Thursday, August 9, 2007
Philips Carbon : A Hidden Gem
Name: Phillips Carbon Black Ltd
BSE : 506590
CMP :Rs. 159
Target : Rs 300
Period : 5-6 Months
Business Profile
Incorporated in March 1960, Phillips Carbon Black Ltd, is part of the RPG group. Not only is the company the largest domestic manufacturer of carbon black, it is also Asia`s largest exporter of CB.
Phillips Carbon Black sells CB to almost all tyre companies in the country. It is the world`s seventh largest manufacturer of carbon black. Its three plants account for 70 per cent of the country`s installed capacity. It is India`s largest exporter of carbon black.
The company has a technical collaboration with Columbian Chemicals Corporation, USA. It is the only Indian manufacturer of CB to be accredited with ISO 9001 certification.
Why a Multibagger:
• Phillips Carbon Black announced a phenomenal jump in net profits for the quarter ended in June, 2007. During the quarter, the company`s profit rose 156.64 times to Rs 219.30 million from Rs 1.40 million in the corresponding quarter, last year.Net sales for the quarter rose 3.41% to Rs 2,348.10 million compared with the corresponding quarter, a year ago. Operating margins improved to 14.65% during the quarter, a rise of 849.33 basis points compared with the corresponding quarter, a year ago. Net margins, rose to 9.32% during the quarter from 0.06%.The company`s earnings per share on a trailing twelve month basis is Rs 12.50.
• Phillips Carbon Black is in the process of reducing operational costs by improving efficiency and slashing workforce.
• Phillips Carbon Black plans to merge its subsidiaries with itself. It is in the process of mulling the merger proposal, which was likely to take a final shape within six-nine months. The company has three wholly-owned subsidiaries, Transmission Holdings, South Asia Electricity Holdings and PCBL Industrial Finance.
• Financials
Sep '06 Dec '06 Mar '07 Jun '07
Sales 242.57 272.32 256.36 234.81
Nett Profit 1.70 7.92 13.91 21.93
EPS 0.96 3.84 5.80 8.68
It is a perfect pick.....
Subprime Meltdown
Subprime mortgage loans are riskier loans in that they are made to borrowers unable to qualify under traditional, more stringent criteria due to a limited or blemished credit history. These loans have a much higher rate of default than prime mortgage loans and are priced based on the risk assumed by the lender.
There are many different kinds of subprime mortgages, but the most popular form is “Initial fixed rate mortgages that quickly convert to variable rates”. For example, a "2-28" loan, which offers a low initial interest rate that stays fixed for two years after which the loan resets to a higher adjustable rate for the remaining life of the loan, in this case 28 years. The new interest rate is typically set at some margin over an index, for example, 5% over a 12-month LIBOR.
The root of the trouble actually stretches back to 2004. In a battle for market share, the subprime lenders began cutting rates. These low rates weren't very profitable, especially because the Federal Reserve was increasing the lenders' cost of funds at the same time. Their interestrate spread—the key to their profitability—shrank from nearly 6 percentage points in 2003 to just over 3 percentage points by the end of 2005. (Source: Businessweek, March 2, 2007)To resuscitate profits, the subprime lenders started raising their lending rates. Naturally, though, that chased away customers. To keep volumes up the lenders started relaxing their credit criteria. Wall Street encouraged this behavior, too, by bundling the loans into securities that were sold to pension funds and other institutional investors seeking higher returns.
It took a while for the problems to surface because many of the subprime mortgages carried artificially low interest rates during the first few years of the loan. The delinquency rate on subprime mortgages eventually went up Some of this trouble might have been avoided if home prices had continued to climb like they did between 2000 and 2005. In such a scenario, even borrowers who weren't paying the principal loan amount would have built up more equity. That in turn would have made it easier for subprime borrowers to refinance into a new loan with a low interest rate. Since home prices weakened in many parts of US and lenders started becoming more vigilant, such borrowers were not left with much refinancing options.
The impact of the subprime mortgages has been magnified as they started being packaged with innovative financial structures like Collateralized debt obligations (CDOs). CDOs are a type of asset-backed security which gain exposure to the credit of a basket of fixed income assets. These instruments slice the credit risk in different tranches with varying risk and return profiles which in turn are issued as separate intruments. From 2003 to 2006, new issues of CDOs backed by assetbacked and mortgage-backed securities increased exposure to subprime mortgage bonds. The CDO packaging enabled institutions to mix good risk and bad risk debt all in one pot and label it as good risk. Therefore the financial institutions earned a higher rate of return on what seemed like a relatively low risk CDO package that was priced in the market price as low risk debt upon which hedge funds such as Bear Stearns leveraged to the hilt.
Hedge funds deploy leverage to enhance their exposure to markets. When things are moving in the right direction this results in phenomenal profits. However if they are caught in the wrong direction, they may end up eroding their entire capital. The LTCM collapse in 1997 was fallout of the excessive leverage taken by the fund. This is what happened with Two of Bear Stearns Hedge funds recently, which placed highly leveraged bets on packages of subprime mortgage derivative products. When the value and credit worthiness of these bond packages was cut due to the subprime defaults, these funds started received calls from the banks which had provided them funds to leverage their bets in the subprime market. In order to meet their commitment towards these banks, they sold a part of their portfolio in an illiquid market. The illiquidity ate into their portfolio as their own selling led to a further fall in prices. The effect of this was it virtually wiped out the total value of the funds that had previously been rated as low risk.
Meanwhile, the $11 billion Raptor Global Fund posted a one-month loss of 9%, while two hedge funds run by Australia's Macquarie Bank were off 25% this year (Source: Businessweek, August 13, 2007). And Sowood Capital Management has already started bleeding.
Subprime woes have moved far beyond the mortgage industry. Already, at least five hedge funds have blown up. The latest worry is that a recent slump in the markets for corporate loans and junk bonds will deepen, jeopardizing the financing of leveraged buyouts, a big profit driver for investment banks. What's more, fears are growing that banks may be on the hook for some of the $300 billion in loan commitments they've made for buyouts already in the pipeline.
Impact on the equity markets
As the subprime woes continue, the stocks of the banks, funds and other financial institutions having exposures to such assets plummet leading to a fall in the broad markets. Also, as the subprime markets go down, the hedge funds receive calls by the banks to meet their margin commitments forcing the hedge funds to liquidate their portfolio. This derivative ripple affect results in selling off emerging market equity portfolios. As liquidity moves out to safer assets, riskier assets like emerging markets start tumbling down.
Outlook on the Indian Markets
In the short term, the markets may correct if liquidity flows out and may consolidate between 14000 – 14500 levels. The markets valuations have been stretched for sometime and a correction is expected. We remain cautious, as the following factors remain a cause of concern
* Stretched equity market valuations - ahead of fundamentals
* High leverage in the market
* Increase in input costs as demand exceeds supply
* Appreciation in INR – concern for exporters of goods and services
* Rising crude oil prices
* CRR hike – cost for the banks
However, the fundamentals of the economy remain strong as evidenced by:
* 30% Q1 profitability growth (Source: Internal Analysis)
* Interest rates seems to have peaked out
* Inflation has come down below 4.5% (Source: Office of economic Advisor, Ministry of Commenrce & Industry, GOI)
* Satisfactory monsoons
The Indian stock markets remain exposed to the global liquidity pressures but fundamentally, being an economy fuelled by internal consumption demand, the economy is less vulnerable to the global economic situation. Also, in terms of valuations, the Indian markets, which were trading at a significant premium to its South East Asian counterparts, has come back to parity. The long term strength of the market is intact and a further correction from these levels would be a good opportunity to accumulate for the long term.
Source: ICICI Prudential Asset Management
Wednesday, August 8, 2007
New Multibagger: Shri Lakshmi Cotsyn Limited
Name : Shri Lakshmi Cotsyn Limited
BSE:526049
NSE:NA
Face Value: Rs. 10
CMP :Rs. 116.15 (8/8/2007)
Target : Rs 350 in 8-12 Months
Website : http://www.shrilakshmi.in/
About the Company:
Incorporated in 1988, Shri Lakshmi Cotsyn (SLCL) is Kanpur-based textiles major. The company has two manufacturing facilities in Fathephur, Uttar Pradesh and Sonepat, Haryana. The product range of the company includes blended fabrics, quilted fabrics, fusible interlining and embroidered fabrics. The company is entering the individual home segment with terry towels, home furnishing, denim fabrics, garments and bottom weight fabrics. The company has undertaken a Rs 26.4-million expansion programme in 2006 and commercial production began by Dec. 2006 in all product portfolios such as denim, bottom weight fabrics, bed-sheets and terry towels. The completion of the expansion plan expected soon would add Rs 2,000 million to the total turnover. SLCL has a domestic distribution network of 300 agents across the country for domestic sales, besides supplying defence-related items such as bullet-proof jackets and bullet-proof helmets to defence establishments.
Recent Developments:
• The company forms a joint venture with UK-based company Armet Armored Vehicles under the name of `ARMET ARMORED VEHICLES & SHRI LAKSHMI LTD`. SLCL is participating with 49% equity in the said joint venture company whereas Armet Armored Vehicles, UK is having a 51% equity in over all capital structure. The main business of this joint venture will be to carry on the business of manufacturing of armored vehicles and manufacturing of armor plates, panels, helmets, ballistic body amours, etc and similar safety and security related equipments for domestic as well as foreign market. The manufacturing unit of the joint venture company will he established in dist. Malwa, Fatehpur, Uttar Pradesh.
• The board of directors of Shri Lakshmi Cotsyn (SLCL), a company whose primary activity is textile manufacturing, has approved in principle the issue of foreign currency convertible bonds (FCCBs) or global depository receipts (GDRs) for an aggregate sum of $20 million to fund its ongoing projects. The FCCBs/GDRs would be issued on a preferential basis to foreign institutional investors, financial institutions, a company release says.
• Shri Lakshmi Cotsyn Ltd has informed BSE that the Board of Directors of the Company at its meeting held on July 31, 2007, inter alia, has decided to convert 4 Lacs warrants of Rs 10/- each (issued earlier at a premium of Rs 119/- per warrant) in to 4 Lacs equity shares of Rs 10/- each at a premium of Rs 119/- per share (fully paid-up).
• Reliance Capital Ltd. Holds 130000 shares i.e. 9.03% of the total equity capital as on 30th June 2007
Financials
Sales Net Profit EPS
Q1 2006-07 945.1 34.5 2.52
Q2 2006-07 985.2 51 3.72
Q3 2006-07 1259.9 94.5 6.9
Q4 2006-07 1537.2 118.3 8.64
Q1 2007-08 2247.8 141.4 9.81
Current Reserves : Rs. 150.98 Cr vs equity of Rs. 14.40 Cr. This makes it a great Bonus Candidate. Last 1:1 Bonus was on Jan 2005.
Future Plans
• SLCL is planning for a tie-up with major retail chains abroad such as Wal-Mart in the US for terry towel and other cotton-based textile products the company is manufacturing now. The focus is on the major markets of the US, Europe and the UAE.
Tuesday, August 7, 2007
Update on Tips
| Code Name | Date Recommended | Target | Recommended Price | CMP | % Gain |
| Code 530609 Carnation Industries Ltd | 31/7/2007 | 75.2 | 24 | 34 | 42 |
| Code 500456 Pasupati Acrylon Ltd | 31/7/2007 | 12.8 | 4.62 | 5.83 | 26 |
| Code 523672 Flex Foods Ltd | 31/7/2007 | 64.4 | 19 | 22.3 | 17 |
| Code 508875 Nitin Alloys Global Ltd | 30/7/2007 | 372.8 | 65.25 | 75.45 | 16 |
| Code 507522 Mount Shivalik Industries Ltd | 30/7/2007 | 260.8 | 78.05 | 90.15 | 16 |
| Code 590048 TYCHE PERIPH | 30/7/2007 | 180 | 42.2 | 47.65 | 13 |
| Code 519287 Modern Dairies Ltd | 30/7/2007 | 102.8 | 59.55 | 65.15 | 9 |
| Code 526433 ASM Technologies Ltd | 30/7/2007 | 81.6 | 31.25 | 33.2 | 6 |
| Code 526703 Ecoplast Ltd | 30/7/2007 | 46.8 | 23.05 | 23.6 | 2 |
| Code 524689 Parenteral Drugs India Ltd | 39271 | 280 | 128.55 | 128.55 | 0 |
| Code 500322 Panyam Cements & Mineral Industries Ltd | 39271 | 140 | 80 | 80 | 0 |
| Code 526365 Shyam Star Gems Ltd | 30/7/2007 | 210.8 | 92.65 | 91.85 | -1 |
| Code 514138 Suryalata Spinning Mills Ltd | 31/7/2007 | 146 | 39.2 | 38.55 | -2 |
| Code 532858 Decolight Ceramics Ltd | 30/7/2007 | 56.8 | 28.55 | 28.05 | -2 |
| Code 505299 Kulkarni Power Tools Ltd | 30/7/2007 | 237.6 | 122.6 | 120.2 | -2 |
| Code 509675 Hyderabad Industries Ltd | 30/7/2007 | 590.8 | 185.8 | 175.15 | -6 |
| Code 519359 Poona Dal & Oil Industries Ltd | 31/7/2007 | 63.6 | 29.75 | 28 | -6 |
| Code 506590 Phillips Carbon Black Ltd | 30/7/2007 | 347.2 | 169.35 | 158.45 | -6 |
| Code 532828 AMD Metplast Ltd | 30/7/2007 | 80.8 | 45.7 | 41.8 | -9 |
Monday, August 6, 2007
A great stock picking strategy
In my quest to find the best stock picking system, I came across a very interesting strategy that is simple as well as convenient. To employ this strategy, you will require not more than two-three hours in a year. Yes, you heard that right.
I like to call this strategy Dogs of the Sensex, based on the Dogs of the Dow theory made famous by Michael O'Higgins. Dogs of the Dow is one of the most popular 'mechanical' investing techniques. It takes all of the research, strategy and guesswork out of investing. In fact, it will only take up two-three hours of your time each year.
Like the BSE Sensex is the benchmark index for the Indian stock markets, the Dow Jones Industrial Average, DJIA, is the benchmark index for the US stock markets. A benchmark index consists of stocks that represent various dominant sectors of a country's economy.
As unreal as that sounds, this technique has been around since the early 1990s, when Michael O'Higgins introduced it in a book.
Here's how it works
~ Once each year, you look at the 30 stocks in the Sensex and pick the 10 with the highest dividend yield.
Dividend yield is the dividend amount per share divided by the share price.
For example, a dividend yield of 3 per cent means that a share that costs Rs 100 would pay a dividend of Rs 3.
A high dividend yield is seen as an indication that a stock is under-priced. A low dividend yield indicates that the stock is over-priced.
According to the Dogs of the Dow theory, such stocks are the best candidates for a jump in their prices. You invest an equal amount in each of these 10 stocks, and then wait for a little more than a year.
~ After one year, you look at the Sensex again. You sell the stocks that are no longer in the top 10 by dividend yield (the 10 stocks that you had picked earlier will not be there because their price will have risen or because a few of them might have been removed from the Sensex. A committee that looks into the composition of Sensex changes the stocks that form the Sensex on a regular basis).
~ You replace them with the stocks that now make the top 10 list by dividend yield (they will be there because their prices would have fallen or they are new entrants in the Sensex).
~ Important note: Make sure you hold the stocks you buy for one year and one day. If you hold and sell your stocks after a day more than a year, it is considered as long-term capital gain. In India, long-term capital gains are not taxed at all. Any gains that you make by buying and selling a stock/s within a year is considered as short term capital gains and is taxed at 10 per cent.
This strategy needs you to rebalance your portfolio after a year and a day. This is because the stocks with high dividend yields that you had picked the previous year may not remain the top dividend yielding stocks after a year.
The strategy WORKS and how!
As mentioned earlier, one of the big attractions of the Dogs of the Dow strategy is its simplicity; the other is its performance.
From 1957 to 2003, the Dogs outperformed the Dow by about 3 per cent, averaging a return rate of 14.3 per cent annually whereas the Dows averaged only 11 per cent.
The performance between 1973 and 1996 was even more impressive, as the Dogs returned 20.3 per cent annually, whereas the Dow averaged 15.8 per cent.
More than the performance of this strategy in the US market, the other reason it will work is due to the assumption on which the entire strategy is based.
Do things the smart way
The base of this investment style is that the Dow laggards, which are temporarily out-of-favor stocks, are good companies because they are included in the index (if they were not, then they would not be a part of the Dow or for that matter the Sensex, in the first place); therefore, holding on to them is a smart idea, in theory.
Once these companies rebound (that is, the price of their stocks increase) and the market has revalued them properly, you can sell them and renew your portfolio with other good companies that are temporarily out-of-favor but the potential of a high dividend yield.
Companies that form a particular benchmark index have historically been very stable companies that can weather any market crash with their solid balance sheets and strong fundamentals.
Furthermore, because there is a committee perpetually tinkering with the index like the Sensex, you can rest assured that the Sensex or any other index is made up of good, solid companies.
Investing in dividend dogs of the Sensex is similar to the strategy of `Dogs of the Dow' followed in the US.
In the US, the strategy involves investing in the high dividend yielding stocks that are part of the Dow Jones Index. The strategy has been found to beat the market consistently in the US. Adaptations of the strategy in the UK and Canada [Images] have also delivered index-beating returns.
Caution is the key once again
This strategy, like any other stock picking strategy in the world, is not foolproof. It cannot save you from the losses during recessions; it can at the maximum minimise your losses. The key to this strategy is that it can beat the Sensex return over a long term; at the same time, it gives you the benefit like that of a fixed deposit.
If you are looking for a mechanical, non-emotional way of investing in the stock market, the Dogs of the Sensex may be your answer. This strategy removes out the judgment required in the stock market, replaces it with cold calculation and brings sanity in our investing.
Tuesday, July 31, 2007
Tips for doubling money
The whole idea of these tips is that you select 2-3 stocks from all the tips that are given at a time. You then put money equally in each of them. The hit rate for these stocks is about 65-70%. So by diversifying, you would be able to get a good return.
Minimum 100% Gain in 3-4 months
Name Target
Scrip Code : 523672 Company Name : Flex Foods Ltd 64
Scrip Code : 514138 Company Name : Suryalata Spinning Mills Ltd 146
Scrip Code : 519359 Company Name : Poona Dal & Oil Industries Ltd 64
Scrip Code : 500456 Company Name : Pasupati Acrylon Ltd 13
Scrip Code : 530885 Company Name : Jaisal Securities Ltd 105
Scrip Code : 530609 Company Name : Carnation Industries Ltd 75
Monday, July 30, 2007
Multi Baggers
Name Target
Code : 508875 : Nitin Alloys Global Ltd 373
Code : 590048 : TYCHE PERIPH 180
Code : 526610 : Vans Information Ltd 52
Code : 507522 : Mount Shivalik Industries Ltd 261
Code : 509675 : Hyderabad Industries Ltd 591
Code : 526433 : ASM Technologies Ltd 82
Code : 526365 : Shyam Star Gems Ltd 211
Code : 526703 : Ecoplast Ltd 47
Code : 506590 : Phillips Carbon Black Ltd 347
Code : 505299 : Kulkarni Power Tools Ltd 238
Code : 532858 : Decolight Ceramics Ltd 57
Code : 532828 : AMD Metplast Ltd 81
Code : 519287 : Modern Dairies Ltd 103
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