Recently I shortlisted a few stocks which passed through the basic filters and did a quick 15-20 min analysis to sort them into two buckets – the ‘go bucket’ and ‘No go bucket’. The ‘no go bucket’ are the rejected stocks on which I will not be spending any more time for further analysis. I may have rejected some stocks which may turn out to be good ideas later, but I prefer the sin of ommision than commision. The ‘Go bucket’ has stocks which have to go through more detailed analysis before I commit money to them.
No Go bucket
Torrent pharma – A profitable pharma company into bulk drugs and formulations. Growing well and has a clean balancesheet. Have not looked into detail, but the valuation seems to be around 15-16 times latest earnings. Have scanned the financials very briefly and cannot find anything wrong. However it is in the No go bucket as the valuations are not too cheap. May come back later after I run out of ideas.
Diamines and chemicals - This is a very small company with turnover of 20-25 Crs and Net profit in the current year of 6-7 Crs. It sells for a market cap of 35 Crs and so it seems to be very cheap at a PE of around 6. The company had a negative networth till 2003 and seems to have turn around since then. Has a high Debt equity ratio of almost 0.7. Although looks cheap, I am not comfortable due to the small size of the company and inconsistent operating history. No further analysis on this company.
Poly medicure – A health care company into health care disposables. Currently growing in double digits with this years topline likely to be around 80-85 Crs and net profit to be between 7-8 Crs. The ROE is 20% plus range and the entire company is selling at around 75 Crs, with a PE of around 8. Had a brief look at their website and was unimpressed. No annual report or financial available on the company website. Worth further investigation for the time being
Ultramarine and pigments – A small company into dyes and pigments with an annual turnover of around 60-70 Crs which has been stagnant for the last 4-5 years. Net profits have zoomed from 4 Cr to almost 18 Crs (expected) for the current year. Capital invested in the business has come down in the meantime with investments on the balance sheet of around 25 Crs (FY 2005) and low debt of around 5 Crs. Capital requirements in the business seem to be low and hence the business seems to have good free cash flow and a return on invested capital of almost 50%. Definitely worth a closer look.
next post : i would be listing more ideas in both the buckets
ps : Please see my disclaimer. I would not want anyone to lose money based on my analysis