Saturday, February 22, 2014

Mazda Ltd - Value Buy

Mazda is an engineering company established in the year 1990. The company mainly manufactures vacuum systems and evaporators.

Financials
The average ROCE of the company over the last ten years is around 30% but it was lesser at 25% last year. The company has consistently paid dividend over the last 14 years. The company sold its valve division in FY11 for around 13 Crore which resulted in exceptional after tax income of 10.824 Crore. The company had investments to the tune of INR 18.8 Crore in mutual funds and short term investments at the end of FY13. Beyond this, the company had net current assets to the tune of INR 39.12 Crore in FY13. The company had negligible debt of INR 2.41 Crore at the end of FY13. So the current enterprise value of INR 45 Crore is way lower than the amount of 58 Crore at which the company can be liquidated.

Special Food Division
Company has started a food division which had a turnover of INR 8.52 Crore with an operating profit of INR 1.07 Crore in FY13. They are selling instant drink powder, fruit jam, ketchup and custard powder under the brand bcool.

Promoters
Promoters are very shareholder friendly and their stake in the company over the last one year has increased by more than 5% and most of the shares were acquired from open market between the price of INR 80 and 100.

Mutual Fund Holding
Very few mutual funds are holding the company.

Valuations
The company at the current market price of INR 102 is trading at much lower than its book value of INR 194. With a healthy cash flow of INR 10 Crore, the company is damn cheap at INR 45 Crore valuation given its investments and net current assets.
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17 comments:

~~ N ! T ! N ~~ said...

How do you see the growth going forward and how would this business scale up.

Chinmay said...

Hi N!T!N,

Value investors like me do not try to estimate how the company will grow. We just try to find if the current value of the company is higher than its stock price. Once that is established, we leave it to the promoters to do something good to grow the company.

Hemant said...

If you check,you will notice that in march 2001,promoter holding was 33.66 then even after allotting warrants @ 70, stake went down to 24.16 in march 2007 as promoters after allotting warrants (paid only 10 percent ),sold the old holdings in market ,Promoters regularly plays in market & again add holding,which now stands at 34.46.So despite despite getting warrants,promoters holding remains same around 2001 level.Now how will you trust such promoters.

Chinmay said...

Some promoters are active in markets. Unichem promoter prakash mody also keeps buying selling that doesn't make the company risky to invest. And as per latest filing, promoter holding for Mazda has increased to more than 39%.

Hemant said...

Regd Unichem promotor,he is not enriching himself by alloting warrents by paying only 10% upfront.He has bought from the market.Any ways these are individual call one has to take:)

sania said...

do u have presence on twitter too?

SS said...

Interesting company.
Have you had a look at the website? At the very bottom under the head Food Division, they have something called "Cheap Red Heels". Click on that and you are taken to an ecommerce site called clvipshop.com. Which apparently sells discounted Christian Loboutin shoes. I havent done any further research, just thought will point it out. Very intriguing.

Chinmay said...

Hi SS,

Thanks for pointing out. You and hemant both look circumspect about the company. I did my research and put the post but fraud is something that a value investor cannot guarantee against. In the past, I have already tried to find obvious frauds and tried to keep the investors away from it. See http://www.indiavalueinvest.in/2009/10/why-this-company-is-hesitant-in-paying.html.

A company with dividend paying record for more than 13 years cannot be fraud especially when the market cap of the company is not stratospheric. If you want to check, see what stratospheric valuations look like http://www.indiavalueinvest.in/2010/04/company-in-stratosphere.html. The company's share price then went down from 350 odd to 53 now.

Chinmay

Chinmay said...

Hi Hemant,

I dug deeper and found following. The company's promoter Sorab Mody held 33.66% stake in March 2001 http://www.bseindia.com/corporates/ShareholdingPattern.aspx?scripcd=523792&flag_qtr=1&qtrid=29. Then he got Mr Percy Avari as executive director on board and allotted him 5% stake (217600 shares) which is present in shareholding pattern of March 2002 http://www.bseindia.com/corporates/shareholding_new.aspx?scripcd=523792&flag_qtr=1&qtrid=33.

The company then did buy-back in 2003 July and completed 10% buy back in less than one month at price no more than INR 10 (face value) http://www.bseindia.com/corporates/ann.aspx?curpg=141&annflag=1&dt=&dur=A&dtto=&cat=&scrip=523792%20&anntype=A.

Then the company did a split from FV 10 to 2 in 2005 and the promoters did sell some stake between March 2005-March 2006. The warrants were also issued in that time only http://www.bseindia.com/corporates/ann.aspx?curpg=121&annflag=1&dt=&dur=A&dtto=&cat=&scrip=523792%20&anntype=A.

The stock price after split became penny stock so the promoter did consolidation of shares in Nov 2006 as can be seen in http://www.bseindia.com/corporates/ann.aspx?curpg=101&annflag=1&dt=&dur=A&dtto=&cat=&scrip=523792%20&anntype=A.

The promoter stake was lowest in March 2007 and some was held by daughter Shanaya Mody.

Sorab Mody bought heavily between March 2008 and 2009 when there was heavy correction till price of 40.

Now how can you say promoters are crook?

Chinmay

Nirvana said...

Hi Chinmay,
I found your blog recently and subscribed to it, I am very happy to read about your posts these days true value investors is so hard to find :) Would you might sharing your contact information? I would like to be in touch

mayur said...
This comment has been removed by a blog administrator.
mayur said...

Hello Friend, just came across your blog and saw a small post on Plastiblends, which looks good bet. What factors apart from sales/profit ig encourages you to be remain in that. Also, is it still a but for me @ 110? What is target price you hae in mind (approx) over the next 2-3 years?
Pls advise.

-Mayur

Ricky said...

I recently came across your blog, and I think I missed the bus. Most of your listed recommendations are fairing well. Kindly continue to share your recommendations and views. Its of immense help to small investors like us.

Karthikraja K said...

Hi,
Whats your reason for buying into Cheviot, Anuh and Lumax?
there are good ones available comparatively better. Even in big tide, these 3 has small run only. i just want to understand your conviction. so i can apply those points on mine. thank you

Chinmay said...

Hi KarthikRaja,

Sometimes I take small position just to track some stocks. Anuh looks great for long term. Lumax and Cheviot are short term plays.

Chinmay

vishu k said...

eagerly waiting for your buy trades after anuh pharma.also please tell some of most important financial ratios you prefer most to look for selecting value stock.

Karthikraja K said...

it looks like u r increasing your cash. we are waiting for your new post

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