Thursday, 17 November 2011

Sintex Industries - Fallen Angel

Sintex Industries has corrected significantly over the last few quarters.


The main reason it has corrected is the currency overhang on their FCCB borrowing of $225 million. The market is assuming that since Sintex took on the loan at a rate of Rs 40.53 and the rupee has depreciated to Rs 50-51, there is a large impending forex loss.

Here is where I think the market is wrong. If you look at this year's annual report and read through the details of the FCCB, here are some of the facts you will get.

1. In respect of US$ 225 million zero coupons foreign currency convertible bonds (FCCBs) raised by the Company on March 12, 2008 during 2010-11, no FCCBs were converted into equity shares. The bondholders are entitled to apply for equity shares at a reseted price of `246.50 per share with a fixed rate of exchange on conversion of `40.53 to US$ 1. On full conversion of FCCBs paid up capital of the Company will increase by 36994928 equity shares of `1 each amounting to `3.70 crore.

2. Premium payable on redemption of FCCB conversion is 263.17 cr is already put in as Provisions in this years Balance Sheet.
3. Total Rs 986.11 cr Fixed Deposits. Rs. 507.11 cr are lying as unutilized amount of FCCB as part of the FD.
The 3rd point is the most critical one here. Out of $225 mn, nearly $100mn is lying unused in the bank as an FD. The company has a total of about $190 mn in Fixed Deposits on Mar 31, 2011. So, it should have no problems at all in paying back the FCCB. I am assuming they would not be converted as the price of Rs 246.50 will be tough to get to by Mar 31, 2013 when the FCCBs come up for redemption.

Sintex is also a company which has paid a dividend consistently for the last 78 years!!

Valuation
The Consolidated EPS for FY11 was 16.97. The management has guided a 20% revenue growth this year. Even if we take a conservative view and take a flat growth, at a consolidated Rs. 17 EPS, the stock is currently available at a PE of 5.1. This is less than half of the last 5 year's average PE of 11.

If someone can hold on for 2 years from now, the expected 2014 EPS is likely to be upwards of Rs 25. At a PE of 8-10, the possible price range is Rs 200-250. That is more than a 100% appreciation in 2 years.

Note: I am invested in Sintex and may be biased. For all investment decisions, please consult your financial planner.

Monday, 14 November 2011

Guru Speak: Warren Buffet's Partnership letters from 1957-1970

Warren Buffet's early days as an investment manager is documented in these letters. This was before the Berkshire Hathaway days when he managed money of friends, relatives and other known people.

For his Berkshire partnership letters, you can go to the Berkshire Hathaway website. You can also read "The Essays of Warren Buffet" by Lawrence Cunningham for a topic-by-topic coverage of the annual letter contents. Incidentally, this is one book that Warren Buffet himself recommends reading.

Buffett Partnership Letters 1957-1970

Sunday, 13 November 2011

Guru Speak:Michael Mauboussin

Michael Mauboussin Long Term Investing in a Short Term World
Mauboussin is a extremely successful value manager and thought leader. He has three written excellent books:
Think Twice: Harnessing The Power Of Counterintuition
More Than You Know
Expectations Investing: Reading Stock Prices For Better Returns
 

Sunday, 6 November 2011

Supreme Industries - Notes from Annual Report'2011

 Here are my notes on the 2010-11 annual report for Supreme Industries:-

* The Company is currently putting plants at two new locations. i.e in Halol (Gujarat) for composite cylinders and Hosur for Protective Packaging Products. Both these plants to be ready in Dec 2011 – Mar 2012 period.

* The Company invested a sum of RS 258 crores to augment capacities and to start a new
unit at Sriperumbudur in Tamilnadu. The company expects to invest Rs 200 crores in 2012.

PLASTIC PIPING SYSTEMS
* Growth was highly impacted due to high cost of raw material.
* Aqua Gold grew more than 40%.
* Lifeline CPVC grew more than 100%
* Fittings grew by over 40%
* After 3 years of degrowth, the exports grew this year by 14%

FURNITURE
* Overall segment grew by 25% by value and 13% by volume. This implies higher sale of high-margin products.
* The company is closing down the mats business. It has a annual revenue of only Rs 15 crores.

INDUSTRIAL PRODUCTS
* Strong growth of 30% overall
* Automotive products grew by 39% and appliances by 69%. Consumer electronics segment was weak.
* Company had bagged order for development of interior parts for new version of trucks from Tata Motors, which included completely assembled Instrument Panel, i.e. Cockpit.
* The Company has also bagged order for development of plastic parts for prestigious ‘Two Wheeler’, to be launched by Piaggio, sometime during early 2012.
* Expecting sustained growth of 25% to 30% year on year for next 3 to 5 years

MATERIAL HANDLING PRODUCTS
* Overall segment grew by 27% by value and 20% by volume. This implies higher sale of high-margin products.

PACKAGING PRODUCTS
* Packaging Films sales were stagnant. Company is trying to move into new areas of applications and reduce its dependency on oil packaging.
* Protective Packaging products grew by 26% by value and 13% by volume. This implies higher sale of high-margin products.

FINANCIALS
* The average rate of Interest has gone up to 9.72% from 7.93%.
* The Company has chalked out Capex of Rs 1000 crores over a period of five years from 2010-11 to 2014-15 across all the products to tap the growth opportunities and to keep the pace of growth momentum so as to achieve desired CAGR of around 20% on y-o-y basis.
* Crisil has upgraded the rating outlook to "AA-/Stable" from "A+/Positive"
* The Company would try to bring the interest cost below 1% of Total Turnover by the end of next year.

Expected EPS for June 2012 : 15-16
PE range : 12-15
Expected price range : 180-240

Wednesday, 2 November 2011

Guru Speak: Charlie Munger

A couple of old videos of Munger, but worth watching over and over.


University of Michingan-2010



Talk at Caltech-2008 

 

Learning from Security Analysis - Part 1

I have started re-reading Security Analysis, 6th edition, (also will add on things from the 5th ed). I have been putting it on the backburn...