As they say, “Money isn’t everything, but happiness alone can’t keep out the rain.”
And as we all know, there are only two ways to make money: by working and/or by having your assets work for you (i.e by investing). Whether your goal is to send your kids to college or to lead a very lavish life, investing is essential to getting you where you want to be. And the ever increasing inflation rates in India, provide us with an even bigger reason to START INVESTING RIGHT NOW.
It really doesn’t matter how you do it. Whether you invest in stocks, bonds, mutual funds, options and futures, precious metals, real estate, your own small business, or any combination thereof, the objective is the same: to make investments that will generate more cash for you in the future. But studies in India have proved, time and again, that shares (or equities) are one of the best long-term investment options in the Indian financial market place. They tend to outperform government bonds, corporate bonds, property and many other types of asset. Share prices can go down as well as up, so buying shares is not without risk, but over the long term, they generate good returns.
So here we are, with one of the most promising Indian stock of 2015, to start investing right away.
AMULYA LEASING & FINANCE LTD
Stock Verdict – BUY
Current Price (Rs)
Target Price (Rs)
|52WeekH/L(Rs)||135 / 21|
|O/s Shares (mn)||5|
|Market Cap (Rs mn)||595|
|Face Value (Rs)||10|
Amulya Leasing & Finance (ALFL) is non-banking finance company and is into financing, sale and purchase of shares. The company was founded in 1985, based in New Delhi and it has re-cently dropped its NBFC status and acquired 50.96% stake in Apollo Pipes Ltd (a private Ltd company and have the same promoters). ALFL has been hiking its stake in the Apollo pipes since July 2014 when it acquired 16.47% stake in the company. Then in October, it acquired an additional 13.62% stake, taking its holding to 30.09%. In November 2014, it acquired an addi-tional 20.87% stake taking its overall stake in 50.96% in Apollo Pipes. From Q3 FY15 Apollo pipes Pvt has been fully consolidated into ALFL (the whole acquisition will be a share swipe deal involving swapping of treasury shares of ALFL). Post acquisition ALFL will be renamed as Apollo Irrigation Systems Ltd (AISL). Based on the interaction with the management, the company has good growth prospect and value unlocking going ahead. We believe the acquisition will be posi-tive for the company and will result in value unlocking of Apollo pipes Pvt Ltd. We are positive on the company going forward and expect the company to perform well in medium to long term.
About Apollo Pipes Pvt Ltd
Apollo Pipes Pvt Ltd is a leading manufacturer of irrigation Systems, CPVC (Chlorinated polyvi-nyl chloride), HDPE (High-density polyethylene), uPVC (unplasticized polyvinyl chloride), fittings for irrigation, plumbing and water transportation systems. The company started manufacturing u-PVC with a capacity of 3,600 TPA in 2,000. Since then, it has undergone impressive expansion to produce 27,000 TPA of u-PVC pipes, 1,000 ton of HDPE pipes and 2,000 TPA of CPVC pipes, manufacturing a wide range of high end and niche products The company currently has a total capacity of 30,000 tones which is going to expand to 38,000 tones in next 2 years. The company has plant located at Dadri & Sikanderabad in Uttar Pradesh, equipped with best of machineries, sophisticated laboratories and Technical Knowhow. The plant is spacious enough to accommodate multifold expansions and additions to product base. The manufactured prod-ucts of the company have been well received and renowned in market and have further potential for greater volumes.
Increase in capacity and launch of high margin products to boost sales and improve mar-gins going forward
AISL has assembled one of the largest ranges of products while having one of the largest foot-print in the industry. It produces a large variety of pipes across wide range of diameters and thickness. The Company has reported a capacity of 30,000 TPA in FY14, growth of ~60% CAGR over FY00 where its volume were 3,600 TPA. It has been able to maintain the growth momentum in spite of slowness of demand in the industry in the last two or three years. It is further expand-ing its capacity and expects to ramp up its production to 38,000 TPA by the end of FY17. Further fall in crude price will result in expansion of margins as raisin the main raw material is a petro-leum product. Raw material prices has fallen by ~25-30% in the last quarter which will result in 200 bps margins expansion but realization has also dipped accordingly which will result in lower top line growth and high inventory loss in Q3 FY15.
Strong distribution network and expansion in south India to boost top line
AISL has presence mainly in north india and owns one of the largest network of dealers in the northern part of the country. Southern India is contributing very less ~10% of sales, which the company is planning to increase going forward. Hence, the company is planning a green field capacity expansion in southern India for which work will commence in the next 3 months (by start of FY16) and production to start by FY17. A wider geographical reach offers advantage over competitors by reducing logistics cost and lead time.
Valuation & Outlook
Apollo pipes is currently a private entity and has been acquired by Amulya leasing in Q3 FY15. The process of consolidated into the parent company has been done in Q3 FY15 onwards. Amu-lya leasing will become Apollo irrigation (AISL) and will be comparable to other irrigation as shown in the valuation table in the next page. Apollo pipes is having a robust business and is a strong player in this particular space and implementation of GST will be favorable for the com-pany as it will eliminate small unorganized players who manipulate tax and increase competition due to lower pricing. Based on the interaction with the management, the company has good growth prospect and value unlocking going ahead. We believe the acquisition will be positive for the company and will result in value unlocking of Apollo pipes Pvt Ltd. We are positive on the company going forward and expect the company to perform well in medium to long term. The stock currently trades at a P/E of 23.0x and 16.6X FY15E and FY16E earnings which we believe is cheaply valued considering its peers (Industry average P/E of 19.8x).
We give a BUY rating on the stock.
Note: Apollo pipes a private com-pany has been acquired by Amulya leasing and it has been renamed as Apollo Irrigation System Ltd (AISL). The company have reported con-solidated numbers from Q3 FY15. We have consolidated the historical numbers i.e FY13 and FY14 and H1FY15 so that it becomes compa-rable.
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