Tuesday, February 25, 2014

Here is a stock idea that could give 40% returns in the next one month

This idea originally came from Jatin Khemani – an equity analyst and my ex-student  - he surely knows more about stocks than me. So this blog post is dedicated to Jatin.

The Noida Toll Bridge linking Delhi and Noida is run by listed company called Noida Toll Bridge Company Limited.  This company, as one can imagine, has a very simple business model  -it spends on maintaining the toll road and gets revenue from people who use the toll road. With increasing traffic in Delhi, their revenues are growing and so is their profits.

In the past 6-7 years, their Earnings per share (EPS) has grown from Rs. 0.59 (in 2007) to Rs. 2.25 (in 2013) – a 25% CAGR. The company uses this profit to reduce it’s debts and their debts has gone down from Rs. 323 crores (in 2006) to Rs. 23 crores (in 2013).

In the past three years –they have started giving dividends to shareholders – they gave 5% dividend in 2011 and in 2012 and they doubled it to 10% in 2013. This 10% in 2013 meant that on an EPS of Rs 2.25 they gave Rs 1.0 as dividend per share– a dividend payout of 44% (meaning that 44% of their profits was given back to shareholders).

So in effect, the management is using the profits generated to pay back some loans and also pay back some profits to the shareholders.  As the loan amount is going down, the dividend payment is going up – the dividend per share has doubled from 5% to 10% in 2013.

In 2014, the current year, their revenues for the period April to December has grown by 14% and net profit and the EPS for the same period has grown by 25%. The company has already paid 10% dividend (Rs 1 per share) and they still have money to pay more dividend as the loans are going down now.  They have last evening announced that the board will meet on 28th Feb to consider paying further dividend.

When the dividend payout was Rs 1 per year – the share value was hovering around Rs 20  - which meant a dividend yield of around 5%. Now if the dividend payout goes up to Rs 1.5 or Rs 2 per share – at a share price of Rs 20,  the dividend yield goes up to 7.5% or 10% (respectively). This makes the share very valuable and will increase the share price to Rs 30 to Rs 40  -so that the dividend yield comes back to 5%.

This means that if you buy the share now (quoting at around Rs 21-22) – you can make a decent appreciation in the next one month. The following are the scenarios if you buy the share at Rs 22 now:

  • Scenario 1 – the board decides that they will not pay any more dividend – then the share value will not go up and will settle back around Rs 20 – you will lose 10% on your investment of Rs 22 per share.
  • Scenario 2 – the board decides to pay 5% dividend  -then the share value should go up to close to Rs 30 and you will make Rs 8 in capital appreciation and Rs 0.5 in dividend - a profit of 38% in about a month. This is a likely scenario as I see it.
  • Scenario 3 - the board decides to pay 10% dividend  -then the share value should go up to Rs 35-40 and you will make Rs 13 in capital appreciation and Rs 1 in dividend - a profit of 59% in about a month. This is a very optimistic scenario and may not happen.

So I  would recommend that you invest in the stock as soon as possible and  buy it at Rs 22 or below – currently it is at 21.95.

And wait for the results of the board meeting of 28th Feb.

Thank you Jatin,  for this idea.

Saturday, February 22, 2014

Rs 30 lacs for a three Bedroom flat in Bangalore – a pre launch offer that I recommend

Among the old well known business families in Bangalore is the Sipani’s. Back in the 80’s, they were known for the car they manufactured called Dolphin - it was a Fibre glass body  car (http://en.wikipedia.org/wiki/Sipani).  Dolphin did not do well and was eclipsed by Maruti 800 as it came around the same time.
Over the years, the Sipani brand has been in a few B2B businesses. Today most youngsters would not know the Sipani brand.
However in the past one year, the Sipani brand is starting to be visible in the real estate market in Bangalore. They have come up with 5-6 projects - mostly in Koramangala - my information is that they are delivering well on these projects.

Two days back, I came across this value housing project called Sipani Bliss (http://www.sipaniproperties.com/luxury-apartments-in-bangalore-Bliss.aspx) -the project was soft launched 4-5 weeks back and unfortunately for my readers, I got to know about it only 2 days back. Here is the brochure https://dl.dropboxusercontent.com/u/73601331/Sipani%20Brochure%2013.01.2014%20.pdf 
The most attractive thing about this launch is the pricing – it is currently being offered at 1800 per sq ft –I am attaching the price list here (https://dl.dropboxusercontent.com/u/73601331/Bliss%20e-Price%20till%2027th%20Feb.pdf) – You can get a 3 bedroom, 1416  sq ft flat for around 31- 32 lacs – That’s the good news. The bad news is that, this price is going up by Rs 150 psft with the launch which is planned for next Friday (27th).

So in case you are interested – please read further my views and please take your call as soon as possible – definitely by Thursday evening (27th).

So here are my views on the property:

The positives beyond the price:

  1. Legally clean - It is coming up in a land parcel that is owned by the Sipani family for more than 15 years – so I do not think they would have any legal issues – HDFC, ICICI and Axis have already approved it for home loans
  2. Neighbouring developments –
    1. The flat complex is adjoining a staff hostel complex build by Sipani’s for Narayana Hrudayalaya. I think there will be appx 500 employees (Doctors and Nurses) of the Hospital staying there. This is good because more people means more commercial activity and more development.
    2. They are also going to build a 100 bed hospital in the same neighbourhood (planned to complete around the same 18 months) which will be managed by Narayana Hrudayalaya – that is also good because there will be some commercial activity as well.
    3. There is also a commercial supermarket being planned by the Sipani’s adjoining this property.
  3. Size of property - The property has only 285 flats –and has reasonable common amenities –a swimming pool, a club house, a basketball court, amphitheatre and some greens.
  4. The overall design  - it is good and the construction that we saw (they have two model flats ready) was satisfactory  -I am attaching the specs here (https://dl.dropboxusercontent.com/u/73601331/Sipani%20Bliss%20Specifications.pdf) –these are reasonable specs. They have a brand to keep and they will deliver well (my belief).
  5. Distance from main road - It is just about 2 kms from the Hosur highway and the approach road is a decent tar road (40 ft I think). There are three approach roads and we drove in two of them and they are good enough.  
  6. It is appx 7-8 Kms from Electronic city -I think the drive will be peaceful.
  7. Price of flats in the area – There are no flats there – but I think the going rate for something like this would be Rs  2200 psft plus right now.
  8. Price of flat after 18 months – this is my forecast -  I believe the flat would be selling at around 3000 psft in 18 months time, when the delivery will happen.

The negatives

  1. The location - around the area, there are green farms – in fact I saw a good grape vineyard pretty close to the location. There are quite a few plotted layouts (land selling at around 1400 psft ) – but there are hardly any people living there right now.  Is it bad? – may be – may be not.  
  2. Rental -  I would think you will get appx 7-10 K per month for a three bedroom flat. That is 2-3% of the flat value which is what you get anywhere  -so that is not a negative actually
  3. Selling the flat - if you want to invest now and exit when it is ready, it would need a bit more work as the location is currently not developed.

So in case you are interested – please reach out to Abhinav Daga of Sipani Properties at 99000 89306 and act fast. I believe it is a good deal

Disclaimers – There are two of them:

  1. I may or may not invest in this.  I do not need more real estate for myself – I have more than my fair share –but I am recommending it to my readers.
  2. I do not have any brokerage or such incentives by recommending this – sometimes, readers think that  I am blogging for such gains.  I want to assure you my reader that there are no such motivations for me and my objective of doing  this is pure and simple – to be able to help the readers of my blog – just the way someone helped me many years back.

Tuesday, February 18, 2014

Investing in Pre Election volatile situation

Here is a question that you may have –

“I  save Rs X per month and where do I invest  it – I am looking for long term investment (2-3 years atleast) and I am looking for good returns.”

There are no straight answers to this question - the answer will  depend on the risk taking ability and life stage of the person investing. Plus as of now, there is the uncertainty of elections ahead and how does one recommend anything at all. 

Having given the disclaimer above, here is my answer to this question:

In case you have some money to invest and do not want to do a Fixed Deposit type of investment that just mirrors inflation, then here is one sector where you can put your money with a 2-3 year time frame:

  • Pharma sector – this sector has done well in the past few years and  is expected to do well in the coming years. Sure, there are bad apples like Ranbaxy – but there are great stories like Sun Pharma and Lupin too. The industry’s good performance is mirrored by MF’s focussed on this sector.  Look at Reliance Pharma Fund  -http://www.moneycontrol.com/mutual-funds/nav/reliance-pharma-fund/MRC058– this is the largest pharma fund in the country in terms of Assets under management and has given great returns in the past 5 years  (36% per annum compounded). Will it give the same in the future? I believe that it will give at least 20% per annum in the future and that I think is good enough (remember  -this 20%  is post tax if you hold the MF for more than one year).  I have invested in this fund last year and also recently and I recommend it to you as well. You can do an SIP if you want to invest your monthly savings – or you can do a one time investment. I believe that you will get a 20% return per annum at least.

 In case you have some lump sum amount that needs to be parked for a period not exceeding six months – then liquid funds is the way to go. These funds have given 9% per annum in the past year and I believe that there will be no lowering of interest rates till elections are over – so they will give 9% plus currently.

The biggest liquid fund in terms of Assets under management currently is ICICI Prudential Liquid plan - http://www.moneycontrol.com/mutual-funds/nav/icici-pru-liquid-plan/MPI115 this is the fund where I have parked my short term funds  and I recommend it to you as well.