Indo Count: The next SYMPHONY - Mudar Patherya

http://smartinvestor.business-standard.com/market/Marketnews-327645-Marketnewsdet-Indo_Count_The_next_symphony.htm#.VcCQdfmqqkp

Indo Count: The next SYMPHONY

Mudar Patherya/ 03 Aug 15 | 12:19 AM

Indo Count Textiles appreciated 5,600 per cent in the past couple of years, even as I kept saying 'The stock will technically correct,' but never did it happen. Welspun saw tenfold rise from its bottom levels. Himatsingka Seide stayed so terribly sluggish for months between Rs 80 and Rs 90 that just when one gave up, the stock doubled in four weeks.

It appears India's domestic textiles segment is being re-rated. Indo Count has been reporting stronger margins - 12.6 per cent in the last quarter of 2013-14 to 17.6 per cent in the last quarter. It has been reporting higher returns on employed capital - 7.6 per cent in 2010-11 to 34.5 per cent in 2014-15 (twice its largest competitor). It has transformed its bottom line from Rs 10.66 crore in 2010-11 to Rs 145.88 crore in 2014-15.

It would be simplistic to ascribe this to the 'textile cycle'. There is something deeper at work here.

In this capital-intensive sector, Indo Count graduated towards asset lightness. The company began to experiment successfully with outsourcing (buying grey fabric from other companies) over insourcing (backward integration) and focusing on grey fabric processing over manufacturing everything under one roof. The result: a superior return on employed capital in a capital-intensive sector translated into a consistent increase in profitability.

Even as the company was a part of the corporate debt restructuring programme, it expanded processing capacity from 36 million metres per annum to 45 million metres per annum and 68 million metres per annum - through accruals. In 2015, Indo Count will implement incremental expansion at a substantially lower cost (processing capacity increase 88 per cent at 40 per cent of the original greenfield processing cost), expected to generate an unprecedented payback.

Concurrently, Indo Count graduated from the low-mid product segment to the mid-to-high (marked by progressively higher thread counts), expanded horizontally (from an erstwhile bed sheet focus to fashion bedding, utility bedding and institutional bedding), graduated from 'made to stock' to 'made to order', increased inventory turns and committed to capital investments only after receiving reasonable purchase commitments by customers.

The result is that Indo Count exited from its corporate debt restructuring plan four years ahead of schedule, after paying a recompense amount of Rs 26 crore to banks in 2015 in lieu of the preponed exit.

One would assume the big play in Indo Count would be over. Yes and no. Yes, because it would be unrealistic to expect similar percentage returns in market cap growth from this point onwards. No, because the company is likely to generate far more cash (following its low cost expansion) than it can hope to consume, helping pare (or even eliminate) working capital.

When you have a topline of about Rs 3,000 crore, earnings before interest, taxes, depreciation, and amortisation margin of even 15 per cent (I am a pessimist) and no debt on your books, you have people willing to price you differently.

Wonder if this could be the next SYMPHONY

The author is a stock market writer, tracking corporate earnings and investor psychology to gauge where markets are not headed

Smart stock pickers' way of creating wealth

http://www.business-standard.com/article/markets/smart-stock-pickers-way-of-creating-wealth-115022300022_1.html

Mudar Patherya  February 23, 2015 Last Updated at 00:21 IST

The smart stock picker doesn't look to beat the Sensex; he (and she, of course) seeks to significantly outperform the broad market, year after year.

By the same analogy, the smart stock picker does not focus on wealth management; she focuses on wealth creation.

This game of capital extrapolation is defined by differentiated rules.

Contrary to what most people believe, some of the most successful wealth creators do one thing most visibly after they have bought a promising stock. They do nothing (practically).

Contrary to what most traders would profess, some of the most successful wealth creators do not focus on timing the market -buying at the bottom or selling at the top. They buy across the tail-spinning period; their holding period is forever.

Contrary to what most analysts recommend, some of the most mature investors do not track the business or commodity cycles on which their companies are based (that's the job of the managers of the businesses they have bought into). They are more likely to track managements instead, their business discipline and governance consistency. If that story continues to be good, they assume the rationale for their holding continues to be validated.

Contrary to what most research reports recommend on how good days have returned and how this would be a good time to build equity portfolios, seasoned investors usually mourn the progressive demise of value. They hibernate.

Contrary to always-engaged investing styles in frenzied markets, some of the most successful wealth creators shun intra-day trading and go home as early as 3 pm (Nemish Shah does). They prefer to decode broad trends, instead.

Contrary to the 10 per cent post-tax plus risk premium return that fund managers target, some of the richest money makers simply seek to multiply their capital a number of times over, focus on the possibility of their target company generating a post-tax profit equivalent to the market capitalisation when they bought into the stock and generating a handsome livelihood only from dividends (market capitalisation appreciation being a bonus).

Contrary to the prevailing mood that professional investors must keep swinging at every ball, the really successful recognise that in an active 30-year investing career, there will be only five or six - only - sweet investing opportunities. These being market troughs when the discounting of once-mid-cap companies has transformed these into small-caps on the assumption that prospective performances would be weaker.

Contrary to what most investors believe, spotting these great opportunities in challenging markets is not really difficult. The tested opportunity seekers believe few things could be as difficult as deep value-investing. As almost all the investing is conducted in bear markets, where the cheap inevitably gets cheaper, the value seeker must plug on regardless, even as the portfolio continues to shrink, secure in the conviction that this is indeed the best of markets to buy into and that the immediate 'loss' arising out of timing differences will one day be only a fraction of the then intra-day price movement.

There is a term for this unusual style. It is called lazy investing.

The author is a stock market writer, tracking corporate earnings and investor psychology to gauge where markets are not headed

Mudar Patherya acknowledges the achievement of the following stocks

Astra Microwave Products
Whirlpool of India
Ramkrishna Forgings
Srikalahasthi Pipes (formerly Lanco Industries)
Shreyas Shipping and Logistics
Oriental Carbon and Chemicals
Freshtrop Fruits
Kaveri Seeds
CARE Ratings
Vakrangee Limited


Salaam to the super achievers of this year
http://www.business-standard.com/article/markets/salaam-to-the-super-achievers-of-this-year-114120800014_1.html
http://www.business-standard.com/article/markets/salaam-to-the-super-achievers-of-this-year-ii-114122200053_1.html