Marico Kaya

MARICO KAYA
Another Game changer

Marico Kaya is a demerged company from its parent Marico, the famous FMCG giant. Kaya is established to create prime space in running skin clinics and selling its 60 plus skin products. It has 85 skin clinics in India and about 23 in middle east. Middle east clinics are more profitable than domestic clinics. In future, Kaya management will give more focus on selling of its products along with running the skin clinics. We found the following strong reasons for terming it as a game changer stock:

1. Marico Kaya belongs to famous Marico group and have excellent management to back its operations with 100% integrity and corporate governance.

2. Though it has gone up from Rs.300 to 1000 in a span of 5 months but still it is a baby and there are sufficient strong reasons in a country like India to make it a boy and then a strong man in the years to come. India's upper middle class and HNI population is increasing very fast and with increasing trend of money spending in young population, kaya products are going to increase their business manifold. Imagine if after 5 years 1% of the population i.e., 1 crores use its products for Rs. 5000 per year, the total sales of its products only should be not less than Rs. 5000 crores. These are all high end premium products and company will have at least Rs. 600-700 crores ( 12% of sales ) as Net Profit. Its current annual sales is only Rs. 350 crores, so there are chances that this company will show tremendous growth in sales as well as profits.
 3. If the growth is only 30% of estimated as per point 2, the Net Profit will not be less than Rs. 200 crores. Page Industries ( Jockey brand ) shows an annual profit of Rs. 200 crores and its market valuation in stock market is more than Rs. 11,000 crores. Marico Kaya market valuation is only Rs.1200 crores and hence, there is full chance that its share price can go up 9-10 times in next 5 years. As a conservative estimate we have taken the target price with growth of 4-5 times only by 2019 which is very likely to happen.

4. Kaya products and clinics sale is directly related to working women salaries and incomes. In middle east skin clinics are charging Rs.100,000 per female customer on an average. The average female earnings in middle east is Rs. 80,000 per month whereas in India urban educated females on an average is earning Rs.25,000-40,000 per month. There is likelihood that India female shall be earning Rs. 50,000-80,000 after 5 years. At present, Kaya Indian skin clinics are charging Rs. 14,000 per customer on an average and hence with increased female income, this average charge will increase 3-4 fold. This increase in female salaries in India will ensure manifold increase in spending power for kaya type of products and skin care.

5. Marico Kaya skin clinics provide medical solutions for skin disorders and at present there is hardly any competition. VLCC which is in beauty solutions provider where so many players are there. 

6. Marico Kaya has not started marketing of its products and once this is started in full force in malls and through e commerce, the products sale can increase very fast which will ensure sustainability in sales and profits.
 7. Marico Kaya products are competitively priced in comparison to MNCs products and its packing, look etc is very good and appealing.

8. Marico Kaya skin clinics being more profitable, are in Saudi Arabia, Oman and UAE. It looks possible to spread the same type of clinics in other countries also and hence expansion of geographical spread is very much possible. Marketing of its entire product range in middle east may also be attempted by the management in future.  

 

9. Therefore, it looks that Marico Kaya will be the future Indian born MNC like Asian Paints.

DYNAMATIC TECHNOLOGIES

Dynamatic Technologies, a Rs.1,650 crores company, designs and builds highly engineered products for automotive, aerospace, hydraulic and security applications at its state-of-the-art design, engineering and manufacturing facilities in Europe and India. 

 

We recommend this company due to following strong reasons:

 

1. Dynamatic Technologies is promoted by Mr. Udayant Malhotra, ex technocrat of Hindustan Aeronautics Ltd. He has built the company over past decade as a highly technology driven company. If we see the past events, number of Joint Venture announcements with world's leading companies and number of acquisitions in Europe, we can conclude that promoters are having a distinct passion to take this company into a technology driven, iconic company never ever born before and heard in a country like India particularly in the manufacturing field. 

2. Now some acquisition, tie ups and joint ventures with world's leading companies:

    - Bell Helicopter,as a single source supplier of major airframe assemblies for the BELL 407 GX

    - Airbus, to supply flap track beams for Airbus 330 aircraft series as a sole supplier

      - Boaing,the $85-billion aerospace and defence giant, wants to make India a global hub to make parts for its CH-47 Chinook  helicopters.Initially, Chinook’s ramps, pylons and electrical harnesses will be sourced from India.The ultimate goal will be to source sub-assemblies of more (aircraft) platforms

     - HAL and DRDO for its India army requirements

    -Aero Vironment USA, entered into pact with Dynamatic for manufacture of unarmed aeriel                vehicles (Drones). Aero Vironment has already delivered 24,000 UAVs in the USA and 24 other         leading companies and in India UAVs orders are likely to come from Ministry of Home and               Defence.      

    - BMW, Volkswagen, Mercedes, Ford, Nissan & Audi for auto parts

    - Hyundai India, single source supplier for its specific engine components

  -Mahindra & Mahindra, John Deere, Cummins, Escorts, Caterpiller. Catering to all tractor manufacturers in India with 65% market share.

3. Dynamatic Technology's main growth is coming from aerospace manufacturing because of orders from some leading companies of the world and the margins are very good in this area. Auto components main facilities are in Germany and the cost particularly manpower cost which is Rs. 220 crores annually, is very high. Dynamatic management is planning to shift iron casting and some other non critical operations to India and this will improve margins in coming years. Therefore, in the next 5 years turnover will increase substantially with improved margins.

4. Indian Govt is planning seriously for the first time to manufacture defense products and weapons  in India and already the foreign holding in defense sector has been increased from 26 to 49%. There is likelihood that this percentage will be further increased to 75-100% to facilitate fast implementation of the Govt plan. There is very less doubt that Dynamatic Technologies will be the Infosys of defence and aerospace manufacturing in India.   

5. The current market valuation of the company is Rs. 1,535 crores with annual turnover of Rs. 1,650 crores. Imagine, if turnover  increases manifold with increased margins, this company may command 3-4 times market valuation compared to its sales turnover. If turnover is Rs. 3,000 crores after 5 years, the market valuation God knows, of this company may be more than Rs. 10,000 crores.

6. Dynamatic Technologies is paying Rs.100 crores every year interest on its Rs. 450 crores debt. Management is trying to reduce the debts and in future it will be very much possible for this company to become debt free due to increased market valuation. Imagine, if this entire Rs. 100 crores interest is saved and company has extra profit of Rs. 200 crores annually after 5 years, the targeted valuation will be easily achieved. Page Industries( Jockey brand ) with Rs. 200 crores profit is valued more than Rs. 10,000 crores by the stock market.

7. Competition in the sector of defense and aerospace is going to be very limited and Dynamatic Technologies will be in better position to take advantage of the situation.

8. It is likely that Bell, Airbus and Boeing will give further structures to Dynamatic Technologies to built in future due to its dependability and lower costs. This aspect may create substantial orders for the company.  

Wabco India

WABCO INDIA
Changing the Indian commercial vehicles safety standards.

WABCO INDIA is a company owned by Mr. Warren Buffet making Automatic Manual Transmission System(AMT), ABS and Commercial Vehicles New Generation suspension system.

We recommend the stock due to the following strong reasons:

1. It is a Warren Buffet company in new technological areas of automotive parts like AMT, ABS and new generation suspension system for commercial vehicles.

2. At present in India, safety features like AMT and ABS are very rarely used and no body wants to incur extra cost of Rs. 1-2 lakhs on these features which can prevent accidents on the highways. Hence, we are buying this stock when there is no extra demand in the market.

3. Central Govt. is going to implement ABS compulsory w.e.f.  1st April,2015 and Tata Motors is going to provide AMT in all its trucks and commercial vehicles. These safety features will become compulsory in 1-2 years time and demand for these products will increase manifold.

4. WABCO INDIA is having monopoly in these products and it will be difficult for any new entrant to come in the market in near future.

5. Parent company is going to make India a sourcing hub for supplying it to  other countries and hence in future there will be a lot of export of these products from WABCO.

6. At present total commercial vehicle sale is 8 lakhs per year which is likely to increase to 14 lakhs by 2019. Imagine if Rs. 1 lakh worth of ABS, AMT is on one vehicle, 5 years later WABCO can increase its sale by Rs. 6000-7000 crores( 50% market share on 14 lakhs vehicles at 1 lakh per vehicle). It can give additional profit of Rs.700-1000 crores per year to WABCO after 5 years. These projections are on the conservative side and real picture may be better.

7. The stock will command high PE in next 5 years also because there will be lot of excitement, glamour and feeling of safety amongst investors with this stock. Whenever a new game changing product is introduced in the market, the real commercial value is realized after 5-10 years( take the example of internet, dot com industry etc.). Hence, in anticipation of bigger market sales the PE will remain very high even after 5 years.   

8. This stock is true replacement of fixed deposit because WABCO is much safer than fixed deposits. Imagine, if Arvind Kejriwal comes, fixed deposits will be unsafe( banks will feel pressure) and WABCO type of monopolistic companies shall be safer for investors. Its products will safeguard the lives of customers and its stock investment can take way the worries of investors.

Wockhardt

Wockhardt is a very old professionally managed company. Over the last 10 years, Sun Pharma, Lupin etc have become very big compared to Wockhardt. Sun Pharma is 20-25 times bigger and Lupin is 8-9 times bigger than Wockhardt. The total pharma industry is $975 billion worth and India holds only 2% value in terms of sales. So there is huge potential for Indian pharma and furthermore huge potential for Wockhardt. We recommend the script due to following strong reasons:

1. Wockhardt is facing problems with USFDA for import alerts issued to some of its plants which are likely to be resolved within the next 1 year. Therefore, currently it is available at a low price.

2. Before USFDA problems surfaced, Wockhardt was highly bullish and touched Rs 2300-2400 and that was due to increasing earning growth also with Price Earning ratio of less than 15 at that time. Current PE of Sun Pharma is around 25-30 and on earlier profits, Wockhardt PE is is less than 6. It means there is a scope of scripts increasing 5-6 times in price, once USFDA problems are resolved.

3. Wockhardt has come out with two new drugs discovery( not generic ) which has not been achieved by any pharma company in India. This new drug discovery will give huge rewards to shareholders in 3-4 years time when the drugs will hit the world market. It will be a matter of pride for India if that day comes and shareholders can expect PE to hit above 30.

4. USFDA has given fast approval for these two new drugs skipping first two stages and drugs will be tested straight for 3rd stage which is small number of patients world wide. The new drugs may have potential of hitting $2-3 billion in the next 3-5 years time period and it is possible that valuation of Wockhardt will jump by 4 times of new drugs sale of $2-3 billion with these two new drugs alone, Wockhardt market cap can be increased by a whooping Rs. 50,000 crores.

5. Wockhardt management is giving indication of utmost confidence by declaring interim and final dividends even though they are facing problems with USFDA and also buying company shares from the open market.

6. Wockhardt is not affected by the Modi-factor.

There may be short terms hiccups but in the long terms of 5 years, this stock is a real wealth creator.

India’s 99% savings are being invested in fixed deposits and real estate. As you all know fixed deposits carrying an interest rate of 10% p.a and banks are advancing the same money at 13-14% to Corporate Companies. Nobody is investing in stock markets thinking that its a very risky investment. Now, if the savings will largely be invested in stock markets, the companies will perhaps reduce their product and services prices and hence, equity investment is in the interest of the nation to control  inflation in a large way and encourage the entrepreneurship.

It is wrong to believe that stock market is risky and gives lesser rate of return. Let’s take an actual example of investment of Rs. 11 lacs simultaneously invested in a script, Real Estate and Fixed Deposit.

Stock Investment

The entire Rs 11 lacs was invested in 1984 in MRF @ Rs. 65 per share. The current price of MRF is Rs. 32,000 per share. Hence, 11 lacs becomes Rs 55 Crore in 2014 after a period of 30 years. So, the increase of 500 times in 30 yrs.

Real Estate:

Another investor is putting Rs. 11 lacs in buying a 500 sq. yard plot in New Friends Colony, South Delhi in the year 1984 @ Rs. 2200 per sq. yard. Now, it’s worth Rs. 30 Crore after 30 years. The rate of return comes out to be 280 times. It means there’s a wrong belief that real estate is a better investment than Equity.

Fixed Deposits:

Majority of the population of the country is relying on Fixed Deposits and if you take Rs. 11 Lacs in 1984 in Fixed Deposits, it comes out to be less than Rs. 7 Crore after 30 years. Though, we have assumed every 5 years doubling the fixed deposit values.

So, undoubtedly, equity investment can be 7-8 times more rewarding as compared to Fixed Deposits and 100% more than the Real estate in the longer period like 30 years. But Stock picking is extremely important, so that investors can get even more than the return which we have estimated and described above.

Thinking on the same line, we are recommending the following scripts which are capable of giving a return of more than 500% in the next 5 years.

S No	Name Of Scripts	Current Market Cap (Cr)	Expected Market Cap( 2019)	Current Market Price (CMP)	Target price ( in 2019)	5 year Rate of Return(%)
1	Wockhardt	8,495	35,520	772	4,000	418
2	Webco India	7,213	30,722	3,803	20,000	426
3	Dynamatic Technologies	1,391	8,346	2,416	16,913	600
4	Marico Kaya Enterprise	742	5,061	576	4,500	682
5	Gujarat Pipavav Port	7,829	46,976	162	1,134	600
6	Multi Commodity exchange ( India)	3,929	7,858	770	2,311	200
7	Ramco System	1,125	5,062	464	2,550	450
8	Aban Offshore	4,204	25,225	622	4,351	600
9	SML Isuzu	1,224	7,343	846	5,920	600
10	Rane Holdings	877	3,945	614	3,377	450
11	Madhucon Projects	264	2,319	36	350	879

Basis of Stock Picking

1. Futuristic Stocks

2. One of the leader in expanded markets in future.

3. Innovative Stocks with innovative products.

4. MNC status exclusively or in JV with MNCs

5. Most of the scripts are practicing debt-free business model.

6. Reputed, splendid management with ethical business practices.

7. Most of the scripts are not affected or influenced by the political decisions.

Caveat

1. Equity investment is not for income generation but only for wealth creation and enhancement.

2. Investment in equity should be only with the money not required or affecting daily expenses.

3. Investors are kindly advised to investigate thoroughly for each script and its merits before taking the final decision.