Lets get rich- prove ourselves

thanks bholu ji for such a short and sweet and informative explanation......It will definitely help me as well as other investor to make their decision...

 

Thank you Sandeep Ji,

I am now reviewing Bajaj Finserv which according to you could be a multi bagger.

One really cannot deny strength of the company. However a background check is helpful in assessing the value of the stock, especially for other retail investors. Bajaj Finserv was created after the demerger of the company (erstwhile Bajaj Auto Finance) from Bajaj Auto. Since then it has gained in value after focusing on emerging financial services like insurance and consumer finance. Bajaj Finserv has five subsidiaries Bajaj Finance, Bajaj Allianz General Insurance, Bajaj Allianz Life Insurance, Bajaj Allianz Financial Distributors, and Bajaj Wealth Management. Bajaj Finserv also operates 138 wind mills in Maharashtra with an installed capacity of more than 65 MW.

The first three subsidiaries of Bajaj Finserv are the ones that drive/will drive Bajaj Finserv revenues and future prospects. Bajaj Finance is currently the most profitable and well placed of its subsidiaries. It is also the only listed subsidiary with Bajaj Finserv holding more than 50% stake in the NBFC. The company is focused on consumer and lifestyle finance, and (obviously) financing of vehicles made by Bajaj Auto. Since it focuses on consumer finance and vehicle finance and almost all its loans are mortgage or security/property based, the risk of defaulting and NPAs is low. Financing of white goods has higher interest margins than other types of consumer finance and this has led to high profitability growth. The market of consumer finance is still under penetrated with a huge potential in a country of 1.2 billion. Financing of Bajaj Auto vehicles provides a steady stream of vehicle finance. Bajaj Finance has also increased its focus on SME finance in the recent years. All these factors have ensured that Bajaj Finance has grown at a stupendous pace with very little asset quality worries. The future also looks promising because of low market penetration of finance companies in consumer durables’ finance, steady access to new consumers in vehicle finance, and increasing focus on SME finance. All these factors have made Bajaj Finance one of the most expensive listed NBFCs. The company is trading at estimated P/BV of 6 times on FY17 earnings with a PE of more than 20. The premium valuation is probably justified because the company is expected to grow its earnings by around 25% annually in the next 3 years and its NPAs are just about 1% of its loan book. The performance and valuations of Bajaj Finance has driven the performance of Bajaj Finservs’ stock value.

The other two main subsidiaries of Bajaj Finserv are insurance companies. Bajaj Finserv owns two insurance companies in partnership with Allianz SE. I will focus on the life insurance business first.

A few years ago Bajaj Allianz was the leading private life insurance company by market share. However with time it has yielded the market share to other strong players like ICICI Prudential, HDFC Standard Life, and SBI Life. Consumer aversion to ULIPs, IRDA norms, termination of agreement with Standard Chartered, and strong push by other private players has affected Bajaj Allianz’s life insurance business. Most of the other life insurers are promoted by financial institutions which have greater financial capital and stronger distribution networks (all the three mentioned here). Though the penetration of private insurers in the life insurance market is still quite low when compared to the market size weaning away market share from LIC has proven to be a very difficult task for private insurers.

The general insurance business of Allianz has proven to be a better performer than its life insurance business. Bajaj Allianz has the second largest market share in the general insurance business behind ICICI Lombard. The profitability of the company has also remained strong as I gather from media reports. The company has been helped by the focus of its subsidiary on consumer and vehicle finance which provides opportunities in the general insurance business (motor insurance, consumer durables insurance) and its early tie-ups with health service providers. The life insurance business lacks this edge.

I am sorry I really cannot provide any detailed insight into the financials of the insurance business as none of them are listed. I can only conclude that the general insurance is doing better than the health insurance but it seems that the businesses have not achieved the stability or profitability to be considered as high value creators.

If we summarize the value in Bajaj Finserv, we find that Bajaj finance is the primary value creator for the company. The stock is not cheap trading at 11 times P/BV on current earnings. The market seems to valuing the stock on its full potential and not expected performance in the near future. The company may divest stake in the insurance businesses from the 75% stake held in both the companies but so far no such announcement has been made. Also insurance has proven to be a very competitive sector for private players and hence a stake sale is unlikely to be very profitable in the current scenario. A public listing remains doubtful in the near future though it cannot be ruled out. In Bajaj Finance the company really does not have much elbow room to divest stake.

Another positive in favour of Bajaj Finserv is the RBI proposal to relax norms for new banking licenses which apparently gives a chance to the company to apply and obtain a license. Bajaj Finance may become a probable candidate for a license though it remains to be seen if the company meets all the criteria and whether the management will be interested in obtaining one. Also the banking license is more of sentiment positive and will not really be value accretive in near future.

My personal opinion is that Bajaj Finance is a better investment alternative to Bajaj Finserv as the earning visibility remains high though valuations are quite steep.

 

waah sirji thank you ..jordaar explain kiya hain...thank you once again....It will definitely help me as well as other investor to make their decision...

 

Explanation is very well written giving all details of stock with pros and cons.

100% Agreed. I have Bajaj Finance in pf it is three bagger

CAPF can also consider as it is a quality stock with good management and prospects of growth.

 

what is CAPF ?

 

The next stock I am reviewing is Heritage Foods. Heritage Foods is owned by Chandrababu Naidu's family. At the onset I would like to inform you that the fortunes of companies owned by politicians are strongly linked to the fortunes of their owners. For e.g. Jindal Steel and Power, Spicejet, and Sun TV. However, currently Chandrababu Naidu is in power and hence there are no worries on the political front but as I write a controversy has emerged regarding the AP govt. decision to give free butter milk sachets to people in 13 districts which are suffering heat wave. Though the move to give free butter milk to poor and suffering residents is laudatory in my opinion news reports suggest the purchases were only to be made from Heritage. After protests the govt. has changed its purchase order. Hence Heritage foods will be exposed to political risks.

I am reviewing the fundamentals of Heritage Foods. Heritage Foods has many verticals. Milk and dairy products, retail, agri products, and renewable energy. Primarily the dairy and retail verticals are the revenue generators for the company.

The dairy vertical sells milk and dairy products and accounts for more than 70% of the company's revenues. This vertical is backed by a good procurement, collection, and processing infrastructure and brand recall in Andhra Pradesh and Telengana. Though the products are marketed in other states as well. However competition is also intense. Following the bifurcation of Andhra Pradesh, Vijaya Diary owned by AP State Milk Cooperative is likely to emerge as strong competitor for Heritage as now it will be under the administration of rival political party. Increasing market share in other states or weaning away customers from competitors will prove to be challenge given the market dynamics. Almost all states have their local dairy cooperatives and Amul has a strong pan India presence with extensive distribution networks. The dairy division really does not have a differentiated or popular brand enable wider penetration and would have to depend on increasing distribution and sales network to increase revenues. This looks very challenging in the current market scenario.

Probably the management realizes the limitations and challenges in growing the diary brand and hence it is focusing on increasing the business of retail operations. The retail vertical owns and operates retail stores for household needs. It contributes almost 25% of the consolidated revenues . As per the claims of the company the business is EBIDTA positive which means the company is making a profit after procurement and operational costs. There are few retailers in India who are managing to do that. The company also has ambitious plans for its retail business. It aims to double its retail space in the next 3 years to 6 million sq feet and hive it off into a separate company or bring in a strategic investor. It also plans to launch e-commerce operations soon.

On a valuations front company trades at around 18 times FY17 earnings which is quite reasonable. Also the debt levels of company are pretty reasonable given the capital intensive nature of its business. Another strength of the company is the strong backward and forward linkage. As much as 50% of its sales comes from its own collection and production. These includes dairy products, farm produce, and bakery. This has helped the company maintain good margins in the dairy business and achieve a better than industry performance in retail. The company has ambitious plans to achieve a revenue target of $ 1 billion by 2020 which implies a three fold increase from FY15 levels.

if we analyze the performance and business model of Heritage we find some great positives. It has presence in two niche sectors, food processing and retailing where there is great scope for expansion. The backward and forward linkages of the company are quite strong and the operational performance of the company has been quite satisfactory. The future plans of the company are quite ambitious and demerger of the business can prove to a good value unlocking option.

However as I have already mentioned, companies owned by political families are always exposed to risks. Heritage also suffers from concentration risk as most of its business(retail and dairy) is concentrated in united Andhra Pradesh which is now bifurcated. At this juncture it is hard to assess the impact of the new political landscape on the company. It would be a greater challenge for the company to expand its business beyond AP and Telangana and to maintain the margins it generates from selling in the state in the business done outside AP.

In my opinion Heritage Foods is a high risk high reward stock. The operational performance of the company has been very good and backward and forward linkages have been instrumental in generating decent profits. However the company suffers from political risks and will face multiple challenges in expanding its business beyond AP and Telengana. The performance of retail business and the execution of the company's plan in that vertical may determine the performance of the stock.

 

thanks Bholu ji, you have elaborated very nicely...i agree that it is having a political risk and i want to own till chandrababu naidu is in power...considering aggressive future plans, retail demerger in future d margin expansion i would like to keep it in my portfolio...
Thanks once again..
i want to know how you do get all this information in such a short span...(Apart from Annual report what are you referring)...

 

I usually base my analysis on the current fundamentals (valuations, balance sheet) and the future growth plans of the company and accordingly collect relevant information.
All the information I use is available publicly. I use company documents (reports, results, investor presentation), news websites, and media reports. I also use my own knowledge and experience of investing in stock markets. I hope Heritage meets your expectations. I do not know your time horizon but I would like to add that Heritage may not be the best pick for the core portfolio or the best long term investment pick.

 

I appreciate your view...i want to keep this stock at least for 3 years..i will keep your concern in my mind and wait for 2-3 more quarter result ...
Can you plz suggest any other stocks which can be be core portfolio stock and growth stock which can be multibagger..

 

bholuji can you please give your insight about Vinati organics...Its stands tall on all financial parameter like high RoE, High RoCE, almost zero debt, margins are increasing.. i eagerly want to add this stock in my portfolio..please share your views..plz plz

 

yes i will review Vinati Organics and TV Today network. Please give me some time.

 

Very valuable service for forum. I am also very interested in Vinati organics. I have TV today in portfolio it is great stock.

 

Vinati Organics is speciality chemical company that manufacturers chemical intermediaries which are used as inputs in various industries. It manufacturing is concentrated on three major chemical compounds Iso Butylbenzene (IBB) and ATBS and Isobutylene. It is said to be the market leader in the first two.


From a fundamental point of view Vinati Organics has shown remarkable growth in last few years. From FY12 to FY15 it had a profit growth of more than 25% compounded annually. Hence it is not surprising that the market cap of the company has grown almost 4 times in the last 3 years. It is reported to have very good return ratios on both equity and capital employed. It is almost a debt free company.


The future also looks promising. Vinati Organics has projected an annual growth of 15% for the next two years. Though this is less than the growth in previous years it is still quite healthy in the overall state of Indian corporate earnings. The market is also positive on the fate of specialty chemicals given their growth trajectory, and the likelihood of the production shifting from US and Europe to Asia. Currently almost 65% of the company's earnings are derived from export orders. As reported the company is also planning to add new products to its portfolio which should help in increasing revenues.


However there are few concerns as well. VO is B2B company which means it will be prone to business decisions of select purchasers. Also is a bulk manufacturer of chemical products. Globally chemical products manufacturers are not given high PE multiples unless they have some distinct technological advantage. Though Vinati Oranics has market leadership in the products it manufactures and it is the few select manufacturers of those products there is nothing to suggest that it has any technological advantage. Hence at 18 times forward earnings the stock seems fully valued without leaving much room for upside.


There also seem to be some concerns over corporate governance. The company had issued FCCBs to IFC which were converted to equity by the lenders. The conversion was done at Rs. 100 whereas the prevalent market price was more than 400. The company issued 22 lakh shares to IFC. That was a significant equity dilution. FCCB are not considered very prudent measures to raise funds. Companies raising money by FCCB are not looked favorably by market. Conversion of bonds into share at 1/4 of market price is negative for minority share holders.


The company has also announced a decision to buyback shares. The rationale behind this was fall in promoter holding to below 75% following the FCCB conversion. The company proposes to buyback 9 lakh shares at sub 500 levels. I am personally surprised by this decision. The company is not very cash rich. The rationale behind raising promoter stake does not make a lot of sense. The promoters can always buy from open market. Their stake is already around 70% which is not far from the maximum permissible 75% stake holding for promoters.


I would conclude that Vinati Organics has very good fundamentals and a great track record. The financials of the company are very good and it is well placed in a promising industry. However the company is a B2B supplier without any technological advantage which exposes it to adverse market conditions and business decisions of its purchasers. And in my opinion there seems to be a serious case of corporate governance.

 

Now finally I am reviewing TV Today network. TV Today is a well known company. It operates 2 major news channels Aaj Tak in Hindi, and India Today in English.

TV today has a fairly robust business model. It is promoted by a media company having a very long and successful record in press and news media. TV Today Network and its channels have shown fine growth in the last 3 years. Nuclearisation of families leading to more TV households, increase in rural consumption, increasing penetration of cable and satellite television, and mandatory digitization of cable television has helped pvt. TV channels rapidly increase viewership and advertisement and subscription revenues. News channels have managed to capture prime time and pan India viewership. Hence TV Today is on a extremely strong footing both at the company level and the industry level.

If we further analyze the performance of TV Today network we find that company had an EPS of more than 13 in the 9 months of FY16 as compared to an EPS of 14 for FY 15. This indicates another strong year of growth. If we look at the performance of its channels we find TV Today Network has maintained its leadership in Hindi News segment. Aaj Tak, the first Hindi TV news channel in the country has managed to withstand the challenge from its competitor and is currently among top 2 news channel in the Hindi news genre. However the performance of its English news channel has been even better. It was a late entrant into market. After languishing at the bottom of viewership table the channel has shown a remarkable turnaround in the last one year. Now it is the number 2 in the English news channel in the country ahead of several older and more resourceful news channels. Probably the entry of Rajdeep Sardesai has impacted the fortunes of the channel. Whatever maybe the reasons, the success of the TV Today in both the Hindi as well as English genre in the face of some very serious competition is quite commendable.

However the competition for the TV Today channels has not ended. As we know both the Hindi and English news channel arena is pretty competitive and is likely to remain so in the future. The company did not find success with its business news channel. The penetration of cable and satellite TV has reached a level of saturation and the mandatory digitization of cable TV has not led to expected increase in subscription revenues due to continued under reporting of subscribers by local cable tv operators. News channels are yet to develop the level of viewership loyalty required to introduce a successful paid model. Advertising revenues will drive profitability growth.

If we summarize the prospects of TV Today we find that there are several positives for the company. Strong and experienced promoters, leadership in both the segments it operates,clean balance sheet and profitability growth combine to make the company a good buy. However competition is also intense and and there is no likelihood of increase in subscription revenues . However the positives overwhelmingly outweigh the negatives. In my opinion TV Today could be a good selection.

 

Warren Buffer buys $ 1 billion stake in Apple.
Usually I am not the one to blindly follow any investor, Warren Buffet investment in Apple shows the Apple is still a strong company worth investing.

https://www.wsj.com/articles/buffetts-berkshire-takes-1-billion-position-in-apple-1463400389

 

Maybe he picked up a part of what Carl dumped. Anyways at a price even junk bonds are an attractive investment option.

Interested in knowing the MtM losses on this US1 bln invested.

Oh yes Apple is a great company, facing rough times which it needs to weather and chart out of. Worth investing in right now - well the jury is clearly out on this one. Carl vs Warren (on apple) : i know whose side i am on.

 

Somebody has to buy and somebody has to sell. And we all know the performance of Apple's stock over the years. It has been a great wealth creator. You are entitled to your opinions. That matters little to me or Buffet. I am sorry but I do not know who is Carl but it is clear neither I or Warren Buffet care two cents about his views.

 

My opinions arent meant for someone who doesnt even know who Carl is. But its good that such ignorance exists and is displayed. Its in the interest of all those retail investors eventually

 

How Billionaire Carl Icahn Became “The Greatest Investor Of All Time” And Amassed A Fortune Of Rs. 136,500 Crore From Stocks Despite Mediocre Stock Picking Ability

https://rakesh-jhunjhunwala.in/how-...tocks-despite-mediocre-stock-picking-ability/

 

This isnt worth two cents for some legendary stock gurus.......