HSIL & Cera sanitaryware - Looking for one and finding another!

I was looking at HSIL (Hindustan Sanitaryware) and it came across as an excellent and boring business!! They make about 50% revenues from sanitaryware and the other 50% from glassware, specially colored bottles for soft drinks like Sprite, beer and industrial chemicals. It is a good solid business, run by what seems to be able management. I have bought a small initial quantity as well.

Then I stumbled upon Cera sanitaryware. It is a much smaller company but focused on only the sanitaryware segment. The basic comparison is given in the table below.

	HSIL	Cera
Sales	1073.88	254.95
PAT	87.35	26.54
EPS	13.23	20.97
Sales growth (5 yrs CAGR)	21.79%	23.39%
PATgrowth (5 yrs CAGR)	31.61%	30.79%
EPS growth (5 yrs CAGR)	25.76%	29.48%
OPM%	17.68%	19.47%
NPM%	7.21%	10.79%
Div Yield%	1.67%	1.19%
RoE%	11.66%	23.79%
RoCE%	13.38%	29.65%
Asset Turnover ratio	0.99	2.14
Debt-Equity ratio	0.59	0.34
Div payour ratio	24.49	13.85
PE	9.2	8.6
P/B	1.4	2.3
Stock returns (last 5 yrs)	63.09%	183.19%
Sensex return (last 5 yrs)	26.80%

Having looked at Cera, I think it definitely merits a closer look and probably a bigger slice of the investment pie than HSIL.

P.S: I am an interested part in these stocks as I hold HSIL and intend to buy into Cera. Please do your own due diligence before investing.

JK Lakshmi Cement - It's time may have come!

I have had JK Lakshmi Cement in my portfolio for a while. My logic of buying a cement stock which is a pure commodity and something I usually avoid, is because I keep an eye out on cement dispatches and have made a fair deal in the previous cycle on Gujarat Ambuja and India Cement stocks. My experience has been that if you can buy into cement companies when they are really really cheap and no one fancies them, you can make a 5-10 bagger in a 3-4 year cycle.

With this in mind, I had bought in JK Lakshmi Cement, as it was one of the most attractively priced, that I found. The company has announced its Q3 results and it has been excellent. Net sales has increased from 315 cr to 440 cr (39.5% growth). Net profit has increased from 4.6 cr to 49.2 cr (970.4% growth). EPS has increased from 0.4 cr to 4 cr (900% growth). Dispatches have had a healthy 12.8% yoy growth to 1.22mn tonnes and strong realization growth of 26.3% yoy to Rs. 3,359/tonne.

The management has announced an equity share buyback up to an amount of Rs 97.5cr at a maximum price of  Rs 70 per share. Assuming  that entire buyback happens at  the price range of Rs 65-70,  the paid-up equity will  reduce by somewhere around 7-8%. Currently, the stock is available at a P/B of 0.7 and EV/ton of $54 both of which are at a discount to its peers.


The stock has moved up sharply in the last few weeks,from a low of 40 in the end of Dec'11 to its current price of nearly 62. The stock is still available at a reasonably cheap price and can move up significantly from here in the next 1 year. I would not be surprised if I see a triple digit price in the next 6 months.

Note: I am invested in JK Lakshmi Cement. Please take my views as biased. Consult with your financial adviser before investing.

Beware the ides of March

It's popular to do what's popular, but its not profitable to do whats popular - Rakesh Jhunjhunwala

The current rise in the market has been dramatic and a lot of people have made significant money in the last month. FIIs have pumped in dollars and that has helped both the equity markets and rupee-dollar conversion ratio.

Most people have turned bullish and are trying to follow the herd and buying stocks. As history has repeatedly showed, retail investors usually get in at the wrong time in a market rally. It is important to ignore the liquidity and be cognizant of the event risks that are coming up.

March 16th Pranab Mukherjee is going to present the Union Budget. UP elections results should be also available at that time. There will be more news flow with respect to Greece's debt situation.

It is probably the time to be more cautious than adventurous. If you have spare cash, get into debt funds or buy into good fundamentally strong companies. Increase your time horizon of holding your stocks - buy to hold for the next 2-3 years.

I am looking at a couple of companies at this time and will post details about them once I complete my study.

Counter-thought - A process

Most of us do not think of how or why our investments can fail. While buying, we either look at the fundamentals or consider technical charts or do a mix of both and then buy. However, we are sometimes fooled as something that we may not have considered in our analysis takes place and our investment goes down in value. For this it is critical to have, what I term, as Counter-thought.

In counter-thought, you do a sort of crystal ball gazing and think that you are one year from now and your investment has turned you a loss. Now looking back you have to point out the reasons why it did not work out as you had planned or hoped it would. Looked at it from this perspective, it is much easier to figure out the major risks that can result in a loss. For example, if you are buying a company based on its ability to rent out its real estate (e.g. Nesco), then one loss-case can be a natural disaster like earthquake/flood/fire which destroys the primary asset. Another one can be a overall slump in industrial and trade fairs and reduction of demand. If you sit down with a pen & paper (notepad on a computer would do just fine as well), then you can chalk out multiple similar scenarios.

Once you have these items in your investment risk list, you can categorize them based on probability of occurrence and its possible impact. Again, taking the same example, a natural calamity at the primary convention center for Nesco is a very remote probability event but with extremely high impact (i.e. its effect is potentially catastrophic for the company).

So, before you put in your money in a stock next time, do spend a bit of time on counter-thought.

Debts Funds: Their time has come

The expectation that interest rates in India will stabilize and then subside over the first half of calendar year 2012, has given rise to a good opportunity for risk averse investors to invest in debt funds. Not only risk averse investors, but also people who are usually fully invested in equities, would do well to put some of their money in them.


Historical Returns
In the past,October 2008 to January 2009, when RBI cut the Repo rate by 3.5% from 9% to 5.5% with WPI inflation trending down from 11% to 1%. The Gilt-Medium and Long Term category funds appreciated to 19% compounded return while Income Category increased by 11%.


My Personal Bets
My recent additions in this category are Pru ICICI Gilt Fund and Birla Sun Life Dynamic Bond Fund (G) in these two categories. I expect the gilt fund to do better than the income one, and so have a 60-40 split between them. Return expectation is about 12-14% in a year's time.