Facts About the Stock Market Crash of 1929

Friends, as a Value Investor

you don’t need to waste your time reading a book on the Great 1929 Stock Market Crash because all that you ever wanted to know about this topic is lucidly explained below:

On 29 October 1929, the US stock market crashed. The day became forever after known as "Black Tuesday" The so-called "Great Crash" is known by a variety of monikers including the "Wall Street Crash of 1929" and the "Stock Market Crash of 1929". It marked the beginning of the Great Depression, a ten-year economic slump that left the US in desperate straits.

It was the biggest financial crisis of the 20th century: Over $16 billion was lost in October 1929, a fact that threw the entire US economy into disarray. Over 40 percent of all banks (approximately 10,000) failed in the next two years, resulting in losses of over $2 billion. Stocks were devalued by more than 80 percent. Unemployment went up to almost 25 percent. These Stock Market Crash 1929 facts define the parameters of the event.

Prior to "Black Thursday"

The years leading up to "Black Tuesday" were referred to as the "Roaring Twenties." The country was filled with optimism and people made money hand over fist. It was a time of wealth and excess. A famous economist of the time, Irving Fisher, was recorded as saying, "Stock prices have reached what looks like a permanently high plateau." It was a bull market, meaning that stock prices were higher than what their true value would indicate.

In the week prior to "Black Tuesday", the US stock market was significantly unstable. Stock prices rose and fell like tides, swelling into a squall one minute and ebbing dramatically the next. Periods of high selling were matched with periods of high buying, and the volume of the same were significant. On "Black Tuesday", over 16 million shares were traded, a record that was not broken until 1968 (when there were more significantly more shares on the market).

The Economics of the Crash

The stock market began a slide in value on "Black Tuesday"; in total, the stock market declined by 89 percent over the course of the next three years. This crash came on the end of a series of intense speculation. Not only was speculation heavy in the stock market itself, to the point that people would borrow money to buy stocks, but brokers would lend smaller investors more than 66 percent of the value of the stocks they purchased. More and more people borrowed and invested. At one point, over $8.5 billion was on loan, a number far exceeding the amount of currency in circulation at the time. The stock market had been rapidly escalating in value since 3 September 1928.

When on 24 October 1929 the stock market began to decline under that 3 September peak, panic ensued. So many people moved to sell stock that the stock was rapidly devalued.

Consequences of the Crash

The decline in the stock market resulted in the inability of investors to repay their loans in spite of the fact that only 16 percent of US households were invested in the stock market. Many companies went bankrupt, so access to credit was limited and people lost their jobs. In turn, consumer spending was depressed. As a result, companies received less revenue, people were laid off, and, eventually, those companies too went bankrupt.

Rebuilding the Nation

When Word War II began in 1939, US unemployment was 17.2 percent. The US borrowed over $1 billion for war spending; US manufacturing went up by 50 percent between 1939 and 1941. Although, in total, the US increased deficit spending to over 120 percent the gross domestic product (GDP), the end of World War II marked the beginning of the greatest economic boom America had ever experienced. The US GDP almost doubled from 1940 to 1945 and over 98 percent of the US population was employed, a record that still stands today.

Understanding the Crash

The Stock Market Crash of 1929 is reminiscent of the 2007-2009 Recession. In both cases, speculation and an overly optimistic economy lead to over-lending and an ultimate overvaluing of the economy that resulted in a serious downturn. However, what saved 2007 from turning into 1929 was the provisions put in place after the Stock Market Crash that precluded anything of that magnitude happening again. For example, federal legislation began to require that all banks have enough cash to cover all of its deposits..

Friends, allow me to reiterate : Never fear a crash. Embrace darkness because light invariably follows darkness and do muster the courage to invest when blood is running in the streets. Pray that there should never be a crash similar to that of 1929 but should you ever witness a moderate/severe crash in your life time, don't go into a coma. Instead, put on your armour of courage and wisdom and stay put! And, you will become a King amongst men. You will be richly rewarded. That's my word. And my word is my bond.

Courtesy:www.brighthub.com

SRF Ltd [Earlier name Shriram Fibres Ltd ] -- A strong, reliable and focussed company

SRF established in 1973 is a multi-business, multi-location company which a part of Bharat Sriram Group and is engaged in the manufacture of the following products :

• Textiles Business – manufactures Nylon Tyre Cord Fabrics & Coated Fbrics, Nylon Tyre Cord Fabric used as reinforcement for all kinds of tyres
• Chemical Business – manufactures Refrigerant Gases which is primarily used in air-conditioning and refrigeration.
• Pharma Chemicals Business – manufactures intermediates, conducts contract research, custom synthesis /contract services to the Pharma industry.
• Packaging Films Business – manufactures Biaxially Oriented Poly Ethylene Terephthalate [ BOPET ] or Polyster [ PET ] used in flexible packaging.

SRF has manufacturing facilities in Manali, Gwalior, Bhiwadi and Indore. Besides, it has operations in U.A.E, South Africa and Thailand.

In 2004, SRF became the first tyre cord company in the world to win the prestigious Deming Application Prize for Total Quality Management. In 2008, Mr. Arun Bharat Ram, Chairman, Chairman honoured with the prestigious Officer's Cross of the Order of Merit, presented by the Federal Government of Germany.

Asset Growth & Sales Growth

Gross assets which stood at Rs.1418 crores has touched Rs.2707 crores as of March 2010, an incremental growth of Rs.1259 crores and currently Rs.127 crores is capital WIP. All this is happening against the backdrop of a Debt Equity ratio which has been less than one for the past five years, meaning much of the expansion has been financed from internal accruals in the absence of equity dilution.

The top line is growing at a CARG of 11.08 per cent and PAT registered CARG of 24.33 per cent. Revenue and PAT for fiscal 2009-10 was Rs.2193 crores and Rs.309 crores respectively. The corresponding figures for fiscal 2008-09 was Rs.1812 crores and Rs.163 crores respectively.

Thus, topline has increased by 21 per cent whereas bottom line has impressively shot up by 89 per cent.

Good fundamentals

SRF has generated Net Profit margins in the range of 11-22 per cent since the last five years. The Debt Equity ratio is less than one and Book Value is around Rs.200 as against today’s Share price of Rs. 246.55, up by Rs.5.55 /2.30 per cent over previous day’s close. Besides having good working capital management, the company’s Return on Equity is 29.07 per cent and Return on Capital Employed is 26.40 per cent. The promotors stake in the company is 47.25 per cent.

Conclusion: SRF which has a Market capitalization of 1462 crores is available at a PE of just 4.73 and is definitely an attractive medium/long term buy considering the strong potential of the various business segments that the company operates in especially the technical textile business which contributes to more than 50 per cent revenue. Moreover, the company enjoys a global leadership status in the technical textile business segment. Now, on an Equity base of about Rs.60 crores, the EPS for fiscal works out to Rs.51 and if the company continues to perform well then we can apply a conservative PE of 10 and we get a piece of business that should be quoting at Rs.510/share! Hence, going forward we can expect the stock price to more than double in about a years time. And there is good news for short term investors too. From the technical angle too the stock is in a bullish territory with the Fibonacci price projections revealing the potential for the stock to move up to a level of Rs.317/= which signifies a return close to 30 per cent that can be generated probably in less than three months. In any case, SRF should be purchased and accumulated on sharp corrections to magnify returns.

Kishor S. Khot, [Kishor@hbjcapital.com], Equity Strategist, HBJ Capital Services Pvt Ltd

P R I C O L – A TURNAROUND SCRIP

PRICOL predominantly operates in the Motor Vehicle parts and accessories sector.

The company has seven plants spread across India as under:

• Two plants in Uttarakhand
• One plant in Gurgaon
• One plant in Pune and
• Three plants in Tamil Nadu

The company manufactures instrument clusters, speed sensors, fuel level sensors, vehicle security systems etc. These parts/components/accessories are supplied to the units of companies which manufacture motor cycles, scooters, 3-wheelers, cars, SUV’s, trucks, tractors and construction equipments.

There were major labour problems in PRICOL’s plant in Tamil Nadu some time back but now things are normal. All companies based in Tamil Nadu have to live with this one problem whereby the increasing number of disputes in major companies is due to the fight among the unions to show their supremacy to represent workers.

The Balance Sheet of PRICOL

PRICOL has an equity base of Rs.9 crores and reserves are 18.7 times of equity which stands at Rs.169.11 crores. The promoters stake in the company stands at 35.8 per cent.

The company’s Debt Equity ratio which was 1.98 in fiscal end 2008-09 now stands reduced to 1.43 as on 31 March 2010.

The total CashBank balance coupled with near cash Investments stood at Rs.37 crores as of 31 March 2010.

The company’s working capital is good especially if we consider that roughly 25 per cent of sales are outstanding/collectible at any given point of time.

The P&L a/c of PRICOL

For the I Q of 2010-11 Net Sales/Income from operations was Rs.189 crores as compared to I Q of 2009-10 which stood at Rs.164 crores, a top line growth of 15.2 per cent. PAT for I Q of 2010-11 was Rs. 9.30 crores as against Net Loss of Rs. 5.31 crores for corresponding quarter of previous fiscal.

For the fiscal period 2009-10 Net Sales/Income from operations was Rs. 742 crores as compared to 2008-09 which stood at Rs. 614 crores, a top line growth of 20.8 per cent.

Exports represented roughly 22.47 per cent in 2008-09 whereas it slipped to 14.69 per cent in 2009-10. The lower dependence on export revenue is appreciated for obvious reasons.

PAT for fiscal 2009-10 was Rs.25.48 crores as against Net Loss of Rs.30 crores during fiscal 2008-09

The Face Value is Rs.1/= and the 52 week range is Rs.33.95 – 10.26 and the shares of PRICOL are currently trading at Rs. 29.80 [ 27 July, 10 a.m. ] and the PE is 11.71.

Conclusion: Since the two wheeler and four wheeler industry is doing well and because PRICOL’s products have an established presence both in India as well as overseas markets, it is good medium term bet that may give reasonably good returns.By the way, auto industry recorded a growth of 25 per cent in 2009-10 over previous year. Expect this growth trend to continue long into the future at least for the next 5 to 6 years considering the strong demographics of India. Moreover, the company has just turned around and the only area of concern is the fluid labour situation in Tamil Nadu as briefly explained above. Those who love to embrace risks may well go ahead and embrace PRICOL and hold on to it for the medium term.

Kishor S. Khot, [Kishor@hbjcapital.com], Equity Strategist, HBJ Capital Services Pvt Ltd

The Indian Seamless Metal Tubes Limited – Seamless returns?

ISMT an abbreviation for The Indian Seamless Metal Tubes Limited which was promoted in 1977 by a team of technocrats. The company is well managed by Mr. Salil Taneja - Chief Executive Officer (CEO) who has 18 years rich experience in this line of business.

ISMT is the largest integrated specialized seamless tube manufacturer in India.

ISMT is one of the most diversified manufacturers of specialized seamless tubes in the world, producing tubes in the range of 6 to 273 mm OD.

And it’s the one of the most modern alloy Steel plants in India that produces a wide range of alloy steels from 20 to 225 mm diameter.

The company is well represented in the global market place by ISMT America, ISMT Europe, Structo Hydraulics AB, Sweeden . Besides, it has s group company called Taneja Aerospace and Aviation Ltd.[ TAAL ] . TAAL Technologies is a nichè Engineering Services and Technology Solutions company helping global corporations in Aerospace & Defense, Power Generation, Oil & Gas and Industrial Segments.

ISMT has two major manufacturing divisions, one in Ahmednagar and one in Baramati, the Installed Capacities of which are as under :

Installed Cap	Current	Proposed
Steel	250000 TPA	300000 TPA	To be completed by Q IV 2010
Tubes	155000 TPA	475000 TPA	Almost complete

Steel : Carbon Steel, Alloy, Bearing Steel for various industrial applications
Tubes : Hot finished and Cold finished tubes

Seamless pipes are used by the oil and gas exploration, auto components, boilers and mission critical / high pressure functions. Major customers of ISMT are Tata Motors, Bajaj Auto, M&M, ONGC, Oil etc.

Maharashtra Seamless Ltd having 500000 MTPA capacity ranks first and ISMT with 475000 MTPA capacity ranks second.

Backward Integration
A major quantum of high grade alloy steel produced by the company is used for captive consumption in the Tubes section and the balance is sold in the open market. This is a major part of the supply equation and the cost thereof is under management control.

Captive Power Plant
ISMT will soon have in place a 40 MW Captive Power Plant that will commence operations in second half of 2010-11 Thus uninterrupted power supply and cost thereof is totally under management control.

Growing Oil E&P sector
Rising oil prices, “peak oil” theory and massive investments in E&P and oil/gas transport networks has made ISMT move more towards high margin OCTG [ oil country tubular goods ] segment.

Thyssen Krupp Mannex (TKM) and ISMT have signed an agreement whereby TKM will represent ISMT for the sale of OCTG tubes in U.S.A., Canada, Iran, Iraq, Algeria and certain other countries in North Africa and the Middle East. With the addition of a new PQF Mill, ISMT is now well positioned to supply high quality Casings, Tubings and Line Pipe required by the Oil Exploration sector. The addition of TKM to ISMT's marketing network is expected to give a boost to OCTG tube sales and establish ISMT as global supplier of such tubes.

Besides, the robust growth in Oil E&P as evidenced by Baker Hughes “rig count” report seems to auger well for focusing more on Oil Casings and Tubing products.:

As per Baker Hughes Incorporated (NYSE: BHI) the international rig count for June 2010 was 1,099, up 9 from the 1,090 counted in May 2010, and up 132 from the 967 counted in June 2009. The international offshore rig count for June 2010 was 312, up 14 from the 298 counted in May 2010 and up 45 from the 267 counted in June 2009. [www.oilandgasonline.com ]

Growing Power Sector
1 lakh MW capacity addition in the 12th Five Year Plan augers well for the growth of ISMT which supplies Boiler Tubes to the power sector. Currently, the demand for such tubes far exceeds the supply which are met by imports. Besides, there is good replacement demand for boiler tubes.

The Negatives

• Slow down in oil E&P in case the price of oil goes downhill
• Increase in price of billets used for manufacturing seamless tubes
• Forex risks emanating from forex loans and export earnings

Financials

• For last five years topline is above Rs.1000 crores p.a.
• Equity base was rock steady at around Rs. 72.25 crores for last 5 years despite expansion which signifies that growth has not taken place through equity dilution.
• Operating profit has been in the range of 14-23 per cent.

Total Sales and Net Profits for fiscal 2009-10 was Rs.1193 crores and Rs.73 crores respectively. The corresponding figures for previous year was Rs.1300 crs and Rs. 56 crores.and thus profits for 2009-10 have increased by Rs.17 crores despite a 8.9 per cent reduction in sales. This was primarily possible due to better cost control especially that relating to raw material consumption.

The Future
Mr.Taneja, CEO of the company has this to say about the future of ISMT:
“The sectors that we are focused on and which will drive the company's growth are Energy, Construction, Oil & Natural Gas, Bearings, General Engineering and Mining. Fortunately all of these sectors are doing well and will, likely, continue to do so in spite of the general industrial slow down.”

Conclusion
If we consider the following factors, the stock price of ISMT will swiftly move up in the months to come:

• ISMT is an integrated player having a market share of 25 per cent
• The company’s products have wide application in High Pressure Oil & Gas Exploration & Drilling, Boiler, Automobiles, Process, Pipelines and Refineries
• Anti dumping effected by U.S. and China and probe on Chinese dumping by India
• Economies of scale and superior technology compared to its rivals
• Installation of SMS Meer, Mönchengladbach, Germany’s new seamless tube plant employing the PQF® process (Premium Quality Finishing) at Baramati, Maharashtra..
• Commissioning of 40 MW Captive Power Plant resulting in considerable savings in power costs.
• Increased focus on higher margin products like OCTG relating to Oil E&P.

The Market Cap is Rs. 766 crores, the shares are valued at PE of 10.46 and were last traded at 52.30, the 52 week range being Rs. 64.95 – 29.70. Face Value is Rs.5.

Now tell me, can you afford to ignore ISMT, a company which is gifted with a bright future backed by an ultra bright future in the global Oil E&P sector and the electrifying power sector of India!

Yes, and you may ask whether the current share price can give seamless/consistent returns and the answer is : Yes, indeed. Once can buy at the current levels of Rs.52 and on dips – the SIP way as always. ISMT is a good medium/long term bet.

Technically too the stock is in a bullish territory if we consider the fact that ISMT has crossed its 200 DMA of Rs.52 and expect the stock to move up once it crosses Resistance level of Rs. 53.40. The Fibonacci price projections reflects that ISMT has the potential of touching level of Rs.72/ share. Considering the robust and sophisticated business model of ISMT and the future prospects, the downside risk is minimum and yes the share price could slide down to 46 levels but then that’s part of the game and the yo-yo concept applies to all stocks.

Overall, one can expect 50 per cent return over a 6-12 month period which can be considered respectable when we consider the negative returns that we folks get by parking our money in PSU /Private Banks / Co-operative Banks [ the most dangerous of the lot where you may get “NO” returns at all ]. Remember Bank of Karad. By the way, 19 cooperative banks have gone bankrupt/closed operations in 2008-09 !

Kishor S. Khot, [Kishor@hbjcapital.com], Equity Strategist, HBJ Capital Services Pvt Ltd

Development Credit Bank - Fundamentally weak but technically sound

Development Credit Bank [ DCB ] raised INR 1.86 billion @Rs.26/ per share via its IPO in 2006. The issue was over subscribed 36 times.

DCB is a new generation private sector bank, DCB is the preferred banking services provider across 80 state-of-the-art branches across 10 states and two union territories. The bank opened its 1 st micro – finance branch in Gujarat during 2008. In 2009, DCB was adjudged the fastest growing Bancassurance Channel of Birla Sun Life Insurance. Very recently the bank has received permission to open two semi-urban/rural branches namely –one in Netrang, Bharuch and another one at Mandvi, Surat.

Strong Promotor
DCB has deep roots in India since its inception in the 1930’s. Its promoter the Aga Khan Fund for Economic Development (AKFED) holds 23.10 per cent stake.- BSE site. AKFED is an international development agency dedicated to promoting entrepreneurship. It had co-promoted HDFC in India in the late seventies

The men behind the money

• Mr.Nasser Munjee – the track record of DCB’s Chairman is simply fantastic. He was the Ex-Executive Director of HDFC and was instrumental in setting up IDFC.
• Mr. Murali, CEO has been recently inducted and he’s an Ex- Stanchart Executive
• Mr.Bharat Sampat, CFO has 24 years rich banking experience.
• Mr.K.S. Ramdas, He is Head of Corporate Banking & SME -30 yrs experience.

Not just a Bank, a Financial Supermarket
Apart from traditional banking products, DCB offers Investment Banking [ like demat, mutual funds, general/life insurance etc ], Forex Services, Housing Loans, Personal Loans, Corporate Banking & Trade Fin ance.and thus making the product offering complete

Adequately Capitalized
The Capital Adequacy under Basel II norms stood at 13.80 per cent for the quarter 30 June 2010 as compared to 13.22 per cent for quarter ended 30 June 20009. Since Basel II takes into account credit risk, market risk and operational risk, we may safely consider DCB’s capital to be adequate considering the fact that the minimum prescribed norm for private sector banks is 10 per cent.

As per RBI guidelines no entity or group can hold over 10 per cent stake in a private sector bank. Accordingly, DCB had submitted a detailed roadmap to the Reserve Bank to minimize the promoter holding to 10% by March, 2014.

Fast Forward
Now if we ponder over the following aspects, one can pretty well conclude that there is a lot of hidden potential that can get translated into higher share price if the targets envisaged by the bank are hit :

• Aiming to return to the profit path by the third quarter of FY 11
• Restrategising its business model by giving more thrust to SME and retail business
• It has targeted a 20% growth in both deposits and advances in the current fiscal as against 4% and 6% respectively in last year.
• The bank has a gross non-performing asset level of around 8.7% and a net NPA ratio of 3.1%. It aims to reduce these numbers to 6% and 2%respectively by the end of this financial year,
• DCB has a CASA of 36 % which is good as Axis has a CASA of 40 per cent!

Proposed re-alignment of Loan book [ figures in % ]

Segment	Current	Proposed
Retail	40	33
Corporate	33	25
SME	20 plus	40 plus

Dismal performance
The bank posted a lower net loss of Rs eight crore in the quarter ended 31 March as against a loss of around Rs91 crore in the same period in Q4 of previous year while its losses for the full financial year stood at Rs 78 crore as against Rs88 crore in FY 09.

I Q results – fiscal 2010-11
DCB has just announced I Q results for fiscal 2010-11. The total income was at Rs.149.86 crores for Quarter ended 30.6.2010 against Rs. 147.05 crores for previous Quarter ended 30.6.2009. The Net Profit [ Loss ] was [ Rs.2.90 crs ] for the quarter ended 30.6.2010 against [ Rs.35.27 crs ] for quarter ended 30.6.2009.

The small-cap private sector bank's current equity is Rs 199.98 crore. Face value per share is Rs 10. The CMP as at the time of writing this was Rs.50.40 / share, up by Rs.1.65 / 3.38 per cent. The 52 week range was Rs.53 – 27.50.

US alone accounted for as many as 60 banks failures during 2008-09, costing the FDIC Deposit Insurance Fund a whopping USD 25 billion.

Be rest assured that despite SLR of 25 per cent, CRR of 6 per cent and stringent Capital Adequacy norms, the Indian banking sector will grow from strength to strength. And DCB will soon turn from red to black.

Conclusion :

Going forward the share price will probably continue to rise as the expected good news starts to ooze out gradually and half the party will be over by then. So, why not participate in the party before all the guests start crowding in! After all, the markets punish late entrants by doling out just the left overs.

Indeed, DCB cannot be considered a buy on fundamentals but the fundamentals are gradually and radically undergoing a change that is bound to change the sentiments for this scrip in due course of time.

The techinicals of DCB are pretty good. The scrip is trading above its 200 DMA of Rs.39 Besides, DCB reflects an uptrend on a 2, 5 and 20 day basis. The scrip has just crossed its Resistance I level of Rs.49.64. The scrip finds support at Rs.47.51/share.

Incidentally, Sundaram BNP Paribas Equity Multiplier Fund just bought 1,677,436 shares of DCB at Rs 48.19 a share..

So, based on technicals, one may take up a small position in this scrip but going forward one would be able to optimize returns by buying on dips and holding on for the medium/long term. And let’s not forget that not too far off Indus Ind Bank was not doing well and the shares were trading in the range of Rs.35--40 for a long time but today you need to shell out Rs.208.65 per share to be precise!

Kishor S. Khot, [Kishor@hbjcapital.com], Equity Strategist, HBJ Capital Services Pvt Ltd

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Don’t miss this opportunity to grab our most popular packages packed with life changing ideas/opportunities!!! Watch this space for tomorrow.

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What should I be rich for?

[ WARNING : PARA GLIDING CAN BE FATALLY INJURIOUS TO YOUR LIFE, NOT HEALTH ]

A lot of people say that money doesn't make you happy. And they are right. There are plenty of rich people that are unsatisfied and unhappy with their life, but there are also poor people in the same situation.
Money doesn't make you happy by itself, but it gives you freedom. And feeling free, feeling that you are the owner of your lifetime is essential to be happy.

How many times have you heard people saying things like...
"I'd like to invite my wife to this nice restaurant, but I can't afford it"
"I would like to go travel around the world, but I have to pay a mortgage"
"I'd like to go back to university, but..."

The structure is always the same: A personal desire that has to be repressed because of financial reasons. If you happen to have a lot of repressed desires you are definitely not happy. And you are not happy not because you don't have money, you are unhappy because you don't have freedom. But money can make you free.

Freedom alone doesn't make you happy, but freedom is an essential ingredient for happiness.

Be the owner of your lifetime
Being rich gives you the chance to do whatever you want, whenever you want and wherever you want. The biggest advantage of being rich is the range of options you have. You are FREE to choose what to do, and what not to do. Ironically when you are rich, you don't have to do things you don't like only because of money. YOU are in control.

At this moment, ask to yourself how many things you do because you "have to". And how many you don't do because you "can't afford to".

It doesn't have to be this way, you can become the owner of your lifetime by growing rich.

You'll only live once [ except Jame Bond in the movie "You only live twice" ]
As Steve Jobs said, your time is limited. You won't live forever, and it's really a shame if you don't do things you'd love to just because of money. Once more, it's not about the money it's about the freedom that money can give you.
Don't waste your life doing what you "have to do" instead of what "you want to do".

I like my job, my life, and I feel free...
Now, but remember, nothing is forever. I also had a job that I liked, but then things changed and I had to take a job that I hated and my life became hell. I found myself hating my job, hating where I lived,... hating my life. That could have been avoided if my job wouldn't have been my only income source.
It doesn't matter how happy you are with your life now, tomorrow it may change. And if unfortunately it worsens, being rich will help you to keep your lifestyle inspite of the conditions. The growing-rich attitude can help you to weather the storm.

And the best way to grow rich is to follow the “Value Investment “ philosophies propounded by Benjamin Graham, the father of Value Investing. And, we have in place this valueinvestment site dedicated to the Benjamin Graham where you can find rich information and a lot of intellectual stuff that will help you to invite unlimited wealth and happiness in your lives.

As a Value Investor you don't have to take the trouble to woo Lady Luck because she is already on your side.

Remember : Fortune favors the bold and Lady Luck will always be by your side so long as you don't para glide and instead glide swiftly to buy scrips when 'blood is running in the streets."

So, do buy great ethically managed companies like say Bajaj Finserv when the markets crash if you consider that the current share price is out of your reach.

[ partial courtesey : www.growingrich.net ]

Kishor S. Khot, [Kishor@hbjcapital.com], Equity Strategist, HBJ Capital Services Pvt Ltd

Vikas WSP – Wish to bet on a wonder seed ?

The Company Vikas WSP Limited was established in 1998. The Hindi word “ Vikas” means development"WSP Stands for "Water Soluble Polymers"

The Company is one of India's foremost guar gum powder (GGP) manufacturer, supplying to all sectors of the food industry with an extensive range of quality products. Besides food, the company also offers guar gum for technical applications such as pet food, oil drilling , textile printing, mining paper, etc. Annual production Capacity of all grades of guar gum powder is 39900 MT. The company is committed to provide better products in a timely and efficient manner.

Warren Buffet advocates that you should buy a company whose business model you need to understand. So, lets take a quick look at what exactly is guar gum and who on earth needs this stuff.

Guar gum, also called guaran, is a gal actomannan. Galactomannans are often used in food products to increase the viscosity of the water phase. Guar gum is extracted from the guar bean, where it acts as a food and water store. The guar bean is principally grown in India and Pakistan, with smaller crops grown in the U.S., Australia, China and Africa. India accounts for about 80 percent of the global trade in guar products and Vikas WSP Ltd is the undisputed listed leader in this field.

The gum is derived from the albumin of guar seed (Cyamopsis tetragonolobus), an arid zone legume that grows in Gujarat and Haryana, but mainly in Rajasthan. It is a hydrocolloidal polysaccharide or a water-absorbing carbohydrate consisting of galactose and mannose molecules. The gum has amazing gelling properties. Its thickening power is 6-10 times that of starch.
Guar gum is used as a binding, thickening, film forming and lubricating agent. Broadly, the end use of guar gum is as under:

• More than half of the demand is industrial where it is used for recovering oil from low-yielding wells; for extraction of minerals, mainly uranium; for production of explosives (it dissolves in glycols and alcohol); for textile and carpet printing; for paper making; fire-fighting and water treatment.

• About 35 percent of the demand is food related: bakery products, frozen foods, instant mixes and ice creams, noodles, beverages, pastes and pet foods.

• Five percent of the consumption, and a growing one at that, is from the pharmaceutical industry for laxatives, slimming aids, diabetic treatment, tablet preparations and ointments.

• Another 5 percent of demand comes from hair-setting solutions, shampoos, soaps, lipsticks and mosquito coils.

With an Equity base of Rs. 13 crores and a very negligible Debt Equity ratio, Vikas WSP will soon cross Rs.500 crores turnover mark in fiscal 2010-11. Net Sales and PAT in fiscal 2009-10 was Rs. 458 crores and Rs.123 crores respectively thereby yielding PAT Margin of 31 per cent. The corresponding figures for the previous fiscal 2009-10, was Rs.365 crores and Rs.121 crores respectively.

While the Net Profits grew at a CARG of roughly 20 per cent in a span of 5 years, the Gross Fixed Assets which stood at Rs.168 crores as on 31 March2006 increased by CARG of roughly 31 per cent to touch Rs.669 crores as on 31 March 2009. Should we think twice that the net profit margins are too good to be true ? I think not.

In fact, Vikas WSP claims higher profitability mainly because of its ability to procure guar seed cheaper than its rivals. Farmers prefer to sell cheap because there is no factory except that of Vikas WSP in Shri Ganganagar, which is 500 kilometres from Jodhpur

The only matter of concern is the 14.8 per cent holding of the promoters. After all, you need to be a super human being to allow higher public participation in a company which churns out roughly 30 + per cent net profit margins! Of course, you can’t compare a Vikas with Infy but Infosy’s, if I am not mistaken has promoters holding of just 16.05 per cent. And everybody knows about the shareholding pattern of one of the most professional companies in our country, namely Larsen & Toubro.

Very recently, Vikas WSP is expected to execute a technical collaboration-cum-investment agreement with its overseas customer (oil/gas servicing company) for the manufacture of speciality chemicals of American Petroleum Institute (API) standards used in the oil drilling and fracturing process. Currently, these chemicals are manufactured in the US alone and used by the oil servicing companies worldwide.

Vikas WSP seems to be a lovely bear to hug in a market full of bulls – what with a PE of 2.7, a EV/EBITDA of 0.97 and a Price/BV of 0.17! But do let loose the bear once you have achieved your pre-set profit targets. Will aiming for a profit target of 60 to 100 per cent in a years’ time be asking for too much. I don’t think so. At times, we need to muster the courage to go where the angels fear to tread and give your self a good treat once in a way. After all the markets are getting heated by the day and in such a scenario not even best in class companies can give you such returns.

So the next time when you are enjoying eating your ice cream, pudding, canned sauces or taking a diet pill designed to create a sense of fullness, make no mistake that it will have the properties of the wonder stuff called “gum guar.” Enjoy the good things of life and keep investing intelligently and patiently to enjoy better things in life.

Happy Investing.


Kishor S. Khot, [Kishor@hbjcapital.com], Equity Strategist, HBJ Capital Services Pvt Ltd

Last Week's Telecomania

Over the last Indian telecom stocks were on a heady upward move throughout the last trading week. Frontline telecom stocks like Bharti & Idea notched up double digit gains. RCOM wasn't party to the party for reasons which I not cover in this post. (A good summary on RCOM is available here).

The latest move comes in the wake of analysts at Credit Suisse flagging off a bullish view on some stocks in the sector. The good folks at CS believe that with the decreasing competitive intensity in the sector, good times will be back soon. The analysts point out to the fact that some of the new operators who had been awarded 2G licenses 2 years back have been unable to commence operations, and are now desperately trying to bail out of the industry.

Tough times don't last. Tough companies do!!! Bharti, by virtue of its 125 million strong existing user base is well positioned to ride out the storm.

In an earlier post, I had mentioned that Bharti meets many of the criteria of Warren Buffett style long term buy-and-hold investing. This post is available here. The idea then was that if Buffett did come shopping to India, he might be very interested in looking at this stock. I still hold strongly to that view. I must point out here, that last week's price movement is not the main reason I am bullish on this stock. It is only a reinforcing factor, which tells me that given the publicity generated by Credit Suisse's recommendation, other foreign brokerages too may begin to put out Buy Calls on the stock, leading to a re-rating in the stock. As always, the trick is to buy when the analysts are at their most negative, and wait it out until they change their view.

Compilation of Forbes Magazine Articles on Buffett

Forbes magazine has published a retrospective of its coverage on Warren Buffet. The pdf is available here. It includes articles dating back all the way from the 1969, including one of the first features by a national level magazine in the US.

One fascinating article in the collection is titled 'The Berkshire Bunch', which tells the stories of common folk who invested in the original partnership funds set up by Buffett, when he was an investment manager. The article lists numerous families with multi-million dollar fortunes, derived solely from their investments with Buffett.

Its quite astonishing to me to see how these investors have loyally stuck with the man. These people made just one affirmative, which has led them to their current fortunes. But what is also equally important is the fact that these investors made several negative decisions over the past decades, i.e. they decided not to cash in on their profits. These investors would have several opportunities to sell off their positions (most notably the several booms and busts in the last 30-40 years), and have chosen to hang on.

A stock from a leading business group available at an attractive PE of just 3.96 !

Aditya Birla Chemicals Limited [ ABCL ]is engaged in the production of five major chemical groups, namely, chlor-alkali products, epichlorohydrin, epoxy resins, phosphates and sulphites. These chemicals find application across a wide range of industries including food, food processing, personal consumer products, coating, civil engineering, wind energy, composites, electrical, pulp and paper, detergents, water treatment and metal treatment.

Products of ABCL are exported to 58 countries across the globe. The products are manufactured at ten units — four in India, five in Thailand and one in China. The chemicals produced at these factories are recognised the world over for their high quality.

Sales/Revenues for fiscal 2009-10 was Rs.224 crores as compared to previous years fiscal of Rs.205 crores, an increase of roughly 9.02 per cent. However, PAT increased by 30.4 per cent –it was Rs. 46 crs for fiscal 2008-09 which increased to Rs.60 crores in 2009-10. The promoters stake in ABCL is 56.31 per cent whereas institutional holding [ including FII’s ] is a paltry 0.11 per cent.

The best part of ABCL’s business model is that the Operating Profit margins have been hovering in the range of 36-46 per cent for the past six years. Net Profit margins are impressive too – it’s in a range of 21-27 per cent.

ABCL ‘s scrip having a Face Value of Rs.10 is currently trading at Rs. 99.90, up by 1.27 per cent over yesterdays close. Currently the EPS is Rs.25.97 and hence the PE works out to 3.96 only. This company with a market capitalization of Rs.233 crores has a Debt Equity ratio of less than 0.25 and an Interest Cover of 14 times!

Now, one should really wonder why a company which sells its products to a wide range of industries, strong profit margins and a low P/BV of 0.77 should be trading at a low PE of 3.96 only and that too when the bulls have been roaming on Dalal Street for over a year! The leader in this industry is Tata Chemicals which has a PE of 18 and now if we consider a conservative PE of around 9 or even a bit lower, then too ABCL has potential to rise on pure fundamentals. The 52 week range was Rs.104/50.

Conclusion : Those who own the stock may continue to hold the stock. And those who don’t have ABCL in their portfolio, may consider adding a small portion of this stock on sharp corrections if one is extremely patient since such stocks are not the “buzzing” type of stocks. But, if for some reason the alco/chloro chemical industry gets re-rated by the big brothers [ read institutional/FII’s ] then this will be the first stock to go through the roof and then the rewards can be great. As they say ” patience will give you keys to the kingdom.”

But, unfortunately in the world of stocks, the ruthless impatience exhibited by investors in making quick gains and big bucks far outweighs the patience in embracing slow and steady returns that leads to the kingdom of wealth and happiness.

Kishor S. Khot, [Kishor@hbjcapital.com], Equity Strategist, HBJ Capital Services Pvt Ltd

Interview with Glen Arnold, author of Valuegrowth Investing

PE: What will the book do for the reader?

GA: Give insight into the key factors needed to evaluate a share leading to an ability to pick winning investments. Provide important rules to prevent your weaker emotional side urging you to make silly investment decisions

PE: Who did you have in mind when you wrote this book, and how might it help them?

GA: Investors with some knowledge of investing needing to fine-tune their stockpicking techniques. Investors need to view stocks as shares of businesses and not as gambling counters in a game.

PE: If we read your book, what will we get better at?

GA: Analysing businesses and creating barriers to prevent emotions from destroying your wealth.

PE: What's going on in the business world today that your book has something important to say about?

GA: Investors know they made a big mistake by not following sound investment principles in the 1990s bubble. They did not bother to analyse the underlying business. This book shows to those investors that truly realize the folly of not investigating a business the way to go from here.

PE: It’s an interesting title for a business book, what lies behind it?

GA: Investors generally view the "Value" investing method as opposite to the "Value" method. As Warren Buffett pointed out in 2000 this does not make sense. Growth and value go together – you need to identify companies that offer good returns. That requires that the shares are good value given the growth prospects.

PE: If there is one critical message that you would like readers take from your work, what would it be?

GA: Investment is about sound analysis of companies, forming reasonable expectations of returns and not gambling

PE: What in the world of management has done most to create the need for this book?

GA: The failure of most professional investors to achieve good returns for investors. They have not been following the "Valuegrowth rules"

PE: How does your book differ from/build on the work of previous books on this topic?

GA: It builds on the writings of the great investors of the twentieth century and the resent developments in the field of strategic analysis and finance theory

PE: All interesting stuff, so how should we go about putting it into action tomorrow?

GA: Start behaving like an investor, not a speculator. Know what you are buying a piece of.

PE: If we want to explore or implement these ideas further, what should we do?

GA: Follow the rules set down in the book. If they are to onerous for you (because they do require considerable commitment) then find a professional investor who understand the importance of analyzing a few companies in detail rather than trying to follow 1000s.

PE: Do management ideas like this have a real impact on what executives do day to day?

GA: The ideas in the book should have an impact of fund management and stock analysts. However, it would seem that a mere fraction of 1% follow these basic ideas. Most are far too short-term focused or have never learnt to analyse businesses properly to be able to out perform the stock market indices. But then, if every one was using the Valuegrowth method there would be fewer investment bargains out there

PE: Which "big idea" has had the greatest impact on the way you work?

GA: Share valuation is much like valuing a corner shop. You would not buy a corner shop business without investigating it thoroughly (Sales, margins, long-term prospect, competence and honest of staff, etc.) so why do you throw thousands of dollars into companies you know little about? Invest with the intention of never selling (you might change your mind as circumstance change, but the intention at the outset was to hold to infinity) How many stocks would fulfill that criteria? Not many. So you narrow down your search to companies with excellent long-term prospects. This conclusion is based on proven ability of the company to deliver.

The first rule of invest (as Warren Buffett says) is not to lose money. The second is not to forget the first. invest, don’t speculate. Ignore Mr Market and his manic-depressive moods. Buy if the market is throwing shares away cheap. Don’t base your valuation of the markets valuation.

PE: Finally, any questions that you'd like to ask your readers?

GA: Are you prepared for the hard work that is entailed in out-performing the market indices? After the 1990s you should be aware that easy returns are temporary without sound principles – they are just an illusion. A Valuegrowth investor would not have touched any dot.com or high flying telecom company in the 1990s because the underlying business was not analysible. What made you think you could understand owner earning levels for these companies years from now?

The full interview [ Courtesy http://www.pearsoned.co.uk/Bookshop/article ]

GIC Housing Housing Finance Ltd - Say Home, Sweet Home - Shares, Sweet Shares

GIC Housing Finance Limited, [ GICHFL ] was incorporated as 'GIC Grih Vitta Limited' on 12th December 1989. The name was changed to its present name vide a fresh Certificate of Incorporation issued on 16th November 1993. The Company was formed with the objective of entering in the field of direct lending to individuals and other corporates to accelerate the housing activities in India. The primary business of GICHFL is granting housing loans to individuals and to persons/entities engaged in construction of houses/flats for residential purposes.

GICHFL has presence in 27 locations (24 Business Centers & 3 Collection centers) across the country for business. It has got a strong marketing team, which is further assisted by Sales Associates.

The major promoter is General Insurance Corporation of India Ltd which has a 49.27 per cent stake in the company. FII’s who had 13.47 per cent stake as on 31.3.2009 have reduced their holding to 6.13 per cent as of now. Who said FII's can turn stocks upside-down, If that were the case, this scrip should be going downhill instead of going uphill!

The company’s generated Revenue was Rs.294.77 crores and Net Profits of Rs.22.76 crores in fiscal 2009-10 as compared to Sales of Rs.310.72 and Net Profit of Rs.18.8 crores in fiscal 2008-09. Thus, sales have decreased by 5.44 per cent while Net Profit has increased by 17.41 per cent. The company has done reasonably well considering the stiff competition it faces from HDFC, LIC Housing Finance, ICICI Bank etc. Besides, off late banks are being aggressive by offering “teaser rates” to home hunters, a dangerous practice.- thank God, loans are not sanctioned US –style.

I understand that SBI has finalized a proposal under which it will lend Rs.10 crores for buying land for housing against current sanction limit of Rs.1 crore considering 35 per cent margin. Guess SBI is the best place to get a list of the richest guys in India!

Net Profit margin in 2009-10 was 22.76 per cent and as such it is fast catching up with the HDFC, the leaders Net Profit margin of 25 per cent. LIC which is No.2 HFC in India has a net profit margin of 19.15 per cent.

GICHFL which generated EPS of Rs.12.46 in fiscal 2009-10 was quoting at Rs.91.95 on 1 June 2010, implying PE of 7.37. But now, the scrip has run up by 20.87 per cent to close at Rs.100/share at NSE on 2 July 2010, registering a PE of 8.82.

Housing finance is bound to increase considering the demographics of our country and the disintegration of joint family with each member of the house [ excluding husband-wife, of course ] wanting to purchase a separate house under some pretext or the other – income tax being the major reason. After all, you get deduction of Rs.1 lakh on the principal amount of the loan u/s 80 C. Besides, you can claim deduction u/s 24 from salary income, on the interest portion of the loan. The only problem is the unreasonably priced houses but on deeper thinking that too is no problem if we just think of present and future DIG’s of our country. DIG’s = Double Income Group

Peeping into the future : Considering the fact that the leader has a PE of 30, then even if we consider a conservative PE of 15 and EPS of around Rs13, we end up with a fair price of Rs. 195/share, an upside of 77 per cent!

Conclusion: Those who own GICHFL , verdict is : continue holding it. And those who don’t own it may, consider taking a call on the scrip, preferably on sharp corrections in order to magnify returns. GICHFL is not a multi bagger but it certainly has some value and presents one with an opportunity to make some decent returns in the short/medium term.

Kishor S. Khot, [Kishor@hbjcapital.com], Equity Strategist, HBJ Capital Services Pvt Ltd