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.

Carnage in Commodities

Many readers of this blog will see the investments I have made to the right of this post and find the names like Cairn India, GMDC, Maharashtra Seamless, MOIL, NMDC, OIL India and Tata Sponge Iron. Most of these I bought in the last one-two years thinking the shares are offering value but I have been beaten down by Mr Market and every month I am seeing newer lows for the share prices of these companies. The average buying price for these stocks is 220, 80, 204, 208, 90, 460, and 650 respectively while the current trading prices for the same are 130 (-40%), 56 (-30%), 136 (-33%), 185 (-10%), 91 (0%), 320 (-30%) and 375 (-43%). Even though the losses looks big, the number of stocks 7 make a very small percentage of my overall holding of 28 stocks, i.e. 25%. So the average loss of 26% on 25% of your holding comes to around 6.5% of your total investment which looks big if your portfolio is INR 1 Crore since 6.5% is 6.5 lakhs but minuscule amount of INR 65K if your portfolio is just INR 10 lakh. For me, the good news was that I invested higher percentage in non commodity companies with better conviction so the portfolio share of the commodity stocks is even lower at just 16% and the losses are just 4.5%. Even though value investors like me try to avoid capital loss, due to events not controlled by the investor, some losses are expected and I just need to minimize them.

If you look at the investments made by other gurus in commodity companies recently Gurus pile into commodities and What gurus are saying about commodities, most of them have lost money except in Gold. Peabody energy stock price has gone down from 25 to 2 in six months, Arch Coal went down from 2 to 0.5, Freeport Mcmoran going down from 10 to 7 with as low as 4 in January. Carl Icahn even had to sell his Apple Inc holdings recently at 30% correction from top price and his company Carl Icahn Enterprises was downgraded recently Carl Icahn Enterprises in danger of downgrading to junk due to heavy loan to value ratio.

I am not trying to defend myself here but what I am saying is that the errors are part of human decision making and the three words "Margin of Safety" ensures survival. I do try to put enough margin of safety in everything I buy. One of the recent examples of this was my purchase of Shilp Gravures at INR 46. The company's share price went on to reach INR 116 a month back but since it got notice from GPCB (Gujarat Pollution Control Board) to shut down the plant GPCB Notice, the price came down to INR 63 which is still higher than my purchase price.

If I still have conviction about my investments in these companies, I can average down but for many the equation has changed. For Cairn, a merger is announced with Vedanta and not sure what promoter would do with the cash present on Cairn's balance sheet. The oil price have come down from $60 to $30 since I bought these shares impacting the profitability. Oil India made huge investment to buy Videocon's Oil assets in Africa OIL and OVL invests in Africa. The transaction was done at a time when Gas prices were hovering near $4 while they are trading at $1.8 now. So times change and so do equations.

Be safe, be prepared.