Portfolio Performance [Update #4]

Changes:

1] Added Compact Disc. [As it fell to 48. I fell further to 39 the next 3-4 days. I should have waited :(]

2] Added Mercator Lines [New fleet, long term:s

hort term contract ration of 70:30, acquisition of coal mines and long term contracts with steel / power companies looked good.

3] Added Eastern Silk as it was still cheap [PE of around 2]

4] Added GE shipping.

Here is my portfolio as on 1st october.

                     1] As you can see, it looks more like a mutual fund with lots 13 companies. I am considering going the Mutual Fund way as that would give me more time to focus on other areas. Investing in stocks is good, but if there is someone else who can do it for you the way you want, why not let him do it for some fee? The time invested somewhere else could give me higher returns.

                      2] Failure of the US investment banks, FII outflows and their effect on your portfolio is something that one needs . At present, I am avioding exposure to stocks that have high FII holding (more than 10%). I learnt this the hard way. Lehman brothers had a significant stake in Amtek Auto and see what that has done to the price.

Portfolio Performance [Update #3]

Changes :
1] Added position in Eastern Silk
2] Reduced position in ICSA
3] exited from Agro Dutch at a loss ( Company had a high debt and I had invested inspite of this fact)

Learnings :
1. Say not to companies with debt.
2. Do not expect any company to turnaround easily
3. Do not buy stocks just because you have money to spare. Buy only if you find a great opportunity. Having money in your bank account is better than losing money in stocks.
4. Limit your holdings to 5-6 companies. I do not have the time nor the resources to keep tracking each of these companies.
5. Do not spend more than 12 hrs per month on stocks. I have more important things to do. Invest the time in improving myself.

Cals Refineries Annual Report

Cals refineries is in the process of setting up a petroleum refinery.
It has bought second hand refinery equipment in Germany and Canada and is in the
process of assembling it in Haldia, WestBengal. The location of the refinery on the East Coast would add $2 per barrel in Shipping costs.
Negligible profits at present, and money would start flowing only after 2010.
The board of directors looks impressive, but I'd like to wait till I get more information on this company. This could be a turnaround story.

I mailed the company requesting the annual report and received it promptly.
Nothing interesting in the Annual Report, but I am uploading it here for record.

Company watch #5

It is difficult to find good companies trading at a price that fit my criteria. Nevertheless, here are a few companies I looked at:

grindwell Norton - Apparent PE = 4, (Effective PE = 10) zero debt (CMP = 99)
This company is into making abrasive products used in industry for machining / grinding operations. It is also into the manufacture of indistrial ceramics. It ranks 2nd in the domestic abrasive market (Carborundum PE = 12 is the market leader)

+ Abrasive is a consumable
+ Second Leader in the Abrasive markt (Carborundum, Grindwell, Orient)
+ close to 0 debt
+ promoter Holding 70%
+ MF's increased holdings in June

- industry slowdown ==> lower sales
- chinese competitors ?
- One of the promoters sold around 3 lac shares recently

more info:
http://groups.google.com/group/dpstock/browse_thread/thread/900e929458b63796
I need to research the company in more detail. Need to get hold of some analyst report

Update : Rohit pointed out that the PE is apparently low due to one time income in the Sep 07 Quarter. Excluding this one time income, the effective PE comes to 10. One can see that the Sep 07 EPS is an outlier. Not too cheap!

June 07 2.26

Sep 07 16.48

Dec 07 2.80

Mar 07 2.27

Jun 07 2.66

===
CHI Investments (dump)

http://www.capitalideasclub.com/ideas/article-full-90.php?id=74
*NBFC : Holds investments of many companies
+ summation of holdings is 80 Rs per Share

- low market cap - 36 Cr, possibility of manipulation

===
Can Fin Homes Limited (CMP : 72) (dig further)
http://www.capitalideasclub.com/ideas/article-full-90.php?id=51
+ PE : 4.84
+ BV : 105, trading at 30% discount to book value

- Housing Sector slowdown / high interest rates will lower sales and margins

note: look for cheaper housing finance companies (LIC housing finance, etc) and wait
for interest rates to come down.

===
Tata Elxsi (I want it cheaper)
http://www.capitalideasclub.com/ideas/article-full-90.php?id=32

Into product development outsourcing
+ PEG = 10/20 = 0.5

- PE = 10
- finding talent in India ..

===
Cals Refineries (CMP : 3.36) ??
In the process of setting up a second hand refinery. Plant to operate from 2010.
So I guess that there would be no earnings till 2010. Paucity of information on this company, did not find annual reports. The Board of directors looks impressive.
A possible turnaround ?

I'd like to be on the lookout for more information on this company

Note : These posts are for my own record, these should, in no way be considered as recommendations. I can change my mind and views without notice.

Company Watch #4

Patel Airtemp
+point
low PE
-point
but in the business of Manufacturing Air conditioning. highly competitive industry with a lot of players

HDIL
moderate PE = 8

Orbit Corp
moderate PE = 8

Both HDIL and Orbit Corp are infrastructure / construction companies. I'd like to look at them when they become cheaper in the coming 2 quarters.

Jindal Saw
+points
low PE, into the business of manufacturing steel pipes.
Low Debt/Equity ratio (0.52)
set a price alert at 400 (PE=2.5)

Kavveri Telecom ( CMP: 120)
Into the business of manufacturing telecom equipment.
Low Pe : 6.34
Debt/Equity = 0.45
Negligible FII/MF holdings (Why)
set a price alert at 80 (PE=4)

SPEL Semiconductor (CMP = 23)
High YoY growth, but a high PE (12)
Into the business of semiconductor testing / outsouorcing.
I do not have much knowledge of this industry, but I feel that Chinese / Japanese would be better than India in terms of technology and technical knowledge.
I'll look at this company when I have time. Set and Alert at 16.

At present, Eastern silk looks attractive for me. Since I did not have a large amount of funds, the present round of investment has gone into accumulating Eastern Silk. I'd I would also like to add Compact Disc in case the price falls back to 55 - 60 levels. Kavveri Telecom and Jindal Saw are on my radar at present and I would analyse them in more detail in the next round of investment. Both companies look good, but I would like to buy them at a cheaper valuation. As Warren Buffet says - "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

Banks

Personally, I feel that money lending is a good business as it gives a steady source of income (in the form of interest from borrowers). This is one of the reasons I am planning to include one of the banks into my portfolio. With inflation showing no signs of cooling, it is possible that the RBI would continue to tighten it's monetary policy, Banks would have to raise the interest rates and the amount of loans disbursed would fall. This would affect the Sales and Toplines adversely. Margins are also bound to be affected. One of the reports I was reading mentioned that the profits of banks can be impacted 5-20% over the coming 3-4 quarters. The report had listed the following banking institutions:

I am planning to wait for another 6-9 months for inflation to cool down and the RBI to ease the monetary policy. I'd also look at real estate sector around November for similar reasons . Meanwhile, I'll go look for some other yummy company to embellish my basket with ;)

Company Watch # 3

I found the following compnies listed in the Economic Times as good Mid and Small cap stocks. I noted them down and my take is that the PE's of many companies is too high to pass down my filter.

- gsk consumer (PE = 14)
- PVR - (PE = 20)
- Bartronics - (PE = 11)
- Jain Irrigation - (PE = 27)
- Piramal - (PE = 21 )
- IPCA - (PE = 10.52)

- Numeric Power Systems - PE = 7.56, but I feel the UPS industry would have low entry barrier

- Indian Overseas Bank (CMP = 83, PE = 3.87, PBV = 1) -
Looks attractive, but I feel that the banks are still not going to interesting
to investors for some more time, say 5-6 months till the RBI eases the repo rate and the Interest rates. Reduction in Sales (i.e amount of loans) is possible for some time from now due to higher interest rates. Revisit after some more months.

LIC Housing Finance ( PE = 6.13 )
Will wait for a fall for the reasons same as Indian Overseas Bank

Bharath Electronics (PE = 10.48)

A closing note:
In his book, "One up on wall street", Peter Lynch mentions that high growth companies need to be treated differently. You look at the PE Growth instead of PE. i.e PE / (expected growth). He recommends a value of PEG which is less that 0.5
Bartronics, which specializes in RFID and biometrics technology solutions looks like a growth company, but I am not looking at growth stocks at present due to uncertain economic conditions.

Eastern Silk - Result Update Q1 FY09

Eastern Silk is involved in manufacturing of value added silk textiles. The company had made a loss of 15 crores in the last quarter and the stock got beaten down badly. The huge drop in sales from 168.96 to 31.34 crores did not look good at all. One of the FIIs (Merill Lynch if I remember it correctly) also emptied it's entire stake. Within three months, the stock fell down 60% from 42 to a 52 week low of 12. I had looked at it 3 months ago, but deferred buying the stock so that I can buy the company once it gets beaten down fully. I had forgotten about this company until it figured in 52 week low list in moneycontrol. It was trading at a 50% discount to it's book value, the company was in existance since 1958 and the company had implemented capex plans over the past few years.

Though no reason was given by the company for the loss it made in the past quarter, I speculate that the losses would have been forex derivative losses. Since it is an export oriented company, it needs to peg the indian rupee against various currencies. Grapewine also talked about disruption of silk supplies. I did not analyse the company completely due to lack of information, but the discount to the book value looked attractive and so did the age of the company. The PE of around 2.5 was also attractive.

In the results announced today, their Q1FY09 sales turnover was 481 crores leading to a net profit of 58 Crores. They have also announced a dividend of 45% which turns out to be Rs 0.9 per share of face value 2. So far, so good. I am eager to get hold of some Analyst Report or a Investor Call transcript which will tell me the reason for the loss they made in the previous quarter. As they say, lack of information is also considered as RISK.

UPDATE : An article in moneycontrol gives the reason for the Q4FY08 losses, and I had "speculated", they were forex losses.

Analyst Recommendations and You!

The reason I write this post is that even though I go through the analyst reports that are accessible for free on the internet, I do not go by their buy / sell / (whatever) recommendations. They help me with more information of the company and the factors that can affect the company.

For instance, the following document recommends a dozen Midcap stocks:
Edeweiss MidCap Stocks
But none of them filter through my criteria.

Even analysts can go wrong. Analysts have an edge over retail investors as they have access to the company management, other market research, etc. In spite of this, I feel that even they cannot predict the infinite factors that could seem to affect the markets correctly. Ask anyone who invested a large amount of his money in Sasken when it was hovering around 500 in Jan 08, following one of the many "analyst reports". Here is one of them where Merill Lynch has a buy recommendation with a price target of 600!. Sasken had hit a 52 week low of 88 after the Jan crash and is still hovering below 160! Personally, I use analyst recommendations to supplement the information about a company and add companies that are doing good to my watchlist.

No wonder that any Analyst Report has a last page that boils down to "Invest at your own risk!"

UPDATE : fellow blogger Rohit Chauhan puts it in a humorous way.

Portfolio Performance [Update # 2]

With the recent market meltdown and uncertainty, I have become even more conservative about my stock selection process. I look for lower PE's, strong and simple business models, aggressive growth strategies and limited downside. Sometime amidst the market mayhem, my portfolio had returns of around -25%. I have to take some time to recheck the fundamentals, and clean my my portfolio. The Indian Stock Market had become too costly (@ a PE of 18 when the sensex was at aroound 18,000, India was the costliest emerging market). I feel that even at the current level of 14,300 it is costly. Add Political Uncertainity, Government Intervention in pricing, decreasing dollar reserves, highly volatile FII in/out flows to this and life does not seem easy.
This is the time to pick up a magifying glass and choose companies with great care. Not all stocks that were going up will go up. Since, the number of stocks I can manage with the time I have in hand is limited, I am planning to keeps the stocks in my portfolio limited to a maximum of 6 - 7 stocks. Here is my portfolio as of yesterday. I added Eastern Silk Today and I must confess that I bought this stock without putting it under the scanner. This company had made a loss of 5 Cr last Quarter. The company had not released any information on the cause of this loss, but I feel that this was due to the currency losses. The sales too had dropped substantially over the last quarter. The things I looked at were Low Debt, Low PE (2.7) and it is trading at a 50% discount to it's book value. It had fallen to it's 52 week low of 12 a couple of days ago. And SBI MF had added this company last month (after the results had been announced) and I felt that they must be knowing better than me :). I'll post about eastern silk once I get more information and some time.

Here is the performance of the above fund as compared to the BSE Sensex.
Another company I am looking at is Prajay Engineers. This company is into real estate development and has a large land bank and had made a loss in the previous quater. It rose close to 20% today after being beaten down due to selling by GE funds.
I am also looking at applying some physics principles to exploit the volatility of the stock market. Something similar to Maxwell's demon and the perpetual motion machine.
Any suggestions are welcome

Risk Tolerence, Risk capacity and your Asset Allocation

I like the new Money Control portfolio manager which is based on AJAX. The interface is sleek and responsive. The Fund Allocation Charts are informative. One of the features that I decided to try out is the Risk capacity and Risk tolerance assessment. They have provided a quiz based upon which your Risk Tolerance and Risk Capacity is Calculated.

The tool came up with the results for me as person with a Moderate Risk Tolerence and High Risk Capacity. According to this article,
"Risk tolerance is the amount of risk you WANT to take.
Risk capacity, is the amount of risk you NEED to take.".

Which means that, I can look for higher risk :). And guess what, I am acutally doing that :)

The tool recommended me a portfolio of 48% equity and 52 % debt, while, as of now, My portfolio consists of 66% equity and 34 % debt (NSC's bought in my first year of job when I had no clue of investing, making money grow, work for you).
The sensex surged 800 points today, and I regret that the orders that I placed early morning did not get triggered [:(].

Company Watch # 2

Steel Sector : Price controls lifted. Possible opportunity.
SAIL (CMP: 127):

India Bulls Analyst Report Dated June 1 [buy recommendation at 137]
http://www.business-standard.com/pdf/TU556%20SAIL%20080701.pdf

+points
Debt Equity : 0.22
PE : 6
07 - 08 PAT growth : around 16 %
Steel Prices rising
85% promoter holding

-points
Government Control
5.41 % FII holding - could lead to a further call
Expansion Project overruns
Higher Raw material prices eating into margins

Conclusion : I am not very comfortable with capital intensive industries. Could wait for a further fall. Will take a look at this if I do not find better companies.

Company Watch #1

Company watch is a series of posts on the companies that I scan through when I scout for investment opportunities. Maintaining a record helps me save time in the future as that I can quickly refer to the recorded information when I come across a stock that I had already looked at.

Gayatri Projects : (CMP : 203) - buy at 150
Construction, Infrastructure projects.
+ points
PE : 5, BV 180, 07 - 08 growth = 50 % .
promoter holding 56 percent (increased by 1 % YoY)

- points
debt / equity = 2

Could look good, but wait for a further fall due to high interest rates which lower margins
FII hold 17%, their sell off will give rise to a further fall

Conclusion : Will buy(look) at 150

Kilitch Drugs : (CMP : 108) [look at 40]
Manufacture of Injection Medicines, biggest player in this space(?)

+points
no MF Holding
high YoY growth as compared to previous years., could be a turnaround
promoter holding : 64 % (reduced from 66%)

-points
PE 13.51
USFDA approval this year, could wait for a fall if this does not happen
debt / equity = 1.46

Conclusion : PE is high, Debt is high. Look at 40.

--
Facor Alloys (CMP : 10.16) [can buy provided company is clean]

+points
PE = 2.81
promoter holding = 48.68 (reduced from 50.9)
high YoY growth. Looks like a turnaround

-points
retained earnings are negative ( -306.56 crores). Not sure what this is
owners fund as % of total soource : -37.6%

Conclusion: Something goofy. Look at this in detail.
--
Neha International
Flowers.
PE 66 - forget it.

Why did Sasken rise yesterday [and is still rising]

Yesterday Sasken was up by 14.36 % starting from 140 and steadily rising to 160. Though I am not keenly interested in technical analysis and the fluctuations of the stock prices, I feel that it can help me time my buy and sell decisions. I mean, I could buy a stock cheaper or sell it higher. Major rise / fall in stock prices is effected by the buying or selling by the Institutional Investors (FII / MF). Retail investors dont play a major role in moving the stock prices.
In the case of Sasken, Sundaram Select Midcap fund bought 2.5 lakh shares @ an average price of 150 Rs [source : moneycontrol]. From the technical chart, one can see that the price has been steadily rising since the morning.

From the candle stick pattern, one can see a "bull" trend in the stock.

Source : businessweek

Note, Sasken had fallen from a high of around 600 to 88 after it's Fy08 Q3 results were disappointing. Till some time it was trading below it's book value and the cash in hand. It was like buying Rs 150 for Rs 88. The company has announce a buyback at a price not exceeding 256 per share. I'll be writing a series on the stocks that I had a look at and why did I choose / dump a particular stock. Peter Lynch (as well as Warren buffet) Says that for every stock you choose, you should be able to explain your choice with strong reasons.

How do I invest in the indian stock markets

I am a newbie to investing. Before investing in equities, I made sure that I had enough knowledge not to burn my hands in the Stock Market. I was impressed by Warren Buffet's lectures [youtube] and his simplicity. Some of the books that gave me a better idea of equity (secutities) are:
Investment Fables by Damodaran [amazon]
- This book deals gives different strategies to select stocks (PE , Book Value, etc) and gives the pros and cons of each strategy by correlating the strategy with the historical prices.
One up on the wall street by Peter Lynch [amazon]
- In this book, Peter Lynch categorises securities into six different categories (stalwarts, turnarounds, growth, etc) and illustrates each of these with his experience as the fund manager at Fidelity.
The Intelligent Investor by Ben Graham (I havent read this fully, but I intend to do so in the future)
The Tao of Warren Buffet [amazon]
This book puts together interesting quips by Warren Buffet

The purpose behind reading all these books is to understand the investing principles, and come up with a disciplined investing strategy. I am still in the process of getting my fundamentals strong. I have a clear strategy to buy stocks, but I am not sure when to sell them. Looks like I need to read up some more.

So far, my portfolio is doing pretty okay.

Some key points in my investment strategy are:
1. buy cheap, sell high.
PE ratio is the first filter that the stock needs to pass through. I typically look at PE ratios below 7 when I buy (lower the better). Some cases may stand an exception in the case of growth plays. In this case, I see that the PE/growth i.e. the PEG ratio is less than 0.5. As I understand, PE can be thought as the number of years the company will take to earn the amount of money you invest in the company assuming that the profits remain same over these years.
But a low PE does not essentially mean that the stock is a buy. I look at other factors after I find a low PE stock

2. Low Debt
I dont want the interest payments eating away into the company's profits. I prefer the Debt / Equity ratio to be less than 0.5

3. Growth
I see the trend in the growth of the bottom lines. I prefer companies with 50% and above YoY growth in Net Profits.

4. The Business
The business should be easy to run, not capital intensive, the market should be large enough so that the entry of other players should not the company adversely and the Company should have an edge in the market. If there are too many players, I'd prefer the one that is the market leader and keeps coming up with innovative products.

5. Promoter Holding
The more the better. I feel that higher promoter holding is a good sign, as this indicates that the promoters are confident about the growth of their business. I also feel that buybacks is a good sign as it increases share holder value. [eg . Sasken]

6. Less Institutional Holding
I have observed that once Institutional Investors (FII / MF) enter a particulat stock, it's price automatically shoots up (High PE).

The points mentioned above just act as initial screens ( it take around 2-3 minutes to scan by).

Once if get interested in a particular company, I see the products / services that they offer, their clients, the news about the company, etc. The I go through the Annual Report and Analyst Reports (freely available) if any. The investor call transcripts of the company give a better idea of the direction the company is headed to.
I tried to do a DCF (Discounted Cash Flow) valuation for a few companies, but I am no expert in this area. Nor do I have the resources and the contacts to get a deep insight of the company's business model. Aswath Damodaran has good material which covers this topic comprehensively.

Coming to the tools that I use, I use
moneycontrol: and to track my portfolio and to get financials
kotak securities, business week : getting the key ratios and financial information
Sharekhan and Reliance Money for online trading

Sharekhan has a good service, but is a bit costly.
Reliance Money is cheap, but is not very user friendly. Make sure that you understand from someone how to use reliance money before you start using the account.


btw, here are my holding as of today :


Note : These are my ideas as of this moment and are subject to change anytime in the future ("without notice"). I do not make any recommendations.

Foray into equities

After listening to a talk at the at the Toastmaster's club GE , listening to Warren buffet's thoughts, and reading up some books, lectures and blogs in equity valuation and investments, I found investing in equity to be interesting and fun. The fact that I own a part of a company by buying it's shares gives me a sense of ownership. I look for value as well as growth companies which are trading at a low price. And .. finding such companies is not easy.
This is just a beginning, and lets see how it goes.

My Fund as on 28th April 2008
Company	% holding	Average buy price	% increase (decrease)
Sasken Comm	16.87	105.73	63.47
ICSA	34.66	347.62	28.98
Compact Disc	26.48	66.41	19.03
Apollo Tyres	3.45	43.20	6.02
Ashok Leyland	1.44	36.20	10.22
Amtek Auto	5.70	286.00	1.61
NTPC	4.08	189.43	1.88
Mah & Mah	4.67	650.62	2.34
Agro Dutch Industries	2.65	33.28	4.90
Return Since Feb 08			26.07

The snapshot looks good as of today, but the returns cannot be said to have been achieved until the gains materialize

Note:The mentioned here applies to all the posts I post from now on.