1. Themes:
Monsoon season end: Most people do their refurbishment work post monsoons. Looking at the last 5 quarters of all their competitors, apart from Berger, all of them go through cyclical turnover patterns. Last Sep quarter end results were significantly higher than Jun09. Still, a chunk of that can be attributed to Other Income and not turnover so do not know whether that is a valid statistic. That being said, the QoQ turnover was also up signficantly.
Renewed advertising: You may have noticed the aggressive advertisement campaign with the catchline "Bhaiya, Aise nahin hai". I assume that the reason they are making this push is because they anticipate even more turnover growth than they have currently achieved.
2. Fundamentals
Compared to its peers, it seems to be trading at a median PE value (I am using the Edelweiss website which I presume posts trailing numbers). It is trading at an inflated P/BV of 14x where all its peers range between 1-7x. Based on June data, the EPS of 90 is about three times more than any of its competitors. The next closest is 36.
My assumption is that it may be trading at a premium to book value due to available liquidity. It has a market cap of 25,500 cr - 5x more than its closest competitors.
3. Technicals: Now as an entry point?
Firstly, the stock hit an all-time high after June earnings. It has since gone up 14% since before retreating recently.
Secondly, I have recently learnt about chart reading from Damani and have done some reading of my own too. I have plotted two charts, both from the start of the year. The first one is based on Daily data, the second is based on Weekly data.
On the daily data perspective, the data is touching the lower bollinger band and seems to have come off a position of excessive buying based on RSI. The Dorochian Index is currently above its period mean, which would also provide a buy signal. However the MACD line seems to be weak (unless I have misinterpreted it!).
Conclusion
Given the above, I would imagine that September profitability has been priced in already. If this is not the case, then it may be a good holding from a technical, cyclical point of view. Looking at past data for them and a few other companies, QoQ December sales growth tends to be negative and then returns to positive for the March quarter.
So in essence, from a fundamental perspective, I should have bought this in July, and if I want consider buying this again, should look for some signs of price multiples retreating. Do you'll agree, or do you think there could be a short-term trade done on this based on technical data?
Charts source:
www.icharts.in
Goju,
ReplyDeleteAwesome post. Take a look at Akzo Nobel which is another paints maker and cheaper in terms of valuation. I know punters/investors who are long on this stock.
Charts and general market hype would make me careful to invest at these levels. I would rather wait for a dip. Such stocks are good long term bets as long as you expect doubling your money in 3 years or something. They won't be crazy multibaggers from these levels I think.
-Aditya
Haha, thanks Damani.
ReplyDeleteYou have been invited to be a contributor too at some point, so you if you accept, would expect more awesome posts from you in the future ;)
Yeah, ING are managing a small portfolio for us and have been absolutely awful! They just exited Akzo Nobel in our portfolio, which tempts me to enter it ;)
Jokes apart, though valuations are attractive, their EPS is way lower. Also (at the time i thought it was awesome) bought Shalimar Paints 3 weeks ago.
PS: I have just returned from the UK dude! Interest rates in saving accounts of Northern Rock are 2.5% p.a.
30% annualized returns over the next 3 years does sound reasonably attractive!!
Also Damani.. was I correct in saying that the MACD line suggesting a bearish trend?
ReplyDeleteMACD
ReplyDeleteHi, analysis of Asian paints pending.
However, goju- your charts seem to be using MACD signal line crossovers- MACD(12,26,9), i would only use such a system if i were a relatively short term trader with high churning capacity.
MACD centre line crossovers using only 12 and 26 EMA may seem more practical for the likes of us, since it can filter out a lot of noise. (12,26,9) may give us a few "false" signals, especially during volatile markets.
Could you please explain to me what this means?
ReplyDeleteAre you saying, look at the resistance points of 12 and 26 EMA?
What im trying to say is this:
ReplyDeleteMACD is a momentum indicator
One can use MACD in two ways a) MACD signal line crossovers
b) MACD centre line crossovers
Before i explain the two, let me clarify how the MACD is derived. The MACD is basically the difference between two Exponential Moving Averages (EMA), in the most common case, one uses 12 EMA - 26 EMA. EMA's differ from Simple Moving Averages (SMA) because they give more weightage to recent prices, so they are more sensitive to price movements and are more dynamic.
Now:
a) This system uses MACD (12,26) with 9 EMA. SO when MACD (12,26) goes above the 9 EMA (histogram positive), it is a positive momentum signal, and vice versa.
b) Uses ONLY EMA 12 and EMA 26 crossovers. So when EMA 12 goes above EMA 26, its a positive momentum signal and vice versa.
Ideally you can use any period EMA/SMA's for MACD, ive tested one that works well on the Nifty which is the 20, 100 SMA.
Agreed with dams!
ReplyDeleteGood contribution asher! thanks!
ReplyDelete