ZeeNut's Blog

Thursday, September 4, 2014

SEBI Regulations - Discontinuance of Detailed Stock Specific Analysis

SEBI has notified certain guidelines on 1st Sept 2014 called as : SECURITIES AND EXCHANGE BOARD OF INDIA (RESEARCH ANALYSTS) REGULATIONS, 2014. These regulations will go into effect 90 days from their publication in the official gazette.

The new regulations are a step in the right direction, seeking to safeguard investors from manipulative research reports.

While the author of this blog is just a passionate investor & not a research analyst, it does however appear that the scope of the new regulations covers blogs such as this one.

Over the last couple of years this author has generally refrained from giving explicit calls, rather, he has presented the facts, explained why the stock idea merits attention, and requested that the reader should research the stock further & take an appropriate call based on his/her own conviction in the stock idea. He has also unfailingly disclosed his interest in the stock, in the Disclosure/Disclaimer section.

As the author is simply an enthusiastic & passionate investor, and has no pretensions/aspirations of being a qualified research analyst, he is not of the mind (at the moment at least) to accredit himself as a research analyst.

Hence, in keeping with the spirit & letter of the new regulations, the author will refrain from any detailed stock specific analysis in future.

This will be the case at least until it is clarified - if at all - either that

Blogs such as this one are not within the scope of the new regulations, or
Simply covering an idea - with an explanation on why the idea merits investor attention but refraining from making any explicit recommendation - is not within the scope of the new regulations

Thanks to those of you who have written in with some kind words from time to time, and wishing all of you a fruitful investing career.

Monday, July 14, 2014

Lykis Ltd : New Kid on the FMCG Block

Lykis Ltd (‘Lykis”) is a small sized FMCG player listed on the Bombay Stock Exchange (Bse Code : 530689, MCap : ~ 50 Cr) . The company was originally incorporated as a partnership firm by Banwarilal Sutodiya & others under the name and style of Sutodiya & Company in 1965, to carry out the business of tea plantation & processing. The firm was converted into Private Ltd Company on 15th October 1984, and the name of the Company was changed to Greenline Tea & Exports Private Limited . It was converted into Public Limited Company on 27th October the same year. In 1995, the company (then known as Greenline Tea & Exports Ltd) came out with a public issue (IPO) & listed on the Bombay Stock Exchange. Since it’s inception, the company has been engaged in the business of tea plantation & processing at it’s Tea Garden, Iringmara Tea Estate, having a total grant area of 952,000 hectares, situated at Silchar, Assam.

Transfer Of Management Control, Entry into FMCG business :

Between late 2010 to late 2011 , the company underwent a transfer of control that finally culminated in Mr Vijay Kishanlal Kedia taking management control of the company. Mr Prince Tulsyan was appointed as the MD of the company for a period of 5 years ending 2016.

The new management announced it’s decision to enter into the FMCG space including Food, Pharma and Cosmetics , even while continuing to grow the existing Tea business.

In early 2012 the new management allotted equity & warrants to themselves & external investors , in order to fund the expansion plans of the company. The name of the company was changed to Lykis Limited (”Lykis”). The company brought two associate companies of the promoter group, Lykis Pharma Private Limited (75% stake) and Jin-X Marketing Private Limited (50% stake) under it’s umbrella as subsidiaries with effect from August 01, 2012.

Lykis today covers a wide spectrum of FMCG & OTC Pharma products , listed in the table below. The company manufactures a few of it’s products, while getting most of the products sub-contracted (asset light model). The company has concentrated it’s marketing push thus far on 2^nd & 3^rd tier towns & cities in India - which are witnessing a huge shift in lifestyles and purchasing power , even as it plays close attention to registering & building it’s own brands, e.g. Lykis, BriteX, RoX , Bonita, Always etc. The company will slowly be moving into the metro’s & tier 1 cities. The company has also made a focused effort to penetrate export markets, especially in Africa, and it’s efforts are bearing fruits.

Lykis - Product Portfolio :

Classification	Products	Brands
Soaps	Beauty & Toilet soaps	Lykis, Bonita, RoX, Bentol, La Belle, Bom Clair, Bon Fami etc
Deodorants & Perfumes	Deodorants & Perfumes	Lykis, Bonita, RoX
Cosmetics (Skin Care)	Body Lotions, Petroleum Jelly, Fairness Creams, Shower Gels, Face Wash, Moisturizing Creams, Shaving Creams	Lykis, Bonita, RoX, Bon Fami, Bom Clair
Cosmetics (Hair Care)	Shampoo, Conditioner, Hair Colour , Hair Gel , Mehendi, Amla Hair Oil, Almond Hair Oil	Lykis, Bonita, RoX, Vivo
Coconut Oil	Coconut Oil	Lykis
Baby Care	Baby Lotion, Baby Powder , Baby Soap , Diapers etc	Vogly , Bonita, Lasam’s, Bebe
Body Talc	Body Talc	Lykis, Bonita, RoX, Dermipo
Oral Care	Toothpaste, Mouth Wash	Always , Angola, Meno, Special
Biscuits	Biscuits	Classic, Berry’s, Moco
Confectionary	Candy, Menthol Candy, Gummies	Classic, Crystal
Snacks	Potato Chips	Classic
Food	Tea, Coffee, Corn Flakes, Tomato Ketchup, Mayonnaise, Drink Powders, Salt, Glucose Energy Drinks	Boa Vida Juice, Boa Appetite, Taazagi Tea, Cheers Tea, Lycafe Coffee, Nutriflex Corn Flakes, Gluco Punch
Home Care Solutions	Air Freshener, Glass Cleaner, Toilet Cleaner, Floor Cleaner, Adhesives, Detergent Bar, Detergent Powder, Liquid Shoe Polish, Mosquito Coils / Vapourizers	Britex, Bomcol, Golding King, So Lava, Glit, Cold Grip, Paramos
Health Care	Pain Relief Sprays/Ointments / Tablets, Cold Inhalers, Expectorants / Cough Syrups, Anti-Biotics, Itch Relief, Foot Care Creams, Eye Drops, Body Creams, Antiseptic creams/liquids, Condoms etc	Lykis, Micoderm, Exoderm, FaryCare, Betavate, Candicyl, Neoprin, Cortizone, Piodine, Davimov, Act Pain, Evicir, Colvate, Diclofenac, Davigra (condoms, sprays, oral jelly), Jin-X (Ayurvedic Cough Syrup), Thanda Thanda (Prickly heat powder)

Lykis’s Tea Division sells Bulk tea packed in jute bags of 26 kgs & 35 kgs weight, as well as in tea chests. It also sells packaged tea in various sizes starting from 50 gms to 10 kgs under the brands Cheers & Taazagi.

Financial Performance :

In 2 years post the change of management, the company has grown at a scorching pace. Turnover has improved from Rs 2.24 Cr in 2011-12 to Rs 129.27 Cr in 2013-14, with the FMCG business achieving a turnover of Rs 123 Cr in 2013-14 . Tea business has also grown but at a much slower pace.

Brief Financial Numbers :

	2011-12	2012-13	2013-14
Tea Sales	2.24	5.34	6.44
FMCG Sales	-	16.64	*122.83*
Total Sales	2.24	21.98	129.27
PAT	0.02	(0.89)	(1.16)
Debt / Equity	0.3	0.1	1.6
MCap / Sales	-	-	0.39

About The New Promoter Group :

The new promoter Mr Vijay Kedia is an industrialist who has more than 35 years experience in finance & industry. He holds directorships in Atul Auto Ltd, Three PL Services Pvt Ltd, Dharamnagar Tea Estate Pvt Ltd, Kedia Securities Pvt Ltd (where he is Managing Director) etc

He also happens to have made a name of himself as a savvy investor in the Indian Stock Markets. One can read more about this avatar of Mr Vijay Kedia here, here & here .

On his blog http://kediavijay.blogspot.in , on 22nd May 2013, Mr Kedia noted that “ ….. one cannot go wrong in consumer stocks. Since 1990 we have crossed three stages. India is at the third stage of savings pattern.

From a "high saving rate with low income" to "high savings rate to higher income" to "currently (falling) low savings rate to higher income".

Our savings rate has fallen from 36% in 2009 to below 30 % in 2011 that too on rising income. It is a big change which will result in a phenomenal boom in consumerism.

With the downfall of the Indian economy, consumer stocks or consumerism is the sector which will not be affected and it is advisable to invest in such stocks …” (PS : Emphasis, quotes & line-breaks added by this author to enhance readability) .

As his investment in Lykis shows, Mr Kedia is certainly putting his money where his mouth is.

In Brief : -

Name : Lykis Ltd

BSE Code : 530689

Equity : 18.96 Cr

CMP : Rs 26.25 (closing, BSE, 11^th July, 2014)

Market Cap : Rs 49.77 Cr

Website : http://www.lykisgroup.com/

Facebook Page : https://www.facebook.com/pages/Lykis-Group/1390360204548721

Product Information :-

Product Range Video :

ttps://www.youtube.com/watch?v=wupDQnSNmXw

Export Brochure :

http://www.lykisgroup.com/_pdf/Export_Brochure.pdf

Domestic Brochure :

http://www.lykisgroup.com/_pdf/brochure.pdf

Lykis Beauty Soap Advertisment :

https://www.youtube.com/watch?v=qxPhUc_-Tvw

Points To Ponder :

The company is a small fish in a big FMCG pond that gets bigger every year.

The FMCG industry is poised to grow at CAGR between 10 to 12 percent annually. Annual profit of FMCG sector is $14.74 billion. Market growth rate is : Rural 40% , Urban 25% . The average Indian spends 40% on Groceries and 8% on personal care. Implementation of the proposed GST and opening FDI are expected to fuel growth of industry's size to $50 billion by 2014 and $95 billion by 2018 (Source : Lykis Ltd Annual Report 2012-13)

Competition : While the size of the opportunity is humungous, the challenges are also huge. The company faces stiff competition from the big guns of Indian FMCG industry – HUL, ITC, Marico, Godrej etc with their established brands , loyal customer base & perfected supply chains , besides scores of small & regional players. Lykis has prudently chosen to build a base in the smaller towns & cities first before moving into the bigger cities, even while also exploring the vast untapped opportunity in Africa, and it’s strategy seems to have yielded excellent results thus far.

Low Promoter shareholding : The new promoter group (Mr Vijay Kedia / Kedia Securities Pvt Ltd) have raised their holdings from 13.81% as of 31^st March 2012 to 24.81% as of 31^st March, 2014. While this still appears on the lower side, this author draws comfort from the fact that a good percentage of the non-promoter shareholding appears to be held by directors & associates of the company / promoter group. Shareholding of (the promoters + non-promoters with > 1% shareholding) together stands at 85.29% as of 31^st March, 2014.

Poor Monsoon - Effect On Rural Consumption : Despite the recent revival of the monsoon in some parts of the country, this monsoon is shaping up to be one of the worst in the last decade. As such, rural consumption may take a hit, particularly for discretionary items. This may be slightly set-off by the social schemes such as MNREGA . 2014-15 could thus be a challenging year for the company.

Funding Growth : Another point to look out for is how the company will fund it’s growth plans. Building new brands & scale in a very competitive market dominated by big established players is an expensive proposition. 2013-14 saw an understandable but marked increase in borrowings. Too much of debt will not be a good thing, whereas any significant equity dilution would erode shareholder returns. So getting the Equity-Debt mix right will be one of the challenges for the new management.

Conclusion :

This author feels that Lykis is an FMCG company that merits close attention, though it's current financials might not be attractive. He believes that the consumption story is for real, and that the pie is large enough to accommodate newer players, though the journey will not be easy, and not all new entrants will survive.

The company's stock price has doubled in the last few months, and is almost 4-times up from it's 52-week lows. Even so, keeping the company's & industry's prospects in mind, the author recommends readers of this blog to closely study & track this company going forward. At an appropriate time, and after proper research, readers may take a suitable investment call based on their own conviction in this idea.

Author : Bosco Menezes

Recommendation Date : 14.07.2014

Disclaimer/Disclosure :

At the time of writing this article the author has a position in the stock covered by this report. The author or any of his dependent family members may make purchases or sales of the securities mentioned in the report while the report is in circulation. Readers/recipients of this report are strongly advised to do their strict due diligence, and should be aware that the value of investments can go down as well as up. The author shall not be liable for any direct or indirect losses arising from the use of the contents of this report, and readers are therefore cautioned to use the information contained herein at their own risk. In fact, readers would do well to seek the advice of a qualified independent advisor. The author certifies that all of the views expressed in this report accurately reflect his personal views about the subject company at the time of writing this report. Feedback / brickbats may be hurled at the author at boscom@gmail.com

Themis Medicare - On The Comeback Trial ?

Themis Medicare Limited (Themis) was incorporated in 1969; it is a joint venture pharmaceutical company with Gedeon Richter Ltd., Hungary (http://www.richter.hu/en-US/Pages/default.aspx) . The company was originally known as Themis Chemicals Ltd, before changing its name to Themis Medicare in 2001.

Themis operates mainly in two segments – Bulk Drugs / Active Pharmaceutical Ingredients (APIs) and Formulations. With its manufacturing plants in Vapi, Hyderabad and Haridwar the company produces a wide range of bulk drugs, formulations and biotech products.

The company has products across different therapeutic areas : Anti-tuberculosis, Anti-malarials, Anaesthetics, Anti-Haemorrhoidal, Cardiology, Pain Management, Anti-infectives, Haematinics and Health & Nutrition etc.

Some of the companies key brands include E Mal (Malaria), Sepgard (Wounds / Bleeding), Instanac (Pain Relief), Acejet, Etojet, Dexem, Palonosetron, Themiset, Ketmin, Medzol, Bupicain, Neotagmin, Atacurium, Malither, Tiostat, Ezee etc.

In the API segment, the company manufactures Simvastatin, Ethambutol, Artemether, Artesunate, Lumefantrine, Methyl Cobalamine, Di Methyl Isosorbide, etc

Performance - Last 5 years :

Consolidated	2009-10	2010-11	2011-12	2012-13	2013-14
Sales (Rs Cr)	229.37	252.17	157.64	173.50	195.07
PAT (Rs Cr)	20.59	9.98	-33.78	-4.77	2.35
Diluted EPS (Rs)	25.57	12.40	-41.97	-5.39	2.65

Themis suffered a major set-back in 2011-12 wherein they had to stop supplies to one of their major export customers due to certain problems. At the same time stiff competition in the bulk drug (APIs) market from local & Chinese firms also hit the company hard.

Management identified the reasons for the set-back & decided to implement various steps to resolve the situation, such as :

· Too change the Bulk drugs (APIs) – Formulations mix in favour of Formulations & finished dozes gradually, where profit margins are better and competition is less fierce, by introducing new formulations.

· Upgrade the API plants

· Implement cost-cutting strategies

· Better inventory control & credit control

· Develop Institutional business

· Export to new geographies

· Revive & re-establish their brands in the market

Looking at the improvement in the financials over the last couple of years, it appears that the medicine has started to work, and the patient is on the way to a full recovery.

Positive Developments over the last 2 years :

· 2013 : Themis tied up with Beta Healthcare International Limited (an Aspen Group Company) for marketing of Research based Pharmaceutical Formulations manufactured by the company in Sub-Saharan Africa Region. The products to be marketed encompass Therapeutic Groups like Anti-Malarial, Pain Management etc

· 2013 : License and Supply Agreement entered between Themis and Novartis India Limited (“Novartis”) in March, 2013 whereby Themis agreed to supply Diclofenac topical gel formulated using a unique TPM™ Transdermal Drug Delivery . TPM™ (Targeted Penetration Matrix) Transdermal Drug Delivery has been licenced from Phospagenics Ltd (“Phosphagenics”) , Australia (website : www.phosphagenics.com). Read the Phosphagenics announcement here : http://goo.gl/adkmXW

· 2013 : Break through development of Diclofenac 75 mg / ml injection using patented technology and signing of a Supply & Distribution Agreement between Themis and Novartis in Aug 2013 for manufacture and supply of Diclofenac Sodium 75 mg / ml Injection as a finished dosage product for the Indian market, wherein Novartis has agreed long term exclusive purchase of this product from Themis

· 2014 : Commencement of supply to Novartis of Diclofenac Topical Gel using TPM™ Transdermal Drug Delivery System in finished dosage pharmaceutical form under the brand name “VOVERAN TPM gel”. Launch of Themis’ own Diclofenac product “Instanac TPM gel” using the TPM™ technology. Read the Phosphagenics announcement here : http://goo.gl/ntWgGV

· 2014 (14^th July) : Themis announces the commencement of production, marketing and sales of Aquadol Spass 1 ml Injection, developed by the company. Aquadol Injection is used by Urologists, Gastroenterologists, General Surgeons, General Practitioners etc and is used mainly for treating patients suffering from colic pain and spasm. Company says the product has export potential & presents a licensing opportunity. Company also announces plans to come up with an oral tablet formulation under the name of Aquadol tablet .

In Brief :

Themis Medicare Ltd

BSE Code : 530199, NSE Code : THEMISMED

Equity : 8.45 Cr

CMP :Rs 97.50 (closing, BSE, 30^th June, 2014)

MCap : 82.39 Cr

Conclusion & Recommendation :

Every company goes through difficult periods, how they deal with it is what differentiates good companies from the average ones.

After suffering a major setback in 2011-12, Themis management correctly diagnosed the ailment & set about healing itself with the right prescription. The results have started to trickle through.

Moreover, the tie-ups entered into over the last 2 years have also started to be commercialized & this should add impetus to the improving trend.

Promoters have also increased their stake over the last couple of years through a preferential issue as well as through market purchases, which gives additional comfort.

This author reckons that the worst is over for the company & the company is now on the right track. He therefore recommends readers of this blog to study & track the company going forward. Readers may take an appropriate call based on their own conviction in this idea, after proper research.