Stock Markets – Something for the Investor :
Being a low risk operator, your leitmotif in life is to avoid anything hot. Touching anything hot will not only scald you but could well burn a hole in your pocket. Rumor mills in our bourses will always provide grist to the mill, but suggest you not to get pounded inside it. Here it would be pertinent to talk about ''momentum investing'' or buying what is going up and thus, has the momentum. Simply put, it means ''join the gang''. If everybody thinks stock x is a good buy, then it has to go up because everybody will buy it. Yes, it works fine for a month or two. But the only problem is that you are likely to be one of the last people to join the herd and will not know when the momentum reverses. And then the herd becomes a stampede. So, stay away from ''hot stocks''. Look at the management quality Thou shall keep away from a company run by management with a track record of incessant wealth dilution or corporate mis-governance. It is all the more relevant in India as there have been numerous cases where fraudulent promoters have literally flown with cheap equity money. But how do you judge management quality? The best place of course is the annual report. A company''s attitude towards minority shareholders is important. And this is not reflected in discount coupons or soft drinks at Annual General Meetings. Good indicators to consider are level of disclosures in the annual report, levels of investments in group/ associate companies, etc. However, the only exception to this commandment you can make if you have a reliable report that the management is changing for good. Do not buy stocks of the same feather Putting one''s eggs in a single basket is na¿ve. So also keeping a large portfolio. This could turn unwieldy and is a sure recipe for below average returns. But how on earth would you chose stocks in a market with more than 6,000 scrips? Well, the choice will remain confined to those scrips, which are frequently traded. But then nowadays most Real estate and media stocks are well traded.So does that mean that one''s portfolio should contain only Real estate and media companies? Nah¿ To limit risks it is important that you don''t go gung-ho on some sectors as their fortunes change without taking your permission. You shall choose such scrips, which represent the broad spectrum of industries and confine your choice to those who are proven market leaders in their field of business. You buy businesses and companies. You do not buy the market or stock prices. An exception to the market leader rule can be made only if there is a big turnaround or restructuring story. Strong industry and company position You are known by the company you keep. Similarly, a company is known by the industry it is in. A company's performance can be as good as the industry it is in. Look at what happened to a blue chip company like Tata motors in the last 6-7 years. It is the among the largest manufacturer of commercial vehicles in the world. It is the market leader in the Indian commercial vehicles market. Telco fell to 60 rs from 500rs due to pathetic results, What went wrong? The industry went into a recession. But as its backed by a great pedigree it came back strongly with robust numbers, the industry turnarounded,from 60 it shot up to 900.So even the best company in the sector can turn on to bad times. Hence, it is important to understand industry dynamics and industry prospects. Positive cash flows You shall invest only in companies that are expected to have a positive cash flow in the next 3 to 5 years. In other words, the companies that will have ''operating'' cash flows higher than their requirements for capital expenditure and investments only merit a look. The important phrase is of course ''operating cash flows''. Operating cash flow is the profit after taxes (net profit) plus depreciation (a non-cash expense). It represents the money left with the company after meeting all its regular expenses and therefore belongs to the shareholders.I know the devils would never listen to the scriptures.Its very easier said than done.But even if one get a bit meticuluos on to these aspects,atleast he would not be in a position to loose money,guranteed...
IMP POWER LTD :
Scripscan-IMP Powers LtdCMP-190Target-300Duration:9-12 monthsAppreciation expected=65%+Traded on-Bse-NSEAbout the company=IMP Powers Limited was established in 1961 by Shri Ramniwas Dhoot and is now more than 45 years old Company having two very well established Manufacturing Units at MUMBAI & Silvassa manufacturing entire range of Electrical Measuring Instruments, Testing Equipments, distribution & Power Transformers and has got wide experience in this field.IMP is the only Company having this product conglomerate to give meters, testing equipments, Distribution & Power Transformers and OLTCs all under one Brand name.Major Strenghts&Weekness:-Strengths:-The Company is having vendor approval from almost all the State Electricity Boards, Major Turnkey contractor,consultants and it is the only transformer company in India to be in Zero Sales Tax Zone enjoying 15 year sales tax holiday. The company topline clientele includes majors such as SIEMENS, L&T, IVRCL, Tata Power, Nagarjuna, Kalptaru, SPIC-SMO, Jyoti Structures and Reliance etc. The company posses an impresive record of successfully conducting more than 100 Impulse tests & 50 short circuit tests on various rating transformers from 10KVAto 100MVA. One of the major advantage of the company is manufacturing OLTC & RTCC itself, therefore, only the cost of price of the same is added to the transformer price and thus its prices are most competitive than any other manufacturer who has to add the purchase price of OLTC from other OLTC manufacturer. WEAKNESS: Raw Materials -The main raw materials for manufacture of transformers are copper; CRGO, transformer oil and steel stampings are all commodities and hence are subject to fluctuations in prices.,which may affect margins. Liquidity - Liquidity is always an issue because of delay in payments by SEBs. High debt equity ratios. Few recent development=Very recently Funds managed and advised by Motilal Oswal Venture Capital Advisors Private Limited (MOVCAPL) have invested Rs. 190 million in IMP Powers Limited. With the manufacturing sector growing at a phenomenal rate the demand for Electronic digital measuring & indicating instruments has already crossed over 250 Crores,the Company has just kept its footsteps to this market aiming at a major market share. Outlook-The opportunity provided by the power transmission and distribution Industry in India is immense.The scenario for the transformer industry is very promising; given the ongoing Government Power Program till 2012.Imp power being one of the oldest player in the power equipments segment with a product portfolio of various types of transformers, industrial meters and testing equipments in the sector will definitely benefit from the huge growth potential in the segment.Moreover, it's buoyant order book position of Rs 1300 million,gives the company an excellent platform for growth.Prospects=To meet the growing demand,the Company currently is undertaking an expansion project with a capital outlay of Rs 280 mn.The project includes expansion of its manufacturing facilities situated at Silvassa ( U.T) from existing 3,600 MVA to 6,000 MVA.The transformer industry has been growing at approximately 25% CAGR for last two years and is expected to maintain this momentum for next 2-3 years. This growth will be driven predominantly by domestic market requirements and partly by exports to the outside world. Conclusion=The Company has successfully turned around after a bad phase in 2000-2005.Subsequent to the turnaround, it has achieved a CAGR of about 55% in sales over last 2 years. he EBIDTA margins have improved to a current level of 16.6% for FY 07 as against a low of 4.2% in FY 05 because of growth in sales and operational efficiency.This improvement in the margins has come despite an increasing trend in the prices of core raw materials of the company like copper, Aluminium, steel, etc.At the current market price of Rs 190, the stock is available at 9.5x FY08E earnings of Rs 20, which we believe is very attractive.We expect the stock to get re-rated as it starts delivering strong growth numbers over the next few quarters.The stock is currently traded at over 15x FY2007 earnings. We maintain BUY on the stock with target price of Rs.300 for the stock, at 15x FY2008E earnings.It would be prudent to note that,There can be further scope for an upward revision in these estimates given the company's ability to win large projects.
