Wednesday, July 28, 2010


While investing in a IPO always try to go through the red-herring to understand the financials and risks.Usually IPO's are dressed up for sale so I avoid them unless the logic is compelling. Had a look at SKS, its india's biggest micro- finance company as per its current loan book.(about 3000 crore loans outstanding)
1. Expertise in micro finance.
2. Company seems to be sound and growing fast, over 100% CAGR
3. Business logic is strong (rural growth) and high asset quality(low NPA.)
4. Backed by savvy personalities like Soros and Narayana morthy (Infy)

1. High valuations. Over 5 to 6 times BV
2. Business will be debt heavy and will need capital infusion periodically (dilute returns)
3. The company will need to charge high interest rate from borrowers because it does not issue long term loans.

I would avoid it unless playing for listing gains which are likely because there is no other listed NBFC in micro-finance space. The valuations are high( its being offered at 3 times the cost to pre-ipo investors) but market loves novelty and ‘x’ factor is boosted by high profile names attached to the company

Tuesday, June 15, 2010

India's oil price confusion

I have been reading up and trying better understand oil and gas sector. I found this good article on ' Macro sensitivity of oil prices' by Morgan Stanley on india's oil price confusion.Its interesting to see that multiple taxes are linked to the oil price so actually India's oil price confusion is actually a tax problem.Enjoy the read !

Tuesday, June 8, 2010

Portfolio health check

We all periodically go to a dentist/general practitioner to validate our well being, also check our credit card statement to make sure they make sense- why should investing be any different ?!

As an investor we need to periodically do a 'health check' for the stocks we hold. If the health has got better we have an excuse to hold/add, If the patient needs medication -are the management up to it? .I mean that just holding the stock without any reason for doing so will not help your portfolio, also helps us to look back at our decisions and review the factors which made us to invest in first place.

Few points to check:
• Is the original investment logic still valid.
• Is the company generating adequate cash flow.
• Is the company is getting into areas which are unrelated diversification and reducing focus.
• Are the managers allocating capital rationally.
• Debt and tax levels.
• Profitability (ROE,ROIC) is it reducing/improving.
• Is the stock is valued much more that the business is worth..

You may have your own checklist but it has to based on price vs. value equation in mind. As Warren says -In investing, just as in baseball, to put runs on the scoreboard, one must watch the playing field, not the scoreboard.

Wednesday, June 2, 2010

Investment Idea: Zen Technologies

Business: Zen is 16 yr old company, primarily into simulation space for Police, Army, Navy so its sort of defense sector play. They like to call themselves as a ‘System Engineering’ company having skills in mechanical, software and electronics.

It’s important not to confuse them with other companies who work on off shoring model, Zen invests heavily in R&D and skills so that they can be at the cutting edge of innovation They are setting up a subsidiary for making games for platforms like PS/3 etc, will be launching their first game by end of 2010. .

Moat: Low cost producer and familiarly with Indian procurement cycle and customer behavior. Any foreign company investing in defense sector needs have an offset cost. Not a great moat but building a brand takes time.

Competition: BEL (Bharat electronics) is partially into similar space however Zen is in niche sector.

Financials: The results reflect that the company has graduated to a higher sales and growth path last couple of years (prior years the sales growth was flat) they seem to have gained a critical mass to at least remain at this level. FY10 sales is about 52 crore, profits 16 crore, the results are flat to marginally lower as compared to last year. Debt is minimal and margins are high.

Risks: Threat from competition and due to over dependence on govt. orders earnings will be lumpy (fourth quarter bias)

So should you buy ?

This is a kind of stock you want to track and buy as the business improves, its hard to ‘load the truck’ considering lumpy results and evolving nature of the business. At Rs 190 and mcap of 180 crores is value for money as a small exposure.

Sunday, May 2, 2010

Are you scared ?

Are you scared of adding money into the market fearing that you will lose it? Are you thinking of buying XYZ because its a hot stock ?

As Peter Lynch says - The key to making money in stocks, is not be scared of them. This point cannot be emphasized enough. He is right,its important to understand this while investing into the market.

Think of yourself to be a part owner of a business and monitor the progress of the business periodically.Stock market is a strange place, as the price goes up more buyers will show-up to buy your share but if the business is doing good you would not like to sell your ownership.

I would not say its easy to figure out the value of a company before the market discovers it but then we all work is some industry which we know a lot about. Try to start buying undervalued stocks in the industry you know and understand much better that any analyst who is trying to make predictions sitting in his office. As you get more confident about your decisions you will feel better.

Just like all other fears,'fear of stocks' too needs to be overcome by doing(not just dreaming or thinking)

Saturday, January 16, 2010

Dont worry be Happy :)

As an employed person we have few limitations –

1.You don’t have time to plan investments.
2.Typically you run from pillar to post during Jan to March period so that you can somehow achieve 1 lack saving allowed under 80 c.
3. You do manage to save at least 20% of our salary monthly but don’t know what to do with the money. It keeps your bank happy.

There is a better way –

Happiness is not a function of the money you make; you can happy today and now. So choose to be happy make sure you buy some peace of mind as you go along enjoying life.what can you do to steer clear from these limitations and allow yourself to be happy.

1.Buy Term Life Insurance: Term insurance is the cheapest form of life insurance. If you the primary earner for your family you would want to secure your family in case the un-thinkable happens. This policy will protect them from this low probability but high impact event.
Typically for a 30 to 32 yr male it will cost about 25 to 27K for a 50-60 lack policy. SBI Life and Aviva have few policies whose sum insured keeps growing at 5% to 10% every year while the premium remains constant.

2.Buy a house : Housing is a basic need while people keep arguing that renting is better showing “cash flow” calculations. The current tax laws give you rebate under 80c for principal repayment of hosing loan and 80d gives rebate for interest repayment. This basically means you do not have to worry about the tax saving until the tenor of your house loan. You can rather invest that money saved into equity funds /shares which will give you a decent return in the long term.

Having a house of your own also works like an insurance policy since your family does not have to worry about accommodation or rent if the unthinkable happens.
(provided you have repaid the loan or your term insurance takes care of repaying the balance pending ). Keep the EMI in mind while deciding- use this sheet to determine yours.

3. Buy a index fund/ETF: I have discussed about ETF’s earlier. If you don’t have time to evaluate business and determine which is better than other then it’s prudent to buy a ETF or index fund. This basically means that you a buying a slice of India so you will at least keep pace with market returns.