Warren Buffet's early days as an investment manager is documented in these letters. This was before the Berkshire Hathaway days when he managed money of friends, relatives and other known people.
For his Berkshire partnership letters, you can go to the Berkshire Hathaway website. You can also read "The Essays of Warren Buffet" by Lawrence Cunningham for a topic-by-topic coverage of the annual letter contents. Incidentally, this is one book that Warren Buffet himself recommends reading.
Buffett Partnership Letters 1957-1970
Monday, 14 November 2011
Sunday, 13 November 2011
Guru Speak:Michael Mauboussin
Michael Mauboussin Long Term Investing in a Short Term World
Mauboussin is a extremely successful value manager and thought leader. He has three written excellent books:
Think Twice: Harnessing The Power Of Counterintuition
More Than You Know
Expectations Investing: Reading Stock Prices For Better Returns
Mauboussin is a extremely successful value manager and thought leader. He has three written excellent books:
Think Twice: Harnessing The Power Of Counterintuition
More Than You Know
Expectations Investing: Reading Stock Prices For Better Returns
Sunday, 6 November 2011
Supreme Industries - Notes from Annual Report'2011
Here are my notes on the 2010-11 annual report for Supreme Industries:-
* The Company is currently putting plants at two new locations. i.e in Halol (Gujarat) for composite cylinders and Hosur for Protective Packaging Products. Both these plants to be ready in Dec 2011 – Mar 2012 period.
* The Company invested a sum of RS 258 crores to augment capacities and to start a new
unit at Sriperumbudur in Tamilnadu. The company expects to invest Rs 200 crores in 2012.
PLASTIC PIPING SYSTEMS
* Growth was highly impacted due to high cost of raw material.
* Aqua Gold grew more than 40%.
* Lifeline CPVC grew more than 100%
* Fittings grew by over 40%
* After 3 years of degrowth, the exports grew this year by 14%
FURNITURE
* Overall segment grew by 25% by value and 13% by volume. This implies higher sale of high-margin products.
* The company is closing down the mats business. It has a annual revenue of only Rs 15 crores.
INDUSTRIAL PRODUCTS
* Strong growth of 30% overall
* Automotive products grew by 39% and appliances by 69%. Consumer electronics segment was weak.
* Company had bagged order for development of interior parts for new version of trucks from Tata Motors, which included completely assembled Instrument Panel, i.e. Cockpit.
* The Company has also bagged order for development of plastic parts for prestigious ‘Two Wheeler’, to be launched by Piaggio, sometime during early 2012.
* Expecting sustained growth of 25% to 30% year on year for next 3 to 5 years
MATERIAL HANDLING PRODUCTS
* Overall segment grew by 27% by value and 20% by volume. This implies higher sale of high-margin products.
PACKAGING PRODUCTS
* Packaging Films sales were stagnant. Company is trying to move into new areas of applications and reduce its dependency on oil packaging.
* Protective Packaging products grew by 26% by value and 13% by volume. This implies higher sale of high-margin products.
FINANCIALS
* The average rate of Interest has gone up to 9.72% from 7.93%.
* The Company has chalked out Capex of Rs 1000 crores over a period of five years from 2010-11 to 2014-15 across all the products to tap the growth opportunities and to keep the pace of growth momentum so as to achieve desired CAGR of around 20% on y-o-y basis.
* Crisil has upgraded the rating outlook to "AA-/Stable" from "A+/Positive"
* The Company would try to bring the interest cost below 1% of Total Turnover by the end of next year.
Expected EPS for June 2012 : 15-16
PE range : 12-15
Expected price range : 180-240
* The Company is currently putting plants at two new locations. i.e in Halol (Gujarat) for composite cylinders and Hosur for Protective Packaging Products. Both these plants to be ready in Dec 2011 – Mar 2012 period.
* The Company invested a sum of RS 258 crores to augment capacities and to start a new
unit at Sriperumbudur in Tamilnadu. The company expects to invest Rs 200 crores in 2012.
PLASTIC PIPING SYSTEMS
* Growth was highly impacted due to high cost of raw material.
* Aqua Gold grew more than 40%.
* Lifeline CPVC grew more than 100%
* Fittings grew by over 40%
* After 3 years of degrowth, the exports grew this year by 14%
FURNITURE
* Overall segment grew by 25% by value and 13% by volume. This implies higher sale of high-margin products.
* The company is closing down the mats business. It has a annual revenue of only Rs 15 crores.
INDUSTRIAL PRODUCTS
* Strong growth of 30% overall
* Automotive products grew by 39% and appliances by 69%. Consumer electronics segment was weak.
* Company had bagged order for development of interior parts for new version of trucks from Tata Motors, which included completely assembled Instrument Panel, i.e. Cockpit.
* The Company has also bagged order for development of plastic parts for prestigious ‘Two Wheeler’, to be launched by Piaggio, sometime during early 2012.
* Expecting sustained growth of 25% to 30% year on year for next 3 to 5 years
MATERIAL HANDLING PRODUCTS
* Overall segment grew by 27% by value and 20% by volume. This implies higher sale of high-margin products.
PACKAGING PRODUCTS
* Packaging Films sales were stagnant. Company is trying to move into new areas of applications and reduce its dependency on oil packaging.
* Protective Packaging products grew by 26% by value and 13% by volume. This implies higher sale of high-margin products.
FINANCIALS
* The average rate of Interest has gone up to 9.72% from 7.93%.
* The Company has chalked out Capex of Rs 1000 crores over a period of five years from 2010-11 to 2014-15 across all the products to tap the growth opportunities and to keep the pace of growth momentum so as to achieve desired CAGR of around 20% on y-o-y basis.
* Crisil has upgraded the rating outlook to "AA-/Stable" from "A+/Positive"
* The Company would try to bring the interest cost below 1% of Total Turnover by the end of next year.
Expected EPS for June 2012 : 15-16
PE range : 12-15
Expected price range : 180-240
Wednesday, 2 November 2011
Guru Speak: Charlie Munger
A couple of old videos of Munger, but worth watching over and over.
University of Michingan-2010
Talk at Caltech-2008
University of Michingan-2010
Talk at Caltech-2008
Sunday, 23 October 2011
Saturday, 22 October 2011
Astral Polyteknik - A Closer Look
Astral Poly Technik Ltd. (Astral) is a pioneer & market leader of CPVC pipes & fittings in India. Astral is a licensee of Lubrizol, USA, to manufacture & market its world class plumbing products in India.
GI pipes were in existence in domestic plumbing industry but now CPVC pipes are gaining ground as they don’t corrode over time which is a major concern with the GI pipes. Also, due to lighter weight, it’s easier to transport and install CPVC pipes. CPVC pipes also offer cost benefits as they are 20-25% cheaper than the GI pipes and have a longer life span of around 30-35 years compared to around 10-15 years for GI pipes. The strength of these CPVC pipes make them better substitutes of GI pipes for many residential and industrial applications.
Astral has an exclusive license to manufacture Lubrizol’s global top-seller Blazemaster FireSprinkler Systems, based on CPVC platform. The company has also picked up 85% stake in
Advance Adhesives Pvt. Ltd. to produce Cement Solvent (solution for joining pipes) via technology developed by global Adhesives major, IPS, USA. This has a good potential for Astral.
The advantage for Astral is that the raw material is restricted and not easily available. In addition, Lubrizol is in talks with Astral management to setup a joint venture in India. Astral is aggressively expanding its capacity to meet the robust demand and is expected to more than double to 100,000 TPA by end of FY13 from the current capacity of 48400 TPA.
The company is also spreading its wings in Africa and has opened a manufacturing unit in Nairobi, Kenya.
The Company has reputed clientele which includes major construction houses like Hiranandani Construction, Raheja Group, Tata Housing, Nagarjuna Construction, The Oberoi Group, Taj Group of hotels, Le Meridian and other major clients like NTPC, TISCO, Reliance Industries, Tata Chemicals etc.
FINANCIALS
VALUATION
At the CMP of 198, the stock is trading at a PE of 13.24.
My conservative FY14 expected EPS is about 26. But, it is likely to do reasonably better as the new capacity comes online by FY13-14. If the capacity additions work out as planned, then EPS can be in the range of 30-32.
Expected price is around 330-360 in the next 2-3 years.
This is a stock with excellent long-term prospects and is good for buying.
Note: I am invested in this stock and investors need to do their own due diligence or refer to their investment advisor before making an investment decision.
GI pipes were in existence in domestic plumbing industry but now CPVC pipes are gaining ground as they don’t corrode over time which is a major concern with the GI pipes. Also, due to lighter weight, it’s easier to transport and install CPVC pipes. CPVC pipes also offer cost benefits as they are 20-25% cheaper than the GI pipes and have a longer life span of around 30-35 years compared to around 10-15 years for GI pipes. The strength of these CPVC pipes make them better substitutes of GI pipes for many residential and industrial applications.
Astral has an exclusive license to manufacture Lubrizol’s global top-seller Blazemaster FireSprinkler Systems, based on CPVC platform. The company has also picked up 85% stake in
Advance Adhesives Pvt. Ltd. to produce Cement Solvent (solution for joining pipes) via technology developed by global Adhesives major, IPS, USA. This has a good potential for Astral.
The advantage for Astral is that the raw material is restricted and not easily available. In addition, Lubrizol is in talks with Astral management to setup a joint venture in India. Astral is aggressively expanding its capacity to meet the robust demand and is expected to more than double to 100,000 TPA by end of FY13 from the current capacity of 48400 TPA.
The company is also spreading its wings in Africa and has opened a manufacturing unit in Nairobi, Kenya.
The Company has reputed clientele which includes major construction houses like Hiranandani Construction, Raheja Group, Tata Housing, Nagarjuna Construction, The Oberoi Group, Taj Group of hotels, Le Meridian and other major clients like NTPC, TISCO, Reliance Industries, Tata Chemicals etc.
FINANCIALS
FY11
|
FY10
|
FY09
|
FY08
|
FY07
|
|
Sales
|
436.76
|
304.52
|
204.99
|
144.53
|
104.46
|
Other
Income
|
4.21
|
4.24
|
-4.78
|
4.68
|
1.44
|
Op
Profit
|
53.29
|
42.01
|
29.42
|
20.7
|
13.39
|
EBDIT
|
57.5
|
46.25
|
24.64
|
25.38
|
14.83
|
PBT
|
41.54
|
33.63
|
15.85
|
19.42
|
10.75
|
PAT
|
33.6
|
28.03
|
14.19
|
17.08
|
9.11
|
EPS
|
14.95
|
24.94
|
12.63
|
15.2
|
8.11
|
Depreciation
|
10.72
|
8.6
|
6.17
|
3.26
|
2.2
|
Interest
|
4.59
|
4.84
|
5.31
|
2.69
|
1.88
|
Effective
Interest Rate(%)
|
11.27%
|
11.98%
|
8.52%
|
8.39%
|
7.71%
|
Tax
|
7.95
|
5.57
|
1.65
|
2.34
|
1.65
|
Effective
Tax rate (%)
|
19.14%
|
16.56%
|
10.41%
|
12.05%
|
15.35%
|
Dupont
Analysis
|
|||||
OPM(%)
|
12.20%
|
13.80%
|
14.35%
|
14.32%
|
12.82%
|
NPM(%)
-- (A)
|
7.69%
|
9.20%
|
6.92%
|
11.82%
|
8.72%
|
Asset
turnover(avg) -- (B)
|
2.30
|
1.92
|
1.32
|
1.29
|
1.14
|
RoA(%)
|
17.73%
|
17.68%
|
9.15%
|
15.26%
|
9.91%
|
Financial
Leverage -- ( C)
|
1.27
|
1.34
|
1.67
|
1.40
|
1.36
|
RoE(%)
-- (=A*B*C)
|
22.58%
|
23.73%
|
15.30%
|
21.39%
|
13.48%
|
RoA(%)
|
17.73%
|
17.68%
|
9.15%
|
15.26%
|
9.91%
|
VALUATION
At the CMP of 198, the stock is trading at a PE of 13.24.
My conservative FY14 expected EPS is about 26. But, it is likely to do reasonably better as the new capacity comes online by FY13-14. If the capacity additions work out as planned, then EPS can be in the range of 30-32.
Expected price is around 330-360 in the next 2-3 years.
This is a stock with excellent long-term prospects and is good for buying.
Note: I am invested in this stock and investors need to do their own due diligence or refer to their investment advisor before making an investment decision.
Thursday, 20 October 2011
eClerx - Good Company to watch out for
I have been looking at eClerx for sometime. The first thing to understand is that eclerx is not an IT company, so you cannot compare it with one. It is more of a BPO/KPO company. Let me explain briefly here:-
BPO is more or less synonymous with call-centers nowadays, but they may be involved in other areas like medical transcription, data entry operators, loan processing, claim processing etc.
KPO is higher up the value chain. They do more sophisticated work. Like patent processing, six sigma implemenations, process re-engineering, workflow redesign, market survey/research, data analytics, market intelligence, legal outsourcing and accounting.
The kind of people employed in these types of organizations are also different, as you can probably understand from the nature of work.
eClerx is somewhere in between the BPO-KPO continuum today and trying to move towards KPO. It is essentially a easy business and the only moat you have is your brand name and client list. eClerx is perhaps the only large listed KPO player in India. The others are Genpact & WNS. Margins are good and better than lower-end BPO business. Business is not as fickle or cost sensitive as pure call-centers. And the opportunity size is HUGE. For example, in US, every large law firm has 100s of para-legals or law clerks, people who are employed to look up references of past cases and provide supporting documents for an ongoing case. Now, that person need not sit in the US and the work can be done from India at maybe 1/5th the cost. This is just an example. same goes for technical analysis in equity markets.
The company has good numbers, good growth, good dividend payout. If they get their act together and can scale up, it can be a 25,000-50,000 cr company in 10-15 years from the current 2100 odd crores.
They have large clients but their top 5 concentration is pretty large, somewhere close to 85% for top 5 clients. For the IT/BPO industry that is very high risk. Companies like Patni actually got into trouble due to their over-reliance on a single customer. Here eClerx is a relatively new company so I think it would need some time to get more customers. This is one area of major risk. however, the management realizes this and is working to add new customers. Five new clients were added in this quarter. Total number of active clients
has increased to 50 currently.
FINANCIALS
VALUATIONS
I have used PE ratio for valuing eClerx.
So, expecting Rs 49.3 as FY12 EPS and a PE band of 16 - 22, FY12 (Mar 2012) valuation is likely to be about Rs. 790 - 1090.
Similarly, with Rs. 59.17 as FY13 EPS and a PE band of 16 - 22, FY12 (Mar 2013) valuation is likely to be about Rs. 950 - 1300.
CONCLUSION
This is a good company but looks more or less fully valued at this time. Keep this in your watch list and accumulate for the long term whenever you find the market giving you an opportunity to buy it cheap.
BPO is more or less synonymous with call-centers nowadays, but they may be involved in other areas like medical transcription, data entry operators, loan processing, claim processing etc.
KPO is higher up the value chain. They do more sophisticated work. Like patent processing, six sigma implemenations, process re-engineering, workflow redesign, market survey/research, data analytics, market intelligence, legal outsourcing and accounting.
The kind of people employed in these types of organizations are also different, as you can probably understand from the nature of work.
eClerx is somewhere in between the BPO-KPO continuum today and trying to move towards KPO. It is essentially a easy business and the only moat you have is your brand name and client list. eClerx is perhaps the only large listed KPO player in India. The others are Genpact & WNS. Margins are good and better than lower-end BPO business. Business is not as fickle or cost sensitive as pure call-centers. And the opportunity size is HUGE. For example, in US, every large law firm has 100s of para-legals or law clerks, people who are employed to look up references of past cases and provide supporting documents for an ongoing case. Now, that person need not sit in the US and the work can be done from India at maybe 1/5th the cost. This is just an example. same goes for technical analysis in equity markets.
The company has good numbers, good growth, good dividend payout. If they get their act together and can scale up, it can be a 25,000-50,000 cr company in 10-15 years from the current 2100 odd crores.
They have large clients but their top 5 concentration is pretty large, somewhere close to 85% for top 5 clients. For the IT/BPO industry that is very high risk. Companies like Patni actually got into trouble due to their over-reliance on a single customer. Here eClerx is a relatively new company so I think it would need some time to get more customers. This is one area of major risk. however, the management realizes this and is working to add new customers. Five new clients were added in this quarter. Total number of active clients
has increased to 50 currently.
FINANCIALS
FY11
|
FY10
|
FY09
|
FY08
|
FY07
|
|
Sales
|
341.91
|
257.02
|
197.09
|
116.98
|
79.54
|
Other
Income
|
-5.13
|
-10.59
|
-4.23
|
6.48
|
5.79
|
Op
Profit
|
148.8
|
98.79
|
79.04
|
47.75
|
37.9
|
EBDIT
|
143.67
|
88.2
|
74.81
|
54.23
|
43.89
|
PBT
|
134.77
|
81.35
|
67.54
|
49.53
|
39.86
|
PAT
|
118.56
|
72.59
|
60.64
|
43.91
|
39.67
|
EPS
|
41.09
|
38.14
|
32.04
|
23.27
|
391.83
|
Depreciation
|
8.9
|
6.85
|
7.23
|
4.44
|
3.21
|
Interest
|
0
|
0
|
0.04
|
0.26
|
0.62
|
Effective
Interest Rate(%)
|
0.00%
|
0.00%
|
0.00%
|
0.00%
|
0.00%
|
Tax
|
16.21
|
8.76
|
6.91
|
5.62
|
0.27
|
Effective
Tax rate (%)
|
12.03%
|
10.77%
|
10.23%
|
11.35%
|
0.68%
|
Dividend
Yield
|
3.06%
|
2.38%
|
1.70%
|
1.15%
|
27.17%
|
Dupont
Analysis
|
|||||
OPM(%)
|
43.52%
|
38.44%
|
40.10%
|
40.82%
|
47.65%
|
NPM(%)
-- (A)
|
34.68%
|
28.24%
|
30.77%
|
37.54%
|
49.87%
|
Asset
turnover(avg) -- (B)
|
1.46
|
1.29
|
1.19
|
0.86
|
2.71
|
RoA(%)
|
50.69%
|
36.38%
|
36.70%
|
32.22%
|
135.16%
|
Financial
Leverage -- ( C)
|
1.00
|
1.00
|
1.00
|
1.00
|
1.00
|
RoE(%)
-- (=A*B*C)
|
50.69%
|
36.38%
|
36.70%
|
32.22%
|
135.16%
|
RoA(%)
|
50.69%
|
36.38%
|
36.70%
|
32.22%
|
135.16%
|
RoCE(%)
|
68.27%
|
45.99%
|
47.65%
|
40.63%
|
150.44%
|
I have used PE ratio for valuing eClerx.
So, expecting Rs 49.3 as FY12 EPS and a PE band of 16 - 22, FY12 (Mar 2012) valuation is likely to be about Rs. 790 - 1090.
Similarly, with Rs. 59.17 as FY13 EPS and a PE band of 16 - 22, FY12 (Mar 2013) valuation is likely to be about Rs. 950 - 1300.
CONCLUSION
This is a good company but looks more or less fully valued at this time. Keep this in your watch list and accumulate for the long term whenever you find the market giving you an opportunity to buy it cheap.
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