Snakes and Ladders - roll the dice and play the game

Cochin Minerals and Rutile - Sellers in exile - initiating coverage

2012-02-07T14:01:00.000-08:00

Cochin Minerals and Rutile.(CMP/LTP 148)

Sellers in exile. Initiating coverage.

Actually I used to hold this stock 2 years ago but exited after weak results.Recently, it again caught my attention after last quarter stupendous results ( Q2 Sep`11). posted in Oct`11 end. And then could not get chance to enter as it rallied from +50% from 80 to 120.

Latest quarter results ( Q3 Dec 2011 FY 2012). YoY Net Revenues up +92%,EBITDA Margin at 41% vs 12%,PAT up +850%.

In past 6 months, its already up 2.4x ( 136%), so should one buy now ? I think Yes. In fact , has good potential to double from even here to 300 in a year`s time. Rationale below.

Even Seq QoQ (vs 3 months ago Q2 Sep`11) : Net Revenues up +55%,EBITDA Margin at 41% vs 29%,PAT up +138%.
Results summary in below table. ( click to zoom)

Past recent quarters results :-

7 Feb 2012 - Cochin Minerals & Rutile net profit rises 785.05% in the December 2011 quarter
28 Oct 2011 - Cochin Minerals & Rutile net profit rises 803.30% in the September 2011 quarter

Business and Macro

Rutile is raw material that contains as much has 95% Titanium Dioxide TiO2. End user of the white pigment TiO2 is the Paint Industry.
Titanium Dioxide Rutile -is the most commonly-used white pigment in the world. More than 4 million tonnes are used annually for a variety of industrial applications like manufacturing of Paint, Rubber, Paper, Detergents, Cosmetics, Printing Inks, Textiles, Plastics among other products.
TiO2 usage -China uses less than 1 kilogram per person annually vs 4 kilograms in developed countries.
Price of Rutile jumped + 77% percent in 2011 and posted the biggest yearly gain since at least 1997. Such is the unrelenting rise such that even the largest producer of TiO2 Dupont is also facing problem passing on input price hikes. News here
Many rutile producers are hiking prices in 2012 by 90%-100% . News here (Sierra Rutile) and here (Iluka Resources)

Valuation

At cmp of 148, market cap of 117 crores.
On net cash basis , Cochin Minerals and Rutile is debt free. And post Dec 2011, would have net cash of ~ 15 crores. i.e EV of ~100 crores
In Mar 2012 ending FY12, all set to post ROE,ROCE of 70%-75%
9m Dec`11 annualized basis ,adjusted for net cash,Cochin Minerals and Rutile is trading at very attractive valuation ratios :

PE of 2.5x
EV/EBITDA of 1.6x
PSR of 0.46x

At 2x upside or 300 target, PE would be 5x, EV/E of 3.2x and PSR of 0.9x

Performance

YTD CMaR +44% vs Sensex +12%
6 months - +136% vs Sensex (-7%)
5 years - +215% vs Sensex +52%
200 DMA of 80 and 50 DMA of 118

Other factors

Share price at lifetime / all time highs
Results also at lifetime / all time record
In 3 months from Sep`11 to Dec`11,Promoter holding increased by 0.5% to ~55%
>75% of sales is exported.
Interesting development - On 23 Jan 2012, two Calcutta based brokers - Goldview Financial Services and Ambica Capital Markets bought 5% of the equity from open market @ ~125 per share.
Risk- as this a commodity play. One needs to keep eye on when the cycle turns. A general rule of thumb of correction of more than 25-30% could be used an indicator of uptrend reversal.
Disclosure - No current holding. Looking to buy.

1 year Chart below

IFB Agro - my top investment pick vs Apple

2012-02-07T12:20:00.000-08:00

IFB Agro. (CMP/LTP 175.) has been been top pick since buy reco. given in ~29 July 2011 when it was ~100.
It still remains on the top of my investment buys with at least ~2x potential.
Will make a detailed post later.
Meanwhile thought of comparing shareholder returns since 2002 to YTD -IFB Agro vs Apple.

See below for the results.

Both have some common attributes such as zero debt and zero equity raised since the past 10 years.
But in terms of performance, IFB Agro has given returns of ~ 70x vs Apple `s ~37x.
Chart below (click to zoom)

Umang Dairies - reaffirm among my top 10 investment buys

2012-01-24T14:28:00.000-08:00

GOT MILK ?

Umang Dairies ( cmp 32.2 +10% upper Circuit) posts great results again.

YoY Revenues up 1.2x, EBITDA up 8x, PAT up 25x

Stock seems all set to retest recent lifetime highs of 43 made in 3 Nov 2011 and seems to be a good 2x multibagger potential from these levels. Details below

Had first posted Umang Dairies on watchlist in 8 Aug 2011 when it was 17 and broke above 200 DMA.Finally one month later,rated an investment buy at 25.Post here.

It crossed it previous high of 30 and made lifetime /all time highs.Touched 43 on 3 Nov 2011 and then saw a sharp correction to 22 on 20-Dec-2011. ( took support at 22 =200 DMA).No clear reason for the sharp correction but it seems collateral damage due to promoter manipulation and SEBI issues with another dairy stock KWALITY DAIRY affected the sentiment. Kwality Dairy fell from 180 to 30 in ~ 1 month. It was also held by some India Consumer ETF`s.

Okay now , GOT MILK ?

Umang Dairies Q3 Dec`11 ending results vs YoY same quarter last year.

YoY Revenues up 118%
EBITDA up 692%
EBITDA margin at 10.2% vs 2.8%
PAT up 2426% or 25x

Umang Dairies Seq. QoQ i.e Q3 Dec`11 vs Q2 Sep`11

YoY Revenues up 118%, EBITDA up 175%, PAT up 233%,EBITDA Margin at 10.2% vs 8.1%

Umang Dairies 9 Months Dec 2011 vs 9m Dec`10

YoY Revenues up 94%, EBITDA up 467%, PAT up 2927% i.e 30x ,EBITDA Margin at 9.4% vs 3.2%

Management attributes key reasons for stellar results to due to increase sales of branded products.
Results snapshot below ( click to zoom)

For past results and relevant news,refer here

Milk Macro - CRISIL says India will continue to see milk deficit for next 5 years.

Crisil says “Milk prices are expected to continue their upward trend over the next three to five years as domestic demand for milk and dairy products is expected to outpace supply.”
The demand for milk and value-added dairy products in the domestic market has been growing at over 6 to 8 per cent per annum because because of increasing income, rising aspirations and consequent growth in per capita milk consumption.
CRISIL, however, believes that growth in milk production will continue to lag at around 4 to 5 per cent per annum over the next five years
CRISIL report release here ( .doc opens in google docs)
As per WPI available data in Nov`11,milk prices was up +11% YoY. But since Nov`11, retail milk prices have been hiked by 20% to 35% in most states. So milk inflation is poised to say in double digits for 2012. Retail milk prices are at all time / lifetime highs.

Milk sector could see M&A by new entrants such as Jaypee Group,Reliance,MNC Danone. News here
Promoter holding at highest level of 75%
Peer Sector Relative valuation shows UMANG DAIRIES best of the lot.

Comparison with listed peers Hatsun Agro (Arun Ice creams),Heritage Foods,Milk
Vs sector average debt to equity of 3.4x ,UMANG has ZERO debt.
Vs sector average PE of 23x,Umang is trading at PE of 6.5x or discount of ~70%
Vs sector average EV/EBITDA of 16x,Umang is trading at EV/EBITDA of 5.5x or ~65% discount.
Vs. sector latest quarter EBITDA Margin of 6%, Umang has the HIGHEST margin of 10.2%
Umang is trading at PSR of 0.47.
Summary in below table ( click to zoom)

Technicals -

YTD 2012 performance +40% vs Sensex +7%.
1 year performance +114% vs Sensex (-13%).
Up 8x from Mar`09 low of 4.2
Stock at 32.2 firmly above 200 DMA of 24 and 50 DMA of 27.

Annotated Chart below

Umang Dairies all set to post all time high revenues and profits in FY12.
So stock should see re-rating as a growth stock i.e a play on domestic retail consumption + Food Inflation hedge.
Target - 100% upside / 2x from these levels or 60 target in one year.

Disclosure - I hold Umang and intend to buy more.

India NIFTY - resumption of bull market or another bear market rally ?

2012-01-23T14:00:00.000-08:00

Global Macro check.

India NIFTY @ 5048. or +11% rally from recent low of ~4500 made on 20 Dec 2011.
Even beaten down India stocks have ralled +30%-+50% in past 3 weeks.
Other countries such as Brazil, DAX,Hang Seng,even Italy have rallied +20% to +28% from ~3 month lows ?
So does all this indicate an early uptrend or another bear market rally ? I would go with the latter. Details below
One needs to keep in mind that most sharp +20 to +30% rallies in short periods of 2-3 months are seen in bear markets. But at the same time,one should always be open to new information and keep on evaluating if the trend has reversed.
I see current situation similar to in Oct`2011. Refer / rewind to my then trading outlook post here.
Rewind to that month. EURUSD was then at 1.42 above 200 DMA.
Many stock indices such as DAX had rallied +20%-25%.
NIFTY also had broken its multi-month trading range of 4800 to 5200 on the upside and rallied to 5360. NIFTY 200 DMA was just 50 points away. I had loaded up with my biggest ever NIFTY calls. But then overnight Japan intervened in the currency market to stop the strenthening YEN vs USD. USDJPY was up 4.5% intraday.!!. US Dollar then again continued its uptrend. I squared off all my NIFTY calls at market open and escaped luckily but didnt hesitate to change to short future positions in next 5 minutes.

Study Approach

I have compared Stock Indices of G7 countries - US S&P 500, FTSE, Germany DAX,France CAC 40,Italy MIB 40
Hong Kong `s Hang Seng.
EM`s - Brazil Bovespa, Russia Micex,China Shanghai Composite and India NIFTY / Sensex.
Copper and Brent Oil
EURUSD and risk currency AUDUSD.

Summary results for the above is in a table at the end of this post. So please scroll to the bottom to skip the narration below.

Summary

For most markets, low was made in ~ 3 Oct 2011 when EURUSD fell to 1.315.
Among G7, DAX has rallied the most +26% ( from the recent ~3 month low), US S&P 500 is 2nd at +20%
Hang Seng has rallied +24%
Among EM`s - Brazil is up +28%, Russia 20%. India and China are still the laggards with rallies of +11% and +8%.
Copper is up +25%
AUDUSD is up +11% but EURUSD just up +1.8%
All EOD ,market close data taken.

My view

Inspite of no clear resolution to Greece, it is surprising to see these market rallies. So credit have to be given to the bulls. Eg.S&P500 is already above 200 DMA since past 3 weeks. ( since 30 Dec 2011).Even Euro countries - DAX,France,Italy have also rallied +20-26%. But then this is not followed through by EURUSD rally . So a divergence here.
Overall I still believe that we are still in a bear market and I see further upsides capped of 3-5% vs downside of ~10% for countries that have rallied the most.
Most markets are at critical juncture, with rewards to risk ratio definitely not in favor of further upside.

My NIFTY View

A good case can be made for laggards India and China to play catch up with other countries. But like last time in Oct`11,by the time India could catch up, the global rally had already reversed. So I would be skeptical of further 10% rally for NIFTY with likely top at 5200 - 5300.
Further details on past bear market rallies in 2008 shows that India Bear market rallies top out at +13% - 14% i.e NIFTY top at 5130 - 5200 from 20 Dec 2011 low of 4544:-

+14% rally from 19-Mar-08,NIFTY @ 4573 to 2-May-08,5228.
+ 13% rally from 4-Jul-08,NIFTY @ 4016 to 8-Aug-08,4529
+13.4% rally from 5-Dec-08,NIFTY @ 2714 to 19-Dec-08,3077

In case global markets supports, a catchup +20% rally would lead NIFTY to touch 5450. i.e another +9% rally from here. i.e possible but not probable in my view.
Price wise,we have seen close to median damage in a bear market of -25% NIFTY / Sensex correction,with the average stock seeing a 30-40% correction. But question is - time-wise, have we reached the bottom ? Current downtrend has lasted for ~14 months vs median ~18 months.
5200 to 5360 zone would be big resistance zone. Reasons

NIFTY is still below is longer term trend of 55 weeks DMA.This has been a great support from 2003-2007. Today NIFTY at 5048 is still below its 55 weeks DMA level is 5310.We`ve had some false breakouts that lasted just 1 month above 55 wk DMA. Chart below.(Click to zoom)

200 DMA NIFTY is 5230. and previous high of 5360 made on 28 Oct 2011.

Markets generally bottom 4 to 6 months AFTER central bank starts cutting rates. So if from Jan`12,RBI starts cutting rates ( CRR to begin with), we could see bottom by Apr-Jun`12.
Index heavyweights such as IT and Banks are not that likely to give continued support to a the rally.Results of IT weren't that great and Banks results also will be mediocre.

Summary Table

Disclosure: No F&O open positions.

An interesting correlation between AUDUSD and India NIFTY.

Chart below

Indag Rubber - reaffirm among my Top 10 investment buys

2012-01-23T12:36:00.000-08:00

Indag rubber .Cmp 160. Lifetime high 167. Posts great results again.

Revenues up +55% YoY. EBITDA up +74% YoY. Net PAT up +84%.

Slowdown ? What slowdown ?

Bear market ? What bear market ? Just 4% below lifetime all time highs.

1 Year Performance +70% vs Sensex -15%

YTD performance +16% vs Sensex +6%. A 2x multibagger potential in my view.Details below

Had initiated among my top 10 investment buys / multibaggers on Oct`11 when it was ~119. Post here. But after posting great Q2 Sep`11 results (+130% YoY growth in PAT), it closed up next day +20% at 143.

So here is the quarterly Q3 Dec`11 results

+55% YoY growth in Net revenues to 55 crores
+74% YoY growth in EBITDA.
EBITDA Margin at 13.4% vs 11.9% last year
Net Profit up +84% to 5.3 crores.

9 months Results i.e 9m Dec`11 vs 9m Dec`10 YoY

+47% YoY growth in Net revenues to 160 crores
+89% YoY growth in EBITDA.
EBITDA Margin at 13.4% vs 10.4%
Net Profit up +103% to 14.4 crores.
EPS of 27 or FY12 PE of 4.4x , EV/EBITDA of

And the usual Saanpaurseedi fundamental quality metrics ( Technical check already covered initially as just 4% below lifetime / all time high)

All set to post lifetime record high Revenues and profits. Stock price should also justifiably make new all time highs.
Debt free. As compared to 3 months ago, interest cost down 40% to just 0.24 crores in Q3.
ROE /ROCE set to cross 35% this year
Promoter Holding 77%
Secret of this unreal performance is the company`s business of Re-treading and recent 100% capacity expansion of retread rubber. Retread tyres cost 25-30% of a new tyre and gives almost equal life of a new tyre.Street is obsessed with Apollo Tyres,CEAT,MRF,Good Year.Due to rising raw rubber prices and hit on tyre makers,some brokers have put out a sell rating but dont realize that Indag Rubber is the hidden dragon.
Valuation -at cmp / LTP of 160, market cap of 83 crores, annualized 9mDec`11 FY12 results.

FY12 PE of 4.4x
Price to Sales of 0.4x
EV / EBITDA of 3x with FY12 earnings growth of over +100%
Almost debt free (<5 crores)
To post ROCE / ROE of over 35% in FY12.
Definitely strong case for 2x re-rating in such valuation ratios. i.e target of 2x or 320 from here ,over a period of 1 year.

For latest and past results. See here
Results snapshot below. ( click to zoom)

Disclosure : I hold Indag Rubber.Intend to buy more.
Already a 10x bagger from Mar`09 low ( ~ 3 years ago) of 16.6.Chart below

Intra day trading S&P 500 & NIFTY charts - using just 1 technical Indicator EMA

2011-11-03T14:56:00.000-07:00

Two intraday charts. Examining a minimalist / simple / just 1 technical indicator for intra day trading.
Today on 3 Nov 2011 S&P 500 / SPY, using the 60 minutes EMA gave just one buy signal on 10:14 Hours at 1239 and for the rest of the day SPY didnt close below the 60 min EMA.I.e no Sell signal given. Market closed at 1261 +23 (+1.88% ).
Just following the buy signal and held till closing would have captured a +1.77% rally or +22 points.Intraday chart below. ( Click for Zoom )

Similar for India NSE NIFTY Index.
Just one buy signal given @ 5213 @ 13:33 Hours. No sell signal given. Closed at 5265 or gain of ~ +50 Points.

The charts can be used from Google Finance, Here for SPY and here for NIFTY.
A good technical parameters eg 20 min,55 min - could change from day to day or market to market. Will continue the study and post anything interest

NIFTY / Sensex could rally +20% to 5600 / 19000 from recent low

2011-10-27T15:12:00.000-07:00

NIFTY / Sensex could rally +20% to 5600 / 19000 - i.e very good change of crossing above the bull market territory of 200 DMA.

NIFTY cmp = 5190. Sensex cmp = 17,026 ( cmp = current market price) as on 26 Oct 2011 close.
NIFTY 200 DMA = 5430. Sensex 200 DMA = 18,100

Last minute EU discussions and high level details in the 0400 AM press release leading to the relief rally.

It seems this relief rally might last longer more than bears expect. Here is the rationale

Technically - the recent price movement has been very quick and very strong. Yes, we have seen similar 20% - 25% rallies even in bear markets and these bear market rallies generally top out after rally 20% - 30%.

Let us look at some Global Macro Technicals. Since the low made on 5 Oct 2011 ( for some markets low was made in Sep 2011 end ) i.e in past 17 trading days

Germany DAX has rallied +25%. DAX cmp 6350
Hang Seng is up +21% cmp 19,688
S&P 500 is up +20% cmp 1285 ( +1% above 200 DMA. Even NASDAQ is above 200 DMA. 2738 )
Brazil Bovespa is up 23% (from 8 Aug 2011 low) .cmp 59,270
Russia is up 21% cmp 1525
US dollar Index below 200 DMA. cmp 75.4
EURUSD above 200 DMA .cmp 1.42
Risk currencies such as AUDUSD have also rallied sharply +13% to above 200 DMA. cmp 1.07
Commodities such as Copper, Brent WTI Crude Oil are also firmly above their 50 DMA and also above their exponential 200 DMA `s. Copper 3.70 , Oil 94 / 112
Many country ETF `s such as Australia, China, France,Italy are up ~25% in this month Oct 2011.Details here

Now India NIFTY / Sensex recent low in early Oct 2011 was 4720 and 15780. As of now NIFTY is at 5200 and Sensex is at 17,288 ( up + 10% from recent low).

A +20% rally would lead NIFTY to 5660 and Sensex 18,900 or ~ further +9% higher from here.
NIFTY 200 DMA = 5430. Sensex 200 DMA = 18,100

So is this the bottom ? Bear markets generally last for ~ 18 months and average correction is 25% -30%. This time India has already gone through a 25% correction but the timewise correction has been ~ 10 months.

S&P 500 hasnt seen a greater than 20% correction.

But other markets mentioned above have already fallen 25-30% - DAX, Bovespa,Hang Seng. So yes, price wise the bear market has damage has been done. But still slightly early to say if these rallies will continue beyond +30%. As a trader lets take it day by day. For the shorter term , the trend is definitely UP and would make sense to trade with that flow rather than fight the trend.
Bearish folks ,especially on the EURO, have been sceptical of this rally and kept dismissing it by saying all this is based on baseless rumors and lack of any fundamental action. Well guess what ? Have you made money ? And as a trader that should be the only relevant question. October 2011 is best ever for Dow and S&P 500 Month to date with +14% rally is on track for best ever since 1974.
Disclosure - No NIFTY trading positions as of now. Might open positions in next 24 hours.

AVT Natural - already a 4x Multibagger since past six months

2011-10-24T13:36:00.000-07:00

Already a 4x Multibagger since past six months. This is my second post on AVT Natural. ( here is my first post - AVT Natural - Don`t act in haste and repent at leisure )

Cmp 416 ( + 5% ) . Market Cap 316 crores.Just 15% below its lifetime / all time high of 490 made in Aug 2011.

I would rate this among my current top 10 investment buys with at least 40- 50% upside or 600- 620

AVT Natural - continues its blowout results in Sep 2011 Q2 FY 12.

Sales up 2x to 64 crores YoY.
EBIDTA Margin 41% vs 20%
PAT up 5x to 16 crores.

H1 Sep 2011 results vs H1 Last year.

Sales up 2.3x to 112 crores YoY.
EBIDTA Margin 40.9 % vs 6.4%
PAT up 14x to 28 crores.

Past results details here
Management has given the key reason of the recent all time high EBITDA margins to the favorable price enjoyed for its leading export product - Marigold Oleoresins.

On H1 FY12 Annualized basis, AVT Natural Products is trading at EV / EBITDA of 4x to 5x , PE of 6x to 7x and Price to Sales of 1.4x. ROE would jump from 20% last year to 50% plus. Thus there is definitely room for further re - rating. A 50% upside target of 620 would mean EV / E of 8x . PE of 10x and PSR of 2x. Price chart of AVT Natural here
Disclosure - Initial round exposure holding. Entered ~3 months ago. Plan to buy more.

Avanti Feeds - already up 3.5x Multibagger since Buy Call given last year

2011-10-24T13:05:00.000-07:00

Avanti Feeds - India Marine Products leading exporter / Shrimp feed / Processing- already up 3.5x Multibagger since Buy Call given last year in Oct 2010 at price 32. ( given reco. mentioned at the end)

Cmp 110.+5% Market cap - 88 crores. ( Cmp - current market price | 1 Crore = 10 Million )

I would rate it among my top 10 Investment buys with holding period of ~ 1 year with Target - 200 or 2x upside from here.

At 200 target, Avanti Feeds would trade at a lifetime / all time high and PE of ~7x,Price to Sales of ~ 0.4x , EV/ EBITDA of ~ 5x

Record Sep 2011 Q2 FY 12 results : -

Sales up 2x YoY to 119 crores
EBITDA Margins 16.8% vs 6.1%
PAT Profit After Tax up 6x to 14 crores

Half yearly Results H1 Sep 2011 vs H1 Sep 2010

Sales up 2.2x YoY to 238 crores
EBITDA Margins 12.1% vs 4.4%
PAT Profit After Tax up 12.5x to 20 crores

Thus on H1 FY 12 Annualized basis , Avanti Feeds is trading at EV/EBITDA of 2.29x , PE of 3x and Price to Sales of 0.22. ROE would jump from 5% last year to 35% plus. This definitely warrants a re-rating. And the stock is justifiably at lifetime highs already. In past 3 months ( since July 2011) , Avanti Feeds has rallied 3x. From its low of 15 of Mar 2009, its already up 7x. Chart here

Early signs of turnaround was already visible. Such as this macro news and the more recent macro events in the world biggest seafood exporters - Japan ( Tsunami and Nuclear leak) , recent floods in Thailand.

Avanti Feeds net profit rises 524.23% in the September 2011 quarter

Sales rise 105.04% to Rs 119.29 crore

Net profit of Avanti Feeds rose 524.23% to Rs 14.17 crore in the quarter ended September 2011 as against Rs 2.27 crore during the previous quarter ended September 2010. Sales rose 105.04% to Rs 119.29 crore in the quarter ended September 2011 as against Rs 58.18 crore during the previous quarter ended September 2010.

Particulars	Quarter Ended
	Sep. 2011	Sep. 2010	% Var.
Sales	119.29	58.18	105
OPM %	16.77	6.10	175
PBDT	20.92	3.08	579
PBT	20.00	2.31	766
NP	14.17	2.27	524

Previous results here

Disclosure - No personal positions as of now. But had recommended earlier. Might add in future.

Buy Recommendation given in Oct 2010 ( last year). Target already hit. But would make sense to upgrade the target to at least 200 now.

from Saanpaurseedi

date Thu, Oct 21, 2010 at 9:30 PM
subject Avanti feeds - seafood market leader turnaround play
Stock is AVANTI FEEDS - results on saturday -23rd Oct..market leader in seafood exports such as prawns,shrimps,fish. has potential to give easy 2x-3x atleast if its shows turnaround and reverts to its earlier OPM of 9-10% from current 4%.

recently launched domestic focused operations. Ready to cook prawns and also forward integration into eateries .
cmp 32. market cap 25 crs. Net current Assets of 40 crs. Debt reduced from peak of 55 crs to 30 crs. i.e at net cost of 15 crores you are getting a 100 crore revenue firm and 4 cr EBITDA and CFO ( past year).
In peak results in FY06 it posted sales of 150 crs and PAT of 8 crores.
Q1 sales was 48 crs with OPM of 4%. so no proof yet on turnaround. but have to get in bit early as once it becomes public , will be difficult to get it.
main issue on why it has underperformed since past 5 years is it was dependent on US exports and US banned imports from india on account of quality issues ( antibiotics in shrimps) and also later put import duties of 20% on Indian imports. it favoured chinese and thai exporters.
another big trigger is worlds largest seafood co. Thai Union has picked up 15% stake 2 years ago.

S&P 500 rallies 11% in 9 days - Bear Market rally vs Bottom ?

2011-10-15T17:46:00.000-07:00

This is again an ` technical `attempt to assess if recent rallies in S&P 500 is a bottom or just bear market rallies.

Summary - Too early to call a bottom yet.

Had posted a study based on 3 trading days rallies and then what happens 7 trading days after that.And the finding was that over 80% of the time , we have a negative closing of ~ 3-4% after 7 trading days.

Now we recently had a 3 day rally of +8.4% ( from 4 Oct 2011 intra day low of 1075 ). But it is already 6 trading day - 14 Oct 2011 , after the end of the 3rd closing day (on 6 Oct 2011) and S&P 500 is still at 1225 or +5.1% above.

This makes a 9 trading day rally of +11.4% of S&P 500 from closing of 1099 on 3 Oct 2011 to 1224 on 14 Oct 2011. Now how does this compare with past bear markets ?

9 trading days gains of over +10% is pretty rare in bear markets. In the last 2008 bear market, we had just two instances.

9 day rally of +12% on 8 Nov 2008. On that day ( 8 Nov 2008) , S&P 500 closed at 1005. 12 trading days later, S&P was at 752 or down by -25%
9 day rally of +12% on 4 Dec 2008 - On that day ( 4 Dec 2008) , S&P 500 closed at 845. Now in this case, even after 7 trading days , S&P kept going higher to finally rally +21% , 17 trading days later.

I have observed bear markets in 2001 also. Typically Bear market rallies last 11 % to 13%. So though the current evidence is slightly in favor of more declines ahead i.e re-testing -1100 - 1120 again, we also have a strong rebound - at least 8 countries are above 50 sDMA and risk currencies such as AUD vs USD is surging. NASDAQ is just 1% below its 200 DMA of 2700.

But in the past, even in Bear Markets , we have had such 50 sDMA breakouts / fakeouts that lasted for just week or couple of weeks before tumbling down again. But for this to happen again, I would like to see the dollar appreciate and the Euro Countries stock market go below 50 DMA.

So how to tell if this is the bottom ? Well in Mar 2009 bottom ( S&P closing of 676 on 9 Mar 2009), we have had 9 trading day rallies of over +8-10% for 7 consecutive trading days.

Indag Rubber - among Top 10 Investment Buys

2011-10-11T12:20:00.000-07:00

Indag Rubber .cmp ~120. I would rate in among my Top 10 Investments Buy. That is with the usual target of ~2x upside in a year`s time.
Disclosure - Bought on 11 Oct 2011, after great Sep 2011 quarter results were posted .

+136% YoY growth in PAT. ( 5 crores vs 2 crores last year FY11)
52% Growth in Sales YoY
EBITDA margin 14% vs 10% last year
In fact H1 Sep 2011 / FY 12 PAT of 9 Crores is almost equal to the previous entire year PAT of 10 cr. All set to post life time high profits this year in FY12.
Stock price justifiably at life time / all time high at 143 +20% Chart here

First posted this on twitter . The shortest ever 140 characters buy report ? ( less than 30 words)

SaanpaurSeedi The Fixer

Investment BUY - Indag Rubber - Earnings up 136% YoY | neg. Debt | 4x PE capitalmarket.com/if.asp?L=resul… At all time highs.Chart google.com//finance?chdnp…

23 hours ago Favorite Reply Delete

I have done just a 15 minutes due diligence check. All seems fine. Other positives :-
77% promoter holding. and Valuation comparison from IndiaInfoline. ( based on ending Mar 2011 last FY 11). I`m quite sure margins, ROCE, ROE ratios are better than larger cap listed peers such as Apollo Tyres, MRF.

	Mar-11	Mar-10	Mar-09
P/E (x)	4.65	4.53	1.41
P/BV (x)	1.09	1.41	0.39
RONW (%)	26.7	36.7	32.3
ROCE (%)	31.1	35.0	32.9

EBITDA (%)	11.1	12.5	13.3

EBITDA (%)

11.1

12.5

13.3

S&P 500 Biggest 3 day rallies - Bottom or bear market rallies trap ?

2011-10-09T07:42:00.000-07:00

Last week we had a huge 3 day rally in S&P 500, where it bounced back from intra low of 1075 on Tue ,4 - Oct -2011) to close at 1165 on Thurs, 6 Oct 2011. That is a rally of +8.5% from intra day lows to close 3 days later.
And US S&P 500 was not alone, other major Stock Indices such as Australia S&P ASX 200 and Hong Kong `s Hang Seng - both also had a similar rallies of +9%. ( Hang Seng closed at 17,707and ASX closed at 4162)
Now big questions are - Is this the bottom ? Will the market test the lows again ? or are these just Bear market rallies ? To answer this questions, I have done a study and analyzed S&P 500 performance after such sharp 3 day rallies (during the bear market period).
Similar rallies were seen in Europe stocks - Germany - DAX up +10.4% to 5675 ,FTSE +8.6% to 5303.Also interestingly six countries were able to close above their 50 DMA`s - FTSE ,Germany DAX,France CAC,Spain IBEX,Italy MIB 40 and Australia ASX 200. See Global Macro Technicals post here for details. Commodites such as Oil,Copper also closed with gains of 5-6%.

Here is the study.

Underlying - S&P 500

Period - (1) When S&P 500 is in bear market period. i.e below 200 DMA. This year in 2011, S&P 500 has been below 200 DMA since 1 Aug 2011. So period taken is 1 Aug 2011 to YTD Oct 2011.
(2) I have also taken the previous bear market period of 2008. S&P 500 closed below 200 DMA since 25 Dec 2007 till 25 May` 2009. The period I have taken is from 25 Dec 2007 to Feb 2009. ( as the bottom was made on Mar 2009).
I have taken a cut-off of + 5% or more , 3 day rallies. In 2011 bear market we have just 5 such instances. And in 2008 bear market, there are 25 such instances. So total cases of 30 since last two bear markets.
Lastly, I have then seen how does the S&P 500 perform , 7 ( Seven) trading days after the big 3 day rally.( 7 days after the close end of the rally.)

Findings

80% of the time , the closing after 7 days was negative with Average and Median falls of - 3.1% and - 3.7%
Details in below tables (Click to zoom). 2nd table is sorted by highest rallies to lowest. This rally on 6 Oct 2011 ranks the 13th highest ever in both the 2008 and 2011 bear markets.
For S&P 500 - The average and median of these 3 day rolling rallies( in bear markets of 2008 and 2011 i.e total of 405 trading days) was +1.2% and +0.9%. This makes the recent 3 day +8.5% rally a 2 sigma event. ( FYI,a +15% -3 day rally will make it a 3 Sigma event)
Max drawdown loss ranges from 0.1% to 4% with just 6 cases / total of 30 cases ( i.e 20% of the time ) with average/Median loss of 2%. So 1-2% could be a good stop loss to avoid these low probability cases.

And the last question that some of you might be having on your mind. How do you know if this is a bottom. ?
Going by performance in Mar 2009. We have 20% rally in just 12 trading days, from 10 Mar 2009 to 25 Mar 2009. And we have very frequent / back to back - 3 day rallies of over + 5% in 9 out of those 12 trading days. And even after 7 days of such 9 occasions, 91% of the time S&P 500 closed in positive vs the median /average of 80% of the time that it should have been negative.For other reversal confirmations, we can also see how the Dollar is performing, Euro Stocks are performing and Commodities such as Oil,Copper.
So let me know what you all think.

Global Macro Technicals- Mega Dollar Carry Reversal doesnt bode well for stocks

2011-10-08T16:54:00.000-07:00

Global Macro Technicals- Mega Dollar Carry Reversal doesnt bode well for stocks.

This post covers Global Macro Technicals - 200 & 50 simple DMA `s of

Currencies -Euro,US Dollar,AUD,Yen,Swiss Franc and Dollar Index DXY
Commodities - Crude Oil - WTI Nymex and Brent, Copper, Silver,Gold
Country Stock Indices - Major 16 Global Countries - G7, PIIGS, BRIC,Asia

I had posted Global Macro - Technicals on 30 July 2011 and at that point in time,over 67% of World Country Stock Indices were already below their 200 DMA and very few countries that were above their 200 DMA`s were S&P 500 ( was at 1292) , Russia ( among the BRIC),Germany DAX ( was at 7158 )in the Euro pack.

But interestingly, then Dollar was still below 200 DMA vs. most currencies. And even I was thinking to myself - "This is another recession then why is Dollar not appreciating as it does every time during recession /slowing global growth ?"

It seems I was early than the market is seeing this discrepancy.

Now today -on 7 Oct 2011, just 50 trading days later, one can see the mega dollar reversal again like clockwork. And the resulting damage to risky asset classes - Commodities,Stocks, other currencies,Junk Bonds.

Summary of the latest technicals

Stock Index / Indices - 100% of all 16 Countries are below their 200 DMA`s.
Stock Index / Indices - Percentage of countries below their 50 DMA `s have marginally declined from 63%to 73%. I.e there were 4 countries above their 50 DMAs and now there are 6 countries that are above 50 DMA`s. And these set of countries are not the same.In fact,this time all 6 are different from the last 4 countries. Detailes below.
Interesting aspect is few countries recently have just closed above their 50 DMA `s. Those Six countries are FTSE ,Germany DAX,France CAC,Spain IBEX,Italy MIB 40 and Australia ASX 200. But they are above their respective 50 DMA `s by a narrow spread /margin - by just 0.4% to 4.9%. These Euro countries could be a leading indicator of the recovery.
BRIC `s are still tumbling like a ton of bricks - all of them ( Bovespa,RTSE,NIFTY / Sensex and Shanghai Composite Index ) are firmly below their 50 and 200 DMA`s
US Dollar is above its 200 DMA vs all other currencies and so is the Dollar Index
Most Commodities are below their 200 DMA `s. Gold is just barely 4% above its 200 DMA.

I still believe the downtrend in most assets will continue to worsen and expect US Dollar to continue its uptrend vs all other currencies.

Shorts / Bears should keep Euro countries closer - Germany Dax, France CAC, Spain,Italy - They should be watched closely for early signs of reversal of the downtrend.

But I find it very surprising that inspite of such clear signals from the market , one can still see many professionally manged funds post huge losses in past two months. It is criminal.

For details,please see the table below. ( Click to zoom). It also has comparison with the technicals 50 trading days ago.

Currency Trader Bill Lipschutz - Interview excerpt from New Market Wizards book

2011-10-05T13:38:00.000-07:00

This post is summary of an interview given by Top Currency Trader Bill Lipschutz. This is an book review / interview excerpt from the book - The New Market Wizards - Conversations with America`s Top Traders - by author - Jack D. Schwager. (Originally published in 1992)

PART II - The World's Biggest Market Bill Lipschutz : The Sultan of Currencies - 68 Pages. ( This post is an attempt to summarize the 68 pages into 1 or 2 pages)

Bill Lipschutz has been trading currency options since over the last 30 years.While he was a student at Cornell ,Bill had inherited $ 12,000 from his Grandma and turned it into $250k i.e a 20x return over a four year period.(from 1977 to 1981). But in 1982, due to an over leveraged bearish bet (via long puts) made during the bottom of the Dow Bear Market, he lost almost all of his $ 250k made in his personal account.

I checked the Dow during this period. Dow hit peak of 1020 in Apr,1981 and then started falling. By Sep`1982, over the 18 months downtrend period, and 23% correction to 785 level ,Dow made the bottom. And in exactly at this time period, Lipschutz was holding over-leveraged bearish puts position. He had also joined Salomon Brothers during this time in 1982. So to eliminate this conflict of interest and focus all his energies at Salomon ,he stopped trading his personal account.

Bill started his Currency Options trading career with Salomon Brothers 1981.Over the 8 years the spent at Salomon he contributed ~ $500 Mn of total profits.

Trading Style
Based on Fundamental view and trade in the direction as per his fundamental view. If price reaction is not going in ling with his fundamental view , he exits the trade. " You dont want to hold a position when you don`t understand what is going on"
Scales in and out of trades. i.e gradually adds / reduces position.

Successful trades
Salomon has sold a bond issue $150 Mn that could be redeemed either in US Dollars or Pound Sterling. At that point UK had a very low interest rate vs. US. A risk free arbitrage trade in such a case is to borrow in the lower interest rate currency and buy and invest in the currency with the higher interest rate say for one year and then after 1 year,redeem the deposit and convert back to the original borrowed currency by repaying the principal..But in the real market ,to avoid such a arbitrage, the currency with the lower interest rate will trade a premium (i.e forward price higher than spot). This pricing of this issue didnt cover this aspect. And once he conveying this to his firm, they initially didnt agree. But eventually they agreed to their mispricing.
Bill ended up buying 50% or $ 150 Mn of that total issue and immediately sold at the future rate to lock in the profit.
Another example of a good trade was in 1985 Plaza Accord where he bought up huge amounts of US dollars vs New Zealand Dollars. Single day profit was 25% of annual profits.

Trades gone wrong
Deustche Mark vs US Dollar trade. It was very rangebound within 1-2% for many months and Bill gradually built up a $ 3 Bn short position on Deustche Mark. In 1988, when the Berlin wall fell, Deustche Mark appreciated sharply and he didnt realise the large position he had built up had become difficult to unwind quickly. Initially to reduce the impact he sold $ 300 Mn of D Mark but that didnt help,eventually over next days he squared off the position and took a $ 100 Mn loss. " I had never let myself get into a situation in which I had no control and this had never happened to me before.
Also another bad trade was losing almost 100% of his personal account that he had grown 20x in span of 4 years. His learning after that ."I probably have become more risk - control oriented"

Select Quotes :-
"Missing an opportunity is as bad as being on the wrong side of the trade"
On his key attributes on being a successful trader
" I don`t have a problem with letting my profits run, which many traders do.You have to be able to let your profits run"
" You have to figure out how to make money by being right just 20%-30% of the time . I dont think you can be a consistently winning trader if you are banking on being right more than 50% of the time"
"Before I put on a trade, I always ask myself. If this trade goes wrong, how do I get out ?"
Characteristics of superior trader

Commitment and focus. This doesnt mean he has to spend 15 hours a day but it more means continuously developing scenarios, gather information ,re-evaluating it. Asking questions such as What am I doing right ? What am I doing wrong ? How can I do what I am doing better ? How can I get more information. It`s obsessive.
Courage. Its not enough to simply have the insight to see something different from the crowd, you also need to have the courage to act on it and stay on it.

Detailed Interview here
Bill is currently managing a fund called HatherSage. Details here

Bottom or Bear Market Rally - S&P 500 rallies 4% in last 1 hour

2011-10-04T17:01:00.000-07:00

4 Oct 2011/ Tues - S&P 500 rallies 4% in last 1 hour from 1079 to 1123.
In fact, this was the second biggest reversal rally EVER in the last hour. ( Largest one being 4.7% rally in last one hour on 23 Oct 2008.) . This was the 10th such reversal gain ever.Details here.
Reasons - Overcrowded shorts ? triggered maybe by CME reduction of financial sector margins XAF by 33% or Rumour of another bailout ?
Just pulled out these intraday charts of S&P 500 vs DXY US Dollar Index and EUR USD. Maybe this is a simpler chartwise `explanation`. ( Click to zoom)

Umang Dairies makes lifetime highs

2011-09-21T14:26:00.000-07:00

Umang Dairies makes lifetime high. at 33. +20%. on volumes of 3.35 Lac shares .(3x past two week avg. volumes of 1.15)
It is up 100% since past ~ 45 days.

First posted on breakout watchlist on Twitter on 8 Aug 2011- when it broke above 200 DMA of 17. (mentioned later)
Then given buy call on 8 Sep 2011 - at price of 25. cmp 33 . up 32% since reco.
Here is the 1 year chart and you can see it has broken the trend line. ( click to zoom)

@SaanpaurSeedi The Fixer

@SaanpaurSeedi Umang Diaries makes lifetime highs chart here

11 hours ago

@SaanpaurSeedi The Fixer

Breakout Stocks - above 200 DMA #ABMKnowledgeware #UmangDiaries

8 Aug via web

---------- Forwarded email message ----------
From: Saanpaurseedi
Date: Thu, Sep 8, 2011 at 2:11 PM
Subject: update - new addition in investment portfolio - added Umang Diaries
To:
Update - new addition in investment portfolio - added Umang Diaries. Disclosure - Own Initial position bought today.

Cmp 25. all time high 30.
UP based diary into milk and milk processed products - milk powder,ghee,cream
almost debt free.
Play / theme - domestic consumption and food inflation hedge
Overall rating - in top 10 investment picks
Promoter holding - 75%
Chart here
Will post details later. But already ran quick checks. Seems fine and good to go..

India Innerwear Listed Brands,stocks valuation - Jockey,Lovable,Rupa,VIP

2011-09-10T14:43:00.000-07:00

Today another popular Innerwear brand - Rupa, listed on BSE. It joins other listed peers - Page Industries ( Jockey ), Lovable Lingerie, Maxwell Industries (VIP,Frenchie,Feelings). This entire sector has outperformed the market by a huge margin ( with Maxwell being the exception). Here is the comparison

Page Industries IPO Listed in Mar 2007 at IPO price of 360. Cmp (Current Market Price) of 2670 or returns of 7.5x. Stock Chart performance since listing here. Even when during the IPO it was priced quite richly at 25x -30x PE and was subscribed just 1.4x and many brokerages such as these advised not to apply.
Lovable Lingerie IPO listed in Mar 2011 and IPO was priced at 205. Cmp 600 or 3x return.Stock Chart performance since IPO listing here.
Maxwell Is already listed but has the lowest EBITDA margins and high debt and hence lowest valuations.
Rupa and Company just listed at BSE on 9 Sep 2011 at 200. It`s margins are not great as Page or Lovable and should deserve to trade at lower valuation multiples.

I still hold KKCL ( maker of Killer Jeans) and on valuation basis I see it as a better play vs the innerwear makers. After all ,Outwear should be priced higher than innerwear. Here is the valuation comparison (Click to zoom )

Global Macro - Technical check - 200 DMA 50 DMA -Dollar,Oil,Copper,Gold,Global Stocks Index

2011-07-29T19:16:00.000-07:00

Summary - Objective is do a Global Macro Technical analysis check -using 50 and 200 DMA `s-across Commodities,Currencies,Junk Bonds and Stock Markets - to connect the dots and attempt to foresee what lies ahead.

30 July 2011 -US in the dumps and so is the Euro. But it seems so far, the Euro is winning as it has maintained to stay above the 200 DMA of 1.40.

The seeds of this was already sown when the government unleashed mega bailouts and stimulus packages to recover from great 2008 recession.

Basically what was being done in the whole process was that the debt from leveraged private sector debt was being taken off it by the Public (Govt.) Sector. ( In most countries ,private debt is still more than public debt. Charts here )

This is quite similar to a situation where one drunk is trying to stabilize the other drunk person.

And what was the lesson from the 2008 recession ? Oh, just put the blame on the bartender, saying that he was serving us too much during happy hours and hence this was bound to happen.

Then, today`s present scenario and concerns were raised by a few but it was all quickly drowned in the voices of "Yes, more bailouts , more stimulus , its working, we need it".

As I write this, Senate has rejected the other debt ceiling plan again and US Q1 GDP was revised down 80% from 1.9% to 0.4%. ( More news updates on this my twitter updates here )

So here is a Global Macro round-up from a simple technical perspective . Let us see what all asset classes and markets are telling us. ( Table / Chart at the end of this post)

Here is the summary

Currencies -Dollar is down vs almost all currencies. In the past 3 months, US Dollar is even down 2% vs the world`s weakest currency Vietnamese Dong (VND) that is going through hyperinflation. ( latest July 2011 Inflation of 22% ) .Versus the CHF Swiss Franc - USD is at record low and at a 60 year low vs JPY Yen. Same story with AUD and Dollar Index.

Precious Metals - The mirror image of falling dollar can be seen in precious metals - Gold and Silver - trading well above their 200 and 50 DMA`s.

WTI Crude (US) slipped below 200 DMA which makes sense as US economy is clearly entering a stall speed mode.

But Brent Crude is still +6% above its 200 DMA and so is Copper which is both above the 50 and 200 DMA `s.

Global Stock Markets / Country Indices- For comparison ,I have taken the top 15 World Stock Indices.

Among BRICs, only Russia RTS Index is still holding up above 200 DMA. Rest ,Brazil Bovespa,India,China - Shanghai Composite Index are all below 200 DMA.
In EU Euro area only Germany DAX index is barely above its 200 DMA. France CAC,Italy MIB index,Spain are all below 200 DMA`s.
US (S&P500) is also just barely afloat above 200 DMA. ( On intraday basis , it went below 200 DMA to 1280 on 30-July-2011)
UK FTSE Index / Footsie is also below 200 and 50 DMA
In major APJ, countries, only Singapore and South Korea Kospi Index are still above their 200 DMA`s.Major indices HangSeng,Nikkei,Sensex,Nifty,Shanghai Composite,Taiwan TSEC Index all are below 200 DMA`s.
Overall Indices /Countries 10/15 or 67% are below 200 DMA `s and 73% are below their 50 DMA`s.
Smaller Asian countries such as Singapore STI ,Thailand SET and Indonesia JCI Index are still above their 200 DMA`s

Not pretty indeed.

Junk Bonds - Though in recent weeks,surprisingly Junk Bonds are still doing well (reported as `safe harbour` by WSJ ). But I checked the Barclays High Yield Bonds Index HYG. It is just flat in this year. Post on Junk Bonds fall in 2011 here and HYG Chart here

My view -

Unlike in the past usual recessions (also in 2008),where the USD appreciates, this time the US dollar could go the reverse way and continue to fall vs most currencies. This could negatively impact the US export focussed firms based in Asia for example.
US ( and some countries UK,EU ) seems to be headed for the dreaded `Stagflation` phase - deadly combination of high inflation and low growth.
Select asian domestic consumption firms could outperform Asian export focused firms.
USD is making historic lows vs Singapore Dollar and also made a 12 year low vs Brazilean Real. Incidentally, Brazil is second major stock market to suffer a 20% correction.
China was the first market to see a 30% correcion. Chinese Yuan is also making new 17 year highs vs US Dollar.
Here is the table below of 200 and 50 DMA for all Global Macro Asset classes ( Click to zoom)

India Bulls vs Bear Dialogue - Humour

2011-07-26T14:02:00.000-07:00

( This is a revisit of my "Bull vs Bear" Joke sent on Oct 2009. Most of dialogues is in Indian local language `Hindi` so readers not familiar with `Hindi`might skip this)

India Big Bulls says:- "..Mere paas..

US Fed ka helicaptar Bernanke hai
QE1 hai , QE 2 ..
Lifetime low 0% US interest rate hai, 400 year low UK 0.5% interest rate hai, All time low EU Euro Interest rate hai ,dollar carry trade hai
Gora /FII ka paisa hai , HNI ka paisa hai ,black money hai
QIP hai , IPO hai - jo over 100 x times oversubscribed hua hai
Morgan Stanley hai , Goldman sachs hai , JP Murugan hai, CLSA aur ka Chris Wood , RAREing big bull bhi hai
India macro story plays - Real estate ,Retail , Infra ,Capital Goods aur consumption plays bhihai..."

And then the India Big bulls asks the lone Bear ... "..Aur Tumhare Paas Kya Hai ??? "

Indian Kala Bhaalu ( India Bear) just says one one... " Mere paas..... RBI Gov. Subba Rao hai " ;-)

My view is that India`s RBI has been behind the curve and making up for it. It rightly deserves the title of most astute central bank in the world. It bought 200 tonnes of Gold in Nov 2009 at $ 1,000 per oz. ( cost of $ 6.7 Bn) Cmp $1,600 or 60% ( $ 4 Bn )gain in just 18 months. Reserve Bank of India RBI`s press release here

Don`t act in haste and repent at Leisure - AVT Natural ;-)

2011-07-24T12:00:00.000-07:00

New series starting on flashback of past calls that have been right.
AVT Natural - up ~ 4x since buy reco. given in Oct`10
Blockbuster latest Q1 FY12 June`2011 ending results.

Revenues up 2.6x YoY
EBITDA margins at 40% vs 1%.YoY
PAT at 11 crores vs (1 crore) loss.YoY. ( Profit After Tax = PAT , 1 crore Rs = 10 Million Rs)

This quarter PAT is equal to last years entire annual PAT of 11 cr ! Promoter has also recently increased its stake from 70% to max. allowable limit of 75% in the last quarter.

At cmp of 400, AVT Natural is at market cap of ~ 300 crores, FY11 PE of 27x but if you consider the latest quarter results and project entire annual FY12 PAT as this quarter PAT x 2 then it will be trading at 1 year forward PE of 13x.
Have to dig into reasons such huge spike in sales and operating margins.

AVT Natural Products reports net profit of Rs 11.58 crore in the June 2011 quarter

Past results details here

Sales rise 155.47% to Rs 48.13 crore

AVT Natural Products reported net profit of Rs 11.58 crore in the quarter ended June 2011 as against net loss of Rs 1.24 crore during the previous quarter ended June 2010. Sales rose 155.47% to Rs 48.13 crore in the quarter ended June 2011 as against Rs 18.84 crore during the previous quarter ended June 2010.

Particulars	Quarter Ended
�	Jun. 2011	Jun. 2010	% Var.
Sales	48.13	18.84	155
OPM %	40.62	1.01	3928
PBDT	18.72	-0.40	LP
PBT	17.82	-1.24	LP
NP	11.58	-1.24	LP

Buy call given in Oct`10 when price was 100.
Date: Sat, Oct 23, 2010 at 8:27 AM
Subject: AVT NATURAL PRODUCTS +20% post results - another 30-50% upside left

AVT NATURAL PRODUCTS- cmp 112. Market cap 85 crs . 1st target 150 , 2nd target -200 in a year
Target - should target at least its previous high of 140-150 in Sep 2006 ( or +30% upside) in next 3-6 months on record sales and earnings this year i.e
Today results were out. up +20% at 112 .
Technicals - stock was hanging around 50 DMA of 94 but below 200 DMA of 97. today closed above 200 DMA. good breakout on strong volumes of 0.64 lac shares ( or 6x 2 week average). chart here.
Stop loss 97-100 / trailing of - 10%
Business - producing Lutein from Marigold Flowers oleoresins. In this space it is the largest Indian player and among the top 3 in the world. Main benefits of Lutein is can prevent cataract ( Age related blindness), good use as natural food color ( to provide orange skin color to poultry - main market Mexico),an antioxidant and new uses for skin care.
Website - http://www.avtnatural.com/

Good play on India spices and agri sector . market leader Synthite - a 400 cr firm is unlisted. recent mgmnt interview here. so only way to play this is one list co. that is AVT natural.
Also can be a good agri farm land play, claims to own over 35,000 of farm land in India. source here
Macro of Oleoresin industry here

Benefits and market size of Lutein

The Lutein^TM market is segmented into Pharmaceutical, Nutraceutical, Food, Pet Foods and Animal Feed and Fish Feed. The Pharmaceutical market is estimated to be about US $190 Million, Nutraceutical and Food is estimated to be about US $ 175 million annually. Apart from the customary Age related Macular Degeneration applications, newer applications are emerging in Cosmetics, Skin Care and as an Antioxidant. It is one of the fastest growing areas of the $ 2 Billion carotenoid market. There are several Lutein^TM ester suppliers, but few pure natural products, namely marigolds. Companies like Indus Biotech PVt. Ltd, OmniActive Health Technologies and Kemin Industries have patents. The market size of Lutein^TM is anticipated to grow at an average annual growth rate of over 22%.

blockbuster results - QoQ Sep`10 vs Jun`10 Vs prev year FY10

Sales 30 crs vs 18 crs ( prev year Sales of 83 crs. It exports 90% of sales. but net exports exposure including imports is 50% of sales)
EBITDA of 6 crs vs zero. ( prev year EBITDA of 16 crs)
OPM% of 20% vs 0% ( ( prev year OPM% of 19%)
PAT of 3.2 crs vs (1.2) crs loss ( prev year PAT of 6.5 crs)
earnings quality very good - last 3 years CFO of + 8 crs, + 11 crs and 13 crs. ( FY10 to FY08)
On PAT of 12 crs, this year CFO should be around 14-15crs or P/ CFO of 6x.
good Dividend track record- last year on PAT of 6.5 crs paid a dividend of 3 Rs. or payout of 35%,this year on PAT of 12 crs , if it maintains same dividend payout, then dividend to double to 6 Rs or at cmp 112, yield of 5.3%
both on good Cash flow earnings basis and dividend yield basis and market leader status in Marigold extract exports, the stock has potential of PE rerating from 7-8x to 15x. i.e in bull case can double also from cmp in a years time. But for this upside,coming quarterly results has to maintain the same Sep`10 qtr momentum
Net debt increased to 50 crs vs 40 crs ( debt is net of 3 cr cash). Debt rising due to ongoing ,expansion it`s recent two subsidiaries in Singapore and China with over 7 cr of revenues.
So on Annualized Q2 basis at PE of 7x. and EV/ EBITDA 5.5x
ROCE and ROE from last year 15% and 13% should increase to ~20%-25%
the only company is US that has patent till 2022 to produce Lutein from Marigold is Kemin Foods and AVT has long term purchase agreement with Kemlin
In 2006 it launched its Marigold farming into China with 2000 acres farm land. details here
Since 2006 , it had been operating a plant in Thailand for its US partner Kemlin. Thailand plant would send Marigold pellets for further processing in India
main highlight is its expansion plans and tie-ups with 2 US firms bearing fruit. Sep`10 quarter sales of 30 crs is highest ever. all set to cross its 5 year sales range of 70-80 crs and post record sales finally .
High promoter holding of 70 %

AVT Natural Products spurts after robust quarterly earnings
AVT Natural Products jumped 15.61% to Rs 108.50 at 13:10 IST on BSE, after net profit galloped 641.86% to Rs 3.19 crore on 71.46% rise in net sales to Rs 30.52 crore in Q2 September 2010 over Q2 September 2009.
The company declared its results during trading hours today, 22 October 2010.
Meanwhile, the BSE Sensex was down 19.52 points, or 0.10% at 20,241.06.
On BSE, 19,998 shares were traded in the counter as against an average daily volume of 8,104 shares in the past one quarter.
The stock hit a high of Rs 109.50 and a low of Rs 95.65 so far during the day.
The company has an equity capital of Rs 7.61 crore. Face value per share is Rs 1
AVT Natural Products net profit rises 641.86% in the September 2010 quarter Sales rise 71.46% to Rs 30.52 crore

Net profit of AVT Natural Products rose 641.86% to Rs 3.19 crore in the quarter ended September 2010 as against Rs 0.43 crore during the previous quarter ended September 2009. Sales rose 71.46% to Rs 30.52 crore in the quarter ended September 2010 as against Rs 17.80 crore during the previous quarter ended September 2009.

Particulars	Quarter Ended
	Sep. 2010	Sep. 2009	% Var.
Sales	30.52	17.80	71
OPM %	20.38	11.46	78
PBDT	5.23	1.44	263
PBT	4.39	0.73	501
NP	3.19	0.43	642

Neyveli Lignite Corp NLC - Fraud allegation - Earnings Quality Check vs NTPC

2011-07-05T19:22:00.000-07:00

On 5th July 2011, during market hours , news channels started flashing news of fraud charges in Neyveli Lignite Corp or NLC. It is India`s 2nd largest public sector (PSU) power utility cum lignite mines company.

News here

Stock reacted immediately downwards by falling 3% from 104 to 100 but closed the day in green at 103. So I decided to use my simple ratio check for earnings quality rating ( posted here ) .

Summary of this post- investors should not give the benefit of doubt to Neyveli Lignite here and exit. It can prove to be expensive as numbers check raises more questions than give out answers.

Some qualitative check :- To summarize, the allegation is by the Workers Union President and they allege misappropriation of funds to the tune of Rs.10,000 crore and manipulation and cooking up of NLC balance sheet.

Management response -

" This is an attempt by workers' union is an attempt to defame the state-run company".( my qn - Why should workers want to defame their own company that they have been working for years ?)
"'We are following the accounting practices of power major NTPC. Our accounts have been audited internally and by Comptroller and Auditor General (CAG). None of them have raised any objections."( my qn - I did a earnings quality comparison with NTPC and NLC is NO WHERE close to NTPC. Yes, in cases such as Satyam /Enron also no one raised objections )
"The statement that there has been misappropriation of funds to the tune of Rs.10,000 crore and the alleged manipulation and cooking up of NLC balance sheet is totally baseless and made on malafide intention.The complainant is taking only portions of the balance sheet to show a deficit of Rs.10,000 crore." ( my qn - Yes , workers understanding of Balance Sheet accounting could be questioned but most people ,if they spend a decent time at a place are smart enough to know if something wrong is going on. And even a balance sheet expert /analyst also cannot dig out a fraud that easily.)

Lets try to connecting some dots of the past events -

16 March 2011 - CBI conducts raid on REC (Rural Electricity Corporation) chairman`s house. Neyveli lignite has borrowed Rs 3,500 Crore in the recent past from REC. Raid details here
Next day -17 Mar 2011Neyveli mentioned on CNBC channel to Udayan that they are raising Rs 3,500 crores loan from PSU banks ( BoB) from earlier lender REC Rural Electricity Corporation. Text interview here and Video Interview here
23 March 2011 -- CBI raids Neyveli . Details here

Ok now lets get to the point and see what the hard numbers tell us.

I did the similar ratio check as mentioned in the previous post . Ratio of P and L based Net Income to Cash flow based Profit and P and L based EBITDA to cash based EBITDA.

This ratio would be compared over the years and within the same sector ( here NTPC).

FY11 Annual report for both firms are not yet out so no FY11 data.

Only Consolidated numbers are taken.

It seems for FY08 and FY07 NLC has not given any Consolidated numbers in the Annual report. So numbers for these years might be different than numbers from FY10 and FY09.

Now there are ~ four main worrying signals.( refer table in the end for details)

NI/CFO ratio for Neyveli Lignite NLC is 7.3x for FY10 vs NTPC`s 1x. This is touching the fan. In Satyam`s case the ratio was ~2x. Another way to interpret this is as compared to the reported PE of 13x for NLC, its actual PE based on Cash flow is 7.3 x 13 = 95x
EBITDA to Cash EBITDA ratio for NLC is 2.3x vs 1x for NTPC and 3.5x for Satyam
For Neyveli Lignite NLC , in the past 3 years since FY07 ( to FY10) , reported Profits have doubled but Cash flow based profits have halved.
Interest ( in P&L) as percentage of total debt is abnormally low for NLC - 0.8% vs 4.8% for NTPC. Thus NLC barely recognizes Interest cost in P&L.
This can also be seen in row 10 where Cash taxes rate as percentage of Cash before I.T in FY10 and FY09 has doubled to 45% vs 20% for NTPC.

Conclusion -So its best to exit / stay away from this stock. It might correct 40%-50% to 50-70 zone.Technically, it has slight short term support at 95 but in longer term it is weak with trading below 200 DMA of 123.
Click to enlarge

Breakouts - Lifetime 52 week highs - AVT Natural,Asahi Songwon,KKCL

2011-06-28T10:13:00.000-07:00

Breakouts - Stocks in my Top 20 Convition Buy lists / watchlists making new 52 week / lifetime highs

Another Objective of this article is to make a case for select mid /small caps vs the `fetish` of large caps by most Investors.
So are Large caps safer than small caps?

Hmm remember the Titanic.. unsinkable..

Okay maybe large cap will not sink that easily thanks to "too big to fail" bailout by governments but a 30% to 70% fall in stock price can make good enough damage to your portfolio. ( equivalent of `sink`)
Lets do a check.

India`s largest firm by Market Cap - Reliance RIL. Cmp 870. Down -44% from lifetime high of 1565 made on 11-Jan-2008. Chart here
India`s biggest Automobile firm - Tata Motors. Cmp 983 down -27% from all time high of 1350 made on 15-Dec-2010. Chart here
India`s biggest Steel company - Tata Steel. Cmp 590 down -40% from all time high on 990 made on 26-Oct-2007. Chart here
India`s biggest Bank - SBI. cmp 2340 . Down -33% from all time high of 3500 on 5-Nov-2010.Chart here
India`s biggest Estate firm- DLF. cmp 210 down -83% from all time high made on 11-Jan-2008.chart here

Ok now you get the drift. Now overall the 30 stocks index Sensex is down -14% from its high of 21,000 made on 5-Nov-2010. And broader index BSE 500 is down -25 to -30%.
But if you look deep enough for value without any bias of small cap vs large cap,sectors and apply consistent filters i.e criteria to rate the stocks, there will always be good opportunities.
Basic criteria would be stock should have better fundamentals but lesser valuation ratios that the average Sensex stock.That is it should have better fundamentals -

better margins,
better earnings growth ,
better Return and Efficiency ratios.
lower leverage ratios
increasing and higher promoter holding

..than the average index Sensex stock but trading at cheaper valuations say ~ 50% discount to the index. Its hard to go lose money over long term of say 1 to 2 years with this strategy. And this sums up my core stock picking strategy.

I also add more stringent filters such as growth in net cash, no pledged shares or FCCB`s, no significant capex funded by debt to minimize down sides risks.
Here are of my stock picks that are trading at lifetime highs.
Lifetime highs means something special. It means that that no long term investor is at a loss ( i.e every long term investor who hasnt sold his investment till date is in profit). That is any investor who is still holding the stock (that he had bought in any time of the past) is not in any loss.
and technically once a stock makes a new all time high,20% to 30% are seen in the near short term.

AVT Natural Products - Since reco. on 23rd Oct 2010 and reco. price of 95, current price is 270. New lifetime high. Broke its previous lifetime high of 150 on 7-Jun-2011 on posting lifetime high profits. Embedded interactive chart below ( Adobe flash player required)

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From Mar`09 low of 50, AVT Naturals is up 5.5x in past ~2.5 years. And it is up +70% in past one month. The reco. that I had sent was via email ( and not on this blog) so if anyone wants a copy, let me know.

Asahi Songwon Colors - Made new lifetime high of 109 today. Had given reco. in recent blog post here ( on 16-May-2011 , reco price of 78) and rated it among my top 10 conviction buys. It is up +35% in past one month. Still has decent upside left. In FY11 posted lifetime high profits. Since Mar`09 low of 10 , it is up 10x in just past ~2 years. Embedded interactive chart below

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KKCL - cmp 700. Up 7x from Mar`09 lows of 90. I`m still holding all my shares since bought at 95. But should have bought more at every rise. In FY11 posted lifetime high profits.Previous reco on KKCL given in post here

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Cera Sanitaryware - Had given reco ~ 6 months ago at 120 vs cmp 200.(up +67%).Posted lifetime high profits in FY11.Since Mar`09 low 25, Cera is up 8x in past 2.3 years. Broke above its previous resistance of 180 on 5th June 2011.Had emailed this reco earlier ( if anyone wants a copy let me know) and had mentioned briefly in this blog post here . Chart from Google Finance here
Mayur Uniquoters - given reco. ~5 months ago at 240 vs cmp 330 via email ( and not posted here in the blog. Anyone wants a copy let me know.) Stock is up 13x from Mar`09 lows i.e in just 2.3 years. Since 2004 lows of 5 rs , it is up 66x ! Chart here

Earnings Quality check - India Nifty stocks - Does your portfolio / mutual fund has the `next Satyam` ?

2011-06-14T09:20:00.000-07:00

Earnings Quality check - on India Nifty stocks - Does your portfolio / mutual fund has the `next Satyam` ?
( this post is updated with additional comments in the end)

Introducing a new series on Earnings Quality check – also called as SSEXI – Saanp aur Seedi Earnings Xittiness Index.

So why name it as SSEXI not EQI ( Earnings Quality Index) ?

My goal is to not to establish a hall of fame but a hall of shame. For the former, there are numerous ratings such as ET,BS,BT ( Economic Times, Business Standard and Business Today).

I was bit frustrated by the lack of availability of decent earnings quality analysis on Indian firms by the reputed big brokers equity research desks. So decided to do this research.

Please let me know your top pick for this rating ( i.e worst quality of earnings) by posting your comment. I have also enabled comments posting as “Anonymous” i.e one can post a comment without the need to log into your email account.

Also let me know , if you have any stock that you want this check to be done. I cant promise it will be done but within my time constraints, I will try my best to close it. My next objective is to do this similar SSEXI rating on my potential list of multi-baggers ( ~ Top 40 stocks)

Approach - is quite simple . It involves the past 4 years trend and ratios within same sector.The ratio would be reported P&L Net Income ( or PAT Profit After Tax) to cash based profit or CFO – Cash Flow from Operations. This can be nicknamed as NICFOR – Net Income to CFO Ratio. Similarly other ratio that could be compared is comparing reported EBITDA to cash EBITDA or CFO before cash interest and cash taxes paid.
The most used valuation metric is PE ratio. But `E` is heavily related to accounting standards adopted by the management and involves accrual component also. So my approach is to find out the cash based earnings (i.e CFO from the cash flow statement ) to arrive at the actual PE ratio ( based on cash earnings).

Here is the rationale of using CFO as better valuation indicator. There are generally three reasons for which Net Income and CFO will differ.

Non Cash charges such as depreciation - reduces Net Income. This will result in CFO being higher than Net Income, other things remaining the same. Thus CFO will be a better metric to judge the cash flows available to a firm
Working capital changes – such as increasing Account Receivable will reduce CFO as compared to Net Income. Thus CFO reflects better quality of revenues and working capital management of the firm. Some high working capital intensive business such as Infra/ real estate might have a negative CFO also. This combined with a reported positive Net Income will result in a negative NICFO ratio.
Other income - such as investment income, sale of long term investments are added to the reported P&L Net Income. But in the cash flow statement,these items are added under CFI ( Cash flow from Investments) so the result is that CFO would be lesser than Net Income. Thus CFO would be a better indicator for valuation. This is fair because business should be valued only on recurring `core` earnings of the business.

I had to make slight adjustments for Indian firms. Under Indian Accounting standards, interest paid is classified as CFF – Cash flow from Financing activities. So while comparing NICFOR for Indian firms, I have taken the interest paid from CFF and reduced it from CFO to arrive at an adjusted CFO that matches Net Income. (Under US GAAP interest paid is classified under CFO and under IFRS , firm has option to classify as under CFI or CFO)

Similarly I had to make some adjustments if there was a significant one-time other income added to the Net income.

This NICFOR trend can be very useful to identify

Accounting aggressiveness / conservativeness used by the management. This can also be compared over the years and within the same sector.
Arriving at truer and better valuation / PE ratio -Can be used as a discount / multiplying factor to arrive at true valuation ratio that can be used to give a better overweight/underweight rating. For Eg. if a firm has latest PE of 10x and NICFOR of 1.5x this means that the actual PE is 15x ( reported PE x NICFOR) . Similarly if the same firm had a NICFOR of 0.7x that means actual PE is 7x and not 10x.
Potential earnings manipulation by management. Management has various reasons for earnings manipulation. Some are

a. High ESOPs / stock options owned by management.

b. High peer pressure and street pressure. I.e To meet high expectations of the street / analysts / stakeholders

c. To get a better valuation and raise more money for a FPO/IPO.

d. To meet debt covenants and avoid lower debt rating. Also over $7 Bn of FCCB`s ( Foreign currency convertible bond) will be maturing in the next 2 years and firms that have issues these FCCB`s would like to see their share price goes up and above the conversion price so that the debt will get converted to equity.

From the past accounting scandals, the most reliable alarming signs are usually comparing CFO to Net Income. Other ratios such as debt to equity ratio have not at all shown any early signs. Enron ,for example had debt to equity ratio of 0.9 but its CFO was consistently negative as compared to its reported Net Income.( It showed actual negative CFO as positive by reporting `CFO before working capital charges` separately.)

I have done a study of ~ 25 NIFTY companies (comprising ~ 61% of Market cap of NIFTY or ~ $0.8 Trillion. ( See the chart below at the end. Click to zoom) .Some other points to note:

1. All accounts are as per Indian Accounting Standards

2. I have taken Consolidated Financial Statements only.

3. These ratios only gives an indication of earnings quality or accounting aggressiveness and these ratios do not imply higher upsides in the stock, as the earnings /CFO growth is not compared here. Will come up with an update later .Stay tuned / subscribe to this blog to get latest update via email. ( click on the top right hand side)

4. Most Indian firms have not yet released their FY11 Annual report. Will come up with an update later. Stay tuned / subscribe to this blog to get latest update via email. ( click on the top right hand side)

5. * Only for Satyam – F.Y is FY`10 to FY`06.

6. # for L&T – in FY10 I have removed the one time income from Net Income to adjust for stake sale of Ultratech Cement and Bangalore airport.

These are the companies I have studied :

IT Pack - SATYAM* ,TCS,INFOSYS,WIPRO,
Oil and gas –RIL,GAIL,ONGC
Capital Goods -L&T# ,BHEL
Auto -M&M,TATA MOTORS,MARUTI SUZUKI,HERO HONDA,BAJAJ AUTO
Power -NTPC
Telecom - BHARTI AIRTEL
Mining – STERLITE,COAL INDIA
Steel - TATA STEEL,SAIL,JSPL
FMCG –HLL,ITC
Cement - ACC
Real Estate – DLF ,JP ASSOCIATES

Here is the table ( click to zoom)

Here is the same chart with a heatmap. If ratio is more than 1.1 or reported P&L number is 10% higher than indicated by the cash flow, then it is highlighted as RED.

Brief Ending Comments on the chart

Satyam was a clear outlier with reported P&L numbers double the cash flow numbers. ( i.e actual PE of Satyam was double / 20x vs then reported PE of 10x. Similarly P&L EBITDA to Cash EBIDTA ratio was 3x-4x). Even even big players such as L&T, Aberdeen Fund, Fidelity,J P Morgan, Morgan Stanley,,LIC, ICICI Pru,Singapore Sovereign fund were caught in this value trap. Yes , it is hard to tell if outright fraud is committed or not just by this ratio but at least it flags off valuation concerns and a fundamental value driven investor would have avoided the Satyam `value trap`. As per the table, for Satyam , the xit was actually hitting the fan. And had R Raju not sent the letter of acceptance of the fraud I doubt if this would have been unraveled. Cases such as Satyam only shows the weakness of the system in catching such manipulation. Also had the cash from Satyam been put into a more liquid asset ( say Gold ETF`s vs real estate Land) , Raju could have easily raised liquidity and announce a big buyback at a huge premium. Even many IT majors such as IBM was also in the fray to acquire Satyam. And had such a deal been pulled off then many of us would never have known this.
Big drawback in India is that Balance Sheet and Cash Flow Statement is not disclosed quarterly. And recently SEBI required firms to report Balance Sheet every 6 months. Maybe this drawback one characteristic of an emerging market.
Till date ,out of this study sample of 25 NIFTY firms that comprise of 61% of total market cap of NIFTY, just four firms have released their full FY 11 financial statements – INFY,TCS,ACC and RIL. Will update this again after a month or so.Stay tuned to this site.
IT Pack -Surprisingly for latest FY11 ending in Mar 2011,INFY and TCS have shown their NICFO ratios hitting the highest level in the last 4 years. This might indicate the pressure by management to meet the huge street expectations. CFO for TCS and INFY declined by -10% and -23% respectively vs their reported earnings growth of +30% and +10% respectively. Thus as compared to the reported PE of 25x of both TCS and INFY, the actual PE ( based on CFO) is actually 35x. ( reported PE x NICFOR of 1.4x). If in FY11 this is the standard set by IT firms then I believe it would be very fair to assume that other sectors would be worse/ similar.
These ratios should generally be stable over the years without big variations. Any big variations -both on higher or lower side need to be examined more closely. A negative ratio ( in most cases) would be a result of positive Net Income and Negative CFO.
Again I repeat – These ratings / ratios are just indicative of P&L based earnings vs cash based and higher ratios cannot be assumed to imply a fraud. However, higher ratios would require closer examination. And most importantly , one should be extra careful of firms that have positive Net Income with Negative CFO ( i.e negative NICFOR).These kind of firms would definitely deserve a lower valuation rating. Similarly a lower ratio does not imply higher upside as upside depends on fair value vs current price and future earnings growth and this study doesn’t cover cash flow / earnings growth. I will explore it later. Stay in touch with this blog to be the first one to know.
One could make a hypothesis that in general PSU stocks ( Public Sector) would have lower ratios as unlike private sector management doesn’t own significant stock in the firm. But again if a PSU is looking to raise equity via FPO/IPO the tendency to adopt aggressive accounting standards will increase.
Here is the sector wise summary of the findings ( the given tables)

IT – For FY`11 ,TCS and INFY both seem to be a race to the bottom in terms of earnings quality. From past 4 years record ,it seems Wipro earnings has been consistently of lower quality.
Oil & Gas – RIL `s earnings quality has been consistently poor but the latest FY`11 shows a sharp drop in ratio – a 55% drop in NICFOR from 1.5 to 0.6. Effective tax rate ( based on Cash tax / CFO before Interest and taxes) has also been low at 11%.It again raises more questions than answers. PSU`s GAIL and ONGC score way higher.
Capital Goods – L&T earnings has been consistently poor and has been on a steady downhill since FY`07 when the NICFOR was 1.0. For two years, CFO was in fact negative. BHEL has been consistently better for last 4 years except for FY`10 where it took a change for the worse matching with L&T.
Auto – Maruti Suzuki and Hero Honda have clearly maintained their good earnings quality consistently.
Telecom – Bharti has very low ratios i.e actual PE is just 0.6x times reported PE. I.e maintained good earnings quality throughout. For R Com could not find Annual reports on their website.
Steel & Mining- SAIL was doing well till FY`09 but FY`10 took a tumble. Maybe due to planned FPO in FY`12. JSPL and Sterlite have maintained quite low/medium ratios ( Good)
FMCG – HLL and ITC both are quite ok with ITC being more consistent.
Infra & Real Estate – DLF has consistently a negative CFO except FY`11. FY`12 remains to be seen. JP Associates again has been a consistent negative CFO firm.
Coal India – steady. Only slight increase in FY`10 most probably due to planned IPO. FY`09 ratios dipped ( to as low as 0.2) as P&L Net Income was abnormally down due to salary revision.

Banks are excluded for this study. But my view is that the earnings quality of banks would always be inferior to other businesses/sectors. Unlike other businesses, Banks first `loan` their product/ service ( loan) and then start recognizing revenue ( interest income) immediately as the customer starts paying EMI`s and loan defaults generally doesn’t happen within the first/second year of the loan. It happens after the initial 20%-30% of the loan tenure. And NPA recognition standards in India are very subjective and not stringent. Loan collateral /security / personal guarantee also doesn’t have any meaning as even if the borrower defaults, in most cases the collateral is not easy to liquidate soon. Some Indian private banks also show their low default rates over the years but this doesn’t make sense with India macro of low per capita income of $ 1,000 and low transparency in many sectors. I.e not only ability to pay factor is important but one also need to factor in willingness to pay. Micro finance is a good case study.
This study throws up many other areas to explore and hope to do some in near future. Other areas to explore from here :
- Effective tax rate based on Cash taxes paid.
- Growth in FCFF / FCFE , Gross Cash and Net Cash levels
- Comparing P&L based return ratios such as ROE,ROCE vs cash flow based return ratios
- Use both SSEXI (Earnings Quality index) and growth in cash flow to arrive at fair valuation i.e upside / downside rating.

Smartlink – trading buy - 32% dividend yield

2011-05-24T04:51:00.000-07:00

Smartlink – trading buy -32% dividend yield

Recently many small /mid cap firms sold their core businesses at a good premium but without offering open offer / sharing the gains with the public shareholders. I.e merely exploiting a loophole to avoid open offer to public shareholders. Most of them these kind of fishy deals can be flagged off by key risk factors such as low promoter shareholding and promoter interest in other non related businesses such as real estate.

Same thing happened with Smartlink when it sold its networking product Digilink for Rs. 500 crores to French firm Schneider Electric India.Details here. Schneider has been gobbling many Indian products.It recently bought another listed indian firm in the same space APW President

Smartlink has finally taken a step that will reduce the doubts of critics to a certain extent by declaring a dividend of 32 Rs per share. Or Rs 96 crores. As it was always debt free , even after this it still has ~ 400 crores in cash vs cmp of 100 per share or market cap of 301 crores at cmp.Today it closed up +20% to 100. All time high. At cmp dividend yield is 32%!

As mentioned earlier , key risk factor to spot shady management is to see their share holding. Since Mar`10, promoter holding has increased from 64% to 67%.And clearly this was bullish.

In last 6 months , Smartlink is up 82% vs Sensex down -11%. Chart here

Trading buy with trailing stop loss of 5-7%

Fundamental related buy - MRO-TEK is also a listed firm in the same space. debt free, cheap but earnings has been negative. Other firm in similar space APW President was also acquired recently.

Q4 FY11 Results update - Asahi Songwon,Savita Oil,Riddhi Siddhi,Hira Ferro

2011-05-16T08:53:00.000-07:00

Q4 FY11 Results update Asahi Songwon,Savita Oil,Riddhi Siddhi,Hira Ferro Alloys
Markets still in sideways and downwards drifting. In this month of May`11, FII have sold over 3800 crores already. But lots of good opportunities for stock picking multi -baggers from 1 -2 years holding view.
Asahi Songwon Colors
FY11 PAT up 100% to 20 crs.
cmp 78 . Market cap 95 crs . FY11 PE of 4.8x
PAT at lifetime high. but stock down 8% from lifetime high of 85.
good buy. maintain 50% upside i.e target of 130-150 over a year.

Chart here
would rate this among my top 10 conviction buys.
risk - need to watch for PAT and margins growth for FY12 to ensure FY11 was not a peak year.

Riddhi Siddhi
cmp 358 ( +5%).
market cap 400 crs.
FY11 Sales 1000 crs vs 740. PAT up 4x 164 crs vs 40 crs. dividend up 2.5x to 12.5 per share. ( at cmp,yield of 3.5%)
trading at FY11 PE of 2.5x
PAT at lifetime high!
still 2 issues remains. (1) Restructuring to go ahead as planned.and (2) debt has gone up to 237 crs vs 200 crs ( most likely due to wind power diversification)
with these issues , it only deserves a "Trading buy" with 5-10% trailing stops .

Savita Oil tech
FY11 PAT up 27 to 109 crs.
PAT at lifetime high!
Results here and news here
cmp 541.
market cap 740 crs.
should make new highs over the next year. 25-40% upside in a year.
risk - need to watch margins impact due to crude oil spike.

Hira Ferro Alloys
Becomes subsidiary of GPIL - Godavari Power and Ispat.
21 May 2011 - meeting for results and bonus declaration.
cmp 331 up +10%
FY11 est. PE of 4.8x
good buy with 50% upside in a year