Friends,
We have different Face Value (FV)stocks.They are 100 paidup, 10 paidup, 5 paidup, 2 paidup and 1 paidup.
100 FV are now very less barring couple of them.Usually we have FV of 10 most of the time and then 5 FV , 2 FV and 1 FV.
The reason Co split it to 5 ,2 or 1 paidup is for the liquidity.That is the main reason to do that.When the stock goes so high investors can't buy it so big quantity.eg Titan Ind.It went upto 3700 something and if someone wants to buy 100 shares then he has to dole out Rs.3,70,000.That is a huge amt for small Investor and hence the management decided to split it to 1 paidup so for buying 100 shares one will need only Rs 37,000.
But then the eps will also come down as it will be divided by 10.Once the floating stock become bigger , it takes more time to move up and that is for the simple reason that people trades more and invest less.People trade for 1 or 2 rupees in any counter up or down and hence the prices keeps fluctuating in a rangebound manner as now they can buy 200-300 shares on any day and sell it for 1-2 rs profit.
Well, that is why I use to write here that try to pick stocks which are still 10 paidup or 10 FV.This way we get chance to get splitting of shares which will multiply our holding according to the splitting of shares and hence we have chance to sell part of them and still left with good quantity.
But when we start buying already splitted stock, we need to remember that for earning profit and showing as EPS it will have to earn 10 times more then 10 paidup and for that the Co needs to be so excellent that it can keep matching the bottomline even at 1 FV or 2 FV.It is always comfortable to buy stocks with 10 paidup rather then 1 paidup or 2 paid up as the eps remains high and if the stock is still not spotted by players we have chance of a multibagger return.
Stocks that are splitted has already become multibaggers barring few penny stocks.So expecting multibagger return from splitted stock is a high expectation.
Let me explain it this way.
If a Co stock is 1 FV and have eps of 4 that means the eps is 40 for 10 paidup and hence the price of 1 paid up is also like wise the price is also less but sometimes we get decieved by it in the way that we look at the price and forget to look at Mcap, Sales, EPS etc and as it is quoting low we buy it just like J M Finance and that is my concern and as I wrote above Titan Ind is already a multibagger and still will give multibagger return because it has a strong product line while is acknowlodged internationally but that do not happens with all splitted stocks.
So why get deceived buying 1 FV , instead why not try to buy 10 paidup shares?
It is complex to understand but usually what happens is this splitted up stocks quotes high and if with little slowdown in profit the stocks tank and then it takes lots of time to move back to original levels as the market players has already sold it out and will not tocuh it again.
Just a simple example I can give is again JM Finance and Vijaya Bank.Vijaya Bank is 10 paid up and has an eps of almost 10 and is trading at 5 P/E.The sales is Rs 5844 cr and Mcap is Rs 2450 cr which is quoting at half of Sales/Mcap ratio.That is a good deal.I like Vijaya Bank and it is a buy according to me on every dips.The reason I like is they have collobarted with LIC for insurnace product which I read 1 year or so back.That is a good deal for Vijaya Bank as selling product of Insurance under LIC will do whole lot of good for the bank.If I am wrong, please let me know about it.
So always try to look at the Sales and Mcap ratio and try to look whether it is in favour of Mcap.If Mcap is less then sales then it is a good deal as one can say that the Co is going cheap.
Those who are tracking me must have noticed that I have given many stocks just looking at Mcap/ Sales ratio and have been succesful as well.Ofcourse others things needs to be looked upon but Mcap and sales are very important parametres not to be ignored.
So as written by one of the reader, SEBI can't do anything here.It is company's management decision what to do with their shares.Whether they wants to keep it as 10 FV or wants to split it to 5 FV or 2 FV or 1 FV.
We have different Face Value (FV)stocks.They are 100 paidup, 10 paidup, 5 paidup, 2 paidup and 1 paidup.
100 FV are now very less barring couple of them.Usually we have FV of 10 most of the time and then 5 FV , 2 FV and 1 FV.
The reason Co split it to 5 ,2 or 1 paidup is for the liquidity.That is the main reason to do that.When the stock goes so high investors can't buy it so big quantity.eg Titan Ind.It went upto 3700 something and if someone wants to buy 100 shares then he has to dole out Rs.3,70,000.That is a huge amt for small Investor and hence the management decided to split it to 1 paidup so for buying 100 shares one will need only Rs 37,000.
But then the eps will also come down as it will be divided by 10.Once the floating stock become bigger , it takes more time to move up and that is for the simple reason that people trades more and invest less.People trade for 1 or 2 rupees in any counter up or down and hence the prices keeps fluctuating in a rangebound manner as now they can buy 200-300 shares on any day and sell it for 1-2 rs profit.
Well, that is why I use to write here that try to pick stocks which are still 10 paidup or 10 FV.This way we get chance to get splitting of shares which will multiply our holding according to the splitting of shares and hence we have chance to sell part of them and still left with good quantity.
But when we start buying already splitted stock, we need to remember that for earning profit and showing as EPS it will have to earn 10 times more then 10 paidup and for that the Co needs to be so excellent that it can keep matching the bottomline even at 1 FV or 2 FV.It is always comfortable to buy stocks with 10 paidup rather then 1 paidup or 2 paid up as the eps remains high and if the stock is still not spotted by players we have chance of a multibagger return.
Stocks that are splitted has already become multibaggers barring few penny stocks.So expecting multibagger return from splitted stock is a high expectation.
Let me explain it this way.
If a Co stock is 1 FV and have eps of 4 that means the eps is 40 for 10 paidup and hence the price of 1 paid up is also like wise the price is also less but sometimes we get decieved by it in the way that we look at the price and forget to look at Mcap, Sales, EPS etc and as it is quoting low we buy it just like J M Finance and that is my concern and as I wrote above Titan Ind is already a multibagger and still will give multibagger return because it has a strong product line while is acknowlodged internationally but that do not happens with all splitted stocks.
So why get deceived buying 1 FV , instead why not try to buy 10 paidup shares?
It is complex to understand but usually what happens is this splitted up stocks quotes high and if with little slowdown in profit the stocks tank and then it takes lots of time to move back to original levels as the market players has already sold it out and will not tocuh it again.
Just a simple example I can give is again JM Finance and Vijaya Bank.Vijaya Bank is 10 paid up and has an eps of almost 10 and is trading at 5 P/E.The sales is Rs 5844 cr and Mcap is Rs 2450 cr which is quoting at half of Sales/Mcap ratio.That is a good deal.I like Vijaya Bank and it is a buy according to me on every dips.The reason I like is they have collobarted with LIC for insurnace product which I read 1 year or so back.That is a good deal for Vijaya Bank as selling product of Insurance under LIC will do whole lot of good for the bank.If I am wrong, please let me know about it.
So always try to look at the Sales and Mcap ratio and try to look whether it is in favour of Mcap.If Mcap is less then sales then it is a good deal as one can say that the Co is going cheap.
Those who are tracking me must have noticed that I have given many stocks just looking at Mcap/ Sales ratio and have been succesful as well.Ofcourse others things needs to be looked upon but Mcap and sales are very important parametres not to be ignored.
So as written by one of the reader, SEBI can't do anything here.It is company's management decision what to do with their shares.Whether they wants to keep it as 10 FV or wants to split it to 5 FV or 2 FV or 1 FV.
Hi Rajeev,
ReplyDeleteGood to see you back in teacher mode!
Yes. Your point is so correct.
I think the best example not splitting / bonus is WB's Berkshire Hathway.
Means see whats its CMP. And WB has never ever given any split / bonus. But have only issued class B shares.
He himself has said he is very happy even if nobody trades his share. But just for increasing liquidity he is not going to split the share.
Because as you said correctly once the price comes down it becomes more of speculation and not investment.
Now example of how much people are in favour of splitting of shares.
Check the following link
http://www.moneycontrol.com/livefeed_pdf/Sep2011/CRISIL_Ltd_050911.pdf
It basically shows the result of postal ballot for splitting of CRISIL shares.
Means 48 lac votes in favor and only 49 against the split!
I find this really very strange.
But anyway chalata hai!
Regards,
Vikas
Hi Rajiv,
ReplyDeleteVery good post on fundamentals. Here i have to say one thing. I met Vikas in some other blog and he suggested me your blog. He told me to read all the posts in your blog and the comments in each post. I am doing the same. I am learning so many things from your blog.
thanks a lot to rajiv- for having such a wonderful blog.
Thanks a lot to Vikas - for letting me know such a wonderful blog.
RESPECTED SIR,
ReplyDeletewas tracking 1 of ur old picks a.k.capital....1 item in the latest agm was VERY interesting,possibly because no further disclosure was thought necessary...in the latest agm it seems that a co. with a mkt cap of 145 crore at that is-
item no.
7. Enhancement of investment/loan to, and/or providing guarantee/security on behalf of, subsidiary company (s) / associate company(s) upto an extent of Rs. 750 crore.
please tell me what is for or if im missing something
also wondering if u kud have a luk at very cheap microcap TEESTA AGRO (it is also one of the 1st posts on my blog....PLEASE COMMENT)
reqesting permission to post the link to your last post if possible .
respectfully urz,
i wanna b rich
p.s @vikas thx 4 introducing me to many interesting blogs (that i saw on ur profile)
iwnnabrich,
ReplyDeleteu can put the link of my last post at ur blog....Teesta Agro is looking good...by way of pref allotment they are increasing the stake in the Co and Mcap/Sales ratio is also in favour of investor.They are taking stake at Rs 18 while CMP is 10.....that is positive too....but will take time to move......
Hi,
ReplyDeleteThanks to both Srav & iwannberich.
I am just the connecting link here.
But must say have been following Rajeev's blog since 2 yrs now.
Its really great the way he puts the subject so straight and so practical (Common-sense).
iwannaberich, I came to know about RadhaKishan Damani (RKD) from Rajeev only.
Regarding AK Capital, I gave a serious thought but stayed away from it once came to know RKD has reduced his stake in AK Capital.
He had 2.55 lac shares but as per latest share holding it has reduced to 1.55 lac shares.
Dont know if he sold it so as to buy Delta Corp.
But still he holds 1.55 lac shares.
I also take this opportunity to re-post a link of RKD' stocks
http://www.rmdhar.com/index.php/2011/09/11/radhakishan-damanis-multibagger-stock-portfolio-picks/
Thanks,
Vikas
Thanks for the education :) Unfortunately, I have JM Financial :(( Anyways, no point crying spilled milk.
ReplyDeleteAm considering Manappuram, what are your thoughts on it? I love the growth trajectory of this company.
Xintel,
ReplyDeleteAgain u r making the same mistake.U r talking of buying Manapuram Fin which is 2 Fv stock.
So at cmp of Rs 52 it is 260 for 10 fv.
I donno why y want to buy already splitted stock?
Apart from Vijaya Bank, I like Central Bank Of India as well in finance sector.....
Well, I gave my view now it is upto u to decide whether u wants to go with Manapuram Fin or something else.....
Oh Ok...I get it! Therefore, Himalaya International, which is a 10 FV stock, and has a decent enough EPS is a better buy at 22 to 25 range.
ReplyDeleteThanks!