Invest in Indian Companies with Business Monopoly

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This is a guest post (unedited version) from Sherin Devassy, a personal finance and investment blogger at The Money Maniac. You may visit his blog for more information on value investing guidelines and personal finance guidance. Sherin is an investor for long term and has built a stock portfolio including most of the above mentioned stocks with a very long term focus. You can contact him at investinternals@gmail.com

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Selection of a company to invest is not simple. But, in the same time, it is a simple task too. Commonsense plays major roles in selection by considering most important factors that any one can easily understand and adapt. By remembering legend investor Warren Buffett’s investment criteria’s, here I am listing 10 Indian companies that capable generate enormous wealth for long term investors.

Remember, companies mentioned in this article are not for short term investors. Most of them in this list have defensive character and suitable for investing to meet long term goals such as child higher education, marriage, buying a home etc. By remembering the classic rule, invest for long term, I assure any investments on this companies more than 15 to 20 years generate wealth like an ocean.

I have selected and listed these companies using some selection criteria’s. As the first, companies listed here have one or more product that is into the monopolistic position in Indian market and merely impossible to beat their position by others. Secondly, these companies have efficient management with innovative ideas and strong network across India. Finally, these companies have very few or no debt and registering year to year yearning growth.

1. Britannia Industries

Go to any shop, whether it is small or large mall, anywhere in India, whether it is a metropolitan city or remote village, you are able to find Britannia biscuits. Such strong brand along with extra ordinary sales network, bring this company as one of the gem in India. Continue reading rest of this article…

Indian Stocks Mania – April 30, 2009

Welcome to the April 30, 2009 edition of Indian Stocks Mania. This is second edition of this carnival. It may seem that there are post that are not representative of the Indian Equity Markets. However, the concepts presented by submitters can very well be applicable to Indian Investors. I received 43 articles from different set of bloggers. All articles were good and demonstrated respective author’s good effort. I did not include some of them because they would not be relevant to Indian Blogger or world of Indian investing. Enjoy Reading!

Editor’s Pick

  • Jae Jun presents Fortune 40 Best Stocks to Retire on: Part 1 posted at Old School Value, saying, “Putting a fair value estimate on 40 of the best stocks to retire on. This is part 1 where we take a look at the first 10”. NOTE: For long term investors, this is a good example of how to create a watch list based on any individuals investing philosophy or strategy.
  • Smart Money India presents Charges other than Brokerage for Stock Exchange Transactions posted at SMART MONEY INDIA, saying, “Detailed information on statutory charges on stock exchange transactions, other than Brokerage charges, like Securities Transaction Tax (STT), Stamp Duty and Other Charges”. NOTE: This one is for short terms traders who can understand the implications of these taxes and real returns when trading.

Continue reading rest of this article…

Pidilite: Dividend Stock for Long Term Investment

pidilitePidilite Industries Ltd. Limited (Pidilite) is a consumer and specialties chemicals company. Its product range includes adhesives and sealants, construction and paint chemicals, automotive chemicals, art materials, industrial adhesives, industrial and textile resins, and organic pigments. It has several market leading brands that include Fevicol, cyclo, Sargent Art, hobby ideas, Dr. Fixit, ROFF, and m-seal. Two thirds of company’s revenue comes from India’s internal market. Historically, the company has developed most of its product thought a very strong in-house development program. However, in recent years, it has embarked expanding this reach by overseas acquisition and setting up overseas manufacturing units.

Trend Analysis

The whole reason for any business to exist is to generate sales revenue and make more profits. At a minimum, the parameters listed below should have continuously increasing trends. All the data below is based on last 8 years 2000 to 2008.

  • Revenue: Increasing trend with average growth of 18% (SDev. 7%).
  • Earnings per share: Increasing trend with average growth of 20% (SDev. 18%). This shows very high year-over-year variability.
  • Net cash flow from operations: Overall, the net cash flow from operations has an increasing trend. For most part, the net cash flow has been very close to the reported net profit. However, since 2007, it is less than reported net profits. Not a good observation.
  • Profit/Loss from operations: Looking at standalone profits only, the corporation is showing consistently increasing profits from its operations. Good observation.
  • Reported net profit: Increasing trend. Good observation
  • Gross margins: A slow downward trend on gross margins. 2008 gross margins lower than historical average of 16.5% (narrow stdev. of 1.36%). Still not an alarmingly low level. Neutral observation.
  • Operating margins: Operating margins in-line with historical average. Neutral observation.

Continue reading rest of this article…

Tipster, You are Fired!

firedI started writing about equity investing on this particular blog from February 2009. However, I have been investing on my own for last eight years or so. Over these years I have learnt a lot about equity markets, macro economics, stock advisors, tipsters, mutual funds managers, etc. I am sure that you also have had your own experiences the good, the bad, and the ugly.

Ever since I started investing, I have always been intrigued by the stock advisors, tipsters, some of the mutual fund managers, portfolio managers, etc. In short, I am talking about the stock tips and stock advising profession. This is the profession which claims to take care of our financial investment at a fee (and off course with no return of any quality service).

  • I fail to understand if they are so sure about their tips and advice, why they are giving to other folks. Why are they letting their secrets out.
  • Why are they not using that advice for their own investments and make more money?
  • In last few years, there has been surge of blog spots (with business orientation) which charge fees to provide daily tips by emails or on cell phones! Funny aspect is many claim they want to help people make money. That is a load of crap!
  • These tipsters want to help people why not provide free tips? Why ask for subscription?
  • Another surprising element is the claim on success rates. Majority of these tipsters purports 80%+ success rate. Yeah that’s right! If your tips have 80%+ success rate, go use your own money to trade? Why are you giving me tips?
  • Just think, if 80%+ success rate are true, why the market is down more than 40%? With that kind of success rate, it is just not possible for market to go down that much. Some will argue with me that profits can be made on short selling. But then how many tipsters advise on short selling? How many times has your own tipster provided you tips on short selling? Continue reading rest of this article…

Compounding Dividend much Better Than Compounding Interest

We all are very much familiar with compound interest. We use savings account with fixed interest. What happens here is that an interest earned (from earlier time period) is added into the principle. Thus the next time period’s interest is somewhat higher. Traditionally, that’s what we have been used to. With a fixed rate of interest our earnings increase year after year.

Let us take an example.

  • We deposit Rs 100 in a savings account with rate of interest of 5%, which gets compounded annually.
  • In the first year, we will earn Rs. 5, in year 2 we get Rs 5.25, in year 3 we get Rs. 5.51, in year 4 we get Rs. 5.79, in year 5 we get Rs 6.08, and it continues.
  • So the interest that we get keeps on increasing year after year.

Now if this is compounding interest, then what is compounding dividends? Before we try to answer this, let me explain what is the good quality dividend stock.

Among many others, the characteristic of good dividend stock is that its dividend increases every year. The rationale here is if earnings increase, the dividend will increase. Even if the percentage remains same, the companies tend to increase dividends with increase in EPS. This is what I call a good dividend stock. Continue reading rest of this article…

The Tale of Two Companies

This is about Satyam Saga. Most of the articles and comments I have read in business media focus on tangibles like revenue, profits, number of customers, etc. So in today’s post I am discussing my view of Satyam Saga. My focus is more on the intangible issues that are hidden and may not visible to common investor.

I would like begin with commending the authorities who made this transition smooth, swift, and without much ado. The use of word authorities here is a proxy for industry association, company law board, ministry officials, and other unknown institutions. I believe if this situation had prolonged and quick decisions were not made, Satyam would have went for a toss, and it would have had a negative impact on Indian outsourcing business. The short term implications would have been far reaching somewhat similar to Lehman Brothers.

One company is Tech Mahindra (TM). The other one is not Satyam. My personal viewpoint about Satyam is that it does not have wide moat in the supply chain. It operates on a business model which uses labor arbitrage as its USP. It is relatively easy and manageable for customers to shift the vendor and still not have any significant impact on their operations. I do not have any intention to offend Satyam folks. However, one has to be pragmatic and take into account how their customer base (i.e. international companies across the developed world) views them as a company. It is viewed as Wal-Mart of software outsourcing industry. The second company I would like to include here is Larsen and Toubro (LnT). Continue reading rest of this article…

How do I Manage My Time?

I receive questions and comments on my posts and many times in emails. I am actually surprised how often “Contact” on Menu Bar is being used. It receives third most popular clicks.

I try to respond to almost all of these questions and comments as honestly and as timely as possible. I also know that I may not be able to meet some the expected answers. If that’s the case, then it’s because of my misinterpretation or may be I did not communicate properly. The questions I receive can be classified into three distinct groups, viz., (1) questions related to my time management; (2) questions on my stock holding and my portfolio management; and (3) why am I blogging?

In today’s post, I will discuss about questions related to time management. There are subtle differences but in the end they all are related to how I manage my time. Continue reading rest of this article…



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