International Travel House - Value buy?

The company was established in the year 1981. The company is an associate company of ITC. It offers a bouquet of travel services including car rental, Indian and International holidays, business travel, etc... While looking at the company I found that it is based in Pune, the city where I live.

Financials
The average ROCE of the company over the last 10 years is 28.38% and is lower at 27.45% in the last 3 years. The company has current assets to the tune of INR 98 Crore. The average operating cash flow of the company over the last five years is around INR 18.4 Crore. The company has remained profitable and paid dividends over the last 15 years.

Shareholding
The promoters hold 61.69% of the company.

Valuations
At the current market price of INR 195, the market cap of the company is INR 156 Crore. The stock price is barely trading higher than its price in year 2006 when it was trading between INR 140 and 240. This is about 10 years of no capital gain. The book value of the company has increased from INR 58 to INR 182 during these ten years, the EPS has gone up from INR 8.75 to INR 23. If we remove the net current assets from the market cap, the rest of the company is available at INR 58 Crore which is less than 4 times operating cash flow. The company doesn't seem to be very expensive at this price.

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.

Beware of Frauds

I wanted investors to know about a strange company called 'Parekh Aluminex'. I had told my wife in 2007-2008 how can a company keep growing its revenue, debt and profits all at a steady pace of 30% per year, year after year forever. I wanted to dig deep to find the recent 95% drop in price in company's shares and then came across the article "The curious case of Parekh Aluminex" which saved all my efforts of writing. Please go ahead and read it.

Another one that I found was 'Hanung Toys and Textiles'. There were people recommending a buy on this company here and here. The company's share price has corrected by more than 90%.

Another ones that can be added to the list are 'Opto Circuits' and 'KS Oils' but not from fraud perspective and more from wrong management perspective.

The amount of debt that just these these companies had amount to around INR 5000+ crore and there are many such unlisted companies. God save the indian banking sector.

Update: I might add companies like Kwality in near future as my mother-in-law called me up to buy the company and when I looked at the financials, it feels like another Parekh Aluminex.

Strange things happen in stock market (and off-market)

I am holding shares of a company 'Divyashakti Granites' for more than two years now. I had bought them at an average price of around INR 25 when the book value of the company was very high and even the net current assets are higher than the price. What I found was that in the month of June, there was an off-market transaction where somebody bought shares of the same company off-market for just INR 12. I have never seen something like this happening in any of my holdings earlier. The price of the scrip has moved from INR 25 to 31 now. This really is strange!!!!