Insight for Manufacturing Industry

[xmartTop contributor]

Manufacturing sector is being subjected to heavy attraction of both traders and investors with respective prospective since mid of 2014. this triggered by world raw material price drops, world oil price drop, Sri Lanka electricity cost reduction and growth of middle class in Sri lanka.

Since i believe that dangers are around the corner where big opportunity lay, thought of doing bit of detail analysis on manufacturing sector outlook and future prospective as my time permitted.

well, if i took liberty to narrow down few manufacturing sector company and take one by one to the consideration in broad angle, it might be much useful.

and guys, please do contribute as and when time permitted for the betterment of the forum and our investors (well, we have very little of them though)

1. ACL/ APLA/ KCAB/ SIRA - cable industry
2. RCL/ TILE/ LWL/ CERA - Tile Industry
3. PARQ/ LALU/ ALUF/ ALUM- Aluminium Industry
4. GLAS/ DPL- glass and porcelain industry
5. REG/ ABAN/ SINI- Consumer equipment
6. DIPD/ REXP/ TYRE- latex and rubber products
7. TJL/ OGL/ MGT/ HEXP- Textile industry
8. GRAN/ AGST- fertilizer and feeds
9. HEXP- fiber products
10 HAYC- active carbon/ chemical industry
11. CIND- PVC products

did i miss anything?

we will discuss one group by one group.

thanks

[BackstageTop contributor]

Ahh just what I wanted. Hope we can do one for FMCG also.

What about: HAYC, HEXP, SWAD, MGT, TYRE,CIND.

[කිත්සිරි ද සිල්වාTop contributor]

Thanks Xmart for the initiation of this thread.
I am sure (here) we are ready to go places now.

[xmartTop contributor]

ACL/ APLA/ KCAB/ SIRA

cable industry is heavily depend on world copper price, pvc price and local construction developments. if we look at world copper price at the moment,

% Change of Copper price:
Weekly: -2.33 %
Monthly:-0.46 %
Yearly:  -13.36 %

even though Cu bounced back on Feb 2nd, 2015 the trend has no force behind it and most probably test the support level in coming months.


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the important fact is that our cable companies do lock copper price for a time period just like oil prices. cable industry profit margin will be decided by 2 factors.

1. what is the lock price for each company.
2. how much sale they can make in coming quarters, company with larger market cap will be benefited.

the second question will lead us to local construction industry, which is essentially not mega projects like highways, harbors, air ports etc. if you take a tour around colombo and main cities we can see many development (hotels, apartments, office complex etc) in progress. since the competition is high, these people are giving 25%- 40% discount to get the projects like that. that lead us back to question no. 01, one who can give attractive discount is the one who lock the copper price at low.

here i found discussion slstock started about this group. we can relate to the post as well.
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share performance so far
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Valuation based on DCF, EPS, Graham number and bengamin graham formula (which i took liberty to change according to our country)
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update: 29th May 2015

Revenue growth wise both KCAB and ACL perform around 12% and gross profit margin growth is 1% higher in KCAB, which is around 9.5%. also KCAB is having less debt compared to ACL. even thought market share of ACL larger than KCAB, by considering the less shares and better performance it can be concluded that KCAB will outperform ACL in short to medium run. but ACL is the clear giant in cable industry. also it was observed that ACL hold 4% of KCAB and 2nd largest shareholder.

based on 2015 march results valuation was updated.

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[කිත්සිරි ද සිල්වාTop contributor]

What are the likely threats pose to local manufacturers from cheap finished products import from other parts of the world ?

[NuinthTop contributor]

Thx Xmart. Most awaiting analysis.

As Back's mentioned MGT also will play considerable role with TJL. Heard from somewhere Germany is backing to give back GSP+ to SL. Hope these conters will benefited.

How about the DPL...? Hope they also will benefit as low electricity price.

From cable SIRA looks attractive.

Guys, don't go away from market in next 3-4 qtrs...

[xmartTop contributor]

Thanks for the comments guys.

@back & nuinth,

HAYC, HEXP, SWAD, MGT, TYRE,CIND are worth to study. i will add them too.

@kith,

What are the likely threats pose to local manufacturers from cheap finished products import from other parts of the world ?

well, they import basically everything; tile, bath ware, glass, canned fish, etc.
but still there are some industries which are less affected by cheap imported products.

cheer

[කිත්සිරි ද සිල්වාTop contributor]

Thanks and awaits more insightful exposures.

Thanks for the comments guys.

@back & nuinth,

HAYC, HEXP, SWAD, MGT, TYRE,CIND are worth to study. i will add them too.

@kith,

What are the likely threats pose to local manufacturers from cheap finished products import from other parts of the world ?

well, they import basically everything; tile, bath ware, glass, canned fish, etc.
but still there are some industries which are less affected by cheap imported products.

cheer

[pathfinderTop contributor]

Really a good one Xmart + keep going

[BackstageTop contributor]

About the cables......
Thanks X,
We are aware that SIRA management and administration was a bit weak(discovering fraud a bit late in the day.) Does anyone know about the management, governance and transparency of the ACL group which is a family concern. Also the investment in Rhesus needs to be acknowledged.

[xmartTop contributor]

well, it looks like SIRA has restructured. but the baby is still so young and couldn't diagnose his body tone. shall we give SIRA few more quarters and then decide!

back, you nailed the problem (some may call the strength) of ACL. actually the ACL group is controlling the KCAB and APLA. there are few other competitors like Ruhunu cables, Kamal Cables and Orange, but they have very small market share. ACL/ Kelani dominate domestic and most industrial projects while SIRA survive using big contracts such as CEB.

since the controlling body, ACL overhead is high and profit margin is little small than KCAB, KCAB can outperform ACL in short run. shares outstanding in public hand are 22 M (37.9%) in ACL and 4.4 M (20.2%) in KCAB.

family governance has done no bad for ACL group but the management think little about small investors. their dividend policy witness that. since ACL has more liquidity and stability Institutional interest is focus to it. but these investors bit hesitate to invest in something which is managed by a family.

thanks

About the cables......
Thanks X,
We are aware that SIRA management and administration was a bit weak(discovering fraud a bit late in the day.) Does anyone know about the management, governance and transparency of the ACL group which is a family concern. Also the investment in Rhesus needs to be acknowledged.

[pathfinderTop contributor]

well, it looks like SIRA has restructured. but the baby is still so young and couldn't diagnose his body tone. shall we give SIRA few more quarters and then decide!

back, you nailed the problem (some may call the strength) of ACL. actually the ACL group is controlling the KCAB and APLA. there are few other competitors like Ruhunu cables, Kamal Cables and Orange, but they have very small market share. ACL/ Kelani dominate domestic and most industrial projects while SIRA survive using big contracts such as CEB.

since the controlling body, ACL overhead is high and profit margin is little small than KCAB, KCAB can outperform ACL in short run. shares outstanding in public hand are 22 M (37.9%) in ACL and 4.4 M (20.2%) in KCAB.

family governance has done no bad for ACL group but the management think little about small investors. their dividend policy witness that. since ACL has more liquidity and stability Institutional interest is focus to it. but these investors bit hesitate to invest in something which is managed by a family.

thanks

About the cables......
Thanks X,
We are aware that SIRA management and administration was a bit weak(discovering fraud a bit late in the day.) Does anyone know about the management, governance and transparency of the ACL group which is a family concern. Also the investment in Rhesus needs to be acknowledged.

Yes you are right ACL is not a generous company.
Impact of recent acquisition of Resus energy as a joint venture is interesting in coming quarters.

[HUNTERTop contributor]

Excellent thread xmart +
Keep it up!

This is like the other half of my way of analysis.

I see certain signs of opportunities in following counters; it seems, we can analyse the reasons in this thread:

1. CIND.N
2. LWL.N
3. RCL.N
4. DIPD.N
5. TILE.N
6. CERA.N
7. HAYL.N

[chutiputhaTop contributor]

Thank U Xmart for ut Smart Initiation 2 Likes

And I love to see RCL,CIND are in Hot List

[xmartTop contributor]

Hunter, Chuty,

Thanks for the encouragement.

well, ACL report far better result than expected.
i was expecting Revenue of 15,500 M and 16.5% profit Margin from ACL.

It was pretty impressive that though they have only 14,512 M revenue for year ending 2015, they were able to record 17.4% profit margin.

ACL/ APLA/KCAB on hot plate now. enjoy the show. i think it is better not to talk about this group until the heat is over. otherwise there is a possible danger of labeling as a promoter. anyway, as a note this post was done before reports out and when no one was interested in this group.

they have this family governance and dividend issue. plus points are Copper and PVC prices are healthy and cable industry still use their old price lists with 20- 25% discount. when the turnover is big they do not hesitate to go for 40% discount either.

I think it is time to move on to another group.

[NuinthTop contributor]

Thx Xmart for update.

Hope this sector turnover will go up with future construction growth (After political drama settle down). Further raw material price will be friendly with higher profit.

Thx once again for pointing out this.

Good luck all....!

[xmartTop contributor]

DPL/ GLAS/ LWL/ RCL/ CERA/ TILE

Well.. Ceramic, Porcelain and Glass Industry is being favored in recent past and making huge turnovers.
since glass and ceramic/ porcelain production processes are same it was decided to categorized in to one section.

Production Process:

1. Dry Milling
2. Extrusion
3. Dust Pressing
4. Drying

Since this industry is a heavy electricity/energy intensive category, electricity is representing 20-30% of production cost. 15% cost electricity tariff reduction was the main advantage of this group.

Raw materials

There are certain key materials that are either used directly by the ceramics industry or that represent the starting point for the production of added-value materials:

silica
clay
alumina
magnesia
titania
iron oxide
zircon/zirconia.

raw material cost has no major impact on production cost as my knowledge serves. its energy what matter to the industry production cost.

since there are lot of hopes for DPL, lets take DPL separate

DPL
DPL is an export base company. therefore LKR/USD is important

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DPL share price movement in respective duration

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Quick look at financials

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the company has a great potential but poor management is holding DPL from growing. Rupee has being depreciation ever since. but DPL couldn't harvest the advantage, well, actually their gross profit and FCF is ok but the administrative expenses and the distribution expenses are too high, Net profit margin become negative due to those. since their revenue and gross profit margin is growing, group will perform well if management become smarter than this.

they were very keen on production energy cost and has take several measures to maintain a good energy mix and balance load unlike previous, also they have identified their risks said they took measures. anyway, this is a company to watch.

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can anyone explain their admin cost and distribution cost?

[BackstageTop contributor]

Great thread X keep going.

What about Dolomite/Calcite ?

[NuinthTop contributor]

Superb Xmart...

Then electricity cost benifit will appear in the financial statement of this group in the future (I like to follow low price shares like DPL, GLAS.. )

Good luck guys...

[smallvilleTop contributor]

ACL - also is the main shareholder of Resus energy (HPWR), their entry into hydro power means they want to expand and diversify their interests in their portfolio of business too..
HPWR have been reporting losses due to Thermal power involvement. Last year they completely sold it and recorded the loss in transaction this qtr. So still they reported losses.. But no Hydro from now on-wards means we can be optimistic on their turn-around too. That means added bottom line improvement for ACL group.

[BackstageTop contributor]

Superb Xmart...

Then electricity cost benifit will appear in the financial statement of this group in the future (I like to follow low price shares like DPL, GLAS.. )

Good luck guys...

Being totally export oriented with 100% local raw materials ,DPL will also benefit from devaluation.

DIPD, Low rubber prices, lower energy costs and weaker rupee, lot of things seem to be coming together for DIPD.

[xmartTop contributor]

Superb Xmart...

Then electricity cost benifit will appear in the financial statement of this group in the future (I like to follow low price shares like DPL, GLAS.. )

Good luck guys...

I would say, GLAS will directly benefited from tariff reduction. Though the energy cost is important factor in DPL, their overhead and admin expenses can eat up the saving done by tariff reduction at the moment. but looking at future prospective (always has a risk) one can invest in DPL around its NAV. further DPL has been appreciated 50- 80% in short term with Rupee depreciation. it looks like LKR/USD will look down at 134. but if Rupee get pressured and break 134, DPL will have a run.

ACL - also is the main shareholder of Resus energy (HPWR), their entry into hydro power means they want to expand and diversify their interests in their portfolio of business too..
HPWR have been reporting losses due to Thermal power involvement. Last year they completely sold it and recorded the loss in transaction this qtr. So still they reported losses.. But no Hydro from now on-wards means we can be optimistic on their turn-around too. That means added bottom line improvement for ACL group.

i think you mean "No thermal" right pal?

HPWR will turnaround but will take sometime as almost all the mini hydro sites are reserved or built. they have to move into solar, wind or waste as they plan to go green. those are not profitable like mini hydro. if they start a mini hydro project from the cash left, it will be a cash cow for ACL. still i would say HPWR is not a bold option by ACL.

cheer!

[කිත්සිරි ද සිල්වාTop contributor]

Good & honest burst of Sunshine.
Thanks xmart.

[pathfinderTop contributor]

Good one Xmart

[chutiputhaTop contributor]

Ah Cool..U r not Xmart,but u are Smart +