Small but Strong Companies : Ideal for your Long Term Portfolio (5Y+)

Wealth report 2012 released by CITI and Knight Frank predicts fall of North America and West Europes share in World GDP from 41% to 18% by 2050. And Share of Asia, especially Chindia, would go up from 27% to 49%. This simply summarizes that India and Chinda would grow rapidly for the next 40 years.

As per Goldman Sachs, India could grow 40 times by 2050. And India's GDP would grow from $960 Billion in 2010 to $8165 Billion by 2050. And this growth is expected at mear GDP growth of 5.5% !

If you thought it was unachievable, let us rewind. Since 1991, our cement industry has grown 4.4 times, Finished steel by 5.6 times, Electricity by 3.1 times and Coal by 2.5 times. On an average our GDP has increased 4 times since 1991. With 1.2 billion population, furture growth is very much a possibiility but for the caveats like reforms, corruption etc.

This booming economy has given birth to many enterprises like Apollo Hospitals (1979), Pantaloon Retail (1987), Bharti Airtel (1995), Infoedge (1995), MCX (2002) and Jubliand Foodworks(1995).

This HUGE growth opportunity is definitely a very positive news for enterpreneurs and Equity investors who could invest in such companies and grow with them.

Following are list of small companies which have been financially strong, consistent dividend giving with positive networth for past 10 years. These companies have Debt equity ratio of 0.5 in each of past 10 years.

A word of caution: Small companies are usually volatile since the shares are relatively illiquid with low trading volume. Hence it is advisable to restrict your investment to such small companies to maximum of 10% of your overall equity portfolio. You should have patience to buy and patience to sell.

WENDT Indis:
- Part of Wendt GmbH (MNC) Switzerland, which is a leader in super abrasive tooling solutions and high precision grinding machines for 80 years.
- 3 Verticals : Super abarasive, Non super abarasive and International Businesses.
- 2 subsidaries : in Thailand and in Middle East Sharjah.
- Exports contribute 20% of revenue.

VESUVIUS India:
- Vesuvius UK (MNC) holds 55% stake
- Parent company - leader in consumable high performance speciality ceramic refractory with 57 manufacturing facility across the world.
- Started production in Kolkata from July 1994
- Supplies Slide gate equipment, porous plugs, monolithics, precasret shapes and taphole clay and cruciles for NON Ferous Industry.
- Makes refractory product for Steel, cement and glass industry
- Has facility @ Kolkata, Gujarat and two in Vizag. Fifth plant coming up @ Vizag again.

GANDHI SPECIAL TUBES:
- Debt Free
- 100 Crore + turnover
- Manufactures welded seeamless tubes and cold formed coupling nuts
- Supplies to Original Equipment Manufacturers (OEMs) of Automotive, Refrigiration and other engineering industries.
- Liberal Dividend payment : 30% in 2012 and 28% in 2011
- Paid dividend of Rs.8.8 Crores from PAT of 29.8 Crores in 2012.

ADOR WELDING:
- Debt Free
- earlier known as Advani-Oerlikon
- commenced operations in 1951
- 75% of revenue fromWelding consumables
- 25% revenue from equipment and project engineering which includes manufactre of flares, incinerators and Env.engineering products
- Caters to overseas market of Middle east, africa and south east asia.
- Exports @ 34 Crores
- Manufacturing facility @ Gujarat, Chennai, Chattisgargh, Pune
- Fund's its expansion purely through internal accruals and not on borrowings.

ANUH PHARMA:
- Largest producer of erythromycin salts since 1989
- Ramped up its production of 15 tonne per annum in 1989 to 900 TPA now.
- One of leading producer of Active Pharma Ingredients.
- Manufactures anti bacterial, anti tuberculosis, anti malarial and corticosteroids
- Client base of 350
- Products exported to over 50 countries, contributing 45% of revenue.
- Expects to grow 20% per annum for next few years.
- Rs.10 invested (in 1 share of ANUH in 1989 is worth 96 shares of Rs.5 each,) valued at Rs.11500 in FY2012. That is a 1150 times increase in capital !!! or an annualized growth of ___%

AGC Networks:
- Earlier known as Avaya Global Connect
- Avaya Inc sold its 59.13% stake in AGC to Essar in April 2010.
- At present, AGC is subsidary of Aegis - part of Essar Group.
- Tech solution in 9 countries, 16 officesin India, 2500 customers including fortune 500 companies.
- 63% revenue from United communications
- 31% from customer ser ices
- 6% from CRM solutions
- Capital has appreciated 9 times in last 10 years.
- Goal is to reach $ 1 Billion revenue by 2015.

Hercules Hoists :
- Completed 50 years of business in 2012.
- Shekhar Bajaj Group
- Manufactures Material handling equipments like Chain Pully Blocks, Chain and wire rope electric hoists, ratchet lever hoist, pulling and lifting machinery etc.
- Manufactures under brand name INDEF
- Growth depend on new projects and expansion of existing companies apart from replacement market.

TVS IMPAL:
- India Motor Parts and accesories - a TVS group company incorporated in 1954
- Distributor of auto spare parts and accessories of over 50 manuacturers
- Network of 52 branches
- Distributes Engine components, Brake systems, Fastners, Radiators, Suspensions, Axles, Auto Electricals, Wheels, Steering Linkages and Instrument.
- Reported 17% growth in turnover, crossing Rs.500 crore milestone.

WIM Plast :
- Startedin 1988
- Manufacturers plastic moulded furnitures @ Daman in 1994
- launched 25 new models in premium segment and household category
- Despite aggressive expansion, remains debt free

International Travel House :
- ITC holds 61.69% stake
- Started in 1981
- Offers full boquet of travel services for business and leisure
- offers Business travel, car rental, destination management services, domestic and world tour, corporate conference and management services.
- 10 International air transport offices, 13 car rental offices and 19 travel counters
- Owns largest Branded car Rental company - with 900 cars.
- Through global star travel management system, the company has access to 75 partners in 63 countries.
- Will be implementing Phase II of IT based integrated platform

Aeonian Investment Company:
- Very small company
- Investment company that invests moneh in listed and unlisted shares and mutual funds.
- Funds managed by ENAM - professional portfolio managers
- Reported profit in all the past 10 financial years.
- Consistent dividend between 150% to 1000% on face value of Rs.2
- Turnover is little less than 5 Crore andn Profit of Rs.3.7 Crore
- Market value is Rs.51.3 Crore
- Shareholder base : 2197 only
- Promoters hold 86.9% stake
- Book Value is Rs.188 per share against current market price of Rs.107

Fundamental's of Stock Picking : Profitability Ratio's

Profitability ratios measure a company's ability to generate profit and cash flow relative to sales, assets and equity. Common examples of profitability ratio's include :
- Return to sales,
- Return on Investment
- Return on equity
- Return on Capital Employed
- Operation Profit Margin
- Gross profit margin
- Net Profit margin

Companies with high profitability ratios
- generate adequate cash flow
- can fund capital expenditures from internal accruals
- often reward investors with rich dividend, bonus shares, buy back and open offers.
- No need for debt
- No fear of equity dilution
- In better position to grab opportunities like diversification, acquisition, expansion or plain investment in other companies / MFs
- Evergreen Investment options - irrespective of market directions

Among them Return on equity and ROCE are basic ratios that we must understand before investing. Companies with High ROE and ROCE usually reward investors in times of slowdown. They also go for organic and inorganic growth.

Return on equity:
- is also known as Return on Networth:
- measures overall efficiency
- Indicates how much profit a company earned in comparision to the total amount of share holders equity
- = (Net profit - Prefence dividend)/ share holders equity

ROCE :
- also known as ROI
- Indicates how well a company can generate cash from Total Capital Employed
- = Operation Profit / capital Employed
- Capital employed includes long term funds from owners and creditors
- Considered as primary measure of profitability-since it compares inputs with outputs

Mahindra Lifespace Developers

With real estate stocks in deep trouble, it is common to generalize that the real estate industry is not doing well. As usual, there is an exception here.

- Mahindra Lifespace - has not reported slowdown even in 2008 financial crisis
- So far - completed 7.14 million sq ft in Mumbai, Chennai, Pune, National capital region(NCR) and Bangalore.
- Ongoing projects - 3.7 MSF
- Forthcoming projects - 6.84 MSF
- Land Bank: 12.1 MSF
- In process of building integrated business cities in Chennai ( 1550 Acres) and Jaipur (3000 Acres)
- Entered Nagpure - developing 25 acres
- Expected to launch first project in Hyderabad over 9.7 acres
- Debt-Equity Ratio : 0.16 times

Mayur Uniquoters

- started in 1994
- One of largest manufacturer of Syntheric leather
- Capacity - 1.85 million linear meters per month
- Supply to automobiles (Ford, chrysler, Maruthi, TATA Motor, M&M, Herohonda) and Footwear (Bata, Action and Liberty)
- Negligible debt of 3.8 cr
- Targets revenue of Rs.540 Cr in FY 2015
- Aug 2012 - Bonus share : 1:1

PAGE Industries

- Incorporated in 1994
- IPO in March 2007
- Exclusive licensee of Jockey Inc US - to manufacture and distribute Jockey brand innerwear in India, Srilanka, Bangladesh, Nepal and UAE.
- 10 plants - all located in Bangalore - employs 13000 Indiv, has access to 23000 retail outlet in 1200 cities. 79 exclusive stores.
- In 2012 - entered into exclusive licensing agreement with SPEEDO Intl to manufacture and market Swimwears, water shorts, apparel, equipment and footwear.- Available in 410 stores in India.
- Speedo expected to drive PAGE's growth as the branded swimwear market in India is in early stage

PTC India Financial Services (PFS)

- Many of us confuse PFS with PTC
- PFS is Non Deposit taking NBFC
- Exclusive financial assistance to projects in energy sector
- Enjoys status of Infra companies
- So far has invested in 90 projects
- Has helped in 24000 MW power capacity creation
- Holds 60% stakein PTC India.
- Concerns - Bankrupt state electricity boards

Zydus Wellness :

- 90% of low cal sugar : Sugar Free
- Ever Yuth : skin care product in scrubs and peel off category
- Nutralite : Margarine product : dry fruit cakes
- Actilife : Nutritional Milk additive for adult
- Current revenue : 331 crores in FY 2012
- Targeted revenue : 500 Crores by FY 2014

Astral Poly Technik : Background

- Manufactures plumbing systems with all kinds of fittings.
- first licensee of Lubrizol of US and India
- JV with Speciality process US to manufacture CPVC plumbing systems
- Speciality holds 14% stake
- In May 2012, commenced commercial production of bendable pipes for first time in the world with technical support of Lubrizol
- Total 65,496 tonnes capacity

Talwalkars Better Value Fitness :

- India's only listed Gym (fitness) company
- One among Asia's largest health club chains in Asia
- From 16 clubs in 2004, it has grown to 130 clubs across 69 cities with 1,26,000 members
- 10% market share in organized health club market
- 25000 sq ft residential training academy for trainers
- Value add : NuForm Gym Studio for weight loss and slimming
- Value add : Spa @ 13 locations aerobics and personal training.

Info Edge (India) :

- Listed on October 2006
- Debt Free
- Recession proof stock
- Operatin profit market : 42.9%
- Net profit market : 26.7%
- Portals :
- Naukri.com
- jeevansathi.com
- 99acres.com
- shiksha.com
- Naukri Gulf jobsite
- strategic invesmtent in Meritnation.com., policybazzar.com, mydala.com, 99labels.com and zomato.com
- Has offline executive search firm : Quadrangle
- 48 officies in 31 cities employing just 2000 individeuals