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 !! :)

Ram Ratna Wires Ltd : An Attractive Stock

                            RAM RATNA WIRES LTD : An Attractive Stock

CMP : 224-228

BSE CODE :522281

Market Cap : 495 Crores

       LISTED ON : BSE

TARGET : 400

TIME-FRAME : 12 Months

History of the Company :

Ram Ratna Wires Ltd was incorporated in the year 1992 and has registered office at Mumbai, Maharashtra. It has set up manufacturing plants at Silvassa and Waghodia.

The manufacturing plants are well-equipped with modern machinery for producing quality products. All the plants are ISO 9001:2005 ,14001:2004, 18001:2007 and 50001:2011 certified. All these plants are continuously upgraded to offer quality outcome. They have an excellent safety record, making RR Kabel wires and cables toppers in their range.

Wires and cables permeate through every aspect of our modern lifestyle, which commands uninterrupted and efficient electricity supply. From planes to trains, telecommunication to entertainment , satellites to WiFi - wires are the omnipresent, unsung heroes pulsating electricity, bringing surroundings to life and bridging distances. Company's diverse product offerings are nimble and energy efficient, minimizing losses, tending security and earning user savings through every millimeter it pervades. Company has been lauded with several product and system certifications and awards that speak for quality and dependable wires, making it one of the best quality wire and cable company in India and abroad. 

Products:

• Building Wires
• Single Cores
• Control Cables
• Drag chain & Servo Cables
• Data & Communication Cables
• Appliance Wiring Material
• Instrumentation Cables
• Silicon Cables
• Auto Cables
• Fire Resistance Cables
• Power Cables
• Application Based Cables

Financials of the Company :

• Profit After Tax (PAT) for the year ended on 31st March,2017 has been reported at Rs 21.58 Crore and turnover at 801 Crore
• As per the numbers as on 31st March,2017 the company has generated Return on Equity of approx. 26% , Return on Capital Employed of 21% and Return on Assets of 17%
• Debt to Equity ratio is below 2 and is reasonable in nature
• The company is a regular dividend paying company and has paid dividend for past 10 consecutive years
• The Company has carried out a major capacity expansion in year 2016-17 and fixed asset base has increased by almost 40% during the current year. As a result,  turnover and profits are likely to increase in upcoming period.

Investment Rationale : Why to Invest in this Stock ??

• Shareholding of the promoters in the company is 73.00% as on 30th September,2017 which strongly indicates interest of promoters in growth of the company.
• The demand for cables and wires is expected to increase at a CAGR of 20% for next 5 years in India due to creation of smart cities and major expansion of cables/wires to rural areas of India. Huge market potential remains untapped for the company as majority of the sector is still unorganized. 
• Operating Cashflow positive for past 3 financial years
• Market Cap to Sales Ratio : 0.56 ( Considering March 2017 sales and current market cap) is very attractive
• At current price of 225 Rs per share and EPS of 10 Rs , the stock is presently trading at a  reasonable P/E ratio of 22.5.
• At a forward reasonable P/E of 25 and EPS of 15-20, we expect the stock price to soar higher at least to 400 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 Ram Ratna Wires 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.

Winsome Textile Industries Ltd : A Multi-Bagger Stock

WINSOME TEXTILE INDUSTRIES LTD : A Multi-Bagger Stock

CMP : 71-72

BSE CODE :514470

Market Cap : 140 Crores

       LISTED ON : BSE

TARGET : 150/180

TIME-FRAME : 12 Months

History of the Company :

Winsome Textile Industries Ltd (WTIL) established its 1st green field venture in textile in 1980 with a state-of-the-art spinning unit at Baddi, Himachal Pradesh. WTIL has grown from 16,000 spindles in the 1980s to 1,06,000 spindles ,dye house with capacity of 33 tons per day and yarn dyed knitted fabric capacity of 7 tons per day. 

In order to remain competitive and also its commitment towards environment WTIL has invested in  Hydro Power Generation. A 3.5 MW Hydro power plant at Dharamsala,Himachal pradesh has become operational since March 2017.

The Company today is lead by young and dynamic team of professionals and is a leading producer of Melange, Dyed and specialty yarns in the world. WTIL is associated with over 250 customers across 50 countries and also has 600 plus customers within India.

WTIL is ISO-14001 certified for Environment management, ISO-9001 certified for Quality Management System and ISO-18001 certified for Safety management.

Company has taken certain Green Initiatives which include : 

• Up to 30% water is recycled in the plant 
• Up to 90% recovery of steam condensation
• Up to 30% recovery of heat energy
• 33% of the required power is produced via Hydro power generation
• Company is one of the lowest consumers of water in the Dyeing industry

Major Customers/Brands associated with the Company include :

• Adidas
• Calvin Klein Jeans
• Decathlon
• GAP
• KOHL'S
• Jockey
• Nautica
• Reebok
• Matalan
• Nike
• Puma
• Tommy Hilfiger
• Tesco
• Walmart

Financials of the Company :

• Profit After Tax (PAT) for the year ended on 31st March,2017 has been reported at Rs 25.55 Crore and turnover at 708 Crore.
• As per the numbers as on 31st March,2017 the company has generated Return on Equity of approx. 15% , Return on Capital Employed of 17% and Return on Assets of 12%
• The Company has carried out a major capacity expansion in year 2013-14 due to which the turnover of the company has doubled from 350 crores in 2013 to 700+ crores in 2017.
• Debt to Equity ratio is below 2 and is reasonable in nature
• Substantial portion of debt taken for expansion has already been repaid due to healthy cash flow of the company from operations.

Investment Rationale : Why to Invest in this Stock ??

• Shareholding of the promoters in the company is 33.8% as on 30th September,2017. FPI's (Foreign Portfolio Investors) hold 27% stake and Institutions/Body corporate hold 29% stake in the Company. It indicates strong inclination of big investors which are invested in the Company.
• For year ended on 31st March 2017, the company has incurred expense of approx 76 crore for depreciation and finance cost. Going forward it is expected to go down and it will make a major contribution to PAT (Profit after Tax) enhancing the valuation of the company.
• Book value of the stock stands at 95 Rs per share. At current share price it is trading at almost 25% discount to the book value.
• Market Cap to Sales Ratio : 0.20 ( Considering March 2017 sales and current market cap) is very attractive
• At current price of 71 Rs per share and EPS of 10 Rs, the stock is presently trading at an attractive P/E ratio of 7.
• At a forward reasonable P/E of 10-12 and EPS of 15, we expect the stock price to soar higher at least to 150 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 Winsome Textile 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.

Vikas Ecotech : A Company with Huge Potential

                         

                        VIKAS ECOTECH LTD : A Company with Huge Potential

CMP : 22

BSE CODE :530961

Market Cap : 670 Crores

       LISTED ON : NSE AND BSE

TARGET : 60/80/100

TIME-FRAME : 12-16 Months

History of the Company :

Vikas Ecotech is the first and only Indian company with an integrated in-house facility to produce Organotin, which is a US FDA-approved ingredient for the PVC industry.

Vikas Ecotech is an emerging player in the global arena of the high-end specialty chemicals players.As an integrated, multi-specialty product solutions company, it produces a wide variety of superior quality, eco-friendly rubber-plastic compounds and additives. Rubber-plastic compounds and additives are process critical and value enabling ingredients used to manufacture a varied cross-section of high-performance, environment-neutral and safety-critical products.

From agriculture to automotives, cables to electricals, hygiene to healthcare, polymers to packaging, textiles to footwear, it's products serve a diverse range of global industry needs. Vikas Ecotech is a two-star rated export house exporting it's products to 20+ countries.

Products:

• Speciality Additives (Organotin Stabilizers,Dimethyl Tin Dichloride,Plasticizers, Flame Retardants,Chlorinated Polyethylene)
• Polymer Compounds (Thermoplastic Rubber (TPR) Compounds,Thermoplastic Elastomer (TPE) Compounds, Ethylene Vinyl Acetate (EVA) Compounds)
• Recycled Materials (Poly Vinyl Chloride (PVC) Compounds,Polyethylene Terephthalate (PET) Compounds)

Financials of the Company :

• Profit After Tax (PAT) for the year ended on 31st March,2017 has been reported  at Rs 23.17 Crore and turnover at 373 Crore.
• As per the numbers as on 31st March,2017 the company has generated Return on Equity of approx. 46% , Return on Capital Employed of 34% and Return on Assets of 27%
• Promoters have sensed need for additional capital to complete a major expansion and so have issued 2 crore equity shares on preferential basis @ 17 Rs per share totaling additional infusion of Rs 34 crore in the month of February 2017.
• Debt to Equity ratio is below 2 and is reasonable in nature
• The company is a regular dividend paying company and has paid dividend for past 7 consecutive years.
• Asset Turnover ratio stands at 9 times for the current year

Investment Rationale : Why to Invest in this Stock ??

• Shareholding of the promoters in the company is 39.53% as on 30th June,2017 which strongly indicates interest of promoters in growth of the company.
• Construction of two new plants is under way at Kandla and Dahej located in Gujarat. Both are likely to be operational by end of current year.
• Company is under-taking huge expansion at present and has already added 10,000 MT of annual capacity in this quarter for production of compounds.
• Ruling by National Green Tribunal dated 25th May,2017 stating directions for setting up of new standards by MOEF for use of lead in PVC would result in increased use of Organotin Stabiliser which is the strongest and eco-friendly stabiliser and would be best suited replacement for Lead based stabilier. The company feels that by this order and the subsequent banning of toxic stabiliser by the Government would open up nearly 80% of Indian PVC stabiliser market.
• Company exports to various countries of Latin America , Europe and Middle East. It has recently received a commercial order from Mexichem (Global PVC giant based out of Mexico) 
• In April 2017, Company has also received Food Grade approval for it's Tinmate (Organotin Stabilizer) from FICCI Research & Analysis Center. It could open up new avenues in food stabiliser sector in future too for the company.
• De-merger for separation of trading and manufacturing activity to maximize shareholder wealth is already under process and likely to be completed by December 2017. The promoter appears to be very genuine and are committed to creation of shareholder wealth.
• At current price of 22 Rs per share and trailing EPS of 1.30 Rs , the stock is presently trading at an attractive P/E ratio of 17.
• At a forward reasonable P/E of 30 and EPS of 2 to 4 Rs due to major expansion that will kick-off, we expect the stock price to soar higher atleast to 60 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 Vikas Ecotech Ltd  in my portfolio and hence my point of view can be biased. Readers should peform own due diligence before investing. We do not assume any responsibility or liability resulting from the use of information , judgements and opinions for Trading or Investment purposes on the Blog.

Value Investing :What it is and why you should do it ?

"Price is what you pay. Value is what you get." -  Warren Buffett

Investing is very dicey topic especially in today's world when lots of information keeps flowing around; be it online, on television , newspaper, or any other media source. Primary objective of investing is capital creation and thereby increase income generating assets. Stock market/Equities come to our mind when we think about investing in risky asset. Stock market has fascinated everyone, but not everyone has been able to make money out of it.

Two things can be done in Stock Market : Trading or Investing

Time and again it has always been proved that it is the investor who makes money and not the traders in the long-term.The logic is very simple, to be successful in trading your decisions are bound to be correct day in & day out or more frequently which is highly unlikely as the market is not structured in such a manner. The odds are stacked in the favour of market and not in favour of trader. Investing on other hand has a greater probability of yielding success as the number of decisions to be taken are less frequent in nature.

What is VALUE INVESTING ?

"Value Investing is the strategy of selecting stocks that trade for less than their intrinsic values" as defined by Investopedia. 

In simple terms if we understand value investing, it is paying less than fair value for a stock. The concept was introduced by Benjamin Graham, also known as the father of value investing. It involves actively searching stocks of companies that are believed to be undervalued or available at discounted rate on the basis of various simple parameters like Book value (Net worth) , P/E Ratio , discounting of future expected cash flow,  market cap to sales , cash by market cap etc.

The difference between discounted value and fair value can be called "Margin of Safety". It protects investor from errors involved in judgment of fair value, provides high-return opportunities and minimizes the downside risk of an investment. Value investing can provide good profits once the market inevitably re-evaluates the stock and raises its price to fair value over a period of time.

Determination of VALUE is an important aspect of stock selection.Financial parameters like return on equity, return on assets , operating profit margin , debt to equity ratio , promoters holding etc help in determining whether underlying stock has some value or not. Qualitative characteristics like  Business model, history of promoters, sector performance etc also help in determining whether there is value in the stock of the company.

Why you should do it ?

Value investing is a timeless principle and has proven to be very successful over a period of last 8-9 decades. Warren Buffett, World's No 1 successful equity investor firmly follows the principle and owes his wealth to the same. The benefits definitely out weigh the negatives of the strategy as the nature of strategy is "Defensive". It's better to take a calculated risk with value investing rather than blind risk while investing in capital markets.

Good Day !! :)