Why is this company valued so much?

The company I am talking about is Cals Refineries. The company has a total equity capital of INR 794 Crore divided into 794 Crore shares of face value INR 1. The current price of the share is INR 0.48 making the complete market cap of the company at INR 381 Crore. The company doesn't have any earnings over the last 5 years. The company split its shares in June 2008 from face value INR 10 to INR 1. Till Sept 2007, the company's equity capital was just INR 5.0281 Crore made up of 50,28,100 shares of face value INR 10. The company had a GDR issue in December 2007 of USD 200 million (approximately INR 800 Crore at that time) at a price of $25.38 (equivalent to INR 1000 at that time) while the share on BSE was trading at INR 2.2 till May 2007. The company again wants to raise money through GDR.

The promoters hold only 2.17%. The company's 94.96% stake is in GDR held by The Bank of Newyork Mellon DR. Strange case.

Are these stocks worth investing?

I was looking at the distress sale going on in the stock market in IT space. It is true that most value investors would avoid IT sector stocks since their business model is difficult to understand. After the Satyam fraud, even the books of many IT companies are difficult to trust upon. Still I found that some of the IT companies are available at throwaway prices. Here is the list:

Name	Market Cap (INR Crore)	Net Current Assets	Profits of Last 10 years
CMC	430	144	465
D-Link	115	48	220
Geometric	95	63	210
KPIT Cummins	200	75	240
Nucleus	150	42	210
Polaris	460	250	600

If you consider buying the whole company and assume that the companies will make the same profits over the next ten years that they have done over the last ten years, which is very conservative estimate, then you can get more earnings than what you get in PPF in some of these businesses. In PPF, you get 8% compounded annually, i.e. INR 1.16 on INR 1 invested in 10 years. On Polaris you get 600/460=1.3, on Nucleus you get 210/150=1.4, on KPIT cummins you get 240/200=1.2, on Geometric you get, 210/95=2.21, on D-Link you get 220/115=1.91. If CMC gets merged to TCS with a swap ratio of 1:1, you get 1.8 times your money at today's prices.

CFS business profitability headed south?

I was looking at a particular sector for investment and found that the short term outlook and the recent past are pretty good but future may not hold good promise for the sector. I am referring to CFS or Container Freight Station. There are many companies operating in this, namely Balmer Lawrie, Gateway Distriparks, Allcargo Global Logistics, etc... The problem with the sector stems from the fact that one CFS does not offer anything different from the other. History of capital markets show that when a business become very profitable and there are no entry barriers, as in case of CFS business, a lot of people will enter the business and bring the profits down. Starting a CFS doesn't require much, some land and you are done. The last year results of Gateway Distriparks and Balmer Lawrie shows that the profit margins are almost 88.88/203.58=43.66% for GDL and 86.05/328.93=26.16% for Balmer Lawrie. The ROCE for GDL is 88.88/441.21=20.15% while that for Balmer Lawrie is more than 1000%.

What happens when you overpay?

I was searching for profit/loss of a company "Honda Siel Power Products" for very old times. I came across its recommendation by ICRA. The company's share price was INR 74 in April-May 2000, i.e. exactly 9 years back. Today it is at INR 119, a gain of 5.42% compounded annually. Add 2% dividend and you get 7.42%. Remember that HSPP was trading at just 4 times its average profit of INR 18.5 Crore over the last 5 years then. It was by no means overpaying, still the result was a lot of underperformance even compared to Sensex which was trading at 4250 and today at 8500, giving a CAGR return of 8%. Long term equity returns have started getting a lot of questions from analysts.

How is LIC in managing investment?

LIC is the biggest insurance giant in India. Most people know that LIC has a very long term view on investments. But even long term investors like Buffett doesn't like to loose a lot of money in the short term (it is a different matter that Buffett lost 89% of USD 288 Million investing in Irish Banks this year). Lets take a look at the investments made by LIC in one recently listed company, Gateway Distriparks. Following is the investment pattern of LIC in GDL:

Quarter	Shares bought	Average Price	Total Investment (INR Crore)
March 2007	945601	170	16.07
June 2007	831423	180	14.96
Sept 2007	767772	140	10.75
Dec 2007	3314496	145	48.06
Total	5859292	153.35	89.85

At the end of December 2008, the total INR 89.85 Crore invested in GDL was worth just INR 26.37 Crore on 6th March at a price of INR 45 per share. I will try to find more such investments.

Arbitrage Opportunity in IOC and BRPL?

According to the November 2006 BSE announcement here, BRPL is going to be merged with IOC in a share swap ratio of 37:4. The amalgamation was approved in March 2008 here. The BSE closing share price of BRPL and IOC on March 5, 2009 was INR 37.95 and INR 437.95. If you buy 370 shares of BRPL with INR 14041.5, you will get 40 shares of IOC worth 17518, a return of 24.75%. The record date for merger is not announced yet.

You are protected till the share price of IOC goes below 351.04.

Next BlueStar or CRISIL? - Part 2

Extending my article Next BlueStar or CRISIL?, I tried to analyze other characteristics of both these companies in 2001. The market capitalization of BlueStar in 2001 was on an average INR 70 Crore (Price INR 35) while that of CRISIL was average INR 50 Crore (Price INR 100). The companies had a P/E of 3 and 6 respectively. The companies had dividend yield of 12.85% and 6% respectively. In Part 1, we analyzed the dividend yield aspect. The other criterion that I found interesting was last 10 years profits. BlueStar made INR 145 Crore worth of profits between 1992-2001, i.e. its average Market Cap in 2001 was half its profits in the last 10 years. CRISIL mad profits of around INR 75 Crore between 1992-2001, i.e. its market cap was two thirds of the net profit the company made in last 10 years.

Remember that both the companies didn't have any debt and had pretty big moat around their businesses, which was reflected on continuous profit making business over last 10 years.

There are several companies today in BSE500 as well as BSESMALLCAP which fits this criteria. Have a look yourself.

We have got more victims

With extension to We got first victim today, I am adding some more names which did not appear in Indian Banks are in for a tough time or Part 2 and have defaulted already.

Alps Industries
Arvind Mills
Mukand