Sunday, January 3, 2010

Brief Update On Stocks Profiled in 2009 & Comments On The Market going into 2010


Covered On : 27th Oct 2009 (Price : 102.20 - Closing on BSE, 27th Oct , 2009)
HY EPS :  Rs 6.50
CMP (31st Dec 2009) : Rs 172

WPIL has put in a good performance for the half year & looks like doing even better going forward. The company looks well placed to participate in the revival of the Indian economy, and also in the nascent nuclear opportunity.

On the flip side, the author has found the company unwilling to address queries , with the CS questioning why the author (who is based in Mumbai) did not attended the AGM in Kolkatta and address queries to the management at that forum (despite the author explaining that it was impractical to expect shareholders to traverse to the opposite end of the country to attend AGM's) . Obviously the dynamism at the top has not percolated down to the secretarial function.

The author has booked profits in the counter after it's brilliant run over the last quarter of 2009, but may continue to track the company in light of it's future prospects.

Brahmaputra Infraprojects :

Covered On : 9th Sept 2009 (Price : 70.10 - Closing on BSE, 9th Sept , 2009)
HY EPS : ~ Rs 8.75
CMP (31st Dec 2009) : Rs 75.20

Brahmaputra Infraprojects has done well in the first half of the current year, and given the visibility of order book, should repeat the performance in the 2nd half. It is one of the cheaper listed infrastructure / road players, this could be partly because it is a recent takeover case, and has not been researched so far by institutions & brokerages.

Looking at the excellent prospects for the roads & infrastructure sector, the author feels the stock can be held for the long term.

Disclosure : The author continues to have a position in the stock.

Balaji Amines :

Covered On : 20th Aug 2009 (Price : 91.40 - Closing on BSE, 19th Aug , 2009)
HY EPS : ~ Rs 19.4
CMP (31st Dec 2009) : Rs 160

The half year results of the company have been excellent, and all indications point to a better 2nd half. The company has been discounted in recent times like an ordinary run of the mill commodity stock, whereas the reality is that most of the company's products are import substitutes, a result of years of R&D and technology advancement, where competition cannot just rush in, thus allowing sufficient market protection.

Couple the above with the management's excellent reputation for integrity, professionalism , innovation & hard work, and the author has no hesitation in advising a hold on the stock. Even after it's recent appreciation, at a price of Rs 160/- the stock discounts it's expected full year EPS of ~ Rs 40/- just 4 times - in other words, still run of the mill commodity stock valuations, considering that we are in the upper echelons of a bull market.

Disclosure : The author continues to have a position in the stock.

Tyche Industries :

Covered On : 4th June 2009 (Price : Rs 17.25 - Closing 3rd June 2009)
HY EPS : Rs 2.21
CMP (31st Dec 2009) : Rs 19.11

The author was a shareholder of this company for a few months & his interactions with them were primarily defined by a lack of interest on the company's part to address queries comprehensively and in a timely manner. On the dividend issue too, the author was made repeated promises which fell by the wayside & finally received the dividend a good 3 months after the record date.

Company's which do not treat retail shareholders well are not this author's cup of tea. The above experience, coupled with main promoter's links to Siris group , as well as the earlier non-disclosures of stake changes among directors & group companies as required statutorily, have combined to give the author an uncomfortable feeling, despite the company's decent financial track record of the last few years.

Therefore despite the satisfactory performance & attractive valuations, the author has exited the counter & stopped tracking the stock.


Covered On : 27th Jan 2009 (Price : Rs 66 - Closing 23rd Jan 2009)
HY EPS : ~ Rs 25
CMP (31st Dec 2009) : Rs 213.80

The stock has done well in 2009, and the company has done well on the performance front too, but having risen from 60-levels to 200-levels in a year, some profit booking would not be out of place.

The author does not hold the stock currently.

Zen Technologies :

Covered On : 22nd Jan 2008 (Price : Rs 135)
HY EPS : ~ Rs 16.5
CMP (31st Dec 2009) : Rs 278.60

Though this stock was not profiled in 2009, the author would comment on it as it is the single stock he holds from those profiled in 2008.

The company caters primarily to the defence sector, catering to it's requirement for various types of weapons training simulators. It also makes driving simulators for training of drivers of vehicles.

Defence orders have a long gestation cycle between tendering & receipt of the order, but historically the company has received majority of defence orders in the last quarter of the year, with last year being an exception .

The company is believed to have bid for large defence orders but as always , it is difficult to predict when the same will fructify. In light of previous experience, it is quite possible that the same may be announced in the Jan-March quarter, though it is also possible that the same may spill over to FY2011.

For the half year the company has done very well, but currently no fresh orders have been announced, so there is no earnings visibility at present.

In order to leverage it's strengths in the simulation sphere, the company has decided to enter the gaming industry. If it succeeds in this, it will be able to overcome the problem it currently faces of lumpy orders from defence sector, as well as open up a huge new revenue stream. The company has tied up with Sony to develop a car-action game for PS3.

The company has also made an entry into the European market for Driving Simulator Training. In many European countries it is compulsory for drivers to undertake such a course for obtaining & renewing their driving licences.

It is hoped that these initiatives will bear fruit & complement it's main revenue stream from Defence industry.

The author has booked some partial profits as a matter of prudence, but continues to hold and like the stock .

Closing Comments : State Of The Market

After the collapse of 2008, somewhere in early 2009 this author felt that this was shaping up to be a buy on dips market. However with Indian Lok Sabha (central government) elections on the horison, the author did not act aggresively on this premonition.

Months passed, green shoots sprouted, then withered and turned brown, then sprouted again. The opinion makers fought each other to convince their audience regarding their bullish & bearish prophecy's with formidable facts and figures to support their views, leaving most investors confused all through 2009. And entering into 2010, the opinion makers are still divided on where the world is heading, and many investors are still in two minds.

Meanwhile in India, the UPA retained power with more stable numbers, and minus it's Left Front allies, which turned out to be a game changer for the Indian stock markets. Coupled with cheap foreign money pouring in to emerging markets, the Indian stock markets doubled by the end of the year. Well before that, stock market bears had thrown in the towel .

Entering into Jan 2010 the author feels that he can indeed spot some of the symtoms seen towards the final stages of the historic bull run that terminated in Jan 2008, such as the increased risk appetite & confidence among retail investors, the huge daily lists of unknown and dubious companies making new highs, the proliferation of tips and buy recommendations from everyone & his dog, etc .

And yet, it is also a fact that a large number of retail investors & HNI's are sitting on comfortable cash positions which can come in & support the markets on corrections, provided there is no sentiment changer. So we have an unlikely situation of caution & exuberance cohabiting at the same time !

So what can be a sentiment changer ? One thing that comes to mind is a reversal of the net inflows into our markets. 80000+ Cr came in to the markets in 2009, if even a quarter of that were to exit in a compressed period of a couple of months, it could trigger a sentiment change that could ensure that the money on the sidelines stays on the sidelines, and removes the support underpinning this market.

So will there indeed be a sentiment changer ? And will it be in 2010 itself ? What could trigger this & when ?

Could it be an increase in US Fed rates as expected in the 2nd half of 2010, or could it be a few odd countries (or their proxies like Dubai World) defaulting on, or rescheduling their debt ? An Isreali attack on Iran's nuclear facilities leading to an oil spike, maybe ? A few more big banks going under ? The much touted "double-dip" recession , perhaps ? One or more terrorist outrage, even ?

Or maybe a local factor ? The fall of the UPA Govt in India for some reason ? Tension on the borders with China or Pakistan, maybe ?

The author cannot provide these answers.

But he can & will urge investors that at current market levels & beyond, "Capital Preservation" needs to be a key consideration.