Arrow Coated Products : Update

Hi friends,
Lately receiving lot of queries regarding Arrow about its valuation and new agreements.

The major development and rationale may be as

1. Increased borrowing limits : Obliviously to increase the quantum of business

2. Listing in NSE : To get better visibility in investor community

3. Agreement with Careli

Initially struggled to get details (as any companies announcement, I usually try to cross check and verify the facts Vs blah blah), main reason as the company having Spian origin, one with the website created with Spanish language. 

And once I was able to get in to some level of details, it was mind blogging.

You can get details from 

http://www.careli.es/

And much more details from their FB page

 LINK : https://www.facebook.com/floppcareli

[Use translate option by using right click to read in English]

These information gives a view that the company is in existence for long, with a very good portfolio of products.

PS: But still unable to get the Market Cap related info of Careli. Once I get those info, I will update as a separate post.

Factor 2: Business opportunity, scalability and sustainability

Out of the six factors I mentioned earlier, this is the most difficult part to identify and predict properly. i.e. identifying an upcoming sunrise sectors at reasonably early stage. Other five factors can be analyzed either quantitatively or qualitatively with much better precision, with the past available data. Where this second factor requires little imagination and bit luck too.

Inorder to succeed in identifying gems based on this criteria, you requires to have the required imagination skills to forecast 10 or 20 years future outcomes and trends.

A simple example: If you were able to identify a revolutionary change in mobile technology and invested in leaders like Airtel a decade back, it might have turned a 20 Bagger by this time, still with lot of gunpowder left in it!

Another classy example I would like to pen is about two companies from the same sector with legacy products, where one turned to be a huge huge multibagger while the other is still drowning in mid sea!

HINDUSTAN MOTORS  Vs  EICHER MOTORS

Or

Amby		Vs		Bullet !!

These two initial UKproducts, later turned to be Indian, suffered a lot in the past to survive and both products only changed little during its life span. One is out of production and the other is still the favorites of the youth!

The success in investment / share market also will depend on your prediction analyzing who will win the race?!

A decade back (say in 2001), if you have invested Rs. 10 thousand, both will speak differently now, similar to the demand of the products!

Company	Inv Year	Avg Share Price	CMP	Inv amount	Present Value
Hindustan Motors	2001	Rs 4/-	Rs 8/-	10,000/-	20,000/-
Eicher Motors	2001	Rs 24/-	Rs 14000/-	10,000/-	5,800,000/- (Rs 58 Lakh)

I just gave this example to show that how much difficult is to identify winners from the total pack.

Here in this case both companies having products with outdated technology and both products were never changed much in its life time. Still one became the favorite of youth due to its own reasons and at the mean time, the other one parked in our minds with good old memories!

Similarly, in the whole world sectors like Motors, Pharma, Computer , IT excelled in the past. NEXT BIG THEME MAY BE ROBOTICS!!!

Have enough imagination! (Nothing more can be said about this factor)

Happy investing!!

Arrow Coated Products: Update

Hi,

This is the update I received from the Arrow Coated Products Meltz Team.

I think its very important development going forward.

[Information from the Meltz Team Facebook page : LINK HERE]

Earlier Posting in Arrow Coated Products

1. Last result update 

2. Arrow-coated-product-update-based-on-shp.html

3. Arrow-coated-products-update-based-on-ar.html

4. SIP - Sep -2014 

5. SIP - July - 2014

6. SIP - Jun -2014

Happy investing All!

A very interesting article

Below lines are taken from the article published in thehindubusinessline.com, and sharing with you since it’s covering an analysis about small cap stocks between 2004 to present.

Courtesy: The Hindu BusinessLine

Investing in small-cap stocks could be full of thrills but it is fraught with risks too

For Indian investors, small is beautiful. The BSE Small Cap index has delivered 118 per cent return since last September, even as its large-cap counterpart, the Sensex, panted way behind, with a 59 per cent return. That is not all. Investors in stocks such as Symphony, Greenply and Ashoka Buildcon have seen their holdings appreciate manifold since the beginning of 2014.

But does that mean you should rush to buy these stocks? No. Investing in Indian small-cap stocks is a high-risk game. While you have a small probability of making mind-boggling returns, the chances of making losses are much higher. Lack of sufficient information, poor corporate governance and very thin liquidity are some reasons why these are best avoided.

But if you are one of those who revel in adrenaline-pumping activities such as bungee jumping, you might want to put some of your money into these stocks; just for thrills.

Small-caps over the long term

There is a popular misconception that investments in small-cap stocks invariably result in losses over the long term. But that is far from the truth. A BusinessLine analysis of the returns of small-, mid- and large-cap stocks between 2004 and now shows that it is the outliers that give smaller stocks notoriety. For, a small portion of small-cap stocks have delivered mind-boggling returns that large- and mid-caps can never dream of matching. At the same time, the proportion of stocks that have delivered negative returns is also larger in smaller companies.

We considered the returns of 1,648 stocks whose market capitalisation was less than ₹200 crore on April 1, 2004. A chunk of these stocks — or 44 per cent of the universe — recorded a price increase between 1 and 10 times. About 17 per cent gained between 10 and 100 times. The proportion of stocks gaining more than 100 times was miniscule at 1.4 per cent. This creamy layer includes stocks such as Symphony (1,680 times returns), TTK Prestige (231 times) and Cera Sanitaryware (180 times).

In comparison, 63 per cent of the large-cap universe chalked up gains between 1 and 10 times in the past decade. There were 93 stocks with market cap greater than ₹2,000 crore towards the beginning of 2004. This is comparable to the mid-range of the small-cap stock performance. But when it comes to stratospheric returns, only 12 per cent of the large-cap stocks could multiply their prices more than 10 times. Again, while the largest gainers among the small-cap lot notched up gains between 100 and 2,000 times, the best performer among the larger stocks was Kotak Mahindra Bank, which gained 28 times in the last 10 years.

So, what is the risk involved? Around 22 per cent of the smaller stocks witnessed price erosion in the past decade. That is, one in every five stocks was a lemon. Large-cap stocks emerged a clear winner, with just 8 per cent of the stocks seeing price erosion.

Higher volatility in smaller stocks

The small-cap index has recorded much sharper rallies and higher declines. For instance, between April and December 2003, the small-cap index rallied 172 per cent while the Sensex gained 97 per cent. In the 2008 crash, the Sensex lost 56 per cent while the BSE Small-cap Index lost 77 per cent. In general, the declines and rallies in the small-cap index are twice the moves in the Sensex.

The complete article may be accessed here: http://www.thehindubusinessline.com/features/investment-world/smallcaps-sizzle-should-youjump-in/article6627318.ece

Waiting for more Clarity

Hi Friends,

I hope all of you might have aware about the new SEBI restrictions by this time.

I, as well as lot of value hunters didn't have a concrete idea about the level of restrictions imposed.

Any how it’s clear that, it's not proper to give a BUY / HOLD / SELL call on any particular stock unless you are a SEBI registered research analyst. So from here onwards I will not be giving any particular call on any stock nor new monthly SIP candidates in the blog (as it indirectly giving a BUY recommendation).

[Till more clarity emerges on the restrictions; or till I register with SEBI] 

The present value of portfolio is 2.52 Lakh (with a total invested corpus of Rs.1.25 Lakh in a span of six month).

My view about new SEBI norms

According to me, the new SEBI rules are having very good objectives and in need of the present situation. There are a lot of firms / people giving different recommendations through TV / websites / blogs, and the sad part is that more than 80 % are having mischievous crooked intentions. I did know few such blogs personally too, but don't want to name it publicly. So, hopefully, these restrictions may have better effects going forward.

MVPP blog will continue in these modified lines :

Personally I think, the learning / or acquiring knowledge is more important than simply following any blog / analyst. Sure, a good blog ( like value pick blog) will help you to reduce your searching, but it should not be the end point. Even if it’s recommended by me or the Great VP, we should be in a position to analyze that picks ourself.

With the new SEBI guidelines, the searching time of an investor will increase and inorder to find a multibagger we may have to turn every stone that's untouched. Of-course it’s a tedious task, but I think it’s more important to hold on our winners well enough is more important than finding new multibaggers in every month.

Greatest Example:

If we take the average number of the total companies invested by total number of years, by the greatest Buffet – Munger pair, it will be just 1 share / year!! So inorder to make a fortune in share market, you don’t have to find too many number of picks, but need to find those winners with a moat, and hold on; and remember - you just need to find only 1 idea per an entire year :)

So from now onwards my concentration will not be any company specific; but towards the basic causes behind a huge multi-multi bagger. Similarly the essential points required to develop the skills to evaluate a company.

The series on 6 Most important factors to consider while searching for a Multibagger and similar postings will be continued.

Happy investing.

Factor 1 : How to evaluate the Promoter quality?

Its a million dollar question! Is there any collective mechanism to ensure promoter quality of a company with cent percent guarantee?  The obvious answer is NO.

That’s why including great investors like Rakesh Jhunjhunwala, Ramesh Damani  and others made mistakes while selecting few odd companies.

So I would like to quote a famous quote from one of the most famous American President, before discussing further.

You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time.

Abraham Lincoln

From the above quote, If we can escape from the second group ( i.e. some of the people becoming fools all the time ), our share market success is bound to happen; and eventually we can differentiate between good, average and bad promoters.

In general, we may be able to classify the promoters in to four groups.

All the promoters comes to share market for collecting money from the public, but the inherent reason behind the collection of the money and future dealings will be different for each one. Based on that reasons and actions, I have made these classifications.

	Listing Objective	Profit Distribution	Other Remarks
Group 1	To create / improve a business	Shares equally among all including Public
Group 2	To create / improve a business	Shares only a minor portion with Public
Group 3	To create / improve a business	Swallow all the profit either by diverting it in to unnecessary investments or by showing operational loss by fudging accounts.	They seldom throw few bones to satisfy retailers.
Group 4	Just to collect money by fooling public, by showing a company which only exist in paper, with the help of photoshop and website!	Some time they show profits, only to rig the share price – normally during a bull phase - to ultimately pump and dump!	They continue as a listed entity to make more money by looting more people by applying lot of frauds or joining hands with operators.

In the above groups, group 1 is ideal, but at the same time very rare too. So as an investor, our aim should be to find promoters of Group 1 or at-least better half of group 2.

Note: Promoters are humans and are bound with human nature. So the migration from one group to another is possible over time (or generations) for either good or bad.

The only remedy for us as an investor is to be vigilant and analyze the latest happenings inside a company at-least quarterly. And also be ready to ask few following key questions yourself and try to find the answers in a particular context.

Key Questions

Q.		Whether the company dilutes equity frequently with out any solid reasons?
Q.		Whether the company issues lot of ADR or GDR to dubious foreign parties and later, after converting it as shares, the same is dumped to Indian public?
Q.		Company is showing consistent growth and profit, but how the money is utilized?
Q.		Whether the company invests lot of money in private / unlisted (and dubious) companies?
Q.		What is the dividend distribution ratio while considering the net profit?
Q.		Whether the promoter sells the shares in open market while preaching great future and giving advertisement on media?
Q.		Percentage of pledged shares and possible reasons behind the pledge.
Q.		Whether the company does unnecessary gimmicks like issuing bonus or FaceValue split etc while the share price is quoting reasonably low?
Q.		Trying to get frequent attention by vague or illogical news?
Q.		While all other companies in the same sector show major trend reversal and operational profit; whether this company still shows operational loss?
Q.		Whether the same promoters earlier promoted any dubious companies which eventually winded up?
Q.		Do there exist any cheating /default cases against the promoters?

[These are the few questions I got from my experience. It would be my pleasure to add any number of questions to this list, if needed, if provided in the comment column. ]

If there arise few answers which sheds doubt on promoter quality please stay away, since there is an entire universe of companies (more than 4000), out of which we can select for investing.

Even if we miss 1 or 2 genuine multibaggers (although possibility is very low) due to this vigilance, there is no need to worry at all, as based on the theory that You Can’t Kiss Every Pretty Girl in the world.

To sum up this section I would like to give a quote from our Legendary investor.

“The difference between successful people and very successful people is that very successful people say “no” to almost everything.”

― Warren Buffett

This is part 1 of series in 6 Most important factors to consider while searching for a Multibagger.

6 Most important factors to consider while searching for a Multibagger

Multibagger : This term is used frequently by lot of users and portfolio services, in different contexts. Even while showing just an 80% growth in their recommended stock price, they may use this word! But the actual meaning of the term is multifold appreciation / return in the share price. Like a four bagger means it multiplies the share value by 4 times and like 10 bagger, 50 bagger, 100 bagger so on.

Its more than 8 years since I started my investing career, and during this phase, I had seen lot of shares becoming multibaggers and also lot of shares gone in to dust. Few of the shares invested by me also became multibaggers, but very few are the companies I am still holding, thus effectively reducing my net asset value. So creating long term wealth have two parts, 1. Identifying the right stocks at early stage with multibagger potential, and 2. Having enough conviction to hold long enough to enjoy the multibagger returns.

In this post I am concentrating on first part, ie. How to evaluate a given tip / information about a company from any circle to conduct a detailed analyze and finally decide whether to go for it or not.

Based n my personal experience, I think the following six factors are very important as per the given order in a decreasing importance.

Factor 1: Promoters Quality  [Click HERE for details]

Promoters are the persons manage the company’s activities, and any long term sustainable return will be achieved for retail investors, only if, the promoters are above average r at-least average quality. No ship will reach its destination, if a thief is placed inside itself as a Captain!

Each of the factors I am going to discuss may require a lot of details, and I think it’s better to post separate articles for each of these factors later, in detail.

[Please note, there may be cases of multibagger return with unethical promoters managed companies also, but sustainability of the same is the question? For details see the link HERE ]

Factor 2: Business opportunity, scalability and sustainability

The second important factor t consider after evaluating the promoter is the business perspective of the company’s operation and it's niche.

Factor 3: Market Capital

The present market cap of the company should be evaluated. Few may raise their eyebrows after seeing this point. But I think it’s very essential, since an already large cap may not be able to grow at a greater rate in long term.

[Example: In-order to get a 10 bagger in 10 years and a 100 bagger in 20 years, we require a 26% CAGR. And I bet, TCS won’t be an 10 bagger in next 10 years nor 100 bagger in next 20 years, since it’s market cap is already 5 Lakh Crore – at best it may give market related return 14 – 18 % only, making it 3 to 5 bageer in 10 years and 13 to 27 bagger in 20 years]

Factor 4: Valuation

The next point is to get in to the ship at an reasonable level. Once the valuation becomes too stretched and along with the market cap also reaches threshold levels, and we may need to consider different parameters and situations.

Factor 5: Growth in quarterly results and debt levels

Check the overall debt level and their increase; along with the performance and results on a quarterly basis giving importance in that order.

Factor 6: Share Holding Pattern

The number of share holders and their distribution is also important. An already popular stock will be having mutual funds and others in it as investors. Where, a true multibagger return will be only possible if the stock is less popular. Also check for the promoters and retailers portions in the holdings, and number of retailers etc.

Each of these points mentioned require a detailed coverage, and few other factors also (dividend, bonus, FV split etc) required to discuss with these already mentioned major points. It will be posted one by one in the above order.

Happy investing.

Planning to post a List of stocks that must be Avoided.

Hi Friends, 

This is an appeal to all genuine long term investors...

I strongly believe that it's not just time to find next multibagger, but also to trace / identify all potential multibeggers inorder to help new comers who want to invest long term in fundamentally good madcap / smallcap companies.

We are moving in bull run and lot of crap stocks (majority are penny stocks)  are moving like anything. Lot of them (promoter / operator) are fooling retail investors (some of them publishing extra ordinary results but not providing a penny as dividend!! but increasing their pledge etc..) and lot of new comers fall prey to these market frauds.

  

"Only when the tide goes out do you discover who's been swimming naked." - Warren Buffett

And I strongly feel that its the duty of us to warn about a company, if we see all the read flags.

Sure we can see / categories companies to minimum three classes / cases.

Case 1. We are sure about it - fundamentally strong companies.

Case 2. We are not sure about it - ( may be a genuine company, but not sure).

Case 3. We are again sure about it but this time it’s a fraud company, and must be avoided.

And my aim is t make a list of Case 3 companies.

Any willing person can contribute to the comments by naming the company with 1 or 2 line reason behind categorizing them to this list. Later, I will finally publish and manage a list of these types of companies.

  

 My sample list of companies, as examples.

1.     FCS Software

Reason:- Lot of frauds, mainly fraud with issuing warrants to doubtful foreign parties, and they sell later it to Indian retailers!

2.     Kappac Farma

Still trading with a value more than 600 Cr MCap, with no sales and promoter holding!

I request all my readers to give any name of such company which you believe is a crap / fraud one.  

PS: The list will be published later after my study and once I get a sizable number.

Also note these companies share price may appreciate (short to medium term) due to other reasons but not related to fundamentals!!

Unitech : Present and future

We have just seen the past of Unitech (Link Here). Now, I am trying to analyze the present and future of Unitech.

Present:

As a real estate company Unitech is facing major effects from the slow down in economy along with high interest rate. Earlier during the bull phase they aggressively tried to expand with over dependence on debt, than cash flow.

But, if we consider the present indications, the company gradually reduced its debt (From 8000+ Crs to odd 2700 Crs (standalone)), and in process of trying to reduce the 6300+ Cr consolidated debt step by step selling of non core assets .

Valuations

At today’s CMP (Rs 21/-) the stock is valued at 31 PE. But considering the next financial cycle we cannot term it as expensive.

Future : What lies ahead ?

Barring the uncertainties, and neglecting few management issues, Unitech gives ample opportunities for a long term bargain hunter.  Can be added to portfolio with a 5 to 7 year view in SIP at Rs. 24/- or below.   

Logic behind the call

Unitech have on going projects of more than 38 million sq ft. At the prevailing low sales value it self per sq ft, they are selling more than Rs. 7000/- per sq ft. That will be having more value than 27000 Crs. At economic peak, company achieved a NP margin around 40%. If we assume in next bull phase, even if company achieves a NP margin around 30 %, that will translate in to 8000 Crs! (Caution: But some part of the projects might have already sold,so we can consider another alternative calculation)

In another angle: In last bull phase company increased it's sales from 250 Crs to 4000  Crs. (16 times). Taking half of the sale increase in next time will give us 8 times. Present sales are around 1700 Crs. So in the next cycle peak sales may be around 13000 Crs. And taking a very conservative net profit of 20 % alone also will give us a NP of 2600 Crs. If we assume a nominal PE this time (only 15), then also the total MCap will be 39000 Crs, and which is 7 times higher than the present MCap. Literally translate the target price to Rs. 140+ in the long term (May be in next 4 to 7 years).

(Disclaimer: These information’s are taken from latest Annual Report, and no guarantee for the genuineness of these figures. And above calculations are made considering these facts/values.) 

Disclosure : Not yet invested.

Arrow Coated Products: Results Update

At the initial scanning, the recent standalone quarterly result may look like almost ordinary with a (Quarter on previous year Quarter) net profits increase by a nominal 17%

(1.97 Cr from 1.68 Cr), although having a better sales increase of 33% (5.85 Cr from 4.39 Cr).

But the most important factor I am seeing after this result is the revenue increase from patent income (standalone). Below is given the company disclosed patent income in previous quarters.

Previous Quarters Income from assigning of Patent marketing Rights:

Qtr	Jun 12	Sep 12	Dec 12	Jun 13	Sep 13	Dec 13	Jun 14	Sep 14
Rs (Lakh)	43.45	43.38	43.85	129.88	278.44	150.68	239.29	436.34

Qtr to previous Qtr Growth in patent revenues                                 : 82 %

Qtr to Qtr (yearly basis) Growth in patent revenues                       : 57 %

Both these figures are very impressive. If the company can generate growth in patent revenue at this pace, going forward (both in standalone and consolidated), it won’t be a distant dream for us to see the trading terminals showing ACP in four digits!