December 31, 2013
Happy New Year Wishes
December 25, 2013
Sell Torrent Pharma
I had earliest posted about torrent pharmaceuticals here and initiated a small position. One of the exist criteria mentioned in that post was the balance sheet getting weaker and exposing the company to leverage risks. Recently the company has acquired the some of the brands from Elder Pharma for domestic and Bangaladesh market. Company is paying around 2000cr towards this transaction. Based on what I read in some of the reports the company is paying around 5X sales and this seems to be an expensive acquisition to me.
Hits and Misses of 2013
This year has been a mix bag of kind. While most of the portfolio stocks performed
well this year, there were some losers which had significant impact on the
portfolio level due to position sizing.
Key to portfolio performance is concentration and position sizing. Going forward, I would be consolidating my
positions and making it a bit more concentrated. Key fact that comes out is , while most of
the well-known and big stocks of the market has not performed with the
exception of TCS, it is those mid caps that have not been discovered by the market
yet are those that outperformed. Going
forward, that is going to be my policy.
Hits and misses are purely derived based on the price
performance from 01 Jan 2013 until the end of Year as of 25-Dec-2013. This
does not include stocks that have been exited during the year. For stocks that were included into the
portfolio during the year, the return is from the date the stock was first
bought. Such stocks are marked with a *
. Stocks that had bonus or splits have
been adjusted for their price.
December 15, 2013
Investment Checklist - Part2
 |
| Courtesy 1shots/freedigitalphotos.net |
In my previous post on Checklists here, I provided an overview on the checklists and the benefits of using them. In this part, I have listed the checklists I follow while analyzing a security for potential investment. As I mentioned, every investor may have a long or small checklist based on their need and its more of an individual preference. Indian companies are notorious for corporate governance and one needs to be very diligent in their evaluation exercise. As I mentioned before, it is the safety of the investment and its downside that is more important than the upside. Our idea is to reduce the errors of commission than committing errors of omission.
Investment Checklist - Part 1
 |
| Picture courtesy 1shots/freedigitalpohotos.net |
Checklists are basically tasks/checks that are jotted down in orderly way to make sure that all the items mentioned have been done or covered. Checklists are used for managing very complex systems or procedures where things are not left to the memory of the person that is executing the task or following the procedure. Checklists are very commonly used by pilots while flying aircraft and now checklists are slowly being used by health care industry as well during surgical procedures as well as in ICUs. Checklists have not only helped in saving many human lives but also has helped in cutting down cost and improving quality.
Open Ended Questions to Management
 |
| Picture Courtesy pakorn / freedigitalphotos.net |
While reading the Investment Checklist written by Michael Shearn, I came across an interesting list of open ended questions that can be asked to the management of a business. He recommends asking open ended questions to the management than asking close ended ones as open ended ones tend to give more insight about how the manager takes decisions. Also he recommends that hypothetical questions should be avoided as they do not guarantee how the manager will actually act when such situation come.
December 8, 2013
Useful Links for Business Analysis
I found this useful link from investopedia to understand some the industries and their metrics.
Key Metrics on 25 Industries by Forbes
This is a very useful slide presentation provided by Forbes on metrics on 25 industries. While this may not list all the metrics, they could be useful to analyze where the company you analyze stands with respect to the industry.
November 21, 2013
Paid For The Wait
 |
| Image Courtesy of Stuart Miles / FreeDigitalPhotos.net |
Today’s life is all about instant gratification. Even though we all have heard about the
saying ‘Patience is a virtue’ the world is moving towards instant
gratification. The product life cycles
are getting shorter and shorter and all corporates wants to get to the D-Day in the shortest time possible to
get the outcome they are waiting for. For
most of the folks in the current generation, it is all about ‘what can I get and enjoy
today’ which is very important. No one
is willing to wait for a long time to enjoy more benefits. That is the reason we have all these FMCG
companies exploiting this bias by introducing all instant XXX in their products
ranging from instant Noodles to Coffee.
Life is moving fast and no one has time to even time to smell the roses,
(forget about growing rose plants).
Does this kind of instant gratification work in
investing? Answer is a clear no. Investing is all about patience and being a
sloth. Investing works best for people
that are lazy and hate action.
 |
| Image Courtesy Anekoho / FreeDigitalPhotos.net |
As Mr.
Pascal said and I quote, “All human evil comes from a single cause, man's
inability to sit still in a room”. We
somehow associate action to being productive.
I do not want to get into the details but I can cite one example that I
like the most. There was a study which was
conducted to analyze the penalty kicks by the shooter. They found that it was equally disbursed by
1/3 towards middle, left and right. So
if you are a Goal Keeper, you have almost the same probability or chance of
saving a goal just by standing in the middle and doing nothing. But, you will be surprised to know that
almost none of the goal keepers would stay in the middle but would either dive
to the left or right despite knowing this probability. Why would they do it? Simple, they are influenced by action
bias. They are okay to have dived left
or right and lose than to stand there and make other feel that they did
nothing. Most of the investment managers
and investors feel the same. They get
fidgety when they are not actively engaged in stock market.
As I see it, the only
profession that really pays you handsomely for doing nothing and being a sloth
is investing. You are almost paid for
being lazy. All you need to do is
overcome the bias of doing something. We
go through lot of desperation in deploying cash or removing it in short
times. We may have a windfall or some
profits we want to immediately invest in or we may want to quickly book profits
on something that went up in a jiffy (even though we may do better holding it
for long run). On the contrary, we want to exit from investments that have
lagged or dragged your returns down in the short run of say past 1 year.
Investment is like
gardening or parenting. You cannot
expect a seed to give you fruits or vegetable right from day one or you cannot
expect your kids to be productive on day one.
They become productive over a period of time. We need to approach investing like that. All we need is to water or nurture them and
understand them better and wait until they bloom. In fact, we are paid to wait and we will be
paid handsomely.
If we find a golden goose and we have bought it, all we need
to do is wait until it lays its next golden egg. We should not try to cut open its belly to
find all the gold (instant gratification) , neither should we try to sell the
goose and try to buy a crow that is painted golden. Be patient and always act only when there is
a need to.
November 17, 2013
Stock Analysis - Torrent Pharmaceuticals
Business Overview:
Torrent Pharmaceuticals is a Pharma
company having presence in Indian and global markets. It manufactures both branded and unbranded
generics and has a small exposure to contract manufacturing. It sells branded generics in India and sells
both branded and unbranded generics in overseas markets. As of 2013, domestic revenues contribute
about 32% of total revenues and international revenue contribution is around
57%. Contract manufacturing and other form the rest of the revenue.
Their product key segments are
Cardio Vascular (36%) followed by , CNS and Gastro Intestinal (18%)
segments. Other major areas include Anti
Infective(9%) and Anti Diabetic (8%)
Torrent is now 17th by
turnover and has around 5 brands of top 300.
5 years back they were 16th by turnover and had around 6 of
top 300 brands. They are present in
Brazil, Germany and US. Entry in US
market was late but this market is growing to be a significant one for them. They have presence in Europe and other
emerging countries as well.
While the domestic operations are
very profitable, the overseas operation performance has been lackluster and the
profit always fluctuates. They seem to
always have good revenue growth overseas but the profitability is always
inconsistent suggesting margin pressures.
They are expanding their footprint into global markets and are investing
aggressively into many countries.
Financials:
Company has employed debt at
reasonable levels and has debt to equity ratio of 0.35 as of Mar 13. On consolidated basis, company employs
around 819 cr on Net Block and around 150 cr of net working capital to generate
a revenue of 3211 cr which is pretty good.
It generates operating profit of 692 Cr from this capital deployed on
core business and this looks impressive.
Company always has been generating good amount of free cash flow on
regular basis except for last year when the free cash flow was negative because
of high inventories and receivables.
Company has been investing aggressively into global businesses but they
are not consistent in terms of profitability.
Consolidated profits has always been lower than stand alone profits
showing that they are making losses in their overseas operations. Despite all these, the return ratios and
metrics are pretty impressive for the company.
It has an average ROE of around 30% and given the capital retention
ratio one can expect a growth of around 16%.
Companies return on reinvested capital has been very impressive with a 5
year average of around 31%.
Investment Rationale:
Company has the potential to grow
for some time at around 15% due to various reasons ranging from
expansion in global markets and domestic markets to the amount of products they
have in pipeline given the numbers of products that are going off patent until
2016. Company has been spending
consistently on R&D to keep its product portfolio growing.
Investment Rationale:
Company has the potential to grow
for some time at around 15% due to various reasons ranging from
expansion in global markets and domestic markets to the amount of products they
have in pipeline given the numbers of products that are going off patent until
2016. Company has been spending
consistently on R&D to keep its product portfolio growing.
Company is available at a
reasonable valuation of around 15 time EV/EBIT(average) basis.
Assuming a growth of 15% for 5 years and terminal growth of 4%
afterwards and a discount of 12%, this stock has a fair value of Rs 562 and at
current price of Rs 459, it provides a margin of safety of around 18%. On PE basis it had valuation range between 7
times and 17 times and currently it is available at the high PE range of around
16.
Any buy at a price with around 25% margin of safety would be great. As of now I will wait for the price to decline to 425 or below for accumulation.
Risks:
Currency risks due to exposure to
global currencies may impact the profitability of the company as global
revenues are almost nearing 60% of the total revenues.
Global operations may make big
losses and may not turn out to be profitable as the company expects due to competition
from other players.
Margins may contract in the global markets due to competition and changes in government policies.
Working capital requirements may increase in some countries due to long time for payment.
Product launches could be delayed due to longer approval cycles.
Drug price control revised by the government
last year may bring in more products of the company under max price ceiling and
that may affect margins in domestic market.
Quality issues could result in product return
which could affect the profitability.
Exit Criteria:
Company does not grow on average at
15% as per assumption and likelihood of future growth in this range is very bleak.
Balance sheet structure gets weaker
with increased debt exposing the company to leverage risks
Prolonged decrease in the free cash
making ability of the business
Company price grows more than the
intrinsic value and priced over value by 25%
Return on reinvested capital falls below the
bond rate.
November 6, 2013
Behavioral Biases - eBook
This is a good reference for all behavioral biases in one place. Balaji Ganesan has done a great job of compiling his learning. This has been posted in Safal Niveshak which is a site that I often visit.
Click here to open the eBook
October 27, 2013
Annual Report Highlights FY 12-13 : Piramal Enterprises
As per Chairman company is now committed to focus in three
sectors: Pharmaceuticals, Financials and Information Management with
substantial investment in each. Company
acquired Decision Resource Group (DRG).
DRG caters to the healthcare industry to provide research, information
and analytics solutions. Company also
acquired Bayer’s imaging business and they have submitted the imaging agent (Florbetaben)
for approval to USFDA and EMA. Company
also grew the NBFC business to invest in real estate and education sector. They also made investments into infra-structure
sector with investments of 925 cr.
October 26, 2013
Annual Report Highlights FY 12-13 : Engineers India Limited
For the financial year the company secured new business of
Rs 1438 Cr which is around 89% higher than last year and most of it (Rs 1296
Cr) has been in consultancy segment.
Company seems to concentrate more on the consultancy segment going
forward. This is high margin segment
unlike the turnkey which is low margin. Company’s mainstay continues to be
Hydro Carbon followed by Chemicals and
Fertilizers. Overseas consultancy
contribution is around 12% of the total consultancy contribution. Company has come out with a new project
execution solution called Open Book Estimate which is beneficial to both
customers and contractors. They have
secured some orders based on this mode.
Only time will tell if this is beneficial as the impact could not be
understood. As per company most of the
competitors are introducing many business models and any core competencies are
imitable and competitive advantage is short lived. There is really no moat in these
businesses. Company was granted one
patent and has applied for another one.
Company currently has 13 live patents and 17 are in pending approval.
October 20, 2013
Annual Report Highlights FY 12-13 : SUN TV
Topline was almost flat and slightly positive while the bottom line
was flat and slight negative. Dividend
was maintained at last year levels of Rs9.50.
Company successfully bid for the IPL franchise and has been awarded the
Hyderabad Franchise. Kal and South Asia FM had revenues of Rs112 cr
and 90cr. After minority interest, the
profit of two subsidiaries was around 10.85 cr and 6.5 cr. Both the subsidiaries have turned profit this
year and are likely to get better in the coming years. As per company, it has managed to have
dominant position in southern states and it is the only player with maximum
reach in the area it operates.
October 17, 2013
Annual Report Highlights FY 12-13 - HDFC
Chairman has been candid in this one as his usual self. He clearly mentions the vested interests that
operate in the real estate segment which delay the crucial land acquisition
bill and approval for real estate regulator to regulate the developers. Also, he has commented that developers have
to reduce the prices and concentrate on affordable housing as there is demand
for that. He does mention the risks that
come in due to teaser rates and also developer financing through the customers.
The subsidiaries now contribute well over 27% of the total profit
compared to 10% in 2010 which is incredible. Deposits of HDFC continue to be
rated AAA. FII holding is at 74%.
October 14, 2013
Annual Report Highlights FY 12-13 - Mayur Uniquoters
Company has successfully launched knitting unit as part of
backward integration plan which should improve margins due to lower
rejected. Company is pursuing Mercedes
and GM accounts to add to the OEM portfolio. Company is working in installing the 5th
coating line and the production of 6 lakh linear meters is likely to commence in
Nov 2013 taking the entire capacity to 2.5M linear meters per month. Company has already bought land for 6th
coating line and the expansion is planned next year to take the capacity to
3.1M lpm. During last year company had
very good volume growth as well as value growth. The 5th coating line would cater
to the export demand.
Mayur is now the largest of the organized players in synthetic
leather industry. The revenue streams
are primarily contributed by footwear (50%) and auto (35%) and auto replacement.
October 5, 2013
Annual Report Highlights FY 12-13 - BHEL
 |
| Image Courtesy: en.m.wikipedia.org |
Company now has a widespread network of 16 manufacturing
units, two repair units, four regional offices, eight service centers,
eight overseas offices, 15 regional centers, seven
joint ventures and infrastructure
to execute more than 150 project sites across India & abroad. It has augmented capacity to deliver up to
20,000 MW pa of power equipment. BHEL is
the largest manufacturer of power equipment in India. Company has indigenously
manufactured first sub critical set of 600MW in North Chennai last year. Apart from power sector they have exposure to
Industry, transportation, oil and gas and renewables (budding sectors).
Company has maintained its inventory better. Other liabilities has increased due to
reduction in advance from customers.
Annual Report Highlights FY 12-13 - HDFC Bank
 |
| Image Courtesy: commons.wikimedia.org |
Bank grew its retail operations this year with addition of 458
branches and 816 ATMs. Over the last
year, PAT was up 30%. Net Interest Income
up 22.7%. Fees and other Income grew by
around 18%. Deposits went up by 20% and
advances by 22.7%. Total numbers of
branches are 3062 and ATMs stand at 10743. Bank had Capital Adequacy Ratio of
around 17% and Tier-1 CAR of 11.1%. . Return on Equity stood at 20.1% and Return on
assets at 1.9%.
CASA Deposits constituted 47.4% of the total deposits. Over the last year CASA deposits grew by more
than 24%. Retail advances grew by 27.3%
whereas non retail grew by meager 16.9%.
Given the business environment, non-retail has been slow. Net Interest Margins were at 4.5%. Gross
NPAs were at 0.97%. Net NPAs were at 0.2%. Restructured assets were at 0.2% of gross
advances . Provision coverage is at 80%. Total
restructured assets stood at 528 Cr.
Other Income forms about 16% of the total
operating revenue of the bank. Loan
portfolio quality wise HDFC has better asset quality than Axis. However, it is available at twice the valuation of Axis.Annual Report Highlights FY12-13 - Axis Bank
 |
| Image Courtesy: commons.wikimedia.org |
Bank grew its retail operations this year with addition of
325 branches and 1321 ATMs. Over the
last 5 years, the Savings deposits grew by healthy 26% and Current accounts by
around 19%. Retail advances grew by 31%
against total advances growth of 26%.
Bank is concentrating now on retail which is good. Return on Equity stood at 20.5% and Return on
assets at 1.7%. Over the last year, PAT
was up 22%. Net Interest Income up
20.5%. Fees and other Income grew by
around 14%. Deposits went up by 22% and
advances by 16%. Total numbers of
branches are 1947 and ATMs stand at 11245. Bank had Capital Adequacy Ratio
of 17% and Tier-1 CAR of 12.23%.
Annual Report Highlights FY12-13 - Atul Auto
 |
| Image courtesy of Nutdanai / FreeDigitalPhotos.net |
Company had a volume growth of 19% and value growth of
22%. Net profit growth was at
impressive 66% due to economies of scale.
Company has introduced another new product called Atul Gemini DZ which
is a diesel variant. Company now has
Atul Shakti, GEM, Smart and Gemini. Company
caters to both cargo segment and passenger segment. Company has installed capacity of 48000
vehicles as off date. Company is improving its dealers and distribution
network. It has 150 exclusive dealers,
more than 100 sub dealers, 14 regional offices and 3 trg centers in 16
states. Margins have improved and
company is now debt free. Capital
expenditure has been normal. Company
sells around 32000 autos in a year currently.
So, there will not be any immediate capex for next 2 to 3 years atleast
in my opinion. Sales and general admin expenses have come down this year
compared to last year which increased the margins. Company now supplies Petrol, Diesel, CNG and
LPG variants.
Overall 3 wheeler segment is
grew at only 4.87% domestically and there was a sharp de-growth of -16% in
exports. Atul was able to grow only
because of entry into new geographies in domestic market and increasing
dealership network.
Annual Report Highlights FY12-13- Ajanta Pharma
 |
| Image Courtesy: commons.wikimedia.org |
Ajanta now ranks 45TH in India Pharmaceutical
market. They specialize in Specialty
segments like Ophthalmology, Dermatology and Cardiology. They launched 19 new products in the Indian
market out of which 4 were first to market.
Ajanta is now present in 25+ countries via branded generics. They have a healthy pipeline of products
(1592 approved product registrations and 1218 awaiting approval). Company launched their first product in
USA. Currently 12 ANDA are under
approval and 2 are already approved.
They have also filed in Europe and currently have one approval in hand. Company grew its top line by 37% and bottom
line by 45%. Emerging markets account
for 65% of the business currently.
Company is present in Africa, CIS, West Asia South-East Asia and Latin
America. Company currently has 380+
professionals selling their products on ground. Both Mauritius and Philippines
subsidiaries have started turning in profit and they are used to penetrate into
Asian markets. The additional capacity
being set up in Gujarat is expected to be operation during FY14-15. Company plans to file about 6 to 8 ANDA every
year. Exports contribute about 65% of
the total sales.
September 14, 2013
Portfolio Quarterly Results Updates - Jun13
Review
and Outlook:
This
was an event filled quarter with Indian currency hitting its all-time lows and
the current account deficit going above $90 Billion. FIIs started pulling out their investments
after the QE tapering announced by FED in May 2013 which led to emerging
markets collapse. RBI had tried to
control the situation but with limited success so far. Surely, the tide seems to have run out and
our it has come to light that our Congress government has been swimming naked
all along. Government did what it could
do best and that is to declare war on gold.
They have increased duties and banned gold coin sales by banks. At the same time they were reluctant to
increase the prices of petrol and diesel inspite of that being the major import
contributor, as their vote bank will shrink.
GDP growth and consumption are lagging as the consumers are struggling
with inflation and no real income from investments. Overall it looks gloomy and the market
reflects the mood.
Some
of the stocks in our portfolio bore the brunt of the market. Axis bank corrected a lot as RBI did not allow any more FII
investment above 49% and it was also removed from MCSI Emerging market Index
which triggered selling by multiple portfolios.
All the banks stocks in the portfolio corrected due to rupee correction
and interest rate hardening. This being the most outperforming sector in the
overall market was ripe for correction.
In
summary, market mood is fearful and that is where we need to be greedy. With the current government and its stupid
policies, we need to be cautious though.
When things get tough, even politicians have to swallow the hard pill.
There are some positives that are emerging like the FSA signing by Coal India
with power companies or increase in gas prices, but at a slower pace than
required.
Market
has corrected but not to mouthwatering levels.
We continue to invest in investments that has long term potential.
Quarterly
and yearly results of our holdings
Quarterly results of our holdings
has been a mixed bag with some companies reporting decent profits while others
reported lower profits. We do not have
any company that had reported any losses.
Performance
of our significant holdings are given below
Axis Bank: Operating Profit increased by 44% and the net profit grew by
22% . While the net profit growth was
decent, its growth was lower than operating profit growth due to higher
provisions. The provision increased by
275% compared to last quarter Gross NPAs
grew by 19% whereas the net NPA
increased by 30% even after this increase of provision. The % of Gross NPA has increased from 1.06 to
1.1 and the % of Net NPAs has increased from 0.31 to 0.35 which suggests that
he NPAs have increased due to tough economy and hence higher provisions. Given the economic conditions and the quality
of loan books of many PSUs, this is a decent performance from Axis. We will continue to hold this stock
Mayur Uniquoters: Mayur continued with its impressive performance this
quarter. Operating Profit increased by
46% and the net profit increased by 31% due to high finance cost. They have taken some loans for the capacity
expansion that has been planned which led to the increase in interest cost
compared to last quarter. So far the
slowdown has not had its effect on this business and I am glad about that. We will continue to hold this stock
Sun TV: Decline in earnings
seems to have finally stopped for Sun TV.
Ad spends and subscription revenues have increased decently. The operating profit increased by around
2.85% and the net profit almost remained flat compared to last year. Sun Risers
venture is making losses as expected. Hopefully things get better in the coming
days. We will continue to hold this stock
HDFC: Operating Profit
increased by around 36% and the net profit increased by 33%. Consolidated performance has been impressive.
NPA information is not available for the lending business. Overall it continues with its great
performance yet again this quarter. This
has been the longest held stock ( > 5 years) in portfolio as of date. We will continue to hold this stock.
BHEL: BHEL reported a bad quarter as it has been expected for
long by the market. Operating earnings
fell by around 52% and the net earnings fell by around 50%. I have called a buy too early for the stock
in hindsight. Given the economic
situation and the political situation, the drag on this one could be longer. It has the balance sheet strength to go
through this grind. Long term return
prospects remain very intact for this business.
We have bought more at lower levels to average the cost at lower
price. Patience will pay handsomely in
this stock. We will continue to hold this stock for long term returns.
VST Tillers: VST Tillers had finally stopped disappointing this quarter.
Operating Profit grew by around 26% and the net profit by 31%. Hope the good form continues for few more
quarters. We will look to exit our position
on this in the coming days and move the capital to other stronger players like
Swaraj Engines.
Piramal Enterprises: While the operating profit shows healthy growth, the net
profit had negative growth in a big way
due to interest cost. It has become difficult to value this company
on consolidated basis as they have financial related businesses now where the
interest cost will be high and it has to be evaluated differently. This was bought as a Graham net asset value play and looking to
exit this stock with decent profit. Will be trimming down position on this one.
Engineering India : Operating Profit went down by 33% and the net profit by
17%. The consultation projects have
increased and the turnkey projects have come down increasing the operating
margins. This is again in line with
BHEL. It will provide handsome returns
only on long run. On short to medium
term I do not expect any fireworks in this one
Atul Auto: Operating Profits
increased by around 7% and net profits by 11%. Things are tough for auto sector and Atul
managed to do increase modestly their profits.
The volume growth has been good and the margin seems to have come under
pressure. I will continue to hold this
one as long as the volume growth is maintained.
Will continue to watch and quit anytime the volume drops.
Vinati Organics: Operating Profit increased by 17% but the net profit almost
remained flattish due to higher interest outgo (currency depreciation). ATBT margins also seems to have come under
some pressure. Currently the stock has got undervalued again and I have bought
some more. Looking to exit slowly out of
this stock in the near future.
NMDC: Operating profit
went down by 18% and the net profit by 18% as well. Margins have taken a hit for NMDC. This was an undervaluation play which
continues to be undervalued. I bought
more when the stock corrected to lower levels.
I will be exiting this stock when decent the valuation gets close to
fair value.
Bliss GVS: Operating Profit decreased by around 40% due to lower
operating margins. Operating margins
were impacted due to phenomenal increase in other Expenses. No more information
on what this other expense was. Hopefully it is a one time issue but will keep
a close watch on this trend. Net profit increased by 8% due to other income.
Other income also went substantially. It
looks like both other income and other expenditure has gone up way too much
(Other income > Other Expense) and not sure about the reason.
MCX: While the turnover
remained flattish, the operating margins have eroded which has led to reduction
in operating profit by 32%. Net profit
reduced by around 7% only due to other income.
Due to the NSEL fiasco, this stock had corrected big way. We bought this
for some short term appreciation. We may
exit after a year from now.
Supreme Industries: Operating Profit
increased by 12.5% and net profit by 13%.
The growth seems to have slowed down a bit for supreme suggesting that
it is prone to slowdown. I feel it is
only temporary slowdown and this is a quality stock. I would add more if the price corrects a bit.
Suprajit Engineering: Sales remained flat
and the operating profit reduced by around 12%.
Net profit fell by 35% as last year had exceptional item of 5
crores. They have commenced production
from the new capacity to supply to international OEMs which should improve its
sales and margins. Because of domestic
auto slow down it may be growing spectacular but the quality of the business
remains intact. I will continue to hold
and probably add more if it corrects a bit.
Swaraj Engine: Due to good monsoons
and tractor demand, this business had great growth. Operating profit and net profit both grew by
around 22%. This seems to be a good
quality stock with backing from Mahindra
to back good growth. Looking to sell VST
tillers and investing the proceeds to Swaraj.
RS Software: Operating Profit
increased by 32% and net profit grew by 13% due to higher tax outgo. This is a small cap and I am not sure about
the corporate governance aspects. This
is a minimal position with a 1 year outlook. I will exit this holding in a
year.
VST Industries: While the topline
grew the operating profit and net profit dropped by around 9% . Tax increases by various state governments
has impacted the profit margins of the entire sector and VST has not been
spared. They are now getting into
different category of cigarattes with different length to attract lesser
tax. This stock is a hold. May reduce the position in long term when
prices go up.
Wim Plast: Wimp last continued
to grow with operating profit and net profit growing by around 17% . With the current slowdown in economy, there
could be slow down in constructed and the bubble guard sales could be impacted.
As of now the impact is not seen. I will
continue to watch this closely to see if we can add more.
Indag Rubber: Being a small cap, I
have been reluctant to add big position on this one. The valuation remains attractive. Sales remained flat. Operating profit
increased marginally by around 4%. Net
profit increased by 9% due to higher other income and lower interest
payment. The business seems to be good
and the valuations are attractive. I may
add more depending on business performance or valuation.
HDFC Bank: HDFC Bank continued to grow handsomely with
28% increase in operating profit and net profit increase by 30%. There was some minor correction when I added
some more to the position. Valuations
are still high in my opinion and I hope it corrects by a big margin so we can
take some big position in this one.
Lumax Auto Tech: Auto sector slowdown has impacted this business as
it is part of the sector. The operating
profit corrected by around 33% and net profit reduced by 54%. As mentioned before, management has shown
governance issues when they tried to pay their MD for the medical treatment she
had overseas. I am looking to exit this
stock if the valuation improves a bit.
July 26, 2013
Investing is not for the weak hearted
 |
| Image courtesy of Nutdanai / FreeDigitalPhotos.net |
This year has been an absolute nightmare for investors in
general. While the Sensex stocks which
is just 30 stocks index has held its ground better, overall stock market has
lost anywhere around 15% to 25% depending on the market cap. For example, if you look at CNX Midcap index, it has lost about 18% as of
date since the beginning of the year.
Bond investors were not safe either. Due to rupees free fall, RBI has
taken some drastic measure on liquidity which made most the yields shoot up
driving the bond prices down. Even money
market liquid funds reported negative returns in the last week. Anyway, who said investing is easy?
While the stock index has been down 18% to 25%, some
individual stocks have been down 50% or more in some cases. A correction of this kind would make may investors lose sleep and that is the reason there is very minimal retain participation recently. Why do majority of us cannot handle this while some of the investors like Warren Buffet or Mohnish Pabrai can handle even 50% contraction with ease? To understand this we need to get into biology a bit.
June 22, 2013
Portfolio Qtrly and Yearly Update - Mar 2013
Review
and Outlook:
It has
been a mixed quarter of sort for the Indian market. Most of the consumer driven business
disappointed right from automobiles to FMCG.
Prolonged inflation combined with bad policy making by the Indian
government seemed to have taken its toll now on the Indian consumer. India continues to grapple with high Current
Account Deficit and a falling rupee. Government has done what it does best that
is to increase the import duty on Gold.
Instead of ensuring that it improves its export where rupee has depreciated,
government of the day is concentration on cutting down on imports and therefore
the increase in gold import duty. Time
will tell if that works. I recently saw
the Finance Minister of India saying gold is another commodity that
glitters. I do not understand why then
the central banks including the RBI buy gold from time to time. If gold is just another shining commodity why
would the US hold so much gold (8500 tons plus) in Fort Knox and then guard
it. Why that any other commodity is is not
guarded and cherished so much by any central banks. Hope our Finance Minister gives some
explanation. I would be interested to
know how much gold his family possess J being a South Indian myself.
June 18, 2013
Wisdom from Charles Munger
I came across this wonderful pearls of wisdom from Charlie Munger which he delivered in USC Business School in 1994.
Worldly Wisdom As It Relates to Investing
Worldly Wisdom As It Relates to Investing
May 30, 2013
Bill Gates on 60 Minutes
I am always a fan of Bill Gates because of his contribution to technology as well as to the social cause. Recently 60 minutes had a program on Bill Gates. Watch and enjoy. For those of you that wonder why only 13+ minutes of video, well...rest is for commercials my friend. Even I was zapped and thought it could be some mistake from my part.
Bill Gates in 60 minutes
Bill Gates in 60 minutes
30 Big Ideas from Seth Klarman's Margin of Safety
Recently read this very good article from safalniveshak.com which is a site I visit very often. One needs to read and re-read these to get these ideas into our system for this thinking to come intuitively
Seth Klarman's 30 big ideas from Margin of Safety
Seth Klarman's 30 big ideas from Margin of Safety
May 14, 2013
Bonus and Splits – Slices of the Same Pizza
 |
| Picture Courtesy: Wikimedia Commons |
I received a postal ballot to approve bonus shares for a
company I hold. Generally March quarter
is the quarter when bonuses and splits are announced by companies to improve
investor sentiment. It is believed by
most of the investing public that Bonus and Splits are like free checks that
have been given to them by companies which enhance shareholder value. In fact most of the companies report this (in
their annual report) as if these are shareholder value enhancing. Is this just a myth or is the value creation
real? To answer this, let us go through
some basics.
Fantasy Business Team (Portfolio)
 |
| Picture Courtesy : Puriwaves |
These are companies that operate in various industries and operate with considerable moat. When I have this fantasy team, I can just stop looking at the market and go on a cruise without worrying what would happen to them. I will know for sure that in 10 years or 20 years, they would have added significant value than most of the investments.
May 3, 2013
Stock Does Not Know That You Own It
 |
| By Amcilrick (Own work) via Wikimedia Commons |
When we buy a stock based on our own calculations, we know how much effort we put to discover this particular stock and also to analyze it after we discovered it before we decided to buy. We know the pain that we took and whenever we take this pain, we feel that we should be rewarded.
The Sellers Dilemma
 |
| By Marcimarc at de.wikipedia from Wikimedia Commons |
May 2, 2013
Thoughts on Engineers India and BHEL
I frequently visit Vishal's blog named safalniveshak.com which is a very good site with lot of great information. Recently Vishal had posted about 6 questions for investors about BHEL, Engineers India and SAIL and I replied to those questions in his site. I do not hold SAIL, so my reply was only for BHEL and EIL. I am posting my reply below as well. This will service as a good reference for me few years from now to see if things pan out the way, I have replied. Please feel to post your comments.
1.Are these companies (BHEL, Engineers India) really going to die?
I do not think so because of the three reasons
1.Are these companies (BHEL, Engineers India) really going to die?
I do not think so because of the three reasons
- They both have very long operating history and they have survived all kinds of business and macro cycles that happened in the past
- Both are considered as the best in trade as far as the business they operate in goes. There are very few companies that match their ability and scale. Most of them are price takers.
- Strong Balance sheet with insignificant or zero debt
Portfolio Update - April 2013
Outlook:
Economy continues to be in sticky mode with most of the industries
going slow in the last month. Commodity
price crash led by gold and crude has been helpful for India to bring down the
current account deficit to some extent.
However, in the long term, whether this and the trade deficit can be
shrunk is to be seen. Most of the
industry leaders want RBI to cut rates but I am not sure RBI will oblige unless
it expects the inflation to come down which remains stuck at high level. While the WPI inflation had moderated, the
CPI inflation continues to be high.
Most of the companies have come up with good results for the
quarter and year ending March 2013.
Infosys was the only company that disappointed the market in a big
way. Towards the end of April, market
started rallying a bit but not sure if this is a sustainable one.
Given the current situation, one needs to be very cautious in
making fresh investments and make investments only in companies that have very
good cash flow and are available at valuation with good margin of safety. If such opportunities are not available, best
option would be to sit on cash and wait for right opportunity
Thought on my holdings
Number of stocks in the current portfolio is 28. Patels
Airtemp has gone on auction mode from Apr and I have a residual position which
is required to be exited. Over the next
few months, I will be exiting the stocks that will find it tough to survive
this kind of economy and consolidate my portfolio to less than 25 stocks.
Some of the companies have declared their results. While most of them were okay, Ador Fontech disappointed
again with its results. There has been
margin erosion in the product segment. I
have reduced my exposure in this stock.
I have added a few new names to the portfolio like MCX, RS
Software and Indag Rubber. These are
very minor positions. My disappointment
for the quarter has been Axis bank. As
mentioned in my last month update, I wanted to accumulate a big position in
Axis bank and it kept going down from 1400+ to 1200 when I was buying and had a
good time accumulating the stock at lower levels. However, before I could accumulate a large
position, the stock started going up so fast that it now above my comfort
buying range. As mentioned in my
previous post here, I like to buy stocks like groceries when they are on
sale. Right now all stocks are not on
sale.
Balmer Lawrie announced bonus and as far as I am concerned, it is
more of a pain than happiness. My
problem of bonus is that I cannot sell the bonus shares for one more year if
want to avoid paying capital gains. If
there is not bonus, I can sell anytime now as I have been holding it for more
than a year already. Bonus does not any
value to the shareholders. All it does
is move the capital from Reserve part of the book to Equity capital part of the
book. Bonus shares are like cutting the
same pizza in more pieces. No matter how
many pieces you make, it is the same pizza.
I wish the price shoots up now so I can exit this stock.
Lumax Auto sent Postal Ballot to approve the additional expense of
around 2.5Cr for the medical bills of Managing Director for treatment of
ovarian cancer. They also sought shareholders’
approval for increasing the remuneration by 2cr for this financial year. All shareholders should refuse the proposal
as this is bad corporate governance. How
can they ask for shareholders money to fund a personal expense of Managing
Director? I wonder if they would send a
similar thing if one of the minority shareholders had similar problem. India and specially mid and small caps are
not well known for their corporate governance and I am at least happy that they
are seeking approval. There are a lot of
promoters that just first steal the money and do not even show it on books. I stopped adding more to this counter after
this postal ballot.
April 17, 2013
Is Gold an Investment or Insurance ?
 |
| Picture Courtesy: digitalmoneyworld at flickr.com |
April 13, 2013
Basics of Money Creation And How Bankers Control The World
Eye opening videos about how money is created and the way bankers rule the masses by controlling money creation. Watch this to understand how the game is played so you can be in the winning side in your life
Part1
Part 2
Part3
Subscribe to:
Posts (Atom)