Liberty. Realty. Equity.

Moved on .. http://scrip-tures.blogspot.com

2007-03-18T14:33:00.000+05:30

Hi everyone,

I have moved the blog to a new address .. pls access my posts at http://scrip-tures.blogspot.com

Warm Rgds
Shankar
shankar.nath@gmail.com

Re-starting blogging soon ...

2006-10-14T18:43:00.000+05:30

Buying companies - math of a problem

2006-08-15T17:36:00.000+05:30

Three companies are up for grabs but you have money to buy two only. The management has given instructions for you to only consider companies which give a high "Return on Capital Employed" ratio. All three companies are equally priced. Here are the specs -

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.

More .. sasta stocks

2006-05-31T21:55:00.000+05:30

My picks for tomorrow will be :

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

The God of Pennies .... title shattered !!!

2006-05-26T16:25:00.000+05:30

Hindustan Dorr Oliver went down by 78% today !!! Record date for sub-division of the shares (1:5 ratio) is Jun 02, 2006. The share price is down to 155 rupees. Strictly a no-buy. Any reasons ??

Sasta stock !!!

2006-05-24T19:52:00.000+05:30

This is all I've been listening and reading over the last two days. A friend at office tried an experiment on this - he picked ten random stocks given in the tabloids as ridiculously cheap stocks ... surprise !!! ... that herd of "cheap" stocks actually knoocked off 3.4% of an investors wealth in the last two days.

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%

The big bank theory

2006-05-02T19:32:00.000+05:30

Bankex moved up by 4.02% today. That's huge. The major gainers were BoI, BoB, Andhra Bank, Indus Ind Bank, ICICI Bank Limited, Vijaya Bank and UTI Bank (all over 5% gains and all in BSE A segment)

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.

This one's a different Nahar

2006-04-30T16:55:00.000+05:30

Nahar Industrial Enterprises Ltd. The company results have been very impressive over the last 3 quarters -
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

2006-04-30T15:49:00.000+05:30

Its often a good idea to see what mutual funds are buying or selling these days. This helps you predict stocks which have a higher propensity of taking the dive or perhaps, soar the skies. I used MutualFundsIndia to list the top 4 performing funds over the last 3 months .. here's their list -
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%)

Amazingly ...
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 ... ???

Alembic Pharma

2006-04-29T20:44:00.000+05:30

Watch out for this stock. I advice BUY on declines in the price of the stock. Reasons -
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.

Nahar Export revisited - interesting announcement !!!

2006-04-26T23:18:00.000+05:30

Nahar Exports Ltd has informed BSE that ....

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.

Questions -
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

2006-04-26T22:31:00.000+05:30

or NOCIL for short. NOCIL is a turnaround story ... refered to BIFR in Jan-2004, it came out of bankruptcy with a positive net worth on 31st March 2005. The company had a fantastic 3rd quarter with an impressive 23 crs of profits on a capital base of 160.79 crs. Over the last 9 months, the company has notched up 59.50 crs of profits and should close at around 80 crs for the yr. The fwdPE of the stock would be a comfortable 5.63 - an alice in wonderland situation !!!

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.

Behavioural Economics 101

2006-04-23T14:26:00.000+05:30

I've always found the field of Behavioural Economics mighty fascinating. Here's enclosed some very interesting and practical applications of the same.

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.

References:
> 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.

P.a.p.e.r.

2006-04-23T13:16:00.000+05:30

Surprisingly, the paper industry has been an underperformer. It's PE ratio has often been between 5 and 10, which is mighty lower than most other core industries. .. but things are looking better for this industry (story). An 8% growth in GDP means an 8% plausible increase in demand for paper, while the production is expected to grow at only 4%. This would lead to a rise in prices and hence profitability. Also, there will be consolidation in the industry with the smaller players merging with bigger ones (primarily due to the introduction of environmental norms). Players are also getting ready to explore the export market with 10-12% of the produce leaving Indian shores. (This would fuel prices even further)

Lets examine the prospects of a few players -

[1] 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.

[2] 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)

[3] 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)

[4] 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.

Scrips I dont like

2006-04-22T22:52:00.000+05:30

4 codes ... Buy / Wait / Pricey / Penny ... is what I use in my stock tracker.

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.
LML Ltd.
Moschip Semiconductor Technology Ltd.
Andrew Yule & Company Ltd.
IFCI 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.
Nesco Ltd.
Om Metals Ltd.
Z F Steering Gear (India) Ltd.
Texmaco 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.
Megasoft 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.
Deepak Nitrate
Mather and Platt (India)
Excel Industries
Bharat Gears
Triton Valves
Liberty Phosphate
Advanced Micronics

Abhishek Industries

2006-04-22T15:46:00.000+05:30

The Trident Group came as a shocker for the PGPM 2000-2002 batch of MDI, Gurgaon. The year was perhaps the worst, in salaries given to B-school students. Companies, on the other hand, were having a wonderful time picking students at dirt cheap packages. (I started at a take home of 19k p.m. which incidently, was higher than batch median ... whatever the tabloid might have said). Trident entered the campus as a Day 3 company and offered a package of 38,000 rupees p.m. .... a package that even batch toppers were deprived of.

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 ...

2006-04-22T15:13:00.000+05:30

In a recent post, Amit had penned the following comment :

Hello shankar,

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.

Best regards,
Amit.

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.

Torrent Power SEC Ltd.

2006-04-17T18:12:00.000+05:30

After living in Delhi - Ahmedabad and Surat came a great respite .. from power cuts. The AEC (Ahmedabad Electricity Company) and SEC (Surat Electricity Company) are governed by Torrent Power and both stocks have good valuations .... SEC being the better half.
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.

Hexaware Technologies

2006-04-16T12:43:00.000+05:30

Hexaware is a global provider of IT and Process outsourcing services with presence in the Americas, Europe and the Asia Pacific region. The company has an active base of over 100 clients and has companies like Peoplesoft and SAP as partners. It operates in the HR outsourcing space. Net net, Hexaware is a new-age technology company ... and ... the valuation is very interesting. Measure this :
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.

AVP

2006-04-15T21:06:00.000+05:30

Alien v/s Predator is a Hollywood flick where a team of archeologist discover an Aztec temple under the Antarctic circle, housing a host of alien creatures .. none better than the Alien family and that of the Predator lineage. Only one will win.

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 !!!!

Why panic?

2006-04-13T16:43:00.000+05:30

The sensex fell 300 points on 12th April and another 100 points on 13th April ... and people are saying all kinds of things. Some important facts -
> the market has gone down by just 3.44% over the last two days. This is much better than those days when some of our stocks have gone down by 10% or more.
> a 400 pt drop reduces the current sensex P/E by almost hundred bps. So this should be at 19, right?
> corporate profits have improved over time ... nothing drastic has happened in terms of reduced exports, still higher fuel prices (it's remained the same over the last three quarters), global downturn. Infact exports have jumped, global economy is also on a high, real estate, gold prices and commodities are increasing .. things are getting better. Now an improvement in corporate earnings by 10%, would result in a reduction of PE by 180 bps. So your PE will go down to 17.20. If corp earnings is up 15%, then PE is 16.35.

It's my opinion, that the market will be upto 12000 by the end of May. Watch !!!!

Wi-fi'ed Pune

2006-04-11T21:11:00.000+05:30

A jolly good progressive plan in India " ... a 400 sq km area of Wi-Fi connectivity will enveloping Pune ... " surely raises many an eyebrow. But this seems a reality as the Pune Municipal Corporation and Intel have joined hands to do just that. Here's the link to the article in the Economic Times. Surprisingly, this project would cost the Pune Municipal Corporation a sum of only 7 crores, which means ... Wi-Fi is a truly inexpensive and a quicker option to cables connecting homes to broadband or dial-ups.

Which means ... better infrastructure in Pune, attractive IT destination ... higher property prices. Got that?

Bloddy coincidence

2006-04-11T19:58:00.000+05:30

I maintain a fairly extensive stock tracker which gives me a decent idea of NCAV, P/E ratio, fwd PE, debt recap numbers etc. Two stocks - Aarvee Denim and Exports Ltd. and Nahar Exports - are listed sequentially there. Surprisingly ...
1. Both stocks have an m-cap of 290 crs
2. Both stocks give a dividend of 1.50 on a 10 rupee share
3. Both stocks have similar debt recap value of 105 crs and consequently, the same ratio of debtrecap/m-cap
4. Both stocks have the same fwdP/E ratio of 7.90

I had put Nahar Exports on the BUY list a month back when it was at 70.00 rupees (the stock has jumped up to 89.00; I bought this stock yesterday at 82 .. so I made 9% in a day ... ha ). Im putting a buy on Aarvee Denim and Exports Ltd. aswell. The stock is available at 132 rupees (11-Apr), is largely profitable at 37 crs (expected this yr), growing sales and profits and good management.

The God of Pennies

2006-04-09T20:00:00.000+05:30

I first tracked Hindustan Dorr-Oliver Ltd. in the summer of 2004, somewhere in the month of May. The stock was lingering at around 36 rupees per share. A lot has happened to the stock price and the company over the last 24 months. I am kinda shaken over the current price of the stock, especially when I measure it up with the profit numbers (quarterly data) of the stock ...
Mar-04: 8.78 crs; Jun-04: 0.04 crs; Sep-04: -0.38 crs; Dec-04: -0.91 crs
Mar-05: 2.37 crs; Jun-05: 0.37 crs; Sep-05: 0.39 crs; Dec-05: 2.90 crs

As on 7-Apr-2006, the CMP of the company is at 847.00 rupees. So here is a stock which is at a trailing PE of 154.20 and a fwdPE of 97.90; with an EPS (fwd) of around 9 rupees per share .. and yet commands a market value of 489.52 crores.

Take a bow, gentlemen ... you've just met the god of 'pennies' !!!!

Su-Raj Diamonds - a discussion

2006-04-09T16:43:00.000+05:30

Su-raj Diamonds should explode at the bourses. Some reasons -
a) The scrip is at a fwdPE of 7.55
b) The NCAV of the stock is a good 97.60 rupees while the CMP is much lower at 64.15 (Apr 7th) - a true Grahamian stock !!!
c) Cash rich company with 26.50 rupees of cash per share
d) Has a dividend yield of almost 2% (which is a rarity these days)
e) The company also has investments of 43.21 crs on it's books

The growth in sales has been good and consistent ... 495 crs (FY02), 583 crs (FY03), 723 crs (FY04) and 1028 crs (FY05). The company would close at 1150 crs for this financial yr ... another rising sales yr. Likewise, growth in profits is at 10.97 crs, 12.11 crs, 21.89 crs and 30.69 crs over the last 4 yrs. I estimate the profits for FY06 to close at 34 crs.

Note, that the P/E ratio of Su-raj Diamonds is much lower than it's peers - Vaibhav Gems, Goldiam International, Rajesh Exports, Shrenuj & Co. etc.

However, Su-raj Diamonds has never moved much. Movement has largely been between the 50 rupees to 70 rupees range over the last one yr. Surprisingly, a number of analysts have given a thums up to the stock over the short and medium term. Here's one by ICICIDirect.

Is this stock worth investing in?