Sunday, 21 September 2014

Big Stories in Making ..... Recommended to paid clients at Rs.18 now it near Rs.70 ..... Freshtrop Fruits we see stock may hit Rs.90/120 soon sl Rs.52 and Next stories Hint Given

Why to Buy – A food processing giant in making Freshtrop, is one of the biggest fresh fruits exporters of india, and a fast growing non – alcoholic food processing beverage maker, led by an IITian with “proven” excellent business acumen. The promoters have increased stake in the company from less than 44.99% in 2010 to 55.47% currently. Part of the promoter increase was done by warrants to promoters. The upfront payment helped in capex they had planned to start their food processing business. This was a smart move. They took the difficult decision of diluting a bit of equity to avoid raising too much of debt (which in any case was difficult to come by) in those difficult time. Remember that time was particularly difficult because not only the interest rates were high, India’s growth had started tanking and to top it all, the European ban had already put a huge pressure on bottomline. Rather than dropping the plan to open the food processing division, they took the warrants route as they knew de-risking of food exports business was essential and food beverage gave it a natural backward integration. This proves that the management of this company is not only agile and smart strategist but also a good capital allocator. With their recent decision to outsource packing warehouse to fuel expansion they have increased my belief in their capital allocation skills. They have 4 packaging warehouses but the management has decided to opt for asset light model moving forward (as it would dramatically improve the bottomline by avoiding any capex led expansion). Firstly, since the fresh fruits division is seasonal, they have the problem of utilizing their warehouses throughout the year (it can be kept professionally utilized only for a few months in a year). With things improving they have re-started paying dividends also, with a healthy payout ratio of more than 27%. The company would become debt-free (minus delivery credit) and without any capex in near future the company’s bottomline will improve significantly and that will in-turn boost the dividend payout. The company’s food processing division has also turned around and according to the management will now sustainably churn profits. They are so confident about their prospects that they have declared in their Annual Reports that this year they would be growing at 50% in their bottomline. In my interaction with the management, they even indicated that for next two years, growth of around 50% is amlost a given, so their bottomline will grow 50% for next two years atleast. This is really good. No wonder the company posted a first quarter profit that was more than the entire last year’s profit, infact 20% more than entire last year’s profit. The company has also started generating good cash flows now. The only sore point was the inconsistent bottomline in its food processing business and now in my interaction with company management they have indicated that the losses in food division is a thing of past and there should not be any losses in future. This could be a huge trigger. With other food processing companies saddled with Debt and trading at PE of 25-45, this company, that would be debt free this year, easily expected to grow more than 50% for next two years, having a payout of more than 27%, hereon growing in an asset light model, led by an IITs who is an excellent capital allocator and one of the biggest company in its area, is available at a PE of less than 8. The growth and PE is just going to expand from here on.
The management’s smart strategist acumen was tested very recently where there was a hail storm in maharashtra, but to investor’s delight, the management’s de-risking strategies played here and there was no effect of hail storm on the stock. Infact, the company posted best ever quarterly topline and bottomline numbers.
Technicals: The stock is looking very strong and is near its long term resistance of 65rs. But this time its looking all set to break this resistance and above this resistance the stock will become very strong and would quickly test its all time high of rs90. Beyond that it will fly once again.
Note:
1. Most of the material posted here is a result of my interaction with the management
2. Business is seasonal in nature, so 75% of earnings come in Q1 and Q4.
Remember, a smart first generation entrepreneur is the surest ticket to success.

















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