Monday, June 29, 2015

MIC ELECTRONICS - BUSINESS UPDATE

MIC Electronics Ltd has informed BSE that:

"MIC Electronics Limited as a Lead Bidder in consortium with M/s. Kiran Impex Pvt Ltd., Hyderabad participated in a tender bearing No. EESL/06/2015-16/SL-RAJ/0512030 dated May 06, 2015 floated by M/s. Energy Efficiency Services Limited for "Design, Manufacture, Supply, Testing, Installation (Retrofit), Commissioning and 7 years Warranty of LED Streetlights and Other Related Works under 8 Municipalities of Rajasthan State, for seven clusters for a total quantity of 3,19,145 LED street lights. Out of seven clusters, we stood L1 (1st lowest bidder position) for five clusters and stood L2 (2nd lowest bidder position) for two clusters."

LINK 

Saturday, June 27, 2015

WHY INVESTORS FAIL ....

 Courtesy :Oddball Stocks.com

Written by : Mr. Nate Tabik


Almost every investing study tells us that buying stocks at a low price to anything results in market beating performance.  Even just buying a S&P ETF and doing nothing else beats most investors and mutual funds.  If out performance is a matter of doing a few simple things and nothing else then why is everyone acting so crazy? And if earning market matching, or market beating results are so simple then why don't investors earn those sorts of returns?
Fidelity released a study discussing a performance breakdown for their accounts.  The clients that did the best were the ones who were dead.  The second best performing set of clients forgot they had Fidelity accounts.  It seems like a formula to beat the market is to start an account, forget about it, then die.  Your heirs will thank you and marvel at your investing prowess.

How is it that investing is so "easy", yet so hard?  If in theory all one needs to do is follow a few simple formulas, or invest in a few ETF's why aren't more investors matching or beating the market?

It's often said that investors are their own worst enemy.  Our own emotions get the best of us.  When the market is roaring higher we get excited.  When the market hits new lows we're too depressed to even open our account statements.

I believe investors fail for a number of reasons with the biggest being the lack of patience.  There are many investing strategies that make sense on paper.  The problem is few investors have the patience to see these strategies through to the finish.  It is more exciting to watch a stock jump up and down 2-3% a day, or see a battle ground stock bantered about on CNBC compared to owning a company that trades in tenths of a percentage point most days.  The thing is those tenths add up over time, especially for companies that continue to execute operationally.


Finding a reasonable investing strategy isn't an issue, it's sticking to it.  It is very easy to find undervalued investments, but holding onto those undervalued investments for years can be difficult.  For many investors it's fun to research and watch holdings, but it's no fun to watch a stock effectively do nothing for days, months, or years.  If the excitement is in the research then we'll continually be researching new positions and throwing out the old ones.

Another reason investors fail is because they're doing too many things at once.  A few net-nets, a few growth stocks, some shorts, a turnaround or two etc.  Their portfolio is a potpourri of strategies, many of them that are complex and require dedicated skills.  Each investor needs to find their own style and stick to it.  There is a reason there are so many funds with one focus.  It's much easier to be a bankruptcy fund, or a turnaround fund compared to a general value fund.  The same is true for individual investors.  It's much easier to focus on a specific corner of the market rather than invest in any and all things cheap.




Related to doing too much is researching too much.  Some investors fail because they can't see the forest through the trees.  They are so caught up in the minutia of an investment that they miss the big picture.

I enjoy reading message board posts related to investments I'm researching.  I'm always on the lookout for what I consider the obsessive investor.  For some reason these obsessive investors often congregate in oil and gas or mining stocks.  You've probably seen these posts.  A few books worth of material detailing the pressure of well bores the company had in North Dakota in 1988.  Excited posts about how rumors are swirling that carpeting is being replace at headquarters and maybe it's a sign of a buyout.

Buried within the pages of notes are usually a few nuggets of information useful to an investment thesis.  But my feeling is that the author probably has no idea, they are too consumed with finding out everything related to the company to realize this.  The ultimate irony is that the body of knowledge an obsessed investor can accumulate is about the minimum amount of knowledge every middle level employee at the company has.  In other words outside investors are always at a significant informational disadvantage to almost any company insider, even the lowest level employees at times.



My favorite investments are ones where the value is obvious and the investment rests on what I consider a few pivot points.  These are general assumptions.  The larger the gap between the current price and fair value combined with a small number of pivot points makes for investment success.  This is because each assumption, each estimation, and each guess adds uncertainty to a model.  At some point endless research can blind an investor from realizing what truly matters from what they think matters.

Once I realized that I didn't need compile an exhaustive list of company information to make good investments I began to simplify my research.  I only researched what was necessary to confirm or deny the pivot points I'd identified with an investment.  By doing this I saved myself the endless research.  Maybe the carpet color does matter in a merger.  Small details can be exciting.  But it's the boring details that matter, such as the age of the CEO, or the age of the Board.  Companies with graying executives and graying boards are more likely to sell their company.


The last reason I believe many investors fail is because they don't really know what they own, or why they invested in the first place.  Cloning investments is a very popular strategy right now.  And like all investment strategies cloning works well on paper, it generates market beating returns.  Just buy what Buffett buys and sell what he sells and you'll do well the story goes.  The problem is when we buy something on someone else's thesis it's hard to hold through thick and thin.  If bad news starts to come out on a cloned investment it's easy to dump it and say "maybe this is one the guru messed up on."

Closely related is when investors purchase stocks on a story basis.  That is they feel a given company will benefit from some larger trend at some point in the future.  Many times when these story stocks are purchased investors aren't conducting true due diligence to see if the company will actually benefit from the trend.


Story stocks are a favorite of the news shows.  There's a very specific reason for this.  There are two types of stocks, stocks that are great stories, and stocks that are great investments.  As someone who writes about stocks I can say that some of my best investments have been my worst posts.  This is because there was nothing exciting to write about.  There was no narrative or story around the stock.  It was cheap, and all an investor needed to do was purchase and wait.  Some of my best and entertaining posts have been about stocks that aren't necessarily great investments.  But they make great stories.  This is the same with the financial media.  Companies that make great stories aren't usually great investments.

When we look in the mirror we're facing the enemy of our returns.  The best course of action is to pick a strategy, stick to it and move on.

Sunday, June 21, 2015

ONLY TEN DAYS LEFT TO EXCHANGE YOUR PRE-2005 CURRENCY NOTES

Courtesy : ET



Only 10 days are left to exchange pre-2005 currency notes, including those of Rs 500 and Rs 1,000 denominations, at banks as the deadline to do so is ending on June 30.

Seeking cooperation for withdrawing pre-2005 currency notes from circulation, the RBI has asked the public to deposit the old design notes in their bank accounts or exchange them at a bank branch convenient to them.

The earlier deadline was January 1, but later the Reserve Bank of India had extended it till the end of this month. All pre-2005 notes continue to remain a legal tender. These notes can be exchanged for their full value at bank branches.

It is easy to identify pre-2005 notes. The currency notes issued before 2005 do not have the year of printing on the reverse side. In notes issued post 2005, the year of printing is visible at the bottom on the reverse.

The rationale behind the move to withdraw banknotes printed prior to 2005 is to remove them from the market because they have fewer security features compared with banknotes printed after 2005, RBI said.

It is standard international practice to withdraw old series notes.Post-2005 notes have added security features and help in curbing the menace of fake currency. Over 164 crore pre-2005 currency notes of various denominations, including of Rs 1,000 were shredded in regional offices of Reserve Bank in 13- month period ending January.

The face value of the shredded currency notes was around Rs 21,750 crore. As per the details given in Parliament in March, 86.87 crore pieces of Rs 100, 56.19 crore pieces of Rs 500 and 21.75 crore pieces of Rs 1,000 were shredded.

Only 10 days are left to exchange pre-2005 currency notes, including those of Rs 500 and Rs 1,000 denominations, at banks as the deadline to do so is ending on June 30.

Seeking cooperation for withdrawing pre-2005 currency notes from circulation, the RBI has asked the public to deposit the old design notes in their bank accounts or exchange them at a bank branch convenient to them.

The earlier deadline was January 1, but later the Reserve Bank of India had extended it till t ..

Only 10 days are left to exchange pre-2005 currency notes, including those of Rs 500 and Rs 1,000 denominations, at banks as the deadline to do so is ending on June 30.

Seeking cooperation for withdrawing pre-2005 currency notes from circulation, the RBI has asked the public to deposit the old design notes in their bank accounts or exchange them at a bank branch convenient to them.

The earlier deadline was January 1, but later the Reserve Bank of India had extended it till t ..

Saturday, June 20, 2015

LEARN TO INVEST IN 10 STEPS

 Courtesy : Investopedia


Investing is actually pretty simple; you're basically putting your money to work for you so that you don't have to take a second job, or work overtime hours to increase your earning potential. There are many different ways to make an investment, such as stocks, bonds, mutual funds or real estate, and they don't always require a large sum of money to start.

Step 1: Get Your Finances In Order

Jumping into investing without first examining your finances is like jumping into the deep end of the pool without knowing how to swim. On top of the cost of living, payments to outstanding credit card balances and loans can eat into the amount of money left to invest. Luckily, investing doesn't require a significant sum to start. Gain more insight in Invest On A Shoestring Budget and Should I Invest Or Reduce Debt?.

Step 2: Learn The Basics

You don't need to be a financial expert to invest, but you do need to learn some basic terminology so that you are better equipped to make informed decisions. Learn the differences between stocks, bonds, mutual funds and certificates of deposit (CDs). You should also learn financial theories such as portfolio optimization, diversification and market efficiency. Reading books written by successful investors such as Warren Buffett ..etc  are great starting points. 
 

Step 3: Set Goals

Once you have established your investing budget and have learned the basics, it's time to set your investing goal. Even though all investors are trying to make money, each one comes from a diverse background and has different needs. Safety of capital, income and capital appreciation are some factors to consider; what is best for you will depend on your age, position in life and personal circumstances. A 35-year-old business executive and a 75-year-old widow will have very different needs.

Step 4: Determine Your Risk Tolerance

Would a significant drop in your overall investment value make you weak in the knees? Before deciding on which investments are right for you, you need to know how much risk you are willing to assume. Do you love fast cars and the thrill of a risk, or do you prefer reading in your hammock while enjoying the safety of your backyard? Your risk tolerance will vary according to your age, income requirements and financial goals. 

Step 5: Find Your Investing Style

Now that you know your risk tolerance and goals, what is your investing style? Many first-time investors will find that their goals and risk tolerance will often not match up. For example, if you love fast cars but are looking for safety of capital, you're better off taking a more conservative approach to investing. Conservative investors will generally invest 70-75% of their money in low-risk, fixed-income securities such as Treasury bills, with 15-20% dedicated to blue chip equities. On the other hand, very aggressive investors will generally invest 80-100% of their money in equities.
 

Step 6: Learn The Costs

It is equally important to learn the costs of investing, as certain costs can cut into your investment returns. As a whole, passive investing strategies tend to have lower fees than active investing strategies such as trading stocks. Stock brokers charge commissions. For investors starting out with a smaller investment, a discount broker is probably a better choice because they charge a reduced commission. On the other hand, if you are purchasing mutual funds, keep in mind that funds charge various management fees, which is the cost of operating the fund, and some funds charge load fees.

Step 7: Find A Broker Or Advisor

The type of advisor that is right for you depends on the amount of time you are willing to spend on your investments and your risk tolerance. Choosing a financial advisor is a big decision. Factors to consider include their reputation and performance, what designations they hold, how much they plan on communicating with you and what additional services they can offer. 

Step 8: Choose Investments

Now comes the fun part: choosing the investments that will become a part of your investment portfolio. If you have a conservative investment style, your portfolio should consist mainly of low-risk, income-producing securities such as federal bonds and money market funds. Key concepts here are asset allocation and diversification. In asset allocation, you are balancing risk and reward by dividing your money between the three asset classes: equities, fixed-income and cash. By diversifying among different asset classes, you avoid the issues associated with putting all of your eggs in one basket. 
 

Step 9: Keep Emotions At Bay

Don't let fear or greed limit your returns or inflate your losses. Expect short-term fluctuations in your overall portfolio value. As a long-term investor, these short-term movements should not cause panic. Greed can lead an investor to hold on to a position too long in the hope of an even higher price – even if it falls. Fear can cause an investor to sell an investment too early, or prevent an investor from selling a loser. If your portfolio is keeping you awake at night, it might be best to reconsider your risk tolerance and adopt a more conservative approach. 
 

Step 10: Review and Adjust

The final step in your investing journey is reviewing your portfolio. Once you've established an asset-allocation strategy, you may find that your asset weightings have changed over the course of the year. Why? The market value of the various securities within your portfolio has changed. This can be modified easily through re-balancing. 
 
HAPPY INVESTING
 
 
 

Saturday, June 6, 2015

Keep your head in the game even in the market's darkest moments.


 Courtesy : http://www.allstarstocks.com


It’s a lesson learned many times over in recent years: buy on the dips. For the past two decades, every time the market took a significant fall, investors who bought on the dip were soon were rewarded with a profitable bounce.
But the year 2000 taught investors a new lesson: there are no sure things in the stock market. With few exceptions the Dow blue chip stocks were anemic and the NASDAQ was abysmal. Anyone who spent the past year buying tech stocks on the dips knows now what’s it like to be kicked right in the assets. Instead of the dip and bounce, it was the dip, double-dip, and triple-dip.
Investors lost a whopping $5 trillion in market capital over an 12-month period—dwarfing any market collapse in the history of the U.S. stock market. At times like these, it’s easy to second-guess your investment strategy. And perhaps some second-guessing is in order. Once you’ve experienced the market’s dark side, you may have a better sense of what your threshold for risk really is. You also may have a better appreciation for diversification, dollar cost average, and some of the other conservative tenants of investing.
Just don’t get carried away. The one thing you don’t want to do is make a radical change in your investment approach. Remember, the past year was an exception. Most years, the market goes up. In fact, the Dow Jones Industrial Average has set new highs 17 of the past 20 years. The odds still strongly favor investors who keep their money in stocks.
So what should you do in a bear market? If you’re a long-term investor you do roughly the same thing in a bear market that you would in a bull market. You buy right through it. You make a continuing series of small bets. You select good quality companies and continue to build a position in those companies.
No question about it, it’s hard to get psyched up to invest good money in a bad market. In fact, it’s hard to keep from selling out of a bad market. You see your net worth continuing to fall. You see the money you invest being swallowed up into the steady slide of the market. You worry that the market may never turn around, and that all you’ve worked for, saved for, sacrificed for, will be lost.
Those types of emotions have caused more than a few investors to fail in the market. Fear drives many investors out of the market at the wrong time—when the market is near the bottom—just as greed lures them into the market at the wrong time—just as the market reaches an all-time high.
That’s why it’s important in times like these to focus on the long-term. And from a long-term perspective, market dives—painful as they may seem at the time—are the best times to add to your positions. Successful long-term investors see bear markets as "buying opportunities," when you can get stocks at bargain prices. Don’t think about how much you’ve lost. Think about how many more shares you can buy for the same amount of money.
The worst sustained bear market of the past half century occurred from 1968 to 1981 when the Dow Jones Industrial Average essentially stood still for 14 years. Now that’s a bear market! But even during that bear market, including dividends, you still would have earned an average annual return of about 4.3 percent. And that’s if you didn’t invest at all during that 14-year period.
But if you had continued to invest on a regular basis during that period, you would have set up your portfolio for a long and prosperous run. Once the market turned around in the early 1980s, investors who had a position in the market enjoyed exceptional returns over the following 15-year period.
An investor who added $10,000 a year each year for 14 years from 1968 through 1981—the worst period of the stock market of the past half century—would have seen his or her $140,000 investment grow to about $2 million by 1995 and $3 million by 1997. That’s an average annual return of about 15 percent. And all as a result of investing during the stock market’s darkest hours.
An investor who bought into the market right after the crash of 1987 would also have fared very well over the next 24 months. From its low of 1739 in the fall of 1987, the Dow moved up to about 2700 by the end of 1989—a two-year return of 56 percent. That’s why it would be a mistake to sell out of the market or cut back on your investments during slow times. Because once a market bottoms out, the returns on the bounce can be exceptional.
The hardest part is hanging in there while watching your investments plummet. Next time the market is tanking, and your commitment to stocks is wavering, here are some thoughts to consider:
Investing is a marathon, not a sprint. Wall Street experts tend to be on a different schedule than you. They’re running a sprint—looking for the best possible short-term returns—while you’re in a marathon—investing for the long-term. So when you listen to the Wall Street experts, you run the risk of getting caught up in their game, not yours. You don’t have to be concerned about the price of stocks today, about the next Fed meeting, or about whether IBM makes its numbers. Those are all short-term distractions. All you have to do is ask yourself whether the long-term prospects of the U.S. economy are solid, and where the electronics, medical technology, telecommunications, financial, and consumer markets are headed over the next 10 to 20 years. Clearly, unless we experience an unprecedented economic meltdown, long-term prospects continue to be strong for a broad range of American industries. That’s why it’s important for you to focus on the long-term and invest with an eye on the future.
The market always sets new highs. There has never been a crash of the U.S. stock market so severe that the market didn’t ultimately return to its former high, and move beyond it. That’s not to say it couldn’t happen. In the 1970s, the NASDAQ dropped dramatically, and did not return to its former high for about three years. After the recent market collapse, it may be some time before the NASDAQ returns to its all-time high of about 5100, but if history is any guide, the NASDAQ will ultimately rebound.
The goal is to build a winning portfolio. Your job as an investor is to build a portfolio of successful companies. If you can get a break on the price of those stocks while the market’s in the tank, all the better. Just keep building. Over time, that portfolio will serve you well.

Sunday, May 31, 2015

RESULT UPDATES

ARROW COATED PRODUCTS  - suggested @ Rs.12 (  Link HERE)  currently trading around Rs.450 ,   reported Rs.48 Cr turnover and Rs.22 Cr net profit for FY 2014-15 on a consolidated basis . EPS is Rs.19. Company declared a dividend of Rs.2.5 per share.High  risk investors can still hold.

V2 RETAIL - Suggested @ Rs.14 ( CMP  Rs.33 reported  a topline of Rs.287  Cr ( last yesr Rs.229 Cr) and a net profit of Rs.9.75 Cr ( loss of Rs.4.5 in last year) .Full year   EPS is Rs.4.14. Company's value shopping e-commerce platform ( http://www.v2kart.com/) is expected to launch formally in near future .Suggesting to hold it 

Link HERE
 
IL& FS ENGINEERING   - suggested @ Rs.98 ( CMP  Rs.90)   reported Rs.2771 Cr turnover ( since company's last year result published for 18 months , it is not strictly  comparable with this year result)   .Company reported a loss of Rs.11 Cr ( last year Rs.145 Cr loss) for FY 2014-15. Though its last quarter result is lower compared with previous one , strongly suggesting to hold for long term. If there is any sharp  fall in stock price due to exit of short term players , long term investors may take it as an opportunity.

Link HERE

Saturday, May 30, 2015

10 WARREN BUFFETT QUOTES YOU SHOULD LEARN BY HEART

Courtesy :http://www.wealthlift.com

1. Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1.” 

Sounds pretty simple, right? But when you’re buying or selling stocks, never losing money can seem impossible because prices fluctuate all the time. Warren, though, believes in buying the value of a company and not its stock price. He buys value at the right price, he doesn’t speculate or gamble. He makes sure that he knows a company’s value and that it will far outweigh the price that he paid for, and that is how he sticks to rule No.1.

2. “You do things when the opportunities come along. I’ve had periods in my life when I’ve had a bundle of ideas come along, and I’ve had long dry spells. If I get an idea next week, I’ll do something. If not, I won’t do a damn thing.”

Warren is a patient man. He would never chase prices or force any investment. He waits for the right moment (dictated by either price or market condition) to pounce, and pounce he will. This requires a great deal of discipline, and that is what separates him from the majority of unsuccessful investors. Indeed, patience is a virtue.

3. “Never invest in a business you can’t understand.” 

 This Warren Buffet quote is probably an offshoot of rule No.1. He will only play a game that he is really great at to ensure that his chances of losing are slim. Understanding a business really well can help you smell trouble from miles away. Also, you can never have conviction in something you do not understand, and conviction is what enables you to pounce on a company when the time is right.

4. “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” 

Warren would always put more value in a great company with great products and management than a mediocre one that can be bought on the cheap. A company’s stock price moves with the whims and emotions of traders and speculators, and is never a good indicator of value. Never mind Wall Street, focus on Main Street and look for a great company that brings great value to its customers, investors, and industry.

5. “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.” 

This is a great criterion in choosing a company to buy. Only buy stock in a company that will thrive, grow, and excel in the foreseeable future regardless of stock price. I only know one kind of company that fits that description, and that is the great kind.

6. “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” 

Warren knows that the stock market is full of folly. He knows that emotions like hope, greed, and fear dictate stock prices rather than logic and value. When people are panicky or fearful (as in a bear market) he takes that chance to buy great companies at cheap prices. As long as he does his research and knows the real value behind a company, he doesn’t get scared of its price fluctuations.

7. “It’s better to hang out with people better than you. Pick out associates whose behavior is better than yours and you’ll drift in that direction.” 

This Warren Buffet quote shows his humility and his infinite thirst for learning and improvement. He doesn’t have a huge ego; he doesn’t think of himself as superior than anybody else out there. Nor does he think that he knows everything.

8. “Our favorite holding period is forever.” 

Warren plays for keeps. He doesn’t buy a company that he wouldn’t hold or manage until a very long time. Making amazing gains, like his, takes time. Start young and go for the homeruns.

9. “Only when you combine sound intellect with emotional discipline do you get rational behavior.” 

Investors need these two ingredients to successfully parlay the investment game. The sound intellect comes from doing your homework. It is your research and analysis of a company’s business and value. Discipline on the other hand, refers to your ability to wait for the proper price to enter. You shouldn’t chase prices in bull markets and you shouldn’t get scared in bears. Practice emotional discipline and take your investing to the next level.

10. “Without passion, you don’t have energy. Without energy, you have nothing.” 

Be passionate in what you do and do what you are passionate about. Passion will make you go to the ends of the earth to see a dream fulfilled. It will be your fuel in your journey. It will make you unstoppable. It will see you through when times get tough, and it will make life so worth living.

Thursday, May 28, 2015

RESULT UPDATES

SAMKRG PISTONS & RINGS LTD - suggested @ Rs.163 reported Rs.1.68 Cr net profit ( Rs.3.26 Cr) in March quarter. Company's full year profit is Rs.12.3 Cr ( Rs.10.7 Cr) and EPS is Rs.12.76. Company declared a dividend of Rs.3 per share.Though its last quarter was below expectation ,on a full year basis , company's performance is satisfactory .It is one of the quality companies from this sector and expecting sector growth linked performance going forward. Stock corrected post result and currently trading around Rs.148.Still it is one decent company from auto component sector and those interested to keep some exposure in this secor can still HOLD it

HINDUSTAN TIN WORKS LTD- Suggested @ Rs.70 reported Rs.1.32 Cr net profit ( Rs.2.02 Cr) in March quarter. Company's full year profit is almost flat compared with last year as Rs.8.6 Cr ( Rs.8.4 Cr) and EPS is Rs.8.23. Company declared a dividend of Rs.1 per share.This is one company deviated mostly, from my growth expectations due to my failure to understand the business dynamics ( Metal Packaging)..Stock is currently trading  around Rs.60 which implies a P/E of just 7 . Though there is not much down side risk , if interested ,may consider shifting to some other company with better  growth prospects .

MOLD-TEK PACKAGING  - Suggested @ Rs.78 ,  reported Rs.4.14 Cr net profit ( Rs.2.19 Cr) in March quarter. Company's full year profit improved from Rs.9 Cr ro Rs.16.86 Cr  and EPS is Rs.14.40. Total dividend pay out for the year is Rs.4 per share .Recently company raised Rs.55 Cr by issuing shares to well known funds at a price of Rs.220 per share. Company now planning capacity expansion by  starting new plants . Current price of stock is around Rs.180 .Suggesting to HOLD this stock and expecting bright future in long term

DION GLOBAL SOLUTIONS LTD -Suggested @ Rs.66 ,  reported Rs.21 Cr net profit ( Rs.1.44 Cr) in March quarter.Requesting  to hold it at CMP Rs.130

TASTY BITE EATABLES LTD -Tasty Bite Eatables recommended @ Rs.165 ,which is currently trading around its life time high  Rs.1380 .Company reported Rs.3.17 Cr net profit ( Rs.1.46 Cr) in March quarter. Company's full year profit is  Rs.10.7 Cr ( Rs.4.3 Cr) and EPS is Rs.42. Low risk investors may book part profit .



Saturday, May 23, 2015

GTS - 9 ANSWER - PANTALOON FASHION & RETAIL LTD - A BLUECHIP IN MAKING ?



 
 







 










  

Be it Apple, Microsoft, Nestle or P&G ,  If we closely track the history of huge wealth creating stocks around the globe, in majority  cases we can find out one common factor – the company owns or entitled to use one or more  successful brands. Indian market is not an exception . We have many examples like Page Industries ( Jockey), Jubilant Foodworks ( Dominos) ,Eicher Motors ( Royal Enfield) , Whirlpool ,Laopala ..etc. The new kid on this block is Pantaloon Fashion Retails. Ltd. Let us look into this which I consider as a true multi bagger in making for long term investors.

                                 It came into existence by joining the fashion arms of  erstwhile Pantaloon Retail and Future Ventures .By virtue of its name ,many investors still considering PFRL as a company belongs to the debt ridden future group led by Kishore Biyani.But in reality , now this company belongs to Kumar Mangalam Birla led Aditya Birla Group . Earlier Biyani sold it to Aditya Birla group in an  effort to pare the debt of his future group.

                                                                         What make this loss making company suddenly attractive is the scheme of arrangement announced by Aditya Birla Group few days back.To  consolidate all its branded apparel business into a single entity AB Group now bringing many super brands under PFRL’s fold. It will de-merge Madura Fashion (the branded apparel retailing division) and Madura Garments Lifestyle (luxury branded apparel retailing division) and merge them with Pantaloons.This scheme of arrangement will bring many undisputed brands in premium apparel segment with this company which includes - Louis Philippe, Van Heusen, Allen Solly, People, Hackett London , The Collective ,Peter England ..etc. I don’t think any extra explanation is needed to describe the success of these brands in our market and hence not wasting time for that .

                                                                     When we consider any business depends on brands , we should look into the ownership of brands too . If such a company loose its brand in any circumstances , the entire business may collapse and hence some understanding about this part is very important for an investor. As you are aware Page industries is not the owner of Jockey brand but they are using that brand name as an exclusive licensee of Jockey Brand products from Jockey International Inc till 2030. Like  this ,Jubilant Foodworks using Dominoz brands through an exclusive franchise agreement with Dominos International which is valid till 2025. Why I bring these examples here is just to point out the fact that these agreements are made with a time frame and it should be renewed thereafter for another fixed period, time to time.Though chances are rare for a termination , we can’t rule out possibility for introduction of more  and more covenants by original brand owner at the time of each renewal. Even in some rare cases, relation between both parties may go beyond this and ends in never ending disputes.The recent incident of the dispute between the owner of McDonald brand and one of its Indian franchise owner Mr Vikram Bakshi is one best example for such unfortunate incidents.In this back ground let us look into the brand ownership scenario of some of its major brands viz- Louis Philippe, Van Heusen, Allen Solly and Peter England . Louis Philippe is a brand currently owned by Madura itself.Van Heusen is originally owned by Philips Van heusen company ( US )  but Madura owns the perpetual right to use this brand .The world rights of Peter England brand acquired by Madura in 2000. The brand ‘Allen Solly’ is originally started by a company named ‘William Hollins & Company’ in 1744  and Madura Garments taken over this company in 1990.In nutshell , uncertainties surrounding the ownership and usage of PFRL’s  ( on completion of scheme of arrangement) major brands are nil or less compared with brands of many of the highly flying listed players like Page or Jubilant.( I believe brands like Louis Philippe, Van Heusen, Allen Solly , Peter England..etc  are equal or above the brands of mentioned other companies in their respective category .More than that when others own one good brand ,here in this case all these four brands are extremely strong .Existing brands of Pantaloon ( Byford,Factor,annabelle..etc..etc) will continue in this company itself.In addition to this branded apparel manufacturing ,the combined entity will own a retail network of 1,869 stores across India and a strong e-sale platform - http://www.trendin.com/ .
The First  reason for investors and analysts apathy is the current loss and debt position of PFRL.At present, PFRL’s debt is almost Rs.1085 Cr and Debt to EBITDA ratio is  28: 1.I am accepting the fact that any investor taking investment decisions after analysing the equations and numbers will avoid any company with such a Debt to EBITDA ratio  . But if we closely look at the possible Debt to EBITDA  post merger of Madura units , it will sharply improve from 28:1 to 3.8:1. From the present huge loss, PFRL will turn into a strong company with Rs.400 Cr( approx) pre-tax free cash flow on merger. Company has said , on completion of restructuring  it would invest Rs 450-500 crore  for the next three years, to add 250-300 Madura Garments stores and 25-30 of Pantaloon stores.

Management already announced their decision to change the combined  entity’s name from Pantaloon to Aditya Birla Fashion Retail ( ABFR) .This will help for an image makeover from the chequered past of Pantaloon( due to debt related issues) under previous management and remove the misunderstanding of Investors about the ownership of this company. In a press statement ,Group Chairman Mr.Kumar Mangalam Birla  claimed  “The new company will be the largest  branded apparel player  in India not only in the listed  but also in the non-listed space," .

Another confusion is about valuation of stock post expansion of equity .As you are aware ,companies with market leadership position with  excellent brand and decent growth will always trade at premium valuation at high P/E multiples  .( I remember ,99 % analysts suggested to skip Jubilant foodworks  IPO when they offer shares @ Rs.145 in 2010  citing higher valuation at that price.). Considering the current financial data of listed company ( Pantaloon) and the companies to be merged with Pantaloon , I hope the new combined entity will report an EPS of Rs.6.50-7 on completion of merger . Having said , this will be India’s largest branded apparel player and deserving premium valuation. Brand recall of Its super duper brands – Louis Philippe, Van Heusen, Allen Solly and Peter England- is NOT a tad below the single brand of Page Industries . The most important factor is,these brands are showing very high growth rate and Madura Lifestyle’s  sales have grown at a CAGR of 27% from FY10 to FY14. In addition to this, company already announced its plans to open 100 Madura Garments stores and 10 Pantaloon stores in every year for next three years. Operational synergies and cost savings from merger is expected to reduce the loss of Pantaloon division going forward and excellent cash flow of Madura divisions will help to ease the debt pressure of combined entity . As a combined entity ,cost saving opportunities are also possible in case of sourcing , technology,real estate ..etc.Now let us look into the P/E multiple of few listed companies who own market leading brands and  business depends on consumer spending . See below Table :
 
                                 # P/E of PFRL calculated based on the expected EPS post scheme of arrangement        
                                                           Click on the image for better view
  Even if the given small companies( by turnover ) is not strictly comparable with Aditya Birla Fashion Retail Limited - ABFRL ( proposed name of merged entity) , considered the same for arriving a fair comparison in case of P/E multiples. Even the turnover of Page industries will be only a fraction of the turnover of ABFRL once the merger process completes. 
Having said, the brands owned by Page and Jubilant ..etc  not even owned by them( franchise of brands owned by foreign companies upto a fixed time with renewal option) where there is no uncertainty regarding the brands owned by ABFRL which is either owned brands or with perpetual rights . Aditya Birla groups financial muscle and reputation is another factor to keep in mind while comparing with others . Brand extension possibilities to other fashion accessories is another possibility. Company already selling products like Footwear, Belt,wallet..etc under its popular brands . Creating succefull  sub brands is also a possibility and they started the same with Allen Solly Junior . All together ,I believe AB group is capable enough to handle the debt position and will find out a way to improve return ratios going forward once the merger process is complete . There is no reason to get a below average P/E for a company like this which own four super brands (Louis Philippe, Van Heusen, Allen Solly and Peter England) ,along with  2000 retail outlets pan India and a robust CAGR .Merger process is expected to complete in this financial year itself .

With excellent brands , high potential fast growing  business , financial muscle and business acumen of Aditya Birla group , I believe , few years from now ABFRL ( now Pantaloon Fashion Retail ) will grow as the feather in the cap of Aditya Birla Group and it is one  future blue chip in making .Being a long term investor ,I am taking it as a  rare opportunity to grab a high potential company in Indian fashion space at its beginning stage and comfortable to buy  even at this price .Suggesting my readers to take a call based on own conviction .Stock (PFRL)  listed in both exchanges and trading around Rs.195
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# This report prepared in anticipation of   smooth completion of Scheme of Arrangement as per the terms and conditions announced by both companies. 
Disc: Holding shares in PFRL  
Link to the website of Madura fashion & Lifestyle HERE
Related news links below 

 1 ) Pantaloon Fashion Retail a better bet than AB Nuvo for investors

 

2)  Latest Investor Presentation 

 

3  ) Aditya Birla Group merges apparels business

 
 
 
 
 
 
 
                            
         

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