‘Bottom Fishing in 2012’ Review of Portfolio – April’12

Date: April 18, 2012

In Jan this year, JainMatrix Investments published a report, ‘Bottom fishing in 2012’ …… To read this now, click on LINK

  • The report indicated that: ‘A bottom is in place, and the price reversal has started‘; there is ‘a change in sentiment‘, and ‘a coordinated rise’ in the share prices.
  • A lot has happened since then, including a crude oil price rise, a Union Budget, and even a lowering of Interest Rates by RBI !!

Lets review the suggested portfolio at the three months milestone – how has it performed?

 Company

Reported 

Jan 17th

Review Feb 20th

Gain/ Loss %

Review

Apr 18th

Gain/ Loss %

Sector

Mkt Cap k Crores

Find out more?

BGR Energy Systems

229

339

48

358

42

Power

M – 2.6

LINK

KEC International

49.1

61

24

63.8

30

Power

S – 1.6

LINK

IRB Infrastructures

153

208

36

198

30

Infra

M – 6.6

Yes Bank

285

364

28

370

30

Bank

L – 13

LINK

Titan Industries

185

232

25

240

27

Consumer

L – 21.3

LINK

Hanung Toys & Textiles

128

140.6

10

147

15

Consumer

S – 0.4

LINK

Binani Industries

121

124.1

2.5

122

1

Cement +

S – 0.4

Diamond Power Infra

111

138

24

110

-1

Power

S – 0.4

Adani Port & SEZ (Mundra)

135

150.5

12

130

-4

Ports, SEZ

L – 26

LINK

Average

 

 

23.2

 

20.6

 

 

 

NIFTY

4,967

5,564

12

5,300

7

Sensex

16,466

18,289

11

17,392

6

CNX Midcap

6,764

7,925

17.2

7,700

14

k – ‘000

BSE Small Cap

6,290

7,116

13.1

6,914

10

M-midcap

Observations:

  • Definitely the portfolio is down compared to Feb evaluation. Even so, since Jan, it has gained 20.6%!!
  • It has outperformed even the best of these Indices, CNX Midcap by over 6%!!
  • There are several changes in the ranking of individual stocks.
  • Note the added Link to the Report on IRB Infrastructure, added in this period.

Based on the above, we strongly suggest:

  • This portfolio will appreciate. Invest but with a minimum one year perspective.
  • Subscribe to reports from JainMatrix Investments. Receive actionable, high quality insights and recommendation for Equity investments. Boost your returns.
  • This is an aggressive portfolio. Do not put all your eggs in one basket. Invest monthly in a SIP form.

Note:

  • Past performance is no indication of future results.
  • Spread the cheer. Share this letter with friends and fellow investors; invite them to also subscribe.
  • To Subscribe, use this Signup Form CLICK
  • Check back on the website www.jainmatrix.com for updates.

Do you find this site useful? You can:

  1. Check back on this website www.jainmatrix.com for updates.
  2. Subscribe to be the first to receive new posts. Enter your email on the ‘Subscribe’ box at the top right of this page
  3. Or Click on this Signup Form CLICK
  4. Socialize with us – Like on Facebook or Follow on Twitter
  5. Be sure to add punit.jain@jainmatrix.com to your address book or safe sender list so our emails get to your inbox.
  6. Add your comments/ queries below

Disclaimers:

Disclosure: It is safe to assume that if the JainMatrix website recommends a stock, the researcher has already invested in it.

These reports and documents have been prepared by JainMatrix Investments Ltd. They are not to be copied, reused or made available to others without prior permission of JainMatrix Investments. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com

Also see: https://jainmatrix.wordpress.com/disclaimer/

Bottom fishing in 2012 ……

————————————————————————————————————————————

JainMatrix Investments has published a review of this portfolio, please click  on the link  October Review

Article Published  January 17th 2012

A Happy New Year to you!                                                             January 17th 2012

In my first post of 2012, I’d like to mull over a very basic question. There are a number of fundamentally good companies, firms in good sectors that are showing QoQ growth and profits, with upside potential and great order booked numbers. I’d like to invest in such firms.

But my worry has been that along with the Sensex, these firms have seen their share price falling week after week. The question is:  How much can a good company fall? More importantly, when can we be sure that the share price fall is complete, a bottom is in place, and the reversal has started?

If we can answer this for a few companies, it can be a great investing opportunity. I suggest the following 9 firms as turnaround candidates.

1.      Hanung Toys & Textiles: CMP 128.

  • This mid sized consumer products firm has 75% revenues from exports. Its share has jumped by 67% in the last 1 month, on high volumes.
  • My fundamental analysis indicates it’s a buy. In my report called Hanung – Look for the rebound, I had predicted such a reversal. Here’s a link to the report
  • Here is a one month view of this stock:
JainMatrix Investments, Hanung Toys

Hanung Toys – One month view (click to enlarge)

  • But the two-year view of the stock shows the extent of fall. The converse of this is that this share has a long climb before it, to even reach past highs.
JainMatrix Investments, Hanung Toys

Hanung Toys – Two year view. Click to Enlarge

2.      KEC International. CMP 49.1

Background:

  • KEC is a power transmission EPC firm owned by the RP Goenka group
  • It has increased EPS 30% CAGR for 5 years, and over 50% of the revenues from international projects.
  • A recent US acquisition in the transmission towers – SAE Towers – gives it 30% growth in balance sheet and a foothold in the America geography
  • Overall margins have been steady at 10% for the last 4 years
  • Recent small but synergistic diversifications in India give it an entry into Power Systems and Cables, and new verticals like Railways, Telecom and Water.

Situation:

  • In the last 4 weeks, the share has gained 53%, again on good volumes.
  • Here are the details, in a one month view:
JainMatrix Investments, KEC International

KEC International – One month view

  • Here is a two-year view of the stock that shows the extent of the fall. One of the issues is poor sentiments in the Power sector. However, for KEC, the fall is overdone.
JainMatrix Investing, KEC International

KEC International – Two year view

3.      BGR Energy Systems CMP 229

  • It is a leading power generation EPC firm. A detailed analysis is available on the link
  • The stock is up 35% in the last 2 weeks
JainMatrix Investments, BGR Energy Systems

BGR Energy Systems – One month view

The fall in the last two years has been massive, as we can see:

JainMatrix Investing, BGR Energy Systems

BGR Energy Systems – Two year view

4.      Diamond Power Infrastructure – CMP 111

  • This Gujarat based small cap is an integrated power sector player into Cables, transmission towers, transformers and conductors
  • It has aggressively expanded capacities, and maintains a higher proportion of in house manufacture in its EPC projects.
  • In the last month, the share has risen 51% from its low.
JainMatrix Investments, Diamond Power Infrastructure

Diamond Power Infrastructure – One month view

  • If you see the two-year chart, the extent of the fall is obvious. Again this is partly due to a poor perception of the Power sector combined with the fall of the Sensex. The fall is overdone, and the stock should bounce back.
JainMatrix Investments, Diamond Power Infrastructure

Diamond Power Infrastructure – Two year view

5.      Titan Industries, CMP 185

  • It is the Tata group company that owns the Titan and Tanishq brands
  • It is a large Cap, consumer-oriented firm with a big retail presence. A detailed analysis is available at link
  • The share is up 21% in the last one month, as we can see:
JainMatrix Investing, Titan Industries

Titan – One month view

  • The one-year view of Titan shows that it has fallen sharply in this period. It surely has some catching up to do.
JainMatrix Investments, Titan Industries

Titan – One year view

6.      Mundra / Adani Port and SEZ, CMP 135

  •  This Port and SEZ major is part of Adani group. It is an infrastructure stock.
  • A detailed report is available on Link
  • A recent development in this stock was the acquisition of Abbot Point Port in Australia. This was seen as an expensive acquisition, and this was one reason for the recent fall
  • This share is up by 25% from a recent one month low, as we can see:
JainMatrix Investing, Mundra / Adani Port and SEZ

Mundra Port – One month view

  • The high for Mundra/ Adani was 184.5 in mid 2009 and the share is now 36% lower than this in spite of the recent rise:
JainMatrix Investments, Mundra / Adani Port and SEZ

Mundra Port – Two year view

7.      IRB Infrastructure – CMP 153

  • This is a leading Roads Developer and Operator in India.
  • It is on a rapid growth path even in the current slow environment. It has a very good portfolio of projects, many of which are operational / toll roads, giving it a predictable and visible cash flow. It has restricted new business bids to larger and more lucrative road projects, where it has competitive advantages. Order Booked are around 10,000 crores.
  • In the medium term, the IRB stock has been suffering from a sentiment driven fall. In the last few weeks, however, it has recovered 24% from a low of 123.5 to the current 152 level
JainMatrix Investments, IRB Infrastructure

IRB Infrastructure Developers – One month view

Over a 2-year period, we can see that the stock has fallen significantly, and this should reverse in a falling interest rate scenario.

JainMatrix Investments, IRB Infrastructure

IRB Infrastructure – Two year view

8.      Binani Industries – Cement and metals manufacturer. CMP 121

  • It is a holding company with interests in Cement, Zinc, Glass Fiber, composites, etc.
  • However, the significant valuable asset is Binani Cement, which was recently merged into the holding company. This itself has a turnover of 2000 crores, and had a market cap of 1600 crores (before merger).
  • Other assets are not significant loss making entities. As of now, Binani Industries has a market cap of just 360 crores. The stock is under valued.
  • The share price has rebounded by 39% from recent lows.
JainMatrix Investments, Binani Industries

Binani Industries – One month view

The 2-year picture of Binani Industries shows the spike in 2011 around the time of the merger with Binani Cement, and a subsequent fall.

JainMatrix Investments, Binani Industries

Binani Industries – Two year view

9.      Yes Bank, CMP 285

  • It is a leading private sector bankA detailed analysis of this stock is available on the link
  • The share has shot up in the last month by 24% from a recent low.
JainMatrix Investments, Yes Bank

Yes Bank – One month view

  • The two-year view of the stock indicates that the current price is significantly below the highs, even though business performance is steady.
JainMatrix Investments, Yes Bank

Yes Bank – Two year view

Risks:

  • A close look at any of the 2-year charts of these shares indicates that there are several 20-40% bounces on the way down. There is a small probability that this too is just a bounce. However, several factors build my confidence that this is more than just a small reversal.
  1. We have indications (see article) that the interest rate cycle has peaked in India; that the Inflation too has peaked. So this could be a sign of economic improvements.
  2. The INR has weakened considerably. This can be a booster to export oriented firms.
  3. The coordinated fashion in which above nine firms (and others in the market) have risen indicates a change in sentiment, and perhaps lowering of investment negativity.
  4. At the beginning of the New Year, many investors, especially foreign, open their books and make fresh investments.
  • Investment in turnaround companies is inherently a higher risk approach, but with potentially higher returns. Take this approach only if you have a high-risk appetite.
  • One view of the above stocks can be that the best is already past, and the resurgence in the last month is unlikely to be repeated. My view is that at this stage fresh investments in these stocks are less risky than a month ago; the reversal is more likely to be sustained, and most of these stocks have a long way to rise before they are back at their highs, even though on valuation parameters, many should be near their all time highs.
  • It is possible that an external negative event takes place that makes share prices fall below these recent lows. However at this juncture, this looks like a small probability event.
  • Socialize with us  Like on Facebook
  • Check back on the website www.jainmatrix.com for updates.
  • Do you find this site useful? Please comment below. You can also subscribe for my posts by filling the ‘Posts By Email’ box on top right of this page.

Disclaimer:

These reports and documents have been prepared by JainMatrix Investments Ltd. They are not to be copied, reused or made available to others without prior permission of JainMatrix Investments. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com

Also see: https://jainmatrix.wordpress.com/disclaimer/

This is a good time to add Small Caps

This may be a very good time to add Small Cap stocks to your portfolio.

Let me substantiate the logic and reasoning for this.

If we list out equity-oriented investments in order of Safer to Riskier (and generally Lower to Higher return), they are:

  1. Sensex/ Nifty / ETFs /Large cap Mutual Funds
  2. Mid Cap and Mid cap oriented MFs
  3. Small Cap and Small Cap MFs

Taking this further, there is a pattern to valuations of Large, Mid and Small caps.

  1. Generally, Large Caps will have higher valuations than Mid Caps, whose valuation again is higher than Small Caps. This is because Large Caps are stable, have higher liquidity, and fall lesser in bad times. Large investors (FIIs/ DIIs) prefer this safer characteristic. However, Large Caps also rise lesser in good times.
  2. In bullish times, the Large Caps tend to rise to higher valuations first. Once this happens, the Institutional investors stop investing in them, and the action moves to mid and  small caps.
  3. Typically Mid and Small caps ‘catch up’ with large caps with a time lag.

This can be observed in the graph below, which captures NIFTY and NIFTY MIDCAP valuations over a 6 year period. (The period of 2005 to 2007 seems to be an exception as Midcap PE is higher than Large Cap PE).

Indices patternTable 1 – NIFTY and NIFTY MIDCAP

  • Further, this cycle has repeated in the last 6 months, where the Sensex/ Nifty fell about 15%, but small and mid caps fell further.
  • Now the cycle is reversing. I expect that as the larger indices recover their levels, the beaten down mid and small caps will rapidly recover.

In particular, there are some solid stocks in these categories, available at low valuations

Hanung Toys and Textiles

  • Export oriented Manufacturer of Toys and Textiles
  • Excellent client roster
  • EPS growth has been 57% CAGR, but recent fall has resulted in P/E of 4.0
  • See price Trend chart

Hanung Toys and TextilesTable 2: Hanung Toys and Textiles

Mundra Port and SEZ

  • Largest private port in India. Recently crossed 50MT of cargo handling
  • Significant business from Coal, Petroleum and passenger cars.
  • SEZ includes 14000 + acres land, under development, for an extended port complex industrial area. This will fuel future port operations growth
  • Growth data: Revenues 28% pa; Cash from Operations 51% pa; EPS 48% pa
  • Debt equity is at 0.91, reducing every year
  • Share recently crossed its 200 DMA, at 150 levels. Positive for investors
  • See Price Trend Chart

Mundra Port and SEZTable 3: Mundra Port and SEZ

IRB Infrastructure

  • Largest domestic Roads and Highways portfolio – as a builder and operator
  • Is experienced in this since 12+ years. Operates 9.3% of Golden Quadrilateral
  • Has over 8000 crores of orders on hand. Debt equity is 1.59, not high for an infra focused firm. Good cash flow from Road Tolls.
  • See price Trend chart

IRB InfrastructureTable 4: IRB Infrastructure

KEC International

  • A top player in the Power Transmission Engineering Procurement Construction (EPC) space in India. Also executes in 20 other countries.
  • Of late, has extended offerings to Cables, Railways, Telecom, etc in related spaces.
  • Order book of 8000 crores ties up 18-24 months of revenues visibility
  • Recently acquired a US based firm. Debt equity is at 1.6, but has good cash flow from operations
  • See Price Trend chart

KEC InternationalTable 5: KEC International

Yes Bank – see report (click on link)

Binani Industries

  • Holding company (with 95%) of Binani Cements, which is getting delisted.
  • Binani Cement is a 1800 crore turnover (2010) cement firm with a market Cap of 1650 crores.
  • It has over 8 MT cement capacity, with ongoing expansion to 15 MT in  3 years. Excellent growth and profit prospects. DE is 1.46 times, and falling
  • Binani Industries itself is other than cement, into Zinc, Glass Fiber, composites, etc. Market cap currently of this firm is Rs 620 crores.
  • Once the demerger of Binani Cement into Binani Industries is complete, the latter’s valuation should reflect the cement business, and the market price should appreciate considerably.
  • No Price Trend here, but I believe the stock is seriously underpriced

Diamond Power Infrastructure

  • The company is an 848 crores turnover firm (2010 revenues).
  • In the business of: manufacture of Power Transmission equipment (cables, conductors, wires and distribution transformers) and turnkey services provider (EPC).
  • As an EPC player, has the advantage of in house manufacture of high proportion of equipments
  • Has seen growth of 86% pa of revenues, and 65% pa of profits over the last 4 years. This may may slow going forward, but even so this is a very attractive growth phase for the firm.
  • Recent equity dilution has allowed capital infusion, so DE ratio has dropped to 0.7, and cash is available for funding growth plans.
  • See Price Trend chart

diamond power infrastructureTable 6: Diamond Power Infrastructure

BGR Energy

  • An EPC and power plant services company that specialized in balance of Plant (BOP) services, for Power, Oil and Gas industries.
  • It has strengthened it’s portfolio with recent JVs and strategic alliances
  • At 3000 crores of 2010 revenues, it is not really a small company
  • Over the last 4 years, it has seen growth of 58% in revenues and 72% in profits
  • The recent bad media reports on BGR energy were overplayed, and this is an opportunity for investors to enter into the stock
  • See Price Trend chart

bgr energy systemsTable 7: BGR Energy Systems

Risks:

  • Investors must note that small caps in general display high volatility compared to the overall market.
  • High growth rates of small firms typically slow down as they become  mid-sized
  • Economic slow down can affect such stocks more seriously than large caps
  • Investors are advised to establish targets and exit criteria for investments in Small Caps

Disclaimer:

These reports and documents have been prepared by JainMatrix Investments Ltd. They are not to be copied, reused or made available to others without prior permission of JainMatrix Investments. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com

Also see: https://jainmatrix.wordpress.com/disclaimer/
Performancing Metrics
Performancing Metrics