My key learnings are:
1. Do a lot of diligence on management. Biggest losses come from management which are not looking out for minority shareholders. There are many ways to judge this.
2. Only invest in stocks where you understand the business. If you don't understand the business, don't invest.
3. It is good to average up on a stock as confidence builds in a company/stock. Many times we anchor ourselves to the initial price and want the stock to come back to that price. However, if you can see yourself holding it 5-10 years there is no harm in buying more at higher price.
4. Mentally think through how you will react if the stock you have purchased falls by 10%, 20%, 30%, 40%. Do the reverse for stock that is approaching your sell price.
5. Know your stocks/business better than most. This means keep track of what is changing in that business/price and be willing to act.
Posts tagged Value Pickr
My mistakes with the stock market (27-10-2015)
MPS Ltd (27-10-2015)
I missed the concall.. someone who has attended it if they could possibly discuss some of my queries here? @ayushmit @Mahesh your take now on MPS story?
Why is the acquisition taking so long? (is it a series of bolt-on acquisitions management is looking at or is it a single large deal?). Typically a situation where you are still nascent stage to acquire companies and deal negotiation not even on the cards you should not be raising QIP!!! (Its a very bad practice!) I hope the PE doesn't get re-rated for this...
Results of Q2 so far look nothing extraordinary.. But why have the revenues grown only by 6%? (11% on CC)? Also the bottom-line looks like a case where management have taken price cuts to grow on volumes?
3.What is the outlook of the management in terms of where they see MPS headed? (you have taken profitability up in excess of 30% the only thing that matters now is ability to grow! preferably organically...)
Regards
Sreekanth
Kitex Garments Limited (27-10-2015)
Few thoughts:
1.A company whose sales growing at 11% is trading at a PE of 32.Isnt it pricey?Even a back of the envelope calculation would make the price look very expensive.
2. The company seems to be more focused on margins than sales growth.The reason why companies shift focus from growth to margin expansion is only when they couldnt find new avenues for further sales and how does this impact the value of the company?Guess you guys are smart enough to figure it out
3.Finally,cmp seems more than fair and any negativr surprises in growth would only make thinga worse for the stock. Having said that,the returns for this stock are front loaded and there is hardly any scope for over performance vis a vis mkt from here,but if you are a long term investor who doesnt care about a year or two mkt performance there isnt anything to worry
3.I may look a little mean here but how long would buyers of garments,competitors,employees,and suppliers entertain an operating margin of 42% and a ROCE of 58%?
Disclosure: Not invested and not planning to invest even if it gets corrected by another 30%. (Below which will re-access the value with lower sales growth and adjust the returns to a more meaningful number and take a call)
Kitex Garments Limited (27-10-2015)
Few thoughts:
1.A company whose sales growing at 11% is trading at a PE of 32.Isnt it pricey?Even a back of the envelope calculation would make the price look very expensive.
2. The company seems to be more focused on margins than sales growth.The reason why companies shift focus from growth to margin expansion is only when they couldnt find new avenues for further sales and how does this impact the value of the company?Guess you guys are smart enough to figure it out
3.Finally,cmp seems more than fair and any negativr surprises in growth would only make thinga worse for the stock. Having said that,the returns for this stock are front loaded and there is hardly any scope for over performance vis a vis mkt from here,but if you are a long term investor who doesnt care about a year or two mkt performance there isnt anything to worry
3.I may look a little mean here but how long would buyers of garments,competitors,employees,and suppliers entertain an operating margin of 42% and a ROCE of 58%?
Disclosure: Not invested and not planning to invest even if it gets corrected by another 30%. (Below which will re-access the value with lower sales growth and adjust the returns to a more meaningful number and take a call)
S.H. Kelkar Ltd (26-10-2015)
Hi Nikhil,
Thanks for sharing the visit note.
The DRHP is a very good read to understand the fragrances and flavors industry.
The easy part first. Numbers.
As we can see from the stability in gross margins, it's a pretty good business. I think with increase in capacity utilization, there is a possibility of NPMs going up. But given that the volume growth is at 10-13%, not sure if we can see a big jump in operating leverage.
Market share looks great. Do you have any idea if this is based on production or sales? Usually, this is an approximation of sales, but I have heard that Nielsen also does based on production, especially in a predominantly B2B biz like SH Kelkar.
One thing which really stood out for me in the DRHP was below, and wanted to check if you have any insights/can check with the management/IR as you already visited them:
Why did Blackstone choose an unfavorable CCPS conversion (and that too as recently as October 5th)? What was given in return for this unfavorable dilution?
Of course, as with all IPOs, valuations are a bit expensive. But am happy such good businesses are listing in the secondary markets.
Disc: Not applying in IPO
IDFC Bank – A Potential Compounder And A Blue Chip In The Making (26-10-2015)
Satya - What is now listed is IDFC. IDFC Bank - the demerged entity - will list first week Nov. Shareholders of IDFC got 1:1 IDFC Bank. Too much positivity on 2020 numbers ..
yup. I like these guys.
IDFC Bank – A Potential Compounder And A Blue Chip In The Making (26-10-2015)
Ratio based on 2020 projection is showing too much positivity!
Though, techno-funda is looking good to me. It had corrected and I don't think much downside left.
IDFC Bank – A Potential Compounder And A Blue Chip In The Making (26-10-2015)
Dr. Rajiv Lall of IDFC Bank is as blue chip as they come. He said five years back that IDFC Bank would be created. He stayed true to his word and got the license. In the meantime, he has also steered IDFC and built it into an institution known for its values and capabilities.
In a banking system facing capital adequacy issues, this bank will start off well capitalised and with stressed legacy loans from IDFC well provided for. Its starting book value will be INR 40 and starting balance sheet around INR 70,000 Crores.
His central proposition for the bank is - lowest cost to income in the sector and a new generation technology bank which will attack the urban and semi urban and rural markets with differentiated strategies around physical branches. It will start life as a wholesale bank and an online bank and spread out.
Both in terms of business quality and management quality this is an interesting proposition. They might rewrite the banking rules in what will eventually be the third largest banking system in the world after the US and China in a few years from now.
Some very simple calculations indicate that the bank might list around INR 60 ( BV of 40) and based on industry averages of np / balance sheet could be quoting at INR 240 by 2020 based on their statement that they will grow the balance sheet to INR 2 Lakh crores by 2020.
S.No Bank Size Of Balance Sheet Net Profit NP/Balance Sheet EPS CMP Multiple
1 HDFC Bank 590503.7 10215.92 1.73% 42.41 1086 25.61
2 ICICI Bank 646129 11175 1.73% 19.8 286 14.44
3 Yes Bank 136170 2005 1.47% 50 725 14.50
4 Indus Ind Bank 108724 1793 1.65% 34 939 27.62
5 DCB Bank 16080 191 1.19% 6.8 138 20.29
6 City Union Bank 27871 395 1.42% 6.7 91 13.58
Average 1.53% 19.34
7 IDFC Bank in 2020 200000 3500 1.75% 10.33 227.21 22
When IDFC Bank lists, its BV will be 40. Likely to list at 1.5 x BV which is a listing price of INR 60, making it a 4X possibility in 2020
Balance sheet number of IDFC Bank in 2020 based on numbers given by Dr. Rajiv LalOf course, execution risks in a highly competitive industry are a key risk.
Look forward to views of the experts
HIL – Eco (onomic) friendly way to play rural prosperity in India (26-10-2015)
Topline is ok at 218cr, bottomline disappoints at -0.2cr. Promoters are very ethical. The company is in turnaround mode (foray into PVC pipes) and may take sometime before it could realise its full potential.
I am a buyer at today's closing price 600-610.
Omkar Speciality Chemcials Ltd — OSCL (26-10-2015)
Omkar Specialty Chem - Concall Update – 2H will be better than 1H on topline growth (Fund raising on cards if they go for acquisition)
· Revenue breakup - Of the total sales, for Q2 about 44% came from Iodine derivatives, about 34% from intermediates, about 17% from API's, Selenium derivatives about 4% and rest came from resolving agents. During Sep'15 quarter, about 92% sales came from India and rest were from exports. For 1H, about 31% of total sales came from Iodine derivatives, about 43% from intermediates, about 20% from API's, Selenium derivatives about 4% and rest came from Resolving agents. For 6 months ended Sep'15, domestic sales contribute about 61% of total sales and rest were from exports.
· Higher trading volume led margin contraction - OPM was lower on YoY basis by about 190 bps YoY, as sales for Q2 included Rs 20crs of trading business. These trading business were relating to sales on trail and error of products before going for a complete commercialization. As per the management, commercialization of some of these new products which are iodine derivatives will take place in H2FY16.
· Leverage - Gross debt stood at Rs 218cr vs Rs 224cr in Mar’15. There were deferment of some short term debt in consultation with banks which led to increase in LT debt from Rs 60cr to Rs 115cr while ST debt declined from Rs 140cr to Rs 100cr as of Sep’15. D/E at 1.17x vs 1.32x in Mar’15. Company plans to reduce debt by Rs 20-25cr by Mar’16.
· WC Cycle – Company’s WC cycle stands at 103 days as of Sep’15 vs 111 in Jun’15 and 143 days in Mar’15. Company targets to bring it down to 90 days over a period of time. In near term WC cycle will be around 95-100 days.
· Capex and expansion - Unit V received environmental clearances of its Unit V at its Chiplun facility and commercialization to start from Nov 2015 onwards. Thus the overall capacity of the company will increase gradually by 3000 tons by early FY17 and will further increase by another 2000 tons by early FY18. The company has done most of the capex and residual capex of about Rs 15 crore will be required further if any. At optimum capacity utilization of all the plants and units, the company can generate revenue of around Rs 800-850cr.
· 2H will be better than 1H on topline growth – Management guided that H2FY16 will show higher revenue growth on YoY basis than H1 growth. Further, OPM is expected to improve further and will inch towards 21%. As per the management, new products in higher margin segments and newer geographies will drive higher margins and revenues going forward
· Fund raising only if company go for acquisition (Key Overhang) – Company is look out for Formulation API plant in veterinary space with approved facilities for EU/US markets. Company will fund it through equity (QIP) mostly. Not yet zeroed down to any potential target and its strategic plan to integrate its business. For ongoing business, no need for funds and is currently FCF positive.
· Update on Pledge - Mgmt guided that pledge to come down gradually going forward. Pledge was to fund WC requirement
Overall..fund raising and another acquisition is unnerving...
Discl...not invested.. will wait for better entry point