Sathvahana Ispat (BSE Code - 526093)

This one is a clear case of mistaken identity. Sathavahana Ispat is a Hyderabad based company which is engaged in the production of  coke. However, that is not how the analysts seem to be covering it. Here is one report by Sunidhi securites. (Report). Am sure if you search on the internet you will find some more reports.
However, I have my apprehensions. Not on the findings of the report but the perception of which industry Sathavahana belongs to. Before I dwell further on my thoughts let me give you some background about what Sathavahana is all about.

This company was incorporated in 1989 and manufactures pig iron through the mini blast furnace (MBF) route. In terms of cost of production the MBF route is not as effective as a proper blast furnace. However, its advantage is the low capital cost required. Subsequently this company also set up a coke plant to cater to its coke requirement. As an offshoot of the coke plant and to make efficient use of the Coke Oven gas (COG) the company also set up power plant. As of June 30th 2010 the capacities are as follows.
a) Pig Iron - 0.21 Million tonnes
b) Coke - 0.30 Million tonnes
c) Power - 30 MW
Stemcor the world's largest steel traders is an investor in this company.(Website)is one of the investors in this company and has just less than 15% stake in this company. Do you know the price at which it invested in the company. Stemcor has invested in this company at the rate of Rs 60 per share along with the promoters. (BSE notice).


Typically a MBF uses about 600 Kg of coke for every 1 ton of pig iron production. Thus this company already has an excess of coke. It is adding a further 0.15 million tonnes of coke making capacity and about 20MW of power generation capacity. (Source: Annual report 2010 - Directors report). All this expansion is going to be completed in the quarter ended 30th September 2010. Please note that there has been no increase in the pig iron capacity. Thus, it technically becomes a coke making company which also makes pig iron rather than a pig iron manufacturer which also manufactures coke. Need more evidence of this being a coke making company. Have a look at what Stemcor has invested in the company for. Not for the pig iron. Its coke. (Stemcor announcement)


Further evidence can be had if you you look closely at the Q1 FY11 results. All you have to do is to have a look at the segment information. Coke making + power generation has capital employed of 129 crores which is about thrice that of the capital employed in pig iron making. Need more evidence. Stemcor


Now for some more interesting observations. About 75% of the gross revenues come from coke making and power and about 78% of the profits come from coke + power. Even last year this part of the business was making profits even though pig iron was making losses.  If the Q1 FY11 results are any indication the company should close FY11 with EBITDA of about 75 crores of profit which is double that of last year. And mind you this does not include the additional profits that the additional coke making and power generation capacity is going to bring. The additional coke made would all be sold. According to Gujarat NRE coke MD (Link)coke is likely to be in short supply during FY11 and its prices are likely to firm upto above $500 per tonne. At 10% profit margins the addition EBITDA could be in excess of 30 crores from coke itself. (=$500X10%X150000X46). Not to mention the additional income that power is likely to bring.


Ennore coke with about the same capacity and with about 9 crores PAT trades at a MCap of about 166 crores which is the same as this company which could post a net profit in excess of 50 crores. Also it trades at a PE of about 18 whilst Sathavahana is at a PE of  less than 7 times on the basis of FY10 financials.
This makes this company a classic case where there is going to be profit expansion as well as a chance of PE rerating. Let me know if you liked it.


Till then happy investing


PS: A lot of you have written to me about the last 2 posts about Ganesh polytex and Southern ispat and your concerns surrounding them. Will cover them to the best of my understanding in the next couple of posts.

Southern Ispat & Energy (BSE Code - 531645)

This company is not about some niche story. This is a case of sheer undervaluation of stock. Again this is no great analysis. I just managed to chance upon the stock. If one of you would have looked at the financials I think you too could have recommended this stock as an investment opportunity.

Website : Southern Ispat & Energy

This was just one of the companies till the end of FY09. However, it is after FY09 when the management started taking a more aggressive strategy. And thus last year that is FY10 has been stellar.
Lets just give you pointers to what I saw.

a) Revenues have grown from Rs 39 odd crores in FY09 to 272 odd crores in FY10 (about 7 times)
b) Profit before interest and tax has grown from Rs 1.56 crores in FY09 to Rs 9.78 crores in FY10 ( about 6 times)
c) PAT has grown from Rs 0.73 crores in FY09 to Rs 7.33 crores in FY10 (10 times increase)
d) However during the same time the interest has gone up from Rs 52 lacs to Rs 62 lacs. The interest numbers not going up too much suggests that the growth is not burdened by debt.

If you look at the 1st quarter numbers they seem to vindicate that the company is clearly on a growth path.

(June 2010 results). Don't think these would need any further analyses.
 

Now what has the market done to its share price for all this announcement.


The price has plunged from Rs 48 odd levels in January 2010 to about Rs 13.
This means a PE of about 2 and a market cap of about Rs 14.5 odd crores based on June 2010 shareholding pattern. (1.1 crore shares X Rs 13)

So what next is in store for us. The following news flows could give some pointers to the future prospects of the company.

a) Meger of privately held Kerala Sponge with itself
b) Own power generation through waste heat recovery in the steel plant as well as coal based plants.
c) Purchase of company in Gujarat. (Management interview)
Some digging on the name of the target company revealed the name Newtech Forge & Foundry Limited. (Source link) - DealCurry.
You can check out the website of the target company on this link. (Newtech) 


What does all of this mean?
a) The company is integrating both backward and forward and this am sure will be reflected in the financial performance in future.
b) It is also alive to the opportunity that generation of power presents in current times.
c) The forward integration is infact even more interesting when the product portfolio of Newtech is looked at.
Did someone mention getting into auto parts manufacturing? Well if the entire company is being acquired then that is what is going to happen.


The board meeting on 7th April 2010 gives us some insights into how all this expansion will be funded. (Link)
You can imagine the scale of expansion.

The company has just recently concluded a GDR issue of about 3.23 crore shares.

Some of you all must be worried by now about the extent of promoter contribution. Yes, you are right it is quite low. Its about 20% and has remained constant all these years.  Frankly, I dont know why it is so low. But my hunch is that in future with the merger of Kerala Sponge the promoters share should go up as Kerala sponge is a privately owned company. Secondly I think the fall in share price could also be because the management wants to mop up shares at a low price. 


Now the interesting bit. On 27th of May 2010 1 crore warrants were issued to non promoters at Rs 32 per share (Rs 10 face value + Rs 22 premium). (Share warrant issue)


I have started investing. Do let me know if you think I have got it wrong somewhere.


Till then happy investing.

Ganesh Polytex - update

The stock price of Ganesh Polytex hasnt really moved as per my expectations since it was discussed on this blog. However, thats not affected the developments in the Company. So lets see what all has happened and its ramifications.

Ganesh Polytex has a website and I was lucky to have found it. Request you to go through it once. (Ganesh Polytex). In case you dont have too much time may I request you to atleast look at the corporate presentation once. (Corporate presentation). Once you have gone through the website I dont think you will need a 3rd party to tell you as to why it is a value buy even at the current levels.

For the ones who are still not convinced lets look at the questions that might arise.
a) A lot of corporates nowadays have snazzy websites but what is the possibility that these guys will deliver.
b) Is there any evidence to suggest that there is any method to their madness. In other words has the management lived up to its promise.
c) How confident is the management about the potential in the business potential.

The answers are as follows.
a) The website and corporate presentation does not make lofty claims. It does not go too far into the future. Infact it seems to present a very well thought out plan which incorporates the financing aspect rather well. This is best explained by what the management plans its debt equity ratio to be. When other corporates see a good opportunity and want to expand they over leverage whereas this company wants to maintain its debt equity ratio at 0.8 levels. Inspite having a business plan which would more that triple profits in the next 2 years the company is keen to keep its debt at manageable levels. Very commendable to say the least.
To top it the cash being generated is phenomenal. From just Rs 10 crores in FY09 the amount has gone up to Rs 24 crores in FY10. With a ROCE% of close to 16% you can imagine the impact on profits.
b) The answer is an emphatic yes. And the reason is simple. Just try and look for the execution of projects. Absolutely right on time. The economic scenario around the world has had no impact whatsoever. To my mind timely project completion is the best way a company can assure its stakeholders of it ability to create wealth. To top this execution capability the management seems sanguine enough to realise that forward integration will lea to further value creation. Hence it is also setting up a facility for manufacturing Recycled partially oriented yarn or POY.
c) Check out this link. Share holding pattern. These guys have increased their shareholding from about 45% to about 52%. And to top it the promoters are issuing to themselves approximately 30 lac warrants convertible into equity. This is approximately about 40% of the current number of shares held by them. From an investor's point of view I dont think anything can instill more confidence than capital infusion by the promoter.

If you go to the section "Analysts covering Ganesh Polytex" on this link you can find a variety of analysts covering this company. All have different targets and I suggest you go through them. Especially the one by HBJ capital is particularly interesting.

But if you are looking for targets price I suggest you refer to the 2nd last slide in the corporate presentation. This company is planning a revenue milestone of Rs 1000 crores within the next 5 years. The revenue in FY10 was Rs 200 crores only. This means a five fold jump. Again the margins are also likely to improve significantly in future due to forward integration. So the profits should also see atleast a 5 fold jump. Infact more. To top this the current PE is hovering around the range of 6 which is par for the course if this company is treated as a textile company. However this is not a textile company. This is a waste management company and hence its PE is bound to be rerated in the times to come.
The only uncertainty is the way the expansion is going to be funded. Depending on the funding mechanism I would be looking at returns of about 5 to 10 times in about 3 years.

Happy investing

Am back

Friends,

The last few months have been terribly tiring for me. Was extremely busy in both my personal and official life. But things have settled down now and I will soon start updating my blog.

And yes thanks for all those mails.

Finaventure Capital Limited (BSE code - 512219)

Looks can be deceptive goes an old saying. And this saying is also applicable to the stock market and the way we look at financial data. This post is not about any sector which is niche. Nor is it about some opportunity which we dont recognise.
It is simply the visiblity of data which makes this company interesting.

Finaventure Capital by the looks of it or rather the name of it seems to be just another company in the financial services domain with absolutely terrible financial results on standalone basis. However, for the real picture you will have to look a bit deeper into the consolidated numbers. This is because Finaventure Capital by itself is a shell company but it holds a pharma company as its subsidiary. The ownership of this company changed hands sometime in August 2009 and from then on it is actually a pharma company with a name which suggests it to be a financial services company. And that pharma company has come out with fantastic results for the year ended March 2010.
I dont think there is any rocket science in this story. As I said its just about visiblity and I was lucky to see the results and thought it may be interesting for all of you as well.
So here are the links for your reference.
1) Change of ownership - Open offer
2) March 2010 results (Look at the consolidated number) - Link

The name is soon going to be changed to Aasda Medicare Limited. Necessary approvals from shareholders were taken in March 2010 through postal ballot.

Though during the last few days the stock price has run up somewhat but I still think its a buy.

Happy investing

Pioneer investcorp (Update)

This one is a quick update about Pioneer Investcorp.

I have received a lot of mails regarding my post on Pioneer Investcorp. Most of them pertain to the fact that the post does not seem to give a clear direction as to what needs to be done. So, I just thought would put in a quick word about that.

Please read the last part of the post which I am pasting for reference.

"..................Thus I feel that though the company is undervalued but to say that it will be a 10 bagger is probably not correct. I think the fair value of the stock is around Rs 100 to Rs 110 which could be reached if the next 2 quarters results are good. Personally I would like to wait for the next 2 quarters results."

 So its a clear buy at these levels for targets of about Rs 100 odd.

Navin Flourine (BSE code - 532504)

How do you think does the profits of a company increase.

a) By increasing sales and at the same time maintaining the expenditure % to sales

b) If sales cant increase then by reducing cost so that the expenditire % to sales decreases

I guess conventional wisdom says that largely these are the only 2 ways of increasing the bottom line. And chances are that both these modes will entail some capex as well

Let me discuss today one more way of profit generation. Its called carbon credits. Am sure a lot of you already know about it but for the benefit of those who do not let me first explain this.

Now we all know that there is a lot of talk globally about global warming and about the need to do something about it. After a series of discussions amongst member nations under the UN an agreement as to what needs to be done was formulated under what is known now as the Kyoto protocol. Without getting into too much detail the following were decided upon

a) The developed nations through individual entities need to reduce their greenhouse gas emissions (from Carbon dioxide) by a certain %age (since they were thought to be the ones who had industrialised and hence contributed the most to global warming)

b) The developing nations through individual entities were urged to curb their emissions by investing in energy efficient processes which could lead to lower emissions of these gases.

Simply put , there is a demand side which is the developing countries and there is a supply side which is the developed world.

India falls under the category of developing country.Hence individual companies in India have a lot of opportunity in curbing their emissions by shifting to better processes and at the same time get them carbon credits as well. So much so for the supply side of the equation. These reductions as certified by UNFCCC are called Certified emission rights (CER) also commonly known as carbon credits and can be sold to entities in the developing world so as to help them attain there targets of reducing emissions.

On the other hand the entities in developing countries are required to reduce their emissions or buy CERs from the market so that the emission reduction targets are achieved. This is where the fun is. The entities in developed world are already much more efficient than the ones in the developing world when it comes to emissions. And to top it they are being asked to reduce their emissions even further. This is where CERs have a huge market. 

This is what wikipedia has to say about the emissions market.

For trading purposes, one allowance or CER is considered equivalent to one metric ton of CO₂ emissions. These allowances can be sold privately or in the international market at the prevailing market price. These trade and settle internationally and hence allow allowances to be transferred between countries. Each international transfer is validated by the UNFCCC. Each transfer of ownership within the European Union is additionally validated by the European Commission.

Climate exchanges have been established to provide a spot market in allowances, as well as futures and options market to help discover a market price and maintain liquidity. Carbon prices are normally quoted in Euros per tonne of carbon dioxide or its equivalent (CO₂e). Other greenhouse gasses can also be traded, but are quoted as standard multiples of carbon dioxide with respect to their global warming potential. These features reduce the quota's financial impact on business, while ensuring that the quotas are met at a national and international level.

Currently there are five exchanges trading in carbon allowances: the Chicago Climate Exchange, European Climate Exchange, Nord Pool, PowerNext and the European Energy Exchange. Recently, NordPool listed a contract to trade offsets generated by a CDM carbon project called Certified Emission Reductions (CERs). Many companies now engage in emissions abatement, offsetting, and sequestration programs to generate credits that can be sold on one of the exchanges.

^{This full article can be accesses through this link (wikipedia)}

^{Infact Barclays capital predicts that this is a market estimated to be worth about 30 billion euros in 2007. and could grow upto $1 trillion in a decade. (article link)}

The next question that would come to your mind now is why is it that carbon credits are not being talked about with as much fervour as I think they should. To my mind there seems to be 2 reasons for the same.

a) The Kyoto protocol talks about the emissions reduction mechanism till 2012 only. And there is no clarity on what would happen after that. Hence people are sceptic about what will happen to the carbon credits post 2012.

b) In the largest market EU the emission reduction targets set are not very strict as of now.

But all this is set to change. And the positive developments are on the anvil. So what are they

a) There is talk about what happens to the emissions reduction thing post 2012. This was discussed in Copenhagen in December 2009. Unfortunately nothing concrete could be agreed upon. But there is hope that by the end of 2010 or the beginning of 2011 some concrete proposals should be formalised.

b) Prior to Copenhagen the US had not agreed to reduce emissions like the countries in the EU. This was quite ironical as the US is the world's largest emitter of green house gases. However it seems to have changed its mind and has agreed to come on board and reduce its emission levels. 

c) The EU is in the process of formalising stricter norms for emissions reduction post 2012. Failing which the corporates will have to pay a penalty. This penalty amount is likely to range from about 40 euros to 100 euros.

The current price of CER is about 13 euros per CER. (link)

The next question you might have is which are the companies in India which are likely to benefit from carbon credits. We have a whole host of them and a simple search on google should give you their names and hence I am not going to list all of them. 

I would only like to mention the company that I personally like. Its called Navin Flourine. It is a well managed company belonging to the Arvind Mafatlal group and it deals in flourochemicals and refrigerants. There are three segments to its business – speciality fluorochemicals, bulk fluoride and refrigerants. The speciality fluorochemicals are used in making agrochemicals, antibiotics for the pharmaceutical industry, pigment for the petrochemical industry and toothpaste for the personal-care industry. Bulk fluoride is used by aluminium companies. Two more products derived from fluorine, CFC and HCFC 22, are used in refrigeration. Thus the fate of its business depends on sales growth of air-conditioners, aluminium products and the pharma sector.

With the poised growth of the Indian economy all these sectors are likely to do quite well and hence Navin too should do just as well. And to top it all it is supposed to get 2.8 million CERs per annum till 2017. Even at current price of 13 euros and exchange rate of 55 euros per rupee it translates into a revenue of approx Rs 200 crores odd per year. (Check out this link on the UNFCCC website). And if the prices of CERS go up your guess is as good as mine as to the amount of windfall profit that Navin is going to get. 

And the best thing is the very low equity base that it has. Just 1 crore share. So the EPS from just the sale of carbon credits is likely to be about Rs 140 odd post tax. So that makes the current PE at about 2.5 only. And mind you we have not even taken into account the revenues from its business operations. 

And the best thing is that the next tranche of CERs could come very soon and could spike up the share price. 

Happy investing

Ganesh Polytex (BSE code - 514167)

Recently during one of my assignments I stumbled across a waste management company called Ganesh Polytex. This company is into recycling of plastic pet bottles. On first glance it looked a shaaby company since I could not find any website for this company. Also the financials for the company are good but not something to rave about. But then I came across this writeup which convinced me about it being a good investment opportunity. Am pasting the article for reference.

Ganesh Polytex all set to become India's No.1 company in Waste
Management
The capacity expansion of 18,000 tpa expected to be operational in March 2010 will take the total capacity of Ganesh Polytex to 57,600 tpa making it the largest player in recycled Polyester Staple Fibre (Fibrefill) in the country.

GPL is one of the leading manufacturers of Recycled/ Speciality Polyester Staple Fibre (Fibrefill) in India through recycling of post-consumer pet bottle waste. The company has a capacity to produce 39,600 tonnes per annum (tpa) of Recycled Polyester Stale fibre, which is next only to Reliance Industries limited's annual production capacity of 42000 tpa. The company is having two manufacturing units at Kanpur and Rudrapur (Uttrakhand). GPL is riding on high growth path and it reported impressive growth in the December'09 quarter both in turnover and profitability.
The Company's business model is interesting as it is transforming post-consumer pet bottle waste (which is otherwise hazardous for environment being non bio-degradable in nature) back again into environmental friendly, hygiene, and comfortable fibres helping industrial users to manage quality nice and meanwhile save better. Besides procuring the Waste from vendors, the company has set up its own procurement centres in different cities to insulate itself from raw material shortage as well as price fluctuations. Finished product finds application for spinning of yarn, stuffing in toys and other life style products like pillows, quilts, mattresses and furniture, non-woven carpets and fabrics, medical & packaging textile, geo textile, fur fabrics, construction and paper industry and other technical textile. Recycled PSF replaces 100% virgin PSF in textile sector due to its most distinctive advantage of cost-effectiveness and it replaces Foam, Cotton, P.P. fibre etc. in other industrial sectors due to its durability, comforts and hygienic characteristics besides cost-effectiveness. GPL product range includes low-end basic segment to mid and high-end premium segment. Polyester has now become common man's fabrics in terms of prices, durability and comforts in comparison to cotton and other fibres. With growth in the economy and growing middle class, the per capita consumption of polyester fabric is also set to increase both for clothing and non-clothing applications. In fact, with growing per capita income consumption of non-clothing fabric will grow at much faster rate than clothing fabric. As Recycled Polyester Fibre is suitable both for clothing and non-clothing applications, its demand is improving both in textile and industrial sector. This bodes well for GPL as it has strong presence in both the sectors. Foreseeing the coming uptrend in the user industry and to capitalize upon the available growth opportunities, company is expanding capacity of its Rudrapur plant by 18000 tpa at an estimated cost of Rs. 30 crore to be funded through a moderate mix of debt and equity. Expansion in capacity is expected to improve the operating margins by around 250 basis points making it more profitable. Its ambitious growth plans include enhancing the recycling capacity to over 100,000 tpa in stages over the next 2-3 years, building up of yarn spinning capacity to integrate its operations forward and to improve margins, foraying into manufacturing of down stream products and entering into horizontal integration through producing more value added products like Partially Oriented Yarn (POY), packaging sheets, etc. from Waste. These growth plans are likely to propel CAGR of 35-40% in its top and bottom lines during next five years. The Company's sales and net profits have grown up at healthy compound annual growth rate (CAGR) of 28% and 30% respectively in the past four years. Its EBIDTA (earnings before interest, depreciation, tax and amortisation) improved to Rs. 17.10 crore in FY08-09 from Rs. 5.77 crore in FY06 on the back of improved product mix. In the December'09 quarter, sales grew by 39% to Rs.52.56 crore. EBIDTA rose by 33% to Rs.6.16 crore. Net profit grew by 169% to Rs.2.85 crore. The company is likely to close this fiscal reporting 40% growth in revenues along with 52% rise in EBIDTA and 105% rise in net profits. Company is moderately leveraged. It is not paying any dividend in the past mainly to fund the capacity building exercise during last four years. However, with improved financials, it has decided to reward the shareholders by declaring interim dividend of 5% for F.Y. 2009-10.

At Rs 47.25 its an excellant buy for long term. Please note that this stock should be held for atleast an year to reap the full benefits.

Happy investing

Cellphones - a 200,000 crore market in India in 2012 - Part 2

Thanks a lot for all the response and queries on my earlier post on the cellphone market and spice mobile
Would again urge all the readers to post yr messages on the blog itself rather than writing directly to me. So that everyone can read them.

The questions put forward by all of you can be summarised in the following 3 questions.
a) Whether the management is credible enough?
b) There seems to be a lot of competition and cheaper imports which could dent the market for smaller players. Will Indian players benefit?
c) What are the future prospects of spice mobile?

Will try and cover the question on management credentials in this part and the rest 2 in the next part.

To understand the management we have to go back about 15 to 20 odd years and see what they have been doing and then draw inferences out of it.
The spice group which was earlier known as M corp was created as a result of a bitter business battle within the Modi family in the eighties and nineties. And a look at the various things that the Modi group has done you will find a common thread of being the first mover in a lot of spaces.
From the first xerox machine in India to the first mobile service to venturing into PC hardware the group has been ahead of its peers. Thus it formed JVs with Xerox for photocopier machines, Luft for aviation, Alcatel for telecom equipment. The group also had the honour of connecting the first mobile phone call in India between then West Bengal Chief Minister Jyoti Basu and then Union Minister for Telecommunications Sukh Ram in 1995. It had also set up the first mobile telephony equipment manufacturing unit with Alcatel. Though the modi group was not successful in taking all of these to the next level but still it cannot be denied that Mr B K Modi is really good at identifying the great business opportunities of the future. And the best thing is that he is able to recognise his failure quite easily. He may not say it publicly but if you look at the timing of his exit from businesses you will realise that he is pretty good at it.
A classic example is the selling of Spice communication business to Idea in 2008. He was not able to scale up the business and hence he sold out. We all talk about how The Singh brothers of Ranbaxy got a great deal by selling off their stake in Ranbaxy. I think the selling of Spice communications is equally commendable. Some of us may call it sheer luck but I think going by Mr Modi's track record I would like to give him credit. He sold off his stake just 3 months before the crash. and that too at an absolutely fantastic price. He sold it at an EV/EBITDA of close to 17 times. The Bharti Zain deal is at EV/EBITDA of close to 10 and we think that it is an expensive deal. Think about it. Not only that it also got money for non compete agreement.

Let me give you another example. We all know about the satyam saga. Do you guys remember the first person who stood up and said that he wanted to buy Satyam. Yes, he was Mr Modi again. When all analysts were saying that Satyam is finished this man saw value in it.

So what is important to note here the astute understanding of this man in recognising opportunities and his knack for seeing value. His failure to scale up is a point of concern though.

Also the point about cooking up books and management quality. Guys lets get real. All companies do it. Maybe not to the extent of Satyam but all of them do it. I cant quote examples but if you keep your eyes and ears open you will often read a lot about these kind of things. And nobody can be sure which company is going to be the next Satyam. But thats a risk we all have agreed to take when we have ventured in the stock market. How many of the analyst recommended Infosys in 1995 or could say for sure that Infosys management was impeccable in 1995. Dont think anyone did. So personally I think the key is to look for value. We may fail but we may succeed too.
Infact I don think during these 15 to 20 odd years there has been anything against Mr Modi to alarm us on the quality of management.

So for a man who has proved himself for 15 years I think I am going to go with him this time

Dont know if you guys have seen his interview to CNBC Asia.

If you really are a value investor I guess you should.

These are the links for the video on youtube. Please do watch it.

Part 1
Part 2
Part 3

Happy investing

Sakthi sugar - update

A lot of you have written to me about my views on Sakthi sugar and its underperformance. My views are as follows.

The share price of a company is a function of both the financial performance as well as the perception of market players. I am still sure about the performance of Sakthi sugar. That is because of the following reasons (and these facts are known to everyone). I am only trying to put it in perspective.


a) My estimate is that it should have an EPS of around 40 for this year as well as about Rs 30 to Rs 35 for next year. This would make the PE for the stock at just about 1.5 to 2.

b) The sugar shortage is for real and no matter what the government does this shortage will be there.

c) Sakthi sugar is largely a refiner of raw sugar and it had contracted for its requirement far before everyone else. And hence its cost base is still quite low. So even at ruling price of Rs 28 to Rs 30 it should make a decent profit this year. (Though I still think that the prices should inch up from the current levels). Infact if you remember the current prices are about the same as that ruling in the September 09 quarter and even at those prices Sakthi sugar made quite a profit. Please have a look at the interviews by the management of Dhampur and Sakthi after the September 2009 results to know the average realisations and their performance within that realisation band. So even if the sugar prices do not go up Sakthi sugar should be able to repeat its September 2009 performance in the next 2 to 3 quarters.

d) The price paid for sugarcane by the south based mills is considerably lower than that of the UP based mills and hence their cost of production is lower than the UP sugar mills.

e) Sakthi also has an auto component business unlike other sugar companies. Am sure this will be revived sooner rather than latter. I dont have access to the last balance sheet of Sakthi sugar but I think the debt taken by Sakthi sugar was to fund the auto component business as well as some expansion. It was a pragmatic step by the management to hedge itself against the sugar cycle. Dont think any sugar company has tried to do such a thing. Its just sheer bad luck that the world economy collapsed. Am sure this business aspect will be looked into by the management soon.

f) The company has gone through the CDR process and is slowly trying to clean off its debt problems. Apart from the  Rs 100 crores of FCCB conversion (discussed in my post in February 2010) it has also converted about 10 crores of FCCB as recently as 15th March 2010.

What we are also forgetting is that these sugar companies are not here for charity. If the price of sugar goes down next year, then the price of raw materials will also come down. Be it raw sugar or the cane prices both will have to come down. They might not be able to make supernormal profits like this year but they will still be making profits for sure. If you look at the last sugar cycle what went wrong for the sugar companies was the high level of debt they had taken for capacity expansion. Dont think that is the case this time round.

Coming to specific question about Sakthi sugar. I am still hopeful of it posting good results this year as well as next year. An indicator of it is the fact that it is thinking of giving dividend year which it has not given for the past so many years.

Its results are due to be announced on 29th march 2010 which is this monday. So lets wait for the results to find out the actual financial position as well as its future plans. Also the official production numbers for sugarcane should be out soon. Lets wait for that as well before taking a call. Am not talking for the sugar sector as a whole but as far as Sakthi sugar is concerned its a hold for now.

Cellphones - a 200,000 crore market in India in 2012

I hope all of you are enjoying IPL 3 and the numerous breaks that come in between just as much as I am. But have you noticed anything peculiar. Havent?
Let me tell you what I have noticed. Its the number of cellphone manufacturers advertising their products during the breaks. So along with the MNCs like Nokia, Samsung, LG, Motorola and Sony Ericcson you have companies like Karbonn, Lemon, Micromax, spice mobiles, gee pee, Videocon, lava also jumping into the fray.

And this I think is not something which has happened overnight. This has been the case since about 6 months. Infact, if i remember correctly then Karbonn mobiles had even sponsored the India South Africa series. So what is it that these companies are targetting. There is a hue and cry about the telecom sector being in the doldrums and these companies seem to be paying no heed to that. Is there a market opportunity that these people are seeing but we are not able to see.

These are the kind of questions that came in my mind and led me to dig deeper. And the findings are as follows.

The competition among the telecom operators in India and the pricing pressure might not be beneficial to them but it will certainly lead to more subscribers coming in the mobile net. This is where the opportunity lies for these cellphone manufacturers.

The cellphone manufacturing companies are after the larger picture.

If, we for a moment think about the telecom sector as just one company and not about which mobile operator is having what share what are we looking at.

We are looking at a wireless subscriber base of 581.81 million at the end of January 2010 and a teledensity of 49.5%. (Trai link)

Also the net additions during Jan 2010 is about 19.9 million (across all companies)

If we assume that the net additions are likely to remain constant at about 20 million (remember there is lots of competition) then in 2 years time the number of wireless subscriber base is likely to touch almost double to 1062 million (581.81+20X24) or 106 crore connection.

Yes, you are right there will be a lot of defunct connections as well as a lot of people having 2 connections. I don't have a number for that. Lets just assume 30% of the total base is either defunct or have dual connections.

So we should technically need to have about 70 crore cellphones (70% of 106 crore) by the end of FY12.

Assuming an average cellphone price of Rs 3000 the market size should be Rs 210000 crores. Huge do you say. Thats not the end my friend.

What do you think is the longevity of your cellpone. 2 years, 3 years or 1 year. Lets assume 2 years.

So what are we looking at? We are looking at a market of Approx Rs 210000 crores divided by 2 which is about 105000 crores each year.

Before I go any further. Please let me know if I am wrong in my calculations. Cos the numbers seem insane but still I dont seem to have heard any analyst talking about it.

You must be thinking that if that is the case then why has it not been noticed before. My hunch is that we have never had a listed Indian player which could be tracked. All of the players have been MNCs and thus we have no information on the financials. If we look at Nokia their sales from India was 3719 million Euros in 2008. In Indian rupee terms it means about approx Rs 22000 crores. (Nokia India sales).

So how do we play this. That is the real question. Do we really have any listed player in this space and can it make an impact.

The answer is a yes. Am sure all of you must have guessed the name already. Its Spice mobile. As per the management interviews, this company has a market share of around 10% currently and it wants to scale it up to about 20%. If that comes true then I am sure you can guess what the financials of Spice mobiles would look like.

I think the opportunity itself is quite a big one but still if you would want Spice mobile to be analysed separately please let me know. Also please correct me if my calculations seem to be incorrect.

Happy investing.

Pioneer Investcorp

I have received a lot of mails asking my views on a company called Pioneer Investcorp. Its been touted as the a share with lot of potential. (Some tout is to be a 15-16 bagger)

Before I discuss my views on the stock let me first share some of the reasons due to which this company is thought to be the multibagger in the making
a) During its heydays (Jan 2008) the share price had touched its all time high of Rs 926 and it fell all the way to Rs 13.
b) During the period 2004-05 to 2007-08 its revenues had grown from Rs 1.52 crores to Rs 58 crores and the net profit had grown from 0.35 crores to 29.71 crores. Phenomenal is what one can say.
c) In 2007, Citigroup was rumoured to be investing approx Rs 400 crores in the company and the promoters then had taken warrants at a price of Rs 630 per warrant. Due to the financial turmoil the Citibank deal deal did not go through and nor were the warrants converted.
d) The promoters have converted warrants at Rs 110 issued when the share price was ruling at Rs 35.

My views. (Feel free to correct me if I am wrong)
Let me first begin by saying that the company is an excellent one. The management too seems quite good and based on past performance its business should do well. So what exactly is its business.
Its website (www.pincmoney.com) lists down the following areas of business

i) Investment banking
ii) Wealth Management
iii) Institutional broking
iv) Share broking
v) Mutual fund advisory
vi) Insurance advisory
vii) PMS

Does this make this company a niche company in its space. I would think the answer is a big no. The financial services sector is a hugely competitive market in each of the areas that the company is currently in. Infact, the performance of financial services companies largely mirror the fortunes of the stock market. Thus if the stock market is booming these companies tend to do well and vice versa. You can pick any company to check this fact.

This company is no different. Thus the performance of this company can also be correlated with the spread of the last bull run from 2005 onwards to Jan 2008. During those periods financial services was the indemand sector and thus this company did exceedingly well. So on the back of  very good numbers (although unsustainable) they got very high PE multiples as well. Thus when the E in the PE multiple vanished these stocks fell like nine pins.

Lets now come to the performance of the share price. Though the current price is way off the 2008 highs, I have my doubts regarding the share price doing just as well as in the year 2008. The reasons are as follows.
a) For FY08 the EPS was Rs 29 which means that at Rs 900 odd the PE was approximately 30. For the 9 months of this year the EPS is approx Rs7.5 (for the full year it should be Rs 10). But again this is on the back of a great year in the stock market. Hope you see the correlation. Thus if you are betting on the sensex doubling in the next 3 years I think investing in this stock could be a wise move. But then if that be the premise of investing then there are a lot of companies which you can look to invest in.
b) Please also note that this share was ruling at approx Rs 110 as on 30th June 2007 after which it shot up to 900 odd levels within 6 months. (that was one crazy time in the market). Incidentally this is the level that the promoters have converted warrants.

It should also be noted that this company is only in the advisory services for mutual funds, insurance etc. Thus it only gets a small commission.The real fun is really when you own a mutual fund or have an insurance product.

Thus I feel that though the company is undervalued but to say that it will be a 10 bagger is probably not correct. I think the fair value of the stock is around Rs Rs 100 to Rs 110 which could be reached if the next 2 quarters results are good. Personally I would like to wait for the next 2 quarters results.

However, this is only a personal opinion and I may be wrong. Please let me know if I am incorrect in my thinking.

Time for your comments

Bonus shares and tax planning

Its the last fortnite of a great financial year for the stock market and for us the investors. I am sure all of us have made a decent amount of money (profit). But just after the end of March 2010 some part of the profit has to be given to the government in the form of income tax on the short term capital gains that we have made.

Before I go any further let me briefly touch upon the difference between short term and long term capital gains in case of shares. Am sure a lot of you must be knowing about this already.

In case of shares bought through normal transactions on the stock exchange the following happens
a) If sold within one year from the date of purchase then the difference between the sale price (share sale price + brokerage) and cost of purchase (i.e. share purchase price + brokerage) would be termed as short term capital gain or loss as the case may be and 15% of the gain is payable as short term capital gains tax.
b) On the other hand if the shares are sold after one year from the date of purchase then the gain or loss on that becomes long term capital gain on which no tax is payable.

Within the broad contours of this there exists some scope for tax planning if you have bought some shares which have given bonus. However, please note that such scheme is applicable only for long term investment. This scheme in common parlance is called bonus stripping.

Today's ET carried an article on the same. (Link)

Lets first understand what is a bonus share.
Bonus shares are nothing but shares issued free of cost to the shareholders of a company. As this is essentially a book entry (reserves get capitalised), the number of total shares increase following a bonus issue, though the proportional ownership of shareholders does not change.

Though the article in ET is quite good, but for better understanding I have tried to explain the same through an example.

Imagine a Company A in which You invest Rs 15000 (100 shares @ Rs 150 per share). It declares a 1:1 bonus.
After the record date you get 100 shares as bonus and thus you will have 200 shares. Since no money was paid for the bonus shares thus the total cost of investment remains Rs 15000. However the average cost of per share now becomes Rs 15000/ 200 shares = Rs 75 / share. (For the sake of simplicity brokerage has not been considered in the example). Also assuming the ruling market price of each share is Rs 80.

Herein the cost of the shares would be as follows
a) Shares bought by you - first 100 shares - Rs 150 / share
b) Shares received as bonus - Cost is nil.

So the following 2 scenarios could arise.
Scenario 1 - All shares sold at Rs 80 within one year from date of purchase.
This will not lead to any savings in tax. The calculation will be as follows.
a) On shares bought - Short term Capital loss (Rs 80 - Rs 150) X 100 shares = Rs (7000)
b) On bonus shares - Short term Capital gain (Rs 80 - Rs Nil) X 100 shares = Rs 8000
Net capital gain = Rs 1000
Tax payable = Rs 150

Scenario 1 - First 100 shares sold at Rs 80 within one year from date of purchase and rest 100 shares sold after 1 year from the date of allotment of bonus shares (please note that in case of bonus shares 1 year is calculated from the date of allotment and not purchase of original shares)
This arrangement will lead to savings in tax. The calculation will be as follows.
a) On shares bought - Short term Capital loss (Rs 80 - Rs 150) X 100 shares = Rs (7000)

Since the bonus shares will be sold after 1 year, hence no tax would need to be paid on the same.

This loss of Rs 7000 can be set off against the other short term capital gains during the year. It thus leads to a saving of 15% of Rs 7000 = Rs 1050 on the tax outgo front.
Please note that this scheme works only if the bonus shares are held for a period of more than one year from the date of allotment.

Thus if this scheme is used before the end of March 2010 you could end up saving a lot on tax.

Stock splits

Stock splits on the other hand is different from a bonus issue and does not offer tax planing opportunites like bonus shares.
In the example mentioned above if the stock was split in the ratio 2:1 you would still have 200 shares but when the shares are sold, the capital gains tax implications are different than those applicable to bonus issues. In this case, the original cost of the shares also has to be reduced. Thus after the split the cost of 200 shares would be reduced to Rs75 per share, thereby keeping the total cost constant at Rs 15,000.

I hope I have been able to explain the concept.

However, please consult a tax practitioner for further guidance.

Nakoda Limited - Updates

Thank you once again for flooding my mail box with your suggestions, apprehensions and crtisism. I appreciate all of them. The genesis of this update is the response (and the queries) that I have got from some of you. Before I begin answering them I would just like to make a request.

I would really appreciate, if all of you post your suggestions, mistakes / errors that I might have made or absolutely anything about the post through the comments mode. I say this because some of the mails received by me have very genuine concerns which I think should be shared with all of the readers of this blog. Makes it easier for me to reply as well.

That in no way means you cannot send me personal mails. I am really delighted to hear from all of you. Its just that the comments mode is much more convenient.

So lets get down to the updates.
Question 1: What is the Nakoda Limited's website?
Answer: Nakoda's website can be accessed on http://www.nakoda.co.in/

Question 2: How have you arrived at the FY10 revenue number of Rs 1500 crores and margin numbers?
Answer: The numbers quoted by me have been mentioned by the management during their interview on CNBC. The transcripts of the interview can be read on moneycontrol. (link)

Question 3: This script seems to be operator driven? Whether the management is good or not?
Answer: Personally I am not sure that the script is operator driven. It is just that its not been discovered by the market. Once some paid service recommends it to its clients it should start flying. Now about the management, I am sure your guess is as good as mine after the Satyam episode. But my gut feeling says that these people are not all that bad. That because of the following reasons. Their shareholding is currently at about 50% and this has increased from about 44% in March 07. This could only mean that these people have faith in their business. However, I would again reiterate that this is purely my gut feeling.

Question 4: Anything unique about the company which makes it a value proposition?
Answer: The answer to this question is really contained in the management interview which can be corroborated with the company's performance over the years. What I like about the company is the way it has approached its business till now. Creating capacities which it can market. Going in for backward as well as forward integration.

Question 5: Am I invested in this company? What level should one enter
Answer: The answer is an absolute yes. Its a steal at this level. Anything below Rs 11 is a great level to enter.

Dont go by what I say. I suggest all of you to have a look at the results and the management interviews as well as the announcements. Let me know if I am wrong. I would be more than happy to acknowlede my mistake.

Time for your comments

Nakoda Limited (BSE Code - 521030)

By now we all know that Sumeet is a great story in the making. Suggested on this blog on 2nd of December 2009 at Rs 15. The share price of Sumeet Industries is Rs 23 odd as at the close of trade on Friday March 12, 2010. That is a cool 55% in about 4 months.

Let me discuss another stock which to my mind is probably just as good as Sumeet.

Its Nakoda Limited (earlier known as Nakoda textiles). Its financial year ends in December. It is a 25 year old company which was incorporated in the year 1984.

The issued number of shares is 6.64 crores of face value of Rs 5. In Janurary 2010 the company had done a stock split from Rs 10 to Rs 5 and had also issued bonus shares in the ratio 1:1.

Current market price is Rs 11.07.

Thus at the market price of Rs 11 odd the market cap of the company comes to Rs 74 crores.

The sales of this company for year ending December 2009 is Rs 1029 crores (approx 13.9 times market cap) Net profit was Rs 22.72 crores (0.3 times market cap) and EBITDA for last year was Rs 50 crores odd (0.67 times market cap)

Now let me suggest an offer to you.Technically if all of us collectively can garner Rs 75 odd crores then we can buy this company and get all our money back in about 2 years flat (EBITDA is only 0.67 times market cap). Yes, you got it right in 2 years flat. Thats how undervalued this company is.

Is this an aberration. Could be, so let us look at the financials.
Sales growth from Rs 167 crores in FY05 to Rs 1031crores in FY09 which is a 6 fold increase at a CAGR of 58%
Net Profit growth from Rs 4 crores in FY05 to Rs 23 crores in FY09 which is again approx a 6 fold increase at a CAGR of 55%
The EBITDA margins for this company stand at approx 5% and the company has been able to maintain this margin throughout FY05 to FY09

What is phenomenal is that the sales and netprofit have grown every single year..... no ups and downs.
That makes the curent PE as about 3.3 at the friday closing price of Rs 11 odd.

I think what we have discussed above is enough reason to invest in Nakoda. But hang on there is more to it.

This company is also foraying in to power generation through wind energy. Thats a one time investment with recurring income at very minimal cost. So virtually the entire revenue is the profit.

Apart from this the company is also expanding massively.

Expansion plan (check out this link)

Announcement dated September 2009 (Link)
Announcement dated December 2009 (Link)

Spinning capacity from 50,000 MTPA to 100,000 MTPA (Double)
Texturing capacity from 1070 MTPA to 30,000 MTPA (Manifold)
Backward Integration through setting up a CP plant of capacity of 100,000 MTPA. (Sumeet has also set up a 1,00,000 MTPA).
Not to mention the textile park.

What does it tell us? It tells us that just like Sumeet Industries Nakoda is also integrating both forward as well as backward. Infact the backward integration seems to be stronger than Sumeet.

So what would all of this translate into numbers.
Management says the entire expansion is to be completed by June 2010 and they are targeting 1500 crores as turnover with margin improvement of atleast by 6%. Note the word "by" and not "to"

If you do the maths I am sure your will realise what we are looking at.
At a turnover of Rs 1500 crores and an EBITDA margin of say 10% the EBITDA could be about Rs 150 crores. The annual report is not available on the website and thus it is difficult to estimate the interest or the depreciation. However, my hunch is that the EPS for next year would be fairly high. (about Rs 10)

A quick comparison with Sumeet will tell you what a great buy Nakoda is at these levels. If you think Sumeet can go upto Rs 100, I am sure you can think of Nakoda in the same manner.
Thats all for now. I think that is enough masala for you to ponder over.

Let me know whether I am thinking in the right direction. Time for your comments

P.S. Manish, this is the stock I mentioned to you when we met on chat.

Happy investing

Glodyne / Compulink update

Glodyne seems to be absolutely flying and Compulink is not. Have patience and you will be rewarded. By the way I forgot to mention in my post the approval for fund raising that Glodyne has taken from its shareholders. The amount is 150 million dollars or approx Rs 750 crores. And something seems to be in the offing. Saw the interview of Annand Sarnaaik, chairman and MD of Glodyne Technoserve on NDTV profit.

I am attaching the link. Do watch it.

(Interview link)

Happy investing

Record date and ex date

Let me begin by saying a big thank you to all of you for writing in to me. I was really amazed at the number of emails that I got. Please keep all your comments and emails pouring in. Unfortunately its very difficult to reply to all them individually, but I sincerely appreciate all your comments and stock ideas. Some of them I must say are truly remarkable. It gives a lot of satisfaction to see people benefitting from what little understanding I have on the stock market. Hope you spread the word around so that I can have a larger audience and we could have a larger number of ideas. Please ask all your friends to subscribe to my blog. Your patronage is key to the success of this blog.

Now to some funda. A lot of my friends have a query about the record date and ex date. This is something even I dont understand fully. But based on my limited understanding I have tried to explain this by means of an example. Feel free to correct me if I am wrong.

Let us pick upon the example of Sterlite Technologies which has set the record date for bonus and split as 10th of March 2010.  Ex date has been set as 9th of March 2010. This means if you buy Sterlite Technologies shares on or before 8th March your name will be there in the share holders books of the company and you will get bonus shares as well as the split number of shares . Usually it takes 7 – 8 days for the bonus shares to get credited to your account. The person who buys Sterlite shares on or after 9th March will not be eligible for the bonus issue / split because the company would consider the entries in share holders books at the end of the day on Record Date.
On Ex-Date (9th March) when the market begins at 9 am the price of Sterlite will be around Rs 87.6 (closing price of 8th March i.e. Rs 438 divided by 5) and your will have 2.5 times the number of shares that you have. This is because the face value split has been set at Rs 2 from Rs 5. So 5/2 is the number of shares that you will have in your account. After a few more days the bonus shares will also be credited to your account in the ratio of 1 share for every share held.

As regards the price, once the price corrects to reflect the corporate benefit, it would be open for the market to discover the price.

So in summary this is what it means

Record Date: A day before Book Closure period is Record Date. Only the investors who are in the share transfer books of a company on the end of the day on Record Date is eligible for the corporate benefits.


Ex-Date: It is the date on which the corporate benefit is reflected in the share price. The investors who hold the securities just before this day are eligible for corporate benefits. The people who buy shares on or after this date are not eligible for the benefits.

If you wish to check the record and ex dates for any share you can look for the same under the CA tab on BSE and under the Corporate announcement link on NSE. This link is not visible on the home page (atleast I could not find it). It is visible once you enter the stock webpage.

Hope this clarifies. If, I am wrong do let me know. Your comments are really appreciated

And yes please spread the word around.

Till my next post.........Happy investing

Compulink Systems Limited (BSE Code - 532688)

Glodyne Technoserve is a leading IT Services company, headquartered in Mumbai, India with presence across India and US. It offers technology led business solutions across two SBU’s i.e. Technology Infrastructure Management Services (Technology IMS) and Application Software Services

If we dejargonise IMS it would simply mean the following

It is like asking a company to take care of its business, whilst Glodyne would take care of the IT infrastructure of the company. Now we all know that IT infrastructure is evolving very fast and thus upgradation needs to happen equally fast. And it is here that lies a huge opportunity for Glodyne in its Infrastructure IMS space. 70% of Glodyne’s Revenues come from the IMS space only. To understand the kind of opportunity that IMS presents to companies like Glodyne let me give you the links to a Mckinsey / Nasscom study on IMS. Mckinsey paper.

The study claims that the $524 billion IMS industry soon could become as important as the ADM and BPO industries that have dominated the rise of offshoring since some years. Out of this $524 billion, the study pegs the global addressable market for IMS to be in the range of $96-104 billion. Taking out the $7 billion that is already being addressed by vendors and captives in the low-cost locations like India, the unaddressed market pie works out to $89-97 billion. With an opportunity of 70-75 percent of infrastructure management roles available for offshoring, IMS as an industry could realize $26-28 billion of the global opportunity by 2013, and India is strongly positioned to capture $13-15 billion of the global opportunity. See article in silicon india. (Article)

Now if this makes you convinced of what the opportunity that lies in front of Glodyne the next question which would arise is how capable is Glodyne in doing this. The answer to this would lie in both the past (i.e. the financial performance) and the future (as in what its plans are or rather appear to be)

From FY05 to Fy09 Revenues grew at a CAGR of 46.4 % and Profits Grew at a CAGR of 71.3 %. Amazingly its Return on Equity is 67.1%. Phenomenal is all I can say. This also means that the company is not just about promises. It is also delivering on its promises.

Now about the future. For this we must look at the important developments happening at Glodyne.

In March 2007 Glodyne Technoserve acquired a 100% stake in an all cash deal of $4.75 Million in LGI inc.Tocated in Virginia.

In October 2007 Glodyne acquired Front Office Technologies situated in New York in an all cash deal of $3.34 Million.

Recent Indian Acquistions

In July 2009 it acquired Broadllyne Technologies Limited ("Broadllyne"), a Application Managed Service Provider Company based in India in the education space through a Scheme of Amalgamation / Arrangement. Though the company may be a small one, the opportunity that it can get to Glodyne is huge. Broadllyne has around 170 clients mostly schools and colleges.

In October 2009 it entered into an arrangement with M/s. Compulink Systems Limited for merger with itself. This company is into the project management space.

In addition to that the above Glodyne is also trying to get into the e-governance space in India. It has already been selected by the State government of Bihar and Maharastra to provide tech support for NREGS programme in the states.

So what does this mean.

a) The company is slowly but surely scaling up to grab the the opportunity that IMS presents in the mature markets like US.

b) Simultaneously it is also trying to tap the huge opportunity that India presents in sectors like egovernance and education apart from the IMS business in India. Mind you that in times to come, as the India growth story unfolds India would present quite a substantial opportunity in the IMS business as well.

Sure it has completion in the form of the IT biggies like HCL and Wipro but the pie itself is so large that there is space for everyone. Plus the best part about Glodyne is that its got a headstart in the e-governance space over its peers.

And the best part is that all this is currently available at a PE of about 14 when the industry PE is about 20.

It light of the discussion above I don’t think I would like to take the risk of trying to project the future earnings or share price of this company. Not because I cant but because I am sure even with my best guess I would end up underestimating the earnings.

So that is all about Glodyne.

But hang on, the title to this post says Compulink and I am talking about Glodyne. Yes, my friend that is where the fun is. Since you are a subscriber to my blog (or would like to be one by subscribing through feedburner) I can show you a way to buy Glodyne’s shares at a 14% discount. That’s because the swap ratio between Compulink and Glodyne has been fixed at 19:1. Check out the prices and do the maths. Yes, thats right, at the closing prices on BSE of both on 5th March 2010, if you buy 19 shares of Compulink your cost will only be Rs 547 whilst the price of 1 Glodyne share is Rs 637. So buy Compulink before it hits that upper circuit.

Let me know if my exuberance is unjustified. Till then happy investing.

And yes pls do post your comments. I might not be able to reply but they are invaluable for me.

Sterlite Technologies

Saw an announcement on BSE regarding this stock having a stock split as well as giving a bonus. The record date is 10th of March 2009. This lead me to look at its numbers and ultimately led me to its website. And what I read and understood convinced me as to why Anil Agarwal is so successful. He is trying to straddle across 2 of the hottest sectors of tommorrow i.e. Telecom infrastructure and power transmission. The site also contains some research reports and of them there is one by Antique issued on September 17, 2009 mentioning a target of Rs 385. Now that target has already been achieved. What I would request all of you is to go through the entire report to understand the opportunity that we are staring at in the form of Sterlite Technologies. And mind you this is just talking about earnings growth. If there is a PE rerating as well then I need not say what the result will be. (Research report)

The report is just so well written that I think writing anymore about Sterlite will be like reinventing the wheel. Thought I soudl share it with all of you.

I am invested and I hope you take that decision soon. Would love to hear your comments so that we could all benefit. Happy investing.

Interesting Development for Bharati shipyard.

Have you looked at the anouncement dated 19th February 2010 by Great offshore. Here is the link for you (Great offshore). I will come to what it means in a moment. But before that let me give you the background.

Bharati Shipyard is one of my favorites stocks. I bought it first at Rs 700 way back in 2007. It was then the darling of the stock markets and FIIs like Goldman Sachs had invested in the company. Subsequently the value of this stock fell to Rs 50 levels in March 2009. However the financial performance remained unchanged. What changed was that the orders stopped coming and hence the stock continued to languish at sub Rs 100 levels until lady luck struck. After a bidding war it acquired Great offshore which to my mind was the greatest thing to happen to this stock. Not many of us small investors still realise the implications of the deal. The large amount of debt on Bharati's books is what concerns us and that is probably due to what "the analysts" tell us on TV.
But let me lead you to what is actually happening. If you look at the shareholding patterns for the months of September 09 and December 09 there is something noticeable which has happened. The holding of "Shareholders belonging to the category "Public" and holding more than 1% of the Total No. of Shares" has increased from 21.57% to 24.45% which is about a 3% increase. About 39% is still held by the promoters. Which means 63% of the shareholding is with pretty strong hands with about 10% holding still with insurance companies.
Now the interesting bit. We all know that the problem with Bharati is the orders having dried up. But times they are a changing. It should soon be getting orders and thats what the first line of this post means. Great offshore board has decided "To seek the approval of the Company in general meeting to raise funds not exceeding Rs 1750 crores in the from of equity shares, bonds or debentures, or other securities to augment the resources of the Company to provide for offering broad spectrum of services to upstream oil & gas producers to carry out exploration and production activities.". This decision comes just after a month of Bharati shipyard acquiring Great offshore.

So how is Great offshore going to do so. By expanding capacity and who better than Bharati shipyard to do so. So grab your share of Bharati shipyard before it gets those orders and the announcement flashes on bse and Bharati Shipyard hits upper circuit.

However this is no insider information and hence I might be wrong. Please do your due diligence before investing.

Points to note: Read somewhere on the internet that Bharati shipyard is due to get Rs 1000 crores as subsidy payment. If this is true then what happens to the debt on its books is very easy to guess.

N:B: Am working on the projected financials for Bharati shipyard.......will post them soon. Till then happy investing.

some clarification for my friends

I seem to be getting a lot of mails/ comments regarding the fact that the stocks that I am putting on the blog being already been adviced by some other web portal.

However let me clarify that its only coincidental. I am not a subscriber to any paid website. My analysis is purely my perspective based on what I happen to see on BSE announcements or read in the newspapers. And this is not my full time job. I think any of you or rather many of you can have the same ideas just by having a look at the announcements which are there in the public domain. My posts will infact coincide with date of announcements.
Also with so many people now being focussed on the equity market, it should not be impossible for more than a couple of people to have the same idea. And just like any other investor I have the right to be wrong.

For example in case of Sumeet industries if somebody had a look at their Sept 2009 results announcements it was more than apparent what it was doing and what was its financials going to look like in future. I dont think it needed any expert analysis. The opportunity was crying out to be taken.
One of my friends recently sent me a mail saying that I had copied my last post on Sakthi sugar from one of the websites. To this I only want all of you to go thru my previous posts on the blog. I think I like Sakthi sugar for quite a long time now. And while I still think its a great buy the website mentioned thinks that there is some hanky panky going around in the company. Also the website is writing from the perspective of the global banks who had invested whilst my post is largely on how the FCCB conversion has benefitted Sakthi sugar.
Anyways to cut the long story short, investing in any stock is a call to be taken by an individual as the risks / rewards will both accrue to him. So I leave it to the readers to decide upon which website/ blog they wish to visit / not visti and what stocks they want to invest in or not. But yes please do proper due diligence before you decide to invest.

For the record I am a Chartered Accountant by profession and working in one of India's largest corporates for the past 5 odd years.

Maybe the advice of paid websites are more relevant in today's times. Still your comments are always welcome.
Happy investing.

FCCB conversion by Sakthi sugar (Rs 95 crore profit)

Issue of share worth Rs 10 and get Rs 200 worth of debt extinguished. What does this mean? It means a neat profit of Rs 190 per share. My calculations say they have issued about 50 lac shares which would take the issued number of shares to about 4 crores. This also means that Sakthi sugar has made a profit of Rs 190 X 50 lac shares = Rs 95 crores as profit. Depending on the accounting policy chosen Sakthi sugar may decide to show it in the P&L or its share premium account. But I hope you will agree with me that it is indeed a profit.


I would not comment any further on the sugar cycle because the jury is out on that one. It time now to just watch and see how it pans out. However we do have Rs 95 crores as profit (whether shown in P&L or not is a separate issue).

What is also does is reduce the debt by Rs 100 crores. So the debt should stand at Rs 1000 crores.

Now I have seen a lot of comments as to why the investors did such a transaction with Sakthi sugar. But no one seems to be looking at the benefits that Sakthi sugar got ou of this transaction. Who cares if Goldman Sachs lost money.

Now if this is what is the harbinger for the future then it should be great for Sakthi sugar. This is because in 2006 it had issued FCCBs for $50 million or Rs 250 crores. Out of that Rs 100 crores has been converted and if the rest of it is also converted in the same manner then there is likely to be another profit of approx Rs 143 crores and debt reduction of Rs 150 crores. This then takes the debt down to Rs 850 crores.

Assuming an average EBITDA (free cash flow) of Rs 140 crores (which may vary to a degree of Rs 40 crores plus or minus) the entire debt could be paid off in about 7 years.

And amidst all this what we are forgetting is that the debt which was taken up wasnt burnt in a bonfire. Yes, some of it was lost through operations but a lot of it was invested in places like Europe in the Auto ancilliary business. All of us seems to have forgotten the Europe bit. There is still a lot of assets which could be liquidated and that could reduce the debt.

And by the way I am reasonably sure that Sakthi sugar is going to post a profit of atleast Rs 50 to 55 crores for quarter ended December 09.

So its time now for all of us to wait for the results and for me to wait for your comments.

Sturdy Industries ( BSE code - 530611)

The investment idea for February is a company called Sturdy Industries Limited. A stock with market cap of around 20 crores. Its part of the Chemiplast group of companies which deals in Plastics, Aluminium and building materials. From the look of it the businesses that it is into looks very unexciting and you are actually right if you think so. So let me lead you what I found interesting.

I am sure all of you must have heard of micro irrigation and the only company in India which is into micro irrigation, which is Jain irrigation. All of you will agree that micro irrigation is a great idea and you would like to hold shares in Jain irrigation. However, you do not do so because of the fact that its shares are overpriced. The PE of jain irrigation is at around 33.

Sturdy industries is in the same business or is going to be in it. We dont know much about it because this business is with its sgroup companies whereas what we see results for is platics, aluminium etc. However, the company now seems to be taking serious attempt at expansion of its micro irrigation business alongwith other businesses. Along with merger of the businesses it is also planning to expand its micro irrigation capacity from 13,000 TPA in 2008-09 to 43,000 TPA in 2011 by setting up a plant capacity of 30,000 MTPA in Baddi.

This is apart from the other expansions that the company is envisaging. Since there is no pint in copying what is already there on the internet I am putting in links for couple of pages which you should read to understand what we are talking about.

Website - Sturdy Industries
Chairman's speech - FY200809

And to top it the various announcements on BSE could also be an interesting read. I am sure once you have done all of this you will be convinced about the power of this idea.

There is really no point in looking at what the financial position except the fact that during the 9 months ended 31st December 2009 the company made a PAT of Rs 4.45 crores translating into an EPS of 1.1. That means a PE of around 4.5. Yes, thats how undervalued this stock is. And mind you that the EPS is still to be annualised.

The other good thing about the investment is that the promoter's holding as on 31st December 2009 is 43% and it is only likely to go up with the merger of the group companies which are private limited companies.

Its a multimulti bagger and hence no targets. And if you do make money remember you heard it first on my blog because surprisingly nobody seems to be tracking this one. Do let me know if I am wrong in what I am thinking.

NB: My work keeps me very busy these days and hence I might not be able to reply to you messages promptly but would still appreciate all of you commenting on my posts.

Happy investing.

Sugar sector updates

Just to recap Sakthi sugar has been battered in the recent falls. However, I think it is still a fundamentally sound idea which the market will probably recognise around March 10. when the current crushing season ends. The shortage is for real and no matter what the government does the price of sugar is not going to fall in a hurry.  Add to this the fact that for next season India will be going in with absolutely no buffer stock as well as a demand of around 25 million tonnes (assuming a 10 percent increase in usage over demand of 23 million tonnes in 2009-10).

Some of the research reports are also talking about the shortage being more than envisaged and hence raw sugar imports would gain momentum in the period after the current crushing season is over.

Some other pointers are what the corporates are doing. Shree Renuka is still lokking to buy our companies in Brazil. It is also looking to still buy Balrampur Chini. Simbhaoli is setting up a refinery which would get completed in 2011. Isnt it strange that corporates are looking to enhance capacity when we all think that the sugar story is over for now.

The fact is sugar story is far from over. Sugar cycles in the past had significantly impaired the balance sheets of corporates. However, what this year has done is repair them. So from next year onwards the sugar companies will operated with far less debt. Add to this the fact that the sugar consumption is not going to go down. The cola companies, the biscuit companies all want to increase sales and so the sugar consumption is only likely to go up.

Markets as usual take a short term view so we must bide our time. Sakthi sugar is a great turnaround story. Remain invested.

SE Investment (BSE code - 532900)

A very happy new year to all of you. My first post this year is about an interesting opportunity for which I would not like to give any targets. That I would leave all of you to decide upon. If you ask me I would be happy to take a personal loan @ 15% pa for a 3 year period and invest in this script.

Current price: Rs 351.45
Price target : Atleast 5 times
Time period : 3 years

So what is the company into. It is into microfinance. I leave it to the readers to find out what microfinance is the kind of opportunites it presents. (type microfinance india on google). This time round I am also not going to give to you the financials of the company. That is because the opportunity that this company presents to you will not be contained in the financials but the business model of the company which revolves around the concept of microfinance. Please visit SE investment site

So what makes me convinced enough to say that its a multibagger. Yes the financials show an increasing trend. The revenue and net profit growth is superb. But the most fascinating thing is its plans. No it has not revealed anything as yet but going by what it has spelt out in its EGM documents the plans should be huge. Going by the EGM documents and my experience in the corporate world it has huge capital raising plans. And am sure you would agree with me that unless the management has confidence on the business model such large expansion would not be thought of.

This is what it is going to do. It is increasing its Authorised share capital from Rs 8.50 crores to Rs 125 crores. Now raising the authorised capital cost money. As per todays rates it would cost Rs 0.6 crores.

They have called an EGM on the 15th of January 2009 to get shareholders approval for the same. My hunch is that very soon there is going to be announcements of how the money will be raised. Since the business is about lending money so more the money better it is. So ideally 10 times more money should lead to 10 times more profit in the years to come Lets see if my hunch is correct.