Searching for investment candidates – II

June 8, 2007

I have posted earlier a list of investment candidates which had passed through my investment filters. After doing a quick 20-30 min analysis, I slotted these ideas into the ‘Go’ bucket which are good for further analysis and into the ‘No-go’ bucket which are the rejected ideas.

A few more ideas in each bucket follows –

No Go bucket

Pricol – An auto ancillary midcap company. Topline has grown by 50% in the last 5 years and net profit has doubled in the same time. ROE is firmly above 20% and the valuation seems to be cheap at a PE of around 7-8. However the company has a high debt of almost 230 crores (DE ratio is more than 1 ) and the cash flow is poor too. Debtors have gone up by 400% and inventory has doubled too. The quality of earnings seem to be poor. I would this company a pass for the time being.

Navneet publications – A publishing company. The topline and bottomline has been stagnant for quite some time. The balance sheet does not look too good with inventories up 4 fold in the same period. The ROE and other numbers such as margins and debt equity ratio seem to be fine. However the free cash flows seem to be poor and the performance is erratic. Although the company seems to have some competitive advantage, the performance in the past has not been very good. Would give this company a pass.

Go bucket

Sarla polyester – A small cap company into textile processing. The turnover has grown from 30 Crs to 88 Crs in 2006. The netprofit has gone up to almost 11 Crs and this year could be almost 13-14 Crs. The company has a very low debt of 8-9 crs on books and a high ROE of 20%+. The valuations are fairly low at a PE of 6-7. Definitely worth a closer look

Investment and precision casting – A small cap casting and forging company. The net revenue has tripled in the last 5 years and the net profit has also tripled in the same period. Net margins have held steady at 15% and the ROE is 20%+. The company has a low debt partly offset by cash balance. The current year profit seems to be flat at 8 Crs and the valuation seem reasonable at 10 times current year earnings. Worth a closer look.


One Response to “Searching for investment candidates – II”

  1. tjagadish123 Says:

    Small info on Navneet publications, coming August their wind power division is getting operative. Have you looked into this?
    Some of my investment candidates which might be of interest to you:
    Dabur pharma: Demerged from Dabur india in 2004. This is into oncology products (cancer treatment), whic is highly profitable and has high entry barriers. Recnetly sold off Non- oncology business to Alembic for 160 crores(15% of Market cap of dabur pharma), using this proceeds for setting up marketing office in US. Future prospects: in next two years 8 to 9 billion dollor cancer products are going off patent in US , dabur pharma is big contestant for this products, even if they garner 10% it , that will be huge boost to sales growth. Given that only 9 companies worldwide are competing for this market the chances of getting 10% mkt share are high. Catalyst is insider buying worth 80 lacs in June 2007.

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