Cimmco Birla Ltd...cmp Rs 115.60.....looking up and looking good....

Umesh Choudhary, MD of Titagarh Wagons, in an interview with CNBC-TV18's Latha Venkatesh and Gautam Broker, gave his perspective of the fourth quarter performance and their divulged future plans.

Below is the verbatim transcript of the interview. Also watch the accompanying video.

Q: Could you take us through CIMMCO's performance? Will there be a substantial jump in the performance of the consolidated entity, now that you can draw synergies?

A: Yes, absolutely. As far as CIMMCO is concerned, it has performed only for one full quarter as of now. After a period of prolonged closure for almost ten plus years, we declared our first working results for the quarter ended March 2011. In the nine month period, we have done a turnover of Rs 117 crore.

As far as the quarter is concerned, we have done almost Rs 110 crore. Primarily, the entire turnover has come in the Q4 of the current year or Q3 because it is the nine month closing that we have done for the last year.

If we look at that benchmark, CIMMCO should become a substantial contributor to Titagarh’s results going forward. As far as our French subsidiary is concerned, we have restarted the operations of that company which was in rough weathers. We have received some good orders there. The dispatches have started taking place. We have dispatched our first lot of wagon last month from the subsidiary.

Now, the order book has started to build up. We recently signed up some additional orders. We have been able to get an order book of almost close 35 million euro in AFR. Going forward, we should be able to build that up substantially well.

Q: In the CIMMCO results, there are a lot of auditor comments with respect to money payable to creditors. There is also something about raw material lying in bonded warehouses. Will all this impinge on CIMMCO's P&L in FY12? Will they be hitting the FY12?

A: As far as the comments are concerned, CIMMCO has been a company that was lying close for almost 10-11 years. If we compare CIMMCO's balance sheet to the earlier balance sheets, we have cleaned up a lot of what we considered to be unrecoverable or unreceivable amounts that were standing on the books.

What is residual is what the management believes is recoverable or receivable. We do not envisage that there should be any hit on CIMMCO's books going forward.

If we had considered these to be potential serious liabilities, then we would have like the other liabilities cleaned them up as well. It's only a management expectation or our assumptions that we are hopeful of recovering this entire amount.

Q: Titagarh grew by 26% in FY11 and Cimmco’s sales were about Rs 107 crore. What kind of a run rate can be expected in FY12? Do you think this 26% run rate will be maintained?

A: As far as Titagarh is concerned, we have been able to grow reasonably well in FY11. Our endeavour would be to maintain if not exceed that rate. I would not make any forward looking projections, but that has been our endeavour.

In the past few years except for one year where the general economic scenario was not healthy, we have been able to show at least this much of a growth every year.

As far as CIMMCO is concerned, it would really not be comparable because we have worked only for one-and-a-half quarters in the current year.

The growth in percentage terms would be much larger, but we hope to maintain that kind of run rate that we have demonstrated in the last quarter. We have a good order book available in CIMMCO which will take us through to at least good part of the year.

The next year’s tenders as announced in the budget by the former railway minister should be out anytime. These orders generally are expected to be placed by September-October. I am hopeful of being able to maintain that run rate. The company should be able to do the same results.

Q: As you mentioned the order book seems to be decent, the question then boils down to execution. How many deliveries can be marked in FY12, both from Titagarh and Cimmco?

A: As far as Titagarh is concerned, we did total wagons of about 3,000 wagons in FY11. We have crossed 1,000 wagons in Q4 itself where we did about close 1,100 wagons. Now, we would like to maintain the run rate subject to all the orders being placed on time.

There are a lot of free issue materials that the railway has to give. They are being able to give those on time, but the physical performance has been established in Q4 wherein we have done more than 1,000 wagons.

In CIMMCO for Q4 or Q3 March quarter, we did about 450 wagons which get us to an annualised capacity of close to 1,800 wagons. This was the first working quarter, so we are gradually trying to enhance our capacity there. We hope to exceed the 450 number that we did in the March quarter.

Q: How many wagons is the railway department is expected to tender for? How much of that would be your share?

A: The total number of wagons which were announced by the railway ministry budget was 18,000 wagons. I cannot predict the exact quantity because this is the tendering system which has a certain percentage or large substantial percentage of orders that are placed based on past performance.

Going by past trends, Titagarh has been receiving close to 20% of the wagon orders placed. It was CIMMCO’s first year in operation. About 18-20% was Titagarh and CIMMCO got around 10% of the market share in the first year. Even if we maintain the same percentage, we will reach the desired numbers.

My Comments:
Cimmco Birla Ltd was a Birla Co and something went wrong and went in for a huge accumalated loss.
The Co has come out from BIFR and that is a positive for the Co.
Now let us go through the capacity.
The MD says that Titagarh Wagon has the capacity for 4400 wagons/year and Cimmco has the capacity of 1800 /year.
So Cimmco has almost 50% capacity for producing Wagons in compare to Titagarh Wagon and I think that is an excellent capacity for a Co which was in loss for last decade.
The MD also says that they had cleaned up all the books and all left are receivables, good enough to get them back.
Cimmco has shown an excellent turnaround showing a sales of Rs 110 cr and a profit of 12 cr for the qr ended Mar 2011 giving an eps of 5 for Mar qr.on eq of 20 cr.
Promoters hold over 80% and sales should come to 500 cr for next 1 year.
It may happen that Eq may go up but still I feel that will be taken care of.According to me future looks bright for Cimmco Ltd and the stock is showing strength now and may come down after intial euphoria due to excellent results.
One can accumalate Cimmco now and on dips.

What is the game named F&O?

 Friends,

We need to understand how F&O works. It is hard for a simple investor to understand these dynamics .That is the reason I have picked up this topic.

F&O is a comlex game.Understanding it is hard and easy both.Easy in the way once you know what is happening you stay away from it.Hard in the way that how players plays it very hard to understand.

Remember one thing in market. Lay investor is a very small player.Very small, I can call him a tiny player.He wants to make money quickly and wants to become a millioner as soon as possible.That is never possible in F&O.

The simple things a small investor do is buying either a future or sell a future or either buy a call Options or buy a Put Options.How many Futures or Options a small investor can buy? Maximum one , two or three or maybe five.Now does that makes sense where the F&O Vol is in billions of rupees? No.

So let us now understand what is F&O.There are big players who writes Futures and Options.They are real BIG players.They have access what is going to happen tomorrow.They have inside information or they have access to international market what is going to happen in night when India will sleep and west will be doing business and that effect we are going to see the next morning.These people have prior information about what will be coming up internationally and domestically and likewise they play the cards.

It is obvious that whatever a small player will buy in F&O has no effect on market because the stake is not high. One thing one need to understand here is until someone do not sell one cannot buy.Either it is stock in delivary or F&O.So someone is writing F&O and that too in BIG way. Who are they? These are Big players like FII’s or Big players like RJ, RD, NS etc.

If FII’s are writing the F&O then they have access to the world market and accordingly they write F&O. Like say they know that tomorrow the Int market is going to go in tail spin and hence they wrote more call options and futures and in the morning market tanks by 200 points in sensex and 70 -80 points in Nifty.That’s it.That is what they need.They square off their position in first hr of trade.It is not possible that they can square off whole trade they have written but even 70% trade is squared off  they can sell rest at loss and still make huge profit as the Vol is huge for them.

Let me give you an example in Indian Context.

Suppose Rakesh Jhunjhunwala is holding some 40-50lacs shares in Orchid Chemical Ltd.He feels that as the sentiment is bad now and even after the good results the stock will come down by say 50-60 rupees  and so he decides to sell Orchid Chem delivary of 20 lacs shares in delivary.So he has decided that he will be selling Orchid Chem 20 lacs shares. Now it is not possible for him to sell all 20 lacs shares in market at same price as when such a huge delivary comes in market , there needs to be a Buyer at same price to absorb all selling but that never happens.So he knows it very well that he will have to sell below the close price of yesterday.So what he will do to makeup that loss?He will write call Options or sell futures and the trade gets reversed in the hand of lay investor.

Understand the trade. RJ is writing Put Options which becomes Call options in hand of lay investors. Like I said, someone needs to sell something for someone to buy and hence there is one seller and there is one buyer. Seller feels that stock will go down and buyer feels that stock will go up. So one is bearish and one is bullish. Now the bearishness can be of any nature.He is Partially booking profit or wants to sell because he feels that the stock is fully valued. So here someone is selling put options and some is buying Call Options.So when the price of Orchid Chem tanks, the Call Options premium get lesser and lesser and investor starts selling seeing the price of premium going down and at the end of the months the premium become ZERO and so will be the case in Futures and investors lose money by losing the amt they paid for premium in Call Options or premium for buying futures of that stock.

So in this case that we have taken as an example, as RJ has already decided to sell 20 lacs shares of Orchid Chem and he knows it that price is going to go down he write call options  and sell Futures in huge quantity and makes money there as well and makeup the loss in price difference what he sells in delivary.
Same thing happens when he or FII’s are going to buy something.What they will do is first they will make a position in buying Futures and buying Call Options .They will place buy orders for F&O in  huge quantity  then after some days they will place a BUY orders for that stock in delivary and the price will automatically go up and they will make killing in call Options and in Futures as the premium will go up in F&O.

One can see from the above example that it is hard to win in F&O and that is why I write always, “Don’t Play in F&O”……….It is not our cup of tea.Stay away from F&O.People have lost everything playing in F&O and when one make a loss then he will try to make it up playing the same thing.That is human nature.He tries to make up the loss while trying same thing and he keeps dreaming that one day he will make up all the loss and that day never comes....

I have tried my level best to explain the game named F&O is played giving examples.I hope readers will understand these and act accordingly.Many readers has written me that the manner in which I explain here is a rare to see somewhere else.I explain it in a very simple way where anyone can understand it.Be it a stock, or any other parametres.I hope this time also readers will understand it very easily.......

B L Kashyap Ltd....cmp Rs.21.30........Excellent buy......

Friends,
This market is giving us an excellent oppertunity to lapup some extraordinary stocks at throw away price and one of them is B L Kashyap Ltd.
After giving 1:1 Bonus and splitting it in 1 paidup the stock has taken a beating and I feel that it is beaten down badly then what it needs to be.
But that is market .When the selling comes , everyone wants to sell and that is the time we gets oppertunity to buy those beaten down stocks at throwaway price.These stocks are fundamentally sound stocks and according to me, anything over 70% stake by promoters becomes a sound fundamental Co.
Ofcourse , the sales,profit needs to be seen but if promoters are holding over 70% stake then one can be very sure that promoters have great faith in their Co and hence they are holding 70% and over stake.
Well, when the stock will run is another matter.That depends upon market sentiment, what Co is doing, how the earnings are discounted etc but my view says that any Co with a reasonable amt of sales and NP, and promo holding 70% and over stake , become a stock to go deeper and have a look.

Coming back to B L Kashyap Ltd, the sales should come around Rs 1400 cr this year( Mar 2011) as the last qr result is still  not declared.The Mcap is around Rs 437 cr and hence the Mcap and sales ratio favours Mcap so it is a buy according to me.
Rest of the digging I leave it for my readers to find and take a call.......

Sunil Hitech...........Bouncing back........

Friends,
When I recomended Sunil Hitech there were many questions asked about the credibility of the management.
I recomended at Rs 174 and it has gone down but at this price it is looking excellent for LT.
The Mar qr results are out and has come out excellent as Co has posted profit instead of loss in last year same time.
Last year in Mar the loss was of 4 cr and this year it has turnaround exponentially and made a profit of 14 cr  ending the year with 27 eps against 19 last year.
The Sales and Mcap ratio is still in favour of the Mcap and hence there is a very decent scope of getting excellent retrun from hereon.
I know when I recomends some stocks no one is ready to believe it.Prima facie ,the stock may not look attractive when I recomend it here but ultimately it comes out good.
While talking on Sujana Towers, after it splitted to 1 paidup it was around rs 25 and recently made a high of 46 which on 5 paidup, the original value comes to 230 which is the recent high we saw.
That says that Sujana Towers is at the same price it made recently.
For example if someone bought 1000 shares at say 35 for Rs 35,000 then after splitting it becomes 5000 shares as it gets split in 1 paidup and at todays cmp of 35 , it fetches rs 1,75,000......
and that is 5 times return from my call.....or even more...as I forget exactly what price I gave the call.......
One more update I would like to make and that is I have to postpone my trip to India which I will make probably now around Diwali.....this year.....

Kaleidoscope Films...A case Study......

Friends,
I am tracking this stock since long and hence I decided to write today on this.
It is in Media sector and nothing to boast on sales and profit .It's FV is 1 and hence at Rs 38 , it is Rs 380 on 10 FV.
But still the stock has made a high of Rs 42 recently and still at 38 even today.
Now let us go back and see from where it came from and where it reached.
In 2006 it was 82 paise around july , means .82 and then it went up to make a high of Rs 5.80 in 2007 in Jan and then again it went down to 2.81 in Oct 2007 and then again made a high of 8.40 in Jan 2008 and then again went down to 38 paisa in Dec 2008 and then for the 7-8 months in 2009 it remained below Rs 1 around 90 paisa untill almost July 2009 and then slowly and steadily moved up from below one rupee to Rs 42.........
The point to note here is from 39 paisa to 5.80 and then again 2.80 and then to 8.40 and then again to 98 paisa and then the BULL RUN.......so investors were twice deceived to throwaway the penny stock and take exit from it.......
Isn't that a great run.......from July 2009 at 98 paisa to rupees 42 in Apr 2011.Means in almost over one a half year the stock has become a 42 bagger!
So sometimes even penny stocks which we feel is now no good and keeps on going lower and lower gives  excellent return.
The point I am trying to make is even if someone has bought a penny stock and it keeps on going down and down , one needs to hold on with it because we never know when such stocks will start making move and give mutiple returns.
A stock quoting at 40 paisa in 2006 is giving 100 times return in 2011.5 yrs.....is what one should be holding....and one can hold in thousands or even lacs shares ....at 1 rupee or 40 paisa.....
That is market.No one knows what is going to happen next.What is there in store for any stock.
Remember my one sentence always......
Untill the stock is not cornered by players it will never run.There should be paucity of floating stock and there shouldn't be any sellers.So, for cornering shares it can take 2 yrs, 3 yrs even 4 yrs as we saw in Kaleidoscope Films.
And when the run starts there is no looking back.It is all boasting that I bought this stock after looking the credentials and I made money.Untill you are lucky to make money one will never make a big money in stock market.
That's it.....

 

Midcap/smallcap is where the return is......

Q: You are talking about stocks selections. Good old fashion investors would say, “If I am buying over the next three-six months, I would buy some really good blue chips names like ICICI Bank, SBI, L&T, TCS kind of stocks and over a period of time make a lot of money.” But increasingly when you talk to people they seemed to prefer midcaps. They think there is more juice in that and largecap is boring. Do you see enough value in the largecap universe if you are buying as an investor?

A: Timeframe is of importance here. If you are taking a two-three or four year call, history tells you that you actually make money on only mid- and smallcap. So they handsomely outperform largecap. I was on the plane ride, conversing with a very seasoned stock market player and we were reminiscing about the early 90s and the type of stocks that were in those days.

There were all these big stocks. They were all Sensex components and they are no longer there. They don't even exist as companies. We had done one exercise, which went back to 1985 and almost invariably when a stock get's into the Sensex, that’s the end of that stock's story. It doesn't actually outperform the market from there on.

It is midcap and smallcaps for sure. There will be a few largecap winners but the odds are mid- and smallcap portfolio will outperform handsomely. That's what they have done in the last 20-40 years.

My Comments:
If someone is reading me religiously then they should be knowing that I always write on Midcap/Smallcap and the reason is the biggest return always comes from Midcap/Smallcap which I have been pointing since long time and which the Ridham Desai from Morgan Stanely has spoken recently and which I have highlighted here.
I remember I had once also written long back  that as soon as stock goes in A gr and F&O the stock start underperforming and the same vision has been shown from Morgan Stanely.
Well, I also just today read that Morgan Stanley is bullish on India for LT.
The Midcap/smallcap has been battered in this downfall and it hasn't made a comeback even when market has gone up.
There are still experts and analyst who still feels that market will make new low or the downside in market is still left .I donot agree with them.They have always reasons for what they say.