Market Mind: Some interesting stories

Somany Ceramics' 2017-18 has been a washout of a year due to GST. This intrigued; most companies had got over the GST-induced destocking pains by the second quarter

These are interesting stories one has picked up across travels of the last month.

Somany Ceramics’ 2017-18 has been a washout of a year due to GST (goods and services tax). This intrigued; most companies had got over the GST-induced destocking pains by the second quarter. Somany explained how the unorganised trade in Gujarat has figured out a way to beat GST and the differential they enjoy (presently!) over the organised manufacturers (who pay taxes and are therefore priced higher) has increased after GST -- and that GST implementation could still take a year to stabilise.

Speaking to Dwarikesh, Dhampur and Balrampur Chini Mills indicated that the country is facing possibly its biggest sugar glut: in a country where crop movements of 5 per cent can transform shortages into gluts, the increase in cane output has been in excess of 20 per cent in the 2017-18 sugar season, inspired by the decision of the Uttar Pradesh government (largely) to increase the remuneration of cane to be paid to farmers. The result is that everyone and his father-in-law has planted cane in Uttar Pradesh this season: since mills have to compulsorily buy, every quintal of cane processed will lose mills money (or eke out a nominal profit) followed by what looks like the biggest cane arrear in history coupled with an even bigger cane output next year -- as the government enters an election year. The one difference between the earlier sugar troughs and this one is that some companies had the good sense to deleverage extensively, but despite being an optimist it beats me as to how a number of them will avoid losses in 2018-19.

There are a number of dimensions to JK Paper, arguably one of the most of most exciting paper sector plays. Some dimensions of what makes it an interesting company in a capital-intensive sector: the company repaid Rs 3 billion in debt in 2017-18, which would have been a quarter of its overall debt exposure; it grew the business regardless; it enjoyed two credit rating upgrades; it has pulled off something unusual in the last few years: ‘rented’ capacities in smaller mills and brought off some of their paper quantities marketed under its proprietary JK brand, an asset-light approach in an asset-heavy business (generating sizable traded revenue).

The pick of the companies during my travel circuit has been Iris Business Services. The company went public last year and is at a market capitalisation and profit level where it will not merit attention. But consider: in a world where information is exploding, the company structures that into usable data. It services the software product needs (not software service, remember) of companies that need to comply or file with regulatory authorities. What’s got me interested is this: there are 1.2 million companies registered with the Registrar of Companies, the annual IT spending by each is about Rs10,000 – a Rs12 billion indicative addressable market only for RoC compliance. There are more than 180 countries the world over…

The author is a stock market writer, tracking corporate earnings and investor psychology to gauge where markets are not headed