value operations

What is at discount in Indian Equity markets …

What do you do when your favourite chocolate in the super market is selling at discount? Well, chocolates are my favourite so I would go and grab few more then usually for two reasons. First that I will save!! And the second reason is because I like them a lot. We know many or […]

By |January 8th, 2013|stocks|0 Comments|
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    10 Businesses which are still trading at Discount… worth to Investigate for 1st Quarter 2013!!

10 Businesses which are still trading at Discount… worth to Investigate for 1st Quarter 2013!!

We are standing close to the start of new Calender year 2013. As the year 2012 comes to conclusion, yet again we are able to beat Nifty index (almost 100%) return for our investor/private portfolio holders. We would also like to thank all of our readers for their continuing support and helping us to […]

By |December 31st, 2012|stocks|0 Comments|

Why ROE…?

We talk and give a lot of importance to return on equity ratio while searching for businesses to invest. We believe that return on equity ratio also helps us to gauge the performance and value those businesses rationally. Many investors and analyst’s consider return on asset as most valuable ratio. But if you invest […]

When to sell – Part 2

3. Share prices rise well above its value: Due to popular demand, we had received many emails in regards to Amar Raja Batteries and many investors’ wants to know what we are doing with our holdings of Amar Raja in our portfolio. It is very hard to know whether any company trading at cheap […]

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    Infosys – Do you believe in Management, analyst’s or in yourself?

Infosys – Do you believe in Management, analyst’s or in yourself?

After the first quarter results for Infosys every investor has two questions in their mind:

1. Is Infosys a good bargain at this price?

2. Infosys is sitting on huge cash (Approx. Rs 19,000 Crore), should they go for Buyback of shares?

Both the questions are interrelated and answer to both the question is same. Before you get lost from the main plot let me pitch my standing on the investments in Infosys.

The very first question comes to my mind is about management of this business. Do you trust the management of this business? To get more specific, do you trust the guidance of management? If I look at the past and ask anyone on the street, they have common answer YES!!

The terms used by many analyst and journalist in this regards is, “under-promising and over- delivering”.

Let’s forget about stock market and PE ratios and price of Infosys shares for a while. Let’s concentrate on the underlying business and its profitability. Most of their business revenues come from USA and European clients. Both of these geographical regions are going through tough financial conditions. Being in the business for such a long time and their reputation of under-promising and over-delivering, it will not be fair to underestimate management’s guidance.

An EPS of Rs 147.50 for the year end March 2012 reflects its ROE of 31%. This states that every Rs 100 invested by its shareholders has generated profits of Rs 31 to them. Now the management’s guidance for their EPS for the year end March 2013 is Rs 166.46. This again reflects its ROE for 2013 to be 30%.

Valuing any company is an art rather than science these days. Purely on business perspective, if I have Rs 100,000 to invest in any business and I want a return of 15% (profits) on my investments every year,
then I will have to buy approximately 90 (15,000/166.46) shares of Infosys with my capital(Rs100,000) in simple terms without factoring other variables.

To buy 90 shares from current market I need approximately Rs 200,000 today! The above example is just for illustrative purpose and effort from my side to make you think out of the stock market jargons and language.

To get answer to your first question you just need to do simple maths. For individual whose asking rate of return every year is 10% will need to buy 60 shares of Infosys and today it will cost him Rs 133,740!!

Value Operations quality and performance rating for Infosys for the year end March 2012 is A2. Value
Operations valued this business for the year end March 2012 for Rs 1,765.

As an investor you should not worry about things which you cannot control. You cannot influence management of Infosys or any business unless you are the owner of big pie of that business!! Let those managers run their shows and you just need to keep an eye on their activities. If you find any of their activities will impact to your returns then you should just wind up your investments from those businesses and look for alternate opportunities.

Infosys is sitting on huge pile of cash. Many analyst and media journals are talking about buy back of the shares. But is that worth doing? Buying back companies own shares means instead of you going out and buying by your own money, company is buying for you. It is a good strategy to create value for the shareholders. But hang on a second, if you think that shares of Infosys are not cheap and you are not buying them today, then it does not make sense for a company to go out in secondary market and buy their own expensive shares!

Coming back to investments, investing is all about looking at what underlying value management can or is adding every year. If I consider management’s future guidance for the year end March 2013 and 2014 then as per Value Operations, intrinsic value of underlying business of Infosys for 2013 is Rs 1,945 and Rs 2,290 for 2014.

As all the investment money is your hard earned and saved money, you need to think independently and rationally before making any investment decisions.


By |July 16th, 2012|Q1 - Year 2013|8 Comments|

Another two ‘C’ grade companies revealed by forensic accountant!!

It is important for every investor not to think equity investments are another option for speculation to bonds. There are more than hundred brokers and almost same amount of fund houses looking for business in the market. Don’t forget that these brokers make money from your paid commissions! This reminds me about remark once […]

It is never too early to start investing…!!

Recently I was sent a clip (30th June) in email by one of our value blogger to comment on CNBC TV18 series of Informed Investors. I really enjoyed watching that series but found the content not in the deep detail to help retail investors. The very next minute I got a call from […]

By |July 3rd, 2012|Research|12 Comments|

A Bumpyyy ride for Tata Motors on Jaguar & Land Rover

My strongly believe is, if you stick to the high quality companies and buy them when they are trading at discounts, you can easily beat any index in the long run. I also like the management that keeps adding consistent value in their business. it is this improvements in the values changes the stock price of any company in the market.

Price always follows the value in long run and this is the most important lesson I have learnt after studying Benjamin Graham’s work. Adding value to any businesses depends on how efficiently management takes decision and manages the business capital structure for its shareholders.

Tata Motors is one of the reputed brands of India and belongs to one of the oldest and most reputed business group of Tata’s. If I look at the 5 year price chart and compare its stock price with its values, then you will notice that except 2008-09 management have managed to grow its value every year for its shareholders. A fall in value in 2011-12 is only due to split in stock.

Value Operations Verdict

Quality Score

Performance Score

Value Prospects

Margin of Safety





Tata Motors is an investment quality stock (B1) as per value operations and is trading at steep discount today. The contributed equity by its shareholders (Book Value) of Rs 105 per share in this business has generated profits (EPS) of Rs 42.58 for the March ended year 2012.

But before making decision on any investments in these kinds of high quality companies, especially when they are trading at discount does not make sense if the value prospects for future years are in negative. If you believe in Benjamin Graham’s insight that price always follows value then it is important to invest only in the companies whose value is growing every year.

If I look at the earnings forecast for the future years and compare it with today’s available price in the market then they are trading at discount of 63% to its 2015 values (Rs 598)


Expected EPS

Expected Intrinsic Value


Rs 47.56

Rs 648


Rs 49.99

Rs 651


Rs 52.54

Rs 599

Tata Motors management took the bold decision by acquiring Jaguar and Land Rover businesses from Europe. A thirst to grow its revenues and profits and to bring Tata brand at the world’s centre stage in Automobile business proved to be very successful. A launch of worlds cheapest electric car ‘Nano’ made world’s headline and Tata brand got recognised all over the world. But if you are a shareholder of this company then I would like to ask you one question, do you think managements decision to acquire Jaguar business which was almost twice as big as their existing business in size and money was sensible?

To acquire European businesses, the mix of their capital structure did not make sense to me. With such a small equity base, it is hard to service such huge debt and keep them profitable. Also it increases the risk to the business too. This is the reason they have been reinvesting their earnings heavily back into the business and issue extra capital to raise their capital base from last two years. The question we have to ask our selves, is it worth to reinvest those earnings and contribute extra capital for a growth of 10-12% every year in their profits?

Key Facts:

The Net profits of this business have grown by 515% in last 6 years which represents a compounded  rate growth of 31.5% per year.

Total Equity of this business has grown by 333% in last 6 years, which represents a compounded growth of 22% per year.

Total Debt of this business has grown by 430% in last 6 years, which represents a compounded growth of 27% per year.

If I look at the cash flow of this business from last 5 years they have not yet overcome their massive fund deficit of 2009. I know its being only 3 years and it’s very early to say that management’s decision to acquire overseas business was not prudent. But looking at future prospects and brink growth in European economy and the crisis they are going through currently, it looks that it will take a long time to overcome those deficits. Even a slow down in the Chinese economy could soften the growth in this company’s revenue as Chinese market is also very important for them.

Key Facts:

Total reported profits in last 5 years: Rs 13,713 Crore

Total Dividend Paid in last 5 years: Rs 3,601 Crore

Total Cash generated from Operations in last 5 years: Rs 26,037 Crore

Total Fund surplus/ (Gap) in last 5 years: (Rs 15,044 Crore)

I think I have shared enough information to dig more about this company and take your independent
on what to do at this time with Tata Motors. I strongly believe in, that price always follows value and in this case value of this business is in downtrend and it does not make sense for me to invest at this stage. Even though looking at the huge discount available in this counter and quality ratings.

What do you think about this business? And what are your views? Share with us your investment philosophy.

By |June 3rd, 2012|Research|8 Comments|

Don’t Loose your Money…. Err…

If you lost your 50% fund, you have to make 100% on your remaining one to just breakeven. This is the simple reasoning behind the Buffett’s two rules of investing. Rule number 1 don’t lose your money (A reference to permanent capital impairment) and rule number 2) don’t forget rule number 1!

Going further to this invaluable insight by legendary investor and I really appreciate him for sharing his wisdom so generously with everyone. I personally think that the best way to avoid capital impairment permanently is a) stick to high quality companies, b) avoid low quality companies and c) getting out when facts change. These three simple ways will help you to protect your investment wealth.

Do not get caught in all the different mantras like ‘ high yielding’ business, F&O expiry, ‘sell in May and Go away’, ‘Mood of the market is downbeat but good time to buy good value stocks’ and all other marketing gimmicks used by various analysts in their analysis and interviews on business channels.

Think about it; how many business owners would speak about their business in those terms? “ Hi, my name is Raju and I own retail business – it is a high yielding business and that pays all its earnings to shareholders every year” or “ please, do not buy my business shares in May!” You will NEVER hear any such comments by business owners. That only comes from stock market or people who have never run a business!

The key is not to focus on stock market or talk about any market jargon. Just focus on business. That’s what we are doing today through this article on Essar Oil.

Essar oil is a part of Essar group of companies and is involved in refinery and oil exploration business. India as a nation is the biggest importer of Oil & Gas and that makes any refinery business very lucrative business. But due to big fluctuations in the oil market in last 5 years, many refinery businesses have turned into loss or low earning companies and their operating margins have turned very thin.

This business is a very high capital intensified business and that is one of the reason that it cannot be copied easily but for Indian market it is not unique. This business profitability also relies a lot on government regulations and makes investment little risky.

Because it is capital intensified business, to maintain its profitability they have to keep investing in plant and equipment heavily. This business has managed to grow its sales revenue but it is all thanks to the inflation and fluctuations in international oil prices, that leaves the company with no real growth.

Looking at its profits on year to year basis for past 5 years they managed to show profits only in the 2011 year, which reflects the business condition.

Personally speaking, I don’t like capital intensified businesses which are producing low returns and especially if they are in habit of making losses. I like only the business which has net cash on their balance sheet and are giving consistent at least 15% return on your shareholders equity.


Value Operations Verdict

Quality Rating

Performance Score

Value Prospects

Safety of Margin





We cannot value loss making companies. As per their financial standing at 2011, we valued this business for Rs 31.25. Essar oil has booked losses for the year end 2012 and we do not have clear earning guidance from the company and that is the reason we cannot forecast growth in its business value. But today it is trading at premium of 40% to its 2011 values and we do not expect its value for the 2013 to grow above 2011 levels.


Key Facts:

Essar Oil losses have grown from Rs 41.18 Crore to Rs 4,199 Crore from 2008, a jump of 10096%.

The company’s net debt has also gone up from Rs 10,000 Crore to Rs 11,814 Crore, a jump of 18.14% in last 5 years. Net debt/Equity stands at 520%.


Key Facts:

Since 2008 this company never had surplus cash year. They always required cash from their borrowers to keep running their business from last 4 years.

If you own this business then we would like to know your rationale behind your investment into this business. I know that management has tipped that last year (March 2012) was the final year for their all Capex expenses and it will be interesting to see how they manage companies investment. Looking at above charts and figures I do not need any special IQ to come to any conclusion.

By |May 29th, 2012|Research|14 Comments|

Greek exit …. should it be a concern?



Euro banks on the brinks, Harvard university professor Mr Ferguson talks in little detail.

By |May 28th, 2012|Treasure|0 Comments|