Views on Life & on Equity Investing

Wonder, Wealth & Abundance

Update on positions & why such a ridiculous poultry stock ?

with 9 comments

Hi All,

I wanted to update on the previous positions.

At this point I am bullish only on Relaxo and Simran Farms for long positions in terms of stocks listed on this blog. If you are willing to holding 5+ years you can buy TTK Prestige and Page Industries (owner of Jockey brand for South Asia) although they are wee bit expensive but they are almost certain to return 5 bags in 5 years.

There were many other stocks that I bought and sold and still like somewhat that have not been mentioned on this blog:

– Cera Sanitaryware
– Mayur Uniquoters
– Patels Airtemp
– Dhanuka Agritech
– Wimplast
– Vinati Organics
– TIL
– VST Tillers

At the moment I own none of above but I had them last year and if current stocks turn expensive I will look for them again.

My inclination is now for ultra micro cap stocks, between 5-25 crore. There are other stocks that I do not mention because they are high risk kind and I do not want others to suffer losses.

Public sector banks hold immense value, though many have doubled in price but not intrinsic value, in past 3 months. Over next 10 years PSU Banks will outperform 95%+ of all listed stocks on BSE (approx 6000). Their collective return would be north of 20-25% per annum. Inspite of knowing all that, I am not betting on them just yet. Because heart yearns for that little extra return.

Why Simran Farms ?

This seems like a junk stock. Not far back it was a penny stock too !

Mind you Symphony too was penny stock (2Rs) couple years back and in 2009 it was for 20 Rs.

Simran Farms is so lousy (in perception not reality) that you have to read it to believe it !
http://www.theequitydesk.com/forum/forum_posts.asp?TID=2821

Admin of the forum has criticized it and also closed the topic on Simran Farms🙂

That is when you know there is absolute disbelief.

If you read Peter Lynch’s One up on Wall St or Beating the Street, he empirically proves through a long historic timeline and examples, as why to choose low tech over high tech.

– No MBA, Engineer, CA worth his salt is willing to enter poultry industry and work with hen excreta for sure. What does it mean ? It means figure amongst ciphers. Or an equivalent proverb in hindi “aandhon mein kaana raja
– Compare that with other high tech industries, where one cannot predict future of small cap players
– Poultry industry has huge potential
– Size of opportunity is gi – normous 50,000 crores INR+
– Small unorganised players are being wiped out by bigger players as it is no longer economically feasible to run a standalone poultry farm, integration is as necessity for survival. Thus, even if market size were stagnant top five players will thrive ! That phenomenon happened in US carpet industry in 1980s. It is also happening in other industries like jewellery, where market size is not increasing but smarter players are growing rapidly – shift from unorganised to organised.
– Poultry industry has all the goodness charm of loatheful industries which keeps MIT engineers and innovation in Taiwan at bay but its size is increasing by 10-15% per annum !
– A dumb industry does not attract new players, look at number of new players in mobile handsets !
– Scalability is not an issue, it can be implemented swiftly without Capex. Poultry integrators expand by contracting farmers with spare land and labour, this is nothing different from McDonalds franchise but without brand
– Simran Farms’ young guns, new blood with fire in belly, who joined since 2005 have proved to some extent and will continue to transform company
– Simfa Labs (Vetline), a division of Simran Farms commands good brand recall and is represented in industry forums

As RJ emphatically drives through, when outperformance happens, it is viewed with doubt and disbelief. Only when Simran Farms will earn 30-40 Rs EPS and stock will cross 200 mark next year will the institutions wake up to its potential.

I very much prefer potato chips to computer chips as an investor if not as a citizen in society.

True, bird flu can strike which can result in stock price reduced to half but hey, even Berkshire Hathaways’ stock price halved too couple of times. An overwhelming majority of stocks price halve in correction. In last century Dow Jonex index has corrected 13 times by more than 30% and 39 times more than 10%. As Buffett says, “If you don’t have the stomach to see value of your holdings in half, stocks are not right asset class for you”.

PS: Its my opinion, which may or may not work. Only time will tell who is on the right side. If Simran Farms does turn out to be multibagger as I believe, all credit goes to Peter Lynch.

Written by amitdipsite

August 24, 2010 at 9:25 pm

Posted in Uncategorized

9 Responses

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  1. please comment on pochiraju,vimal oil.vimal oil available at less mcap than its one year ebidta.i have joined new on ur blog.looking for a good mutual benefit

    amit

    August 25, 2010 at 9:05 am

  2. Hi amit,

    Vimal Oil. Awesome value for money but two concerns.

    1. If you want to become owner of a company you have to pay back loans, so if you want to become owner of company you have to pay 29 crores (market cap) + bank loans to say you own the company completely. By looks bank loans are around 160 crore, althouth I dont have latest balance sheet, do you have it ? please share.

    2. Owner holding has fallen from 30% to 19% in past 6 months. This shakes confidence.

    Regards

    Amit

    Multibagger

    August 25, 2010 at 10:04 pm

  3. Hi,

    On Pochiraju, I had a brief look.

    One would need to look at their upcoming biotech facility by sending some person in S.P.Biotechnology Park situated at Turkapally, Shameerpet, Hyderabad. Can you send someone there ? By actually looking at machinery that may have arrived only can one make a certain call.

    Otherwise by looking on computer screen and statements we will have to wait for their production to start and miss initial rally.

    Regards

    Amit

    Multibagger

    August 26, 2010 at 12:57 am

  4. in vimal oil actual promoter holding is 59 %all major share holders are associates,family members of promoters.also how is manjushree.can it be a indirect play on consumption story.rumour that RJ aquiring stake.also how i believe om metal infra and polymedicure can be multibaggers.your comments
    amit s

    Anonymous

    August 26, 2010 at 1:31 pm

  5. Thanks for the info amit s, keep an eye on Vimal Oil and worth a small investment.

    Manjushree, I dont like because it requires huge capex and rapid obsolescence in machinery. Also, I am not comfortable with the way they are taking loans. If you are comfortable with company taking loans then better to go for Amar Remedies. Its owns powerful brands for Jain community plus has Nature's Co venture is working out. I sold Amar because they are taking bank loans. Its still way better than Manjushree which makes packaging. What I am saying is buy colgate brand not maker of plastic tube, which is replaceable entity. Margin of error is low for Manjushree and one mistake by them, Coca Cola will fire them, another hindrance is exponential growth is not possible without installing more machinery. Yes, 30% compounding is possible per annum. Anything over this requires bank loans and I am allergic to loans.

    Regards

    Amit

    Multibagger

    August 27, 2010 at 12:45 am

  6. hi amit
    you make very interesting points on simran farms. i have not looked at the stock..but can see the 'yuck' factor which drives away investors and competitors.
    its a high risk and high return opportunity. reminds me of the example mohnish pabrai gave in this book (assume you have read the book) of a player in the cremation/ burial industry in the US. this company was in an unattractive industry available at a PE of 2

    Rohit Chauhan

    August 29, 2010 at 7:49 pm

  7. Dear Rohit,

    Pabrai's book Dhandho investor talks about Low Risk and High return, not high risk high return I believe…

    Poultry companies will be there as long as chickens will be around ! People cannot differentiate between risk and uncertainty, both are not same🙂 Actually bird flu has been a blessing for top five companies, and everytime it hits, it makes them stronger ! by wiping out un organised sector.

    Service Corporation International ! McDonalds of burials🙂

    Cheers

    Multibagger

    August 29, 2010 at 8:42 pm

  8. Hi Amit
    new to your blog,can you share your views on mayur/ vst tiller / globus spirits, entered /recently/adding and intend to stay for 3 -5 years.
    cheers
    vimal

    vimal

    January 14, 2011 at 5:09 pm

  9. What was the final appraisal on the Simran Farms investment ? What were your take away from this analysis and investment, now.

    ceo

    May 29, 2014 at 11:07 am


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