Investing Mistakes

This post is written as a comment to the excellent post available here:- http://kiraninvestsandlearns.wordpress.com/2012/02/20/investing-mistake-and-a-list-of-value-investors/

Let me add a few points on this particular example, as I had a very very similar experience with PI. I studied PI, liked what I saw and got it. I followed it for a while and after this quarters results, I got really really bugged and sold nearly 80-90% of my holding (still holding a small fraction to keep it on my radar).

Your points about being able to value a company or business is critical to an investors success. That is one reaso why Buffet keeps harping on the "circle of competence". Pi, as a business model, is really good. It is in 2 distinctly growing markets which has a significant barrier to entry. The wildcard on this one is that the management seems to lack either integrity or brains - both of which are detrimental to a minority investor's wealth!!

Let me give two more examples from my investments, separated by 10 years!

Example 1 - In 2000, I bought Dr.Morepen (now Morepen Lab) at about Rs 100 (or thereabouts, cant remember exactly). After a few quarters, I figured that the company's powerpoint presentations and delivered results were poles apart and got rid of the stock at a small loss. I think I lost 2-3Rs per share. I checked the price today and it is Rs 3.90, so I saved about 90% capital loss in a 10 year period, in addition to the opportunity cost.

Example 2- Last year a fellow investor gave a very strong suggestion to buy Andhra Sugar. I figured that the business may do well, but was beyond my circle of competence as I had no idea what I had to do to track caustic soda and sugar prices.

It is absolutely critical to have an investment framework that one stocks to. Keep it written down so that you can go through it before you click the Buy button. Also, in my opinion, it is critical to keep a margin of error. Sir John Templeton had approximately 6 out of 10 profitable investments, and he is in the Hall of Fame of investors! So, we should be planning for a poorer average.

I am a mid and small cap investor and for someone like me, I know I will make my share of mistakes. So, what I try to relentlessly focus on is make my winners big and cut out my mistakes as quickly and ruthlessly as possible.

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.