Monday, June 22, 2009

Analysis Godrej Industries

I have been analysing and buying godrej industries.You can download the number analysis here.The company is a kind of holding company for multiple business that godrej operates. The businesses include from agro retailing to soaps, hair dyes to food and beverage,home insecticides to industrial surfactants.

The rationale for investing is the furure market for Affordable Housing.This business is going to have great economics in downturn -construction costs have come down, steel, cement prices are down, plan costs and mortgage rates are down and people have disposable income.Government is also planning for some policy action - this will act as tailwind. Management seems to have woken up and is doing a buy back worth 100 crore.

Good Businesses
Godrej Properties (GPL) GIL holds 80.3 % in GPL.
The most attractive piece of this conglomerate is Godrej properties. GPL has been focusing on its developing residential townships and commercial in tier 1&2 cities like Mumbai, Pune,Kolkata , Hyderabad ,Chandigarh,Chennai and Kochi. In any development, it does not allow land price to exceed 30 per cent of the selling price of the developed property (the average is only about 10 per cent). This protects the company from fluctuations in land prices.

Management is increasing capital allocation and focus to GPL and hopes to be one of the prime player in this fast growing space. Godrej Properties' land reserves currently stands at 78.87 million square feet as of May 15, 2008, it has completed a total of 19 projects consisting 13 residential and six commercial projects, aggregating to approximately 3.62 million square feet of area.

A company called Godrej & Boyce also owns about 3000 acres of prime land in Mumbai, they will lease the land to GIL and GPL will develop it. This land bank can be conservatively valued at 40,000 to 50,000 crore (@ Rs 3500 per sq feet). GPL will have rights to develop this land ,this will give steady revenues and margin of safety to GIL stock since it owns more that 80% of GPL.

GPL is also going to come with an IPO, considering the land under development the issue expected to value the company at about 3000 to 4000 crore.

Godrej agrovet
GIL holds 75.2 % in Agrovet
Agrovet is into Animal Feed,Integrated Poultry and Retail business. These are high ROCE business with a huge potential. Current turnover is about 1500 crore.Agrovet also has 100 acres in bangalore which can be roughtly valued at 100 to 150 crore.

Godrej hershey
GIL holds 43% in Godrej hershey
This business too will have great market as india is becoming a younger country and confectionery is at a nascent stage.Godrej has a jv with hershey to manufacture and distribute confectionery, snacks and beverages across India.Company acquired a 100% stake in Nutrine Confectionery Company Private Limited, the largest player in the Indian confectionery market. The acquisition gives an ownership of the Nutrine brand. Current turnover is about 400 crore.

Godrej Saralee
GIL holds 20% in Godrej Saralee
Is into home insectiside, hair care and aerosols business - "Good Night", "HIT" , "Brylcreem" and "Ambipur" are leading brands.Current turnover is about 800 crore and its high ROCE business.

Godrej Consumer
GIL holds 21.6% in Godrej Consumer.FMCG business has brands like "Cinthol","Fairglow" and "Ezee".Soaps depends on veg oils and competes with HUL they seems to be screwing up.

Bad businesses and Negatives
The oil and chemical business is not good it eats up capital and is basically a commodity business. The structure of the company is complex and leads to unallocation expenses which impact value.It becomes difficult to value the company because the change in stake across so previous results are not easily comparable. Such multiple business companies always trade at a discount to fair value

Sunday, June 14, 2009

Analysis - Federal Bank

I did an analysis on federal bank of India after FY09 results . You can download from here, @Rs 230 to 240 i found it to be trading at least about 30 to 35% below being reasonably valued.

A private sector bank trading at a discount to BV,PE =8,Div=40%.CRAR-tier 1 is healthy at 17.42 % and provision coverage is one of the best.Good NIM @ 4.28 and steady NII.Low Gross and Net NPA at 2.63% and 0.3% respectively.Bank is growing its business in gulf - source of deposits for kerala.Has over 600 branches and growing, it helps to have a good network.

The bank did a 1:1 rights issue about 16 to 18 months back @ rs 240. RONW in short term may not grow very fast due to this excess equity.RONW is expected to be in range of 13 to 14% for next year or so.Tax as a % of profit is increasing.

Other private banks like ICICI and HDFC are trading at PE's in range of 20'es and two times p/b. I am more comfortable with Fedral banks valuation it does not seem to be a sexy stock.I own the stock.

Sunday, June 7, 2009

Lessons from Graham

As an investor we have do focus on few things and do them correctly. Learning from experts like Ben Graham and Warren buffet is one of the "must do"- here are a few points from Ben Graham which i try to remind myself every morning

Investment is most intelligent when its most business like

1. Know your business -Know what you are doing, know the value of securities.

2.Do not let anyone else run your business - decide what has to be done with your money.

3. Do not enter a business unless reliable calculation shows that you will make money.Base your decision on arithmetic not optimism.

4. Have courage on your knowledge and intelligence.Act on your judgement.Courage becomes supreme virtue once judgement is at hand.

5. The secret of being being financially independent is inside yourself.
If you become a critical thinker and let not the noise of the market drive your opinion you can take advantage of even the worst bear markets. Make your own discipline and let not mood swings of people drive your financial future

6. You are neither right or wrong because people agree with you.
To be a investor you should be a believer in better tomorrow - stocks are not about the past