Saturday, August 4, 2018

Sector in Decline - Newspaper Publishing and Media

Lately, you all might have seen that I am buying some publishing businesses such as Jagran Prakashan, Just Dial while I was already holding Hindustan Media Ventures. The valuation of these companies are given below in the table

CompanyMarket CapOperating Cash Flow(3 year average)P/ENet Current Assets
Jagran Prakashan380044512.25575
DB Corp432937013.9675
Hindustan Media Ventures12461509.151330
Just Dial376515526.231000

If you check the history of many of the companies, Jagran Prakashan (who owns Dainik Jagran) did a buyback at INR 195 for 292.5 Crore and share price is now at INR 125. On the day of buyback validity, the share price was at INR 160. Jagran also owns another listed company Music Broadcast which owns 91.1 FM - Radio City. Surprisingly, Music Broadcast is also doing buyback. DB Corp (who owns Dainik Bhaskar) announced a buyback at INR 340 for 312.5 Crore while the current price is INR 237. Just Dial is an internet based business for finding local businesses (Yelp of India). It also has approved buy-back at INR 800 for 220 Crore. I am not sure why at one side market is evaluating cash-rich companies like these generating decent cash flow at ridiculously low valuations while some others are trading at 75-100 times cash flow such as Dabur, Honeywell, Berger Paints, Page Industries, Jubilant Food and many others. Time will tell whether I am right or the market.
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Sunday, July 8, 2018

Recently Listed Good Quality Companies

Since the last 5 years, a lot of IPOs have come out and when I recently looked at the list, it seemed many good quality companies have got listed and I missed catching them. Here are a few:

NameBrand/UseIPO PriceCurrent Price
Sheela FoamSleepwell6801500
Music BroadcastRadioCity333312
CDSLDemat149267
Matrimony.comBharat Matrimony985745
Quick HealAntivirus321275
Mahanagar GasPiped Gas421809
Just DialLocal Business483570
ThyrocarePathology Lab446570

Many of these companies are having a great brand and use and all of them are from different sectors of the economy. Even the business is generating pretty good ROCE and having a reasonable valuation. Make sure you keep an eye.
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Monday, April 30, 2018

Recent IPO Performances

There has been flurry of activity on the IPO front recently and in my last post I already covered that there has been mixed results from two companies in auto ancillary sectors. I want to extend it to now cover all the IPOs between 2013-2018 and show where they stack. Here is the result:

CompanyIPO DateIssue PriceCurrent PriceGain/Loss
Repco HomeApril 2013172598247.7%
Just DialJune 2013483448-7.5%
WonderlaMay 2014125365192%
Snowman LogisticsSept 20144749.455.2%
Sharda CropchemSept 2014156406.7160.7%
Shemaroo EntertainmentOct 2014170479181.76%
Monte CarloDec 2014645532-17.5%
Ortel CommunicationMarch 201518121.75-88%
Adlabs EntertainmentApril 201518050.35-72%
Inox WindApril 2015325108.7-66.55%
VRL LogisticsApril 2015205424.3106.7%
MEP InfraMay 2015638331.75%
UFO MoviezMay 2015625394.7-36.85%
PNC Infratech26 May 2015378 (Pre split 5:1)166.8120.6%
Manpasand BeveragesJuly 2015320 (Pre bonus 1:1)395.4147.1%
Syngene InternationalAugust 2015250615.6146.25%
Power Mech ProjectsAugust 20156401028.9560.75
Navkar CorpSeptember 2015155179.5515.8%
Pennar EngSeptember 201517883.95-52.85%
Shree Pushkar ChemSeptember 201565219.45237.6%
Sadbhav InfraSeptember 2015103134.4530.5%
Prabhat DairySeptember 2015115179.9556.25%
Coffee DayNovember 2015328332.91.5%
Interglobe AviationNovember 20157651407.884%
S H KelkarNovember 2015180240.6533.7%
Dr Lal Path LabDecember 2015550847.754.1%
Alkem LabDecember 20151050196987.5%
Narayana HrudayalayJanuary 2016250274.510%
Precision CamshaftFebruary 2016186101-45.7%
Teamlease ServicesFebruary 20168502647.9211.5%
Quick HealFebruary 2016321333.24%
Bharat Wire RopeApril 201645124.75177.25%
Equitas HoldingsApril 201611015641.8%
ThyrocareMay 2016446668.7550%
Ujjivan FinancialMay 2016210405.3593%
Parag Milk FoodsMay 2016215314.4546.25%
Mahanagar GasJuly 2016421894.8112.5%
Quess CorpJuly 20163171162.7266.8%
L&T InfotechJuly 20167101592.9124.35%
Advanced EnzymeAugust 2016896 (Pre split 5:1)254.642%
Dilip BuildconAugust 20162191163431%
S P ApparelsAugust 2016268369.737.95%
RBL BankAugust 2016225537.65138.95%
L&T TechnologySept 20168601337.0555.5%
GNA AxlesSept 2016207555.15168.2%
ICICI PrudentialSept 2016334433.229.7%
HPL ElectricOct 2016202114.45-43.35%
Endurance TechnoOct 20164721285.95172.45%
PNB Housing FinNov 20167751364.776.1%
Varun BeveragesNov 2016445645.0544.95%
Sheela FoamDec 20167301517.55107.9%
Laurus LabsDec 201642850818.7%
BSE LimitedFeb 2017806812.051%
Music BroadcastMar 2017333387.816.45%
Avenue SupermartsMar 20172991483396%
CL EducateMar 2017500211.55-57.7%
Shankara BuildingApril 20174601948.4323.5%
S Chand and CoMay 2017670401.6-40%
HUDCOMay 20175865.9513.7
PSP ProjectsMay 2017210574.75173.7
Tejas NetworksJune 2017257336.3530.9%
Eris LifeJune 2017603765.3526.9%
CDSLJune 2017149293.8597.2%
GTPL HathwayJuly 2017170152.75-10.15%
AU Small Finance BankJuly 2017358731.65104.4%
Salasar TechnoJuly 2017108388.55259.77%
Security & IntelligenceAugust 20178151180.6544.9%
Cochin ShipyardAugust 2017432530.9522.9%
Apex Frozen FoodsSept 2017175646.7269.55%
Bharat Road NetworkSept 2017205179.75-12.3%
Dixon TechnologiesSept 201717663463.296.1%
Matrimony.comSept 2017985836.65-15%
Capacite InfraSept 2017250361.3544.55%
ICICI LombardSept 2017661752.9513.9%
SBI Life InsuranceOct 2017700758.858.4%
Pratap SnacksOct 20179381359.845%
Godrej AgrovetOct 2017460703.2552.9%
Indian Energy ExchangeOct 201716501631.95-1.1%
General InsuranceOct 2017912711.9-22%
Reliance NipponNov 2017252252.950%
Mahindra LogisticsNov 2017429487.213.5%
Khadim IndiaNov 2017750776.53.5%
HDFC Standard LifeNov 2017290519.1579%
ShalbyDec 2017248217.55-12.3%
Future Supply ChainDec 2017664700.155.5%
Astron PaperDec 201750137.85175.7%
Apollo Micro SystemsJan 2018275232.3-15.5%
Newgen SoftwareJan 2018245239.3-2.3%
Amber EnterprisesJan 20188591073.5525%
Galaxy SurfactantsJan 201814801446-2.3%
Aster DM HealthFeb 2018190170.95-10%
HG Infra EngMar 2018270336.3524.6%
Bharat DynamicsMar 2018428405-5.4%
Bandhan BankMar 2018375506.4535%
Hindustan AeronauticsMar 201812151125.8-7.35%
Mishra Dhatu NigamApr 201890146.4562.7%
ICICI SecuritiesApr 2018520422.75-18.7%

The table clearly shows that it has been a mixed bag for investors. Especially after October 2017, there has been 13 listings in green and 10 in red so 40% of the total IPO are in negative since last 6 months. This clearly tells that there is a froth in the primary market offerings.

The one that are in negative or very small gain but looks attractive from investment perspective to me are following:
  • Just Dial
  • Monte Carlo
  • UFO Moviez
  • Pennar Engineered Building Systems
  • Precision Camshaft
  • Quick Heal
  • Advanced Enzyme
  • BSE
  • Music Broadcast
  • GTPL Hathway
  • Matrimony.com
There has been listings of many insurance companies including ICICI Lombard, Reliance Nippon, HDFC Standard Life, SBI Life Insurance and I see very high valuations for them currently except for General Insurance.

There has been some good listings such as Sharda Crop Chem, Mahanagar Gas, Manpasand Beverages, CDSL which happened at slight gains to the issue price and then based on performance, stock price ran away. In Warren Buffett's  language, I was thumb-sucking at that time and lost these opportunities. I did buy some like L&T Infotech at around 650, which is below IPO issue price, and now I am handsomely rewarded as the stock price is hovering around 1600.

Among all the companies, the most stellar of them is Avenue Supermart (DMart) which came with issue price of 299, listed at 590 and now trading at 1500. Some of the good returns has happened due to heavy overvaluation such as that in Dilip Buildcon, Teamlease Services, Quess Corp, PSP Projects, Shankara Building Products, Apex Frozen Foods, Astron Paper and many others from the above list including Avenue Supermart too. Many are trading at stratospheric valuation and would give big heartache to investors when the tide turns.

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Sunday, April 22, 2018

Tale of two IPOs

I typically avoid looking at IPOs but I do visit the companies which come out with IPOs after few years to see what they have done and how the stock prices have reacted. In this post, I will analyze Precision Camshaft and GNA Axles. Precision Camshafts came out with IPO in January 2016 while GNA Axles came out with IPO in September 2016. Following table summarizes the IPO details:

GNA AxlesPrecision Camshafts
Issue Price207186
P/E @Listing17.122.3
Current Price550103
P/E Now29.124
Gain/Loss165%-45%
Average Operating Cash
Flow in 3 Years
37 Crore83 Crore
Enterprise Value
(Market Cap + Debt)
1297
(1180 + 117)
1090
(980 + 110)
P/B Now3.571.75

The above table shows that in one company, investors have gained 165% in around 1.5 years and in the other, investors have lost 45% in around 2.25 years. The reason for more enthusiasm in GNA Axles is growth in recent times while flat revenue growth for Precision Camshafts since last two years. In 4 years between 2012 and 2016, Precision Camshafts average revenue (average of 3 years) grew from 260 Crore to 471.5 Crore while that of GNA Axles revenue grew from 349 Crore to 482.6 Crore. The only problem is that GNA this year has increased revenue as well as profits while Precision's revenue topped in 2015 and is decreasing since last 3 years now.

I personally feel that some premium for GNA Axles is justified but such large variation of valuation just due to growth in recent years seems far fetched. If you have to invest right now, I would go with Precision Camshafts.


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Sunday, February 25, 2018

Two out of favour sectors - Pharmaceuticals and Banks

People reading this blog must be able to see my recent investment activities and find that I have been selectively investing in two out of favour sectors in the last few months or more than a year I would say. The sectors are

  • Pharmaceuticals
  • Banks
In Pharmaceuticals, there is a clear harakiri where many company saw their share price going down by more than half including Lupin (2100 in Oct 2015 to 800 now), Sun Pharmaceuticals (1150 in April 2015 to 570 now), Dr Reddy's (4250 in August 2015 to 2170 now), Glenmark (1200 in August 2015 to 535 now).

I myself started investing in some of the well run companies such as Divi's Laboratories at 1000+ in 2015 and saw its price going down to 550. Luckily, I had some courage to keep buying at lower prices and average down so my average buying price kept getting lower and settling at 670 when I last bought some shares at 550. Today since the price is again at 1050+, I am having a decent profit.

Recently, I am still investing in some of the well known names such as Abbott, Sanofi, Suven Life Sciences etc... I am not buying them at bargain prices but they are fairly valued or sometimes 20-30% more than fairly valued but I don't think they are as bublicious as their counterparts in consumer space such as Hindustan Unilever or Britannia or Pidilite or Asian Paints.

In Banks, I did buy J&K Bank at 100 and had to sell at 80 to book losses. Today it is trading at 66. But I think I was early and now with NPA numbers of all the banks clearly available, the separation of wheat from the chaff has happened. The clear winners are only few such as HDFC Bank, Kotak Mahindra and Indusind Bank but there are second tier private banks which have got my attention including Karur Vysya Bank, Karnataka Bank, Federal Bank and South Indian Bank. NPAs of these banks are not as high as 10-20% similar to public sector banks but they are not as low as 1-3% which is the case for top run private banks that I mentioned above. There is some valuation measure available from the deal that happened in 2015 when Kotak acquired ING Vysya Bank at around 15K crore. After three years, similarly sized banks like Karur Vysya available at 8K crore, Karnataka available at 4K Crore and Federal Bank at twice the size available at 18K crore does look promising. These are all long term plays on the Indian economy. I hope they turn out to be good bets.





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Thursday, June 15, 2017

IST Ltd - Value Buy?

IST Ltd is an automotive parts supplier started in 1977. It supplies parts to many companies in and outside of India. Company also has a subsidiary Gurgaon Infospace which has set up an IT SEZ and most of the revenue of the company comes from the subsidiary.

Financials
The average ROCE of the company over the last 10 years is 23% while it is at 31% for the last 3 years. The company's main business of auto parts is not making any money. The biggest income is rent received from IT companies in their SEZ. Based on the latest financial results, the company has non-current assets worth INR 354 Crore, the net current assets are around INR 33 Crore and fixed assets are worth INR 139 Crore. So the company can be easily liquidated for INR 500 Crore+.

Business
The biggest revenue source of the company is rent(lease) from SEZ to the tune of INR 75 Crore while the expenses are nil so all of this goes to the bottom line of the company. The company is getting some tax benefits so not paying full 35%+ taxes.

Shareholding
The promoters hold 74.99% in the company but not paying any dividends.

Valuations
At the current market price of INR 1105, the company's total valuation is INR 650 Crore. The book value of the company is around INR 762 and the EPS is INR 140 so P/E is less than 8. Except for the lack of dividend, the company doesn't look very expensive.

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Saturday, June 10, 2017

UFO Moviez - Value buy?

UFO Moviez is India's largest digital cinema distribution network distributing movies through satellites and is also an in-cinema advertising platform.

Financials
The average ROCE of the company over the last 3 years is around 15% while RoE is 13%. As per the latest financial results here, the net current assets of the company stood at INR 125 Crore at the end of FY17. The company has fixed assets of INR 258 Crore and there is a goodwill on consolidation of INR 183 Crore. The company has large depreciation resulting in very high cash flow averaging INR 120 Crore per year in the last three years.

Business
The company's latest presentation gives idea about the business model of the company. The company earns income from two main sources, telecast of movies through satellites and displaying ads during the intermission and at the start of movies in theatres. The company now distributes movies to more than 5000 digital screens in India and totally 6000+ screens in the world. The company's in-cinema advertising is being used in more than 3700+ screens. The average income from ad has increased from INR 1464 per second per screen in 2013 to 1732 per second per screen in 2017 and the average ad time has gone up from 2:46 minutes to 4:34 minutes. The company recently signed a contract to show ads on 300 screens of United Media Works. Recent Demonetisation took a big toll on the growth of the company and GST also might be a dampener for people to go for movies as taxes are going to increase.

Shareholding
The promoters hold around 28% shares and holding has decreased by a small percentage lately. The promoters seem shareholder friendly as dividend payout is around 45% for recent year (INR 10 for EPS of INR 22).

Valuations
At the current market price of INR 380, the market cap of the company is around INR 1050 Crore which is less than 9 times its operating cash flow of last three years. The company's IPO came out in 2015 at INR 625 but all the money went to existing investors at that time. The business is very new but over time as number of multiplexes grow and they upgrade their technologies, chances are that this business will grow. So the stock is not a value buy but more a future play.
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Saturday, February 18, 2017

Age of Capital Destruction - Dance like it is 1999 in India?

This is a post not related to investing or stocks but more about the bubble going on in the startup world in India. I will talk about some companies but there is no offence intended towards them. Everyday you see bigger and bigger numbers coming up for investments in startups in India. The article Indian Startup Funding Report mentions that there were 815 deals with $3.5 B invested in first 9 months of 2016 compared to 639 deals with $7.3 B invested in same period in 2015. This shows that the amount has come down but the deals have increased. I don't have the financials of most of the companies but let's look at some numbers. The following figure shows the bleeding consumer startups in India.

Of all the companies, the only one that is profitable is BookMyShow. All the others are making losses. There are some publicly listed companies such as Infibeam, which are in e-commerce space and are profitable now and investing in right companies such as its recent investment in payment gateway, ccAvenue.

Now let's look at the recent investments made by BookMyShow:
Feb 2015 - BookMyShow acquires Eventifier for $2 M
Mar 2016 - BookMyShow acquires FanTain Sports
Jan 2017 - BookMyShow acquires MastiTickets
Feb 2017 - BookMyShow acquires 75% in TownScript

Now I don't have financials and acquisition numbers for all but the company which owns Eventifier, Spacebound Web Labs Private Limited, was founded by three people in 2013
Jazeel Ferry
Saud Bakhar
Nazim Zeeshan

The article about acquisition mentions UBM Tech, Clinton Foundation and Nasa as clients of Eventifier. If you search google for "Spacebound Web Labs Private Limited", you come across their 2016 financial results on Reliance Industries website (RIL owns Network 18, which owns majority stake in BookMyShow which owns Eventifier). The profit-loss account is as below in the above result:

With such large clients, the revenue of the company in 2015 was INR 711,721. Yes you read that right, it is not USD, it is INR. So the company earned $11K kind of revenue from Clinton Foundation and NASA, that is 2 years in operation since company was founded in 2013.

Let's look at the expenses which are INR 11,828,771. Yes you read that right, it is $170K out of which almost INR 4,562,981 went for paying 8 employees their wages (including founders). There were some extraordinary legal expenses due to merger in that year but even in FY16, numbers haven't improved much (revenue has gone down rather).

The second company Fantain Sports' financials are available here. It's balance sheet shows that the company's subscribed capital was INR 28 lakh till 2015 but it has increased to 2 Cr 10 lakh in 2016. The company's revenue increased from INR 10.28 lakh in 2015 to INR 41.19 lakh in 2016. At the same time total expenses rose from INR 22 lakh in 2015 to INR 1.01 Crore in 2016 resulting in losses for both the years. The financials of this looks better than that of Eventifier.

Apart from tax credits, I am not sure what benefits BookMyShow is going to get. This clearly shows 2015 was a scary year for startup investments in India. Similar stories would appear 5-7 years down the line when people would talk about large scale capital destruction that happened during these years. Please make sure you protect your capital rather then getting any return on your capital.





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