Tuesday, August 29, 2017

GNFC : DD Sharma New Stock pick

GNFC has now caught the attention of DD Sharma, the veteran stock picker.

DD Sharma explained all the salient facts and figures about the stock in his usual meticulous fashion.
He is so impressed by GNFC’s powerhouse credentials that he described it as a “fantastic” stock.

DD Sharma’s target price of Rs. 450 means that gains of 55% are on the anvil

At the end, he projected a target price of Rs. 450 for the stock which implies that gains of up to 55% from the CMP of Rs. 283.85 are due from the stock.

GNFC posted a steady set of earnings in Q1 as chemical business margins improved while fertilizer losses reduced. In an interview to CNBC-TV18, Rajiv Kumar Gupta, MD of the company spoke about the results and his outlook for the company.

Gujarat Narmada Valley Fertilizers & Chemicals (GNFC) posted a steady set of earnings in Q1 as chemical business margins improved while fertiliser losses reduced.
In an interview to CNBC-TV18, Rajiv Kumar Gupta, MD of GNFC spoke about the results and his outlook for the company.
All major chemicals have done well, said Gupta.
We are doing very well in toluene di- isocynate (TDI) plant. The TDI revenue improved in Q1, he added.
Have been able to reduce finance cost, said Gupta. Debt has reduced to 0.17 percent from 0.37 percent, he added.
"Our target is to make the company debt free by the end of this financial year and we will sincerely try and work on that," said Gupta.
GNFC's current domestic market share is more than 50 percent, aim to take it to about 75 percent, he added

 GNFC is a “long-term wealth creation idea” with “solid fundamentals”: Vikas Sethi

Vikas Sethi, the noted stock market expert, is also bullish about the prospects of GNFC.
He called it a “long-term wealth creation idea” and recommended a buy on the following logic:
GNFC is a company with solid fundamentals. It is a leading manufacturer of TDI where it has a dominant 50% market share and we have of late seen a surge in the prices of TDI because of disruption in China, Japan and Korea. That is tremendously positive for this company. To add to this, this company would be a major beneficiary of good monsoon, farm loan waiver and the government’s focus on rural economy. To add to this all, the recent reduction in GST rates on fertilisers from the earlier fixed 12% to 5% also would be pretty positive. And this company also has been appointed as a nodal agency for digitalisation of residential townships by NITI Aayog which would also be a big positive. All in all, it is good stock and at the current levels, it trades at a reasonable valuation. I am bullish on the stock. One should buy into this stock at the current levels and my targets are Rs 400 in a year.

Further Reading : Ginni filaments DD Sharmas another new pick

Saturday, August 26, 2017

Infosys-Rebooted-The road ahead

Infosys-Rebooted-The road ahead:


The Board of Directors of Infosys Limited met on August 25, 2017 at a meeting chaired by its newly elected Chairman Mr. Nandan Nilekani. Reporting on the decisions taken at the meeting Mr. Nilekani stated, "I am extremely excited about the future of Infosys. The Board is focused on bringing complete stability to the Company. It has also tasked its Committee of Directors to work with the CEO and management to review and refresh the Company's strategy by October."

In recent days, there has been considerable discussion of the relationship between the Board of Directors of Infosys Limited and Mr. N. R. Narayana Murthy who established the culture and ethos of Infosys, especially its culture of adhering to high corporate governance standards. The Board believes it to be unfortunate that various differences of opinion have arisen between Mr. Murthy and the Board in the recent past. The Board wishes to express that it was not its intention to cause Mr. Murthy or any other affected person any personal distress or anguish while stating its point of view.


The Company has previously authorized investigations into allegations made by anonymous persons regarding the conduct of prior management, and each of these investigations concluded that there was no wrongdoing. While the Board and the Company are focused on the future, consistent with the Company's commitment to good governance, the new Chairman will get a full briefing on these investigations and the appropriate course of action will be decided.

As the Board has stated on numerous occasions, it takes the Company's reputation for high corporate governance standards with the utmost seriousness. Hence, it has, as previously disclosed, decided that it will engage in further broad-based shareholder consultations to determine what further, if any, the Company can take to ensure that it continues to adhere to high governance standards.


The Board has also approved the appointment of the executive recruitment firm Egon Zehnder to work with its Nominations and Remunerations Committee to review and identify the right candidate to be the Company's next CEO and MD. Additionally, the Nominations and Remunerations Committee will deliberate on the long-term governance structure of the Board and present its recommendations at the meeting of the Board in October.

The Board announced that Mr. D N Prahlad is appointed as the Chairman of EdgeVerve Limited with immediate effect.
Finally, the Board would like to state that it is firmly focused on ensuring that the affairs of the Company and the interests of all its stakeholders - its customers, employees, shareholders, officers and directors - are harmoniously aligned and enhanced.

Shares of INFOSYS LTD. was last trading in BSE at Rs.912.5 as compared to the previous close of Rs. 894.5. The total number of shares traded during the day was 1304177 in over 28155 trades.

The stock hit an intraday high of Rs. 918.8 and intraday low of 902.35. The net turnover during the day was Rs. 1188700489.

Infosys-Share Buy-back – Increasingly Attractive

Infosys - Company Update - Share Buy-back – Increasingly Attractive with Higher Acceptance Ratio

Infosys announced a share buyback on August 19, 2017 under which it will buy back 113mn equity shares at a price of Rs1,150/share, which is at a substantial ~32% premium to the CMP. This will lead to a cash outflow of Rs130bn, which is ~39% of the IT major’s cash balance. In our view, the buyback proposal is attractive for retail investors with holdings up to Rs0.2mn. As per SEBI Regulations, 15% of buyback is reserved for this category of investors, which implies that ~17mn shares in the buyback will be reserved for them. Assuming 100% of these shareholders tender their shares, the acceptance ratio will be ~59% (total holding of ~28.7mn shares). As acceptance ratio increases, individual/retail investors who tender their shares will earn more profit, ranging from Rs16,000-22,000 (19-25%), assuming the buying price is the CMP and investors sell their remaining shares at the CMP.


Outlook & Valuation
Looking ahead, we believe the stock could see some support at lower levels owing to the
buyback, even as the near-term outlook remains hazy following the exit of Dr. Sikka. In our
view, medium-term performance will depend on the IT major’s ability to prevent any major
loss or leakage of client business. We have a BUY recommendation on the stock with a

Target Price of Rs1,080.

Related post : 


Look around your room, Your next big multibagger investment could be around you.

Look around your room, Your next big multibagger investment could be around you.

Next post :-

Thursday, August 24, 2017

Nifty 50 companies Q1 results in one view

Earnings Report : Nifty50 Shows Revenue and Profit Growth At 9.63% and 0.90% in Q1FY18 Yearly.

Nifty 50 Companies Q1FY18 Results for the quarter ended June 30, 2017


Abbreviations Used:
C: Consolidated ; S: Standalone ; Rev: Revenue ; NP: Net Profit ; EPS: Earnings Per Share ; RG: Revenue Growth ; NPG: Net Profit Growth ; EPSG: EPS Growth ; EPS TTM: EPS Trailing Twelve Months ; PE TTM: Price to Earning ratio using EPS of Trailing Twelve Months

Next Post :- 


Prakash Industries announced demerger between PIL and Prakash Pipes (PPL).

Shares of Prakash Industries (PIL) soared over 10 per cent in Thursday’s trade after reports said that big bull Rakesh Jhunjhunwala picked up nearly 10 lakh shares in open market via block deals.

The scrip was trading 10.50 per cent up at Rs 122.65 around 1.40 pm (IST). Benchmark BSE Sensex was up 7.68 points, or 0.02 per cent, up at 31,575.

The scrip was trading 10.50 per cent up at Rs 122.65 around 1.40 pm (IST). Benchmark BSE Sensex was up 7.68 points, or 0.02 per cent, up at 31,575.

However it could not be immediately ascertained when did Jhunjhunwala picked up the stake.

Prakash Industries also announced demerger scheme between PIL and Prakash Pipes (PPL).
The board also approves raising of funds up to Rs 500 crore through qualified institutional placement (QIP) to eligible investors.

For every eight shares in Prakash Industries as on the record date, the equity shareholders of PIL will receive one share of PPL.

Board of PIL has also approved the calling of the extra-ordinary general meeting on September 23, 2017.

Why IPOs are almost always turn out as Bad Investments for small investors

Vishal Khandelwal

People indulging in the stock market are often people with a lot of emotions. They get excited by something new, especially if it holds the promise of making them a whole lot richer and provides bragging rights at their next social gathering.
Maybe that’s why amateur and professionals alike tend to lose their minds in bull markets, particularly when a hot initial public offering, or IPO, is offered to them by their broker.
On one hand, had you bought into the IPOs of Infosys (yes, remember?), HDFC Bank, Sun Pharma, or TCS, you would have had some volatile price fluctuations along the way, but there is no question that you have made enough money to substantially change the quality of your life. Clearly, a well chosen IPO can be a life changing experience if you simply make the right choice and stick with the stock for years.

On the other hand, there is a large majority of IPOs such as those of Reliance Power, Suzlon and DLF, which have destroyed investors’ capital. With such businesses, even the “long-term” cannot save you from permanent capital destruction.

The Truth about IPOs
Benjamin Graham wrote in The Intelligent Investor…
In every case, investors have burned themselves on IPOs, have stayed away for at least two years, but have always returned for another scalding. For as long as stock markets have existed, investors have gone through this manic-depressive cycle.
In America’s first great IPO boom back in 1825, a man was said to have been squeezed to death in the stampede of speculators trying to buy shares in the new Bank of Southwark. The wealthiest buyers hired thugs to punch their way to the front of the line. Sure enough, by 1829, stocks had lost roughly 25% of their value.
Over my 11 years of experience in the stock markets, I have rarely come across any IPO that has been launched keeping in mind the interest of investors.
A majority of them have been launched in the form of ‘legalized looting’ by company promoters and their investment bankers.
I have come to believe how Graham defined IPOs in The Intelligent Investor. He said that intelligent investors should conclude that IPO does not stand only for ‘initial public offering’. More accurately, it is a shorthand for…
  • It’s Probably Overpriced, or
  • Imaginary Profits Only, or even
  • Insiders’ Private Opportunity
3 Reasons to Avoid IPOs
There is an old saying in corporate circles. One should raise money when it is available rather than when it is needed. This is the reason most companies come out with their IPOs during rising or bull markets when money is aplenty.
Unfortunately, most investors in these IPOs come out on the losing end of the equation.
Granted, some IPO deals are good for retail investors, but I’d argue the odds of that happening are stacked against you.
The stock market regulator SEBI’s rules that are designed to protect Indian IPO investors, generate reams of disclosures about the company and the offering process but unfortunately, many investors neither read nor understand these.
After all, how many people have the time or inclination to read 400-500 pages of IPO offer documents? And then they say – “Please read the offer document carefully before investing.”
IPOs are not level playing fields, I believe. This game is stacked heavily against the small investor who is lured into the hype and then often loses a large part of his savings betting on listing gains.
Here are 3 reasons I believe small investors must avoid IPOs and rather search for great businesses among those already listed –

1. IPOs are Expensive
People assume an IPO is an opportunity to “get in at lower prices”. In reality, by the time you buy shares of a company in its IPO, other parties have almost always invested earlier at lower prices – often, much lower prices.
Before you even knew about the company, there probably were three or four rounds of private investment, and the per-share price of ownership usually goes up with each round.
In fact, one of the big incentives for an IPO is so that previous investors – founders, venture capital firms, large individual investors – can “cash out” at least a portion of what they’ve invested.
That is why most IPOs are often expensively priced. They are not priced to offer you a piece of the business at cheap or reasonable prices, but to find “bigger fools” who can get in when the “privileged few” are getting out.
Don’t believe the investment bankers when they say that IPOs are “cheap and attractive”. Their incentive lies in first fixing the IPO price (whatever the promoter wants) and then working backward to justify the same.

2. IPOs Create Vividness Bias
It’s important to understand that the investment bankers and underwriters of IPO are simply salesmen.
The whole IPO process is intentionally hyped up to get as much attention as possible. Since IPOs only happen once for each company, they are often presented as “once in a lifetime” opportunities for the promoters and other large shareholders to cash out.


Promoters and investment bankers thus create stories that are “vivid” – by using terms like “listing gains”, “bright future”, “long-term story” – and entice you to believe them as soon as you hear them.
You must avoid getting charmed by that vividness.
Try to go behind the beauty of that vividness, and scrutinize the IPO to see if it is really so bright and beautiful.
In other words, you need to get past the “bright and shiny” stuff that surrounds IPOs because it’s easy to fall into the trap given that so many others around you are falling for the same.
Don’t buy a stock only because it’s an IPO – do it because it’s a good investment.

3. IPOs Underperform
Most people who get onto the IPO bandwagon often look at the listing or short term gains they can make in the next few weeks and months. In bull markets, this often happens.
However, if you consider the long term performance of IPOs, most of them underperform their peers and the general market – simply because they started off with high valuations.
As you can see in the chart below, the BSE-IPO index has underperformed both the BSE-30 and BSE-200 indices ever since this index was launched in 2004.


Data Source: BSE’s Website

So much for the hype!

Final Word
Here are some thoughts on IPOs from a few of the investing legends…
Warren Buffett wrote in his 1993 letter…
[An] intelligent investor in common stocks will do better in the secondary market than he will do buying new issues…[IPO] market is ruled by controlling stockholders and corporations, who can usually select the timing of offerings or, if the market looks unfavourable, can avoid an offering altogether. Understandably, these sellers are not going to offer any bargains, either by way of public offering or in a negotiated transaction.
When Buffett issued Class-B shares of Berkshire, he made sure that it wasn’t a typical IPO. He wrote in his 1997 letter…
Our issuance of the B shares not only arrested the sale of the trusts, but provided a low-cost way for people to invest in Berkshire if they still wished to after hearing the warnings we issued. To blunt the enthusiasm that brokers normally have for pushing new issues—because that’s where the money is—we arranged for our offering to carry a commission of only 1½%, the lowest payoff that we have ever seen in common stock underwriting. Additionally, we made the amount of the offering open-ended, thereby repelling the typical IPO buyer who looks for a short-term price spurt arising from a combination of hype and scarcity.
The dot com crash of 2000 was preceded by hundreds of IPOs where the underlying business was literally nonexistent. In his 2001 letter, Buffett wrote…
The fact is that a bubble market has allowed the creation of bubble companies, entities designed more with an eye to making money off investors rather than for them. Too often, an IPO, not profits, was the primary goal of a company’s promoters. At bottom, the “business model” for these companies has been the old-fashioned chain letter, for which many fee-hungry investment bankers acted as eager postmen.
Benjamin Graham wrote in Chapter 6 of The Intelligent Investor
Our one recommendation is that all investors should be wary of new issues—which means, simply, that these should be subjected to careful examination and unusually severe tests before they are purchased. There are two reasons for this double caveat. The first is that new issues[IPO] have special salesmanship behind them, which calls therefore for a special degree of sales resistance. The second is that most new issues are sold under “favorable market conditions”—which means favorable for the seller and consequently less favorable for the buyer.
Charlie Munger said this in Berkshire’s 2004 meeting…
It is entirely possible that you could use our mental models to find good IPOs to buy. There are countless IPOs every year, and I’m sure that there are a few cinches that you could jump on. But the average person is going to get creamed. So if you’re talented, good luck.
To which Buffett added…
An IPO is like a negotiated transaction – the seller chooses when to come public – and it’s unlikely to be a time that’s favorable to you. So, by scanning 100 IPOs, you’re way less likely to find anything interesting than scanning an average group of 100 stocks.
Buffett also said…
It’s almost a mathematical impossibility to imagine that, out of the thousands of things for sale on a given day, the most attractively priced is the one being sold by a knowledgeable seller (company insiders) to a less-knowledgeable buyer (investors).
The late Mr. Parag Parikh wrote in his book, Value Investing and Behaviour Finance…
It’s safe to conclude that IPOs, which seem like a good investment vehicle are, in reality, not so. In fact, an IPO is a product which is against investor interest, as it is mostly offered to investors when they are willing to pay a higher and outrageous valuation in boom times.
Prof. Sanjay Bakshi wrote this in a 2000 article …
Any kind of rational comparison of long-term returns in the IPO market and the secondary market would show that investors do far better in the latter than in the former…IPOs are one of the surest ways of losing money in the long run.
Four characteristics of the IPO market makes it a market where it is far more profitable to be a seller than to be a buyer. First, in the IPO market, there are many buyers and only a handful of sellers. Second, the sellers, being insiders, always know more about the company whose shares are to be sold, than the buyers. Third, the sellers hold an extremely valuable option of deciding the timing of the sale. Naturally, they would choose to sell only when they get high prices for the shares. Finally, the quantity of shares being offered is flexible and can be “managed” by the merchant bankers to attain the optimum price from the sellers’ viewpoint.
But, what is “optimum” from the sellers’ viewpoint is not the “optimum” from the buyers’ viewpoint. This is an important point to note: Companies want to raise capital at the lowest possible cost, which from their viewpoint means issuance of shares at high prices. That is why bull markets are always accompanied by a surge in the issuance of shares.
You get the message, right?

It’s important to remember that, while most are, not every IPO is bad. It’s just that the base rate of investing in an IPO is not in favor of the small investor, and thus you must assess every investment opportunity on its own merit.
Hype and excitement don’t necessarily equate to a good investment opportunity. If stocks continue to climb like they have over the past few months, and the IPO line lengthens, I’m afraid you’ll have plenty of opportunities to see that I’m right. 🙂

The article 3 Reasons IPOs Are Almost Always Bad Investments appeared first on Safal Niveshak.

Further reading : Look around your room for your next multibagger

Sunday, August 20, 2017

Infosys - Event Update - Sikka’s Exit a Near-term Setback; Further Downside Limited

Dr. Vishal Sikka has resigned as Chief Executive Officer and Managing Director (CEO and MD) of Infosys with immediate effect, citing “a continuous stream of distractions and disruptions over the recent months and quarters, increasingly personal and negative as of late, as preventing management’s ability to accelerate the company’s transformation.”
We view this development as negative and especially untimely, as under the leadership of Dr. Sikka, Infosys managed to reach the threshold of transformation to an innovation-led software-driven organisation from a cost-arbitrage player. Dr. Sikka, who has been appointed as Executive Vice Chairman with an annual salary of US$1, will hold office till his successor is appointed. Meanwhile, Mr. U.B. Pravin Rao has been appointed as Interim CEO and MD, who will report to Dr. Sikka under the supervision and control of the Board of Directors.
Distractions Took Up Management Time, Diverting Focus
As cited by Dr. Sikka, the continuous stream of distractions sidetracked the core focus on business transformation to sail through the challenging scenario, marked with multiple headwinds in the form of SMAC, revenue cannibalisation, pricing pressure, currency fluctuations, BREXIT and Donald Trump as the US President. Going into details of these distractions will not serve any purpose at this juncture, as they are available in the public domain.
Stock Impact – Negative in the Interim; Buyback Could Provide Support
The untimely departure of Dr. Sikka has utterly surprised the street, with the stock crashing by ~10%, wiping off >Rs225bn of Infosys’ market capitalisation. Further, the recent verbal warfare in the public domain could potentially affect the search for his replacement. Moreover, it could be a challenge to find a successor who shares the company’s vision as institutionalised by Dr Sikka. We believe this development will lead to poor performance of the stock price at least till the search for a new CEO and MD concludes and the issues with the founders are put to rest.
Notwithstanding the repercussions of this development, we believe that today’s correction in the stock price has factored in the potential negatives. Needless to reiterate, Infosys is a large organisation, which does not depend on any particular individual to grow further. A meeting of the Board of Directors is scheduled to be held on Saturday, August 19, 2019 to consider the share buyback proposal, which could also provide support to the stock. With valuation at 12.8x FY19E EPS, we believe that the downside is relatively limited despite subdued stock performance in the near-term. We maintain our BUY recommendation on the stock with a Target Price of Rs1,080

Further reading: Infosys at lows buy it on dips

Saturday, August 19, 2017

Edelweiss' research report on Infosys



Infosys has informed stock exchanges that its Board of Directors (BOD) will consider proposal to buy back shares at the upcoming Board meeting to be held on August 19, 2017. This has put to rest speculations on the timeline of the buyback. While the quantum and price of buyback is yet to be finalised, management’s earlier figure of INR130bn (including dividend) hints at a much bigger buyback in the offing compared to those done by peers, TCS, HCL Tech and Wipro. For Infosys, the buyback will lead to higher RoE and payout ratio. We do not perceive this move to be an outcome of lower growth, instead it well means limited possibilities of large acquisitions going ahead, and consistent generation of cash. We maintain ‘BUY’ with a target price of INR1,155.


Outlook

With domestic IT companies shifting focus to small skill‐based rather than large acquisitions, the need to maintain huge cash pile is waning. This implies higher distribution, either in the form of buybacks or increase in dividend payout. Reduction in cash will lead to higher RoCE, which will entail sector rerating. Moreover, Infosys’ guidance of 6.5‐8.5% in spite of multiple headwinds like technology transition (weakness in legacy business), project cancellations and automaton‐led realisation dips highlights the company’s strong fundamentals and client relationships. At CMP, the stock is trading at 14.8x and 13.5x FY18E and FY19E EPS, respectively. We maintain ‘BUY/SO’ with target price of INR1,155 (16x FY19E EPS).

Further reading:infosys event update on sikkas exit

Buy Infosys at lower levels :Prakash Gaba

Prakash Gaba of prakashgaba.com told CNBC-TV18, "Infosys has broken a very important support level of around Rs 900, even momentarily, but trading at Rs 917, that is not good enough. When I look at the structure, it has negated a buy signal on a monthly timeframe which basically means downside is on. Where does it go from here? Three levels I have, Rs 850, Rs 800, and Rs 731."
"It is quite possible it can even slide there. Should you buy today? I’ll wait for tomorrow. Before the buyback? Maybe it might see a good down move tomorrow. That perhaps could be a buying opportunity closer to these levels if it happens," he added. At 15:27 hrs Infosys was quoting at Rs 922, down Rs 99.15, or 9.71 percent.

Infosys at lows , Buy Infosys on dips, says market experts

Buy Infosys below Rs 900, says Avinnash Gorakssakar
Avinnash Gorakssakar, Market Expert is of the view that one may buy Infosys below Rs 900.

Avinnash Gorakssakar, Market Expert told CNBC-TV18, "Vishal Sikka’s resignation has been a big negative surprise and this news has definitely not been liked by the market. Clearly today morning when the board reciprocated its view on Vishal Sikka’s letter, I think clearly it was evident that the entire board supported his view."
"If the investors have only a two to three year kind of a timeframe, then investing in Infosys would make sense and that too going against the short term trend. I would prefer to wait for the press conference today and then take a call. I think the buyback meeting is definitely crucial but I think more than the buyback what the management commentary is spelt out in the press conference is very important."

"However, longer term I think all these negatives would get factored in and would be neutralised. I think definitely we will be seeing a new CEO also coming in, but in the near term there could be a lot of sentimental and volatility effect on the stock. So, I would say that if the investor has a longer term timeframe, one should definitely buy the stock anything below Rs 900 levels. I think for a three year horizon definitely one could get reasonable risk reward kind of ratio," he added.
Further reading :Buy infosys at lower levels

Monday, August 14, 2017

The '26% Secret' to Buffett's First Billion

'How old were you when you read Buffett for the first time?'

The question from my American niece almost embarrassed me. All of seventeen, she's already read half a dozen books on the legend.

I didn't start reading Buffett until I was nearly twenty-two...

But I draw solace from the fact that one of Buffett's best 'cloners' also started relatively late.

Mohnish Pabrai, who won the 2008 auction for a lunch date with Buffett, has a commendable track record in value investing. He attributes all his success to shamefully 'cloning' Buffett's strategies...which he only started learning when he was thirty!

Pabrai's best move, I think, was picking Buffett's most potent strategy and cloning it diligently. Pabrai calls it 'the magic of 26%'. That's the rate his portfolio compounded from 1995 to 2014. And as Prabrai often explains in his speeches, it was the magic of 26% that earned Buffett his first billion.

Now, there is a bit of math in this. But stay with me; it could help you earn your first billion.

'The magic of 26%' refers to the rate at which a company should grow its earnings year after year. In other words, your job as a stock picker is to focus on finding companies that are growing their earnings at 26% per annum.

With that and without having to do anything else, you could have 10-bagger (900% returns) in just ten years. And a 100-bagger (9,900% returns) at the end of twenty years.

This is because, if you compound money at 26% per annum, it doubles in exactly three years.

But make no mistake. Finding companies that can grow earnings at 26% per year over the next decade is not easy. Out of every five companies growing at this pace now, maybe one or two will be able keep it up until the end of the decade.

That means you need to find at least five 26% compounders to get hold of the one or two that will truly compound your wealth till the end of the decade.

Keep in mind these 26% returns aren't likely to remain sacrosanct...unless the company's management is a brilliant capital allocator, the business has a strong moat to keep competition at bay, and the demand for its products or services remains inelastic.

If that sounds easy, reckon this...

Of all BSE 500 companies, only 42 have managed to grow their earnings at a CAGR of 26% or more over the past ten years. However, most of them have had very inconsistent shareholder returns (return on equity).

So I looked for stocks that have seen earnings growth of 26% or more in the past ten years and have had no less than a 15% return on equity in each of those years.

Guess how many stocks that yielded...

All of THREE. Ajanta Pharma, Godrej Consumer Products, and HDFC Bank

Now before you rush to buy these stocks, let me warn you: Just because these companies have witnessed phenomenal growth and consistently superior ROEs in the past, that does not guarantee they will in the future. And you certainly can't turn a blind eye to valuations.

What does this mean?

It means you must be forward looking in your search for the magic of 26%.

It means you need to look for companies that will become the Ajanta Pharma, Godrej Consumer Products, and HDFC Bank of 2027.

But don't worry if, like me, you didn't start your value investing journey in your teens.The idea is to find couple of strong fundamental stocks that will grow at 26% per year. This will easily help you make your first million, if not billion, in just a decade or two!  
Happy Investing ...

Farm Loan Waivers: Why Bad Economics Makes for Good Politics

Author : Vivek kaul

Several state governments have waived off farm loans over the past few months. The second volume of the Economic Survey released late last week analyses the economic impact of this phenomenon. Here are the points that the Survey makes:
a) What farm loan waivers basically do is that they transfer debt from the level of individuals and households to that of the state governments. When a state government waives off farm loans it needs to compensate the banks which had originally given the loans to farmers. Hence, it ends up with the debt of the farmers.
The Economic Survey expects the farm loan waive offs to cost anywhere between Rs 2.2 lakh crore and Rs 2.7 lakh crore. As the Survey points out: "It is assumed that waivers will apply at the loan rather than household level, since it will be administratively difficult to aggregate loans across households. It is also assumed that other states will follow the UP model. On this basis, an upper bound of loan waivers at the All-India level would be between Rs. 2.2 and Rs. 2.7 lakh crore."

This is simply because the demand for waive offs will come from other states as well and the state governments are expected to comply. The Survey points out that "the widespread demand for loan waivers could simply be a demonstration effect from the UP loan waiver.
b) The Survey believes that waivers will reduce demand in the country to that extent of Rs 1.1 lakh crore or 0.7 per cent of the GDP. This will be a huge deflationary shock to the economy.
c) The farmers will benefit from the waive off and increase their consumption, the Survey says. While, this sounds true in theory, the actual evidence from 2008-2009 when the central government had announced farm loan waivers, is different. Research found that actual consumption did not go up after the farm loan waivers.
d) The state governments will have to borrow more in order to compensate the banks which have given loans to farmers. A part of the compensation for the banks will also come from the governments having to cut their expenditure in other areas. Since the governments will not be in a position to cut their regular expenditure like salaries, repayment of interest on the outstanding debt, etc., it will have to cut the asset creating capital expenditure. As the Survey points out: "a recent illustration is Uttar Pradesh which has slashed capital expenditure by 13 per cent (excluding UDAY) to accommodate the loan waiver."
This is a point that the latest monetary policy statement of the Reserve Bank of India, also made: "Farm loan waivers are likely to compel a cutback on capital expenditure, with adverse implications for the already damped capex cycle."
e) Also, the state governments are yet to clearly define who will benefit from the waivers and who won't. This essentially leads to two points. One, it is difficult to come up with the overall cost of the waivers. Two, in order to implement the waivers, the state governments need to come up with clear definitions. This basically means that any implementation will take time and the benefits won't be immediate.As the Survey points out: "Three states have been specific about the waiver schemes: UP has announced waivers of up to Rs. 1 lakh for all small and marginal farmers; Punjab's limit is Rs. 2 lakh for small farmers without defining who these are; and Karnataka has limited the waiver amount to Rs. 50,000 (Maharashtra's waiver terms are still unclear). The waiver announcements also do not make clear whether the amounts will apply to households or loans: typically, a household will have more than one loan."
f) There are other negative effects of the waiver as well. Credit discipline (or the basic idea that loans need to be repaid) goes for a toss. Further, it benefits only those who borrowed from formal sources. Also, a "World Bank study found that lending increased following the 2008-09 waiver even if not in the districts with greater exposure to the waiver."
Given these negatives on the economic front, it is important to ask why are farm loan waivers being made. The reason for this is fairly straightforward: the gains of farm loan waivers are more visible than losses.
When farm loan waivers are announced in one state, a large section of the farmers in that state who had taken on loans from the banking system, benefit from it. This is a clear visible effect, which the governments like to cater to. The negative effects are not so visible.Now take the case of a state government which needs to borrow more in order to pay off the banks which had made the farm loans in the first place. It will end up paying a higher rate of interest on its increased borrowings because at the end of the day the financial system has only so much money that can be borrowed. And any increased demand leads to higher interest rates.
As the Economic Survey points out: "Demands for farm loan waivers have emerged at a time when state finances have been deteriorating. The UDAY scheme has led to rising market borrowings by the states, expected soon to overtake central government borrowings. As a result, spreads on state government bonds relative to g-secs have steadily risen by about 60 basis points."
The UDAY scheme was basically debt restructuring scheme which moved debt from the balance sheets of power companies run by state governments to that of the balance sheets of the state governments. Due to this the interest paid by state governments on their debt is around 60 basis points higher than that paid by the central government on its debt. The extra borrowing because of the farm loan waivers will only push up this rate of interest for state governments, making things even more difficult for them.
At the same time, states will also have to cut down on their capital expenditure in order to finance a part of their waiver. The deflationary shock because of this will be spread across the length and breadth of the country. Hence, each individual will have to take on only a small part of the pain. And he or she may not even feel it in the first place.
These are negative impacts of farm loan waivers, which are not as clearly visible in comparison to the direct benefit to farmers whose loans have been waived off.
Or take the case of the government of Maharashtra charging a drought cess of Rs 9 every time one litre of petrol is bought in the state. Why is this cess even there during a time when there is really no drought in the state? It is there so that the government can meet its expenditure on account of farm loan waivers and other expenses.
The question is how many people even know that such a cess exists, in the first place. The point is that there no free lunches when it comes to economics. It's just that their cost is not visible many times and politicians simply make use of that.

Sunday, August 13, 2017

Should One Invest In Bharat-22 ETF? Check it out..

Bharat-22 is in the news of late. It's the latest offering in the series of Exchange Traded Funds (ETFs) launched by the Government to offload its stake in some listed companies. Besides having exposure to CPSEs (Central Public Sector Enterprises), Bharat-22 will also capture a few of the holdings of SUUTI (Specified Undertaking of Unit Trust of India). The Government has set a divestment target of Rs 72,500 crore for the fiscal year 2017-18, and as per the official figures, the Government has so far raised Rs 9,300 through 9 transactions.

Where will the ETF invest?

As the name suggests, the Bharat-22 is set to comprise of 22 companies. The tentative allocation of the ETF would be as follows:
Constituents of Bharat-22
Basic Materials
1 National Aluminium Co Ltd. 4.4
Total 4.4
Energy
2 Oil & Natural Gas Corp Ltd. 5.3
3 Indian Oil Corp Ltd. 4.4
4 Bharat Petroleum Corp Ltd. 4.4
5 Coal India Ltd. 3.3
Total 17.5
Finance
6 State Bank of India 8.6
7 Axis Bank Ltd. 7.7
8 Bank of Baroda 1.4
9 Rural Electrification Corp Ltd. 1.3
10 Power Finance Corp Ltd. 1
11 Indian Bank 0.2
Total 20.3
FMCG
12 ITC Ltd. 15.2
Total 15.2
Industrials
13 Larsen & Toubro Ltd. 17.1
14 Bharat Electronics Ltd. 3.3
15 Engineers India Ltd. 1.5
16 NBCC (India) Ltd. 0.6
Total 22.6
Utilities
17 Power Grid Corp of India Ltd. 7.9
18 NTPC Ltd. 6.7
19 Gail India Ltd. 3.7
20 NHPC Ltd. 1.2
21 NLC India Ltd. 0.3
22 SJVN Ltd. 0.2
  Total 20.0
Figures in %
(Source: Ministry of Finance)


Commenting on the sectoral exposure of Bharat-22, Finance Minister Mr Arun Jaitley said, "While selecting each of these sectors, we have also kept in mind sectoral reforms in each of the sectors which have had direct impact on the valuations of these shares." This means the table above may undergo some alterations at the time of creation of an index and thereafter.
In other words, the finance minister has tried to highlight that all companies it is divesting from are potential beneficiaries of the reforms introduced in the recent past. For example, Progressive liberalisation policies that permit FDI in most sectors under the automatic route will be beneficial to sectors such as industrials and finance. Similarly, reform measures such as the introduction of daily fuel pricing and direct benefit transfer of LPG subsidies will be beneficial to companies belonging to the energy and utility sector.

Who will manage the scheme?

ICICI Prudential Asset Management Company will manage Bharat-22 and Asia Index Pvt. Ltd. will offer index services to it.

Should you invest in Bharat-22?

Bharat-22 is one of the most diverse ETFs offered so far by the Government, as a part of its divestment programme. However, it may still not be the one for you.
Simply because top-5 stocks may account for over 50% of the overall portfolio and the top-5 sectors will form over 90% of the portfolio. Such aggressive allocation will expose you as an investor to sector specific risk. Even if you are a very aggressive investor, consider investing only a diminutive portion of your entire portfolio in Bharat-22 ETF.


The underlying portfolio of Bharat-22 might be well-positioned to take advantage of the opportunities created by the recent reforms, but that doesn't make it better than those of the well-managed diversified equity funds. In fact, experienced fund managers can take exposure to companies that are expected to be the beneficiaries of economic reforms, without exposing you to an elevated risk of concentration associated with Bharat-22.

Sunday, August 6, 2017

KEC International - 1QFY18 Result Update - Strong Quarterly Performance Continues; Maintain BUY

KEC International (KEC) has delivered a strong performance in 1QFY18 with its net profit rising by 103% YoY to Rs630mn led by higher margin (+90bps YoY) and lower interest cost (-12% YoY). Its revenue grew by 6.2% YoY to Rs18.9bn vs. our estimate of Rs19.0bn. Notably, GST roll-out impacted KEC’S revenue growth to the extent of Rs1bn. Further, overseas sales from SAE Tower de-grew by 41% YoY owing to holding back of tower supply following some environmental issues in Brazil.

We expect KEC’s earnings to witness 25.2% CAGR over FY17-19E on strong order book, improving margin profile and healthy outlook in T&D and other emerging business segments. Notably, the stock price has more than doubled in last 12 months. However, we continue to remain positive on the fundamentals of KEC. Upwardly revising our target multiple from 15x earlier to 18x FY19E EPS at 25% discount to its peak cycle multiple (23x) owing to high traction in order inflow and improving margins profile towards its historic high levels, we reiterate our BUY recommendation on the stock with a revised Target Price of Rs335 (from Rs279 earlier). 

Revenue Growth Continues to be Strong
T&D sales (including SAE sales) rose by just 3.1% YoY to Rs14.8bn despite an impressive 12.6% growth excluding SAE sales, which de-grew by 41% YoY owing to holding back of supply of towers following some environmental issues in Brazil. Revenue from Railway business zoomed by 129% YoY to Rs1.6bn, while Solar Business recorded 50.0% YoY growth to Rs0.2bn. However, revenues from Cables and Water segments declined by 10.2% YoY and 16.7% YoY to Rs1.5bn and Rs0.15bn, respectively.

Operating Margin at Highest Level; PAT Zooms
KEC’s overall EBITDA margin expanded by 92bps YoY to 9.3% in 1QFY18 owing to absence of low-margin legacy orders in Water, Railways and Power Systems segments. Its reported PAT zoomed by 103.7% YoY to Rs630bn (vs. our expectation of Rs528mn) led by higher margin, lower interest cost and lower effective tax.

Outlook & Valuation
We expect KEC to witness steady improvement in margins owing to reducing backlog of low-margin orders, improved margin profile in new orders, lower commodity prices and breakeven in Tower & Cable business. Expecting 25.2% CAGR in KEC’s earnings over FY17-19E on strong order backlog and improving margins profile, we reiterate our BUY recommendation on the stock with a revised Target Price of Rs335 (from Rs279 earlier).

Saturday, August 5, 2017

NOCIL: Potential for delivering good returns for 1-2 years from chemical sector














NOCIL Ltd:
Sector-Specialty Chemicals
Market Cap.: 2,315.24 Cr.
Stock P/E: 19.95
Price performance:
Technical trend shows UP.
Sales and profit growth performance:
Business Outlook:
  1. The board of NOCIL has approved capacity expansion of Navi Mumbai & Dahej facilities. The company’s capital expenditure envisaged for expansion is approximately Rs 170 crore. Its expansion project is likely to be commissioned by end of Q2FY19.
  2. NOCIL’s capital expenditure will be financed largely through internal accruals. The company’s Dahej plant is a zero-wastage plant, resulting in significant cost reduction. It has strong pipeline of new generation rubber chemicals.
  3. International Rubber Study Group welcomed NOCIL, the largest chemical producer in India, welcomed into the group in April 2017.
Risk side:

  1. It has already up 95% in last 6 months and close to 160% in last 1 year.
  2. The company has delivered a poor growth of 9.04% over past five years
Happy Investing !

Vakrangee :Potential for delivering good returns over 1-2 years.

Sector-Specialty Retail software
Market Cap.: 23,899.83 Cr.
Stock P/E: 41.33
Business Model:
India's largest e-Governance player with over 20 years of domain experience in the entire spectrum of the Government's
National e-Governance plan – right from data digitization to
technology management in delivering large-scale and complex in nature e-Governance projects. Provide various services to rural India as pointed out later section.
Price performance:
Technical trend shows UP.
Sales and profit growth performance:
Business Outlook:
  1. BFSI Services
  • A retail house offering banking and financial services to India's unbanked population and the last mile link connecting India's urban and rural citizens with its modern ecosystem.
  • They have received an exclusive mandate to offer banking services at these Vakrangee Kendra.
  • They have signed an agreement with 31 banks, including 26 public sector banks such as State Bank of India, Punjab National Bank and Bank of India for Common BC & with 8 Banks for National BC Agreement such as Bank of India, Punjab National Bank, Union Bank of India & Bank of Baroda.
  • Vakrangee Limited
  1. G2C Services
  • Empanelled by the Government of India to offer an exclusive portfolio of several Government-to-Citizen services (G2C) at the Gram Panchayat level.
  • Portfolio of G2C Services includes payment of taxes and levies, collection services (recruitment application processing), grievance management, and issuance of certificates (providing railway tickets and exam hall-tickets), among other services.
  • Vakrangee Limited
  1. B2C Services
  • Provide end-to-end e-Commerce solutions to our customers with the sole objective of connecting India's rural citizens with the modern ecosystem.
  • Service delivery in the B2C segment includes mobile recharges in the telecommunications space and top-up Direct-to-Home (DTH) services and recharge coupons in the DTH segment. They have partnered with 17 Telecom Operators and 3 DTH providers (Tata Sky, Videocon and Dish TV) of home entertainment.
  1. E-Governance Projects
  • Some of the e-Governance projects currently engaged in are: PDS, UIDAI, CSC, FI, IGRS, among others.
Downside:
  1. Company has provided impressive growth rate but price has factored the growth story.
  2. The impressive growth story has a solid stamp of Modi government. If current government fails (I hope not) to retain power in next term, majority of these projects would face slow execution.

Happy Investing !

Quarterly Results updates :VIP Industries,Bajaj Electricals,Capital First,Magma Fincorp,Century Ply,Vakrangee,DCM Shriram ,Carborundum


VIP Industries : Nice set of numbers from VIP Industries(CMP 193) . Buy arround 185-190. Target 250. 3 months. SL 170.Any dips towards 180-185 can also be bought into.



 Capital First : Decent numbers from Capital First(CMP 778). Target 960 .SL 690.6 months.

 Magma Fincorp : Decent numbers from Magma Fincorp(CMP 174) . Hold. Target 190. Buy on dips. SL 150.
Buy fresh on dips towards 155-160. Target 190. People having Magma can keep holding. SL 150.



Vakrangee : Decent numbers from Vakrangee (CMP 448). Target 510. 3 months. SL 400. Keep adding on dips.
Vakarange coverage :vakrangee potential for delivering good returns

DCM Shriram :Nice numbers from DCM Shriram (CMP 396). Buy on any dips towards 360. Target 610. SL 330. 6 months.

Bajaj Electricals : Dismal Numbers from Bajaj Electricals (CMP 325). Exit at Current Price. Stock can slide to 300.

Carborundum : Dismal numbers from Carborundum. Exit at CMP 336. Recommended at 296.
Stock can come down to 290.Add Carborundum on any dips towards 250 for long term.

Century Ply : Poor numbers from Century Ply. Exit Century Ply. Stock can dip towards 220-240.
After a good set of number from Century Ply during Q4, we had recommended a buy in Century Ply at 250-255 for a target of 315. Stock had hit 52 week high of 314.
Currently the stock is trading at 280, Exit the stock. Stock can move down towards 220-240.