Monday, August 9, 2010

Mr Market is noticing us

A few days back I had pointed out Mr Market's discrepancy in valuing two companies with almost the same kind of business profile. It seems that Mr Market has taken notice of our findings and the discrepancy and gap is reducing. I am talking about valuation gap between Titagarh Wagons and Texmaco. The market capitalization of Titagarh Wagons was 625 Crore at the time of writing previous article compared to 1717 Crore of Texmaco. Now Titagarh Wagon's market cap has gone up to 770 Crore while that of Texmaco has remained stagnant. Thus Titagarh Wagon share price has appreciated by 23.2% and that too in a span of just over three months. Our assumption was that Titagarh is undervalued by around 40% compared to Texmaco and we were expecting a market cap of around 1050 Crore for Titagarh which translates in to share price of around 550. Let's see if we get there or not.
You will not be right simply because a large number of people momentarily agree with you. You will not be right simply because important people agree with you. You will be right, over the course of many transactions, if your hypotheses are correct, your facts are correct, and your reasoning is correct. - Warren Buffett
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Wednesday, August 4, 2010

Sensex - Nifty EPS - almost flat

It seems that quarter after quarter, I am providing the same post again and again. I had talked about Sensex-Nifty EPS not increasing in my last post.The same thing is being repeated after this quarter results too. Sensex EPS today stands at 18217.44/21.62=842.62 and Nifty EPS at 5467.85/23.07=237.01. This compares with 828.5 for Sensex EPS and 239.64 for Nifty EPS reported on 29 May. Sensex EPS has grown by 1.7% in the quarter, i.e. 6.5% annualized and Nifty EPS has contracted by 1.1%, i.e. 4.4% annualized. Be cautious!!!!
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Tuesday, August 3, 2010

Bloodbath in Biscuits?

At one end, FMCG companies like Nestle and Dabur are reporting highest ever net profit margin (NPM) of almost 13-14%, and at the other end, biscuits company like Britannia had the lowest net profit margins of the decade last year. The net profit margin last year was 3.4%. The company reported net profit of 116.5 Crore on sales of 3424.6 Crore. The consolidated numbers are worse than the standalone one. Even the operating profit margin (OPM) was just 5.07%, operating profit of 173.7 Crore on sales of 3424.6 Crore. I had recommended buying Britannia at 1350 in July 2008. After two years, the share price has appreciated to 2120 today. The company has paid Rs 40 and 25 as dividend last year and this year respectively. The company also issued debentures worth Rs 170 on 1:1 ratio to the stock. Thus the total gains for a shareholder is 2120+40+25+170=2355 on an investment of just Rs 1350 giving a return of 74.4% in two years, i.e. 30%+ compounded returns. Since the stock price is out of sync with the fundamentals, I would suggest investors to book profits at these levels. You can see in "Recent Investment Activity" section that I have been selling Britannia shares since last few days.

Speculative stock movements are carried too far in both directions, frequently in the general market and at all times in at least some of the individual issues.
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Contrarian Indicators

When my blog is talking about bubble in FMCG and Pharma, Jayakumar of prime securities has started recommending them. He talks about Asian Paints, Nestle and Glaxosmithkline Pharmaceuticals, all of which have been shown to enter a bubble territory recently on this blog.

How has his recommendation in the past turned out to be? He recommended Bharati Shipyard in January 2010 at a price of 220-230 and said it would be a multibagger for the year 2010. The stock price is still hovering around 235 and change. Thomas cook was recommended in the same article trading at 70-75 and is hovering at 69 and change right now. Sugar space was recommended in the article with a retail sugar price touching 60-65 which was hovering at 50 then. The prices have come off to 30 and sugar companies are bleeding. Balrampur chini was at 140 and going for 83 and change right now. Bajaj Hindustan was 230 and going for 115 and change right now.

He also recommended Nestle and Asian Paints in the same article which were trading at 2500 and 1800 respectively. They have given satisfactory returns where Nestle has appreciated by 20% and Asian Paints has appreciated by around 45%. But they do not seem cheap right now.

Would you want to listen to him?

Any intelligent person, with a good head for figures, should have a veritable picnic on Wall Street, battening off other people’s foolishness. - Benjamin Graham
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