I had shared an investment note with a few of my investor friends for their inputs and guidance about 6 months back. The stock is up 50% from the time of my investment note. Although I liked the prospects of the company (due to the reasons that will soon be clear), I was not too sure of its customers paying up (Kingfisher primarily) and some balance sheet vulnerabilities. Due to that, I had just taken a 2% allocation in the stock rather than more. In hindsight, I should have loaded up, but hindsight vision is always 20/20. So, no regrets.
The latest quarter results have been very encouraging. The year-end results indicate a 50% jump in EPS with a 66% reduction in debt. In fact, this stock came on my radar due to debt reduction. The other stocks that I am evaluating on this theme are Andhra Petro and Sanghvi Movers.
Disclosure: Still hold the shares bought in Nov’11. There has been some fraud to the extend of Rs. 16 cr (announced in Q4’12) that has presumably been written off against Reserves. Still evaluating. As of now, wouldn’t recommend fresh buying at these levels till some clarity emerges.
–Investment Note follows. This note was written in Nov’11 and hence will not reflect the latest figures. Views invited.
(Word document to download)
We have a
a) Severely undervalued company (the peers quote at much higher multiples, inspite of similar margins and return ratios)
b) Debt reduction (38% in just couple of quarters). Maybe more in the coming quarters.
c) Promoter buying
d) It is almost a debt capacity bargain (and the Graham number etc. is far above the CMP)