Associated Stone Industries (Kotah) Ltd – Mine It For Your Portfolio

Background: Kota Stone is a fine-grained variety of limestone, quarried at Kota district of Rajashthan. The industry is led by the largest and only listed company in the space “Assosicated Stone Industries”. The stone is an excellent building stone. It is mainly used for exteriors, pathways, corridors, driveways, balconies, commercial buildings etc. It is also suitable for use in chemical industries as flooring, wall fixing and lining.

The Company: Associated Stone Industries is the world’s largest stone mining company and the only listed one in India. The end user of the industry is the Real estate, construction and Infrastructure. For last few years the stone mining industry, as with other mining industry, was marred with Environment clearances and slowdown in construction and infrastructure. These business and regulatory challenges mounted problems for the players in the industry but as they say, what not kills you – makes you stronger. Yes, the industry crippled but ASIL due to its size and scale climbed the wall of worries and took this opportunity to cut its flab and diversify in other markets. What this slowdown and uncertainty also did was that it wiped out a lot of small and unorganized players and thus gave a strong fillip to the mining leader – Associated Stone Industries (Just like the sector tailwinds a few years back helped the leader like SKS Microfinance). This can be seen clearly in the improving OPM, though last year the OPM were slightly subdued because of heavy investments done in the UAE subsidiary (which started its commercial operations last week). The company though has a large area under which it does its mining it is now looking to acquire more land for mining. The industry is marked by huge entry barriers where acquiring mining leases are very difficult and also have an additional challenge of getting Environment clearances. The company’s scale and the distinction of being the only company in the organized sector of Kotah Stone Mining gives it a strong edge for big institutional orders. Over the last couple of years, the company also undertook an efficiency improvement exercise where it improved its waste generation and tuned its power requirements – resulting in better operating efficiency. Last week the Commercial Production commenced at the Company’s Subsidiary viz. Al Rawasi Rock & Aggregate LLC, having Limestone Quarry and Crusher Unit at Fujairah, UAE. This subsidiary was in investment mode till last financial year and thus was a drag on the consolidated balance sheet, but now, will “substantially” add to the topline and bottom-line of the company starting this FY. This year the company has given its highest ever Turnover, Profits and EPS. This is set to double in the coming financial year. On back of excellent cash flow, the company has been giving increasing dividends every year for last few years. With the current revival in the infra and construction sector and start of its subsidiary’s commercial production the stature of the company would only improve with time. The promoter holding stands at 70.4%.

Valuations: The company (available at a market cap of just 95cr) is trading at just 2.8 times its forward PE and  5.5 times its standalone trailing PE and 7 times its consolidated trailing PE, but what is very important to note, that a few days back their UAE subsidiary started its commercial production production and this would “substantially” add to both topline and bottomline of the company and it is expected to clock an EPS of around 25-32 in FY16 depending on the performance of its subsidiary. The last two standalone quarter’s EPS has been 6.95rs and 8.24 rs.The company is a regular dividend paying company and has been paying consistently increasing dividends for past so many years. Again, its very important to note that the company has “very strong cash flows” and has  cash on books of around 17cr with an interest coverage ratio of around 4.5 backed by a tiny equity of just 6.63cr and a very high promoter holding of 70.4%.

Technicals: The stock is looking very promising on charts. Its currently trading at multi-year highs and recently broke out from short term consolidation and is looking all set to challenge its all-time highs of 128 in weeks to come and given enough time and space the stock should not only cross 128 but go way farther. Even in these falling markets the stock is near kissing distance of yearly highs (which again is a multi-year high) and is looking bullish from both short to long term perspective.

Here we have the biggest mining company of its sector (and the only listed one) with extremely high promoter holding (and a small equity base), that is set to increase its turnover and bottomline significantly in the coming year(s), available at less than forward PE of 3, giving increasing dividends every year, with excellent cash flows and a cash balance of around 17cr with a market cap of just 95cr. I believe for a smart and patient investor, the stock could reward significantly. The stock is set of a PE re-rating. One could also consider switching from Aro Granite to Associated Stone Industries as I believe Associated Stone has better growth prospects and technical than Aro at this point in time.

Disclaimer: It is safe to assume that I may have some vested interests in the stock. Also, the above stock view is my personal view in individual capacity. For rest, please look at the About page.

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75 Responses to Associated Stone Industries (Kotah) Ltd – Mine It For Your Portfolio

  1. Akshay says:

    Will Start researching this company

  2. vivek says:

    sales and profit increased in last year,also it has reduded its debt year on year,
    But when i checked the assets and respective sales for last 10 years till 2014,
    assets are increased to 166 cr but sale is130 cr( year 2014).
    pls express your views on it

  3. Rohit Gulati says:

    Hi! Ace,
    Can you pl. tell us what is the capacity of the Indian unit and that of the UAE subsidiary.Also what is the stake of the Company in the UAE JV.


  4. techiechartist says:

    Sir ji…technically looking very next few weeks it should touch 128 and by next 12 months it should go to around 210rs… i also entered albeit a bit higher ….thanks ace…

  5. abhishek says:

    Associated Stone a good value pick …. Can you please share your personal email ID Ace ?

  6. shreeux says:

    HI Ace,

    Thanks for another good pick..

  7. Ra Da says:

    Ace bhai mouth watering valuations for prima waterbase nd vidhi considering super pounced on all three and bought a sizeable amt..great opportunity is what i can say particualrly for prima..

  8. totalsiyapaa says:

    this looks very nice ace…grossly undervalued…

  9. Nandita says:

    Rumours are afloat that we could see a 2008 like crash in the market this year. Do u think it is possible?

  10. Nandita says:

    Glad to see u r smiling over it. But they are afloat over some message boards in MoneyControl. All the same to what levels do u see nifty/sensex coming down to in worst case scenario? Just want to brace up for the pain in toto instead of feeling it in installments. 🙂

    • as mentioned a couple of months back, its a short on rise markets for me and so far it seems correct… if the bulls are unable to defend 8000 then 7790 kind of levels are possible and below that around 7500…at that time we could review the call again… also dont waste your time on MMB

  11. SAY says:

    Congrats Ace, a mile stone will be crossed by Mangalam tomorrow, attaining 100cr mcap. Around 20 of may it’s mcap was around 55/56 cr.

  12. hafizul09 says:

    Hello Ace ji——hope u r doing well—–feeling bad as not have fresh cash on hand to buy Guj Themis at so lower price of around 33 and averaging down the buy price(my avg. buy price is 45)—-hopefully it will stay around these levels till I get this month’s salary—-🙂 —also I like very much Liberty Shoes specially at these levels it looks very attractive to me at PE of 20 of such a high quality company with good future earning visibility——-but could not enter as no fresh cash—- :)…..kind of bad luck that I ad cash when the stock prices were high and bought but now they came down but no cash in hand now—–missing opportunities big time—–🙂

  13. SAY says:

    105 cr has been breached by Mangalam. Kudos to Ace. Toast to all investors.

  14. i think prima is the most loved, discussed and widely held stock here and i think if people continue to buy it in this manner and equity base been too low the day is not far when other than promoters and institutions all the other retail investors of prima would be of people who follow ace sir

  15. Nandita says:

    Ace, do u forsee a correction or consolidation coming up in mangalam drugs any time soon?

    • reason behind the question?

      • Nandita says:

        The reason is greed🙂 I started buying it from levels of 40 on seeing your recommendation (can’t thank u enough for it), but stopped at 60 thinking some consolidation or correction may set in. And that much awaited correction is not coming (heart burn galore). I have never had a stock until now that has doubled within a month of my entry in it. And yeh dil mange more. Can i add at these levels tomorrow?

  16. Binay says:

    Ace sir, what is your view on mic electronics? Is it suitable for long term. todays it is very volatile and heavy volume. is any news in this counter. march-15 qtr is good. what is your opinion, kind reply.

  17. PL says:

    It is though late but I entered mangalam today with the conviction that it is a strong company

  18. Puru says:

    So, another good suggestion. Thanks.

  19. SAY says:

    Few days back completed first course in accounting at coursera. Feels liberating and confidence with cashflow and income stmts has gone top notch. Thanks for making aware of such utility.

  20. totalsiyapaa says:

    ace please given an update on mangalam and ambika doubling….its motivating to investors…

  21. techiechartist says:

    yes ace, i agree…you should give those updates… people who want to crib will always crib…no matter what…

  22. SAY says:

    Good opportunity to add mangalam, it hit LC seems to be weak.

  23. Sameer Anand says:

    Why is my previous comment awaiting moderation ACE? What was wrong in the question I asked?

  24. Follower3 says:

    Astrazeneca is launching a new diabetes drug in India . Do you think this will Affect Wanbury sales as Wanbury is the largest diabetes drug maker in India ?

    • wanbury has portfolio of good diabetes forumulations but i dont think its a mainstay for wanbury. also its very difficult to oust brands just like it and most importantly astra may not be able to match the production cost of a wanbury, though some affect is always there…

  25. Darshan says:

    Hello, I have come across an article that says promoters have created pledge/encumbered shares to ICICI bankSampoorna Exports Pvt Ltd has submitted the disclosure under Regulation 31(1) and 31(2) of SEBI (Substantial Acquisition of Shares & Takeovers) Regulations, 2011 to BSE

    what are you views.? on this. why did it pledge shares.

  26. Puru says:

    Can you please advise if you have any change in your stance for Aro Granite… or, is it just that you have found ASI now and it seems to be a better company in comparison to Aro?

  27. Hello Ace,

    Thanks for the post. I have one query. How did you arrive at the next year EPS?.


    • by the upside, that the company is expecting by starting of their UAE’s commercial operations. The next year could be even better by the way

      • prasad says:

        Ace if we compare asi to pokarna industries.there is a huge valuation difference.both of them seem to be in same sector.limestone for asi quarts for pokarna.shouldn’t the valuation gap close.or am I missing something

  28. Sreekanth says:

    Hi Ace,

    I was looking at the balance sheet and can see the Repayment of long term borrowings as 729 whereas the maturity amount comes to only 533….do you know where the other part went?

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