Re: Vivek's Top 5 picks

Stock Opportunities
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I am sorry for making a blank post above, as I had opened the page in Internet Explorer. Let me come straight to my top 5 stock picks:

1). SRF Limited: My reasoning here is pretty simple. Here is a company which is doing all the right things with the cash it is generating. It is doing buy-back, it is increasing its productive capital ( thats the term I use generally for fixed assets)at a brisk pace, it is distributing reasonable dividends and most importantly, its increasing its profits at a great pace.

2). Balmer Lawrie: In my humble opinion, its a pretty under-rated company. No borrowings, decent businesses( some of which otherwise command a very decent multiples, like Logistics services and Travels & Tours), steady growth, great dividend.

3). DCM Shriram Consolidated: A very well diversified company. Just think about it, Kanoria Chemicals’ 115000 TPA caustic soda plant went for 830 crores. Here is a company having a caustic soda capacity in excess of 270000 TPA available at a market cap of 725 odd crores. Sure there is a good amount of borrowings, but the company also has many other businesses, like sugar( 4 mills), retail( 275 stores), urea( reasonable size), agri-inputs and bio-seeds, cement( 0.4 MTPA) and a small textile unit as well. Also, its having a captive generation capacity of 283 MW of power. At 6 rupee per MW, the valuation for power capacity is more than 1700 crores.

4). Corporation Bank: Good book value, very low NPA, very good yield, one of the first PSUs to go for auto-classification of loans, great EPS.

5). IGL: Wonderful business model. The way its ramping up its customer base in both CNG and PNG space, the earnings should grow at a very fast clip in future.

I have decided not to rate the stocks on valuation parameter and my conviction regarding them for 2 reasons. Firstly, I couldnt understand how to do that and secondly, I think for one’s picks, its the rating it receives from other members is more important than a self-assigned rating.

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nice to have u on this forum vivek.

dch shriram seems to be heading for turnaround looking at q1 fy 12 results. need to watch a couple of more quarters.

agree about srf, corp bank and balmer lawrie. all are slow and steady stocks, but with lot of value attached. IGL is a virtual monopoly and hence show grow reasonably well.

regards

hitesh.

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Hi Vivek,

Great to see you in this forum. Haven’t heard of you since a long time.

I like DCM, Corp Bank& IGL from this pack. Balmer Lawrie is a slow moving stock while SRF is not cheap.

Manish Vachhani

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Hello vivek bhai ,

Great to see you in this forum .

all your picks are good,i like balmer lawrie and IGL.

regards

atul.

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ààà ààà ààà’à ààààà à’à à«àà àà ààà àà à’à ààà à’ààà à¹à à¹ààà à–àààààଠàà ààà’à àà à’à ààà*à à¹à àà à¹à ààà༠ààà’à ààààà à’ààà à¹à. Welcome Vivek.

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Bank&

SRF is not cheap? But, how much less do you want to pay for a stock which is expected to generate a CEPS of at least 70 rupees a ticket?

One more stock which is also looking quite cheap is GSFC. However, its too Gujarat-centric although they do command a decent market-share in their products.

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I am eagerly awaiting the results of Balmer Lawrie…they should be good, given the demand scenario that was prevailing in June -ending quarter.

IGL can be a scorcher. Another similarl kind of company is Apollo Hospitals.

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DSCL should do fine. 2010-11 was its worst year in the last 8 years( at least), in terms of profits. However, it was the best year in terms of turnover. Therefore, all it needs is to control costs( thereby improve margins) and the results would then improve automatically.

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ààà ààà ààà’à ààààà à’à à«àà àà ààà àà à’à ààà à’ààà à¹à à¹ààà à–àààààଠàà ààà’à àà à’à ààà*à à¹à àà à¹à ààà༠ààà’à ààààà à’ààà à¹à. Welcome Vivek.

Thanks a lot Sir, for such encouraging words…

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Wow - great to read your stuff again. Your thread on TED was one of the first ones I read from start to finish - immensely educating for a new investor.

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Regarding GSFC, yes the stock is cheap and the chemical products they mfg. eg. caprolactum and melamine have good demand and the prices are good. Also the profitability in fertilizers due to nutrient based subsidy, has increased remarkably. Hence we have seen the profit rising to the highest levels. This year, however, the profits may decline a bit and they should do eps of 70-75(rough estimates). Dividendmay increase from 45% to 60%. Also they have some deferred tax liability which is coming down. They got their MD changed and need to monitor his performance(should be a clean man as Mr. Mody is vigil in appointments in the state PSUs).

Disc. I am invested in the stock.

Manish Vachhani

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vivek bhai was a bit surprised to see goodricke group missing from your top 5 list,

you were earlier very bullish on this company , has your outlook for the company changed now?

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Hi Vivek

A warm welcome! I have heard a lot about you from too many folks:)

SRF Limited - such a fantastic story, doing all the right things as you said. Profitability is growing at a fast clip and recent results are very encouraging. On the valuation front I see that almost every other month SRF has been available at 270-280 range, despite the results. Going back a few years, I checked that it has always been commanding P/S <<1.

I want to get deeper into this opportunity. But will wait for your comments first on what are the overhangs on the stock if any, and likely valuation ranges, from your experience.

Balmer Lawrie - This is a pass for me, despite great dividends. Don’t know much about the businesses, but Growth has been coming down in recent times. Fy11 and recent qr results are discouraging. Cash flows too coming down drastically.

DCM Shriram Consolidated - This one is pretty interesting from what you mention, and the possible turnaround. need to understand the several parts properly - there may be gross mispricing opportunity.

IGL - wonderful story. I need to reacquaint myself with the progress.

Re: conviction Ratings

Our Capital Allocation Framework dwells on the philosophy for Conviction ratings (CR). In-progress:)

http://www.valuepickr.com/forum/valuepickr-scorecard-aug-2011/399834292

It’s an informal exercise, but it sensitises everyone to think methodically on the stocks in his portfolio. Where is the best bang for his buck and why? Thatway he can transfer his conviction to others more easily. Just 2 paras are often enough to justify that conviction!

And ValuePickr is all about this. If something is really good, we should be able to transfer that conviction to everybody in the forums and the larger investment community - as many times our picks are virtual unknowns!

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I was looking at SRF too earlier. Some things that were of concern for me were:

1). Big capex in Packaging film segment: I understand this is a commodity business and valuations are low for other players like Jindal Polyfilms, Cosmo Films. Also the cycles are typically short & volatile. Right now down cycle is starting.

2). Carbon credits: There was a proposal to cut annual quota’s by 50% last yr(not sure what current status is). Not sure how much of cash flows they contribute to SRF now. They were significant a few yrs back.

3). Nylon Tyre cord prospects: This is used in tyres for heavy duty Buses /trucks to strengthen them. With Indian roads becoming better steel radials will likely limit the use of NTC over the long term.

I think valuations are low but SRF seems to have only traded at 4-6 p/e in recent yrs. Couldn’t figure out why such low valuations for a co. with 22+ ROE.

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1).

2).

3).

Valid concerns. But capex is high because they are trying to utilise the cash flows to generate still higher sales. The way I look at capex is that it should result in significant turnover growth in future. And SRF has demonstrated that in the past. Infact, capex is what got me attracted to IGL. If the Capital expenditure can be done without significant increase in borrowings, that should ultimately good for the company in the long run.

With radialisation, demand for NTCF may reduce. But SRF has last year got into PTCF, which is used in radial tyres. Also, cross-ply tyres will not be out of production altogether.

Packaging films is tricky business for sure. But its a good business. So if you have the scale, this can be a cash-cow. If you dont have scale and versatility, its a cash-guzzler.

Carbon credits is an added advantage with SRF. Also, their market share in refrigerant business is close to 40 p.c. That should do fine in the coming years. Also, SRF is building a decent size state-of-the-art plant at Dahej. This should lead to even higher revenues.

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Not at all. I have been Goodricke till recently. At the moment , I am waiting to see what comes out of negotiation between tea garden unions and the Dooars/Terai tea planters.

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folks:)) <<1.

I want to get deeper into this opportunity. But will wait for your comments first on what are the overhangs on the stock if any, and likely valuation ranges, from your experience.

Balmer Lawrie - This is a pass for me, despite great dividends. Don’t know much about the businesses, but Growth has been coming down in recent times. Fy11 and recent qr results are discouraging. Cash flows too coming down drastically.

DCM Shriram Consolidated - This one is pretty interesting from what you mention, and the possible turnaround. need to understand the several parts properly - there may be gross mispricing opportunity.

IGL - wonderful story. I need to reacquaint myself with the progress.

Re: conviction Ratings

Our Capital Allocation Framework dwells on the philosophy for Conviction ratings (CR). In-progress:))

http://www.valuepickr.com/forum/valuepickr-scorecard-aug-2011/399834292 Link: …/…/…/valuepickr-scorecard-aug-2011/399834292

It’s an informal exercise, but it sensitises everyone to think methodically on the stocks in his portfolio. Where is the best bang for his buck and why? Thatway he can transfer his conviction to others more easily. Just 2 paras are often enough to justify that conviction!

And ValuePickr is all about this. If something is really good, we should be able to transfer that conviction to everybody in the forums and the larger investment community - as many times our picks are virtual unknowns!

Valuepickr does carry some fantastic stock analysis of not so well-known companies. And you deserve a great appreciation for the contribution you have made. I will surely try to get the conviction rating of my stock.

Now coming to your remarks about the companies I have enlisted. Candidly, I am surprised about your view on Balmer Lawrie. Its a slow grower, but its growing steadily. I agree, it wont be a scorcher, but can be decently rewarding.

Your observation about DSCL is bang-on. Think about it…this company will be the beneficiary of sugar-decontrol, urea-decontrol, multi-brand FDI in retail. Infact, I think it wont be long before this company ropes in a decent partner for its retail arm. The way they have persevered with HKB, its bound to reward them in future.

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Here comes Balmer Lawrie’s results…

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Candidly speaking, I was a bit hesitant to put IGL in my list. Thats because, in good times I think one should try to stick with well-diversified companies. Its only when valuation becomes way too attractive that one should try to assume risk by getting into one-business companies. However, IGL looked like a company which can do a 20p.c.+ PAT growth for next 3 years at least. And, alongwith Delhi NCR and NCT, they have also bid for Ludhiana PNG suppy contract. Given their experience and expertise, they are likely to be very strong contender to get the contract. Although, such contract’s execution takes both time and money, yet they are pretty fruitful in the end.

Moreover, given government’s inclination towards subsidised LPG suppy to household, U think more and more cities would get lined up for PNG distribution. Also, given CNG’s success in NCR, its bound to reach other metros in a big manner. All this suggests the business of IGL is pretty scalable.

One concern however is that they do rely on APM gas. So that needs to be taken care of and it would be good if they can forge long term contract for R-LNG.

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Thanks for taking so much interest in my posts. I hope here also we will be able to share our little knowledge and ideas for common benefit.