We suddenly see a change in mood by many analysts and market pundits. I feel bad for all those retail investors who follow them and bought stocks on their recommendations. Following word of wisdom comes to mind

… two requirements for success on Wall Street; the first is to think correctly and the second is to think independently.

Charlie Munger

The movement in the stock price depends upon the performance of underlying business. If the business is doing great then stock price of the underlying business will up-tick.

We do not invest looking at the indices. The day this Diwali rally started (approx. 2 months ago) we were and are still looking at it as a value trap. Our standard disclaimer: we do not know where market or any stock price will move tomorrow, in week’s time, month’s time or even this quarter as we do not have those prophecy skills. But we know that businesses which are outperforming will up-tick their stock prices in the long run.

On today’s topic, Advanta India caught my eyes recently. Advanta India had been rated as B3 by Value Operations. The stock price for this business at the start of this year was trading at Rs 240 and today it is trading at around Rs 800.

We can say almost 350% return in 11 months!

Advanta India sells seeds to the farmers. 85% of their business revenues come from overseas. They have operations in Latin America, Australia, South East Asia and Africa. They recently entered in Europe too.

The market cap for this business is Rs 1,370 Crore. They have reported Profits of Rs 12 Crore last year (Dec 2011)on the sales revenue of Rs 1023 Crore.

The shareholders of this business have contributed so far Rs 542 Crore and have borrowed Rs 675 Crore from the financial institutes.

Looking at their 9 months results for this financial year, they have made handsome profits of Rs 47 Crore and paid interest expenses of Rs 50 Crore against their borrowings.

We are expecting that they will report net profit for the December end 2012 year around Rs 60 Crore and if things go in their way then we expect their profits to grow in range of 25% – 40% for next two years!

Well, I haven’t gone in detail with you about the quality of this business, but, is it worth to invest Rs1370 Crore and buy this business where its expected ROE (Dec2012) is 11%?

On top of that also a debt of Rs 675 Crore! I will leave here you all to think independently about it and will be glad if you all can share your thoughts on this business through your comments.