Bajaj Finserv – Markings from Annual Report FY20

In March 2020 we got an opportunity to add to scorecard a rock-solid franchise at about ~20 times earnings growing operations in high double digits run by an extremely smart management team with a long runway for growth.

Here are some of my highlights from their annual report

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NB – FY21 and numbers going forward for 12-18 months will not be great so caution before you jump to buy this one
… Read the rest

Cleaning Pandemic Opportunity

Most governments would mandate below to corporate offices/places of business which are opening-up

COVID-19 spreads through respiratory droplets produced when an infected person coughs or sneezes. A person can acquire the virus by touching a surface or object that has the virus on it and then touching their own mouth, nose or eyes.

A key way you can protect workers and others from the risk of exposure to COVID-19 is by implementing appropriate cleaning and disinfecting measures for your workplace.

A combination of cleaning and disinfection will be most effective in removing the COVID-19 virus.

Until a vaccine is produced deep cleaning will be a norm.

So what’s required to clean and disinfect these large corporate offices?

EPA’s website has a list of cleaning products that can be used and there are more than ~420 of them. On closer examination, one would find that Quaternary Ammonium is the most commonly used compound for general cleaning and disinfecting

Quaternary Ammonium Compound is widely used as disinfectant and antimicrobial agent which works by disrupting the cell membrane of bacteria. It is formulated by the alkylation of tertiary amines with a halocarbon. This compound is positively charged polyatomic ion having an alkyl or
… Read the rest

Cheap for a reason?

First disclosure – I am long on Ambika Cotton Mills and sitting on a decent paper loss. As the market cap of the company has nearly halved from its peak in Jan 2018

If someone looks at the company today it will look optically cheap

– 7 times earnings
– 75% of book value
– 50% of Annual Sales

with decent first level economics

– Mid teen ROCE
– Sales CAGR / Profit of ~10% for the last few years
– Now No long term debt with a continuous reduction in the last 10 years
– Knowledgeable and experienced promoter
– Selling a product out of commodity (Cotton) and still holding margins

Even the Credit agencies have a good opinion see the extract from the latest one

Highlights in bold mine

ACML enjoys strong pricing flexibility, aided by its premium positioning in the cotton yarn market and its adequate captive power facilities. This had resulted in stable operating margin at 17.7-19.6%, over the four years through fiscal 2019.Going forward, continued focus on operating efficiency to result in strong operating margin of 19.5 percent and cash accrual of around Rs.100 crore.

ACML continues to have a robust financial risk profile; … Read the rest

Historical Price to Book valuation of Nifty 500 stocks

Last week I was compiling how consistent wealth creators are faring vis a vis there 2008-09 prices.

I wasn’t the only one thinking on those lines, the guys at Ventura did even better and put together a comprehensive 20 year Price to Book Value of Nifty 500 stocks

Fantastic, you can download a copy from here

Some observations

1. Don’t do bottom fishing with 100 percent allocation, the price can go even lower if history is a guide

e.g. I was reviewing one the companies removed from scorecard KRBL P/B of 0.8 sounds cheap unless you see 0.2 in 2008/9

2. Don’t buy just because it’s cheap
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DLF market cap is the same today … Read the rest

Are consistent wealth creators cheap?

Many investors who haven’t seen the 2008-9 GFC crisis are thinking is the current CORONA virus crisis more severe than the previous one? Is it good time to do some bottom fishing in stock markets?

I did an academic exercise to understand how some of India’s most consistent wealth creators are faring vis a vis 2008-09. First I headed to wealth creation studies done by Motilal Oswal to shortlist India’s most consistent stock market wealth creators. Here is a snapshot from report below

Of the above list, I picked top 10 in terms of number of times they appeared in wealth creation studies in the last 5 years and then segregated them in financial services and non-financial services category as below

Non Financials

Bosch
Shree Cements
Cummins
Dabur
Titan
Sunpharma
Asian Paints

Financials
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Suven creates value through demerger

The pharmaceutical component of the company which was carve-out in January got listed today , This is another demerger which was value accretive Pre Demerger Mkt cap was less than INR 3000 crore now separate companies have combined market cap ~INR 5000 crore

You can read a previous analysis of the company here

As far as scorecard is concerned , we would be removing both components (companies) from score card. The Pharmaceutical component at today’s trading price
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My rational

Life science component though close to … Read the rest

Master class from Neville Noronha of Dmart

Reading transcripts of Neville Noronhna is a master class in understanding retail market dynamics, D-Mart’s company culture and insight into building a fantastic business

Here are some gems, my notes in red

On Opportunity size 

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Market size is very large. In fact, why do we have to worry? My message even to my competitor is the same thing, “Why worry about each other?” The Pie is big and the pie itself is growing so much. So, there is nothing to worry about competition. If there is anything to worry about, it is about us. We should not
… Read the rest

Evaluating low gross margin business ?

Avanti Feeds is the largest manufacturer of shrimp feed in India. Based in Andhra Pradesh, the Company is the dominant player in India’s aquaculture sector. Avanti Feeds is a great survivor in Indian aquaculture industry rebounding from death & obscurity

How Avanti became a leader?

In 2009, the Government made a decisive move to change the course of shrimp farming in the country. It allowed commercial cultivation of the whiteleg shrimp, also known as Litopenaeus vannamei. For this variant grew faster, was more resistant to disease than the black tiger shrimp and was more lucrative to cultivate. On the ground, Avanti spearheaded this change It convinced the farming community to get into the cultivation of vannamei shrimps. It partnered Thai Union Group, one of the largest global seafood companies to manufacture feed for white leg shrimp By 2017, the production of white leg shrimp touched 4.5 lakh tonnes in 2017, from 10,000 tonnes in 2010. While the production of black tiger shrimps, which was at 50,000 tonnes in 2009, was eventually stopped by 2015. Avanti emerged as the largest producer of shrimp feed in India

From -2019 Annual Report 

 

Like many other agri and aqua-based companies, Avanti feeds is … Read the rest

Annual Review – Piramal Enterprises 2019

In last four years, the business mix of Piramal Enterprises has changed completely

 

 

With financial services forming lion share of top line and bottom line.

Right from start, the decision to invest in Piramal Enterprises (as well as Thomas Cook) was to ride with smart managers who have a fantastic long term record of creating wealth. 

Coming to FY19 business performance

Financial Services

The NBFC sector was impacted by a liquidity tightening situation, triggered by default by IL&FS and further worsened with defaults by large corporate groups like ADAG and ZEE. The adverse environment led to reducing the growth loan book grew 34% y-o-y to ₹56,624 crores.  For any financial services company, it’s easy to expand loan book however the key is to maintain quality of loan book and ensuring there is no Asset-Liability mismatch. On both fronts, till now Piramal has done well. The NPA has been below 1% and across time zones the company has sufficient liquidity to match outflows.  At the company level, they have diversified their book from wholesale lending to retail lending which is now 71% of their book compared to 83% in FY 2015. The management indicated that this further improve … Read the rest