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Wonder, Wealth & Abundance

Expensive

with 53 comments

Unless one is buying Quantum Stocks with several times (read 3 – 10 times) higher intrinsic worth which are unlikely to see much downside or value stocks (I know growth and 40 year forward survival expectation is part of value equation too). I would begin to dump or have already started selling all holdings with high-expectations for future because let me tell you with an example.

Example:

I agree that future prospects are bright for a company like Jubilant Foodworks growing at a nice clip. However, stock price is slave of earnings and we (or at least I do not feel the need due to abundance of alternatives, rather over abundance of stocks on BSE) need not pay premium just because an organisation is expected to grow @10-15% for next 30 years and a stock ranks as a single decision idea.

Why:

Because stock prices should be ultimately discounted value of their future cash flows, I feel certain stocks are over valued as they will *never* (say next 15 years) earn as much as other simple ideas. In reality the stock prices are discounted hopes of future mental expectations. I’ll stick my neck out and and would try to make a prediction:

Jubilant Foodworks although not in comparable business as a Bank but this one at CMP 875 will not ever (say until 2025, trust me that is a very long time in Equity Markets) will not be able to match EPS of Jammu and Kashmir Bank until 2025 (CMP 860, Div Yield 3%). i.e by 2025 (too far a timezone, a lot of things can go wrong) I believe growth rate of J&K Bank would be as good or superior to Jubilant Foodworks and its EPS would be far higher, but market does not feel that way.

I heard a respected stock market investor Ramesh Damani speak about Dabur being fairly valued as part of his portfolio. Personally, God forbid, unless I am struck by blindness or paralysis and unable to pursue the search, why should I buy a 15-20% grower @ 40PE just because its expected to survive my grandchildren’s generation. Too heavy a price to pay for higher certainty. With benefit of hindsight check the returns of Axis Bank vs HDFC Bank between 2000 and 2011.

A handpicked portfolio of choicest small caps should provide far superior returns as they have over past 100 years.

I am all for growth, greed and returns at a faster rate but refuse to ride the 40PE bandwagon.

An Idea

Market leading companies in brand new industries tend to do very well at least for few years or a decade. Stumbled upon GOGO/ Aircell, an innovative company leading a sector, experiencing exponential growth. Check it out www.aircell.com. Provides wifi, smartphones on Aircrafts.

Was granted exclusive air-to-ground broadband frequency license in  FCC auction in 2006. Buffett’s Netjets is also one of their clients. Not listed on stock market. Hey, if you are a PE player you can always try.

Leave room for positive surprises !

Written by amitdipsite

July 22, 2011 at 8:39 am

Posted in Uncategorized

53 Responses

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  1. hy amit good written. Will you tell cravatex ltd is still cheap to purchase.hy amit good written. Will you tell cravatex ltd is still cheap to purchase.

    ajit

    July 22, 2011 at 10:28 am

  2. sir,
    i have been studying JK bank and it seems to offer some value along with one of its peer..
    what are your thoughts ?

    nothingness

    July 22, 2011 at 5:53 pm

  3. Thought-provoking article, Amit..Fancy stocks are expensive and proved to be expensive to investor too…
    So Axis 40+ times and HDFC Bank 10+ times in 10 years (calculated purely on price using google tool, may be incorrect too)..Clearly a quantum of difference..

    regards
    Rahul

    Rahul Kumar Paliwal

    July 22, 2011 at 7:25 pm

  4. rather than investing in innovators pabrai has always insisted in investing in copycats. Msft is biggest example of a copycat as per him

    Jatin

    July 23, 2011 at 6:25 am

  5. Dhandho is great book by Pabrai. A good stock is one which makes your heart race, and you already you will win.

    I am buying certain stocks which will take me about 2-3 years to accumulate, volumes are extremely low, almost 100% daily trading volume in buying is done by me. I hope I will be able to share them one day.

    Amit Arora

    July 23, 2011 at 8:57 am

  6. There is no need to buy and keep a stock for 20 years as an active investor. Dislocations happen too frequently too often.

    Ramdeo Agarwal says a good stock is one whose net profits of next five years will equal to today's market cap. That is a good guideline to get rich.

    Concepts that bewilders me are “free money”, yet another one is “core portfolio stock” vs “peripheral stock”. Where is free money and what is non core stock ? Everything is core, all is hard earned money.

    Amit Arora

    July 23, 2011 at 9:10 am

  7. Hi Amit,
    Do you track oriental carbon and chemicals?
    It is a monopoly player in insoluble sulpher market in India.Other major products are sulphuric acid and oleum.

    Insoluble sulphur is mainly used by tyre industry.Considering the future potential of tyre industry, I think it can be a potential multibagger from current levels.
    Current market cap: 146 cr

    Anand

    July 23, 2011 at 11:07 am

  8. Hi Anand,

    It was in my watchlist earlier. Did some reading on it. It ranks same as other Specialty Chemical companies like Vinati Organics etc. Less than 10 major producers in world, however one needs to keep tabs on over capacity in industry because technology is the secret here but can be over produced in enthusiasm, Michelin and Yokohama are also setting up in India. Major competitors are Solutin, Laxness, NCC. All in all a hard result to predict on yearly basis but should do well over long term.

    These type of companies are not easily understood hence stay cheap. 20 bagger already from 2003 ! But cheap stocks that stay forever cheap can also make one rich !

    Regards

    Amit Arora

    July 23, 2011 at 10:00 pm

  9. hey, do you have ur eye on Jenburkt Pharma? Its got a great balance sheet and excellent management to boast of.

    Ramit

    July 25, 2011 at 6:01 am

  10. Hi Amit,
    Yes I too think it may stay cheap till a big investor shows interest in the counter. The major competitor I think would be Solutia which is likely to target the Indian market after the expansion of its Malasyian plant.This expansion will double current capacity, making Solutia's Kuantan site in Malasyia the largest insoluble sulfur manufacturing facility in the world.Solutia also points oriental carbon as a major competitor in its AR.

    What encourages me is as per oriental carbons AR the capacity being set up in Mundra SEZ is already sold out and management is optimistic about the future demand.Also the recognition of a bigger global player as a major competitor to there business is also very much encouraging!!!

    Anand

    July 25, 2011 at 11:26 am

  11. Amit,

    Even TTK prestige & VIP are falling under overvalued category. May be they will grow@20-25%in next 10yrs.But if we buy them @ 40PE on future growth is real pathetic. But people dont listen these words. They will keep on chase these kind of stocks.And i m n't against the consumption story in india.its very much intact but there r many other stock ideas are available in today's market. By being a contrarian investor is always helpful.What do you say,

    Ed Yardeni quoted

    “Nobody believed in the model when it said thase stocks were 100 percent overvalued and nobody believes in it now. Valuation is like beauty — it's in the eye of the beholder.”

    regards,
    Sudhir Raj

    sudhir

    July 25, 2011 at 4:05 pm

  12. Hi Amit..

    I tried asking your opinion about Tokyo Plast in your last blog post also but i guess probably you missed out on it. Can i ask you to share your opinion about the company?

    NightShade

    July 25, 2011 at 6:29 pm

  13. Hi there,

    Its still quite small and has quite a bit of interest burden for a micro cap, otherwise a nice one

    Regards

    Amit Arora

    July 25, 2011 at 11:11 pm

  14. Hi Amit,

    What's your stand on Puneet Resins for Longterm.. please share if you had investigated any new information or updates on this counter..Seems to be a good long term bet as of now. Would be glad to hear from you.

    sandeep maddali

    July 27, 2011 at 5:19 pm

  15. I hold Puneet Resins, compounds are very precious like specialty chemicals. Short term quarterly results can be volatile due to automobile industry linkage but bullish on long term. Still a small company so cant bet heavily.

    Regards

    Amit Arora

    July 27, 2011 at 9:22 pm

  16. Thought provoking article.

    With the kind of levels some stocks were reaching, I was thinking on similar lines.

    Unfortunately it takes a major correction to bring in the reality.

    Regards

    Rahul

    July 28, 2011 at 3:58 pm

  17. Once Sensex falls by 30% to 13,000 levels all seasonal frogs will be wiped for a generation.

    Amit Arora

    July 28, 2011 at 10:46 pm

  18. Did a bit more digging into the Rishiroop Group. There are criss cross structure of holding companies and relationships with leading vendors. One of the deepest relationship was with Chemcentral which was later acquired by Univar. Univar is circa 9 Billion $ organisation and leading distributor present in over 100 countries, they have most mouth watering joint venture with Rishichem Distributors (Privately Held company). Rishiroop group also holds 100% in RishiChem Mideast Ltd. Univar being present all over world also sources raw materials from Puneet Resins and mentions Lanxess, Solvay, Dow Corning and Puneet Resins in same breath.

    http://www.univareurope.com/ie/en/Ireland_Industries_we_serve/Rubber/2191/

    http://www.univareurope.com/uk/en/UK_Industries_we_serve/Rubber/2079/

    Puneet Resins has exclusive tieup with Excel Polymers for elastomeric compounding. To get an idea of its applications, please see the Hexpol (new acquirer of Excel Polymers) trade page. New business of Hexpol may or may not flow to Puneet Resins but existing compounding business is likely to continue. Puneet will continue to build and expand capacity based on proprietary compounds of Excel Polymers.

    http://www.globalspec.com/supplier/ProductAnnouncements/HexpolCompounding

    http://www.hexpolcompounding.com

    Hexpol acknowledges and intends to continue the relationship with Rishiroop Group. Less than 6% of Hexpol's revenue originate from Asia which need to be a focus for growth.

    Conslusion: Returns depend on groups focus and intentions for listed entities. Market is very fragmented in this space, a bigger distribution network and a number of group companies may prove to be a blessing in disguise. Products find applications across the spectrum of industrial sector. People get frightened at the first sight of complex group structure as SEC did with Buffett's structure before he founded Berkshire. Holding structure is internal to and hard to predict how it will change, just flow with the promoter holding.

    Amit Arora

    July 29, 2011 at 12:17 am

  19. whats ur take on Agre Developers ?

    Jatin

    July 29, 2011 at 9:03 am

  20. A friend of mine and I did some more tyre kicking into Intec. They are trying to expand very aggressively into Pune through 8.5% loan rate for machinery. This may impact short term profitability and also may result in equity dilution. small and micro enterprise segment is growing very rapidly as its overlooked by major banks.

    AGRE DEVELOPERS:

    I'll try looking again. Ansh told me to look at it few months back and I did not find anything in it then.

    Regards

    Amit Arora

    July 29, 2011 at 9:56 pm

  21. Amit,
    How do you read the Photoquip Q1 results? (profits have gone up from other income, don't know what this is). It appears the story looks intact, although it could take time to give returns to shareholders. Any red flags or concerns?

    MG

    August 1, 2011 at 12:24 am

  22. PQIL's Quarter on Quarter results may be volatile. I expect 20% plus growth for atleast 3-4 years based simply on iPad/iPhone interface offtake.

    If dye sub printing venture works so much the better. For me a good stock is one that has potential to double triple in year or two. But atleast on billionaire has to love the stock. Whenever that happens we'll make 10-20 times. Maybe one day you'll buy all the outstanding stock MG🙂

    But if you are expecting a rich man to bet 10 Crores on this company then he needs dividend, only that is concern for the trigger.

    Regards

    Amit Arora

    August 1, 2011 at 2:14 am

  23. hi amit…

    can u please tell me what is this ipad/iphone interface to do with photoquip…the co is in lightings…how can it change things for the company..and how big can be the market…

    please can u tell me the total revenues of elincrome ,the parent co….we can analyse the potential of the outsourcing revenue then….what is the turnover or the foreign co,what its share or outsourcing,from where it sources etc etc…..

    vivek bha

    August 1, 2011 at 11:01 am

  24. Hi Amit,

    please look into this TED discussion for Phtoquip :
    http://www.theequitydesk.com/forum/forum_posts.asp?TID=3139&PID=176376#176376

    Thanks
    Umang

    umang

    August 1, 2011 at 4:38 pm

  25. Photoquip:

    I don't know Elinchrom's turnover, its private. I am not recommending a buy or sell on Photoquip, its simply my opinion. I can end up make a Zero bagger in Photoquip and 50 bagger in Puneet Resins, results may not work out the way we hope.

    Applicable Quote:

    The best assurance of continued growth, and high profit margins, comes back to this: the company should have a special niche in the marketplace, so that sales don't depend on offering a commodity item at a lower price than the competition's. It should, to a degree, dominate that niche. The best company in a marginal industry is worth more than the third-best company in a major industry. I'd rather own the shares of Hokuto, the leading mushroom grower in Japan, than of Mitsubishi Motor or Subaru. – Ralph Wanger

    Amit Arora

    August 1, 2011 at 9:12 pm

  26. Please throw some light on:

    1)How many people out of 1 billion can be catagorised as potential photoquip customers.

    Dont know but there are 1 billion potential customers of ONGC and Reliance Industries. How many potential customers of Littmann Stethoscope ?. I'm buying latter.

    4)Given current trend of digitalised storage whether this business makes any sense in future.

    – No correlation, only positive if at all. That right who will buy a cooler company in 21st century of air conditioners.

    Amit Arora

    August 1, 2011 at 11:07 pm

  27. ViveK, Pls visit following link where Amit has explained about Ipod/Iphone interface of Elinchrome.

    http://multibaggersindia.blogspot.com/2010/09/elinchrom-and-competition.html

    Regards,

    Amar

    August 2, 2011 at 5:38 pm

  28. Elinchrom iPad/iPhone:

    http://itunes.apple.com/nz/app/elinchrom-skyport-wifi/id420885632?mt=8

    There is no studio lighting company in the world which has this interface. Most of the poeple use remote control to manage lights. When Photogs shoot they need to adjust light from 10-20 metres away in corporate, fashion photography. Its better to have an application in iPhone which does it. Competition will eventually follow in 3-4 years but they are ahead of the game. Top three companies are Broncolor, Profoto and Elinchrom. Not only top two but other 10 behind it also don't have this interface yet.

    Market Size:

    To get a feeling of size there are two companies to look at, http://www.vitecgroup.com – publicly listed with AR and financials. Chinese company : http://www.weifengchina.com/home.asp

    Amit Arora

    August 2, 2011 at 7:35 pm

  29. hi

    i do not see a interface with ipod/ipad as a major issue for a buyer to buy elinchrome than other..a person does not buy ipod/iphaone due to its interface with elinchrome…hence growth of ipod/phone does not guarantee sale of elinchrome products…

    a person look for brand in that segment will go for that brand rather than how to operate…remote control is equally fine..as not all photographers will have iphone…

    vivek bha

    August 3, 2011 at 3:52 pm

  30. Search for Pocketwizard, Skyport look at their prices. Elinchrom App is free for iPhone and eventually all smartphones.

    Over 100 million users already have it in their pocket and growing exponentially.

    Amit Arora

    August 3, 2011 at 9:42 pm

  31. hi

    yes amit i agree that smartphones are there to sell….but the other products which have app on iphones will sell on the strength of their own and rather than strength of smartph

    the best thing i liked about photoquip was that turnover in increasing without increase in much gross block..and equity dilution….showing revenue increases with same infrastructure…

    its net worth doubled every 4-5 yrs…so in next 5 years it can again double….revenue could increase above 120 cr…so a market cap at 20 cr still is very cheap…it has to move up as long as management is true in financial disclosure and ethics and the products

    vivek bha

    August 4, 2011 at 3:34 am

  32. hi amit

    i am lookinh at a co called weizmann forex…looked exciting..first of all i look for businesses /companies whre in future there u can find people/investors lining in queue to buy it due to its niche area,irreplacable position over a medium term….etc etc

    weizmann is at 80 cr market cap….with most of psu banks and about 30000 sales offices,,,where will u find a co with such a low market cap with such potential….lkp merchant was bought by thomas cook at 200 cr..most it was forex exchange…then..lkp profits was less than 3-4 cr..but i dont see profits as they are managed by them…look at business turnover branches etc etc…weizmann is money transfer business..it has more branches and business turnover than lkp aat that time..also prfits ebitda is 18 cr…

    its a business where any financial powerhouse will love to come….many will look to buy it…it has already tie ups with all major banks..very hard to have that franchisee and become a principal agent of western union alll over again…rather that that…anyone will be willing to buy it so very high prices…so this 80 cr market cap will surely become a good investment…just buying in small qty…
    please share ur comments on it…

    vivek bha

    August 4, 2011 at 3:42 am

  33. But who would buy a similar priced product if they need to spend 300 $ worth for transmitter and receiver. The price of remote controls for studio lighting is outrageous as there are only 3-4 companies making them. One can get a laptop for the price, pretty decent one at that

    http://www.microcenter.com/single_product_results.phtml?product_id=0354446

    Now if a free app is available, then atleast value conscious people would avoid buying remotes

    Suppose of have 10 stock brokerages in Mumbai but only one broker offers access via Mobile phone then its clearly going to win customers until others commoditise it.

    Amit Arora

    August 4, 2011 at 4:22 am

  34. Dear Amit
    Great posts! I am a new investor and stumbled upon your blog.You are doing really nice thing.I am charmed by your stock analysis especially for cravatex.Is it a good level(CMP=366) to enter cravatex now? Pls provide the entry level for this stock.thank you

    Pruthvi

    August 4, 2011 at 8:38 am

  35. thanks amit….
    whatever be the status…the co looks very cheap as long as mgt and financial are ethical….it should be a 60-80 cr market cap co now.

    however still i dont see value in markets…stocks are high priced….and fair value will make nifty come to 3800-4200 over medium term…news will follow the nifty levels then

    vivek bha

    August 4, 2011 at 12:17 pm

  36. Hi Sir,
    Gone through the post.. Studied the result of techno fab,Which looks good with almost 12-13% operating margin & order book of almost 900 Cr. Sir.. Do you think Techno fab as part of any ones model portfolio at current price..

    yogesh

    August 4, 2011 at 4:02 pm

  37. Dear Pruthvi,

    Thanks.

    Time to make plenty of upside in a stock is to buy when its a no brainer, if one has to ask or in doubt then it isn't. I can ony say that I am invested and haven't sold any since Rs 100 levels (bonus adjusted) – date of writing on this blog. It was discovered by Saroj Kumar Patni before me.

    Kind regards

    Amit

    Amit Arora

    August 4, 2011 at 9:44 pm

  38. My important learning is to bet heavily once or twice a year, rest of time wait like a Panther for the SHIKAAR on the tree. As with Money Matters @ 50 Rs

    Amit Arora

    August 4, 2011 at 9:46 pm

  39. Dear Yogesh,

    I think you can make lots of money in a few year potentially in Technofab, there isn't much to lose. But it can enter prolonged period of flatness thus losing opportunity cost. Stock market cant predict future nor can I for technofab, but ready to pay 50 PE multiple if through PF, Bank Account, Sale of House, Building, Factory if growth is forseeable. You'll have to dig more deep to be able to predict its future, then you can make lots of money.

    Regards

    Amit Arora

    August 5, 2011 at 12:54 am

  40. I dont know much about Weizmann Forex. As per Western Union, they have around 15 Principal Agents and not exclusively with Weizmann Forex. I would rather wait a bit for company to prove itself.

    Amit Arora

    August 5, 2011 at 1:45 am

  41. Quote:

    “There seems to be some perverse human characteristic that likes to make easy things difficult” by Buffett. – Applicable for all FMCG company fans sporting a 30-60 PE which aren't even growing 25%.

    Here you have Shriram City Union and Shriram Transport expected to grow @30% right under your nose missing a multibagger. They too are 20-30 baggers in last 6-7 years and likely to continue.

    Amit Arora

    August 5, 2011 at 1:49 am

  42. hi amit

    so which stocks look to u to be multibaggers where u see 30% compounding growth over next 5-10 years….even though growth seems there, they are not cheap now…as markets are yet to fall broadly…however keeping an eye on them is useful…but in a bear market …even i buy across without as a no brainer,i still get huge returns…

    vivek bha

    August 5, 2011 at 4:52 am

  43. Hi Amit

    Besides Puneet Resines, have you also analysed Rishiroop rubber. Promoters are buying rishiroop rubber aggresively from market.

    Nishant

    August 5, 2011 at 10:12 am

  44. Rishiroop Group was mentioned in Annual Report of Hexpol, Billion $ company

    http://investors.hexpol.com/files/press/hexpol/Prospekt_HEXPOL_AB_sve.pdf

    Swedish:

    Rishiroop Group, den största distributören av syntetiskt gummi i Indien

    Translation:
    Rishiroop Group, the largest distributor of synthetic rubber in India.

    Amit Arora

    August 5, 2011 at 11:18 am

  45. I feel Axis Bank, Yes Bank, Shriram, Intec, Puneet Resins can easily do 25%+ in growth, stock prices may even do more than that. Photoquip, Cravatex and Globus can also do similar but there is no point marrying anything for 10 years. The moment you find another Money Matters just sell as much as others and load it up. Sometimes the undervaluation is so steep that average growth can return phenomenal amount. I think over 1000 stocks on BSE can do better than 15% CAGR therefore only a very bad stock picker should get scorecard below that.

    Amit Arora

    August 5, 2011 at 11:31 am

  46. Rishiroop is into trading alone of primarily Kumho

    http://www.kkpc.co.kr/eng/index.asp

    whereas Puneet Resins is into both manufacturing and trading, there may be group restructuring at some stage for merger.

    Amit Arora

    August 5, 2011 at 11:41 am

  47. Hello Amit,
    What do you think of Aarvee Denims & Export. It does 25%+ growth, has a sound management, offers dividend and CRISIL has awarded it 5/5 in valuation grade and 3/5 in fundamental grade. Only negative i can feel is the sector which is not favoured by investors.
    Appreciate your feedback.
    Regards,

    Amar

    August 6, 2011 at 1:15 pm

  48. Had written two quotes in January 2010, when almost al brokerages were recommending Onmobile, latest results of Onmobile vindicate my stand,

    http://www.theequitydesk.com/forum/forum_posts.asp?TID=808&PN=55

    “In stock markets as in life, people run berserk as chickens with head cut off, blind are leading the blind” – myself

    “Our neurotic obsession with the growth of company blinds us into a confirmation bias by renouncing rationality, we project out a fantasy estimate of our hopes and desires” – myself

    Amit Arora

    August 7, 2011 at 1:36 am

  49. Is there a specific reason why you mentioned state bank of travancore in one of your earlier posts? how is this different from a SBM / SBBJ?

    sidhartha

    August 7, 2011 at 4:31 am

  50. Hi Amit,

    Which is better
    Shriram City Union Finance or ShriRam Transport?

    Shriram city Union(SRU) is very small in compare to ShriRam Transport(ST). If SRU can become as big as ST, it would be 6 bagger from now.

    Whats your view?

    Amit

    August 7, 2011 at 8:20 am

  51. hi amit

    i have bought a bit of puneet resins and photoquip…i dont feel that they are being sold to people ,as blind guiding blind,like the earlier stocks of tanla mic onmobile etc etc…

    i saw worth in bot of them especially photoquip..but am just concerned if there is anything im not seeing now which will make me loose here….

    otherwise most of my investments are made in bear market and mostly in financials .sometimes companies backed with assets like cement etc but in a bear market…

    please advise how safe is photoquip/puneet resins to be added if prices starts performimg

    vivek bha

    August 7, 2011 at 9:32 am

  52. Hi, Sorry but couldn't understand your HDFC Bank Vs Axis Bank comment? HDFC bank have in fact given much better returns, You need to account for Split in HDFC Bank as well

    Divyanshu

    August 15, 2011 at 7:59 am

  53. helo amit,do u have any idea about everest industries

    joslin

    September 5, 2011 at 12:38 pm


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