Geometric Ltd – Warren Buffett Criteria Selection

Following are the 3 Solid Points for selecting Geometric Ltd.

  1. Passed the Sir. Warren Buffett’s 9 Value Investing Principles
  2. Market Capitalization less than 1000 Crores
  3. Company from Reputed house of Godrej

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Website: http://geometricglobal.com/

CEO: Jamshyd Godrej

Evaluation: http://www.screener.in/company/?q=532312&con=1

Evaluating against 9 Criterias of Value Investing by Warren Buffett

History of Consistently Increasing Sales, Earnings & Cash Flow Yes, 20% on Sales Growth, 20% on Profit Growth image
Durable Competitive Advantage Yes, Sustainable Products Array image
Future Growth Drivers Yes, New Customers using IT Services, Existing Customers replacing their Old Technology with New Ones, Increasing Global Presence, Expanding Customer Base of Geometric Ltd. image
Conservative Debt (long term debt < 3 Net Income) Yes, Current Liabilities 184 Crores.  Net Income in 2013 is 60 Crores.  So 184 < 3×60 image
Return on Equity must be Above Average Yes, Return on Equity is around 28%, Average is 20% image
Low CAPEX required to maintain current operations Yes image
Management is holding / buying the stock Yes, 40% Holdings from Promoters image
Price is Under Valued (< intrinsic value) Yes, Intrinsic Value falls around 132 & Current Market Price is 105 image
Stock Price is consolidating Neutral image

Additional Positives

The company had shown 3 times growth in 5 years, If the same velocity is maintained, the expected sales in 2023 is 3000 Crores. 

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In the long term, if the company could deliver above growth, the company falls in Large Cap section.  Then PE Ratio could quote around 20 as per the Information Technology Large Cap PE.  This provides additional 2X gains for the company.

Recently the company provided Employee Stock Options, which should reveal the growth confidence demonstrated by management.

Indian Warren Buffet, Rakesh Jhunjhunwala holding the stock as per sources.

Negatives

Company is quoting around 2.5 times of Book Value

Current Market Price is around 52 week high, Installment Investment is Logical

Investment Horizon

We do go for very long investment period of 10 to 20 years.  Dividends are the Income & Long Term Capital Appreciation are the Ultimate Targets.

Exceptionally, we do exit the stock during NIFTY PE Ration > 25 & buy back when the NIFTY PE RATIO is quoting below 15, all through installment buy, sell.

Why we choose very long period?

As we have other jobs to concentrate on, plus we do not get daily time to watch the stock daily.  We use the User Alerts feature for automatic notification on price trigger.

What if the price went 50% down?

I would recommend adding 100% more to the stock, provided the fundamentals are intact & there is only temporary problem with company or with sector.

References

Annual Report http://geometricglobal.com/wp-content/uploads/2013/04/Geometric_annual_report_2012.pdf

Disclaimer

As a freelancer analyst I have undergone evaluation of the above company & invested in the same.  I expect you to do through analysis, do enough diversification & invest in the stock.  I am holding other IT stocks like Infosys, Persistent Systems & believe Geometric is a good addition with diversification.

One Response to “Geometric Ltd – Warren Buffett Criteria Selection”

  1. patel jitendra pitamberbhai Says:

    stock

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