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.
