Harita Seating Systems Ltd. (M. Cap 510 cr)


(arorasonia231) #21

In some of the buses in Delhi (used in shuttl bus services) i have seen Harita seats.
But noticed some other brands seats also. Dont remember the name. Will check next time


(amit.hardwired) #22

What-Does-an-EV-EBITDA-Multiple-Mean.pdf (719.9 KB)

Dear Dinesh,

Your analysis of Harita seating is very informative and insightful.Can the information in attached article be incorporated in your analysis and find a more accurate price for the stock.

thanks in advance,

amit agarwal


(Dinesh Sairam) #23

That’s a very good article, Amit. This will probably be useful for someone trying to use a Multiples Valuation method. I don’t see how it can be used in an Intrinsic Value method.


(amit.hardwired) #24

Dear Dinesh,

Thanks for your appreciation. Your analysis made me look into Hartia seating more carefully. You seem to follow Benjamin’s graham margin of safety in both letter and spirit. However,regarding Harita seating I came across an article that said the fall in price is mainly due to SEBI’s guidelines on P-Notes by Indians based abroad. Once I get hold of that article I will share it here. Also,I feel that since we do not life in a perfect world,some give and take on the margin of safety may be there…
what is you r call on that? is it ±5% or +=10%…that makes quite a lot of difference.


(Dinesh Sairam) #25

We don’t and it’s not that easy, even in real life. Say, you’d like to buy groceries for the week. You already know how much you’ll consume every day. But don’t you always end up buying a little extra, “just in case”? The truth is, we apply Margin of Safety to several things in life unwittingly. So it only makes sense to apply it to investing as well.

Of course, there could be leniency. For instance, I personally use a baseline MoS of 30%. But if it’s a company with a long history of good cash flows and if I understand the source of those cash flows I might demand only 20% by way of a MoS. But I’ve never gone below 20%. If I cheat myself into thinking “18% is fine”, soon enough, I’d be willing to let go of MoS entirely, which is not a place I’d like to get to. Alternatively, if I feel like the cash flows are fickle and I only have a basic understanding of the source of cash flows, I will demand upwards of 40% by way of MoS.

Warren Buffet put it more eloquently than me:

“If you understood a business perfectly and the future of the business, you would need very little in the way of a margin of safety. So, the more vulnerable the business is, assuming you still want to invest in it, the larger margin of safety you’d need. If you’re driving a truck across a bridge that says it holds 10,000 pounds and you’ve got a 9,800 pound vehicle, if the bridge is 6 inches above the crevice it covers, you may feel okay; but if it’s over the Grand Canyon, you may feel you want a little larger margin of safety.”


([email protected]) #26

Hello @dineshssairam, exception analysis as always. I have few queries on this valulation analysis,

  1. Why did you consider cost of Debt as 9%, isnt it very low? I tried to compute the cost of Debt and I found it to be very low too. Is there a specific reason?
  2. I was analyzing the commercial vehcile sale vs the growth of this company YoY - not using CAGR. I found that since the industry is cyclical , Harita sales also has its ups and downs. Is there a way to factor such cyclical changes in your model? By logic, average growth expectation should take care of such cyclical perfromance, however I am not sure of the impact if its aproven fact. Do you have some inputs?

(Dinesh Sairam) #27
  1. The Cost of Debt used in the model isn’t the Book Cost of Debt (Interest Expenses / Total Debt). It’s the Market Cost of Debt. The ideal practice is to find a few companies with the same Credit Risk as Harita and then see what the yields are on their Corporate Debts. Unfortunately, India’s Corporate Debt Market is still at a very nascent stage. So we’ll have to settle for an approximation. AAA Rate Corporate Debt is trading at 8.5% in the Indian markets today (Refer to NSE Bond Trading Data). Considering Haritha’s Credit Rating at A+ and a very strong parent in TVS, I judged it to have a 9% Cost of Debt. Regarding your question about the Book Cost of Debt being so low, I would again guess it has something to do with TVS being the promoter. Having a parent with high credit rating helps the subsidiaries as well with their loans.

  2. If you have insights into the industry, you may try to increase and decrease Sales Growth / Margins as required. But in my opinion, these things are impossible to do accurately. Remember, all we’re doing in a Valuation is an attempt at approximation, not an attempt at accurate calculation. In fact, the tendency for assumptions to be inaccurate is why I always perform a “stress test” of sorts and represent the value of a company as a range of probabilities (Of course, value is always a range of probabilities. If someone says he’s 100% sure a stock is valued at X, feel free to consider him crazy). Here are the results from my blog for Harita:

What amount of probability you require to pull the trigger is left entirely up to you.


(Harshit Goel) #28

Harita Seating got covered in Moneylife few days back.

Regards
Harshit


(HIMSHAH) #29

result declared for sept ending on NSE website. its weak result and standalone.


(Dinesh Sairam) #30

Disc: No holding in Harita.

Just making a note. Harita’s local business is kind of weak. Their export unit based on Chennai is the strongest one. So take Standalone results with a pinch of salt.


(HIMSHAH) #31

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(Pratik--Patel9) #32

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(Vivek) #33

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