With reference to our last post on Almondz Capital (BSE-511589), the stock today achieved our first target price of Rs.60. The run-up was a bit fast.
At today’s market price of Rs.60, the market cap of the company is Rs.60 crs. Since Dec 14, the share price of Almondz Global has also increased on substantial volumes to Rs.110 from Rs.91. So, the value of shares hold by ACMSL is now Rs.93.5 crs which converts into a NAV of Rs.93.5 per share. Even at today’s price, the stock is trading at a 35% discount.
We believe that the market is slowly realizing the value of Almondz Global. As the company will start showing better results, the visibility for the stock should improve. We am expecting the re-rating to happen as soon as the company will receive the high court’s approval to merge its retail brokerage business.
Thursday, December 20, 2007
Monday, December 17, 2007
Stock to watch: Almondz Capital (BSE: 511589)
ACMSL is the holding company of New Delhi based Almondz Global Securities Ltd. (AGSL, BSE Code – 531400). ACMSL holds 85 lac shares and 10 lac warrants being convertible at Rs.80 per share of AGSL of on September 30, 2007. ACMSL is just a holding company for AGSL and is debt free. As on September 30, 2007, the equity base of the company is 1 crs shares.
With the CMP of Rs.91 of AGSL, the value of shares held by ACMSL comes to Rs.77.5 crs, which converts into Rs.77.5 per share as the NAV. So, at its CMP of Rs.48, the stock is trading at almost 40% discount to its NAV. The preferential allotment of 2.6 lac shares made by the promoters of ACMSL to themselves at Rs.61 goes on to prove the confidence of promoters in their own company.
We believe that AGSL, which used to be one of the largest players in the debt syndication market and now is transforming into a merchant banker/investment banker, holds a lot of promises due to some of the following triggers:
With the CMP of Rs.91 of AGSL, the value of shares held by ACMSL comes to Rs.77.5 crs, which converts into Rs.77.5 per share as the NAV. So, at its CMP of Rs.48, the stock is trading at almost 40% discount to its NAV. The preferential allotment of 2.6 lac shares made by the promoters of ACMSL to themselves at Rs.61 goes on to prove the confidence of promoters in their own company.
We believe that AGSL, which used to be one of the largest players in the debt syndication market and now is transforming into a merchant banker/investment banker, holds a lot of promises due to some of the following triggers:
- The company on December 11, 2007, has decided to allot 31 lac shares (14.99% of the equity post this allotment) and 10 lac warrants to a strategic investor at Rs.85 per share/warrant. The new funds infusion of Rs.27 crs will help the company to expand its retail brokerage all over India, the mention of which is there in the following points.
- The company has already decided to merge with itself its retail brokerage arm called Almondz Capital Markets Pvt. Ltd. The merger has already been approved by the board on September 29, 2007. AGSL will allot 43 lac shares to its brokerage arm on its merger. The retail arm has opened its offices in many cities across India. The high court approval for the merger is expected to come anything in January 2008. With the merger, AGSL’s topline will witness quantum jump. We expect that as soon as the numbers of the brokerage arm becomes public, the stock will be re-rated considering the kind of valuations Indian brokerage companies are attracting.
- The company in FY06-07 had announced an EPS of Rs.4.03 on equity of 1.59 crs shares. During the first half of 2008, on an expanded equity base of 1.75 crs shares, the EPS has been Rs.3. If first half is any indication, then we should witness an EPS of Rs.7.5-8 in the full year 2008. This kind of a jump in the EPS will re-rate the company on its stand-alone basis.
Keeping in mind all the above mentioned points, We expect AGSL to post an EPS of Rs.7.5-8 in the FY07-08, on an expanded equity base of 2.49 (1.75+0.31+0.43) crs shares. Kindly note, that here we have not included the warrants which ACMSL and the strategic investors are holding. On a conservative basis, we can assume the company to attract a PE of 20, which converts into a share price of Rs.150-160.
So at that valuation, the value of holdings of ACMSL into AGSL comes to roughly Rs.144 crs (after conversion of warrants as well). And that converts into an NAV of Rs.144 per share. We believe that the share price of ACMSL is highly undervalued. Our first target is Rs.60 and long-term target is Rs.100, still keeping a 30% discount.
Sunday, December 16, 2007
IT.Enter
After years of stellar performance from frontline IT stocks, investing community has turned back on them en masse in 2007. No one seems to have been spared. The year-to-date (YTD) stock performances of companies such as Infosys Technologies (which is down some 31% from its February high); Wipro (down 28% YTD); TCS (down 22%YTD) and Satyam (down 22% YTD) are testimony to the fact there have been lot of things wrong fundamentally for the sector.
The BSE IT index is down 17% during the last 1 year and IT sector funds’ performance is no different. Franklin’s Infotech Fund is down 18.2% while UTI’s Software Fund is down 12.5%. All this when the benchmark Sensex is up 48% during the last 1 year.
The Genesis
A slowdown in the US economy as a result of consecutive jack-up in interest rates, a regime which began sometime in late 2004 or thereabouts, followed by homebuilding crises which began in mid 2006 (while rates peaked), imminent burst of the housing bubble and later a full blown sub-prime crises in 2007.
Now with the Fed going onto a cruise control mode with interest rate cuts to stoke the economy, the dollar has had to bear the brunt, what with investors taking flight to destinations offering higher rates of return on govt. paper.
So what’s the deal with our IT companies?
For one, our IT companies’ annual revenues largely depend on client based in the US resulting in dollar earnings. Since the rupee has now gained around 15% or thereabouts against the dollar, the IT companies’ revenues are set back around the same percentage. Wage inflation and skilled manpower shortage are added headaches to deal with.
In wake of the current crises of sorts, top tier IT companies have guided investors with softer growth in earnings, revised target manpower additions downwards and revealed various cost cutting initiatives, including softer wage hikes in 2008.
Time to get out, then?
Now that depends, on where you are. We mean we could see broadly three types of investors in these companies
One: who have invested in these stocks years ago, have reaped large dividends in them and continue to hold these stocks now. We believe that investors such as these should take these structural changes in the sector in their stride, possibly invest more at the moment because we believe that the long term story ain’t over yet. Is it a good time to enter now? You might ask. Well, one could wait a few days or months since we see improvement coming over in mid-2008, so we have time on our hands, or so it seems.
Two: these are investors who are waiting to get into this sector since it seems to have become attractive. We would encourage investors in this category to start at these levels and expect decent returns over a medium term (next 1 to 2 years). We believe that there can never have been a good time to enter in IT than this.
We believe that investors get few chances like these over cycles in every sector and should be grabbed by both hands.
Three: now these are guys who have entered IT stocks over the last 12-18 months. TOUGH LUCK. Things like these happen, is all we can say. That is where Gurus have propagated to diversify your holdings. However, all is not lost. Even if we were in such a position, we would continue to invest in the sector, albeit now we are getting more shares with the same amount of money than before. In addition, there is a strong case to introspect and pick those who one believes will have the wherewithal to stand up and run.
Recall the last time your kid fell while walking or running. Did you turn your back on him / her or did you stand up by him so that he / she could stand up again and walk / run.
So does that answer your question, time to get out?
Keep the faith!!
The BSE IT index is down 17% during the last 1 year and IT sector funds’ performance is no different. Franklin’s Infotech Fund is down 18.2% while UTI’s Software Fund is down 12.5%. All this when the benchmark Sensex is up 48% during the last 1 year.
The Genesis
A slowdown in the US economy as a result of consecutive jack-up in interest rates, a regime which began sometime in late 2004 or thereabouts, followed by homebuilding crises which began in mid 2006 (while rates peaked), imminent burst of the housing bubble and later a full blown sub-prime crises in 2007.
Now with the Fed going onto a cruise control mode with interest rate cuts to stoke the economy, the dollar has had to bear the brunt, what with investors taking flight to destinations offering higher rates of return on govt. paper.
So what’s the deal with our IT companies?
For one, our IT companies’ annual revenues largely depend on client based in the US resulting in dollar earnings. Since the rupee has now gained around 15% or thereabouts against the dollar, the IT companies’ revenues are set back around the same percentage. Wage inflation and skilled manpower shortage are added headaches to deal with.
In wake of the current crises of sorts, top tier IT companies have guided investors with softer growth in earnings, revised target manpower additions downwards and revealed various cost cutting initiatives, including softer wage hikes in 2008.
Time to get out, then?
Now that depends, on where you are. We mean we could see broadly three types of investors in these companies
One: who have invested in these stocks years ago, have reaped large dividends in them and continue to hold these stocks now. We believe that investors such as these should take these structural changes in the sector in their stride, possibly invest more at the moment because we believe that the long term story ain’t over yet. Is it a good time to enter now? You might ask. Well, one could wait a few days or months since we see improvement coming over in mid-2008, so we have time on our hands, or so it seems.
Two: these are investors who are waiting to get into this sector since it seems to have become attractive. We would encourage investors in this category to start at these levels and expect decent returns over a medium term (next 1 to 2 years). We believe that there can never have been a good time to enter in IT than this.
We believe that investors get few chances like these over cycles in every sector and should be grabbed by both hands.
Three: now these are guys who have entered IT stocks over the last 12-18 months. TOUGH LUCK. Things like these happen, is all we can say. That is where Gurus have propagated to diversify your holdings. However, all is not lost. Even if we were in such a position, we would continue to invest in the sector, albeit now we are getting more shares with the same amount of money than before. In addition, there is a strong case to introspect and pick those who one believes will have the wherewithal to stand up and run.
Recall the last time your kid fell while walking or running. Did you turn your back on him / her or did you stand up by him so that he / she could stand up again and walk / run.
So does that answer your question, time to get out?
Keep the faith!!
Sunday, December 9, 2007
2008 – Party to continue or time to be cautious?
Last four years for the Indian equity markets have been unprecedented. Almost every segment of the economy has flourished and the future seems to be bright than ever. Investors, both short-term and long-term have made money and are expecting the last 4 years historic run to continue. So, at the moment, we have more buy reports then sell reports in the market. But, the experts differ and expect the future to be more volatile than ever as the Indian economy is getting integrated with the world majors. Experts believe that the days of easy money are over and going forward the probability of only the long-term investor making money seems to be higher.
So, what should be our strategy for 2008?We believe that 2008 is going to be a year of exit. We don’t recommend a mass exodus, but exit from investments where the euphoria has taken over the fundamentals (select small-caps), and price rise is beyond all reasonable valuations (power stocks), sanity should prevail. Investors invested in some of the above mentioned segments/sectors should plan an exit, with a very stock specific selective entry.
Always bear in mind that the downward journey is always more painful and faster than the upward journey. SEBI’s guidelines of regulating the foreign funds immediately put the market on a down circuit freeze. How many times have we seen the markets on an up circuit, whatever may be the frenzy?
Ben Graham's "Security Analysis" starts with the following observation: "Many shall be restored that are now fallen and many shall fall that are now in honor." We believe that many high-fliers with no fundamentals will witness significant erosion in the valuations, with upside limited to very few selective stocks.
Can 2008 belong to IT, Auto components and Textile, as these sectors in the quest for survival might come-up with the next revolution? We don’t have a black-magic stick with which we can predict the future with accuracy. With our limited knowledge base and intense discussions, in next few weeks and months we will try to share some of the ideas across markets caps, and sectors, which we believe should outperform the general indices, are create significant value for its investors.
At the cost of being repetitive, we urge the investors to be cautious and not play with their hard earned money.
Remember, Rome was not built in a day.
So, what should be our strategy for 2008?We believe that 2008 is going to be a year of exit. We don’t recommend a mass exodus, but exit from investments where the euphoria has taken over the fundamentals (select small-caps), and price rise is beyond all reasonable valuations (power stocks), sanity should prevail. Investors invested in some of the above mentioned segments/sectors should plan an exit, with a very stock specific selective entry.
Always bear in mind that the downward journey is always more painful and faster than the upward journey. SEBI’s guidelines of regulating the foreign funds immediately put the market on a down circuit freeze. How many times have we seen the markets on an up circuit, whatever may be the frenzy?
Ben Graham's "Security Analysis" starts with the following observation: "Many shall be restored that are now fallen and many shall fall that are now in honor." We believe that many high-fliers with no fundamentals will witness significant erosion in the valuations, with upside limited to very few selective stocks.
Can 2008 belong to IT, Auto components and Textile, as these sectors in the quest for survival might come-up with the next revolution? We don’t have a black-magic stick with which we can predict the future with accuracy. With our limited knowledge base and intense discussions, in next few weeks and months we will try to share some of the ideas across markets caps, and sectors, which we believe should outperform the general indices, are create significant value for its investors.
At the cost of being repetitive, we urge the investors to be cautious and not play with their hard earned money.
Remember, Rome was not built in a day.
Saturday, December 8, 2007
Ab kya hoga...
Literally - what next? Is this the question that you asked your broker recently? You are not alone my friend, several people (including seasoned investors) are pondering over the same question over the past few weeks given the sideways movement displayed by the key benchmarks namely the NIFTY 50 (or the stock of the nation, as they advertise) and Sensex (BSE’s much touted 30-share index).
Why now you may have asked yourself and again when everything looks fine at the surface, corporate results in Q2 FY2008 seems to be decent (what with sectors such as infrastructure notably construction, cement, properties and retail reporting > 30% YoY PAT growth); telecoms reporting >50% YoY PAT growth and lastly key bank stocks (again reporting >30% YoY earnings growth). Yes, there were black sheep spotted in sectors whose revenues depended on exports. No prizes for guessing – textiles, auto (mostly component exporters) and yes IT – software (mid-tier) has seen some notable headwinds on their growth story. But overall, everything seems fine isn’t it, or is it?
Conflicting signals…
The market seems to searching for cues. And ordinary mortals like us depend on market gurus for direction. But what happens when gurus are divided. Or to put it simply what happens when fund manager who speak on CNBC – TV18 tell us that investors need to be cautious while they invest at these levels. Easier said than done, isn’t it.
We believe that though there is room for optimism, indeed there are signals on the macro front which compel us to ponder over what the doomsayers predict.
For starters, our economic growth already shows signs of easing a bit, and experts warn us about the so called ‘soft landing’. To recap, India recorded a Q2FY08 GDP growth of around 8.9% as against 10.2% (wow) growth recorded same period last year. In fact, till Q1FY08 our GDP growth was a sound 9.3%.
Secondly, and most importantly, markets seems to be euphoric (or gloomy) longer than what reality of the matter is. This has been witnessed historically (1997, 2000, 2003 and yet again late 2007).
Thirdly, they say, that numbers don’t lie. What we mean is that, a glance at valuations of companies, be it blue chips, premium mid-caps or small caps, are in disarray. You can find extremes in these markets.
For instance, most frontline home builders / real estate where all the euphoria is at the moment, are trading well in excess of 25x FY2008 earnings and around 20x FY2009 earnings, on average. There has been a dramatic change in valuations of these players over the past few quarters. To cite, DS Kulkarni Developers has witnessed earnings multiple expansion over the last two and half years from 7x 1-Yr forward earnings to around 14x 1-Yr forward earning in 2007.
This has been the case for most of the favored sectors in 2007, including cement, infrastructure, banks (including financial services) and to some extent media.
On the other hand, certain sectors are greatly out of favour. Not without reason though. IT – software would be a case in point here. Frontlines in these sectors are off their highs by around 25-40%.
Guru focus
So with all this haze around us, what should be the game plan for 2008 you may ask. Well we don’t have Aladdin’s magic lamp yet and therefore would rely on what stock gurus would foretell.
But again, the same original questions would haunt us. What if the gurus are in conflict over the direction of the overall market?
Web portal Business Today’s 27th November 2007 “Instant tip” have notable investment professionals still bullish on what hold in 2008. (Details can be accessed here ) while Sanjiv Duggal, touted by media as ‘India’s biggest bull’, has changed stance on where the market is headed over the next 18-24 months. (details of what he thinks can be found here ). He believes that Indian markets are headed south over the next two years as a result of global slowdown and hefty valuations that are prevailing currently.
Finding value
We believe in our motto. One can find value in any market (bull or bear) by being disciplined, which is easy to understand and difficult to practice. But believe us, practice is the key word here. We are trying hard to do precisely that. We hope to get across these turbulent times by having faith in our ability to spot the underdogs, have patience in their business models and of course the wherewithal to swim across the tide.
Over the next few weeks we would want fellow novice investors to learn about our model portfolio and also some of our learning that we would incorporate while trying to make some money of the Indian stock market.
So stay tuned…
Why now you may have asked yourself and again when everything looks fine at the surface, corporate results in Q2 FY2008 seems to be decent (what with sectors such as infrastructure notably construction, cement, properties and retail reporting > 30% YoY PAT growth); telecoms reporting >50% YoY PAT growth and lastly key bank stocks (again reporting >30% YoY earnings growth). Yes, there were black sheep spotted in sectors whose revenues depended on exports. No prizes for guessing – textiles, auto (mostly component exporters) and yes IT – software (mid-tier) has seen some notable headwinds on their growth story. But overall, everything seems fine isn’t it, or is it?
Conflicting signals…
The market seems to searching for cues. And ordinary mortals like us depend on market gurus for direction. But what happens when gurus are divided. Or to put it simply what happens when fund manager who speak on CNBC – TV18 tell us that investors need to be cautious while they invest at these levels. Easier said than done, isn’t it.
We believe that though there is room for optimism, indeed there are signals on the macro front which compel us to ponder over what the doomsayers predict.
For starters, our economic growth already shows signs of easing a bit, and experts warn us about the so called ‘soft landing’. To recap, India recorded a Q2FY08 GDP growth of around 8.9% as against 10.2% (wow) growth recorded same period last year. In fact, till Q1FY08 our GDP growth was a sound 9.3%.
Secondly, and most importantly, markets seems to be euphoric (or gloomy) longer than what reality of the matter is. This has been witnessed historically (1997, 2000, 2003 and yet again late 2007).
Thirdly, they say, that numbers don’t lie. What we mean is that, a glance at valuations of companies, be it blue chips, premium mid-caps or small caps, are in disarray. You can find extremes in these markets.
For instance, most frontline home builders / real estate where all the euphoria is at the moment, are trading well in excess of 25x FY2008 earnings and around 20x FY2009 earnings, on average. There has been a dramatic change in valuations of these players over the past few quarters. To cite, DS Kulkarni Developers has witnessed earnings multiple expansion over the last two and half years from 7x 1-Yr forward earnings to around 14x 1-Yr forward earning in 2007.
This has been the case for most of the favored sectors in 2007, including cement, infrastructure, banks (including financial services) and to some extent media.
On the other hand, certain sectors are greatly out of favour. Not without reason though. IT – software would be a case in point here. Frontlines in these sectors are off their highs by around 25-40%.
Guru focus
So with all this haze around us, what should be the game plan for 2008 you may ask. Well we don’t have Aladdin’s magic lamp yet and therefore would rely on what stock gurus would foretell.
But again, the same original questions would haunt us. What if the gurus are in conflict over the direction of the overall market?
Web portal Business Today’s 27th November 2007 “Instant tip” have notable investment professionals still bullish on what hold in 2008. (Details can be accessed here ) while Sanjiv Duggal, touted by media as ‘India’s biggest bull’, has changed stance on where the market is headed over the next 18-24 months. (details of what he thinks can be found here ). He believes that Indian markets are headed south over the next two years as a result of global slowdown and hefty valuations that are prevailing currently.
Finding value
We believe in our motto. One can find value in any market (bull or bear) by being disciplined, which is easy to understand and difficult to practice. But believe us, practice is the key word here. We are trying hard to do precisely that. We hope to get across these turbulent times by having faith in our ability to spot the underdogs, have patience in their business models and of course the wherewithal to swim across the tide.
Over the next few weeks we would want fellow novice investors to learn about our model portfolio and also some of our learning that we would incorporate while trying to make some money of the Indian stock market.
So stay tuned…
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