September 21, 2005

Cannot find much to invest in these days

Cannot find much to invest !! I typically run screens provided by icicidirect. Most of the companies being thrown up below a PE of 10-11 (I keep a cutoff at 10-11 as I think that would be the approximate value of a company with no growth and returns at cost of capital. So any company having growth and a ROC of greater than Cost of capital would be worth more).

Sample of some companies which came up

- EID parry: In commodity industry (sugar etc) and selling at 16 times peak earning (the screen was wrong and did not consider the 1:5 split.
- Banks: Several banks like Karnataka bank etc came up. Need to check if any banks would have value
- Tata steel, Essar steel, Gujarat ambuja cements – Commodity companies selling in low teens of Peak earnings. Would not be looking at investing at peak / uptrend of business cycle. Also PE is generally a poor indicator for cyclical companies. Generally during downtrends these companies would sport a high PE on depressed earnings and that could be a good time to invest.
- UB holding – A Loss making holding company selling at a CAP of 1100 crores. Tangible assets appear in the range of 300-400 crores. They could have some undervalued assets on balance sheet such as land holdings at cost, Investments in subsidiary companies. Looks unlikely to be worth more than 800-900 crores. I will need to look closely.


Any good ideas ??

8 comments:

Harvey Multani said...

indian-american, 18 and a fervent value investor

pey said...

My "gut" says Apollo Hospitals should offer excellent potential if seen from the "growth" lens.

Perhaps you may want to study it for yourself.

I'm long on it.

Anonymous said...

UB holding holds 43% mcdowell(1000 crore worth) ,100%of Kingfisher airlines, 10% of aventis 15 % united brew ,UB city(woth around 250 crore) etc ..It should be
valued atleast 1 billion $ .

Rohit said...

thanks for the input

do you have an idea on the plans vijay mallya have with UBholdings ? will he use the cash flows from the investments to pay down the debt or will he divert cash flows from the cash cows such as mcdowell and others to kingfisher (which is an airline business and typically does not have great economics)

Anonymous said...

I like your blog . I would like
to start one blog like this one
day .

Regarding your question about UB
holdings.I am not a big fan of
mallya's management style.But i believe once he sells a part of his
stake to a strategic partner then buiness will be better managed .(like aventis pharma). U can expect that united breweries follow the same suite because S&N got a 37.5 stake there .

With in next 6 month he will sell stake im mcdowells to strategic partner too .United spirits(mcdowell +shawwallca+ herbertons)has got sales of around 3000 crores.That too in a restricted
enviorment .If the regulations are eased in coming years ,just think
of the look-through earnings of UB holdings from mcdowell.(20% margin
is the international norm)

He hasn't put much money in KF airlines . He put around 60 crore
for that . But i heard that it is doing well and it's customer service is better than that of that jet airways.

I believe KF airlines also he will
divest to a partner, most probably some private equity fund. I don't think that much cash inflow is't needed from UB holding for airlines

As a apart of consolidation mcdowell Holding is going to demerged from mcdowell .UB holding will own 43% of mcdowell holding .Later statge
he may merge mcdowell holding and
UB holdings .Mcdowell holding holds around 10% united breweries.

He may divest stake in MCF,UB enginnering etc .Other that UB holding got 150 crore export business(shoes,fruit pulp etc).It
also owns a brewery in soth africa
with around 400 crore turnover .
UB city will generate 20 crore cash
flow from next year onwards.
This company is asset rich, Nowadays mallya is showing inclination to unlock the value of assets

Do you know that in 2002 entire UB holding available for 30 cr Mcap.(15 rs share price). No one was buying then. I used read warren buffet's writing those days also.
(Like washington post's valuation in 70's )But i didn't act on it in a big way .I am praying god to show such an oppertunity again

P.S Can i have you email address.I would like discuss about investing with you .bye

Rohit said...

thanks a lot for the detailed inputs. i was trying to look up for UB holding annual report. They dont seem to have a website.
i generally tend to avoid investing in a company till i can get hold of the annual report and have a look at it.
The entire setup in UB holding looks complicated (maybe to me only )and rests on the whims and fancy of a single person.
I have avoided get into such investment in the past where it fails the smell test (you dont feel good about it in the gut) as far as the management is concerned.
i am fine if the economics of the business is average, but the management should be rational and shareholder friendly.
In 2002 there were several very undervalued companies.i invested in a few of them. Did not go whole hog as i did not have confidence to do so at that time.
and yes i hope similar times return.
my email id is - rohitc99@yahoo.com

Anonymous said...

rohit,
They have a website.
Check www.ubindia.com
For regular updates about their activites check www.theubgroup.com.
There they have a regular newsletter .

I too agree that it is depends upon
on the whims and fancy of a single person. But that is the reason why you are getting at this price!!

Have you ever looked at maxwell industries ( Makers of VIP inner wear),sundaram finance (it had run
up recently),bayer diagnostics(a small cap with mnc parentage).If you look at sales to mcap perpective maxwell is cheap.

Rohit said...

thanks for giving the website. i will look into it in more detail. i have done a brief analysis of ub group and really do not have a firm opinion.
thanks for the other suggestions. i would definitely want to look into it.
i had looked into the bayer group and was able to understand bayer india and bayer abs (i think now it is lanexess abs ). i invested in lanexess abs as i found it to be fairly undervalued