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Saturday, December 3, 2011

Notes from Suhas Samant Webinar on Investing in midcap stocks

Background Note:- As a brokerage client of Sharekhan, I received an invite to this free webinar, meant for HNIs(OK I’m not one yet but am getting there!). Unlike a sales pitch type webinar, this was actually quite informative. Unfortunately, the Q&A session was disconnected in between but seeing the type of questions posted online, it does not seem a great loss. Anyways, without much ado, I present below my notes from that session. All views expressed are NOT mine.
Suhas started off with saying that he had invested in midcaps between 2001 and 2004 where not much movement in the stocks but now they are multi baggers. He said that investors should not come to the markets with the aim to earn just 12%-13%, but  to MULTIPLY your assets which is possible only with patience. This was a theme he often repeated.
He then gave a list of stocks he was bullish on.
·        Aban Offshore, Camlin Fine Chemicals.
·        SELAN EXPLORATION-because they are expanding production amid higher oil prices
·        Bajaj Finance-30% CAGR qoq and NBFC license chance
·        Bajaj Finserv-holding company of Bajaj finance story+ Bajaj Allianz valuation.
·        BEML among best capital stocks, railway/defence budget story-also substantially corrected from 2009 peak
·        SPIC-really valuable as management invested HUGE money near CMP of Rs 22 Asahi-debt reduce from 2800 crores to now 500/600 crores
·        IL&FS transport maintained margins despite the hard envt, and were now among the Big 4/5 in the industry for bidding in projects. Due to overcompetition, the ROE had fallen to 13% (less than capital cost) but in recent projects it has returned to normal.
·        Asahi-smallcap chemicals-supplies to paint industries throught world-stake by Clariant and Dow-so small free float and great prospects
·        Godrej Properties-very CLEAN property stock and good corporate governance unlike rest of sector. So if you want to participate in the boom-they have their own boom, and management does not want to grow too fast-transparency is not an issue as such

His advice on investing is
·        Growth Story intact? No management scam? Then consider investing
·        Even in this crash, the story does not end-one can exit laggard and enter stocks
·        What he likes
o   Scalable business model
o   Good management who is approachable? In large cap, only conf call/analyst meet is possible while small Cos meet you one on one.
o   Macro Theme issues(size of oppurtunity) like Asahi-where product lines being closed in EU, so now more orders will go to them.
o   Invest in what you understand.
o   Policy boost expectation-for example SPIC. Over participated is Tata Chemicals etc. SPIC type of stock at Rs 20 better chance of going To Rs 80/100
o   Companies with large competitive advantage-IL&FS is 2nd largest after IRB and compared to L&T Infra etc. Last 2 yrs road construction boom so ROE had fallen to 13% matching interest cost! But recent tenders has seen eroded competition.
               On risk mitigation, his advice was
o   Stay invested even with disappointments
o   Average down
o   Spread investments
§  Sectors
§  Themes
§  Multi baggers
o   Long time holding
o   Volatility is OK.
·        What to expect in terms of return?
o   Unlocking of value may take time-you may not always enter at the right time.
o    Sharekhan thinks that Lower trading  volumes may lead to drop in share price, but that does not reflect on fundamentals
o   Not all companies will increase at same time
o   3-4yrs horizon advised
o   Be patient-if done homework-grow with the promoter who has invested 80% of his net worth into the company

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