NMDC - value buy?

The company was established in the year 1958.

Financials
The average ROCE of the company over the last ten years is 40.79% but is lower at 31.98% in the last three years. The company has net current assets to the tune of INR 21,000 Crore. The company has projects worth INR 7800 Crore in progress (CWIP - Capital Work In Progress). The operating cash flow of the company last year was around INR 4000 Crore. The company has always remained profitable in the last 15 years and paid dividends regularly.

Shareholding
The Indian government owns 80% of the company.

Valuations
At the current market price of INR 90.3, the market cap of the company is INR 35,800 Crore. The stock price has touched the low it saw in May 2007. So this is eight and a half year low price for its share. The price earnings ratio is less than 8 and dividend yield is 9% (I doubt it would sustain though). The share price had touched an all time high of INR 550+ in May 2007 as well as Feb 2010. I think the company is not very expensive at the current valuations.

Narmada Gelatine - Value buy?

The company was established in year 1961 and earlier it was known as Shaw Wallace Gelatines Ltd.

Financials
The average ROCE of the company over the last ten years is 24.71% and is higher at 30.77% in the last three years. The company has consistently paid dividends since 2006. The company has net current assets to the tune of INR 55 Crore and has investments to the tune of INR 27 Crore. So the company can be liquidated immediately for INR 82 Crore. The operating cash flow of the company was INR 6 Crore last year. The company did undergo financial stress during 2002-2005 and suspended dividend during the time.

Promoters
75% of the company is owned by a promoter entity. 

Valuations
At the current market price of INR 140, the company's market cap is INR 86 Crore which is just INR 4 Crore more than the liquidation value. The price earnings ratio is less than 7 at reasonable profit margin. Dividend yield is 2.46%. The company was also going to be acquired by Sterling Biotech in 2004 as given in article. A company trading below book value at net current assets cannot be a bad bargain.

MOIL - Value buy?

The company Manganese Ore India Limited was established in year 1896 in UK but it became an Indian company in year 1962.

Financials
The average ROCE of the company over the last ten years is 28.77% but is lower at 13.82% in the last three years. The company has consistently paid dividends over the last ten years. The company has net current assets to the tune of INR 3030 Crore.

Promoters
It is a government owned company and 80% is owned by government.

Valuations
At the current market price of INR 200, the company's market cap is INR 3370 Crore which is just 10% above its net current assets. The price earnings ratio is less than 10 at severely depressed commodity prices. Dividend is almost 4.2% if it continues at the current rate. The IPO of the company concluded in year 2010 with a share price of INR 375 and the listing happened at INR 551. The current price of 200 is almost half of IPO price and 60% lower than all time high in year 2010. Need to see if it turns out to be a value buy or value trap.

Jullundur Motor Agency (Delhi)

JMA is one of the biggest auto parts dealer founded in year 1949.

Financials
The average ROCE of the company over the last 10 years is around 27.63% and is higher at 28.97% over the last three years. The company has consistently paid dividends over the last 10 years. The company has net current assets to the tune of around 90 Crore. The company had an operating cash flow of around 6 Crore last year.

Promoters
Promoters hold around 38.2% of the shareholding which has increased slightly compared to last year.

Valuations
Current market price of the company is INR 184 which is very near to its book value of INR 183. The valuations of 110 Crore is just tad above its net current assets. The P/E comes to around 7.78. Its competitor "India Motor Parts and Accessories" is trading at around 18.63 times earnings with 2.5 times book. The only thing in favour of IMPAL is that its operating profit margin at 8.9% is higher compared to 5.8% of JMA.

My experiments with options

Mr Warren Buffet keeps saying that derivatives are weapons of mass destruction. But as a value investor, I still wanted to try some. I have seen some value investors like Seth Klarman using them to hedge their portfolios. I did the same and tried to use the options to hedge my portfolio. I bought following options during the last six months:

Trade Date	Option	Quantity	Cost (with brokerage)
11 Feb	NIFTY 26 MAR 7200 PUT OPTION	75	699.19
26 March	NIFTY 30 APR 7300 PUT OPTION	75	421.53
9 June	NIFTY 30 JUL 7000 PUT OPTION	100	1658.92
5 Aug	NIFTY 24 SEP 7000 PUT OPTION	500	3416.8
21 Aug	NIFTY 24 SEP 7100 PUT OPTION	300	1809.89
		Total	8006.33

During the last six months, my portfolio which is made up mostly of small cap stocks went up by around 25% and has given me returns much more than the cost of protection above. The reason I am buying 7000 Puts is because the Nifty EPS is around 360. At a P/E of 20, the valuation comes to around 7200 which is still considered quite high by historical standard. At the current level of 8565, P/E is around 24 which has never sustained for longer time. Following table summarizes the time period when Nifty P/E remained higher than 20:

Start	End
August 1999	March 2001
December 2003	April 2004
March 2006	May 2006
September 2006	February 2007
April 2007	June 2008
June 2009	July 2011
May 2014	Not yet

Most of the periods with high P/E ended with sharp correction in Nifty to bring down the P/E ratio below 20. The longer the ratio remained above 20, the longer and sharper was the correction. That's what I am expecting right now and so the buying of options. Have a good luck to you.

Update
I sold 300 Nifty 7000 put options at 40 to cover the cost of all the options that I had bought in the last six months or so. I still have 500 remaining. Nifty spot is at 7656 and chances are that it can go below 7100 by end of the month if some catastrophic event happens.