Tag: investment advisory

Pitfalls – Rule #1 – Overinvesting in a single stock

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JainMatrix Investments shares Pitfalls – Rule #1 in the video below

Dear Investor,

In my Research Analyst advisory practice, I often found that investors can fall in love with a particular stock, and overinvest in it, rather than taking a basket or portfolio approach. This exposes investors to this risk.

In the equity markets, there is always a small probability that any one company can be negatively affected by an unexpected event. It could be a business cycle downturn. It could be a fire in a factory. It could be raising of interest rates by RBI. Or a random or unpredictable event. Some examples of sudden falls can include Yes Bank, IL&FS Ltd., Vakrangee Ltd, Future Retail, etc. These companies suffered a sudden fall in recent years, and surprised many investors, sometimes after many years of doing very well.

The hedge against this for an investor is, to invest in a basket or portfolio of stocks at a time.

Over a period of time this basket or portfolio may have widely different results in terms of individual performances. Some shares may appreciate very well, while others stay flat or worse. But at least the single stock investment risk is not there.

If chosen well, this investment in a group of stocks can be a great step in your wealth building process.

Here’s where JainMatrix Investments services can help you. To find out more reach out to us on

Contact Us

Or explore on this website

Offerings

Comment, leave a reply below, and like and share this post with your friends.

Join us for a Q&A session on 03rd June. Register for this on https://forms.gle/ZPsHbz8h6dfVE99u8

Regards, Punit Jain

DISCLAIMER

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. This is a marketing collateral. The securities quoted here are for illustration only and are not recommendatory. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an Investment Advisor. Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Punit Jain is a registered Research Analyst under SEBI (Research Analysts) Regulations, 2014. Registration granted by SEBI, and certification from NISM in no way guarantee performance of the RA or provide any assurance of returns to investors. JM has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com. Name of the RA as registered with SEBI – Punit Jain, SEBI Registration No. INH200002747.

Lessons from 10 years, and Pitfalls in Investing

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Dear Investor,

At JainMatrix Investments, I am happy to announce we have completed 10 years as a Research Analyst company. (we did get the RA certification in 2016, when the norms kicked in, but were practicing from earlier).

On this occasion, the best thing I can share with you, dear investor, are my learnings from the profession. Just like any equity investor in India, over the last decade we have seen upcycles and downcycles. The USA real estate crash of 2008 and the 2014 euphoria of Indian elections. Demonetization of 2016. The covid collapse of 2020 and the IT sector excitement of 2021. Add to this company and industry specific up and down cycles.

Survival and even success through these periods has been based on learnings of what to do, and also not do on our investment portfolio. The latter can be called as Pitfalls.

In this campaign, we will share with you the Pitfalls you must avoid in order to succeed as an investor. These are the rules I thought of, realized were required, experimented with and against, and finally established as a Gold Standard Rule. I would recommend every single individual investor to follow these, to get a better chance of success.

In wealth management as well as in Direct Equity investments, these Rules must be followed.

Pitfalls and Lessons

Rule #1 – Overinvesting in a single stock.

Rule #2 – Long Term Equity Investments must not be funded by loans

Rule #3 Investing timeframes

Rule #4 – To Win Big in Investing, you have to Deal with Losses

Rule #5 Pitfalls – Do you have too many stocks in your equity Portfolio?

Rule #6 Pitfalls – To be a good investor, do things differently

Rule#7 Pitfalls – If you want to invest in Indian markets, start NOW

Here’s to your profitable investing.

Regards, Punit Jain

DISCLAIMER

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. This is a marketing collateral, and there is no stock mentioned here, no price target here, or even a recommendation of BUY / HOLD / SELL. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an Investment Advisor. Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Punit Jain is a registered Research Analyst under SEBI (Research Analysts) Regulations, 2014. Registration granted by SEBI, and certification from NISM in no way guarantee performance of the RA or provide any assurance of returns to investors. JM has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com. Name of the RA as registered with SEBI – Punit Jain, SEBI Registration No. INH200002747.

Mindtree Ltd. – A Possible Star

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_____________________________________________________________

  • 12 June 2013
  • CMP: Rs 800
  • Mid Cap – Mkt Cap 3550 crores.
  • Advice:  Buy

Executive Summary

Mindtree Ltd is a mid-sized IT services company based out of Bangalore. It has good management, experienced professionals drawn from the industry. The growth of the firm has been steady. Revenues, EBITDA and PAT have gained by 26%, 27% and 25% CAGR over the last 6 years. Mindtree has reached a certain critical size in terms of revenue and employees, from which growth can accelerate and it can be a large cap in 4-6 years. We expect these plans to play out and make it a very rewarding investment. 

(Find below a limited public report. Subscribers have access to the full report including Risks, Price – PE and EPS charts, Financial Projections, Benchmarking and 2 year Price Targets)

Mindtree Ltd. (MT) is a new age Mid Cap software services firm based in Bangalore.

Business Snapshot:

  • The consolidated turnover is Rs 2,362 crores and Profits 339 cr (FY13).
  • The Chairman is Subroto Bagchi and MD-CEO is Krishnakumar Natarajan; they co-founded the firm in 1999. Today it has about 11,600 employees, spread over Bangalore, Chennai, Hyderabad and Pune.
  • MT has a focus on 4 business verticals; USA is the largest revenue market, see Fig 1 A and B.
  • A recent achievement was the UID/Aadhaar project where MT developed the core application.

Fig 1 – Mindtree by Segments (A) and Geographies (B) for FY2013 (JainMatrix Investments)

Fig 1 – Mindtree by Segments (A) and Geographies (B) – JainMatrix Investments

Pricing Snapshot

The view of the share price of MT in 6 years since the 2007 IPO shows us:

  • From the IPO at Rs 425, the share price has risen by an annual average of 11.5% in 6 years.
  • The share has been volatile, as post IPO the peak was 1021, and the bottom 187 in 2009.
  • The Dividend has risen to the current 120%, see Fig 2, indicating a dividend yield of 1.5%.

Fig 2 – Price and Dividend History (JainMatrix Investments)

Fig 2 – Price and Dividend History (JainMatrix Investments)

Financial Snapshot

  • The Revenues, EBITDA and PAT have gained by 26%, 27% and 25% CAGR over 6 years.
  • MT is virtually debt free and has Cash on its books of 603 cr. or Rs 145/ share.
  • The average PE over the last 6 years is at 20 times. The P/E has moved in a range of 9-35 times, and is currently at 10 times.
  • In the last 3 years, the P/E of MT has been in the 8-14 times range, even as the share price has increased 2.5 times, in line with EPS growth.

Fig 3 – Financials Snapshot (JainMatrix Investments)

Fig 3 – Financials Snapshot (JainMatrix Investments)

 Opportunities and Strategies

  • The worldwide end-user spending in IT Services was US$ 845 billion in 2011, while Indian turnover was $88b, indicating a 10.4% global market share. (Source: Gartner, NASSCOM). Thus there is ample opportunity to grow.
  • Also big opportunities lie in adjacent /related markets like Software Products and bundled Hardware-Software solutions.
  • The industry contributed to 7.1% of the Indian GDP.
  • India has a competitive advantage in IT services due to availability of skilled manpower, good telecom/ internet infrastructure, English language skills and a lower cost structure.
  • With the industry having taken off in India in the 90s, the Indian firms now have sufficient scale, maturity and focus to be in contention to win IT services business in many global markets.
  • The recent USD strengthening (to around Rs 58) has improved the outlook for all IT exporters.
  • The IT Services industry has for long been linear in its growth, with addition of human resources contributing much of the business growth. But new business models are Non-linear, like SaaS, Outcome based contracts, platform based solutions, creation of IP, Products, etc.
  • MT’s identified business verticals of Product Engineering Services, Auto & Retail, BFSI and Travel, Media & Services are large sectors with good potential. Newer IT business trends like Mobility, Cloud and Open Source also seem to be well mapped. (Some important trends that we’d like to see MT into are Social Media and Big Data and Analytics).
  • MT is quite clear that growth will be organic and not through M&A. This is beneficial for investors.
  • With employee base > 10,000 and IT services turnover > 2000 crores, MT can be seen as a firm that has crossed a certain critical mass and now can bid for much larger new assignments.
  • MT is reducing its long tail of ‘small clients’ and focusing on mining its Fortune 500 clients to add service lines and grow business rapidly.

Opinion, Outlook and Recommendation

  • Over the next 2-3 years, exports growth is going to become very important in the Indian economy. The Software sector which is the leading exporter (25% of Indian exports in FY13) will receive a number of sops and benefits. In addition the USD strengthening will also boost sector performance.
  • MT is at a critical phase of growth, where it should be able to accelerate revenues and profits from this point, having achieved a certain critical mass.
  • MT has cash on its books of Rs 145 per share. In other words, a share of Rs 800 actually costs you only Rs 655. This is not an empty hope or wish. The savvy management has increased the Dividend this year from 40% to 120% to distribute this cash. Further shareholder enriching events can be expected in the medium term such as increase in dividends, bonus shares, share buyback, etc.
  • MT has gone through a cycle of very high expectations (and valuations) at the time of IPO, to a current state of low expectations. However it retains its essence of a savvy experienced management, global presence, absorption of new technologies and willingness to take small risks.
  • MT is a Buy at current levels.

JainMatrix Knowledge Base

See other useful reports

  • Tribhovandas Bhimji Zaveri – LINK 
  • JainMatrix Mid Cap Model Portfolio 2013 – LINK
  • Apple Inc. – LINK
  • Arshiya International: A Collapsing Star – LINK
  • Bharti Airtel – This is a year of consolidation – LINK
  • Yes Bank – LINK

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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

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