April 2008 ~ Investing In Value And Multibagger Stocks

Monday, April 28, 2008

How to build an ideal portfolio?

An ideal portfolio should have exposure to different asset classes
like Gold, Property, Insurance, Providend Fund, Bank deposits besides
equities. It should be well-diversified so that you are saved from the
ups and downs in one asset class but not over-diversified as it kills
the returns of a portfolio over time. This can be implemented by
having:

• Not more then 15-20 well-researched stocks. This can be achieved by
allocating a minimum of 5% and maximum of 10% to a particular stock.

• Not less then 5 sectors and not more then 8 sectors. This can be
achieved by allocating a minimum of 10% and maximum of 20% to a
particular sector.

• A judicious combination of large caps and mid caps depending on the
risk profile (A recommendation is 60:40 )

• Small cap/Speculative stocks exposure between 0-5%. An investment in
such stocks is like drinking, if it cannot be avoided altogether then
it should be done occasionally and in limited quantity.

• Allocation to value, growth, and momentum stocks in descending order
(A recommendation is 60:30:10). A brief description of each is :

Value stock- A stock for which market price is much less then the
intrinsic value and hence it is undervalued.

Growth stock-A stock that has strong earnings currently and it is
already factored in the price. Investors expect the company to
perform strongly in future too (Example is Capital goods sector)

Momentum stock-A stock that goes up purely based on rumours,
speculation, manipulation and market price is not justified by the
fundamentals of the company (Example is RNRL)

A value stock can turn into a growth stock and then momentum stock
later.

• 10%-20% of allocation to contrarian themes which are out of favour
of the market presently.

• Some cash most of the times especially when you feel markets have
peaked (A recommendation is 5-20%) to take advantage of good
opportunities in near future. A higher percentage is not recommended
as you might sell your potential multibaggers too early or you might
be wrong too about the direction of the markets.

• Not more then 1-2 companies from the same sector and catering to the
same market segment (Example is ABB, BHEL and Siemens)

• More number of winners then losers. If this is not true then may be
there is a need to rebuild the portfolio.

Learning of the week:

An ideal portfolio built using above guidelines can deliver 20-30%
returns annually on an average during good times as well as bad times.

Quote of the week:

If you find an idea that you are convinced of, take a position which
if proved correct makes a meaningful difference to your Balance Sheet.

Rakesh Jhunjhunwala

Monday, April 28, 2008 by Vinay · 0

Monday, April 21, 2008

Mkts to see deep, long correction: Rakesh Jhunjhunwala

The question bothering the markets still remains - is there more pain left and what is the road ahead? To find out answers to these questions, CNBC-TV18's Stocks Editor, Udayan Mukherjee caught up with ace investor and market expert Rakesh Jhunjhunwala in a special series called 'Hunt for the Bottom'.

Jhunjhunwala feels that the markets have seen a bull-run since April 2003 and one cannot have a bull market without corrections. The corrections would be testing the investors' patience and their sheer belief in the markets, he said. "All the corrections we have had in the last four years have had been deep but they have not been deep time-wise. I think the real patience and the real belief in the equity and in the market comes when the market tests you time-wise. So I think this is going to be one of the deepest and the longest corrections that we are going to have, in what I believe is going to be a very long bull market," Jhunjhunwala said.

Excerpts from Udayan Mukherjee's conversation with Rakesh Jhujhunwala:

Q: How do you distinguish between a long time wise correction and a cyclical bear market, we could have five good years then two really bad years and people might classify that as a bear market after a bull market?

Jhunjhunwala: My clarification is very simple. We are in a secular and structural bull market. In a secular and structural bull market, every high is higher than the last (previous) high and every low is also higher than the last (previous) one. So the last low we have on the Index was about 12,500, the last high we had was 21,000. As long as the index is above 12,500 and the new high if we make is above 21,000, I think we are very much in a structural secular market.

Q: How long according to you could this painful phase be?

Jhunjhunwala: I think we are not going to make a new high this year. Even if we make it, I do not think it will sustain. Maybe we have started it all in January; I think it would last from anywhere from nine months to eighteen months - I would not be surprised. Market is remaining in a range.

Q: Let me paint the bearish scenario - what the bears say that interest rates go up even from here-maybe not justified. But in our country sometimes we do things which are not justified -GDP growth slows to 7%-sub7%, earnings growth slows to 10%-12%; could we have then in that kind of situation a compressed one-two year kind of a bear phase, is that a likely a scenario or even a possible scenario in your eyes?

Jhunjhunwala: In my eyes, 4,100-4,200, which corresponds to 12,500-13,000 on the Index, I think this is a level, which we are not going to penetrate on the downward side very easily. At the same level, I think personally 5,300-5,400 on the upside in the Nifty is a level that we will not penetrate easily. So I think we could be in a range 4,200; maybe I think the range could be 4,500-5,300 instead of 4,200-5,300 - we could a pass a year or eighteen months.

Monday, April 21, 2008 by Vinay · 0

Thursday, April 17, 2008

Investment Idea - ZEE Entertainment Enterprises Limited

Report from Geojit research desk

Report Date April 17, 2008.

Company Name ZEE Entertainment Enterprises Limited

(ZEEL)

Recommendation BUY

CMP – Rs. 220/- Target Price – Rs.285/- Mkt. Cap. 9539.2 crore

Investment Rationale

Ø ZEEL, one of the largest Integrated Media and Entertainment Company in India, has reported excellent

performance for Q4 FY 2008. Consolidated revenues increased by 36.8% to Rs 525.95 crore primarily

driven by 33.3% growth in advertisement revenues of Rs.246.55 crore. Growth in Subscription revenues

was subdued at 12% at Rs.207.06 crore as despite Indian subscription revenue growing 15%, company has

lost a lot of leverage on international revenue due to dollar devaluation. Other Sales & services grew to

Rs.72.34 crore (Rs.14.63 crore) as a result of higher syndication sales of Ten Sports and revenue from

education business. OPM% was flat at 24.8% (24.7%) due to higher programming & marketing costs of

newly launched Zee Next Channel. PBT (before extraordinary items) increased by 41% to Rs 150.03 crore

after accounting for higher interest expense to Rs.18.43 crore (includes loss of Rs.11.16 crore on account

of Forex derivative transaction.) After providing for extraordinary expense (on account of diminution in

value of investments) of Rs.2.58 crore (nil), PAT (after minority interest) was up by 53.1% to Rs.92.43

crore.

Ø For FY 2008, Consolidated revenues rose by 26.9% to Rs 1834.3 crore driven by growth in advertising

revenues by 32.8% to Rs.934.23 crore and subscription revenues by 10.2% to Rs.732.6 crore, while Other

sales & services perked by 118% to Rs.167.50 crore. OPM% jumped to 29.4% (22.1%). After providing

for higher interest cost of Rs.55.44 crore (includes forex loss of Rs.26.18 crore), PBT (after extraodinary

expense) grew @66% to Rs.569.72 crore and PAT (after minority interest) spurted by 72.7% to Rs 383.7

crore.

Ø Indian Television broadcasting industry is going through a very interesting phase. Market will expand with

lot many new channels in each genre launched or being launched which will have positive implication for

all players in media value chain. ZEEL with its diversified genre of content offering, would be a big

beneficiary of this change through unlocking of its revenue potential.

Ø Its flagship channel Zee TV has emerged as a firm challenger to number one position in viewership share

across all competing channels in General Entertainment Category (GEC) genre with its programs in each

slot has started to record higher GRP. As on March 2008, Zee TV had 25 programs in "Top 50 program"

from just 2 in 2005.

Ø Going forward, ZEEL will improve viewership share further with higher investment in programming

content particularly in Afternoon band and weekend program. Company launched Zee Next – new channel

in GEC focusing on youth audiences thereby bridging missing link in GEC space. Launched in Q3 FY08

end, Zee Next is well received and is now planning to roll out fully with aggressive programming and

marketing strategy in FY09. Zee Next will involve capex of Rs 300 crore in FY 09. Net Loss for FY 09

will be approx. Rs 150-200 crore. (Loss in Q4 FY 08 was Rs 32 crore). Break-even of this channel will be

in FY 12.

Ø Going forward, subscription revenue is expected to grow faster at 30% as compared to advertising revenue

as they are going to be more platforms to distribute channels in FY09. Company may also make ad-rate

hike to capitalize higher ratings. This will increase revenues and profits substantially in future. Company

expects to grow topline @ 30% and bottomline @25-30% (despite losses from Zee Next) in FY09.

Valuation

Ø At CMP of Rs.220/- (Re 1/- face value), share is trading at 24.7 times its FY 2008 consolidated EPS of Rs

8.89 and 20 times its FY 2009 expected consolidated EPS of Rs 11. We recommend to "BUY" the share at

CMP.

Why tips will never make you rich?

Tata Power: Full of energy

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Thursday, April 17, 2008 by Vinay · 0

Sunday, April 13, 2008

Why tips will never make you rich?

In the past, Indian investors have faced a problem of information scarcity. In the 1990's & before, there was no internet, no business channels, only 1-2 business newspapers etc. People used to invest only on the basis of what their brokers/friends recommended without any knowledge of the company business, financial performance etc.

In present times this has changed to a problem of information overload. There are hundreds of websites, TV channels, business newspapers where analysts are recommending new stocks daily. The investors today have become smarter then past generation and so they listen to analysts before investing but still the returns of the portfolio are not as good as expected, why?

Let us try to answer this question using an analogy and the concept of 'probability' which we have all studied in schools.

There are 4 boxes and in each box there are 10 balls of either gold or brass.

. Ist box is Smart Investor No.1 and has 9 gold balls and 1 brass ball.

. IInd box is Analyst No.1 and has 8 gold balls and 2 brass balls.

. IIInd box is MF No.1 and has 7 gold balls and 3 brass balls.

. IVth box is TV Channel No.1 and has 6 gold balls and 4 brass balls.

Probability of finding a gold ball in each of the box is 0.9, 0.8, 0.7, and 0.6 respectively.

Now a person is blind-folded and asked to pick a ball randomly from each of the box. The probability of finding a gold ball becomes 0.6 x 0.7 x 0.8 x 0.9 = 0.30 which is indeed very poor.

As the number of boxes increase or the numbers of balls per box increase this is going to be even less. Probability is equally bad when there is only 1 box but the number of balls is higher.

We can calculate the probability of finding a gold ball for our portfolio by calculating the total number of boxes (sources of tips), number of balls (tips by each source) and the number of balls we pick (stocks we buy based on the tips).

Of course the person is frustrated and starts blaming the boxes (Analysts, TV Channels, Mutual Funds, Smart investors) or the balls (Companies) for the poor performance.

After a little introspection, the person decide to make extra efforts, does a bit of analysis/research and finds out that there are some characteristics that differentiates the gold ball from brass ball like smoother surface, a bigger size etc. but still he is not 100% sure. Out of 10 balls he can be sure 7 or 8 times. Next time he picks up a ball from each of the 4 boxes, he draws 3 gold balls out of 4. Great performance!

There are other reasons as well why you should not blindly follow the tips:

. Analysts can always change their views and they have no obligation to tell it to public (Example: Rakesh Jhunjhunwala bought TV today at 70% and stock went upto 120 in a few days as people rushed to buy it . After some time he switched from TV today to TV 18. People who bought it at higher price are in losses even after 3 years while TV18 has been a multibagger).

. Analyst can have a different time frame in mind while buying/selling a stock. He may have bought it for short term and you might think it is a good long term bet.

. There are some manipulators in markets like a recent case where the analyst had taken a reverse position on the stocks he recommended. He sold stocks he recommended to buy and bought stocks he recommended to sell.

. You may buy it at much higher price or sell at much lower price (Example Rakesh Jhunjhunwala still made profit on TV today while all others who bought at higher price made losses).

Unless you have a conviction of your own you will sell a good stock just because there is some bad period or the market sentiment is down.

Learning of the week:

We have find out a simple mantra of success in the markets. If a person is in a desert (equity markets) and wants to quench his thirst (desire to create wealth) he should dig his own well (analysis/research) rather then running after the mirages (tips). If he does not get time to dig the well he should use the services of a person (MF/portfolio manager) who has already dug a well earlier.

You can use the tips or analyst reports as the starting point but you have to understand the business as if you are buying a stake in the company, check the financial performance of the company quarterly/half-yearly and build a conviction of your own. This will help you stick with a good company even in difficult times.

If you do not get the time to do analysis or track the results of the stocks you hold, you should invest through either a Mutual Fund or a portfolio manager on whom you can rely fully. In US 95% of retail investors use this route and Indians will follow soon.

Source: investment-blogs.org

Tata Power: Full of energy

Long-term investors can start portfolio building

Sunday, April 13, 2008 by Vinay · 0

Friday, April 11, 2008

Tata Power: Full of energy

The huge anticipated growth in demand for electricity and the government’s ambitious investment target for the power sector augur well for players in this space.

Currently, India’s peak energy shortage stands at 9.3% and peak demand shortage is 13.9%. The 17th Electric Power Survey report estimates India’s peak demand to more than double to 218.2 GW in 2017 from 100.4 GW in 2007. The survey also anticipates the country’s energy requirement to increase by 142.9% to 1,392 billion units over the same period. India plans to add around 78.6 GW capacity by 2012 and a further 92 GW by 2017 to cater to the bourgeoning demand, which calls for huge investments.

All this puts players in the space in a sweet spot.

One such player is Tata Power, which is setting up a 4,000 MW greenfield coal-fired plant (India’s first Ultra Mega Power Project) near Mundra Port.

The company expects to commission the first 800 mw unit in mid-2011 and one new unit at intervals of four months each thereafter. The International Finance Corporation recently agreed to lend $450 million (Rs 1,800 crore) with a 20-year tenor for the project.

To meet to the coal requirement for its projects, the company had bought a 30% stake in two Indonesian coal companies and an associated coal trading company, all promoted by PT Bumi Resources Tbk, Indonesia, for around Rs 5,000 crore last year.

Bumi Resources recently posted robust numbers for CY2007 — revenues were up 22.3% YoY at $2.3 billion, profit before tax up 98.4% at $383 million and core net income after minority interest up 66.8% $317 million.

Bumi Resources utilised the funds received from Tata Power to pay off its long-term debt and hence is in a comfortable position to expand its mining capabilities.

Tata Power’s stock has outperformed the Sensex and appreciated by 134.5% against the benchmark’s 19% rise in the past one year. At Rs 1,199.65, it trades at 31.4 times its estimated earnings for 2009. Though valuations appear expensive at these levels, analysts are positive on this stock. Analysts Satyam Agarwal and Nalin Bhatt of Motilal Oswal have valued the stock at Rs 1,365 on a sum-of-the-parts basis.

Long-term investors can start portfolio building

Friday, April 11, 2008 by Vinay · 0

Investing In Value And Multibagger Stocks

Monday, April 28, 2008

How to build an ideal portfolio?

Monday, April 21, 2008

Mkts to see deep, long correction: Rakesh Jhunjhunwala

Thursday, April 17, 2008

Investment Idea - ZEE Entertainment Enterprises Limited

Sunday, April 13, 2008

Why tips will never make you rich?

Friday, April 11, 2008

Tata Power: Full of energy

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