Stocks for the long and short term portfolio

[Einstein]

Have a look at the Repco Home Finance? Excellent for very long term.

well.. this is just a year old company and im not sure if quartely valuations are accurate or not. but numbers looks fine at first glance. but i pass this one, don't have enough data for valuations.

thinking out of the box. National housing index has started to showing decline in the housing price, link: http://www.nhb.org.in/Residex/Data&Graphs.php

this means that the prices of houses can go down and this can effect the mortgage lenders. how big will be the impact, im not sure. im one of these speculators who think that the gold and housing prices(which are the only hedge against US$) are the result of excessive liquidity in world market, and it is affecting everyone around the world, commodity prices, gold, property everything and with the end of quantitative easing this thing can reverse, gold prices, commodity price property prices can go down and they will.

If this is true we will see a big change and housing finance companies will surely get hit hard. so if you are investing in repco housing finance, keep a sharp eyes on stock market.

 

[jamit_05]

Home Finance is a sector which saw a very good growth in the last decade. Do you guys think this kind of growth can be sustained? I think this growth may continue, but not without a correction.

I have a company in mind which is very stable, has superior parentage and is on a growth trail: Gruh Finance. This company is very unlikely to correct. If the sector corrects then Gruh will go sideways at best. Therefore, SIP in Gruh will bear fruits.

Dewan and Repco, if they have a different story than Gruh, then they will be worth a look. Gruh is attached to rural story of India.

 

[Dev Mookerji]

Will discuss various companies' worthiness of being in ones portfolio. Some are long term picks, with strong back bone. While others are stocks with good income and hence make good picks for the Uptrend.

Stocks are a proper place to park ones money. I have been trading FnO and realize that it is a source of income. A section of that income has to be saved. FDs, Gold etc are options but not as good. I do not wish to trade with this money, except a few trades a year.

Hi, Amit How are you doing these days? What about your Market commentary in Singapore daily ?? Still continue with that or left that job?

Where is your friend CV aka Credit Violet alias Capital via?

Warm regards

 

[Einstein]

bad things about gruh finance is that its debt is increasing qoq/ yoy which has artificially created high ROE, Is this the reason you like this stock?? adjust the debt before calculation ROE and you'll get to know they are not that good with handling money.

neither their cash flow is good seems like they are out of cash, how can they maintain this high debt ? and post good earnings when they have to pay interest and lenders first!!.. add: bad interest cover ratio.

DCF and net net valuations are of no use in housing finance sector so can't comment on valuations. regarding price its slightly over its intrinsic value.

dewan housing is 4 times better then this(theoretically).

 

[jamit_05]

bad things about gruh finance is that its debt is increasing qoq/ yoy which has artificially created high ROE, Is this the reason you like this stock?? adjust the debt before calculation ROE and you'll get to know they are not that good with handling money.

neither their cash flow is good seems like they are out of cash, how can they maintain this high debt ? and post good earnings when they have to pay interest and lenders first!!.. add: bad interest cover ratio.

DCF and net net valuations are of no use in housing finance sector so can't comment on valuations. regarding price its slightly over its intrinsic value.

dewan housing is 4 times better then this(theoretically).

These are NBFCs and work with debt. They have Debt to equity over 7x. They take debt in bulk and hence at cheaper rates and forward the cash to real-estate retail buyers against collateral at a higher rate. So don't go by the high debt. That is the nature of their business.

If Dewan is appearing cheap compared to Gruh, then it is for a very good reason.

Lets compare some important numbers.

Dewan is trading at 4x the PE and Gruh is at 26! That is a huge difference. Goes to show the brand power and popularity amongst investors. Due to this difference, DHFL has only 1/4th the Market Cap of Gruh and yet 5 times more business!

DHFL has very poor margins in comparison. Its net profit margin was only 10% whereas Gruh's was around 25%. No wonder it is so popular amongst investors.

Gruh has access to cheaper funds and I guessing because of its parent, HDFC, being a behemoth of a bank. I do not think DHFL will ever be able to beat this advantage.

It appears, Gruh also has an additional edge. It is still small compared to DHFL as it has a revenue only 1/5th of DHFL. Hence, it is better positioned to grow for some more years. But, the same feat will be tough for DHFL. This shows in the EPS numbers. In 2013 EPS of Gruh grew by 20% whereas DHFL's EPS marginally shrunk!

But, one factor does favour DHFL: The PE. I would agree that Gruh is currently expensive and is likely to consolidate for a few years before scaling new highs.

DHFL would add value in the long term to ones portfolio if it is purchased around Rs.60; Else it appears expensive given the lack of growth in the stock.

 

[Einstein]

Exactly, about debt its their nature that is how banking system works, but in order to continue they need to clear off their debt so they can continue to grow, isn't it??

our national bank SBI is in debt of 13 lakh crores, which is 87.5% of their liabilities, still they are asking for capital injection from govt like a bad kid is asking excessive pocket money then he deserves..

Talking about housing finance HDFC itself have debt of 1 lakh crore which is 55.64% of liabilities,

gruh finance own 67% debt to its liabilities, where as DHFC owns just 2.45%. DHFC can have more money from govt in their books and make profit out of it.

About EPS, Dewan housing is not that bad, we need to keep in mind here that PE alone is useless, EPS alone is use less but in ratio EPS of dewan is much much better.
you said eps of dewan is shrinking?? are you talking about quarterly data??

 

[Einstein]

For the conservative investor, keep in mind that they are highly highly interest rate sensitive.

please elaborate im not expert in nbfc valuations, it will also help other members to know what you are talking about!!

 

[Einstein]

One more thing, in an industry of where debt or other income or unknown expenses are high, use gross profit rather then net profit it will give you better understandings on what exactly is going on their book.

 

[jamit_05]

Exactly, about debt its their nature that is how banking system works, but in order to continue they need to clear off their debt so they can continue to grow, isn't it??

I understand where you are coming from. You prefer a company with little interest expense hence higher profits. But I am afraid you won't find it here.

I do not believe this debt is to be repaid. I do not expect any Finance Corporation to be debt free. If debt keeps growing, then so will their business and hence EPS.

NPA could be differentiating factor. But in housing sector, it is minimum since loan is against collateral.

gruh finance own 67% debt to its liabilities, where as DHFC owns just 2.45%. DHFC can have more money from govt in their books and make profit out of it.

I will look into this number and get back. Although I have my doubts because indeed if DHFL has (100-2.45)% of its own money in the business and has revenues 5 times Gruh, then its gross profit margin should be much higher than any other entity in its business... but that is not the case, it is only at par.

About EPS, Dewan housing is not that bad, we need to keep in mind here that PE alone is useless, EPS alone is use less but in ratio EPS of dewan is much much better.

you said eps of dewan is shrinking?? are you talking about quarterly data??

Growth rate in EPS is probably the most important deciding factor for me... only after quality of the stock. If its a Suzlon, then i won't even look at EPS.

I have compared EPS of F.Y. 2011-12 and 2012-13;

I hear that RJ has invested in Dewan. But, I know for sure that RJ has been wrong 9 out of 10 times in his investment decisions.

I am very glad that you are making an informed discussion. Your queries are very insightful. Thanks.

 

[Einstein]

I will look into this number and get back. Although I have my doubts because indeed if DHFL has (100-2.45)% of its own money in the business and has revenues 5 times Gruh, then its gross profit margin should be much higher than any other entity in its business... but that is not the case, it is only at par.

This has increased its ROCE dramatically.!!