Reviewing 2014

Happy New Year

2014 has been an eventful year. At the macro level, we had a new government, an enthusiastic new leader, a great bull run… and at the personal level, we attended many more AGMs, read more books and met many great intellectual minds in the investing world. We had the highest ever visitors on both Dalal-Street and Screener, together exceeding an average traffic of 1 million page views every month, with a total reading time of over 750 hours each day.

Top performers and learnings:

Last couple of years have been great for a stock picker as the market has well rewarded the companies with niche business models, consistent growth and good corporate governance. Companies with healthy cash flows and a passionate management have been re-rated at an unprecedented pace.

Growth stocks such as Astral Poly, Avanti, Ashiana, Kitex, Shilpa, Atul Auto, Ajanta Pharma, Poly Medicure and Mayur Uniquoters performed exceptionally well. ValuePickr community proved to be an invaluable platform to collaborate with dedicated fellow investors and bring out the best of discussions. It feels great to see Shilpa Medicare and Atul Auto getting mentioned even now as the high potential ideas in the Motilal Wealth creation study.

Value stocks such as Oriental Carbon, MPS, Canfin and Lumax Autotech too performed equally well. These were trading at a sheer undervaluation despite having a good business model with a healthy growth. Reaction to the SEBI’s call auction rule also provided us an opportunity to invest in few micro caps such as Premco Global, Dynemic Product, Freshtrop and Kovai Medical. They were available at throwaway valuations, consequently providing some fantastic returns. Key is to follow value, which is always there, whenever the general mood is dull 🙂 .

Worst performers and learnings:

Mistakes

GRP – A big learning has been that one should learn to detach oneself from their favorite idea. Though the stock hasn’t fallen since quite sometime, one has had to incur a lot of opportunity cost. The company continues to struggle and given the low natural rubber prices and demand, there hasn’t been any material improvement in operations of the company.

Cairn India – We got attracted by the statistical cheapness of the stock and the huge cash pile the company had been sitting on. It seemed a very safe idea with hardly any downside. But the stock subsequently fell almost 30-35% given the big fall in prices of crude oil. While it could not have been predicted, management’s action on cash also contributed to the fall.

Interesting articles:

Professor Bakshi’s lecture on Relaxo (along with the lecture on paying up) was a superb article which helped us in adding another tool as to how one should try and evaluate a company for a long term perspective. We never used to think like this before these articles.

Ian Cassel’s posts on Conviction to Hold and Averaging Up are also very good reads.

Do go through Charlie Munger’s AGM Notes, where Munger is (as usual) at his best.

We also recommend our readers to watch these movies:

Other People’s Money
Jiro Dreams of Shushi

We wish everyone a Very Happy New Year :).

DISCLAIMER: We are not expressing any opinion on on any of the stocks mentioned in the post. We are only sharing about what we think went right or went wrong in our analyses - it does not translate into a buy or sell call. The only opionion expressed in the above post is for the movies and articles.

Wish you a very Happy and Prosperous Diwali

Diwali 2014

We wish you and your family a very Happy and Prosperous Deepawali. Samvat 2070 has been a great year for investors and the future looks equally promising.

Lately, we haven’t been posting much because of the guidelines of SEBI on research analysts. The guidelines come at a needed stage as there is a lot of volatility and mis-selling by vested interests which cause harm to retail investors.

We are not sure about the impact of the guidelines on the blogs and forums and await for more clarity on rules and compliances.

Herewith, we are NOT expressing any opinion on any of the stocks. We are just providing an update on the quarterly numbers of stocks discussed earlier:

Shilpa Medicare: We attended the company’s AGM last month. The management is focused on Oncology space -a sector which requires a very long term vision. It takes a planning of at-least 6-8 years to be able to deliver the right product at the right time. Shilpa has been building a pipeline which is expected to bear fruits in over the next 2-3 years. (Detailed of the company have been discussed in earlier posts).

Kitex Garments: The company has declared an excellent Q2FY15 result. It is hard to find companies with such a good profitability, growth and leadership in niche segment. We would recommend our readers to listen to the company’ conference call.

Avanti Feeds: It is interesting to see Malabar India Fund take 1%+ stake in Avanti Feeds as per the latest shareholding pattern filed by the company. As per the industry articles, the segment continues to perform well. The recent cyclone in the state of AP and Orissa has not caused much damage to the shrimp industry.

Once again, we wish all our friends and their families a very Happy & Prosperous Deepawali.

Happy Investing!!!

Kitex Garmets: Management Q&A

We have briefly discussed about Kitex Garments a few times over the last 1 year. What primarily attracted us to the stock was its low valuation. The stock was trading at 5-6 times its earning. The clarity about the company’s business, however, was insufficient. At that time Crisil had suspended the company’s rating, the annual reports were not very detailed and the few available articles mostly mentioned about the political problems the company had been facing.

The fabulous March 14 quarter, coupled with the increase in the gross block of the company got us more excited about the company. When we watched a few videos about of the company’s facilities ( https://www.youtube.com/watch?v=GEFzq8CIhm0 ), we ensured that we attend the company’s AGM. At the AGM, we were fascinated by the passion and track record of the company’s management . We were able to understand company’s focus on quality and timely delivery. The value proposition for the company is huge volumes and the inherent employee efficiencies, both of which take years if not a decade to replicate (more discussed here). Our seniors also highlighted about the huge positive impact the company is making in the lives of thousands of women by providing them a good work environment (including fooding and stay).

Donald Francis, of ValuePickr, pursued the story after the AGM to cover the company in even more detail. Using his scuttlebutt approach, he interviewed various vendors, suppliers and customers across the textile and infant garment industry to understand the nuts and bolts of the infant garment industry. Donald then followed up all the doubts and missing pieces in his Q&A. The Q&A is available on the ValuePickr website and we recommend you to go through the same. We have shared a few extracts from it:


You have set up a high-quality infrastructure on par with the best in the world with state-of-the-art advanced machinery. Who were the early influencers?

Well I guess the credit for it goes to my dad and the early training he put me through. He was a strict disciplinarian and he ensured I learnt to respect every aspect of the work ongoing in our factory. As a 13 year old, I was started out from cleaning the lavatories, to the shop-floor, to becoming a machinist, technician, bleaching and processing to garmenting operator.

I grew up with the ethos and the confidence of trying to do something different from the run-of-the-mill. We were not afraid to take risks.

We make it a point to publish results immediately after the year-end – even that is a creative first!

How do you see KCL and KGL growing individually in the next 2-3 years?

Both will double the capacities. Both should keep growing at 20-25% annually.

What about the Employee Base? ~4000 are direct employees at KGL. What is the total KGL+KCL direct employee strength? How many are contracted?

Total employee strength is ~8000. There are no contract labourers.

While capacities are being enhanced what about the Labour situation? will that also need to be doubled ~16000 employees in 2-3 years? And, if you continue to double volume capacities every 2-3 years – realistically, where do we see Labour counts growing to in the next 3-6-9 years?

Actually we will need only incremental 10% more additional Labour to reach 1.1Mn/pieces per day.

That’s something difficult to grasp and will take some doing. Kindly share how will this be achieved?

Firstly productivity improvements through use of advanced technology, backed up by productivity improvements through increasing efficiencies. Thirdly automation is being brought in new areas. For example we are installing a shaving machine that will bring in 4:1 savings in manpower. That itself will free up 300 people. We are bringing in lot of automation in Kitchen that will free up another 100 people. Automatic Roti-Maker (just need to put the Maida) producing 60 Chapaties every minute. Automatic Idly-Maker producing 2000 idlies per hour. 30 kg onions will get peeled in 1 hour. 2000 plates will be cleaned every hour. All imported fully automatic machines being introduced. Imported German machines for Vaccuum Cleaning that will bring in 75% labour saving.

It’s not one single thing that will do the trick, but a whole host of new initiatives in every area that we can identify where we can improve productivity and/or increase efficiency. Together we are confident these will deliver double the capacity at low incremental labour addition.

Read the complete Management Q&A on ValuePickr

Recent conference call of investors with MD

Annual Reports of the company since 1996

Few interesting micro caps

Small-cap

We personally love to keep a track of small, interesting and growing companies with a market capitalization of under 100 crores. But we are rarely able to talk much about these small companies as they come with their own set of troubles including low liquidity, low visibility, lesser information, chances of corporate in-governance etc.

It is interesting to go through their annual reports and valuations even if one does not invest in them.

[Companies with ** mark are classified under PCAS (call-auction mechanism)]

Acrysil** (M.Cap 53 Cr): Acrysil is the “only company in all of Asia – and one of just a few companies worldwide ” manufacturing quartz kitchen sinks.” The company posted a good June quarter. The management talks about big ambitions in the annual report. If they actually end up delivering what they are aiming for, this stock can give fantastic returns.

Alicon Castalloy** (M.Cap 55 Cr): This company is “one of the largest integrated aluminium casting manufacturing units in India.” Interestingly, the company has posted a growth of 25% in the revenues over last 3 years, when the whole auto ancillary industry has been witnessing a slowdown. The margins have fallen significantly though (from 18% to 11%). CRISIL report provides a good history of the company. The book value is Rs.96 and the stock is at 3.5 times earnings at Rs.50. Continue reading Few interesting micro caps

Lumax Auto Technologies

Two wheelers in India

BSE: 532796 | NSE: LUMAXTECH

It is usually rare to find a good company in the auto-ancillary business. The reason is that they are capital intensive and usually the margins are low and hence they provide low return on capital. However, there are always some companies which do much better than the indutry. Lumax Auto Tech seems to be one such company. The company has had a an excellent growth in past along with good profitability and strong balance sheet. Continue reading Lumax Auto Technologies

Investing and maximising savings

“The gold and silver import at US$ 61.5 billion has recorded a growth of 44.4 per cent during 2011-12” (that is over 3 lac crore rupees).
“Trade deficit for 2011-12 had hit a record $185 billion” (that is over 9 Lac crore rupees).

Gold & Silver Bullion

Money is a very important thing in life. The more important thing is to maximise, improve and maintain the standard of living. There are many ways to do it and I would share my dad’s experience on how to do it easily & conveniently.

The most important thing is to plan and save your wasteful expenses and maximise your earnings & savings, and to put this saving into regeneration. Regeneration as in seeds or corn, that multiply itself after sowing. Thus protect your money and learn investing.
Continue reading Investing and maximising savings

Introducing Screener.in

How do you eat an elephant? One bite at a time.

Hello friends! Three years ago, we thought of developing a tool to assist investors in research. We imagined a tool, which can exploit the modern web technologies to enable investors concentrate more on research than on procedures. Thus was born the Screener. Over three years, the application was written (and re-written) to make it as rich as possible.

Screener is a modern finance tool to analyse and search new stocks.

Screener.in

Features at a glance

Company Snapshot

Quick snapshot of a company: Screener does a basic boiler-plate job by analysing the company’s financials, and presenting its strengths and weaknesses.


Calculate complex ratios on the fly

Complete flexibility: You can calculate complex ratios on the fly and can customize comparative columns as per your requirements.


Informative ratios

Informative ratios: Screener automatically calculates complex financial ratios such as weighted-average return on equity, profit growth and sales growth. These are calculated for a period of 10 year, 5 year and 3 years to get a proper picture of a company’s history.


Create custom screens

Custom screens: You can provide your own search criteria in form of equations to search across all listed companies for such parameters.


Email alerts in Screener

Set email alerts: You can set alerts for the stock screens to receive automated updates about latest quarterly results.


This is just the surface

Screener has many other rich features which allow you to add annotations, create dynamic watchlists and even create your own custom ratios. You can also use this guide to know more about the features of Screener.

We hope you would feel a great pleasure in using the Screener. Please do not hesitate to leave a comment, if you feel any inconvenience in using it. Your suggestions from time to time will very helpful to us in improving this tool.

Article: Using Accounting Ratios to Find Better Investments

Hello Friends,

I wrote an article on the using of accounting ratios to find better investments after completing my CA for The Chartered Accountant Journal. The same has got published in the May 2012 edition. It covers few important benchmarks, some rules of thumbs and a brief about other important financial variables. Happy to share it with you all.

Using accounting ratios to find better investments from The Chartered Accountant Journal

ISPAT Industries – Special Situation

JSW-Ispat

Hello readers,

We are always interested in Special Situations and do keep a tab on some of them.

Prof. Sanjay Bakshi Ji has posted a very educative and practical special situation on his blog. The situation is related to JSW’s takeover of ISPAT Industries. Please read all the facts on his blog and try to participate in it.

Prof. Sanjay Bakshi is a renowned teacher of Behavioral Finance and Value Investing and often shares practical situations and learning examples.

Read his interview

Sanjay Bakshi’s blog | Ispat Special Situation

Wish you a very Happy and Prosperous New Year

Dear readers,

We wish you a very Happy and Prosperous new year. While in 2010, markets performed quite well with a return exceeding 17%, we wish, 2011 is even better.

We are awaiting for the quarterly results ending December’10, about which we are optimistic. Since most of the things were positive in the last 3 months, the same should bring lots of cheers.

We loved your support and your valuable comments were our yardstick of efforts. As Dad always wanted to have a community of like-minded value investors, the blog has helped us in building the same.

We are in process of releasing some very useful tools for value investors in 2011 and keep the community growing.

Lots of wishes from Dalal-Street Team.