2010

SESA GOA – Bottomed out

SESA GOA bounced back sharply yesterday from 289 – 290 odd level with pretty decent volumes. Technically the stock seems to have bottomed out 290 level as it has seen a very sharp runup on the rumors of cairn Vedanta deal getting called off. If rumor of cairn – Vedanta deal getting called off materializes then it should give big sentiment boost to Sesa Goa script as the company won’t have to shell out its cash which is estimated nearly $2 Billion.

Short term investors can buy the stock at 304 levels with a 4-5 day target of 320-325. Long term investors can enter with a price target of 340 in 1 month time.

Warren Buffett Investment Criteria

Warren Buffet owned Berkshire Hathaway relies on extensive research-and-analysis team that goes through reams of data to guide their investment decisions. While all the details of the specific techniques used are not made public, the following 10 requirements are all common among Berkshire Hathaway investments:

1. The candidate company has to be in a good and growing economy or industry.

2. It must enjoy a consumer monopoly or have a loyalty-commanding brand.

3. It cannot be vulnerable to competition from anyone with abundant resources.

4. Its earnings have to be on an upward trend with good and consistent profit margins.

5. The company must enjoy a low debt/equity ratio or a high earnings/debt ratio.

6. It must have high and consistent returns on invested capital.

7. The company must have a history of retaining earnings for growth.

Last year, the RPG Group decided to merge four companies—Summit Securities Ltd, Brabourne Enterprises Ltd, Octav Investments Ltd and CHI Investments Ltd—with RPG Itochu Finance Ltd (RIFL), a 100% subsidiary of RPG Enterprises. Shares of these companies have been suspended from trading since 3rd February due to the proposed merger. In august the company decided to change the name of the merged entity from RIFL to Summit Securities Ltd.

The shareholders of those four companies have received their proportion of summit securities in their demat a/c in august but the merged entity (Summit securities) is still not listed and hence shareholders are not able to sell their holdings. Shareholders are stuck and frustrated and have been looking for several exit options. Many brokers are trying to take advantage of this situatuion asking investors to tender their share of summit securities lying in their demat a/c at Rs. 10/- through off market transaction, misleading them that their investments are of no worth now and they should exit at whatever value they are getting.

The shareholders should stay away from such brokers or people and stay calm for some more time. This is about to get solved very soon. As per the recent conversation with an RPG management representative we came to know that all the approvals have been obtained except SEBI. The approval from SEBI should also come soon as the pressure is equally high on the RPG group as well. RPG group being a 17,000 crore enterprise is not expected to cheat shareholders of such small companies.

As per the latest annual report of summit securities the top 5 quoted investments held by the company are as follows

Company Name	No of shares after Merger	CMP as on 09DEC 2010	Value in crores
CESC Ltd	2,056,948	360	74.05
KEC International	4,857,790	442	214.71
Phillips Carbon	1,903,114	170	32.35
Zensar Technology	4,444,276	160	71.10
Harrison Malayalam	728,150	69	5.02
TOTAL 397.23

So the top 5 holding iteself are worth approximately 400 crores. On an equity capital of 10.90 crores, the per share value of the above investments comes out to Rs 365/-.
Other quoted and unquoted investments including cash held by the company are worth at least 100 crores.

Considering the above facts it is advisable not to sell any holdings in Summit securities until it is listed and has been traded for 6 months, because it might happen that because of delay in listing some shareholders sell on the listing day itself.
The book value of the company at cost as on 31st March 2010 is Rs. 362/-. Even if we discount the BV by 20%, the shares of summit securities should stabilize above Rs. 300/- within 6 months of listing.

Firstcall Research: Buy Federal Bank - Target 523

Firstcall research has comeout with a buy rating on Federal bank. The research report can be downloaded from this link.

http://www.moneycontrol.com/news_html_files/news_attachment/2010/FederalBk_FirstCall_071210.pdf

Is the recent correction an Opportunity?

Yes this correction is certainly an opportunity to nibble some of the quality mid and large cap stocks which have fallen with the rest of the markets without any reason. After Satyam saga, the corporate governance has again come into limelight. Any company having any kind of governance issue whether big or small is being punished brutally by the market. Welspun Corp, Akruti city are some of the example which fell like 9 pins on Friday because of news of stock price manipulation in cordination with stock brokers. So one should stay far away from those names and should avoid any kind of bottom fishing. Any company having any kind of news regarding the governance should be completely discarded at this stage. They might rise a bit tomorow but its safer to not invest in tainted companies, as one never knows how greedy is the management and what else has happened in the company which is yet to come out in public. Satyam was a big lesson for every one.

But because of panic some really genuine companies have also corrected in the recent fall. One can look at some of the bluest of the blue chips like NTPC, Bharti, Axis bank etc and start acummulating slowly at each fall. They have got very professional & honest management and are available at reasonable valuation and are expected to perform well over medium to long term. One can also look at some of the quality mid cap companies having good professional management, governance & reasonable valuation like Federal Bank, Firstsource, Zensar Technologies, Godrej Properties etc. But one should avoid exhausting his entire budget for investing in one shot and only invest at correction in small lots.

Investment Quotes by Warren Buffet & other Legends

These are not just the quotes, but the experiences shared by some of the most successful investors in the history of stock markets. We can benefit from them if we understand them and remember them while taking investment decisions.

If past history was all there was to the game, the richest people would be librarians.
Warren Buffett

Risk in investment is not knowing what you are doing.

Warren Buffet

The dumbest reason in the world to buy a stock is because it is going up.

Warren Buff

One of the biggest mistakes is to focus on a stock price instead of its value.

Warren Buffet

Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway.
Warren Buffett

The key to making money in stocks is not to get scared out of them.
Peter Lynch

Profit in stocks goes to those who buy stocks on sale. There’s no such thing as risk free investment.
Peter lynch

The four most dangerous words in investing are 'This time it's different'.
John Templeton

The time of maximum pessimism is the best time to buy and the time of maximum optimism is the best time to sell.
John Templeton

Every day I get up and look through the Forbes list of the richest people in America. If I'm not there, I go to work.
Robert Orben

I hate weekends because there is no stock market.
Rene Rivkin

Markets are constantly in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected.
George Soros

It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong.
George Soros

Warren Buffet, Peter Lynch, George Soros & Sir John Templeton

Goldman Sachs puts BUY rating on Bharti Airtel

Goldman Sachs has upgraded Bharti Airtel to buy from neutral and raised its target price on the stock of India's top mobile phone operator to Rs. 430

We expect the price target is conservative. The recent 2G scams are more likely to hit newer and unlisted player in the telecom space like UNINOR, Videocon, LOOP etc. This will rationalize the competition and would be favourable for the listed telecom player like Bharti Airtel. The tariff war seems to have bottomed out and the uncertainity in terms of its african operation is alomost over. Bharti is confident of it African operation turnaround in next 1 year. Most of the indian mutual funds have increase their stake in Bharti in last 6 months.

If Bharti reaches its target of 100 Million users in Africa by FY-12 then we exepect Bharti to report a Consolidated revenue of approximately Rs. 75,000 crores and PAT of around Rs. 12,000 crores in FY-13. Considering a PE multiple of 18, which is the forward multiple at which SENSEX broadly is trading at, then the market capitalization of Bharti is expected to be approx. Rs. 2,16,000 crores and hence the target price for Bharti is expected to be at Rs 560 in next 1.5 year. A near 70% appreciation from current levels of 335.

Zensar Technologies - The potential multibagger

Zensar Technologies, a mid sized IT company, has announced the acquisition of Akibia Inc yeterday for cash of around $66 Million. Akibia Inc is a very niche player in Infrastructure managment space. With its acquisition, Zensar would be among top 5 Infrastructure Management Company in India. Akibia has centres in, Boston, in the US and in Europe and counts IBM, HP, AT&T, Goldman Sachs, and Verizon among its customers. Akibia did around $100 Million in revenues and around $9 Million in Profit last year.

Considering the niche space and the kind of revenue and profitability that Akibia has, Zensar has got an extremely good deal. Zensar has around $35 Million of cash which it will utilize in doing the acquisition.

With full year results of akibia getting integrated into Zensar from FY12, Zensar is expected to report a consolidated revenue of 1600 crores and a PAT of around 145 crores. The expected EPS is around 33.5. At a PE multiple of 10, the stock is expected to reach Rs. 335 in next 1 year time frame. So from the current levels of 160 there is more than 100% appreciation expected in the stock.

Update as on 16th August 2015: Zensar Technologies has become a huge multibagger and is up 6 times since the recommended prices of Rs. 160.

Indian Stock market showing initial signs of weakness

Indian stock markets have started showing some weaknesses on the back drop of FII outflow. Both SENSEX and NIFTY are down close to 2% in early trades today. The reason seems to be obvious. The rupee has depriciated by 2% in last 3 days and the SENSEX and NIFTY are down almost 4 % from the recent peak. So all in all there is a loss of 6% for FIIs in dollar terms. Since in short to medium term the direction of rupee seems to be downward, they might be worrying about further losses on currency side and that is why taking some money of the table before the majority of the gains get wiped out.

But this correction is healty as Mutual funds and Retail Investors have been out from the market and were waiting for corrections to get in. One should not panic by the volatile movement of the SENSEX and NIFTY and stay calm. A 5% correction from the current levels of 20000 SENSEX should provide good entry point for investors. However one should still follow bottom up approach of stock selection and buy where the business outlook is good and valuation is reasonable.

Lloyd Electric & Engineering - Promoters buying from open market

In the article titled "Cooling will make it hot soon" dated 24th Oct 2010 (http://investorzclub.blogspot.com/2010/10/cooling-will-make-it-hot-soon.html) I explained how undervalued is Lloyd electric and Engineering. Don't know about other investors but promoters seems to have read the article and started buying shares from the open market. On 10th and 11th Nov the promoters Mrs Renu Punj and M/S Lloyd electric and Engineering Pvt. Ltd have acquired 1.41% (around 4,38,000 shares at the rate of Rs.90/-). The stock has already moved 12% since I recommended it at Rs.78/-. Promoters have been steadily increasing their stake since last 6 months. If that is any indication the stock seems to be moving much higher from current levels in next 6 to 12 months.

FEDERAL BANK - Strong Buy @ 435, Target 700 in 1 to 1.5 year

Rakesh Jhunjhunwala has picked stake in Federal bank recently. He disclosed this in an interview. The reason seems to be very obvious, its undervaluation relative to the other private sector lenders like ICICI bank, HDFC, AXIS Bank, ING Vysya Bank etc.

On FY-12 basis it is quoting at around 1.2 times book value. Even public sector lenders are available at somewhere in the range of 1.5 to 2.5 times book. Private sector lender are anyway available in the range of 2.5 to 4 times book.

The reason for its undervaluation in past 2 years has been its low retun on Net worth because of its right issue in 2007. But with loan book growing at 25% annually it is expected to report better RONW in coming years and hence should start commanding better valuation.

At expected PBV of 2.0 for the Financial year FY-12, the stock is expected to generate around 60 to 70% return from current levels in 12 to 18 months time frame.

Investorz club exclusive tip on Short term Capital gain tax for salaried professionals

In India long term capital gains on equity investments are completely tax free which means if you have been holding a stock for more than a year then you are not required to pay even a single rupee as tax on whatever gains you make on your investments. On the other side, the short term capital gains are taxed at 15%, that is if you sell your equity investment within a year of purchase you need to pay short term capital gain tax at the rate of 15%.

COAL India IPO lists with a bang and sets the stage for the retail comeback

Today investors especially the retail investors who got subscription at 5% discount to the issue price of 245 must be very happy today as COAL India lists at 300 and touched an intraday high of 340. At 340 retail investors are earning close to Rs. 21,500 /- on each application. This is going to be an eventful day in the history of Indian stock market. The retail investors who had the leftout feeling in the recent rally of SENSEX from 8000 to 20000 have finally been able to make some money. This is crucial, for our markets because it is the retail investors who will bail out people who have been betting on midcap and small cap stocks, based on valuations, since very long but have hardly reaped any benefit. Because of FII money, the large cap stocks have been independently rising without the participation of mid and small cap and hence a huge valuation gap has been created between them.

After this episode of COAL India IPO, retail investors would now have some confidence of investing in the market again.

The currency confusion!

Many people seem to be confused and worried these days regarding the volatile movement of Rupee vs. the Dollar, especially the IT Professionals and the exporters. I get query from many of my friends who have kept their dollar earnings in their foreign bank accounts hoping to get better exchange rate later. But the recent currency movement has left them scratching their head in anticipation of what to do now. The exporters are also affected but they have the ability to hedge their dollar receivables and are hence comparatively less exposed to these wild swings. I have been asked by many people about what is the future of dollar vis - a - vis the rupee.

Considering the current economic situation in India and worldwide, specially U.S, I believe we should see rupee stabilizing to depreciating from current levels of around 44.50. Some of the facts supporting such belief are:

1. Quantitative easing bottoming out in U.S: The interest rate in U.S have been kept abysmally low for quite long now, and the expectation of another round of easing and thus flushing of around $500 Billion by FEDERAL GOVT. into the system to boost demand is already priced in the dollar. With no further easing visible in near future, the dollar is expected to start appreciating against other currencies in short to medium term.

2. Rate tightening topping out in India: The RBI was the first among all the emerging economies to reverse the easing process that was happening all over the world in 2008-2009. RBI has been slowly moving the interest rate up since the early 2010 to fight the Inflation Daemon. This rate tightening has started to slowdown the overall economy now. The IIP data of August was unexpectedly low which has left D.Subarao scratching his head, as he is not left with many amours to fight Inflation and fuel growth simultaneously. With no expectation of further rate hike, the rupee will find it difficult to appreciate against dollar from these levels.

3. Widening Trade Deficit: The trade Deficit, which is total import minus total export, is now running at around $13 Billion a month. With oil rising above $80 recently the deficit is expected to get widened from here until and unless government starts incentivizing the export. But at 44.50 to a dollar our export competitiveness has come down considerably vis - a vis other emerging economies. This cycle is itself expected to put lot of pressure on rupee in next 6-12 months.

4. Indian Stock Market Stabilizing: The SENSEX and NIFTY has appreciated a lot in last 2 months. Coupled with the rupee appreciation the FIIs who were lucky to enter India at the start of the year have made double gains. Seeing this many more FIIs started coming recently hoping to reap double benefits of both Equity and Rupee appreciation. But unfortunately both of them seem to be exhausted at these levels and the recent entrants have hardly made any money. So the Short terms FII money which came in to make quick bucks might start moving out and thus put pressure on both Rupee and Equities.

Note: Currency movement is dependent on infinite number of factors and cannot be predicted with high precision. But by reading the economic conditions one can take informed decisions on the direction and not get panicked by volatile movements.

SENSEX in 2007 vs SENSEX in 2010

There is lot of skepticism and fear among the people on the street. The crash of 2008 has left an impression on investors which is horrific and tough to forget. But where would people invest if not equities. People who remain hibernated till today have the leftover feeling now and trying to renter the market, but market this time is not obliging them. Most of the falls that are happenning are very shallow and tough to time it. This time the market is diametrically opposite to what it was in 2008.

The biggest difference is that the valuation that the sensex was trading at 20000 in 2008 was close to 25 times, whereas this time when sensex is at 20000 it is trading at a comfortable valuation of less than 20 times its estimated earnings.

The other noticable difference is the fear and skepticism prevailing in the market today. In 2008 there were wide spread optimism and everyone who was in the market was making money without any effort. I myself know many people who left their job as they were making much more money in the markets then their job, and they were new investors. I was myself making lot of money and started thinking that all the investing principles I have learnt are so easy to apply and forgot the basic principle that success without effort & experience is a house build of cards and would collapse even with a slight headwind. And that is what exactly happened. Subprime crisis came in just when we were at bubble kind of valuation and when no body was expecting such blowout news. People panicked and pressed the exit button. Then the situation was similar to the situation of a stampede in a temple full of crowd. There was blood bath every where. But things are different this time around. People are well prepared for any catastrophic news, hedged and under invested.
99% of the people have not been able to participate in the rally from 8000 to 20000. they are now waiting for a chance to get in and that is why every dip is being bought immediately.

Third is the the small & midc cap stocks valuation. In 2007 there were hardly any good quality midcaps available at less than 10 times PE multiples. But today even when SENSEX is at 20000 there are many good quality midcaps available at less than 10 times PE multiple. This also signifies that retail participation is not there which is usually responsible for creating panic like situation in 10-20% fall.

All these factors would prevent a major correction in the markets and every dip would be bought by the new investors. 10 to 20% fall is possible in any kind of market but a crash seems to be not happening in near future. It seems from the market movement that it will spend sometime near 20000 and would slowly move up. The mid caps and small caps would eventually catch up and would outperform the large caps over the next 1 year.

So the best approach now would be to selectively look for quality stock available at cheap valuations and avoid investing in hot stocks available at rediculous valuations.

Cooling will make it hot soon!

Lloyd electric and engineering an Airconditioner coil manufacturer is the largest producer of coils used in all types of ariconditioners, domestic or industrial. It also manufatures complete air conditioner units on contract basis. Almost all the leading players in India such as Voltas, Blue Star, Hitachi, samsung etc are its clients.

Demand for air conditioners are rising at exponential pace, and are expected to continue for next few years thanks to global warming and rising income of Indian people. The company is diversifying into Metro rail airconditioning which is likely to give boost to order book thanks to Metro rail expansion in various cities in India.

The current market price of the company is Rs. 78/- which translates into the market cap of approx Rs 242 crores. The company is expected to do around 850 crores on standalone basis while on consolidated basis it is expected to clock a revenue of 1050 crores. As its last years european acquisition not expected to yield any profits due to overall slowdown in European region, the expected PAT for this year on standalone and consolidated basis is expected to be around 48 crores which translates into an EPS of approx Rs 16/-

At the CMP of 78 the stock is available at less than 5 times its current year earnings which is extraordinarily cheap with respect to other air conditioner players in the market such as Hitachi, voltas, blue star etc as these companies are trading at somewhere close to 15-25 times its current year earnings.
The company's FY-09 book value was approx Rs 132/-. For the current year i.e FY-10 the BV is expected to be around 147. so at CMP the stock is available at 0.53 times or 47% discount to its book value.

Considering the industry it is part of and the kind of low valuation it is trading at, the stock is expected to generate around 80% return from these levels in 6 to 12 months time.

So this cooling business is expected to make Lloyd Electric & Engineering a hot stock on dalal street soon.

How the price of a stock is determined?

What determines the price of a share? This question bothered me a lot when I was first introduced to the world of Stock Market investing. Why some shares are trading at single digit prices while some are trading in 4 digits and some even in 5 digits.

As on 22nd october 2010 the market price of INFOSYS was 3050 and that of TCS was 1050. Both are part of the SENSEX and NIFTY index. Did you ever asked yourself why TCS is trading at 1/3rd of the price of Infosys in-spite of the fact that TCS is around 25% bigger than INFOSYS in terms of absolute revenue and profits. If you ask a layman investor to choose among them, he will definetly go for TCS as its ticket price is far less than that of INFOSYS.