Thursday, May 26, 2011

Financial Affairs :: Intec Capital & Money Matters

That is the name of both companies I am long on. Intec Capital is building a pretty good team to take on growth in SME sector. They can manage to be a far bigger organisation than the current one, management can do heavy lifting. I do not feel Intec is cheap but best is yet to come out of it. I feel they can also emulate the success of bigger two I mentioned in previous post and Magma Fincorp.

Money Matters Financial Services Ltd - MMFSL : Scam can provide great trading bets. This one dived down from 800 levels to 50 Rs, faster than F16 shot down by scud missile in war zone. I am ready to bet that pilot can escape way before jet hits the ground. When I contemplated buying it last month @ 62 my game plan was to buy 100 X quantity.  I bought 1x quantity @ 62 Rs, then 5x @ 53 Rs, plan was to buy 20X @ 30-40 range and 70X @ 20 Rs and below. So I could buy only 5% of my desired quantity as yet.

Its hilarious to see board, auditors, CA, friends and lead manager to QIP boycott MMFSL like plague. The interview provides a perspective on how defeat is an orphan, this is what Nirmal Jain  of Indiainfoline has to say.



http://www.moneycontrol.com/news/business/unawaremoney-matters-scam-during-qip-india-infoline_501292-1.html

"

Q: So, you would no longer want to be associated with any kind of business transaction with them?
A: No doubt about it.

"

I must thank Indiainfoline though for arranging 450 Crores in MMFSL's bank accounts. Now they have 750+ Crores cash in bank and can hopefully take a hit of 100-300 Crores fine, if at all imposed that much, by regulators. A few crores bribe may resolve the matter for all we know. I condemn bribe and corruption but as an investor I cannot overlook an opportunity. What market cannot decide is difference between risk and uncertainty. So, I am befriending uncertainty of 700 crores cash and broken bribe model for a 200 Crore market cap with expectations that company will become a leasing and finance entity. I have not met anyone who got their passport within a week or two without paying bribe. And do you think MPs are lenient enough to let the rank and file make lacs and crores without their due cut ? Give me a break.

The ranking by Transparency International speaks volumes about India:


http://www.transparency.org/policy_research/surveys_indices/cpi/2010/results

http://www.transparency.org/content/download/55725/890310

Denmark, Singapore and New Zealand at #1

United States is at #22

And our great nation (Mera Bharat Mahaan) India at #87. Actually I expected India in bottom 10, politicians have left no stone unturned to screw up the nation. Its perchance a bit of luck and lots of private enterprise saving the day.

PS: Please do your diligence in investing in stocks mentioned, I am merely expressing my opinion and not recommending to buy or sell.

Saturday, May 14, 2011

Buffett, Speculation and Financial Jungle

Enjoy this video from NDTV incase you missed out 

http://www.ndtv.com/common/videos/embedPlayer.php?id=194516&autoplay=0&pWidth=418&pHeight=385&

Speculation

Recently read Edwin Lefevre's work on Reminisces of a Stock Operator. While a long term sensible investor may loathe at betting the farm, equipment and bottom dollar on new impulses daily, a few lessons are immortal for all seasons. He comes back to the game time and again after absolute bankruptcy, that in itself is a great story. Following is a para from the book:


And right here let me say one thing: After spending many years in Wall Street
and after making and losing millions of dollars I want to tell you this: It never 
was my thinking that made the big money for me. It always was my sitting.
Got that? My sitting tight! It is no trick at all to be right on the market. 
You always find lots of early bulls in bull markets and early bears in 
bear markets. I've known many men who were right at
exactly the right time, and began buying or selling stocks when prices

were at the very level which should show the greatest profit. And their 
experience invariably matched mine that is, they made no real money 
out of it. Men who can both be right and sit tight 
 are uncommon. I found it one of the hardest things to learn. But it is 
only after a stock operator has firmly grasped this that he can make 
big money. It is literally true that millions come easier to a trader 
after he knows how to trade than hundreds did in the days of his 
ignorance.

Financial Jungle

The winning traits of a financial enterprise which works on leverage are hunger and capability of management but conservation in lending. The risk obviously is leveraged balance sheet wherein 5% of NPAs could be dire and 8% could be fatal for the organisation, thus 92% of well calculated honest earnest customers would not bail the business from 8% scoundrels. How a firm lends, collects, incentives to its agents, matches liabilities with assets, securitises, build valuable repository of knowledgebase on an industry strengthens the growth path.  I am finding myself like Lynch who bought 100s of financial stocks in his portfolio being equally smitten hook line and sinker by PSUs, Private Bank/s, NBFCs. PSU banks lack management continuity but have niche in rural setting and low cost deposits, and 50% of unbanked India.

Size does not matter

I do realise the multibaggers are easy to make from low PE or low Market Cap stocks, or in less mature organisations but financial sector being "infinitely scalable" (limited only by the size of Universe!) a 10,000 Crore Market Cap stock has an equal chance of being a 50,000 Crore that a 1000 Cr market cap of being a 5000 Cr entity, other things being equal. I am trying to suggest here that a mature business has an equal opportunity unlike a mature FMCG or restaurant company for instance. How many burgers does a billionaire eat ? or how many shampoos, soaps, shoes does he buy ? McDonalds has no chance of being a five bagger anytime soon.

If management bandwidth being equal and NPAs and loan book maturity, cost of funds and growth prospects are similar no preference should be given to smaller cousin nor is smaller fish at a disadvantage. However, if smaller one trades at half the PE or book value then we do need to give a consideration. I like NBFCs for their niche in ignored and overlooked sector despite high cost of funds vis-a-vis banks from big ones like Shriram Transport, City Union Finance with a promise of 20-25% growth to micro ones that trade between 2-4 times PE ratios. More when I buy them.

I read somewhere that a person was so enticed with Buffettology that he vowed to buy 1 and only 1 stock of Coke if it were listed in India. I think one could not be more wrong than him as growth was his measuring rod, since a porfolio of 10 Indian PSU Banks will beat Coke over the next decade very very comfortably.