Usha Martin- Coming out of Chaos

How does it not make sense to question why it has gone up so much?
I thought investing was about the possible returns and not where you get them from.
A highly valued company will not give you the returns of a under valued company.
Also, do not look at my question about price movement but what that price represents.

So, it indeed matters to see “why has market continued to value the company higher and higher and way past a point where the underlying growth + future prospects can not support the valuations?”.

Also, I did consider the March2020 event. Read @sreered comment and he simply pointed out that underlying growth is 6X whereas the valuations have moved 10x, and is NOT considered out of whack.

This is a manufacturing company we are talking about, and not an IT company that we can give high levels of benefit of the doubt.
Thats where my query comes from - why are the people in this forum giving and allowing such valuations?
And I think I have got my answers, even though biased, some interesting points.

Hi Saurabh

This valuation discussion crops up time and again in various forms in discussion threads esp during bull runs and rallies.

Whatever tools you have in your valuation toolkit - the true test is whether you trust it enough to make buy/sell decisions and earn money.

If you believe that earnings growth % over x period / stock price % over x period is a good tool to predict current valuations (whether high or low) & hence future returns then there is a thread called “quant investing” where you may want to put up your research and interested members can chime in with their inputs. There are several here who are well-versed with quant systems and enjoy the intellectual stimulation it brings

Broadly speaking there are four camps here at VP ( with a lot of overlap) - one camp are pure technical guys who look only at price movements - you will find them engrossed with various technical analysis subjects. No doubt it is a sexy notion that money can be made by reading charts and indicators.

Valuation people are the second camp. They believe that it is possible to value a company
by putting together numbers. Again the promise of hitting that magic formula that gives you an investible number is a pursuit worthy of spending your time. No less than Benjamin Graham believed that so you are in good company.

Business guys & Original thinkers- these are guys who love to think about the business, industry, triggers etc. They spend much of their time digging up information, connecting dots , doing scuttlebut etc. Sometimes they are so overloaded with information that they fail to pull the trigger on a stock decision at the right time!

Followers - These guys follow others and their ideas are borrowed. Spending effort in the aforementioned things is not for them and i can see why - when you have kickass people at VP freely sharing their views - it seems much easier to soak up the wisdom. The good ones know instinctively whether the idea is good or so so & are nimble enough to take decisions

Noisy guys - well, these people are there to clutter up threads by asking naive questions and take offense easily. Over time - the quality of questions improves as they settle into the camps mentioned above. We have all gone through this journey as beginners and some of the questions i have asked on VP are definitely cringeworthy :smiling_face:

At VP - we are blessed with the entire eclectic spectrum of individuals and whatever camp you choose to identify with - the main idea is to be able to action your thinking based on your system at the right time and make some money.

Apologies for the ramble but hey it needed to be said!

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The entire process of fundamental investing is based on subjective interpretation.

You should read Aswath Damodaran’s Narrative and Numbers to understand how narratives shape valuations and numbers.

Why Usha Martin? We can question any company that has say a PEG > 2 or 3. But the market has continued to do that for years. See DMart, Astral, Nestle, Asian Paints, Pidilite and many others.

Valuation is not a science. It is based on the narrative. Instead of arguing with the market, it is more important to observe what it is trying to teach us. Over time, as market participants, we make money based only on the price. So, ultimately, the final arbitrator of all debates is price. And time also is a fluid concept. For a day trader, it may be a few mins to a few hours; for a swing trader a few days to a few weeks and so on.

For a long term investor, 1-3 yrs is a reasonable timeframe. So, keep this thesis and revisit it every year for say three years and see if your analysis was right or wrong. That way you will learn more about practical valuation than debating here on valuations with other forum members, who will possibly have their own narrative in mind.

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Hello,

Peterhouse investments limited has again sold it’s take and it now has less than 0.3% of the total equity value. But in the filing I noticed the option of GDR (highlighted in yellow) which will allow them to get 8.5 million shares. Do we know any details about it?

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Any idea how much stack is owned by Prashant Jhawar group, as per the credit rating report they still own 16-17%. is it true?


Promoter buys from market.

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No. I am not following that very keenly.

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I think the point is well made. But there are a 1000 other stocks in the market. If we find something expensive, we can give it a pass. By definition the stock market works because someone thinks it’s expensive enough to sell and someone else thinks it’s cheap enough to buy.

It often depends on the narrative in our head. Someone who deeply believes the story would say that weak hands left but strong hands were quick to buy and it was a shakeout of the weak hands. It’s all stories and narratives. Day to day price movement of a stock tells us nothing about the business.

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Hey Saurabh,

I can somewhat relate to your concern. While some senior VP members have already added their inputs, I’ll leave you with the following perspectives

  1. In the short term, the market is a voting machine. It’s very hard to predict where the prices will move – whether it is a stock, a sector, or broader indexes. There could be a hundred reasons for a sudden drop or surge in prices. If you keep digging into the reasons, you may find some clues. But how does one establish causality, they could be mere noise?

  2. Valuation – What is expensive? 20x, 30x, 40x, 50x? There’s no science to this. If you can ASCERTAIN that the underlying business can double its earnings in <2 years, even a 50x isn’t expensive! I didn’t buy Cera for a long period because I found it expensive at 25-30x. An expensive mistake, but one that I have to live with! I follow a certain philosophy, and I’ve made peace with missing out on a few winners. I don’t know if this stock is cheap or expensive at the current valuation. It depends on one’s view on risk, business quality, and earnings potential.

  3. Pendulum Swings—Howard Marks has written extensively on asset prices and cycles. His memos or The Most Important Thing are worth the read. Jotting some relevant comments:
    a. An overpriced asset can remain overpriced for uncomfortably long periods. Worse, it may get even more overpriced. During such periods, value/sensible investors may appear foolish. e.g. 1997-2000, 2020-22 tech boom.
    b. It’s not worth one’s to predict the direction of market/stock prices, but one would do well to know where is the pendulum’s arc (towards greed or fear). If the price/valuation looks too hot, it’s sensible for a defensive investor to be defensive.

To summarise, this depends on how you play the game. I know successful growth investors who buy businesses at 50-60x and yet earn handsome returns in 2–3 years if 6/10 of their bets deliver earnings growth.

Happy investing.

Disc. Not invested. Tracking

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looks like one promoter selling aggressively and other is acquiring aggressively
Based on the recent sell and acquiring pattern

Rajeev group
UMIL SHARE AND STOCK BROKING SERVICES LIMITED
BRIJ INVESTMENTS PVT LTD

Prashant Group
Usha Martin Ventures Limited
Peterhouse Investments Ltd.

image

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Usha Martin q2 fy 24 results out.

Sales for q2 fy 24 — 800 cr vs 825 for q2 FY 23. (probably due to moving towards higher margin products and lower raw material costs.
Op Profit for q2 fy 24 141 cr vs 96 cr.
Net profit for q2 FY 24 109 cr vs 79 cr.

Half Year EPS at 6.9 per share. (not annualised)
usha q2 fy 24.pdf (6.6 MB)

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(post deleted by author)

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Usha q2 fy 24 concall brief notes

q2 fy 24 volumes and revenues were lower because of lower sales of LRPC and wires, (mainly due to monsoon impact) both lower margin segments. Wire ropes segment did well, maintaining sales, but improving margins. Hence overall sales was down, but overall margins were much higher.

Management expects next half to be better in terms of sales from LRPC, Wires segments. Asbolute profits will be higher but blended overall margins could be slightly lower due to higher contribution from these segments.

Capex (first phase) coming on stream from next month and majorly from January when a furnace will become operational, thus improving capacity. Benefits of capex will be seen to small extent in q3 fy 24, much more in q4 fy 24 and fully in FY 25.

Debt is marginally higher because of higher inventory due to expectation of higher business in second half.

Market share gains seen in Europe. The other players in Europe are seeing problems and hence Usha with its cost advantage and product offering is gaining market share. Not looking at acquisition as of now, but if opportunity arises and is very lucrative, will be interested.

Saudi market can be a good market oopportunity for the company. (needs to be seen.)

Dividend payout policy of minimum 25% of profits spelled out. If capex needs are low, dividend can be higher, or some other forms of returns to shareholders can be thought about.

Company has improved cash flows significantly y on y.

These are things I can recollect first hand and struck me as important. Overall company seems to be well placed for FY 25.

disc: invested, added more in recent correction.

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It may be the reason

@hitesh97

Stocks can fall 5-10% anytime due to selling pressure. If everytime a portfolio stock falls, I have to get worried, I cannot be an investor.

Here in Usha martin if you have read the threads in detail, its a well known fact that Prashant Jhawar is a seller in the stock off and on. He is a part of promoter group but not involved in running the business and probably might be planning to exit his holding over a period of time…

There could be other sellers with their own reasons…

As investors our primary and razor sharp focus has always got to be on the business of the company, its growth plans and how they are executed and how they play out in terms of numbers. For that one needs to read annual reports, concalls etc and detailed threads on VP.

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Promoter Neutral publishing house acquired 64550 shares

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