Friends,
I have been recomending stock in past time and again like India Glycols,Navin Flourine etc...
India Glycols has started making 52 week high, 157 , which I recomended at around 80.Marg Ltd now nearing 200,JMC from 80 to 180....etc etc the list is very long......
Well, among the recently picked , Frontier Spring has come out with again good results and one can keep a watch on thaat.
Another stock which has come out with fentestic results is Dujodwala Product Ltd.Moreover I also saw in todays bulk deal that one big investor bought some Dujodwala Product around Rs 14...check it your self who is he......
He is the same guy who has taken stake in TeleCanor Global Ltd and Telecanor is in down circuit but I would like to recomend it as a buy.
The following annoucement I saw at bse today.......
"TeleCanor Global Ltd has informed BSE that the Board of Directors of the Company at its adjourned meeting held on October 26, 2009, inter alia, has transacted the following:
1. Take a view on fully harnessing the potential of the 102.74 Acre Land Bank of the Company situated right in the middle of the PCPIR region where the GOI is estimating a Rs. 3.43 Lakh Crore investment with in the confines of 270 sq. kms.
2. Authorize the MD to appoint a reputed consultant well versed in such matters to give a road map on active participation of the Company as a Land Bank owner in either the capital intensive Processing Area with in the zone or all Non Processing Areas as identified by APIIC the nodal agency in view of the memorandum of agreement entered by the Dept. of Chemicals and Petrochemicals and the AP Govt. on October 01, 2009.It has been resoled that MD is authorized to hire the services of a reputed and appropriate agency and to hold discussions with APIIC in order to fully harness the potential of this land bank. After the consultant study the Company will deliberate on submitting an appropriate proposal to the nodal agency in this regard. "
Company having a land bank of 102.74 acre in the middle of PCPIR region where GOI is investing RS 3.43 lacs cr rupees? Wow!......what can be the price of that land ?Calculate it not in Acres but in sq feet or sq metre.......because these lands will be sold not in acres but in sq feet or sq metres.....
I would like to have feedbacks from readers who live in that vicinity or have any contact in that region to try and get what can be the value for this 102.74 acre of land.Intially when I recomended this stock,I was thinking that they must have a small plot of 2-5 acres of land but when I read it in bse annoucement today that they have 102 acres of land, makes this stock very precious according to me.
Moreover their product in IT is also going to fetch much higher valuation then what we are seeing today......the payment gateway product...if that comes out successfull then Telecanor will be the biggest multibagger in next 2 years.......
But remember this is all ifs and buts, these are my view and I can go horribly wrong in my analysis........do due diligence and then act on it......
India Glycols ,Navin,Marg, Madhucon,JMC ,Mcnally Bharat etc remains my favourites.
I remember I recomended Simmond Marshall at mmb around 40-50 and recently maybe, not sure, have written once in a list.Simmond Marshall has come out with excellent results and is going very cheap at 5 p/e and have a very tiny eq.....with promoters increasing stake as well......
Coming to market, it went down by over 300 points and investor become anxious what will happen.....Market was looking overbought in ST and hence the correction.Everyone who buys anything was going up and making easy money.That much of easy return was never going to happen for long time.Market always teaches lesson that making money in stock market is not easy.
Market is good and will remain good.It will bounce back.No need to worry on it. Just stay invested........We have a long way to go......If we are not following technicals then do not track at all.I had never written anything on technicals....because I do not understand it nor I believe in it.
I know all technical guys will say that didn't we say that there will be correction?But when it has come?After crossing 4750 , which was their biggest resistance for them?and market crossed all resistance....I have seen one of the website has written , which I copy pasted here in past, is still writing that who will FILL THE GAP?That is the problem with technical guys.But I ask, who created this charts?Human created charts....then who created this gaps filling, humanbeing...does market knows this charts?No.....these all technicals and charts came afterwards , market is the ultimate.......one needs to think and ask himself.............WHO COMES FIRST....it is a very simple question to ask.....Market or Charts.........!
So, when we do not invest on technicals then we do not sell on technical calls as well, so simple .Let them say that market will go below 4000....they have proved wrong from Mar 09...........When we are investing on fundamentals why we need to bother about technicals?This is horrible.....there will be no end...it is just like a person who is in bad state of affairs in life, goes to an astrologer...and what he will do...he will show this planet and this planet is not favouring you and hence you need to go through rituals and then everything will be alright....you need to wear the ring of Saturn or Jupiter or Mars ....or even they use to advice to wear a ring of Rahu and Ketu and if someone knows about astrology then Rahu and Ketu are not planets but an illussionary planets......and astorlogers has also made them a reason for earning.....well, according to what I understand, when a person goes to an astrologer , he is full of problem and sorrow.The duty of astrologer is to give solace , while saying that you will have better time in next year , something like that to help regain his confidence.But instead they will show something where clients will spend money and they will earn out of it.......
A person has come to an astrologer because he is in problem and see, here what happens.....the astrologer will instead show him way to dole out money for doing ritual and Pooja.....high spending for RICH people for same Pooja and same rituals for less money for poor one........How that is possible.....
So when we are following one path don't mix it up with other.......have confidence in what we are doing...that is the order of the day.......I have found no Astrologer who has said to Mohandas Karamchad Ghandhi, when he was in teens that he will be a famous figure and one day whole world will remember him even after his death.Not a single astrologer I have come through who said to Amitabh Bacchan when he was child that you will become an icon in Film industry.......if it is there in the Kundali then why astrologer were not able to say it when one is born.....No one told Dhirubhai Ambani that you will become a legend ..........that is called awakening..........that is what Swami Vivekanand says.......BE AWAKE.......that is the meaning what Swami Vivekanad means.......Awake means not what we do things awaked after night.....have your own conviction .....that is awakening....have confidence in what we do.....that is awakening.... have your own say....have your own reason ........ One should be able to understand what is RIGHT AND WHAT IS WRONG......that is awakening......
There is a very thin line which distinguishes FAITH AND BLIND FAITH......Shradhha aur Anshradhha main bahut jyada faraq nahi hai......there is a very thin line that bifurcates them......and one needs to understand that very well.......someone told you and you believed it that is blind faith......kisi ne bol diya aur humne man liya.....that is anshradhha.......
Remember one thing......there can be no human being who can take place of GOD.........kisi humanbeing ko bhagvan ka darraja kaise de sakte hai........that is blindly following someone.....a person who takes birth as human is full of vices and human weakness......how he can become GOD....or someone can put him in place of GOD........but I have seen that ....some people become GOD for someone.....they just believe what he says......even though what he says is not true....
Well, I need to stop here otherwise there is no end in writing on this......It can take hours and hours and days and days.....and we can go on discussing all these things .....
Wednesday, October 28, 2009
Monday, October 26, 2009
PSL Ltd recomended in todays ...ET...Investor's Guide
Piping Hot
Rising demand, diversified manufacturing facilities and increased capacities provide higher upside potential for PSL
SANTAN U MI SH R A ET INTELLIGENCE GROU P
AS INDIA marches fast on the path of economic development, the demand for energy will increase rapidly. This has led to an increased exploration of oil and gas, raising demand for inputs such as pipes. Oil and gas companies such as Gas Authority of India (Gail) have been awarding bigger contracts to pipemakers in the last one year. A rebound in crude oil prices has also led to more exploration activity across the world, mainly in west Asia. PSL, with its diverse manufacturing facilities, will be one of the gainers of the increase in exploration. Anticipating more orders in the coming years, the company recently ramped up its capacity. An investor looking for reasonable returns with a 1-2-year horizon could consider adding PSL to her portfolio. BUSINESS: PSL is the largest helical submerged arc welding (HSAW) pipe-maker in the country and commands an over 50% share of the market with a capacity of about 1.5 million tonnes. The company also offers a range of coating services that are used to increase corrosion-resistance capacity of pipes. It has 13 pipe mills, a majority of which are spread strategically across eastern and western coasts. The well-distributed manufacturing facilities give it an edge over its competitors with lower freight cost and ability to service overseas markets. FINANCIALS: PSL’s net sales have more than doubled in the last two years. With an operating margin of 9-11%, the company has invested heavily in these two years. This has resulted in a sharp increase in its debt, with its debt-to-equity ratio at around 1.65. However, this is not a cause of concern as the company has consistent and high operating cash flows. It has given a return on capital employed (RoCE) of over 16% for the last five years, achieving a figure of 20% last year. PSL has the ability to set up its own manufacturing plants that saves it a lot of capital when building new plants. Also, the company uses hotrolled coil as raw material that is widely available in the country, helps it save on inventory maintenance cost. GROWTH DRIVER: PSL has an order book of about 1.3 times of its net sales in 2008-09, and most of these orders are from domestic clients. This provides a good visibility of its revenue flows for the next 12-15 months. The discovery of gas in the KG basin and a government proposal to set up a national gas grid provide ample growth opportunity for the company. PSL is probably the only firm that has a large number of manufacturing facilities in the east, helping it to tap a higher proportion of the pipe contracts from this region. VALUATION: The company’s decision to ramp up its capacity recently is timely considering the signs of recovery in the global economy. Also, its current capacity utilisation rate is 40-50% and this can be increased to 65-70%. The impact of all these factors would be visible in the coming years. The stock is currently trading at a trailing price-earning multiple of around 10.5. Historically, the stock has traded at a price-earnings multiple of more than 25 when Sensex was at around the 17,000 mark. PSL’s estimated earning per share (EPS) in 2009-10 is estimated at Rs 24, translating into a forward price-earning multiple of around 7. All these factors indicate that there is enough room for growth in the stock price. If an investor has a time horizon of 1-2 years, PSL is a good bet. santanu.mishra@timesgroup.com
Rising demand, diversified manufacturing facilities and increased capacities provide higher upside potential for PSL
SANTAN U MI SH R A ET INTELLIGENCE GROU P
AS INDIA marches fast on the path of economic development, the demand for energy will increase rapidly. This has led to an increased exploration of oil and gas, raising demand for inputs such as pipes. Oil and gas companies such as Gas Authority of India (Gail) have been awarding bigger contracts to pipemakers in the last one year. A rebound in crude oil prices has also led to more exploration activity across the world, mainly in west Asia. PSL, with its diverse manufacturing facilities, will be one of the gainers of the increase in exploration. Anticipating more orders in the coming years, the company recently ramped up its capacity. An investor looking for reasonable returns with a 1-2-year horizon could consider adding PSL to her portfolio. BUSINESS: PSL is the largest helical submerged arc welding (HSAW) pipe-maker in the country and commands an over 50% share of the market with a capacity of about 1.5 million tonnes. The company also offers a range of coating services that are used to increase corrosion-resistance capacity of pipes. It has 13 pipe mills, a majority of which are spread strategically across eastern and western coasts. The well-distributed manufacturing facilities give it an edge over its competitors with lower freight cost and ability to service overseas markets. FINANCIALS: PSL’s net sales have more than doubled in the last two years. With an operating margin of 9-11%, the company has invested heavily in these two years. This has resulted in a sharp increase in its debt, with its debt-to-equity ratio at around 1.65. However, this is not a cause of concern as the company has consistent and high operating cash flows. It has given a return on capital employed (RoCE) of over 16% for the last five years, achieving a figure of 20% last year. PSL has the ability to set up its own manufacturing plants that saves it a lot of capital when building new plants. Also, the company uses hotrolled coil as raw material that is widely available in the country, helps it save on inventory maintenance cost. GROWTH DRIVER: PSL has an order book of about 1.3 times of its net sales in 2008-09, and most of these orders are from domestic clients. This provides a good visibility of its revenue flows for the next 12-15 months. The discovery of gas in the KG basin and a government proposal to set up a national gas grid provide ample growth opportunity for the company. PSL is probably the only firm that has a large number of manufacturing facilities in the east, helping it to tap a higher proportion of the pipe contracts from this region. VALUATION: The company’s decision to ramp up its capacity recently is timely considering the signs of recovery in the global economy. Also, its current capacity utilisation rate is 40-50% and this can be increased to 65-70%. The impact of all these factors would be visible in the coming years. The stock is currently trading at a trailing price-earning multiple of around 10.5. Historically, the stock has traded at a price-earnings multiple of more than 25 when Sensex was at around the 17,000 mark. PSL’s estimated earning per share (EPS) in 2009-10 is estimated at Rs 24, translating into a forward price-earning multiple of around 7. All these factors indicate that there is enough room for growth in the stock price. If an investor has a time horizon of 1-2 years, PSL is a good bet. santanu.mishra@timesgroup.com
SRF Ltd......recomended in Todays ... ET......Investor's Guide
COMING OF AGE
The expansion projects in the last two years are set to lift future profits of SRF
R AM KR I SH NA K ASH ELK AR ET I NTELLIGENCE GROU P
LOWvaluation, attractive dividend yield and an expansion spree make SRF a compelling buy, but lack of clarity on carbon credits means the investors can invest only for medium term and review their decision based on the company’s future growth. BUSINESS: SRF is a Gurgaonbased diversified company that manufactures technical textiles, chemicals and packaging film. The company is India’s largest manufacturer of nylon tyre cord fabric (NTCF) and specialised fluoro-chemicals including refrigerants. Its other products include chloromethanes and polyester film. The company made two overseas acquisitions in FY09 augmenting its current lines of technical textile business – Thai Baroda Industries in Thailand that manufactures NTCF and Industex Belting in South Africa that manufactures belting fabrics. It also purchased the engineering plastics and industrial yarn business of its sister concern SRF Polymers during the year. With these acquisitions, the company now operates 11 plants including three overseas. The company is taking deliberate steps to reduce its dependence on NTCF business, which brought in over 55% of the company’s FY09 revenues. Similarly it is going for backward integration to ensure high margins. GROWTH DRIVERS: The company has been steadily expanding its production capacities in the last couple of years, the benefits of which will become available in the next few years. Particularly, the company has invested around Rs 70 crore to add over 1000 tonne of fluoro specialty capacity. It added 14,500 TPA polyester industrial yarn capacity that can cater to the increasing demand for radial tyres, besides debottlenecking and modernising its facilities. The company has acquired nearly 850 acres of land in Dahej to set up fluoro-chemical plants over next five years. It is also setting up a laminated fabrics plant in Uttarakhand with annual capacity of 48 million square metres to commission by March ‘10. The company has commissioned over Rs 600 crore investment projects in last 18 months and projects worth Rs 725 crore are presently under way. India imposed anti-dumping duty on NTCF imported from Belarus and China in May 2009. This, besides the auto sector revival, stands to benefit the company, which derives nearly half of its revenues from sale of NTCF. FINANCIALS: The company’s net profit has grown at a cumulative annual growth rate (CAGR) of 29.4% in last five years while its net sales grew 17.5% during the period. The company has a strong history of operating cash flows and dividends. Last three years witnessed its interest coverage ratio on a consolidated basis deteriorate to 4.6 in FY09 from 12.5 in FY07. In the same period, its debt-equity ratio has jumped to 1.1 from 0.6. The ongoing investment phase of the company has taken its net block including capital work up 56% in this period to Rs 1,859 crore. The company’s chemical business producing fluorine-based refrigerants, speciality chemicals, chloro-methanes and engineering plastics, is the largest profit making segment representing over 80% of the company’s FY09 profit. Packaging film segment contributed 11.6% and technical textiles accounted for just 4.6%. In FY09, the company completed a buy-back of its shares which led to around 5.3% reduction in its equity capital to Rs 61.88 crore. The company’s board has now approved another buy-back scheme at Rs 160 per share, which will remain open till July 2010. VALUATIONS: The company is currently valued at 6.1 times its profits for the trailing 12 months. The company had paid Rs 10 per share dividend for FY09 translating in a dividend yield of 4.9%. Its peers Century Enka (P/E 9.2), Gujarat Fluorochemicals (P/E 4.9) and Jindal Polyfilms (P/E 4.8) are trading at around similar valuation. RISK FACTORS: The company does not publish revenues and profit from sale of carbon credits, which boosts the profits of its chemicals business and may face profit erosion depending on the price and quantity of carbon credits sold. At the same time, there is little clarity on future of carbon credits after the first phase of the Kyoto Protocol ends in 2012. ramkrishna.kashelkar@timesgroup.com
The expansion projects in the last two years are set to lift future profits of SRF
R AM KR I SH NA K ASH ELK AR ET I NTELLIGENCE GROU P
LOWvaluation, attractive dividend yield and an expansion spree make SRF a compelling buy, but lack of clarity on carbon credits means the investors can invest only for medium term and review their decision based on the company’s future growth. BUSINESS: SRF is a Gurgaonbased diversified company that manufactures technical textiles, chemicals and packaging film. The company is India’s largest manufacturer of nylon tyre cord fabric (NTCF) and specialised fluoro-chemicals including refrigerants. Its other products include chloromethanes and polyester film. The company made two overseas acquisitions in FY09 augmenting its current lines of technical textile business – Thai Baroda Industries in Thailand that manufactures NTCF and Industex Belting in South Africa that manufactures belting fabrics. It also purchased the engineering plastics and industrial yarn business of its sister concern SRF Polymers during the year. With these acquisitions, the company now operates 11 plants including three overseas. The company is taking deliberate steps to reduce its dependence on NTCF business, which brought in over 55% of the company’s FY09 revenues. Similarly it is going for backward integration to ensure high margins. GROWTH DRIVERS: The company has been steadily expanding its production capacities in the last couple of years, the benefits of which will become available in the next few years. Particularly, the company has invested around Rs 70 crore to add over 1000 tonne of fluoro specialty capacity. It added 14,500 TPA polyester industrial yarn capacity that can cater to the increasing demand for radial tyres, besides debottlenecking and modernising its facilities. The company has acquired nearly 850 acres of land in Dahej to set up fluoro-chemical plants over next five years. It is also setting up a laminated fabrics plant in Uttarakhand with annual capacity of 48 million square metres to commission by March ‘10. The company has commissioned over Rs 600 crore investment projects in last 18 months and projects worth Rs 725 crore are presently under way. India imposed anti-dumping duty on NTCF imported from Belarus and China in May 2009. This, besides the auto sector revival, stands to benefit the company, which derives nearly half of its revenues from sale of NTCF. FINANCIALS: The company’s net profit has grown at a cumulative annual growth rate (CAGR) of 29.4% in last five years while its net sales grew 17.5% during the period. The company has a strong history of operating cash flows and dividends. Last three years witnessed its interest coverage ratio on a consolidated basis deteriorate to 4.6 in FY09 from 12.5 in FY07. In the same period, its debt-equity ratio has jumped to 1.1 from 0.6. The ongoing investment phase of the company has taken its net block including capital work up 56% in this period to Rs 1,859 crore. The company’s chemical business producing fluorine-based refrigerants, speciality chemicals, chloro-methanes and engineering plastics, is the largest profit making segment representing over 80% of the company’s FY09 profit. Packaging film segment contributed 11.6% and technical textiles accounted for just 4.6%. In FY09, the company completed a buy-back of its shares which led to around 5.3% reduction in its equity capital to Rs 61.88 crore. The company’s board has now approved another buy-back scheme at Rs 160 per share, which will remain open till July 2010. VALUATIONS: The company is currently valued at 6.1 times its profits for the trailing 12 months. The company had paid Rs 10 per share dividend for FY09 translating in a dividend yield of 4.9%. Its peers Century Enka (P/E 9.2), Gujarat Fluorochemicals (P/E 4.9) and Jindal Polyfilms (P/E 4.8) are trading at around similar valuation. RISK FACTORS: The company does not publish revenues and profit from sale of carbon credits, which boosts the profits of its chemicals business and may face profit erosion depending on the price and quantity of carbon credits sold. At the same time, there is little clarity on future of carbon credits after the first phase of the Kyoto Protocol ends in 2012. ramkrishna.kashelkar@timesgroup.com
Sunday, October 25, 2009
Zero Debt Cos.......
Friends,
I read this news in ET internet edition of Saturday .....and saw that 30 cos has cut the borrowings.Now if the borrowings are cut then it means that these paid up borrowings will have a very positive effect on the bottomline as they will not have to pay the interest to banks or creditors....
This is a simple thing to understand.If one pays loans , which is named as borrowings in corporate language , then it is obvious that co will have not to pay the interest of the loans paid and hence that Interest amt will be directly added to the bottomline and hence will flare up the EPS and hence the stock will become cheap with P/E also going down.
Anyone can read this news and understand it.It is very simple.But who wants to read?That is a moot question .But if one needs to learn and understand things in stock market , people has to find his own way because unless you do it yourself, u do not have the confedence and one ends up asking again and again whether the stock is still a buy or hold or sell etc etc.....and that is why I put emphasize that try to find facts on your own.......
I remember when I was in India I tried to read almost all, ET, BS, FT....all I cannot buy ,I use to buy ET and BS daily and use to go to library to read FT and other stock market magazine......I was a subscriber of Business India Magazine and Capital Market Magazine and never missed a single issue for last 4-5 yrs and more ....and use to read Business Today, Businees World etc, else where.
Knowledge is Wealth.When one is investing his hard earn money why he do not try and find out what he can for that stock?That is what Peter Lynch has said.If one go for buying a Refregerator or Washing Machine or AC or Scooter he will ask everyone what is it, how it is performing, will also ask numerable queries to showroom manager but when they buy stocks they depend on others.....That is the biggest anamoly of a human.....
I can say that what I have posted here which I read in ET is easily readable by anyone and there is no finer lines to pick.If someone would have read this news he should have been able to pick couple of damn cheap stock from this article......
Zero Debt co is a great thing to have.........NO Debt......to me is the biggest positive....moreover it is not easy to find which co has less debt eq ratio as one has to go through the BS or AR which is not possible and hence readers needs to be always on toes to pick up such news from newspaper......Needs to be vigilent .....
There is one Box in which they have written the list and how much debt has been lessoned.I tried to copy paste it but was not able to do it but in it one can see that many cos hass become a Zero Debt cos after this and these stock are a BUY ...at this rate....Insiders must have cornered some stock listed here...but it is hard for investors or even Fund Manager can have this information.....so it is still not too late to go ahead and buy these stocks...........
I give u one more hint......on every saturday in ET if you will try to look at the quotes of stocks which use to come daily in ET .....read it on every Saturday after almost a month is over..after the quaterly results are declared they keeps on adding new results I use to read it when I was in India and also sometimes I do it here on Internet edition whenever time permits me....one will find all results declared of cos at the end of the quote.....and how much the NP has increased or decreased then last previous year qr.....sometimes we do not read this results on BSE site but can see in ET....from that atleast we can see that which co NP has increased or decreased from last qr NP.....and take the decision accordingly....or find a new stock....
It is all not EASY as People THINKS.......I put lots of effort in finding and constantly tracking the stocks which I recomend and this takes away lots of time of mine to do such things.....
Corporate India gets ready to wear the debt-free tag
Around 30 Cos Cut Their Borrowings, While Some Reduced Them To Zero In FY09
Vijay Gurav & MV Ramsurya MUMBAI
IFB Industries, Eicher Motors, Tata Sponge Iron, Balmer Lawrie & Co, and Hind Copper are among 30 companies that are leading Indian corporates in attaining the status of a zero-debt company, which fetches higher valuations in stock markets. The slashing of debt helps them to save on interest cost which eats into net profit and also leaves more cash to be distributed to shareholders in the form of dividends. It will also insulate the companies from any future hike in interest rates that looks inevitable, given the rising prices. After studying the balance sheets of many companies across sectors, ET shortlisted about two-and-ahalf dozen companies which have brought down total borrowings, including secured and unsecured loans, to significantly low levels or even reduced them to zero in the last financial year. According to analysts, more and more companies will try to get rid of debt as market conditions turn conducive for raising funds from other relatively cheaper sources. Funds from alternative sources can be used to repay existing loans and to reduce interest outgo. “If a company pays off its loans, that could be because the company is confident of generating enough cash internally and does not need to raise debt for future growth,” said Maulik Patel, head of research, KR Choksey Shares and Securities. The market tends to favour stocks of such companies even in bad conditions. Highlighting the disadvantages of being a debt-heavy company, he said investors are cautious about them because of concerns over impact of large interest outgo on bottomline. Citing examples of companies like Tata Motors and Wockhardt, Mr Patel said mounting debt puts pressure on valuations. While reducing debt is a positive move, a company should also see that it is done without diluting equity significantly. If any company raises funds through equity issues like preferential allotment or QIP to retire debt, it would help reduce the debt-equity ratio. However, such moves would raise the equity capital and bring down earnings per share or EPS. “To avoid dilution in the equity, the company can instead tap the foreign market to raise debt like FCCB or FCCN where the cost of borrowing is much lower than the funds raised in local market through issue of debentures and in the form of loan from banks and financial institutions,” said an analyst with a leading Mumbai-based brokerage on condition of anonymity. Of the shortlisted companies, BOC India has become a zero-debt company after the industrial gases major repaid the entire loan of Rs 219 crore in 2008. The company had raised Rs 597 crore through preferential allotment to the foreign parent BOC Group, part of which was utilised for retiring the debt. State-owned Hindustan Copper, which is currently on the government’s list of possible candidates for disinvestment, is another example where the company has met its debt obligations from internal accruals. The company, which had a debt of Rs 216 crore, in 2006-07, was able to pare the outstanding to Rs 36 crore in the subsequent two years amidst the bull run in commodities. “The years 2006 and 2007 were the best periods, with copper prices ruling at all-time highs,” said one senior executive with Hindustan Copper, who asked not to be named. “This is also the time when we reduced our debt by about Rs 300 crore.” Tata Sponge Iron, IFB Inds and Eicher Motors are some of the other companies which are reducing debt to almost nil. The figures stood at Rs 0.1 crore, Rs 0.5 crore and Rs 8 crore respectively as on March 31, 2009, compared to Rs 147 crore, Rs 398 crore and Rs 218 crore as on March 31, 2007. Most of the abovementioned companies have recorded a sharp improvement in their performance. BOC India, Tata Sponge Iron and IFB Industries have recorded a net profit growth between 26% and 744% in FY09. vijay.gurav@timesgroup.com
I read this news in ET internet edition of Saturday .....and saw that 30 cos has cut the borrowings.Now if the borrowings are cut then it means that these paid up borrowings will have a very positive effect on the bottomline as they will not have to pay the interest to banks or creditors....
This is a simple thing to understand.If one pays loans , which is named as borrowings in corporate language , then it is obvious that co will have not to pay the interest of the loans paid and hence that Interest amt will be directly added to the bottomline and hence will flare up the EPS and hence the stock will become cheap with P/E also going down.
Anyone can read this news and understand it.It is very simple.But who wants to read?That is a moot question .But if one needs to learn and understand things in stock market , people has to find his own way because unless you do it yourself, u do not have the confedence and one ends up asking again and again whether the stock is still a buy or hold or sell etc etc.....and that is why I put emphasize that try to find facts on your own.......
I remember when I was in India I tried to read almost all, ET, BS, FT....all I cannot buy ,I use to buy ET and BS daily and use to go to library to read FT and other stock market magazine......I was a subscriber of Business India Magazine and Capital Market Magazine and never missed a single issue for last 4-5 yrs and more ....and use to read Business Today, Businees World etc, else where.
Knowledge is Wealth.When one is investing his hard earn money why he do not try and find out what he can for that stock?That is what Peter Lynch has said.If one go for buying a Refregerator or Washing Machine or AC or Scooter he will ask everyone what is it, how it is performing, will also ask numerable queries to showroom manager but when they buy stocks they depend on others.....That is the biggest anamoly of a human.....
I can say that what I have posted here which I read in ET is easily readable by anyone and there is no finer lines to pick.If someone would have read this news he should have been able to pick couple of damn cheap stock from this article......
Zero Debt co is a great thing to have.........NO Debt......to me is the biggest positive....moreover it is not easy to find which co has less debt eq ratio as one has to go through the BS or AR which is not possible and hence readers needs to be always on toes to pick up such news from newspaper......Needs to be vigilent .....
There is one Box in which they have written the list and how much debt has been lessoned.I tried to copy paste it but was not able to do it but in it one can see that many cos hass become a Zero Debt cos after this and these stock are a BUY ...at this rate....Insiders must have cornered some stock listed here...but it is hard for investors or even Fund Manager can have this information.....so it is still not too late to go ahead and buy these stocks...........
I give u one more hint......on every saturday in ET if you will try to look at the quotes of stocks which use to come daily in ET .....read it on every Saturday after almost a month is over..after the quaterly results are declared they keeps on adding new results I use to read it when I was in India and also sometimes I do it here on Internet edition whenever time permits me....one will find all results declared of cos at the end of the quote.....and how much the NP has increased or decreased then last previous year qr.....sometimes we do not read this results on BSE site but can see in ET....from that atleast we can see that which co NP has increased or decreased from last qr NP.....and take the decision accordingly....or find a new stock....
It is all not EASY as People THINKS.......I put lots of effort in finding and constantly tracking the stocks which I recomend and this takes away lots of time of mine to do such things.....
Corporate India gets ready to wear the debt-free tag
Around 30 Cos Cut Their Borrowings, While Some Reduced Them To Zero In FY09
Vijay Gurav & MV Ramsurya MUMBAI
IFB Industries, Eicher Motors, Tata Sponge Iron, Balmer Lawrie & Co, and Hind Copper are among 30 companies that are leading Indian corporates in attaining the status of a zero-debt company, which fetches higher valuations in stock markets. The slashing of debt helps them to save on interest cost which eats into net profit and also leaves more cash to be distributed to shareholders in the form of dividends. It will also insulate the companies from any future hike in interest rates that looks inevitable, given the rising prices. After studying the balance sheets of many companies across sectors, ET shortlisted about two-and-ahalf dozen companies which have brought down total borrowings, including secured and unsecured loans, to significantly low levels or even reduced them to zero in the last financial year. According to analysts, more and more companies will try to get rid of debt as market conditions turn conducive for raising funds from other relatively cheaper sources. Funds from alternative sources can be used to repay existing loans and to reduce interest outgo. “If a company pays off its loans, that could be because the company is confident of generating enough cash internally and does not need to raise debt for future growth,” said Maulik Patel, head of research, KR Choksey Shares and Securities. The market tends to favour stocks of such companies even in bad conditions. Highlighting the disadvantages of being a debt-heavy company, he said investors are cautious about them because of concerns over impact of large interest outgo on bottomline. Citing examples of companies like Tata Motors and Wockhardt, Mr Patel said mounting debt puts pressure on valuations. While reducing debt is a positive move, a company should also see that it is done without diluting equity significantly. If any company raises funds through equity issues like preferential allotment or QIP to retire debt, it would help reduce the debt-equity ratio. However, such moves would raise the equity capital and bring down earnings per share or EPS. “To avoid dilution in the equity, the company can instead tap the foreign market to raise debt like FCCB or FCCN where the cost of borrowing is much lower than the funds raised in local market through issue of debentures and in the form of loan from banks and financial institutions,” said an analyst with a leading Mumbai-based brokerage on condition of anonymity. Of the shortlisted companies, BOC India has become a zero-debt company after the industrial gases major repaid the entire loan of Rs 219 crore in 2008. The company had raised Rs 597 crore through preferential allotment to the foreign parent BOC Group, part of which was utilised for retiring the debt. State-owned Hindustan Copper, which is currently on the government’s list of possible candidates for disinvestment, is another example where the company has met its debt obligations from internal accruals. The company, which had a debt of Rs 216 crore, in 2006-07, was able to pare the outstanding to Rs 36 crore in the subsequent two years amidst the bull run in commodities. “The years 2006 and 2007 were the best periods, with copper prices ruling at all-time highs,” said one senior executive with Hindustan Copper, who asked not to be named. “This is also the time when we reduced our debt by about Rs 300 crore.” Tata Sponge Iron, IFB Inds and Eicher Motors are some of the other companies which are reducing debt to almost nil. The figures stood at Rs 0.1 crore, Rs 0.5 crore and Rs 8 crore respectively as on March 31, 2009, compared to Rs 147 crore, Rs 398 crore and Rs 218 crore as on March 31, 2007. Most of the abovementioned companies have recorded a sharp improvement in their performance. BOC India, Tata Sponge Iron and IFB Industries have recorded a net profit growth between 26% and 744% in FY09. vijay.gurav@timesgroup.com
Tuesday, October 20, 2009
Some new stock that has come to my radar......
Friends,
I have been going through some stock which I feel looking extremly good.I am listing it here with some comments on that....
1)Investment Precision and CastingLtd...cmp rs 134.....
This is one co which is in Casting sector with a very low eq and am seeing some movement and buying from informed circles......a la Lumax Ind type....of stock...
2)Alfa Laval Ltd..cmp Rs .1243.00
A MNC co which went for a buyback at Rs 1000 this year and promoters has increased the holding by over 10% and now hold almost over 88%.....It is another wonderful co with great fundamentals.Procure an order for BioFuel plant from Vietnam.....at Rs 1250 is going damn cheap...
3) APW President Ltd....cmp Rs 122.00...
This is one co which I am tracking so long but never able to recomend it here but am rectifying my previous error before it runs more .This is another co which can come in Power sector like Thermax......Great results and great management.
4)Patel Airtemps Ltd...cmp Rs...64.00
Promoters has constantly increasing the holding through open market deal.Great future....
SRF Ltd has crossed 200 mark and long way to go still.Tinplate after the right issue came down to below 50 and now at 66.....great co to buy still.....Gayatri Pro ltd recomended at 166 is now at rs 379 and lots of steam still left..there are score of stock which I have recomended which has gone through the roof......I hope readers must be benifitting from them......
My latest pick KPIT Cummins has jumped from 77 to 85....but I am seeing that some of the readers are taking advantage of my call to buy and exit with small profit after it has been recomended here and stock runup immidiately.
I have no problem with that but then they need not come and ask me whether the stock is still good to hold......it is their decision to sell at whatever profit they had and hence there is nothing left to be asked......as I have always written here that my call will give above average return then market.......
I have been going through some stock which I feel looking extremly good.I am listing it here with some comments on that....
1)Investment Precision and CastingLtd...cmp rs 134.....
This is one co which is in Casting sector with a very low eq and am seeing some movement and buying from informed circles......a la Lumax Ind type....of stock...
2)Alfa Laval Ltd..cmp Rs .1243.00
A MNC co which went for a buyback at Rs 1000 this year and promoters has increased the holding by over 10% and now hold almost over 88%.....It is another wonderful co with great fundamentals.Procure an order for BioFuel plant from Vietnam.....at Rs 1250 is going damn cheap...
3) APW President Ltd....cmp Rs 122.00...
This is one co which I am tracking so long but never able to recomend it here but am rectifying my previous error before it runs more .This is another co which can come in Power sector like Thermax......Great results and great management.
4)Patel Airtemps Ltd...cmp Rs...64.00
Promoters has constantly increasing the holding through open market deal.Great future....
SRF Ltd has crossed 200 mark and long way to go still.Tinplate after the right issue came down to below 50 and now at 66.....great co to buy still.....Gayatri Pro ltd recomended at 166 is now at rs 379 and lots of steam still left..there are score of stock which I have recomended which has gone through the roof......I hope readers must be benifitting from them......
My latest pick KPIT Cummins has jumped from 77 to 85....but I am seeing that some of the readers are taking advantage of my call to buy and exit with small profit after it has been recomended here and stock runup immidiately.
I have no problem with that but then they need not come and ask me whether the stock is still good to hold......it is their decision to sell at whatever profit they had and hence there is nothing left to be asked......as I have always written here that my call will give above average return then market.......
Saturday, October 17, 2009
Samvat 2065 ...sensex at 17322 and Nifty 5142...now we enters 2066...
Friends,
What a way to end!
Samvat 2065 is gone and sensex has ended at 17322 and Nifty at 5142.........
Now from here to where?Samvat 2066 ....I think we should be much much better off then thisI have already written many times here that we can see 21k before 2009 and 31k before 2010.....actually in last Oct market was at 8500 and we have come 100% from there defying all apprehension from technical analyst and even fundamentals analyst.
Not a single technical guy has perdicted this.If someone can give me evidence that they predicted 17322 and 5142 then I will be glad to read it.There were all sorts of resistance and always showing danger that if this mark is not crossed then we can see following percentage of reaction.
Market has moved 30% or 40% or 60% from this level and hence it has to come to fill the gap otherwise it will become over bought.There is an evening star or morning star pattern or Doji or head and shoulder pattern formed and hence surely market will react and so on and so forth.But alll the calculation turned out to be BIG BIG miscalculation and the funny part is these technical guys are still not ready to believe the move and says that market will tank.That is rediculous.They always have arguements that charts pattern shows what is coming up and not market course the chart......They always believe that Charts shows what is going to happen even they have failed miserably from 2003 to 2007 and again from March 2009 to Oct 2009.... In 6 months the entire scenario has changed and the shot in the arm came with Congress winning the election and Left were driven out completely....
I have never believed in technicals nor I adviced someone to follow it.It is all for day trading and that too operators manupalate it, eating your stoploss and then bounce back.
My advice(usually I suggest) to all my readers is that please , Never Never trade in F&O.Leave it for FII's,HNI's and big players.We are very small to play in it.If someone will play he will lose everything he has made while investing.
No Day Trading Nor play in F&O......
I remember I gave a call for Petron Eng and Const ltd on 17th sep at 169 and I remember when I gave the call, it was a day when I saw Petron going for 20% upper circuit and suddenly it caught to my mind that what the hell this stock is doing?
Well, even it was in UC of 20% I gave a call the very next day at 169.......and today after exactly 1 month it is RS 210.
One of my friend told me ,Rajeev, your Petron Eng is not moving and suddenly my eye went to Petron Eng for highest gainer list and it was there.I told him , it will run at its own time.Have patience.
Petron Eng,Lumax Ind, Areva T&D, SRF Ltd, Navin Flourine,KPIT Cummins,Apar Ind,Thermax,Alsthom,L&T, Seimens,TRF are evergreen stocks........and has been recomended here time and again.I have even went to the extent to write that L&T is a stock of the decade.
Deep Ind, Excel Crop are stock for coming years which can become large cap from midcap.
There were some dark horse I listed like Scan Point Geomatics,Lesha Energy,Telecanor Global ,Rungta Irrigation,EPC Ind etc which are making new 52 week highs.They are capable of going still up as my theory that new stock will take charge for the new bull run.
Readers are requesting me to list stock where they can buy and not to have a look at it till next Diwali.But that is something not possible.One needs to be on toes in stock market.Atleast to book profit when the stock doubles and sell 50% to make the rest FREE.
I have always written here that I do not look for any stock if it going to give me an average return.Only if I am convinced that it will give above average return , means more then market, then only I will recomend it or I personally have a look at it.
I would like to write on XL Tele , that it seems that the fall was delibarate and hence interest can be again seen in this counter with Solar Play coming back next year.So those who are holding must hold on with it.I think one of the reader also wrote me regarding XL Tele that will again run.
Would like to write on GOLD .Heard from experts that GOLD can touch $2500 in next 2 yrs and hence I just have to imagine what will the prices for Titan, Deccan Gold,Shirpur GoldRefinary and Jwellary making cos like Suashih Diamond,Gitan Jali Gems etc .Here the dark horse is Zodiac JRD.
There is one another stock in Gold Jwellary and it is Surana Corp.It is also diversified in Wind Mills power projects.Keep a watch on these two......
What a way to end!
Samvat 2065 is gone and sensex has ended at 17322 and Nifty at 5142.........
Now from here to where?Samvat 2066 ....I think we should be much much better off then thisI have already written many times here that we can see 21k before 2009 and 31k before 2010.....actually in last Oct market was at 8500 and we have come 100% from there defying all apprehension from technical analyst and even fundamentals analyst.
Not a single technical guy has perdicted this.If someone can give me evidence that they predicted 17322 and 5142 then I will be glad to read it.There were all sorts of resistance and always showing danger that if this mark is not crossed then we can see following percentage of reaction.
Market has moved 30% or 40% or 60% from this level and hence it has to come to fill the gap otherwise it will become over bought.There is an evening star or morning star pattern or Doji or head and shoulder pattern formed and hence surely market will react and so on and so forth.But alll the calculation turned out to be BIG BIG miscalculation and the funny part is these technical guys are still not ready to believe the move and says that market will tank.That is rediculous.They always have arguements that charts pattern shows what is coming up and not market course the chart......They always believe that Charts shows what is going to happen even they have failed miserably from 2003 to 2007 and again from March 2009 to Oct 2009.... In 6 months the entire scenario has changed and the shot in the arm came with Congress winning the election and Left were driven out completely....
I have never believed in technicals nor I adviced someone to follow it.It is all for day trading and that too operators manupalate it, eating your stoploss and then bounce back.
My advice(usually I suggest) to all my readers is that please , Never Never trade in F&O.Leave it for FII's,HNI's and big players.We are very small to play in it.If someone will play he will lose everything he has made while investing.
No Day Trading Nor play in F&O......
I remember I gave a call for Petron Eng and Const ltd on 17th sep at 169 and I remember when I gave the call, it was a day when I saw Petron going for 20% upper circuit and suddenly it caught to my mind that what the hell this stock is doing?
Well, even it was in UC of 20% I gave a call the very next day at 169.......and today after exactly 1 month it is RS 210.
One of my friend told me ,Rajeev, your Petron Eng is not moving and suddenly my eye went to Petron Eng for highest gainer list and it was there.I told him , it will run at its own time.Have patience.
Petron Eng,Lumax Ind, Areva T&D, SRF Ltd, Navin Flourine,KPIT Cummins,Apar Ind,Thermax,Alsthom,L&T, Seimens,TRF are evergreen stocks........and has been recomended here time and again.I have even went to the extent to write that L&T is a stock of the decade.
Deep Ind, Excel Crop are stock for coming years which can become large cap from midcap.
There were some dark horse I listed like Scan Point Geomatics,Lesha Energy,Telecanor Global ,Rungta Irrigation,EPC Ind etc which are making new 52 week highs.They are capable of going still up as my theory that new stock will take charge for the new bull run.
Readers are requesting me to list stock where they can buy and not to have a look at it till next Diwali.But that is something not possible.One needs to be on toes in stock market.Atleast to book profit when the stock doubles and sell 50% to make the rest FREE.
I have always written here that I do not look for any stock if it going to give me an average return.Only if I am convinced that it will give above average return , means more then market, then only I will recomend it or I personally have a look at it.
I would like to write on XL Tele , that it seems that the fall was delibarate and hence interest can be again seen in this counter with Solar Play coming back next year.So those who are holding must hold on with it.I think one of the reader also wrote me regarding XL Tele that will again run.
Would like to write on GOLD .Heard from experts that GOLD can touch $2500 in next 2 yrs and hence I just have to imagine what will the prices for Titan, Deccan Gold,Shirpur GoldRefinary and Jwellary making cos like Suashih Diamond,Gitan Jali Gems etc .Here the dark horse is Zodiac JRD.
There is one another stock in Gold Jwellary and it is Surana Corp.It is also diversified in Wind Mills power projects.Keep a watch on these two......
KPIT Cummins........cmp Rs 77.00....scrip of the year!
Friends,
Very happy and prosperous new year to all of you.I wish that all earn tons of money in stock market and wish all the loss are wiped off next year....whoever is having it.......Best Of Luck.......because without her(Goddess Laxmi) I firmly believe nothing is possible......He ( God Vishnu)will guide us when to sell and when to buy.....so that we can earn the maximum profit and do not sell early.....
I have done nothing here.Just copied paste what I got from while exploring Internet......I like the management, I like the statement of Chairman, I like the positive talk and hence I have posted it here.
KPIT Cummins net up at Rs 26 cr
Our Bureau PUNE
KPIT Cummins Infosystems, a product engineering and IT consulting partner to manufacturing companies, has revised its profitability outlook for the full year. While the software company’s net profit has more than doubled to Rs 25.8 crore from Rs 10.7 crore a year ago, net sales have fallen significantly to Rs 109.8 crore against Rs 165.1 crore. During the first half, the software solutions provider registered a similar fall in sales, to Rs 218.63 crore (Rs 310.45 crore) while its net profit shot up to Rs 42.05 crore (Rs 23.27 crore). “We are revising our outlook for the full year’s profits to Rs 77-82 crore, from our earlier forecast that these would be flat. Last year, our net profit for the full year was Rs 65.81 crore (for the standalone company). We have revised our guidance since profits for the second quarter and first half have improved hugely,” said KPIT Cummins managing director and CEO Kishor Patil. The higher profitability is being attributed to greater productivity, moving more work offshore and fixed price contracts. Reflecting confidence in an economic revival, KPIT Cummins has begun to grant promotions within the company. These had been frozen for the past six months. Mr Patil added that they have also begun to hire from the freshers who had been made offers but had been put on hold in June. “This year, we expect to hire 200 freshers,” he said. “PSUs in India and the rest of the world offer opportunities. We are addressing the energy, utilities and defence sectors. We have begun engagements with energy and utilities in the US and with the defence in India,” Mr Patil explained.
Investors Update: Coming straight from Chairman.......
Jul - Sep 2009
Q 2 FY10 Investor U pdate 1
INVESTOR U PD ATE
FOR
QU ARTER END ED 30th SEPTEM BER 2009
(NSE: KPIT, BSE: 532400) (July - Sep 2009)
KEY H IG H LIG H TS
Revenue for the quarter increased by 2.4% Q-o-Q to Rs.1769.86 M n.
In U SD term s, Revenues stood at $ 36.35 M n. Q-o-Q grow th of 3%.
EBITD A grew by 28% Q-o-Q and 20% Y-o-Y to Rs.468.37 M n. EBITD A m argins
expanded by 5.3% to 26.5% during the quarter.
Net Profits for the quarter stood at Rs. 211.95 M n, a Y -o-Y grow th of 27%. On a
Q-o-Q basis, profits declined by 5.3%.
G ross Profit M argins im proved Q-o-Q basis. They expanded by 2.9% to 45.8%. Yo-
Y basis they expanded by 3.8%.
PAT M argin expanded on Y-o-Y basis by 3.7% to 11.98%. H ow ever Q-o-Q they
declined by 0.97%.
Sequentially, EPS decreased to Rs. 2.69 from Rs. 2.86 during the quarter and
grew by 25% YoY .
4 new Custom ers w ere added during the quarter, taking the total num ber of
custom ers to 137.
Overall increase in utilization levels w ith offshore utilization increasing by 5%
going to 72.8% and onsite utilization increasing by 1.40% going to 94.33%.
Jul - Sep 2009
Q2 FY10 Investor Update 2
FINANCIAL HIGHLIGHTS FOR THE QUARTER ENDED 30TH SEPTEMBER 2009 (Q1
Revenues:
o During the quarter, Revenue in USD terms increased by 3% Q-o-Q. Q2 FY10 Revenue was USD 36.35 M n. In absolute terms, the q-o-q USD revenue growth was of USD 1.09 M n.
o Our largest customer contribution is around 32% during the quarter. There have been
deliver on a fixed price basis and also focused on Value delivery.
o In G eography terms, out of the total Q-o-Q revenue increase, US contributed 4%, Europe -4% and APAC 18.5 %. Our focus on the emerging markets is taking shape and will continue to contribute largely to our growth in the future.
o W e believe that the worst is behind us. W e actually faced a revenue decline only in Q1FY10 after seeing revenue growth till Q4 FY09 and we believe there would not be any further significant reduction in our USD denominated top line going ahead. There would be marginal ups and downs for the remainder of the year. W e have made a modest beginning by having QoQ growth in Q2FY10.
o Our customers are now coming back to the discussion tables to discuss projects and thus there is much more visibility now as compared to earlier two quarters. This is a sign that in the near future even the order flow will be normalized.
o W ith some new initiatives we have received good traction in two new customer
segments namely PSUs and Defense in our related areas of work.
o W e also believe we are well-equipped now to expand ourselves to offer services to a new industry sector Energy and Utilities.
o W e are focusing on bagging larger deals and maintaining key customer growth. W e are
also moving towards becoming a total solutions provider.
Profitability:
o Profits marginally declined during the quarter on a QoQ basis mainly due to increase in
forex loss by almost 640%. Keeping the forex loss in Q2 equal to Q1, the net Profits
have actually expanded proportionately to the operating margins. N et Profit margins
contracted by 1% Q-o-Q and expanded by 3.7% Y-o-Y basis.
o W e have been able to not only maintain healthy operating margins but increase them
which is a result of productivity improvement and cost control measures continuously
being taken over the past few quarters, along with the shift in business from onsite to
offshore. SG &A costs have fallen by 8.9% (Q-o-Q) and 24.6% (Y-o-Y). The offshore
Jul - Sep 2009
Q2 FY10 Investor Update 3
utilization improved by 5%+ during the quarter to touch 72.8%, an increase of 1.5% YoY.
The Onsite utilization improved by 1.4% QoQ and 0.5% YoY.
o The following factors have contributed to the improvement in profits and profitability:
1. Our productivity improvement initiatives, namely more fixed price contracts,
Improved reuse of production assets from repository, reduced rework efforts,
increased zero defect deliveries to customers, increased usage of automation tools,increased customer satisfaction rating and better onsite offshore revenue mix. have been delivering improved outcomes.
2. We are continuously increasing the number of assets in our asset repository and also focusing on their re use. We currently are reusing about 15% of the total assets in our repository. We are also focusing on use of open source and freeware tools for project management, configuration management and software model development.
We have internally developed a Project H ealth Management System which helps in the ongoing monitoring of the projects and thus enabling required corrective
actions, if any, at the right time.
3. The reduction in SGA costs depicts the ongoing cost control and reduction initiatives like consolidation of facilities and utilization of all assets ( hardware, software, space ), capital expenditure only on a must have basis, strict control on support hiring and renegotiation of contracts with service as well as capital vendors for rate reduction. These measures will continue on an ongoing basis.
4. The forex loss during the quarter stood at Rs.131.57 Mn. as against Rs. 17.82 Mn. in Q1 FY10. In Q1 there was a big gain on the conversion of foreign currency liabilities since the net differential in the closing rate of Q1 and the previous quarter was Rs. 3/$ less. This gain on liability conversion offset the MTM losses and actual losses on maturity of the forward contracts. In Q2, the closing rate was marginally higher than Q1 and thus there was no gain on liability conversion but a marginal loss which added to the MTM and actual conversion losses. Thus there was a net increase of Rs.114 Mn. of forex losses in Q2FY10 as compared to Q1FY10.
Jul - Sep 2009
Q2 FY10 Investor Update 4
Balance Sheet details (Rs. M illion):
o The Cash Balance as at September 30, 2009 stood at Rs. 1663.94 Mn. as compared to Rs. 1812.09 Mn. over the June 30, 2009 balance. The surplus funds were invested in Liquid Funds during the Qtr to the tune of Rs. 280.87 Mn. Thus on a comparable basis the Cash and Cash equivalents as of Sept 30, 2009 stood at Rs. 1944.81 Mn. registering
an increase of 132.72 Mn. The Cash Balance is being held in Current Accounts (Rs.
967.40 Mn.) and Deposit Accounts (Rs. 694.48 Mn.)
o As on September 30, 2009 our total debt stood at Rs. 1,081.68 Mn. (Rs. 1,036.61 Mn. as of June 30, 2009) comprising of Rs. 672.00 Mn. of Term Loan and Rs. 405.04 Mn. of
Working Capital Loan.
o Forex Hedging instruments with maturity of more than 3 months and considered effective hedges in accounting terms are provided for as adjustment to the Reserves and Surplus in the Balance Sheet. As on September 30, 2009 these Hedging Reserves were Rs. 772.51 Mn., as compared to Rs. 847.70 Mn. as of Q1FY10 end.
Balance Sheet Summary: As at
(Rs. Mn.)
September 30, 2009 June 30, 2009
Equity 2,923.99 2,635.88
Total Debt 1,081.68 1,036.61
Minority Interest & Deferred Tax Liability 52.41 68.25
Total 4,058.08 3,740.74
Fixed Assets 2,128.88 1,929.96
Investments* 280.87 0.31
Current Assets 3,801.08 3,968.08
Cash Balance 1,663.94 1,812.09
Receivables 1,300.53 1,411.05
Loans & Advances 836.61 744.94
Current Liabilities 2,152.75 2,157.61
Total Net Assets 4,058.08 3,740.74
Investments include investment of surplus cash in Liquid Funds.
Jul - Sep 2009
Q2 FY10 Investor Update 5
KEY DEVELOPMENTS
PARTNERSHIP
NEC Electronics in collaboration with KPIT Cummins have developed a new AUTOSAR 3.0 compatible software solution for various hardware platforms. This software package enables easy design of application software without the need for new developments. This will be mainly of use to the Auto Tier I suppliers to the OEMs and we will start generating revenues from this from the Tier I vendors.
KPIT has signed a MoU with a renowned National Research Laboratory towards joint research and development in the areas related to ultra-capacitors and batteries, which will
go a long way in the development of software solutions in the new generation of Hybrid and Electric vehicles.
AW ARDS AND THOUGHT LEADERSHIP
KPIT Cummins ranked 65 in Dataquest Top 100 survey - up from 78th position in 2008
KPIT co-Semiconductor & Software Business Collaboration Opportunities between India and Japan Semiconductor
Association (ISA) and The Japan External Trade Organization (JETRO).
KPIT participated as a speaker at the Germany Session of NASSCOM in Mumbai.
We also participated as speakers in
Productonica 2009 organized by ZVEI
association).
CUSTOMERS AND MARKETS
4 new customers were added during the quarter 2 in Europe and 2 in US. Total number of
active customers is 137.
Automotive:
Technology solutions for sustainable and G reen grow th.
Commenced strategic consulting engagement for an Indian Auto OEM.
Consulted an American OEM on Human Machine Interface (HMI) Tool selection.
Developed an end-to-end software solution for night vision and pedestrian detection for
an Asian Tier 1
Jul - Sep 2009
Q2 FY10 Investor Update 6
Built a Dedicated Short Range Communication (DSRC) based Advanced Traffic
management solution for an American Tier 1
Furthered automotive software standardization efforts: Selected for AUTOSAR
(AUTomotive Open System Architecture) Basic Software implementation for a leading
European OEM. This reinforces our leadership position in Europe.
Industrial Equipments:
Integrates multiple assembly lines for UK operations of a leading American Tier 1. KPIT
-engineered MES (Manufacturing Execution Systems)
solution replaces complex legacy systems.
Commenced a strategic enterprise IT engagement with a national automotive testing laboratory, to help them reduce the time required for testing, validating and documenting the test results for Auto Manufacturers.
Commenced engagement with an Asian auto component manufacturer and a leading Asian contract logistics company to implement end-to-end templatized ERP solution for
business operations.
Hi-Tech and Semiconductor:
Solution accelerators for quick-time-to-market
Engaged with a leading European semiconductor company on development of MCU for Dashboard Cluster for a High End Luxury Car.
Started project on developing reference designs for consumer and Automotive
applications for a leading Asian semiconductor company. Established Center of
Excellence for Motor Controls.
Commenced work on developing complete digital section of a controller chip for a leading European manufacturer of IC solutions.
Diversified Financial Services:
Customer award for excellent teamwork towards breakthrough Improvement in Quality &
Productivity
Initiates on-site/offshore reverse engineering project for a leading retail bank of South
Africa.
Jul - Sep 2009
Q2 FY10 Investor Update 7
CORE OFFERINGS
In the current economic scenario, we continue to focus on our niche and specialized areas of work. In Automotive electronics there have been some structural changes which shifted the focus towards hybrid engine, green emissions, Infotainment and safety systems. All the leading automotive OEMs and Tier1s are making significant investments in the area of emission controls, more fuel efficiency, comfort & connectivity and safety.
KPIT is well-positioned to leverage this opportunity with its domain expertise, scalability and the technological strength. Our existing customers are choosing KPIT as their consulting partners and we are helping them in designing their technology roadmaps. Emerging markets would be drivers of revival. We are witnessing significant traction in these markets and are making our strategy more robust. We are collaborating with OEMs, Tier 1s and Semiconductor companies to reduce time to market of new products and make existing products more competitive.
Currently we are working on 30+ vehicle programs as depicted in the table below, with new and existing customers thus helping them bring their products faster to the target markets at profitable price points.
Priority Industry Reactions
Green
Technology
1. Several American, European and Asian carmakers announce launch of electric, hybrid and eco-
smart, Renault electric car, ecological motor)
2. Governments sanction loans and funding for hybrid vehicles (FiskerAutomotive - $530 million, France 2.5 Bn euro, £25 Mn of UK Govt)
3. Car makers embrace fuel efficient green technologies for future models (Ford -
Ecoboost technology, GM Working on Active Fuel Management (AFM) & Spark Ignition
Direct Injection Technology (SIDIT), Samsung, Bosch to produce electric car batteries).
4. Electric Sports-Car maker Tesla gets $82.5 Mn Investment. Mazda to raise $1 Bn for
green cars.
5. Toyota to begin offering plug-in Prius in 3 yrs. Hyundai plans plug-in hybrid in 2012.
KPIT Engagements KPIT Role
Quick end- to- end implementation of Anti Brake system with regenerative
braking to an electric vehicle for major electric car OEM in APAC
Improving Competitiveness
Key contribution as software architect and developer for a strategic CNG
Hybrid program for Major diesel engine manufacturer in US
Reducing Time-to-market
Design of battery model, independent of battery chemistry for quick &
efficient testing of hybrid/electric battery system
Bringing in Frugal
Innovation
Model based design of battery management system software and the
associated hardware for Major Tier I in North America
Reducing Time-to-market
Specification development of stop start technology for passenger cars for Major OEM in APAC Creating competitiveness
Jul - Sep 2009
Q2 FY10 Investor Update 8
Priority Actions
Small Cars
1. Several American, European and Asian carmakers unveil small cars for emerging as well as developed markets (Ford Figo, VW Polo, Nissan New Micra, Toyota Scion iQ, Honda Jazz, Bajaj Bajaj Lite, Maruti Splash)
2. Companies collaborate to bring new technology for energy efficiency in personal
mobility solutions (Toyota Plans to Make Car Engines in India, GM India & REVA Form
Alliance for New Electric Small Car, India emerging as a manufacturing hub for cars
KPIT Engagements KPIT Role
Key contribution in a government-industry forum for designing the software
standard for small car with Indian Government- Industry ecosystem
Bringing in Frugal
Innovation
Final stage of discussions for conversion of 2 wheel drive vehicle to 4 wheel
drive for defense applications for a Tier I supplier in APAC
Bringing in Frugal
Innovation
Helping global OEMs & Tier I for component localization aimed at cost
reduction for Major OEMs globally
Value engineering
Design & development of active suspension seating control system for
Major Tier I manufacturer in APAC
Reducing Time-to-market
Priority Actions
Intelligent
& Smart
Cars
1. Car makers commit investments for smart vehicle technology in braking, safety, comfort and driver assistance systems (Mercedes Builds Car That Auto-Brakes At Red Lights, Ford To use virtual vehicle sound to improve interior sound quality & quietness, Daimler invests in Hambach to build electric Smart, Google Working on "Smart Charging" Software for Electric Cars - Popular Science - Mike Spinelli, Chevrolet Malibu, Smart car and other shockers on list of biggest resale value)
2. European Commission Intelligent car flagship initiative to include Autonomous Cruise
Control, Lane departure Warning System & Alarm for Drowsy or drunken driving.
3. Honda Jazz will have an automatic version in the coming days - Wheels Unplugged -
India's Automobile Magazine - Sep 14, 2009
KPIT Engagements KPIT Role
Lane departure warning system for passenger cars Internal R&D project
Bringing in Frugal
Innovation
Go-to-market for vision-based system for passenger cars of an Asian automotive
OEM
Increasing
competitiveness
Design & development of Remote keyless entry feature using a customized chip,
for passenger cars for a Major European Tier I
Reducing time to market
Vision based testing solution for automotive cluster systems for a Major
European Tier I manufacturer Increasing competitiveness
Conceptualization & implementation of state of art vehicle simulation facility
for a Major passenger car OEM in APAC
Increasing competitiveness Reference board and software design to test the new automotive
microcontroller in emerging mkts application for major semicon manufacturer
Reducing time to market Key contributor in immobilizer product devp for a Major FPGA manufacturer Competitiveness
Jul - Sep 2009
Q2 FY10 Investor Update 9
Focus Area KPIT Actions Imperative
Standardization
ECU integration, aimed at multiple application on a single
platform and reusability of platform components for a
Major Luxury car OEM in Europe
Frugal Innovation
Co-development & maintenance of Product Line architecture based engine platform for a Major diesel engine manufacturer of North America Improving competitiveness
Being a premium member of AUTOSAR, helping global OEM
for migrating to AUTOSAR with major German OEMs
Quick time to market
Standardized Network operating system for European C/D class vehicles with Major Europe passenger car OEM in Creating competitiveness Development of a configurable software stack, easily reconfiguring the system for OBD II and EOBD with minimal changes software for Major European Tier I Improving competitiveness
BUSINESS OUTLOOK
ECONOMIC RECOVERY IN SIGHT
Automotive Industrials HiTech
1. Government announces recovery packages for the automotive industry (Cash for clunkers program)
2. Leaders of American and European car manufacturing companies express optimism for economic revival (Renault- Nissan CEOPeugeot )
3. Companies launch initiatives to bring more fuel efficient, environment friendly and smart vehicles. Enhance focus on emerging markets (BMW, Mercedes-Benz, Ford).
4. Auto market has grown at 55% Y-o-Y in BRIC countries.
5. SIAM steps up forecast as vehicle sales grew by 22.4% in August. (Business Standard, April 9, 09)
1. Economic activity in the mfg sector expanded in Sep 2009 for 2nd consecutive month, and overall economy grew for the 5th consecutive month. -
Manufacturing ISM Report on Business® . October 1, 2009
2. According to the September CMI from the NACM, U.S. credit conditions and performance are improving at an increasing rate. -
September, 2009
3. Manufacturing jobs off-shoring has again picked up growth.
4. One-
manufacturing sector has registered high growths of up to 20% in the 1st quarter of 2009-10 fiscal, the CII-Ascon survey said.
5. Govt. has promised to keep interest rates low till recovery signs in the manufacturing sector strengthen.
1. Global chip makers boost revenue forecast for 3rd quarter and current financial year (Texas Instruments, Intel corp., ASML)
2. Semiconductor equipment purchased in Aug was up 14.6% (compared to 12% in July)
3. European technology stocks have gained on revised outlook statements from semiconductor firms. (WSJ,
April 17, 09)
4. India is now the second largest
R&D hub for $1.3bn Synopsys Inc, the California-based global leader in software and IP for semiconductor design, verification and manufacturing.
5.
will be at least 15% by 2020.
Jul - Sep 2009
Q2 FY10 Investor Update 10
Though the economic recovery is in sight, t
clearly visible, though the visibility has improved a lot over the quarter. Our manufacturing customers are still facing challenges of capacity utilization. Business environment continues to be volatile.
Despite all these challenges, the bottom is already behind us and slow signs of recovery have been observed during the quarter. Automotive sector has now started showing signs of revival with car sales picking up in US although at a very slow pace. Our Automotive business has also improved by 4% QoQ and semiconductor business has improved by 25%
during this quarter.
From geographical perspective, we noticed significant traction in India & APAC regions besides South Africa. India has shown good traction especially in SAP and Automotive. We would explore strategic partnerships in these regions as we have been doing in Europe. Our revenue share from the established geographies continues to be stable.
With the business scenario gradually recovering, we continue with our investment in CREST
(R&D), People Development (training & certification) and Practice Development in selected areas of interest.
Our R&D efforts in automotive have been recognized through project wins during this quarter. We will now start investments in Practices, SMEs and front end sales to be geared
. We have completed the campus recruitment process and fresh graduates would be joining us during the remainder of the year. The first batch has already joined in the first week of October. We are stepping up our investments in technical talent to get ready once the market is back to its ew Normal.
The Rupee has started appreciating against the dollar. If the same continues in the near future, it will have a big negative impact on the bottom line of exporters. We believe, we are much better placed to face the rupee appreciation, since there is a natural hedge in terms of our costs in foreign currencies and the balance exposure is sufficiently covered.
Having said this, the rupee appreciation will have some adverse effect on our bottom line numbers. Even after this expected appreciation, we are confident of maintaining the EBIDTA margins above 20% levels.
Jul - Sep 2009
Q2 FY10 Investor Update 11
As stated in our last communication, in spite of the expected fall in revenues, our outlook on profitability remains strong. We are confident of not only maintaining, but also of exceeding the absolute profits after tax, of last financial year. The Rupee continues to be volatile and in our calculations we have considered the Rupee to be around 47 to a dollar for the remainder of the year. With this, we believe we should end the year with Net Profit after tax between Rs. 770 Million to Rs. 820 Million.
LOOKING BEYOND
FOREX INSTRUMENTS
No more liabilities on the 3 derivative contracts
Total Outstanding Hedges:
Total amount of hedges as on 30th September 2009 : $151.85 Mn.
o Maturing in the next 6 months : $ 46.90 Mn.
o Maturing beyond March 2010 : $104.95 Mn.
The average hedge rate for FY10 is Rs. 45.73 / USD ( with an assumption of spot being around Rs. 47 / USD )
We expect to reach $500 m n in revenues by the end of FY 2013 by continuing sharp focus on select industries, practice areas and expanding reach in
em erging m arkets.We shall expand our service offerings to Energy & Utilities space and would bring in larger focus on manufacturing businesses in Defense and PSU sectors. We shall be leaders in key practice areas and our solutions would be aimed at reducing cost of ownership, ensuring sustainable mobility solutions and enhancing fuel efficiency
Jul - Sep 2009
Q2 FY10 Investor Update 12
INCOME STATEMENT FOR THE QUARTER ENDED 30th SEPTEMBER 2009
1. -o- compared to the immediately
preceding quarter
2. -o-
the previous year
Rs. Million Q2 FY10 Q1 FY10
Q-o-Q
Growth
Q2 FY09
Y-o-Y
Growth
Sales 1,769.86 1,728.07 2.42% 2,009.54 -11.93%
Software Development Expenses 958.49 985.42 -2.73% 1164.56 -17.69%
Gross Profit 811.37 742.66 9.25% 844.98 -3.98%
Selling and Marketing Expenses 152.82 162.93 -6.20% 165.84 -7.85%
General and Admin Expenses 190.19 213.58 -10.95% 288.99 -34.19%
EBITDA 468.37 366.15 27.92% 390.15 20.05%
Interest 5.12 5.37 -4.59% 10.12 -49.39%
Depreciation 75.79 71.17 6.49% 76.01 -0.30%
Profit After Depn. & Int. 387.46 289.61 33.79% 304.02 27.44%
Other Income -131.57 -17.82 638.4% 104.82 25.52%
Profit Before Tax 255.89 271.79 -5.85% 199.20 28.46%
Provision for Taxation 43.94 48.01 -8.48% 30.92 42.12%
Profit After Tax 211.95 223.78 -5.29% 168.28 25.95%
Minority Interest - - - 1.27 -100.0%
Profit after Minority Interest 211.95 223.78 -5.29% 167.01 26.91%
Exceptional Item - - - - -
Profit after exceptional item 211.95 223.78 -5.29% 167.01 26.91%
Paid up Capital 156.10 156.09 - 156.09 -
Free Reserves 2,767.66 2,479.79 - 2162.64 -
EPS (Rs. 2/-Face Value each)
- Basic 2.72 2.87 -5.33% 2.16 25.72%
- Fully Diluted 2.69 2.86 -5.95% 2.15 25.05%
Common Size Analysis:
Gross Profit Margin 45.84% 42.98% - 42.05% -
Sales & Marketing Exp / Revenue 8.63% 9.43% - 8.25% -
General & Admin Exp / Revenue 10.75% 12.36% - 14.38% -
EBITDA Margin 26.46% 21.19% - 19.41% -
Net Profit Margin 11.98% 12.95% - 8.31% -
Jul - Sep 2009
Q2 FY10 Investor Update 13
PERFORMANCE METRICS (QUARTER ENDED 30th SEPTEMBER 2009)
Q2 FY10 Q1 FY10
Q-o-Q
Growth
Q2 FY09
Y-o-Y
Growth
Revenue Spread Geography
USA 56.64% 55.53% 4.45% 53.88% -7.42%
Europe 34.01% 36.39% -4.26% 36.46% -17.84%
Rest of World 9.35% 8.08% 18.54% 9.66% -14.74%
Revenue Spread Verticals
Manufacturing 86.59% 82.68% 7.27% 88.87% -14.19%
BFSI 7.37% 7.63% -1.05% 5.08% 27.87%
Others 6.04% 9.69% -36.22% 6.05% -12.07%
Revenue Spread by LOB
Manufacturing Business IT 50.47% 52.27% -1.10% 51.21% -13.19%
Auto Electronics 26.45% 26.05% 4.00% 29.23% -20.30%
Semiconductor Solutions Group 6.80% 5.56% 25.15% 7.36% -18.64%
Diversified Financial Services 7.22% 7.88% -6.15% 5.12% 24.29%
Global Business Solutions 9.05% 8.23% 12.61% 7.08% 12.60%
Customer details
No. of Customers Added 4 5 - 6 -
No. of STAR Customers 26 26 - 26 -
No. of Active Customers 137 133 - 123 -
Customers with run rate of >$1Mn 26 25 - 30 -
Top Client Cummins 32.14% 33.76% -2.52% 40.43% -29.99%
Star Customers Non Cummins 49.82% 48.40% 5.41% 42.55% 3.12%
Top 10 Client Billing 67.71% 69.52% -0.26% 67.23% -11.30%
Repeat Business 90%+ 90%+ - 90%+ -
Onsite / Offshore Split
Onsite Revenues 37.30% 41.93% -8.89% 44.01% -25.35%
Offshore Revenue 62.70% 58.07% 10.58% 55.99% -1.38%
Revenue by Contract Type
Time and Material Basis 66.48% 77.74% -12.42% 83.22% -29.65%
Fixed Price / Time Basis 33.52% 22.26% 54.20% 16.78% 75.98%
Debtors (days) 70 74 - 74 -
Jul - Sep 2009
Q2 FY10 Investor Update 14
Q2
FY10
Q1
FY10
Q-o-Q
Growth
Q2
FY09
Y-o-Y
Growth
Human Resources Details
Development Team Onsite (Avg) 465 496 - 614 -
Development Team - Offshore(Avg) 3,543 3,539 - 3,753 -
Onsite FTE 439 461 -4.77% 576 -23.78%
Offshore FTE 2,580 2,389 7.99% 2,679 -3.70%
Total FTE 3,019 2,850 5.93% 3,255 -7.25%
Development (at Qtr end) 4,035 3,973 - 4,353 -
Gen Mgmt / Support (at Qtr end) 351 348 - 361 -
Marketing (Subsidiaries) (at Qtr end) 51 49 - 47 -
Total (at Qtr end) 4,437 4,370 - 4,761 -
Onsite utilization 94.33% 92.93% - 93.88% -
Offshore utilization 72.82% 67.50% - 71.38% -
Jul - Sep 2009
Q2 FY10 Investor Update 15
CONFERENCE CALL DETAILS
Conference name : KPIT Cummins Q2 FY2010 Conference Call
Date : Friday, 16th October 2009
Time : 1600 Hrs (IST)
Dial-in numbers : Primary : +91 22 25983200
Standby : +91 22 66085000
Toll Free : 1800 22 7129 / 1800 209 7129
About KPIT Cummins Infosystems Ltd.
KPIT Cummins Infosystems Limited (BSE: 532400; NSE: KPIT), a trusted global IT Consulting and
product engineering partner, is focused on co-innovating domain intensive technology solutions
for Manufacturing corporations (with special focus on Automotive, Hi-Tech & Industrials
verticals) to help its customers become efficient, integrated and innovative enterprises.
A leader in technology solutions and services, KPIT Cummins currently partners with 100+
global Manufacturing corporations including 50+ Original Equipment Manufacturers (OEMs),
semiconductor companies and Tier 1s, helping them globalize efficiently & bring complex
technology products/ systems faster to their global markets.
Please visit www.kpitcummins.com for more information.
SAFE HARBOUR
Some of the statements in this update that are not historical facts are forward-looking statements. These forward-looking statements include our financial and growth projections as well as statements concerning our plans, strategies, intentions and beliefs concerning our business and the markets in which we operate. These statements are based on information currently available to us, and we assume no obligation to update these statements as circumstances change. There are risks and uncertainties that could cause actual events to differ materially from these forward-looking statements. These risks include, but are not limited to, the level of market demand for our services, the highly-competitive market for the types of services that we offer, market conditions that could cause our customers to
Jul - Sep 2009
Q2 FY10 Investor Update 16
reduce their spending for our services, our ability to create, acquire and build new businesses and to grow our existing businesses, our ability to attract and retain qualified personnel, currency fluctuations and market conditions in India and elsewhere around the world, and other risks not specifically mentioned herein but those that are common to industry.
Very happy and prosperous new year to all of you.I wish that all earn tons of money in stock market and wish all the loss are wiped off next year....whoever is having it.......Best Of Luck.......because without her(Goddess Laxmi) I firmly believe nothing is possible......He ( God Vishnu)will guide us when to sell and when to buy.....so that we can earn the maximum profit and do not sell early.....
I have done nothing here.Just copied paste what I got from while exploring Internet......I like the management, I like the statement of Chairman, I like the positive talk and hence I have posted it here.
KPIT Cummins net up at Rs 26 cr
Our Bureau PUNE
KPIT Cummins Infosystems, a product engineering and IT consulting partner to manufacturing companies, has revised its profitability outlook for the full year. While the software company’s net profit has more than doubled to Rs 25.8 crore from Rs 10.7 crore a year ago, net sales have fallen significantly to Rs 109.8 crore against Rs 165.1 crore. During the first half, the software solutions provider registered a similar fall in sales, to Rs 218.63 crore (Rs 310.45 crore) while its net profit shot up to Rs 42.05 crore (Rs 23.27 crore). “We are revising our outlook for the full year’s profits to Rs 77-82 crore, from our earlier forecast that these would be flat. Last year, our net profit for the full year was Rs 65.81 crore (for the standalone company). We have revised our guidance since profits for the second quarter and first half have improved hugely,” said KPIT Cummins managing director and CEO Kishor Patil. The higher profitability is being attributed to greater productivity, moving more work offshore and fixed price contracts. Reflecting confidence in an economic revival, KPIT Cummins has begun to grant promotions within the company. These had been frozen for the past six months. Mr Patil added that they have also begun to hire from the freshers who had been made offers but had been put on hold in June. “This year, we expect to hire 200 freshers,” he said. “PSUs in India and the rest of the world offer opportunities. We are addressing the energy, utilities and defence sectors. We have begun engagements with energy and utilities in the US and with the defence in India,” Mr Patil explained.
Investors Update: Coming straight from Chairman.......
Jul - Sep 2009
Q 2 FY10 Investor U pdate 1
INVESTOR U PD ATE
FOR
QU ARTER END ED 30th SEPTEM BER 2009
(NSE: KPIT, BSE: 532400) (July - Sep 2009)
KEY H IG H LIG H TS
Revenue for the quarter increased by 2.4% Q-o-Q to Rs.1769.86 M n.
In U SD term s, Revenues stood at $ 36.35 M n. Q-o-Q grow th of 3%.
EBITD A grew by 28% Q-o-Q and 20% Y-o-Y to Rs.468.37 M n. EBITD A m argins
expanded by 5.3% to 26.5% during the quarter.
Net Profits for the quarter stood at Rs. 211.95 M n, a Y -o-Y grow th of 27%. On a
Q-o-Q basis, profits declined by 5.3%.
G ross Profit M argins im proved Q-o-Q basis. They expanded by 2.9% to 45.8%. Yo-
Y basis they expanded by 3.8%.
PAT M argin expanded on Y-o-Y basis by 3.7% to 11.98%. H ow ever Q-o-Q they
declined by 0.97%.
Sequentially, EPS decreased to Rs. 2.69 from Rs. 2.86 during the quarter and
grew by 25% YoY .
4 new Custom ers w ere added during the quarter, taking the total num ber of
custom ers to 137.
Overall increase in utilization levels w ith offshore utilization increasing by 5%
going to 72.8% and onsite utilization increasing by 1.40% going to 94.33%.
Jul - Sep 2009
Q2 FY10 Investor Update 2
FINANCIAL HIGHLIGHTS FOR THE QUARTER ENDED 30TH SEPTEMBER 2009 (Q1
Revenues:
o During the quarter, Revenue in USD terms increased by 3% Q-o-Q. Q2 FY10 Revenue was USD 36.35 M n. In absolute terms, the q-o-q USD revenue growth was of USD 1.09 M n.
o Our largest customer contribution is around 32% during the quarter. There have been
deliver on a fixed price basis and also focused on Value delivery.
o In G eography terms, out of the total Q-o-Q revenue increase, US contributed 4%, Europe -4% and APAC 18.5 %. Our focus on the emerging markets is taking shape and will continue to contribute largely to our growth in the future.
o W e believe that the worst is behind us. W e actually faced a revenue decline only in Q1FY10 after seeing revenue growth till Q4 FY09 and we believe there would not be any further significant reduction in our USD denominated top line going ahead. There would be marginal ups and downs for the remainder of the year. W e have made a modest beginning by having QoQ growth in Q2FY10.
o Our customers are now coming back to the discussion tables to discuss projects and thus there is much more visibility now as compared to earlier two quarters. This is a sign that in the near future even the order flow will be normalized.
o W ith some new initiatives we have received good traction in two new customer
segments namely PSUs and Defense in our related areas of work.
o W e also believe we are well-equipped now to expand ourselves to offer services to a new industry sector Energy and Utilities.
o W e are focusing on bagging larger deals and maintaining key customer growth. W e are
also moving towards becoming a total solutions provider.
Profitability:
o Profits marginally declined during the quarter on a QoQ basis mainly due to increase in
forex loss by almost 640%. Keeping the forex loss in Q2 equal to Q1, the net Profits
have actually expanded proportionately to the operating margins. N et Profit margins
contracted by 1% Q-o-Q and expanded by 3.7% Y-o-Y basis.
o W e have been able to not only maintain healthy operating margins but increase them
which is a result of productivity improvement and cost control measures continuously
being taken over the past few quarters, along with the shift in business from onsite to
offshore. SG &A costs have fallen by 8.9% (Q-o-Q) and 24.6% (Y-o-Y). The offshore
Jul - Sep 2009
Q2 FY10 Investor Update 3
utilization improved by 5%+ during the quarter to touch 72.8%, an increase of 1.5% YoY.
The Onsite utilization improved by 1.4% QoQ and 0.5% YoY.
o The following factors have contributed to the improvement in profits and profitability:
1. Our productivity improvement initiatives, namely more fixed price contracts,
Improved reuse of production assets from repository, reduced rework efforts,
increased zero defect deliveries to customers, increased usage of automation tools,increased customer satisfaction rating and better onsite offshore revenue mix. have been delivering improved outcomes.
2. We are continuously increasing the number of assets in our asset repository and also focusing on their re use. We currently are reusing about 15% of the total assets in our repository. We are also focusing on use of open source and freeware tools for project management, configuration management and software model development.
We have internally developed a Project H ealth Management System which helps in the ongoing monitoring of the projects and thus enabling required corrective
actions, if any, at the right time.
3. The reduction in SGA costs depicts the ongoing cost control and reduction initiatives like consolidation of facilities and utilization of all assets ( hardware, software, space ), capital expenditure only on a must have basis, strict control on support hiring and renegotiation of contracts with service as well as capital vendors for rate reduction. These measures will continue on an ongoing basis.
4. The forex loss during the quarter stood at Rs.131.57 Mn. as against Rs. 17.82 Mn. in Q1 FY10. In Q1 there was a big gain on the conversion of foreign currency liabilities since the net differential in the closing rate of Q1 and the previous quarter was Rs. 3/$ less. This gain on liability conversion offset the MTM losses and actual losses on maturity of the forward contracts. In Q2, the closing rate was marginally higher than Q1 and thus there was no gain on liability conversion but a marginal loss which added to the MTM and actual conversion losses. Thus there was a net increase of Rs.114 Mn. of forex losses in Q2FY10 as compared to Q1FY10.
Jul - Sep 2009
Q2 FY10 Investor Update 4
Balance Sheet details (Rs. M illion):
o The Cash Balance as at September 30, 2009 stood at Rs. 1663.94 Mn. as compared to Rs. 1812.09 Mn. over the June 30, 2009 balance. The surplus funds were invested in Liquid Funds during the Qtr to the tune of Rs. 280.87 Mn. Thus on a comparable basis the Cash and Cash equivalents as of Sept 30, 2009 stood at Rs. 1944.81 Mn. registering
an increase of 132.72 Mn. The Cash Balance is being held in Current Accounts (Rs.
967.40 Mn.) and Deposit Accounts (Rs. 694.48 Mn.)
o As on September 30, 2009 our total debt stood at Rs. 1,081.68 Mn. (Rs. 1,036.61 Mn. as of June 30, 2009) comprising of Rs. 672.00 Mn. of Term Loan and Rs. 405.04 Mn. of
Working Capital Loan.
o Forex Hedging instruments with maturity of more than 3 months and considered effective hedges in accounting terms are provided for as adjustment to the Reserves and Surplus in the Balance Sheet. As on September 30, 2009 these Hedging Reserves were Rs. 772.51 Mn., as compared to Rs. 847.70 Mn. as of Q1FY10 end.
Balance Sheet Summary: As at
(Rs. Mn.)
September 30, 2009 June 30, 2009
Equity 2,923.99 2,635.88
Total Debt 1,081.68 1,036.61
Minority Interest & Deferred Tax Liability 52.41 68.25
Total 4,058.08 3,740.74
Fixed Assets 2,128.88 1,929.96
Investments* 280.87 0.31
Current Assets 3,801.08 3,968.08
Cash Balance 1,663.94 1,812.09
Receivables 1,300.53 1,411.05
Loans & Advances 836.61 744.94
Current Liabilities 2,152.75 2,157.61
Total Net Assets 4,058.08 3,740.74
Investments include investment of surplus cash in Liquid Funds.
Jul - Sep 2009
Q2 FY10 Investor Update 5
KEY DEVELOPMENTS
PARTNERSHIP
NEC Electronics in collaboration with KPIT Cummins have developed a new AUTOSAR 3.0 compatible software solution for various hardware platforms. This software package enables easy design of application software without the need for new developments. This will be mainly of use to the Auto Tier I suppliers to the OEMs and we will start generating revenues from this from the Tier I vendors.
KPIT has signed a MoU with a renowned National Research Laboratory towards joint research and development in the areas related to ultra-capacitors and batteries, which will
go a long way in the development of software solutions in the new generation of Hybrid and Electric vehicles.
AW ARDS AND THOUGHT LEADERSHIP
KPIT Cummins ranked 65 in Dataquest Top 100 survey - up from 78th position in 2008
KPIT co-Semiconductor & Software Business Collaboration Opportunities between India and Japan Semiconductor
Association (ISA) and The Japan External Trade Organization (JETRO).
KPIT participated as a speaker at the Germany Session of NASSCOM in Mumbai.
We also participated as speakers in
Productonica 2009 organized by ZVEI
association).
CUSTOMERS AND MARKETS
4 new customers were added during the quarter 2 in Europe and 2 in US. Total number of
active customers is 137.
Automotive:
Technology solutions for sustainable and G reen grow th.
Commenced strategic consulting engagement for an Indian Auto OEM.
Consulted an American OEM on Human Machine Interface (HMI) Tool selection.
Developed an end-to-end software solution for night vision and pedestrian detection for
an Asian Tier 1
Jul - Sep 2009
Q2 FY10 Investor Update 6
Built a Dedicated Short Range Communication (DSRC) based Advanced Traffic
management solution for an American Tier 1
Furthered automotive software standardization efforts: Selected for AUTOSAR
(AUTomotive Open System Architecture) Basic Software implementation for a leading
European OEM. This reinforces our leadership position in Europe.
Industrial Equipments:
Integrates multiple assembly lines for UK operations of a leading American Tier 1. KPIT
-engineered MES (Manufacturing Execution Systems)
solution replaces complex legacy systems.
Commenced a strategic enterprise IT engagement with a national automotive testing laboratory, to help them reduce the time required for testing, validating and documenting the test results for Auto Manufacturers.
Commenced engagement with an Asian auto component manufacturer and a leading Asian contract logistics company to implement end-to-end templatized ERP solution for
business operations.
Hi-Tech and Semiconductor:
Solution accelerators for quick-time-to-market
Engaged with a leading European semiconductor company on development of MCU for Dashboard Cluster for a High End Luxury Car.
Started project on developing reference designs for consumer and Automotive
applications for a leading Asian semiconductor company. Established Center of
Excellence for Motor Controls.
Commenced work on developing complete digital section of a controller chip for a leading European manufacturer of IC solutions.
Diversified Financial Services:
Customer award for excellent teamwork towards breakthrough Improvement in Quality &
Productivity
Initiates on-site/offshore reverse engineering project for a leading retail bank of South
Africa.
Jul - Sep 2009
Q2 FY10 Investor Update 7
CORE OFFERINGS
In the current economic scenario, we continue to focus on our niche and specialized areas of work. In Automotive electronics there have been some structural changes which shifted the focus towards hybrid engine, green emissions, Infotainment and safety systems. All the leading automotive OEMs and Tier1s are making significant investments in the area of emission controls, more fuel efficiency, comfort & connectivity and safety.
KPIT is well-positioned to leverage this opportunity with its domain expertise, scalability and the technological strength. Our existing customers are choosing KPIT as their consulting partners and we are helping them in designing their technology roadmaps. Emerging markets would be drivers of revival. We are witnessing significant traction in these markets and are making our strategy more robust. We are collaborating with OEMs, Tier 1s and Semiconductor companies to reduce time to market of new products and make existing products more competitive.
Currently we are working on 30+ vehicle programs as depicted in the table below, with new and existing customers thus helping them bring their products faster to the target markets at profitable price points.
Priority Industry Reactions
Green
Technology
1. Several American, European and Asian carmakers announce launch of electric, hybrid and eco-
smart, Renault electric car, ecological motor)
2. Governments sanction loans and funding for hybrid vehicles (FiskerAutomotive - $530 million, France 2.5 Bn euro, £25 Mn of UK Govt)
3. Car makers embrace fuel efficient green technologies for future models (Ford -
Ecoboost technology, GM Working on Active Fuel Management (AFM) & Spark Ignition
Direct Injection Technology (SIDIT), Samsung, Bosch to produce electric car batteries).
4. Electric Sports-Car maker Tesla gets $82.5 Mn Investment. Mazda to raise $1 Bn for
green cars.
5. Toyota to begin offering plug-in Prius in 3 yrs. Hyundai plans plug-in hybrid in 2012.
KPIT Engagements KPIT Role
Quick end- to- end implementation of Anti Brake system with regenerative
braking to an electric vehicle for major electric car OEM in APAC
Improving Competitiveness
Key contribution as software architect and developer for a strategic CNG
Hybrid program for Major diesel engine manufacturer in US
Reducing Time-to-market
Design of battery model, independent of battery chemistry for quick &
efficient testing of hybrid/electric battery system
Bringing in Frugal
Innovation
Model based design of battery management system software and the
associated hardware for Major Tier I in North America
Reducing Time-to-market
Specification development of stop start technology for passenger cars for Major OEM in APAC Creating competitiveness
Jul - Sep 2009
Q2 FY10 Investor Update 8
Priority Actions
Small Cars
1. Several American, European and Asian carmakers unveil small cars for emerging as well as developed markets (Ford Figo, VW Polo, Nissan New Micra, Toyota Scion iQ, Honda Jazz, Bajaj Bajaj Lite, Maruti Splash)
2. Companies collaborate to bring new technology for energy efficiency in personal
mobility solutions (Toyota Plans to Make Car Engines in India, GM India & REVA Form
Alliance for New Electric Small Car, India emerging as a manufacturing hub for cars
KPIT Engagements KPIT Role
Key contribution in a government-industry forum for designing the software
standard for small car with Indian Government- Industry ecosystem
Bringing in Frugal
Innovation
Final stage of discussions for conversion of 2 wheel drive vehicle to 4 wheel
drive for defense applications for a Tier I supplier in APAC
Bringing in Frugal
Innovation
Helping global OEMs & Tier I for component localization aimed at cost
reduction for Major OEMs globally
Value engineering
Design & development of active suspension seating control system for
Major Tier I manufacturer in APAC
Reducing Time-to-market
Priority Actions
Intelligent
& Smart
Cars
1. Car makers commit investments for smart vehicle technology in braking, safety, comfort and driver assistance systems (Mercedes Builds Car That Auto-Brakes At Red Lights, Ford To use virtual vehicle sound to improve interior sound quality & quietness, Daimler invests in Hambach to build electric Smart, Google Working on "Smart Charging" Software for Electric Cars - Popular Science - Mike Spinelli, Chevrolet Malibu, Smart car and other shockers on list of biggest resale value)
2. European Commission Intelligent car flagship initiative to include Autonomous Cruise
Control, Lane departure Warning System & Alarm for Drowsy or drunken driving.
3. Honda Jazz will have an automatic version in the coming days - Wheels Unplugged -
India's Automobile Magazine - Sep 14, 2009
KPIT Engagements KPIT Role
Lane departure warning system for passenger cars Internal R&D project
Bringing in Frugal
Innovation
Go-to-market for vision-based system for passenger cars of an Asian automotive
OEM
Increasing
competitiveness
Design & development of Remote keyless entry feature using a customized chip,
for passenger cars for a Major European Tier I
Reducing time to market
Vision based testing solution for automotive cluster systems for a Major
European Tier I manufacturer Increasing competitiveness
Conceptualization & implementation of state of art vehicle simulation facility
for a Major passenger car OEM in APAC
Increasing competitiveness Reference board and software design to test the new automotive
microcontroller in emerging mkts application for major semicon manufacturer
Reducing time to market Key contributor in immobilizer product devp for a Major FPGA manufacturer Competitiveness
Jul - Sep 2009
Q2 FY10 Investor Update 9
Focus Area KPIT Actions Imperative
Standardization
ECU integration, aimed at multiple application on a single
platform and reusability of platform components for a
Major Luxury car OEM in Europe
Frugal Innovation
Co-development & maintenance of Product Line architecture based engine platform for a Major diesel engine manufacturer of North America Improving competitiveness
Being a premium member of AUTOSAR, helping global OEM
for migrating to AUTOSAR with major German OEMs
Quick time to market
Standardized Network operating system for European C/D class vehicles with Major Europe passenger car OEM in Creating competitiveness Development of a configurable software stack, easily reconfiguring the system for OBD II and EOBD with minimal changes software for Major European Tier I Improving competitiveness
BUSINESS OUTLOOK
ECONOMIC RECOVERY IN SIGHT
Automotive Industrials HiTech
1. Government announces recovery packages for the automotive industry (Cash for clunkers program)
2. Leaders of American and European car manufacturing companies express optimism for economic revival (Renault- Nissan CEOPeugeot )
3. Companies launch initiatives to bring more fuel efficient, environment friendly and smart vehicles. Enhance focus on emerging markets (BMW, Mercedes-Benz, Ford).
4. Auto market has grown at 55% Y-o-Y in BRIC countries.
5. SIAM steps up forecast as vehicle sales grew by 22.4% in August. (Business Standard, April 9, 09)
1. Economic activity in the mfg sector expanded in Sep 2009 for 2nd consecutive month, and overall economy grew for the 5th consecutive month. -
Manufacturing ISM Report on Business® . October 1, 2009
2. According to the September CMI from the NACM, U.S. credit conditions and performance are improving at an increasing rate. -
September, 2009
3. Manufacturing jobs off-shoring has again picked up growth.
4. One-
manufacturing sector has registered high growths of up to 20% in the 1st quarter of 2009-10 fiscal, the CII-Ascon survey said.
5. Govt. has promised to keep interest rates low till recovery signs in the manufacturing sector strengthen.
1. Global chip makers boost revenue forecast for 3rd quarter and current financial year (Texas Instruments, Intel corp., ASML)
2. Semiconductor equipment purchased in Aug was up 14.6% (compared to 12% in July)
3. European technology stocks have gained on revised outlook statements from semiconductor firms. (WSJ,
April 17, 09)
4. India is now the second largest
R&D hub for $1.3bn Synopsys Inc, the California-based global leader in software and IP for semiconductor design, verification and manufacturing.
5.
will be at least 15% by 2020.
Jul - Sep 2009
Q2 FY10 Investor Update 10
Though the economic recovery is in sight, t
clearly visible, though the visibility has improved a lot over the quarter. Our manufacturing customers are still facing challenges of capacity utilization. Business environment continues to be volatile.
Despite all these challenges, the bottom is already behind us and slow signs of recovery have been observed during the quarter. Automotive sector has now started showing signs of revival with car sales picking up in US although at a very slow pace. Our Automotive business has also improved by 4% QoQ and semiconductor business has improved by 25%
during this quarter.
From geographical perspective, we noticed significant traction in India & APAC regions besides South Africa. India has shown good traction especially in SAP and Automotive. We would explore strategic partnerships in these regions as we have been doing in Europe. Our revenue share from the established geographies continues to be stable.
With the business scenario gradually recovering, we continue with our investment in CREST
(R&D), People Development (training & certification) and Practice Development in selected areas of interest.
Our R&D efforts in automotive have been recognized through project wins during this quarter. We will now start investments in Practices, SMEs and front end sales to be geared
. We have completed the campus recruitment process and fresh graduates would be joining us during the remainder of the year. The first batch has already joined in the first week of October. We are stepping up our investments in technical talent to get ready once the market is back to its ew Normal.
The Rupee has started appreciating against the dollar. If the same continues in the near future, it will have a big negative impact on the bottom line of exporters. We believe, we are much better placed to face the rupee appreciation, since there is a natural hedge in terms of our costs in foreign currencies and the balance exposure is sufficiently covered.
Having said this, the rupee appreciation will have some adverse effect on our bottom line numbers. Even after this expected appreciation, we are confident of maintaining the EBIDTA margins above 20% levels.
Jul - Sep 2009
Q2 FY10 Investor Update 11
As stated in our last communication, in spite of the expected fall in revenues, our outlook on profitability remains strong. We are confident of not only maintaining, but also of exceeding the absolute profits after tax, of last financial year. The Rupee continues to be volatile and in our calculations we have considered the Rupee to be around 47 to a dollar for the remainder of the year. With this, we believe we should end the year with Net Profit after tax between Rs. 770 Million to Rs. 820 Million.
LOOKING BEYOND
FOREX INSTRUMENTS
No more liabilities on the 3 derivative contracts
Total Outstanding Hedges:
Total amount of hedges as on 30th September 2009 : $151.85 Mn.
o Maturing in the next 6 months : $ 46.90 Mn.
o Maturing beyond March 2010 : $104.95 Mn.
The average hedge rate for FY10 is Rs. 45.73 / USD ( with an assumption of spot being around Rs. 47 / USD )
We expect to reach $500 m n in revenues by the end of FY 2013 by continuing sharp focus on select industries, practice areas and expanding reach in
em erging m arkets.We shall expand our service offerings to Energy & Utilities space and would bring in larger focus on manufacturing businesses in Defense and PSU sectors. We shall be leaders in key practice areas and our solutions would be aimed at reducing cost of ownership, ensuring sustainable mobility solutions and enhancing fuel efficiency
Jul - Sep 2009
Q2 FY10 Investor Update 12
INCOME STATEMENT FOR THE QUARTER ENDED 30th SEPTEMBER 2009
1. -o- compared to the immediately
preceding quarter
2. -o-
the previous year
Rs. Million Q2 FY10 Q1 FY10
Q-o-Q
Growth
Q2 FY09
Y-o-Y
Growth
Sales 1,769.86 1,728.07 2.42% 2,009.54 -11.93%
Software Development Expenses 958.49 985.42 -2.73% 1164.56 -17.69%
Gross Profit 811.37 742.66 9.25% 844.98 -3.98%
Selling and Marketing Expenses 152.82 162.93 -6.20% 165.84 -7.85%
General and Admin Expenses 190.19 213.58 -10.95% 288.99 -34.19%
EBITDA 468.37 366.15 27.92% 390.15 20.05%
Interest 5.12 5.37 -4.59% 10.12 -49.39%
Depreciation 75.79 71.17 6.49% 76.01 -0.30%
Profit After Depn. & Int. 387.46 289.61 33.79% 304.02 27.44%
Other Income -131.57 -17.82 638.4% 104.82 25.52%
Profit Before Tax 255.89 271.79 -5.85% 199.20 28.46%
Provision for Taxation 43.94 48.01 -8.48% 30.92 42.12%
Profit After Tax 211.95 223.78 -5.29% 168.28 25.95%
Minority Interest - - - 1.27 -100.0%
Profit after Minority Interest 211.95 223.78 -5.29% 167.01 26.91%
Exceptional Item - - - - -
Profit after exceptional item 211.95 223.78 -5.29% 167.01 26.91%
Paid up Capital 156.10 156.09 - 156.09 -
Free Reserves 2,767.66 2,479.79 - 2162.64 -
EPS (Rs. 2/-Face Value each)
- Basic 2.72 2.87 -5.33% 2.16 25.72%
- Fully Diluted 2.69 2.86 -5.95% 2.15 25.05%
Common Size Analysis:
Gross Profit Margin 45.84% 42.98% - 42.05% -
Sales & Marketing Exp / Revenue 8.63% 9.43% - 8.25% -
General & Admin Exp / Revenue 10.75% 12.36% - 14.38% -
EBITDA Margin 26.46% 21.19% - 19.41% -
Net Profit Margin 11.98% 12.95% - 8.31% -
Jul - Sep 2009
Q2 FY10 Investor Update 13
PERFORMANCE METRICS (QUARTER ENDED 30th SEPTEMBER 2009)
Q2 FY10 Q1 FY10
Q-o-Q
Growth
Q2 FY09
Y-o-Y
Growth
Revenue Spread Geography
USA 56.64% 55.53% 4.45% 53.88% -7.42%
Europe 34.01% 36.39% -4.26% 36.46% -17.84%
Rest of World 9.35% 8.08% 18.54% 9.66% -14.74%
Revenue Spread Verticals
Manufacturing 86.59% 82.68% 7.27% 88.87% -14.19%
BFSI 7.37% 7.63% -1.05% 5.08% 27.87%
Others 6.04% 9.69% -36.22% 6.05% -12.07%
Revenue Spread by LOB
Manufacturing Business IT 50.47% 52.27% -1.10% 51.21% -13.19%
Auto Electronics 26.45% 26.05% 4.00% 29.23% -20.30%
Semiconductor Solutions Group 6.80% 5.56% 25.15% 7.36% -18.64%
Diversified Financial Services 7.22% 7.88% -6.15% 5.12% 24.29%
Global Business Solutions 9.05% 8.23% 12.61% 7.08% 12.60%
Customer details
No. of Customers Added 4 5 - 6 -
No. of STAR Customers 26 26 - 26 -
No. of Active Customers 137 133 - 123 -
Customers with run rate of >$1Mn 26 25 - 30 -
Top Client Cummins 32.14% 33.76% -2.52% 40.43% -29.99%
Star Customers Non Cummins 49.82% 48.40% 5.41% 42.55% 3.12%
Top 10 Client Billing 67.71% 69.52% -0.26% 67.23% -11.30%
Repeat Business 90%+ 90%+ - 90%+ -
Onsite / Offshore Split
Onsite Revenues 37.30% 41.93% -8.89% 44.01% -25.35%
Offshore Revenue 62.70% 58.07% 10.58% 55.99% -1.38%
Revenue by Contract Type
Time and Material Basis 66.48% 77.74% -12.42% 83.22% -29.65%
Fixed Price / Time Basis 33.52% 22.26% 54.20% 16.78% 75.98%
Debtors (days) 70 74 - 74 -
Jul - Sep 2009
Q2 FY10 Investor Update 14
Q2
FY10
Q1
FY10
Q-o-Q
Growth
Q2
FY09
Y-o-Y
Growth
Human Resources Details
Development Team Onsite (Avg) 465 496 - 614 -
Development Team - Offshore(Avg) 3,543 3,539 - 3,753 -
Onsite FTE 439 461 -4.77% 576 -23.78%
Offshore FTE 2,580 2,389 7.99% 2,679 -3.70%
Total FTE 3,019 2,850 5.93% 3,255 -7.25%
Development (at Qtr end) 4,035 3,973 - 4,353 -
Gen Mgmt / Support (at Qtr end) 351 348 - 361 -
Marketing (Subsidiaries) (at Qtr end) 51 49 - 47 -
Total (at Qtr end) 4,437 4,370 - 4,761 -
Onsite utilization 94.33% 92.93% - 93.88% -
Offshore utilization 72.82% 67.50% - 71.38% -
Jul - Sep 2009
Q2 FY10 Investor Update 15
CONFERENCE CALL DETAILS
Conference name : KPIT Cummins Q2 FY2010 Conference Call
Date : Friday, 16th October 2009
Time : 1600 Hrs (IST)
Dial-in numbers : Primary : +91 22 25983200
Standby : +91 22 66085000
Toll Free : 1800 22 7129 / 1800 209 7129
About KPIT Cummins Infosystems Ltd.
KPIT Cummins Infosystems Limited (BSE: 532400; NSE: KPIT), a trusted global IT Consulting and
product engineering partner, is focused on co-innovating domain intensive technology solutions
for Manufacturing corporations (with special focus on Automotive, Hi-Tech & Industrials
verticals) to help its customers become efficient, integrated and innovative enterprises.
A leader in technology solutions and services, KPIT Cummins currently partners with 100+
global Manufacturing corporations including 50+ Original Equipment Manufacturers (OEMs),
semiconductor companies and Tier 1s, helping them globalize efficiently & bring complex
technology products/ systems faster to their global markets.
Please visit www.kpitcummins.com for more information.
SAFE HARBOUR
Some of the statements in this update that are not historical facts are forward-looking statements. These forward-looking statements include our financial and growth projections as well as statements concerning our plans, strategies, intentions and beliefs concerning our business and the markets in which we operate. These statements are based on information currently available to us, and we assume no obligation to update these statements as circumstances change. There are risks and uncertainties that could cause actual events to differ materially from these forward-looking statements. These risks include, but are not limited to, the level of market demand for our services, the highly-competitive market for the types of services that we offer, market conditions that could cause our customers to
Jul - Sep 2009
Q2 FY10 Investor Update 16
reduce their spending for our services, our ability to create, acquire and build new businesses and to grow our existing businesses, our ability to attract and retain qualified personnel, currency fluctuations and market conditions in India and elsewhere around the world, and other risks not specifically mentioned herein but those that are common to industry.
Friday, October 16, 2009
Rakesh Jhunjhunwala latest interview ............in ET
‘No meaningful correction before another rapid rise’
Markets Will Remain Far, Far, Far Above The Lows Of October And March Last, Says Rakesh Jhunjhulwala
THE flood of money waiting on the sidelines means that the market is unlikely to see a meaningful correction anytime soon, says Rakesh Jhunjhunwala, leading stock investor, and partner, Rare Enterprises. In an interview with ET, he says a delayed recovery in the world economy is not a bad thing for India, as we stand to gain from moderate commodity prices.
You mentioned at a recent seminar that the market appears poised for a bust. What according to you, are the symptoms?
What I said has been grossly misinterpreted. What I said was that this kind of systematic rise in the market, where the market goes up, then corrects briefly — both price and time wise — and then once again resumes its gain, cannot even have a meaningful correction without a burst of a rise, which means a very, very rapid rise.
Key indices have more than doubled in the past seven months, many midcaps have given unbelievable returns. Is the market over heated?
I surely feel that in terms of commitment and belief, the market is not heated at all. There is disbelief all around and huge money on the sidelines. This is a reason why we don’t get any meaningful correction, and this is also the reason why we could still have a sharp rise ahead of us.
But a correction is only inevitable. Whenever that happens, do you see the market retesting the lows of March 2009 or October 2008?
Markets by their very nature will naturally correct at some point of time. The markets, as I see them, are not as of the moment indicating any signs of meaningful correction. Whenever markets correct, I do not expect the correction to be anywhere near what we saw last year, and I expect the markets to remain far, far, far above the lows of October and March.
Which are the sectors in the Indian economy that you are bullish on?
I am bullish on all sectors which are domestic economy dependent and underpenetrated. Banking, retailing, infrastructure, pharma are among the key ones.
What is your reading of the key events likely to play out in world markets over the next few months, and what implications do you see for India?
I do not expect that the western and the developed economies can make any meaningful recovery and sustain it. Mr Bernanke is well known for his views of having a loose monetary and fiscal policy in times of difficult economic conditions. Thus, I believe interest rate worldwide in general, and in the western world in particular, are not going to go up in a hurry. Even if the western and developed world do not make any meaningful recovery, I see no reason why the Indian economy and the Indian markets cannot continue to sail alone smoothly. If the world does not recover, commodity prices will remain moderate, which is a big plus for India. What is vital is what happens to Indian software exports. My personal view is that there is more than a fair chance that India will grow well and outperform, even if the world does not recover.
Is there any lurking negative that the market appears to have overlooked?
I think that the western and developed economies are set for sub-par/negative growth for a good period of time. There has to be a transition of both consumption and power from the developed world to the developing world. What effect this will have both economically and geopolitically is a matter of uncertainty and no one can definitely predict the smooth course of this transition. This, I surely think, is a matter that could unsettle markets if the transition is unruly and geopolitically destabilising. Be that so be, I have no doubt in my mind that this transition has to and will take place.
My Comments:
I am a great fan of Rakesh Juhnjhunwala.Why?Maybe because he is eternal BULL like me! Maybe.....but in his pre 2003 days he was a bear.
I was also surprised to read that he is saying that market will burst in couple of months.
But as he has said , he was misinterpreted.......
The reason I like him is because he is a visionary and is able to see things coming up.He was bullish right from 2003 and RJ and Shankar Sharma use to have debates on where the market is going and it turns out always to be hot.Becuase SS always use to speak on bearish side while RJ always speak on Bull side but ultimately RJ proved right all along the bull run uptill 2007 Diwali interview at CNBC.....
I read and hear RJ very keenly and try to understand the finer prints of his interview.....anyone of my reader who have any interview given elsewhere is always invited to give the link or entire interview transcript here.....I will be more then obliged.......
Markets Will Remain Far, Far, Far Above The Lows Of October And March Last, Says Rakesh Jhunjhulwala
THE flood of money waiting on the sidelines means that the market is unlikely to see a meaningful correction anytime soon, says Rakesh Jhunjhunwala, leading stock investor, and partner, Rare Enterprises. In an interview with ET, he says a delayed recovery in the world economy is not a bad thing for India, as we stand to gain from moderate commodity prices.
You mentioned at a recent seminar that the market appears poised for a bust. What according to you, are the symptoms?
What I said has been grossly misinterpreted. What I said was that this kind of systematic rise in the market, where the market goes up, then corrects briefly — both price and time wise — and then once again resumes its gain, cannot even have a meaningful correction without a burst of a rise, which means a very, very rapid rise.
Key indices have more than doubled in the past seven months, many midcaps have given unbelievable returns. Is the market over heated?
I surely feel that in terms of commitment and belief, the market is not heated at all. There is disbelief all around and huge money on the sidelines. This is a reason why we don’t get any meaningful correction, and this is also the reason why we could still have a sharp rise ahead of us.
But a correction is only inevitable. Whenever that happens, do you see the market retesting the lows of March 2009 or October 2008?
Markets by their very nature will naturally correct at some point of time. The markets, as I see them, are not as of the moment indicating any signs of meaningful correction. Whenever markets correct, I do not expect the correction to be anywhere near what we saw last year, and I expect the markets to remain far, far, far above the lows of October and March.
Which are the sectors in the Indian economy that you are bullish on?
I am bullish on all sectors which are domestic economy dependent and underpenetrated. Banking, retailing, infrastructure, pharma are among the key ones.
What is your reading of the key events likely to play out in world markets over the next few months, and what implications do you see for India?
I do not expect that the western and the developed economies can make any meaningful recovery and sustain it. Mr Bernanke is well known for his views of having a loose monetary and fiscal policy in times of difficult economic conditions. Thus, I believe interest rate worldwide in general, and in the western world in particular, are not going to go up in a hurry. Even if the western and developed world do not make any meaningful recovery, I see no reason why the Indian economy and the Indian markets cannot continue to sail alone smoothly. If the world does not recover, commodity prices will remain moderate, which is a big plus for India. What is vital is what happens to Indian software exports. My personal view is that there is more than a fair chance that India will grow well and outperform, even if the world does not recover.
Is there any lurking negative that the market appears to have overlooked?
I think that the western and developed economies are set for sub-par/negative growth for a good period of time. There has to be a transition of both consumption and power from the developed world to the developing world. What effect this will have both economically and geopolitically is a matter of uncertainty and no one can definitely predict the smooth course of this transition. This, I surely think, is a matter that could unsettle markets if the transition is unruly and geopolitically destabilising. Be that so be, I have no doubt in my mind that this transition has to and will take place.
My Comments:
I am a great fan of Rakesh Juhnjhunwala.Why?Maybe because he is eternal BULL like me! Maybe.....but in his pre 2003 days he was a bear.
I was also surprised to read that he is saying that market will burst in couple of months.
But as he has said , he was misinterpreted.......
The reason I like him is because he is a visionary and is able to see things coming up.He was bullish right from 2003 and RJ and Shankar Sharma use to have debates on where the market is going and it turns out always to be hot.Becuase SS always use to speak on bearish side while RJ always speak on Bull side but ultimately RJ proved right all along the bull run uptill 2007 Diwali interview at CNBC.....
I read and hear RJ very keenly and try to understand the finer prints of his interview.....anyone of my reader who have any interview given elsewhere is always invited to give the link or entire interview transcript here.....I will be more then obliged.......
Obama’s healthcare plan to benefit Indian IT players ......
Obama’s healthcare plan to benefit Indian IT players
BIBHU RANJAN MISHRA &PRAVEEN BOSE Bangalore, 15 October
Indian top-tier information technology services companies, who were banking on the recession-proof healthcare sector to tide over uncertainty, are now seeing multi-billion dollar opportunities from the healthcare space in the US, especially the Obama administration’s proposed American Recovery and Reinvestment Plan.
The chances that US President Obama will achieve a near-universal healthcare system have dramatically improved after a lone Republican, Senator Olympia Snowe of Maine, prepared to vote with Democrats for a compromise proposal. This gives Obama a much better chance of achieving the 60 votes he needs to pass a Bill in the Senate.
The plan, which proposes to create Electronic Health Records (EHRs) for all Americans by 2014 with an investment of $20 billion, can open up new vistas of opportunities for Indian IT services firms including Infosys, Wipro, TCS and MindTree in areas of EHR implementations, upgrade, integration and interoperabilityrelated works.
“Obama’s stimulus plan proposes to allocate $150 billion to healthcare. Of this, nearly $20 billion is proposed for healthcare IT alone, most of which is expected to be spent on Electronic Health Records. This allocation, as part of the American Recovery and Reinvestment Act, is opening up the healthcare IT market like never before. It is bringing in a host of opportunities for EHR vendors, healthcare IT service providers and hospital systems,” says Rajiv Shah, Senior VicePresident, Healthcare Services SBU (strategic business unit), Wipro Technologies.
Other than the EHR implementation and upgrade, he says the proposed Act has brought new opportunities for service providers to engage more closely with EHR vendors, which can open up more strategic partnerships and alliances.
“The Obama administration’s healthcare plan will benefit not just Infosys but also many other Indian IT services companies. We see this as an area of significant opportunity for the future, and that is an area where we are investing now. IT will play a significant role in bringing down the healthcare costs as proposed under the plan,” agrees SGopalakrishnan, CEO and MD of Infosys Technologies.
If the American Recovery and Reinvestment plan as proposed by Obama goes live, it will help hospitals maintain a digital record of the patients. If a patient decides to change his/her healthcare provider, the hospital can easily share the EHR with the next healthcare provider, thus ensuring portability for the EHRs.
The IT vendors will have to play a huge role in ensuring the EHR created by one provider is compatible with the IT systems used by another, in the absence of which there can be aloss of information. “Due to these fears, the patients might be restricted with regard to his choice for the right care. We are in a position to help build software to access the central database for doctors and hospitals,” said Sridhar Perepa, GM, R&D, MindTree.
Traditionally, the healthcare industry was quite slow in adopting technology, a bottleneck in integrating various healthcare systems. However, defying the recent recessionary markets, the healthcare sector has remained quite steady in terms of investment, which has kept alive the hopes of most IT services firms with alittle focus on the sector.
Says Gopalakrishnan: “All developed countries have a population that is aging. As the population ages, healthcare becomes very, very important — both preventive and curative.” The healthcare industry in most developed countries has been notoriously expensive, an offshoot of lower investment on technology, which is expected to force healthcare providers to increase their investment in IT.
“The healthcare industry has been very slow in adopting technology, globally. The databases are not integrated, the pharmacy does not talk to the physician — it’s not integrated. There is a lot that needs to be done through automation and that’s what US is planning —integrating all these things and creating a next generation technology-driven healthcare system,” opines Gopalakrishnan.
The US presently suffers from a high-cost delivery healthcare model arising from high medico-legal compliance cost. The US patient is paying for treatment based on process inputs, rather than outputs linked to benefits received. Analysts feel the Obama administration’s first priority will be to remove inefficiencies in the medicare delivery process, thereby reducing the cost of delivery. However, this may not directly benefit the Indian IT services providers, but opportunities will gradually trickle down in the form of long-term partnerships with the US healthcare industry.
“As the US healthcare system is generally well supported by tested technology platforms, the Obama plan on healthcare is, by itself, not likely to create significant new opportunities for the Indian IT industry in the normal course. However, if Indian technology players can build new solutions to assist the US healthcare industry to prevent leakages, improve efficiency, reduce the cost and wastage, and transform the core process of delivery, then they have a significant opportunity,” said Pradip Kanakia, Head of Markets and Healthcare Services, KPMG in India.
Even IT services providers have started to realise this. The renewed focus on healthcare by the administration is also encouraging other allied IT applications (other than EHR) to take better shape. “We are also working actively on hosted EMR models, remote managed services offerings for the EHR product vendors, interoperability testing, digitisation of medical records, and integration of EHR and PHR, among others,” says Rajiv Shah of Wipro Technologies.
BIBHU RANJAN MISHRA &PRAVEEN BOSE Bangalore, 15 October
Obama’s stimulus plan proposes to allocate $150 billion to healthcare. Of this, nearly $20 billion is proposed for healthcare IT alone
Indian top-tier information technology services companies, who were banking on the recession-proof healthcare sector to tide over uncertainty, are now seeing multi-billion dollar opportunities from the healthcare space in the US, especially the Obama administration’s proposed American Recovery and Reinvestment Plan.
The chances that US President Obama will achieve a near-universal healthcare system have dramatically improved after a lone Republican, Senator Olympia Snowe of Maine, prepared to vote with Democrats for a compromise proposal. This gives Obama a much better chance of achieving the 60 votes he needs to pass a Bill in the Senate.
The plan, which proposes to create Electronic Health Records (EHRs) for all Americans by 2014 with an investment of $20 billion, can open up new vistas of opportunities for Indian IT services firms including Infosys, Wipro, TCS and MindTree in areas of EHR implementations, upgrade, integration and interoperabilityrelated works.
“Obama’s stimulus plan proposes to allocate $150 billion to healthcare. Of this, nearly $20 billion is proposed for healthcare IT alone, most of which is expected to be spent on Electronic Health Records. This allocation, as part of the American Recovery and Reinvestment Act, is opening up the healthcare IT market like never before. It is bringing in a host of opportunities for EHR vendors, healthcare IT service providers and hospital systems,” says Rajiv Shah, Senior VicePresident, Healthcare Services SBU (strategic business unit), Wipro Technologies.
Other than the EHR implementation and upgrade, he says the proposed Act has brought new opportunities for service providers to engage more closely with EHR vendors, which can open up more strategic partnerships and alliances.
“The Obama administration’s healthcare plan will benefit not just Infosys but also many other Indian IT services companies. We see this as an area of significant opportunity for the future, and that is an area where we are investing now. IT will play a significant role in bringing down the healthcare costs as proposed under the plan,” agrees SGopalakrishnan, CEO and MD of Infosys Technologies.
If the American Recovery and Reinvestment plan as proposed by Obama goes live, it will help hospitals maintain a digital record of the patients. If a patient decides to change his/her healthcare provider, the hospital can easily share the EHR with the next healthcare provider, thus ensuring portability for the EHRs.
The IT vendors will have to play a huge role in ensuring the EHR created by one provider is compatible with the IT systems used by another, in the absence of which there can be aloss of information. “Due to these fears, the patients might be restricted with regard to his choice for the right care. We are in a position to help build software to access the central database for doctors and hospitals,” said Sridhar Perepa, GM, R&D, MindTree.
Traditionally, the healthcare industry was quite slow in adopting technology, a bottleneck in integrating various healthcare systems. However, defying the recent recessionary markets, the healthcare sector has remained quite steady in terms of investment, which has kept alive the hopes of most IT services firms with alittle focus on the sector.
Says Gopalakrishnan: “All developed countries have a population that is aging. As the population ages, healthcare becomes very, very important — both preventive and curative.” The healthcare industry in most developed countries has been notoriously expensive, an offshoot of lower investment on technology, which is expected to force healthcare providers to increase their investment in IT.
“The healthcare industry has been very slow in adopting technology, globally. The databases are not integrated, the pharmacy does not talk to the physician — it’s not integrated. There is a lot that needs to be done through automation and that’s what US is planning —integrating all these things and creating a next generation technology-driven healthcare system,” opines Gopalakrishnan.
The US presently suffers from a high-cost delivery healthcare model arising from high medico-legal compliance cost. The US patient is paying for treatment based on process inputs, rather than outputs linked to benefits received. Analysts feel the Obama administration’s first priority will be to remove inefficiencies in the medicare delivery process, thereby reducing the cost of delivery. However, this may not directly benefit the Indian IT services providers, but opportunities will gradually trickle down in the form of long-term partnerships with the US healthcare industry.
“As the US healthcare system is generally well supported by tested technology platforms, the Obama plan on healthcare is, by itself, not likely to create significant new opportunities for the Indian IT industry in the normal course. However, if Indian technology players can build new solutions to assist the US healthcare industry to prevent leakages, improve efficiency, reduce the cost and wastage, and transform the core process of delivery, then they have a significant opportunity,” said Pradip Kanakia, Head of Markets and Healthcare Services, KPMG in India.
Even IT services providers have started to realise this. The renewed focus on healthcare by the administration is also encouraging other allied IT applications (other than EHR) to take better shape. “We are also working actively on hosted EMR models, remote managed services offerings for the EHR product vendors, interoperability testing, digitisation of medical records, and integration of EHR and PHR, among others,” says Rajiv Shah of Wipro Technologies.
My Commnets:
This is another shot in arm for IT ind.Analyst are downgrading IT sector and good news keeps on coming.First we saw that Indian IT will get orders from European countries so they will have not to worry about Dollar depreciation.
Now Obama health Insurance plan is opening new vistas for IT Ind.I am seeing a great future for IT sector......$20 bn will be at stake.....means Rs 96,000 cr...Ninty six thousand crore orders....Wow!
Over and about that Aerospace cos orders like Boeing,Jet etc are suppose to add to the kitty of IT cos.
In small space the cos to keep a watch on is Avental Ltd.I am tracking this co since 2-3 yrs and I like it.It has recently concluded a buy back at rs 50 and has also recently won orders from Boeing.......That speaks about the quality of sevice Avantel gives.....getting order from MNC co is big thing for a small co..
There is one other co. named Intense Techno.They have allotted shares to Bennett and Colman (Times Of India Gr)at Rs 30 while the price is 15.Intense has collobarated with Hitachi Data Techno for selling their products and helping eachother to prosper...
Wednesday, October 14, 2009
How to Pick a Multibagger..........
Many friends has constantly suggested me to write again about "How to Pick Multbaggers" ....but I was vary of writing it as I thought let people try to explore and find my back post.....It is very easy......Go to Google and write the heading and write my bog name and you are there.....this goes for any post....
This post was posted by me on ISG wayback in 2006-2007 or maybe early......
and hence naturally the examples are of that time....
How to Pick Multibagger:
1)First and the biggest preference will go to Low Equity.Because low eq. is an advantage when company plans expansion and Eq dilution takes place.Even a right of 1:1 or even 2:1 will not expand the eq in a big way and hence earning can match the eq.Another reason for low equity preference is even though the earning is not coming because of slow down of economy or a bad year for the company , then when the tide turns and with slightest turnaround company can show good EPS which is one of the most important criteria for investing as it is related to P/E.
2)Next is Promoters Holding.I have many times just invested in stocks on just looking at one parametres.Promoter s Holding, apart from ofcourse Low eq.Above 55% is almost a must , with exception in IT Sector where it is seen that you almost get very less company where the promoters holding is above 55%.I will give an Example for this.I bought Narendra Properties at just Rs 18/- at just looking at promoters holding which was as high as 72% and moreover one of the promoters was also hodling some 8% in Public holding.Of course the sector also palyed a role for me to take a decision fast.Narendra Properties is in Construction Sector.Narendra Properties touched Rs 77/-.Another is Lancor Holding.Promoters holding is as high as 72% and almost over 20% is held by FII's.I bought at Rs 166/- and now it is Rs 481/-.Both these stocks I bougth after May Carnage and one can calculate what return I got and am still bullish on both of them.Both have very low Public holding and that is a trigger according to me.
3)Sector also plays a very important role while choosing stocks.
4)Now the most improtant criteria is earning visibility.This is very important.eg. Navin Flourine.Though it comes in Chemical sector actually I see it as a Carbon Credit Story.A very very big CC story.Never try to look at inetrnational prices of CC.They fluctulates. No need to worry on that front.What I compare is if Guj Flouro a 2 paid up stock can quote at Rs.630/- then Navin a 10 paid up stock will quote much much more.The reason is both have almost equal CC to sell.But thing for Guj Flou is that they have already started to sell CC while Navin is still on nascent stage and hence it is available cheap.
5)I almost do not go for already splitted stocks.It is obvious that splitted company say, 2 paid up has to earn more to show higher EPS as it is splitted in 2 paid up.Same is the case of 1 paid up.Unless you are sure of the earning of that company that it will be able to match the splitted shares one can buy. Like Aftek Info where the earnig is coming in a big way. Actually I try to find stocks which have the capacity to give exponential earning(eg Navin) and can go for Splitting rather then buy which have already splitted and hence gives fabulous return.Means that I will not buy stocks that have already become a mutibaggers by already becoming XB or XS or XR.No use to buy those stocks that have become XB,XR,XS.Of course if even after it looks good after XB and XR then one can buy it.eg JMC Project.It is still a buy even after JMC has given 2 right issues.
6)Now comes the promoters Gr.I dont think one should look at it in a big manner.I do not put much weigh on Management.Who was knowing Narayan Murthy when Infosys came out with IPO in 1990's?Those who went for lookig at management lost the opportunity to invest in bluest of blue chip.
7)Yes,P/E is important.eg, Garnet Const.It is still available at just around 8p/e.A stock which is in hot sector where the P/E is high Garnet is available under 10 p/e is a bargain.
8) Now comes the BV(Book Value).I have invested in stocks just looking at BV and come out winner.eg.Titagarh Ind which I bought at Rs 3/- and sold at Rs 30/-.I bought it just because I saw that price of Titagarh Ind was very very less then BV.I remeber when I bought Titagarh Ind the BV was over 30or 40 and price was just Rs 3/-.I just went and buy it.Though I am not a big player I bought just 1000 shares.So BV also plays an important role while buying a stocks.One more example I would like to give.Maestros Mediline.It' s BV is as high as 75 and it is available at Rs 18/-?I am holdong Maestros since long.
9)I use to buy everything I like buying.I do this because no one knows which is going to turn out as multibbagers. I have written elsewhere that buy even 100 shares.Even a small exposer is enough to give you big returns if it turns out to be a big big multibagger.
10)Hold the position.Hold it as much as you can.I bought MilkFood Ltd at Rs 40// and I remember I also recomended here at the same time and some of the members have bought also.Whether they have sold or not I donno , but I am still holding MilkFood which I purchased at Rs40/-Everybody knows that MilkFood is making newer highs and is at Rs/- 380.
11) Try to find all info where you have put money.This is very very important.These will help you in taking decision whether to hold or sell.
12)Try to find stocks on your own because this gives more conviction because conviction plays bigger part in buying stocks as well as holding it.If one have no conviction about the company you sell it cheaply.
13)Almost never buy stocks above Rs 100/- If you are buying stocks at Rs 500 how it can become a multibagger?
My Comments:
I have been suggested by my friends that I need to have this always on my front page so that they can regularly read it and get inspiration from it.They think that these all points are so good that one needs to keep on reading it........some of them has also written me that they have printed this out and kept it with them so that when they wants to read it come handy...
Well, I have given some calls which have been over Rs 100 .But they are nowhere near to astronomical high and hence I have recomended as they have enormous growth potential.......
Well, this is not an exhausted list.There are many more things that one needs to religiously follow while looking for this.....and that is another great story to be told and which I use to follow without fail.I think that I have iterated many times about that , maybe in small bites but I have been constantly writing what one needs to do....while finding stock undiscovered........
I have written this because these method has been proved very successful to me.It may happen that others may not feel like that.......
So even after reading if one feels it is not worth and find flaw in this method , one can ignore it and follow his own procedure......
This post was posted by me on ISG wayback in 2006-2007 or maybe early......
and hence naturally the examples are of that time....
How to Pick Multibagger:
1)First and the biggest preference will go to Low Equity.Because low eq. is an advantage when company plans expansion and Eq dilution takes place.Even a right of 1:1 or even 2:1 will not expand the eq in a big way and hence earning can match the eq.Another reason for low equity preference is even though the earning is not coming because of slow down of economy or a bad year for the company , then when the tide turns and with slightest turnaround company can show good EPS which is one of the most important criteria for investing as it is related to P/E.
2)Next is Promoters Holding.I have many times just invested in stocks on just looking at one parametres.Promoter s Holding, apart from ofcourse Low eq.Above 55% is almost a must , with exception in IT Sector where it is seen that you almost get very less company where the promoters holding is above 55%.I will give an Example for this.I bought Narendra Properties at just Rs 18/- at just looking at promoters holding which was as high as 72% and moreover one of the promoters was also hodling some 8% in Public holding.Of course the sector also palyed a role for me to take a decision fast.Narendra Properties is in Construction Sector.Narendra Properties touched Rs 77/-.Another is Lancor Holding.Promoters holding is as high as 72% and almost over 20% is held by FII's.I bought at Rs 166/- and now it is Rs 481/-.Both these stocks I bougth after May Carnage and one can calculate what return I got and am still bullish on both of them.Both have very low Public holding and that is a trigger according to me.
3)Sector also plays a very important role while choosing stocks.
4)Now the most improtant criteria is earning visibility.This is very important.eg. Navin Flourine.Though it comes in Chemical sector actually I see it as a Carbon Credit Story.A very very big CC story.Never try to look at inetrnational prices of CC.They fluctulates. No need to worry on that front.What I compare is if Guj Flouro a 2 paid up stock can quote at Rs.630/- then Navin a 10 paid up stock will quote much much more.The reason is both have almost equal CC to sell.But thing for Guj Flou is that they have already started to sell CC while Navin is still on nascent stage and hence it is available cheap.
5)I almost do not go for already splitted stocks.It is obvious that splitted company say, 2 paid up has to earn more to show higher EPS as it is splitted in 2 paid up.Same is the case of 1 paid up.Unless you are sure of the earning of that company that it will be able to match the splitted shares one can buy. Like Aftek Info where the earnig is coming in a big way. Actually I try to find stocks which have the capacity to give exponential earning(eg Navin) and can go for Splitting rather then buy which have already splitted and hence gives fabulous return.Means that I will not buy stocks that have already become a mutibaggers by already becoming XB or XS or XR.No use to buy those stocks that have become XB,XR,XS.Of course if even after it looks good after XB and XR then one can buy it.eg JMC Project.It is still a buy even after JMC has given 2 right issues.
6)Now comes the promoters Gr.I dont think one should look at it in a big manner.I do not put much weigh on Management.Who was knowing Narayan Murthy when Infosys came out with IPO in 1990's?Those who went for lookig at management lost the opportunity to invest in bluest of blue chip.
7)Yes,P/E is important.eg, Garnet Const.It is still available at just around 8p/e.A stock which is in hot sector where the P/E is high Garnet is available under 10 p/e is a bargain.
8) Now comes the BV(Book Value).I have invested in stocks just looking at BV and come out winner.eg.Titagarh Ind which I bought at Rs 3/- and sold at Rs 30/-.I bought it just because I saw that price of Titagarh Ind was very very less then BV.I remeber when I bought Titagarh Ind the BV was over 30or 40 and price was just Rs 3/-.I just went and buy it.Though I am not a big player I bought just 1000 shares.So BV also plays an important role while buying a stocks.One more example I would like to give.Maestros Mediline.It' s BV is as high as 75 and it is available at Rs 18/-?I am holdong Maestros since long.
9)I use to buy everything I like buying.I do this because no one knows which is going to turn out as multibbagers. I have written elsewhere that buy even 100 shares.Even a small exposer is enough to give you big returns if it turns out to be a big big multibagger.
10)Hold the position.Hold it as much as you can.I bought MilkFood Ltd at Rs 40// and I remember I also recomended here at the same time and some of the members have bought also.Whether they have sold or not I donno , but I am still holding MilkFood which I purchased at Rs40/-Everybody knows that MilkFood is making newer highs and is at Rs/- 380.
11) Try to find all info where you have put money.This is very very important.These will help you in taking decision whether to hold or sell.
12)Try to find stocks on your own because this gives more conviction because conviction plays bigger part in buying stocks as well as holding it.If one have no conviction about the company you sell it cheaply.
13)Almost never buy stocks above Rs 100/- If you are buying stocks at Rs 500 how it can become a multibagger?
14) Stock unknown is the best thing.If no one knows that is a BIG BIG Positive.If everybody knows then one need to understand that the game is over.The real Charm in a stock remains only when no one is tracking and we are tracking it silently .If the world knows then the game is over.No FII's, MF's is seen in the Share Holding Pattern(SHP) then , to me is a great buy.We should be the 1st to buy an undiscovered stock before someone buys.Remaining first is the KEY for success.So buy when noone is buying.Let them getin afterwards and let it then go up and we will book profit as soon as it gets double.
But remember when we getin early, when no one is knowing ,then the holding period lengthens as it takes time for other to have a look at it......but then as we have getin early we have got it CHEAP as well......which makes an ideal candidate to become a multibagger.....
PN: This last point(14) is written now.....
My Comments:
I have been suggested by my friends that I need to have this always on my front page so that they can regularly read it and get inspiration from it.They think that these all points are so good that one needs to keep on reading it........some of them has also written me that they have printed this out and kept it with them so that when they wants to read it come handy...
Well, I have given some calls which have been over Rs 100 .But they are nowhere near to astronomical high and hence I have recomended as they have enormous growth potential.......
Well, this is not an exhausted list.There are many more things that one needs to religiously follow while looking for this.....and that is another great story to be told and which I use to follow without fail.I think that I have iterated many times about that , maybe in small bites but I have been constantly writing what one needs to do....while finding stock undiscovered........
I have written this because these method has been proved very successful to me.It may happen that others may not feel like that.......
So even after reading if one feels it is not worth and find flaw in this method , one can ignore it and follow his own procedure......
Monday, October 12, 2009
Peter Lynch Interview........
Peter Lynch ran Fidelity's Magellan Fund for thirteen years (1977-1990). In that period, Magellan was up over 2700%. He retired in 1990 at the age of 46.
Q.How did you first get interested in the stock market.
A.Well, I grew up in the 1950s. I started caddying when I was 11. So the would have been 1955 and in that part -- the '50s were a great decade for the stock market. I caddied a very nice club out in west Newton, had a lot of people, corporate executives, and some of these were buying stocks and I remember them talking about stocks and they mentioned the names and I'd look in the paper and look at it a month later, a year later, and I noticed they were goin' up. And I said, "Gee, this makes a lot of sense." And so I watched it. I didn't have any money to invest, but I remember the stock market being very strong in the 1950s and some people, not everybody, but a lot of people on the golf course talking about it.
Q.What was your first stock?
A.Well, when I got a caddie scholarship to college. It was actually a partial scholarship, a Frances Wimen Scholarship, a financial aid scholarship, but it was thousand dollars to go to Boston College and they gave me a $300 scholarship and I got to earn over $700 a year caddying. So I was able to build up a little bit of money and I worked also during the winters. So while I was in college I did a little study on the freight industry, the air freight industry. And I looked at this company called Flying Tiger. And I actually put a thousand dollars in it and I remember I thought this air cargo was going to be a thing of the future. And I bought it and it got really lucky because it went up for another reason. The Vietnam War started and they basically hauled a lot of troops to Vietnam in airplanes and the stock went up, I think, nine- or ten-fold and I had my first ten bagger. I started selling it, I think, at 20 and 30 and 40, sold all the way up to 80 and helped pay for graduate school. So I almost had a Flying Tiger graduate school fellowship.
Q.You originated the expression "four bagger", "five bagger" et cetera. What's that mean exactly?
A.I've always been a great lover of baseball. I mean if you grew up in Boston, you know that the last time we won the World Series, Babe Ruth pitched for us. It was 1918. So it's been a long drought here. So I've always loved baseball and the ten bagger is two home-runs and a double. It's you run around a lot, so it's very exciting. You made ten times your money. Is a ten bagger.
Q.That's pretty good.
A.Excellent. You don't need a lot in your lifetime. You only need a few good stocks in your lifetime. I mean how many times do you need a stock to go up ten-fold to make a lot of money? Not a lot.
Q.Was that your secret?
A.Well, I think the secret is if you have a lot of stocks, some will do mediocre, some will do okay, and if one of two of 'em go up big time, you produce a fabulous result. And I think that's the promise to some people. Some stocks go up 20-30 percent and they get rid of it and they hold onto the dogs. And it's sort of like watering the weeds and cutting out the flowers. You want to let the winners run. When the fun ones get better, add to 'em, and that one winner, you basically see a few stocks in your lifetime, that's all you need. I mean stocks are out there. When I ran Magellan, I wrote a book. I think I listed over a hundred stocks that went up over ten-fold when I ran Magellan and I owned thousands of stocks. I owned none of these stocks. I missed every one of these stocks that went up over ten-fold. I didn't own a share of them. And I still managed to do well with Magellan. So there's lots of stocks out there and all you need is a few of 'em. So that's been my philosophy. You have to let the big ones make up for your mistakes.
In this business if you're good, you're right six times out of ten. You're never going to be right nine times out of ten. This is not like pure science where you go, "Aha" and you've got the answer. By the time you've got "Aha," Chrysler's already quadrupled or Boeing's quadrupled. You have to take a little bit of risk.
Q.When you first went to Fidelity, what was the market like?
A.Well, after the great rush of the '50s, the market did brilliantly and everybody says, "Wow, looking backwards, this would be a great time to get in." So a lot of people got in in the early '60s and in the mid-60s. The market peaked in '65-66 around a thousand, and that's when I came. I was a summer student at Fidelity in 1966. There were 75 applicants for three jobs at Fidelity, but I caddied for the president for eight years. So that was the only job interview I ever took. It was sort of a rigged deal, I think. I worked there the summer of '66 and I remember the market was close to a thousand in 1966, and in 1982, 16 years later, it was 777. So we had a long drought after that. So the people were concerned about the stock market early in the '50s. They kept watching and watching, not investing. It started to go up dramatically and they finally caved in and bought big time in the mid-60s and got the peak.
Q.So people got in at the wrong time, in effect?
A. A lot of people got in at the wrong time. A lot of people did very well and some people said, "This is it. I'll never get back in again." And they maybe meant it, but they probably got back in again anyway.
Q.How much did you make on your first job at Fidelity?
A.I was paid, $16,000 a year. I was an analyst. I was the textile analyst, the metals analysts, and I remember the second year I got a raise to $17,000. That was great, you know.
Q.Did you get other job offers?
A.I was in ROTC studies, I spent two years in the Army and I did two years of graduate school and in, a business at Wharton School of Finance, University of Pennsylvania. So I was about 25 when I joined Fidelity.
Q.How old were you when you took over Magellan?
A.That was 1977, so I guess I was 33.
Q.What kind of fund was Magellan?
A.It was a small aggressive capital appreciation fund. Magellan Fund basically started in the early '60s. In the name, it was an international fund, but right after it started in 1963, they put sort of a barrier and a heavy tax on foreign investing. So it did very little foreign investing. It had the ability to do it, but there was very little interest then. There was a big penalty. So even though it was Magellan Fund, it was primarily a domestic fund. And when I took over in May of 1977, the fund was $20 million.
Q.And that was your first portfolio managing job?
A.That's correct. I was director research in 1974. I still continued to be an analyst, and then May of 1977 I took over Magellan Fund.
Q.But the market really didn't do much between '77 and '82, between the beginning of that bull market, and yet your fund performed quite spectacularly. What do you do?
A.Well, I think flexibility is one of the key things. I mean I would buy companies that had unions. I would buy companies that were in the steel industry. I'd buy textile companies. I always thought there was good opportunities everywhere and, researched my stocks myself. I mean Taco Bell was one of my first stock I bought. I mean the people wouldn't look at a small restaurant company. So I think it was just looking at different companies and I always thought if you looked at ten companies, you'd find one that's interesting, if you'd look at 20, you'd find two, or if you look at hundred you'll find ten. The person that turns over the most rocks wins the game. And that's always been my philosophy.
Q.How did Magellan begin to make a name for itself in '82?
A.Well, the first three years I ran Magellan, I think one-third of the shares were redeemed. I mean there was very little interest. People didn't care. The market was doing okay and Magellan was doing well, but people were sort of recovering from their losses, so they from the '50s and '60s, and so literally one-third of the shares were redeemed the first three years I ran it. And in 1982, the market started to pick up. It bought 'em in August of '82, and from then on a lot of interest came back in the market in '83 and '84. Magellan had the best five-year record in 1982 and the best five-year record in 1983 and people tend to look, the press and the media and the newspapers, tend to look at who's had a good record and Magellan was there.
Q.Tell about the first time you were on Ruckeyser.
A.Well, 1982, I think it was the market had just gone over a thousand maybe a week or two before that. So this would have been, I think, October of '82 and Chrysler was my biggest position and the stock, I think, was 10 and I recommended Chrysler and I remember I had, ah -- I had people who said, "Gee, we thought you were interesting." These were relatives of mine. "But how could you ever recommend Chrysler? Don't you know they're going bankrupt?" I remember friends of mine and relatives saying, "That sound crazy to me." So it worked out fine.
And amazing. I think I was on "Wall Street with Louis Ruckheyser" in 1990 and Chrysler was 10 again. It had a stock split that had gone all the way down to 10 and I recommended it again in October of 1990 on "Wall Street with Louis Ruckeyser".
Q.Chart the growth of the fund in the '80s, just for chronology.
A.Well, the fund was not very big in 1982, even though I had ran it for five years. And in '80-- end of '82 when the market really started to come in and people started to look to the future, I think it was April of '83 it passed one billion. That was a big number. I remember that number has a lot of zeros and it's kind of a magic number. So I remember that point and people just continued to be interested in the market and these were lots of individuals coming. This was not people putting in four million at the time or three million. It was lots of two-, and three- and five-thousand-investments coming in. And it was steady. It wasn't a torrent. It just was there every day.
Q.Was it becoming more famous? Wasn't it on "Jeopardy", for instance?
A.Yeah. At some point in time I remember -- I didn't watch the show. I always liked "Jeopardy", but I remember my wife watched the show and somebody was saying "What's the fund that was named after an explorer." And all the people, they all hit the button at the same time on "Jeopardy" and they knew it was Magellan. So, I guess it became more famous then, but there wasn't that much coverage. I mean today I think The Wall Street Journal has three full-time reporters covering the mutual fund industry. They had none in the early '80s. So the coverage was really basically Wall Street, Louis Ruckheyser, Barron's, a little bit in The New York Times every quarter. There was not coverage of the mutual fund industry. It was really coverage of stocks. And, you know, occasionally, ah, Forbes or Fortune or a periodical would write an article, but there wasn't very much interest even in the '80s.
Q.What caused that to change?
A.Well, I think the great decade of the '80s and people thinking that, you know, "There's a lot of publicity on the Social Security System not gonna make it," and a lot of pension plans. I mean people used to retire and they'd say, "Right now I'm going to get half my last year's salary for the rest of my life, or 60 percent. I don't have to worry about it." Now a lot of people are given their entire pension plan, the most important financial asset they ever got, and they said, "Okay, sweetheart, it's yours. Take care of it." Or there's no pension plan. So today people have to think about their future. They're worried about Social Security and they may have to do their own pension or they already have been given their pension and say, "You manage it." So I think there's -- you have to become finally literate today.
Q.Was your success part of reason why the press, et cetera, began to look at mutual funds more carefully?
A.Well, I think the fact the fund went up, I mean that was the key. If I'd had gone down, I'd have had to dye my hair and grow a beard and move to Fiji. It was just the fact it went up, people made a lot of money and there was a lot of word-of-mouth. I mean it was people saying that "Investing is good," and "We should put some of our money aside and put so much in quarterly." And I think the IRA was invented and there was a lot of things that were to encourage people to save.
Q.If had put a thousand dollars in Magellan on the day you took it over, how much would I have reaped on the day you retired?
A.Well, if somebody invested a thousand dollars in Magellan on May 31st, 1977, the day I left, the thousand would have been $28,000, --May 31st 13 years later, 1990.
Q.Talk about the change in '86-87.
A.Well, I remember in my career you'd say to somebody you worked in the investment business. They'd say, "That's interesting. Do you sail? What do you think of the Celtics?" I mean it would just go right to the next subject. If you told them you were a prison guard, they would have been interested. They would have had some interest in that subject, but if you said you were in the investment business, they said, "Oh, terrific. Do your children go to school?" It just went right to the next subject. You could have been a leper, you know, and been much more interesting. So that was sort of the attitude in the '60s and '70s.
As the market started to heat up, you'd say you were an investor, "Oh, that's interesting. Are there any stocks you're buying?" And then people would listen not avidly. They'd think about it. But then as the '80s piled on, they started writing things down. So I remember people would really take an interest if you were in the investment business, saying "What do you like?" And then it turned and I remember the final page of the chapter would be you'd be at a party and everybody would be talking about stocks. And then people would recommend stocks to me. And then I remember not only that, but the stocks would go up. I'd look in the paper and I'd notice they'd go up in the next three months. And then you've done the full cycle of the speculative cycle that people hate stocks, they despised, they don't want to hear anything about 'em, now they're buying everything and cab drivers are recommending stocks. So that was sort of the cycle I remember going through from the '60s and early '70s all the way to '87.
Q.Where were you when the Crash of '87 came?
A.Well, I was very well prepared for the Crash of 1987. -- my wife and I took our first vacation in eight years and we left on Thursday in October and I think that day the market went down 55 points and we went to Ireland, the first trip we'd ever been there. And then on Friday, because of the time difference, we'd almost completed the day and I called and the market was down 115. I said to Carolyn, "If the market goes down on Monday, we'd better go home." And "We're already here for the weekend. So we'll spend the weekend." So it went down 508 on Monday, so I went home. So in two business days I had lost a third of my fund. So I figured at that rate, the week would have been a rough week. So I went home. Like I could do something about it. I mean it's like, you know, if there was something I could do. I mean there I was -- but I think if people called up and they said, "What's Lynch doing," and they said, "Well, he's on the eighth hole and he's every par so far, but he's in a trap, this could be a triple bogey," I mean I think that's not what they wanted to hear. I think they wanted to hear I'd be there lookin' over -- I mean there's not a lot you can do when the market's in a cascade but I got home quick as I could.
Q.Why did the Crash of '87 happen?
A.Well, I think people had not analyzed '87 very well. I think you really have to put it in perspective. 1982, the market's 777. It's all the way to '86. You have the move to 1700. In four years -- the market moves from 777 to 1700 in four years. Then in none months it puts on a thousand points. So it puts on a thousand points in four years, then puts on another thousand points in the next nine months. So in August of 1987 it's 2700. It's gone up a thousand points in nine months. Then it falls a thousand points in two months, 500 points the last day. So if the market got sideways at 1700, no one would have worried, but it went up a thousand in nine-ten months and then a thousand in two months, and half of it in one day, you would have said.... "The world's over." It was the same price. So it was really a question of the market just kept going up and up and it just went to such an incredible high price by historic, price earnings multiple load, dividend yields, all the other statistics, but people forget that basically it was unchanged in 12 months. If you looked at September, 1986 to October '87, the market was unchanged. It had a thousand point up and a thousand points down and they only remember the down. They thought, "Oh, my goodness, this is the crash. It's all over. It's going to go to 200 and I'm going to selling apples and pencils," you know. But it wasn't. It was a very unique phenomenon because companies were doing fine. Just, you know, you'd call up a company and say, "We can't figure it out. We're doin' well. Our orders are good. Our balance sheet's good." "We just announced we're gonna buy some of our stock. We can't figure out why it's good down so much."
Q.Was that the most scared you ever were in your career?
A.'87 wasn't that scary because I concentrate on fundamentals( Not technicals, my view)). I call up companies. I look at their balance sheet. I look at their business. I look at the environment. The decline was kinda scary and you'd tell yourself, "Will this infect the basic consumer? Will this drop make people stop buying cars, stop buying houses, stop buying appliances, stop going to restaurants?" And you worried about that.
The reality, the '87 decline was nothing like 1990. Ninety, in my 30 years of watching stock very carefully, was by far the scariest period.
Q.What was so scary about 1990?
A.Well, 1990 was a situation where I think it's almost exactly six years ago approximately now. In the summer of 1990, the market's around 3000. Economy's doing okay. And Saddam Hussein decides to walk in and invade Kuwait. So we have invasion of Kuwait and President Bush sends 500,000 troops to Saudi to protect Saudi Arabia. There's a very big concern about, you know, "Are we going to have another Vietnam War?" A lot of serious military people said, "This is going to be a terrible war." Iraq has the fourth largest army in the world. They really fought very well against Iran. These people are tough. This is going to be a long, awful thing. So people were very concerned about that, but, in addition, we had a very major banking crisis. All the major New York City banks, Bank America, the real cornerstone of this country were really in trouble(Like now?). And this is a lot different than if W.T. Grant went under or Penn Central went under. Banking is really tight. And you had to hope that the banking system would hold together and that the Federal Reserve understood that Citicorp, Chase, Chemical, Manufacturers Hanover, Bank of America were very important to this country and that they would survive. And then we had a recession. Unlike '87 you called companies, in 1990 you called companies and say, "Gee, our business is startin' to slip. Inventories are startin' to pile up. We're not doing that well." So you really at that point in time had to belief the whole thing would hold together, that we wouldn't have a major war. You really had to have faith in the future of this country in 1990. In '87, the fundamentals were terrific and it was -- it was like one of those three for two sales at the K-Mart. Things were marked down. It was the same story.
Q.Is there so much pressure because you're handling so much money for other people?
A.It wasn't the pressure. I loved the job. I mean I worked for the best company in the world. I get paid extremely well. We had free coffee. I mean it's a great place to work. I could see any company I wanted to see. I didn't have to, say, get permission to go visit companies I California or Indiana. I just -- lot of freedom, a lot of responsibility. The pressure wasn't it. It was just too much time. I was working six days a week and that wasn't even enough.
Q.Were you surprised by the outpouring in the wake of your retirement?
A.I was really shocked at people's response and all the networks and news overseas and all around the world that it was such a big deal. I mean I was amazed by it. I could write five letters a day for the next seven years to get back to the people that wrote thanking me or wishing me the best and literally maybe my secretary screened me from the nasty ones, but I don't remember anybody saying, "You god. I just got in yesterday and you left." I mean there were all these very nice notes saying, "You're doing the right thing. I'm very happy about it," and ...
Q.Tell the story about your wife stumbling on a big stock for you in the supermarket.
A.I had a great luck company called Hanes(Peter Lynch believes in LUCK!). They test marketed a product called L'Eggs in Boston and I think in Columbus, Ohio, maybe three or four markets. And Carolyn, ah, brought this product home and she was buying and she said, "It's great." And she almost got a black belt in shopping. She's a very good shopper. If we hadn't had these three kids, she now -- when Beth finally goes off to college, I think we'll be able to resume her training. But she's a very good shopper and she would buy these things. She said, "They're really great." And I did a little bit of research. I found out the average woman goes to the supermarket or a drugstore once a week. And they go a woman's specialty store or department store once every six weeks. And all the good hosiery, all the good pantyhose is being sold in department stores. They were selling junk in the supermarkets. They were selling junk in the drugstores. So this company came up with a product. They rack-jobbed it, they had all the sizes, all the fits, a down they never advertised price. They just advertised "This fits. You'll enjoy it." And it was a huge success and it became my biggest position and I always worried somebody'd come out with a competitive product, and about a year-and-a-half they were on the market another large company called Kaiser-Roth came out with a product called No Nonsense. They put it right next to L'eggs in the supermarket, right next to L'eggs in the drugstore. I said, "Wow, I gotta figure this one out." So I remember buying -- I bought 48 different pairs at the supermarket, colors, shapes, and sizes. They must have wondered what kind of house I had at home when I got to the register. They just let me buy it. So I brought it into the office. I gave it to everybody. I said, "Try this out and come back and see what's the story with No Nonsense." And people came back to me in a couple weeks and said, "It's not as good." That's what fundamental research is. So I held onto Hanes and it was a huge stock and it was bought out by Consolidated Foods, which is now called Sara Lee, and it's been a great division of that company. It might have been a thirty bagger instead of a ten bagger, if it hadn't been bought out.
Q.The beginning of the bull market in 1982 and the environment. Were you surprised?
A.1982 was a very scary period for this country. We've had nine recessions since World War II. This was the worst. 14 percent inflation. We had a 20 percent prime rate, 15 percent long governments. It was ugly( Are the things uglier now in USA, then what Peter Lynch is saying?). And the economy was really much in a free-fall and people were really worried, "Is this it? Has the American economy had it? Are we going to be able to control inflation?" I mean there was a lot of very uncertain times. You had to say to yourself, "I believe it in. I believe in stocks. I believe in companies. I believe they can control this. And this is an anomaly. Double-digit inflation is rare thing. Doesn't happen very often. And, in fact, one of my shareholders wrote me and said, "Do you realize that over half the companies in your portfolio are losing money right now?" I looked up, he was right, or she was right. But I was ready. I mean I said, "These companies are going to do well once the economy comes back. We've got out of every other recession. I don't see why we won't come out of this one." And it came out and once we came back, the market went north.
Q.Nobody told you it was coming.
A.It's lovely to know when there's recession. I don't remember anybody predicting 1982 we're going to have 14 percent inflation, 12 percent unemployment, a 20 percent prime rate, you know, the worst recession since the Depression. I don't remember any of that being predicted. It just happened. It was there. It was ugly. And I don't remember anybody telling me about it. So I don't worry about any of that stuff. I've always said if you spend 13 minutes a year on economics, you've wasted 10 minutes.
Q.So what should people think about?
A.Well, they should think about what's happening. I'm talking about economics as forecasting the future. If you own auto stocks you ought to be very interested in used car prices. If you own aluminum companies you ought to be interested in what's happened to inventories of aluminum. If your stock are hotels, you ought to be interested in how many people are building hotels. These are facts. People talk about what's going to happen in the future, that the average recession last .2 years or who knows? There's no reason why we can't have an average economic expansion that lasts longer. I mean I deal in facts, not forecasting the future. That's crystal ball stuff. That doesn't work. Futile.
Q.Talk about going from one to five to ten billion and whether people thought it was getting too big.
A.Sure. I certainly remember when Magellan passed the billion. I remember it was sometime in 1983 and then remember I think in '84, I don't remember exactly when it became the largest fund in the country, and people said, "Magellan's too big at a billion to get in, to get out. It's hopeless. Leave." And then when it became a largest fund, "It's obviously too big now." And then it got to five billion, they said, "Forget it." When it got to ten billion, they said, "Forget it." And I'd always say, "If I could beat the market by three or four percent a year I'm really doing a service to the public." And then after I left, they said, "The fund's too big. Forget it." And, ah, Magellan's done extremely well in the six years since I left it. It's beaten the market. It's beaten 80 percent of all funds. So I mean I hope they keep warning people to stay away from it. It's been a terrific thing for it.
Q.Can the little guy play with the big guy in the stock market?
A.There's always been this position that the small investor has no chance against the big institutions. And I always wonder whether that's the person under four-foot-eight. I mean they always said the small investor doesn't have a chance. And there's two issues there. First of all, I think that he or she can do it, but, number two, the question is, people do it anyway. They invest anyway. And if they so believe this theory that the small investor has no chance, they invest in a different format. They said, "This is a casino. I'll buy stock this month. I'll sell it a month later," same kind of performance that they do everywhere. When they look at a house, they're very careful. They look at the school system. They look at the street. They look at the plumbing. When they buy a refrigerator, they do homework. If they're so convinced that the small investor has no chance, the stock market's a big game and they act accordingly, they hear a stock and they buy it before sunset, they're going to get the kind of results that prove the small investor can do poorly. Now if you buy a -- you make a mistake on a car, you make a mistake on a house, you don't blame the professional investors. But now if you do stupid research, you buy some company that has no sales, no earnings, a terrible financial position and it goes down, you say, "Well, it because of the programmed trading of those professionals," that's because you didn't do your homework. So I -- I've tried to convince people they can do a job, they can do very well, but they have to do certain things.
Q.Wouldn't one of those things be letting you do it for them?
A.Well, the small investor can do three things. They can avoid the market entirely. They can just say, ah, "I can't stand it. It's too volatile for me. I'll just put my money in money market funds or put my money in the bank." That's one choice. The other choice is they can invest directly in the stock market by buying stocks individually, or they can buy mutual funds and invest in stock. I think they can do the course of investing in mutual funds and every now and then, they find some stocks, they have a chance the make a big hit. I think the average person could know three or four or five companies very well. They could lecture on those three or four or five companies, and if one or two of 'em becomes attractive, they buy 'em. They just can't wake up in the morning and say, "Now's the time to buy this. Now's the time to buy IBM. Now's the time to by GE. Now's the time to buy Dow Chemical. Now's the time to buy some biotechnology company," if they don't know something about it. You have to know the story. And people have lots of edges and they throw them away.
Q.Talk about market timing.
A.The market itself is very volatile. We've had 95 years completed this century. We're in the middle of 1996 and we're close to a 10 percent decline. In the 95 years so far, we've had 53 declines in the market of 10 percent or more. Not 53 down years. The market might have been up 26 finished the year up four, and had a 10 percent correction. So we've had 53 declines in 95 years. That's once every two years. Of the 53, 15 of the 53 have been 25 percent or more. That's a bear market. So 15 in 95 years, about once every six years you're going to have a big decline. Now no one seems to know when there are gonna happen. At least if they know about 'em, they're not telling anybody about 'em. I don't remember anybody predicting the market right more than once, and they predict a lot. So they're gonna happen. If you're in the market, you have to know there's going to be declines. And they're going to cap and every couple of years you're going to get a 10 percent correction. That's a euphemism for losing a lot of money rapidly. That's what a "correction" is called. And a bear market is 20-25-30 percent decline. They're gonna happen. When they're gonna start, no one knows. If you're not ready for that, you shouldn't be in the stock market. I mean stomach is the key organ here. It's not the brain. Do you have the stomach for these kind of declines? And what's your timing like? Is your horizon one year? Is your horizon ten years or 20 years? If you've been lucky enough to save up lots of money and you're about to send one kid to college and your child's starting a year from now, you decide to invest in stocks directly or with a mutual fund with a one-year horizon or a two-year horizon, that's silly. That's just like betting on red or black at the casino. What the market's going to do in one or two years, you don't know. Time is on your side in the stock market. It's on your side. And when stocks go down, if you've got the money, you don't worry about it and you're putting more in, you shouldn't worry about it. You should worry what are stocks going to be 10 years from now, 20 years from now, 30 years from now. I'm very confident.
Q.If you had invested in '66, it would have taken 15 years to make the money back.
A.Well, from '66 to 1982, the market basically was flat. But you still had dividends in stocks. You still had a positive return. You made a few percent a year. That was the worst period other than the 1920s, in this century. So companies still pay dividends, even though if their stock goes sideways for ten years, they continue to pay you dividends, they continue to raise their dividends. So you have to say the yourself, "What are corporate profits going to do?" Historically, corporate profits have grown about eight percent a year. Eight percent a year. They double every nine years. They quadruple every 18. They go up six-fold every 25 years. So guess what? In the last 25 years corporate profits have gone up a little over six-fold, the stock market's gone up a little bit over six-fold, and you've had a two or three percent dividend yield, you've made about 11 percent a year. There's an incredible correlation over time.
So you have to say to yourself, "What's gonna happen in the next 10-20-30 years? Do I think the General Electrics, the Sears, the Wal-Marts, the MicroSofts, the Mercks, the Johnson & Johnsons, the Gillettes, Anheiser-Busch, are they going to be making more money 10 years from now, 20 years from now? I think they will." Will new companies come along like Federal Express that came along in the last 20 years? Will new companies come along like Amgen that make money? Will new companies come along like Compaq Computer? I think they will. There'll be new companies coming along that make money. That's what you're investing in.
Q.You believe that the majority of small investors had lost money and that's why they're in mutual funds?
A.I wrote three books and I had great help with doing it with John Rothschild, is I really want to help the average person. My wife and I have given all the profits from those books to charity. I want to help people do a better job investing, understand the market because what amazes me is we've had this phenomenal market. You start 1982, August of '82, the market's 777. In May of 1996, it's at 5700. I'm that's up almost seven-fold. That's an incredible advance. Now how come there's not a lot more people buyin' stocks? How come the number of registered shareholders hasn't gone up dramatically? When antiques were hot, lots of who were doin' antiques. When rugs were hot, they were doin' rugs. When baseball cards were in, thousands of people were into baseball cards, tens of thousands. And people were fixin' up old cars. The only thing I can conclude from the fact there hasn't been a great jump in the amount of people directly investing in the stock market has been in this best bull market of all time, August of '82 to 19-- May of '96, best stock market ever, people must have done a mediocre job or they would be doing more of it themselves and they'd be telling their friends about it and their friends'd be doing it. So their method must be flawed.
Q.What does that say to you about their frame of mind?
A.Well, for some reason, the public looks at stocks differently than they look at everything else. When they buy a refrigerator, they do research. When they buy a microwave oven, they do research. They'll get Consumer Reports. They'll ask a customer "What's your favorite kind of oven? What kind of car would you buy?" Then they'll -- they'll put $10,000 in some zany stock that they don't even know what it does that they heard on a bus on the way to work and wonder why they lose money, and they do it before sunset. Well, you've got plenty of time. You could have bought Wal-Mart ten years after it went public -- Wal-Mart went public in 1970. You could have bought it ten years later and made 30 times your money. You could have said, "I'm very cautious. I'm very careful. I'm gonna wait. I want to make sure this company -- they're just in Arkansas and I want to watch 'em go to other states." So you watch, five years later the stock's up about four-fold. You say, "I'm still not sure of this company. They have a great balance sheet, great record." I'm going to wait another -- wait another five years, it goes up another four-fold. It's now up twenty-fold. You still haven't invested. You say, "Now I think it's time to invest in Wal-Mart." You still could have made 30 times your money because ten years after Wal-Mart went public they were only in 15 percent of the United States. They hadn't saturated that 15 percent and they were very low cost. They were in small towns. You could say to yourself, "Why can't they go to 17? Why can't they go to 19? Why can't they go to 21? I'll get on the computer.
Why can't they go to 28?" And that's all they did. They just replicated their formula. That doesn't take a lot of courage. That's homework.
Q.The high and the low analysis.
A.People spend all this time trying to figure out "What time of the year should I make an investment? When should I invest?" And it's such a waste of time. It's so futile. I did a great study, it's an amazing exercise. In the 30 years, 1965 to 1995, if you had invested a thousand dollars, you had incredible good luck, you invested a the low of the year, you picked the low day of the year, you put your thousand dollars in, your return would have been 11.7 compounded. Now some poor unlucky soul, the Jackie Gleason of the world, put in the high of the year. He or she picked the high of the year, put their thousand dollars in at the peak every single time, miserable record, 30 years in a row, picked the high of the year. Their return was 10.6 That's the only difference between the high of the year and the low of the year. Some other person put in the first day of the year, their return was 11.0. I mean the odds of that are very little, but people spend an unbelievable amount of mental energy trying to pick what the market's going to do, what time of the year to buy it. It's just not worth it.
Q.So they just buy and hold?
A.They should buy, hold, and when the market goes down, add to it. Every time the market goes down 10 percent, you add to it, you'd be much -- you would have better return than the average of 11 percent, if you believe in it, if it's money you're not worried about. As the market starts going down, you say, "Oh, it'll be fine. It'll be predictable." When it starts going down and people get laid off, a friend of yours, loses their job or a company has 10,000 employees and they lay off two. The other 998,000 people start to worry or somebody says their house price just went down, these are little thoughts that start to creep to the front of your brain. And they're the back of your brain. And human nature hasn't changed much in 5,000 years. There's this thing of greed versus fear. The market's going up, you're not worried. All of a sudden it starts going down and you start saying, "I remember my uncle told me, you know, somebody lost it all in the Depression. People were jumping out of windows. They were selling pencils and apples." It must have been a great decade to buy a pencil or an apple, but they were always -- there must have been everybody selling pencils. That start to -- we laugh about it. People start to think about these things with the market going down. These ugly thoughts start coming into the picture. Gotta get 'em out. You have to wipe those out and you -- you either believe in it or you don't.
Q.The fact of the matter is, in the America that we live in, there are a lot of people who feel they have no choice, that they have to be in the market. What do those people do?
A.Well, if people don't have the stomach, they really don't have it, the volatility's too much for them with the stock market, they can avoid it. They could buy money market funds and they'd get a little bit better than inflation. They will not get, in my opinion, the same return the next 20 years, the next 30 years they would get by buying stocks. That doesn't sound like much, but over the long period of time Treasury Bills and money markets have yielded a little bit higher than inflation, bonds have yielded five or six percent, and stocks have yielded a total of 11. The differences are massive over 30 years, but that's not a bad return to get a positive return. If you're worried, it's better than losing money.
Q.How do those people educate their kids and retire?
A.They have to save more. The public's not saving enough. Our whole system's all backwards. If you borrow money to spend, add addition to your house, it's tax deductible, you save money, they tax you on it. I mean the public has figured out very well there's no inducement to save. Our system is very confusing. We have the highest capital gains rate in the history of this country right now. The capital gains rates in Japan is zero. They have a 20 percent savings rate in Japan. We have to have a higher savings rate. No one's encouraging savings. And it's the one thing I remember from college is savings equals investment. For every savings of a dollar, money goes into capital investment, that yields more productivity, yields more jobs, yields better standard of living. We are not saving enough money. That's the most single important thing people have to do, they have to save some more.
Q.With so many people investing in mutual funds, let's consider two issues. Short-term profit....long-term stability?
A.Well, if corporate management's job is to make the company deal well and make a good job for employees, provide a good service, they know if they do something very slick, very fast and it works well for three months, their competitors will knock 'em off. They have to come out with a better product. They have to come out with better services. So I think the real issue is they have to think long-term and they're doing that. They have to say, "We have to stay competitive and we have to think about ways -- we just introduced a me-too product. That's not enough. It has to be a better product." And I think that's been the difference. "Can we lower our costs?" You see that with the telephone companies. You see it with electric utilities. You see it with broadcasting. You see it with gas companies, industries that never even thought of this -- publishing, just throughout all of the America in the retailing industry, better ways of delivering products. And it's a serious effort and it's a long-term effort. And they're trying to spend more and more time to say, "How can we do a better job? We just can't raise prices. That game's over."
Q.So companies get a bad rap for this short-term, long-term business?
A.Well, there is a group of people that buy companies, sell this division, sell that division, sell that off and divide it up and that's a very small minority. It doesn't happen very often. And they used to be able to use junk bonds. That day's over. They used to get a lot of money from the banking system to do an LBO. That day's over. So now a corporate buyer's a legitimate buyer. It's a major company buys another company. It's not somebody who puts a thousand dollars down and borrow 23 billion and then tries to sell parts off. So I think corporate managements are doing a very good job of saving companies. But a lot of times it's a tough decision. They don't like lettin' people go. No one enjoys that. The question is, if we can slim down and get more efficient, it'd be better off for 90 percent of the employees than "If we don't do it, we could become another Eastern Air Lines, another Pan Am and everybody loses their job."
Q.A lot of people worry that the mutual fund pressure has caused a lot of pain in this country ...
A.Well, I think it was the recession of '81 and '82 that was the wake-up call. It wasn't the stock market. It wasn't mutual funds managers. It's competition. It's competitor in the apparel industry. It's competition in the textile industry. It's competitor in the housing industry. It's competitor in the broadcast industry independent of mutual fund managers. Now you look at AT&T, about 11 years ago they broke up AT&T, had one million employees. One out of every hundred Americans was working for the telephone company. If you put together AT&T and all the Baby Bells today, you'd have about 700-- less than 700,000 workers and they're doing double the amount of telephone calls, twenty times the faxes, a hundred times the data communications, a thousand times the cellular with 30 percent less employees. Now is that good for America or bad for America? Would we be better off if they had two million employees? I think we're just better off that they have less employees and they're doing a better job.
Q.Why?
A.That's -- competition, because we have the lowest cost communication system in the world. It's the single most important thing. It's not the highway system. Communications is the single most important and we're the lowest cost. That helps us compete with the rest of the world.
Now hopefully these companies have done a good job when they had to let people go, they helped 'em find other jobs or they let people retire. I'm hoping they were good corporate citizens. That would be very good. That's important. So they just don't say, "Sorry, fellas. Sorry, lady. You're outta here." That would be not a very good thing to do. That'd be terrible. So that would be an abuse. That's not the way to treat people. But holding onto people and all of a sudden you have to cut everybody's pay by 10 percent and then cut everybody's pay by another 15 percent, then your whole company folds. No one wins by that.
Q.Talk companies that have gone public since the bull market started and the flow of capital ...
A.I get asked a lot by people, you know, "Where's this money that's going into mutual funds of my money? Other people's money. Where is this going to wind up?" One wonderful thing that happened, the last three years over a hundred-billion dollars has gone into initial public offerings. These are new companies coming public. We've had over 2,500 companies come public. That's over two a business day. These companies now have more money for equipment, more money for research. They have a better balance sheet. They can borrow more. They are going to hire more people and more jobs. These are going to be the companies like the next Staples, the next Federal Express, the next Compaq. That's what made America grow.
In the decade of the '80s the 500 largest companies eliminated three million jobs. We added 18 million jobs. This is the greed decade. The decade of the '80s we added 18 million jobs in the United States. There's 2.1 million businesses started. Some didn't make it, but they just had 10 jobs each. That's 21 million jobs. Some medium-sized companies grew to be big companies. That's what's made America grow. When the stock market does well the next two years or the next three years, that money's there. They've got it now. It didn't just go to a bunch of rich people. It went into the companies' treasuries. It's now being used for research & development. Companies like Amgen has come along and they have two one-billion-dollar drugs. Company didn't exist 20 years ago.
Q.So my money winds up in Amgen?
A.The money the public puts into mutual funds, a large percentage of that is wound up going into finance new issues. From '65 to 1995 in America we added 54 million jobs. The European Union, the old Common Market, has 100 million more people. In those 30 years, they added 10 million jobs. They added 10 million jobs in 30 years. We added 54 million jobs. There's 10 percent unemployment in Europe, 20 million people out of work. We are very lucky we've had these companies come public. That's what made this country hold together. Business has done a terrific job. We ought to be very happy. I don't think 2,500 companies have come public in Europe since Charlemagne, and I think he became King of the Francs in 788. This is a wonderful thing we have in this country, this initial public offerings, putting money into small and medium-sized companies and let them grow.
Q.Do you think Vinik got a bad rap, too much emphasis put on short-term record?
A.Jeff Vinik ran Magellan Fund for a little over four years. It beat the market. It beat 80 percent of all other funds. So if you went somewhere else, you would have been in the 80 percent that lost out to Magellan. Now the last nine months Magellan didn't have a great record, but when you have a basketball game and at the end of the game its 105 to 85, they don't say to the team, " the third quarter you lost by 32 to 22. What happened to the third quarter?" I mean I think a four years is a reasonable period of time to look over a record. I think Jeff Vinik did a very good job the time he ran Magellan.
Q.Too much scrutiny is unfair at this point?
A.Well, I can't say whether there's too much scrutiny or not enough scrutiny. I think there's a lot of watching of the largest fund in the country. The question is, can it continue to beat the market like it's done under Morris Smith, under Jeff Vinik, and under Bob Stansky. And it's still a very small percent of the market. I mean 50 billion is a very large number, but when you think the New York Stock Exchange is five-and-a-half trillion. If you look at the hundred largest stocks over-the-counter, there's another trillion. You look at the 200 largest stocks overseas is several trillion, I mean it's not a very small -- it's a very small percentage of the available market. All you have to do really is find the best hundred stocks in the S&P 500 and find another few hundred outside the S&P 500 to beat the market.
Q.That's all?
A.That's all you do.
Q.What was Magellan's size when you left?
A.When I left Magellan Fund, it was 14 billion.
Q.And where is it today?
A.Today over 50 billion.
Q.What has caused that incredible influx of money?
A.Well, part of it, the market was 2700 when I left. You know, and before today the market was 5500. So, the market doubled, plus dividends has brought a lot of it, and people already were there. So they kept adding. So every year people kept adding money and as it's gone up, it was up over 35 percent in 1995, I mean those compound to give you very big numbers. So it's some people adding do it and the fund doing very well. It went up when Morris Smith ran it. So it's gone up a lot in six years.
Q.How did you first get interested in the stock market.
A.Well, I grew up in the 1950s. I started caddying when I was 11. So the would have been 1955 and in that part -- the '50s were a great decade for the stock market. I caddied a very nice club out in west Newton, had a lot of people, corporate executives, and some of these were buying stocks and I remember them talking about stocks and they mentioned the names and I'd look in the paper and look at it a month later, a year later, and I noticed they were goin' up. And I said, "Gee, this makes a lot of sense." And so I watched it. I didn't have any money to invest, but I remember the stock market being very strong in the 1950s and some people, not everybody, but a lot of people on the golf course talking about it.
Q.What was your first stock?
A.Well, when I got a caddie scholarship to college. It was actually a partial scholarship, a Frances Wimen Scholarship, a financial aid scholarship, but it was thousand dollars to go to Boston College and they gave me a $300 scholarship and I got to earn over $700 a year caddying. So I was able to build up a little bit of money and I worked also during the winters. So while I was in college I did a little study on the freight industry, the air freight industry. And I looked at this company called Flying Tiger. And I actually put a thousand dollars in it and I remember I thought this air cargo was going to be a thing of the future. And I bought it and it got really lucky because it went up for another reason. The Vietnam War started and they basically hauled a lot of troops to Vietnam in airplanes and the stock went up, I think, nine- or ten-fold and I had my first ten bagger. I started selling it, I think, at 20 and 30 and 40, sold all the way up to 80 and helped pay for graduate school. So I almost had a Flying Tiger graduate school fellowship.
Q.You originated the expression "four bagger", "five bagger" et cetera. What's that mean exactly?
A.I've always been a great lover of baseball. I mean if you grew up in Boston, you know that the last time we won the World Series, Babe Ruth pitched for us. It was 1918. So it's been a long drought here. So I've always loved baseball and the ten bagger is two home-runs and a double. It's you run around a lot, so it's very exciting. You made ten times your money. Is a ten bagger.
Q.That's pretty good.
A.Excellent. You don't need a lot in your lifetime. You only need a few good stocks in your lifetime. I mean how many times do you need a stock to go up ten-fold to make a lot of money? Not a lot.
Q.Was that your secret?
A.Well, I think the secret is if you have a lot of stocks, some will do mediocre, some will do okay, and if one of two of 'em go up big time, you produce a fabulous result. And I think that's the promise to some people. Some stocks go up 20-30 percent and they get rid of it and they hold onto the dogs. And it's sort of like watering the weeds and cutting out the flowers. You want to let the winners run. When the fun ones get better, add to 'em, and that one winner, you basically see a few stocks in your lifetime, that's all you need. I mean stocks are out there. When I ran Magellan, I wrote a book. I think I listed over a hundred stocks that went up over ten-fold when I ran Magellan and I owned thousands of stocks. I owned none of these stocks. I missed every one of these stocks that went up over ten-fold. I didn't own a share of them. And I still managed to do well with Magellan. So there's lots of stocks out there and all you need is a few of 'em. So that's been my philosophy. You have to let the big ones make up for your mistakes.
In this business if you're good, you're right six times out of ten. You're never going to be right nine times out of ten. This is not like pure science where you go, "Aha" and you've got the answer. By the time you've got "Aha," Chrysler's already quadrupled or Boeing's quadrupled. You have to take a little bit of risk.
Q.When you first went to Fidelity, what was the market like?
A.Well, after the great rush of the '50s, the market did brilliantly and everybody says, "Wow, looking backwards, this would be a great time to get in." So a lot of people got in in the early '60s and in the mid-60s. The market peaked in '65-66 around a thousand, and that's when I came. I was a summer student at Fidelity in 1966. There were 75 applicants for three jobs at Fidelity, but I caddied for the president for eight years. So that was the only job interview I ever took. It was sort of a rigged deal, I think. I worked there the summer of '66 and I remember the market was close to a thousand in 1966, and in 1982, 16 years later, it was 777. So we had a long drought after that. So the people were concerned about the stock market early in the '50s. They kept watching and watching, not investing. It started to go up dramatically and they finally caved in and bought big time in the mid-60s and got the peak.
Q.So people got in at the wrong time, in effect?
A. A lot of people got in at the wrong time. A lot of people did very well and some people said, "This is it. I'll never get back in again." And they maybe meant it, but they probably got back in again anyway.
Q.How much did you make on your first job at Fidelity?
A.I was paid, $16,000 a year. I was an analyst. I was the textile analyst, the metals analysts, and I remember the second year I got a raise to $17,000. That was great, you know.
Q.Did you get other job offers?
A.I was in ROTC studies, I spent two years in the Army and I did two years of graduate school and in, a business at Wharton School of Finance, University of Pennsylvania. So I was about 25 when I joined Fidelity.
Q.How old were you when you took over Magellan?
A.That was 1977, so I guess I was 33.
Q.What kind of fund was Magellan?
A.It was a small aggressive capital appreciation fund. Magellan Fund basically started in the early '60s. In the name, it was an international fund, but right after it started in 1963, they put sort of a barrier and a heavy tax on foreign investing. So it did very little foreign investing. It had the ability to do it, but there was very little interest then. There was a big penalty. So even though it was Magellan Fund, it was primarily a domestic fund. And when I took over in May of 1977, the fund was $20 million.
Q.And that was your first portfolio managing job?
A.That's correct. I was director research in 1974. I still continued to be an analyst, and then May of 1977 I took over Magellan Fund.
Q.But the market really didn't do much between '77 and '82, between the beginning of that bull market, and yet your fund performed quite spectacularly. What do you do?
A.Well, I think flexibility is one of the key things. I mean I would buy companies that had unions. I would buy companies that were in the steel industry. I'd buy textile companies. I always thought there was good opportunities everywhere and, researched my stocks myself. I mean Taco Bell was one of my first stock I bought. I mean the people wouldn't look at a small restaurant company. So I think it was just looking at different companies and I always thought if you looked at ten companies, you'd find one that's interesting, if you'd look at 20, you'd find two, or if you look at hundred you'll find ten. The person that turns over the most rocks wins the game. And that's always been my philosophy.
Q.How did Magellan begin to make a name for itself in '82?
A.Well, the first three years I ran Magellan, I think one-third of the shares were redeemed. I mean there was very little interest. People didn't care. The market was doing okay and Magellan was doing well, but people were sort of recovering from their losses, so they from the '50s and '60s, and so literally one-third of the shares were redeemed the first three years I ran it. And in 1982, the market started to pick up. It bought 'em in August of '82, and from then on a lot of interest came back in the market in '83 and '84. Magellan had the best five-year record in 1982 and the best five-year record in 1983 and people tend to look, the press and the media and the newspapers, tend to look at who's had a good record and Magellan was there.
Q.Tell about the first time you were on Ruckeyser.
A.Well, 1982, I think it was the market had just gone over a thousand maybe a week or two before that. So this would have been, I think, October of '82 and Chrysler was my biggest position and the stock, I think, was 10 and I recommended Chrysler and I remember I had, ah -- I had people who said, "Gee, we thought you were interesting." These were relatives of mine. "But how could you ever recommend Chrysler? Don't you know they're going bankrupt?" I remember friends of mine and relatives saying, "That sound crazy to me." So it worked out fine.
And amazing. I think I was on "Wall Street with Louis Ruckheyser" in 1990 and Chrysler was 10 again. It had a stock split that had gone all the way down to 10 and I recommended it again in October of 1990 on "Wall Street with Louis Ruckeyser".
Q.Chart the growth of the fund in the '80s, just for chronology.
A.Well, the fund was not very big in 1982, even though I had ran it for five years. And in '80-- end of '82 when the market really started to come in and people started to look to the future, I think it was April of '83 it passed one billion. That was a big number. I remember that number has a lot of zeros and it's kind of a magic number. So I remember that point and people just continued to be interested in the market and these were lots of individuals coming. This was not people putting in four million at the time or three million. It was lots of two-, and three- and five-thousand-investments coming in. And it was steady. It wasn't a torrent. It just was there every day.
Q.Was it becoming more famous? Wasn't it on "Jeopardy", for instance?
A.Yeah. At some point in time I remember -- I didn't watch the show. I always liked "Jeopardy", but I remember my wife watched the show and somebody was saying "What's the fund that was named after an explorer." And all the people, they all hit the button at the same time on "Jeopardy" and they knew it was Magellan. So, I guess it became more famous then, but there wasn't that much coverage. I mean today I think The Wall Street Journal has three full-time reporters covering the mutual fund industry. They had none in the early '80s. So the coverage was really basically Wall Street, Louis Ruckheyser, Barron's, a little bit in The New York Times every quarter. There was not coverage of the mutual fund industry. It was really coverage of stocks. And, you know, occasionally, ah, Forbes or Fortune or a periodical would write an article, but there wasn't very much interest even in the '80s.
Q.What caused that to change?
A.Well, I think the great decade of the '80s and people thinking that, you know, "There's a lot of publicity on the Social Security System not gonna make it," and a lot of pension plans. I mean people used to retire and they'd say, "Right now I'm going to get half my last year's salary for the rest of my life, or 60 percent. I don't have to worry about it." Now a lot of people are given their entire pension plan, the most important financial asset they ever got, and they said, "Okay, sweetheart, it's yours. Take care of it." Or there's no pension plan. So today people have to think about their future. They're worried about Social Security and they may have to do their own pension or they already have been given their pension and say, "You manage it." So I think there's -- you have to become finally literate today.
Q.Was your success part of reason why the press, et cetera, began to look at mutual funds more carefully?
A.Well, I think the fact the fund went up, I mean that was the key. If I'd had gone down, I'd have had to dye my hair and grow a beard and move to Fiji. It was just the fact it went up, people made a lot of money and there was a lot of word-of-mouth. I mean it was people saying that "Investing is good," and "We should put some of our money aside and put so much in quarterly." And I think the IRA was invented and there was a lot of things that were to encourage people to save.
Q.If had put a thousand dollars in Magellan on the day you took it over, how much would I have reaped on the day you retired?
A.Well, if somebody invested a thousand dollars in Magellan on May 31st, 1977, the day I left, the thousand would have been $28,000, --May 31st 13 years later, 1990.
Q.Talk about the change in '86-87.
A.Well, I remember in my career you'd say to somebody you worked in the investment business. They'd say, "That's interesting. Do you sail? What do you think of the Celtics?" I mean it would just go right to the next subject. If you told them you were a prison guard, they would have been interested. They would have had some interest in that subject, but if you said you were in the investment business, they said, "Oh, terrific. Do your children go to school?" It just went right to the next subject. You could have been a leper, you know, and been much more interesting. So that was sort of the attitude in the '60s and '70s.
As the market started to heat up, you'd say you were an investor, "Oh, that's interesting. Are there any stocks you're buying?" And then people would listen not avidly. They'd think about it. But then as the '80s piled on, they started writing things down. So I remember people would really take an interest if you were in the investment business, saying "What do you like?" And then it turned and I remember the final page of the chapter would be you'd be at a party and everybody would be talking about stocks. And then people would recommend stocks to me. And then I remember not only that, but the stocks would go up. I'd look in the paper and I'd notice they'd go up in the next three months. And then you've done the full cycle of the speculative cycle that people hate stocks, they despised, they don't want to hear anything about 'em, now they're buying everything and cab drivers are recommending stocks. So that was sort of the cycle I remember going through from the '60s and early '70s all the way to '87.
Q.Where were you when the Crash of '87 came?
A.Well, I was very well prepared for the Crash of 1987. -- my wife and I took our first vacation in eight years and we left on Thursday in October and I think that day the market went down 55 points and we went to Ireland, the first trip we'd ever been there. And then on Friday, because of the time difference, we'd almost completed the day and I called and the market was down 115. I said to Carolyn, "If the market goes down on Monday, we'd better go home." And "We're already here for the weekend. So we'll spend the weekend." So it went down 508 on Monday, so I went home. So in two business days I had lost a third of my fund. So I figured at that rate, the week would have been a rough week. So I went home. Like I could do something about it. I mean it's like, you know, if there was something I could do. I mean there I was -- but I think if people called up and they said, "What's Lynch doing," and they said, "Well, he's on the eighth hole and he's every par so far, but he's in a trap, this could be a triple bogey," I mean I think that's not what they wanted to hear. I think they wanted to hear I'd be there lookin' over -- I mean there's not a lot you can do when the market's in a cascade but I got home quick as I could.
Q.Why did the Crash of '87 happen?
A.Well, I think people had not analyzed '87 very well. I think you really have to put it in perspective. 1982, the market's 777. It's all the way to '86. You have the move to 1700. In four years -- the market moves from 777 to 1700 in four years. Then in none months it puts on a thousand points. So it puts on a thousand points in four years, then puts on another thousand points in the next nine months. So in August of 1987 it's 2700. It's gone up a thousand points in nine months. Then it falls a thousand points in two months, 500 points the last day. So if the market got sideways at 1700, no one would have worried, but it went up a thousand in nine-ten months and then a thousand in two months, and half of it in one day, you would have said.... "The world's over." It was the same price. So it was really a question of the market just kept going up and up and it just went to such an incredible high price by historic, price earnings multiple load, dividend yields, all the other statistics, but people forget that basically it was unchanged in 12 months. If you looked at September, 1986 to October '87, the market was unchanged. It had a thousand point up and a thousand points down and they only remember the down. They thought, "Oh, my goodness, this is the crash. It's all over. It's going to go to 200 and I'm going to selling apples and pencils," you know. But it wasn't. It was a very unique phenomenon because companies were doing fine. Just, you know, you'd call up a company and say, "We can't figure it out. We're doin' well. Our orders are good. Our balance sheet's good." "We just announced we're gonna buy some of our stock. We can't figure out why it's good down so much."
Q.Was that the most scared you ever were in your career?
A.'87 wasn't that scary because I concentrate on fundamentals( Not technicals, my view)). I call up companies. I look at their balance sheet. I look at their business. I look at the environment. The decline was kinda scary and you'd tell yourself, "Will this infect the basic consumer? Will this drop make people stop buying cars, stop buying houses, stop buying appliances, stop going to restaurants?" And you worried about that.
The reality, the '87 decline was nothing like 1990. Ninety, in my 30 years of watching stock very carefully, was by far the scariest period.
Q.What was so scary about 1990?
A.Well, 1990 was a situation where I think it's almost exactly six years ago approximately now. In the summer of 1990, the market's around 3000. Economy's doing okay. And Saddam Hussein decides to walk in and invade Kuwait. So we have invasion of Kuwait and President Bush sends 500,000 troops to Saudi to protect Saudi Arabia. There's a very big concern about, you know, "Are we going to have another Vietnam War?" A lot of serious military people said, "This is going to be a terrible war." Iraq has the fourth largest army in the world. They really fought very well against Iran. These people are tough. This is going to be a long, awful thing. So people were very concerned about that, but, in addition, we had a very major banking crisis. All the major New York City banks, Bank America, the real cornerstone of this country were really in trouble(Like now?). And this is a lot different than if W.T. Grant went under or Penn Central went under. Banking is really tight. And you had to hope that the banking system would hold together and that the Federal Reserve understood that Citicorp, Chase, Chemical, Manufacturers Hanover, Bank of America were very important to this country and that they would survive. And then we had a recession. Unlike '87 you called companies, in 1990 you called companies and say, "Gee, our business is startin' to slip. Inventories are startin' to pile up. We're not doing that well." So you really at that point in time had to belief the whole thing would hold together, that we wouldn't have a major war. You really had to have faith in the future of this country in 1990. In '87, the fundamentals were terrific and it was -- it was like one of those three for two sales at the K-Mart. Things were marked down. It was the same story.
Q.Is there so much pressure because you're handling so much money for other people?
A.It wasn't the pressure. I loved the job. I mean I worked for the best company in the world. I get paid extremely well. We had free coffee. I mean it's a great place to work. I could see any company I wanted to see. I didn't have to, say, get permission to go visit companies I California or Indiana. I just -- lot of freedom, a lot of responsibility. The pressure wasn't it. It was just too much time. I was working six days a week and that wasn't even enough.
Q.Were you surprised by the outpouring in the wake of your retirement?
A.I was really shocked at people's response and all the networks and news overseas and all around the world that it was such a big deal. I mean I was amazed by it. I could write five letters a day for the next seven years to get back to the people that wrote thanking me or wishing me the best and literally maybe my secretary screened me from the nasty ones, but I don't remember anybody saying, "You god. I just got in yesterday and you left." I mean there were all these very nice notes saying, "You're doing the right thing. I'm very happy about it," and ...
Q.Tell the story about your wife stumbling on a big stock for you in the supermarket.
A.I had a great luck company called Hanes(Peter Lynch believes in LUCK!). They test marketed a product called L'Eggs in Boston and I think in Columbus, Ohio, maybe three or four markets. And Carolyn, ah, brought this product home and she was buying and she said, "It's great." And she almost got a black belt in shopping. She's a very good shopper. If we hadn't had these three kids, she now -- when Beth finally goes off to college, I think we'll be able to resume her training. But she's a very good shopper and she would buy these things. She said, "They're really great." And I did a little bit of research. I found out the average woman goes to the supermarket or a drugstore once a week. And they go a woman's specialty store or department store once every six weeks. And all the good hosiery, all the good pantyhose is being sold in department stores. They were selling junk in the supermarkets. They were selling junk in the drugstores. So this company came up with a product. They rack-jobbed it, they had all the sizes, all the fits, a down they never advertised price. They just advertised "This fits. You'll enjoy it." And it was a huge success and it became my biggest position and I always worried somebody'd come out with a competitive product, and about a year-and-a-half they were on the market another large company called Kaiser-Roth came out with a product called No Nonsense. They put it right next to L'eggs in the supermarket, right next to L'eggs in the drugstore. I said, "Wow, I gotta figure this one out." So I remember buying -- I bought 48 different pairs at the supermarket, colors, shapes, and sizes. They must have wondered what kind of house I had at home when I got to the register. They just let me buy it. So I brought it into the office. I gave it to everybody. I said, "Try this out and come back and see what's the story with No Nonsense." And people came back to me in a couple weeks and said, "It's not as good." That's what fundamental research is. So I held onto Hanes and it was a huge stock and it was bought out by Consolidated Foods, which is now called Sara Lee, and it's been a great division of that company. It might have been a thirty bagger instead of a ten bagger, if it hadn't been bought out.
Q.The beginning of the bull market in 1982 and the environment. Were you surprised?
A.1982 was a very scary period for this country. We've had nine recessions since World War II. This was the worst. 14 percent inflation. We had a 20 percent prime rate, 15 percent long governments. It was ugly( Are the things uglier now in USA, then what Peter Lynch is saying?). And the economy was really much in a free-fall and people were really worried, "Is this it? Has the American economy had it? Are we going to be able to control inflation?" I mean there was a lot of very uncertain times. You had to say to yourself, "I believe it in. I believe in stocks. I believe in companies. I believe they can control this. And this is an anomaly. Double-digit inflation is rare thing. Doesn't happen very often. And, in fact, one of my shareholders wrote me and said, "Do you realize that over half the companies in your portfolio are losing money right now?" I looked up, he was right, or she was right. But I was ready. I mean I said, "These companies are going to do well once the economy comes back. We've got out of every other recession. I don't see why we won't come out of this one." And it came out and once we came back, the market went north.
Q.Nobody told you it was coming.
A.It's lovely to know when there's recession. I don't remember anybody predicting 1982 we're going to have 14 percent inflation, 12 percent unemployment, a 20 percent prime rate, you know, the worst recession since the Depression. I don't remember any of that being predicted. It just happened. It was there. It was ugly. And I don't remember anybody telling me about it. So I don't worry about any of that stuff. I've always said if you spend 13 minutes a year on economics, you've wasted 10 minutes.
Q.So what should people think about?
A.Well, they should think about what's happening. I'm talking about economics as forecasting the future. If you own auto stocks you ought to be very interested in used car prices. If you own aluminum companies you ought to be interested in what's happened to inventories of aluminum. If your stock are hotels, you ought to be interested in how many people are building hotels. These are facts. People talk about what's going to happen in the future, that the average recession last .2 years or who knows? There's no reason why we can't have an average economic expansion that lasts longer. I mean I deal in facts, not forecasting the future. That's crystal ball stuff. That doesn't work. Futile.
Q.Talk about going from one to five to ten billion and whether people thought it was getting too big.
A.Sure. I certainly remember when Magellan passed the billion. I remember it was sometime in 1983 and then remember I think in '84, I don't remember exactly when it became the largest fund in the country, and people said, "Magellan's too big at a billion to get in, to get out. It's hopeless. Leave." And then when it became a largest fund, "It's obviously too big now." And then it got to five billion, they said, "Forget it." When it got to ten billion, they said, "Forget it." And I'd always say, "If I could beat the market by three or four percent a year I'm really doing a service to the public." And then after I left, they said, "The fund's too big. Forget it." And, ah, Magellan's done extremely well in the six years since I left it. It's beaten the market. It's beaten 80 percent of all funds. So I mean I hope they keep warning people to stay away from it. It's been a terrific thing for it.
Q.Can the little guy play with the big guy in the stock market?
A.There's always been this position that the small investor has no chance against the big institutions. And I always wonder whether that's the person under four-foot-eight. I mean they always said the small investor doesn't have a chance. And there's two issues there. First of all, I think that he or she can do it, but, number two, the question is, people do it anyway. They invest anyway. And if they so believe this theory that the small investor has no chance, they invest in a different format. They said, "This is a casino. I'll buy stock this month. I'll sell it a month later," same kind of performance that they do everywhere. When they look at a house, they're very careful. They look at the school system. They look at the street. They look at the plumbing. When they buy a refrigerator, they do homework. If they're so convinced that the small investor has no chance, the stock market's a big game and they act accordingly, they hear a stock and they buy it before sunset, they're going to get the kind of results that prove the small investor can do poorly. Now if you buy a -- you make a mistake on a car, you make a mistake on a house, you don't blame the professional investors. But now if you do stupid research, you buy some company that has no sales, no earnings, a terrible financial position and it goes down, you say, "Well, it because of the programmed trading of those professionals," that's because you didn't do your homework. So I -- I've tried to convince people they can do a job, they can do very well, but they have to do certain things.
Q.Wouldn't one of those things be letting you do it for them?
A.Well, the small investor can do three things. They can avoid the market entirely. They can just say, ah, "I can't stand it. It's too volatile for me. I'll just put my money in money market funds or put my money in the bank." That's one choice. The other choice is they can invest directly in the stock market by buying stocks individually, or they can buy mutual funds and invest in stock. I think they can do the course of investing in mutual funds and every now and then, they find some stocks, they have a chance the make a big hit. I think the average person could know three or four or five companies very well. They could lecture on those three or four or five companies, and if one or two of 'em becomes attractive, they buy 'em. They just can't wake up in the morning and say, "Now's the time to buy this. Now's the time to buy IBM. Now's the time to by GE. Now's the time to buy Dow Chemical. Now's the time to buy some biotechnology company," if they don't know something about it. You have to know the story. And people have lots of edges and they throw them away.
Q.Talk about market timing.
A.The market itself is very volatile. We've had 95 years completed this century. We're in the middle of 1996 and we're close to a 10 percent decline. In the 95 years so far, we've had 53 declines in the market of 10 percent or more. Not 53 down years. The market might have been up 26 finished the year up four, and had a 10 percent correction. So we've had 53 declines in 95 years. That's once every two years. Of the 53, 15 of the 53 have been 25 percent or more. That's a bear market. So 15 in 95 years, about once every six years you're going to have a big decline. Now no one seems to know when there are gonna happen. At least if they know about 'em, they're not telling anybody about 'em. I don't remember anybody predicting the market right more than once, and they predict a lot. So they're gonna happen. If you're in the market, you have to know there's going to be declines. And they're going to cap and every couple of years you're going to get a 10 percent correction. That's a euphemism for losing a lot of money rapidly. That's what a "correction" is called. And a bear market is 20-25-30 percent decline. They're gonna happen. When they're gonna start, no one knows. If you're not ready for that, you shouldn't be in the stock market. I mean stomach is the key organ here. It's not the brain. Do you have the stomach for these kind of declines? And what's your timing like? Is your horizon one year? Is your horizon ten years or 20 years? If you've been lucky enough to save up lots of money and you're about to send one kid to college and your child's starting a year from now, you decide to invest in stocks directly or with a mutual fund with a one-year horizon or a two-year horizon, that's silly. That's just like betting on red or black at the casino. What the market's going to do in one or two years, you don't know. Time is on your side in the stock market. It's on your side. And when stocks go down, if you've got the money, you don't worry about it and you're putting more in, you shouldn't worry about it. You should worry what are stocks going to be 10 years from now, 20 years from now, 30 years from now. I'm very confident.
Q.If you had invested in '66, it would have taken 15 years to make the money back.
A.Well, from '66 to 1982, the market basically was flat. But you still had dividends in stocks. You still had a positive return. You made a few percent a year. That was the worst period other than the 1920s, in this century. So companies still pay dividends, even though if their stock goes sideways for ten years, they continue to pay you dividends, they continue to raise their dividends. So you have to say the yourself, "What are corporate profits going to do?" Historically, corporate profits have grown about eight percent a year. Eight percent a year. They double every nine years. They quadruple every 18. They go up six-fold every 25 years. So guess what? In the last 25 years corporate profits have gone up a little over six-fold, the stock market's gone up a little bit over six-fold, and you've had a two or three percent dividend yield, you've made about 11 percent a year. There's an incredible correlation over time.
So you have to say to yourself, "What's gonna happen in the next 10-20-30 years? Do I think the General Electrics, the Sears, the Wal-Marts, the MicroSofts, the Mercks, the Johnson & Johnsons, the Gillettes, Anheiser-Busch, are they going to be making more money 10 years from now, 20 years from now? I think they will." Will new companies come along like Federal Express that came along in the last 20 years? Will new companies come along like Amgen that make money? Will new companies come along like Compaq Computer? I think they will. There'll be new companies coming along that make money. That's what you're investing in.
Q.You believe that the majority of small investors had lost money and that's why they're in mutual funds?
A.I wrote three books and I had great help with doing it with John Rothschild, is I really want to help the average person. My wife and I have given all the profits from those books to charity. I want to help people do a better job investing, understand the market because what amazes me is we've had this phenomenal market. You start 1982, August of '82, the market's 777. In May of 1996, it's at 5700. I'm that's up almost seven-fold. That's an incredible advance. Now how come there's not a lot more people buyin' stocks? How come the number of registered shareholders hasn't gone up dramatically? When antiques were hot, lots of who were doin' antiques. When rugs were hot, they were doin' rugs. When baseball cards were in, thousands of people were into baseball cards, tens of thousands. And people were fixin' up old cars. The only thing I can conclude from the fact there hasn't been a great jump in the amount of people directly investing in the stock market has been in this best bull market of all time, August of '82 to 19-- May of '96, best stock market ever, people must have done a mediocre job or they would be doing more of it themselves and they'd be telling their friends about it and their friends'd be doing it. So their method must be flawed.
Q.What does that say to you about their frame of mind?
A.Well, for some reason, the public looks at stocks differently than they look at everything else. When they buy a refrigerator, they do research. When they buy a microwave oven, they do research. They'll get Consumer Reports. They'll ask a customer "What's your favorite kind of oven? What kind of car would you buy?" Then they'll -- they'll put $10,000 in some zany stock that they don't even know what it does that they heard on a bus on the way to work and wonder why they lose money, and they do it before sunset. Well, you've got plenty of time. You could have bought Wal-Mart ten years after it went public -- Wal-Mart went public in 1970. You could have bought it ten years later and made 30 times your money. You could have said, "I'm very cautious. I'm very careful. I'm gonna wait. I want to make sure this company -- they're just in Arkansas and I want to watch 'em go to other states." So you watch, five years later the stock's up about four-fold. You say, "I'm still not sure of this company. They have a great balance sheet, great record." I'm going to wait another -- wait another five years, it goes up another four-fold. It's now up twenty-fold. You still haven't invested. You say, "Now I think it's time to invest in Wal-Mart." You still could have made 30 times your money because ten years after Wal-Mart went public they were only in 15 percent of the United States. They hadn't saturated that 15 percent and they were very low cost. They were in small towns. You could say to yourself, "Why can't they go to 17? Why can't they go to 19? Why can't they go to 21? I'll get on the computer.
Why can't they go to 28?" And that's all they did. They just replicated their formula. That doesn't take a lot of courage. That's homework.
Q.The high and the low analysis.
A.People spend all this time trying to figure out "What time of the year should I make an investment? When should I invest?" And it's such a waste of time. It's so futile. I did a great study, it's an amazing exercise. In the 30 years, 1965 to 1995, if you had invested a thousand dollars, you had incredible good luck, you invested a the low of the year, you picked the low day of the year, you put your thousand dollars in, your return would have been 11.7 compounded. Now some poor unlucky soul, the Jackie Gleason of the world, put in the high of the year. He or she picked the high of the year, put their thousand dollars in at the peak every single time, miserable record, 30 years in a row, picked the high of the year. Their return was 10.6 That's the only difference between the high of the year and the low of the year. Some other person put in the first day of the year, their return was 11.0. I mean the odds of that are very little, but people spend an unbelievable amount of mental energy trying to pick what the market's going to do, what time of the year to buy it. It's just not worth it.
Q.So they just buy and hold?
A.They should buy, hold, and when the market goes down, add to it. Every time the market goes down 10 percent, you add to it, you'd be much -- you would have better return than the average of 11 percent, if you believe in it, if it's money you're not worried about. As the market starts going down, you say, "Oh, it'll be fine. It'll be predictable." When it starts going down and people get laid off, a friend of yours, loses their job or a company has 10,000 employees and they lay off two. The other 998,000 people start to worry or somebody says their house price just went down, these are little thoughts that start to creep to the front of your brain. And they're the back of your brain. And human nature hasn't changed much in 5,000 years. There's this thing of greed versus fear. The market's going up, you're not worried. All of a sudden it starts going down and you start saying, "I remember my uncle told me, you know, somebody lost it all in the Depression. People were jumping out of windows. They were selling pencils and apples." It must have been a great decade to buy a pencil or an apple, but they were always -- there must have been everybody selling pencils. That start to -- we laugh about it. People start to think about these things with the market going down. These ugly thoughts start coming into the picture. Gotta get 'em out. You have to wipe those out and you -- you either believe in it or you don't.
Q.The fact of the matter is, in the America that we live in, there are a lot of people who feel they have no choice, that they have to be in the market. What do those people do?
A.Well, if people don't have the stomach, they really don't have it, the volatility's too much for them with the stock market, they can avoid it. They could buy money market funds and they'd get a little bit better than inflation. They will not get, in my opinion, the same return the next 20 years, the next 30 years they would get by buying stocks. That doesn't sound like much, but over the long period of time Treasury Bills and money markets have yielded a little bit higher than inflation, bonds have yielded five or six percent, and stocks have yielded a total of 11. The differences are massive over 30 years, but that's not a bad return to get a positive return. If you're worried, it's better than losing money.
Q.How do those people educate their kids and retire?
A.They have to save more. The public's not saving enough. Our whole system's all backwards. If you borrow money to spend, add addition to your house, it's tax deductible, you save money, they tax you on it. I mean the public has figured out very well there's no inducement to save. Our system is very confusing. We have the highest capital gains rate in the history of this country right now. The capital gains rates in Japan is zero. They have a 20 percent savings rate in Japan. We have to have a higher savings rate. No one's encouraging savings. And it's the one thing I remember from college is savings equals investment. For every savings of a dollar, money goes into capital investment, that yields more productivity, yields more jobs, yields better standard of living. We are not saving enough money. That's the most single important thing people have to do, they have to save some more.
Q.With so many people investing in mutual funds, let's consider two issues. Short-term profit....long-term stability?
A.Well, if corporate management's job is to make the company deal well and make a good job for employees, provide a good service, they know if they do something very slick, very fast and it works well for three months, their competitors will knock 'em off. They have to come out with a better product. They have to come out with better services. So I think the real issue is they have to think long-term and they're doing that. They have to say, "We have to stay competitive and we have to think about ways -- we just introduced a me-too product. That's not enough. It has to be a better product." And I think that's been the difference. "Can we lower our costs?" You see that with the telephone companies. You see it with electric utilities. You see it with broadcasting. You see it with gas companies, industries that never even thought of this -- publishing, just throughout all of the America in the retailing industry, better ways of delivering products. And it's a serious effort and it's a long-term effort. And they're trying to spend more and more time to say, "How can we do a better job? We just can't raise prices. That game's over."
Q.So companies get a bad rap for this short-term, long-term business?
A.Well, there is a group of people that buy companies, sell this division, sell that division, sell that off and divide it up and that's a very small minority. It doesn't happen very often. And they used to be able to use junk bonds. That day's over. They used to get a lot of money from the banking system to do an LBO. That day's over. So now a corporate buyer's a legitimate buyer. It's a major company buys another company. It's not somebody who puts a thousand dollars down and borrow 23 billion and then tries to sell parts off. So I think corporate managements are doing a very good job of saving companies. But a lot of times it's a tough decision. They don't like lettin' people go. No one enjoys that. The question is, if we can slim down and get more efficient, it'd be better off for 90 percent of the employees than "If we don't do it, we could become another Eastern Air Lines, another Pan Am and everybody loses their job."
Q.A lot of people worry that the mutual fund pressure has caused a lot of pain in this country ...
A.Well, I think it was the recession of '81 and '82 that was the wake-up call. It wasn't the stock market. It wasn't mutual funds managers. It's competition. It's competitor in the apparel industry. It's competition in the textile industry. It's competitor in the housing industry. It's competitor in the broadcast industry independent of mutual fund managers. Now you look at AT&T, about 11 years ago they broke up AT&T, had one million employees. One out of every hundred Americans was working for the telephone company. If you put together AT&T and all the Baby Bells today, you'd have about 700-- less than 700,000 workers and they're doing double the amount of telephone calls, twenty times the faxes, a hundred times the data communications, a thousand times the cellular with 30 percent less employees. Now is that good for America or bad for America? Would we be better off if they had two million employees? I think we're just better off that they have less employees and they're doing a better job.
Q.Why?
A.That's -- competition, because we have the lowest cost communication system in the world. It's the single most important thing. It's not the highway system. Communications is the single most important and we're the lowest cost. That helps us compete with the rest of the world.
Now hopefully these companies have done a good job when they had to let people go, they helped 'em find other jobs or they let people retire. I'm hoping they were good corporate citizens. That would be very good. That's important. So they just don't say, "Sorry, fellas. Sorry, lady. You're outta here." That would be not a very good thing to do. That'd be terrible. So that would be an abuse. That's not the way to treat people. But holding onto people and all of a sudden you have to cut everybody's pay by 10 percent and then cut everybody's pay by another 15 percent, then your whole company folds. No one wins by that.
Q.Talk companies that have gone public since the bull market started and the flow of capital ...
A.I get asked a lot by people, you know, "Where's this money that's going into mutual funds of my money? Other people's money. Where is this going to wind up?" One wonderful thing that happened, the last three years over a hundred-billion dollars has gone into initial public offerings. These are new companies coming public. We've had over 2,500 companies come public. That's over two a business day. These companies now have more money for equipment, more money for research. They have a better balance sheet. They can borrow more. They are going to hire more people and more jobs. These are going to be the companies like the next Staples, the next Federal Express, the next Compaq. That's what made America grow.
In the decade of the '80s the 500 largest companies eliminated three million jobs. We added 18 million jobs. This is the greed decade. The decade of the '80s we added 18 million jobs in the United States. There's 2.1 million businesses started. Some didn't make it, but they just had 10 jobs each. That's 21 million jobs. Some medium-sized companies grew to be big companies. That's what's made America grow. When the stock market does well the next two years or the next three years, that money's there. They've got it now. It didn't just go to a bunch of rich people. It went into the companies' treasuries. It's now being used for research & development. Companies like Amgen has come along and they have two one-billion-dollar drugs. Company didn't exist 20 years ago.
Q.So my money winds up in Amgen?
A.The money the public puts into mutual funds, a large percentage of that is wound up going into finance new issues. From '65 to 1995 in America we added 54 million jobs. The European Union, the old Common Market, has 100 million more people. In those 30 years, they added 10 million jobs. They added 10 million jobs in 30 years. We added 54 million jobs. There's 10 percent unemployment in Europe, 20 million people out of work. We are very lucky we've had these companies come public. That's what made this country hold together. Business has done a terrific job. We ought to be very happy. I don't think 2,500 companies have come public in Europe since Charlemagne, and I think he became King of the Francs in 788. This is a wonderful thing we have in this country, this initial public offerings, putting money into small and medium-sized companies and let them grow.
Q.Do you think Vinik got a bad rap, too much emphasis put on short-term record?
A.Jeff Vinik ran Magellan Fund for a little over four years. It beat the market. It beat 80 percent of all other funds. So if you went somewhere else, you would have been in the 80 percent that lost out to Magellan. Now the last nine months Magellan didn't have a great record, but when you have a basketball game and at the end of the game its 105 to 85, they don't say to the team, " the third quarter you lost by 32 to 22. What happened to the third quarter?" I mean I think a four years is a reasonable period of time to look over a record. I think Jeff Vinik did a very good job the time he ran Magellan.
Q.Too much scrutiny is unfair at this point?
A.Well, I can't say whether there's too much scrutiny or not enough scrutiny. I think there's a lot of watching of the largest fund in the country. The question is, can it continue to beat the market like it's done under Morris Smith, under Jeff Vinik, and under Bob Stansky. And it's still a very small percent of the market. I mean 50 billion is a very large number, but when you think the New York Stock Exchange is five-and-a-half trillion. If you look at the hundred largest stocks over-the-counter, there's another trillion. You look at the 200 largest stocks overseas is several trillion, I mean it's not a very small -- it's a very small percentage of the available market. All you have to do really is find the best hundred stocks in the S&P 500 and find another few hundred outside the S&P 500 to beat the market.
Q.That's all?
A.That's all you do.
Q.What was Magellan's size when you left?
A.When I left Magellan Fund, it was 14 billion.
Q.And where is it today?
A.Today over 50 billion.
Q.What has caused that incredible influx of money?
A.Well, part of it, the market was 2700 when I left. You know, and before today the market was 5500. So, the market doubled, plus dividends has brought a lot of it, and people already were there. So they kept adding. So every year people kept adding money and as it's gone up, it was up over 35 percent in 1995, I mean those compound to give you very big numbers. So it's some people adding do it and the fund doing very well. It went up when Morris Smith ran it. So it's gone up a lot in six years.
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