Thursday, January 26, 2006

Bimetal Bearings

Bimetal Bearings would faintly fit in a Grahamian definition of a value stock. It has some unique features which makes the stock very enticing. Bimetal Bearings is a small-cap company with the following stats -
Outstanding shares - 0.33 crores
Loans (secured and unsecured) - 1.53 crores
Investments - 28.03 crores
Net CA - 37.14 crores
Face Value - 10 rupees
LY dividend - 6.25
CMP - 286 rupees
PAT - 10.98 crores

Lets examine this company using our principles of value investing and other derived techniques

a) Graham puts good focus on the net CA per share. In this case we are looking at 109 rupees per share. This is much lower than the CMP of the scrip (albeit a very good number when compared to most other stocks in the Sensex). We need cushion.

b) Investments are at 28.03 crores. If the investments are of a quantifiable and liquid nature then we should go for it. Unfortunately I was not able to locate the website of the company and hence couldn't go through the balance sheet. At liquid investments, the contribution of investments to the value of the company is 73.18 rupees. Being conservative, I'll take only 50% of this amount i.e. 47 rupees to our calculation. Thus, we have a net NCA (incl invt) of 156 rupees (109+47).

c) Bimetal Bearing has been giving positive profits for the last 5 years in a row. Sales have been increasing on an year-on-year basis for the last 4 years albeit at a slow pace of 10%.

d) The company has been giving dividend for the last 5 year. The last two yrs, the dividend ratio has been a healthy 6.00% and 6.25%. Two things are important here - the dividend yeild and the ability of the company to give the same or more dividend. Firstly, the dividend yeild would come 2.18% which is rather low (a risk free bond would give 5.5% over a one-year period). Secondly, the quarterly results indicate that PAT will close at the same levels as last year, so we can expect a similar dividend payout. I am doubly confident of a similar payout of dividend as the company has a good 22.1 rupees of cash in hand in it's books. So 6.25 rupees should not be dificult.

The company is a safe bet and I cant see too much of a roll down from current levels. I would recommend a small investment in the company and buy further on declines. Donot have too much of exposure in the company . I will have a further update on the company in another 2 quarters.

5 Comments:

Blogger Prasanth said...

Shankar,

The bimetal bearings belongs to the amalgamations group which is a conglomerate - TAFE (Tractor manufacturing), AMCO batteries etc belong to this group. It is a very old "established" (somewhat senile) Chennai based group. Another company in the group is Higginbothams - Heard of them? They have bookshops in most of the railway stations in South India and few book stores in Chennai. I go to Higginbothams when i want to buy out of print or books difficult to find. They stock them - the stores guys are typcial old school - they treat it like a government job.
They do have a website - its www.amalgamationsgroup.com. The website is a mess and no financial info available. In fact search hindu business line to get more info.

9:29 AM  
Blogger Shankar said...

Hi Prasanth,

Would you consider the stock on the basis of the financials enclosed?

Regards, Shankar

11:00 AM  
Blogger Prasanth said...

Hi Shankar,

In response to your question, let me take bimetal bearing through my "check list" for investing in a stock.

Criteria 1:

How good are the financials of the company? What has been the earnings growth in the last 5 years? Does it pass the "value" criteria ? (Low Price to book, below average PE etc).

Based on your info and what i could find on the web, this is a "tick".

Criteria 2:
What does the company do? Is it in an industry that i can understand? What are it's future plans (difficult to gauge this one).

Well, this also is a "tick". Though the automobile sector is known as a cyclical industry, in my opinion, atleast in India, it is still on the growth path. I'm a keen follower of this particular sector as my job is in the automotive vertical and my "domain expertise" if you can call it that is in the automobile industry.

Criteria 3.

Who are the management? Are they honest? Are they capable? How have they acted in the past?

This is also a "subjective tick". As i have pointed out in my earlier comment, the amalgamations group is higly regarded in Chennai. Also, i found out that they are related to the TVS group whom i admire very highly. Another positive is that my wife ( I always ask her ;) ) personaly knows some one very high up in the group and she has high regard for their honesty and integrity.

Criteria 4 :

Now this is the most important and the most subjective criteria and it is "what is the clincher?"

That is, what is the compelling reason for me to buy the stock? Is there a potential of a spin off ( of say a division or a wholly owned subsidiary that will unlock value?) Is the company investing in something that will in future bring in much better cash flow or much better valuation? Or does the company have a very sizable "moat" or competitive advantage?

Here, i drew a blank. So i agree with your conclusion - buy the stock in declines or if you cannot find any thing else attractive enough.

To borrow from a famous Buffett anology, given a choice between a strike and a pass, i will choose "pass" for now.

9:49 PM  
Blogger Shankar said...

Or "its better to be approximately right than being precisely wrong" :-)

Thanks Prasanth.

10:48 PM  
Blogger Prasanth said...

Shankar,

Your comment on 3 types of investors (Growth, Value & day traders) in reply to my post triggered me write about what shaped my investment outlook and here it is: http://indianvalue.blogspot.com/2006/01/why-i-favour-value-investing.html

10:54 AM  

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