Friday, October 30, 2009

Why this company is hesitant in paying dividend?

The company I am talking about is "Compact Disc India".

The company first calls for a meeting on February 20, 2006 to consider dividend. The decision to recommend 10% interim dividend was differed in the meeting till the next meeting on 23 March 2006. The meeting on 23 March 2006 was postponed. That meeting never happens.

The company again called for a meeting on 30 May 2008 to consider dividend. The company forgot to inform about any decision taken on dividend in the outcome of the meeting. The updates were communicated to the exchange that the dividend will be discussed in AGM. The company again called for a meeting on 22 August to consider dividend. The board did declare a dividend along with a Shareholders welfare fund worth 50 lacs which will provide interest free loans for personal use to those shareholders who are holding the shares of the company for last 10 years. There was no mention of the word dividend till the next year.

The company called for a meeting on 20 January 2009 to declare interim dividend. The meeting was adjourned on 16 February 2009 and never happened.

The company called for declaration of dividend again on 28 August 2009. The company declared a dividend in the meeting on 4 September 2009. When the AGM was held, the company deferred the declaration of dividend as "in Agreement executed by the company with its bank (lender), the company has to take prior approval of the bank before declaring the dividend." The company again issued a clarification that the dividend declaration was deferred.

Now the company has called again for an EGM to be held on 30 November to declare a dividend in a notice given on 24 October 2009.
Bookmark and Share

Wednesday, October 21, 2009

Total Market Cap above GDP

One of the valuation that measures whether the stock market in general is undervalued or overvalued is the ratio of total market cap of all the listed companies to GDP. According to economic survey 2008-09, GDP at current market prices was INR 53,21,753 Crore in FY2008-09. According to the BSE, the total market capitalization of all the listed entities was at INR 58,46,175 Crore on Oct 20, 2009. I am not able to get the data for the FY2009-10, but as far as I can remember, the GDP this year will be somewhere around INR 60,00,000 Crore. This makes the current market cap to GDP ratio at 100%. This is much lower than the ratio of 170% reached at the time Sensex was at 21200 in January 2008 when total market cap was INR 80,00,000 Crore and the GDP in 2007-08 was INR 47,23,400 Crore. At the bottom when Sensex reached 8K in March 2009, the total market cap was around INR 30,00,000 Crore, while market cap to GDP ratio at around 56%.

This is despite the fact that many sectors are still not having a single big company listed. This includes Insurance, Restaurants, Advertising, Railways, and many more. Conclusion? The undervaluation of equities is gone.
Bookmark and Share

Wednesday, October 7, 2009

How government owned companies work?

I would like to give an example of how government owned companies work. The company involved is MMTC. Looking at the balance sheet of MMTC, it can be seen that the company has fixed deposits worth INR 5762.5 Crore while debt of INR 4305.2 Crore at the end of FY09. Now Annual Report of the company shows that it paid INR 665.869 Crore as interest in FY09 while the interest earned was 782.402 Crore. Thus the interest rate earned on fixed deposit was 782.402/5762.5=13.57% while interest paid on loans was 665.869/4305.2=15.47%. If instead, the company had not borrowed money and utilized its own deposits, the company would have saved INR 81.65 Crore, that's 37.6% of its PBT of 217.11 Crore in FY09. What a waste of money!!!.
Bookmark and Share

Tuesday, October 6, 2009

Are investors over optimistic?

Let's look at valuation of some of the companies:

ABB, a power equipment manufacturer, has a market capitalization of around INR 17K crore at a market price of INR 800. The company earned a net profit of INR 547 Crore in CY08 and has seen a decline of INR 87 Crore in profits in the first two quarters this year, TTM profit being INR 460 Crore. This makes the company valued at a P/E of 37 with degrowth in earnings. The dividend last year was INR 2.2 and the yield turns out to be 0.275%. It will take 363 years for an investor to get dividend equivalent to price of the share if the dividends do not grow.

BOSCH, an auto component maker, has a market capitalization of around INR 13K crore at a market price of INR 4000. The company earned a net profit of INR 633 Crore in CY08 and has seen a decline of INR 143 Crore in profits in the first two quarters of this year, TTM profit being INR 490 Crore. This makes the company valued at a P/E of 26.5 with degrowth in earnings. The dividend last year was INR 25 and the yield turns out to be 0.625%. It will take 160 years for an investor to get dividend equivalent to price of the share if the dividends do not grow.

Gujarat Gas Company, a city gas distribution company, has a market capitalization of around INR 2500 Crore at a market price of INR 200. The company earned a net profit of INR 160 Crore in CY08 and has seen a decline of INR 4 Crore in profits in the first two quarters of this year, TTM profit being INR 156 Crore. This makes the utility company valued at a P/E of 16.5 with degrowth in earnings. The dividend last year was INR 1.5 and the yield turns out to be 0.75%. It will take 134 years for an investor to get dividend equivalent to price of the share if the dividends do not grow.

Hindustan Zinc, a zinc producer, has a market capitalization of around INR 34K Crore at a market price of INR 800. The company earned a net profit of INR 2727 Crore in FY09 and has seen a decline of INR 129 Crore in the first quarter of this year, TTM profit being INR 2598 Crore. This makes the metal company valued at a P/E of 13 with degrowth in earnings. The dividend last year was INR 5 and the yield turns out to be 0.625%. It will take 160 years for an investor to get dividend equivalent to price of the share if the dividends do not grow.

The conclusion? Wait for better opportunities. Wealth does not build over long term with this kind of valuations.
Bookmark and Share
Related Posts with Thumbnails