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.
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.
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.
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