I am analysing some of the following stocks in detail as these stock have passed my initial filters
Concor
Balmer Lawrie
GSK Smithline consumer
Disclosure – I have owned Concor and Balmer lawrie for the last few years and currently re-analysing the stocks. So my analysis could be biased. I would be posting the analysis soon.
In addition Mid-caps and some value stocks have now become even cheaper. Some companies now sell for almost or slightly less than cash on the balance sheet. I am now finding quite a few ideas to work on and hoping that the cheap would get cheaper.
In addition I am reading the following books and have found them to be good. I would definitely recommend reading both the books
More than you know by Michael J. Mauboussin
Margin of safety by seth Klarman
Good study on SRF…Please add further
SRF is my watchlist as well.Following are the key points which make the stock attractive– Low P/E ratio (around 3)– Carbon credits are going to be a regular contributor to income and not one time. (Rs 300 Cr/annum min)– Diversification away from low margin nylon cord. (chemical business, also talks abt petrochem plant)– debt can easily be retired The negatives are— Management not very transparent– There are talks of stock price manipulation to keep it at low levels (through circular trading)Overall it looks a clear underpriced stock.There is also an excellent analysis by ANANKRIS on moneycontrol.com message board.Those really interested in this stock should definitely read his analysis of over last 6 months.Alok
Hi alokcan you let me know where did you find the 300 Cr no. for Carbon credit ?The management does not talk about it in the 2007 AR and keeps patting itself in that AR. In the current year’s AR when the profits have dropped, they have made a mention. i was not able to find the exact no. for it. In addition if the credits are this big, i would expect the management to give me more clarity on it (300 Cr would be 75% of the profit)i had a look at the board discussion and some points come accross- the whole valuation rests on the carbon credits – expansion plans – moving out from the current low return tyre cord to other businesses- possible demergerpersonally this idea is moving into my ‘too complicated and messy’ file with management issues, non core sources of income, lack of tranparency . it may be a perfectly clear to others, but i am finding this idea complicated and messy to analyse.
the promoters issued themselves warrants for around 3.3 million shares in march 2005 at 85/ share when the market price was 225 +.I am not comfortable with companies where the promoters gain at the expense of the minority shareholders. short term you may make money, but my own experience in the long term is bad.The company may become an arbitrage opportunity if a demerger happens
There’s a post by Sanjay Bakshi on SRF. Might interest you:http://fundooprofessor.blogspot.com/search?q=SRF
Following details were given by ANANKRIS on moneycontrol message board on SRF Carbon credits issued/sold.SRF – CER ISSUE DETAILSNo.- Date of issue- Monitoring period- CERs issued=====================================01 – 16/01/2006 – 01/07/04 to 30/09/05 – 5,42,82902 – 15/05/2006 – 01/10/05 to 31/10/05 – 6,72,27103 – 15/02/2006 – 01/11/05 to 31/12/05 – 12,95,44904 – 15/05/2006 – 01/01/06 to 28/02/06 – 13,12,67605 – 03/07/2006 – 01/03/06 to 30/04/06 – 7,87,99006- 04/09/2006 – 01/05/06 to 30/06/06 – 13,00,03807 – 02/11/2006 – 01/07/06 to 30/09/06 – 9,34,70108 – 21/03/2007 – 01/10/06 to 31/01/07 – 10,33,68309 – 01/06/2007 – 01/02/07 to 31/03/07 – 7,71,92510- 02/11/2007 – 01/04/07 to 30/06/07 – 9,72,340Total CERs issued till date- 96,23,902Further, issue of CERs 8,94,239 for the 11thMonitoring period from 01/07/ 07 to 30/09/07 is inthe pipeline awaiting request from the Co.Details of CERs sold:Period( Qr) – CERs sold – Amount realized(Gross Amt./PBIT)March2006—- 1.40M -Rs. 93.85Cr/ 88.60CrJune 2006—- 1.00M –Rs.133.83Cr/117.69CrSept.2006—- 1.50M –Rs.148.82Cr/140.90CrDec. 2006—- 1.15M –Rs.122.28Cr/112.96CrTotal —5.05M – Rs.498.78Cr/460.15Cr( Upto the period Dec. 2006)After Decemeber 2006 quantity of CERs sold and amountrealised not disclosed by the Co and CER income mergedwith Chemical Business in the segmented results.Segmented results relating to Chemical Business ( includingCER revenue )during the subsequent quarters given below:Period – Net sales RevenueMarch 07- Rs.140.04CrJune2007- Rs.131.01CrSept2007- Rs.127.69CrTotal – Rs.398.74CrConsidering quarterly average revenue from core chemical segmentaround Rs. Rs.50 Cr,( in case of no volume growth during this period)the element of CER income could be to the maximum extent Rs.250Cr ,for the last 3 quarters from sale of not more than 2.5Million CERs.This leaves not less than 2M CERs with SRF in addition to 0.9M to beissued for the period July07 to Sep 2007.SRF can generate 3.83M CERs annually from July 2004 and henceentitled for 11.5 M CERs for the 3 year period upto June 2007. SRFwas issued 9.62 CERs during this period, short by 1.9M CERs. I presume that this shortfall can be due to stock of HFC to be incinerated/sold during this period and can be got issued in the subsequent period with in the overall limit of 3.83CERs per year. Storing of HFC gas is a continuous process where as the process of incineration of HFC is not. This is evident from the variations in CERs issued for different periods and incinerationplant shut downs during these periods.
Hi Rohit,I still think that Indian Market valuation are very high and I couldn’t find any more securities worth buying.I was reading Berkshire’s Annual Meeting Notes and have seen Buffet’s valuation method on PetroChina and is too simple and Great. (It took less than 3-4 seconds for him to decide billion dollar investment)If you are looking for such kind of valuation and stable company like PetroChina, I dont think you can find it in Indian Market atleastRegardsVishnuExcerptsWe bought Petro-China a few years ago after I read the company’s annual report. It’s the first Chinese stock we’ve owned, and the last, so far. The company produces 3% of the world’s oil, which is a lot of oil. It is 80% the size of ExxonMobil. Last year Petro-China earned $12 billion. Just 5 companies on the Fortune 500 made that much last year. When we bought the company, it had a market cap of $35 billion, so we ended up paying 3 times what the company earned last year. Petro-China doesn’t have a lot of leverage. It will pay out 45% of what it earns, so based on what we paid for the stock, we’re getting a 15% cash yield on our investment. The Chinese government owns 90% of the stock and we own 1%, so I like to joke that between the two of us, we control the company. Unfortunately, we had to disclose when we owned 10% of the non-government class of shares. We would have bought more, but the share price rose. Management does a good job running the company. Petro-China has 500,000 employees.
Hi Rohitwhere did you get margin of safety book ? becasue it usa it is very hard to find.
vishnuthe overall market is definitely high with pockets of insanity. but midcaps and small caps have crashed and are now cheaper than before. so i am finding a few good ideas in that space. ofcourse you have to comfortable to underperform the market for some timei read the above explaination from buffett too. Earlier i would have the same feeling too..but lately i have realised that it is buffett’s genius and clarity of thought which makes an investment idea look so deceptively simple and obvious. he is able to focus to the key points and get to the essence of the idea. however i am nowhere close to him, so sometimes i have found some ideas which were simple and obvious, but i was not sure if i was correct.past examples of this type were blue star, concor in 2003, pidilite in 2004 etc.
anoni have a soft copy of the book which was given to me. the book is out of print and not available easilyregardsrohit
Hi Rohit,More than you know is a very nice book and absolutely broadens one’s thinking.But I am curious about “Margin of Safety”…where did you buy that from? not ebay at 2000 USD i suppose? then it wouldnt be “value”…if a soft copy…can you share it please…Prashant
Hi prashanti got a soft copy from someone ..it is a good book, but if you have read on value investing, then you may not find too many new ideasplease leave me your email …i would not like to upload it on website as it is copyrighted materialregardsrohit
Rohit,I would appreciate if you could send me the copy of “Margin of Safety” at dr.vishalsinha@rediffmail.com.I agree with you that Buffett often gives the false impression of simlicity. I have heard that when he rescued Salomon Brothers in the 90’s he did the option valuation on a napkin, which in our MBA class of 90 smart brains (excluding mine of course!) took 1.5 hours to decipher. Many thanks in advance.
Hi vishal i have heard similar stories on buffett. he is said to be able to do complex valuation in his head which requires others computers and considerable time to complete. he is a genius beyond comparisoni have emailed you the book.regardsrohitregardsrohit
Hi Rohit,Please email me the book at prashant80@gmail.comMany thanks in advance and yes, agree with you completely on the fact that WEB makes it look so simple but actually he’s gifted with amazing brain power.ThanksPrashant
Great reading in this section. However my question to Rohit is not on the book. Can you pl. look at Murudeshwar Ceramics and see whether it is a value buy? Consistent profits, good dividendes, book value – 138 and cMP =75-80. Looks like a value buy. but how do I evaluate and confirm? Pl. helpthanksVenu
Hi rohit, would be great if you could mail me a copy of the book as well, i’ve been trying to get my hands on a copy for a while now.My email is oldnunimproved@yahoo.com.Also i look forward to your analysis of the mid-caps you’ve mentioned – if you choose to put them up. Personally i’m still finding it hard to find true value – ie. value that doesn’t come purely from a stock being XX% off its recent highs. As an aside, buffet has finally agreed to an authorised biography, the book is to be out in August i think and is called “The Snowball”I hear amazon is taking advance bookings. It should be worth every rupee, given that its authorised by buffet.RgdsMark
Hi Rohit Would appreciate if you could email it to me on ninad.kunder@gmail.comCheers Ninad
HI Rohit, Would be grateful if you could email me the book at abhi2000@gmail.comAbhishek.
I have found a couple of value bargains and wonder what you think about them. They are both mid-sized IT companies. They are Helios & Matheson, based out of Chennai and Zensar Technologies, based out of Pune. Both companies are selling for much less than one year’s sales – primarily because the whole sector has had lower net margins in FY 2008 due to the Rupee appreciation. But considering that revenues should continue to grow due to lack of competition from any other country, and net margins should stabilize once price increases are fully implemented, I think both these stocks are trading at around 6-7 times normalized earnings. (That is, the earnings they would make over the course of a normal business cycle.) Both companies have good ROEs, ROCEs, etc. Your views?
Sasken Communications is a stock that is quoting below its cash per share of 136. Please share your views.
abhishek, vkrm I am finding value in some of the ideas i have already posted. In addition there some opportunities in auto component and IT (midcaps) as some of you have indicated. I have only cursorily looked at some and not done an indepth analysis. for IT midcaps in addition to the standard measures of valuation and cash i would like to understand the basic business model. It is easy to lose ground in the IT space if you dont have the scale and the competitive advantage.On the face of it the IT midcaps offer a lot value, but i need to understand these companies better
marksome of the midcaps are the earlier ideas i have posted. in addition i will post on new ones in the future.I generally try not to base my evaluation on an X% drop of price (try to avoid the anchoring effect)i came to know about the authorized bio of buffett and would be waiting for it eagerly
Thanks rohit look forward to the posts. Do mail me the seth klarman book when you can. Mark
hello rohit , good ideas , balmer , gsk – currently are good value buys …How we can calculate price to book value . why I am intertested is that this is also a value indicator to buy as graham mentioned. Yes , Buffet also uses value investing to buy .But the kind of companies his firm invests is more into consumer consumption oriented firms or monopolistic ( as u mentioned blue star , concor in urs ) firms . I think he does not use value style fully alone , he uses growth style too as “fischer” . Buffet before investing , visit the companies , countries and hold management meetings etc etc .. But i would like to ask u abt Walter Schloss , a value investor and a graham disciple . this fellow , as i have read , does not attend meetings , other headache stuffs , does not hold discussions etc and has given 25 to 28% returns (CAGR) follows the same graham principle (P/B value) and hold many stocks than buffet and even buffet mentioned in his report and is pbly a slmost close graham principle follower .the other one , John Neff (concentrate on moderate growth , high dividends ). wat do u say ? if u have read abt walter schloss , please discuss? Is it possible for u to send me an email of soft copy abt ” margin of safety ” to my email address ” sujith.marar@gmail.com“.
What is currently available in market in large caps with PE below 3 or 2 regardless of the industry? It is boring to debate again on the same.
Hi sujithi have read on walter schloss and john neff’s book too. They are closer to the classic graham style of investing than buffett. I think and buffett has said in as many words, that you can use classic graham approach with small sums of money. when you work with larger sums of money, you have to look at consumer franchises and other ideas where the intrinsic value will also expandpersonally i follow both approaches. earlier it was possible to find great companies at throw away price. lately good companies are available at decent (not mouth watering prices) and then there are graham type stocks available too like cheviot and kothari products.i do not base my decision on measure such as P/B alone. book value was more important in 50s and 60s. It is continously losing relevance nowdpsoftgroupnot sure if i understand your comment ..i dont think there are large caps available at that valuation ..but then why restrict ourselves to large caps alone ?
allthe book is 11 mb and is bouncing back via email. i am trying to figure out how i can send it.however i would not be posting this book on my website or any public domainregardsrohit
rohit, you could upload the file on rapidshare/megashare or other file upload sites and just send us the link, we can download it from there. Should work.RgdsMark
Here is the link to the bookhttp://rs289.rapidshare.com/files/68775054/MoS.rar
To Anonymous who posted the book,Thanks a lot . I really appreciate it. I believe I have a fair collection of ebooks. Pls let me know at varenya123@yahoo.com if I could be of any help.Thanks
Hi Rohit,I was trying to do a discount cash flow analysis for Balmer. Its net profit for last year was 70.22 crores. Is it prudent to take net profit as the free cash flow for this calculation. If not, then how one should determine the free cash flow from the net profit figure.For the calculations, I am also assuming growth of 15% for next 5 years and 5% thereafter and a discount rate of 9%.Please let me know whether my assumptions are reasonable.Thanks & Regards,Abhishek.
Hi abhishekin case of balmer lawrie, you can take net profit as free cash flow. however that is not always true. judging that is a bit mathematical and a bit of judgemental call. see the past capex (5 years) for the company and compare with depreciation. if the company has grown by 10% or higher and capex is almost equal to depreciation or a bit higher then you can make that assumption.the dcf assumptions seem to be reasonable..though the 5% assumption is a bit conservative. with a 5% inflation, any volume growth could give the company a 8-10% growth. but you assumptions seem to be conservative enough.important thing for balmer lawrie it to consider the JV and associate companies in the valuation
Thanks Rohit for your response.But how to consider ths JV and associate companies into account for the DCF?Should I calculate the intrinsic value using DCF and then add proper value for JV, etc to that value? Can you explain it with some example as I am a novice in using the DCF approach.Abhishek.
Hi abhishekyou can value the parent and the JV independently and sum the parts, or just look at the consolidated numbers (including JV and associate) and use those numbers to arrive at the value.A more accurate approach would be to value each business and JV in case of balmer lawrie independently as the economic characterisitics of each business is differentregardsrohit
Hi Rohit,Iam a novice in Value based investing. Iam a big fan of yours. Applying the principles of value based investing I found Balmer very interesting. I cound not find anything fundamentally wrong with the stock. The intrensic value {after 50% safety margin} comes to 338.What is your opinion?
Hi karthikBalmer lawrie is a big holding for me. I will be posting on the company soon. the company is doing well and shedding non profitable businesses.however it is not a glamorous company and will require quite some patienceregardsrohit
Thanks Rohit.I am looking for long term.As per my calculation the Intrinsic value for Balmer comes to 678. So it is trading around 40%discount.Is my calculation way off target?.Also Int Value for concor comes to 1814 {at 15%EPSGR}. Is the calculation atleast close enough?. Torrent cable also looks good.
Hi karthikmy estimate for balmer are higher .. have you considered the JV and other associate companies too ? concor seems to close enough ..my estimate are a bit higher …but i think that is due to a long CAP period i have taken ..1800-1850 looks okregardsrohit
Hi Rohit, I used a simpler method{Future value calc} to calculate the intrinsic value for Balmer. Today I tried using DCF using your sheet in google group. {Guj gas analysis}. I got a ridiculously low value as IV. So obviously I have made some big mistake in my calculation.I would really appreciate if you can share your DCF calculation for Balmer with me.
Hi Rohit, I have been a avid reader of your blog and really appreciate your efforts. Keep it up. I see that you have a soft copy of the book by Seth Klarman. Can you please e-mail it to me. My e-mail address is vdhulla@gmail.comThanks a ton !
Hi Rohit,Great reading here. Can you please send a copy of Margin of Safety to me?fwmyers@mail.comThank you!Fred
Hi Rohit, considering that Grindwell Norton has fallen from it’s November Lows (CMP 98) doesnt it look attractive at present. Low PE = 4, growth of 10% YoY and close to nil debt seems attractive to me. Moreover, it’s competitors are trading at Higher PE’s ( Carborundum (12), Orient abrasives (6)) ..
Hi vijaygrindwell is a good company, however the PE is not as low as you can see from the various website. i think grindwell had a one time gain of around 90 crs and hence the trailing PE appears so low.that said, 98 is a good price for this company.
Hi Rohit, Yeah as you said the PE is apparently low because of one time income of 77 crores in the Sep 07 Quarter. Excluding that one time income, the effective PE comes to around 10.Thanks for pointing that out! .. I totally missed it..Vijay