Now that I have managed to irritate some of you, by rejecting stocks which you hold, let me push it still further J
Torrent cables: Erratic performance in the past. Loss in the current year and some years in the past.
TRF ltd: Negative cash flow. High accounts recievables being funded by supplier debt
Bharat bijlee: Poor cash flow. Rough estimate is 20% of net profit, hence the valuation is double the current PE. Fairly valued.
Allied digital services ltd: Raised new capital, majority of which has been used in accounts receivables
Ganesh housing: Fully valued or overvalued. Constantly raising capital for growth
Supreme industries: very low free cash flow and low margins.
UB engineering: Negative networth. Business turned around in the last 2-3 years.
Some quarterly results
Some of the companies, I hold currently have declared their quarterly results. A quick review and some thoughts
VST industries: The company reported a 40% increase in topline and 50% improvement in bottom line. Volume growth seems to be driving the top and bottom line in case of this company. I do not have access to the reasons behind it and hence it is difficult to evaluate the sustainability of the performance. I need to analyze if the growth is being driven by some new products as it is unlikely that the existing products would suddenly do so well.
Asian paints: The company is now firing on all cylinders. The company has reported a 100%+ growth in net profits. This has been a long term holding for me and as I have written in the past, I am also an ex-employee of the company. I am not surprised with the performance of the company. The company has a long history of good performance and has increased its market share and competitive advantage substantially in the last few years. The valuations of course reflect the strength of the company
NIIT tech: The company reported a 12% decline in topline and similar decline in the bottom line. The key reason behind it are the hedging losses. The company has been able to improve its operating margin during this period. There is nothing much to get excited in the current quarter results and with rupee appreciation, it is likely that the negative impact of the hedges will be reduced. I do not expect much in terms of the performance, which has clearly been a disappointment for me. I have marked down the intrinsic value of the company accordingly.
Maruti Suzuki: The company reported a 45% increase in topline and 90%+ improvement in net profits. The topline has been driven by domestic growth and major increase in exports. The bottom line has been driven by moderation of various commodity prices. The performance has been as expected in view the good monthly sales numbers and the stock price has already factored in this performance. As I have written earlier, I have started exiting this position.
I will be posting on the results of the other companies in the coming weeks as they are published and I am able to complete my review of the numbers.
11 comments:
Thank you very much Rohit for the update!!
Did Patel Airtemp qualify your filter?
Thanks.
Vikas
Rohit - See link below, VST result analysis http://www.ppfas.com/pdf-docs/research/week-reports/2009/wr261009.pdf
Thanks
Prashant
Rohit - When you said you sold VST, immediately I thought of sending you an email to have little patience. But anyway I love your blog. I have added your blog to my blog list. I am collecting all the value investing blogs in India.
Thanks for the great work.
http://watchinvestments.blogspot.com/
Hi Rohit,
The question I have on outsourcing kind of IT companies like NIIT, Infosys, TCS etc is, "where is the moat?".
Every company seems to be into everything that happened yesterday, today or will happen in the future. All companies are generally present in all geographies, across all industry sectors etc. To top up the challenge, the "asset" of such IT companies are their people, but the employees keep hopping between the competitors and there is hardly anything preventing them from doing so. So where is the moat or where is the long term advantage? This also leads to the question - how do you value such a company?
Appreciate your comments.
Hi vic
no patel airtemp did not appear in the list to begin with. need to check why
rgds
rohit
Hi prashant
thanks for the link. checked VST results ..looks like tobbaco exports are driving the growth. dont know how sustainable that it ..profitability will depend on rupee etc too. would have been more sustainable if there were more cigarette sales
rgds
rohit
hi watch investments
well you win some, lose some :)
anyway thanks for linking my blog
rgds
rohit
hi madhav
thats a good question. i think i have referred to it in individual company specific analysis. top IT companies do have some element of competitive advantage ...i will try to cover it more in a later post
rgds
rohit
Madhav has raised a very valid point. When these so called "IT" companies talk of the financial numbers, one wonders if they are talking as a technology company, or coffee :-) Where else can one hear of "blended rates" - just like blended filter coffee in Bangalore - peaberry, plantation and chicory!
All speak the same language -
Full boquet of services
End to end solutions
parterning with customers
blah blah blah
However, while Rohit will give his erudite opinion, it seems that instead of a value moat, there just might be a ditch that differentiates one company from another. These are:
1. value system - how they treat the customers, employees and shareholders
2. Business Ethics -
3. Work Ethic
Other than that, all said and done, its really a people business, not an IT one.
Cheers,
Arun
Rohit,
Can you elaborate on allied digital services. "Raised new capital, majority of which has been used in accounts receivables" . Raising new capital via qip is some what bad i understand that. But how can use that for account receivable. Account receivable is credit to customer, so i understand. what could be wrong with that. I am just a beginner and i am trying to learn. Can you also let us know what are the places you look for these numbers and sites you use for researching the company number apart from the company's website. Thanks in advance
hi arun
valid points..will write my viewpoint soon via a post.
hi jagan
raising money and AR by itself are not bad. a company growing rapidly needs capital and in some cases would raise via equity. the key point is how the capital is used and what rates.
if the company raises capital and uses on assets which in provides high returns, it is good. if however a company raises capital and invests in assets which give poor returns then it is bad. AR is like fat ..you need it to a certain level to run a business, but excess or an increasing AR is bad. hence my comment
i generally look at moneycontrol and livemint for the numbers
rgds
rohit
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