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July 5, 2020

My Stock picks where investors stuck


Everyone writes about successful stocks pick and how followers have made returns. I also did the same-thing when Intrasoft had given 10 times returns in a single year. 

                Earlier, discussed the following stocks in the blog. Followers did their own research, some invested, the majority ignored. The majority was right πŸ˜€. These investors and I stuck in these stocks even if we want to move on. Either price was low or liquidity was low. I apologize to the investors who are stuck and need some cash. These were not completely bad investments but not proved to be good yet. BTW, hope is still alive to prove critics wrong πŸ˜€ 

Stock
Date
Discussed Price
C.P.
comments
Link
FOMENTO RESORTS
Sep-2017
129
127(delisting price 141)
Went to low of 59 , provided averaging opportunity,  avg price around 100
BLUE CHIP
July-2016
85
85
No return except for dividend
TechNVision
Oct-2015
45
225
What a great return then why it is in this list? Because it is illiquid and may not even trade at 100.

FOMENTO RESORTS :  
It provided a good opportunity to average down when good news started flowing but the price was still low.  I distinguished stocks in 3 categories.
  • Crop Type stocks
  • Tree Type Stock
  • Gajarghaas Type Stocks

Crop type of stocks I don’t do averaging up but do averaging down and Fomento was crop type of stock. But, I made an initial mistake on guessing the maturity of this crop. I mean, I though expansion will complete in 1 to 1.5 years but it took 2.5 years.
Now, Fomento has come up with delisting at the price of 141 . It is a big relief for stuck investors. Since Covid19 has badly impacted the hotel industry it is a good to deal.
However, we should also know that the story was just started unfolding, expansion was completed, and the new hotel has started operations.  Fomento Resorts & Hotels has executed a Hotel Operating Agreement (HOA) with the Indian Hotels Company (IHCL) . IHCL is carrying out the operations and marketing of the Hotels under its brands (IHCL SeleQtions like Taj) .Still, delisting is good deal for stuck investors because they had capitalized interest cost for the new hotel. The next few years might be challenging on profit front due to interest cost.

BLUE CHIP :
               Profit is 3x from Fy17 but the price is almost the same as discussed price. Valuation has shrunk. It is trading at just PE of 2.7. Not much appetite in the current market for this type of stock. Investors are stuck can’t sell at this price and liquidity is also low.

TECHNVISION VENTURES LTD

 
                This stock was continually high on hope and very low on delivery. If some other stocks delivered like this I could have said Bye … Bye. But, this is concept stock and even if I want to sell I can’t. Last year, it did the large write-off, it is part and parcel of the product company to write off. Even, every product of Google doesn’t get successful, some goes in dustbin. I thought it will start new innings but this year too posted a negative profit. I was disappointed.
               FY2020 the result is bad, initially I was disappointed because they are winning big customers but not able to convert those wins into profit. But, when I watched webinar of Solix with Microsoft and another one with HCL technology. I realized they are using pricing strategy as “Pay-as-you-Go” for SolixCloud, it means they will not get huge payments upfront but it will be recurring payments like our mobile bills .Secondly, they win these deals with some larger player. So, they get a certain percentage of revenue instead of the full amount. If they are getting recurring charges , then It means existing investors will have to show more patience for the next 1-2 years as well.
               If you track this company closely then it continuously gives high doses of hopes. Should we invest at this price, NO. Existing investors do not have any choice than holding it.


Some updates on TechNVision which again gives high hope.
  • They are working along with companies like HCL Technology and Microsoft
Joint Webinar of Solix and HCL technologies  
 
Joint Webinar of Solix and Microsoft 
https://www.youtube.com/watch?v=mNaf7QuU7e8&t=11s

  • Founder and CEO Sai Gundavelli is very confident about product and hoping to get billion dollar revenue from it .It may be total revenue instead of yearly. It was very candid interview/podcast.
 
  • HDR Inc a top 5 global design firm in the world has selected SOLIXCloud, software-as-a-service for legacy data decommissioning built on Microsoft Azure.

 
Emagia ( Another subsidiary of Technician) AI-based fintech platforms for receivables and treasury, today announced Gia Docs AI, a next-generation cognitive data capture service.
Finance staff can ask Gia in a chat or voice conversation to read and extract information from invoices, remittances, checks, bank statements, and lock-box files into neatly extracted data files in CSV formats.
“Our mission with Gia Docs AI is to take modern finance organizations to the future of zero manual data extraction in the digital age,” said Veena Gundavelli, Founder & CEO, Emagia. 

  • Large pharma company (40B). It claimed to reduce 80% costs of running and maintaining legacy systems.
     

  Legacy Application Retirement on cloud is a new area of growth. The company is a leading player in that segment.


Notable recent 25 customer acquisitions across multiple industries are :
  1. Acco Brands, American manufacturer of office products
  2. AIG (American International Group), insurance and retirement provider, serving 87% of the Fortune Global 500
  3. Alberta Health Services, Canada’s largest health authority
  4. BAE Systems, world’s third-largest defense company
  5. BC Liquor Stores, top Canadian liquor retail distributor
  6. Catalent Inc., a global provider of drug delivery technology and development solutions
  7. Citigroup, 4th largest bank in the United States
  8. Cuyahoga County government
  9. Edelweiss, leading personal wealth advisor
  10. Experian, the world’s largest credit reporting agency
  11. GE Appliances, one of the largest appliance brands in the United States
  12. Health Care Service Corporation (HCSC), not-for-profit corporation health insurance company
  13. IFFCO Tokio General Insurance Company Limited, 3rd largest private general insurance company in India
  14. Iron Mountain, leading records management and information storage company
  15. Juniper Networks, leading networking hardware and infrastructure company
  16. LinkedIn, largest business social networking service
  17. Molson Coors, the world’s seventh largest brewer by volume
  18. SABIC (Saudi Arabia Basic Industries Corporation), largest public company in Saudi Arabia
  19. Santander Bank, national bank
  20. SONIFI Solutions, interactive content and connectivity solutions provider
  21. Stryker, Fortune 500 medical technologies firm
  22. Unilever, the world’s largest consumer goods company
  23. UnitedHealth Group, a largest healthcare company in the world by revenue
  24. Xylem Inc., leading water technology provider
  25. Zurich Insurance Group, Switzerland’s largest insurer


September 8, 2019

Break Even Analysis and Contribution per unit (#Poll2Learn : 7 & 8)

I have started #Poll2Learn series where we will learn together by poll and explaining my point of view . You are welcome to correct me or provide your input .
Follow me on twitter to participate in poll.



or https://twitter.com/Value2WealthIND




The correct answer for #Poll2Learn :7 is reward the salesperson with promotion because he is not just smart salesperson but also knows finance and work betterment of his organization.
Surprised, you will surprise more for the correct answer of #Poll2Learn :8 , the correct answer is loss very much likely to decrease.
How is the Josh ???

I do not have any accounting background but I will try my level best to explain. To check if you understood the concept correctly I will ask #Poll2Learn :9 after this article.
To understand correct answers you will have to understand the following concepts, I would recommend to learn these concepts in details from other websites and Youtube videos.
  • Fixed Cost
  • Variable Cost
  • Contribution (per unit or Margin )
  • Break-Even Point



Variable costs vary based on the amount of output, while fixed costs are the same regardless of production output. Examples of variable costs include labor and the cost of raw materials, while fixed costs may include lease and rental payments, insurance, and interest payments.

Contribution is Contribution of each unit toward organization bottom line (Profit).
Contribution = Selling price per unit - Variable cost per Unit 
Break-Even Point = Total Fixed Cost / Contribution 

Now came to #Poll2Learn :7 
The following diagram shows details of 3 different companies A, B and C




All 3 companies has different contribution per unit and different break-even point to go in profit if sales at 600 even though the total fixed cost is the same.
Total cost(fixed+ variable) per unit is 500 , if all these companies start selling below the current total cost 500, assume 450 
Will they ever able to break even after selling below cost ? 
Lets check 





Surprisingly, they can still break-even even after selling below cost price. However, these time break-even quantity is increased by 50 to 100% for A , B and C.
In nutshell, the company can make profits if Contribution is positive however, they will have to play volume game.
Let's assume in our poll 50k quantity has positive Contribution of Rs 200 per unit even at the low price of 450 then our smart salesperson did the smart deal, if Contribution is negative at that price then we could have fired him.
This strategy will reduce net profit margin but can be applied in recession time or bad time for company.

Now move to #Poll2Learn : 8 
We already know that if Contribution is positive then profit increases 
What about the loss-making company?



You can see initially loss of 8 lakhs but after selling an additional 500 Units @ 440 ( below the existing cost of 500), loss of organization reduced by 95k instead of most of you expected increase in loss .



September 2, 2019

Stock Valuation :Twitter Poll 6 #Poll2Learn

I have started #Poll2Learn series where we will learn together by poll and explaining my point of view . You are welcome to correct me or provide your input .
Follow me on twitter to participate in poll.



or https://twitter.com/Value2WealthIND

#Poll2Learn : 6




Some of you might surprise to know that if we exclude dividend then high or low valuation doesn't matter if entry and exit valuation is the same. In other words, if we don't include dividend then starting (even exiting ) P/B is either 1 or 100 or 1000. Your return will be the same. But , if you include dividend then high P/B valuation stocks will give low returns.
In our case, A has P/B of 40 then starting price will be 4000 and it will give a dividend of 72 ( Dividend yield around 1.8) in the first year .
If the cost of equity capital( or expected return) is 15 then A has to give around 13.2 CAGR to meet cost or expectation of investor. A which has high ROE and the extremely good quality company, As per my calculation will give less than 10 CAGR. This time high valuation came in the picture and play its role. A has qualities almost similar to Hindustan Unilever Ltd(HUL). Maybe, you can understand why not everyone buys HUL when everyone knows it will remain quality after 10 years and will produce high ROE. 

Check CAGR of  A,B,C and D including dividend. I would like to warn these are just for illustration, no one can predict 10 years ROE. But, even if can predict in some range then half of your work is done. 





One can make good money where the scope of reinvestment with high ROE is present even though entry valuation is high and going to remain the same till exit. If entry valuation is high and it doesn't remain high then CAGR will go for a toss. No one can predict exit valuation after 10 years.

One can identify reinvestment or size of the opportunity in many ways, one of them is Bharat shah's size of opportunity framework to identify suitable companies.



September 1, 2019

Stock Valuation :Twitter Poll 5 #Poll2Learn

I have started #Poll2Learn series where we will learn together by poll and explaining my point of view . You are welcome to correct me or provide your input .
Follow me on twitter to participate in poll.



or https://twitter.com/Value2WealthIND

#Poll2Learn : 5




We will try to learn valuation in the next few polls. If we calculate valuation based on book value then option C "10 years ROE 35 and DD 30%"  is the clear winner " . But, if we include expected dividend and the market is giving the same valuation for all 4 stocks ( practically not possible) then there is a good fight between option A,B and C , if assume the simple valuation of P/B of 1 (entry and exit) for each stock. If we consider dividend re-investment then option then A will be the winner.






Everyone knows the obvious better quality stock but when we put price/valuation then it is doesn't remain that much easy . Next Poll, we will put some valuation and check which one is better when the valuation was put into the picture.



August 18, 2019

Twitter Poll #Poll2Learn : 3 (Purchasing Power Parity )

I have started #Poll2Learn series where we will learn together by poll and explaining my point of view . You are welcome to correct me or provide your input .
Follow me on twitter to participate in poll.



or https://twitter.com/Value2WealthIND


#Poll2Learn : 3



1 Euro =  1.11 USD and 1 USD = 71 INR and 1 EURO = 79 INR
Mathematically , 1 Lakh EURO  = 79 lakhs INR , will be highest .
But , wait , quiz was not to test your mathematical knowledge.
In Economics , There is term Purchasing Power Parity (PPP)
Purchasing power parity is a theoretical exchange rate that allows you to buy the same amount of goods and services in every country. World bank releases PPP rate based on basket of items in every country.
As per world bank current PPP rates are
1 USD in USA = Around 20 INR in India
1 EURO in Switzerland = Around 15 INR in India
If we convert salary based on PPP rate then “25 Lakhs INR in India” will be highest package.


Try site like http://salaryconverter.nigelb.me/ to calculate real salary based on PPP.

Topic Learnt : Purchasing Power Parity (PPP)

August 17, 2019

Twitter Poll #Poll2Learn : 2






Every option again correct, it defined your risk-taking ability attitude.
Nothing wrong in option "90% chance of 10% CAGR" which was chosen by the majority. But if I have provided another option of "98% chance of 8.5% CAGR" then the same investors might have chosen this instead of earlier one. It might be returns on EPF or PPF. All option return more or less same but Mathematically, 25% chance of 10 times returned would have more return. My motive was not to test your mathematical skill but to self asses our own risk profile.

The equity market is a game of probability and uncertainty. If you have chosen the stock market then I can't satisfied with a return equivalent to safe investment, if I have taken the risk then my reward should also be adjusted accordingly. But, my point is also not to go with "25% chance of 10 times", choose whatever your risk profile and stock market knowledge confidence indicate.
My point is the stock market is a game of probability and uncertainty. Investors should love uncertainty and that is possible only if one doesn't need invested money immediately.
Let's assume one has chosen "50% chance of 20% CAGR" then he should have hawk-eye with patience on the stock market and his stock watch list. If that person gets an opportunity where he comfortably feels it is either "80% chance of 20% CAGR" or "50% chance of 30% CAGR" then he should attack it. It is very easy to say here but really difficult unless one has required knowledge of the stock market.

Only for just illustration purpose, no recommendation, one has Tata Elxsi Ltd in the watchlist of "50% chance of 20% CAGR". If Tata Elxsi gives bad result for next 2-3 quarter and the overall market is in bear market trajectory (especially the auto industry) then the market will give a valuation of the cyclic industry to it. It may go down even below 450. You know 1/3 rd of revenue comes from the auto industry but somehow you do analysis and believe that this dependency is going to be reduced drastically then you can recalculate probability and CAGR to true intrinsic value for long term. If it offers a margin of safety also then one can attack it, but one should have confidence in his analysis.

I prefer portfolio creation with all 4 options in it . Some are risky bets and some are safe .

August 15, 2019

Twitter Poll #Poll2Learn : 1

I have started #Poll2Learn series where we will learn together by poll and explaining my point of view . You are welcome to correct me or provide your input .

Poll#1
Hindustan Unilever Ltd has ROE around 80% . Which of the following option will be certainly reduce it to around 40% in next 8-10 year? #Poll2Learn






It was a poll so every answer is the right answer. But, I will explain my view.
One word used was certainly. I will go with the change in dividend distribution policy to distribute only 20% dividend.
All other reasons may or may not drop the ROE but reducing dividend will certainly going to reduce ROE.
Formula for ROE 



OR



HUL has earned EPS of around 28 and given a dividend of 9+13 = 22 + DDT = 26.25.
So it distributes around 95% profit in a dividend.
FY19 HUL book value is 36.31 if HUL reduced dividend distribution to 20% of profit then from next year onward book value will increase by 22 , 22+ G  ..................
HUL is so big that it can not grow more than double of nominal GDP or not feasible so management distributes more than 90% profit .
If HUL decides to keep 80% profit then book value will become more than 400 in 10 years . It will be impossible for HUL to earn EPS of 320 on it to satisfy ROE of 80. Even ROE of 40 will be very much difficult.





Disclaimer

I am not an Investment advisor and do not provide this service via this Blog. The Blog is a personal diary and the stocks discussed on the blog represent my personal views and analysis. They are not recommendations to buy or sell stocks. I do not intend to recommend any stocks for financial or non-financial gains and may or may not be holding the stocks discussed on my blog.

In a nutshell - i am not responsible for the losses or gains made based on the information published on this Blog