Month: April 2020

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