@ Anupam- Good Question. However I would like to answer BOTH qualitatively and not quantitatively.
As far as Jagran is concerned, I had bought it at around 130 levels. It is good business with ethical management and more than descent ROE, RoCE, Balance sheet etc. However it lacks growth.
That said, I never look for scorching growth as it is very difficult to identify and only a selected few can spot it early enough.( Somebody like Ayush Mittal on this forum ).
What I do look for is at least 12-15% revenue growth and 17-20% PAT growth. To me, if such an opportunity exists and the business is easy to understand and predict for next at least 10 Yrs, I generally Jump into it.
EASY UNDERSTANDABILITY AND PREDICTABILITY FOR LONG PERIOD OF TIME IS THE KEY FOR ME.
Suppose I were to commit a descent amount of capital and get returns @20% CAGR for next 10 yrs with high degree of certainty…I ll end up being reasonably well off. That is all that I want.
A far as Jagran was concerned…it had 3 main problems-
- It is a 10-12% revenue and 12-14% PAT CAGR business…at best.
- Long term predictability is not so easy due to the digital threat.
- Incremental amounts of money can not be invested at above avg rates of return. ( Because of which, the management was generous with dividend payouts. A big tick against the management’s capital allocation strategy ).
Now we come to GCPL…
At consolidated level, EPS for FY ending Mar 16 works out at Aprox- Rs 30-32. At cmp of Rs 1150, PE works out to be 35-37.
This is slightly expensive. I admit. But not as expensive as various other FMCG MNCs.
Let us look at a scenario 4 yrs down the line. Suppose the EPS grows at 20% CAGR for next 4 yrs, earnings would double. PE ratio calculated at my purchase price would then be 17-18. That will give an earnings yeild of Aprox-6 Percent which is the post tax return on FDs.
So, after a waiting period say 4 yrs, this investment will look as cheap or as expensive as an FD.
But for the rest of my life- I WILL BE LYING BACK AND ENJOYING THE SHADE OF THE TREE I PLANTED 4 YRS AGO.
This is a philosophy that I follow.
And for extra returns, I buy undervalued, but still above avg ROE business like Jagran, JB Chemicals etc and kind of trade in them with 6 months to 1 yr perspective