Fundamental: Making money with turnaround...

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Making money with turnaround...

Printed From: The Equity Desk
Category: Market Strategies
Forum Name: Fundamental
Forum Discription: Discuss the operations and finances of any of your companies.Make the other participants aware on the investment opportunities available in a stock on PE free cash flow etc
URL: http://www.theequitydesk.com/forum/forum_posts.asp?TID=129
Printed Date: 04/May/2025 at 8:55am

Topic: Making money with turnaround...

Posted By: manishdave
Subject: Making money with turnaround...
Date Posted: 08/Aug/2006 at 5:57am

Whenever there is talk of multibaggers, there is almost always weight on growth stocks and rightly so. But there is big segment being missed and that is turnaround situations where you can make tons of money. And in certain situations turnaround companies become growth companies and that is icing on the cake.

How to identify T/O: As Jim says look for industry where all major players are loosing money. But tricky part starts when to buy? Look for catalyst. Example is boom in BPO sector. That led t/o in Hotels and most benifit went to Hotel Leela and Taj GVK. They did much better than EIH, Ind Hotels or even other smaller players because they had locational advantage. Leela went 10 to 400+ but no BPO gave that kind of return.

In T/O I would not look into industry of agarbatties or candles or something like that. It has to be big t/o in big Industry.

Next T/O potential:

It is hard to find T/O in such a booming period but not impossible.

Look at BPCL/HPCL:

Nobody likes T/O candidates before T/O happens. Companies are doing badly and no optimism. But is it possible that these companies go bankrupt and stop functioning? They have valuable assests. Refining margins world over are great. How can these companies loose money for ever. These companies used to make lot of money in past and has potential of same thing when(no question of if) govt. takes thier hands off. In tough time like this, even PSU companies have to tighten their belt too so there is automatic control on Cost. Good for long run.

When to invest?

This is not time to put 30% of capital in these companies and enjoy vacation. One can buy small qty now. As we all assume, oil price run is not over. So Govt will have to match market price with some time lag. Or give some tax break or give oil bonds or something that we don't know. So if there is runup in oil price, and BPCL gets beaten up add some. Ultimately Govt will have to match price. And at some point oil price will correct somewhat from higher price and Govt wont reduce price at pump or reduce less than mkt price, paying off for OIL BONDS.

These companies used to have EPS of 50-60 few years back. If you add some growth and some inflation their EPS should be higher as demand of their product is there. I dont think Govt can control price for ever or we will start seeing shortages and black markets. Gail is also there but in T/O most beaten up companies make you most money. If in big oil spike BP/HP goes to 150-200 it could muplty 5-10 times in future.

Replies:

Posted By: basant
Date Posted: 08/Aug/2006 at 8:52am

Great Point you made but I think if ever there was a time for timing to matter it was in investing in turnarounds.This is so because as we know no one can catch a botttom and the chances of losing 20 - 30% of investments after purchase cannot be ruled out either.No brokerages/ research report recommends turnarounds at bottoms.

Today I guess every one knows that BPCL and HPCL are values, They are available at almost close to book value but investors are more obsessed with the opportunity cost of capital . Holding a non performing stock in the heart of the bull market reduces opportunities to buy the fancied sector and hence even though there is value people are not buying.The discipline is to overcome that opportunity cost phobia

I remember you having bought Triveni Glass in late 2004 and the stock went up some 10 times after that. Could you outline what you saw in Triveni glass before the stock went up 10 times?

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'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in

Posted By: Vivek Sukhani
Date Posted: 08/Aug/2006 at 10:33am

I agree with Mr. dave in totality. I think the skill lies in picking yp the under-current and not something which is obvious.If one is bullish on infrastructure plays, then we need to think in totality. Its not only the infrastructure comapnies which only benefit. there are other sides to the paradigm. There are some equipment manufacturers, there are leasing and financing companies,there are raw material feeders, which also benefit.And the lesser the number of players be in a field, that will be the maximum beneficiary.

Posted By: manishdave
Date Posted: 09/Aug/2006 at 4:06am

Even we invest in value with discipline, timing IS important and opportunity cost in bull maket is REAL. One has to figure out if potential is much bigger than opp. cost. One way to invest slowly and on dips so lost opp. cost is less. Other way is take small position so you watch company and when there is break out with volume invest with bang.

Glass Industry: All started back in 1997. Indonesia built many Glass plants in euphria. Then economy tanked and so demand went down drastically instead of going up. Currency went down to so exporting was very easy for them. They flooded world mkt in glass and created havoc. In India Float Glass India, guardian, Haryana Glass, Gujarat Glass etc. started new capacity so there was already over capacity and with imports from indonasia killed everybody. Then Manmohan Singh's 18% interest rate and slowdown in real estated in 98-99 was additional problem. All companies were deep under water. Triven which once quoted over 1,000 went to Rs. 1. Mkt cap of company was less than 1 Cr and sales then was more than 100Cr.

BV was positive but the way they were loosing money .It was bound to go nagative but then Interest rates started coming down fast, it was obvious that construction was going to boom and glass use was increasing fast. Also lenders were helping companies in restructuring loans. At one point they were paying more than 22% of interest and late payment fee. All these was not management problem, it was industry problem. So I thougt it was worth taking risk.

Trivni was riskiest T/O that I ever bought. But it moved fastest. In 6-8 months went from 5 to 100+. Right now saint-gobin added capacity so there is some overcapacity in industry and Triveni used oil as fuel so I think that is also problem. But with construction industry glass sagment is one to watch.

********

I would like to add one more point into T/O: Avoind copanies that T/O every three years. For Example Samted color. This company looks great every three years. Real T/O is one that big is sustainable. For example Hotel Leela or something like that. Textile is tricky T/O too. One has to look at them differently. If yuan appreciates and labor shortage/wages becomes problem in China it can be sustainable T/O otherwise I would avoid textile T/O.

********

Vivek:

You are right. One example is Kaktiya Cement. Great T/O. Company was not loosing money but was making small profit. But cement in Andhra is T/O and company is on track to post EPS of 20-25. Price is almost same as BV around Rs. 105. Good managemet. Good cashflow.

ISMT is other candidate to watch.

I would like stock ideas on T/O from other members too.

Posted By: reema
Date Posted: 09/Aug/2006 at 9:48am

Ramesh Damani recommends 3 shares HOCL, Mount Everest Mineral Water and Mangallam Timber as turn around companies. WHile all 3 are down 50% from the time of being recommended Damani feels all these shares can go up by 5 times over the next 2 -3 years.

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You should try to add wealth not multiply it

Posted By: basant
Date Posted: 11/Aug/2006 at 2:05pm

Rain Commodities (CMP Rs 114) is a good turn around candidate. You may read about it from the following link

http://www.theequitydesk.com/forum/forum_posts.asp?TID=140 - http://www.theequitydesk.com/forum/forum_posts.asp?TID=140

Posted By: manishdave
Date Posted: 11/Aug/2006 at 5:27am

that looks good..

Posted By: manishdave
Date Posted: 19/Aug/2006 at 2:21am

Reema,

HOCL is T/O candidate but T/O depends on sale of property. I would like to get t/o in operation. Managlam timber is ok on that count. But good point.

I would like to add couple of T/O candidates:

ISMT: Company makes seamless tubes and it merged with ISSAL - a steel company.

VSNL: Company's purchase of TGN was for 6 paise on cost of 1Rs. What can be more distressed than this. Intl BW demand is growing rapidly and at some point prices will stop coming down. They dont need to go up. As more capacity is utilized that is pure profit as cost is fixed. I dont understand that mkt but whenever it happens it is going to be big.

Posted By: basant
Date Posted: 19/Aug/2006 at 10:37am

I do not think HOCL owes any property, they have it on lease so probably they cannot sell it.Mangalam, the management "B.K.Birla" is hopeless, they would not be interested in a small company when they look at Century Textiles even otherwise timber faces a lot of problems from env and other regulatory issues so i am not sure on that one.

VSNL could be big, it is something that as you said the additional profit wil contribute directly to the bottom line and also Tatas are very serious on this one and that matters.

Posted By: manishdave
Date Posted: 20/Aug/2006 at 11:30pm

I haven't studied HOCL or Manalam but Ramesh Damani mentions about them and I think he mentioned about real estate. But again I dont know. And as I mentioned, in T/O i m interested in big industries like hotels, refining, auto, banking etc. Not small niche individual companies. I agree with you on BK Birla management.

Posted By: basant
Date Posted: 21/Aug/2006 at 9:51am

There are reports about Titanagar Ind (CMP Rs 32.70) a turn around being in significant profit growth this year.But with paper stocks investors should be watching more of the industry cycle rather then the company.

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'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in

Posted By: sun_1313
Date Posted: 22/Aug/2006 at 7:08pm

is it worth investing in triveni glass at CMP of 31?...obviously it is using oil as fuel, but crude prices are cooling down.the amarendra murder case is almost forgotten, though it is still sub-judice.with the lavish use of glass in modern shopping malls, i think the demand for glass will shoot up in the next few years....i would like to hear the views of the experts....pls reply.

regards.

adityan.

Posted By: basant
Date Posted: 22/Aug/2006 at 7:25pm

First let me clarify there are no experts here. in fact the market is such a place where you cannot have experts. It is like cricket. You could score a century in one innings and get bowled round the legs in the second one.

Now I do not follow Triven glassi but your broad logic about glass being used in shopping malls makes a lot of sense. Have you looked at Asahi India Glass their new product strong glass is as good as steel - you cannot break it manually and the company is also doing well.They are a leading supplier to all the automobile companies. in fact the next time you roll down the glass in the front seat of a car read the name on the top right hand corner. It should be Asahi India.

But Asahi is well discovered.So I doubt if you could make a killing there.

Manish could offer you some insight on Triveni Glass you have followed Triveni Glass more then anyone of us here.

Posted By: sun_1313
Date Posted: 22/Aug/2006 at 10:33pm

its ok basantji...your point is well taken. none is an "expert" in this field.and we all know the sort of advice the so called "experts" and analysts in TV have for small investors.leave that sir.

manish sir, expecting your views on triveni glass eagerly.

meanwhile basant sir, i have bought good number of rain commodities at 144...now it is going up....thanks a lot!

Posted By: sun_1313
Date Posted: 22/Aug/2006 at 10:34pm

sorry....it was 114.

Posted By: basant
Date Posted: 24/Aug/2006 at 12:43pm

I would presume that investors playing for turn arounds are most successful when they look for the sector leaders rather then the mid sized or amall sized companies. We could be lucky in a small cap as a turn around play

As an illustration I would rather play an ACC as a turn around and be satisfied with a lesser return rather then play a Gujarat Sidhee Cement and risk my capital. This is because the probability of a sector leader filing for bankruptcy is minimum. Also as Manish pointed out cement steel shipping are sectors where the cycle HAS TO TURN not so sure with a small cap technology company.

Posted By: PKB2000
Date Posted: 24/Aug/2006 at 1:32pm

Dear Mr. Basant / Forum

Today morning I was passionate for TATA TEA and trying of searching some money.

Looking at my portfolio of ICICI online I found Asian electronics and JK cement were in decent profit of 15%. I ordered offline to sell

Returning to office I found ordered was executed and I put the buy order of TATA TEA. Managed to purchase 40 pieces @ 844

Have I made any mistake?

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I am always doing that which I cannot do, in order that I may learn how to do it. ~Pablo Picasso

Posted By: sun_1313
Date Posted: 24/Aug/2006 at 3:17pm

manishji, looking forward to see your view on triveni glass as it stands today.

Posted By: omshivaya
Date Posted: 07/Sep/2006 at 1:34pm

How is VIP Ind. for a turnaround case? It has not been doing THAT well over the last 10 years. Now, its merger with BlowPlast and travel boom, VIP industries looks good.

Any important info. or views anyone has on VIP, from investing point of view?

Thanks pals.

Posted By: investor
Date Posted: 07/Sep/2006 at 3:35pm

reema,
Of the 3, he has already said that Mangalam Timber was a mistake, and he
has exited out, and advised all people to do the same. This was at Rs. 40 levels, it is now down to Rs. 17-19 levels.

Mount everest he has been recomending since a long time, and finally something is buzzing about it. Tata Gruop has picked up a stake, etc etc.

HOCL is basically a turaround candidate, with the Govt pumping in 350 cr
for revival, but its still a speculative bet according to Damani.

Originally posted by reema

Ramesh Damani recommends 3 shares HOCL, Mount Everest Mineral Water and Mangallam Timber as turn around companies. WHile all 3 are down 50% from the time of being recommended Damani feels all these shares can go up by 5 times over the next 2 -3 years.

Posted By: investor
Date Posted: 07/Sep/2006 at 3:45pm

VIP/BLOWPLAST is another story that seems to have very good potential.
Look at the market cap of the merged enity, and its sales. It will be the second largest luggage company in the world, after samsomite. And with tourism expected to boom in south asia over next 3-5 years, they could see
good profits. But again, its too early, and right now just takea cautious approach.

Originally posted by omshivaya

How is VIP Ind. for a turnaround case? It has not been doing THAT well over the last 10 years. Now, its merger with BlowPlast and travel boom, VIP industries looks good.

Any important info. or views anyone has on VIP, from investing point of view?

Thanks pals.

Posted By: monu_duggad
Date Posted: 07/Sep/2006 at 3:52pm

pkb2000....i guess you got in at a bit higher price @ tata tea...but looking at the venegeance with which tata group is striking deals in energy drinks space...it should do well...

also..if it helps you....icicisecurities has recommended buying tata tea september futures 2-3 days back...

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If you think you can,You Can

Posted By: omshivaya
Date Posted: 07/Sep/2006 at 4:19pm

Originally posted by investor

VIP/BLOWPLAST is another story that seems to have very good potential.
Look at the market cap of the merged enity, and its sales. It will be the second largest luggage company in the world, after samsomite. And with tourism expected to boom in south asia over next 3-5 years, they could see
good profits. But again, its too early, and right now just takea cautious approach.

Any important info. or views anyone has on VIP, from investing point of view?

Thanks pals.

Thanks a bunch! Do keep posting when any fresh updates come on VIP!

My ultimate motive always is to keep getting latest and other people's viewpoints on the stocks that I have invested in or am about to invest in! This helps me realize when my value pick has become a growth pick!

Posted By: manishdave
Date Posted: 09/Sep/2006 at 2:48am

SUN_1313,

I have no view on Triveni right now. Glass industry is very interesting to watch but Saing-Gobin plant went into production in begining of this year. So demand supply equation changed. Growth is big but another galss line of Asahi is going into production early next year. So you will have to watch that. You can also check price with local glass dealer on regular basis and get some clue on price. Unfortunately I can not do that but that is the best way.

Posted By: sun_1313
Date Posted: 11/Sep/2006 at 3:32pm

THANKS A LOT FOR REPLYING SIR!

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