Monday, January 14, 2008
reliance communication looks for a big move by a big order
Reliance Communications has floated an order for 80 million to 100 million lines for GSM mobile services. The company recently received spectrum from the government to launch GSM services in 14 service areas under a controversial new cross-over technology policy. The company’s shares are likely to witness some action on the news.
Sunday, January 13, 2008
Locating a wealth creator
The first rule to investing is ‘Don’t lose money’. The second rule to investing is ‘Don’t forget rule no. 1’! It is essential to stick to these rules when it comes to investing, in order to avoid the possibility of capital erosion.
To apply these rules successfully and to create wealth through equity investing, Raamdeo Agrawal, Director & Co-founder, Motilal Oswal Financial Services identifies five parameters that you must evaluate. They are:
1. Assess the entry barriers created by a company Entry barrier should be preferably intellectual in character
Remember, a stock is nothing but a stake in the company’s business. So, observe the company’s business and the entry barriers created by it. The entry barrier should be more ‘intellectual’ in character rather than ‘physical’. This is because while it is next to impossible to compete with a strong brand (an intellectual barrier), competitive advantage associated with a piece of land (a physical barrier) disappears when a competitor acquires one as well.
Strong brands such as ‘Thums-Up’, ‘Parle-G’, etc. have enabled their companies to retain the top spot. However, at times, there could be exceptions. For instance, the entry barrier associated with TISCO would be its large base of iron ore and coal, which allows it to lower its raw material cost drastically vis-à-vis its competitors for long time to come.
Entry barrier should be long-lasting
Strong brands such as ‘Thums-Up’, ‘Parle-G’, etc. have enabled their companies to retain the top spot. However, at times, there could be exceptions. For instance, the entry barrier associated with TISCO would be its large base of iron ore and coal, which allows it to lower its raw material cost drastically vis-à-vis its competitors but its strong brand continuously earns money for it.
Buy into such companies at the earliest
As an investor, buy into such businesses ahead of the crowd. If an entry barrier has been established very recently, it may not yet be exploited by the business. Accordingly, the market would not have valued it in the company’s share price.
For instance, when Financial Technologies (promoters of MCX) got its commodity exchange license and launched it, the popular opinion held was that it would be unable to execute the business well. But, today, it has emerged as a premier commodity exchange. Investing in such companies before the market sees their potential delivers best appreciation. “Though difficult to practice think ahead of the crowd”.
2. Management should be competent and passionate
For instance, when Financial Technologies (promoters of MCX) got its commodity exchange license and launched it, the popular opinion held was that it would be unable to execute the business well. But, today, it has emerged as a premier commodity exchange. Investing in such companies before the market sees their potential. “The definition of a great company is one that will remain great for many years”.
3. Management should have integrity
Integrity is the most crucial quality that a company’s management must have. Such companies not only run their businesses in an honest manner, but, are honest to all their stakeholders, whether they are employees, the government or the shareholders.
If honesty is part of a company’s DNA, it will be fair to its smallest stakeholders – the minority retail shareholders. Companies such as Tata and Infosys have this quality, which has added to their growth and market attractiveness immensely. “Without management integrity, no margin of safety can be high enough”. The above-mentioned three characteristics (long lasting intellectual entry barrier, competent and passionate management and integrity) must all be simultaneously present in a company that you choose to invest in.
4. buy low
The price that you pay for a stock determines your rate of return. So, it is essential that you get your purchase price right. While some companies come out on top with respect to all the first three parameters, the returns falter when it comes to the purchase price.
For instance, HLL comes on top with respect to all the first three parameters but has not delivered as much as far as its stock goes. Its stock delivered a CAGR of approximately just 3 per cent over the last 5 years, when the market delivered a CAGR of approximately 44 per cent over the same period.
The quote - “In the bible it is said that love takes care of a lot of sins. In investments, purchase price takes care of a lot of mistakes” – is very apt. You can make mistakes on assessing the first three parameters, since they are subjective in nature, but getting the right purchase price covers up for all your mistakes. Hence, estimate the expected value / intrinsic value of the company and keep an adequate margin of safety in the purchase price. “It is much more important to buy cheap than to sell dear”.
5. Have Ptience
When you buy a house you don’t expect it to appreciate overnight. You look at its appreciation over a long period. The same goes with equity. After having bought a company that conforms to all the above four criteria, you need to have patience. Investing in equities is often driven by two emotions – greed and fear. And patience is the mantra that helps overcome these emotions. Patience makes the difference between investing and speculation. It’s like a fertiliser to the investment process. “In reality, patience is crucial, but it is a rare commodity”.
End Note
Investing is laying out today’s money for more in the future. Its about performance of the underlying assets. Success in investing is the outcome of a disciplined approach.
Happy Investing.
To apply these rules successfully and to create wealth through equity investing, Raamdeo Agrawal, Director & Co-founder, Motilal Oswal Financial Services identifies five parameters that you must evaluate. They are:
1. Assess the entry barriers created by a company Entry barrier should be preferably intellectual in character
Remember, a stock is nothing but a stake in the company’s business. So, observe the company’s business and the entry barriers created by it. The entry barrier should be more ‘intellectual’ in character rather than ‘physical’. This is because while it is next to impossible to compete with a strong brand (an intellectual barrier), competitive advantage associated with a piece of land (a physical barrier) disappears when a competitor acquires one as well.
Strong brands such as ‘Thums-Up’, ‘Parle-G’, etc. have enabled their companies to retain the top spot. However, at times, there could be exceptions. For instance, the entry barrier associated with TISCO would be its large base of iron ore and coal, which allows it to lower its raw material cost drastically vis-à-vis its competitors for long time to come.
Entry barrier should be long-lasting
Strong brands such as ‘Thums-Up’, ‘Parle-G’, etc. have enabled their companies to retain the top spot. However, at times, there could be exceptions. For instance, the entry barrier associated with TISCO would be its large base of iron ore and coal, which allows it to lower its raw material cost drastically vis-à-vis its competitors but its strong brand continuously earns money for it.
Buy into such companies at the earliest
As an investor, buy into such businesses ahead of the crowd. If an entry barrier has been established very recently, it may not yet be exploited by the business. Accordingly, the market would not have valued it in the company’s share price.
For instance, when Financial Technologies (promoters of MCX) got its commodity exchange license and launched it, the popular opinion held was that it would be unable to execute the business well. But, today, it has emerged as a premier commodity exchange. Investing in such companies before the market sees their potential delivers best appreciation. “Though difficult to practice think ahead of the crowd”.
2. Management should be competent and passionate
For instance, when Financial Technologies (promoters of MCX) got its commodity exchange license and launched it, the popular opinion held was that it would be unable to execute the business well. But, today, it has emerged as a premier commodity exchange. Investing in such companies before the market sees their potential. “The definition of a great company is one that will remain great for many years”.
3. Management should have integrity
Integrity is the most crucial quality that a company’s management must have. Such companies not only run their businesses in an honest manner, but, are honest to all their stakeholders, whether they are employees, the government or the shareholders.
If honesty is part of a company’s DNA, it will be fair to its smallest stakeholders – the minority retail shareholders. Companies such as Tata and Infosys have this quality, which has added to their growth and market attractiveness immensely. “Without management integrity, no margin of safety can be high enough”. The above-mentioned three characteristics (long lasting intellectual entry barrier, competent and passionate management and integrity) must all be simultaneously present in a company that you choose to invest in.
4. buy low
The price that you pay for a stock determines your rate of return. So, it is essential that you get your purchase price right. While some companies come out on top with respect to all the first three parameters, the returns falter when it comes to the purchase price.
For instance, HLL comes on top with respect to all the first three parameters but has not delivered as much as far as its stock goes. Its stock delivered a CAGR of approximately just 3 per cent over the last 5 years, when the market delivered a CAGR of approximately 44 per cent over the same period.
The quote - “In the bible it is said that love takes care of a lot of sins. In investments, purchase price takes care of a lot of mistakes” – is very apt. You can make mistakes on assessing the first three parameters, since they are subjective in nature, but getting the right purchase price covers up for all your mistakes. Hence, estimate the expected value / intrinsic value of the company and keep an adequate margin of safety in the purchase price. “It is much more important to buy cheap than to sell dear”.
5. Have Ptience
When you buy a house you don’t expect it to appreciate overnight. You look at its appreciation over a long period. The same goes with equity. After having bought a company that conforms to all the above four criteria, you need to have patience. Investing in equities is often driven by two emotions – greed and fear. And patience is the mantra that helps overcome these emotions. Patience makes the difference between investing and speculation. It’s like a fertiliser to the investment process. “In reality, patience is crucial, but it is a rare commodity”.
End Note
Investing is laying out today’s money for more in the future. Its about performance of the underlying assets. Success in investing is the outcome of a disciplined approach.
Happy Investing.
Sub-Prime Effect and Emerging Markets
What is Sub-prime?
Some borrowers may have issues like poor credit history or hard to prove income, which makesThem ineligible to borrow money at prevailing market rates or prime rates. Sub Prime Lending is thePractice of financing such borrowers at a higher than prime rate. Such loans are considered riskyBecause of high interest rates, bad credit history and lack of resources to pay off the loans. Sub primeMortgage lending refers to such loans extended in the housing market.Sub-prime mortgage issues began to crop up when the housing prices in the US began to softenAnd the borrowers started to default on loan repayments. Loan defaults led to rising rate of sub primeMortgage foreclosures, which further led to a few sub prime mortgage lenders to fileBankruptcy. As a result, participants in the market with exposure to sub-prime mortgage backedSecurities began to witness mark-to-market losses. They also faced liquidity crunch, as no buyersWere willing to buy such paper.
The Contagion Effect
Market participants who had exposure to sub-prime mortgage securities as well as risky assets,covered up for sub prime mortgage losses by reprising the risky assets. Due to this, other leveragedequity market participants found it difficult to service their cost of leverage. This led them to deleveragetheir exposure in the form of further re-pricing of risky assets in US. Due to integration ofglobal financial markets, risky assets in other emerging markets also got re-priced as a spill overeffect. Several central bankers pumped funds into the economy to ease the liquidity tighteningcaused by sub-prime mortgage issue.
Impact on emerging markets
The impact of the sub-prime effect on emerging markets is hard to gauge. There are two parts to it.One is the impact on the real economies and another is the impact on the stock markets. Due toMacro policies, structural policies and domestic consumption, the fundamentals of emergingEconomies including India continue to remain strong. This might act as a cushion against any majorFinancial setback in the US. However it’s early to gauge whether the sub-prime issue has thePotential to disrupt the US imports and to that extent affect economic growth of emerging markets.As far as the stock markets are concerned, they may take some hit because of de-leveraging doneBy market participants. Time and again these kinds of events affect market sentiment leading toBouts of corrections. We believe that such corrective dips present an opportunity for investors to Invest in emerging markets at relatively attractive valuations.
Some borrowers may have issues like poor credit history or hard to prove income, which makesThem ineligible to borrow money at prevailing market rates or prime rates. Sub Prime Lending is thePractice of financing such borrowers at a higher than prime rate. Such loans are considered riskyBecause of high interest rates, bad credit history and lack of resources to pay off the loans. Sub primeMortgage lending refers to such loans extended in the housing market.Sub-prime mortgage issues began to crop up when the housing prices in the US began to softenAnd the borrowers started to default on loan repayments. Loan defaults led to rising rate of sub primeMortgage foreclosures, which further led to a few sub prime mortgage lenders to fileBankruptcy. As a result, participants in the market with exposure to sub-prime mortgage backedSecurities began to witness mark-to-market losses. They also faced liquidity crunch, as no buyersWere willing to buy such paper.
The Contagion Effect
Market participants who had exposure to sub-prime mortgage securities as well as risky assets,covered up for sub prime mortgage losses by reprising the risky assets. Due to this, other leveragedequity market participants found it difficult to service their cost of leverage. This led them to deleveragetheir exposure in the form of further re-pricing of risky assets in US. Due to integration ofglobal financial markets, risky assets in other emerging markets also got re-priced as a spill overeffect. Several central bankers pumped funds into the economy to ease the liquidity tighteningcaused by sub-prime mortgage issue.
Impact on emerging markets
The impact of the sub-prime effect on emerging markets is hard to gauge. There are two parts to it.One is the impact on the real economies and another is the impact on the stock markets. Due toMacro policies, structural policies and domestic consumption, the fundamentals of emergingEconomies including India continue to remain strong. This might act as a cushion against any majorFinancial setback in the US. However it’s early to gauge whether the sub-prime issue has thePotential to disrupt the US imports and to that extent affect economic growth of emerging markets.As far as the stock markets are concerned, they may take some hit because of de-leveraging doneBy market participants. Time and again these kinds of events affect market sentiment leading toBouts of corrections. We believe that such corrective dips present an opportunity for investors to Invest in emerging markets at relatively attractive valuations.
Ben graham - the father of Value investing
A named of Ben Graham has buffet erudite how to invest money. Ben Graham experienced what is called “value investing.” The scheme of value investing is to invest in a company when we believe that company is underrating, and expect the stock market to accurate the mispricing. For example, if anybody observes a company’s earnings, debt, growth rate, potential future growth rates, and etcetera and determines that it is worth $15 billion when the stock prices only entail it is worth $10 billion, after that you would purchase the stock. Buffet says, He erudite some key principles from Mr. Graham
Initially learn what a business is worth. Don’t misuse your time with stock charts and volume and all of that rubbish. Now spotlight on discover the inherent value of a business. After that, know that the stock market is there to teach you, not hand out you. You should take benefit of stock prices when they are crooked with realism.
Finally, forever have a margin of security. Still although you may have picked a stock which is undervalued at the time, awful news can come out before the price has attuned and the stock may have one more inherent value. Thus don’t decant all of your net worth into a stock just for the reason that it’s undervalued at the era. This is at variance from a more dangerous approach called “growth investing,” where you just attempt to pick a company that is be present at be the after that huge thing with no stare for its inherent value. I believe it is a much safer stake to value invest than enlargement invest, while expansion investing is often an end to gainful than gambling on horses, though it certain is many of amusing.
Buffet also has a test that he uses previous to he put some of his money into an exacting investment. The test is as follows:
The businesses have to be a business he appreciates. Buffet does not own a lot of technology companies partially for the reason that he doesn’t appreciate the business splendidly.
The business must have a lasting spirited benefit. This income investing in a company that sells a product in an in excess of soaked market of alternate is a big no-no in this regard, except that company can sell at an extremely low price. Investing in a company that is selling a product that is wildly popular and has a brand new patent, though, is a greatly recovered idea.
Buffet says, “The business must have a management that he trusts. This is particularly important today with so much corruption going on at the corporate level.”
The business must be selling at a sensibly striking price. Buffet states that this is the slightest significant of the 4points in his test, other than at rest a very important point to make. A company selling at well in excess of its inherent value on the stock market, no matter how great the company is at rest a poor investment except you know for in no doubt it will develop at a lightning fast rate.
These are very positive investing tips that I think all investor should remember if he/she makes a decision to pick stocks. Though, I still suggest, especially for those inexperienced with investing, just keeping money in an S&P 500 index fund with a low expense ratio and holding on to it for an extremely extended time period. In excess of the lasting, the only two people I can imagine of who have beaten the S&P 500 are Peter Lynch and Warren Buffet so if I were you, I’d take the steady, about 10-11pct return of the S&P 500 eventually.
Initially learn what a business is worth. Don’t misuse your time with stock charts and volume and all of that rubbish. Now spotlight on discover the inherent value of a business. After that, know that the stock market is there to teach you, not hand out you. You should take benefit of stock prices when they are crooked with realism.
Finally, forever have a margin of security. Still although you may have picked a stock which is undervalued at the time, awful news can come out before the price has attuned and the stock may have one more inherent value. Thus don’t decant all of your net worth into a stock just for the reason that it’s undervalued at the era. This is at variance from a more dangerous approach called “growth investing,” where you just attempt to pick a company that is be present at be the after that huge thing with no stare for its inherent value. I believe it is a much safer stake to value invest than enlargement invest, while expansion investing is often an end to gainful than gambling on horses, though it certain is many of amusing.
Buffet also has a test that he uses previous to he put some of his money into an exacting investment. The test is as follows:
The businesses have to be a business he appreciates. Buffet does not own a lot of technology companies partially for the reason that he doesn’t appreciate the business splendidly.
The business must have a lasting spirited benefit. This income investing in a company that sells a product in an in excess of soaked market of alternate is a big no-no in this regard, except that company can sell at an extremely low price. Investing in a company that is selling a product that is wildly popular and has a brand new patent, though, is a greatly recovered idea.
Buffet says, “The business must have a management that he trusts. This is particularly important today with so much corruption going on at the corporate level.”
The business must be selling at a sensibly striking price. Buffet states that this is the slightest significant of the 4points in his test, other than at rest a very important point to make. A company selling at well in excess of its inherent value on the stock market, no matter how great the company is at rest a poor investment except you know for in no doubt it will develop at a lightning fast rate.
These are very positive investing tips that I think all investor should remember if he/she makes a decision to pick stocks. Though, I still suggest, especially for those inexperienced with investing, just keeping money in an S&P 500 index fund with a low expense ratio and holding on to it for an extremely extended time period. In excess of the lasting, the only two people I can imagine of who have beaten the S&P 500 are Peter Lynch and Warren Buffet so if I were you, I’d take the steady, about 10-11pct return of the S&P 500 eventually.
Reliance Industries most beleavable stock to perform well
I have been very positive on the Reliance for several reasons and I would say that even at Rs 3,060-Rs 3,070 or so one should keep buying that stock both for the short-term and long-term. Because there their margins are very good and there are distinct signs of corporate activity in terms of mergers and unlocking of value. So all in all and of course Reliance is a favourite with the retail investors, so I would say its one of the strongest stocks in the index as of now.
Friday, January 11, 2008
M&M and ABG Shipyard can buy for medium to long term basis
MAHINDRA & MAHINDRA
Expecting a number of positive triggers for M&M in the year ahead. The management continues to unlock value in its various subsidiaries and group companies. The public issue of MHRIL is around the corner and the same is expected to be listed in 2008. The company is slated to launch its new ultilty vehicle Ingenio in August 2008, while a new sports utility vehicle is also planned. The JV with International Truck for manufacturing medium and heavy commercial vehicles is expected to start by CY2009. At the current market price of Rs 830, the stock quotes at 11.9x its FY2009E consolidated earnings. On the basis of above news target expecting Rs.900-Rs.950 in medium term.
ABG Shipyard
ABG Shipyard the company’s topline grew by 68% Y-o-Y to Rs 2,584 million (Rs 258.4 crore), accompanied by strong operating margin of 25%. Expecting FY09 turnover estimate upwards by 20% to Rs 18.9 billion (Rs 189 crore) on account of the expansion at Surat,”. The company has announced Rs 4 billion (Rs 400 crore) expansion of its Surat facility, which will increase its fabrication capacity by four times, that in order to fund expansion, the company has issued four million warrants to its promoter at a price of Rs 796. Further, the company plans to raise Rs 8 billion (Rs 800 crore) through a QIB issue and the estimated equity dilution, post-issue, is likely to be 22%. This states company is promisive in medium term to long term.
Expecting a number of positive triggers for M&M in the year ahead. The management continues to unlock value in its various subsidiaries and group companies. The public issue of MHRIL is around the corner and the same is expected to be listed in 2008. The company is slated to launch its new ultilty vehicle Ingenio in August 2008, while a new sports utility vehicle is also planned. The JV with International Truck for manufacturing medium and heavy commercial vehicles is expected to start by CY2009. At the current market price of Rs 830, the stock quotes at 11.9x its FY2009E consolidated earnings. On the basis of above news target expecting Rs.900-Rs.950 in medium term.
ABG Shipyard
ABG Shipyard the company’s topline grew by 68% Y-o-Y to Rs 2,584 million (Rs 258.4 crore), accompanied by strong operating margin of 25%. Expecting FY09 turnover estimate upwards by 20% to Rs 18.9 billion (Rs 189 crore) on account of the expansion at Surat,”. The company has announced Rs 4 billion (Rs 400 crore) expansion of its Surat facility, which will increase its fabrication capacity by four times, that in order to fund expansion, the company has issued four million warrants to its promoter at a price of Rs 796. Further, the company plans to raise Rs 8 billion (Rs 800 crore) through a QIB issue and the estimated equity dilution, post-issue, is likely to be 22%. This states company is promisive in medium term to long term.
Thursday, January 10, 2008
Omaxe is a good buy to take now
Omaxe Limited is a real estate development and construction company with business spread across 30 cities of 9 states in India. The company has proven track record of delivering 120 projects aggregating 30 million sqft for third parties as civil contractors. This also proves the operational efficiency of the company and capability to deliver in future as well. Omaxe’s main focus remains Tier II-III cities, which is obvious from the fact that 83% of its real estate revenues for FY2007 resulted from sale in these cities vis-a-vis 62% in FY2006. Omaxe’s development projects range from integrated townships, group housing, commercial properties, hotels, IT and bio-tech parks to Special Economic Zone. At CMP of Rs 547, the stock trades at a P/E of 11.4x FY2009E and 7.4x FY2010E and EV/EBIDTA of 9.1x FY2009E and 6.0x FY2010E. Expecting on OMAXE with a price target of Rs 744. price target is at a 10% premium.
Subscribe to:
Posts (Atom)
