Why India is still expensive Sensex @ 25,000 ( just 20% down from peak )
Munger opines that if you have the opportunity to purchase an investment that is better than 98% of all businesses, then you can use it as a filter to automatically eliminate the other 98%.
Ultimately in the long run, investing world is full of toads that do not transform to princes.
I wrote in 2013 about Unilever Nepal @ 10,000 NPR / share. The company is growing @ 20%, not less than it grows in any other emerging country.
Now, after two years of irrational bull market (not backed by productivity improvement) companies are over priced on every continent.
Unilever Nepal (where FII investment is not allowed) is also trading at reasonable valuations (22 PE from 12 PE two years back) on back of 20% growth, it looks quite affordable.
The company has lions share of FMCG market in the country, pays out 100% of dividends, in fact, Royalty is also paid as dividends, hence a minority investor wins more. This years’ dividend is whopping 990 Rs a share giving a 4% yield on closing market price of 26,000 Rs yesterday.
|Year||Revenues||Net Profits Crores *||# of Shares**||Earning Per Share *||* In Nepal Rs|
|2002||6.75||920,700||73||** Face Value 100 Nepal Rs (Hindustan Unilever owns 80%)|
|2003||Growth 25%||4.25||920,700||46.28||40 Rs Dividend|
|2007||23.81||920,700||259||220+ Rs Dividend|
|2008||145||26.3||920,700||286||250+ Rs Dividend|
|2009||214||33.5||920,700||364||300+ Rs Dividend|
|2010||290||51||920,700||555||350+ Rs Dividend|
|2011||337||61||920,700||664||400+ Rs Dividend|
|2012||420||70.26||920,700||763||680 Rs Dividend|
|2013||472.47||83.13||920,700||903||760 Rs Dividend|
|2015||920,700||1200||990 Rs Dividend|
Not bad, the price has gone up 150% in two years + dividend yield is 4%, and company continues to look cheap..
|THREE YEAR CHART OF UNILEVER NEPAL 6000 – 26000, STILL CHEAP AS CHIPS|
While I appreciate you may not be able to buy Unilever Nepal, but any citizen of any country can still buy NSE Kenya (on they way to become my biggest single holding anywhere) which has 100% control over equity (futures, commodity, derivatives soon) markets in Kenya.
The company is expected to grow over 25%. INR / KES equation does not look that bad. You will be astounded to note the PE ratio, 12 times earnings. This is not an asinine FY25 scenario, its TTM earnings. I wrote about this opportunity here http://multibaggersindia.blogspot.com/2015/04/30-cagr-30-roe-debt-free-10-pe-monopoly.html . Serious enough people would act rather than analyse https://www.nse.co.ke/inverstor-relations/financial-reports-and-results.html
Having found near monopolies at 12 and 20 times earnings with same country demographic and growth characteristics as India, these companies will be drowning in cash, wouldn’t you call that opportunity cost. These companies are proverbially as strong as the a Portfolio of Three Companies Munger keeps talking about.
You have 15% growers like Blue Dart trading @ 80 times earnings, 3M at 100 times earnings, a 15% growing Asian Paints at 65 times earnings, and a troubled Zero growth Commodity Stock Exchange MCX (just because its monopoly) at 45 times earnings. If India is not expensive, then which countries’ equities are expensive? I see, you are asking me to buy 3rd tier companies. I wrote to a number of people whom I advise to expect Zero returns in India in next two years. IMO India is still very expensive.