Persistent - a small story

Hi,

I have often been asked this question, as recently as last week. How to identify winning stock? I delivered one presentation (uploaded on my LinkedIn) on this subject of how to identify a winning stock. 

I would like to today sight a real example where we identified a stock, Persistent, that has delivered another stellar performance. Persistent was identified at a price close to Rs. 300 about 2 years ago. Now at 1000 + dividends. 

Frankly speaking, I have not done a very detailed financial analysis about Persistent (forget about financial modeling). A quick glance at numbers was sufficient, my presentation "how to identify winning stocks" was handy. So that allowed me to spend time somewhere else.

Phil Fisher said that if you want a detailed and accurate picture of 5 companies then go to five of them/their vendors, ask each of them intelligent questions about the points of strength and weakness of the other four, and nine times out of ten a surprisingly detailed and accurate picture of all five will emerge.

I went to five of my friends, relatives (little bit inputs from my side too) who understand technology industry, technology environment of/ challenges/ opportunities available to Persistent. Since Persistent operates from Pune some of them could give me inputs about the quality of its management. One of them worked, from Persistent's client side, on a highly acclaimed product that was delivered by Persistent to its client. These inputs were very very critical. This is how a decision was made to invest in Persistent. So really speaking, it was not a rocket science to identify Persistent. Why to waste time in building a rocket/model? Sometime a rocket/model may be required but most of the time NOT.

Disclosure: I am holding this stock.

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Persistent Systems delivers another strong quarter

Persistent Systems reported another strong quarter, with 2.2% quarter-on-quarter growth in dollar revenue and 5.6% rise in profit after tax.

The company, which provides software product related services, is one of the few that has lived up to Street expectations, especially in the mid-cap IT space.

“We have delivered another strong quarter with 3.8% Q-o-Q growth in services and improved operational efficiencies. Our continued investment in technology has helped us establish leadership position in the Social, Mobile, Analytics, Cloud space,” said Dr. Anand Deshpande, Chairman, Managing Director and CEO, Persistent Systems.

“We continue to focus on products and IP-led revenue, tracking new industry trends, and encouraging innovative ideas that solve real-world problems.”

Persistent Systems reported a revenue of 69.94 Million, representing a Y-o-Y growth of 15.1%. In rupee terms, revenue was 4,327.57 mln, up 30.0% year on year. Quarter on quarter growth was only 0.1% due to the appreciation in the value of the rupee.

EBIDTA was Rs 1,197.25 million, up 45.3% year on year and 6.7% on quarter.

Profit before Tax (PBT) was INR 865.27 million, up 21.9% year on year.

Profit after Tax (PAT) came in at INR 641.98 Million, representing a Y-o-Y growth of 29.7% and Q-o-Q growth of 5.6%.

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Vinati Organics...

Vinati Organics is a gem. I identified this stock at around 64 levels sometime in Aug 2011. 

The stock today touched 218 and going strong. This is a return of, including dividend, 250%.

Professional management, worldwide leadership position in its segment, strong financial performance, dividend paying, high promoters stake, no pledging, low debt, cheap valuations and a history of performance coupled with right expansion moves made this company an attractive investment opportunity.

Later some of you bought @100 or so when I discussed this and I hope they enjoyed the ride.

We met with Pune Equity Group on Jan 4th and I discussed about Paper Products. It is another long term bet.

Please feel free to invite anyone that you feel would benefit from the discussions.

To understand the product lines of Vinati please use the below link. This will help to understand why we need to be bullish on Vinati (other than the financial factors): http://in.finance.yahoo.com/video/demand-products-remain-buoyant-vinati-073004369.html

Cheers,
Niteen S Dharmawat

On Fri, Nov 8, 2013 at 12:32 PM, Niteen S Dharmawat <niteen.dharmawat@gmail.com> wrote:

Hi,

Remembering that you bought/discussed Vinati at around 110 levels. After that it came down 85 levels. But now look at the stock. It is zoooming past 150...

We identify and bought Vinati for the first time at around 65 levels...

Enjoy...

Cheers,
Niteen S Dharmawat

The Paper Products - the power of undervalued stock

Delivered this presentation to equity investment enthusiasts in Pune. First slide was about recap of the earlier presentation delivered to the same group. Enjoyed interacting with the group.

http://www.slideshare.net/ndharmawat/the-paper-products

Your feedback is most welcome.

Cheers,

Niteen S Dharmawat

Pre-election year performance - Updates

I did this analysis about 7 months ago on pre-election year performance of the market. The market was hovering around 18500-19000 levels that time. Many were predicting that it will go down to 12,000. However, it went off exactly I talked about in my presentation. The market as of today has crossed 21,000 giving cool 12% absolute return or 20% annualized returns.

http://www.slideshare.net/ndharmawat/pre-election-yearperformance

Happy investing!!!

Cheers,

Niteen S Dharmawat

Importance of contrarian approach in stock market

Hi,

Delivered a presentation today to Equity Pune group. The theme was importance of contrarian approach. The first two slides were about recap of the earlier presentations delivered to the same group. Enjoyed interacting with the group. Please click here for the copy of the presentation

Happy investing...

Niteen S Dharmawat

We are now in a Catch-22

Just two weeks ago I wrote (read here) that with the depreciation of rupee, we are having a bigger risk of retail inflation (and also core inflation) moving up again at an unabated speed. There were people who privately wrote to me and criticized me for negativity. I am sure that after reading below details they will understand that the negativity was justified.

Today, we have got the July inflation numbers. The inflation surges to 4-month high. July Primary Articles inflation at 8.99% vs 8.14% in June. July fuel & power inflation at 11.31% vs 7.12% in June. July manufactured products (will be a part of the core inflation) inflation at 2.8% vs 2.73% in June. July WPI Inflation at 5.79 % vs 4.86% in June.

In other words, we are in a stagflation economy now. In simple words, we have inflation without growth. This is extremely difficult situation for any central bank (RBI) to control. Remember that the primary job of the central bank is to control the inflation. The central bank does this by giving away growth (RBI did this by increasing interest rates during last almost two years). But now we have already compromised the growth without any impact on inflation. RBI can not reduce the interest rates as inflation is still there and growth will not return unless the easy money is provided. We are now in a classic Catch-22.

God bless us!!!

Look forward to receiving your response/feedback/criticism/praise.

Regards,

Niteen S Dharmawat

IMPORTANT DISCLAIMER: Investment in equity shares has its own risks. Sincere efforts have been made to present the right investment perspective. The information contained herein is based on analysis and up on sources that I consider reliable. I, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and I am not responsible for any loss incurred based upon it & take no responsibility whatsoever for any financial profits or loss which may arise from the recommendations above. I sincerely request you to do your homework before you take any position whatsoever. I, my relatives or friends may have position in this company.

The return of the devil…

I am writing after more than 2 years. This was because of various regulatory constraints due to my last job.

Let me cover the macro picture today.

 

It would be apt to term it as macro “puncture” of the economy. We are in complete disarray and the government in office is making every last minute efforts to avoid the ‘big’ crisis that we are heading towards.

Generally, I am a very optimistic person but considering the current state of affairs, I have turned completely pessimistic. The road towards the recovery is very patchy and without predicting or speculating the outcome of the next loksabha elections, I am of the firm opinion that the current self-made economy woes will be hitting us hard.

We are now almost fighting a losing battle. We are unable to control the inflation despite having tighter monetary policies running in for almost two years. I warned multiple times earlier that inflation will come back. These articles are dated November 4, 2008, December 23, 2010 and January 30, 2009 (Click here for details: 1^st article, 2^ndarticle and 3^rdarticle).

According to people from the opposite camp, the time has come for RBI to ease monetary policies. They argue that the core inflation is at its lowest levels. For novice like me and to keep it simple, the core inflation is something that excludes items like energy, food products etc. The people from opposite camp forget that the retail inflation, which forced RBI to take stringent monetary policies, has not moved by an inch. Retail inflation is something that hurts middle and poor class the most when food prices go up. Now with the depreciation of rupee, we are having a bigger risk of retail inflation (and also core inflation) moving up again at an unabated speed.

The approach to control the inflation was grossly wrong. The inflation was visible before the last loksabha elections. So in a way, we are in the inflationary economy for last more than 5 years now. The government before the elections committed that it will control the inflation in flat 100 days if it comes to the power. It could have been done, had the government focused on fiscal disciple. This is where the government went wrong. They tried to cure the inflation which was because of fiscal issues by using tighter monetary policies of the RBI. This has broken the backbone of the corporate world esp. with high debt. The fiscal deficit was because of mindless spending on various so-called social schemes. Most of these schemes are unproductive and marred with corruption. The real beneficiaries do not get the most of out of it and the society at large is deprived of the scared resources.

The second problem which emerged was because we were importing (mainly crude, gold-silver, consumer goods/electronic items etc.) more than we were exporting (IT services, agriculture products, manufactured products etc.). This led to the Current Account Deficit (commonly called CAD) which means shortage of dollars. Now we needed more dollars to fill the gap created by CAD. There were two options: either we increase our exports or we get dollars through investment. The first one is a long process and with current situation world-over, we were left with only second option of going behind investments. Here, to get investment we had two options again. One was through Foreign Direct Investment (FDI) which is a time consuming process and would have required many fundamental changes in the economy. So we went behind the second option which was getting dollars mainly through Foreign Institutional Investors (FIIs). In technical language, we were filling in the gap created by Current Account through Capital Account. The money from Capital Account is easy money and has a risk of fleeing away quickly. If FIIs start pulling out money, you are heading for a situation similar to what Asian countries witnessed in late 90s.

The best would have been control CAD and that too much before. Our forefathers have argued to spend based on our means. But we conveniently forgot and stretched ourselves too thin and too long. The government has shown some signs of the courage by initiating policy actions. But it seems to be a case of too late and too little with seemingly little political backup due to looming elections.

My heart says that we are going to come out of this mess but my mind disagrees. I only wish that post elections; we get a stable government at center which takes constructive and firm decision on economy front. Till then I sign off and wish happy investing to all of you.

Look forward to receiving your response/feedback/criticism/praise.

Regards,
Niteen S Dharmawat


IMPORTANT DISCLAIMER: Investment in equity shares has its own risks. Sincere efforts have been made to present the right investment perspective. The information contained herein is based on analysis and up on sources that I consider reliable. I, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and I am not responsible for any loss incurred based upon it & take no responsibility whatsoever for any financial profits or loss which may arise from the recommendations above. I sincerely request you to do your homework before you take any position whatsoever. I, my relatives or friends may have position in this company.