What do you do when stock market, and hence all stocks, are trading at a much higher price than you would be willing to pay? If you are like any other value investor or like me, then you would continue your reading and prepare your watch list. On many occasions, you would like the stock but unfortunately they are trading at a premium for pulling the buy trigger. In early December, I had shortlisted five small cap stocks for further reading. Few readers namely, arunsg, Young@market, Rutwik, Aditya, anonymous, and two more in emails presented their comments on the list. Just looking at these comments, Aegis Logistics and Numeric Power Systems seem to be preferred companies.
I completed my analysis and presented a discussion about Aegis Logistics Limited. I also liked Graphite India Limited (will present my discussion shortly). I initiated starter positions in both of these companies. So now the question is what about remaining three companies?
Banco Products (I) Limited, (BANCOINDIA): It is supplier of engine cooling components and engine sealing gaskets to the automotive and industrial engines. Its products include radiators, intercoolers, oil-coolers and many different types of engine gaskets.
- Most of the time for last eight years, its operating cash has been continuously less than its reported net profit.
- It also seems to have quite a bit of debt, which generally has been more than its cash flow.
- Although the company pays consistent dividends, they are more of less flat. There is no growth in dividends.
- This company does not meet my portfolio criteria. I will not be buying shares of Banco Products.
Indraprastha Medical Corporation Limited, (INDRAMEDCO): It is a Delhi-based healthcare company which operates through Indraprastha Apollo Hospital. It is the largest corporate hospital in India. In my view, Indraprastha is a pioneer in corporatization of healthcare services.
- Although Indraprastha pays dividends, it has a very low payout factor. I do not like this.
- It has margins in single digits and has pretty much flat cash flows.
- For healthcare sector exposure, I would prefer Parma company instead of a hospital.
- I do not plan on buying shares of Indraprastha.
Numeric Power Systems Limited, (NUMERICPW): It provides power continuity and clean power through its total power management solutions. The product portfolio includes uninterrupted power supply (UPS) systems, servo stabilizers, isolation transformers, inverters, DC power, custom-built power conditioners, power quality management products, active harmonic conditioners, and AC-DC converters.
- It has a very good positioning in UPS (and power management) solution market place.
- It has a very low level of debt.
- Overall, it has a growing EPS in last few years.
- I do not like very low dividend payout factor and low margins.
- I do not like that it has consistently higher net profits than its operating cash flow.
- I also find a lack of information. The website does not provide annual reports; there is no comment or any speeches from company executives. I just could not figure out what the company wants to do or what direction it is heading.
- I spent quite a bit of time trying to figure out why I should buy shares in this company. Numeric Power does not demonstrate characteristics that I am looking for i.e. growth in dividends, communication, and operating cash flow. So I will not be buying shares for this company.
I would like to point that all three of these companies viz., Banco, Indraprastha, Numeric Power, may be good companies which would continue to grow in future. Furthermore, they could even turn out to be a multi bagger. However, it is not necessary to go and buy everything that is good. As individuals, sometimes, we have to make a call based on objectives. To be successful as an investor, we have to decide which one would be best for your risk appetite.
Questions, comments, kudos, and brickbats, all are welcome. Any thoughts?
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