Saturday, July 11, 2020


Till few years back Mayur Uniquoters was the  darling of investors and one of the biggest wealth creators in the history of  Indian equity market . Later, colour  of  this artificial leather manufacturer faded  due to reasons like muted growth in business and some family feud. It seems, after a gap of  few years , now situation again turning in favour of the company .

                                    Mayur is the largest player in the artificial (synthetic) leather market in India .Company’s products are mainly used in Automotive and Footwear industries. As a testimony to their product quality , this is the only Indian company supplying products to US and EU  based marquee OEM’s like Chrysler ,Ford, .etc .Its Indian client list includes who is who in the automobile and footwear industries like Maruti Suzuki, Hyundai motors (recent addition) ,Honda ,Mahindra, Tata Motors,Yamaha, MG,Bata,Relaxo,Paragon,Action, Khadim’s ,VKC..etc .  Share of exports to total turnover increased more than 150% in last 10 years . Strong R&D , fully integrated operations , concentration in supply to  quality conscious OEM’s helping the company to keep its margin at higher level and a strong balance sheet.

Global synthetic leather market is expected to reach $31 bn by next year .If we take the top five (on the basis of capacity) players in this industry , three out of five players are from China and Mayur is at second place only behind China based  Anhui Anli Material Technology Co. Because of its successful effort to concentrate in high margin products, Mayur is  one of  the most profitable companies operating in this sector in the entire  world. Synthetic leather are mainly two types- PVC based and PU based . Till now Mayur was present only in PVC based products with an 11 % market share in local market in an industry where lot of small players are competing . Even if the pricing power is limited in this Industry  ,Mayur generating good margin due to  their success in client selection who are willing to pay premium for quality .

                                               Mayur started its initiative to diversify into PU based artificial leather in 2014 . Rs.3500 Cr is the estimated market size of this product in  India as of now and this demand is mainly met through imports . Out of this figure 90% is imported from China alone. This is a huge opportunity Mayur is looking to tap. After facing many hurdles in project implementation and deadline changes , Mayur just started the production of this product now . This is high margin and  low competition product compared with PVC based artificial leather .Considering company’s already established good relation with customers ,Mayur is expected to capture sizable market share of PU product in coming years . Other than Mayur , there are only three small manufacturers in India for PU based products whose capacity all together is less than half of the capacity of Mayur.Anti China wave in many countries due to various reasons are also expected to act as a catalyst for a faster transformation.In last few years company lost few of its south based big customers mainly due to logistic related and other competitive disadvantages as its plant is located in Rajasthan. This is one reason for muted top line growth in past few years . In order to overcome this situation and increase the efficiency of service to south based customers , now company is planning to start a plant in Anantapur, AP

Major Headwinds :

·       Though the company reported better than expected performance in March quarter, there might  be some negative impact on business in recent times due to Covid Pandemic related production and demand disruption.

·       Family feud is an issue and one of the major reason for under performance of this stock. Son ( holding 15% stake ) of the major promoter resigned from the company in 2017 and now son-in-law is acting as next to  Suresh Kumar Poddar ( Chairman) . Any truce among family members will surely re-rate this stock.

Major Tailwinds

·       Integrated, R&D driven company in a growing Industry
·       Strong balance sheet with cash /Cash equivalents on book
·       There is lot of unorganized small players in PV based synthetic leather  segment, pandemic related issues will surely affect them most compared with companies like Mayur with strong balance sheet. If this situation prevail for a long time , it may result in consolidation in this industry and ultimately help the organised players in the longer term.
·       PU leather segment is a big opportunity and it may change the fortunes of the company going forward. Though the ramp – up may bit slow due to Covid issue,after many extensions , now they started the commercial production of this product
·       New customer addition – many major players in auto sector  in India are customers of Mayur, but not  Hero Motocorp . Company is in discussions with Hero and expecting positive outcome in a couple of quarters. In the export market, for the past five years or more  they are trying for first shipment to Mercedes. It got delayed due to various formalities like plant inspection. Approval..etc . As per latest con-call, this will happen  by last quarter of ongoing FY and it will be another feather in the cap of this company. Company is also in discussions with BMW and expecting positive outcome in near future
·       Government recently hiked the import duty of artificial leather from 10 % to 20 % ( 22% including surcharge) , this will surely help Indian companies to compete  in a better way with Chinese counter parts .
·       Cost of major raw materials are related with the price of Crude . Due to various reasons, crude price is expected to move in a range which will result in stability of RM cost.
·       In case of raw material, to avoid import dependency, company planning to start own production of P U resins in another one year.


 CMP Rs.221

Link to company website HERE

This is my few thoughts on Mayur Uniquoters and the decision is your’s  

Data source : Publicly available documents , con-calls and interviews of management.

Wednesday, May 22, 2019

Be Positive and Vigilant ....

We are now ready to welcome a new government. Whether it will be the continuity of the previous one or formed by new faces is the question in everyone’s mind. The last five years were mixed for investors. The first half was excellent with all round enthusiasm, participation from FII’s, Institutional and retail investors..etc. but the last one and a half year was no so good for market especially for retail investors due to signs of weakening economy, liquidity crisis, global issues..etc.  Unexpected currency note ban, implementation of GST without proper preparedness, introduction of long term capital gain tax , election related uncertainties, serious liquidity crisis in our economy ,  rise in crude oil price, trade differences between US and China ..etc are some of the concerns which affected our market in the second half this government. Though we are still not fully recovered from such macro headwinds, we can’t forget the strength of an economy with more than 130 Cr population if properly managed , supported and utilized by the upcoming governments. From the point of view of investors in equity market, we have passed many such acid tests during the past many years and many of our corporates weather the storm of such macro factors and emerge as winners.

                                                                                   The success of any investor depends on his/her ability to foresee the upcoming opportunities and make timely changes in their portfolio to gain out of such opportunities. Unfortunately one section of retail investors still believe, buy some stocks and wait for a long time is enough to make money out of it . We have discussed this subject many times in the past and advised to take investment decisions based on the changes happening in the company. It is a fact that  holding a stock without proper periodic review will not give any gain  and it may even results in enormous wealth erosion especially  in case of debt laden high risk companies which we invested with an anticipation of debt restructuring, asset sale..etc ( Though I am not recommended directly ,Ess Dee aluminum is one such stock we have discussed earlier in this genre ) .Having said  , debt restructuring was the investment rationale of few of these companies but it didn’t go through as expected mainly due to the sudden withdrawal of various types of debt restricting schemes  by RBI ( Read details HERE) .Then encouraged debt resolution process through insolvency and bankruptcy code taking too much time due to various reasons and this delay adversely affecting such troubled companies ability to survive. In case of small companies, resolution through IBC facing lot of challenges due to red tapism, lack of clarity in procedures, legal matters  ..etc resulting even in winding up of such companies itself . Situation of negative net worth for consecutive three years is really a bad sign and we should check the annual reports and foot notes of results of such vulnerable companies and act accordingly without any delay in order to save   at least part of our investment.
                                                                                            In my opinion, whatever be the macro factors, the stock market is here to stay and investors in growing companies will ultimately gain in the long term .So short   term opportunities should be utilized with a long term view and hold stocks which qualify your periodic checks and balances. Always prepare the portfolio according to your risk taking capacity and not based on the portfolio of your friend or neighbor.( Personally I advise  a balanced portfolio of stocks with  Compounders, growth companies ,deep value ones, high risk opportunities ..etc and the ratio of each category should depends on ones’ risk taking capacity)   . If you feel something wrong is going on or against our calculation or feel  we took a wrong decision ,exit at the earliest even in a loss without any hesitation. Better to avoid leveraged positions especially at the time of important macro events like election outcomes..etc

Happy investing        

Sunday, March 4, 2018

How To Make A Winning Long-Term Stock Pick ..

Courtesy : Investopedia 

Many investors are confused when it comes to the stock market — they have trouble figuring out which stocks are good long-term buys and which ones aren't. To invest for the long term, not only do you have to look at certain indicators, you also have to remain focused on your long-term goals, be disciplined and understand your overall investment objectives.
Focus on the Fundamentals
There are many fundamental factors that analysts inspect to decide which stocks are good long-term buys and which are not. These factors tell you whether the company is financially healthy and whether the stock has been brought down to levels below its actual value, thus making it a good buy.
The following are several strategies that you can use to determine a stock's value.
Dividend Consistency
The consistency of a company's ability to pay and raise its dividend shows that it has predictability in its earnings. It also shows that it's financially stable enough to pay that dividend (from current or retained earnings). You'll find many different opinions on how many years you should go back to look for this consistency — some say five years, others say as many as 20 — but anywhere in this range will give you an overall idea of the dividend consistency.
Examine the P/E Ratio
The price-earnings ratio (P/E) ratio is used to determine whether a stock is over or undervalued. It's calculated by dividing the current price of the stock by the company's earnings per share. The higher the P/E ratio, the more willing some investors are to pay for those earnings. However, a higher P/E ratio is also seen as a sign that the stock is overpriced and could be due for a pullback — at the very least. A lower P/E ratio could indicate that the stock is an attractive value and that the markets have pushed shares below their actual value.
A practical way to determine whether a company is cheap relative to its industry or the markets is to compare its P/E ratio with the overall industry or market. For example, if the company has a P/E ratio of nine while the industry has a P/E ratio of 14, this would indicate that the stock has an attractive valuation compared with the overall industry. But on the other hand one should also check whether there is any specific reason for such high P/E ratio like possibility of robust business growth in future..etc
Watch for Fluctuating Earnings

The economy moves in cycles. Sometimes the economy is strong and earnings rise. Other times, the economy is slowing and earnings fall. One way to determine whether a stock is a good long-term buy is to evaluate its past earnings and future earnings projections. If the company has a consistent history of rising earnings over a period of many years, it could be a good long-term buy.
Also, look at what the company's earnings projections are going forward. If they're projected to remain strong, this could be a sign that the company may be a good long-term buy. Alternatively, if the company is cutting future earnings guidance, this could be a sign of earnings weakness and you might want to stay away.
Avoid Valuation Traps

How do you know if a stock is a good long-term buy and not a valuation trap (the stock looks cheap but can head a lot lower)? To answer this question, you need to apply some common-sense principles, such as looking at the company's debt ratio and current ratio.
Debt can work in two ways:
  • During times of economic uncertainty or rising interest rates, companies with high levels of debt can experience financial problems.
  • In good economic times, debt can increase a company's profitability by financing growth at a lower cost.
The debt ratio measures the amount of assets that have been financed with debt. Generally, the higher the debt, the greater the possibility that the company could be a valuation trap.
There is another tool you can use to determine the company's ability to meet these debt obligations — the current ratio. To calculate this number, you divide the company's current assets by its current liabilities. The higher the number, the more liquid the company is. For example, let's say a company has a current ratio of four. This means that the company is liquid enough to pay four times its liabilities.
By using these two ratios — the debt ratio and the current ratio — you can get a good idea as to whether the stock is a good value at its current price.
Analyze Economic Indicators

There are two ways that you can use economic indicators to understand what's happening with the markets.
Understanding Economic Conditions

The major stock market averages are considered to be forward-looking economic indicators. For example, consistent weakness in the Dow Jones Industrial Average could signify that the economy has started to top out and that earnings are starting to fall. The same thing applies if the major market averages start to rise consistently but the economic numbers are showing that the economy is still weak. As a general rule, stock prices tend to lead the actual economy in the range of six to 12 months.
Evaluate the Economic "Big Picture"

A good way to gauge how long-term buys relates to the economy is to use the news headlines as an economic indicator. Basically, you're using contrarian indicators from the news media to understand whether the markets are becoming overbought or oversold.
The Bottom Line
Investing for the long term requires patience and discipline. You may spot good long-term investments when the company or the markets haven't been performing so well. By using fundamental tools and economic indicators, you can find those hidden diamonds in the rough and avoid the potential valuation traps.

Saturday, February 17, 2018

Managing The Risks In Value Investing ....

Courtesy : Investopedia

Value investing, properly executed, is a low-to-medium-risk strategy. But it still comes with the possibility of losing money. This section describes the key risks to be aware of and offers guidance on how to mitigate them.

Basing Your Calculations on the Wrong Numbers

Since value investing decisions are partly based on an analysis of financial statements, it is imperative that you perform these calculations correctly. Using the wrong numbers, performing the wrong calculation or making a mathematical typo can result in basing an investment decision on faulty information. You might then make a poor investment or miss out on a great one. If you aren’t yet confident in your ability to read and analyze financial statements and reports, keep studying these subjects and don’t place any trades until you’re truly ready.

Overlooking Extraordinary Gains or Losses

Some years, companies experience unusually large losses or gains from events such as natural disasters, corporate restructuring or unusual lawsuits and will report these on the income statement under a label such as “extraordinary item — gain” or “extraordinary item — loss.” When making your calculations, it is important to remove these financial anomalies from the equation to get a better idea of how the company might perform in an ordinary year. However, think critically about these items, and use your judgment. If a company has a pattern of reporting the same extraordinary item year after year, it might not be too extraordinary. Also, if there are unexpected losses year after year, this can be a sign that the company is having financial problems. Extraordinary items are supposed to be unusual and nonrecurring. Also beware a pattern of write-offs.

Ignoring the Flaws in Ratio Analysis

The problem with financial ratios is that they can be calculated in different ways. Here are a few factors that can affect the meaning of these ratios:
  • They can be calculated with before-tax or after-tax numbers.
  • Some ratios provide only rough estimates.
  • A company’s reported earnings per share (EPS) can vary significantly depending on how “earnings” is defined.
  • Companies differ in their accounting methodologies, making it difficult to accurately compare different companies on the same ratios.
  • Overpaying

One of the biggest risks in value investing lies in overpaying for a stock. When you underpay for a stock, you reduce the amount of money you could lose if the stock performs poorly. The closer you pay to the stock’s 
fair market value — or even worse, if you overpay — the bigger your risk of not earning money or even losing capital. Recall that one of the fundamental principles of value investing is to build a margin of safety into all your investments. This means purchasing stocks at a price of around two-thirds or less of their intrinsic value. Value investors want to risk as little capital as possible in potentially overvalued assets, so they try not to overpay for investments.

Not Diversifying

Conventional investment wisdom says that investing in individual stocks can be a high-risk strategy. Instead, we are taught to invest in multiple stocks or stock indexes so that we have exposure to a wide variety of companies and economic sectors. However, some value investors believe that you can have a diversified portfolio even if you only own a small number of stocks, as long as you choose stocks that represent different industries and different sectors of the economy. Value investor and investment manager Christopher H. Browne recommends owning a minimum of 10 stocks in his “Little Book of Value Investing.” Famous value investor Benjamin Graham suggested that 10 to 30 companies is enough to adequately diversify.

They recommend investing in  a few companies and watching them closely. Of course, this advice assumes that you are great at choosing winners, which may not be the case, particularly if you are a value-investing novice.

Listening to Your Emotions

It is difficult to ignore your emotions when making investment decisions. Even if you can take a detached, critical standpoint when evaluating numbers, fear and excitement may creep in when it comes time to actually use part of your hard-earned savings to purchase a stock. More importantly, once you have purchased the stock, you may be tempted to sell it if the price falls. You must remember that to be a value investor means to avoid the herd-mentality investment behaviours of buying when a stock’s price is rising and selling when it is falling. Such behaviour will obliterate your returns

Value investing is a long-term strategy. Warren Buffett, for example, buys stocks with the intention of holding them almost indefinitely. He once said, “I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.” You will probably want to sell your stocks when it comes time to make a major purchase or retire, but by holding a variety of stocks and maintaining a long-term outlook, you can sell your stocks only when their price exceeds their fair market value.
Basing Your Investment Decisions on Fraudulent Accounting Statements
After the accounting scandals associated with Enron, WorldCom, Tesco, Toshiba and other companies, it would be easy to let our fears of false accounting statements prevent us from investing in stocks. Selecting individual stocks requires trusting the numbers that companies report about themselves on their balance sheets and income statements. Sure, regulations have been tightened and statements are audited by independent accounting firms, but regulations have failed in the past and some unethical accountants have become their clients’ bedfellows.

Not Comparing Apples to Apples

Comparing a company’s stock to that of its competitors is one way value investors analyze their potential investments. However, companies differ in their accounting policies in ways that are perfectly legal. When you’re comparing one company’s P/E ratio to another’s, you have to make sure that EPS has been calculated the same way for both companies. Also, you might not be able to compare companies from different industries. If companies use different accounting principles, you will need to adjust the numbers to compare apples to apples; otherwise, you can’t accurately compare two companies on this metric.

Selling at the Wrong Time

Even if you do everything right in researching and purchasing your stocks, your entire strategy can fall apart if you sell at the wrong time. The wrong time to sell is when the market is suffering and stock prices are falling simply because investors are panicking, not because they are assessing the quality of the underlying companies they have invested in. Another bad time to sell is when a stock’s price drops just because its earnings have fallen short of analysts’ expectations.
The ideal time to sell your stock is when shares are overpriced relative to the company’s intrinsic value. However, sometimes a significant change in the company or the industry that lowers the company’s intrinsic value might also warrant a sale if you see losses on the horizon. It can be tricky not to confuse these times with general investor panic. Also, if part of your investment strategy involves passing wealth to your heirs, the right time to sell may be never (at least for a portion of your portfolio).

Friday, January 26, 2018

7 Stock Buying Mistakes And How To Avoid Them ....

Courtesy : Investopedia

Making mistakes is part of the learning process. However, it's all too often that plain old common sense separates a successful investor from a poor one. At the same time, nearly all investors, new or experienced, have fallen astray from common sense and made a mistake or two. Being perfect may be impossible, but knowing some of common investing errors can help deter you from going down the well-traveled, yet rocky, path of losses. Here are some of the most common stock buying mistakes.

1. Using Too Much Margin

Margin is the use of borrowed money to purchase securities. Margin can help you make more money; however, it can also exaggerate your loses - a definite downside.
The absolute worst thing you can do as a new investor is become carried away with what seems like free money - if you use margin and your investment doesn't go your way, you end up with a large debt obligation for nothing. Ask yourself if you would buy stocks with your credit card. Of course you wouldn't. Using margin excessively is essentially the same thing (albeit likely at a lower interest rate).Additionally, using margin requires you to monitor your positions much more closely because of the exaggerated gains and losses that accompany small movements in price. If you don't have the time or knowledge to keep a close eye on and make decisions about your positions and the positions drop, your brokerage firm will sell your stock to recover any losses you have accrued.

As a new investor, use margin sparingly, if at all. Use it only if you understand all its aspects and dangers. It can force you to sell all your positions at the bottom, the point at which you should be in the market for the big turnaround.

2. Buying On Unfounded Tips

We think everyone makes this mistake at one point or another in their investing career. You may hear your relatives or friends talking about a stock that they heard will get bought out, have killer earnings or soon release a groundbreaking new product. Even if these things are true, they do not necessarily mean that the stock truly is "the next big thing" and that you should run to the nearest phone to call your broker.
Other unfounded tips come from investment professionals on TV who often tout a specific stock as though it's a must-buy, but really is nothing more than the flavor of the day. These stock tips often don't pan out and go straight down after you buy them. Remember, buying on media tips is often founded on nothing more than a speculative gamble.

Now this isn't to say that you should balk at every stock tip. If one really grabs your attention, the first thing to do is consider the source. The next thing is to do your own homework. Make sure you "research, research and research" so that you know what you are buying and why. Buying a tech stock with some proprietary technology should be based on whether it's the right investment for you, not solely on what some mutual fund manager said on TV.
Next time you're tempted to buy a hot tip, don't do so until you've got all the facts and are comfortable with the company. Ideally, obtain a second opinion from other investors or unbiased financial advisor

3. Day Trading

If you insist on becoming an active trader, think twice before day trading. Day trading is a dangerous game and should be attempted only by the most seasoned investors. In addition to investment savvy, a successful day trader needs access to special equipment that is rarely available to the average trader. Did you know that the average day-trading workstation (with software) can cost in the range of $50,000? You'll also need a similar amount of trading money to maintain an efficient day trading strategy.
The need for speed is the main reason you can't start day trading with simply the extra $5,000 in your bank account: online brokers do not have systems fast enough to service the true day trader, so quite literally the difference of pennies per share can make the difference between a profitable and losing trade. In fact, day trading is deemed such a difficult endeavor that most brokerages who offer day trading accounts require investors to take formal trading courses.
Unless you have the expertise, equipment and access to speedy order execution, think twice before day trading. If you aren't particularly adept at dealing with risk and stress, there are much better options for an investor looking to build wealth.

4. Buying Stocks that Appear Cheap

This is a very common mistake, and those who commit it do so by comparing the current share price with the 52-week high of the stock. Many people using this gauge assume that a fallen share price represents a good buy. But the fact that a company's share price happened to be 30% higher last year will not help it earn more money this year. That's why it pays to analyze why a stock has fallen.
Deteriorating fundamentals, a CEO resignation and increased competition are all possible reasons for the lower stock price - but they are also provide good reasons to suspect that the stock might not increase anytime soon. A company may be worth less now for fundamental reasons. It is important always to have a critical eye since a low share price might be a false buy signal.

Avoid buying stocks that simply look like a bargain. In many instances, there is a strong fundamental reason for a price decline. Do your homework and analyze a stock's outlook before you invest in it. You want to invest in companies which will experience sustained growth in the future.

5. Underestimating Your Abilities

Some investors tend to believe they can never excel at investing because stock market success is reserved for sophisticated investors. This perception has no truth at all. While any commission-based mutual fund salesmen will probably tell you otherwise, most professional money managers don't make the grade either - the vast majority underperform the broad market. With a little time devoted to learning and research, investors can become well equipped to control their own portfolio and investing decisions - and be profitable. Remember, much of investing is sticking to common sense and rationality.

Besides having the potential to become sufficiently skillful, individual investors do not face the liquidity challenges and overhead costs large institutional investors do. Any small investor with a sound investment strategy has just as good a chance of beating the market, if not better, than the so-called investment gurus.
Never underestimate your abilities or your own potential. That is, don't assume you are unable to successfully participate in the financial markets simply because you have a day job.

6. When Buying a Stock, Overlooking the "Big Picture"

For a long-term investor one of the most important - but often overlooked - things to do is qualitative analysis, or "to look at the big picture." Fund manager and author Peter Lynch once stated that he found the best investments by looking at his children's toys and the trends they would take on. Brand name is also very valuable. Think about how almost everyone in the world knows Coke; the financial value of the name alone is therefore measured in the billions of dollars. Whether it's about iPods or Big Macs, no one can argue against real life.

So pouring over financial statements or attempting to identify buy and sell opportunities with complex technical analysis may work a great deal of the time, but if the world is changing against your company, sooner or later you will lose. After all, a typewriter company in the late 1980s could have outperformed any company in its industry, but once personal computers started to become commonplace, an investor in typewriters of that era would have done well to assess the bigger picture.
Assessing a company from a qualitative standpoint is as important as looking at the sales and earnings. Qualitative analysis is a strategy that is one of the easiest and most effective for evaluating a potential investment.

7. Compounding Your Losses by Averaging Down

Far too often investors fail to accept the simple fact that they are human and prone to making mistakes just as the greatest investors do. Whether you made a stock purchase in haste or one of your long-time big earners has suddenly taken a turn for the worse, the best thing you can do is accept it. The worst thing you can do is let your pride take priority over your pocketbook and hold on to a losing investment, or worse yet, buy more shares of the stock since it is much cheaper now.
Remember, a company's future operating performance has nothing to do with what price you happened to buy its shares at. Anytime there is a sharp decrease in your stock's price, try to determine the reasons for the change and assess whether the company is a good investment for the future. If not, do your pocketbook a favor and move your money into a company with better prospects.
Letting your pride get in the way of sound investment decisions is foolish and it can decimate your portfolio's value in a short amount of time. Remain rational and act appropriately when you are inevitably confronted with a loss on what seemed like a rosy investment.

The Bottom Line

With the stock market's penchant for producing large gains (and losses) there is no shortage of faulty advice and irrational decisions. As an individual investor, the best thing you can do to pad your portfolio for the long term, is to implement a rational investment strategy you are comfortable with and willing to stick to. If you are looking to make a big win by betting your money on your gut feelings, try the casino. Take pride in your investment decisions and in the long run, your portfolio will grow to reflect the soundness of your actions.


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