Akshay Kumar doesn't guarantee a company or brand's success

A long time back (almost 4 years back in 2014), I had prayed to God to save the Indian banking sector in Beware of Frauds post. Now that the banking sector is being saved by RBI and Indian Government, another thing that I want to highlight is the mention of a company named "Kwality" in the same post. I had mentioned that my mother-in-law called me to check if she can buy the shares of "Kwality". The price at that time was hovering around INR 50. I pleaded my mother-in-law to not invest blindly.

I also looked at the company's brand at the website. This is the same company that had ice-cream brand "Kwality Walls" which was acquired by Hindustan Unilever in 1994.

The company then signed up Akshay Kumar as brand ambassador in 2015 and renewed him again in 2017. The advertisement also show an actress Asimah Mirza whose instagram account you can see here. Due to good revenue growth and profits, the share price went up from 50 to INR 160 in March 2017 and I was depressed that I gave wrong advice to my mother-in-law. By March 2018, the price came down to INR 80 and I was thinking that I may have been wrong but not completely wrong.

What is the situation now? The price is hovering at INR 7 and hitting lower circuit of 5% daily. The latest news says that the company has defaulted on its 1200 crore loan and is going to go to NCLT (National Company Law Tribunal).

Strange are the markets!

Sector in Decline - Newspaper Publishing and Media

Lately, you all might have seen that I am buying some publishing businesses such as Jagran Prakashan, Just Dial while I was already holding Hindustan Media Ventures. The valuation of these companies are given below in the table

Company	Market Cap	Operating Cash Flow(3 year average)	P/E	Net Current Assets
Jagran Prakashan	3800	445	12.25	575
DB Corp	4329	370	13.9	675
Hindustan Media Ventures	1246	150	9.15	1330
Just Dial	3765	155	26.23	1000

If you check the history of many of the companies, Jagran Prakashan (who owns Dainik Jagran) did a buyback at INR 195 for 292.5 Crore and share price is now at INR 125. On the day of buyback validity, the share price was at INR 160. Jagran also owns another listed company Music Broadcast which owns 91.1 FM - Radio City. Surprisingly, Music Broadcast is also doing buyback. DB Corp (who owns Dainik Bhaskar) announced a buyback at INR 340 for 312.5 Crore while the current price is INR 237. Just Dial is an internet based business for finding local businesses (Yelp of India). It also has approved buy-back at INR 800 for 220 Crore. I am not sure why at one side market is evaluating cash-rich companies like these generating decent cash flow at ridiculously low valuations while some others are trading at 75-100 times cash flow such as Dabur, Honeywell, Berger Paints, Page Industries, Jubilant Food and many others. Time will tell whether I am right or the market.

Recently Listed Good Quality Companies

Since the last 5 years, a lot of IPOs have come out and when I recently looked at the list, it seemed many good quality companies have got listed and I missed catching them. Here are a few:

Name	Brand/Use	IPO Price	Current Price
Sheela Foam	Sleepwell	680	1500
Music Broadcast	RadioCity	333	312
CDSL	Demat	149	267
Matrimony.com	Bharat Matrimony	985	745
Quick Heal	Antivirus	321	275
Mahanagar Gas	Piped Gas	421	809
Just Dial	Local Business	483	570
Thyrocare	Pathology Lab	446	570

Many of these companies are having a great brand and use and all of them are from different sectors of the economy. Even the business is generating pretty good ROCE and having a reasonable valuation. Make sure you keep an eye.

Recent IPO Performances

There has been flurry of activity on the IPO front recently and in my last post I already covered that there has been mixed results from two companies in auto ancillary sectors. I want to extend it to now cover all the IPOs between 2013-2018 and show where they stack. Here is the result:

Company	IPO Date	Issue Price	Current Price	Gain/Loss	Price 27 Oct
Repco Home	April 2013	172	598	247.7%	331
Just Dial	June 2013	483	448	-7.5%	437
Wonderla	May 2014	125	365	192%	267
Snowman Logistics	Sept 2014	47	49.45	5.2%	34
Sharda Cropchem	Sept 2014	156	406.7	160.7%	330
Shemaroo Entertainment	Oct 2014	170	479	181.76%	446
Monte Carlo	Dec 2014	645	532	-17.5%	347
Ortel Communication	March 2015	181	21.75	-88%	7
Adlabs Entertainment	April 2015	180	50.35	-72%	11
Inox Wind	April 2015	325	108.7	-66.55%	78
VRL Logistics	April 2015	205	424.3	106.7%	255
MEP Infra	May 2015	63	83	31.75%	42
UFO Moviez	May 2015	625	394.7	-36.85%	313
PNC Infratech	26 May 2015	378 (Pre split 5:1)	166.8	120.6%	127
Manpasand Beverages	July 2015	320 (Pre bonus 1:1)	395.4	147.1%	83
Syngene International	August 2015	250	615.6	146.25%	570
Power Mech Projects	August 2015	640	1028.95	60.75	820
Navkar Corp	September 2015	155	179.55	15.8%	67
Pennar Eng	September 2015	178	83.95	-52.85%	52
Shree Pushkar Chem	September 2015	65	219.45	237.6%	180
Sadbhav Infra	September 2015	103	134.45	30.5%	101
Prabhat Dairy	September 2015	115	179.95	56.25%	100
Coffee Day	November 2015	328	332.9	1.5%	260
Interglobe Aviation	November 2015	765	1407.8	84%	870
S H Kelkar	November 2015	180	240.65	33.7%	172
Dr Lal Path Lab	December 2015	550	847.7	54.1%	893
Alkem Lab	December 2015	1050	1969	87.5%	1940
Narayana Hrudayalay	January 2016	250	274.5	10%	220
Precision Camshaft	February 2016	186	101	-45.7%	60
Teamlease Services	February 2016	850	2647.9	211.5%	2514
Quick Heal	February 2016	321	333.2	4%	185
Bharat Wire Rope	April 2016	45	124.75	177.25%	72
Equitas Holdings	April 2016	110	156	41.8%	99
Thyrocare	May 2016	446	668.75	50%	560
Ujjivan Financial	May 2016	210	405.35	93%	181
Parag Milk Foods	May 2016	215	314.45	46.25%	251
Mahanagar Gas	July 2016	421	894.8	112.5%	814
Quess Corp	July 2016	317	1162.7	266.8%	686
L&T Infotech	July 2016	710	1592.9	124.35%	1656
Advanced Enzyme	August 2016	896 (Pre split 5:1)	254.6	42%	177
Dilip Buildcon	August 2016	219	1163	431%	382
S P Apparels	August 2016	268	369.7	37.95%	275
RBL Bank	August 2016	225	537.65	138.95%	500
L&T Technology	Sept 2016	860	1337.05	55.5%	1560
GNA Axles	Sept 2016	207	555.15	168.2%	353
ICICI Prudential	Sept 2016	334	433.2	29.7%	325
HPL Electric	Oct 2016	202	114.45	-43.35%	56
Endurance Techno	Oct 2016	472	1285.95	172.45%	1104
PNB Housing Fin	Nov 2016	775	1364.7	76.1%	700
Varun Beverages	Nov 2016	445	645.05	44.95%	760
Sheela Foam	Dec 2016	730	1517.55	107.9%	1500
Laurus Labs	Dec 2016	428	508	18.7%	340
BSE Limited	Feb 2017	806	812.05	1%	596
Music Broadcast	Mar 2017	333	387.8	16.45%	329
Avenue Supermarts	Mar 2017	299	1483	396%	1227
CL Educate	Mar 2017	500	211.55	-57.7%	113
Shankara Building	April 2017	460	1948.4	323.5%	1086
S Chand and Co	May 2017	670	401.6	-40%	194
HUDCO	May 2017	58	65.95	13.7	40
PSP Projects	May 2017	210	574.75	173.7	370
Tejas Networks	June 2017	257	336.35	30.9%	237
Eris Life	June 2017	603	765.35	26.9%	684
CDSL	June 2017	149	293.85	97.2%	239
GTPL Hathway	July 2017	170	152.75	-10.15%	85
AU Small Finance Bank	July 2017	358	731.65	104.4%	523
Salasar Techno	July 2017	108	388.55	259.77%	210
Security & Intelligence	August 2017	815	1180.65	44.9%	835
Cochin Shipyard	August 2017	432	530.95	22.9%	379
Apex Frozen Foods	Sept 2017	175	646.7	269.55%	340
Bharat Road Network	Sept 2017	205	179.75	-12.3%	116
Dixon Technologies	Sept 2017	1766	3463.2	96.1%	2084
Matrimony.com	Sept 2017	985	836.65	-15%	480
Capacite Infra	Sept 2017	250	361.35	44.55%	180
ICICI Lombard	Sept 2017	661	752.95	13.9%	800
SBI Life Insurance	Oct 2017	700	758.85	8.4%	570
Pratap Snacks	Oct 2017	938	1359.8	45%	1004
Godrej Agrovet	Oct 2017	460	703.25	52.9%	512
Indian Energy Exchange	Oct 2017	1650	1631.95	-1.1%	1600 (after split 160)
General Insurance	Oct 2017	912	711.9	-22%	634 (after split 317)
Reliance Nippon	Nov 2017	252	252.95	0%	160
Mahindra Logistics	Nov 2017	429	487.2	13.5%	550
Khadim India	Nov 2017	750	776.5	3.5%	594
HDFC Standard Life	Nov 2017	290	519.15	79%	360
Shalby	Dec 2017	248	217.55	-12.3%	149
Future Supply Chain	Dec 2017	664	700.15	5.5%	649
Astron Paper	Dec 2017	50	137.85	175.7%	110
Apollo Micro Systems	Jan 2018	275	232.3	-15.5%	116
Newgen Software	Jan 2018	245	239.3	-2.3%	232
Amber Enterprises	Jan 2018	859	1073.55	25%	837
Galaxy Surfactants	Jan 2018	1480	1446	-2.3%	1260
Aster DM Health	Feb 2018	190	170.95	-10%	159
HG Infra Eng	Mar 2018	270	336.35	24.6%	173
Bharat Dynamics	Mar 2018	428	405	-5.4%	283
Bandhan Bank	Mar 2018	375	506.45	35%	380
Hindustan Aeronautics	Mar 2018	1215	1125.8	-7.35%	746
Mishra Dhatu Nigam	Apr 2018	90	146.45	62.7%	108
ICICI Securities	Apr 2018	520	422.75	-18.7%	239

The table clearly shows that it has been a mixed bag for investors. Especially after October 2017, there has been 13 listings in green and 10 in red so 40% of the total IPO are in negative since last 6 months. This clearly tells that there is a froth in the primary market offerings.

The one that are in negative or very small gain but looks attractive from investment perspective to me are following:

• Just Dial
• Monte Carlo
• UFO Moviez
• Pennar Engineered Building Systems
• Precision Camshaft
• Quick Heal
• Advanced Enzyme
• BSE
• Music Broadcast
• GTPL Hathway
• Matrimony.com

There has been listings of many insurance companies including ICICI Lombard, Reliance Nippon, HDFC Standard Life, SBI Life Insurance and I see very high valuations for them currently except for General Insurance.

There has been some good listings such as Sharda Crop Chem, Mahanagar Gas, Manpasand Beverages, CDSL which happened at slight gains to the issue price and then based on performance, stock price ran away. In Warren Buffett's  language, I was thumb-sucking at that time and lost these opportunities. I did buy some like L&T Infotech at around 650, which is below IPO issue price, and now I am handsomely rewarded as the stock price is hovering around 1600.

Among all the companies, the most stellar of them is Avenue Supermart (DMart) which came with issue price of 299, listed at 590 and now trading at 1500. Some of the good returns has happened due to heavy overvaluation such as that in Dilip Buildcon, Teamlease Services, Quess Corp, PSP Projects, Shankara Building Products, Apex Frozen Foods, Astron Paper and many others from the above list including Avenue Supermart too. Many are trading at stratospheric valuation and would give big heartache to investors when the tide turns.

Updated on 27 Oct 2018: I have updated the list with latest price as of today since a lot of action has taken place in two months. I had already mentioned some names which looked overvalued at that time out of which only Astron Paper and Teamlease have not corrected much otherwise Dilip Buildcon has gone down by 70%, Quess by 40%, Apex Frozen by 50%, Shankar Building by 45% and even Avenue Supermart has corrected by 17.5%. Even the one that I found interesting such as Pennar, Quick Heal, Matrimony have gone down by 30% or more. The one which has withstood the carnage have been shown with green color and some of them were already in my portfolio such as Larsen & Toubro Infotech. Some I added in the correction such as Sharda Crop Chem, Precision Camshafts, Bharat Dynamics etc...

Tale of two IPOs

I typically avoid looking at IPOs but I do visit the companies which come out with IPOs after few years to see what they have done and how the stock prices have reacted. In this post, I will analyze Precision Camshaft and GNA Axles. Precision Camshafts came out with IPO in January 2016 while GNA Axles came out with IPO in September 2016. Following table summarizes the IPO details:

	GNA Axles	Precision Camshafts
Issue Price	207	186
P/E @Listing	17.1	22.3
Current Price	550	103
P/E Now	29.1	24
Gain/Loss	165%	-45%
Average Operating Cash Flow in 3 Years	37 Crore	83 Crore
Enterprise Value (Market Cap + Debt)	1297 (1180 + 117)	1090 (980 + 110)
P/B Now	3.57	1.75

The above table shows that in one company, investors have gained 165% in around 1.5 years and in the other, investors have lost 45% in around 2.25 years. The reason for more enthusiasm in GNA Axles is growth in recent times while flat revenue growth for Precision Camshafts since last two years. In 4 years between 2012 and 2016, Precision Camshafts average revenue (average of 3 years) grew from 260 Crore to 471.5 Crore while that of GNA Axles revenue grew from 349 Crore to 482.6 Crore. The only problem is that GNA this year has increased revenue as well as profits while Precision's revenue topped in 2015 and is decreasing since last 3 years now.

I personally feel that some premium for GNA Axles is justified but such large variation of valuation just due to growth in recent years seems far fetched. If you have to invest right now, I would go with Precision Camshafts.

Two out of favour sectors - Pharmaceuticals and Banks

People reading this blog must be able to see my recent investment activities and find that I have been selectively investing in two out of favour sectors in the last few months or more than a year I would say. The sectors are

• Pharmaceuticals
• Banks

In Pharmaceuticals, there is a clear harakiri where many company saw their share price going down by more than half including Lupin (2100 in Oct 2015 to 800 now), Sun Pharmaceuticals (1150 in April 2015 to 570 now), Dr Reddy's (4250 in August 2015 to 2170 now), Glenmark (1200 in August 2015 to 535 now).

I myself started investing in some of the well run companies such as Divi's Laboratories at 1000+ in 2015 and saw its price going down to 550. Luckily, I had some courage to keep buying at lower prices and average down so my average buying price kept getting lower and settling at 670 when I last bought some shares at 550. Today since the price is again at 1050+, I am having a decent profit.

Recently, I am still investing in some of the well known names such as Abbott, Sanofi, Suven Life Sciences etc... I am not buying them at bargain prices but they are fairly valued or sometimes 20-30% more than fairly valued but I don't think they are as bublicious as their counterparts in consumer space such as Hindustan Unilever or Britannia or Pidilite or Asian Paints.

In Banks, I did buy J&K Bank at 100 and had to sell at 80 to book losses. Today it is trading at 66. But I think I was early and now with NPA numbers of all the banks clearly available, the separation of wheat from the chaff has happened. The clear winners are only few such as HDFC Bank, Kotak Mahindra and Indusind Bank but there are second tier private banks which have got my attention including Karur Vysya Bank, Karnataka Bank, Federal Bank and South Indian Bank. NPAs of these banks are not as high as 10-20% similar to public sector banks but they are not as low as 1-3% which is the case for top run private banks that I mentioned above. There is some valuation measure available from the deal that happened in 2015 when Kotak acquired ING Vysya Bank at around 15K crore. After three years, similarly sized banks like Karur Vysya available at 8K crore, Karnataka available at 4K Crore and Federal Bank at twice the size available at 18K crore does look promising. These are all long term plays on the Indian economy. I hope they turn out to be good bets.