Saturday, May 26, 2012

I was wrong about CFS business

I had written about CFS business profitability to head south? on March 16, 2009 but the latest results from Gateway Distriparks show that the reverse is happening. The ROCE earned by GDL at that time was 20.15% but for FY12 results, it is 174.17/639.50 = 27.24% compared to 113.03/586.10 = 19.28% for FY11. Although some numbers do not make sense to me. The result published on NSE website for FY10 shows capital employed in CFS business as INR 273.30 Crore while the latest results on BSE show the same at INR 586.10 Crore, even though the total in all segments in both the results add up to INR 687.94 Crore. The difference started in results between FY08 and FY09 when capital employed dropped in CFS business from INR 441.83 Crore to INR 325 Crore but the depreciation in FY09 was just INR 44.47 Crore. In the same year, the capital employed in Rail Transportation business grew from INR 153.83 Crore to INR 426.89 Crore. Even the last year result on BSE shows capital employed in CFS business at INR 273.31 Crore so this year's results can be considered incorrect it seems but still we can say that even with the results with lesser capital employed, ROCE would come much higher.

I had also mentioned about investment by LIC in the company at an average price of INR 153 in year 2007. The current price of INR 143 is still below the investment price of LIC. The company came out with IPO at INR 92 in 2005 and also bought back shares in January 2009 at an average price of INR 81.


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Thursday, May 24, 2012

Sun TV Network

Sun TV Network was incorporated in 1985. It started with publishing magazines and then diversified in to television broadcasting.

The average ROCE of the company over the last ten years has been 38.35% as per the balance sheet of the company and has risen to 48% in the last year. The company is debt-free. The company at the end of FY2011 has net current assets of INR 921.24 Crore and investments of INR 271.67 Crore. The operating cash-flow of the company over the last ten years has been positive. The total income of the company over the last ten years has increased from INR 147.52 Crore in FY01 to INR 2062.16 Crore in FY11. The profit after tax has increased from INR 40.86 Crore in FY01 to INR 769.76 Crore in FY11.

Even though the company has a single business of broadcasting, its revenue source is diversified. The revenue break-up over the last four years is as below:
Broadcast Fees125.63130.36134.28153.78
Movie Distribution-28.2867.49221.32

This shows that advertising is around 50-60% of the company's revenue, subscription around 25% and 15% comes from broadcast fees and movie distribution. The first two are actually linked together since higher viewership will increase both advertising as well as subscription income.

Promoters hold around 77% in the company at the end of FY12. The promoters seem minority shareholder friendly as can been in the dividend distribution of INR 8.5 per share as interim dividend in FY12. The management's fixed salary is 3% (1.5% each to Chairman and Managing Director and Joint Managing Director) of net profit which is a bit on the higher side.

Mutual Fund Holding
Mutual fund holding was pretty dismal till december 2011 quarter. But in the first quarter of 2012, a large number of schemes have bought shares of this company.

The book value of the company at the end of FY11 was near INR 60 and may end up being INR 70 after this year's results on Friday, 25 May. At the current market price of INR 250, the share is trading at more than 3.5 times book value. At the current market capitalization of INR 9866 Crore, the share is trading at almost 18 times last five years average profit of INR 540 Crore and 13 times trailing twelve months net profit. The company's IPO came in 2006 when shares were issued at INR 875 which for split/bonus adjustment result in price of INR 218.75 today. So the current price is just 15% higher than the IPO issue price in 2006. The company does not look a compelling buy at this price but can be bought after some decline.

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Sunday, May 13, 2012

Hydro Power Sector

Following listed companies are in the hydro power sector in India:

  • Jaiprakash Power Ventures
  • NHPC (National Hydroelectric Power Corporation)
  • SJVN (Satlaj Jal Vidhyut Nigam) 
This sector is utility so returns on capital are controlled by government and the companies cannot charge the amount they wish from their end-users/customers. The following table summarizes their financial conditions:
Financial RatioJaiprakash Power VenturesSJVNNHPC
Market Cap (Crore)9777788022141
Net Worth (Crore)5170720524584
Debt (Crore)12381175314569
Average ROCE (five years)10.1515.206.41
Average Interest Cover (five years)2.55.484.76
Interest Cover (last year)1.628.125.68
Mutual Fund HoldingHDFC, etc...ICICI, Tata, etc...UTI, ICICI, Tata, etc...
Dividend Yield4.23.33
On most of the parameters, except price/book ratio, SJVN is better than the other two. JP power ventures is highly indebted and most probably will not be able to meet its financial obligations sometime or the other in the next few years. How can a value investor like me suggest you to buy the shares of a company whose bonds are not investment grade? So the best investment looks like SJVN at this point of time.
Image: markuso /
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Saturday, May 12, 2012

Update on Unichem Laboratories

I had discussed about promoters buying shares of Unichem Laboratories on September 15, 2011. The share price was hovering at INR 144 at that time. I had advised the readers to wait for INR 100 to enter the scrip. The share price did go to INR 100-110 between November and December but bounced back sharply and went to INR 160 in January and is still trading at INR 132 and change. But the promoters are still buying shares from open market as can be seen in the transactions below:
DateTransactionQuantityPriceHolding after Transaction
December 16, 2011Buy5,037108.4611,055,157
January 1, 2012Buy2,909120.2811,058,066
January 5, 2012Buy20,877120.511,078,943
January 6, 2012Buy21,920117.8811,100,863
January 9, 2012Buy25,520115.7811,126,383
January 10, 2012Buy16,819113.811,143,202
March 7, 2012Buy7,987126.6511,151,189
March 13, 2012Buy43,063128.7511,194,252
March 15, 2012Buy167,412130.7411,361,664

The promoter P. A. Mody's stake in the company has gone up to 12.39% from 11.61% in the August, 2011. The average buying price this time is INR 126.17. Even the latest results from the company puts the diluted EPS at INR 9.09 and the book value is at INR 84. So at the current market price of INR 132, the share is trading at 1.57 times book value and 14.52 times earnings. Even though P/E looks a bit stretched for a small company, remember that they have record low margins this year. The operating profit margin of 12.49% this year is lower than the lowest margin of 14.19% reported in March, 2000, that is twelve years back!!!! If you trust the promoters, then start buying rather than waiting for 100 on the scrip.

Image: Master isolated images /
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Thursday, May 10, 2012

Update on Sonata Software

I had written about Sonata Software being a value buy or a value trap on 18 December, 2011. The company's share price at that time was hovering around INR 23 and is still trading at INR 21 and change. I dug more data on insider trading in the company to find following:
PromoterDateTransactionQuantityPriceHolding after Transaction
Bhupati Investments and FinanceDecember 2, 2011Sell2,360,00025.418,433,580
Bhupati Investments and FinanceDecember 15, 2011Sell2,100,00023.216,333,580
Bhupati Investments and FinanceFebruary 29, 2012Sell175,06822.9816,158,512
Bhupati Investments and FinanceMarch 1, 2012Sell269,80022.715,888,712
Bhupati Investments and FinanceMarch 2, 2012Sell254,86221.8715,633,850
Bhupati Investments and FinanceMarch 5, 2012Sell547,21020.9415,086,640
Bhupati Investments and FinanceMarch 6, 2012Sell28,3032115,058,337
Bhupati Investments and FinanceMay 2, 2012Sell5,000,00018.8510,058,337
Viren RahejaMay 2, 2012Buy2,500,00018.858,250,000
Akshay RahejaMay 2, 2012Buy2,500,00018.858,250,000
Except for the last two transactions, all of them are sale of shares by one of the promoter group companies and that too at prices going lower and lower and even the buys are inter-promoter transfer. Even though Bhupati Investments held 15,058,337 shares after March 6 transaction, due to pledging, they held just 933,337 shares on 30 March, 2012. The same promoter released some of his pledged shares on April 30 to take shareholding to 5,283,337 and sold 5,000,000 of them to other promoters on May 2.

There were rumors of multiple companies including Wipro, Oracle and  HCL, Ingram in race to acquire Sonata in the later part of 2010 when the share price was hovering around INR 60. Now when the price is one third of that, nobody is talking about any acquisition. Even the above trading shows conflicting views of two different promoters on the company's future. Let's see which promoter turns out to be right.

Image: worradmu /
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