Sunday, March 18, 2007
Saturday, October 14, 2006
Tuesday, August 15, 2006
Buying companies - math of a problem
1. Company A earns a profit of Rs. 80 from a capital employed of Rs. 100
2. Company B earns Rs. 20 from a capital emp of Rs. 100
3. Company C earns Re. 1 from a capital emp of Rs. 20
Thus company A has an ROCE of 80%, company B has an ROCE of 20% while company C has an ROCE of only 5%.
You might be tempted to buy companies A and B as they definitely have a much higher ROCE as compared to company C. Lets do some further math here -
Case 1: You drop A and pick B, C
Your total profit would be 21 (20+1) while your cumulative cap. emp. will total 120 (100+20) .. giving you a total ROCE of 21/120 = 17.5%
Case 2: You drop B and pick A, C
Now your cumulative ROCE jumps up to 67.5% (81/120)
Case 3: You drop C and pick B, A
A total profit of 100 (80+20) and total CE of 200 (100+100) means, a combined ROCE of 50%
So while dropping company C may seem a good choice, it'll not be too appreciated by your management.
Implications - Such situations also come to light in corporate quarters. E.g. an increase in homeloan rates may lead to lowered demand for housing and hence the share price of banks would come down. The larger part of the puzzle is "what is the contribution of home loans to the bank's total asset disbursements". In a previous blog I had explained the same situation w.r.t. HLL and it's price war with P&G on the detergents front.
Wednesday, May 31, 2006
More .. sasta stocks
1. Rane Engine Valve - small cap; should give quick money .. 15-16% in a week; stop loss at 320
2. Wockhardt - good stock at low price
3. Monsanto - At a PE of 13 and an expected PAT of almost 100 crs ... easy buy
4. Apollo Tyres - quick money; stop loss at 220
5. Balaji Telefims - Good NCAV; good PE for entertainment/media stock
6. Abbott India - sasta
7. NIIT Technologies - sasta; buy and hold
8. Fag Bearing - quick money stock
9. Rain Calcining
10. Madras Aluminium Co.
11. India Glycol - has upside; a PE of 7.02
12. Apar Industries - Excellent sales growth; long-term prospect
13. Aegis Logistics - Great sales growth; good traction; quick money
14. Gujarat Ambuja Export - brilliant PE though sales are slow
15. NOCIL - excellent turnaround story
16. Tinplate Co. of India - Amazing valuations
17. Ind Swift Labs - One of the cheaper pharma scrips
18. Ahmednagar Forging - Forget the zero dividend; has a debt-reap of 64% of m-cap
19. Andhra Pradesh Paper Mills - Amazing valuations
20. Jupiter Biosciences - Future growth story
Friday, May 26, 2006
The God of Pennies .... title shattered !!!
Wednesday, May 24, 2006
Sasta stock !!!
What did I do? I too bought some stocks on 22-May (when the mkt went down by 1000 pts). As I had only 80000 bucks, I divided the money among some 9-10 stocks. Here are my value picks -
a) Amtek India - I bought this again ... at 108 rupees. It's at 120 today.
b) Bank of Baroda - Bought at 227 rupees ... up to 239 rupees
c) Kalpatru Power - Amazing returns ... bought at 641 .... now up to 755 rupees
d) Mastek - up from my buy price of 307 .. up to 326 rupees
e) Rolta India - Bought at 184 rupees. Now at 194 rupees
f) Gujarat NRE - Bought a little more ... at 65 rupees ... its up to 75
g) Rain Calcining - 38 rupees .. 39.10 rupees
h) Tinplate Co of India - 73 rupees goes up to 77 rupees
i) Alembic - 328 rupees .. disappointing up to only 332 rupees
j) Alok Textiles - bought at 73.5 rupees ... at 77.15 rupees
I had my share of fun today .. the BSE fell by 250 points today ... and my portfolio actually went up a miserly 0.4%
Tuesday, May 02, 2006
The big bank theory
Of all these, I like Bank of Baroda. At a fwdPE of 8.36, BoB is undervalued. I estimate a 1yr earning forecast of 800 crs+ given the legacy and advancements made by the bank. The current dividend yield is 2.20%, which is slated to increase given the rise in profits.
Sunday, April 30, 2006
This one's a different Nahar
Jun-05: Sales increased to 176 crs from 90 crs LY; profits up from 3 crs to 14 crs
Sep-05: Sales up from 82 crs to 172 crs; profits rose from 7.12 to 15.07 crs
Dec-05: Sales upto 169 crs (from 156 crs); profits up from -0.72 to 18.26 crs.
Extrapolating these numbers over the next 3 quarters puts the fwdPE of the company at a powerful 8.56. I also find that -
1. The organisation's interest cost has been decreasing over the last few quarters, which is brillant. (there is one news item however, which indicates that the company is in discussion for issue of FCCBs)
2. The NCAV of the scrip is 13.92 with a sizable investment head of 66 crs in the balance sheet (mostly owing to shares in sister concerns - NSML and NEL)
3. A visible increase in net margin from -1.5% in FY2004, 3.3% in FY2005 and 9.2% till Dec-05
4. Surprisingly, no dividend has yet been issued although the company has enough cash reserves and cash profits.
5. The 31-Mar-05 book value is a comfortable 175 rupees/share
I would love to buy this stock. The only hitch on the charting is : the scrip had just created a valley a few days back when it dipped from 170 rupees to 130 rupees. It's now back to 170 rupees. Dont risk market timing ... buy a small number of shares, buy more on declines.
Mutual funds and stock evaluation
1. Deutsche Alpha Equity Fund - 37.35% in last 3 months
2. Sundaram Select Mid-cap Fund - 33.10% in last 3 months
3. SBI Magnum Comma Fund - 32.90% in last 3 months
4. Franklin India Opportunity Fund - 32.10% in last 3 months
Now, I guessed that the portfolio composition of all these 4 funds would tend towards parity or perhaps, a high correlation. If not companies, atleast the sectors. Here news -
1. Deutsche Alpha - Diversified (29%); Computers (9%); Metals (8%) ... top 3 cos: Sterlite (8%); Tata Steel (8%); Tata Chemicals (7%)
2. Sundaram Midcap - Engineering goods (17%); Housing (11%); Auto & ancillaries (11%) ... top 3 cos.: Kalpataru (4%); Balrampur Chini (4%); Ansal (3%)
3. SBI Magnum - Cement (14%); Diversified (13%); Metals (12%) ... top 3 cos: Hindustan Zinc (8%); Shree Cement (7%); United Phos (5%)
4. Franklin - Entertainment (22%); Auto & ancillaries (14%); Diversified (11%) ... top 3 cos: TVS Motors (9%); Jaiprakash (7%); Calcutta Electric Supply Co. (7%)
i) The top three sectors among the four top performing funds is strewn over 8 different industries (from a max:12)
ii) The top 3 holdings of each of the 4 funds is different i.e. we have 12 different companies that form the top 3 holdings of these 4 funds.
iii) The average holding in equities from the total corpus is a healthy 94%. (so you might want to rethink your idea of staying 60% in cash and rest in equity)
Mutual funds donot think alike and have different priorities and basis of evaluating stocks. For us the advantage is in identifying changes in portfolio in mutual funds to understand what they are buying or selling, researching the same and arriving at a decision.
PS: Has anyone checked the Calcutta Electric ... ???
Saturday, April 29, 2006
1. Alembic has come out with a good Q4 result, displaying a strong increase in PAT (from 6.36 crs to 17.10). This is in line with earnings over the last few quarters.
2. The yr has closed at an EPS of 28.36. With the CMP at 401 (29-Apr), the PE comes to 14.13.
3. Sales have risen by 20% plus on every Q-on-Q results and so have profits. A lil' extrapolation would put Alembic's next 2 Qs results at a strong footing equaling around 16 rupees in EPS. I would picture Alembic at a fwdPE of 12.9 which is one of the lowest in the Indian pharma space.
4. The heavier part of the sales growth has come from domestic sales (around 77%) however interestingly, Q4 has contributed one-third of the entire export pie. This marginally indicates a move towards ramping export operations by the company.
A 99 yr old company, stable sales and profits, growing, a relative inexpensive valuation to peers ... worth a buy.
Wednesday, April 26, 2006
Nahar Export revisited - interesting announcement !!!
Thus upon sanction of the scheme shareholders of the Company holding 100 Fully paid up equity shares of Rs 10/- each on the record to be fixed for the purpose, shall receive 55 Fully paid up equity shares of Rs 5/- each in NSML (post demerger of investment business) and 70 Fully paid equity shares of Rs 5/- each in the Company.
1. Any arbitrage?
2. short/mid/long term prospects?
There was one report by EmKay which talks of latent (and now exposed) shareholder value in this deal. Here's how ...
1. The invt business in NSML (Nahar Spinning Mills Ltd.) is worth 346 crs which'll be merged with NCFSL (Nahar Capital and Finance Services Ltd.). Allotment ratio: 1 equity share of NSML = 1 equity share of NCFSL (FV Rs 5) + 1 equity share of NSML (FV Rs 5)
2. Textile business of NEL (Nahar Export Ltd) to be hived off and merged with NSML. Allotment ratio: 100 shares of NEL (FV Rs 10) = 55 shares in NSML (FV Rs 5) + 70 shares NEL (FV Rs 5)
The investment summary presented : a sum-of-its-part valuation of NEL gives Rs. 112 as the fair value of the stock. Hence the potential upside of NEL is 38%. (for a copy of the report, kindly email me)
National Organic Chemical Industries Limited
And although the company doesn't provide for any dividend, I take comfort over the fact that NOCIL has an NCAV of 4.07 and a book value of 10.90 (as compared to a CMP of 28.25). The high court has approved of a demerger of the company in two divisions to which the shareholders will benefit as the rubber division will take advantage of an independent management.
Peers of NOCIL would be other petrochemical companies like Castrol, Manali Petro, Narama Chematur, Hind Flourocarbons, Sah Petroleum, SA Petrochem, Lanxess ABS, Chemplast Sanma, Jubilant Org, DCW, IPCL and Finolex ... (barring Sah whose profits are almost non-consequential, NOCIL and Narmada Chematur exhibit the best improvements in qtrly earnings ... Narmada Chematur has also been recommended for a buy in a previous blog).
I would place a BUY on NOCIL with a stop loss on 24 rupees.
Sunday, April 23, 2006
Behavioural Economics 101
1. You decide to clean your car yourself to save paying the monthly 300 rupees to the car cleaner. Would you agree to clean your neighbour's car for the same 300 rupees?
2. You research a stock and you found it unworthy of a buy at 150 rupees. Today to same stock is at 1500 rupees, but is working to your buy calculations. Would you still buy it?
3. People tend to be "loss-averse" i.e. they experience more pain over a loss rather than pleasure over a gain. This is one reason why people are very uncomfortable selling stocks on which they are/have lost monies.
4. The principle of fairness is what differentiates the price you might pay for a bottle of soft-drink at a mom-and-pop store, as compared to a 4-star hotel. People feel it is fair for the 4-star hotel to charge 7-8 times more than the neighbourhood store. This is probably one reason why companies tend to lay-off people rather than reduce salaries during tough times.
5. You have a 100,000 rupees to invest in stocks. Since it's your first time, you'd invest 4000 rupees in the first month. You did a fine job of that and made a good 20% on that sum of money. The second month, you put in another 4000 and lo behold! another 22% return after month 2. ... notice that in the third month, your investible amount would have increased from 4000 to perhaps a 12000 rupees. This "mental accounting" allows people to take more risks when a string of success reaches you.
6. Often, cab and auto drivers tend to stop working for the day when they have reached their targeted income for the day. So they nonsensically, work shorter hours on rainy days and work longer hours when fares are scarce. In context, they forego an opportunity to earn more on "make-hay-while-it-shines" days. On the investing front, day-traders are like the cab drivers. The author goes on to suggest that investors should be allowed to look at their portfolio only once in 5 years.
7. The use of incentives (cue) is another factor that determines behaviour. In Ireland, a small charge (15p) was levied on plastic shopping bags. Since then, most people carry their own shopping bag to save some money. On the other hand, when in Israel a nursery imposed a fine for parents who arrived late to pick-up their children ... the response was that parents arrived more late than ever. Reason - by making the payment, the parent no longer felt guilty (in other words, they have cleaned their conscience) ... this is a great illustration of how behaviour is often different in different situation though the premise is similar.
8. Most people crib on the taxes charged by the government on one's incomes but then tax deducted at source doesn't exhibit a more mellowed emotion. Similar instances ... annual performance evaluation by companies is a hot-bed for politics, prejudice often leading to attrition of "dis-satisfied with evaluation (and not necessarily non-performing)" employees.
Behavioural Economics is a fast growing field in research and study. Why not ... people are prone to error, irrationality and emotion, and they act in ways not always consistent with maximizing their own financial well being.
> Behavioural economics: seven principles for policy-makers
> Exuberance is rational (The NY Times Magazine)
This was however one instance I didn't agree to in the article. It says: A team is trailing by 2 pts in a basketball match. With 3 seconds to go and the ball with them, should they go for a 2 pt - which will tie the game and take it to overtime OR, should they go in for a 3. A 2-pointer has a 50% chance of going in, while a 3-pointer has a 33% chance of winning it. The author feels coaches often go for 2 pts as it lowers the risk of sudden loss. ... this is where I disagree because when I go in for a 2-pointer and then my chances at OT (which is again a 50:50 chance) .. I have never ever moved below a 50% chance of a victory. However, going in for a 3-pointer would give my team only a 33% chance for a victory.
Lets examine the prospects of a few players -
 West Coast Paper Mills Ltd. - The lastest quarterly data pegs the company at 537 crs of sales and 42 crs of profits. At a CMP of 393 (21-Apr), the PE is at 8.37. The company has also indicated an improvement in the net margin owing to cost control measures (and inspite the increase in fuel costs). It's a BUY candidate.
 Andhra Pradesh Paper Mills - I bought this a week back at 120 rupees. It's at 140 rupees today (21-Apr). The scrip has a fwdPE of 10.11. A recent report by EmKay Research gives the following cues -
a) Margin will double from 13.5% to 26.2% in the next two years
b) A 125% improvement in PAT over the next two years. In fact at today's price, the research agency estimates the stock to reach a PE of 4.4 by FY2008
c) Sales growth at a CAGR of 15.20%
d) The price target for Andhra Paper Mills is INR 224.00 (an increase of 76% from current levels)
 JK Paper - Here's another research report by Religare Securities Ltd. The CMP of JK Paper is 60 and it has a price target of 96 rupees. I'd however, prefer Andhra Paper Mills and West Coast over JK Paper as the company has shown a lack of consistency in profitability (profits went down by 8% last yr and sales were stagnant)
 Star Paper - Here's a pick of the week by icicidirect.com. Star Paper Mills has perhaps the lowest PE valuation in the paper industry ... a fwd PE of just 6.20. The company has shown brillaint improvement in sales with one glitch in the quarter ending Dec-05, where PAT was only 2.40 crs ... a huge reduction over last yr. So any investment in the scrip can be recommended only after checking the Mar-06 results of the company.
So here it is ... divide you paper industry booty equally between West Coast Paper and Andhra Paper Mills. They are a t good valuations, have grwoing sales+profits and good management structures.
Saturday, April 22, 2006
Scrips I dont like
Buy means an under-valued stock
Wait means a stock, fairly valued .. yet in contention if the price reduces
Pricey is a stock, over-valued and hence, not in contention yet
Penny is the scum-stock ... ones I'll stay away from for a long time
Here's a list of some I've classified as "Penny" (some changes may be done from this list on account of fundamental changes to the scrip) ... the primary reason for not investing in these stocks is the low profit levels exhibited by the below stocks
Silverline Technologies Ltd.
Tele Data Informatics Ltd.
Jindal Worldwide Ltd.
Shyam Telecom Ltd.
Vardhman Spinning and General Mills Ltd.
Saurashtra Cements Ltd.
Rain Commodities Ltd.
Morarjee Realties Ltd.
Selan Exploration Technology Ltd.
Prakash Industries Ltd.
Birla VXL Ltd.Mysore Cements Ltd.
Andhra Cements Ltd.
Moschip Semiconductor Technology Ltd.
Andrew Yule & Company Ltd.
Consolidated Finvest & Holdings Ltd.
FCGL Industries Ltd.
Sterling Holiday Resorts (I) Ltd.
Sharyans Resources Ltd.
Gujarat Sidhee Cement Ltd.
Swan Mills Ltd.
Premier Explosives Ltd.
Jay Shree Tea & Industries Ltd.
Ruby Mills Ltd.
Bhansali Engineering Polymers Ltd.
Mahindra Gesco Developers Ltd.
AVT Natural Products Ltd.
Suprajit Engineering Ltd.
J K Industries Ltd.
Agro Tech Foods Ltd.
Liberty Shoes Ltd.
Polyplex Corporation Ltd.
Sirpur Paper Mills Ltd.
Shriram Overseas Finance Ltd.
Gujarat Apollo Equipments Ltd.
Forbes Gokak Ltd.
Samkrg Pistons & Rings Ltd.
Himachal Futuristic Communications Ltd.
Empee Sugars and Chemicals Ltd.
Energy Development Company Ltd.
Aksh Optifibre Ltd.
ABG Heavy Industries Ltd.
UTV Software Communications Ltd.
Yokogawa India Ltd.Prime Securities Ltd.
Cyber Media (India) Ltd
Eimco Elecon (India) Ltd.
Harrisons Malayalam Ltd.
Kalyani Forge Ltd.
Venky''s (India) Ltd.
Revathi Equipment Ltd.
Standard Industries Ltd.
Sarla Polyester Ltd.
Themis Medicare Ltd.
Goodricke Group Ltd.
Ramco Systems Ltd.
Om Metals Ltd.
Z F Steering Gear (India) Ltd.
Star Paper Mills Ltd.
Madhucon Projects Ltd.
Transgene Biotek Ltd.
Indian Hume Pipe Company Ltd.
Central India Polyesters Ltd.
Swaraj Mazda Ltd.
Anant Raj Industries Ltd.
Ondeo Nalco India Ltd.
Scooters India Ltd.
International Travel House Ltd.
State Trading Corporation Of India Ltd.
Spel Semiconductor Ltd.
Saregama India Ltd.
Faze Three Ltd.
Eskay Kn''''''''IT (India) Ltd.
Kale Consultants Ltd.
Force Motors Ltd.
S B & T International Ltd.
Mather and Platt (India)
The financials of Abhishek Industries :
1. The sales and profits have grown at 25% over LY and the Q-on-Q numbers have been impressive
2. I expect a closing of 51 crs for this yr ... an EPS of 2.62 rupees/share and a P/E of 11.35 which is much lower than competitors like Welspun India whose PE is at around 22.
3. A little high on debt, but has a good BV/share of 14.6 rupees
4. Two small hiccups .. Abhishek has not given a single dividend in the last five years and, has a negative NCAV (am not giving too high a priority to this however)
Abhishek Industries is a fantastic candidate for "buy and hold". The downside in the stock is minimal and has an excellent management team. The annual report (pdf, 6.20 MB) of the organisation calls for an excellent reading (dont miss the managements' discussions and analysis part .. pgs 46-57).
I would throw a buy on Abhishek Industries .. to be held for long.
God knows what but my broker friend is extremely bullish on ...
My broker is extremely bullish on jHUNJHUNWALA VANASPATI.This stock has been hitting circuits for the past some time,the current market price(at todays circuit) is 58.He expects it to reach a three figure mark in a months time(atmost).
One other stock is UB enginerring trading at 63(todays circuit) which has also hit circuits almost daily in the past few days....
Will look forward for your advice on UB Engineering and JHUNJHUNWALA VANASPATI.
God knows what but my broker friend is extremly extremly bullish on JHUNJHUNWALA VANASPATI.
Jhunjhunwala Vanaspati has risen from 40 rupees (Mar-28) to 65 rupees (Apr-21) - a return of 62.5% in 3 weeks [Charting]
On a more sanely and boring front, lets examine the financials of this scrip -
1. The stock is at a fwdPE of 6.12
2. Has been profitable over the last 5 yrs and all quarters are in the black (this isn't some small company .. it has sales of almost 500 crs)
3. Although quarterly profits are not high .. the company should close the yr with 10 crs of PAT
I would advice a small sum of money (not to be entirely taken as a gamble) ... towards this company. Keep a stop loss of 50 rupees however.
UB Engineering was at 32.95 (Mar-28) and has risen to 66.00 rupees (Apr-21) without a single day of negative returns .. one reason why Amit has not been able to lay his money on this stock [Charting]
UB Engineering has been posting losses for the last 4 yrs. One reason for recommending this stock can be the expectation that UB Engineering will be in the black this quarter like the previous one and perhaps actually, have had made some money. I would advice a "no buy" on this scrip.
Monday, April 17, 2006
Torrent Power SEC Ltd.
1. SEC gives upwards of 10 crs every quarter and would close the year at 60 crs.
2. The stock is available at a fwdPE of 9.15 which is pretty good.
3. The energy sector is on an upscale and Surat's energy consumption is surely on the rise ... aren't you hearing news on textile and diamonds more often ... ?
One pt. - the growth of the company will be dependent on the geographical spread. So although I see an upside to the stock ... maybe hitting 720 rupees in the next 3-4 months ... further holding will need to be checked with every quarter.
Sunday, April 16, 2006
1. Revenues have grown by 24.3% over LY and is now at INR 678.6 crs (press release)
2. PAT grew at 43.6%; now at INR 91.4 crs
3. 39 new clients added; 129 active clients
4. At a CMP of 150 (Apr-15) and a share capital of 23.48 crs (FV per share is 2.00 rupees) ... the P/E comes to 19.13.
The company has given a guidance for Q1 FY2006: 167 crs in revenue and 23 crores in profits ... which spells the growth objective of the organisation. Extrapolating the expected growth in business (as a function of manpower recruited, clients added, previous trends), I find the company well on course to reach a 1000 crs of revenue by 2008. Thus, profits will also rise at a CAGR of 27%. I estimate the 1-yr fwdPE at 16.6 which is much lower than peers such at 3i and Matrix.
Hexaware Technologies is a long-term buy.
Saturday, April 15, 2006
A similar comparison can be made in IT stocks .. the biggies .. esp. after the wonderful guidance given by Infosys Technologies Ltd. a couple of days back. I put four IT companies to the test - Infosys Technologies, Satyam Computers, TCS and Wipro. All the above companies have a m-cap of over INR 25,000 crores and have over INR 750 crores of LY profits. All carry virtually zero debt in their balance sheets, are cash-rich businesses and have strong management. And yet there are a number of differences which can be analysed and exploited -
1. Growth in profits has been rather different for all 4 companies. I find that TCS has shown the fastest growth in profits over LY at 42%, while Infosys has been the slowest with only 16% growth. (Satyam - 20%; Wipro - 31%)
2. CMP/NCAV would mean the "margin of safety" that Graham has so often cited in his many illustrations. The ideal number is 0.66. However this number is more true for old economy businesses and not for new sector business like IT services. For the record, Satyam is the best here with 8.66, while TCS has 37.79. (Wipro - 19.73; Infosys - 21.95; NCAV includes investments too)
3. At current prices, I estimate the fwdPE of all four companies at - Satyam - 27.91; Infosys - 37.38; Wipro - 37.81; TCS - 33.31
4. Cash per share - Satyam is at #1 with 75 rupees/share while Infosys is #2 with 54 rupees/share
5. While the dividend yeild of all 4 players is below 1%, Wipro is the best of the lot with a 0.96% dividend. Infosys however just pips Wipro with the special dividend of 30 rupees/share declared recently.
Examining these numbers, I feel Satyam is a good buy at the current price. There is an expectation of a bonus issue from Satyam aswell or a big dividend (it has crazy amounts of cash and is not eyeing any acquisitions).
PS: The movie was pathetic !!!!