Swaraj engines- buy

Company Profile - 

Swaraj Engines Limited (SEL) is a Mohali based company originally established to manufacture engines for the erstwhile Punjab Tractors Ltd(PTL). Swaraj Engines was earlier a part of JV between Punjab Tractors Ltd (PTL) and Kirloskar Engines to manufacture engines for Punjab Tractors. PTL had been taken over and merged with Mahindra and Mahindra Ltd. As a result, M&M now holds ~33% of SEL's equity with ~17% is held by Kirloskar Industries Ltd. SEL manufactures diesel engines, diesel engine components and spare parts. It supplies 5 types of Engines from 20HP range to 50HP range.It also manufactures high-tech engine components for Swaraj Mazda.The Company’s engine business constitutes approximately 93% of its product revenue. The remaining 7% represents value of hi-tech engine components being supplied to SML for assembly of commercial vehicle engines.

Why to buy?

• India is still largely an Agrarian Economy and will continue to be so for a long time so the long term demand looks good.
• Low Penetration of Tractors in India compared to the global average
• Majority stake owned by M&M which is the leading tractor Manufacturer in the country for 26 years and now commands above 40% market share. SEL enjoys the access to the India’s largest tractor manufacturer “M&M” (~41% market share in Domestic tractor industry), 
• Capacity expansion from current 75,000 engines p.a. to 1,05,000 engines p.a. over next quarter to improve productivity and help meet the demand from M&M: SEL has undertaken an expansion plan to increase its annual capacity to ~1,05,000 engines per annum from ~75,000 engines over the next 2 quarters. 
• Though growth had been flat till FY2008 since the Mahindra stake, Swaraj engines have been growing Sales and Net Profits for the last 3 years at a CAGR of ~45% and ~60% respectively
• Pristine Debt Free balance sheet, good cash flows with a decent amount of cash on books and negative cash conversion cycle. Further Capital Expenditure will probably get funded from internal accruals
•  SEL’s presence in high HP segment and its growth directly dependent on Indian agriculture – An added advantage: Firstly, SEL manufactures engines in the 20‐50HP range. Around 10% of sales comes from lower than 30 HP engine,50% from 30‐40 HP and 40% from 40‐50 HP. Secondly, SEL’s growth has been directly comparable to Indian agriculture. We expect tractor industry to grow in long term on back of more productivity, low penetration, need for mechanization, higher MSPs and policies (NREGA).

The strong volume growth which is likely to be seen in FY16e from its capacity expansion to ~1,05,000 engines p.a., increased demand from M&M, over capacity utilization in FY15e to enhance margins, presence in all HP segments, softening of commodity prices and dependence on agriculture industry bodes well for the SEL’s fortune. Hence, we advise long term investor to take position in this counter.

Basic Strategies for Investment

Golden rules of investing in stock markets

The lure of big money has always thrown investors into the lap of stock markets. However, making money in equities is not easy. It not only requires oodles of patience and discipline, but also a great deal of research and a sound understanding of the market, among others.

1. Avoid the herd mentality

The typical buyer's decision is usually heavily influenced by the actions of his acquaintances, neighbours or relatives. Thus, if everybody around is investing in a particular stock, the tendency for potential investors is to do the same. But this strategy is bound to backfire in the long run. No need to say that you should always avoid having the herd mentality if you don't want to lose your hard-earned money in stock markets. The world's greatest investor Warren Buffett was surely not wrong when he said, 'Be fearful when others are greedy, and be greedy when others are fearful!'

2. Don't try to time the market  

One thing that even Warren Buffett doesn't do is to try to time the stock market, although he does have a very strong view on the price levels appropriate to individual shares. A majority of investors, however, do just the opposite, something that financial planners have always been warning them to avoid, and thus lose their hard-earned money in the process. 'So, you should never try to time the market. In fact, nobody has ever done this successfully and consistently over multiple business or stock market cycles. Catching the tops and bottoms is a myth. It is so till today and will remain so in the future. In fact, in doing so, more people have lost far more money than people who have made money,' says Anil Chopra, group CEO and director, Bajaj Capital.

3. Follow a disciplined investment approach 

Historically it has been witnessed that even great bull runs have shown bouts of panic moments. The volatility witnessed in the markets has inevitably made investors lose money despite the great bull runs. However, the investors who put in money systematically, in the right shares and held on to their investments patiently have been seen generating outstanding returns. Hence, it is prudent to have patience and follow a disciplined investment approach besides keeping a long-term broad picture in mind.

4. Do not let emotions cloud your judgement 

Many investors have been losing money in stock markets due to their inability to control emotions, particularly fear and greed. In a bull market, the lure of quick wealth is difficult to resist. Greed augments when investors hear stories of fabulous returns being made in the stock market in a short period of time. 'This leads them to speculate, buy shares of unknown companies or create heavy positions in the futures segment without really understanding the risks involved,' says Kapur. Instead of creating wealth, these investors thus burn their fingers very badly the moment the sentiment in the market reverses. In a bear market, on the other hand, investors panic and sell their shares at rock-bottom prices. Thus, fear and greed are the worst emotions to feel when investing, and it is better not to be guided by them.

And final words, remember investors always use opportunities to buy at low price. Because, they believe in business and their growth prospects and not in the market volatility.

- courtesy Economic Times.

Dewan Housing Finance Ltd. - Buy

Company profile - 

India's second largest housing finance company in the private sector and the third largest housing finance company in india, dhfl (dewan housing finance corporation pvt ltd) , focuses on financing low- and middle-income customers and has a predominant presence in non-urban areas where housing finance is relatively under-penetrated. It is now diversifying its customer base and geographical presence through acquisitions and strategic tie-ups. Given the growing affordability and huge requirement of houses in the semi-urban and rural areas, the loan book of dewan housing is expected to grow at faster than the industry. Based in india's commercial capital mumbai, dhfl strives continually to reach out to its customers through its extensive network of 550 offices spread across the length and breadth of the country, and international representative offices, in dubai, uae and london, uk.

Specialties

• housing finance
• home loans
• fixed deposits
• nri home loans
• loan against property

Why to buy?

PAN india player with presence across customer segment 

dhfl has become a dominant financier with pan india presence catering to underserved low-middle income (lmi) segment, capitalizing well on the untapped opportunity the company has registered 10 year loan cagr of 43% and has now become a 3rd largest housing finance company with aum of over inr 526b and 3.8% mortgage market share. Government’s thrust on lmi segment will expand the business pie and dhfl is well positioned to capture the opportunity given core expertise in the segment.

Rating upgrade to aaa

Ratings upgrade by care to AAA will provide wider access to debt market and will help replace high cost bank borrowings (60% of total borrowings) with lower cost bonds. The combination of increasing borrowings via bonds and likely reduction in banks base rates will help reduce cost of funds by 20bp. also, rising share of non-retail book (loans against property, developer funding) will aid margin expansion.

Branch model

The company operates through branches unlike the direct selling agent model adopted by other housing finance companies.Since this increases accountability of dewan housing's staff in terms of loans origination and monitoring, it has allowed the company to keep its non-performing assets under control. This is despite having a chunk of loans to risky segments such as self-employed customers and non-housing loans.

Asset quality to remain healthy

GNPA to remain below 1%, dhfl maintains high asset quality standards despite its focus on the lmi segment. with interest rates headed down and property prices remaining stable, we expect asset quality to remain stable. A strong record of impeccable asset quality performance across cycles provides comfort. 

Insurance business turns profitable 

Entered the life insurance business through a joint venture called dhfl pramerica life insurance (dpli), with US-based prudential financial. post the acquisition by dhfl, the company has reported 72% ape growth in 1hfy15 and has turned profitable. dhfl’s vast mortgage customer base offers an attractive opportunity for the company and could be a value driver for dhfl over medium term. 

We believe company currently trades at attractive valuation and long term investor can acquire the stock in SIP mode.