Posts tagged Value Pickr
Embassy REIT: Is this “Blackstone” promoted REIT is real diamond? (21-06-2024)
To my knowledge now the debt portion is always taxed, either the same year or while you sell it. The impact depends on your sale date and tax slab as well.
- When you sell the share, the profit will be sell price - buy price + debt component
- Once the total debt repayment crosses the IPO price, the debt component will be taxed at slab rate.
Hope this image gives more clarity:
Embassy REIT: Is this “Blackstone” promoted REIT is real diamond? (21-06-2024)
To my knowledge now the debt portion is always taxed, either the same year or while you sell it. The impact depends on your sale date and tax slab as well.
- When you sell the share, the profit will be sell price - buy price + debt component
- Once the total debt repayment crosses the IPO price, the debt component will be taxed at slab rate.
Hope this image gives more clarity:
Smallcap momentum portfolio (21-06-2024)
Sir, i am new here i have gone through every comment and spend hours on google sheet to match the stocks of mine with yours but unfortunately only 70%-80% matching as well i am thinking to start this portfolio from monday onwards… Sir i am requesting you to please upload new google spreadsheet here if possible.
Smallcap momentum portfolio (21-06-2024)
Sir, i am new here i have gone through every comment and spend hours on google sheet to match the stocks of mine with yours but unfortunately only 70%-80% matching as well i am thinking to start this portfolio from monday onwards… Sir i am requesting you to please upload new google spreadsheet here if possible.
DIY Momentum QnA and Discussion (21-06-2024)
Could you please explain with an example
DIY Momentum QnA and Discussion (21-06-2024)
Could you please explain with an example
Azad Engineering – A stock picker’s dream! (21-06-2024)
I recently wrote a blog about spotting BS that included a critical analysis of Azad Engineering’s valuation + red flags. This piece takes a contrarian stance and could read like a splash of cold water.
Pasting a part of the same here without link to the original source (complying with the forum’s guideline). Last time my post was deleted possibly because it contained link to my blog.
I’ll be glad to be challenged (and proven wrong) on my (overly critical) analysis
Disclaimer: My goal is to help fellow retail investors to not get carried away by companies riding the wave in a hot sector. I believe sensible investors must ask tough questions and reject grandiose claims that lack evidence.
Detecting BS in a hot sector
I’ve been studying some companies/ancillaries in Aerospace and Defense (A&D) manufacturing space (listed cos, of course) with the intention of building a shortlist of investment opportunities.
A&D stands out as a lucrative sector for investors, fueled by substantial government spending amid growing geopolitical tensions.
A few domestic engineering firms have proved that they can develop world class precision components/products that find applications in the sector.
Many smaller players of the ecosystem have followed suit, demonstrating their engineering and manufacturing mettle. This has strengthened the vision of Atmanirbhar Bharat (and rightly so) in the context of A&D.
On the downside, valuations look overstretched.
Many retail investors are flocking into some of these hot, overpriced stocks.
A cautionary advice that serves most investor well:
Buying at any price (BAAP), no matter how great the prospects of the company may be, is dangerously nonsensical.
In sectors experiencing significant tailwind, BS is often taken at face value without skepticism . Optimism abounds, with talking heads (and sh**fluencers) serving as cheerleaders on TV/YT/X/Instagram.
IPO discussions mainly focus on big names like Brahmos, Boeing, Rolls Royce, and Airbus, alongside overly optimistic future projections and the appeal of cutting-edge facilities, including robotics.
Unfortunately, comprehensive analyses of boring factors such as competitive advantages, business model resilience, and valuations are relegated to the sidelines.
A quick look at some companies in the sector highlights the euphoria. (It doesn’t imply that they can’t get more expensive).
While researching, I stumbled upon a recently listed company called Azad Engineering . At first glance, it looked like a decent company with a lot of promise. So, I decided to investigate further.
While studying the company’s filings, the BS detector began to signal alarmingly .
In 2015-16, while working on a consulting project for a Fortune 500 parts manufacturer, I acquired limited knowledge of the A&D industry, procurement processes, and supply chain strategies.
However, I remain cautious due to the lack of evidence supporting Azad Engg.’s valuation comparable to that of a Tier-1 A&D comps.
For a company to warrant such premium in valuation, it must possess a robust competitive advantage, advanced technology, and foreseeable high growth in the near term, among other factors.
After reading the IPO Prospectus and recent quarterly earnings transcript, I was reminded of this hilarious scene from “Andaz Apna Apna”.
Throughout the content, I sensed inconsistencies and potential red flags.
- Excessive repetition of “mission-critical” and “life-critical” product applications without specific details.
- The CFO was asked about Gross Margin, but he repeatedly discussed EBITDA margin. Even the comments on EBITDA lacked substance.
- An analyst/investor act like an appointed cheerleader.
- A manufacturing firm that doesn’t track realization (gross profit per kg).
- Provide vague responses to sensible questions from competent analysts.
I’ll take a stab at and challenge the following criteria for a company to command a premium valuation.
- Does the company justify its valuation as an A&D supplier when it currently derives only a fraction of its revenues from A&D?
- Does this company possess the characteristics of T-1 suppliers, such as patents, strong technology, experienced engineers, and technocrat promoters (recommended, but not mandatory)?
- How is it that a Tier-1 supplier makes no mention of patents and technology in the prospectus?
- How qualified is the tech leadership team?
- How many M.Techs and engineers do they employ?
- What is the average experience level of senior personnel there?
- How many patents has the company filed to protect its IP (if it has any!)?
- Why does the company not track its realization per kg? How else should they be assessed for efficiency and scale?
- Company claims that it would take 15-20 years for a new competitor to catch up. So my follow up question is what takes years to replicate?
- Distribution - Yes
- Patents - Yes
- Brand - Yes
- B2b relationships - Possibly yes
- Unique business process - Possibly yes
- Which of the above does the company have? I couldn’t find any. If you do, please let me know.
Is there any fundamental value to this company beyond simply riding the wave of overvaluation in A&D+small/mid cap space?
I don’t have a clear answer yet, but I suspect the following heuristics/biases might be playing a role:
- Illusory truth
“Repeat a lie often enough and it becomes the truth.”- Nazi Joseph Goebbels
Excessive repetition of “mission-critical” and “life-critical” product applications without specific details to make investors believe so without questioning any further.
- Halo effect
The promoter’s dropout status attracts attention, but can it ensure efficient management of a complex manufacturing business?
- Confirmation bias
I have the utmost respect for all the sports personalities mentioned below, and I have no doubt about their skills and temperament in their respective sports.
My BS detector advises me to ignore the noise generated by celebrity investors. While celebrities may not intend harm, the media’s hunger for news often magnifies get-rich-quick schemes.
Another cheap signal fueling the confirmation bias: Marquee names in the anchor book
Second-level thinking, as advocated by Howard Marks, is key to dealing with noise (and BS)
First-level thinking : Many prominent names have invested, so they must have done their due diligence.
Second-level thinking: Institutions are also susceptible to biases. Rs. 220 crore is small change given the size of these funds. Hence, I must ignore this noise and think independently.
I’m sure this isn’t the first occurrence, and me-too companies often capitalize on hype during bull markets.
Second-level thinking is crucial – prioritize fundamentals over hype and independent analysis over celebrity endorsements.
Highlights and notes from the conference call that raised concerns.
Opening remarks
The CEO repeatedly emphasizes that they manufacture a “mission-critical,” “life-critical” product for turbines operating at 30,000 feet, making India proud or proudly manufactured in India. He concludes by suggesting that the current financials/profitability might appear deceptively inexpensive and shouldn’t be over-interpreted.
Remember the movie Drishyam?
Illusion of truth?
Analyst Q&A:This is where things start to get interesting
The CFO was asked about Gross Margin, but he repeatedly discussed EBITDA margin. Even the comments on EBITDA lacked substance.
This is really odd: Why would an analyst/investor act like an appointed cheerleader? And yet again, the promoter seizes the opportunity to reinforce the Halo effect.
Cheerleading continues: Creating an illusion/hope by drawing parallels with the best in business. Moreover, promoter continues bragging (and needless mentions of its relation to India) to fuel the availability heuristic and establish correlation where none exists.
Oddness continues: Vague response to a sensible question from Ashish Kacholia’s team
Tall claim, isn’t it?
I hope reading this was worth your time.
Azad Engineering – A stock picker’s dream! (21-06-2024)
I recently wrote a blog about spotting BS that included a critical analysis of Azad Engineering’s valuation + red flags. This piece takes a contrarian stance and could read like a splash of cold water.
Pasting a part of the same here without link to the original source (complying with the forum’s guideline). Last time my post was deleted possibly because it contained link to my blog.
I’ll be glad to be challenged (and proven wrong) on my (overly critical) analysis
Disclaimer: My goal is to help fellow retail investors to not get carried away by companies riding the wave in a hot sector. I believe sensible investors must ask tough questions and reject grandiose claims that lack evidence.
Detecting BS in a hot sector
I’ve been studying some companies/ancillaries in Aerospace and Defense (A&D) manufacturing space (listed cos, of course) with the intention of building a shortlist of investment opportunities.
A&D stands out as a lucrative sector for investors, fueled by substantial government spending amid growing geopolitical tensions.
A few domestic engineering firms have proved that they can develop world class precision components/products that find applications in the sector.
Many smaller players of the ecosystem have followed suit, demonstrating their engineering and manufacturing mettle. This has strengthened the vision of Atmanirbhar Bharat (and rightly so) in the context of A&D.
On the downside, valuations look overstretched.
Many retail investors are flocking into some of these hot, overpriced stocks.
A cautionary advice that serves most investor well:
Buying at any price (BAAP), no matter how great the prospects of the company may be, is dangerously nonsensical.
In sectors experiencing significant tailwind, BS is often taken at face value without skepticism . Optimism abounds, with talking heads (and sh**fluencers) serving as cheerleaders on TV/YT/X/Instagram.
IPO discussions mainly focus on big names like Brahmos, Boeing, Rolls Royce, and Airbus, alongside overly optimistic future projections and the appeal of cutting-edge facilities, including robotics.
Unfortunately, comprehensive analyses of boring factors such as competitive advantages, business model resilience, and valuations are relegated to the sidelines.
A quick look at some companies in the sector highlights the euphoria. (It doesn’t imply that they can’t get more expensive).
While researching, I stumbled upon a recently listed company called Azad Engineering . At first glance, it looked like a decent company with a lot of promise. So, I decided to investigate further.
While studying the company’s filings, the BS detector began to signal alarmingly .
In 2015-16, while working on a consulting project for a Fortune 500 parts manufacturer, I acquired limited knowledge of the A&D industry, procurement processes, and supply chain strategies.
However, I remain cautious due to the lack of evidence supporting Azad Engg.’s valuation comparable to that of a Tier-1 A&D comps.
For a company to warrant such premium in valuation, it must possess a robust competitive advantage, advanced technology, and foreseeable high growth in the near term, among other factors.
After reading the IPO Prospectus and recent quarterly earnings transcript, I was reminded of this hilarious scene from “Andaz Apna Apna”.
Throughout the content, I sensed inconsistencies and potential red flags.
- Excessive repetition of “mission-critical” and “life-critical” product applications without specific details.
- The CFO was asked about Gross Margin, but he repeatedly discussed EBITDA margin. Even the comments on EBITDA lacked substance.
- An analyst/investor act like an appointed cheerleader.
- A manufacturing firm that doesn’t track realization (gross profit per kg).
- Provide vague responses to sensible questions from competent analysts.
I’ll take a stab at and challenge the following criteria for a company to command a premium valuation.
- Does the company justify its valuation as an A&D supplier when it currently derives only a fraction of its revenues from A&D?
- Does this company possess the characteristics of T-1 suppliers, such as patents, strong technology, experienced engineers, and technocrat promoters (recommended, but not mandatory)?
- How is it that a Tier-1 supplier makes no mention of patents and technology in the prospectus?
- How qualified is the tech leadership team?
- How many M.Techs and engineers do they employ?
- What is the average experience level of senior personnel there?
- How many patents has the company filed to protect its IP (if it has any!)?
- Why does the company not track its realization per kg? How else should they be assessed for efficiency and scale?
- Company claims that it would take 15-20 years for a new competitor to catch up. So my follow up question is what takes years to replicate?
- Distribution - Yes
- Patents - Yes
- Brand - Yes
- B2b relationships - Possibly yes
- Unique business process - Possibly yes
- Which of the above does the company have? I couldn’t find any. If you do, please let me know.
Is there any fundamental value to this company beyond simply riding the wave of overvaluation in A&D+small/mid cap space?
I don’t have a clear answer yet, but I suspect the following heuristics/biases might be playing a role:
- Illusory truth
“Repeat a lie often enough and it becomes the truth.”- Nazi Joseph Goebbels
Excessive repetition of “mission-critical” and “life-critical” product applications without specific details to make investors believe so without questioning any further.
- Halo effect
The promoter’s dropout status attracts attention, but can it ensure efficient management of a complex manufacturing business?
- Confirmation bias
I have the utmost respect for all the sports personalities mentioned below, and I have no doubt about their skills and temperament in their respective sports.
My BS detector advises me to ignore the noise generated by celebrity investors. While celebrities may not intend harm, the media’s hunger for news often magnifies get-rich-quick schemes.
Another cheap signal fueling the confirmation bias: Marquee names in the anchor book
Second-level thinking, as advocated by Howard Marks, is key to dealing with noise (and BS)
First-level thinking : Many prominent names have invested, so they must have done their due diligence.
Second-level thinking: Institutions are also susceptible to biases. Rs. 220 crore is small change given the size of these funds. Hence, I must ignore this noise and think independently.
I’m sure this isn’t the first occurrence, and me-too companies often capitalize on hype during bull markets.
Second-level thinking is crucial – prioritize fundamentals over hype and independent analysis over celebrity endorsements.
Highlights and notes from the conference call that raised concerns.
Opening remarks
The CEO repeatedly emphasizes that they manufacture a “mission-critical,” “life-critical” product for turbines operating at 30,000 feet, making India proud or proudly manufactured in India. He concludes by suggesting that the current financials/profitability might appear deceptively inexpensive and shouldn’t be over-interpreted.
Remember the movie Drishyam?
Illusion of truth?
Analyst Q&A:This is where things start to get interesting
The CFO was asked about Gross Margin, but he repeatedly discussed EBITDA margin. Even the comments on EBITDA lacked substance.
This is really odd: Why would an analyst/investor act like an appointed cheerleader? And yet again, the promoter seizes the opportunity to reinforce the Halo effect.
Cheerleading continues: Creating an illusion/hope by drawing parallels with the best in business. Moreover, promoter continues bragging (and needless mentions of its relation to India) to fuel the availability heuristic and establish correlation where none exists.
Oddness continues: Vague response to a sensible question from Ashish Kacholia’s team
Tall claim, isn’t it?
I hope reading this was worth your time.