Author: Vivek Bothra

Satin CreditCare – Ignore irritants ?

Update – 13/03/2016 : Post publication of this note, Rep from Satin credit care got in touch with me and provided some clarification on some concerns I had raised . I am editing this post to reflect same, This would provide completeness to a reader who is having similar questions.

Overall, I am happy that company has come forward and addressed our questions

Changes are highlighted in Red

 

Mid and small cap companies are not perfect diamonds there will be always something about them which we will dislike, As an investors we have to make a choice whether these irritants are ignorable or substantial

Over to case for today,

Satin Creditcare Network is one of the top ten largest[4th] Micro finance Institution (MFI) in India with an Asset under Management (AUM) of ~INR 25bn with primary focus on North & West India where it has a presence across 16 states and it is the largest player in terms of market share.

The investor presentation on their website gives a very good overview of business,their journey and important financial metrics.

Read the presentation here

satin 1

Satin is in business of money, a commodity business, sourcing cheap money and lending … Read the rest

How to Value Ashiana Housing

How to Value Ashiana housing ?

Prof Bakshi has beautifully explained this in one of the comments on his blog, I am reproducing it below for you to read and think.

The approach I like is to take the pre-tax operating cash flows and then deduct (as you’ve mentioned) the amount of money that would needed to be spent from these cash flows, for the acquisition of land for future projects. Here, I would reduce only that part of land purchase cost which is in lieu of EAC. In capex terms that we are more familiar with, this would be analogous to maintenance capex i.e. the amount of capex a company needs to do to maintain its current unit volume and not to grow beyond that. So maintenance capex in manufacturing companies is analogous to the amount of money Ashiana needs to spend on land every year just to maintain the current level of EAC. That cost should be deducted from annual pre-tax operating cash flow. The resulting number would represent the amount of pre-tax owner earnings that the business generates without counting any growth. You can then estimate the present value of that owner earnings stream

… Read the rest

Using secondary Information

Using secondary information is one of the best sources to top up our investment hypothesis, I have previously written on it here & here . One of the best sources of secondary information is research done by others, especially brokerage houses who do a good job and not one’s like this.

Recently Nirmal Bang’s Gaurang Dadwal & Akhil Parekh did an excellent initiating coverage for Atul Auto. This is close to the best investment report you will find freely from brokerage houses.

I have highlighted some of the new things that I was not aware about the company (Like they are paying more than competitors for engine) and have also tried to highlight how I read these reports – questioning, understanding, highlighting, scribbling until and unless I feel, i have got most out of it.

Download part 1 and 2 and share your observation and learning in comments
Those cialis online having difficulty in swallowing pills can use gel that is rubbed over the penis. order cheap levitra A person may experience change in the vision and also painful erection which can be felt for more than 6 hours after taking the medicine. Thirdly, it also reduces the risk … Read the rest

Max India – Spin off Analysis

In Jan’ 2015, almost a year back diversified firm Max India spin off plan were announced management indicated it is splitting listed entity into three companies with the existing firm becoming India’s first listed company with insurance as the sole business.

The Max India Group is a multi-business corporate, the listed entity has following primary business

  1. Life Insurance – As a 74: 26Joint venture with Mitsui Sumitomo of Japan
  2. Max healthcare – Operating as equal JV with Life group of South Africa
  3. Health Insurance – As a 74: 26 Joint venture with BUPA of UK
  4. Antara – 100% owned retirement living real estate venture
  5. Max specialty Films – 100% owned

Last year the conglomerate began a demerger exercise which will result in listed company being spilt into three listed companies as per below

Max India -1

Source – Investor presentation, Nov 2015

In this brief post we try and examine if the sum of parts would be greater or lesser than the current M-cap, Let’s go to the drawing board.

Max Financial services – The largest piece of the spun off entity is a well-established life insurance provider in India. Life Insurance is a crowded place in India were on one hand we … Read the rest

Don’t buy and forget

Warren Buffett is one of most misquoted [in terms of context] investment gurus of our times.

What happens when we are given below advise ?

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

or

“If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes”

We buy businesses and then hold them, thinking that Warren Buffet has recommended to hold our positions for long term. In fact one of most repeated quote I hear is

“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.”

Trust me there are several businesses in India which if invested today and then magically the stocks markets shut down for 5 years, after 5 years you have to search the company and its promoters to get pennies back on the dollar invested.

Another chart that is thrown at me is this

Buffet quote -1

Warren Buffett is holding Coke and American Express for 20+ years.

 

Honestly tell me how many Coke’s like business are their out … Read the rest

Learn to evaluate management

Evaluating management is one of trickiest part while building an investment case. Especially, when it comes to small caps and mid cap companies run by first or second generation promoters, were much information about them in not available publicly.

Also many of retail investors don’t have privilege to meet management, time to attend AGMs and question management over quarterly conference calls (if they do). So how does one evaluate management ?

Well I don’t have a panacea but in this post we will try an establish a process which can give us reasonable ammunition to understand and evaluate management. As an investor you start with a hypothesis that management is honest, able, trustworthy and intelligent and then as you run a series of checks, you may find that one or more components you wished for are missing therefore at the end of checks you can take a call whether you want to partner with such management or not.

While there are numerous parameters which you can use to evaluate management quantitatively we believe below are good for a start

  1. Depth
  2. Integrity
  3. Disclosure Norms
  4. Compensation
  5. Skin in the Game
  6. Regulatory compliance issues
  7. Walking the talk

 

Depth – While evaluating depth … Read the rest

Spin off Investing – TCI Ltd

If you have gone through Warren Buffet’s early partnership letters, you would find that he had spilt his partnership portfolio into three categories and one of most interesting category was work-outs

So what are work outs ?

Our second category consists of “work-outs.” These are securities whose financial results depend on corporate action rather than supply and demand factors created by buyers and sellers of securities. In other words, they are securities with a timetable where we can predict, within reasonable error limits, when we will get how much and what might upset the applecart. Corporate events such as mergers, liquidations, reorganizations, spin-offs, etc. Lead to work-outs. companies.

If you want to learn on how to invest in work outs (also called special situation investing / Risk Arbitrage Investing) the best book to pick up is Joel Greenblatts – You can be a stock market genius

In this post we will learn about spin off investing through a live example

First understand what is Spin offs

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There are various reasons corporations opt for spin-offs, the primary ones are

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Spinoff-6

Reading the scheme of amalgamation shared by company in their regulatory fillings to stock exchanges would spell out reason for spin off.… Read the rest

Living in times of bull markets

We have just lived through the first leg of the bull market in India and as with all bull markets there is no dearth of fund managers, individual investors, sovereign funds, high net worth individuals etc. who have done exceedingly well for themselves and their investors.

This definitely is a reason to raise toast – As someone said “Make hay while Sun shine” and a single bull market allocated properly can change your life.

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and I for one definitely don’t belong to the school of thought which cribs on over valuation of securities as majority of who crib on valuations over companies leading bull market are the ones who don’t own the company. I have seldom seen people being unhappy when there holdings are hitting upper circuits every day 🙂

Cribbing takes away precious energy and is of no use, if you think a security is overvalued / momentum driven / operator rigged just move on there are 5000+ listed companies, I am sure there will be few with whom you will find peace.

But as Warren Buffet said stocks can’t outperform business indefinitely.

What could be more exhilarating than to participate in a bull market in which the rewards

… Read the rest

How to evaluate a CEO’s capital allocation skills

Read below excerpts from Warren Buffet’s share holder letters

Over time, the skill with which a company’s managers allocate capital has an enormous impact on the enterprise’s value.

The lack of skill that many CEOs have at capital allocation is no small matter: After ten yearson the job, a CEO whose company annually retains earnings equal to 10% of net worth will have been responsible for the deployment of more than 60% of all the capital at work in the business.

 

Now pause and reflect, how often financial pundits talk about capital allocation skills of a manager when they are evaluating a CEO or MD of a company, not often. In fact a lot of reported results and press releases focus on earnings and sales, while the crucial capital allocation decision and their consequences are missed.

In this post we would learn through an example on how you can assess a management’s capital allocation skill though reported numbers. This post is largely built on a superb paper written by Michael J. Mauboussin in August 2014, download a copy from here

To evaluate capital allocation of any firm’s manager, you need to focus on following things

  1. Sources and Uses of
… Read the rest

Catching the falling knife – Eros International

Recently Eros media international has been in news although not for good reasons 🙂 Eros which is also listed in NYSE was downgraded by Wells Fargo ,a leading banking and financial services company.

See in this succinct note from the newspaper cut

Wells Fargo analyst Eric Katz had said the downgrade was driven by a continued increase in receivables in the United Arab Emirates business, concerns on whether Eros would turn free-cash-flow positive, and worries about Eros Now.

The management countered such claims

We would like to reassure our shareholders that there has been no material change to the previously announced strong fundamentals of the company.

The first quarter results have been strong and nothing has materially changed since then, the company said.

We will be announcing what we expect to be a strong second quarter in the first half of November,it added.

We reaffirm our commitment to enhance shareholder value.

We believe that the merit in our business and our fundamentals are there for everyone to see as we remain focused on achieving our business goals and objectives

also most of other brokerage houses that cover company continue to maintain their buy rating

My only exposure to Eros has … Read the rest