Chambal is one of the companies which I beleive is looking very promising.there are things which I like in this company:

 

1.Its total Balance Sheet size is coming down, even though the Owner's Contributuin(share capital+Reserves and Surplus) is increasing. The trend is continuing for last 5 years. I treat this as something very important. Also, I see in its Annual Report that it is committed to repay 114 crores of secured loans this year. Also, it has to repay  the debenture to the tune of 61.75 crores on May 19,2007.This means the company has to get rid of 175 crores of secured loan in next 9 months time.this will further pull down the external funds' share in the balance sheet.

 

2.It has an excellent capital Work-in-Progress to the tune of 159 crores.

 

3.I liked the disclosure standards followed by the company. Also, it was heartening to see, that the company is regular is depositing all its stautiry oblogations with the appropraiate authorities(I treat it as a very important gauge).

 

4.The working capital management is getting on in a very fantastic manner.It has reduced about 50 crores in inventory and about 180 crores in debtors. remember, its in fertilisers and most of them will have big receivables on account of subsidy receivable, for reference check Coromondel fertilisers)

 

5.Its a decent yield player.

 

6.Has an operating profit per share of 11.01.Has an cash EPS of 8.70.Has an EPS of 4.88. All of these makes it a very decent bargain.

 

7.Has a Book value of 23 rupees which is also protecting its downside.

 

I beleive it is making some sense to have this company for the long ter. what do you say?

 

1) There is too much of govt. intervention. Imagine a situation where Chambal increases prices by 20%

2) The only way to increase profits is through better efficiency because companies do not have pricing power.

3) Being govt. regulated the  market would not give the stock  a higher PE. SO  stock price appreciation will come through EPS growth only.

 

Inspite of this the return ratios are very encouraging considering the environment chambal has been working in.So Chambal is a stock for a patient investor who wants to make 15% - 20% each year with minimum downside risks. Nothing wrong with that but if you looking at multiplying wealth Chambal is not the stock to be in. 

 

           This is just for my understanding: Why do you consider a decreasing balance sheet size to be important. Is this because that liabilities are decreasing faster than equity is increasing- this probably shows management's commitment to pay off loans. Am i right? Also, why do you consider the capital work in progress to be good?

This company looks like a good long term play. Very good return numbers. I am not sure about the competitive landscape in the fertilizer sector.

 

A company may use the cash it generates in various ways. However, my personal preference goes in this manner:

 

1.Covering the deterioration in working life of the fixed asset.

2.Returning debts.

3.Dividends.

4.Buy-backs.

 

Now, you cannot go for a buyback with just one year's profits. So, the companies make investments and try to retain cash and accumulate so that they can go for buy-back at a later date. This is what most of the MNCs do.

 

Now, debt repayment is perhaps one of the best ways of creating value...here, I must say, that by creating value I dont mean, making the share prices jump up.... its just my persoanl view that those companies which are very aggressive in repaying debt, VRS expenditure, providing for impairment costs, providing for permanent dimunition in value of assets/investments, create fantastic value in the long term....a company must try to reduce external liabilities and potential liabilities by all practical means possible.....my views may sound very old fashioned, but then for me the first priority has always been solvency rather than growth. Also, in my opinion growth is a very subjective term.....jute may be for all practical purposes a dead industry, however, in my opinion a stock like Cheviot is an excellent value play even though it may be in jute industry.

 

Coming now to chambal, I like the way KK Birla through his group companies and in-house companies, is accumulating stock from the market. The promoter is reducing float, which is an excellent thing....Also chambal is now into shipping, which in my opinion is another excelelnt development....all these combines to make it a decent play....