Break ke Baad

          I have taken long break and it is exactly 11 months back I had posted my last post on this blog . I had taken break because I do not want to bombard with my value picks when market was going down every day. Of Course , Value investing is longer term process and we should buy when market is down. Secondly , I was blessed with baby boy , So I couldn’t give much time for blogging .

I had given few net-net value picks but this type of stocks are only one category of my portfolio . I have following categories in my portfolio . Percentage of each category varies time to time based on market condition , available cash and new stock picks.

A.  Expensive Quality Picks :

This category consist of quality stocks which are bit expensive than my comfort level but are expected to be remain expensive in future too. This stocks should have consistent good records from last at least 7-8 years and market regards them as high quality stocks. Initially I do not used to buy this stocks because these were expensive but over the time I have realize if they maintain high quality then there is no reason for losing that premium.  But I do not buy too much expensive quality stocks.

Examples :-

1)    HDFC bank

2)   Nestle

B.  Net-Net Value Picks (Graham Style):

This category consist of stocks which are available very cheap on net-net basis with catalyst to achieve desired high value . I have covered this type of stocks on my earlier post .

Examples :-

a.    Indsil Hydro ( expansion plans are delayed due to various regulatory reasons)

b.    Nucleus Software Exports Ltd ( Good candidate for takeover, given consolidation phase is going on in IT product companies worldwide)

C.  Growth at reasonable Price (Buffett Style):

This category consist of growth stocks which are high quality in terms ROCE , Margin , Debtor ratio and other balance sheet parameters and still available cheap.

Examples :-

1.     Vinati Organics Ltd

2.    Kaveri Seed Company Ltd

D.   Arbitrage Opportunity :

This category consist of stocks which offer opportunity of arbitrage because of some special conditional such as demerger .

Examples :-

1.     Recently I had participated in Provogue (India) Ltd demerger but I have sold all my holding before ex-date.

2.    Currently buying “Orient Paper & Industries Ltd” for Arbitrage and hoping market condition will be good whenever “Orient cement” will got listed .

E. Turnaround Story :

This category consist of stocks which are going to turnaround in near future .

1.     Balaji Telefilms Ltd :- I am quite sure about turnaround of business prospect of Balaji Telefilms Ltd . Prima facie Balaji Telefilms Ltd looks cheap given cash/investment on balance sheet  but Balaji Telefilms Ltd has contingent liabilities 322 crores which is quite big risk. Because of 322 crores contingent liabilities factor my holding is negligible in Balaji Telefilms Ltd. Most of the stock analyst are ignoring this fact while giving buy recommendation on Balaji Telefilms Ltd.

2.    Tayo Rolls Ltd :- I do not have any holding in Tayo Rolls Ltd  and yet to analyse cyclic stock Tayo Rolls Ltd  in the details but this Tata Group company is good turnaround candidate.

So far I have given value picks of net-net type but now I am planning to give some value picks which falls under category of “growth at reasonable price”. I am also going to put analysis (post mortem) of some of the stocks which I do not intend to recommend for buying.

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HAVE A NICE DAY .............. 

Value Pick 6 : Indsil Hydro Power & Manganese Ltd

My new value pick cum hidden gem is Indsil Hydro Power & Manganese Ltd  from god's own country kerala .

Click Here for latest article on Indsil Hydro.



History :
             Indsil Hydro Power & Manganese Ltd was incorporated on 31 Aug.`90, Indsil Electrosmelts (IEL) was promoted by S N Vardarajan, who has interests in two other companies -- Coimbatore Steels and Sun Metals and Alloys. World Bank through Indian Renewable Energy Development Agency Limited (IREDA) has sanctioned Rs. 3500 lakhs as term loan towards part funding of 21 MW power project at Kuthugal project.During 1998-99, the Indsil Hydro Power & Manganese Ltd was awarded "KSIDC`S AWARDS FOR EXCELLENCE-99" in recognition for its outstanding performance in terms of employment generation, good labour relations, contribution to economy and profitability. The first phase of the company`s project Hydro Electric Power Plant at Kuthungal, Kerala involving one generator having a capacity of 7 MW was commissioned in May`2000. The company had successfully commissioned the 21 MW Kuthungal Hydro Electro Power Project during the year 2000-2001 which is the largest private hydel scheme in Kerala. Main business of Indsil Hydro Power & Manganese Ltd is produce low and high carbon silico manganese. Indsil Hydro Power & Manganese Ltd had given bonus share in Oct 2010 .


How Value Buy ( CMP Rs. 41 ):

           1) Indsil Hydro Power & Manganese Ltd  has 21 MW hydel electric power plant. For setting up new Hydro Electricity project capital cost is required in the range of Rs. 6 to 7.5 crore per MW . For 21 MW it will be in the range of 126 to 157 crores and we are getting  Indsil Hydro Power & Manganese Ltd in effective market cap of only 61 crores . It requires around  2-3 year for successfully commissioned of new built project , whereas we are getting company in less than half price and which is already operational.

           2) Main business of company is produce low and high carbon silico manganese . Indsil Hydro Power & Manganese Ltd  has smelter in Kerla & Chattisgarh (to be operational by June 2011). So we are not only getting hydel electric power plant at half price but also we are getting both these smelter plant free.

           3) Indsil Hydro Power & Manganese Ltd  also has accumulated land at cost of 2.09 crores and building at 29.75 crores in last 20 years which itself can be more than market cap of Indsil Hydro Power & Manganese Ltd . Indsil Hydro Power & Manganese Ltd  has office building in West R S Puram ,Coimbatore . I don't have much idea about R S Puram property rates.

           4)  Indsil group has an equal joint venture with the Muscat Overseas Group from the Sultanate of Oman that has one of the largest chrome ore reserves in the world where Indsil Hydro Power & Manganese Ltd has 25% stake.The project would have access to 100% captive chrome which would be made available from the existing mining operations of the Muscat Overseas Group. Indsil would be providing the technology, operating and marketing expertise for the proposed smelter project.

          Indsil Hydro Power & Manganese Ltd is trading on low PE of just 4 . if Indsil Hydro Power & Manganese Ltd continue to give 15% dividend despite bonus issue then dividend yield comes to impressive 3.7 % . For me, main advantage of bonus share of  any company is increase in dividend yield , since most of good companies do not drop dividend % after bonus share. Increase in liquidity is another advantage of issuing bonus share .

Management and Corporate Governance :

                I am quite impress with balance sheet of the company. Sundry Debtors  is less than Rs 2 crores which is quite impressive.I am most impressed with how company has reduce debt on the balance sheet in last few years .

Year	Debt
2006	40.17
2007	33.27
2008	24.61
2009	7.54
2010	5.88

         
               Management has already indicated that they are targeting zero or near zero debt for year 2011.Promoter are holding around 50 % while government holding is 6.64 % which gives quite comfort . I am not sure which government is holding 6.64%, but I think it should be Kerala state government.

Last year  Indsil Hydro Power & Manganese Ltd had given bonus share which augurs well.

              As far as corporate governance is concerned I have not seen any red flag .  I have no info on recovery of 2.1 crores invested in JV with an Indonesian Manganese mining venture. Due to  low quality of Manganese from that mine Indsil Hydro Power & Manganese Ltd had called off that JV. The investment had been primarily exploratory in nature. I have not gone through all the annual reports, company might have explained somewhere about recovery of balance amount.

Why it is available so cheap :

             Performance of company is dependent on price realization of low and high carbon silico manganese  . It is commodity and it is sure to be volatile . Last 3 year high PE of Indsil Hydro Power & Manganese Ltd  was 24 while low PE was less than 1 . Indsil Hydro Power & Manganese Ltd was also corrected along with market after last year's Diwali . 

Catalyst to achieve Intrinsic value :

            1)  Indsil Hydro Power and Manganese Ltd. is expanding its facility for manufacture of Low Carbon SilicoMVA SAP smelter in the State of Chattisgarh. The smelter is expected to go operational by June 2011. Indsilde-bottle-necking operations at its existing Palakkad facilities, as a result of which the Palakkad smelter would undergo a capacity expansion of around 25%. With both the above projects in place, the Company's capacity for production of low carbon sill manganese is expected to go up from the current 14,400 tons per annum to 28,500 tons per annum.

            2)  Indsil Hydro Power and Manganese has formed an 50:50 joint venture(named Al Tamman Indsil Ferrochrome LLC )  with the Muscat Overseas Group to set up a 75,000-tonnes per annum ferro chrome smelter in Oman Indsil group is going to have 50% stake in this venture. Indsil Hydro Power is going to be having about 25%. Indsil Hydro Power and Manganese Ltd would be entitled to royalties because Indsil Hydro Power and Manganese are going to be operating and marketing. Indsil Hydro Power and Manganese are going to be giving that assistance to the JV. So Indsil Hydro Power and Manganese will be entitled to some royalties as well as of course dividends/income from investment in equity. 

How many time do we hear that Indian partner is going to provide technical assistance in JV? Most of the times Indian partner are on receiving end  in that case Indsil Hydro Power and Manganese Ltd is quite unique.

The unit being built with an investment of $30 million would become operational by April 2012. It would generate $75 million ( $18.75 million for Indsil Hydro Power and Manganese Ltd ) in revenues during the first year of operations. The firm which counts Arcelor Mittal and Posco as its customers has long-term contracts that average between six months and two years.

             Click on following link to see Vinod Narasiman's interview but do not get carried away by numbers since he is referring whole group instead of only Indsil Hydro Power and Manganese Ltd.

http://articles.timesofindia.indiatimes.com/2011-03-28/coimbatore/29353576_1_auto-parts-chattisgarh-manganese

         3) Last year hydro electric plan had generated 37.76 million unit which contributed PBDIT of 12.18 crores . This year monsoon was good so PBDIT may get increase.

Downside Risk :

          It can be quite volatile . Depends on demand of carbon silico manganese from Europe and japan which give better price realization but I am sure company is deeply undervalued at current price by seeing future potential.

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HAVE A NICE DAY .............. 

Click Here for latest article on Indsil Hydro.

Value Pick 5 : Nucleus Software Exports Ltd.

 Note : SOLD ALL Holding  Dec 2014 with avg price of 210

My new value pick is Nucleus Software Exports Ltd . This value pick is again of asset value stock type based on Graham's teaching. 

History : 

             Nucleus Software Exports Ltd (NSEL) was incorporated in Jan.'89 as Nucleus Software Exports Pvt Ltd and was subsequently converted into a Public Ltd in Oct.'94. The Company was promoted by 3 enterprising technocrats Yogesh Andlay, Vishnu R Dusad and Arun Jain with an object to deliver quality information technology solutions to the business world. Nucleus Software Exports Ltd is a global software company engaged in providing products and software solutions to the banking and financial services industry . It provides solutions for retail banking, corporate banking, cash management, Internet banking and credit cards. Its products include Finnone, Cash@will and BankOnet. Finnone provide suite for retail banking applications comprising of modules like customer acquisition system, loan management, delinquency and recovery management, deposits and finance against securities. Cash@Will and BankOnet are the offerings in the area of cash management and Internet banking respectively. The company counts ICICI bank, HDFC, SBI, Reliance, DBS, Citibank, Standard Charted, Axis Bank, Indiabulls, Religare, Mahindra Finance as its major clients in India. HDFC Bank has implemented the complete suite of FinnOne at an enterprise level and supports Retail Assets Business across it over 1400 branches spread across over 550 towns and cities across India.

How Value Buy (CMP 78):

          Current market price of Nucleus Software Exports Ltd is around Rs 78 which translate into market cap of 252 crores . You are getting Nucleus Software Exports Ltd in effective market cap of around 5 crores only . How ? Let me explain you .

            Nucleus Software Exports Ltd is zero debt company.Nucleus Software Exports Ltd has investment of 138.86 crores on consolidated balance sheet as of 31st December 2010 . Nucleus Software Exports Ltd has current asset of 160 crores (Including 56. 5 cr cash ) and has Current liabilities and provisions

of 58.8 crores . So, Net Current Assets is 101.86 crores as per consolidated balance sheet on 31st December 2010 . Click here  for more details .

         So, Nucleus Software Exports Ltd has investment plus NCA of around 240 crores ( 138.86 + 101.86 ) . So we are getting Nucleus Software Exports Ltd on effective market cap of merely 12 crores . We are also approaching towards quarter end and if we assume that Nucleus Software Exports Ltd would show PAT of 7 crores in Q4 and if that amount get added to balance sheet then we can say that we are getting Nucleus Software Exports Ltd on market cap of merely 5 crores .I have also like sundry debtor figure of Nucleus Software Exports Ltd , which is quite low and reduced from 58 crores to 38 crores as on 31st December 2010 . If overall market falls then possibly we may get Nucleus Software Exports Ltd below Rs 70 also . That will be screaming value buy. Icing on cake of consistent dividend paying record with CMP Rs 78 dividend yield comes to 3% .  

Management and Corporate Governance :

          If you compare Nucleus Software Exports Ltd with same market cap companies (around 250 cr) then I believe it is one of the best company while disclosing information. I am quite impress with detail information provided by Nucleus Software Exports Ltd that too on quarter to quarter basis . Go to http://www.nucleussoftware.com/investor.htm and you will find all the details .

         I have gone through balance sheet of Nucleus Software Exports Ltd and didn't find any red flag as such . If you find anything then please share with us.

         There are other IT companies are also available below cash value but there are either issues with corporate governance or money is lying in unknown foreign banks in tax heaven countries. e.g. Tanla Solutions Ltd (Huge corporate governance issues , high Sundry Debtors) Aftek Ltd and Hinduja Global Solutions Ltd (numbers look suspicious) This is very nicely explain by our Indian value investor guru prof. Sanjay Bakshi (http://www.sanjaybakshi.net/Sanjay_Bakshi/Articles_files/Show_me_the_money.pdf)

Nucleus Software Exports Ltd has most of cash in either Indian scheduled banks or in reputed foreign banks in overseas account. 

Why it is available so cheap :

             Most of MFs and FI chase growth and last few quarter company has reported below expectation numbers while front line IT companies are showing good numbers.
            Libya and middle east crisis affected stock price of Nucleus Software Exports Ltd since Nucleus Software Exports Ltd gets good amount of revenue from middle east region and trying to expand there.

Catalyst to achieve Intrinsic value :

              Company is doing expansion and launching new products in the market .Nucleus Software Limited has been investing substantially into next generation banking products.The Manpower numbers are at 1647 as on December 31, 2010 . Nucleus Software Limited had acquired 17.41 acres of land in the IT/ITES SEZ of Mahindra World City, Jaipur and is developing the land as a co developer with requisite Government approvals. The Jaipur campus will be fully equipped with cutting edge computing systems and software platforms, dedicated high-speed data communications network, and backup power sources to provide reliable and cost effective solutions to customers. In the first phase, the company will set up its unit on an area of 2.87 acres of land and will have a seating capacity of 250 personnel with an expected investment of Rs. 5 crores. This first unit of this campus will be operational in the first quarter of calendar year 2011.

            Nucleus Software Exports Ltd has two segments.

1. Products

2. Projects and Services

            Company is trying to give more focus on product revenue which is recurring type of revenue.

Downside Risk :

Quite Low.


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HAVE A NICE DAY ..............