Gujarat Ambuja Exports: June 2010 Result Review: Strong Buy!!

Gujarat Ambuja Exports:
CMP: 28.50
Market Cap: 390.15Cr
Reserves (March 2010) : 392.58Cr
Debt (March 2009): 90.32Cr
Sales TTM: 1408.75Cr

Gujarat Ambuja Exports has reported its June 2010 Quarterly results and from the first impression we can say the results are fair and in line with the expected results. A deeper review says the results could actually be better than what has been reported. Lets just dive into the details.

1. The Operating profits before depreciation for June 2010 is 10.07% which have improved from 8.87% in June 2009 and are in line with March 2010 (10.24%) operating margins.
2. As mentioned in March 2010 result review Gujarat Ambuja Exports revenue mix is improving with sales increasing for higher margin "Maize Processing Division" and sales reducing for lower margin "Other Agro Processing Division"
-  Maize Processing Division is 32.95% of revenues in June 2010 improving from 26.09% in March 2010 quarter and compared to year end March 2009 (13.47%).
- Other Agro Processing Division which was 75.10% of the revenue mix in year ending March 2009 is now down to 46.70% a sharp drop but we must acknowledge "Other Agro Processing Division" is still the majority and the largest division of GAEL's June 2010 revenues
3. "Other Agro Processing Division" as we just mentioned is still the largest chunk of GAEL's Revenues in June 2010 and as we can see the Operating Profit Margin for "Other Agro Processing Division" in June 2010 is 0.60% which is really very low and looks to be an under reporting of profits. The lowest Operating Margin for "Other Agro Processing Division" from our table of quarterly results of  June2009, March 2010 and yearly results of March 2010, March 2009 is 5.22%. Even an Avg value comes out to be: (0.60 + 9.18+5.33+5.22+5.49)/5 = 5.16%. Assuming 5.16% operating margins for "Other Agro Processing Division" we could expect June 2010 segment profit from sales of 13250.26 is 683.71Lakh (6.84Cr)
PN: this is just an assumption on my part and we are guessing .. cause we must remember GAEL is an Agro Processing Export firm and there could be many external variables which could have actually resulted in a profit margin of just 0.60% .. We can however safely assume that this poor result for "Other Agro Processing division" is an exception and we can expect GAEL's Division to perform better in the future.

So I must conclude that the management has been conservative in reporting its June 2010 quarterly numbers and we can expect GAEL to perform better in the future.

I have another table that I would like to share which is sure to make GAEL shareholders jump with joy.
The GAEL management along with the June 2010 quarterly results has also reported the March 2010 Audited Results and the Audited results for year ending March 2010 report a net profit of 60.03Cr. If we look at the unaudited March 2010 Annual report the Net profit reported was 49.28Cr so the management has been quite modest in not highlighting the 21.8% positive jump in reported Net profit between Audited and unaudited results.
The free reserves of GAEL has also increased from 274.57Cr in March 2009 to 392.58Cr which is 118Cr addition to reserves in one year!! Exceptional Value!!

Please find below the Audited and unaudited March 2010 results for everyone to appreciate the surprise present from GAEL management.

Conclusion: Gujarat Ambuja Exports is what we can say "Un-Auditably HOT Stock" a "MUST HAVE" value buy in everyone portfolio. The company shares will surely respond to the deep value that GAEL has displayed. I would assume GAEL to report 70-80Cr Net Profit (Audited ;-) for the year ending March 2011 which would be a market cap of 700 to 800Cr at the minimum!!


Previous Article: GAEL: Announcement: Very Strong Buy
Next Article: GAEL: SAST Reporting: Promoter buying in GAEL

The Quiet before the storm!!

Is this the quiet before the storm?..
- Market place/Index is at its peak and the question is about tightening of credit in US (various support mechanism / schemes for housing sector have been discontinued)
- In India (3 G license out flows to the govt and Income tax outflows..)
- Inflation still rising but govt is assuring that industry that liquidity will be maintained at adequate levels..

Generally after recession when the credit tightening happens the first time fear is ..
- Is the money going to move out into safe havens like Govt bonds from stock and commodities??
- Are the stocks overpriced??

I get the inkling that we are just at the cusp of a rally.. there is going to be a rally from these levels.. there is bound to be sectoral rotation but value stocks both at the index level and at the small/mid cap levels will move upwards.. so GAEL, Jayant Agro, NHPC, Pitti Laminations should gain from these levels in a rising market and hold on to their gains in a falling market. Best of Luck!!

Gujarat Ambuja Exports: Announcement: Very Strong Buy!!

Gujarat Ambuja Exports on July 16,2010 published a company update.

Meeting of board of directors and audit committee of the company on July 28,2010. The agenda of the meeting is:
1. Re-numeration of Executive directors and payment of commission.
2. Recommend increase in re-numeration of Vice President (VP) Works
3. To approve Audited Financial Results for year ending March 31,2010
4. To approve unaudited Financial resuts for the Quarter 1 ie Quarter ending June 30,2010
5. To consider recommend appointment of VAT auditors.
6. To recommend Final Dividend if any for the Financial Year 2009-2010

So in the next 2 weeks we will see latest quarterly results and will also come to know if Gujarat Ambuja Exports will give additional dividend for the year ending March 2010.

The latest Quarterly shareholding pattern had some important developments which I think we as individual investors need to review with a different set of eyes..

Conclusion: GAEL is right now poised .. poised for a leap beyond our imagination because the stock has moved firmly into the hands of strong hands and we can expect only good news to flow which will support the share price further. From now till July end the stock price could be volatile to shake the weak hands further.. and will be an opportune time for new investors and investors waiting on the sidelines.. if and when the stock corrects.. Investors already invested in GAEL should be ready to hold their stocks with a long term perspective as GAEL stock is right now at its bottom not anywhere close to its expected share price..

40 would be the first stop where we can offload some shares .. Personally I would not advise selling GAEL even at 40.. Hope we all have the foresight to look beyond the obvious (GAEL already close to its 52 week high!! of 32)

=Happy Investing

Gujarat Ambuja Exports: Review: Shareholding June 2010

Gujarat Ambuja Exports Limited (GAEL).

CMP: 28.10
Market Cap: 388.77Cr
Sales TTM: 1410.60Cr
Gross Profit TTM: 114.53Cr
Net Profit TTM: 49.29Cr
ROCE March 2010: 17.65% (calculated!)

GAEL as we all know is "The Best Buy" recommendation and receives a fair share of review at this blog.(link) The June 2010 shareholding has been published and is available in BSE and NSE websites.

The following is the comparison of the March 2010 and June 2010 shareholding data.

1. FII Foreign Institutional Investors were the largest sellers selling 36.69 lakh (3.669 million) shares reducing their holding to 4.07 lakh a reduction of 90%.
2. The shares offloaded by FII has been bought by corporates (21.56 lakh), High Net worth Individuals (10.24 lakh), Mutual Funds (3.5 lakh), Individual Investors (1.10 lakh) and Promoters (29,180 shares)
3. Corporates holders have the largest increase in the past 3 months increasing their shareholding from 2.55% to 4.11% avg holding for corporate account is 8,808.5 shares.
4. Small Individual investors share holding has also consolidated in the hands of few investors avg share holding has increased to 618.2 from 613.60 shares
5. High Net worth Individual (HNI) Investors has increased from 18 to 25 and the avg holding of HNI investors increased to 93,336.9 shares from 72,820.83 shares

Shares are being consolidated in the hands of few... specially corporates and HNI investors. Corporate accounts have low holdings (8,808.5 shares) which indicates that corporate accounts could be the vessel for short term holding till it gets transferred to promoters/HNI's in bulk...

Conclusion: If we look at GAEL's March 2010 results we can see an improvement in ROCE to 17.65% and an improvement in bottom line. GAEL Enterprise Value is about 442.9Cr which is very cheap for a company of GAEL size (1600Cr sales) and stature.

Ideal value of GAEL is around 1 times sales i.e. per share price of more than 100 per share. I would suggest new investors to invest at current price levels (Rs28.10) for 1.5 to 2 year target of 100+.
- We are already aware of promoters accumulating shares from the market .. latest price at which promoters have bought shares from market is Rs 22.05 on June 1,2010
- We also know that buyback (reduction in equity) was done at Rs 34.26 per share in 2008 for 9.66 lakh shares. (link) Which makes the move to 40 levels a given target.
- Promoter increasing shareholding and reduction in equity by share buyback..both these activities will provide the base for the share price to increase..
- Consolidation of shares in the hands of few (Promoters and HNI's) augur well for long term investors in GAEL.
- Increase in dividend payout, Increase in operating margins and quarterly net profit is what needs to be tracked along with promoter activity (buy/sell)
- GAEL is a perfect stock for armchair investing for the next 2 years making it a multi-bagger for sure!!

Previous Article: GAEL: Promoter buying in June2010
Next Article: GAEL:Announcement: Very Strong Buy

SKM Egg: Value buy...

SKM Egg
CMP: 17.95
Market Cap:47.26Cr
Debt: 50.08Cr (March 2009)
Reserves: 30.86Cr (March 2009)
ROCE (March 2009): 25.49%
Sales TTM: 125.17Cr
Gross Profit TTM: 14.61Cr
Net Profit TTM: 1.4Cr
Debt Equity: 0.88 (March 2009)
Long Term Debt Equity: 0.52 (March 2009)
Site: http://www.skmegg.com/

SKM Egg Products on the face of it looks to be a fairly valued stock..
Enterprise Value = 47.26+50.08-1.54 = 95.8Cr Sales of Twelve Trailing Months (TTM) is 125.17Cr

What really makes SKM worthwhile investment is their product Egg Powder.
1. India has one of the largest (top 3) bird populations in the world.
2. India is also cost competitive and one of the lowest cost producers.
3. SKM is a listed entity in Egg Powder business which is a good margin business. Venky's promoters also have Egg Powder business but it is not part of the listed Venkys but the unlisted parent company Venkateshwara Hatcheries Pvt Limited.
4. SKM promoters are also one of the largest animal feed manufacturers in India and have good relations with the farmers. http://www.skmfeeds.com/
5. Largest export markets of Egg Powder are Europe and Japan. SKM manufacturers 4500MT of Egg Powder
6. SKM Egg is the largest exporter of value added Egg Powder making 65% of India's exports of Egg Powder.
7. SKM Egg is also getting into the branded egg business http://skmbesteggs.com/
8. SKM Egg has its own farm rearing 1.5 million birds
9. SKM Egg has also started Feed manufacturing (new segment) to control all inputs which is required to meet the high standards for Euro and Japanese markets.

Conclusion: SKM Egg seems to be fairly valued right now due to its debt. Considering its ROCE is above 20% and high value added product for developed markets.. I foresee a reduction in debt and ride back to profitability.. with top line growth and branded egg kicking off. One must remember that this is a long term play. recent quarter results were good but was helped by other income. So we have the largest player at an attractive valuation with good growth potential. Long Term Buy!!

NHPC a long term buy!!

NHPC National Hydro Power Corporation
CMP: 31.90
Market Cap: 39239Cr
Reserves: 6798Cr
Networth (March 2009):17980.62Cr
Debt: 12,234Cr
Sales TTM: 4331.98Cr
Gross Profit TTM: 3892.41Cr
ROCE (March 2009): 6.13%
Debt Equity Ratio (March 2009): 0.68
Avg. Cash Flow From Operations (2007-2009): 2236.88Cr
Current Installed Capacity: 5175MW (March 2010)
Company Website: http://www.nhpcindia.com/

NHPC as we all are well aware is the largest Hydro power generator in India. NHPC operates 13 hydro power stations with a total aggregate capacity of 5175 MW (year ending March 2010).

Power generation is a regulated industry with limited scope of returns (fixed around 15-16% return on Equity). NHPC by all terms looks like an expensive proposition with limited return potential.

Let us compare numbers of NHPC with Tata Power the largest Private sector power utility in India.

As one can see Net profit of NHPC is 2090Cr while Tata Power its 947.65Cr
1. Networth to Equity for Tata Power: 39.03 and NHPC: 1.60
- Since a power project has fixed returns on Equity and Equity=Networth.
- Tata Power Rs 100 NW = Rs 16 profit, EPS = 16 *39.03 =  624.48
- NHPC Rs 100NW =Rs 16 profit, EPS=16*1.60 = 25.6
Networth/Equity ratio is high for Tata Power hence the EPS growth for every additional rupee of earning gets multiplied by 39 times while for NHPC EPS earning gets multiplied by 1.60 times.

2. Tata Power Avg Cash flow from Operations  for 3 years is: 737.18Cr while NHPC it is 2236.88Cr
So NHPC has 3 times more cash flowing in from operations than Tata Power for the past 3 years. Additional Cash flow from Operations from NHPC over Tata Power (2236.88 - 737.18)*3 = 4499.1Cr additional cash flows from NHPC in last 3 years.

3. If we look at the market cap, Net Profit for past Twelve Trailing Months (TTM) and the Current Installed capacity we can see that NHPC is available at a discount (almost 50% based on Installed capacity and Net profits)

- 11 projects having aggregate installed capacity of 4622 MW are under active construction. With the commissioning of these projects, NHPC would become a 9500 MW company likely by 2013
- NHPC is actively pursuing clearances from Government of India for several hydro projects having aggregate capacity of 9631 MW. Out of these, seven projects with aggregate capacity of 5965 MW are planned to be implemented by NHPC on its own
- Hydro power is a renewable economic, non polluting and environmentally benign source of energy. Hydro power stations have inherent ability for instantaneous starting, stopping, load variations etc. and help in improving reliability of power system. Hydro stations are the best choice for meeting the peak demand. The generation cost is not only inflation free but reduces with time. Hydroelectric projects have long useful life extending over 50 years and help in conserving scarce fossil fuels.

Tata Power has current Hydro power capacity of 447MW and the rest are Thermal power plants which have the potential of increase in fuel costs. NHPC is only Hydro power and all future capacity expansions are going to be in Hydro power only. Hydro power as stated above .. generation cost reduces with time!!
Development of New Hydro Power plants in the private sector is low due to unprofitable tariff structure
(so there is a possible hydro power plant tariff improvement which will benefit NHPC)
With the eminent Oil crisis in the horizon energy prices are bound to escalate while NHPC's generating costs are going to reduce which should make NHPC more profitable.
With the oil deregulation the next step would be power (energy) deregulation (no wonder NHPC shoots up with OIL price deregulation)
 
Conclusion: Right now the investment community is not looking at the generating capacity and fuel costs while making an investment in power companies. Investors are looking at growth in EPS ..Tata Power by virtue of a Networth/Equity ratio of 39 will see the EPS rise much faster for every additional rupee of additional earnings...
NHPC on the other hand with 60% higher generating capacity and 3 times more Operating Cash flows is being discounted because its Networth/Equity ratio is poor: 1.60. Even in 2013 Total Power Generating capacity of NHPC will be higher than that of Tata Power.. and since its 100% hydro power fuel costs are capped. 
At present NHPC Networth 17,980Cr is twice that of Tata Power which gives it more equity to take larger projects and hence cash flows from operations will continue to be higher for NHPC.
NHPC Networth /Equity will also rise steadily . but we cannot really expect to surpass Tata Power's Networth/Equity.
If we look at NHPC with the right set of eyes we can see the deep discount in NHPC and the rising energy prices will be favourable for NHPC. Invest for long term 5+ years and expect NHPC to at least triple from these levels irrespective of where the market is heading.

Arman Financial and Ganesh Polytex: Avoid!!

Arman Financial:
CMP: 30.30
Market Cap: 12.35Cr
Debt: 9.79Cr (March 2009)
Reserves: 3.25Cr (March 2009)
ROCE: 15.20% (March 2009)
Debt to Equity: 1.34

ARMAN FINANCIAL SERVICES LIMITED was originally incorporated on 26th November, 1992 as an erstwhile Arman Lease & Finance Ltd. The company is a public limited listed company. It issued 28,00,000 Equity shares of Rs. 10 each on 21st August, 1995 aggregating to Rs 280 lacs after receiving an overwhelming response from the public for its public issue which was oversubscribed by 7 times in the category of small investor and more than 22 times in case of applicants with application of more than 1000 shares.

The main objects of the company consist of providing a wide spectrum of financial services both Fund based and Non Fund Based activities which includes term loans, collateral free credit, other forms of credits, thrift and savings and insurance. Arman also plans to render financial services to people by acting as intermediary for banks and financial institutions in the cities, towns, villages of India

1. Company is in Micro finance area which is a "Hot" area.

2. Arman has -ve cash flow from operations for past 3 years or so..
3. Promoter shareholding is decreasing (There is however accumulation of shares in hand of few public investors)
4. Interest cover ratio is 1.68

Conclusion: Company maybe in a hot area of micro finance but since the company does not have access to cheap funds it is always going to be difficult to survive. Banks are supposed to enter into this area (indirectly) and we could see greater competition. No dividend.. low promoter holding.. public shares in the hands of few... stock has already given returns of 350% greater than the Sensex. This is an Avoid at all cost. There could be a freak valuation ... but still whosoever is going to buy the stock at a higher price is going to be the greater "Fool"
==Next==Next==Next==Next==Next==Next==Next==Next==

Ganesh Polytex:
CMP: 47.55
Market Cap: 63.57Cr
Debt: 61.36Cr
Reserves: 14.12Cr
ROCE: 15.63%
Sales TTM: 198.97Cr
Debt to Equity Ratio: 2.75

Conclusion:
Ganesh Polytex produces polyester staple fiber and textured/twisted yarn. company has increased capacity and is expecting a very bright future.. Ganesh has positive cash flows from operations ...unfortunately the stock is already priced at a premium. Debt Equity ratio is high.. and there is preferential capital of 4.5Cr all this makes Ganesh Polytex a very expensive proposition. The company is also in a fiercely competitive business (every business is competitive unless you have a monopoly!!) so I think the promoters are being too ambitious.. Negatives have not yet been factored into the price ..Avoid at the best.. if you like the Indian textile story one should look at Arvind group (now Arvind Mills also has the real estate twist)

Diamines & Chemical: Divident Stripping: Value Buy

Diamines & Chemicals:
CMP: 60.50
Market Cap: 39.46Cr
Sales March 2010: 54.10Cr
Debt: 17.49Cr (March 2009)
Reserves 14.49Cr
ROCE: 20.22%
Debt Equity: 1.33
Long Term Debt Equity: 0.63
Divident Rs 2: Ex- Divident date: July 7,2010 <<==(Changed from July 8 to July 7)

Diamines & Chemicals is the only Ethylene Amine business in India. AlkylAmines Chemicals has a controlling stake in Diamines Chemicals. Alkyl amines is the worlds leading provider of pharmaceutical grade aminehydrochlorides. Diamines & Chemicals is focussed on Piperazine. Ethyleneamines are used in pharmaceuticals, agrochemicals, lubricants, fuel additives etc.

Conclusion:
Diamines & Chemicals has reported for the year ending March 2010 a 269% increase in operating profits. There was a one time 8Cr other income related to written back old credit balances. The company operating margins are above 20% which is really good. The negatives are higher debt to equity ratio and reserves of just 14.49Cr (9.66Cr last year). There is also a possibility that the profits could be depressed in the future as Alkylamines is related upstream company. Right now the 3% divident return in 1 week along with good profit margin of more than 20%  are the positives for investment return of 10% or more in one month. Short term Buy!!
PN: these are my personal views please do your own deep dive before investing.

ADC India: Long term Value Buy!

ADC India:
CMP: 124.00
Market Cap: 54Cr
Debt March 2010: 0.47Cr
Reserves March 2010 (6 months): 51.07Cr
Sales TTM March 2010: 71.24Cr
Cash & Bank balances (6 months): 24.16Cr
Profit From Operations March 2010 (6 months): -ve 0.09Cr
Net Profit March 2010 (6 months): +ve0.91Cr

As per ADC india Website: http://www.adckrone.com/in/
(Corrected information posted about ADC India on June 30,2009)
ADC is a world leader in providing global network infrastructure products and services that support our customers’ migration to next-generation networks. ADC plays a crucial role in enabling its customers to deliver dynamic video, data, voice and wireless services that are increasingly essential to Telcos, Enterprises & Infrastructure providers.

The need for ubiquitous access, scalable bandwidth and robust, reliable connectivity is no different for a carrier, cable company or enterprise. All depend on ADC's network infrastructure expertise to help them design and deploy high-speed networks, wired and wireless, offering dynamic video, data, and voice to businesses and consumers.

ADC's industry-leading portfolio of network infrastructure solutions helps our customers to provide advanced, differentiating services to meet their own customers' unrelenting demand for bandwidth along with their employee's need for instant, reliable access to business critical information.

Customers in India: BSNL, MTNL, Ericsson , Nokia Siemens, Bharti Televentures(AirTel), Reliance Infocom, Tata Teleservices, HFCL. Infotel, Lucent, TCS, Barclays, Standard Chartered Bank, Crisil, Common Wealth Games, Alcatel, Cognizant, EMC, Vikas Soudha, Intellinet Global Services, Hexaware, Volkswagen, Vodafone, ITPL, Shell. Indian PMO, Indian Parliament Library, I2 Technologies, Verizon and more


Conclusion: ADC india is definitely not cheap.. but considering that parent ADC is a world leader in next generation networks and ADC Krone is an integral part of ADC. we have a winner in hand. Also considering the fact that ADC has a market cap of 54Cr and 24.16Cr of cash in hand right now ADC India is actually selling for 30Cr. This is a zero debt company and high quality provider of network solutions to telecom companies. Accumulate for long term.

Jayant Agro: Promoters expect 35% compounded growth per year for the next 2 years

On June 24,2010 in an interview with CNBC-TV18 promoters Mr Udeshi has stated:
1. Value added products manufacturing has been started.
2. We should see the impact of this from the 2nd half of 2010
3. Company is expecting 30-35% growth in topline and bottomline
4. Seed crushing capacity has already been increased from 900 MT to 1200MT per day crushing capacity (last year completed)
5. 3rd and 4th generation castor derivatives to be produced in the Mitsui JV: Ihsedu Speciality Chemicals Limited.
6. Operating Margins are going to expand by 150 basis points ie 1.5% from 5% to 6.5%

Conclusion: Jayant Agro had 887Cr March 2010 Consolidated revenues and an operating margin of 4.63% (link) considering 35% growth in topline and 6.5% margins:
March 2011 Sales: 1197.5Cr (Projected)
Operating Profits March 2011: 77.87Cr
Net Profit March 2011: 23.96Cr with EPS of Rs 16/= per share.
The Jayant agro shares should be quoting close to 250-300 levels (1 year target) considering current PE of 21. I am also certain that these are conservative estimates but these are good first level targets for Jayant Agro Organics. Strong Buy

PN: these are my personal views.. Jayant Agro was recommended as a "Best Buy" on May 15,2010 at 81.55 (link) along with Gujarat Ambuja Exports. Target for Jayant is close to Rs 500 per share on a 2 year horizon. Please do your own deep dive before investing

Link to the CNBC TV 18 Interview

Hydrodrive: Peak Oil: Biofuels, Hydrogen Fuel: Positive Coefficient of Performance

Biofuels have lot of problems associated with their widespread use.
1. Land used for food crops will have to be shared with biofuels
2. It requires more energy to produce biofuels than energy available from biofuels.
3. Biofuels contain water levels which are higher than Internal combustion engines can tolerate and hence require further processing to remove excess water

There is one company in India that has patented technologies which helps in use of biofuels. Hydrodrive is the company which helps in use of biofuels with higher water content. Infact they have said that 25% water can be mixed with diesel and we can still get the same amount of energy/work done.
This technology of mixing water with fuel has already been implemented and device is being shipped by original equipment manufacturers as part of their diesel engines like Triveni Engineering works, Alfa Lava.

Hydrodrive has also created an Electronic catalytic converter which reduces harmfull gases from Internal Combustion Engines with an improvement in mileage for the vehicles (5-10% improvement in fuel efficiency 50% reduction in harmful gases). This technology has been implemented in China, Philippines and in India.

Hydrodrive has also created systems which are being used in Europe for synthetic high octane diesel with cetane index of 80 from straight vegetable oils and is also being used in efficient production of bio fuels from algae.

Hydrodrive is an essential component of the system to produce Hydrogen from water with a positive COP(Coefficient Of Performance) between 1-9 [the best possible]
Positive Coefficient of performance means you generate more energy than what is fed as input energy into the system. Even current gas based power plants and thermal power plants have a COP less than 1.

So folks here is the link to the company website: http://www.hydrodrive.co.in/ surprisingly not well known even when the promoter Srinivasan Gopalakrishnan has been awarded the Gold Prize by Far Eastern Economic Review Year 2001. Former President of India Abdul Kalam had also visited the company and recommended Tata Motors to work on developing a system to implement the diesel/petrol mix with water for Internal Combustion Vehicles.

Peak Oil : Where do we go from here..

- Recently Mr Mukesh Ambani was in the news predicting oil at more than USD 100 per barrel.
- Another news related to the Ambani brothers was that Reliance Power will be provided GAS at 4.25USD from KG D6 but it will not be for 17 years..(infer that the KGD6 does not have enough gas reserves to last 17 years!!!)
- US Military has forcasted that surplus oil production capacity could disappear within 2 years and we could be facing serious shortages by the year 2015 (4.5 years from now!!)

I really do not need to go into what is peak oil..  if you do a google search there are 15.9 million search results. From an investment perspective and an Indian perspective where do we stand? what should we be doing?

Personally I can see that the govt is more eager to develop public transport systems
- Govt run AC buses in all major cities - trying to wean away the individual car owners to public transport.
- Emphasis on Rail and Metro Rail projects in large cities.
- Lot of digging for piped gas (for cooking mostly and maybe other use like transport/heating in the future)
- I also get a feeling that development of new major highways is not on schedule.(don't have any data right now to confirm it..this is just an inclination)

As an investor Reliance was in news for buying a 90% stake in the only licensed All India Wireless broadband company (infotel - Pvt company owned by the promoters of HFCL)
Reliance was also in the news for a possible majority stake in Largest Wireless Tower company in India GTL

I am not recommending Reliance as an investment idea (too expensive for my taste!) but we are looking for direction here.. We really need to understand that current lifestyle (As we know it) is deeply entrenched  in petroleum. We practically live and breath in petroleum.

- Food (Fertiliser, transportation, packaging, distribution)
- Clothes (Cotton - fertiliser, synthetic-petroleum)
- Medicine (Drugs -Chemistry-petroleum, manufacturing)
- Shelter (Brick making, Steel, Cement - Energy, Paint - Petroleum)
In fact the industrial revolution is based on availability of cheap hydrocarbons (Coal, Petroleum) and the ability of an individual to harness this energy to increase his capacity to do work.
The new world which we will all see unfold in front of our eyes (in the next 5-10 years is going to be completely different) because of the restriction in the availability of abundant energy to exploit.
1. Travel as we know it will be a thing of the past.(maybe tele conference, video conference)
2. Growth will be Zero or negative
3. Basic necessities will gain prominence.(food clothing and shelter)
4. Source of Energy?? - Electricity!!
5. Population Control!! - Gain popularity as growth falters!!
It has always been said that development is always progressive .. is always forward looking. So all this is very negative news .. this surely cannot be the path to the future!!

Most likely our taste will change. Like and dislike will change.
- "Bigger the better" will give way to "Small and Beautiful"
- Development Index will change from Energy used to Energy produced/saved!! (already gaining popularity in the name of Global warming)
- Energy which is the driving force of the current development model will be almost exclusively Electricity. (It is the only form of energy that has the distribution network in place to replace petroleum)
- Entertainment will go Digital (Video Games!, Virtual Reality!)

Conclusion: Investment need to be directed to core areas of the future. As can be ascertained from the aggressive steps taken by Reliance Industries.. IT & communication is going to gain prominence as it will replace travel to a major extent and become a core area. Electrical energy will also become core area of the future.. Battery Power (intermittent source of energy needs to be stored) will also gain in strength as Solar/Wind/ Hydro/Nuclear will be the future source of energy. Basic necessities such as Food, Medicine will be critical for sustenance. Stem Cell therapy and new development could really change human thought about medicine and regenerative medicine.

Japan as a country has minimum natural resources and at its peak epitomised the hydrocarbon economy. It also has been planning for the Peak Oil (from the previous oil crisis in 1973) we can look at Japan for the model of future cities and also from resource utilization perspective.

Value Investing in MidCap and SmallCap universe...

Here is some interesting stats with regards to Indian market. It has been observed over a span of 10 years that the mid and small cap stocks is the place where there has been the greatest increase in market capitalization. ie. Maximum potential for making money by increase in share price.

This is listing of stocks as per market capitalization..
- If you had bought the top 50 stocks by market capitalization (that would generally mean the blue chip stocks) you would have made the least amount of money.(26.7 %CAGR)
- If you had bought the cheapest stock ie stocks which are below the rank of 301 .. you would have made the most money (48% CAGR)

what are the important factors that we can infer from this stats..
1. Large Cap/Blue chip stocks are well known names and their growth paths are well documented and a fair bit of growth projections are already priced in.
2. Small cap stocks are generally the least known ones and here is the place where you can find multibaggers which are not discovered .. over a period of 10 years these stocks will be discovered and we can expect great returns.
3. This is just a general categorisation based on price (Market Cap) .. so we can also concur that its important to get the right price .. infact discounted prices are more easily available at the bottom of the heap rather than at the top of the heap.

Conclusion: Add a pinch of fundamental analysis and if you can find deep discounted stocks which have a history of growth, dividend paying and not yet discovered ..(no FII/DII Investment) you can sleep in peace for a decade and still you will come out with flying colours beating the NIFTY hands down. Of course all this has happened over a period of steady growth enjoyed both by large cap and small cap companies.

Venkys India: Year End March 2010 Result Review: Hold

Venkys is the largest chicken company in India.
- Venkys was first recommended on May 29,2009 at Rs 147 per share.
- Venkys was recommended as a hold on Dec 25,2009 at a price of 239 per share.

Venkys today is quoting at Rs 420.45 per share and today we will review March 2010 results.
Market Cap: 394.87Cr Annual March 2010 Sales: 705.47Cr, Debt March 2010: 89.92Cr

The results are great in all sense..
1. Operating profit margins have improved from 7.3% (2009) to 12.92% (2010)
2. Taxes paid as percentage of sales has also improved from 1.84% (2009) to 3.96%(2010)
3. Reserves have also increased from 147.68Cr (25.94% year 2009) to 197.21Cr ( 27.95% year 2010)

I think right now Venky's has put its best foot forward.. and all weak hands have sold off.
Infact Serum institute one of the largest vaccine manufacturers in the world (pvt company) has sold off its 1+% stake in Venky's..

The stock could go up further from these levels because we have not seen the pump yet (Flow of positive news in the media) Also the stock was previously available at a deep discount and right now the valuations are normal.. Enterprise value: 394.87+89.92-62.5 = 422.29Cr which is still 0.59 times its March 2010 sales(705.47Cr).

I must also warn you that the current levels are multi year high for Venky's stock..so buying now and if the stock turns negative you could see your stock value fall dramatically...
There has been some news flow about Venky's.. recently
1. Company is setting up a 4500Tonnes animal feed plant in Vietnam
2. Company is planning additional ventures in Bangaladesh and Philippines
3. Company is also going to set up an animal vaccine plant in Switzerland

Conclusion: Venky's has a lot of depth and I am sure the company is capable of providing further growth.. With a growing Indian economy it is a know fact that protein consumption increases dramatically with increase in per capita income levels..however ..at these levels we also need to consider how to retain the stock price appreciation as profits..

Strategy:
If you expect Venky's to do exceptionally well (which I do!!) then you can have the following strategy.. every 30% rise in profit sell 10% of your holding till you reach 50% of current holdings..
So 1000 shares: CMP 420.45
Next Sell price: 546 Sell 100 shares
Next Sell Price: 672.72 Sell 100 shares
..
Instead of 30% you could set 20% or 50% as your sell target depending on your comfort level with company fundamentals..

PN:Here is the link to the CNBC TV18 interview of Venky's management(Link)

Heart Healthy: Nitric Oxide: Garlic + Onions

Cardiovascular disease is the single largest cause of death in India 29% of all chronic diseases. Diabetese in urban India is second highest in the world. These are statistics provided by the Govt. of India in their website.

It seems Garlic is the answer to both these problems..

In 1998 Nobel prize for medicine was given to 3 doctors(Robert Furchgott, Louis Ignarro, Ferid Murad) for discovering Nitric Oxide as the signalling molecule in cardiovascular system. Here are some important observations.

- endothelial cells of arteries makes nitric oxide..
- when you exercise nitric oxide is produced by arteries in the endothelial cells (that is why exercise is good for the heart)
- Nitric Oxide is the best vassal dilator
   - widens the blood vessels ..increasing blood flow throughout the body
   - Soften the blood vessels ..reversing the hardening of arteries
   - Relax the blood vessels ..help to overcome high blood pressure
- Nitric Oxide also inhibits and melts away plaque formation ..prevent and reverse atherosclerosis, coronary artery disease, heart attack, stroke, impotence, peripheral artery disease..
- Diabetese problem also can be solved as L-arginine helps in production of insuline

If you do a lot of search on the net..this is the conclusion that I came up with..

1. To produce the Nitric Oxide the body needs L-arginine.
2. precursor to L-arginine is L-citrulline.
3. L-Citrulline is found in large quantities in Garlic, Onion and Watermelon (watermelon shell [which we generally throw]contains 60%)

Nitric Oxide is what Viagra supplies to targeted parts of our body using L-citrulline. There are a host of very special drugs developed to target Nitric oxide supplies (just like Viagra) to specific parts of the body (heart)

So here we have it .. the best natural medicine to have is raw garlic (with water) 3 times a day.
You can see some observations:
1. You will be more energetic.. (if you find yourself out of energy before garlic)
2. Your blood pressure will be down  (if you have high blood pressure before starting garlic)
3. You will also observe that your breathlessness while climbing stairs will reduce (Stress on heart when you exert additional pressure before starting garlic)
4. You will have the Viagra effect !! (If you do face any problems in bed .. before starting garlic)
5. You will be less susceptible to allergies and viruses (flue et cetera)
6. Loose fat and develop more muscles (you will have to do some excercise to build muscles but fat will be chewed by Garlic without any effort will take time though)

Take raw garlic ..4 pieces every time & chew it .. gulp it down with water 3 times a day and within 3 weeks you will see a different you. Tell me about it!! Raw unwashed Onion also helps .. but RAW Garlic is the best.

Please Note: This is my free advise.. I have old parents and I was looking for more info on heart and blood glucose problem and move them away from the medicine cycle.. As always please do your own deep dive.

Dr Ignarro Interview 1 (youtube)
Dr Ignarro Interview 2 (youtube)
Dr Ignarro Interview 3 (youtube)

Gujarat Ambuja Exports: Promoters buying from the Open Market June 1,2010

Gujarat Ambuja Exports Limited (GAEL)
CMP: 23.25
Market Cap: 321Cr.
As per SEBI requirements promoter buying into GAEL has been reported to the Stock exchanges.
- Promoters have bought 9480 shares from the BSE (Avg Price: 22.04 per share)
- Promoters have bought 19700 shares from the NSE (Avg Price: 22.04 per share)
These shares were bought in the week of May 21 to May 27. and reported to the stock exchange on June 1,2010.
Promoter Name: Manish Kumar Gupta (Managing Director)
Shares before acquisition: 3,40,64,993 (24.62%)
Shares after acquisition:    3,40,94,173 (24.64)

This 22.04 will act as the low water mark for new and old investor to accumulate more GAEL stocks. Promoters buying into a company is one of the strongest indicators specially when they already own 63.87% of the total equity of the company as of March 2010.

Conclusion: This is one of the best time to accumulate the stock for long term appreciation we can easily expect the stock to give more than 100% appreciation from these levels.

Pitti Lamination's : March 2010: Quaterly and Annual Results review.

Pitti Lamination's is one of the recommended stocks for value investment. In the Dec 2009 Quarterly results review we had dissected the poor results with Net Profit -ve3.47Cr. The conclusion drawn was that Pitti Lamination's had improved its profit margins and the -ve results were due to one time exceptional expenses related to GE business (one of the largest clients of Pitti Lamination's) Link

Pitti Lamination's March 2010 annual results are out and we can now confirm that the margins have been sustained and the March 2010 Quarterly results were really good.

1. Expenditure as a percentage of sales has dropped from 90.44 % in year 2009 to 84.7% in Year 2010
2. Depreciation has increased as a percentage of sales.. One must remember that the sales for year ending March 2010 is 152.99Cr while March 2009 it was 267.02Cr .. due to this huge drop in sales certain numbers will look inflated.. (such as depreciation..)
3. Interest Payment has also been inflated by the drop in sales. The actual interest payment has reduced in March 2010 (10.64Cr) from March 2009 (10.93Cr) 
4. Profit Before tax for the full year is down to 0.60 percentage in March 2010 due to the large one time exceptional losses in Dec 2009 Quarter.
5. Last but the most important the Profit Before Interest & Tax. We can see that for the Quarter ending March 2010 and Dec 2009 the margins are 12.31% and 13.13% respectively which is way above the Annual March 2009 margin of 7.49%
This improvement in margin was disclosed in Dec 2009 Quarterly result update and March 2010 Quarterly results now confirm that the margins are being maintained..

Conclusion: Pitti is already on its way to recovery.. It has expanded its capacity and the value added products are improving its operating margins. Right now the one time exceptional expenses related to GE is distorting the excellent operating margin improvement.
March 2010 Quarterly results the top line has also recovered which was one of the remaining concerns.. 
This is a good time to accumulate Pitti.. Margin improvement will really improve the ROCE  and we can easily expect Pitti to hit triple digits within 12- 24 months time frame.

Universal Cables: Divident stripping + Value buy

Universal Cables:
CMP: 79.90
Market Cap: 184.81Cr
Sales March 2010: 515.66Cr
Gross Profit: 66.05Cr
Net Profit: 27.14Cr
ROCE March 2009: 12.17%
Debt to Equity March 2009: 0.73
Long Term Det to Equity March 2009: 0.15
Company website: http://www.unistar.co.in/

Started in 1962 and part of the MP Birla group. The company is one of the largest power cable manufacturers in India producing low voltage, medium voltage and Extra high voltage (upto 500KV)
It also manufactures capacitors and Optical fiber cables. The company in recent years has concentrated on improving its bottomline and concentrated on high margin Extra High voltage cables. This quarter March 2010 company has reported a net profit of 11Cr which is its highest ever quaterly net profit reported by Universal Cables.

Conclusion: Universal cable is a strong established player in the Indian Power cables industry. The company has also distanced itself from other players by entering the higher margin extra high voltage power cable business. Considering its current discounted valuations and improving results we can consider investment in Universal cables at these levels. Divident payout is Rs 2.50 with record date of June 21,2010. So investing now will also provide us the cushion of 3% return within next 19 days.

Q&A Confidence Petroleum: Result Analysis March 2010

Confidence Petroleum has reported March 2010 Quaterly and yearly numbers and first look gives us a great picture.(These are consolidated numbers)

Quaterly sales up 128.14% , Annual Sales up 125.45%
Quaterly PBDIT up 120.68%, Annual PBDIT up 98.69%
Quaterly Taxes paid up 1751.84%, Annual Taxes paid up 272.78%

The numbers look great and it certainly looks good but we really need to look at the numbers from another angle.
Expenditure as a percentage of sales increased from 89.87% to 90.27% on a quaterly basis
Expenditure as a percentage of sales increased from 87.07% to 88.60% on a yearly basis

PBDIT as a percentage of sales decreased from 10.13% to 9.80% on a quaterly basis
PBDIT as a percentage of sales decreased from 12.93% to 11.40% on a yearly basis

Interest payment as a percentage of sales increased from 1.80% to 1.97% on a quaterly basis
Interest payment as a percentage of sales increased from 1.26% to 1.76% on a yearly basis


Profit Before tax as a percentage of sales decreased from 6.18% to 5.84% on a quaterly basis
Profit Before tax as a percentage of sales decreased from 10.00% to 7.07% on a yearly basis


Taxes as a percentage of sales increased from 0.35% to 2.81% on a quaterly basis
Taxes as a percentage of sales increased from 1.02% to 1.69% on a yearly basis

Net profit after minority interest decreased from 5.84% to 2.60% on a quaterly basis
Net profit after minority interest decreased from 8.98% to 5.23% on a yearly basis

As you can see once we compare the profits with the sales for the same quarter/year we get a completely different picture.. confidence petroleum Net profit margin (after Minority interest) has dropped from 5.84% to 2.60% which means it is making less money for every additional sale this quarter as compared to last quarter. And the profit margin has dropped by 55.5% on a quarterly basis and dropped 41.79% on a yearly basis.. clearly this is not good news..

I would advise people to lighten their holdings if the stock appreciates with the results.
=================
Another point which I would like to bring to the notice of investors of confidence petroleum is the following balance sheet information published by the company for the year ending March 2010

1. Equity Capital has trippled from last year
2. Reserves have increased..  but when compared to equity capital reserves have dropped from 4.3 times equity to 2.97 times equity in 2010
3. Secured and unsecured loans have both more than doubled
4. Inventory and sundry debtors have also increased substancially.

Conclusion: Confidence is expanding .. trying to reach a critical mass.. and for that it needs Auto LPG dispensing stations. Bottling segment has better margins while LPG  segment has lower margins and is high volume low margin business. It will definitely take a few years for confidence to reach a firm/stable condition..
Right now the management does not have much room to make any mistakes..we can expect equity dilution as company will need equity to expand its footprint.. Would suggest selling and keeping the company under watch for the next few years before investing.

European Union: May 18,2010: March 2010 External Trade Surplus 4.5 billion Euro

European union consist of two set of countries EA(Euro Area) & EU (European Union)
EA16 includes: Belgium, Germany, Ireland, Greece, Spain, France, Italy, Cyprus, Luxemburg, Malta, Netherlands, Austria, Portugal, Slovenia, Slovakia and Finland.

EU27 includes: Belgium, Bulgarai, Czech Republic, Denmark, Germany, Estonia, Ireland, Greece, Spain,  France, Italy, Cyprus, Latvia, Lithuania, Luxembourg, Hungary, Malta, Netherlands, Austria, Poland, Portugal, Romania, Slovenia, Slovakia, Finland, Sweden and United Kingdom

The EA16 nations have adopted the common currency (Euro) while the other EU27 have not yet completely integrated (currency) into the european union. As per the latest stats provided by the european union as of May 18,2010
EA16 Trade balance for the month : March 2010: +ve 4.5 Billion Euro (+ve 1.6 billion Euro March 2009)
EU27 Trade balance for the month : March 2010: -ve 7.1 Billion Euro (-ve 9.2 Billion Euro March 2009)

EA16 Inflation:  April 2010: +ve 1.5% (+ve 0.6% April 2009)
EU27 Inflation: April 2010: +ve 2.00% (+ve 1.3% April 2009)

EA16 Industrial Order Index: March 2010 +5.2%
EU27 Industrial Order Index: March 2010 +ve 5.9%

Conclusion: Be a contrarian investor and look at the Euro and the Euro region as an area of growth. This would be a good to time buy Euro for the long term.

PN: these are my personal views based on public info available at the european union statistics website (Link)

Q&A: Karuturi Global: DUMP DUMP!! DUMP!!

Karuturi Global:
CMP: 13.75
Market Cap: 672.79Cr
Debt March 2009: 395Cr
ROCE March 2009: 2.77%
EPS: 0.11
Website: http://www.karuturi.com/

Karuturi Global was incorporated in 1994 and is today the largest producer of cut roses in the world, with are area of over 239 hectares under Greenhouse cultivation and an annual production capacity of around 555 million stems.
An integrated production model encompassing in-house plantation, cultivation and distribution capabilities coupled with a series of green initiatives make us one of the lowest cost producer of cut roses in the world. Almost our entire produce is exported to high-value markets such as Holland, Germany, United Kingdom, Italy, Singapore, Hong Kong, Taiwan, Bahrain, Muscat, Dubai, Australia, Japan, New Zealand, Brunei and North America, with a small portion sold in India.
Having established our strong presence in floriculture, we now aim to broad base our portfolio into a larger agri-produce basket. The acquisition of large tracts of land in Ethiopia has set the stage for us to become a complete agriculture production company. Our goal now is to make a significant contribution to elevate the global and african food prices.
Equipped with a robust and de-risked business model, Karuturi Global’s other fast-growing business realms are food processing, floriculture retail including a flower auction portal and information technology.

First company is in farming business and its goal is to "elevate" (Increase) food prices!! or is it "alleviate" (lighten/reduce) global food prices. I think this statement in itself is contentious. Karuturi is in the food growing business and it wants to reduce food prices!! or Karuturi is in the food business and it wants to increase food prices!! So I think the management has to really look at what is their goal, without a definite and clear goal the company is going to be lost in a maze.. this is quite evident in  their next statement.
"Equipped with a robust and de-risked business model, Karuturi Global’s other fast-growing business realms are food processing, floriculture retail including a flower auction portal and information technology"
Karuturi is already looking at other business realms of "food processing", "Floriculture retail" including "Auction portal" and "Information Technology"
what we have here in Karuturi is a company:
1. With no clear definition of goal/vision
2. Without a clear focus the company is looking in each and every direction and lapping up anything that looks like a profitable venture (and mildly related to its area of farming).. from food processing, floriculture retailing, online portal and Information Technology.
3. Its like looking at vegetable selling at 45 per kg in bangalore and then say
- I can grow it for less than 10 bucks.
- Once you start growing it you see that the traders dont buy for more than 10 bucks.. do very little value addition.. so karuturi enters into food processing.
- Once it is producing processed "vegetables" it find that retailers are making more money ..so enter retail business.
- Now suddenly karuturi finds retailing is expensive so karuturi enters into online portal eliminating the middle man.
 
Promoter shareholding: As per the latest March 2010 results. promoter shareholding is 26.73% increase from 23.84% but look a little further and promoters have pledged most of the shares and FREE(non pledged) holding by the promoters is 9.47% .. yes you can rub your eyes.. Karuturi Global has reported a 28.16% increase in its consolidated net profit.. Karuturi has reported a Consolidated Net Profit of 146Cr and promoters free holding is just 9.47% !! Wait wait.. I would be lying to you if I did not tell you the next part.. Promoter FREE holding in March 2009 was 5.19% so a 9.47% shareholding is actually an increase in FREE shareholding by the promoters!! by 82.46%
PN: To me this looks like the lenders arm twisting the promoters to increasing their shareholding in the company.
 
Profits and Taxes!!: Yes we are in the good part of the story. Karuturi global has reported a Consolidated topline of 551.9Cr and PBIT of 155.79Cr thats an operating profit margin of around 28.22% very good operating margins.  Net Profits have also increase to 149.15Cr from 117.33Cr.
 
Before we look at taxes lets remember that "Death and taxes" are two things we can be sure about in life. Karuturi taxes for year ending March 2010: 59.7 lacs, Taxes for Year ending March 2009: 81.11 lacs
So karuturi global has a 28.22% increase in profits to 155.79Cr but taxes dropped down to 59.7 lacs!!
ie a drop of 26.3%. Also if we look at the taxes as a percentage of operating profit
March 2009 (Taxes as percentage of operating profit) = 81 lacs/13800.75 lacs = 0.58%
March 2010 (Taxes as percentage of operating profit)= 59.7 lacs/15579.41 lacs = 0.38%
Wow!! we need to learn a lot from Karuturi management about how to keep the tax man at bay!!
Infact Ambani, Birla's, Ambani's have to take a leaf out of Karuturi's management..
 
Everybody should become a farmer!! look at Karuturi Global and the operating margins.. even in Ethiopia looks like there are huge subsidies for farming.
 
Conclusion: Karuturi Global is a stock to be Dumped!! Dumped is the word not Sold!!. Promoters are taking all of us for a ride. It could very well be the next Satyam.. Company has Enterprise Value of approximately 1060Cr and an inflated bottomline of 149Cr. Equity dilution is rampant and surely the promoters cannot keep this going on forever and they know it cause they hold less than 10% free shares..Dividents are going to a thing of the past. You can expect further dilution in share price.. 
 
One must understand that Food is a commodity and we donot pay any premium for corn from Karuturi or from Tata's for that matter. Also it is a perishable item and seasonal. Yes it is a basic necessity but to really take advantage of it you need to be an integrated player. Players like Reliance and Aditya birla group are well established houses with strong cash flows required to setup retail stores and also integrate backward into contract farming. Karuturi global is doing farming in Ethiopia one of the poorest nations.. which is really very good for Ethiopia as they will soon be self sufficient but every nation protects its local food industry.. (why would you want to be dependent on imports for such a basic thing as staple food!!) Demand for agriculture produce is going to increase with time as earning potential of huge populations of India and China have surplus cash and it has been observed that with increase in income protein content of food intake increases. This increased demand by large asian economies has reduced exports which has increased food prices globally. Specially impacted are food importing nations like Ethiopia and other poor African nations dependent on UN food program. What Karuturi global is doing is noble but clearly not profitable.
 
Also the concept is great but streamlining operations is going to take some time. One can avoid the stock and can buy after debt reorganization.
 
Promoter shareholding clearly demonstrates the low commitment by the promoters. Also increased debt is going to soon make the financial condition of Karuturi very unstable and explosive. Avoid at all costs. Also if the pledged shares are sold you will soon have the promoter holding of 17% in the market ..
If you are looking for investment on agro produce then a company with strong set of numbers is "Gujarat Ambuja Exports" a recommended Best Buy
Another very interesting Agro/Peak Oil play not very well publicised is Castor derivatives major "Jayant Agro Organics"  also recomended as a Best Buy!!
 

Q&A List.

March 28,2010: FII & DII Investment Activity
May 12,2010: Short Term Trading Call: sell NIFTY 5100PUT
May 21,2010: Q&A: How to do basic valuations
May 22,2010: Q&A: Confidence Petroleum: No Confidence in Confidence Petroleum.
May 26,2010: Q&A: Karuturi Global: DUMP DUMP DUMP
June 2,2010: Q&A: Confidence Petroleum: March 2010 Result review
June 16,2010: Value Investing in MidCap and SmallCap universe most profitable
June 17,2010: Peak Oil: Where do we go from here..
June 19,2010: Hydrodrive: Biofuels, Hydrogen Fuel with Positive Coefficient of Performance
June 30,2010: Arman Financial and Ganesh Polytex - Avoid
Oct 20,2010: Sell CALL NIFTY 6100 at 44
Oct 25,2010: Buy NIFTY OCT NIFTY 6000 PUT at 7.20
Oct 30,2010: SEBI Guideline 50% of public holding in Demat
April 14,2011: Short term Interest rates: Secret behind Market Moves
Sept 12,2011: EU Debt, Balance of Payment??
Sept 13,2011: Sell GOLD: Cost of Credit Vs Creation of Credit
Oct 3,2011: Where To Get Research Info for Free
Nov 11,2011: Aviation Turbine Fuel Cheaper than Petrol by 11-14 Rupees
Nov 19,2011: Buy Reliance: Marcellus Shale reserves at 41.6 TCFNG
Dec 17,2012: Ultimate Pyramid Scheme: Peak Prosperity
Dec 21,2011: The Rise of the US Dollar
Dec 20,2012: Alzheimer's Cure: Chewing Tobacco
Dec 29,2012: 3D Printing Demonstration
Jan 2,2013:Economic Times:500 List
Jan 12, 2013: One Idiot: Saving & Investing Initiative by IDFC
Feb 26,2013: Safal Niveshak: Learning how to fish
March 15,2013:Perfect Storm:Decaying Growth Dynamics

Q&A: No Confidence in Confidence Petroleum.

Question: 
Confidence Petroleum:
CMP: 7.60
Market Cap: 196.71Cr
Total Debt March 2009: 70Cr
Sales March 2009: 253.65Cr
PBDIT March 2009: 22.80Cr
Tax: 2.15Cr
Net Profit: 13.91Cr
Cash flow from Operations: -ve 3.35Cr
Return on Capital Employed: 8.83%
Enterprise Value= 196.71(Mcap)+70Cr(Debt) -14.93Cr (investments) -9.9Cr(cash)
EV: 241Cr

Confidence Petroleum is in the business of LPG Cylinders, Auto LPG filling stations.
Observations: Return on Capital Employed is 8.83% which is close to FD returns from corporates such as L&T Finance. So the companies return on Capital employed is poor and any additional debt or mismanagement of funds could easily push the company downhill.

Cash Flow from Operations -ve 3.35Cr well that gives an indication at the Operations level the company is still loosing money. The increased equity and additional debt financing all point to "No Confidence!!"

Company is in the business of retailing LPG filling stations.. which should cost a lot as each additional center needs investment capital.

Reliance discovered the largest gas find in the history of India and as per the production sharing contract .. a percentage of gas RIL is free to sell to anybody.. but Govt intervenes and is dictating the terms of a priority list of industries which will be supplied gas. So folks Petroleum/Oil is a barrel which is going to explode and I think in my lifetime we will see rationing of petroleum resources or very very high prices of oil.

All this is great news for LPG/CNG well Yes!! and No!!
Yes the demand will increase and everyone will be running behind any available quantity of LPG/CNG available.
No!! because Confidence is very very low in the food chain of LPG/CNG. Most likely the role of a provider that confidence wants to play could completely be done away with..
Look at all the piped Gas lines being setup in mumbai.. It is definitely more expensive to set up piped gas lines and cylinders would have been more cost effective.. but if we consider the future cost of transportation fuel.. and the transportation cost of hauling gas cylinders to each household..
I think piped gas is one of the cheapest way of transportation of fuel/CNG/LPG.

Conclusion: Confidence petroleum is really a new entrant in the business where we have established players with backing from GAIL, BPCL,HPCL. Also considering the near future all the assets being setup by confidence would be obsolete.. if people are forced to move to public transportation..en masse by the govt.

Look at Videocon.. I remember a few years back news was flashing in front of our eyes Videocon is the largest CPT(Colour Picture Tube) manufacturer in the world.. Thompson has sold all its plants to Videocon and now videocon has plants in every continent..  Look at the computer screen and look around you for CPT .. there are none around.. and all the investment made by Videocon has gone in dumps..

This is my personal view but Confidence is confidently moving towards a dead end.
- It is in a field where there is no moat and margins are going to be low..
- Company has a lot of capital expenditure in the future setting up new filling stations
- Does not have any back linkages like Reliance to provide LPG..
- Profits are going to be poor or dressed up.
- Divident payout not in sight in the near future as the company is still trying to reach a critical mass.
- Enterprise Value of 241Cr (approximately 1 times sale) is too high for a startup.
- Avoid

One can really look at GAIL if we need any exposure to natural gas or fertiliser companies as food is a very basic necessity and govt will always prioritise food safety(availability)

Question and Answers

Just trying to make the blog more interactive and one way would be to answer questions..
Will try and answer most of them.. my ability to answer depends on my knowledge and time

Hope we all learn something new as we progress in life.

If you have any questions or answers please post as a comment to this thread and we can start new threads for interesting topics.

=happy investing

Question on May 21,2010: Posted by Jaig56:
Thank you very much for the information In your old write up on Venky available in your blog But can you give me some idea about the tools for arriving at reasonable value of a stock Present stock value of Venky is said by some to be highly overvalued This will be great help for long term investor Further what is your view about i) Confidence Petroleum ii) Karuturi Global iii) Gammon infrastructure ...

Answer: Jaig56..Beauty is in the eyes of the beholder.. similarly reasonable valuation is also a moving target.. it is not an exact science..

Steps for Valuation of a Company (let us take Venky's as an example):
Step 1: Calculate Enterprise Value.
The current most common valuation technique is Enterprise Value of the company/Shares.
Enterprise Value = Current Market Cap+Debt - (Cash/Cash Equivalents)

Enterprise Value for Venkys = 373.36Cr(Current Market Cap)+ 93.89Cr(Total Debt)- 58.18(Cash + investments) = 409.07Cr

Enterprise value is the theoretical cost of acquiring 100% ownership at current market price. It also takes into consideration debt and free cash in the company to get a number closer to real value.

Ideally companies are valued at 1 times sales is considered fairly valued. Ofcourse this is just a plain statement.. companies can be valued at higher/lower levels based on their market share, reserves in case of resource based companies, news flow, latest developments and plain demand and supply.

Enterprise Value is like asking what's the price of a plain white shirt. Then we can add/subtract from the price based on a number of not so plain features like brand, exclusivity, texture, appeal. So Enterprise value will help you baseline the cost on simple numbers.

Step 2. Determine Company sales, PBDIT (Profit Before Depreciation, Interest and Tax), ROCE (Return on Capital Employed), Market Cap High/Market Cap low for past 4-10 years (check out the history)
Year/Sales/PBDIT/ROCE/High MCap/Low Mcap
2009/573.52Cr/47.64Cr/14.36%/234Cr/65.43Cr
2008/534.87Cr/58.89Cr/19.2%/149Cr/66.67Cr
2007/425.66Cr/29.86Cr/9.43%/188.03Cr/98.08Cr
2006/387.39Cr/27.28Cr/10.78%/162.35Cr/101.88Cr
2005/341.38Cr/35.77Cr/20.31%/Not Available/NA

Step 3: Read the data and crunch the information.
1st Observation: Venkys High Market Cap has always been in the past close to 50% of annual sales number
2nd Observation:  Company has been profitable for all the years and sales and profits are trending upwards.
3rd Observation:  ROCE is 14.81% which is higher than the rate of interest in India. If Venky's borrows money since its return on capital is 14.8% ideally it should have the ability to payback the loan amount. If the avg interest rate is 12% and the ROCE is consistently 10% .. loan funds/debt can bring the company to its knees but Venky's ROCE is high enough to safeguard the company in case of any such issues.

Step 4: Check out dividend payment, Loan/Debt in its books.Debt equity of venkys is below 1 and long term debt equity is below 0.5 which means the company is not swimming in debt. Also Venkys has been paying dividends on a regular basis (past 9 years) (no data available beyond 9 years)

Step 5: Check Cash flows of the company Operating Cash flows should be +ve for a well established company. Venkys Avg Cash flow from operations is +ve 26.23Cr for past 5 years which is good

Observations: Venkys is a well established company and is profitable and dividend paying company. Company has decent Return on Capital and low Debt so 5-10 years down the line we can still expect Venky's to be existing as a corporate. (keep track of above numbers ROCE/Cash Flows/Debt Equity and you will be able to identify any issues well before they are published)

After this very basic analysis which confirms Venkys as a good company with long term sustainability we need to dig deeper and see company website (http://www.venkys.com/)
We need to look at any announcements made (like the acquisition of shares from the market by the promoters) SPF egg manufacturing facilities, National Egg coordination committee read annual reports

My Final Conclusion: Venkys from the eyes of an investor seems to be over priced considering its historic valuation of Market Cap = 50% of sales. having said that Venky's is more than chicken and has a host of subsidiaries and at a consolidated level I am sure like Godrej industries worth a lot more. With the growth of the Indian economy consumption of chicken products is going to increase and we can expect Venkys top line and bottom line to improve substantially. Also promoters buying stock till levels of 170 clearly shows that there is some strategic change that is taking place.. I would at a personal level buy Venkys when it reaches its 200 DMA and try and reduce my Avg cost of shares (recommendation for new entrants)


- People already holding shares in Venkys at lower levels can continue to hold. Those who feel the company stock is overpriced are suggested to sell small amount and reduce Avg cost down to 170 levels. Hold the rest of the stocks for long term as the company is a well established company in its line of business and can be expected to do well for years to come.. It is a direct play in the growing consumerism that we are witnessing in India.
==========================
Regarding Karuturi Global, Confidence Petroleum, Gammon Infrastructure I have not evaluated these companies and generally would suggest.
- Shift from Karuturi to Gujarat Ambuja Exports (22.20)
- Confidence Petroleum and Gammon Infrastructure: No comments as I have not valued these companies but I would suggest exposure to Jayant Agro (78/=)as a play for the coming Peak oil which we are destined to see in our lifetime.
==========================
Visitors are free to pen down their thoughts about Karuturi, Confidence Petro, Gammon Infra, Venky's and any other stock. This is an open forum and appreciate any participation and questions

Most of the Data (Sales, ROCE,Cash flows) for the discussion is available for free in moneycontrol.com

Best Buys

Best buy is a collection of stocks that I personally believe to be really good and hold tremendous value for a Value investors. Here is the current crop of best buy Indian Stock recommendations:

Dec 25,2009: Gujarat Ambuja Exports
May 15,2010: Jayant Agro Organics
July 12,2010: NHPC: National Hydro Power Corporation
Nov 27,2010: Tata Communications: Long Term Multibagger