A joint venture between the Kerala State Industrial development corp (KSIDC) and Nitta Gelatin Japan, Nitta Gelatin India has been in the business of making Gelatin and associated products for the last 38 years.
SHAREHOLDING
While the 2 above mentioned promoters hold 80%, FII`s hold 0% stake in the company. With an equity base of 84 lakh shares (out of which 80% illiquid due to promoter holding), no wonder the stock tends to have a roller coaster ride on the markets.
PRODUCT LINE
Company moving on to higher value added products (B2C segment) in recent years. Collagen Peptide for bone and joint strengthening, seed growth enhancement and a slew of new products will enable company to sell directly to the customer. For 2011-12, Collagen peptide sales crossed Rs 7 Crs(mainly in southern states of Kerala and Tamil Nadu).
WHAT IS GELATIN
Made from crushed animal bone(bovine, poultry and fish) and being easily digested by the human body, you will find gelatin as a constituent of many over the counter drugs(OTC) that you use on a daily basis (check out the contents of garlic pearls tablets).
STOCK PRICE VOLATILITY
Volatility of PAT component over the years (2010-11 PAT of Rs 2 Crs compared to 2009-10 PAT of Rs 25 Crs) combined with an illiquid script have scared investors away from this stock.
RAW MATERIAL PROBLEMS
The above mentioned PAT volatility was due to raw material fluctuation(crushed bone and hydrochloric acid prices going through the roof in the last few years) and constant work stoppages at one of its Ossein plant in Kerala(due to environmental concerns). The setting up of a new Ossein plant in Gujarat is a sign of geographical diversification away from the company`s traditional manufacturing base in Kerala. Although the solutions to raw material price increase are beyond the scope of the company, it is good to see that the company has tripled its PAT to Rs 15 Crs for 2012-13.
STOCK ILLIQUIDITY
This May 2013, the company has recommended a bonus issue of shares in the ratio of 1:3, one bonus share for every three existing shares (only for non-promoters). If my calculations are right, then this will increase the equity share capital to 90 lakh shares.
WHY THE ATTRACTION
Low debt, strong product pipeline, strong promoters (Kerala govt and Japanese MNC), consistent dividend payouts combined with cheap ratios like an 8x P/E, 1.2x P/BV make this a very attractive pick.
Disclosure : I have a vested interest in seeing this stock go up. I have bought some at Rs 115.
Snippets from Nitta Annual Reports
1) Company invested Rs 28 lakhs in a number of companies(Organo fertilizers, Kerala Enviro, KK organics etc). A provision with the same value has been created and the above investment effectively written off.
2) Rs 4/share dividend declared for the year 2010-11. For 84 lakh shares, this works out to Rs 3.36 Crs. Cash flow statement of AR 2011-12 shows dividend paid for FY 2010-11 to be Rs 5 Crs. Must be some error.
3) For year 2010-11, company achieved PAT of Rs 1.89 Crs but paid out a dividend of Rs 3.36 Crs. Too much emphasis on dividend irrespective of company`s performance ? Or excellent cash flows?
thepokaranmoneymanager 