Dalal-Street | Page 8 of 15 | A Value Investing Blog for Indian stocks

Sunflag Iron – Update & Ideas

We had discussed about Sunflag Iron and provided an update earlier. At that time the company had been posting substantial improvement in operating margins and hence much better net profits and it seemed that the improved was because of the backward integration the company had been doing over last 2-3 years. But since last 2 quarterly results, the margins have taken a hit and so have net profits.

As the whole midcap space has undergone a strong correction in last 3 months, there are several other interesting ideas available at good valuations. One may consider switching out from Sunflag Iron into new ideas.

Some new ideas on which we are researching are:

Continue reading Sunflag Iron – Update & Ideas

Relaxo Footwear

Most of us must be aware of the Relaxo brand. The interesting part is the evolution of the company from the traditional “Hawai Chappal” business to the fashionable shoes, sandals and slippers business under the brand “Sparx” & “Flite”. It’s a definite consumer play story and the company has done remarkably well over the last 5 years.

During the last 5 years the turnover has increased from 200 Cr in 2006 to 557 Cr in 2010 while Net Profits have shot up 10 times from 3.27 Cr in 2006 to 37.70 Cr in 2010.

To get a better understanding of the company, we visited the company and met the CFO – Mr. Sushil Batra. Key takeaways from the interview are:

The growth since 2006 is real and the reason is the initiatives taken by the management to venture into manufacturing of Flite slippers and subsequently Sparx. Both the products have witnessed a very good demand from consumers and hence there is a brand pull. Continue reading Relaxo Footwear

ISPAT Industries – Special Situation

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

Market Update

Markets go up the stairs and down the elevator – Warren Buffett

The markets are in a correction mode these days and the cut in stock prices has been sharp when compared to 15% cut in the Sensex from 20,500 at the start of year to 17500 today.

Reasons for the decline:

The valuations were rich. PE ratio for Nifty as on 1st Jan, 2011 was 24.50 and has now corrected to 20. At 17-18 times PE multiples, the markets will become very attractive.
Unearthing of scams – shakeup in investor confidence
Rising Interest rates
High Inflation

What has changed?

Nothing too much in terms of longer term picture. We believe that India is an excellent long term growth story and the investors will do well by investing in growing corporates.

In the short/medium term, if one analyses the Q3 numbers, many companies have seen lower margins due to inflationary pressures. The margins may remain under pressure for sometime but over a longer period, good companies should be able to pass on costs.

Interest rates have a inverse relationship with the valuations of markets hence investors should seek more margin of safety while investing.

What to do?

Market fall is always faster. Like Warren Buffett says – ” Markets go up the stairs and down the elevator”. So stay calm and take WB’s other advice – “Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it”.

As most of the stocks are in correction mode and in many stocks fall is of more or less equal magnitude, investors have an opportunity to sell their weaker stocks to better ideas. Portfolio re-shuffling is a must in these times.

Plan your future strategy and make a plan to invest money at fresh intervals on every fall (something like an SIP).

We have updated the “performance and review sheet” recently.

Happy Investing.

Summit Securities–Re listing today

We are happy that Summit Securities is getting listed today after a lot of persuasion.

Summit Securities is part of the RPG group and is a finance company holding shares of group cos of RPG group. The company got created on the merger of five similar finance companies – CHI Investments, Summit Securities, Octav Investments, Brabourne & RPG Itochu (unlisted).

We have been tracking Summit Securities as we had recommended CHI Investments, which got merged on 2 February 2010.

So what is the value in the company:

Post re-structuring the equity of the company is 10.90 Crore.

Some of the major investments held by the company as per consolidated accounts are:

Continue reading Summit Securities–Re listing today

Riddhi Siddhi – French Roquette deal impact

We had discussed Riddhi Siddhi at Rs 285 at our blog here. The company did post much better than expected numbers and the stock had a fantastic run but the stock has been falling since last few weeks. The stock is now at Rs 360. Here is the price graph:

We had mentioned in our earlier post about the possibility of the French Co – Roquette acquiring a majority stake in the listed company. The deal has happened and the details are:

The French co will be doing a complete takeover of the 3 plants of Riddhi Siddhi.
The plants have been valued at approx. Enterprise Value of 1250 Crores. Today at CMP of 360, the Market Cap of Riddhi Siddhi is 400 Crore.
To make the transaction, Riddhi Siddhi will transfer the plants to its subsidiary. Initially the French co will aquire a majority stake with an option of total buy-out.
For the above arrangement, French co will cancel its existing 15% stake in the listed entity of Riddhi Siddhi.

The deal though looks good but the news hasn’t been welcomed by the market. Reasons:

Nobody was expecting a total sell out by Riddhi Siddhi’s management. Now the listed entity would be left with just Cash and a power foray.
The structure of the deal is such that there will be No Open Offer for the shareholders of the listed entity. Hence investors won’t get any major benefit of the takeover by French Company.
The structure of the deal questions the integrity of the promoters. Had it been a direct take-over, the promoters and minority & small shareholders would have been at same level.
It would take atleast 9 months to 1 yr for the deal to get fully completed.
The expected cash on the books would be at the disposal of the promoters.

Our friend – Neeraj Marathe made a detailed post

the market would continue to value the expected cash on the books at a steep discount in the range of atleast 30-50%.

feel SEBI should come forward and protect the interest of minority and small shareholders.

Conclusion:

Riddhi Siddhi was an excellent bet on the growing starch business but post acquisition the business is no longer left. The cash expected to come (in the listed company – Riddhi Sidhi) from the deal is around Rs.800 per share.

Like in other cases, market might value the stock at about 50%+ discount till there is enough transparency and comfort from the management. The gap could narrow only if the management is more transparent and shares the cash with the minority & small shareholders in the form of dividend payout, buyback etc.

In the meanwhile, as there has been a good correction in the mid-cap space, we feel there are better opportunities and hence we are switching out from Riddhi Siddhi.

Sree Sakthi Paper – BSE Code: 532701

Sree Sakthi Paper (SSP) is the largest kraft paper producer in South India. The company is part of the Sree Kailas Group. Incorporated in 1991 with an installed capacity of 4,500 tpa the company has been growing steadily and now has a installed capacity of 1,00,000 tpa i.e.. 20 times in 20 years.

SSP has a impressive client list – ITC, HUL, WIMCO, Godrej, Mc Dowel etc.

What we like here is the high dividend yield of 7%+ and regular growth in the company. This stock might be offering the highest dividend yield in the market.

Snapshot of the dividend track record

Year End	Dividend %
March 2010	18.00
March 2009	15.00
March 2008	15.00
March 2007	10.00
March 2006	5.00

At CMP of about 25.50, if the company maintains the dividend of 18% declared last year, one will get a dividend yield of 7.05%. This is much better than FDs etc cause dividend is tax free in the hands of investors. Also as SSP is a growing company, one can expect a good capital appreciation.

Company came up with the IPO in January 2006 at Rs.30 when turnover was approx. 60 Cr while today the fundamentals are much better yet the stock is available below the IPO price.

Why the dividend of 18% may be maintained?

Very good half yearly results:

Company has already reported 30% growth in sales and 55% increase in profits for the first six months and the second half is expected to be better. So there is a high chance of the company maintaining the past dividend track record or improving it further.

Strong Fundamentals:

Over the last 5 years, sales have grown at a CAGR of 26% from 57 Cr in 2006 to 143 Cr in 2010. This year, the sales are expected to cross 175 Cr.
Stock is available at PE ratio of 7.25 based on trailing twelve month earning.
Company has a good BV of 22.20.
Co has already announced a 8% interim dividend. Stock is trading ex-dividend.

Conclusion:

This stock idea may be used as a safe bet to balance cash portion of the portfolio or to park the profits.

Financials

Company Annual Report @ reports.dalal-street.in

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.

Mangalore Chemicals & Fertilizers

MCF (Mangalore Chemicals & Fertilizers) is the largest manufacturer of chemical fertilizers in the state of Karnataka. MCF is part of the UB group and Dr. Vijay Mallya is the chairman of the company.

MCF has been a steady performer over the last few years and has been growing regularly at about 20% with stable margins.

The fertilizer sector as such is not a very attractive sector for investors as there are lots of Government policy influences and hence the returns are very much capped in this sector. But over last one year, the government has been bringing some changes and making better policies. There is also a small probability of Govt. decontrolling the urea sector.

What has aroused our interest in this stock? – the attractive valuations at which the company is available and the spectacular Q2 result by the company (though it may be a one time thing also).

Attractive Valuations (CMP 37):

Stock is trading at just 5 PE based on trailing twelve month results
Stock is available at 1.2 times FY 2010 BV and at equal to BV on expected FY 2011 results.

Stellar Q2 results:

IF the first 6 months of performance gets repeated, the stock will give excellent returns but a repeat of Q2 might not happen. A more likely scenario is – MCF might end up doing 2900-3000 Cr+ turnover with a Net Profit in the range of 75-85 Cr for FY 2011.

The interest cost have also reduced significantly and hence the company is in a very stable financial position. There is also is a possibility of the UB group selling out to a more serious player and may help in unlocking of the under-valuation.

In all, it seems to be a good low risk stock with high probability of better times ahead.

Financial Statements:

Company Website | Get the Company’s Annual Report @ reports.dalal-street.in

How to get free annual reports of Indian listed companies

If you get interested in a company and you read the annual report, you will have done more than 98% of the people on Wall Street. And if you read the footnotes in the annual report you will have done more than 100% of the people on Wall Street.

– By Lessons from Jim Rogers and Warren Buffett

Recently the official websites of the stock exchanges have started providing the soft-copy of the annual reports for downloads. As the same has begun from this year itself, thus not all the annual reports are available on the websites, but the same is expected to be made available for most of the companies as the time elapses. At present the annual reports are available for about 30% of the companies.

The complicated way:

1) Using BSEINDIA website: Search for the stock on Bse India >> Select Annual Reports from bottom right corner (where the snapshot of financials is given) >> Select your annual report.

2) Using NSEINDIA website: Search for the stock on Nse India >> Select Annual Reports from extreme bottom of the page >> Select your annual report.

The Easier Way:

Use Dalal-Street Screener at: http://www.screener.in

To make it easy for you we have set up a small application which searches for the annual reports both at BSE India and NSE India as well as other sources and provide the download link 🙂 . Also, the search feature on both the above sites (BSE and NSE) is too buggy; to solve the same you can search for any part of the name OR even the script code (eg. 532701 for BSE Listed Company or MANGCHEFER for NSE Listed Company) on Dalal-Street Screener.

Do share any other site if any which provides free annual reports through comments. Also please leave your feedback for Dalal-Street Screener or any queries through comments.

PS: Earlier the link for the above web-application was http://reader.dalal-street.in. The same has been moved and integrated with our Screener app to provide even better functionality.