I was way early

On May 7, 2010; I had made a macro call on financial sector in India. Let's compare the results today after three years and four months. BSE BANKEX was trading at 10505.86 at that time while SENSEX was at 16769.11. Today SENSEX ended at 18234.66 while BSE BANKEX ended at 9871.35. That means during the last three years and four months SENSEX gained 8.74% while BSE BANKEX lost 6.04%, an underperformance of around 14.78%.

It is still too early and biased to consider myself vindicated since BSE BANKEX has crashed just recently. I had also warned about an impending banking crisis in India in September 2010 although it was too early. Being early is sometimes no different than being wrong.

Jindal Drilling and Industries: Update

On June 16, 2013, I had written about Jindal Drilling and Industries. I myself trusted the promoters and went ahead and invested in the company at a share price of INR 187 as you can see in my recent investment activity.

Unfortunately, the promoters are becoming more and more non-transparent. The promoters secretly announced another round of preferential allotment, bigger than last year and probably at a much lower price, which unfortunately hasn't been disclosed yet. Last year, the company called for an EGM and then at a price disclosed to shareholders, made allotment of 27,50,000 shares which diluted the company's equity by 12% and increased promoter holding from 53.83% to 58.78%. Now allotting 33,00,000 shares would dilute the equity more by 12.85% and after the allotment, promoter holding again would go up to 63.63%. The amount of money the company is getting for this dilution may be just 130 crore. And remember, the promoters sold their 10.47% stake to one of the citigroup company in 2008 at exorbitant price of INR 1000+ which got them around INR 150 crore. So they are again bying the stake in the company by shelling out lesser amount to get higher stake.

The minority shareholder is not even being thought about. Since the price of the share is depressed, it would be a good idea to go for rights issue the way Tata Motors did in 2009. And when a minority shareholder does not subscribe to rights shares, promoter can replace it and increase his stake in the company. But this is not TATA. This is JINDAL.

I would recommend to stay away from people who has got sudden wealth leading to corruption. I myself is rethinking my own purchase of this company. Happy investing!!!!

Jindal Drilling and Industries : Ben Graham Value Play?

Jindal Drilling and Industries was incorporated in the year 1983 with a focus on providing quality Offshore Drilling, Horizontal and Directional Drilling and allied services.

Financials
The company's average ROCE over the last ten years has been around 21%. The number fell to 16% last year. The company at the end of FY13 did not have any long term debt and the net current assets amounted to INR 262.34 crore. The company also has investements in joint ventures to the tune of INR 114.2 crore and has given loans to the tune of INR 207.03 crore.

Promoters
Promoters held very high stake to the tune of 83.48% in the company till December 2007. One of the citigroup company then acquired 10.47% stake at a price of 1000+ on 25 Jan 2008 when the share price touched all time high of 1088 (split adjusted) that brought the promoter holding down to 74.74%. The promotors held near 75% stake till March 2011. Then some holders were moved out of promoters to public (Bhagyalaxmi Finlease & Investment Pvt Ltd, Satellite Merchants Pvt Ltd, Babul Holding Pvt Ltd) so the promoter holding came down to 53.03% in June 2011. The promoters since are increasing stake in the company when their holding increased to 53.83% in Sept 2012 at a price anywhere between 250-350. Something really strange happened. Even though the company had good cash at the end of FY12 on its balance sheet, the promoters did a preferential allotment to themselves at a price of INR 280 in October 2012 raising around INR 77 crore. This has brought promoter holding to 58.78% in the latest quarter. The citigroup company that acquired shares at the peak had to sell them at loss in November-December 2010 at half the price (Who says FIIs are intelligent?).

Mutual Fund Holdings
Not a single mutual fund holds the shares right now.

Valuations
The book value of the company is INR 216 so the share at the current market price of INR 190 is trading below book value. Everything else looks good except for the fishy transaction of the promoters doing preferential allotment. The company also pays very negligible dividend. The shares of the company can be bought if you feel promoters are not cheating on you.

Image courtesy of domdeen / FreeDigitalPhotos.net

Voltamp Transformer - A value play?

Voltamp Transformers was incorporated in the year 1967 in Vadodara. The company is in the business of manufacturing power and distribution transformers.

Financials

The average ROCE over the last ten years is over 40%. The number has fallen lately to 12%. The company at the end of FY12 did not have any long term debt and the net current assets amounted to 230.43 crore. The company also has investments worth INR 109.85 crore. So the total net current assets + investments amounted to INR 340.28 crore compared to its current market capitalization of INR 379.34 crore. That means the running business is being sold for INR 40 crore which has generated cash flow of INR 238 crore over the last seven years. But the cash flow from operations has turned negative in the last year and was negative in the year 2006 too when the company got listed. The company came out with its IPO in 2006 with a price band of INR 295-345, while the current market price of INR 375 is just 10% higher than the IPO price in 2006.

Promoters

Promoter shareholding has increased from 46.05% in the last quarter to 46.87% in the March 2013 quarter. The promoters have bought shares at prices higher than the current market price which gives confidence to buy at the current price but remember that only 0.82% in the last quarter was bought at price higher than the current. The rest of the 46% is at a very low price.

Mutual Fund Holding

Many mutual funds bought the shares during the boom of power sector as can be seen in the bulk deals at moneycontrol. Reliance bought the shares at INR 618 in 2006 and sold in 2011 at price between 490-530, 10% loss in five years.

Valuations

The book value of the company is INR 390 so the share at the current market price of INR 375 is trading below book value and almost near to its net current assets. The company itself admits in its annual report that the whole industry is having a problem of over-capacity and the same is reflected in rise in the company's receivables and inventory. Unless there is a blood-bath in prices which leads to losses, the shares can be bought at the current price.

Image courtesy of Vichaya Kiatying-Angsulee / FreeDigitalPhotos.net

Panama Petrochem : A value buy or value trap?

Panama Petrochem was incorporated in the year 1975. The company is in the business of manufacturing and exporting petroleum specialty products.

Financials
The company's average ROCE over the last ten years is 28.65%. The number had fallen to as low as 9% in FY03 and is hovering higher than 30% for the last three years. The company at the end of FY12 did not have any long term debt while net current assets amounted to INR 152.63 Crore most of which is held as cash. Out of this $13.99 million (around INR 62 Crore at exchange rate of INR 44/$) came from GDR issue in July 2011, when company issued 4,91,469 GDR at a price of $28.486 and each GDR amounted to 5 equity shares, i.e. at a share price of INR 253.68. The operating cash flow of the company over the last five years has increased sharply compared to the years 2003-2007 but has remained below the net profit of the company for most of the years and was even negative in FY08. The company's total income has risen from INR 31.66 Crore in FY02 to INR 583.65 Crore in FY12. The net profit of the company has risen from INR 1.33 Crore in FY02 to INR 30.63 Crore in FY12. The company's total income declined by 12.8% in FY10 and the net profit declined in FY03 by 68.5%, in FY09 BY 21.1% and in FY12 by 16.78%.

Promoters
The promoters hold 43.9% in the company. The company was not paying any dividends till FY03. In the last ten years, the company has diluted its equity from INR 3.76 Crore to INR 8.6 Crore, i.e. by more than 128%, which is a big negative for me since a company generating good cash flow doesn't need to dilute any equity or take much debt.

Mutual Fund Holding
There is not a single mutual fund holding this share. This can be considered contrarion positive.

Valuations
The book value of the company at the end of FY12 is INR 260.2. At the current market price of INR 148, the company is trading at just 57% of its book value. The latest results show that the company hasn't utilized anything from its GDR issue. The current market capitalization is INR 122 Crore and the cash and bank balance at the end of FY12 was INR 152.63 Crore. So if the company is liquidated today, you get more money per share than its stock price. This is compelling valuation except for the promoters.


Image courtesy of FreeDigitalPhotos.net

I was wrong about CFS business

I had written about CFS business profitability to head south? on March 16, 2009 but the latest results from Gateway Distriparks show that the reverse is happening. The ROCE earned by GDL at that time was 20.15% but for FY12 results, it is 174.17/639.50 = 27.24% compared to 113.03/586.10 = 19.28% for FY11. Although some numbers do not make sense to me. The result published on NSE website for FY10 shows capital employed in CFS business as INR 273.30 Crore while the latest results on BSE show the same at INR 586.10 Crore, even though the total in all segments in both the results add up to INR 687.94 Crore. The difference started in results between FY08 and FY09 when capital employed dropped in CFS business from INR 441.83 Crore to INR 325 Crore but the depreciation in FY09 was just INR 44.47 Crore. In the same year, the capital employed in Rail Transportation business grew from INR 153.83 Crore to INR 426.89 Crore. Even the last year result on BSE shows capital employed in CFS business at INR 273.31 Crore so this year's results can be considered incorrect it seems but still we can say that even with the results with lesser capital employed, ROCE would come much higher.

I had also mentioned about investment by LIC in the company at an average price of INR 153 in year 2007. The current price of INR 143 is still below the investment price of LIC. The company came out with IPO at INR 92 in 2005 and also bought back shares in January 2009 at an average price of INR 81.

Image(s): FreeDigitalPhotos.net

Sun TV Network

Sun TV Network was incorporated in 1985. It started with publishing magazines and then diversified in to television broadcasting.

Financials
The average ROCE of the company over the last ten years has been 38.35% as per the balance sheet of the company and has risen to 48% in the last year. The company is debt-free. The company at the end of FY2011 has net current assets of INR 921.24 Crore and investments of INR 271.67 Crore. The operating cash-flow of the company over the last ten years has been positive. The total income of the company over the last ten years has increased from INR 147.52 Crore in FY01 to INR 2062.16 Crore in FY11. The profit after tax has increased from INR 40.86 Crore in FY01 to INR 769.76 Crore in FY11.

Business
Even though the company has a single business of broadcasting, its revenue source is diversified. The revenue break-up over the last four years is as below:

Source	FY08	FY09	FY10	FY11
Advertising	475.46	605.74	844.96	1053.18
Subscription	229.33	215.14	343.13	515.74
Broadcast Fees	125.63	130.36	134.28	153.78
Movie Distribution	-	28.28	67.49	221.32

This shows that advertising is around 50-60% of the company's revenue, subscription around 25% and 15% comes from broadcast fees and movie distribution. The first two are actually linked together since higher viewership will increase both advertising as well as subscription income.

Promoters
Promoters hold around 77% in the company at the end of FY12. The promoters seem minority shareholder friendly as can been in the dividend distribution of INR 8.5 per share as interim dividend in FY12. The management's fixed salary is 3% (1.5% each to Chairman and Managing Director and Joint Managing Director) of net profit which is a bit on the higher side.

Mutual Fund Holding
Mutual fund holding was pretty dismal till december 2011 quarter. But in the first quarter of 2012, a large number of schemes have bought shares of this company.

Valuations
The book value of the company at the end of FY11 was near INR 60 and may end up being INR 70 after this year's results on Friday, 25 May. At the current market price of INR 250, the share is trading at more than 3.5 times book value. At the current market capitalization of INR 9866 Crore, the share is trading at almost 18 times last five years average profit of INR 540 Crore and 13 times trailing twelve months net profit. The company's IPO came in 2006 when shares were issued at INR 875 which for split/bonus adjustment result in price of INR 218.75 today. So the current price is just 15% higher than the IPO issue price in 2006. The company does not look a compelling buy at this price but can be bought after some decline.

Image(s): FreeDigitalPhotos.net

Hydro Power Sector

Following listed companies are in the hydro power sector in India:

• Jaiprakash Power Ventures
• NHPC (National Hydroelectric Power Corporation)
• SJVN (Satlaj Jal Vidhyut Nigam) 

This sector is utility so returns on capital are controlled by government and the companies cannot charge the amount they wish from their end-users/customers. The following table summarizes their financial conditions:

Financial Ratio	Jaiprakash Power Ventures	SJVN	NHPC
Market Cap (Crore)	9777	7880	22141
Net Worth (Crore)	5170	7205	24584
Debt (Crore)	12381	1753	14569
Debt/Equity	2.4	0.24	0.59
Average ROCE (five years)	10.15	15.20	6.41
Average Interest Cover (five years)	2.5	5.48	4.76
Interest Cover (last year)	1.62	8.12	5.68
Price/Book	1.89	1.09	0.9
Mutual Fund Holding	HDFC, etc...	ICICI, Tata, etc...	UTI, ICICI, Tata, etc...
Dividend Yield		4.2	3.33

On most of the parameters, except price/book ratio, SJVN is better than the other two. JP power ventures is highly indebted and most probably will not be able to meet its financial obligations sometime or the other in the next few years. How can a value investor like me suggest you to buy the shares of a company whose bonds are not investment grade? So the best investment looks like SJVN at this point of time.
Image: markuso / FreeDigitalPhotos.net