{"id":1004,"date":"2020-06-02T19:33:00","date_gmt":"2020-06-02T19:33:00","guid":{"rendered":"http:\/\/oscillationss.blogspot.com\/?p=1004"},"modified":"2020-06-02T19:33:00","modified_gmt":"2020-06-02T19:33:00","slug":"value-investing-dance-without-passion-is-just-cultured-movement","status":"publish","type":"post","link":"https:\/\/oscillations.in\/?p=1004","title":{"rendered":"Value Investing: Dance without passion is just cultured movement"},"content":{"rendered":"
\n<\/p>\n
\n(Stocks covered: Godrej Agrovet, Laurus Labs, Tata power, Borosil renewables, BEL, BEML, Oberoi Realty, Mahindra Lifespace, Mahindra EPC, Rallis, NH, Max India, HCG)<\/span><\/p>\n

\nPassion is growth. Passion is
\ntransformation of energy. Once I was travelling in train and a nice fellow who
\nwas a classical dancer and dance teacher was travelling with me. He was
\nexplaining about dance to other passengers and then he showed us a video of
\nsome party where one fellow was dancing full of energy but with unrhythmic
\nsteps. Then he explained that there is a natural rhythm in our body but that
\nfellow in the video is dancing badly and then he pointed out another fellow
\nwith almost perfect dance steps. But I told him to look at the energy and
\npassion in the dance of first fellow (bad one) while the focus of other perfect
\nfellow was on his steps only as he was looking towards camera and other people
\nall the time. Then dance teacher asked me why focus on passion? \u201cBecause
\ndance without passion is just cultured movement,\u201d<\/b> was my reply. I told
\nhim that in Lord Siva\u2019s Tandava extreme passion is the underlying force\u2026it is not
\nthe cultured movement\u2026and when Lord Shiva is overwhelmed with passion then even his
\ndance becomes a cosmic event.<\/div>\n

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\nAnd it is strange that I find the
\nimplications of passion in each and every sphere of life. Any action without
\npassion is just a cultured movement. Food, sex etc. provide physical
\ncontentment and joy but passion is the food for the soul\u2026it is the realm of
\nspirituality. Expression can be in any direction (dance, music, science)
\nbecause expression itself is the culmination. We do 9 to 6 job but this is not
\nour passion because our focus is not on the \u201cexpression\u201d (job) but on the end
\nresult-money. Passion is the enjoyment of expression. And strangely when it is
\nabout enjoyment of expression then most of the times a passionate businessman
\n(Dr. Devi Shetty) is more spiritual than a religious fellow because most of our
\nreligious fellows do not enjoy the journey…the expression but only their expected
\ncomforts from religion including ego (the most dangerous thing in this world is
\nthe Goodman\u2019s Ego).<\/div>\n
\n<\/div>\n
\nWhen the likes of Dr. Devi shetty
\n(Narayana Healthcare) decides to extend his passion into business then his
\npassion alone is what makes a stock a Value Buy. Value investing for me is
\nfinding these passionate businesses because financial data is just the
\nresult\/demonstration of the actions of these passionate beings. Please note “passion” factor is not just about one man or promoter but includes everything in an organization which makes it capable <\/b>to create superior products with high entry barriers. Promoter is just one of the factors which create or develop this capability in an organization like technical expertise and superior R&D focus (like Biocon and Laurus Labs), strong brand strength and first mover advantage (like Tata entered in staples via Tata Sampann Brand), Networking effects (like MCX), Superior and vast supply chain etc. <\/span>Financial
\nmetrics do not create a business (and a value buy) but it is the business whose
\nperformance creates financial data. So a true value investor does not find value
\nin a stock which is \u201ccheap\u201d on financial metrics but he yearns for
\n\u201cpremium-ness\u201d in the business model which can create a great product with
\nstrong entry barriers. Passion factor in business implies the ability to create
\na superior product with scale with high entry barriers. I think in traditional
\nold school value investing there was too much focus on financial metrics like
\nP\/BV, PE ratio, FCF, Debt equity ratio, margin of safety and so on and then in
\nthe end a small mention of business model. <\/div>\n
\n<\/div>\n
\nI think there is a need to
\nrealize that this financial melodrama emerges from business only so first value
\npoint is the business model not the other way round. Financial metrics are
\ntransitory. Strength of business model (passion) is permanent (relatively). Some time back, I gave much better example to a student
\nabout real (new age) value investing. I gave him the example of Indian
\nEpic Mahabharata wherein before the start of war both Duryodhan and Arjuna went
\nto meet Lord Krishna for his help and support for the upcoming war. Duryodhan
\nwas the old school value investor so he chose the army of Lord Krishna (
\nFinancial metrics) but Arjuna who was the world\u2019s first new age value investor
\npicked Lord Krishna (passion, Transformation potential) and rest is the history
\nhow Lord Krishna, even without picking a weapon, was instrumental in the win of
\nPandavas due to his divine presence and unhuman wisdom.<\/span><\/div>\n
\n
<\/span><\/div>\n
\nPresent day investing looks more
\nlike a simulation model where too much focus is on giving a target price of the
\nstock advised though i am sure that the target given is not achieved 90% of the
\ntime in the manner it was proposed. This addiction for giving a target price
\ncomes from a feeling to demonstrate the superiority of the research- a target
\nmeans great study and analysis. But if value investing is this simulation model
\nthen very soon computers will do the same much better than us (they are already
\ndoing in fact) and there is no job for analysts in the future. But fortunately investing
\nis not simulation model. The main task of investing is to find the right
\ndirection which requires creativity, imagination, huge data of businesses and
\neconomies, and then some amount of luck. Financial metrics are helpful in
\nchoosing or discarding a vehicle to cover the distance in the right direction
\nbut they can\u2019t decide the right direction. <\/div>\n
\n<\/div>\n
\nSo strength of business model
\nwhich entails future scope of large scale of operations and transformation
\npotential (like in Agriculture and electronics goods manufacturing in India) is
\nthe most important value accretion factor than any financial data. In many of
\nmy earlier posts I have mentioned this aspect in picking a great stock.<\/p>\n

I do use
\nfinancial data for judging the capacity and sniffing (dubious companies) but value for me emerges from business model
\nand entry barriers. It is just like mining of Gold. Here, the main capability is not superior mining equipments but the ability to assess the presence of Gold. If someone can’t assess the presence of Gold then he is just taking high risk and high possibility that superior mining equipments will prove useless and costly. Financial metrics are just like mining equipments but true value event for business is the superior capability to assess the presence of Gold.<\/span>\n<\/div>\n

\n<\/div>\n
\nValue
\ninvesting was more relevant in the age of less competitive business landscape<\/span><\/u><\/b><\/div>\n
\n
<\/span><\/u><\/b><\/div>\n
\nValue investing was useful (or
\ngreat) when there was \u201cinformation scarcity\u201d. In old times, some 50-60-70-80-90
\nyears back there was not much public information about various factors and
\ndynamics about the business and a particular stock because of limitations and
\ncapability of media reach in those times. Only the privileged ones had the
\ntimely access to the specific information. Also, most of the public was not
\naware of the dynamics of stock market. For them stocks meant speculation. For
\nthem a stock like Colgate and a local Tooth Powder stock were same because for
\nthem stocks were just prices\u2026nothing else. So stocks were lying here and there
\nwith asymmetrical and irrational buyers. Hence this helped and created
\nopportunities for value picks because financial data\/metrics were indeed the
\nrepresentatives of sound underlying business prospectus.<\/div>\n
\n<\/div>\n
\nBut I think another major factor
\nwas that businesses were much simpler and competition was less and globalization
\nimpact was much lower. Hence one could easily believe that the business growth
\nline would mostly be a straight line. But not anymore. Globalization and flow
\nof capital and technologies across the globe has rendered businesses very
\ncomplex. Technological breakthroughs are occurring at such a fast pace that valuation
\nmethodologies like 10 year DCF have become useless because in this extremely
\nfast changing environment nobody can estimate future cash flows as far as 10
\nyears. Earlier, businesses were built upon capital but now capital is easily
\navailable. The differentiating factor is the business strategy and capability
\nto create high entry barrier products. Like, optical disc storage manufacturers
\nlike Moser Baer tasted grand success and destruction of their business
\ncompletely just in a span of 5-6 years. These days, slight delay in taking
\ncritical business decisions may prove catastrophic just like in case of Nokia
\nand Kodak. That\u2019s why study of business model is the first value factor in analyzing
\na stock\/business. <\/div>\n
\n<\/div>\n
\nMost
\nimportant: Business strength is relative not standalone<\/span><\/u><\/b><\/div>\n
\n
<\/span><\/u><\/b><\/div>\n
\nOne thing which I find missing in
\nall business analysis whether it is value investing or credit rating is
\nrelative strength. A business is under constant threat from competition and
\nmost of the times businesses are vanished not due to mistakes or frauds but due
\nto strong competition. So first thing, strength in business is not standalone
\nbut it is relative. Like, recently I was reading a credit rating report on
\nOberoi realty which was revised downward to negative due to Covid. Their logic
\nis simple that there is pressure on its business but this even a layman can say.
\nBut business and life is not that simple. Oberoi is having one of the strongest
\nbalance sheet due to low debt and very strong brand positioning so it has much
\nbetter capability to withstand any short to medium term pressure as compared to
\nother players with very weak balance sheets due to high debt. So there is high
\npossibility that this may knock out many small and weak players and due to scope
\nof leverage (that too at lower interest rates) Oberoi realty can even acquire
\nthese properties or land at much lower prices. So if one can see then its
\nrelative strength is increased. Same is the case with Mahindra Lifespace which
\nis also having least amount of debt and poised to acquire properties and will enter
\ninto partnerships with other weak players. Both <\/span><\/span>Oberoi realty (CMP 300) and <\/span>Mahindra Lifespace (CMP 200)<\/span> <\/span>are my preferred picks for real estate sector.<\/span><\/span><\/div>\n
\n
<\/span><\/div>\n
\nSo there is nothing like standalone
\nstrength in business and many cases when we may be witnessing a deterioration
\nin the business and financial metrics of a stock\/firm (and may declare unfit as
\na value buy) but there are strong chances that its relative strength may have
\nincreased massively which will pave the way for even stronger and comprehensive
\nbusiness growth in the future. We can see the impact of this aspect in many
\ncases and I think the interplay will be more prominent in current Covid crisis.
\nThere will be many industries like Hotels, restaurants where strong and
\norganized players will reap the benefits of increased relative strength in the
\nfuture. <\/span><\/div>\n
\n
<\/span><\/div>\n
\nRisks and
\npotential are embedded in business and economic realities not in financial
\nmetrics<\/span><\/u><\/b><\/div>\n
\n
<\/span><\/u><\/b><\/div>\n
\nJust to elaborate above points in more details…i am putting some cases below
\nwhere some stocks were great value picks as per value investing metrics but due to
\nsubtle intricacies of their business models there were inherent risks and
\npotential threats to their businesses. And similarly there are some sectors\/stocks which are a great buy because of their business model and strengths which will create high growth in the future.<\/div>\n
\n<\/div>\n
\nBanks and NBFC
\nstocks<\/span><\/u><\/b><\/div>\n
\n
<\/span><\/u><\/b><\/div>\n
\nLet\u2019s take the case of banking
\nand NBFC stocks because I have always seen very strong fascination for these
\nstocks in Indian market especially and all the times I have seen metrics like Price
\nover book value being used for pointing out the undervaluation and scope for
\ngrowth. I have no stock related to banking and NBFC businesses in my portfolio.
\nThese two businesses are highly leveraged ones so domain expertise and focus is
\nvery important. I have always found these very risky because of their current
\nerratic business model. Like, the main task of Banks is accumulation of savings
\nand creation of credit but they are distributing long term risky infrastructure
\nloans which for me is not their forte. They lack the expertise to assess the
\nrisk associated with these infrastructure projects. I invested in NBFC\u2019s in
\n2016 when I felt that because of their domain expertise in infrastructure
\nsector they can fill up the vacuum created by Banks as banks were busy in
\nrepairing their NPA hit balance sheets. But I cashed out of all NBFC stocks in
\nthe beginning of 2018 (around 10 times gains) because I realized that they were
\nalso going way over the top. Everybody was becoming an infra developer because
\nof low hanging debt money and I thought the debt will never be paid back.<\/div>\n
\n<\/div>\n
\nFurther, apart from risky loans
\nby NBFC\u2019s other factor was the high rate of interest in India and I was having
\ndoubts over the paying capacity of the builders. I don\u2019t think infra development
\nis a viable business at interest rates of 10%-15%. Infra should be developed at
\nlower interest rates and for this it is the duty of government to give interest
\nsubsidy. I am waiting for long time to see interest rates falling in India and
\nI hope that this may happen now. It looks absurd to have such a high interest
\nrates for a strong economy like India. In fact large borrowings by the Government is one of the main reason for high interest rates in India as Govt competes for funds with private sector. <\/span>So if they can\u2019t control or lower it
\nthen they should give interest subsidy for infra which is going to add some
\nvalue into our economy like large scale warehouses for storing agro produce to
\nsave the same from wasting, roads and railway enabling faster and cheaper
\nmovement of goods. These infra investments pay for their debt on their own as
\nthey do value addition. <\/div>\n
\n<\/div>\n
\nBut still, the records of our
\nbanks and NBFC\u2019s with regard to infra debts is very bad and I think there is
\nmore to the story than just bad poorly planned infra projects itself. Because I
\nthink, debt and infrastructure are made for each other\u2026made in heaven. The
\nloans taken by normal business entities like Telecom, FMCG, Steel, chemicals
\nare more risky than infra loans because there is tough competition in these
\nindustries and often it is happening that two competitors are fighting hard for
\nsame business\/market share with loans and as we can guess one is going to bite
\nthe dust and his loans will turn NPA i.e. the fight we are seeing in telecom
\nnow. So debt to normal businesses is very dangerous and requires high skills in
\nallocation of debt. If one particular sector is already having high debt and
\nchances of demand in that sector may go down or there may be severe competition
\nand price war coming so in that case caution is required in allocating loans to
\nthat sector.<\/div>\n
\n<\/div>\n
\nBut Infra is different. Due to
\ncompetition and miscalculations by businesses, we can create excess (redundant)
\ncapacity in steel sector but can we lay extra gas pipeline of 5000 KM length??
\nCan we make another road parallel to a newly constructed road?? Can we make an
\nadditional Airport. So as we can see there is hardly any scope for redundancy
\nin infra and if properly planned (like costs during bid stage) then chances of
\nfailure are very less in Infra. That\u2019s why I feel there should be low chances
\nof NPA in infra but it needs lower interest rates. However, government can
\nconstruct excess infrastructure to create jobs in the economy but which may not
\nadd any value to the GDP growth like in the previous post I have given the example
\nof investments made by Chinese government in waste and excess infrastructure
\njust to grow the GDP but these infra is not used. But there is no risk for the
\ninfra developer here.<\/div>\n
\n<\/div>\n
\nCurrent
\nconsumption vs productive business investments<\/span><\/u><\/b><\/div>\n
\n
<\/span><\/u><\/b><\/div>\n
\nFurther, I don\u2019t rate lending for
\ncurrent consumption (relative to investment) very high. We are just dragging
\nthe future consumption into the present and demand for these consumption loans
\nraises the interest rates. Consumer credit is not used to generate the income
\nthat will pay off the loan, as with business finance. Instead, payment of
\nconsumer loan will make people spend less so any spike in the GDP is reversed. <\/span>So interest paid on consumer loan does not
\nhave much economic development role and it is more like a rent on the economy.
\nBut giving a car loan, housing loan and personal loan is less risky than infra
\nloans so lenders love these and because these are mostly secured so credit
\ncreation here is more like a rent. Also the assets like houses, cars etc. do
\nnot pay for their debt (more cars means more oil import also) because they do
\nnot generate income like that of a business asset. They are paid from the
\nfuture savings so their impact on GDP growth is lesser. So more lending should
\nbe for business asset for a growing economy like India rather than consumption
\nloans. India first needs to put money for business investments then we can
\nthink of a consumption based economy. <\/div>\n
\n<\/div>\n
\nSo banks\u2019 main role should be the
\ncredit formation for tangible productive investments in the economy like for
\nelectronics goods manufacturing which will generate more income for paying the
\ndebt. But these days most of the bank finance is used for financing of real
\nestate, business buyouts and financial assets like Bonds which are already in
\nplace. So for me, in their current avatars banks and NBFC\u2019s were always very
\nrisky businesses for me regardless of the strength of their balance sheet which
\nis always transitory. <\/div>\n
\n<\/div>\n
\nThe pressure on GDP growth we are
\nfeeling now is because of lesser investments in high growth sectors like
\nelectronics goods. Now we need new avenues for growth and for these investments
\nis must like solar power equipment manufacturing. Now focus should not be on
\ngrowing consumption because those who can consume they are already doing it and
\nthose who can\u2019t needs money which will come from jobs and jobs will be
\ngenerated by business investments. So if you ask me then consumption always
\nfollows investments\u2026it is not the other way round as is being felt. <\/div>\n
\n<\/div>\n
\nAuto sector
\nwoes and new torch bearers for Economic growth<\/span><\/u><\/b><\/div>\n
\n
<\/span><\/u><\/b><\/div>\n
\nCurrent pain in the Auto sector
\ndoes not imply the malfunctioning of our economy. Actually what we are seeing
\nnow in our economy and in Auto sector is self-correction mechanism of a growing
\neconomy. While growing fast, this is natural that there is some misallocation
\nof resources as one can\u2019t oversee everything in minute details in a vast
\neconomy. Like we created vast manufacturing capabilities in Autos but none for
\nelectronics goods and saturation in auto is hitting us now. Further most of
\ncars are sold (80%) on credit in India so natural demand was always low. Also,
\nour Auto sector could not capture the export market due to product quality
\nissues as India is a market of cheap and small car. But still, there is still a
\nchance for our auto sector to grow their export business. So in an economy, in
\ncorrection mode resources shift and structural changes take place like new
\ndemand and supply centers will emerge. This is perfectly normal and good thing
\nabout our economy is that we can still control it, direct it because we are not
\nprimarily an export oriented economy (demand is local) nor we are a saturated
\none like USA where they are trying to make people consume more and more.<\/div>\n
\n<\/div>\n
\nElectronics
\ngoods manufacturing<\/span><\/u><\/b> is the best alternative because of the sheer
\nsize of demand which is met entirely from imports. So here, without growing the
\naggregate demand in the economy we can grow the size of the economy by import
\nsubstitution and with our impressive record in Auto sector there is nothing
\nthat should stop us because we are already the global leader in chip designing
\nwhich are used in these electronics products. <\/p>\n

Defense is another sector where i think huge scope for local growth and India has no choice but to go for local manufacturing as we can’t fund the massive defense spending by imports. Here, i am investing in BEL (now at 73) because apart from defense it has equally potent non-defense business and it has everything to venture big time into electronics products manufacturing in India. Also, it gets the defense work from all other defense firms like HAL, BDL, Midhani etc. so it is like a proxy for the growth of Indian defense sector. BEML i like mainly for its Metro rail manufacturing in India, first Indian player to do this…has 50% share in local manufacturing. It has equally great defense business and govt. is going for the strategic sale of BEML (now at 600) so this alone can trigger a massive upside.<\/span><\/div>\n

\n<\/div>\n
\nHealthcare<\/span><\/u><\/b>
\nis another stunning option and this is where we have unmatchable technical
\nexpertise and we can create an affordable global hub for healthcare services to
\npromote medical tourism. We already are one of the biggest and highest growing in
\nmedical tourism but we can create a real giant much bigger than IT industry.
\nUnlike other industries, healthcare sector create more jobs as the role of
\nmachines are comparatively less. Narayana Healthcare, Max India and HCG are my picks for this sector.<\/span>
\n
<\/span>
\n<\/span><\/p>\n
\nLaurus
\nlabs is another stunning stock which I think is ignored by market due to recent variability in financials\/Profits though it was having one of the highest passion quotient
\namong all Indian Pharma stocks. It is one of the best in complex API globally courtesy its strong focus and investments in R&D. Last year, due to raw material sourcing issues
\nfrom China, its profits were hit as it could not raise the price of its
\nproducts. But this has given Laurus an opportunity to do backward integration
\nto manufacture the same in house cost effectively. Then there was the impact of
\ncapital investments for its formulations business. It invested some 500 cr for
\nthe business but it takes time for the new business to start generating
\nrevenues and profits. Laurus was in investment mode for past few years and it
\nhas invested some 900 cr overall in last 3 years or so. So apart from normal
\nrunning expenditures of these newly created assets, the impact of depreciation
\nwas significant and this has alone hit the bottom line and I have seen many
\ntimes investors lack the understanding of depreciation which is a non-cash item
\nand for new ventures can distort the profit figure artificially. Like its
\nrevenues were increased just 30% from 1800 cr in 2016 to 2300 cr in 2019 but
\nits depreciation cost almost doubled to 164 cr vs 92 cr. Other expenses
\nincreased from 200 cr to 400 cr. So as we can see, it was not that something
\nhas hit the earning potential of its existing business. It was just the impact
\nof expenses\/charges related to unused and preliminary assets. At 470 this one
\nis a great buy. I have added good qty at 300-330 amid covid crisis.<\/b><\/span><\/div>\n<\/div>\n
\n<\/div>\n
\nSolar
\npower equipment manufacturing in India<\/span><\/u><\/b>. It is clear even to a
\nlayman that we can\u2019t build our solar dreams on imports (80-90% equipments are
\nimported) because then we are better to stick with thermal power. At least the
\nincome will be generated in India. So we have no choice but to promote solar
\nmanufacturing in india and for that government should give free land, cheap
\npower, low interest loans and for that they have to ration the resources
\navailable in the budget. I am even in favour of RBI creating credit (at 1%
\ninterest rate) for solar and electronics goods investments because in any case
\nbanks are not lending money to them. Government has accumulated sizeable amount
\nby imposing safeguarding duty on solar and electronics goods so that money
\nshould strictly be used for the purpose of growing manufacturing for these
\nsectors in the form of subsidies. Here i like Borosil Renewable very much which is only indian company producing solar glass of top notch quality and recently invested big in doubling its production capacity to cater to coming local demand. I have invested quite a bit in it recently at 35. This is the best pick for solar sector as of now after Tata power which is another one i have added at 30-33 recently having order book of some 9000 cr. Tata power may be the stock of this year.<\/span>
\nBut if one looks at the financials and books of these two then they are not anywhere near to be regarded as value buys but when you study their business and their relative strength they are deep value buys.<\/p>\n<\/div>\n
\nAgriculture
\none of the best Bet:<\/span><\/u><\/b> <\/span>India
\nhas huge land fit for agriculture. Some 60% of our land is fit for agriculture
\nwhich is among the highest in the world. India has some 160 million hectares
\narable land which is second highest in the world\u2026larger than china. USA is the
\nfirst. But just look at our productivity as compared to China. Like in Rice,
\nChina\u2019s yield is double of India. So, India has large arable land but less
\nminerals (mining) so it is prudent for India to build an agriculture based
\neconomy for exports and build industries based on agriculture like food
\nprocessing etc. But not much work has been done into this. Corporates and their
\ninvestments are required for this. So if you ask me, this presents a grand
\nopportunity because sooner or later India has to focus on this. So these days I
\nam again looking for promising bets in agriculture sector and so far has picked
\nstocks like BASF, Godrej Agrovet, Mahindra EPC (got a bargain at 80 recently), Rallis India
\netc. Godrej Agrovet is a stunning player and a great proxy for agriculture sector growth. I have no doubts that after the recent reforms in APMC acts by Modi Govt, Godrej Agrovet will go for Contract farming for Palm oil at massive scale. Why i feel this is because in other agro commodities India is quite self sufficient but we import huge amount of Palm oil (Pulses is also a very big import) so we need this to substitute imports. Godrej Agrovet has massive turnover of 7000 cr with very diversified streams of revenue. It is into animal feed, Agrochemicals and seeds, Dairy, Oil palm, FMCG (Godrej Tyson foods). Animal food is the biggest contributor of the topline with 3700 cr, Agrochemicals at 1100 cr, Dairy at 1200 cr, Oil palm at 700 cr, FMCG 500 cr. So it is adequately diversified into various sectors related to agriculture. At 370 it is a steal and i am investing good chunk of my portfolio in it.<\/span><\/div>\n
\n<\/div>\n
\nI think corporates like Tata,
\nMahindra should be encouraged to make large investments for growing basic
\nagriculture in India. To protect and look after the interests of farmers state
\ngovernments can become equity partners in these projects. Just take the case of development of large integrated
\nindustrial clusters by Mahindra Lifespace (Mahindra world city) in Chennai and
\nJaipur (1500 and 3000 acres) in partnership with state governments. India needs
\ntype of plug and play industrial clusters where manufacturing can be started
\nimmediately without putting large investments and time. These are preferred by
\nforeign firms and in these integrated cities developed by Mahindra (Chennai is
\nfully leased out) foreign manufacturers\/businesses are the main customers. Mahindra
\nLifespace is one stock for which I really see a great future and this one is a
\ngreat value pick at 180.<\/span><\/u><\/b><\/span><\/div>\n
\n<\/div>\n
\nOne last
\nexample on DHFL<\/span><\/u><\/b><\/div>\n
\n
<\/span><\/u><\/b><\/div>\n
\nLastly, just want to share a part
\nof my blog post on Nelco (click here)<\/a> posted in Dec-2017 wherein
\nI have explained the relevancy of financial analysis and also expressed my
\nviews on the riskiness of DHFL which was around 600 at that time (now at 12):<\/div>\n
\n<\/div>\n
\nSometimes
\nI feel that understanding when and how to use financial analysis is more
\ncomplex than learning various financial analysis tools itself. Like, for
\nexample, let\u2019s take the case of ROE\u2026I have seen people using this ratio to
\ncompare one stock with other industry stocks when in fact this ratio should be
\nused first of all for comparing it with the COST OF EQUITY of the stock under
\nanalysis. Cost of equity of each organization is different keeping in view the
\nriskiness of the operations of the organization. The more the riskiness higher
\nis the cost of equity. ROE should be compared with this Cost of equity not with
\nthe ROE of other companies. Just let me give you a hypothetical example of PNB
\nhousing and DHFL. Both have ROE of around 15% but PNB trades at PE of 30 as
\ncompared to 20 of DHFL. Now I have seen reports which simply conclude that as
\nROE is same of the two stocks (not just these two) so DHFL is undervalued to
\nthe extent of 50% as compared to PNB. <\/span><\/i><\/div>\n
\n
<\/span><\/i><\/div>\n
\nBut
\nbusiness profile of DHFL is more risky because it provides housing loans to low
\nincome and self-employed people while PNB is more focused on salaried employees
\n(just assuming) due to its banking reach. So keeping in the view the high
\nriskiness of business of DHFL (due to high rate of default) cost of equity of
\nDHFL should be much higher than PNB (So as its Bond Int rates) and at once the
\nundervaluation margin of DHFL will disappear. This safety is the reason HDFC
\nwill go on commanding premium valuations even if its ROE is lower than others.<\/span><\/i><\/div>\n
\n
<\/span><\/i><\/div>\n
\nSo
\nI have always felt that for new emerging sectors\/products (Like IOT<\/st1:stockticker>, Geo-spatial, Agri warehousing finance) the
\nfocus should be on to evaluate whether they can create\/add some value on its
\nown as only that\u2019ll ensure their long term viability. Affordable supply and
\ncorresponding high demand is the most significant factor for a new technology\/product
\nto achieve widespread acceptability and growth. So in the coming paragraphs
\nwe\u2019ll endeavor to find out whether the Satcom industry in India can add some
\nvalue (solve a problem) on its own, can create adequate supply at affordable
\nprices in order to create long term value for itself. This is going to be more
\nfundamental with least (or no) focus on financial data of the current industry
\nplayers as at current scale it is not required.<\/span><\/i><\/div>\n
\n<\/div>\n

(Views are personal and should not be taken as a recommendation for buying or selling a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing. I am not a certified Sebi Analyst and holding the shares discussed in this Post. <\/span>Reach me at oscillationss@yahoo.in<\/span>).<\/span><\/div>\n","protected":false},"excerpt":{"rendered":"

(Stocks covered: Godrej Agrovet, Laurus Labs, Tata power, Borosil renewables, BEL, BEML, Oberoi Realty, Mahindra Lifespace, Mahindra EPC, Rallis, NH, Max India, HCG) Passion is growth. Passion is transformation of energy. Once I was travelling in train and a nice fellow who was a classical dancer and dance teacher was travelling with me. He was explaining about dance to other passengers and then he showed us a video of some party where one fellow was dancing full of energy but with unrhythmic steps. Then he explained that there is a natural rhythm in our body but that fellow in the…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-1004","post","type-post","status-publish","format-standard","hentry","category-blog"],"_links":{"self":[{"href":"https:\/\/oscillations.in\/index.php?rest_route=\/wp\/v2\/posts\/1004","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/oscillations.in\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/oscillations.in\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/oscillations.in\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/oscillations.in\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1004"}],"version-history":[{"count":0,"href":"https:\/\/oscillations.in\/index.php?rest_route=\/wp\/v2\/posts\/1004\/revisions"}],"wp:attachment":[{"href":"https:\/\/oscillations.in\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1004"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/oscillations.in\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1004"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/oscillations.in\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1004"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}