NSE News - Latest Corporate Announcements

Friday, December 17, 2010

Company: VIP Sell .. Sell Fast..

VIP 
CMP: 605.25
Market Cap: 17106.5Million
Sales TTM: 6895Million
Gross Profit TTM: 1126.0Million
Interest TTM: 49Million
Net Profit TTM:680Million
Reserves Sept 2010: 1880Million

VIP has acquired a lot of brands and its Vision is "To be the Global Leader in Travel Products Business"
which is also a very focussed and fairly well defined Vision. The question we are trying to address is .. 

Is it worth investing in VIP at these price points. A company with 6,890Million sales and 1,120Million Gross  profit and 680Million Net Profit and 873.1Million debt.. The total cost of acquisition is 17,106.5+873.1 -11(Cash) = 17,869.6Million

That is 15.95 Times Gross Profit and 26.27 times Net Profit (TTM)  a PE of 26.27 means VIP is expected to grow atleast 30% each year 

Now as far as I understand a suitecase/luggage is a product which will last atleast for a few years (Lets assume 5 years) so for VIP to maintain a sales level of 6,890Million it needs atleast 689x 5 = 34,450Million of market which is dedicated to VIP products and will buy VIP products for next 5 years.. 

Now considering that VIP is expected to grow 30% each year VIP needs to have a market of 62,306 Million Rupees. Basically assuming 5 year replacement cycle for luggage by a customer and assuming 30% growth VIP will need a captive dedicated market of 62.30Billion Rupees to sustain 30% growth for the next 5 years..

If the market size is less than 62.30 Billion Rupees then VIP by increasing sales is actually eating its own market for the next year sales.. 

Luggage and "Travel" products are long lasting products not required on a daily basis. Even Regular business travelers do not invest in new luggage for each and every trip. Also with additional baggage cost for extra luggage even Indian have started travelling light.. 

Conclusion: VIP: Enterprise value:17,869 million, Sales: 6895Million 
Gross Profit: 1126.0 Million , Net Profit: 680 Million

VIP is a fully priced share where one is paying 2.59 times Sales and 26.27 times its Net Profit (TTM) with such a high premium it really does not leave much space for appreciation. Also Luggage is not a consumable item  and one does not expect to invest in new travel equipment every time we travel .. 

PN: I do not have any shares in VIP. These are my personal views and opinion based on publicly available information.. Please do your own deep dive before investing.

19 comments:

Raja said...

Very nice post Prahalad,

I think in investment it's so very important to differentiate between a good price and an exorbitant price to pay for any business.

Also people tend to go for this kind of scrips (even at high price) more from a herd mentality, thinking that certain Mr. RJ has invested in it, so it must be good investment. But in the processing totally forgetting the fact that Mr. RJ invested in it when it was really a bargain. And we see that happening again and again and again..

I remember reading a quote somewhere, most probably attributed to Ben Graham - Every security is a investment at one price point and speculation at another.

Hopefully the informed investors will stay away from speculation.

Enjoy reading your blog as always :)

Regards
Raja

What'sUp Prahalad said...

Raja:

As always thank you for your patronage.. and for sharing your views..

It is always good to get feedback and views from viewers and investors..

=happy investing
whatsup-indianstockideas.blogspot[dot]com

Anonymous said...

Hi Prahlad,
would u say the same for Tital industries?The CMP is very for Titan and going by your opinion on luggage not being consunmed very often,can this point apply to watches aswell?

your opinion please

regards..
Vishwa

What'sUp Prahalad said...

Vishwa:

Titan Is also a priced out stock.. the only good thing is that it is from the stable of TATA's but from a valuation perspective.. it is very very expensive ..

Titan Industries:
CMP: 3,412
MArket Cap: 151.45 Billion
Debt: 720Million
Reserves: 6.79 Billion
Sales: 47.03 Billion
Gross Profit: 4.45 Billion
Net Profit: 2.50Billion

Paying 34 times Gross profits and 60 times net profit is setting your expectations very high..

The company might report better earnings but it is already discounted by the market..

Look at GAEL with
Market Cap: 4.9 Billion
Reserves: 3.92 Billion
5 year avg Gross profit:1.07 Billion

GAEL will earn back your investment in 5 years flat and long term investment in GAEL will certainly make the odds in your favour for a higher stock price.. Value exist in GAEL and Jayant Agro and management is conservative..

Equal amount invested in Titan Industries and Gujarat Ambuja Exports(GAEL) will see GAEL returns outperforming Titan in 2-5 years time frame..


=happy investing
whatsup-indianstockideas.blogspot.com

What'sUp Prahalad said...

Vishwa:

Titan Is also a priced out stock.. the only good thing is that it is from the stable of TATA's but from a valuation perspective.. it is very very expensive ..

Titan Industries:
CMP: 3,412
MArket Cap: 151.45 Billion
Debt: 720Million
Reserves: 6.79 Billion
Sales: 47.03 Billion
Gross Profit: 4.45 Billion
Net Profit: 2.50Billion

Paying 34 times Gross profits and 60 times net profit is setting your expectations very high..

The company might report better earnings but it is already discounted by the market..

Look at GAEL with
Market Cap: 4.9 Billion
Reserves: 3.92 Billion
5 year avg Gross profit:1.07 Billion

GAEL will earn back your investment in 5 years flat and long term investment in GAEL will certainly make the odds in your favour for a higher stock price.. Value exist in GAEL and Jayant Agro and management is conservative..

Equal amount invested in Titan Industries and Gujarat Ambuja Exports(GAEL) will see GAEL returns outperforming Titan in 2-5 years time frame..


=happy investing
whatsup-indianstockideas.blogspot.com

Kalpesh said...

Hey Mr. Prahalad,

I am a new follower to your blogs just saw that you dont write daily. So wanted to understant you writing patterns and also understant hw do u get the new stocks and do analysis. read the recent few really nice analysis. any new comin for buyin ?
thanks for the blog ...will be happy to follow you...is it possible to know you more.

What'sUp Prahalad said...

Kalpesh Bhai:

Now that you are a follower you will receive emails.. another way is to subscribe to all comments .. and you can see the comments through your google account..

Posting new ideas everyday.. will dilute the real value of the good ideas.. so try and restrain myself from putting all ideas..

Hope that helps

=happy investing
whatsup-indianstockideas.blogspot.com

Anonymous said...

Hi Prahlad,
thanks for the reply...


i would like to more on dividends...is there a minimum holding period to receive dividends?If you can throw some light on the same..it will be great..
thanks
Vishwa

What'sUp Prahalad said...

Vishwa:

The shares need to be in your name on the record date.. to receive dividents..

yes.. there are some people who do play the game of dividend stripping and also tax saving.. so govt has rules that you need to hold the stock for 6-9 months before you can book a short term capital gains loss when there is a dividend being recorded.. (that is speaking from a tax point of view)

however for receiving dividend you must hold the shares on the record date to receive dividend..

hope that helps

=happy investing
whatsup-indianstockideas.blogspot.com

Vijay Chandrakar said...

Hey Prahalad,
Sorry to post this message here. Just wanted to check if you see any long term value in Punj Lloyd now.
Demand seems to be picking up, especially in Libiya. Debt wise, there doesn't seem to be too much of worry as they have equivalent cash reserves to offset that.
Can you throw some light on the cash flow situation?

Regards,
Vijay

What'sUp Prahalad said...

Vijay Chandrakar:

Punj Lloyd:
CMP: 106.35
Market Cap: 3531Cr
Debt: 4468Cr(Sept 2010)
Sales March 2010: 10447Cr
Cash in hand: 1184Cr
Enterprise value: 6815Cr


Punj lloyd 6 months consolidated sales ending Sept 2010 is: 3563.8Cr

Last year Punj lloyd 6 months consolidated sales ending Sept 2009 was: 5828.98Cr
which is a 38% drop in sales ie drop of 2265Cr
Cash flows: -ve 1270Cr (March 2010)

The notes in account by the auditors consist of huge list of "Sundry Debtors" Sept 2010 books show close to 2020Cr of sundry debt which is scary..

Punj lloyd is close to the bottom 52 week low.. and there could be a bounce back which would be a good exit point..
1. Oil is dearer.. and as energy prices increases demand will reduce.
2. large scale construction projects are one time activity so a 5,000Cr project implemented will come for a renewal maybe 10-15 years down the line.. as systems are build to last..
3. company also seems to have execution problems which has resulted in sundry debtors .. which could potentially go bad..
4. Company reserves are falling while Sept 2010:2958Cr (Sept 2009: 3191Cr)
3. Dec quarter is generally a good quarter so maybe we should get a bounce back... which would be a good time to sell.
4. I would prefer daily consumption items.. look at corn starch produced by GAEL: used in tooth paste, soups, ketchup, ice creams, confectioneries, tablets (as fillers), premixed masala and all of them are white label.. whether you buy colgate or pepsodent, knorr or maggie, you will end up buying from GAEL.. and these are everyday consumption items.. and GAEL debt is 18Cr rest is working capital loans..

Conclusion: you can buy for a bounce back.. or you can hold to sell at a higher level.. (but strictly short term as company has debt 4468Cr + Sundry debt: 2020Cr which could implode

get out of one time stuff producers (like punj lloyd) and get into everyday consumption items.. GAEL and Jayant would fall under such white label inputs ..

Please note: I have stock in GAEL jayant.. while none of Punj lloyd.
These are my personal views based on publicly available info.

It is perfectly fine place for questions/comments.. Thanks for your patronage.

=happy investing
whatsup-indianstockideas.blogspot.com

Vijay Chandrakar said...

Thanks Prahalad for this informative post. I indeed helped not just in the context of Punj Lloyd but also in terms of understanding some financial terms involved in value investing..You rock!!

Regards,
Vijay

Vijay Chandrakar said...

Hey Prahalad,

Just one question. Where did you get the debt and cash in hand figures for Sep 10. I generally refer to Rediff Money, the numbers of which does not seem to match to what you ahve referred in the post.

Regards,
Vijay

What'sUp Prahalad said...

Vijay Chandrakar:

Data is available from the filings by the company to the bse .. BSE/NSE is generally the best place to get the data..

=happy investing
whatsup-indianstockideas.blogspot.com

manoj3427 said...

hi prahalad
I am new to stock market as per the recommendation by my broker i bought Patel integrated logistics @33.75 but not showing much appreciation since then whats your pick on this stock should i hold or...?

What'sUp Prahalad said...

Manoj3427:

In logistics the only player worth buying is.. "Gateway Distripack"

The PSU player in logistics is "Container Corporation"

People are selling "TCI" "Transport Corporation of India" but the way I see it.. its container terminals business which will grow exponentially and the player to look out for is "Gateway Distripack" and container corporation..

PN: I have no personal investments in "Gateway Distripack", container corporation or TCI..

=happy investing
whatsup-indianstockideas.blogspot.com

Anonymous said...

Hi Prahalad,

have you ever studied Hindustan tin works? Now at 90 level.It is looking good value for me. What is the future of Can packaging in India?? Please share your view

What'sUp Prahalad said...

Anonymous:

Hindustan Tin works looks to be a great company.. good cash flows..
good top line.. good bottom line

Every thing is good except for the low promoter stake..

Promoters are also buying so the future looks good.

Congratulations!! on your find.. should do well in the future.. as food processing is a good line of business..

=happy investing
whatsup-indianstockideas.blogspot.com

Anonymous said...

Thanks Prahalad for your comments. Company is some expansion mode, they are looking some convenient place in south. Company always giving proper guidance . Pls google and read all interviews with management in moneycontrol. You may get clear picture about the company