6 V-Mart Retail
What began as a single store in Ahmedabad in 2003 with ₹1 crore as investment is now a listed 120-store retail chain clocking over ₹700 crore in revenue. Over the years, the company has shifted its focus from the low-margin kirana products to the fashion segment. With the number of stores tripling from 40 in FY11 to 120 in FY15, revenue more than trebled, from ₹200 crore in FY12 to ₹720 crore in FY15. V-Mart started off its operations offering a mix of kirana and fashion but soon found it more lucrative to become a fashion-only chain. Analysts expect a 4-6% same-store growth in FY16 for V-Mart. While sales and profitability have grown at a healthy clip over the past five years, declining same-store growth and the increasing penetration of online retail on its turf pose a challenge.
Vakrangee is a last-mile provider of retail and BFSI services as well as government-to-citizen services and business-to-consumer services. It has evolved from being a subcontractor for e-governance projects to being the largest player in the e-governance space. Its technology-intensive retail platform provides banking services to 250 million underserved rural customers through a network of more than 16,000 Vakrangee kendras. These will be scaled up to 20,000 soon. The company has tied up with Amazon, redBus and Pacco to run kiosks at its kendras. It has an asset-light and lower working capital-intensive franchisee model. It trades at 22 times FY16 annualised earnings currently. With the need for financial inclusion far outstripping supply, there is a huge potential for Vakrangee to scale up.
4 Kaveri Seeds
The premium seeds manufacturer’s portfolio includes seeds of maize, cotton, sunflower, bajra, sorghum, rice and several vegetable crops. It is one of the dominant players in cotton seed, thanks to its hybrid product Jadoo and pest-resistant cotton hybrid ATM. Its share in the cottonseed segment has gone up from 2% in 2010 to 18% in 2015; revenue from this segment has grown at an average at 81% over the same period and now accounts for 66% of total revenues. However, the past few poor monsoons and the subsequent shift of acreage in favour of other crops, regulatory intervention from the government reducing the MRP on cotton seeds and the company’s decision to account for lower royalty payments have resulted in stock hitting a 52-week low of Rs.380. An audit enquiry by Sebi into the company’s financials has only further compounded its woes.
3 Shilpi Cable Technologies
Cable manufacturer Shilpi Cable Technologies manufactures radio frequency and other cables for the telecom, automotive and power sectors. It supplies telecom cables to all the major players in the telecom industry including the Reliance, Bharti Airtel, Ericsson, and Nokia. From 70-80% contribution in sales in 2010, telecom now accounts for less than 25% of its revenues with Auto, consumer durables and power making up the rest. Traditionally, the company always focused on the B2B space but is now foraying into the consumer space with plans to manufacture wires, cables and LEDs for households.Analysts expect net sales and profit of the company to grow at a 48% and 40% CAGR between 2015 and 2016.
2 Ashapura Intimates Fashion
The company designs, manufactures and retails loungewear, sleepwear, innerwear and sportswear. Currently, loungewear contributes 63% of revenues, followed by nightwear at 25%, and innerwear and others at 6% each. It retails its brands ‘Valentine and ‘Night &Day’ through a network of 115 distributors and 15,000 points of sale besides tie-ups with various MBOs along with an online presence. The company is also pushing aggressively to scale up its exclusive outlets from 15 stores to 400 in the next three years, which will help its margins as this segment has 10-12% higher operating margins, on an average. The innerwear maker reported strong growth in revenue and operating profit of 49% and 71% between FY10 and FY15.
1 Pennar Engineered Building System
As the second largest player in the pre-engineered building industry in India, Pennar designs, manufactures and installs steel building systems and building components. With a capacity of 90000 MT per annum, it also has a high fixed asset turnover business with a lean working capital requirement of just 17% of sales in FY15, which will drive higher return on invested capital over the next three years. It is also debt-free and cash surplus and is ramping up its engineering research outsourcing business over the next five years. Engineering research enjoys high operating margins and will drive growth for the company over the next couple of years. Fluctuating input costs, including cost of steel, the key raw material, and its over-dependence on pre-engineered building components, pose a concern though.
Note: Financial year as stated. Market-related data as on December 14, 2015; M-cap, PAT, sales, assets, cash and dividend in Rs.cr; CMP in ₹; PE and D/E in x; return and CAGR in %. Source: Ace Equity