Some Promising Stocks: Meditating for the Unknown

Meditation is not a word for “Dhayana”. Meditation is a relationship of Subject and Object where one is practicing or contemplating something…but subject remains always there. But in Indian consciousness (again “Chetna” or “Minisha” are better) “Dhayana” is a state where subject dissolve into Unknown…subject just vanishes…it becomes one with whole or we can better say it realizes the illusion of separateness…fragmentation is a state of Mind while oneness is the reality…when one experience this…it is Dhayana…it is not a process but a state. And because there is no subject; so every Dhayani (Say Meditator) faces the problem of explaining his experience in our worldly language and when they try they appear out of Subject and Lunatic. It is just like trying to make a child understand the meaning of love…not understanding is not the issue but the child can relate his love for Chocolate with our love for our better half. The whole chaos we are seeing for ages is because children are trying to understand Love from their “State” and some says Love is Chocolate, for some it is Toys and for some it is ice cream.

Stock analysis is also just like Meditation…very deep, enjoyable and engaging but as subject remains (unmelt) so he can explain it. Business is even deeper meditation…contemplating the Unknown…dragging the future into present…business contemplates the oneness of worldly forces better than our religions and tries to gasp the future trend. But biggest risk factor is not the subject-matter but only the Subject….the businessman. I call it the Management Risk. I take management risk as the biggest threat to a business venture. External factors are always isolated and beyond control but business is never about controlling them but being in the harmony of these. Harmony is about the meditators. So there can be chances when external factors are out of favor but a true meditator will eventually resonate with these.

So capability of management is the biggest factor in the success or failure of a business. All the measurement variables of success like cash, market share, profitability etc. are just derivatives of the management. When I bought stocks like NIIT, jain irrigation in their tough times….it was just because of the management which is top class. Then, if external factors are affecting any business too frequently like in commodity business like Steel where too many external factors become alive time and again….like global over supply, low global demand…these can kill anyone without any of their fault…I call it Frequency Risk. So I generally avoid these types of companies.

So in today’s post, I am going to share some companies which are meditating quietly for a long time. So no wonder, they remain unnoticed. But the scale of success is enormous and if they succeed they will be giants. Another thing about these stocks is that almost all have already been shared with the readers of this blog who have subscribed to the email of this blog. Actually the reason for not sharing at this blog was because I was still to complete the final analysis and sometimes the lack of time. However I am feeling somewhat down as some of these stocks have already run up quite a bit. But the good thing is that most of email subscribers are having it so they might find this post just a copy of my emails. But today I am just posting basic introductions to these stocks due to lack of time and length of the post .

JM Financial and Edelweiss: Two of the best NBFC’s available at cheap rates. With great return over equity but still available at PE ratios of 10. JM Financial’s ROE is around 25%, Dividend yield is 3-4% but still running at a pe ratio of just 8! Both are having some Niche businesses like JM is the biggest indian in Investment Banking business which is a fee based business so margins are very high. Edelweiss is very strong in Equity broking and Insurance. Edelweiss is going to be one of the biggest beneficiaries of growth in equity broking business as more indians will come to the market due to high cost of real estate and sluggishness in Gold. Indians invest just 1% in equity, chinese at 15-20%...USA may be around 30% or so...so just see the scale.

But the surprise package will be their ARC (Assets reconstruction companies) business. Indian banks are estimated to have NPA’s of around 3 lac crore. Mr. Raghuram is focusing on cleaning the mess in the books of banks so banks are selling these NPA’s to ARC’s like never before. Both Edelweiss and JM are already the biggest players in this. Edelweiss bought around 20000 cr of NPA in recent times (it bought the NPA of Arshiya international while JM is curing Hotel Leela). I think that ARC’s are a good remedy to the businesses facing the systematic risks and can be saved by these ARC’s as they can provide these businesses with working capital and with their expertise they can enable them pass the difficult time. Like Arshiya expanded into FTWZ business too fast too soon but it was a novel business idea and can be saved. But there is no remedy for bad business decision and fraud and in those situations only remedy is to dispose of the assets and save as much as you can.

JM is at 45 and Edelweiss at 68. Both have already run up quite a bit especially Edelweiss from 50 to 70 but still long way to go.

Zydus wellness:  This is one stock where scale of operation is too big to ignore. It is into the wellness sector offering unique products like zero calorie sugar derivatives (Sugar Free Brand, with 93% market share), Nutralite brand providing low chelostrol substitute for butter, Everyuth brand in peel and scrub category with biggest market share. it is at a pe ratio of 33 and almost doubled...but this is nothing...peanut. Its main product Sugar free is having 90% market share and it is essential for diabetic patients. i am ignoring other health conscious persons using it. Its sugar free turnover is just 300 cr.

Now we do some calculations...india has 7 cr diabetics. Now take that in future only 3 cr will use sugar free. They will use 3-4 sugar drops per day, i am taking 4. Zydus charges around 60/- for 100 drops of sugar free and it has not raised the prices for last 3-4 years. Also its sugar free Natura and Herbivia are natural products and should command 50% more prices, i am ignoring this also. So taking 4 drops, the yearly possible turnover is 2600 cr...that too at old prices!!!. You can add health conscious person using the same and add price raises plus costly Natura and Herbivia and raise the usage to 6-8 drops.....it will become almost 5000 cr...add to it export growth...it will rise further. it is a concept stock and risk reward ratio is highly favorable. Sugar free now is generic name...but still people take it as chemical sugar when in fact some of its brands are natural sugars...so it just need to up the ante for Branding.

It is planning big for herbal zero calorie sugar Stevia...it has been finally approved by FSSAI around Nov-15...so now cola companies can use it and directions can be issued for its use.

Zydus has again started branding and awareness drive for its natural sugars like Natura which are not chemicals like earlier Sugar Free Gold. So once people understand this the demand will be huge. It has ignored Everyuth in the past although it is a great product, so due to no sales promotion people forget it. But now it is back on the TV and company is focusing on growing it again.

For Margarine (Butter substitute) Nutralite; it doesn’t taste that good like butter. So I think it would be great if Zydus focus more on enhancing the taste or it can add some percentage of butter to enhance the taste.

It was showing flat results for many quarters,  but finally in Mar-16 quarter it has shown good growth...turnover 109 cr vs 97 cr...operating  profit at 22 cr from 12 cr, NP at 25 cr vs 20 cr due to other income and taxation effect. I think it has raised the price of its products which was due for long. At CMP of around 770…it is a great buy.

Dr. Agarwal’s Eye Hospital: I picked it up when it was around 70 few years back. It is one of the biggest Eye care chain in india with 60 hospitals with around 44 in India and 16 abroad. 

This hospital was promoted by late Dr. J agarwal who came to Mumbai around 1955 with just Rs. 250/- in his pocket with his wife and from a very humble beginning from small clinic with borrowed money for essential tools his vision and passion has created a eye care behemoth with annual turnover of around 100 cr and number of hospitals under its domain has increased to around 60 in all over india.

His son Dr amar agarwal MS, FRCS, FRCOphth, who is a stalwart in the field of Eye care and invented some new eye treatment techniques (like Performing pain-free, no-anesthesia cataract surgery) and written many books in the field of eye care is now leading the team towards a global growth path. They are a good management team doing almost 1000 eye operation in a year free of cost for poor people.

Its turnover is around 130 cr with negligible profits this year which may surprise many as eye care is a very profitable business. However this is due to rising competition where some eye care chains expanded too much in overcrowded southern market where Dr Agarwal has significant presence. The main culprit was Vasan Eye care who on its disastrous expansion spree expanded to almost 200 eye hospitals in around 3-4 years…but its growth (Weight) was fuelled by Debt (Fat) not equity (Muscles). So when it could no longer bear its weight, it just collapsed and its private equity partners like GIC and Sequoia took big losses. Players like Vasan brought down the prices of eye care. That’s why Dr agarwal sees its operating margins falling in last 1-2 years.

But it has big plans for investing around 600 cr for expansion. It is too strong in R&D and cutting edge technology in fact Vasan established its first hospital with the technological assistance from Dr Agarwal. Recent equity investments in Dr Agarwal is valuing it around 500 cr while its Current market value is just under 100 cr. CMP is 150. I am adding more at CMP.

Piramal Enterprises: This is my all-time favorite and invested in it at 500, then at 800 and 950. But I couldn’t post my study as it was expanding too fast and new businesses required deep study like its investment in pharma Information management company Decision Resource PLC in USA. It is into NBFC, Pharma, Information management. I just kept on adding it only on the basis of one man…and that is Mr. Ajay Piramal…the promoter of the group. I see him as one of the best value investor in india. It is now around 1350…a big rise but there is no doubt that it is just the beginning. It will become bigger and bigger. There are so many catalysts pending like demerger of its various businesses, Merger with Shriram group, Merger with IL&FS group etc. so it still can be picked at CMP and at every fall.

Forbes Gokak: Already posted a study about it when it was around 500 click here. But it is still unknown to many. It is the owner of Eureka forbes, the biggest water and home equipment company in india with unmatched R&D skills. It manufactures its product on its own and been the pioneer in bringing many new water treatment technologies. Turnover of Eureka Forbes alone is around 1800 cr with NP of 40-50 cr….while market valuation is just 1700 cr so it is at PE ratio of just 35-40 which is cheap…although we have not priced its other businesses like tools and payment solutions etc. I have invested quite early in it around 500, then at 700 and now at 1300. It is still a good buy at CMP of 1300/-.

Narayana Healthcare: Dr Devi Shetty is revolutionizing the healthcare industry with unimaginable low cost healthcare model. Earlier they were more like Good Company with the main objective of serving the poor. But you can’t grow with non-profit model. So they were having different models for rich and poor but with same high quality services. But they need more profit to grow bigger and provide cheaper services to all. Earlier actually i was a bit apprehensive whether Narayana would be able to show the kind of growth to justify the high valuation. And it just did the same in Dec-15 qtr result with its operating profit rising almost 5 times from 5 cr to 25 cr...also finance cost fell to 3 cr from 11 cr.

As it is following wholesale type of business model; so any incremental revenue will add significantly to the bottom. Also as it is now listed so it will also focus on more profits as compared to earlier past.

I am a big fan of Dr Devi shetty so i am a bit biased for it due to this. I also have a great respect for Dr. Venkatawamy (Dr V as he is called) of Arvind Eye care...these men are just awesome. I have read somewhere that doctors of Aravind Eye care perform around 2000 eye surgeries as compared to 400 global avg and 200 asian avg!!!

But players like NH are the next big opportunity for india to shine at global scale and bring in the huge foreign exchange even bigger than IT industry. NH is providing even better services than its global counterparts in USA at fraction of their costs. So huge number of people will visit india for cheaper and quality treatment in the near future. NH market value is just 6000 (No need to compare it with their revenue, just compare with the future scale) with turnover of around 1200 cr. This will grow much bigger from here. A great buy at 310 and at every fall.

BASF and Clariant Chemicals: Global Chemicals giants with great R&D and technologies. Some of the very few MNC’s who have invested big in india. They were incurring losses as it takes time for new capacities to churn profits as big depreciation in the beginning also squeeze the margins. Chinese cheap chemicals were also the factor but these are old horses. BASF and Clariant has already shown huge improvements in this Mar-16 quarter. BASF is at 950 and Clariant is at 690.

(Views are personal and should not be taken as a recommendation for buying or selling a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing. I am not a certified Sebi Analyst and holding the shares discussed in this Post)