May 16, 2013

Nestle India – a long-term stock return study

I have done some work on Nestle India that should be useful to you in understanding high quality stocks that seem to always trade at “high valuations”.

Nestle India – needs no introduction

Most of us have used Nestle’s products at least once in our lifetime, if not more.

From the ubiquitous Maggi noodles to Milkmaid to Munch chocolates. And how can I forget Nescafe which has become a generic word for coffee in India. If you have traveled in long-distance trains you have to choose between “chai” or “nescoffee”.

Nestle India owns very strong brands. The company enjoys high return on equity. They have strong cash flows. They share the spoils with shareholders in the form of generous dividends.

You might want to see their range of products in India. Read Nestle’s annual report for the financial year 2012 from page 10 onwards.

If the images in the viewer are blurred, you can download Nestle’s FY12 annual report.

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May 14, 2013

Active Value Investing in Sideways Markets – Vitaliy Katsenelson

Vitaliy Katsenelson is the author of Active Value Investing: Making Money in Range-bound Markets. In this article I have shared a presentation that he made at a conference recently.

What is Vitaliy Katsenelson discussing?

We are used to talking of bull and bear markets respectively. He broadly focuses on sideways markets.

For example what we have been seeing since 2007 to 2013 in India. The Sensex or Nifty have moved up and down but are roughly in a range. This would be a sideways market.

He studies the US markets over the long-term. In bull markets buy and hold works well. More important than stock specific selection it is important to “be present” in the market. In sideways markets on the other hand he argues that one should change strategy. There should be strict entry and exit points in your investments. Staying in cash if you have got nothing compelling to buy is better. Cash is an under-performer in bull markets in comparison.

I have read his book “Active Value Investing – Making Money in Range-Bound Markets“. It is a good book albeit expensive.

He shares the core topics in this book through this presentation. Many charts that he discussed in the book have been incorporated in this presentation.

Continue reading to download the presentation

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May 10, 2013

Good investing reading – 10 May 2013

Good investing reading

Fresenius Kabi Oncology’s OFS and delisting – minority shareholders skewered

Companies where promoters had a stake that was higher than 75% had to satisfy SEBI’s norms of promoter stake being not more than 75% by June 2013. There are 2 options for promoters. Either buy the remaining stake from the minority shareholders as per delisting guidelines or reduce their stake to 75%.

Fresenius Kabi Oncology was in a similar situation. What they did is legal as per the letter of the law but does not seem proper in spirit.

Fresenius plans to delist 7 months after OFS, raises concerns over Sebi norms ‘violations’

An FII fights to protect its investment in Coal India

The Children’s Investment Fund (TCI) is a well-known activist shareholder. They have been at loggerheads with Coal India’s management and board of directors for not doing enough to protect the rights of the shareholders of Coal India.

Here is an interview where Chris Hohn, Fund Manager, TCI speaks his mind about the corruption in the coal sector in India.

Continue reading – Warren Buffet Q&A and FII money – whether it is actually foreign money

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April 29, 2013

Disa India – cyclical all the way

In today’s article I will discuss Disa India, a listed foundry equipment manufacturer. You will see an example of a cyclical business.

What is a foundry? What is casting?

A foundry is a factory or a unit where a casting process is used to create metal parts. Metal is heated in induction furnaces or electric arc furnaces. Molten metal is then poured into a mould. After it cools down, the mould can be removed or broken to reveal the casting. This casting is yet not perfect. It has impurities on the surface which have been picked up from the mould. These have to be removed. Surface preparation is the name that is given to this step of the process. This can be achieved by sand blasting (or shot blasting) for example where sand is propelled onto the surface of the yet imperfect casting. Sand strips away the impurity. Pretty much like the feeling you will get if you are in the middle of a sandstorm in a desert. Except that this is many times more abrasive.