashok Leyland, Thermax, BGR, Paharpur, Cethar, KCP, Forbes Marshall, JSW, LMW etc.

Subsidiary Companies

Pennar Pre-Engineered Building Systems (PEBS)

Pennar Engineered Building Systems Ltd (PEBS) is engaged in designing, manufacturing, supply and installation of pre-engineered buildings and building components. PEBS Pennar is one of the few companies that offer leak-proof roofing systems in India, having a technical know-how licensing agreement with NCI Group Inc.

Pennar Enviro Limited (PEL)

Pennar Enviro Limited (PEL) deals with Water and Environment Infrastructure business to provide turnkey solutions, Water Treatment Plants, Sewage Treatment Plants, Effluent Treatment Plants, Effluent Recycling Plants, Zero Liquid Discharge Plants etc. 

Pennar Enviro Limited also has an extensive range of high performance Specialty Water Treatment Chemicals under the brand name of “PENNTREAT” for treatment of Boiler Water, Cooling Water, Raw and Effluent Water. Product capabilities extend into all aspects of industrial water management such as cooling water treatment, boiler Feed water treatment, raw water/waste water treatment, reverse osmosis membrane treatment, apart from specialty process additives for various process requirements.

PEL is pioneer in the field of fuel additives, it has wide range of fuel additives for treatment of different petroleum fuels in order to enhance the specific performance requirements of each fuel like Furnace Oil, Light Diesel Oil, Superior Kerosene Oil and Low Sulphur Heavy Stock supplying specific premium high technology additives based on fuel characteristic requirements and specific performance enhancements. Pennar Enviro Limited is the authorized manufacturer and marketer of Elf Fuel Oil Additives, having technical collaboration with 'TOTAL' France.

Location and Customer Base

Pennar has five manufacturing facilities in high growth areas and serving almost every major company in its field. 

Investment Rationale

Pennar Industries has strong technical and execution capabilities. Its ability to develop value added products continuously and successfully, make it unique. It has grown small futuristic business into sizable businesses like PEBS, Enviro, Hydraulics, Rail coach components, Industrial & white goods components  in short span of 3-4 years. These segments have immense growth potential and expected to grow much faster and bigger in size in next 3-4 years.

Pennar Industries is well poised to capture the growth potential in the field of water treatment, waste management,  environment protection, infrastructure, solar, railways and pre-engineered building systems industries. It is expected to be a direct beneficiary of the government’s thrust on solar energy, railways, infrastructure, ‘Make in India’ and ‘Smart Cities’ projects. All the business segment of the company are directly linked to overall macroeconomic recovery.

Pennar Industry has low debt and high operating leverage due to underutilization of capacity. The company has immense operational leverage to take the benefit in almost all of its businesses. Capacity in all segments is underutilized since last 3- 4 years due to lack of demand. Now indian economy is showing good sign of faster recovery and the company is well set to take the advantage with ready to use underutilized production capacity without any major expansion. Even during rough period company was able to post good results. 

Systems & Projects to be the key revenue driver for the company. Order flows in the Systems & Project segment (solar panels and railway wagons) is expected to increase following the government’s thrust on higher usage of renewable energy and on upgradation of railway systems. 

Company is going to sell  non core asset ( 28 MW solar power plant) of New Era Enviro Ventures. Company  has started the production of Special grade steel products. It will help to reduce the debt and increase the margins. 

Pennar Enviro has very high growth diversified product portfolio of  water treatment and fuel additives business with order book  near 200 crores. It is expected that it will continue pace in future. 

Pennar Industry is in process to merge Pennar Enviro with it.

http://www.pennarindia.com/pdf/Conference%20Call%20Information/nirmalbang-pennarIndustries-Feb01-2012.pdf

Conclusion

Now Indian economy is moving very strongly and centre government is executing the development plans very well. Some sectors which are lagging from last 2-3 years has shown very good sign of improvement.

http://www.pennarindia.com/pdf/Investor_presentation/2016/Pennar-Industries-Q3FY17-Investor-PresentationV4.pdf

Pennar Industry has wide range of value added diversified product portfolio inline with future growth. Pennar Industry trading in the narrow range of 40 to 54 from last one year. At cmp 46 it is giving wonderful opportunity to invest for long term.