Tuesday, August 25, 2015

NSE Kenya - 50 bagger

Having seen a large number of research reports, focusing on next 20-25% only, but on equities that went up several fold, are in stark contrast to how a long term investor should think and a great dis-service to long term investors.

I read a statement recently, "Best investing articles are the ones that have nothing to do with investment". I see this all the time, with investing newsletters venturing into  philosophy.

The problem I find with this statement is that the person in context has defined himself / herself narrowly as an investor. I have not. As a man shall not live by bread alone but by every word of ....., no investor shall live with stocks or financial analysis alone. It is too drab to focus on single domain without variety. 

So, I do not like philosophizing on equities but come to the point. The point being making money with multi-fold growing ideas. Hence the title of this post.

While I may be wrong in duration it may take for NSE Kenya to be 50 times, perhaps it could be a mere 20 bagger over next 12 years. Every serious long term investor should go through annual reports of NSE Kenya and find out if he/she holds the company that is better than this? I unequivocally found the answer to be No, in every situation, not excluding BRK. That also depends if you consider 18-20% to be sufficient year in and year out. 


Someone needing USD there is some semblance of currency depreciation to keep them away from Kenya or Nigeria, but for INR earners, that does not seem to be the case.

In the previous three years, the company grew top line by 25-35%. 2015 was a hard year for Kenya with tourist cancellations, scaremongering by CNN on security, horticultural crop failure, so, in the six months ended 30th of June 2015, the company grew topline by just 15% and bottomline by 40% (that is a bad year). A great company constantly throws up two choices "Very good and excellent, and a bad company constantly offers you other two choices gruesome and horrible", speaketh Buffett. This result sets the company at valuation of ~10.5 times earnings (as opposed to 12 that I said in previous post today http://multibaggersindia.blogspot.com/2015/08/why-india-is-still-expensive-sensex.html). Again, for my the benefit of my institutional brethren, its TTM not FY18 earnings.

Link to half yearly results: 30-June-2015

NSE Kenya is a lot similar to CRISIL, but only better in every respect, in terms of cash flows and market share. Dividend payout needs improvement. A lot of investors from India are familiar with CRISIL one of the biggest credit rating agencies of India, and if you see its 10 year chart, it has gone up 200 times. Crisil is growing at humble 15% but PE ratio is 65.


CRISIL price went up 200 times for those who dared to invest with fog on the windscreen. Very High quality companies will not be available at 10 times earnings, nay even 30 times earnings. That has been the case in my experience with India, Pakistan and Bangladesh; I would wager that will be case with Kenya and Nigeria as well.

I will be least surprised if the dividend per share after 10-15 years on NSE Kenya is far bigger than 2015 current market price of the script. If you find one such company, and you do not pounce on it, you are making a big mistake.

Lastly, NSE Kenya has no reason to be listed, merely a Capital Market Authority mandate to share wealth. That is exactly what you need to be looking, companies that are listed due to a freak accident and are not in need of capital.

Its time for you to get rich, think 10 years forward!

Monday, August 24, 2015

Why India is still expensive Sensex @ 25,000 ( just 20% down from peak )

Munger uses opportunity cost as a very frequently used tool.

Munger opines that if you have the opportunity to purchase an investment that is better than 98% of all businesses, then you can use it as a filter to automatically eliminate the other 98%.

Ultimately in the long run, investing world is full of toads that do not transform to princes.

I wrote in 2013 about Unilever Nepal @ 10,000 NPR / share. The company is growing @ 20%, not less than it grows in any other emerging country.


Now, after two years of irrational bull market (not backed by productivity improvement) companies are over priced on every continent.

Unilever Nepal (where FII investment is not allowed) is also trading at reasonable valuations (22 PE from 12 PE two years back) on back of 20% growth, it looks quite affordable. 

The company has lions share of FMCG market in the country, pays out 100% of dividends, in fact, Royalty is also paid as dividends, hence a minority investor wins more. This years' dividend is whopping 990 Rs a share giving a 4% yield on closing market price of 26,000 Rs yesterday.


Year Revenues Net Profits Crores * # of Shares** Earning Per Share *   * In Nepal Rs
2002 6.75 920,700 73  ** Face Value 100 Nepal Rs (Hindustan Unilever owns 80%)
2003 Growth 25% 4.25 920,700 46.28 40 Rs Dividend
2004 9.31 920,700 101.38
2005 12.7 920,700 138.3
2006 18.91 920,700 205
2007 23.81 920,700 259 220+ Rs Dividend
2008 145 26.3 920,700 286 250+ Rs Dividend
2009 214 33.5 920,700 364 300+ Rs Dividend
2010 290 51 920,700 555 350+ Rs Dividend
2011 337 61 920,700 664 400+ Rs Dividend
2012 420 70.26 920,700 763 680 Rs Dividend
2013 472.47 83.13 920,700 903 760 Rs Dividend
2014 920,700 1000 860 Rs
2015 920,700 1200 990 Rs Dividend

Not bad, the price has gone up 150% in two years + dividend yield is 4%, and company continues to look cheap..


While I appreciate you may not be able to buy Unilever Nepal, but any citizen of any country can still buy NSE Kenya (on they way to become my biggest single holding anywhere) which has 100% control over equity (futures, commodity, derivatives soon) markets in Kenya.

The company is expected to grow over 25%. INR / KES equation does not look that bad. You will be astounded to note the PE ratio, 12 times earnings. This is not an asinine FY25 scenario, its TTM earnings. I wrote about this opportunity here http://multibaggersindia.blogspot.com/2015/04/30-cagr-30-roe-debt-free-10-pe-monopoly.html . Serious enough people would act rather than analyse https://www.nse.co.ke/inverstor-relations/financial-reports-and-results.html

Having found near monopolies at 12 and 20 times earnings with same country demographic and growth characteristics as India, these companies will be drowning in cash, wouldn't you call that opportunity cost. These companies are proverbially as strong as the a Portfolio of Three Companies Munger keeps talking about. 

You have 15% growers like Blue Dart trading @ 80 times earnings, 3M at 100 times earnings, a 15% growing Asian Paints at 65 times earnings, and a troubled Zero growth Commodity Stock Exchange MCX (just because its monopoly) at 45 times earnings. If India is not expensive, then which countries' equities are expensive? I see, you are asking me to buy 3rd tier companies. I wrote to a number of people whom I advise to expect Zero returns in India in next two years. IMO India is still very expensive.

Saturday, June 13, 2015

Sandalwood Oil 100,000 INR or 1,500 USD / Kg TFS Corporation Australia

I spent 3 days researching on an idea after it passed several filters including excess of 30% return on equity and a niche business model. 

The idea was based on a rare commodity, due to lack of sustainable farming practices in India, the production has fallen 95% over past three decades in India. Regulation is decades far in India, even if regulation for sustainable farming were to be passed on 15th of June 2015, i.e. tomorrow, it will be 15 years before India would be back in the game.

India's loss was gain of an Australian listed entity, TFS Corporation which grew from a 20 Million AU$ company in 2004 to 620 Million AU$ company in 2014, 30 times.

I feel that the company will grow even larger in the time to come. They have backing of solid investors such as Harvard Foundation, Dubai Sovereign Fund, and HNIs.

Salary offered to employees is also pretty good for blue collared work, 60-90,000$ per annum.

TFS Corporation controls ~25,000  Acres of Land for farming Sandlewood tree which is ready after 15 years. ~7500 Acres land is freehold, rest is managed for other investors such as Harvard or HNIs. That much of land is not easily produced by any manufacturing organisation these days on the surface of earth, compounded with long arduous process of perfecting Sandalwood tree growth.

Company signed a deal of 500 Million USD with Nestle subsidiary Galderma (2 Billion USD revenues) to supply therapeutic oil, in 2014. Therapeutic Oil sells for more than Channel 5.

The company also acquired a niche FMCG company, Mt Romance that is a market leader, it produces creams, lotions, aftershave and other cosmetic products from Sandalwood.

All in all, hitting the right notes to scale big. Maybe it will scale big.


Company is vertically integrated from Soil to Oil, rather Soil to Brand. Valuations are inexpensive at 6 times earnings.

 Meanwhile for the next 10 years this Australian company is the biggest grower of Indian Sandalwood Oil ! What an opportunity for TFS driven by India's absence of laws for sustainable farming of Sandalwood trees, which are now close to extinction in their native land.

India's Output


TFS Corporation, Hectares under cultivation

Advantage Australia

The biggest reason why this idea is a pass for now, is because the economics will transform very rapidly with more wheat growing land transposed by Sandalwood farming in Australia. The news is out and others will catch up in next five years.

An Urdu Poet wrote:

Dard-e-sar ke vaaste
chandan lagaana hai mufeed,
Uss ka ghissna aur lagaana
dard-e-sar yeh bhi to hai

[Sandalwood paste is the ideal cure for a headache,
(But) its preparation and application is a headache in itself!]