PTC - A better alternative than PTC financials

1. While doing my research for PFS (PTC Financial services), I glanced through the results of the parent company. To me, this company merits the true " Value pick tag". I do present my arguments below.


2. As on date, PTC is avalable at Rs 46 i.e a market cap of 1350 crores. The company (as per balance sheet on 31 Mar 2011) has Cash (in bank and Fixed deposits) to a tune of 700 crores. It has zero debt.In simple words, the company is available at (1350-700)i.e 650 crores. 


3.  The company has a 60% stake in the recommended stock - PTC financials. Even at the present CMP of Rs 12 (which I believe is highly discounted), this stake translates into 420 crores. So at todays rate, the entire PTC after taking out the cash in hand and its stake in PFS (at real discounted values) is avalable at (650-420) = 230 cores. The quarterly earnings of this company is app 35 crores ( Annualised 140 crores). In short, you are getting the entire company for 230 crores and a return of 140 crores p.a . Even if there is no growth hereon, you will be making profits from the end of 2nd year of investment.


4. I am not even considering the other inflow like dividends from PFS and stake sale of India energy exchange. The company is in the field of energy and coal trading.. both having great future in a power deficient country as ours. Competition has started but the company is a behemoth as of now in this field. 


5. The Govt has the biggest stake and has a regular dividend policy too. Most importantly, no debts and does not need money / raw material for a finished product. 


You do things when the opportunities come along - Warren Buffet

Pick Number 3 - Smartlink Network - Only for investors (Part 2)

1.  Having sold the most lucrative part of their business, Smartlink now has two products in its portfolio- Digicare (its division focused on repair and servicing of IT products such as IBM, HP, Dlink and others) and Digisol (active networking products ) and Digilite motherboards


2.Without getting too much into the specifics, The last two quarters reveals this - revenues are increasing , and net losses from the new businesses are decreasing. This is a good indication. 

3.  The number of shares (equity) is only 3 crores. The interest the company receives each qtr on its investments (assuming cash is deposited in reasonable fixed deposits ) is about 7-8 crores. That itself would gives us an annualisd eps of Rs 8. The company, prior to the sale, had investments of 90 crores. Zero debts. At 45, it appears to  be a good value buy. Regular dividend paying company.

4.  The reports of its products have been good. It is now looking to enter new territory - contract manufacturing of smartphones and tablet computers for multinational players in India. It is already making indigenous motherboards and known for its networking products. 

5.  Finally, the promoter stake in the company is more than 65 %. It has constantly rewarded shareholders. Even a dividend of Rs 5 from its reserves per share of Rs 100 plus would translate into a div yield of 12 %.  Great value and div yield stock at rates between 38 - 45.

Pick Number 3 - Smartlink Network - Only for investors (Part 1)

1.  A big thanks to Deepak Shenoy, whose writings made me stick to  this stock and also to Nooresh Merani who has reaffirmed by belief in this stock.  

2.  Sometime in Mar 2011, a news appeared about a slump sale to Schneider (who was on an acquisition spree globally). Schneider had bought off Digilink (for those familiar with erstwhile Dlink) . The company that owned the brand was Smartlink. I hope you dont get confused with the "links".

3.  That was about 150 Rs per share. The CMP then was around 70 odd Rupees.I immediately picked up a few  shares from the market. However, when I saw news channel  stalwarts rubbishing the promoters for the deal saying he has not shared the reward with shareholders etc, I began to doubt my choice. However, a peek into the management history put all doubts to rest and I continued to hold on.

4. The company had sold out the arm that contributed to 90% revenues (passive networking) with a no compete agreement for 05 years. The promoter was confident of building his active networking portfolio based on their previous expertise with D Link. Besides the interview with KR Naik on TV reinforced my belief in this management.

5. I received a dividend of Rs 30 per share in May 2011 and am continuing to remain invested by picking small quantities during each fall . the rationale for this investment will follow in the next post.

HONEST ANALYSIS OF OUR RESEARCH AT THE END OF 01 YEAR PART 1

HONEST ANALYSIS OF OUR RESEARCH AT THE END OF 01 YEAR

PART 1

1.         It has been a almost a year since I first started writing this blog for friends. It would be prudent to analyse where we stand w.r.t our recommendations.

2.         Though the time window of 01 year is extremely small for making a judgement on our LT picks and also considering the fact that the year 2011 – 2012 has been a forgettable year as far as the markets have been concerned, we still need a honest evaluation.

No	Period	Stock	MP	Advice given when recommended	CMP	Div given during this period	Remarks
1	Dec -10	Alok	25	Value but Debt issue lingers	18	50 ps	Fundamentals intact. Continue to maintain target of 31 – Exit from real estate will be the trigger. Accumulate
2	Dec 10	Patni	460	Wait till it drops below 400	450.		Patni touched 284 and then rose back to 450. If you picked at drops below 400 as advised , book profits
3	Dec 10	Anant Raj	115	Value stock	46	60 ps	Real estate market has been thrashed. But company offers value in the real estate space . Wait till interest cycle corrects. Went Totally wrong on this call
4	Dec 10	SJVN	22	Value	22	80 ps	Hold – Exc results . Good growth
5	Dec 2010	Navin Flourine	270	Value	340	Rs 8/50	Book profits (30%)
6	Jan 11	Piramal Healthcare	470	Cash great	360	Rs 12	Market sentiments . Accumulate on dips
7	Jan 11	Balmer Lawrie	540	Value pick	545	Rs 26	Accumulate

In part 1, we have to acknowledge that we really went wrong on the real estate space. This could be due to the lack on knowledge and foresight on issues pertaining to macroeconomic fundamentals.  Book profits where recommended. Piramal healthcare, Balmer lawrie and Alok continue to be attractive. Buy as SIP. Navin and Patni have returned excess of 25 % and 11 % resp. in a falling market. So exit them after booking profits

Two Picks for Nov 11 - Analysis will be posted later

1.  You could call it an investor bias. But somehow, I believe that if the India growth story has to continue.. at whatever rate it may .. 5,6, or 9%, two sectors that will have to play a major role in it -  Power & Finance.. the lifeline for any industry.


2.   The last blog was about an industry that was into " Financing Power". This time it is a pure finance play... Corporation bank. The bank is currently quoting at 0.7 times its book value, has a PE of 3.5 and is available at a market cap of 5000 crores. 50 % stake is Govt of India, 25 % is with LIC. Yes.. NPAs  remains an issue and rising interest rates a cause of concern. I still believe that it is available at a great discount. In addition a dividend yield of 6% .


3.  More detailed analysis follows. Invest at your own risk. I am positive on this stock as its valuations are compelling vis s vis other PSU banks and have started taking small positions as and when I see small drop in prices. regards

Multibagger - PTC Financials

As investors, often we observe the irrationality of the market and unconsciously , we contribute to the same. A stock " A " which was extremely attractive at price " X" becomes a " No " when it is available at price X/2 ... in spite of exceptional performance in the past.  Here is one stock I recommend strongly - PTC India Financials.. with reasons.I expect it to be a multibagger in 03 years .


1.   IPO : - IPO was in Mar 2011 ... about 6 months back at Rs 26. It was oversubscribed by about 02 times.  Prior to the IPO the company raised 658 million rupees by placing 23.5 million shares with three anchor investors -- HSBC Bank Mauritius Ltd, Capital International Emerging Markets Fund and Emerging Markets Growth Fund Inc (very close to the IPO price)


2.  The stock is available at less than Rs. 13. How has the company performed in the last two quarters. The gross revenue recorded in H1 FY12 was `97.07 crores, which is 89% of the gross revenue recorded in the entire FY11. Similarly, interest income on debt recorded in H1 FY11 was `54.09 crores which is 73% of the interest income on debt in entire FY11


3.  Purely on performance , the company has performed exceptionally and more so in a period that is extremely challenging. . Typically such companies are valued on P/BV . PTF is available at a P/BV of 0.72. While its peers are at 1.5 or more


4. Whats more important is the business model. The company not only lends money to power projects but also has a equity stake in many ventures. So its valuation should be in between finance companies and power generation companies. That would make it more attractive.


5. At a market cap of 1200 crores (including debt), the company is giving annual profits of 100 crores plus .MFs have no stake (FII do have a stake even before IPO) , but give it sometime and as its cap increases you will see the MFs taking positions. Reputed analysts such as Aditya Birla Money  have given target price of 26 .


6.  It may be mentioned that post Q2, on October 05, 2011, the Company has concluded sale of investment . In accordance with the applicable accounting standards, gain of `47.61 crores arising on this transaction would be recognized in the subsequent quarter i.e. Q3. This is almost equal to a full quarters profit 


7.   I expect the company to start paying dividends from this FY. Make hay when the market is irrational!!!!!
 

Geodesic Software

Geodesic Software

Thursday, March 24, 2011

10:55 PM

Introduction

1. In a competitive telephony market, and with subscriber base reaching near penetrable levels, where does the moolah for Communication companies lie?

2. What is it that will be attractive with the introduction of 2G and 3 G services?

3. If someone were to ask me, while communication at low rates is here to stay, what is the secret ingredient for growth in the telecom sector. Will rural telephony really add up to the bottom line/ Will mobile number portability bring sufficient gains.

4. Like a typical middle class with his apprehensions , I am  a late entrant in the mobile technology arena . But it appears to me that there is tremendous potential in value added services .. Of course .. Until someone starts offering even this as free.

5. So I started searching for companies with expertisein this area and came across geodesic

Present Valuation

1. At CMP of 80, the market values the company at 720 crores. Debt is about 600 crores. So Enterprise Value  of the company stands at around 1300 crores.

2. The company makes around 150 crores after tax. If I ignore the reserves, it is giving me a return of excess of 10%  (150/1300).

3. There is no raw material, no power. Costs are its HR, advertisements and software.  The raw material is in its human capital.

4. At 80 Rs CMP  It earns around  Rs 20 per share and distributes Rs 2 as dividend.  (Consistently paying dividend)

5. MFs have a low holding. Makes more sense to buy.

Strengths.

1. First mover advantage with startegic tie ups in place

2. For most of the products, the company derives a continuous revenue stream in the form of licence fee, revenues linked to usage and product/feature upgrades.

Weakness

1  If ever value added services become free, company will have to start searching for something else

Opportunities

1. The company has signed deals with America Movil, a large mobile player in Latin America, for deploying products in latin america -  where average revenues per user are more than three times the levels prevalent in India and, thus, presents lucrative opportunities .

2.  It has also recently made available its Mundu Radio on the Android platform, which would enhance its user base. Some of its entertainment applications are made available in Apple’s App stores and Nokia’s OVI stores, where the number of users have steadily increased.

3. The company has also signed up a contract with Vodafone in India to allow users to update their Facebook accounts.
4. Tie up with banks to deliver services in place (  Axis Bank, HDFC Securities,  Angel Broking)

Financials

Year	2006	2007	2008	2009	2010	2011 (9)	Remarks
Net Sales	91	165	255	493	487
Net Profit	42	94	115	191	175
Op Margin	18	60	45	40	28
EPS	7	16	12	21	19
Dividend	0.4	0.4	0.6	1.6	1.7		Div yield-2%
RESERVES

More on the company to follow in the next post

SCI - Shipping Corporation - Value Analysis

INDUSTRY
1. Shipping, a global industry, carries about 90% by volume of the global trade and is the heart of the global economy. Variables affecting the freight rates include
1. Demand and supply of vessels
2. Overall Global Trade
3. Geo politics such as the present day Japan, Libya , Euro issues , Oil market
2. Shipping industry is largely segmented into three categories –
(a) Dry bulk - rates depend on trade of commodities (iron, steel, coal, Al) (qty and type)
(b) Wet bulk - Crude oil / oil derivatives related
(c) Containers. The container market is primarily influenced by global trade
STRENGTHS
1. SCI  is the largest shipping company in India and has approximately 35% share of Indian flagged tonnage as of June 30, 2010, according to the website of Directorate General of Shipping, Government of India (DG Shipping). As of September 30, 2010, it owned a fleet of 74 vessels of 5.11 million dead weight tonnage (DWT).
2.  It is a cash rich company with a strong balance sheet position & has shown  consistent profitability and dividend paying record
Moat - Really big player in an economy such as ours .. In a way a monopoly in the Indian market with the exception of GE and Varun. . Entry  is significantly capital- and time intensive
OPPORTUNITIES
1. While there may be short-term pain ( increased depreciation and interest costs) , SCI's move to become significantly larger (26 vessels ordered 2011-2013) by taking advantage of depressed asset prices currently may well pay off when the fortunes of the cyclical shipping industry turn for the better.
2. Strategic tie ups with big consumers like SAIL and COAL India
3.The robust GDP to fuel the shipping sector's growth. With the share of Indian merchant fleet in the country's overseas trade being only around 9.5 per cent (down from 31.5 per cent in 1999-2000), there seems to be good scope for effective deployment of SCI's expanded fleet.  Indian exports and imports are showing good growth
THREATS
1. Given that more than 90 per cent of SCI's income is denominated in foreign currency, sustained appreciation in the rupee could impact its performance.
2.  The company's plans to get into other businesses such as ship-building
FINANCIALS
1. Market cap - 5000 crores @ CMP 106 , debt - 2700 crores , Fixed Deposits (Cash) - 2300 cr
Enterprise value - 5400 crores. With a return of 600 crores excess ROEV is about 11%.

	2006	2007	2008	2009	2010	2011 (9M)	REMARKS
Sales	3400	3500	3700	3700	2700	2600
Profit	1400	1000	1000	800	950	570
Opm	35	28	25	20	28	23
EPS	50	36	35	29	22	12
Debt	1300	1200	1400	2400	2700
Res	4000	4800	5300	5700	5900
Div (Rs)	8.5	8.5	8.8	6.5	5.0		Abt 5 % yield

CONCLUSION
1. Like any other industry, shipping is based on the economy and its growth. US and Asia are showing signs of growth.
2.  " The World is flat" and movement of commodities and oil is but something that will continue in this world. Shipping offers the cheapest mode of transport. There is no reason why growth will not continue.. Pace may vary. It may be cyclical. But when you get a company with good management, prudent cash management at a discount to its book value, do the maths and see if it is  value buy. If so, go ahead and buy.
3. Considering the above, the best place is to invest in the largest corporation of an upbeat economy such as India. Investment is further cushioned by the regular share in profits distributed by the company in form of dividends.
4. Holdings by MFs have reduced in excess of 60%. The best time to buy a cyclical industry is when it gets beaten down and await a harvest in its uptrend.