Expansion of Business Activity and Impact on Share price

Expansion of Business Activity and Impact on Share price

• Sales and profit are the main drivers of Shareholders wealth creation in the long-run. Expansion of business activity is very essential for survival and growth of business as well as shareholders wealth

• Expansion of business may be undertaken either by mode of merger/acquisition with another corporate entity or by making an addition to existing fixed assets of the company

• Expansion of business activity normally results in increased share prices due to higher sales and higher profits. Companies can carry out expansion either by : 

1. Internal accruals of existing business
2. Borrowed fund
3. Equity dilution
4. A mix of all these options

• Companies which carry out expansion from internal accruals of existing business are the best ones to invest in. Expansion carried out solely by equity dilution results in lower per-share profit to existing shareholders. Expansion carried out solely by borrowed fund might result in lower profits due to interest expense and cash flow is also impacted due to repayment of borrowed fund via periodical installments. Mix of all these options might be suitable considering capital structure and other factors specific to the company

• Companies which are functioning at maximum capacity utilization and do not carry out expansion have less scope of superior shareholder wealth creation

• Gestation period is the time taken for fixed asset to be put to use in case of expansion. In certain industries which are complex by nature the actual time taken for completion of expansion activity from it's inception is substantial and can be anywhere from 2 to 5 years. In such cases the impact of expansion on sales and profits can take time to appear on financial statements and share price might not provide sufficient appreciation during gestation period

• It is normally advisable to invest in a company 6-12 months period prior to expected completion of expansion. So that investor is able to enjoy the benefit of share price appreciation in just the time when it is about to happen rather than waiting for long years.

• Sometimes expansion fails and there is decline in share price. Historically it is visible that expansion carried out by a large proportion of borrowed funds in regulated sector like Infrastructure have failed. Also expansion carried out in sectors where major technological disruptions are visible in near future have high failure rate. Sectors which are nearing end of life cycle and are slowing down also can have high failure. These type of sectors and companies should be avoided by investors at all cost.

• Factors like tax considerations, market size, consumer demand, government policies for the sector, market sentiment, technicals on chart of stock etc. shall be given due consideration before arriving at decision of investment in the stock

Price Earnings Ratio (P/E Ratio) : What is it and how to use it ?

Price Earnings Ratio (P/E Ratio) : What is it and how to use it?


Introduction 

Price Earnings Ratio is a relative measure used to value a stock. Relative measure makes it comparable to stocks of other companies. Out of many modes of valuation, it is one of the ways for assessing investment viability in stocks. Price Earnings Ratio is relationship between a company's stock price and earnings per share (EPS). Lower the P/E ratio the better deal normally for an investor.

P/E Ratio can be calculated using any of below-stated formulas : 

P/E Ratio = Stock price per share/ Earnings per share

                                    

                                     OR

P/E Ratio = Market Capitalisation/ Total Earnings

Basically, there are two types of P/E Ratio. Trailing and Forward. Trailing is based on previous periods earnings whereas Forward is based on future earnings estimate.

Use of P/E Ratio : 

Looking at the P/E ratio of stock tells you very little about it, if it’s not compared to the company’s historical P/E or the competitor’s P/E from the same industry. It’s not easy to conclude whether a stock with a P/E of 10 times is a bargain, or a P/E of 50 times is expensive without performing any comparisons.The beauty of the P/E ratio is that it standardizes stocks of different prices and earnings levels. In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. 

Companies with a high P/E Ratio are often considered to be growth stocks. Investors have higher expectations for future earnings growth and are willing to pay more for growth stocks. The downside to this is that if the stock is not able to deliver higher growth in future then decline in share price is substantial. For this reason, investing in growth stocks is more likely to be seen as risky investment. Stocks with high P/E ratios are also considered overvalued normally.

Companies with a low P/E Ratio are often considered to be value stocks. It means they are undervalued because their stock price trade lower relative to its fundamentals. This mispricing will be a great bargain and will prompt investors to buy the stock before the market corrects it. Examples of low P/E stocks can normally be found in mature industries. A low P/E can indicate either that a company may currently be undervalued or that the company is doing exceptionally well relative to its past trends or future expected rate of growth is low.

Normally it is advisable to invest in stocks which have P/E ratio below 20.

P/E ratio can be considered as an important parameter and starting point in stock selection process. However, P/E ratio is not the sole factor to be considered for identifying stock for investment. An investor must dig deeper in the company’s financials and use other valuation and financial analysis methods to get a better picture. 

One can filter for stocks with less than or more than a certain P/E ratio on www.screener.in (The website is free and useful resource for investors.)

Associated Alcohol & Breweries Ltd : A stock with Huge Potential

                    Associated Alcohol & Breweries Ltd : A stock with Huge Potential

CMP : 265-270

BSE CODE : 507526

Market Cap : 485 Crore

LISTED ON : BSE

TARGET : 600/800 

TIME-FRAME : 12-18 Months

History of the Company :

Associated Alcohol and Breweries Ltd was incorporated in the year 1989 and have been leading supplier of IMIL to Government of Madhya Pradesh. In 2017-18 company was present in Delhi and Madhya Pradesh. In 2018-19 company plans to enter 5 more states namely Kerala, Maharashtra, Goa , Pondicherry and Chhattisgarh.

As a leading player in alcohol industry in India, company has presence in every aspect of value chain. Company holds portfolio for manufacturing international brands like Bagpiper Whisky, MC Dowell No.1 Celebration Rum, White Mischief Vodka,Blue Riband Gin, Director Special Black.

Extra Neutral Alcohol (ENA) is a vital ingredient in the making of an alcoholic beverage. Associated alcohol and Breweries Ltd supplies this vital ingredient to many leading manufacturers under a special agreement. In the IMFL segment, the company has an understanding with reputed companies like Diageo (owner of brands like Smirnoff vodka and johnnie Walker Scotch Whisky), Mason & Summers and Diageo-Radico. These companies buy a total 50-50% of the total IMFL produced by company. The balance production is used for direct supplies to the branded suppliers across the country, apart from manufacturing it has it's own branded products.

In-house brand names of the company include jamaican magic rum, titanium tripple distilled vodka, central province whiskey etc. Franchise brand include black dog, smirnoff, captain morgan etc.

In 2016-17, 20% of revenues came from IMFL and 3% of it was from premium offerings. Moving forward, by 2020, company expects to increase the IMFL revenues to 50%, and 50% of IMFL revenues will be from premium varities.

In the beginning, 100% of power was sourced from the grid. In 2016-17 Company derived 60% of electricity needs through a high-pressure turbine. The rest was acquired from solar energy and the grid. Company intends to be more than self-sufficient for it's electricity needs.

Main Business Activities : 

• Potable Alcohol

Financials of the Company : 

• Profit After Tax (PAT) for the year ended on 31st March,2018 has been reported  at Rs 25 Crore and turnover at Rs 324 Crore.
• As per the numbers as on 31st March,2018 the company has generated Return on Equity of approx. 24% , Return on Capital Employed of 32% and Return on Assets of 19%
• The company is a regular dividend paying company and has paid dividend for past 5 consecutive years.
• Debt to Equity ratio is below 1 and is reasonable in nature
• The company has carried out and completed a major expansion in 2018 which has resulted in 50% capacity expansion. It has gone live from August 2018 and it will yield in higher top and bottom line from Q3. Entire Capex was self-funded.
• Company plans to further carry out another 100% capacity expansion from current levels to be completed by 2021

Investment Rationale : Why to Invest in this Stock ??

• Shareholding of the promoters in the company is 59% as on 30th September,2018 which strongly indicates interest of promoters in growth of the company.
• Market Cap to Sales Ratio : 1.38  is attractive for an Alcohol/brewery company
• Technically on chart the stock appears to have completed bottom formation which was going on since past 2-3 months and is ready for surge soon.
• At current price of 265 Rs per share and EPS of 17 Rs on trailing basis , the stock is presently trading at an attractive P/E ratio of 15
• At a forward reasonable P/E of 25 and EPS of 25.00, we expect the stock price to soar higher atleast to 625 and higher levels in coming time.

Disclaimer Note: The above is not a research report but information as available on public domain and it should not be treated as a research report. Registration status with SEBI: I am not registered with SEBI under the (Research Analyst) regulations 2014 and as per clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations.

Disclosure: It is safe to assume that I might have Associated Alcohol and Breweries Ltd  in my portfolio and hence my point of view can be biased. Readers should perform own due diligence before investing. We do not assume any responsibility or liability resulting from the use of information , judgments and opinions for Trading or Investment purposes on the Blog.

Important Parameters for Stock Selection in Investing

Important Parameters for Stock Selection in Investing :

1. Sector/Business : Businesses which have natural demand, monopoly or some form of competitive advantage normally provide superior returns to shareholders in the longer run. Businesses like food products, alcohol, condoms, paint, pharma etc. fall in the above categories. Capital intensive businesses like energy, telecom, defense, steel, mining etc. generate relatively lower returns in their business and so shareholders value increases at a slower rate in such business.

2. Promoters: Shareholding of promoter greater than 51% in the business shows the interest of promoter as well as it helps in proper implementation of business decisions due to majority ownership. Avoid companies where promoters have pledged substantial part of their stake to raise funds. Integrity on the part of promoters is very important and any corporate governance-related issues shall be a red flag.

3. Returns : Average nominal GDP growth rate of India was around 12% for the past 5 years. A return on capital in excess of that can be considered as a good return. Return on Capital Employed (ROCE) helps an investor understand what is the level of profitability with respect to total capital employed in the business. Return on equity and return on assets are also important ratios to asses the efficiency of the business with respect to owners fund and assets deployed respectively. The higher these ratios the better.

4. Valuation : Price-earnings ratio (P/E) and price to sales (P/S) ratio are important ratios to assess valuation that is being paid to purchase the business. There is no hard and fast rule for P/E ratio as well as P/S ratio but lower the better. Normally it is advisable to invest in companies with P/E ratio lower than 20 and Price to Sales less than 1.50. Some companies may have high P/E ratio and/or high P/S ratio which indicates that market is commanding higher pricing due to actual high growth rate or expected high growth rate of the business. If the company fails to deliver high rate of growth as anticipated then investor might have a very low return or negative returns too on the investment.

5. Expansion of Activity : Sales and profit are main drivers of shareholders wealth creation. Expansion/addition to fixed assets normally results in increased sales and profits thereby leading to higher share prices. Companies which carry out expansion from internal accrual of existing business instead of using debt or equity dilution are better. If majority of expansion is funded by debt then interest expense reduces the profit as well as cashflow is impacted due to repayment of borrowed fund via periodical installments. Companies which are functioning at maximum capacity utilization and do not carry out expansion have less scope of superior shareholder wealth creation.

6. Operating Profit Margins : OPM is derived when direct expenses are reduced from total sales. OPM in excess of 10-12% is considered to be good. Higher the OPM the better. In business environment lot of factors keep on changing in real-time which affects the margin of the business. If a company has higher OPM it will be able to withstand and sustain adversity due to change in business environment. Regulatory changes, demand-supply changes , currency fluctuations, commodity cycles, change in rate of interest etc. are some of the changes that can affect a business.

7. Debt/Borrowing : Debt is normally procurred when business is expecting that it will be able to generate return in excess of cost of debt. Debt is procurred either to obtain fixed assets or to meet working capital needs.From an Investors perspective, Debt to equity ratio upto 2 is considered to be safe. If a company has excess debt then it can affect the cash flow as well as the profitability of the company. Many instances have been observed where companies have gone into liquidation/insolvency due to excessive debt.

Best Books to read for Investors and Traders dealing in Stock Market

List of Best Books for Investors and Traders dealing in Stock Market :

1. Super Stocks by Kenneth Fisher

2. 14-Wealth Building Secrets of Value Investing by Ashu Dutt

3. The Dhandho Investor by Mohnish Pabrai

4. You can be a Stock Market Genius by Joel Greenblatt

5. Common Stocks and Uncommon Profits by Philip Fisher

6. Multi Bagger : How to Profit from Mega Return Stocks by Tejaswy Nandury

7. The Undeclared secrets that drive stock market by Tom Williams

8. One up on Wall Street by Peter Lynch

9. Rich Dad, Poor Dad by Robert Kiyosaki

10. The Intelligent Investor by Benjamin Graham

Sharda CropChem Ltd : A stock with Huge Potential

                            Sharda Cropchem Ltd : A stock with Huge Potential

CMP : 365-370

BSE CODE :538666

Market Cap : 3290 Crores

       LISTED ON : NSE AND BSE

TARGET : 550/600

TIME-FRAME : 12 Months

History of the Company :

Sharda Cropchem ltd was incorporated in 1987 by Mr. R V Bubna , Chemical Engineer from IIT and Mrs. Sharda R Bubna.

Today, the Company is a fast growing global agrochemicals company with leadership position in the generic crop protection chemicals industry. It has made deep inroads in the highly developed European and US markets which are characterized as high entry barrier markets. It also has a significant presence in other regulated markets such as Latin America and Rest of the World.

The Company has an asset-light business model whereby it focuses on identifying generic molecules, preparing dossiers, seeking registrations, marketing and distributing formulations through third party distributors or it's own sales force. The Company's core competence lies in developing product Dossiers and seeking product registrations in different countries. The Company not only has an extensive distribution network of third party distributors but has also setup its own sales force in various countries in Europe and in Mexico, Colombia, South Afirca and India. The Company's strategy of sourcing through a global network of suppliers provides it with flexibility and nimbleness.

The company is capable of providing a wide bouquet of products to its customers. Its product portfolio in agrochemical business comprises of formulations and generic active ingredients in fungicide, herbicide and insecticide segments for protecting different kind of crops as well as serves turf and specialty markets and in biocide segment as disinfectants thereby allowing us to offer varied range of formulations and generic active ingredients.

The product portfolio in non-agrochemical business comprises of Belts, general chemicals, dyes and dye intermediates which enables the Company to cater to varied demands. 

Main Business Activities : 

• Agro Chemicals
• Conveyor Belts
• Industrial Chemicals

Financials of the Company : 

• Profit After Tax (PAT) for the year ended on 31st March,2018 has been reported  at Rs 193 Crore and turnover at Rs 1713.34 Crore.
• As per the numbers as on 31st March,2018 the company has generated Return on Equity of approx. 22% , Return on Capital Employed of 49% and Return on Assets of 22%
• The company is a regular dividend paying company and has paid dividend for past 5 consecutive years.
• Debt to Equity ratio is below 1 and is reasonable in nature
• The company has carried out a major expansion in 2017 and still a part of expansion is pending as capital work in progress.

Investment Rationale : Why to Invest in this Stock ??

• Shareholding of the promoters in the company is 74.78% as on 30th June,2018 which strongly indicates interest of promoters in growth of the company. Mutual funds and FPIs holding remaining 21% shares. Thus, approx 4% shareholding is only available with general public.
• Market Cap to Sales Ratio : 1.80  is attractive for an Agro-chemical Company
• At current price of 365 Rs per share and EPS of 21 Rs on trailing basis , the stock is presently trading at an attractive P/E ratio of 18.
• At a forward reasonable P/E of 25 and EPS of 25.00, we expect the stock price to soar higher atleast to 600 and higher levels in coming time.

Disclaimer Note: The above is not a research report but information as available on public domain and it should not be treated as a research report. Registration status with SEBI: I am not registered with SEBI under the (Research Analyst) regulations 2014 and as per clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations.

Disclosure: It is safe to assume that I might have Sharda Crop chem Ltd  in my portfolio and hence my point of view can be biased. Readers should perform own due diligence before investing. We do not assume any responsibility or liability resulting from the use of information , judgments and opinions for Trading or Investment purposes on the Blog.

Bhageria Industries : A Multi-Bagger Stock

                                 BHAGERIA INDUSTRIES : A Multi-Bagger Stock

CMP : 348-355

BSE CODE :530803

Market Cap : 553 Crores

       LISTED ON : NSE AND BSE

TARGET : 750/850

TIME-FRAME : 12 Months

History of the Company :

Bhageria Industries Ltd was established in the year 1989 with an objective to serve dyes & intermediates industry all over the globe. Company commenced its operations by setting up a Vinyl Sulphone Plant at Vapi (Gujarat) with capacity of 540 T.P.A which has now expanded to 3600 T.P.A 

Nearly 70% of its production is being exported to countries like Korea, Japan, Taiwan, China, Germany, USA and other European and African Countries.

Main Business Activities : 

• Manufacturing of Dyes and Intermediates
• Sourcing and Exporting various Pharmaceutical products (APIs & FFs)
• Sourcing of various Bulk Chemicals 

Financials of the Company : 

• Profit After Tax (PAT) for the year ended on 31st March,2017 has been reported  at Rs 43.53 Crore and turnover at Rs 344 Crore.
• As per the numbers as on 31st March,2017 the company has generated Return on Equity of approx. 43% , Return on Capital Employed of 43% and Return on Assets of 26%
• The company is a regular dividend paying company and has paid dividend for past 5 consecutive years.
• Debt to Equity ratio is below 2 and is reasonable in nature
• The company has carried out a major expansion in 2017 and fixed asset base has increased from 23 crores to 144 crores which is almost 600% surge. Operating margins have improved in last 2 quarters and turnover is also likely to improve.

Investment Rationale : Why to Invest in this Stock ??

• Shareholding of the promoters in the company is 53.92% as on 31st March,2018 which strongly indicates interest of promoters in growth of the company. Promoter shareholding has been consistently increasing since past 4 quarters.
• Market Cap to Sales Ratio : 1.59  is attractive for a chemical company
• After completion of expansion the Operating margin of the company has increased by almost 10% in last 2 quarters
• At current price of 350 Rs per share and EPS of 25 Rs on trailing basis , the stock is presently trading at an attractive P/E ratio of 14.
• At a forward reasonable P/E of 25 and EPS of 30.00, we expect the stock price to soar higher atleast to 750 and higher levels in coming time.

Disclaimer Note: The above is not a research report but information as available on public domain and it should not be treated as a research report. Registration status with SEBI: I am not registered with SEBI under the (Research Analyst) regulations 2014 and as per clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations.

Disclosure: It is safe to assume that I might have Bhageria Industries Ltd  in my portfolio and hence my point of view can be biased. Readers should perform own due diligence before investing. We do not assume any responsibility or liability resulting from the use of information , judgments and opinions for Trading or Investment purposes on the Blog.

Buy-Back of Shares : An Opportunity

Buy-Back of Shares :  An Opportunity

History :

Buy-Back occurs when a company pays shareholder a value per-share and re-absorbs that portion of ownership that was previously distributed among various investors.Buy-back of shares was introduced in India on recommendation of Justice Dhanuka Committee in 1998.  It is normally used for shareholder wealth maximization.

Buy-back Routes : 

Company conducts buy-back of its shares from existing shareholders, usually at a premium to the market price. Buy-Back is Conducted in India via 2 main routes namely Tender Route and Open Market Route

• Tender Route : Both promoters and public shareholders can offer their shares in a tender buyback. Number of shares and Price of Buy-Back are both fixed.

• Open-Market Route : Only public shareholders can take part under open-market route. Number of shares and Maximum ceiling price are prescribed. But company is allowed to buy lower number of shares and also at a lower rate.

Pro's and Con's of Buy-Back : 

PRO's : Utilization of Excess Cash

            Reduction of total share capital resulting in better EPS

            Positive Psychology

CON's : Opportunity cost of fund used as Buy-Back

Opportunity for an Investor from Buy-Back Event :

• An investor intending to benefit from a Buy-back event has to purchase shares prior to record date as declared by the company
• Investor has to submit/tender shares during a 2-week window as declared by company in letter of offer
• Acceptance of shares in buy-back depend upon various factors like participation of various shareholders, price , valuation , size of issue etc.
• In the interest of small shareholders, SEBI has introduced a provision in 2012 that 15% of total buy-back issue shall be reserved for small-shareholders only.
• A small shareholder has been defined as a shareholder whose value of shares in the share under the buy-back is less than 2 Lakh Rs as on record date
• Considering the above provisions it is possible for small shareholders to make a considerable return investing in buy back opportunities across the year
• Level of risk is reduced substantially in Buy-back investing as factor of uncertainty is greatly eliminated

Thank you !! :)

DHFL : Multi Bagger in the Housing Boom !

                                  DHFL : Multi Bagger in the Housing Boom

CMP : 575-585

BSE CODE :511072

Market Cap : 18,075 Crores

       LISTED ON : NSE AND BSE

TARGET : 1200

TIME-FRAME : 12-16 Months

History of the Company :

DHFL Ltd (Dewan Housing Finance Ltd) was established by Late Shri Rajesh Kumar Wadhawan in the year 1984. He wanted every Indian to own a home and this vision of his laid to incorporation of DHFL Ltd. Over 33 years have passed since the company's inception and today DHFL stands strong as one of India's leading housing finance companies. DHFL reaches the vast-customer base through network of 348 offices spread across the country. 

As a group, product offerings also include insurance, mutual funds, education loans etc. by way of various associate and subsidiary companies.

Strong Management team has played a major role in success of the company. It is expected to strengthen in future.

Products:

• Home Loans
• SME Loans
• Mortgage Loans

Financials of the Company : 

• Profit After Tax (PAT) for the year ended on 31st March,2017 has been reported  at Rs 2896 Crore and turnover at Rs 10,821 Crore.
• As per the numbers as on 31st March,2017 the company has generated Return on Equity of approx. 23% , Return on Capital Employed of 151% and Return on Assets of 13%
• The company is a regular dividend paying company and has paid dividend for past 10 consecutive years.

Investment Rationale : Why to Invest in this Stock ??

• Shareholding of the promoters in the company is 39.23% as on 30th December,2017 which strongly indicates interest of promoters in growth of the company.
• Indian real estate industry is expected to reach 180 Billion USD by 2020. Housing segment is likely to grow at a double digit CAGR for coming decade. Affordable housing space is looking like a multi-year growth opportunity considering vast population base of 1.30 Billion and vision of present leadership which aims to provide housing for all by year 2022.
• Housing finance is asset backed lending which ensures realization in case of default by borrower and normally the default rate is lower compared to business loans
• Market Cap to Sales Ratio : 1.80 (Considering March 2017 Sales and current market cap) is very reasonable
• At current price of 580 Rs per share and EPS of 40 Rs, the stock is presently trading at a  reasonable P/E ratio of 15.
• At a forward reasonable P/E of 25 and EPS of 50, we expect the stock price to soar higher at least to 1200 and higher levels in coming time.

Disclaimer Note: The above is not a research report but information as available on public domain and it should not be treated as a research report. Registration status with SEBI: I am not registered with SEBI under the (Research Analyst) regulations 2014 and as per clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations.

Disclosure: It is safe to assume that I might have DHFL Ltd  in my portfolio and hence my point of view can be biased. Readers should perform own due diligence before investing. We do not assume any responsibility or liability resulting from the use of information , judgments and opinions for Trading or Investment purposes on the Blog.

Cupid Ltd : A Multi-Bagger Stock

                                        CUPID LTD : A Multi-Bagger Stock

CMP : 330-335

BSE CODE :530843

Market Cap : 360 Crores

       LISTED ON : NSE AND BSE

TARGET : 650/700

TIME-FRAME : 12-16 Months

History of the Company :

Cupid Ltd is head quartered in Nashik and was incorporated in 1993. The company is leading manufacturer of quality male, female condoms and Lubricants. The company has one of the largest manufacturing facilities  with in-house Research and Development Centre. The company is India's first to have been pre-qualified by WHO/UNFPA for worldwide public distribution of female condoms.  The company has capacity to produce up to 325 million pieces of male condoms, up to 20 million pieces of female condoms and 210 million sachets of Lubricant jelly annually. The company exports to over 40 countries and derives around 75% of its revenues through exports.   

Major clients of Cupid ltd include Government of India, UN , USFPA , WHO etc.

Products:

• Male Condoms
• Female Condoms
• Lubricants

Financials of the Company : 

• Profit After Tax (PAT) for the year ended on 31st March,2017 has been reported  at Rs 20.54 Crore and turnover at 83 Crore.
• As per the numbers as on 31st March,2017 the company has generated Return on Equity of approx. 47% , Return on Capital Employed of 70% and Return on Assets of 53%
• The company is a regular dividend paying company and has paid dividend for past 3 consecutive years.
• Company is debt-free

Investment Rationale : Why to Invest in this Stock ??

• Shareholding of the promoters in the company is 44.87% as on 30th December,2017 which strongly indicates interest of promoters in growth of the company.
• Operating Cashflow positive for past 3 financial years
• Company is planning 20% capacity expansion during the current year
• Female condoms which is the unique selling point of the company has very high potential for growth in India because of large population base
• Company has state of art plant located at Nashik which has the capability to shift production from male condom to female condom or vice-versa as per the demand
• Company has strong operating margins pegged at 35-40%
• Company is tapping into a growing market in Africa where there is shortage of 450 million condoms a year. Company is setting up a new manufacturing plant as a JV in south africa to capture more market share.
• At current price of 330 Rs per share and EPS of 20 Rs , the stock is presently trading at a  reasonable P/E ratio of 16.
• At a forward reasonable P/E of 25 and EPS of 25, we expect the stock price to soar higher at least to 625 and higher levels in coming time.

Disclaimer Note: The above is not a research report but information as available on public domain and it should not be treated as a research report. Registration status with SEBI: I am not registered with SEBI under the (Research Analyst) regulations 2014 and as per clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations.

Disclosure: It is safe to assume that I might have Cupid Ltd  in my portfolio and hence my point of view can be biased. Readers should perform own due diligence before investing. We do not assume any responsibility or liability resulting from the use of information , judgments and opinions for Trading or Investment purposes on the Blog.

Compounding : 8th wonder of the world !!!

"Compounding is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it." - Albert Einstein 

Compounding appears like magic but a little more awareness can help you get to the root of it. Compounding works like a snow ball falling down the hill. Initially amount of force and energy to create a snowball must be very high. However, as it rolls down the hill, snow ball will pick up more snow, gaining more mass and surface area and become very big snow ball till the time it reaches end of the hill.

Ask Warren Buffett for the single most powerful factor behind his investing success, and he’d respond “compound interest” — without skipping a beat. Compounding plays a major role for wealth creation in long run. The work you need to do in the beginning is often more. But once your wealth snowball is built, then your wealth naturally attracts more wealth. Compounding can create millionaires from average people. For using compounding as a tool, one does not require one to be a financial expert, but has to only ensure that funds are invested in asset which is growing steady in long-run.

Compounding is very powerful owing to the fact that return earned is converted to capital and again invested so total capital invested keeps increasing. As the total capital invested increases, so does the return for future periods. Equity as an asset class has provided the greatest return when calculated in terms of CAGR (Compound Annual Growth Rates) for longer periods of investment horizon. Equity may tend to be volatile and irregular in shorter horizon but in longer duration it is the best return generator for investors. No other asset class like real estate,fixed income instruments,commodities etc. have been able to meet returns generated by Equity. 

A Small Story on power of Compounding : 

There's a famous legend about the origin of chess that goes like this. 

When the inventor of the game showed it to the emperor of India, the emperor was so impressed by the new game, that he said to the man

"Name your reward!"

The man responded,

"Oh emperor, my wishes are simple. I only wish for this.
Give me one grain of rice for the first square of the chessboard, two grains for the next square, four for the next, eight for the next and so on for all 64 squares, with each square having double the number of grains as the square before."

The emperor agreed, amazed that the man had asked for such a small reward - or so he thought. After a week, his treasurer came back and informed him that the reward would add up to an astronomical sum, far greater than all the rice that could conceivably be produced in many many centuries !!!

Acting rationally, consistently, while harnessing the power of compound interest over a very long period of time is what has made Warren Buffett perhaps the most successful investor of all time. Why not harness it for yourself? Start early and think long term.

Thank you !! :)