Views on Life & on Equity Investing

Wonder, Wealth & Abundance

Simran Farms – 30th June 2010 Qtr results

with 10 comments

Dear Friends,
To log an update on analysis on Q1 for Simran Farms:
– Revenues are below my expectations but not that bad,  both bottom and topline grew by 50%+ without debt
– Operating profits are just 7% of sales, compared to 25-30% for Venky’s and Srinivasa Hatcheries
– Operation efficiencies have not yet kicked in, and probably won’t for the next 4-6 quarters.
If you analyse how operational efficiencies makes investors rich, take a peek into TTK Prestige’s five year annual accounts. While the sales have only doubled during said period, net profits vaulted by seven and a half times.
– Company is in fight mode with other big established players (Saguna an unlisted player I respect) besides above two, thus undercutting its services to contract farmers to expand on market share for broiler breeding
– I was hoping for an EPS of 40 Rs by March 2011 which looks like a tall order for now.
– All said and done, 21 year old company that has not changed its line of business even once, never tomtomed its performance, is on track to become midcap.
I will continue to hold my full position in hope of four digit number within three years. Those who want to be aggressive in getting in and out on Simran Farms need to watch for maize futures here, maize and soya account for 80% of input cost. Steep rise may affect margins of whole poultry industry.
I am not hoping for a fancy PE ratio for a commodity stock, anything in single digits would be hunky dory, say 8 or 9. My hope is for operational efficiency and margin expansion which is taking wee bit longer until Simran gets a foothold. I continue to believe that one day (within three years) Simran Farms will earn a net profit of 10% on Sales margins i.e. 50 Crores profit on sales of 500+ crore, (EPS 125) and for that company is so far on track.

Written by amitdipsite

August 12, 2010 at 7:40 pm

Posted in Uncategorized

10 Responses

Subscribe to comments with RSS.

  1. Hi Amit,

    Excellent analysis…….
    As i am small investor and still in the learning process…Can u pls tell me what r the parameters generally you look for identifying a potential Multibagger?
    Awaiting your reply on the same.
    Thanks in advance



    August 14, 2010 at 12:33 pm

  2. Dear Vikas,

    We are all in learning process, including myself. As Munger says, “You won't go very far in life based on what you already know”.

    Every opportunity is different and requires separate analysis but topmost two factors are ROE, speed of scalability without capex.

    Couple of points that run through my mind if I hold the stocks for long term are:

    – Look at downside before upside
    – Chances this stock can go to zero
    – Can this grow 5 times in 5 years, otherwise not interested
    – How low can it go in bear market
    – Will I buy more when it becomes half of todays price
    – When may growth slow down, then PE will shrink
    – Size of opportunity and speed of scalability
    – ROE
    – Current price, is it a bargain ?

    There may be other points like debt, management etc. but I cant get myself to buy many stocks that tick the box on every parameter barring price criterion.

    Have a Profitable investment..


    August 14, 2010 at 11:58 pm

  3. Thanks Multibagger for your valueable suggestions.



    August 15, 2010 at 5:16 pm

  4. You're welcome Vikas.

    If you come across stocks that have high ROE keep me updated.




    August 16, 2010 at 3:02 am

  5. Hi Amit,

    What is your take on SE Investment?
    Already it has been a multibagger stock…….coming from niche sector Microfinance?



    August 17, 2010 at 12:04 am

  6. Hey Vikas,

    SE Investments and Mannapuram Finance attracted me but feeling left out after they are already up several hundred percent.

    Mannapuram has a better management pedigree and have not delved into SE Investments and its management. This business can be copied by anyone, even some Indian banks are also starting Micro Finance and other NBFCs will quickly flock, so although “size of opportunity” is huge ! as you guessed for multibagger type returns but margins will come down. They are charging 24-30% per annum, that will come down with entry of more players.

    I like Mannapuram better than other Micro Finance plays because people will part with their family Gold only to solid companies for which they have emotional value. Mannapuram can go bust if Gold falls by 50% within a year. It has happened in past in 1980s




    August 17, 2010 at 3:57 am

  7. Hi Amit,

    You r right…..that in business terms the opportunity is huge, but the not every NBFC has free access to liquidity. Recently SE Investment successfully completed GDR and PNB recently hiked their loan limit by 750mn and regarding management that also looks good as they recently provided Bonus shares and stock split which shows their confidence in their business in yrs to come.

    The performance for last 5yrs has been consistently good and the overall fundamentals sound good.

    Please let me know your take on the same.



    August 19, 2010 at 12:15 am

  8. Hi Vikas,

    I have not completely applied my mind to Micro Finance due to lack of conviction. Will try to dig more in this sector and come back with a response.

    Banking/Investment companies are a dangerous game as they play on leverage of 10-20 times and I have been burnt once in 2008. Even 5% bad loans and wipe off any bank including biggest banks. I realize that Microfinance companies are have very low NPAs as yet.

    One can put small percentage of portfolio to micro finance as long as going is great.




    August 19, 2010 at 1:30 am

  9. Hi Vikas,

    Here are a few useful links for you

    Page 102 of this report tells me that this sector is over crowded:

    No organisation can grow its net profits more than ROE, and banks, MFIs cannot have more than 25% ROE. If they do, then it will attract lots of competition. One time opportunity to make multibagger returns is gone. Its a bubble in formation now, and can be much bigger and run very long. Somehow I cannot get myself to shell out 1000 crores to buy SE Investments or 8000 Crore to buy SKS. However 25% per annum growth is possible in banking, micro finance, anything more than that is a black swan.




    August 19, 2010 at 2:36 am

  10. simran farms in now @ 80…do u still see the chance any buy?


    October 29, 2010 at 6:48 am

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: