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.
Saturday, March 27, 2010
Wednesday, March 24, 2010
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.
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.
Monday, March 22, 2010
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
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
Thursday, March 18, 2010
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.
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.
Tuesday, March 16, 2010
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
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
Sunday, March 14, 2010
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
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
Thursday, March 11, 2010
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
I am attaching the link. Do watch it.
(Interview link)
Happy investing
Monday, March 8, 2010
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
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
Sunday, March 7, 2010
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.
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.
Wednesday, March 3, 2010
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.
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.
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