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Notes from TIA’s 20-20 Investors Meet

September 21, 2019 @ The Residency Hotel, Chennai

Speaker 1
Rounak Onkar - ITC

(Missed the first 10 minutes)

What can go wrong?

1. People stop smoking

2. Incremental investments into assets and brands don't work
3. Higher taxes

Why don't you have it in your PF?

- We don't like the hotel business (except Mahindra Holidays) and we don't know if we
know the SOTP so well.

Compiled by Akshat Jain | Twitter: @akshat96jain

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Speaker 2
Varinder Bansal - Easternisation of Chemical Industry

- China is not the only way to look at this sector. China's % of entire chemical sector
went from 6% to 40% in last 2 decades whereas India moved from 1 to 3%.
- Now India has moved to 4.5% and we can see this is gradually moving to India.
- It is a sticky industry, nobody can easily say "We were buying from China, now we'll
buy from India".
- I am taking inputs from Arti - if someone has to learn about it, we should learn it from
Arti.
- Next 5 years, opportunity for India is $20-25bn.
- India is 4.5% of speciality chemicals space. Market Cap of Arti is just 10-11k crores
and India could outpace China in terms of growth (11-12% over 5-6%)
- If you are convinced about the industry, now we will look at specific data in terms of
verticals. You can't just buy any company.
- Dye is a commodity space, but we like the Oleo, Aromatics, etc space
- Capital spending for next 5 years is 20k crore, but if you see gross block over the past
8-10 years, for Aarti they are constantly investing.
- In the last 20 years, which are the companies which have grown without dilution and
debt and have maintained ROCE. Aarti grew from 185 to 4700 cr in sales in 20 years.
- Debt has been constant and ROCE has been 18-20%. Working Capital has been
consistent. Consistent is the key word.
- Atul's ROCE has been high, is debt free now and working capital is down.
- So if you want to play this sector, you can look at Atul & Aarti as they are leaders.
- Another company that we are holding is Alkyl Amines - trading at 16 times trailing and
Roce 20%+, their inflection point is in 2016.
- Sales doubled and ROCE doubled without taking new debt. This shows management
efficiency.
- Yogesh Kothari is the promoter and holds 60% directly. He is brother of Hemendra
Kothari of DSP.

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- Management remuneration is per industry levels and directors have a sound technical
background.
- If you believe, pharma and agro chems will grow, this company will grow as this is an
oligopolical play - there is Balaji Amines but Alkyl has been taking share.
- These guys were dependent on domestic market but have now been looking at
exports.
- They have over 100 SKUs and have tie-ups with many leading companies. Revenue
from exports is now 20%
- Over the next 2 years, capex program of 250 crores. Asset turnover is 1.5-1.6
consistently.
- Environmental clearence of 45000 mtpa came in June.
- Revenue growth of 40% came from 2/3rd in volumes and 1/3rd in price. They can pass
on the price with 1 month long impact but more importantly
they grew due to volumes and not price rise.
- In terms of valuations, we think this is reasonable. Promoters have never ever diluted
equity in its past. Company has grown 6-7x without diluting.
- In chemicals, if you can find someone in a tight margin band - this has been
consistenly 48-50% and ebitda 18-20%. This is good as it helps during upcycle or
downcycle analysis.
- This has 1 subsidies which is listed but there is no RPT, sister entity.

Risk
- Raw material price volatility
- Limited industry size and capex by peers
- Expansion by global players

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Speaker 3
Niteen Dharmawat - Hikal

- My stock is connected with earlier 2 speakers.

- Engaged in R&D, manufacturing and marketing of fine chemicals for the Pharma and
Agro Chem industry.
- They derive 70% of revenues from exports.
- Some numbers
- CMP 154
- TTM P/E: 16.9
- EV:EBITDA: 8
- Market Cap: 1898 Crs, EV: 2526 Crs
- They are displaying good growth in sales and profits, never missed dividend and
recently got a rating upgrade.
- Return ratios are healthy, ROCE is around 15%
- Ebitda is stable at 19%
- They are moving up the value chain
- One aspect for companies operating in regulated markets are how they are compliant -
Hikal is compliant with almost all regulatory bodies.
- Most of these companies suffer from USFDA related disruptions. Hikal was
investigated 5 times in the last 5 years and they cleared all 5.
- They have been audited by EU and european bodies and they cleared that too.
- Here is the value chain. They are end-to-end providers, from R&D to finished product.
- June quarter promoter holding is 68.77% with 31.36% with Kalyani Investment
Company
- As per AR19, 2 major exits happened - IFC, Canara, IDFC, etc sold 60 Lakh shares.
This was bought by some marquee investors like Ashish Kacholia.
But did this impact the share?
- Price did remain under pressure, but the sales and profits grew.

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- CFO has been consistently higher than PAT and no equity dilution
- Audit and remuneration committee is headed by Independent Directors so no issues
there.
- Its backed by senior board of directors and experienced management teams.
- In the next 12 months, capex likely to get over and focus is on higher margin products.
- Current capacity util is 75-80%, Chinese disruption are both good opportunities going
ahead.

Risks
- Raw material price fluctuation
- Competition in the market, however management is very well experienced and the
industry is sticky in nature.
- Global slowdown
- High working capital intensity

Compiled by Akshat Jain | Twitter: @akshat96jain

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Speaker 4
Digant Haria - Muthoot Finance

- Market cap of NBFC space was 7 Lakh crore before ILFS and is still around that even
now.
- So sector is still fine but now from 45-50 companies we now talk about 12-15
companies.
- Being from West India and speaking in Chennai, i'm sure you guys understand this
space better than me.
- Survivor of many cycles. - Asset (gold price crash), Regulatory and Liability side.
- Now it continues to be at its all time best.
- Favorable macros - low competition, rising gold prices
- In 2015-16-17, there was a rumour in Bombay that every HK based fund manager had
investment in fintech NBFCs.
- That had a short term impact, but now these algorthimic lenders have vanished and
competition has come down.
- Myth 1 - Gold Loan is distress loan - largest use is actually working capital rather than
school fees or wedding
- Top customers of Muthoot have largest funding source from Banks, so Muthoot
actually lends to businessmen.
- Myth 2 - Interest rates are high - India has only 1 cr people who have credit cards.
- If you use a credit card then you know that the interest rate is still 36%.
- Gold Loan is the only no questions asked immedeate loan you get and therefore the
interest rates are high.
- Flexible repayment (1 day to 1 year)
- Borrowing and Opex cost is at 11% for banks, so they cant do this business below
11%, and NBFC below 16%.
- Muthoot interest rates vary from 14-25% depending on ticket and LTV
- Myth 3 - NPAs are high - NPA in gold loan is different here because you can easily
liquidate.

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- One approach in NPA is to liquidate and second is to give more time. In the 2nd, penal
interest and fees is a good chance.
- When you auction, it is harmful to the company and industry. So companies try to
delay and therefore have to recognise them as NPA.
- Myth 4 - Banks can give big competition. In 2013, HDFC Bank said they will create a
gold loan biz bigger than Muthoot. We will see now who is where.
- Bank is dependent on outside valuation agency.
- Auction & Fruad risk. Banks are hesitant because hdfc has 11 instances where bank
managers colluded with auctioneers.
- RBI regulation says you have to auction it in the same locality where it was generated.
- Because muthoot or manappuram is focused on this biz, they can afford to do this.
- HDFC is still at 1/7th of Muthoot's size even though branch network of both is same.
- Why this stock?
- Trust is a crucial factor and an entry barrier
- Sound valuations, promoter skin in the game and kids actively involved
- Cost wise Muthoot is very efficient as fixed costs are same.
- Muthoot has 8cr loans per branch whereas Manappuram is 3.8 cr - this is good since
most branch costs are fixed.
- Lot of us think it is a South India based company. In 2019, South based revenues is
smaller than rest of India.
- Kerala is just 1% of profits and 4% of loan book. Muthoot is growing 20%+ in north and
east india.
- They have done some good branding such as sponsorships, activations in Kumbh
Mela, hired Amitabh Bachchan, etc.
- Valuations are cheap because past growth has been slow, but if they can show double
digits growth, re-rating can happen
- Regulations - I think RBI doesnt understand gold loan biz, so this always remains a
risk.

Compiled by Akshat Jain | Twitter: @akshat96jain

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Speaker 5
Jigar Shah - Akzo Nobel India Ltd

ROCE, growth, Low WC, Moat, Cash Flows and strong management - these 6 factors
we see when investing.

- 4th largest paint company in India and 2nd in the world

- Dulux Brand - focus on mid and premium segment
- If I ask someone about Akzo Nobel, people treat it like a Abhishek Bachchan in the
Bachchan family.
- Everyone talks about Amitabh, Aishwarya but this has given 17% CAGR along with
dividends
- Why we invested in this co?
- Change in management focusing on growth and expanding distribution.
- Divested chemicals division
- Parent Akzo Nobel owns 75%
- There is a book called Competition Demystified, where it says you should see 2 things
- consistent market share and stable ROCE
- Asian Paints has 55-60% market share and has been stable for many years, same
with Berger, Kansai and Akzo.
- Akzo has a 20% in the premium segment and 10% overall
- If you start at the ROCE, all players make very healthy ROE/ROCE.
- The only problem with the industry is they are not available at cheap valuation.
- Akzo's gross margin is superior to other 3 players but is lower in ebitda terms maybe
because of lower scale
- 2 Important things for paint is - Dealership for push and brand for pull
- In 3 years, Akzo has increased from 9000 to 16000 dealers
- Instead of going directly to dealers, they are appointing distributors
- Akzo is leader in some sub-segments in the Industrial segments.

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- During 15-16-17, Akzo was under pressure globally as there was a acquisition from
PPG with pressure from PE investors.
- They came out of chemicals biz and did some changes globally which resulted in
margin going from 8% to 13% and are targetting 15%.
- Valuation - sales might not be more than 15%, but improvement in margins will
improve pat growth more.
- We look at the company and are ready to pay 17-18 earnings and sometimes translate
into 2x sales
- Important risks are crude price, change in management might hurt strategy

Compiled by Akshat Jain | Twitter: @akshat96jain

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Speaker 6
G Maran - Greenply

- I believe in mean reversion. So considering my good performance in the last 2

sessions, this stock idea shouldn't do well.
- Stock picking is important, but clarity of a long term view is also crucial.
- India is going to be the 3rd largest economy.
- In 1994, index was dominated by Textile, Steel, Cement, etc. In 2004, it was IT,
Pharma. Financial services didn't even exist.
- So if you believe in India and its consumption story, you shouldn't see the likes of
Colgate because it has high market share in aproduct already penetrated.
- If you are in a business like footwear, mattress, you can claim the marginal income
and expenditure
- Plywood as an industry has just 3 segments.
- Greenply group has been a 60 bagger considering it was trading at <100cr market cap
not very long ago.
- I think the branded segment can be a good proxy to play the growth of the future.

Compiled by Akshat Jain | Twitter: @akshat96jain

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Speaker 7
Rishi Maheshwari - 3 themes to run today

- Growing number of affluent Indians

Theme 1 - Overseas Affluent Indians (55% of tickets sold to Indians vs English in their
home country for a cricket match in England)
- Any product targeted towards Affluent Indians has a good scope

Theme 2 - Time & Health - trend has changed and a lot of food is sourced from outside
- Even then, perception of packaged food is it is not healthy

Theme 3 - Vegetarianism
- Vegetarianism is growing in my opinion. Beyond meat - plant based meat substitute
and listed in nyse during may 2019. It listed at $25
- It went to $150. Market cap of $9bn
- Investors include Bill Gates, Tyson Foods, etc
- Tyson is one of the largest meat producers in the world
- Tyson is also investing in Impossible foods which is also plant based meat substitutes
- In Forbes, it mentioned Veganism has grown 500% in the US.
- Dunkin Donuts has started non meat based breakfast in its main manhattan store.

- Across outside India, there is huge growth in terms of vegetarianism.

- To combine all these 3 themes together, is the characteristic that I think is there in
ADF Foods Ltd.
- ADF makes ready to eat, cook frozen and packaged foods principally servicing NRIs.
- 95% revenue from exports - total revenue is 230crores.

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- Major revenue is from US, UK, Middle East. Products found in ethnic departmental
stores
- They are also moving into mainstream stores.
- Principle products are pickles, sauces, mexican dishes.
- Distribution strength - 50+ countries and 180+ distributors
- Difficult to survive in the US - even Haldirams and Bikaji faced USFDA issues
- Tasty Bite Eatables and Kitchens of India (ITC) are other competitors who have made
a mark in the US. 3rd is ADF Foods.
- So a large unaddressed market because of regulatory problems is a good long term
opportunity.
- 7% 3 year CAGR of sales, 16% 3 year EBITDA CAGR
- Q1 FY19, this did a 30% growth because 2018 was a consolidating year
- Consistently growing in EBITDA
- Returns ratios are good. ROE doubled 7% to 14% and ROCE from 14% to 21% in 5
years.
- Cash flows have also been good and has given 45cr back to investors in 3 years via
dividends/buybacks.

Valuations
- A 20-25% sales growth and 15-20% ebitda cagr is possible and we are comfortable
with these valuations.
- Peers such as Tasty Bites - on a similar profit base, Tasty Bites is at a 2300 crore
market cap whereas ADF is at a 450 crore market cap.
- Reason for the difference is most food products are held by 10 companies. If you wish
to be in the global retail chain, you have to be part of 10.
- That is what Tasty Bites thought and got acquired by Mars
- ADF could also be acquired.

Risks
- Forex (hedged)

Compiled by Akshat Jain | Twitter: @akshat96jain

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Speaker 8
Saurabh Basrar - Polycab

- This fits in our thesis framework.

- Val range is 7000 to 12k crore
- Positives are management, track record, low debt, runway, moving to high growth
segment and b2c segment
- Key factors to track - working capital, FMEG growth and margins and wires and cables
segment
- Since IPO is recent, no history or track record of corporate governance. There could
be aggressive IPO accounting.

- They have production capacities across India, major revenues are domestic
- EPG segment is tactical, no growth
- 2 major segments are wires and cables and FMEG. They are market leaders in wires
and cables and fast growing in FMEG.
- currently FMEG is 10% of sales but there is potential ahead
- Polycab has a larger share of wires and cables vis a vis finolex with similar margins,
but because of FMEG, Poycab margins are higher
- SOTP opportunity because FMEG biz gets better value
- No promoter pledges, potential 2.5% esop dilution, low leverage and are net debt free
- Need to test with time post IPO accounting and capital allocation skills.
- No rpt
- If they scale the FMEG biz, multiples should expand

Compiled by Akshat Jain | Twitter: @akshat96jain

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Speaker 9
Aveek Mitra - TCI Express

- I will try to reduce your cognitive load because you are listening to 20 ideas a day.
- I will not get into the numbers as you can later look at it.
- happy low stress per share investing (lsps)!

- In India, the express cargo market is 19000 crore divided between ecomn, b2b and
government/docs/education
- In China, when mfg sector picked up, the express logistics sector picked up in a big
way
- TCI Express has a mix of diversified corporate clients,
- They feel ecomm is a dogs biz, so they will grow it only 5%
- b2b has brand value compared to B2c in express logistics
- c2c has a branding related to issue and isn't an attractive area to get in
- so only attractive segment is b2b

- express logistics is 80% organised, 20% unorganised

- growth of this sector is 2-2.5x of gdp
- unit economics of branch expansion is attractive for non ecomm, non B2c
- Creating this biz is easy, but managing and scaling is a huge challenge. This is an
entry barrier

- TCI exp has an roe of 31%.

- access to 2L SMEs
- Revenue expected to double in 3-4 years and may be more due to tailwinds
- Asset light, wc light, long earning visibility, complex ecosystem to replicate

Compiled by Akshat Jain | Twitter: @akshat96jain

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Speaker 10
Chetan Phalke - Speciality Restaurants

Any scalable model in the restaurant space

- Standardised menu
- Can be eaten with hand, no cutlery, no dishwashing
- Like an assembly line, no two way movement
- Due to take away and delivery, traditional restaurants can also move into the assembly
line approach. And it's a 70% gross margin biz

A typical dine in vs dine in + delivery

- in dine + delivery, no need to serve the guest, no issues of ambience, all ticket sizes
are profitable
- 104 restaurants, 24 confectionarites
- 80 are coco, 24 are franchise owned company operated
- strong in West and East, not strong in north
- runs Mainland China, sigree, Asia kitchen, hoppipola, Oh Calcutta
- over period of time Mainland China's share has come down
- Valuations are in the bottom quartile, wht used to be 3.5x sales is now <1x sales
- So what really happened? Pre IPO they opened 50 restaurants in a small span. Pre
ipo everything looked rosy but post ipo reality struck and haunted them
- So they had to close down some stores
- Earlier major revenue came from 3 brands. Now newly launched, wet led format (bar
and all day dining format) brands are contributing.
- Delivery biz is now 20% of revenue
- New formats launched
- its a debt free company, promoter owns 51%+ and no pledging

So how are they fixing it up?

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- Restaurant mix is changing. Wet led brands are increasing

- Targeting millenials, they are bringing down average customer age
- Planning to open in London, Idea is to cater to diaspora in the overseas markets
- Delivery is growing from 3, 8 to now 12% and it could reach 20%.
- Raw material costs have gone down because of menu rationalisation, smaller plates
and portions
- Co has moved to a fixed price contract for raw material
- Revenue is up by 15-16% in the last 1 year
- Gross margins have gone up
- Increased contribution from wet led will go up where gross margins are higher
- Employee costs as a % of sales is attractive because much of the growth is from same
store sales
- Even if they post 12-15% growth, the operating leverage can really play out
- Odds are in our favor. Failure rate for new restaurants is high, strong b/s, negative wc,
seasoned management, attractive entry valuations, evolving with times. Idea is to start
small, track for a while and once these numbers work out, scale up the position.

Risks

- delivery business fails to grow

- food inflation
- delayed breakeven
- lower footfalls
- capital misallocation
- regulatory risks in alcohol

Compiled by Akshat Jain | Twitter: @akshat96jain

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Speaker 11
Arunagiri N

- One foot hurdle investing. We look for

- High quality small cap or micro cap
- Going through short term headwinds
- Market correction

The opportunity
- Quality (financial nd management)
- Headwinds (runway, business fundamentals

An entrepreneur Transformed a simple commodity synthetic leather business into high

quality business
- He built a bus with competitive advantage
- He focused on premium, r and d, exports

Quality of biz:
- Easy to understand
- Long focused operating history
- Ability to grow with little reliance on debt, generating fcf

FY 12 to 19, low margin biz has come down, exports and replacement with high margin
has gone up

- Reasonable pricing power, ebitda 5 years is 23.6%

- 5 year average roce is 22.2%
- Addressable global market is 28bn dollars

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- Highest margin across competition

- Quality of sales, earnings is good. Good dividend payout means cash is real

Quality of management

- Investment gross block is more than 47% of ocf, promoter has no other biz, and the
biz has no unrelated diversification
- Management compensation is well within 2.2% of the Pbt
- RPT is <1.1%
- Conservative management - under promise and over deliver.
- Skin in the game, no pledging, no complex holding structure, global audit firm

New triggers:

- Shift to organised market, increase in exports and tie ups

Name of the company is Mayur Uniquoters. Comes with a 47% mos, as the intrinsic
value is 400 according to us.

Stock has fallen by 40 - 50%. Single biggest risk is key man risk. Other risks - High
institutional ownership, raw material price increase.

Compiled by Akshat Jain | Twitter: @akshat96jain

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Speaker 12
Abhishek Basumalick - IPCA

- Pharma is a sector which people haven't been looking at for years

- ipca supplies APIs to nearly all big names in the world
- in 2014, they received 6 usfda observations at their ratlam plant
- In 2015, ratlam plant received import alert from usfda
- 2016 April, some firms stopped procurement
- in 2017, company said let's look at Africa, domestic markets
- 2019, Some firms restarted procurement
- Currently, well diversified globally
- Domestic growth is driving business, exports have started to pick up
- Product is also diversified. Last 8 to 9 months, they have employed 1000 MRs to just
sell Zerodol. Total MR strength of 4200+
- In addition, they have been doing 100cr ticket size acquisitions
- If you look at the Profits, they have come back to the 2014 levels
- Balance sheet has improved, sales are getting back on track, ROE and ROCE are
subdued compared to 2012-13, expectation is they revert

Risks

- Focus on domestic pharma space

- Government policies across different countries
- Stock broke out the 2014 high and has been consolidating

- Reasonably valued, good earnings growth in the next 2-3 years

- Strong API player, growth and margins back to pre problem times, Q1Fy19 has been
strong, usfda is optionality

Compiled by Akshat Jain | Twitter: @akshat96jain

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Speaker 13
Sahil Jain

Piped water connection

- Government has spent heavily on piped water connection

- Without water, not just houses but even commercial and industries face issues
- When there is a water project, 25% expenditure happens on epc, 25 % in treatment,
some in pumps but biggest in distribution in pipes. 40%

What pipes are used for water supply?

- Saw Pipes for transportation
- HDPE for end use
- For city distribution, DI pipes

Manufacturing process of Ductile Iron Pipes

Raw Material - Hot Metal - Centrifugal casting. Most people stop with hot metal, very
few have casting capacity

Benefits of DI Pipes
- Load bearing capacity
- Corrosion resistance
- Low maintenance
- 80-100 years life

The company is Sri Kalahasthi Pipes

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Electrosteel casting took over in 2003 and turned it around.

Kalahasthi is a fully integrated capacity. It has core capacity as well as supporting

infrastructure.

- Industry demand growth is 8-9%.

- Kalahasthi and tata metalicks are both doing a 2 Lakh tons expansion but Kalahasthi
cost is 400 cr, whereas Tata Meetalicks is 650 cr

- Other competitors are either bankrupt, or have multiple capacities, or are not present
in South India

Financials
- 5 year cage has been 10%
- PAT has been stable
- However what happened this year was due to some supply issues in coking coal, but
these guys have rebalanced
- People think pipes is dependent on the government, but generally sales are billed to
epc players who in turn get govt contracts. Government is also getting funding from
world Bank etc towards water projects.

Risk
- Coking coal prices

Why is the company stronger now than 2013?

- Suffered loss between q4fy11 to q2fy14 due to

- Infra spending lapse
- Lot of rejection

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- High Coming coal price and rupee depreciation

- Promoter buying approx 4%, lot of insider buying

- Market Cap 875 cr, trading at 6 times, capex using internal accruals
- 15% dividend payout
- Funding raised

Summary

- No geographical competitor
- Cheap capex
- Govt focus on water
- Backward integration

Compiled by Akshat Jain | Twitter: @akshat96jain

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Speaker 14
Vidya Bala - Adani Ports and SEZ

- Overall a wealth creator despite falling, having high beta in the middle
- Largest private port developer, 9 of 10 assets are operational
- 70% of North India bound containers are handled by it in Mundra Port
- Steady growth, not bogged down by trade tensions and economic slowdown
- High growth high margin biz
- Synergies from Integration = Port + SEZ + Logistics division. Rare combination

- 65% operating profit margins, revenue pat and ebitda growing at 18-20% cagr
- Has shown ability to acquire and turnaround assets
- Capex intensity remains high

- Cargo volume handled has been growing well, though FY 18 saw a mild slowdown,
but compared to other sub sectors like road, etc this has been doing reasonably well.

Advantages of Mundra over others

- 30 rail services vs Pipavav at 12

- Superior road connectivity and access to North India
- Larger vessels can take berth due to Mundra having larger capacity. This results in
higher margins
- To benefit from Western Dedicate freight corridor
- Cargo volume growth at 15% vs 3% for other major ports in FY 19 as well as per tonne
price increases

- Dhamra port acquisition, adani turned it around in 1 year

- Kattupalli acquisition done in 2016 Nov, provides strategical advantage

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- Capex to increase from 395crore to 570 in 2025

- Adanis utilisation is better than peers and has a target of 70%
- High capex means high debt, but good thing is debt maturity is comfortable. Average
maturity is at 6 years.

- Price earnings ratio has corrected but I think market has understood how to value
these companies. One must at 5 year returns despite short term spurts.

Biggest risk is leverage and capex, not sector growth.

SOTP valuation is the best way to value this.

Compiled by Akshat Jain | Twitter: @akshat96jain

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Speaker 15
Shagun Jain - Galaxy Surfactants

Why this idea?

- Staples/Consumption are evergreen sectors as people will continue to buy them.

- Once the economy revives, these are the sectors that will bounce back.
- Healthy balance sheet, operating history, no hanky panky. Management is a class
management - engineering background.

- All major fmcg guys are customers of galaxy surfactants so galaxy can be a good
proxy to a basket fmcg play
- All fmcg firms are growing at 8-10% in volume terms so Galaxy has been growing
sales by 15%+
- Pat increased from 33cr in 2012 to 190cr in 2019
- New capex on board, adding another 15% to capacity. Current utilisation at 65% as
recent capex finished
- As 2/3rd revenue came from outside India, depreciation in rupee helped
- ROE has increased from 14 to 22%, ROCE is in the mid 20s
- Debt has come down from 420 crores to 297 crores
- Debt equity is at 0.34 from 1.79 in 2012
- OCF of 283 cr
- Marquee clients and Payment terms of 60 days, so no stuck receivables

Key Parameters

- Galaxy generated profits across cycles, ROE/ROCE >20%

- Stable sales growth in line with fmcg segment growth
- Operating cash flows are huge and are converting to free cash flows

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- No rpt, no pledge, no sister entities, no statutory defaults, no goodwill on the books

- Moving towards higher margin speciality products. Its a fmcg play and will grow as
long fmcg grows.

Risks

- Raw Material Price fluctuations - crude and vegetable oil

- 2/3rds of revenue is from outside India, so global slowdown might affect sales

Compiled by Akshat Jain | Twitter: @akshat96jain

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Speaker 16
Maulik Madhu - Sreeleathers

Process
- Less than 500cr market cap
- Consistent revenue and ebit growth
- Zero pledge
- Positive cfo
- Promoter stake
- Valuation
- Management quality
- Industry growth

Overview

- Wholesale and Retail of leather and non leather footwear and accessories
- Wholesale footwear is 56%, retail footwear is 13.5%, Leather goods and accessories
is 30% of revenue
- Strong financials, good growth in sales and margins
- Growth in margins mainly because of cost control, outsourced manufacturing
- No corporate governance issues
- Attractive valuations
- Net worth on the rise, growing ROE
- No negative media reports
- Salaries to MD increasing but not a concern
- No material RPT
- Sreeleathers is fairly small compared to other competitors
- 2019 npm is 18% compared to bata, khadim and relaxo

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- Business fundamentals are good, valuations are inexpensive, PE is 12.5 times and is
at the lower end of the historical valuation band
- Industry outlook is positive, demand for branded footwear in tier 2 and 3 cities to go up

Risk/Opportunity

- So far expansion was Conservative

- In 2018, the company spoke about expanding retail prescence and exploring newer
markets
- Risk is in expenses going up for expansion

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Speaker 17
Balaji Vaidyanath - Ultramarine and Pigments

- Part of the thirumala chemicals group

- 550 cr mcap, zero debt
- Before the theme of China shutdown came into fancy, this Co has been growing

Pigments division
- Gives color to what we use.
- Small player in a huge market
- Printing and plastic contribute 30 and 17% and have marquee fmcg and furniture
clients
- Last year they did a 100cr pigments topline with a 10% 5 year cagr
- Surfactants constitutes 24% of revenues, its again a huge market and these guys
supply to well known names.
- Surfactant achieved full capital utilisation, so sales growth is on the lesser side, but
new capex is coming up so we expect more traction
- ItEs division, is a call center and telemarketing business. It generates fcf and they are
not investing more in it.
- Topline tripled since 2010 and ebitda from 17 to 71cr, pat 5x
- There is a cross holding with thirumala chemicals - they own 20% of each other
- ROIC has been fantastic at 30% and growing topline at 10%. Other return Ratios are
subdued because investment in thirumala has to come under reserves in ind-as
accounting.

- Over 10 years, cumulative cash flow is 237 crores of which 100+ crore they've given
as dividends. This is a hallmark of a decent company
- exports gaining traction
- Promoter raising stake, no dilution or qip or pledge
- stock price corrected 50% from all time high, so ttm pe is in single digits

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- so a growing company with a big market size, 30% ROIC = simple and neat company.
Cheaper and more efficient compared to peers in terms of pe, return Ratios.

Risks
- volatility in price and supply of alpha olefin
- Innovation is the key

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Speaker 18
Dinesh Sairam - ION exchange

- Freshwater is just 2.5% of all water available in the world

- Most of it is stuck in ice caps
- less than 1% is available
- India is currently suffering from the worst water crisis in the country

Major catalyst to solve this problem is

- creation of Ministry of water
- Nal se Jal and Jal Jivan projects by the government
- ION exchange ttm sales is 1/25th of the opportunity size
- The water treatment value chain is serviced by a handful of cos

Ion Exchange
- Setup in 1964
- Minimum top management experience is 15 years
- Spend 15-20% of profits on R&D
- Focus on b2b unlike va tech wabag
- 3 divisions - Engineering, Chemicals, Consumer

- Engg forms 58% of sales, where most value is likely to come

- 12 of 20 largest STPs in India built by Ion
- Speciality chemicals is 32% of sales, majorly produce resins and chemical additives
- Consumer biz is 10% of sales. Zero B owned by them. They also supply railneer to
irctc.
- Lost leadership to Tata Swachh and HUL PureIt

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- Even though VA Tech Wabag is successful, they haven't been so impressive as far as
returns are concerned
- Direct competitor - Thermax has gone down and ION is the margin and roic leader

Way forward
Engineering
- 1200cr order book
- 6000cr bid pipeline
- 10-15% bid hit rate
- Implies a 30%+ growth rate
- No concentration risk

Chemicals
- A 34k sq ft R&D division for textiles and beverages
- Hold 50 patents
- Resin util at 80%, membrane at 35% - going to double capacities
- growth guidance is 50% so even if you take 25% it's excellent

Consumer division
- Going to enter the entire value chain

Valuation DCF
My valuation is on a probability curve. 870 is the fair value. So a good purchase at cmp
or below cmp.

Risks
- Case with Sebi
- Forex risk - 35% of sales from exports
- Loans to subsidiaries at low rates

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Speaker 19
Bhavana Acharya - VMart Retail

- an IPO success story, runs typically large format hyper retail stores

What's important in retail

- Presence (no of stores)
- Price (product mix, discounting)
- Stability (profitability, sssg)

Presence
1. Limited Regions - Presence is limited to the North - UP, jharkand, Bihar. Focus in tier
3 and 4 cities. In 5 years tier 3 has gone up from 44 to 133 stores.
2. Smaller cities - easier to service tier 3 and 4. Competition is lesser.
3. Strategy to identify one location, build a presence with 1 or more store - sort of like a
cluster approach. This helps build brand slowly
4. Expansion financed by internal accruals and equity, not debt

Pricing

1. They are able to have a product mix where they are able to push premium products
in some affluent markets

2. Share of groceries and kirana has come down and apparel has taken over

Stability

1. Footfall has gone up, conversion has been stable at 55%-60%

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2. Sales per sq ft has been steadily increasing

3. Average ticket size has also been increasing

Efficency
Improving turnover:
1. Steadily improving inventory turnover and sells inventory within 3 months

2. They have a warehousing facility and are setting one more in Bihar for the North east

- 5 year sales growth at 20%, npm at 24%, 3 year average returns beat industry. One
time write off due to ilfs CDs

Valuations
- Mcap to sales is 2.5, ev ebitda is 26.78, eV to sales is 2.5, cheapest amongst peers
- PE for peers vary widely so not comparable
- Stock price corrected 40% from peaks, due to slowdown, write off etc. Now the
valuation is more rational. Institutional holding is significant.

Next Leg
- Expansion
- Additions in top mgmt for marketing
- Zonal structure
- investment in tech, omni channel, supply chain

Challenges
- Competition, demand slowdown, cost pressures, if they take on debt funded
expansion

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Speaker 20
Vellore Venkat

Multi baggers

- Low equity capital (less than 50cr)

- High promoter (not less than 60%) holding
- High Sales to Net profit
- High reserves and surplus
- Zero debt
- Product pricing power
- Inelastic demand

This stock is strong in fundamentals and technicals. It is La Opala Glass.

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Speaker 21
Yogesh Sundaram - Seshasayee Paper & Boards

- 2 factories, one in erode and tirunelveli

- 100% revenue from Newsprint writing and print papers
- Revenue last year was 1275 crore and export was 16% of that.
- Per capita consumption in India is 13kg vs 312kg in US
- Mcap of 1275 cr, cmp 202.05 and ROCE of 30%, roe of 23%
- Ashwath Damodadan publishes the multiples for 65 industries. Paper trade at 4.7x.
Seshasayee paper is trading at 4.6, so broadly in line.

- Promoters own 46%

- Cagr for paper industry for last 10 years is 6.5% with a 8% forecast for the next
decade
- Increasing literacy levels, growth in printing, tissue, packing to aid industry growth
- Industry is highly fragmented, many Mills are facing Insolvency
- Recently JK acquired sirpur, a 80 year old mill which went bankrupt
- So acquisition opportunities are available to Sesh.

- Paper industry therefore has a large market, export is picking up. Major issue is raw
material and waste paper availability, inventory dumping and availability of water.

Financials

- 2013 to 2019 saw 10x eps growth.

- 5 year cagr sales is 11% compared to 6% of industry
- Ebitda cage is 23%, profit cagr is 76%
- Balance sheet is de leveraging and debt to equity is only 0.33x
- Debt free, net cash is 200cr

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- Major capex in 2013 to acquire subburaj Mills, next capex has started funded by 82
crore and 160+cr internal accruals
- First quarter results were subdued but profitability was good.

Peer valuations - Sesh is 6.6x PE and is in the middle compared to peers. So valuations
are good.

Mcap grown by 9x in 16 years.

Rationale

- Family run, clean b/s, good cash balance, acquisition opportunities, single use plastic
being banned, growth due to opening of schools in rural areas

Compiled by Akshat Jain | Twitter: @akshat96jain