Stocks for the long and short term portfolio

[praveen taneja]

Indorama Synthetics Ltd.

An average company in a capital intensive business. But, with a good vision and is here to stay. Looks like a family managed business and is important in this field as the experience must be passed down.

The numbers are average. The cash generation is decent and has Free cash Flow, though not in the strictest sense. IRSL makes good quality yarn, the name "Indorama" is a brand in textile circles.

Making a post on it is worthwhile, because if the shares are available at a stiff discount, then I would like to buy and hold. And this is likely to happen because the company has posted a negative EPS this year due to various factors (sub-optimal capacity util, fx, fluc raw-mat prices). This may continue in the quarters to come.

And what is discounted rate bro according to your analysis

 

[Shelly]

Which stocks are recommended for long term?

 

[roketsingh]

Indorama Synthetics Ltd.

An average company in a capital intensive business. But, with a good vision and is here to stay. Looks like a family managed business and is important in this field as the experience must be passed down.

The numbers are average. The cash generation is decent and has Free cash Flow, though not in the strictest sense. IRSL makes good quality yarn, the name "Indorama" is a brand in textile circles.

Making a post on it is worthwhile, because if the shares are available at a stiff discount, then I would like to buy and hold. And this is likely to happen because the company has posted a negative EPS this year due to various factors (sub-optimal capacity util, fx, fluc raw-mat prices). This may continue in the quarters to come.

I looked at it after seeing your post.

Company looks good but has many problems. I have not done any valuation so do not know whether it is a buy at current levels.

Major issues that I came across after going through the annual report are:
1. Management compensation is high
2. Debt is high
3. Operational inefficiencies
4. Forex losses
5. Last revaluation of PPE happened in 2000 so I do not know whether PPE reflects true value as it is carried at lower of cost or fair value
6. Negative FCF for last 2 yrs.
7. Only 41 people hold nearly 90% of shares

Positives are:
1. Raw material costs are following downward trend so hopefully this year might improve gross margin.
2. Reducing cost of energy(in terms units) which might be a good indicator for future years.
3. Last year was poor because of shortage of PTA,IOCL issue, so hopefully company must have learned a lesson in terms of its inventory management.

I will look for Q1 numbers to see how they are performing.

Amit this does not look good company by your standards.

<Disclaimer: I do not hold Indo Rama>

 

[Einstein]

@roketsingh

what do you think about Herbalife?

 

[jamit_05]

I looked at it after seeing your post.

Company looks good but has many problems. I have not done any valuation so do not know whether it is a buy at current levels.

Major issues that I came across after going through the annual report are:
1. Management compensation is high
2. Debt is high
3. Operational inefficiencies
4. Forex losses
5. Last revaluation of PPE happened in 2000 so I do not know whether PPE reflects true value as it is carried at lower of cost or fair value
6. Negative FCF for last 2 yrs.
7. Only 41 people hold nearly 90% of shares

Positives are:
1. Raw material costs are following downward trend so hopefully this year might improve gross margin.
2. Reducing cost of energy(in terms units) which might be a good indicator for future years.
3. Last year was poor because of shortage of PTA,IOCL issue, so hopefully company must have learned a lesson in terms of its inventory management.

I will look for Q1 numbers to see how they are performing.

Amit this does not look good company by your standards.

<Disclaimer: I do not hold Indo Rama>

Up until now, I have posted mostly about Large Caps. They give security but returns are measured.

Now, I also want to invest in potential multibaggers. Indorama is one such.

I have noticed that multi-baggers come from smaller companies that have reasonable growth prospects and, primarily, have the ability to survive the down-cycles. Indorama appears like a company that probably will. For ex. Sintex, Kajaria etc went-up several times.

Whenever upccyle comes, it appears well within the realms of possibility that indorama could touch Rs.80, 2011 high. If avg purchase price is 20, then that is a 4x return. It might be a long wait, 3 yrs plus, but ROI will be nice.

 

[jamit_05]

Major issues that I came across after going through the annual report are:
1. Management compensation is high
2. Debt is high
3. Operational inefficiencies
4. Forex losses
5. Last revaluation of PPE happened in 2000 so I do not know whether PPE reflects true value as it is carried at lower of cost or fair value
6. Negative FCF for last 2 yrs.
7. Only 41 people hold nearly 90% of shares


Amit this does not look good company by your standards.

<Disclaimer: I do not hold Indo Rama>

It is a top grade company in the textiles sector. Have asked around. It is a brand. And am counting of the fact that brands just don't vanish. It is worthy of taking a chance.

The debt has been reducing for past two years. A big plus.

Operational inefficiencies were due to shortage of raw-mat. That has been resolved. Management has made long term acquisition deals.

FCF in the strictest sense is negative, but...

The cash flow statement has moved one specific entry of a negative 225.82 Crores from the "Cash flow from investment" section to "Cash flow from operating activities". Otherwise, this -225.82 gets cancelled by +231; If this 225.82 gets added back, the FCF becomes strongly positive.

Cash Flow from operations - Fixed assets + 225.82
-92.56 - 35 + 225.82 = 98 Cr.

Looking at it from another perspective:
Indorama is making money purely as a result of Operational activities. Speaking in figures.

Net Profit + Depreciation is a positive figure, although the company is in its downcycle.

-25 + 135 - 89 = 21 Crores.

These numbers show a strong branding of its products and good quality standards. Lesser companies cannot accomplish this.

 

[roketsingh]

@Einstein

I do not know much about Herbalife. HF giants are fighting for it, I would rather term is as Bill Ackman vs Carl Icahn(and George Soros).

I have read about the company, I do not know whether is a pyramid scheme or not, it has been in existence since 70s. Bill Ackman has spent a substantial part of his fund on shorting Herbalife but since then this stock is up more than 100%.

 

[Einstein]

The ball is just not in the perfect spot for a sweet home run..

 

[roketsingh]

It is a top grade company in the textiles sector. Have asked around. It is a brand. And am counting of the fact that brands just don't vanish. It is worthy of taking a chance.

The debt has been reducing for past two years. A big plus.

Operational inefficiencies were due to shortage of raw-mat. That has been resolved. Management has made long term acquisition deals.

FCF in the strictest sense is negative, but...

The cash flow statement has moved one specific entry of a negative 225.82 Crores from the "Cash flow from investment" section to "Cash flow from operating activities". Otherwise, this -225.82 gets cancelled by +231; If this 225.82 gets added back, the FCF becomes strongly positive.

Cash Flow from operations - Fixed assets + 225.82
-92.56 - 35 + 225.82 = 98 Cr.

Looking at it from another perspective:
Indorama is making money purely as a result of Operational activities. Speaking in figures.

Net Profit + Depreciation is a positive figure, although the company is in its downcycle.

-25 + 135 - 89 = 21 Crores.

These numbers show a strong branding of its products and good quality standards. Lesser companies cannot accomplish this.

I agree with above point, but we might disagree on purchase price.

I have gone through the numbers as given, I might make some adjustments to these numbers once Q1 results are out. Why it has specified Profit on sale of current investments as part of operating activities ( it is not part of its operations, but it is present in 2013 as well). Is it Indian Gaap?

 

[Shelly]

I agree with above point, but we might disagree on purchase price.

I have gone through the numbers as given, I might make some adjustments to these numbers once Q1 results are out. Why it has specified Profit on sale of current investments as part of operating activities ( it is not part of its operations, but it is present in 2013 as well). Is it Indian Gaap?

What is the ideal price for an entry.