EPC Industrie(CMP137)- A Potential Compounder, A 5 Year Undervalued Growth Story

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April 6, 2018

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Strategic Alpha

EPC Ind

EPC Industrie is a Mahindra group company, popularly known as EPC Irrigation. (M&M) has acquired a majority stake in EPC Industrié Ltd through preferential issue of equity shares in 2011 and it is part of Mahindra’s agribusiness group. Started in 1986 with the initial French Technology support, EPC has developed the capability to design and develop the irrigation products of international standards.
For more info check, http://www.epcmahindra.com

NUMBERS-THE LATEST

Marketcap: 380 Cr CMP on Day 6April 2018: 137 BV: 49 Rs Approx
Revenue 9MFY18: 129 Cr Aprx. Net Profit: 9MFY18 0.50 Cr

POSITIVES

1) A Mahindra Group Company Available at sub 400 Marketcap with neat corporate governance and minority shareholder-friendly practices.

2) Mahindra has a formidable dealer/distribution network for its tractor and farm equipment business and enjoys a lot of goodwill with the farmer community.

3) Hugh Opportunity Size: Though micro-irrigation(MI) has been around for 30+ years in the country, it has extremely low penetration.

4)Current capacity Utilisation is around 67% and is sufficient to clock 300 crore revenues.

5) EPC’s products are priced at a premium (~10%) to its domestic competitors which shows the pricing power of the brand.

6) Dealers/channel partners make the majority of the payment to the company upfront. The dealers make the sale to the farmers and will take the burden of following up with the government on subsidy payments. This is different from the business models which companies in this space used to follow traditionally, wherein the subsidy was directly given to the company upon sale to the farmer. This used to expose companies to delays in payments by the government and is the cause for the trouble which Jain irrigation finds itself in today.

INTERESTING INFO

1)Reliance Capital Owns 4.61% Stake, SBI Magnum Comma Fund Owns 1.05%, Vallabh Bhansali Owns 0.75%

2)Budget 2018-19 – Under Pradhan MantriKrishiSinchaiYojana (PMKSY) – Per Drop More Crop amount allocated has been increased from 3000 crores to ’4000 crores, registering almost 33% additional funds.

3)Under the Ministry of Water Resources, 15,000 crores to complete 48 accelerated irrigation benefit programs by December 2019.

4)Government had set up a Long Term Irrigation Funds (LTIF) in NABARD for irrigation works. The total corpus of Fund planned to be is 40,000 crores.

5)Maharashtra’s state government thrust on making drip irrigation mandatory for sugarcane cultivation in the state and the consequent incremental opportunity size (9000 crores)

6)The company lays special emphasis on educating farmers over the benefits of the MIS technique and has over 200 demo plots across the country.

7) EPC Industrie (EPC) is registered as a recognized micro-irrigation player in the state of Maharashtra for a period of 5 years (up to Sep 2022).

NEGATIVES

1) Any delay in the release of government subsidies will have an adverse impact on the company. However, the company seems to be keen on not making the same mistakes by following a relatively de-risked model since the Mahindras takeover.

2)The market is dominated by Jain irrigation followed by Netafim. There are other players like finolex and recently the Godrej industry has made a foray into the market.

OUR TAKE:

In an Under Penetrated Micro-Irrigation Market(Penetration of Only 8%) we are getting a company at sub-400Cr Marketcap that too with Mahindra group at the helm. Given the opportunity Size (33000Cr Market Size by 2022) due to Maharashtra Govt Plans of Compulsory Drip for Sugarcane, Government’s Target to double the farm income by 2022 and respective budget outlay as discussed above, achieving 10-12% market share by next 5 yrs is very obvious for EPC Industrie (current market share -5%). EPC Industrie is thus a safe bet on a Huge unprecedented opportunity with a high level of corporate governance and minority shareholder practices. Investors with 5 Year Vision and utmost patience will be able to see the levels of 200,400,600,1000.

Currently, the stock is Nicely Placed to Reward Short Term, Medium Term as well as Long Term Investors!!!!!!!

 

Update: 3rd May

Maiden Dividend Declared by EPC Industrie 0.50 Paisa Per Share, A Right Step in Right Direction by this Mahindra Group company.

Revenue @ 76.28 Cr for Q4FY 18 Vs 55.58 Cr for Q4 FY17⬆⬆⬆

Net Profit @ 4.4Cr for Q4FY18 Vs 3.2Cr for Q4FY17⬆⬆⬆

EPS Q4FY18 @ 1.6Rs Vs 1.19 Rs for Q4FY17⬆⬆⬆

Results overall Good on QoQ, However, it has to make a lot of improvement from here also.

But these results are sufficient for EPC To Fuel Medium Term Rally till 180.

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The author of the blog Mr.Suyog Dhavan is a Full-time Investor / Value Trader and Value investing/Trading Mentor. His style of Investing is inspired by Mohnish Pabrai, Peter Lynch, and Porinju Veliath. He is the founder of Strategic Alpha Wealth, A Premier stock market mentorship firm with a mission to touch the lives of 1Lakh people through its mentorship program.

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