Company Name: Geodesic
Market Cap: USD 183.0 million
CMP: INR 92.00
LTM P/E: 2.6x
Free Float: 76.8%

Geodesic, incorporated in 1999, is a Mumbai-based software technology company and is engaged in software product sales and related consultancy service. Its business units include unified communication services, collaboration and customer relationship management (CRM), mobile media, electronic computing, and financial products and services. CRM is an integral continuum, which includes a set of integrated module. The company’s unified communication, collaboration and CRM unit focuses on the banking and financial services institutions, SME’s, and large retail industry. Its Mundu products are retailed across www.mundu.com and application stores, including Nokia’s Ovi Store, Apple’s App Store, Palm Store and Blackberry Store. The company recently launched its app on the Android market which has been a great success in India, till date. Android, as we know has a tremendous potential in the Indian market, primarily due to its availability and price efficiency.

Why Geodesic?
Fundamentals
The company’s revenues grew at around 3.0x over the last three years to reach INR 503.2 crores in 2010, resulting in a CAGR of 42.8%. Despite the economic slowdown in 2010, the company witnessed a minor fall of 1.0% in its topline growth, displaying stability in its earnings. In the first nine months of this fiscal, the company has already recorded revenues of INR 487.9 crores, which if annualized (although not appropriate) translates into INR 650.6 crores (29.3%) already.

Although, the company doesn’t have a core peer in the domestic market, internationally there are number of companies involved in developing apps for the smartphone market. The company is trading at a P/E of 2.6x, which is at a steep discount to its peers across the globe which is trading at P/E of 23.2x.

Revenue Drivers
Geodesic derives most of its revenues from developing instant messaging platforms/services, Internet radio, IP telephony and other such applications and licensing them to enterprises as well as retail users (directly or indirectly) under the ‘Mundu’ brand. The company has added new clients in nearly all its segments of operations. Usage of its retail offering instant messaging, VoIP platform and mobile SMS over IP has witnessed a rapid increase. With all these segments set to expand in a big way as companies and portals, offering social networking, etc., seek to cut costs, Geodesic is well positioned to tap into this opportunity. The company also has acquired many small software companies across the globe which helps it to tap in those economies and also, enables the company to be ahead of the curve.

It has a developed revenue model comprising license fees, customization fees, per-usage fees and recurring revenues. In fact, 55.0% of its revenues are recurring revenues. This enables revenue visibility and better margins as well. The company has also bagged contracts from the Government of India, as part of its e-governance program, which gives a tremendous upside to the earnings potential of the company. The company recently bagged a deal from the Madhya Pradesh government for implementing Public Distribution Service. Other deals include traffic management and the NREGA (now Mahatma Gandhi NREGA). Chandamama, the children’s magazine that it owns, has also witnessed a ramp-up in revenues.

The way forward
The Indian smartphone market is expected to increase significantly with the smart phone sales grown 3.0x times between (July-Sep) of 2010 compared to 2009. Moreover, the market potential is huge with – 80.0% of smartphone market still untapped, and according to a recent survey by Delloite, 90.0% of all users want to move to smartphones. This has also been helped by declining prices of the smart phone market. In the Q2 2011, 80.0% of the total Indian smartphone sales were lesser than the avg. sales value of INR 18,000, the proportion of which rose to 90.0% in the Q3 2011. Due to ever increasing demand of apps such as Live TV aided by the introduction of the 3G technology, the number of apps for these markets is expected to increase significantly. Moreover, NDTV in its recent survey rated Mundu as the #1 App for India, which puts the company in the driver seat and first mover advantage.

Popularity: 89% [?]

I have chosen Lovable Lingerie Ltd. as my stock pick for Investomania. The Company had a market cap. of Rs. 4,119.4 million ($90.7 million) as on March 31, 2011. I think the Company has great potential for value creation as it caters to a market (premium women’s inner-wear) which can be expected to gain foothold in the coming years.

Company Description

Lovable Lingerie Ltd. (LLL) is one of India’s leading women’s inner-wear manufacturers. Its products are sold under the flagship ‘Lovable’ and ‘Daisy Dee’ brands of the company. The Company’s ‘Lovable’ brand is one of the key brands in the premium inner-wear segment and is currently sold in over 1,400 stores across the country. The company procures retail space in large format stores like Westside, Shopper’s Stop, Lifestyle etc. and markets its brands in 127 such counters in 21 cities all across India. The Company has 3 manufacturing facilities of which 2 are situated near Bengaluru and the third one in Roorkee, Uttarakhand. LLL’s operations start from the point of procurement of raw material to cutting, molding, stitching, and dispatch, thereby having a major chunk of operations in the value chain enables it to meet the time, quantity, and quality requirement of its customers.

Industry Profile

The overall inner-wear market (excluding kids) in India was worth Rs. 11,913.0 crores in CY 2009, which has seen a CAGR of 15.8% over the last 4 years. In volume terms, the market for men’s inner-wear segment has a share of around 48.0% while, the women’s inner-wear market has a 52.0% share. In value terms the women’s market has a a much higher 66.0% share as compared to the 34.0% share of the men’s market. Having a larger value share of the market in spite of the fact of lower volumes enables the manufacturers to have a higher average selling price than in the case of men’s inner-wear. The women’s inner-wear market has grown at a CAGR of 16.8% over the last 4 years. Currently the market is fragmented with almost two-third of the market controlled by unbranded, unorganized regional players, while the remaining is controlled by the few big organized and branded players. However the arrival of some international brands has brought about some changes in the market. The companies have been able to market their products through some bold advertisements, fashion shows etc. and have been able to position their products in order to understand and cater to the needs of the customer. The women’s inner-wear market is further classified in to super premium, premium, mid-market, economy, and low-market segment. The mid-market and economic segments account for almost 75.0% of the market. However in recent times the premium and super-premium segments have witnessed the highest growth in terms of volumes which indicates a growing trend in the market to move towards more niche brands. The super-premium and premium segment includes players like Marks & Spencers, Triumph, Loveable, La Senza, and Enamor. LLL also has presence in the economy and mid-segment through its Daisy Dee brand.

Company Profile

LLL’s core competency lies in its understanding of the needs of the women’s inner-wear market and accordingly manufacturing them in order to foray in to untapped segments of the market. LLL’s strong position in the market is on account of its facilities’ connectivity to major cities in India and an in-house product design and development division coupled with the fact that the Company has integrated every stage of its operations with the latest technology. For CY 2010 the company had an installed capacity of 6.8 million pieces and a utilization of 74.6%. Another key advantage for the Company has been its supply chain network. The Company offers multiple brands and due to its mass customization capability,  is able to procure its raw materials in bulk and thereby at cheaper rates. Moreover its distribution channel is spread across 103 distributors in India. The Company caters to more than 1,400 retail outlets for its ‘Lovable’ brand while its ‘Daisy-Dee’ brand is present in over 7,500 outlets across the country. The Company’s flagship brand ‘Lovable’ is an 85-year old brand well-known across the world. LLL acquired the brand in 2000 for exclusive use in India, Nepal, and Bhutan. The Company acquires the ‘Daisy Dee’ brand in 2004 and in 2009, acquired the ‘college style’ brand which caters to the young demographics in India.  The Company’s sales have increased to Rs. 87.0 crores in FY 2010 from Rs. 30.7 crores in FY 2006 which indicates a CAGR of 29.8% for the 4 years. The Company’s PAT was Rs. 10.6 crores in FY 2010 as compared to Rs. 2.9 crores in FY 2006.

Outlook

The Lingerie industry in India is expected to grow at a CAGR of 18.3% over the period 2009-2014. It is currently estimated at Rs. 7,898.0 crores and is expected to be worth Rs. 18,324.6 crores in 2014. The growth is primarily expected from the increase in demand in the super-premium and premium segments of the market.
With the increase in disposable income, a market with huge potential due to its population, and increase in the number of working women, prospects for branded products which cater to this segment are bright. LLL’s current IPO proceeds are being lined up for

• Setting up of a new facility in Bengaluru, which will increase the total capacity by 2.5 million pieces per year
• Brand building and brand development of its ‘college style’ brand
• Increasing distribution network through more exclusive brand outlets and setting up of more counters in retail stores
• Investment in JV with Lifestyle Galleries of London Ltd., a company based in UK, to cater to the super-premium segment in India.
• The company also plans to extend its brand into sleep and home wear, since it already has presence in leisure wear. Such diversification allows it to tap new market segments to drive revenue growth.

However, the increase in expenses due to brand development and entry of more established world-renowned competitors in the Indian market will cut margins to some extent. The Company has mentioned that it would spend around Rs. 4.2 crores on brand building for FY 2011 and around Rs. 14.3 crores in FY 2012.  Moreover the increase in capacity is expected to be fully operational by FY-2013. But the improving economic scenario, a large population and a healthy portfolio of brands can make this company ‘lovable’ to the investors.

Peers

The only listed comparable for  LLL in India is Page Industries which caters mostly to the men’s inner-wear market. As of March 31, 2011 the company was trading at a P/E of 45.6x while that of LLL was around 28.2x on the basis of FY 2010 earnings.

Popularity: 71% [?]

I’m sure, we all believe in the well-known India Growth Story coupled with rapid GDP growth, rising disposable income, improving standard of living, etc. But is the growth inclusive? Has it changed the lives of millions of people still living below the poverty line? Are we successful in proving jobs to thousands of literate people? The answer to that is a big NO which has given rise to increasing level of crimes. In India around 403,181 property crimes accounted for the year 2007 and rate of recovery was around 35%.

And this creates a huge market for organized players in Security space.

Looking at 3P’s of the Company “Micro Technologies”, namely Product, People and Price, the Company to looks like a screaming buy.

Product: Micro Technologies is a leading provider of IT based security solutions which cater to residential, commercial, vehicle, internet, mobile, and banking segments. The Company has been in the security services market from 20+ years and has tie-ups/delivery records with various organizations (MTNL, Railways, MIDC, BARC, L&T, ICICI, Axis Bank etc.) for providing its services. The Company has been continuously focused on geographically diversifying its offerings to South Africa, Australia, Japan, and Saudi Arabia. For retail penetration, the Company has been expanding its distributor network and plans to increase retail outlets from 100 at present to 250 in coming 1-2 years.

People: The only way for me to judge the quality of management is by understanding what industry stalwarts think. The Company has been awarded “Best under a billion’ by Forbes. Nasscom has given the ‘Innovative Products Award’ for its wi-fi system.  The vehicle security product has global approval from South African Independent Accreditation Services. Last, but not the most important point that speaks about the management’s trust in the company is a 4% increase in promoter’s’ stake from 30% to 34% in Dec 10 quarter when stock price fell from 200+ levels to sub 120.

Price: The Company has demonstrated stellar financial performance in last 4 years with revenue CARG of 42%, net income CAGR of 28%, a stable EBITDA margin of 36-38%. At CMP of INR 136.00, the Company is trading at PE of 1.7x. One of the possible reasons for such valuation could be its lower institutional holding (at sub 5% levels). The stock is also not covered by any of the institutions based brokerages. The only listed peer Indian peer Zicom trades at 7x earnings. There is every possibility for the stock to get re-rated in future and prove to be a multi bagger.

Popularity: 71% [?]

Below is my Stock Pick for Investomania 2 with the details and investment thesis for the stock in consideration.

Company Name: Tide Water Oil

Listed on: BSE, NSE

Country: India

Market Capitalization: US$ 138.0 million

Investment Thesis:

Tide Water Oil is a company focused on manufacturing and distribution of Auto and Industrial lubricants in India. The company has a strong presence in Heavy Vehicles lubricant segment through a well-known brand – Veedol.

Indian Automobile sector story is not unknown to anyone of us. We are in a bull phase for infrastructure sector as well. Both of these sectors are driven by machinery, and these machines are thirsty for fuel and lubricants. As infrastructure grows, we will need more cranes, more heavy machinery and ultimately increasing volume of lubricants to keep them running smoothly. It’s roughly estimated that at about every 5000.0 kilometres of usage the lubricants in automobile engines needs to be replaced, as they thicken and burn out at the end of this long run.

The automobile lubricants market in India is estimated to be approximately US$ 2.5 – 3.0 billion. Tide Water Oil is all set to ride the wave of booming auto sector and increased industrialisation in India. Tide Water enjoys approximately 7.0 – 8.0% market share in auto lubricants in terms of sales. Its closest peer / competitor Castrol is trading at 20.0x LTM earnings and EV / Sales of ~4.00x. Tide Water Oil being a debt free company trades at 10.0x LTM earnings and EV / Sales less than 1.0x.

Castrol has a market cap close to US$ 2.5 billion and enjoys 22.0% – 23.0% market share in terms of sales, whereas Tide Water Oil enjoys a share of 8.0% – 9.0% in the lubricants market, with a market cap of only US$ 138.0 million.

Also, as India is on its way to become a developed nation and overtake the likes of USA, we are witnessing increasing amounts of plant additions and capital expansions by companies operating across all sectors. These are the machines needing industrial lubricants regularly, and looking at such huge capacity additions in the country demand for industrial lubricants is all set to increase manifold. Tide Water Oil can be a huge beneficiary of this potential demand.

Recently the company has announced a strategic collaboration with Japan based Nippon to manufacture Hi Tech lubricants for auto and industrial sector which will help the company absorb Nippon’s technology. The company has also been following the ‘market push’ strategy whereby the distributor and the retailer tries to push the company’s products to fleet owners and truck drivers which has proved successful for the company. Castrol has been growing at 3.0% in terms of volume whereas Tide Water Oil has grown more than 16.0% in terms of volume for the past 2 years. Other new brands like ‘Prima, Turbo and Take off’ under Veedol umbrella are doing well as company got into alliance with Nippon. Company has also been constantly increasing its R&D expenditure (US$ 0.18 million in FY09 v/s US$ 0.32 million in FY10).

The company has maintained ROCE of more than 30.0% and ROE more than 22.0% for the past 3 years. Veedol is a brand which still has a potential to strengthen a lot and gain much more of lube share in India. Unorganised lubricant market is estimated to be of the same size as that of the organised market in India. This unorganised market still remains to be tapped, which gives a tremendous opportunity for players like Tide Water Oil. Consumers in the rural parts of the country are slowly shifting to branded lubricants for their automobiles, be it LMVs or HMVs.

In terms of share price performance the stock has grown at CAGR of 49.0% during 2002 to 2011 from INR 1400.0 to More than INR 7100.0. Consequently from FY 2006 to FY 2010 the topline has shown a CAGR of 25.0% from INR 3047.4 million in FY 2006 to INR 7515.8 million in FY 2010, whereas the EPS has grown from INR 86.3 in FY 2006 to INR 663.3 in FY 2010, a CAGR of an impressive 66.0%.

Another distant but potential possibilities that may trigger a rally in the stock:

In terms of Indian rupees the stock is trading at INR 7170.0 which is quite bulky in terms per share price relatively in Indian market for retail investors. The stock seems to be ripe for a spilt and a bonus after which, historical data for splits and bonuses in Indian markets suggest a strong possibility of a rally in the stock. Also given the size of the company compared to scale of the operations, the company can be a soft target for any larger company, in this case Castrol for a takeover at very hefty premium given the company’ strong financials.

Let’s follow the ‘Oracle of Omaha’, when he buys Lubrizol for US$ 9.0 billion, we mirror a similar bet at a much lower base and ride huge waves to follow in Tidewater Oil.

With such strong historical growth and given the dynamics of the lubricants sector in India I don’t see any reason why Tide Water Oil cannot post a CAGR of 25.0% for the next three years and yield a 100.0% return on the investment.

Popularity: 61% [?]

This stock might not be a gladiator in ancient Rome but is definitely one in Modern India and Ethiopia. Karuturi, often termed as the Global leader in cut rose production is one of the hottest stocks due to 2 reasons. One is the expansion in cut rose production (1.0 billion stems that they wise to produce and target for FY 2010 from 550.0 million previously) and the other is their foray into the agri business with a mammoth land allocation.

Price: INR 13.00

P/E: 4.0x

Expansions: As of now the company earns bulk of its revenues (around 95.0%) from floriculture. However, with significant assets acquired in Africa the company’s focus area is going to be Agro based commodities going forward. The revenues from Agro side of business are set to overtake company’s floriculture business in next three years. The company has leased huge chunk of land (311,000 hectares i.e 7x the size of Mumbai) on very attractive terms. The EV/Per hectare of KGL works out to be Rs.43,000.

You can find details of the expansions related to the agri business in the table below:

The company intends to allocate 50,000 ha of land for rice cultivation by FY 2013. An EBITDA margin of close to 40.0% (high for the industry) is achievable due to low labor costs and attractive lease terms.

The company is also planning on expanding its food processing business from a current capacity of 6,000 tons per annum to 20,000 tons per annum by 2012. The company has local contracts with farmers in Tamil Nadu to ensure continuous supply. Some of the products are Gherkins, Jalapenos and Green Bell peppers.

 The company recently acquired Florista to improve its retail distribution network in India.

Macro Scenario: The reserves of wheat, oat, soya bean and corn have gone down by 25.0%?40.0% in the last 10 years. Similarly, global rice stocks are also diminishing by ~ 3.0% yearly; while palm?oil which is considered to be the most important edible oil has reserves at all?time low (All data as of March 2010).

Why Karuturi?:

• Strategic Location: The Company has operations in India, Kenya and Ethiopia. The Indian facility servers markets like Middle East, Japan and Australia while the Kenyan and Ethiopian facilities serve Europe and North America. This helps the company save on freight costs.
• Excellent agreements with the Ethiopian government: The Company has managed to acquire land at a very cheap cost. It also enjoys 5 years income tax exemption and exemption on duties for imports of raw materials and equipment. 
• A stable Floriculture Business: This segment is very stable due to a high global demand for roses especially. The bulk of the orders come during the wedding season.
• Valuation: This is by far the most important point. The LTM EPS is INR 3.28 which, at current price levels, implies a P/E of 4.0x. The main reason for this is some operator activity in the stock since November 2010. The stock came under the scanner on suspicions related to price rigging. However, it is mainly independent groups and not the management which is being investigated. The management is very confident of achieving an EPS of INR 8.00 for FY 2012. Even if we are very conservative and assume an EPS of INR 5.00 and apply a P/E of 7.0x we achieve a target price of INR 35.00 per share. The stock was trading at these levels before the price rigging rumors.

To conclude, I am totally confident that this stock is a multibagger. It is cheap and has great expansions plans lined up. Revenues from the agri business are going to be realized from this quarter onwards. There is no more equity dilution expected. I am sure of tripling my money in 3 years and have personally been investing in the stock.

Popularity: 40% [?]