Prajay Engineers is another poignant story. A story which exemplifies the extent to which our markets can go either way when there is a swing.
We witnessed the stock scaling a peak in the four hundreds and also touching the abyss of Rs. 18.
The stock is currently trading at a steep discount to its liquidating value. Its enterprise value is a meagre Rs.210 crores (includes a debt of 107 crores).
The company has sales figures which stands at Rs.64 crores for the half year ended on Sep. 30. Even discounting the stimulation package from the govt for the real estate sector, I would assume the company can sell at least another Rs.60 Crores property in the next six months.
The Operating profit disclosed by the company for the first half of 2008-9 is Rs.22 crores. Assume the company can sustain the same in the next six months, we are likely to see Rs.44 crores. An operating return of Rs.44 crores for an investment of Rs.100 crores along with interest commitment of about Rs.10 crores is not a bad outlook at all for the investors in these times, provided people can wait.
I do not want to go by the last year results which I understand is unattainable for the next few years. But even providing for that, I think Prajay is easily one such share where current market price is way below its intrinsic value after factoring in a margin of safety.
Wednesday, December 17, 2008
Mysore Cements
The Mysore cements story is very interesting.
The Company which had huge interest commitments till like two years back is now debt free!
Consider this, the market cap is Rs.243 crores, while it holds about Rs.170 crores in fixed deposits alone.
Adding to that is the fact that the business has wiped off all debts and its returning strong operating margins for the capital employed.
My take is that Myysore cements which is selling at a discount to its book value can be valued at least three times its current market price.
The Company which had huge interest commitments till like two years back is now debt free!
Consider this, the market cap is Rs.243 crores, while it holds about Rs.170 crores in fixed deposits alone.
Adding to that is the fact that the business has wiped off all debts and its returning strong operating margins for the capital employed.
My take is that Myysore cements which is selling at a discount to its book value can be valued at least three times its current market price.
Tuesday, December 9, 2008
Aftek and insane valuations
Aftek is one of those insanely valued companies in India.
A cursory glance towards its figures will tell us that Aftek's market capitalization is Rs.117 crores, its Total Debt as of March 31, is Rs.79 Crores. Which makes its enterprise value at Rs.196 Crores.
On the other hand, Aftek's Cash balance alone is at Rs. 299.53 Crores. Apart from this Aftek has investments worth Rs.116 crores!
To add to all of the above, Aftek is still making some decent profits.
A cursory glance towards its figures will tell us that Aftek's market capitalization is Rs.117 crores, its Total Debt as of March 31, is Rs.79 Crores. Which makes its enterprise value at Rs.196 Crores.
On the other hand, Aftek's Cash balance alone is at Rs. 299.53 Crores. Apart from this Aftek has investments worth Rs.116 crores!
To add to all of the above, Aftek is still making some decent profits.
Saturday, December 6, 2008
Formula for averaging down stocks
Averaging down a stock is a common activity. But too often i found myself repeating steps time and again for doing the same things. This formula i hope is a time saver.
This is useful when a stock has gone down drastically and the average cost for the investor is much higher. In that case, lets say the investor has a target for the average cost.
Lets say the average cost of X company share is 200 Rs. for an investor. He has 300 shares. Let's assume that the market price of that share has come down drastically to Rs. 50.
But the investor is confident that the intrinsic value of the share is much more than the current market price, and so he wants to buy more. If he wants to bring the average to Rs. 100, how many shares should he buy?
I think the following formula will be useful.. though i still need to tweak it for the rising prices scenario.
Let CMP -> Current market price
Let CAP -> Current average price
Let N -> Number of shares held now
Let TAP -> Targeted average price
Let N1 -> New shares to be bought
Thus, the formula is
N
----- = 1 - R,
N + N1
Where R = (CAP - TAP) / (CAP - CMP)
Applying this formula to the given example, the value of N1 (the number of shares he need to buy) will be 600.
I am not making any explicit claims about the originality of this formula. All i am saying is i formulated this myself and did not wilfully borrow it from external resources.
This is useful when a stock has gone down drastically and the average cost for the investor is much higher. In that case, lets say the investor has a target for the average cost.
Lets say the average cost of X company share is 200 Rs. for an investor. He has 300 shares. Let's assume that the market price of that share has come down drastically to Rs. 50.
But the investor is confident that the intrinsic value of the share is much more than the current market price, and so he wants to buy more. If he wants to bring the average to Rs. 100, how many shares should he buy?
I think the following formula will be useful.. though i still need to tweak it for the rising prices scenario.
Let CMP -> Current market price
Let CAP -> Current average price
Let N -> Number of shares held now
Let TAP -> Targeted average price
Let N1 -> New shares to be bought
Thus, the formula is
N
----- = 1 - R,
N + N1
Where R = (CAP - TAP) / (CAP - CMP)
Applying this formula to the given example, the value of N1 (the number of shares he need to buy) will be 600.
I am not making any explicit claims about the originality of this formula. All i am saying is i formulated this myself and did not wilfully borrow it from external resources.
Wednesday, December 3, 2008
The Hindalco story
One of the important value themes highlighted by Benjamin Graham in 'Intelligent Investor' is the story of a large, unpopular (in the markets) company.
In the Indian stock market context, it is best exemplified by AV Birla group’s Hindalco.
A few weeks back, I read an analyst report which mentioned that due to capex and high debt burden, the earnings of Hindalco will reduce to about Rs.6 per share in FY 2010. That prompted me to check Hindalco’s earnings for now and it stands at a solid 14.24 Rs per share.
The share is quoting at about Rs. 49.50. Hindalco is one of the largest players of Aluminium not just in India but the world with a consistent track record.
Even assuming that bad turns to worse, and that the EPS comes does indeed come to Rs.6 in 2010, is it still a bad bet? I don’t think so. I am not sure of many companies which can boast of an EPS as high as Rs.6 for every one rupee share. Add to it, Hindalco’s advantage of scale and its entrenched position in the aluminium business, one is less likely to lose money in Hindalco even in worst case scenario.
Ofcourse, if one is not in a mood to wait for 2-3 years, then he does not have much to do in the value investing world in the first place.
My conclusion, Hindalco, with a current earnings yield of 15.8% and an ROC of 25% is a safe bet in the long term, especially at its current price levels.
In the Indian stock market context, it is best exemplified by AV Birla group’s Hindalco.
A few weeks back, I read an analyst report which mentioned that due to capex and high debt burden, the earnings of Hindalco will reduce to about Rs.6 per share in FY 2010. That prompted me to check Hindalco’s earnings for now and it stands at a solid 14.24 Rs per share.
The share is quoting at about Rs. 49.50. Hindalco is one of the largest players of Aluminium not just in India but the world with a consistent track record.
Even assuming that bad turns to worse, and that the EPS comes does indeed come to Rs.6 in 2010, is it still a bad bet? I don’t think so. I am not sure of many companies which can boast of an EPS as high as Rs.6 for every one rupee share. Add to it, Hindalco’s advantage of scale and its entrenched position in the aluminium business, one is less likely to lose money in Hindalco even in worst case scenario.
Ofcourse, if one is not in a mood to wait for 2-3 years, then he does not have much to do in the value investing world in the first place.
My conclusion, Hindalco, with a current earnings yield of 15.8% and an ROC of 25% is a safe bet in the long term, especially at its current price levels.
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