Archive for May, 2013

Making Investors More Idiots!

May 23, 2013

Today we were discussing on the site InvestorsAreIdiots.com.  The name was interesting.

image 

We took the following article from their home page:

Gold Bubble Burst, Property Will Follow

We question the following facts written in the article:

  1. Gold was a Bubble & it Bursted
  2. Manappuram, Muthoot lost most of their capitalization
  3. Equity Markets are down currently
  4. Property Market will burst soon (prediction)

Our view on their Gold Statements:

  1. Why they did not appeared before the Gold Burst?
  2. Gold does not have a Intrinsic Value or Book Value associated as Gold does not earn money like a company!  So the price is determined by demand / supply plus other factors like currency, inflation etc.
  3. Can they show the real price of Gold? Is it 2000? Is it 4000?

Our view on Gold Loan companies:

The companies earned more profits as they were giving loans on 90% gold value.  This made them reap huge profits & thus share prices went high & so capitalization.  So the boon earned is much more than the current bust. 

Plus, looking into their fundamentals, many of them are quoting below Book Value, they lost 70% of their Peak Value.  Gold seems to be saturating a the levels of 2250 (ETF).  One with medium-risk appetite can buy the gold loan company shares in a diversified manner.

How a multi-bagger is possible?

When you buy them at high or low?

Our view on Equity Markets are down:

We would say it is pretty wrong.  The SENSEX is quoting around 19000, which is  closer to the peak of 21000 during 2008.  Plus, the PE Ratio of SENSEX & NIFTY companies have gained internal value, so the market can go up to 24000 levels in a bull run. 

We believe the economy is in recovering mode & the growth will continue for at least 2016 & SENSEX reaching 24000 could be a reality!

The recommended strategy is to allocate 25% of savings in value & growth stocks.  One can exit them when the NIFTY PE Ratio peaks above 25.  (Currently it is 18)

Can they show the grounds for saying Equity Markets are down?

Property Market will bust soon:

We are not experts there, but surely we can say one thing.  The Capital-Rent ratio of property is 5%.  It means a 1 Lakh yearly rent generating property should not cost more than 20-25 Lakhs. 

But there are deviations where expected-boons-around-location like future parks, malls, bridges – then one may pay higher based on the returns expectation.

Once this Capital-Rent Ratio deviates very high, there could be burst, we cannot see than in near 1-2 years.

Can they show the real factors Why Property Market will crash?

Our biggest Question

Why they did not mention to buy Gold?

Simple law of investing, we have to buy things when Price is Low & sell at high.  Gold is such a commodity that cannot be created easily, it comes from crust of earth, takes years to make Gold in natural form.  So countries, institutions use Gold as an Investment, Hedging mechanism to protect their value.

As Gold is down by 30%, is it an opportunity to buy / dump?

We believe more buying of gold will come around 2250 levels of Gold ETF.

image

Painful Fact

It is a painful fact that, we have very less honest leaders in India.  Investors wanted to secure themselves from Future Uncertainty.  But the existing investor advisers will Perplex them.

We can see analysts over the TV asking to buy shares even when they are out of Growth Value.  When the market crashes, they will come out and  say β€œSee.. we have told you to sell.. Right?” πŸ™‚

Seems like a Bear Mentality!  Expecting everything to Crash, without seeing the positive sides..

 

 

Summary

Surely, they know that Investors are Idiots, so perplex them & use them! 

They did not provided a place to comment, so we place the comments here.  We are honest & wanted to lead the people right way.

How is T20? How is Zerodha Trading Account?

May 16, 2013

Very Bad Service >> Do not buy them.. Our customers are frustrated with their service.

ZERODHA BAD SERVICE

Although the brokerage is low, the service & infrastructure is very bad.  Let us take the scenario:

For buying stocks you need to do the following:

1. Login to Zerodha Back Office to transfer money

http://backoffice.zerodha.com

Here you are using one user name & password

2. For buying scrip, you need to download NSE NOW application

This is time consuming & it has bugs so that it may not load properly on hectic times…

Result >> You will loose important trades

Plus, you need to supply another user name, password, security reminder strings.. HECTIC!

3. For viewing the stocks you bought, you need to login to IL&FS web site (3rd application & 3rd party)

You will think that who is this IL&FS between you & zerodha?

Again, you have to provide another user name, password

In reality, you will get MAD with the infrastructure!

ZERODHA BAD SERVICE! T20 BAD SERVICE!

Please do not buy their service, they are killing people, bad service – zerodha go back!!

What we can learn from Opto Circuits?

May 16, 2013

The investors of Opto Circuits are FRENZY!

The stock crashed from Rs. 180.00 to Rs. 50.00.  We receive emails on Futurecaps view about the company.

image

About Company: Opto Circuits (India) is a multinational medical device company. It designs, develops, manufactures, markets and distributes a range of medical products that are used by healthcare establishments in more than 150 countries. The company specialises in vital signs monitoring, emergency cardiac care, vascular treatments and sensing technologies.

Web: http://www.optocircuits.com/

Futurecaps on the Stock

First of all, we did not recommended it, because it was Over-Priced at the time! But in the positive way.. In 2010 it was a very good company, very good growth records, good technology, great recognitions including Forbes Magazine.

You can see here the analyst who recommended it is facing questions:

http://www.safalniveshak.com/what-to-do-with-opto-circuits-2/?utm_source=The+Safal+Niveshak+Post&utm_campaign=e07267d0e6-RSS_EMAIL_CAMPAIGN&utm_medium=email

He is a very good analyst, I would say the investor is Amateur, He approached Stock Market in a wrong way!

See how people react with prices:

image

Best Way to Approach Stock Market

Gone are the times where Business Owners have sleepless nights, today they have Hedging!

Gone are the times where Investors have bad surprises, today they have Diversifications!

Gone are the days where Investors blame the bear market, they are Opportunities!

From the day 1 of Futurecaps, we have been iterating the following

  1. Place only 25% of your savings in stock market
  2. Place at least 10 companies in the stock market investments
  3. Take an investment period of 10-20 years
  4. Stocks do not have fixed price, only situational price
  5. Bear market are the time where you get prices at the lowest

We should always ready to bear the Opposite Side of Investing >> When Stock Price reaches 0.

So how to apply these knowledge:

If you would have used 10 companies in your portfolio, then need not worry about Opto Circuits.  After all, worrying at this level is of no use as the price fall  almost 70% from 52 week high.

The good thing is that you are Cool with your Portfolio if you have 10 stocks in it:

  1. As you will have 1 or 2 troubled companies during market good times
  2. During market times you have all companies troubled, but it investing time as a whole

Based on our evaluations on the company, it is a Bargain Buy now, honestly πŸ™‚

History of Consistently Increasing Sales, Earnings & Cash Flow image
Durable Competitive Advantage Company is a solid player in the technology enabled medical equipment market. image
Future Growth Drivers We expect the medical equipment business to progress in future too. image
Conservative Debt (long term debt < 3 Net Profit) Current Liabilities around 500 crores & Contingent Liabilities around 700 crores.  Both are less than 3 times of Net Profit (500 crores) image
Return on Equity must be Above Average ROE is 37% (which is exceptionally good) image
Low CAPEX required to maintain current operations Working Capital problem exists as per study. image
Management is holding / buying the stock Management wanted to buy the stock, instead they will prefer to use the money in paying of debts by US subsidiaries. image
Price is Under Valued (< intrinsic value) Very True, Intrinsic Value falls around Rs. 550 based on current EPS & Growth.  Plus the PE is just 2, with price quoting below book value. image
Stock Price is consolidating Not consolidating, more chance to go down.  image

Problems Summary

Following are the problems faced by company:

  1. Working Capital Issue
  2. Cash Flow is Negative
  3. Credit Rating in Trouble
  4. Debt due to Foreign Subsidiaries

Solution Measures

The company is taking solution measures like:

  1. Appointing new CFO Krishna Sudheendra who was CFO in Bangalore International Airport.
  2. Appointing Usha Ramnani (w/o CEO) as Managing Director of US Subsidiary Opto Cardiac.
  3. Allocating money through new debt instruments

These measures should ease the problems giving a long term view.

More Info: http://articles.economictimes.indiatimes.com/2013-01-22/news/36484418_1_opto-circuits-corporate-governance-outstanding-ratings

http://www.moneycontrol.com/news/business/opto-circuits-restructures-board-shrs-dipprofit-taking_833628.html

Summary

Based on the current evaluations, discarding the current problems,  we believe it is having Multibagger properties.  If the company resolves current problems, then in 5-10 year it could reach Rs. 500 through profits & growth.  In this view it provides a 10x MULTIBAGGER opportunity.

Recommended prices of investing are around 50.

Next installment around 30.

Warning: Be cautious with news & alerts on company.  Do not invest more than 5% of your portfolio.  Minimize risks using Guard Bands!

Contra Investing

May 15, 2013

Chatting with my old research friend, we happened to discuss about Contra Investing!  I would like to show some light on this as it is a bit weird technique taught by my Old Stock Market Guru.. He call it as Contra Investing!  I will show some light on it.

It is a kind of Guerilla Investing – means you fly against the wind!

When everybody is selling a stock, even the promoter, you will start buying!

What about the risk covering?  Interestingly.. You will cover the risk with more risky stocks!

 

In this style of Investing, Company with Temporary Troubles are Identified.  To cover the risk, more companies are Identified.  Then, find the potential up side factor for each company & place bet amounts according to the factor.

It arises from a gambling arena of Horse Race, where the wounded horse is betted.  There are less chances the horse can run again, but if it runs, then huge profits.  The risk is covered by adding more bets on multiple wounded horses.

For example: if we have 3 companies, each with the potential of reaching 5 times, we make a Contra!

Cover one risk with another risk

The probability theory says that adding more risks, reduces the collective risks. 

In the positive case: if all companies reached 5 times, it is a Jackpot

In the moderate case: if one company reached 5 times, 2 companies closed, still you are profit of 2x

In the extreme bad case: if all companies closed?? Are Baba.. in stock market, your other stock companies can also be closed.. That is why Stock Market is Risky.  We play with risk through Diversification.. So the case is wrong as we add enough diversification.

What about adding Put Options & Minimizing the Losses?

Hmm.. Good Idea.. But not with Contra!

Contra is the set of stocks which could be in Large Cap, Midcap, Smallcap, Penny Stock section, so no Options available!  Plus the time horizon is years as the company is in ICU!

It will take years to repair & come out of it.. See the Satyam case, it took years of iterations for analyzing the problems, placing it for purchase by other MNCs, later Tech Mahindra acquiring it.  The problem with such companies is that even the Financial Statements can be window-dressed.  Company will be earning no profits, but paying dividends.. How?  It would be from Capitalizing Expenses Or Dividends are virtual πŸ™‚

Considering the capitalization, derivative availability, long term period, we say Options may not work here..

Contra Investing in Indian Stock Market

We identify Contra Opportunities through Screener web site.  Find the companies with market capitalization > 500 crores and 60% corrected from 52 week high.  Surely, the price should be a consolidating one saying the stocks have reached a maximum correction.  But as the negativity persists, the price is still at lower level.

There are some ready screeners available as: http://www.screener.in/screens/2371/Doubling-Oppotunity/

Following are the companies for above screener:

image

So there is no research needed?

I did not said that! πŸ™‚ Solid Research is needed.  We take each company, find out the problem is temporary or permanent.

We can see Manappuram is down due to Gold price down, not anything directly related to the management of the company.  The company delivered loan for 90% price of collateral (gold) and thus resulted in latest quarter of loss.  But the same 90% collateral had fetched more business & profits to the company for other quarters in last 2 years.  Investors forgot that!  That is Investors – We should not forget that! πŸ™‚ So we examine the next quarter to see any improvements in Profit.  Like that, we even analyze the balance sheet, current liabilities, financial expenses etc, to draw a conclusion.  Right now, we see only threat which is Gold Price.  If Gold Price corrects 10%, the stock will crash 20%!

Regarding Opto Circuits, we seen the problems is mainly in the US subsidiary.  We receive some emails on our advice about the company.  FYI: It crashed from Rs. 180 to Rs. 50.  It was a great company with a page in Forbes 2010-2011 fastest growing company.  Well managed company, reputed management, corporate governance, plus steady growth in sales & profits.  But, some how they went little aggressive with growth, faced liquidity crunch problems.  The management is raising short term debts to sail over the current situations.

I would say the promoters of the companies are real stake holders & they are working hard to bring them back.. So it is their job & we have to position ourselves to take advantage from it.  Stock Prices crashes heavily due to bad news, plus stock prices goes up very high due to good news.  Majority Investors are greedy & thoughtless, they just see prices as the entry/exit criteria. 

Placing the bet in a single company is a high-risky scenario.  We need to increase the chance of profits by adding High EPS Growth companies to the list.

How much we have to invest?

We can say if you have 10 Lakhs Rupees invested in stocks for long term, which could fetch 20 Lakhs to 50 Lakhs returns, then you are easy to try a 25% High Risk investments.  Upto 2.5 Lakhs you can place for the bet.  Even if all the companies are closed (extreme case) your loss is covered in the long term.  Please remember to see the total investment period.

Disclaimer

This is an extremely risky game, Only Tiger Minds are advised to make a move.  Believe me, you will face lot of news, reactions, obstacles to sell your positions.

Strong Research, Strong Insights, Strong Long Term Vision, Strong Risk Management Capabilities are needed to ride the position. 

Note

Do you think the Financial Analysts, Chartered Accountant guys are non-techie & hapless? NO!!! They are using these types of smart techniques & multiplying their wealth.  The techie guys work hard & make money, these guys work smart & make money! πŸ™‚

Gujarat Automotive Gears Ltd. – A Fair Study

May 15, 2013

In this post, we can learn the Potential of Gujarat Automotive Gears Ltd. as  a Multibagger.  This is a small cap company & having peculiarities of growing sales & profits. 

About: Gujarat Automotive Gears Limited (GAGL) was established in 1973 at Baroda, India for the manufacture of Auto and Tractor components. Marketed under the brand names of KAG, these components serve the aftermarket and OEM’s in India. Two decades of experience, an established network and a synergistic approach to design and execution, ensures quality products and components from concept to completion.

Website: http://www.gagl.net/

image

Warren Buffett 9 Criteria of Value Investing

Let us apply our usual tool for finding the multi-bagger properties.

Check list Template to Analyze Stocks

History of Consistently Increasing Sales, Earnings & Cash Flow image
Durable Competitive Advantage There are other large cap players with the same business. Our company may evolve to achieve Durable Competitive Advantage in future. image
Future Growth Drivers The auto & tractor industry is to witness more growth due to mechanization of human labors activities. image
Conservative Debt (long term debt < 3 Net Profit) Current Liabilities 6 Crores. Latest Net Profit is 6 Crores. So we are good. image
Return on Equity must be Above Average Return on Equity should be above 20%. Our company have 38% and on average 45%. image
Low CAPEX required to maintain current operations Company is required to invest in Plant & Machinery on a long term basis. image
Management is holding / buying the stock Promoter Holdings is 70%, it is a really strong holding from the management side. image
Price is Under Valued (< intrinsic value) Based on the Doubling EPS growth for last 3 years, the Intrinsic Value falls around  Rs. 2000.  Current Market Price is Rs. 884. image
Stock Price is consolidating
Luckily, it is consolidating in the range of Rs. 850
image

Future Gain

Considering the Growth to be continuing for next 5-10 years, the stock should provide 10-20 times returns.  Certainly, there are risks associated, but we are Diversifying our Investments to cope with risk.

Declaration

Company is having Multibagger properties, as it is in Small Cap (< 100 crore capitalization) we recommend less than 50% weight age of the allocation.

Bajaj Finance Ltd. – A Multibagger on the Go

May 14, 2013

Bajaj Finance Ltd. is a great stock which delivered more than 40 times returns in last 13 years.  We can check whether it has Ampere ahead based on our Intrinsic Valuations.

Website: http://www.bajajautofinance.com/

Brief: Bajaj Finance Limited is a financial services company that operates branches in India, which provide an assortment of financial services.

image

History of Consistently Increasing Sales, Earnings & Cash Flow image
Durable Competitive Advantage image
Future Growth Drivers image
Conservative Debt (long term debt < 3*Net Profit) image
Return on Equity must be Above Average image
Low CAPEX required to maintain current operations image
Management is holding / buying the stock image
Price is Under Valued (< intrinsic value) image
Stock Price is consolidating image

Intrinsic Value

4800.00

Current Market Price

1378 (CMP < Intrinsic Value, Very Good)

EPS Growth Rate

40% (Very High, Very Good)

ROE

24% (Above Average, Good)

Current Liabilities

1694 Crore (Raises a concern as it is little above 3 times latest net profit)

Stock Price Consolidation

The stock price is in the up-move as it is a Declared Blue Chip Multibagger.  But, considering PE around 12, Book Value Ration just 0.5, I see it as a Good Price to buy & add on declines.

Expected Returns

Taking average EPS Growth as 30% per year, PE Ratio @ 20, we can expect 20 Times returns in 10 years.

Hindustan Zinc Ltd. – A Big Elephant Multibagger

May 13, 2013

Website: http://www.hzlindia.com/

Vedanta Group of Companies

Let us analyze the multibagger properties of Hindustan Zinc Ltd.

History of Consistently Increasing Sales, Earnings & Cash Flow image
Durable Competitive Advantage image
Future Growth Drivers image
Conservative Debt (long term debt < 3 Net Profit) image
Return on Equity must be Above Average image
Low CAPEX required to maintain current operations image
Management is holding / buying the stock image
Price is Under Valued (< intrinsic value) image
Stock Price is consolidating image

Company is Paying Dividend: Yes

EPS Growth Rate: 20%

Expected: 10X in 10Years

Muthoot Capital Services Ltd. >> Warren Buffett Analysis

May 13, 2013

Let us quickly analyze Muthoot Capital Services Ltd. against Warren Buffett’s 9 Criteria of Value Investing

History of Consistently Increasing Sales, Earnings & Cash Flow image
Durable Competitive Advantage image
Future Growth Drivers image
Conservative Debt (long term debt < 3 Net Profit) image
Return on Equity must be Above Average image
Low CAPEX required to maintain current operations image
Management is holding / buying the stock image
Price is Under Valued (< intrinsic value) image
Stock Price is consolidating image

Positive Factors

Sales increased 50% for last 3 years

Net Profit increased 50% for last 3 years

Promoters Holding is 75%

Neutral Factors

Company is in the Automobile Loan Sector

Negative Factors

Low Interest Coverage Ratio

Competitors are more in the loan market

Future crunch in GDP figures should increase bad loans

Overall

Overall the stock provides a multi-bagger properties, one can invest for a 5-10 year perspective for 30% compounded growth in EPS & there by Stock Price

By Futurecaps Chief Analyst

Thinking about Store One Retail India as a Multibagger!

May 13, 2013

During the weekend, I was going through turn around companies.  The following company captured my attention:

Store One Retail India Ltd.

image

Store One Retail India is a chain of multi-brand stores including Allen Solly, Van Heusen etc.  It is an upcoming brand in the luxury & lifestyle retail sector.

The company belongs to Indiabulls group of companies.

Attractions

Sales Increase

2011: 3.2 Crores

2012: 51 Crores

2013: 89 Crores

Profit Increase

2011: –35 Crores (Loss)

2012: 12 Crores (Profit)

2013: 38 Crores (Profit)

Increase in Promoter Holdings

Increase in Promoter Holdings to 70%

Low PE

PE Ratio around 2.2

Quoting around Book Value

Book Value is 38 & Current Market Price is 37

Current Liabilities within Range

Current Liabilities around 31 Crores

Latest Sales is 90 Crores

Considering the Sales, Latest Net Profit figure, the Current Liabilities can be paid within 3 Years

Border of Midcap

Capitalization is around 90 Crores & thus playing in the border of Midcap (100 Crores)

Nine Criterias of Value Investing

History of Consistently Increasing Sales, Earnings & Cash Flow image
Durable Competitive Advantage image
Future Growth Drivers image
Conservative Debt (long term debt < 3 Net Profit) image
Return on Equity must be Above Average image
Low CAPEX required to maintain current operations image
Management is holding / buying the stock image
Price is Under Valued (< intrinsic value) image
Stock Price is consolidating image

 

Biggest Problem

From the house of Indiabulls

  • Alleged for Fraud
  • Vice President of IB Securities was arrested
  • Bad Image in the mind of Consumers through high interest rates from IB Financial Services

Summary

Considering the latest green figures, promoters holding percentage, I perceive the stock as a Potential Multibagger.  Will declare it in www.futurecaps.com once ensuring further aspects.

Why I should Invest in Stock Market?

May 12, 2013

The traditional Indian Mentality is to shy away from stock market.  There are multiple reasons for it:

  1. Stock Market is complicated
  2. Stock Market is considered as Gambling

At the same time, we would ask the person:

  1. How come the richest people in the world are through Stock Market?
  2. Why there are 5% Successful Investors in Stock Market?

The obvious answer would be: Learning!

image

They are the people who:

  1. Spent time for learning the aspects of stock market
  2. Learned how to read a Financial Statement
  3. Researched hundreds of financial statements
  4. Have an Aptitude of Accuracy
  5. Placed their money when valuations were low for Market or Company
  6. Reaped profits & re-invested for further gains
  7. Attained Financial Freedom

What would be the Fool Proof Plan of Investing?

We would recommend the following allocation of your savings:

  1. 50% in Real Estate (Apartment, Plot, Villa including your Home Loan)
  2. 25% in Stocks (Growth Stocks, Value Stocks, Mutual Funds)
  3. 25% in Liquid Savings (Fixed Deposits, Recurring Deposits, Gold, Gold ETF)

We recommend the Layering should be properly followed as the Highest Liquid Layer protects the Immediate Top Layer.

image

For example, if you do not keep Liquid Savings & only Stocks, then on an emergency you will liquidate your Stocks.  This will make you lose interest in investing stocks, thus loose a high speed investment vehicle.