Friday, April 17, 2015

30% CAGR, 30% ROE, Debt Free, 10 PE, Monopoly or Near-Monopoly

There was a lot of above stuff few years back and may yet be available again dear to every greedy and/or miser investors heart, as described in subject line.


I was in India and recently tuned into CNBC TV 18 after ~5 years for few days. I heard only one sensible thing on this channel. It came from Sanjoy Bhattacharya, "In my life, albiet short in itself, I have never seen an Auto Component Manufacturer at 80+ times earnings - BOSCH India, so there is something wrong."

I also had joint pain and to fix that I read ~half a dozen books last month. I came to the conclusion that best of the best doctor in any corner of the earth knows much less than 0.0001% of mechanics inside the body. I knew the level of ignorance already as my wife was PhD in Microbiology but did not know the yawning chasm. Like Munger, its best to take the finest offerings of all the paradigms, nutritional science, ayurvedic science of doshas, rhythms, primal elements that circulate in body like air, fire, and deeper dimensions of body, modern allopathic diagnostics etc. For nutrition, book by Dr Joel Furhman titled "Fasting and Eating for Health" may be your best 10$ spent ever on health. Second best on nutrition, Terry Wahls - The Wahls Protocol.

I generally spend 6 - 8 hours a day related to investments, not that it always helps. Was reading how 1 Lac INR invested in SYMPHONY LTD. in 2005 India, turned into 2600 Lacs in 2015, did I even make 26 Lacs from each Lac invested when I got in 2009 ? I have nothing but eerie silence. The best investment in a short life is one that moves in your favoured direction within a year or two. Major part of the portfolio needs to be geared towards that.

I think finally I have (fingers crossed) found a company that should compound topline 25% during this decade (atleast has been for past five), bottomline even faster. If, re-rated, which is highly likely, 40-60% Cagr during the next ten years. The feeling I am getting is of extremely heady intoxication, just the same as when I bought Page Industries at 350 Rs in 2010 at 10 times earnings, and recommended to my friends/clients all the way until 4000 Rs two years back. The company is outside India, growing at 30% CAGR, debt free, roe (and all that jazz), available at 10 times earnings and is a monopoly (more than market leader). More on that later.

In India, I think the C grade and B grade has performed better than A grade over the past 18 months. Look at 52 Week High Lows, and you will know what I mean. First time ever, mid and small caps are richly valued across the board. At these levels some companies in India that I still like are Sarup Industries, Dewan Housing, Gulshan Polyols, Ambika Cotton, Kovai Medical. One of the most abominable statements blurted out by tuxedo clag gang on business channels is "For long term i.e. 5-7 years, 20% CAGR is possible". This statement is recounted when Acrysil is 100 or 700 a year later, this is yet again repeated ad fininitum whether Gulshan is 60 Rs or 350 Rs an annum later. So, the sooner you ignore and start turning stones around yourself, the better. Gladly, value investing is a message in vain for majority.


An interesting assertion from Vivekananda was along the lines, "I would not go to school, but rather train my mind for 24 years, and in the 25th year put in information from books of all the libraries of the world". Accordingly, a fantasy to get extremely wealthy, is to work on your mind to recall your past life, bury gold in a forest before kicking the bucket in this life, start your new life with a bounty of gold dug and hidden in previous life each time. So, in a few lifetimes you can own the planet, you know what even 7% compounding on principal of 10,000$ is for 400 years is right? More than 100% of all assets on the planet! , so please be contented with 5% compounding.


While 5% may be undercutting, I often get requested to please divulge more risky equities, that can offer higher returns. That assumes Risk is a lever to be turned on to Increase returns. Facts are quite the opposite.






Wednesday, February 11, 2015

Sarup Industries

I had written a deep value investment idea for the partners in 2013. I had only invested in personal capacity and then sold most at no profit no loss.

I got a bit late in identifying the changes recently and again entered at 80 Rs levels post BSE announcements in Dec 2014, which I failed to notice and another on 6th of Feb, bought only after 10th Feb. Main proposition of the footwear company that started same time with same financial muscle as Relaxo, i.e. little to nothing, (and is 50 times smaller today than Relaxo) is a mall project. This project was held in suspended animation due to some conflicts, my guess and real estate slowdown.

The six floor mall project would have market value anywhere between 400 - 600 Crores. Even if Sarup gets 25% of the net constructed value, the company will derive 4 times its market cap.

Based on sale value of commercial shops in Model Town (which is one of the posh areas) part of Jalandhar, minimum price is 10,000 Rs/Sq. ft. and goes as high as 20,000 Rs/Sq.ft Constructed area is 3-4 Acres. Post construction 4-6 floors will be available for sale/letting. Based on worst case scenario as explained, company should either derive annuity income or get one off lump sum. Footwear business come free. 

http://www.bseindia.com/corporates/anndet_new.aspx?newsid=f6ce1d1d-d698-43c1-8836-a415cea1197b

http://www.emaarmgf.com/malljalandhar/location.asp 




Friday, February 6, 2015

Hairy (squared) Business - Radix Industries

Unique and thematic businesses are characterized by steep PE multiples, disregarding DCF or other sane measures of value.

This company (RADIX INDUSTRIES BSE: 531412) piqued my interest as it bids and sells hair ( remy hair ) donated in South Indian temples. 

Human hair sell for as much as 50 Lac INR per tonne. Industry size is roughly 2500 Crores INR.

This hairy business get more hirsute as I feel the company's share have already been cornered by promoters and their friends and family members indirectly leaving no value. Company is growing 100% YoY but the industry size / MCAP (300 Crores) of 8 times  leaves little room for appreciation for investors as promoters bought shares for 2 Rs but have artificially kept the price inflated at 300 Rs.

TTD sells human hair for Rs 77 crore





http://www.business-standard.com/article/sme/human-hair-being-smuggled-out-hurting-export-earnings-113121601072_1.html


http://articles.economictimes.indiatimes.com/2013-10-12/news/42968597_1_temple-hair-such-hair-tirumala-tirupati-devasthanams


Factor this: In 2011-12, the Tirumala temple earned nearly Rs200 crore out of its total revenue of Rs1,949 crore, from auctioning human hair. 

According to L.V. Subrahmanyam, executive officer of the Tirumala Tirupati Devasthanams (TTD) that manages the temple affairs, the projected revenue for 2012-13 from auctioning hair is around Rs150 crore, but going by the ever-increasing number of pilgrims flooding the temple, it is expected to surpass last year's.

http://www.dailymail.co.uk/indiahome/indianews/article-2154238/A-growing-industry-Devotees-spawn-empire-millions-donating-hair.html

http://www.ibtimes.co.in/a-hairy-business-that-is-booming-into-a-million-dollar-industry-532232


Disclosure: Not invested in Radix Industries.






Nucleus

Looking at Nucleus Software's massive eight years of yawning under performance made me look further back in its history. There is a lot wrong with the company and the company is generally compared with OFSS and Polaris. This may not be the right comparison, 80% of revenues of Nucleus are earned outside India.All continents account for nearly equal percentage of revenues now giving it multiple legs.















Annual revenues and Profits


Year
Revenues INR Crores
Profit After Tax INR Crores
2000-01
27
10
2001-02
40
10
2002-03
60
7
2003-04
54
10
2004-05
67
15
2005-06
94
28
2006-07
146
42
2007-08
288
61
2008-09
328
32
2009-10
291
38
2010-11
270
26
2011-12
282
35
2012-13
293
45
2013-14
346
64
2014-15
350E
65E



The company is dependent on a very narrow and niche segment with lumpy earnings and marked by absence of growth for multiple years at times.

- No Growth, Value Trap, Mediocre Management and a few more issues with the company.

Positives:

Intellectual Property, Product Based company, #1 in its Lending Niche, 103 / share cash (CMP 175)  in hand, which makes me feel its a bargain. That said, I may give the company up to 4 quarters to perform or out.

Disclosure: Invested.