Tuesday, 29 November 2011

Cera Sanitaryware: Prospective steady compounder

Cera Sanitary ware is the third largest player in organized sanitary ware market with market share of 20% in this segment. Cera has established its brand pan-India and positioned its products mainly as "value for money" offering. However lately it has entered into luxury/premium segment with very interesting product launches.

Cera currently trades at market cap of around 230 Crores with trailing PE of 7.67 and P/B of 2.06.

Now let me analyse, three important aspects for value investors 

- Quality of Business 
- Intrinsic Value of Business as compared to its price
- Margin of Safety. 

Quality Of Business:

Cera is one of the few sanitary ware manufacturers who has carefully nurtured a very strong pan-India presence with the help of strong dealers network (500+) and retail presence (5000 + retail network). This extensive reach combined with astute brand positioning and focus on quality has meant that company continues to achieve higher net profit margins and consequently higher ROCE/ROE compared to market leaders HSIL.

Value creation by an enterprise largely depends on what return it earns on the deployed capital and how much of free cash flow company is able to deploy for its further growth. For more on this please read  Why Stocks go up?

Cera has maintained average ROE of 20% in last 5 years and ROE has gone up from 18% to 24% in last 5 years. Cera has been able to maintain high ROE in spite of increased competitive environment in the industry. To put this into perspective, ROE for HSIL, largest player in the industry having 40% market share, has declined from 14% to 11%!

Another positive factor to be highlighted here is, that even though company has grown its top line  at CAGR 20% and bottom line at CAGR 45% in last 10 years (top line: 41 crores to 255 crores, bottom line: 0.45 crore to 25 crores) it has managed its balance sheet very very well. According to 2010-11 numbers, debt/equity stands at 0.33, much less than net working capital! This is another sign of a very prudent management...

Saturday, 26 November 2011

Interesting Readings From Great Investors

Value investing is a remarkably flexible framework! The beauty of this framework is that even though almost each value investor has its own unique approach to value investing, as long as the "crux" of the framework is preserved, the results obtained are equally impressive.

I have tried here to put to gather some  interesting readings on value investing from some the greatest value investors.
  • Super investors of Graham & Doddsville - An edited transcript of a speech delivered by Mr. Warren Buffet at Columbia University in 1984. A great read not only for content, but also for typical buffet style writing!
  • What Has Worked in Investing- An excellent compilation from Tweedy, Browne, describing investment approaches and characteristics associated with  exceptional return
  • Berkshire Hathaway Letters to Shareholders- Letters written by Mr. Buffet to shareholders of Berkshire every year. These letters have plentiful pearls of wisdom, insights into astuteness of a great investor Warren Buffet and his art of stock picking. A must read for all investors.
When I read through such value investing stuff, what startled me was that each investor had tweaked the original philosophy to suit his own style while preserving the basic principles, and all of them achieved spectacular success by beating the market consistently!

Enjoy reading and keep sharing!

Thursday, 24 November 2011

JB Chemicals: A Classical Ben Greham Style Stock

Benjamin Graham, a legendary investor and pioneer of value investing, had designed a framework for selecting stocks where inherent value of the business is much higher than the value assigned to the stock by the market. Even though there are very many variations that have been developed and adopted since this framework was designed by the Ben Graham, the framework suggested by him is still considered one of the most conservative way of picking stock. 

Before I try to put JB chemicals into the framework provided by Greham, let me give a small introduction of JB chemicals. JB chemicals is one of the oldest pharmaceutical companies in India founded by Mr. J.B.Mody. It was earlier known as Unique pharmaceuticals and has 11 manufacturing facilities spread across four locations Panoli, Ankleshwar, Daman and Belapur. Over the years, it has devloped some very formidable brands like Doktor Mom (given Superbrand status in Russia and CIS countries), Metrogyl, Rantac  and Nicardia. They have recently sold their Russian and CIS countries OTC business to J&J for approximately 1200 Crores. They have received proceeds from the sale and distributed around 320 Crores as special dividend to shareholders. This indeed is commendable and speaks a volume about the management's integrity and its focus towards shareholders. 

Let me carry out a step by step analysis as suggested by Graham Framework.

Wednesday, 23 November 2011

Value Investing: Maximizing Investment Returns through Risk Aversion

I am really excited to enter into hitherto uncharted territory for me: blogging. Idea of creating my blog on value investing dawned upon me while reading some very interesting blogs on value investing and the interactive nature of this framework. It is like creating "virtual brainstorming" sessions from some highly talented and like minded people. What an Idea sirji!!!

Since this is my first post, I would like to introduce my self and give little bit of back ground on myself. I have done my chemical engineering from Nirma Institute of Technology, Ahmedabad and completed my MBA from University of Akron, Ohio. I am currently involved in providing consulting services to the energy sector.

I heard about Value Investing some 3 years ago, and it caught my attention instantly! This was because, here was a framework, which claimed to have succeeded in "beating the market" handsomely and consistently for years while I was given to believe umpteen number of times, during my finance courses in MBA that there exists an "efficient market" and it is impossible to beat the market. This led me to researching further on this framework by reading more about some of the greatest investors of all time such as Benjamin Graham, Warren Buffet, Philip Fischer and their investment philosophy. The common underlying principle for them was "buying good business cheap" when market creates an opportunity where inherent value of business is far more than the price determined in the market. This framework revolves around Margin of Safety thus restricting downside even in worst case scenario. Even though such opportunities are not plentiful, they do exist.