CategoryInvestment ideas

I was running my screen in the year 2003 and came across kothari products. This was a company with 240 crs cash and equivalent (net of debt) on the balance sheet with a market cap of 80 crs ( i think they had 40 mn outstanding shares @ 170 rs / share). They currently have almost 300 crs (around 600 rs per share )

They were fairly profitable (although the profits were down). The market had beaten down the price due to legislation issues (The maharashtra government had banned Pan masala / gutka – their main products). The company was still profitable, although the profits had come down due to drop in sales. Its free cash flow is same as its net profit because Gutka and other tobacco products require little capex for plant and machinery or working capital. The main asset is the brand (in this case pan parag ). So their profits were pure cash for the owners


I bought the share at an price of Rs 160 – 170 a share and sold around 260 per share. The reason I sold was lack of information from the company ( their website is poorly updated in terms of financial results). In addition, I was not sure what the promoters were planning to do with the cash ( the promoters hold almost 70 % of the company).

So what’s the point of the whole thing …Its not that it was a profitable investment. Rather, although I made money on the whole thing, I did not have a very comfortable feeling with the investment. If I compare it with the other purchases I have done such as asian paints, or a concor which are good businesses with good management, this one made me uncomfortable as there was no transparency from the company. In the end I decided to get out rather than face an unpleasant surprise from the management.

My investment philosophy is closer to that of buffet where I end up buying good to great companies at fair prices and get a good night’s sleep. The above was an experiment in a graham style investment. It was profitable and based on a sound approach. But somehow requires more diversification and purchase in not so great enterprises.

Do you have a similar experience? please feel free to share with me

Heard of this company some time back. I have started looking at it. This company is into Diamond and gold jewelry exports. It’s main market is US . It is into designing jewelry, managing the logisitics etc . Some positives

– Good ROE
– Very low fixed assets
– moderate WCAP requirement. Mainly in the Raw material inventory
– 10 % plus Net margins
– No debt
– 40 Rs / share of cash on the balance sheet

Some points which i need to figure
– what is the nature of the ‘investments’ in the balance sheet.
– what are the long term plans of the company
– nature of competition ?
– How good is the management. The company seems to have good Fresh cash flow. Other than some captial required for WCAP , the FA requirements are very low. So most of the Net profit is free cash for the company. Need to figure out what the company would be doing with the cash.

The biggest pain however is that the company’s website does not have their annual report or detail financial results. That is could be real dampener !!

asian paints has been the no.1 paints company for the last 20+ years. This company has returned almost 24% p.a returns since its IPO. Are these returns sustainable ?

Even if the level of returns may not be , i have always felt the company has strong and sustainable competitive advantages like

– A strong distribution network with lockin at key retail dealers through their color world package
– Strong brands in the paints industry like apcolite, apex, gattu etc
– economies of scale in manufacturing, adverstising distribution due to the high market shares (40 %+ )
– good pricing power as the company has been able to sustain margins inspite of raw material price increases
– good management – evident through the track record of managing low WCAP, low debt, sensible accquisitions and good brands and products

In the medium to long term the company should continue to do well in india. The challenge for the company is to port these strengths to their internation operations. That seems to be happening for the time being

Started looking at britannia industries. It is selling for around 14 times FY05 earnings. The bottom line seems to be growing in low teens. There is very low debt on the balance sheet. In addition found the following interesting
– 30 % ROE
– almost 100 Rs / per investment – need to figure out what is this investment ( net of debt )
– Very high asset TO ratios.
– good free cash flow
– slight improvement in the margin (which seem adequate for an FMCG company )
– strong brands , extensive distribution network, good history of new products

What i still need to figure out
– The NP growth is almost to the tune of 30 % for the year. How sustainable is it ?
– Competitive scenario – ITC / HLL entry into brakery business, how will it impact britannia
– How will the management handle the free cash flows ? will they continue share buybacks or make some bad accquisitions or investments ( need to figure out these investments)

One the strangest points is that britannia does not have a website. How can a 1000 crore + company not have a website ? So it is diffcult to get their annual report