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Sunday, September 26, 2010

Gujarat Ambuja Exports: Hold on to your cheap stocks

Gujarat Ambuja started the week on Sept 20,2010 at 30.00 and closed week ending Sept 24,2010 at 35.00 an increase of 16.66% in one week.
GAEL stock also hit a new 52 week high of 35.85 .. one must remember that 35.90 was the circuit limit for Friday Sept 24,2010. The question in our minds is:

1. What is the next step?
2. When do we exit?

The next step for investors who are already invested in GAEL is "HOLD" "HOLD on to your cheap stocks"
To buy GAEL below 38 is the best investment decision made .. now we have to hold on to our emotions and not over trade. I am sure some of you have been trading in and out of GAEL stock. My own personal experience is that trading for short term is not a very successful activity.

Promoters buying generally is for returns greater than 300% so we can be assured that GAEL stock can easily cross 100+ in 12-18 months time frame. The important question is do we have the ability to hold the stock in its journey from 35 to 100? GAEL stock will definitely experience volatility of 30% or more and days when we will be pushed to sell .. Rest assured GAEL stock should not see levels below 30 which would be an excellent opportunity to buy ..

I personally have had bad experience trading stocks for short term.. and would not encourage people to trade short term however as per candle sticks GAEL is a hold ..

Points to be kept in mind:
- GAEL Current Market cap is: 484Cr
- GAEL Year ending March 2010 Gross Profit is 117.50Cr
- GAEL is a company with book value of 30.39 for a share of Rs 2 Face value.
- Long Term Debt is only 13.83Cr
- Average ROCE is strong 14.99% for past 5 years
- Cash in hand of 28.16Cr (March 2010)
- 40Cr worth of quoted securities.
- Promoters are still accumulating stock from the market clearly indicating that the stock is undervalued.

Previous Article: GAEL: Promoters buy 53,506 shares from market in August2010, Annual Report for year 2010
Next Article: GAEL: Sept Qtr Results on Oct 23,2010

Friday, September 24, 2010

Sunrise Senior Living: SRZ Index

Sept 23,2010: SRZ: Interview CEO: SUN Healthcare Group
August 9, 2010: SRZ: June 2010 Result Review
Link to Old SRZ Blog

Sunrise Senior Living: Interview CEO: SUN Healthcare group

On Sept 20,2010 excerpts from interview of Richard K Matros, CEO, SUN Healthcare Group. I donot have access to the complete transcript I am just looking at the excerpts and thought there are some points which need to be highlighted..

So the company became very healthy. As we did those acquisitions, those acquisitions owned a lot of the real estate. In our business, real estate has really never been a driver of value. In other words, companies in our business tend to be valued on how the business does, how well you execute the business model, because the nursing home business, much like hospitals, is a pretty complex business, with the exception of the 2005 to 2007 period, when the CMBS market was hot and real estate was driving everything.

So for a brief period of time, real estate was driving nursing home transactions for those nursing home companies that owned a significant portion of the real estate. A lot of companies in the business lease most of their assets; every company has a different mix of owned and leased assets. So we were sitting here with a pretty good book of business on the real estate side, and last year I was focusing on how best to monetize that real estate because we never thought we would get value recognition for it. And with the CMBS market turning down along with everything else in the recession, we really looked at that as a blip. We don't believe real estate on a go-forward basis will be a driver for our sector, as it hasn't been for the last 30 years. Also from a timing perspective, because of the recession, and even though we have been acquisitive by nature, there just hasn't been much product out there; there has been really nothing to buy. So it gave us an opportunity to look at other ways to enhance shareholder value. We focused on the real estate, we focused on how best to monetize the real estate, at the same time making sure that the operating company would be as healthy on a go-forward basis as it was today so that anything we did to monetize that real estate wouldn't impair the operating company's ability to grow. Once we satisfied ourselves that that would be the case, we focused on the best way, again, to monetize the real estate. Our determination was that the best way was to essentially break the company into two publicly held companies, one being a health care REIT and one being an operating company.

I dont know if I have got it all wrong.. but the CEO of SUN Healthcare Group is quite confident that Healthcare companies get valued for how the business does, how well you execute the business model and not on the real estate that is held by the company. The CEO of SUN Healthcare believes real estate on a go-forward basis will NOT be a driver for healthcare sector, as it hasn't been for the last 30 years.

SRZ has always believed in not owning the real estate. It has always been proactive in having Venture partners and is focussed on management of properties and brand building. I am certain leasing a property provides a lot of tax benefits. I see the SUNHealthcare CEO statement as a confirmation of the steps taken by SRZ in repairing its balance sheet. Once the debt is out of the books SRZ will be lean, mean and attractive.

Please note these are my personal views based on pubicly available information link to excerpts from the interview

Tuesday, September 14, 2010

Decoding Lakshmi By: Dr. Devdutt Pattanaik

Dr. Devdutt Pattanaik is a medical doctor by education, a leadership consultant by profession, and a mythologist by passion. He has written and lectured extensively on the nature of sacred stories, symbols and rituals and their relevance in modern times.
Website: http://devdutt.com/

Here is one of the interesting articles from the same website. Basically what was interesting was the concept that Conflict between "Devas" and "Asuras" is not a struggle between the "Good" and "Evil" but it is a fertility cycle. I dont think I would do justice to the article it is best if you read the article itself..here is the article.

A bowl of rice will provide equal satisfaction to a rich man and a poor man, to a saint and a sinner. A bowl of rice does not judge the person who consumes it. The same applies to a piece of cloth. A piece of cloth will provide comfort to whosoever drapes it, man or woman, irrespective of caste, creed or religion. And a house will provide the same quality of shelter to all, without any discrimination. We may judge a bowl of rice, a piece of cloth or a house, but the rice, the cloth and the house will never judge us. For rice, cloth and house are forms of Lakshmi, the goddess of wealth.

It annoys us to find Lakshmi with people we don’t like, people who deem to be criminals and sinners. We believe that Lakshmi should abandon amoral and perverse people. But there she is, with them, and we find it exasperating, irritating and so unfair. In mythology, all villains seem to be rich. Ravan lived in the city of gold and Duryodhan lived like a king till the day he died. Contrast this with Ram who had to live, for no fault of his, in the forest for fourteen years and the Pandavas who were born in the forest and had to live in the forest, in abject poverty, for most of their lives. Why is it so? Does Lakshmi like bad people? Or is she just indifferent to the notions of ethics and morals and propriety and virtue that matter so much to us?

Ancient Indian seers spent a lot of time contemplating on the nature of wealth. And they compiled this knowledge through the stories, symbols and rituals of Lakshmi. Laskhmi embodies the principles of artha, economic and political activity. She is one of the four goals of life, said the seers, the other three goals being: dharma, social order; kama, pleasurable pursuits; and moksha, spiritual practice.

Some scriptures say that Lakshmi follows Vishnu who is the upholder of dharma and her son is Kamadeva, the god of pleasure. Is that wishful thinking? After all, Lakshmi is often seen in the company of with Vishnu’s enemies – the demonic Asuras who city located under the earth was called Hiranyapura, the city of gold, that precious metal so closely associated with Lakshmi. And everyone knows that Lakshmi’s arrival need not always be pleasurable. Her arrival is followed by quarrels and strife. So what is this mystery?

To understand Lakshmi, we have to understand where wealth comes from. Wealth in its most primal form comes from under the ground. Plants come from under the ground. Minerals come from under the ground. Water comes from under the ground. Even petrol comes from under the ground. Lakshmi is therefore called Patala-nivasini, she who resides in the subterranean realm. Patala is also the realm inhabited by the Asuras. The king of the Asuras is called Puloman, and his guru is Shukra of the Bhargava clan. And this brings us to two names of Lakshmi – Pulomi and Bhargavi, which means daughter of Puloman, and daughter of Bhrigu, daughter of the demons and/or their guru! It makes sense, since wealth comes from under the ground, she owes her origin to those who rule the realm under (tala) our feet (pa). In some scriptures, Lakshmi is called Varuna’s daughter, Varuna being the god of the sea. Varuna, incidentally, is also addressed as Asura in Vedic texts. Asura applied to all forces that that locked wealth. The sea locks wealth, the subterranean realm realms lock wealth, trees lock wealth – until it is harnessed and released. Those who release this wealth were called Devas. And Devas lived above the ground as fire (Agni), wind (Vayu), sun (Surya), moon (Chandra) and rain (Indra).

Children’s books often translate the word Asura as demons. And the word demon has a moral judgment. But this moral judgment is missing in Indian literature. Asuras are the children of Brahma, just like Devas. The two sets of beings have different mothers. Diti is the mother of Asuras and Aditi is the mother of Devas. The former live under the ground and the later live above the ground. The former create wealth while the latter yank her out. This makes Lakshmi, Asura-putri (daughter of Asuras) and Deva-patni (wife of the Devas). Indra’s consort, Sachi, is a form of Lakshmi.

Equating Asuras with demons is a legacy of early European scholars, blindly adopted by later Indian academicians. Since Asuras were enemies of Devas, and since Devas were worshipped and hence considered gods, Asuras became demons, a natural conclusion for people who were obsessed with force fitting everything into the binary framework of good and evil.

The reason why Devas were worshipped was not moral, it was material; they released wealth and made it available to all – they released rain from clouds, trees from seeds, water from earth, metals from rocks. Asuras were not worshiped because they hoarded wealth, locked it away from humans. They had to be killed if Lakshmi had to be released. The sun-god’s sunlight, wind-god’s air and the rain-god’s water makes the plants come out. The fire-god’s heat released metal from rocks. Without violence, wealth could not be secured: field has to be ploughed, crops had to be cut, grains had to be threshed, rocks had be broken and smelted….in other words, ‘war’ had to be declared on Asuras and their daughter had to be taken forcibly.

Indra and the Devas live a life of luxury surrounded by wine and women and music and dance. Indra is very blessed. Unlike humans who have to work for a living he can get anything he desires by simply wishing for it for in his realm, Amravati, exists the wish-fulfilling tree, Kalpataru, wish-fulfilling cow, Kamadhenu, and wish-fulfilling gem, Chintamani, and even the elixir of immortality, Amrita. That is why Indra’s abode is called Swarga or paradise. Still Indra is extremely insecure. He fears he will lose his wealth. For unlike Asuras, he does not know how to create wealth; he can only procure and distribute wealth. A sage’s curse can cause Lakshmi to leave his side in an instant. And this invariably happens, no thanks to the megalomania stirred by wealth.

Once again Indra leads the Devas to fight and kill the Asuras and get Lakshmi back. The Asuras can keep creating Lakshmi because they are blessed with something the gods do no possess – Sanjivani Vidya, the secret of regeneration. This can bring the dead back to life, in other words make the barren land fertile. This is a gift obtained for the Asuras by their guru, Shukra, a devotee of Shiva. So the Asuras keep generating wealth and the Devas keep snatching wealth away from them. Which is why every here during harvest times we narrate stories of demons being killed – in Dassera Mahish-Asura is killed by Durga; in Diwali, Narak-Asura is killed by Krishna and in Onam, Bali-Asura is killed by Vaman.

The battle of Devas and Asuras is the battle between spenders and hoarders, distributors and creators. It begins with defeat of Devas and the loss of Lakshmi and ends with victory of Devas and return of Lakshmi. That it is never-ending indicates it is not a battle of good over evil. It is a fertility cycle.

The funny thing is, neither the Devas nor the Asuras are happy. They try hard to hold on Lakshmi but she slips away. In folk tradition Lakshmi is described as being squint – one never knows where she is actually going. She is also called Chanchala, the whimsical one, eternally restless. They say one should never keep the image of Lakshmi standing in the house; she will get tired and run away. One is advised to keep images of Lakshmi comfortable seated, preferably next to Saraswati, goddess of knowledge.

While Lakshmi brings prosperity into a household, Saraswati brings peace. The two goddesses are described as quarrelling sisters. Lakshmi loves to go places where Saraswati resides. But her arrival marks the end of wisdom and peace. With wealth comes quarrels, bickering over money-matters, annoying Saraswati who runs away, which is why they say prosperity and peace rarely coexist. The only god who can bring them together is Ganesha. In some scriptures, he is described as their brother. In others, Lakshmi and Saraswati are forms of Riddhi and Siddhi, wives of Ganesha.

Typically everyone chases Lakshmi. As for Lakshmi, she is drawn to only one god, Vishnu, who is not a Deva, but greater than all Devas, who is actually God (spelt with an upper case) or Bhagavan. Vishnu is the only one who got the Devas and Asuras to cooperate serve as the force and counterforce of a churn that got Lakshmi and other magical treasures to rise from the ocean of milk.

Vishnu is typically shown siding with the Devas. He offers them Amrita, nectar of immortality only to the Devas and he fights alongside them in the battles against Asuras. This seems unfair until one steps back and observes Vishnu’s role as preserver.

Brahma, as creator of both Devas and Asuras sides with both of them equally. Shiva as destroyer is indifferent to both Devas and Asuras and will give both of them equal power. This equality does not result in movement or dynamism; it produces a stagnant destructive statement. Vishnu creates an imbalance that causes the forces of the cosmos to flow, for day to follow night, summer to follow winter. He balances the Sanjivani Vidya given to Asuras by Shiva with Amrita which is reserves only for the Devas. So while one group can regenerate themselves after being killed, the other group is immortal. One groups keeps dying and being reborn while the other group stays alive forever. When the Asuras are killed, the Devas win and Lakshmi is with them. When the Asuras are brought back to life by Shukra, the Devas lose and Lakshmi is back with her fathers.

While Indra seeks Lakshmi for himself, Vishnu does not. Vishnu seeks to create order in the cosmos by the rhythm of nature and order in society by rules and regulations. The story goes that when the earth complained that the kings of the earth were plundering her wealth in greed, Vishnu promised her to take care of her by instituting the code of civilized conduct known as dharma. The earth turned into a cow and Vishnu became her cowherd and caretaker, Gopala. He protected her with dharma and she, in exchange, gave artha and kama.

Dharma is all about balance – taking only as much as one needs, and sharing the excess. Parashurama kills Kartaviryarjuna who steals the cows is given as gifts to sages. Ram kills Ravan who disregards the laws of marriage. Krishna kills the Kauravas who are unable to share wealth with their own family. This makes Vishnu a deity intent on making the world a better place. Perhaps that is why Lakshmi sits coyly at his feet. He is Shrinivas, the eternal abode Lakshmi.

It is something worth sharing.. I always have problem locating the original article. The link to the original article:  http://devdutt.com/decoding-lakshmi/

Friday, September 10, 2010

Pitti Laminations: June Results Review: Strong Buy!!

Pitti Laminations (CMP: 43 Market Cap: 40.6Cr)
We will review Pitti Laminations June 2010 Results..

1. PBDIT Margin for June is: 13.80% which is a contraction over Dec 2009 Margin 17.10% with increase in topline.
2. Interest Payments have also dropped by 149bps (1.49%) which is a very good sign.

Looking at the larger picture also we can see that Pitti laminations is already set for a positive future..

Margin Expansion in March 2010 (15.41%) as compared to March 2009 (10.23%) ie increase of  518bps (5.18%)
If we compare the margins for latest quaterly results (PBDIT=13.80% ) March 2011 Margins should be close to 14% a slight drop which indicates cost pressures but with increasing topline.

Conclusion: The one time expenses of year ending March 2010 is keeping the data fudged.. Pitti laminations margins are being maintained but cost pressures can be seen in the latest quaterly results. In June Quarter the margins have reduced and topline growth though an improvement is not stellar. We have to keep a strict watch on the margin picture as well as growth in topline for future quarterly results. Pitti is on its way to report an improved +ve bottomline for the year end March 2011 (due to zero exceptional expenses) 

Pitti is a long term value buy with SIP investment on dips and a close watch on future margins and topline growth.

Thursday, September 09, 2010

Manugraph Limited: Market Leader: Value Buy!!

Manugraph India Limited (MIL)
CMP: 50.10
Market Cap 152.84Cr
Reserves: 241.31Cr
Sales March 2010: 219.77Cr
ROCE: 7.01%
Gross Profit March 2010:
Website: http://www.manugraph.com/

Established in the year 1972 by its founder Mr. S. M. Shah, Manugraph India Ltd., is India’s largest manufacturer of web offset presses. It is the first Indian company to have achieved a breakthrough in exporting “Made in India” printing machines to advanced countries such as Germany, France, UK & USA as early as in 1994-95. Over the years, Manugraph has emerged as a thriving, nimble, printing machinery manufacturing enterprise, because of its ability to adapt itself rapidly to meet the challenges of a competitive economy and its commitment to be a supplier of choice by delighting customers with its excellent services and cutting edge technology. Manugraph believes that the key to maintaining a sustained success is choosing the right technologies and applying them to build cost-effective quality machines. Constant modernization and employment of state-of-the-art technology has enabled Manugraph to stay ahead in the industry, always.

In Nov 2006 Manugraph acquired 100% stake in the US-based press manufacturing firm Dauphin Graphic Machines Inc. (DGM). With this acquisition, Manugraph is now No.1 Single width, Single circumference press manufacturing company in the world!

Conclusion: Manugraph is experiencing the pains of decreasing worldwide print media due to the onslaught of Internet and the convergence of Information and Communication Technologies and recent buyout of DGM. However company with 50% reduction in sales for March 2010 still has positive Operating cash flows for the past 10 consecutive years.. which is a clear indication of a very focused management. It is also consolidating its position in the worldwide market which bodes well for its future.

The concern area is the convergence of ICT. India and developing countries are the growth area for Manugraph while Europe and US would be a stable high margin business for Manugraph.

I would suggest accumulation on a SIP (Systematic Investment Plan) investment for long term, 2+ years with target price of 100-150 per share.

Please find link to the latest  annual report March 2010

Thursday, September 02, 2010

Gujarat Ambuja Exports: Annual Report Review.

Gujarat Ambuja Exports has published its annual report and is available in BSE website (Link) here are some of the salient points.

1. Agro Processing unit underperformed by 53.34% crushing only 166119MT (2009-2010) as compared to 356027MT in 2008-2009. Drop in crushing capacity was due to lack of price parity between raw material and finished products..
GAEL however met its export commitments by trading in these commodities.
GAEL management is confident of better days and has infact setup new Solvent extraction plant in Mandsour in state of Madhya Pradesh.

2. Cotton yarn division reported profits. GAEL has debonded the units from being Export oriented units (EOU) this will reduce paper work required to sell yarn in local markets.Company has also installed additional 8400 spindles which will commence production in 2nd half of the year.

3. Maize Processing division did very well and had 59% growth in topline and 88% growth in bottomline. GAEL has 2 maize processing plants one each in Gujarat and Uttrakhand. GAEL expects growth in this segment also and is going to setup a new plant in State of Karnataka. (Andhra Pradesh and Karnataka are the 2 largest maize producing states in India) The plant in Karnataka will be a state of the art manufacturing plant manufacturing derivatives and value added products of Maize and will cost 100Cr. production will start from new plant from next financial year.

4. Company has added one more windmill of 1.5 Mega Watt capacity in Sept 2009. Total Windmill capacity is now 8.45 MW. Carbon credits are very important source of revenue in windmills and GAEL is working towards getting carbon credit for its windmill division.

5. Long Term debt is only 13.83Cr Book Value is 30.39 Working capital loan is 164.35Cr
6. Company has cash equivalents of 28.16Cr and quoted investments worth 40.47Cr

Conclusion: See huge value in GAEL and expect the stock to outperform the index.

Wednesday, September 01, 2010

Is it time to Sell Gold!!

Gold prices are ruling the roost and the best performing asset class for some time now.
From its lows in 1998-2000 Gold has risen more than 5 times.. Question is: Is it time to exit out of Gold?

Bloomberg just reported that:
"Soros Fund Management sold 341,250 shares of the SPDR Gold Trust, the largest ETP backed by bullion, in the second quarter, according to an Aug. 16 Securities and Exchange Commission filing. That still left a holding of 5.24 million shares, equal to almost 16 tons."

Question is should we also start selling? 341,250 is ony 6.5% of 5.24 million shares
Gold is a non productive asset. Its only positive point is that in times of turmoil people flock to safety which is Gold. We have already experienced turmoil in financial world and we can also expect more shocks (such as oil peak) The question is will Gold appreciate more?

Rs 10,000 invested in GAEL with ROCE of 16% will be worth 11,600. Gold being a non productive asset we cannot put a target price for Gold's value 1 year down the line. One must remember that "Gold" is an insurance not an investment vehicle.. during times of distress we can see that Gold is marketed as an investment.

Conclusion: Hold gold only for insurance not more than 10% of your portfolio. Infact I would personally suggest 3% levels cause you already have cash 25% and stocks which can be liquidated in short notice. Buy jewelry at least it can be put to some use and provide some satisfaction. Govt of India Gold Bonds could be other source of investment (not available at this point of time) Personally investment in stock which can take advantage of Peak Oil would be a better bet.

PN: this is my personal point of view.. please do your own deep dive. Link to Bloomberg news.