Alpha Hi-tech Fuels Ltd.
Overall: BUY
Potential: 8-10 times
Time-frame: 3-4 years
Alpha Hi-tech Fuels Ltd. is a small company based in Gujarat India. Gujarat is not a place that conjures up visions of super-successful companies and individual investors making it big byinvesting in them. But, lets talk about this company with its BSEcode of 531247.
Waste Management Inc., is the name of a company in the United Statesthat Peter Lynch talks about in his book One Up On Wall Street. Itwas a 100-bagger. Yup, you read that right.
So, what has that got to do with Alpha HiTech (ALPHIT)? Just this -industrial waste (even domestic waste) is a big deal. There's tonnes of it generated every day and ALPHIT takes care of it. Large industries want to pay someone so they can wash their hands of managing this large amounts of garbage, rubbish, industrial wastesand trash. What can be simpler than paying someone to just that?
How many companies are in this business? I looked around a little...and there aren't many. Now, what does ALPHIT do with all this waste?It converts most of it into alternative fuel! As companies try to reduce their energy bills, they look to see what their options arewhen it comes to running their mills, boilers, what have you. With crude prices well above $50 a barrel and looking to continue their climb, alternative fuels are getting more and more important by theday... enter ALPHIT.
How about the financials? ALPHIT is a small company. A micro cap, youmight say. But for its size, the financial picture is sharp.
First of all sales have grown from 37 lakhs to more than 1 crore last year. Net profit margins are more than 50%. It has no debt and has cash reserves of more than 1 crore. Considering that it is trading at12 rupees a share right now, you can discount 30% of this cost purely from the cash it is carrying (it doesn't have that many outstanding shares!).
From a cash-flow valuation perspective, with a conservative forecast of only a 10% growth of its more than Rs. 12 earnings-per-share this past year, I value the share at more than Rs. 200. By the way, almost 78% of its shares are with the individual investors and almost 12% is with the owners, who incidently, have been running the company for the past several years.
With (almost) no other players in this market, ALPHIT is very wellpositioned to make good on its potential. Definitely a buy!
Note:
Friday 29 December 2006: I just accidently came across my old posting in my yahoo groups "Intelligent Investor". This compnay has no debt and produce fuel by waste management. Company operates only in one segment, i.e., making Bio-mass briquettes out of agriculture waste. The operating profit is 50 percent and more. I brought 50 shares at Rs 4.40. I would keep investing in it. The book value is 17.85 and the share trade at around Rs 4. This is definitely a bargain. The company has been able to continuosly improve its operating earnings.
Tuesday 2nd January 2007:
The total equity is 3.68 crores with the face value of Rs 10. So the total number of shares is 3.68 million. I like would buy 1 percent of the company in the coming year. Currently I need to buy a total of 36800 shares.
Today I got 2450 shares and now totally I have 2500 shares and an average of 4.64 Rs per share.
Saturday 6th January 2007:
I got delivery of 5000 more shares today taking the total to 7500 shares. I am actually hurrying up buying this company when the price is shooting up. In fact I had purchased it after the stock rose 30 percent higher. Actually Iam buying at a considrable discount to the book value of 17.85 rs per share. This is truly a bargain stock.
cons:
The promoters hold a small stake around 4.39 percent. Actually the promoters have still reduced their stake of 12% mentioned in the above article. Point to note: The market price at that time was Rs 15-20.
The Company has stopped its production from and this is the reason mentioned in the director's report.
"With the change in management and for re-design of the production routines to secure enhanced operational convenience, the production, which is at halt since, 01.08.2005, is scheduled to commence on its result oriented alignment. To ensure enduring potential, growth strategy is under consideration. Ploughed back resources are being used to match the need of the recent developments. "
pros
Govt and Financial Institutions hold zero percent.
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