- Financials/Disclosures: The debacle of a leading listed private commercial bank YES Bank revealing more NPAs than expected , reinforced the fact that bank financials are a leap of faith, and that management integrity/readiness to disclose often correctly accounts for valuation multiples (https://www.bloombergquint.com/business/2017/05/19/should-yes-bank-have-told-investors-about-the-npa-divergence-before-its-qip). Having entered into the bank at levels above its current one, the lesson would be to wait for all mandatory disclosures before entering, like how I do not time quarterly results, extend this to annual results for banks
- Auto Industry Perception: The autonomous car revolution would likely not affect the car seats market(people will still sit in cars), which is utility like in the safety and cost aspects(small % of car cost), and if it becomes a car differentiation tool, then as mentioned by Michael Blitzer of Kingston Capital management, companies like Adient (ADNT), the largest manufacturer recently spunoff from Johnson Controls, could benefit. Another example is car tires/tyres, companies like Michelin have technological/regulatory moat in developed markets, and since this is an aftermarket replacement driven, it is more a consumable than consumer durables stock.
- Matrimony.Com: Litigation can be expensive. The company spent ~US$8M to fight a litigation over a term sheet to invest in it, and finally ended up agreeing to pay US$8M to the affected party! While the promoter agreed to refund US$2M of the litigation cost to the company, this is an example of wasteful litigation
- QIPs at a discount: Delta Corp and Premier Explosives closed their QIPs at a discount of 5% to benchmark price. Is the bull market finally cracking for these companies? Classic reason why mere QIP announcement is NOT assurance of short term gains. When Delta was at ~170, QIP base price was 163, and finally it was priced at 155.
- Regulatory Moat might erode: Gujarat Gas peak supply in Morbi industrial cluster was 4Mcsm but when the use of coal gasifiers was allowed(ban lifted), industries shifted to 3mth gas supply contract with GG but shift to dirty fuels basis economics. This is a classic case of ephemeral moat and may happen with solar(as in Germany)
- Somany Ceramics has ~60% purchases through its associate companies(majority owned by promoters) which may account for lower margins. This analysis by Motilal Oswal in its annual report analysis of FY16 underlines need to read annual reports.
Monday, May 22, 2017
Investment learnings in the week ended 21 May 2017
Starting this week, I have decided to publicly document my investment learning from what I read. Wherever possible, I include links to it.