Category Archives: Investments

Vakrangee Share Price Crash

Vakrangee has been in the spotlight for all the wrong reasons. It’s share price crashed more than 50% in the last few days because there was a report in Mumbai Mirror that SEBI was investigating Vakrangee for share price manipulation. Such share price manipulation usually involves circular trading.

vakrangee_share_price

Vakrangee Share Price Chart

Now before we talk about Vakrangee, we will quickly explain what is circular trading. Circular trading is trading where the promoter or entities directly or indirectly related to the promoter buy and sell the shares for weeks or months. The shares are exchanged between these parties and the share price is slowly incremented. Normal retail investors or even institutional investors are not aware about this circular trading between insiders they just see that the share price is increasing and so even they are charmed by such share price rise and start buying shares. With all this buying by new investors the share price shoots up more. This goes on for a while and once the share price reaches the target set by the the promoter, the insiders start unloading their shares at high values and the insiders make a huge profit. The share price eventually drops and the retail investors are left holding the loss.

Now of course we don’t know if this actually happened with the Vakrangee but we searched the SEBI archives and found something interesting. Back in 2001 SEBI had conducted an investigation against Vakrangee because there were allegations of creation of artificial market and manipulation of the price in this scrip. The price of the scrip had moved from Rs.10/- to Rs.600/- during September 1999 to March 2000. Some brokers who were involved were banned from trading for 6 months.

In 2014 SEBI had imposed a penalty on one Vakrangee senior executive Prem Meiwal for delay in making disclosures to the stock exchanges with regard to change in his shareholding many times. Prem Meiwal was a VP of corporate affairs but he was also given the additional charge of assisting the company’s finance dept which is a bit fishy.

On Jan 25 2018, Vakrangee bought 20 lakh (2 million) shares of PC Jewellers. Vakrangee claims they had lot of money in the bank so instead of investing in debt or equity funds they decided to invest directly in PC Jewellers. This is not a good sign instead of using the extra funds to grow the company directly or returning the money to Vakrangee’s shareholders by issuing dividends, the company wants to be in the business of buying jewellery company.

 

Vakrangee has around 40,000 + kendra but what is a bit fishy is that all the kendra’s have the same phone numbers.

vakrangee_kendras

The current share price is down more than 50%, now it is your job as an investor to decide whether Vakrangee with such management is a good company to invest or not?

 

Sources

https://www.sebi.gov.in/sebi_data/commondocs/ar0102a_p.pdf

https://www.sebi.gov.in/sebi_data/commondocs/part-2_p.pdf

https://www.sebi.gov.in/sebi_data/attachdocs/1292328722714.pdf

Buy when there is blood on the streets.

In Feb 2016 we made a post about the stock market is going down, it’s a good time to buy and said that we were buying an auto ancillary stock. The stock we were talking about was Motherson Sumi.

In July 2015 the Volkswagen scandal broke out, the company was caught cheating emissions tests. The software in some of their diesel cars could figure out when the car was being used in emission test(aka laboratory conditions) and change the engine performance to emit low nitrogen oxide pollutants and overall lower the performance. So it passed all the emission tests. Once the car was on the road, the software disabled the cheating module and the engine would emit 40 times the permissible amount of nitrogen oxide. A couple of researchers who were testing Volkswagen cars found out the cheating mechanism and broke the story, Volkswagen shares went into a free fall.

So what does all of this have to do with Motherson Sumi. Motherson is a key supplier of wiring harness to the Volkswagen group, the group has different companies under its umbrella like Audi, Porsche, Volkswagen and others. 40% of the revenue came from Volkswagen group, so investors who panicked started selling their Motherson shares and it went into a free fall as well.

Intelligent investors on the other hand instead of panicking welcome such opportunities. Although 40% of revenues come from Volkswagen group, the scandal affected only the diesel cars of Volkswagen company (not the rest of car companies of the group). Motherson chairman said that around 15% of the revenue came from Volkswagen company, the stock price meanwhile fell from 357 Rs to a low of 158 a massive 55% loss. Was a 55% decline in the share price justified when the scandal affected 15% of the revenue and it’s not like there was a permanent loss of that 15% revenue, Volkswagen obviously would fix the issue and orders for wiring harness would continue for years to come.

 

Motherson Sumi Share Price

Motherson Sumi share price drop and rise.

So this was a low risk high reward opportunity, investors who bought Motherson shares then would have been rewarded with more than 100% share price growth now.

PS – There is a similar opportunity in one company in the Pharma Sector right now which will we post soon. You probably will know the name if you check the Valuation Screener or if you get our Valuation Report emails.

Disclosure – We hold long position in Motherson.

PS – Please do not call/email us for personal financial advice or stock tips.

Pharma companies are undervalued.

The stock market is near peak bubble territory. Check the long term NSE PE Ratio chart to see what happened when the PE ratio touched 25. Of course this does not mean there will be crash soon, nobody can predict that but if you look at history then it would make sense not to invest right now.

nifty-pe-ratio
The share price of most companies is overvalued right now finding good investment opportunities has become difficult but there is hope. Look at the NSE Sectoral Performance for the last 3 months.

nse-sector-performance

Most of the sectors have given good returns except IT and Pharma. The companies in the Pharma sector have been facing tough times. Such adverse conditions are good news for patient value investors because investing in companies who have taken a beating gives enormous returns down the line. The only condition is you have to analyse which stocks to invest in that sector.

Companies like Sun Pharma, Lupin, Divis Lab, Dr Reddy’s which were once the darlings of Pharma sector have taken a significant beating. Most of Pharma companies faced the wrath of US FDA due to tighter regulations.

Despite the short term bad news, Pharma companies are not going anywhere, they have promised to fix all the regulatory issues. We believe it’s a good time to invest in the Pharma sector. Of Course there is always a possibility that the share price of Pharma companies can fall even more, if that happens you will get to buy them cheaper. You can check our charts, valuation models of the individual pharma companies to see which ones are fundamentally good or bad. If you don’t have the tenacity to do the research you can invest in a Pharma mutual fund.

So even though the market is overvalued there are some hidden gems provided you know where to find them.

The NPA crisis of 2016

Our last blog was 1 year back that is way too long in the world of internet. Last year in Jan and Feb share prices were dropping down specially in the banking sector because of the NPA crisis. RBI had made the banks to be more transparent and declare the non performing assets on their books. When the banks started doing that, the market panicked.

We said last year in our blog that there are some good companies which are undervalued and it’s a good time to buy them. Let’s talk about that.

We send an email to all our Professional members end of day which gives a list of stocks which are undervalued compared to their intrinsic value.

indian_banks_undervalued

As you can see in the above image there were many banks which were undervalued. All banking stocks had seen huge drops in their share price because of all the negative news about Non Performing Assets on their books. Smart investors should patiently wait for such crisis and buy stocks in fundamentally good companies.

Let’s start with ICICI Bank which was selling at 51% discount. Now if you read our company analysis then you would know that we are not big fans of ICICI Bank because of their aggressive lending policies but it was selling at such a huge discount we had to buy it. In Feb 2017 the stock is up 45%.

The two more banks we bought were Axis Bank and HDFC Bank, if you look at Valuation Screener Email you would see that both of them were available for around 21% discount. If you read our company analysis we like both of them. Both the stocks are up 40%.

There are two more banks in the undervalued list, SBI which is up 60% and Bank of Baroda which is up 20% compared to last year. We have already mentioned in our company analysis about the two banks that investors should be cautious in investing in those two stocks because of Govt meddling and high NPA ratios. We did not invest in them.

One year later you get these fantastic returns of 40 to 45% but are they really good, to check that you should compare your returns with Nifty, if you returns are below Nifty then you did a terrible job. Nifty returns for the same time period were 25% so investors who bought the shares of those 3 banks in Feb 2016 definetly got terrific returns.

That is all you have to do, you patiently have to wait for such opportunities and grab them when they arrive. Last year’s NPA crisis in the banking sector was one such example.

As always please do not call or email us for stock tips or advice.

The stock market is going down, is it a good time to buy

So the market is falling down again, is it a good time to buy right now or wait for it to fall further. This time we have new problems like Chinese Economy not doing well, Oil price crash. It’s the classic old wine in a new bottle. The Indian/Global economy will always have problems from time to time. What matters is how you take advantage of it. Coming back to the original question of whether it’s a good or bad time to buy or not, well the answer is yes it is a good time to buy.

There are some good companies which are currently undervalued as per the Valuation screener, there many bad ones as well which are selling cheap. We have been buying shares of quite a few companies. (Long term members can easily guess the names of two of those companies). Some of the companies we are buying are in Banking, IT, Pharma and Auto Ancillaries sectors.  We stay away from Infra and real estate sectors.

The follow up question is always will the market fall down further and to be honest with you, we don’t know but what we do know is that the companies which we are buying right now at undervalued valuations we will get a good return long term.

So what should you do, if you have the tenacity then start looking at the financial charts and valuation models and start buying the good ones. If you want the easy way out just buy the Nifty Bees ETF or a good mutual fund.

If you think that you should wait because you “know” that the market will go down in the next few weeks then you are free to wait but then just remember you are speculating not investing.

 

PS – Please do not call/email us for personal financial advice or stock tips.

What is Life Insurance Corporation of India doing with Axis Bank?

We wrote about Axis Bank back in Sep 2013 and Jan 2014 where we said that the whole stock market specially the banking sector was undervalued. We had purchased Axis Bank and Oriental Bank of Commerce for our own portfolio, we sold Oriental Bank with good profits because we were not comfortable holding it for long term.

Oriental bank stock price

As you can see in the image that we missed the short sharp rally after we sold our position but that is okay since we are not greedy. Look how the stock performed after the rally, the price dropped. So our decision to sell was infact right.

Coming back to the main topic of Axis Bank. We still have not sold our position but we do monitor it every now and then. Take a look at the Insider Trading activity for Axis. You can see that institutional investors like Life Insurance Corporation Of India, United Insurance have been selling the stock in huge quantities in the month of Jan 2015 and Feb 2015. We could not figure out why they were selling since we didnt think anything fundamentally had changed with the company. So we ignored those sell transactions and held our position.

Two days back LIC bought Axis Bank shares again and we suspect they will buy more in the coming weeks. So we ask the question to our readers, do you know why LIC dumped the shares two months back and started buying again. We think LIC made a mistake in selling Axis shares, even they realized the mistake and so started buying the stock again. Axis is a good bank to invest for long term.

Axis_bank

Axis Bank Stock Performance, note the price drop after we bought. Intelligent investors should not panic if the price drops after you buy the shares. If your analysis about the company is right, the price would rise again, slowly but surely.

How to make intelligent Stock decisions in 5 minutes.

We recently added ACC to our database. When we add any new company to the database we avoid looking at the share price. We add the data and then look at the performance, growth pages and then make a decision whether it is a good company to invest or not.

If you look at the profit margins and ROE charts you will immediately see that all of them are dropping down consistently for many years. Most of members do check these charts but we have seen from our website logs that most members don’t look at the Growth page. So we just want to point out how the Growth page can help you make the decision.

ACC_Cement_Growth_Rate

The above information tells you that ACC does not have a good Revenue growth for all these years. The next two lines tell you (this is very crucial) that all the sales ACC does, it has a tough time converting those sales into profits (Net Income) and ultimately pass on those profits to the shareholders (EPS). So either ACC is operating in a bad sector or the company is not being managed properly.

To see if ACC is operating in a bad sector, let us look at another cement stock, UltraTech Cement

Ultra_Tech_Cement_Growth_Rate

UltraTech Cement’s revenue growth is much better than ACC. It was able to lower its expenses which is why the Net Income growth is better than Revenue growth. The EPS growth rate lower than the Net Income growth rate because UltraTech issued new stock for an acquisition.

By comparing these figures from two companies you should be able to figure out that the cement sector is not a bad sector to invest. Its just that ACC is not being managed well. It makes sense to invest in UltraTech Cement(not at current valuation though) instead of ACC.

Now and only now you can look at the company’s stock price to see if our analysis was right and to see how the market has valued ACC historically.

If you look at ACC’s share price from 31-March 2006 till 16-Jan-2015, its compound growth rate was 8.6%, which is not good. If you look at UltraTech Cement’s stock performance for the similar period, its growth rate was 22% which is fantastic. So our analysis about ACC was correct. The market agrees with our analysis, even rest of the market thinks that ACC is not a good company to invest which is why it has given such poor returns compared to UltraTech which has given fantastic returns.

In the long run the share price performance matches the company’s performance. We hope by now our members would understand why it so crucial to look at a company’s long term growth rates. You simply cannot ignore it.