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:

Date	Transaction	Quantity	Price	Holding after Transaction
December 16, 2011	Buy	5,037	108.46	11,055,157
January 1, 2012	Buy	2,909	120.28	11,058,066
January 5, 2012	Buy	20,877	120.5	11,078,943
January 6, 2012	Buy	21,920	117.88	11,100,863
January 9, 2012	Buy	25,520	115.78	11,126,383
January 10, 2012	Buy	16,819	113.8	11,143,202
March 7, 2012	Buy	7,987	126.65	11,151,189
March 13, 2012	Buy	43,063	128.75	11,194,252
March 15, 2012	Buy	167,412	130.74	11,361,664

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.

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Is Unichem Laboratories cheap?

The promoter of the company, Prakash Mody is heavily buying shares of the company from the open market. See the table below:

Date	Shares Bought	Amount	Average Price
8 Aug	7389	1090247	147
9 Aug	30983	4529405	146
10 Aug	9592	1397938	145
11 Aug	26209	3744218	142
12 Aug	14257	2094638	146
16 Aug	175946	25772570	146
17 Aug	3395	494256	145
18 Aug	5160	762878	147
22 Aug	14572	2091826	143
23 Aug	22580	3199009	142
24 Aug	6282	885110	142
25 Aug	1476	210933	143
26 Aug	2447	352137	144
29 Aug	4169	599724	144
30 Aug	15784	2243806	142
2 Sep	3000	426441	142
5 Sep	226882	32403021	143
Total	570123	82298157	144.35

His stake in the company has gone up from 11.61% to 12.24%. The company's operating profit margin over the last two quarters has been around 14-15%, which is lowest till 2002. Net profit margin of around 8.25% is also the lowest in the last ten years. But even at the current price of INR 144, the company trades at 2 times book and 15 times earnings. The (net current assets + investments) stands at INR 30 per share. The earnings are obviously depressed due to margin pressure, but the high P/E is still not justified. Even though the promoters are showing a lot of confidence in the company, I would wait for price to correct to at least INR 100 to enter the scrip. I already have some bought in 2009 at the split adjusted price of INR 60.

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Are insiders fool?

Generally when the Sensex/Nifty trades at more than 20 times earnings, the insider buying to selling ratio remains very low. But when a stock become cheap, promoters buy shares of their own company, both to provide confidence as well as increase their stake in the company at a bargain prices. I had seen this happening a lot between October 2008 - May 2009. Banco Products, Sarla Performance Fibers, Precision Pipes & Profiles Company, Asahi Songwon, ZF Steering Gear and many other companies' promoters bought heavily to increase their holding in their companies. All these companies have generated extraordinary gains since the bottom in March 2009. Banco Products has gone up from INR 15 to INR 70, Sarla Peformance from INR 30 to INR 115 today, Precision Pipes from INR 35 to INR 100 today, Asahi Songwon from INR 13 to INR 68 today and ZF Steering has gone up from INR 100 to INR 295 today. Contradictory to general perception, even at this Sensex/Nifty levels, some of the promoters who were not able to increase their holdings at rock bottom prices in March 2009 have bought shares in their own company between September 2010 and February 2011 and their shares are available today below their own buying price. Some of the examples are given below in the table:

Company	No of Shares Bought (% Equity)	Average Price	Current Price
Dynemic Products	92563 (0.817%)	22.88	22.8
Wimplast	65547 (1.09%)	193.15	160
Ador Welding	23117 (0.17%)	164-201	167
Garware Wall Ropes	23718 (0.1%)	74.17	58
Patels Airtemp	33703 (0.665%)	NA	69

There might be more companies than what have been mentioned here. BSE/NSE does not provide a clean interface to easily find out the way to get insider buy/sell information. This clearly shows that there is a large gap in terms of valuation between Sensex/Nifty and small cap companies. When big companies are trading at 25-40 times earnings, the promoters of small-cap companies are not finding any takers. Some of the selling pressure is coming due to large institutional investor (read LIC) liquidating their stake in a company (read Garware Wall). Promoters may be trying to provide a floor to that.

I don’t think man should have to learn easy lessons in such a hard fashion. You should be able to learn not to pee on an electrified fence without actually trying it. - Charlie Munger

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More Insider Selling

The insiders seem to differ from mutual fund managers. MF Managers are buying like mad and insiders are selling as if there is no tomorrow. Here are some more disclosures: JM Financial, Piramal Healthcare, DLF 1 and 2, Aptech, Lupin, Oracle Financial, IL&FS Investment Managers 1, 2 and 3, Ambuja Cements 1 and 2 and Voltamp 1 and 2.

Insiders selling more?

Recently I saw a lot of insider selling. Ambuja Cements, Wipro, M&M, IL&FS Investment Managers, Paper Products, and Kotak Mahindra Bank are some in the list. There are many more that you can find out here.

Indian Executives Dumping Stocks - Part 2

We have seen some more dumping over the last three days from Ambuja Cements 1, 2, 3, 4, and 5, Jindal Steel and Power 1, HDFC Bank 1 and HCL Infosystems 1.

Indian Executives Dumping Stocks

Following the footsteps of their US counterparts, Indian directors too have started dumping the stocks of their companies, two of them belong to ICICI Bank and Polaris. You and I have less information about the company's future than the CFO of a company for sure, unless the CFO is going to leave. There might be more such incidents but I will leave it to you to find out.