August 2, 2009

Results review – LMW, Ashok leyland and Hinduja global

Lakshmi machine works
I have written on LMW earlier
here. The domestic and export demand for the company has collapsed since then. The company is now running at 40% of its capacity. The company reported a 60% drop in topline and 76% drop in profits. Time to panic and sell the stock ? Not quite.

The market was pricing much worse earlier. For a period of few months, the company sold for almost its cash holdings without any value being given to any other assets.Now that the market has realised that the company is not headed for extinction, it has revalued the company to a certain extent.

At the same time, I do not have any illusions that the fundamentals of the company will suddenly turn completely. The company is in for some tough times till the demand returns back to the pre-crisis levels and accordingly the profit peak achieved over the last few years could take some time too.

However if one looks at the annual report, one can see that the company is doing a great job of managing the downturn. The company does not require much capex and has reduced the working capital too. The cash and equivalents are now up at almost 700 crs which comes to around 60% of the market. I personally don’t think the company is going bankrupt and hence plan to hold on.

Ashok leyland
I have written about the company earlier here and here. The company reported an almost 50% drop in sales and 80%+ drop in profits ( I like companies whose sales are dropping off the cliff :) ).

If you are interested in the company, I would encourage you to see the latest presentation by the company
here. The company has taken pains to detail out the problems and how they are coping with the recession.

Ashok leyland has also been hit severly by the downturn and credit crunch. Although the demand is now stabilizing, the current quarter and maybe the next will continue to be hit due to inventory liquidation. The company books sales when it sells to the dealers. The slowdown in the demand has resulted in high inventory with the dealers which needs to be worked out. The only worrying factor in the results is the loss of market shares in HCV, especially in the mid segment.

The company’s results will continue to be hit for atleast a few quarters due to the slowdown and due to the depreciation cost of the capex which was put in place for the expected demand last year. As in LMW, I don’t think the company is going bankrupt and hence plan to hold on. At the same time Ashok leyland is not as cheap as LMW

Hinduja global
I have written on Hinduja global earlier (see
here and here). My main concern was the high cash holding of the company which is being maintained in foreign sub. The company has since then tried to clarify the above fact (details of the cash holding are provided in the last quarter’s result).

In addition the company came out with a higher dividend and fairly good results in Mar 2009. As a result the stock has almost doubled since then. In the current quarter, the company reported a topline growth of 30% and bottom line growth of almost 80%. The company continues to perform well. My hesitation in building a large position still continue to be the corporate governance issues, even though the company is cheap by objective standards.

Gujarat gas
I have written on gujarat gas earlier (see
here ). The company reported Q2 numbers and i am fairly satisfied with the numbers. The company has been facing a supply issue due to lower level of supplies from two long term sources.

The Q1 results were hit considerably due to the above shortage. The company has been able to secure some supply in the spot market to meet some of the demand. The topline grew by around 10%, though the volume dropped by around 5% during the same period.The bottom line grew by more than 10% if one eliminates the one time gain in last year’s result.

The company is doing quite well and I expect the profit growth to improve once additional sources of supply are tied up. Finally, the company has declared a 1:1 bonus issue. This does not change anything fundamentally other than higher dividends in the future. However the market has reacted positively and pushed up the stock price.

30 comments:

Lucky said...

Balanced update. Thanks a lot.

I too have been tracking (the price of) ASHLEY. Looked overpriced to me especially since I happen to remember the October-March prices :-)

I think I am going to miss many good companies just because I miss the good not-too-old days. Do you have a remedy for anchoring?

BTW, I have been wondering why you do not charge for these updates... But then, probably I would not trust you as much as I do now.

Rohit Chauhan said...

Hi lucky
hmmm .i think i should charge money now :) ..give stock tips, market calls etc etc ..just joking

my plan to use the blog as a conduit for charity ..so i will ask for money ..but it will not be for me ..hopefully for someone who needs it more than me and has not been as lucky in life as me.

regarding anchoring ..i am suffering from the same too.not easy option around that ..the best approach i can think of is to look at new ideas and not check their oct-april prices ..otherwise we may not find anything

Vic said...

Thanks Rohit for the wonderful and timely updates..:-) Your writing style is excellent.

Each entry helps to build more trust in you..which might come handy for future dealings..:-) Hey..Barel Karsan already launched his Fund/Service..urs might night be far.

Also, pls look for charities that have 80G status (same goes for US based).

I'll wait for your book..so that I can vouch for it.:-) i.e. I was able to put into practice the learnings mentioned in it..:-)

Thanks again,

Vikas

Rohit Chauhan said...

Hi vic
thanks for the comment. so now i know for sure that atleast one guy beside me will read the book !!
thanks for the point on charity.
yes , i noticed barel has started their fund ..you know what let me start mine ..you want to be my customer :)
regards
rohit

Vic said...

Hi Rohit,

I'll definitely buy and read your book..am hopeful that it will be practical and easy to follow. I mean lot of stuff is already contained in ur posts. It is just that u have to put urself in a beginner's shoes..show examples etc. This will be a real test for ur teaching skills ..:-).... of course many benefit from ur posts..no doubt.

If u give me a good deal, will be a customer for sure..for ur Fund or ur PMS.

Vikas

Rohit Chauhan said...

Hi vikas
book will be free with a link to donate whatever one wants too. i have no plans to make money off a book.

hopefully what goes around will come around :)

pms or funds is sometime away ...need to get my fundamentals right before i start that.

regards
rohit

karthik said...

Hi Rohit,

I too have been following your blog for some time now, so I think the day when you are ready for your fund is not far away.. Best of luck.
You can count me in...
But my request is please do some asset management also (Financial consultancy including retirement planning, insurance e.t.c) thats where we all truely lag and need some guidance.
That will seperate you from the crowd.. and remember to charge upfront fee for credibility.....

Vic said...

Karthik,

You can bank on me for Personal Finance stuff..:-)

Rohit: It is a great idea to use Donation route for your book. Yes, it will be good to give few more years for ur startup. More experience..the better..especially when managing other's money.

I'm in no rush..:-)

Thanks,

Vikas

Rohit Chauhan said...

Hi karthik
there are several reasons i may not do any personal finance stuff ..one of them is that it is diffcult to make a decent living out of it without doing some stuff where you dont work with the interest of client in mind
for ex: some financial planners get incentives for selling specific products even if the products are bad for the customer. i would never want to be in that position.
the other option of charging incentive as % of asset may not be viable as you cannot provide as much value for the commission charged
A pms or funds approach aligns ones incentive as a manager with the client. you win only if the client wins.

vic - good ..i will hold you that ..now that you have put it in writing here :)

Anonymous said...

I dived in when Nifty was 2800 and sold off almost 3/4th of my holding as it had met my return target of next 3 years in four months(never expected the market to turn around so sharply). Now,I am sitting on lot of cash and hesitating to buy as I think market is going into overvalued territory. Now I am tracking 3-4 companies but not sure that it is not overvalued e.g. Hindalco, PFC, Marico, etc.
In general, What should one do when you are sitting on lot of cash. Wait and patiently keep analyzing for some good find or put the money in some safe stock e.g. HUL.

karthik said...

Hmm... Thats true..But you will also face challanges in fund management ... People will expect return in 6 months ..1 year e.t.c which may be against the whole idea of Value based investing... Any thoughts on this ?( By the way I am not being negative , I think its a great idea but just trying to play the devils role here :) )

One of the other blogger here does financial consultancy and charges an upfront fee (which may sound kind of high but I feel it is justified as we dont crib when we pay doctors/Auditors). i.e Per hour consultancy fee (this way no hidden charges). What do you think?

I always suspect people when they offer something for free (All the so called financial consultants who offer thier service for free but end up pushing so many ULIP's).

Anonymous said...

dear rohit
since ur investment philosophy is guided by buffett ,graham etc, why not draw inspiration from their life also to influence ur life decesions. we know they have led a woderfully contented lives.u will be living ur mentors fulltime

Vic said...

Rohit, Karthik,

Both of you brought up some excellent points.

Well, Financial advisory can be done on Fee only basis but this might not attract much business.

Same thing goes with Value PMS..might not be everybody's cup of tea. But I'm sure there'll be enough for Rohit's Daal Roti..:-) just kidding.

you get my point.

Vikas

Rohit Chauhan said...

Hi karthik
very valid and good points ..i have been thinking of fee based consulting - more like portfolio consulting before moving to fund management.

i agree fund management has its challenges especially around investor expectations. I have been thinking on those lines for sometime and my likely solution is to first take only clients who agree with my investment style and orientation ..no point managing money for people if the approach does not suit them.

the second point in managing funds is to have additional strategies such as arbitrage, options etc to manage the returns. that will take care of some of the volatility and returns issue.

i have full time job and make a decent living out of it and through investing. my blog and consulting is to mainly work on something i am passionate about ...

I can start the services immediately, but the delay in starting is to build a financial cushion so that i dont have to depend on these services for a living. changes one's approach considerably then ..

Rohit Chauhan said...

Hi anonymous
buffett and charlie munger's influence on me does extend beyond investing. the quality which i admire most in buffett is his honesty and ethics.
what inspires me when i look at buffett is that you can a decent person and still be successful.

i have been working towards creating a life for me where i work on what i am passionate about and not for money alone. this blog has been the first step in that direction

regards
rohit

Rohit Chauhan said...

Hi vikas
my daal roti will be taken care of by my investment and the kapda makan (clothes) will come from clients like you who have already signed up :)

rohit

Rohit Chauhan said...

Hi anonymous
i can tell you what i have done in a similar situation in the past - keep looking for good / undervalued companies and invest slowly. however if you put in companies like HUL be prepared to lose money if the market drops ..that cannot be avoided.
what is critical in such case is to be discplined and patient

regards
rohit

karthik said...

Hi Rohit,

I agree. I feel the whole idea here should be you are doing something you love and also get paid for it.. It cant get better. You always have your regular job to give you financial backup (atleast initially especially if you start now..)There is never a perfect moment t start anything in life

I also had another thought (May be crazy :))..Why dont you offer a week end crash course (may be few saturdays) on fundamentals of investing in the city you live (Hope it is Bangalore where Iam based :) )

We keep taking courses to improve ourself technically (Cisco certification ,Computer courses e.t.c) but not on learning how to invest (Maybe due to lack of teachers)

I would not mind paying a reasonable fee to get financial literacy (learn more about DCF valuation,Assest management,,Buffets principles)..

This way you can also pass on things you learnt yourself and make some money for fuel :) ( I love teaching..I can promise you it is a great feeling).

Why This idea may work

1. you have already built a fan base based on your blog (Me ,Vikas for sure )
2. I cant think of anybody else doing something similar in India (So new concept ,might work)

3. You will do something which is close to your heart.

What if it doesnt work ?

So what ? Anyways you would be charging upfront fee for anybody who joins.. So atleast you have taught a few people who geniunely want to learn. If no body turns up , curse me for this idea and get back to your routine :)

Vic said...

hahaha..good one Karthik (reg ending of your recent post) :-)

Rohit,

I hope you don't build a too comfortable of a cushion that the drive for higher returns goes down..:-)..especially in case of ur clients..:-)

But "the kapda makan (clothes) will come from clients like you" makes me feel better. :-)

At least there's a reason, if not for Pet (belly)..Kapda makan Sahi..:-)

On a serious note, I do agree with your thought "additional strategies such as arbitrage, options etc to manage the returns". It is extremely important that one keeps on learning, expanding and honing skills.

I recall one quote from "Scent of Woman".. my all time most fav movie. "The day we stop learning Charlie..is the day we die". Col Slade to young chap.

Thanks,

Vikas

Vic said...

Karthik,

That's a great idea too. I think Rohit can be a good teacher..like Prof Bakshi.

In my practical experience, one always grows much more with Giving and Sharing.

Thanks,

Vikas

Lucky said...

Hi Rohit,

I will join your (weekend) classes if they are in Bangalore.

Regards
-Lucky

Aseem Kapoor said...

LMW makes sense to me, stock is cheap and business prospects can only improve. I had a look and liked the risk assessment matrix in the annual report.Govt. is also doing its bit - http://www.utvi.com/industry-news/other-industry-news/28862/textile-gets-govt-help--wants-more---.html

Rohit Chauhan said...

Hi vic, karthik and lucky
thanks for your interest. i am based out of bangalore, but travel a lot. I have never thought doing any such sessions due to my time commitments. however i will give it some thought and see if i can make it work some way

regards
rohit

Rohit Chauhan said...

Hi karthik
i need to think about having such sessions or doing something in that direction, with the biggest constraint being time. however i will give some thought to it and see if i can work out something in due course of time
regards
rohit

Rohit Chauhan said...

Hi vic
i think my drive for returns and to be better investor is unlikely to reduce. investing is no longer about money alone ..most of us can earn a decent living doing a variety of things ..so if some of us choose this as an alternative career or spend our spare time on it ..it is mainly due to the interest in it

rohit

Ved Vyas said...

I have invested in Gujarat Gas and LMW, ave been following Ashok Leyland for quite sometime but i think it is biht expensive, don't know much about Hinduja. Even in downturn LMW has been able to manage bottomline quite well and I think it has already bottomed out. Gujarat Gas has nice business economics and got a chance meet their management sometime back and liked them.

Vishal Mittal said...

Hi Rohit,

Great going!! Just have a relook at LMW. The cash on the BS is not actual net cash, as they have CL (advances) against it, which should be netted off. So the net cash value is at best Rs. 250 cr, or lower on prudent basis.

Regards
Vishal

Rohit Chauhan said...

Hi vishal
you are right ..a lot of the cash on the books is customer advances..so it not true cash. however this also transalates into cash flows which are higher than the book profits. also the company gets additional cash as it grows ..

Rajesh said...

hi rohit,
just out of the blue....what are your views on opto circuit fundamentally and their management with a recent buyback also your views on sintex industries.

Regards
Rajesh

Anonymous said...

Hi Rohit,

Out of all the suggestions about sharing your knowledge , the one about about taking classes is by far the best.The reason here is the criteria on which you base your decision- you can either employ your expertise to earn money for people or to help people learn how to make money...the second option is obviously better as your skill will outlive you and you would have still earned a lot of money (I believe prof bakshi asked for 2500$ per hr for a proposed class in singapore and got it though he chose not to accept).If you chose to teach i commit to register for the class:) thks for the blog though .I'm a homemaker with very sketchy knowledge of finance but a keen desire to learn as I hv realised that the market can help me gain financial independence without leaving the comfort of my home.I'm sure there are many others like me who would benefit enormously should successful retail investors like you decide to teach.How abt tying up with some institute and providing distance learning via video conferencing frm the comfort of your home? Hughesnet provides distance learning courses in financial mgt via satellite but people teaching these courses havn't successfully applied that knowledge in the markets so i have not found it worth my while to take the same.