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Appreciation in Five years

COVER STORY

January,2008 [11]

Past five years saw 212 stocks achieving this level and on a lower side

almost 20% of total active stocks gave ten times appreciation during this

same period. These numbers are substantial and indicate a strong

uptrend in economy; but the crucial question is that will this trend continue?

We analyzed about 4900 stock to

find their appreciation during the

last five years (1-1-03 to 14-12-07).

Out of these stocks, there are 212

such stocks that would have multi-

plied your money from Rs 1 lakh to

more than Rs 50 lakhs!

Some Leading Stocks that have risen multifold over last five years -

Source: CMIE

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COVER STORY

January,2008 [12]

Source: CMIE

Leading Gainers

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It is easy to understand at this

point of time that why major gainers

were Real Estate, Engineering,

Infrastructure, Finance and Power. All

these sectors are direct indicators of

our growth and reaffirm that engineer-

ing, infrastructure, construction, and

power are the drivers of our economy.

Should we invest for as long

as five years in a stock?

If a company has management of

proven capabilities, it operates in a

sector with sustainable growth, has

low external threats, is not excessive-

ly dependent on global markets, and is

able to maintain its competitiveadvantage, then one can definitely

take a long term call for as long as the

sector remains positive.

In fact it is not necessary for one

to do course on economy of finance to

identify such multi-baggers, what all

it needs is an ability to foresee the

trends in market. For example, when

economy rises and income levels of

people increases, their first priority is

a house. This had become evident five

years back that with more and more

people earning more than their fathers

with new economy opportunities in

IT, BPO, media, entertainment,

finance and retail, the income levels

were set to remain in uptrend.

If one had seen the construction

works of Ansal and Unitech, it would

have been easy to assess that they will

be long term winners. There were

very few established brands in hous-

ing and if one had narrowed down

housing for long term investment,

then these two were outstanding and

obvious choices. The results would

have been fabulous, Unitech appreci-

ating 1407 times and Ansal Properties

201 times in just five years! Can youimagine this kind of returns from

established companies?

Which it better - invest for

short term or for long term?

A simple analogous question will

clarify this issue - how much time and

efforts you are willing to invest in

stock markets? A full time employed

person can normally spend about one

hour a day. By spending one hour, or

even less than that, people would

expect doubling their mony in few

months and making lakhs of rupees.

Now, compare this with their salary

and time spend on job! A person earn-

ing 20000 a month spending 10 hrs a

day expects another 20000 a month

spending few minutes a day?

In current scenario, stocks are

moving up 5 to 20% in a single day,

which is more than what a bank would

pay you over a period of one year! It

has become a fad for people to hunt

such opportunities. Ispat Industries,

RNRL, RPL, Ashok Laylend, Essar

Oil, and many more have climbed up

by more than 100% in just fewmonths with very high intraday

volatility. In case of Ispat, the delivery

volumes have been as low as 10% of

its total traded volumes, indicating

high levels of speculation. These

stocks and such strategies are good

for people who closely watch the mar-

kets and are experts in technical

analysis.

Staying invested for long term

COVER STORY

January,2008 [14]

Major Gaining Sectors -

(Sector wise number of companies* in the list of 212 companies that have appreciated over 50

times during last five years)

* 71 companies are in other industries

Source: CMIE

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has other benefits too. Many short-

term traders make more money for

their brokers than they make for

themselves (that is the reason you will

not find any brokerage report recom-

mending to stay invested for a number

of years). Additionally, you save tax

when you invest and hold for more

than one year.For laymen with little time to

spare for stock markets, longer term

investments are better options. Even if

one considers the returns from very

long term investment of say five

years, they are above all kind of

benchmarks. In our study, almost 20%

of the total stocks have multiplied 10

times in their value reflecting an

annualized return of 58.5%, and the

212 stocks that have appreciated over

50 times represent annualized returns

of 118.7 %. In comparison the Niftyhas given an annualized return of 40%

rising from 1115 to 6048 over the

same period.

One has to make his own deci-

sion whether he has the time and skills

to reap the benefits in short term or

can patiently stay invested over a long

term horizon. Just remember the com-

parison between a job income and

stock market income as mentioned

above.

Is long term filled with

Uncertainties?

This is the most serious issue that

prevents people from making long

term investments, but the facts are

mostly in favour of it. Majority of the

known successful investors have risen

to their glorious richness by patiently

staying invested for a number of

years, even decades sometimes. Be it

Warren Buffet, Peter Lynch, or near

home - Rakesh Jhunjhunwala, all arevery long term investors. They trade

short term also but that is to augment

their main stream income from short

term opportunities.

People who set up businesses do

not do it with the intention of making

profits in months or 1-2 years and

then closing it down. They have a

long term vision, and look at any suc-

cessful business, it doesn't start

adding to its networth from the very

beginning, hence it is mostly under-

valued in the markets. This is the most

profitable to time to invest in it, once

it starts performing, the masses in

market will notice that and its price

will rise to a level where supernormal

returns are not possible.

For example we had assessed inbeginning of 2007 that global trade of

India is going to grow substantially in

commodities. Now, in order to con-

vert this strategic view into an invest-

ment opportunity, we searched for

companies that will gain from India's

global commodities trade and zeroed

down on State Trading Corporation of

India. It is the top trading agencies

handling the bulk of commodities

trade with added plus points of mas-

sive assets. Few people had shown

interest in our report pointing out thatit's a PSU with no extra ordinary

future. We recommended it at Rs 152

on 5th April 2007, and the price as on

14th Dec 2007 was Rs 971, after it hit

a high of Rs 1744.

What makes Long Term

investments highly prof-

itable?

Out of the 212 companies that

appreciated more than 50 times, 95companies have appreciated by over

100 times during the last five years.

This means 152% returns per year.There is a single ability that

makes such supernormal returns pos-

sible - identifying the opportunities at

nascent stage. In the early stage of a

business, as long as the company has

not shown any performance, it will be

highly underpriced, especially if mar-

ket is unaware of its potential. As

explained earlier, once a large number

of people have come to know of

potential in the company, it will no

more be undervalued and though

investing in at that time will also be

profitable but it will not be supernor-

mal returns.

Look at the graphs given at the

beginning of this article, the initial 1-

2 years of all those stocks show a non

moving price line which is almost atthe bottom for a very long time. This

is the time that we are mentioning as

the crucial entry point. Once the price

is in upward trajectory, the returns

will come down to normal level.

Can one still make such prof-

its?

With Sensex crossing 20,000,

such thoughts are obvious. The

answer lies in sustainability of India's

growth. If economy grows at 8-10%

for next 5-10 years, the long terminvestors will be able replicate what

we have mentioned above. From 1

lakh to 50 lakhs can be repeated in

next five years. There are strong driv-

ers of our economy that indicate that

Indian economy will remain in high

growth phase for a long term that may

be a 10 to 20 years cycle. We are at

the beginning of our growth journey,

not at its top. Our current situation is

January,2008 [16]

COVER STORY

Sesa Goa appreciated112 times during last fiveyears. But, if we considerthe last four years, itsappreciation was only 13times! The reason is thatwhile on 1st Jan 2003 itsprice was Rs 34.75, on1st Jan 2004, the pricehad increased to Rs 298.Entry at Rs 34.75 willobviously be much moreprofitable than at Rs 298.It is the early entry that

makes all the differencein returns.

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what it was of developed countries at

their start of growth cycle. The major

growth drivers are mentioned below

in brief -

1. Policy driven growth

o Competent Government

o No Government can afford to back-

track.o Government has to maintain

momentum

o Peoples' expectations are increas-

ing

2. Growing worker population

India's demographic trend points to

sharp increases in input factors, 54%

of its population is below 25 years and

the total labour force is estimated to

double in next twenty years. India's

demographic advantage means that its

high growth will continue longer term

while China will slow

3. Huge Domestic Markets

o Growing Middle Class

o Growing Income

4. Infrastructure

o 150% jump in Investment in 11th

Five Year Plan

o Competent Companies to buildInfrastructure

5. Potential To Enhance Equity

Ownership

6. Nation's Capabilities

o Access to Capital

o Abundant Human Resources

o We have large number of skilled

labour, it is available at low cost,

English language abilities help in

global business, Educational infra-structure is of high quality, and more

and more people are coming out as

entrepreneurs.

With these trend setting growth driv-

ers, one can safely take long term

calls on Indian economy.

1. ABC India (CMP Rs:71)

ABC India Limited provides logis-

tic services principally in India.It owns a fleet of trucks, hydraulic

trailers, and prime movers. The com-

pany offers packing, warehousing,

loading, transporting, unloading,

unpacking, and stacking services. It

also provides various export and

import related services. The company

specializes in surface transportation,

international freight forwarding and

integrated logistics services. The

company's Custom House Agent

gives License to facilitate the customs

clearance of imported or exported

cargo. The company was incorporated

under the name Assam Bengal

Carriers Limited in 1972 and changed

its name to ABC India Limited in

1980. ABC India is based in Kolkata,

India.

It is a member of the TCI-Boruka

Group which is a leading transport

operator in India. By virtue of being a

member of the TCI-Bhoruka Group,

the company presently has access to

over 800 depots all over India. The

company's clientele ranges from small

retailers to large public sector under-takings. Apart from the transport divi-

sion, ABCIL also runs a specialised

Project division which distinguishes

the company from other transport

operators. Apart from having over 250

offices, it has huge assets and landed

properties which are not reflected in

its valuations.

It is also going to ride on the power

sector boom in India as ABC India is

the only listed company in India that

is doing turnkey transportation work

of complete power projects. The com-pany has recently bagged a presti-

gious order for hydel power project

and is also working on various

turnkey power projects all over India.

It is a very thinly traded stock and has

yet to be noticed by markets. Its sales

are almost constant for last 10 years

and operating profit margins are very

low at below 1% and have been

COVER STORY

January,2008 [17]

A long term bullish sector

Logistics is an integral input forgrowth of an economy

Over 35 years old company

Group also owns TCI and GATIhas one of the largest network ofover 250 offices with access to 800depots

The only listed company doingturnkey transportation work ofPower projects

Share prices are consolidating from

last two years

MULTIBAGGERS AT TAKEOFF

We are discussing some stocks that are in line with our long term investmentstrategies discussed above.

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declining over a number of years. But,

the management is working on put-

ting it on fast track and looking at the

performance of group company, Gati,

one can be assured of similar per-

formance from ABC in future. In a

key development, Mahendra Agarwal,

CEO and MD of Gati has joined ABCas a director.

2. JCT Ltd (CMP Rs 12)

JCT Limited, together with its sub-sidiaries, manufactures textiles inIndia. It operates in two segments,

Textiles and Filament. The Textile

segment manufactures cloth; yarn and

fents; and rags and chindies. The fab-

ric produced by this segment caters to

sportswear, active-wear, work-wear,

and other segments. The Filament

segment produces polyester/nylon

yarn and chips. The company's over-

seas operations include a textile mill

in Malaysia; and offices in Singapore

and Dubai. JCT Limited is based in

New Delhi, India.

Prompted by the textile boom, which

is very much on the cards, we havechosen JCT Ltd., a very low-priced

share, which has turned a corner with

its huge C/F losses that are likely to be

wiped out this year and has retuned

from the red to the black in FY06 and

is expected to fare even better in

FY07-08.

JCT Ltd. will prove to be a dark horse

in near future.

Future Plans:

JCT has chalked out an ambitious

capex plan for expanding its existing

capacities.

(A) Phagwara Textile Mills - It plans

to modernize all its existing

machineries.

(B) Mahiarpur Nylon Filament

Plant - New polymerization plant

with a capacity of 45 TPD with cap-tive power of 6 MW has already been

installed to provide better synergies.

(C) Synthetic Fabrics - This will be a

100% greenfield project at Phagwara

as there are no manufacturers of this

kind of sports wear and fashion fab-

rics throughout Asia. When it starts

production, the company's turnover

will exceed Rs.1000 cr.

The C/F losses are yet to be wiped off.

Due to the high crude oil prices, the

prices of all principal raw material i.e.

caprolactum, which is the basic raw

material for nylon yarn continued to

remain high and could not be passed

on to the consumers resulting in its

margin remaining under pressure.

JCT also has huge land bank at

Phagwara.

The stock is currently traded at

around Rs.12, which is almost its bot-

tom. In such a booming market, such

a low-priced pick is an attractive buy-

ing opportunity to reap a good harvest

in future. The share is sure to give

more than many times appreciation

looking to its size of business, expan-

sion and return into the black.

3. Jet Airways (CMP Rs 972)

Jet Airways (India) Limited pro-vides air transportation services inIndia and internationally. It also offers

cargo services to courier companies.

The company operated a fleet of 67

aircraft comprising 6 Boeing 777-300

ER; 50 737-400/700/800/900 aircraft,

4 airbus A330-200 aircraft, and 7 ATR

72-500 turboprop aircraft. It alsooperated approximately 350 daily

flights to 44 destinations in India, as

well as international flights to Nepal,

Sri Lanka, Singapore, Malaysia, the

United Kingdom, Thailand, Belgium,

Canada, and the United States. Jet

Airways (India) Limited was founded

in 1993 and is based in Mumbai,

India.

New plant for sports and defenseclothing

Deals with Nike

Carbon credits

Sick unit selling

Entering into retail sector

Collaboration with an MNC

New power plants installed of17MW

Profit of Rs 80 crores in 2009-10

January,2008 [18]

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In the recent past Indian civil aviation

sector has grown manifold. The rapid

growth of Indian economy has result-

ed in a

spillover effect

on the airline

industry in

India. Several

new players

have enteredthe industry

and many

more are about

to enter the

arena. The

arrival of

cheap airline carriers in India has

spiced up the whole affair. Suddenly

the air travel is no more the monopoly

of the rich and the mighty. Now it has

become a common man's vehicle and

revolutionized the way a commonIndian traveler used to travel.

India's civil aviation passenger

growth stands at 20% -- among the

highest in the world -- saturating most

metro airports and a handful of fast-

growing smaller cities. Many airlines

are bulking up on capacity as well:

Ten Indian carriers recently placed

orders for about 400 aircraft worth

$15 billion. India's civil aviation mar-

ket has been severely underserved for

several decades. Less than 0.01% of

the population used air transportation

and, until last year, this country of

over a billion people had only 150

large jets. Meanwhile, India's strong

economy in recent years has lifted

people's disposable incomes, while

increasing urbanization. In addition,

more diverse business investments in

non-metropolitan regions have

brought new demand for air services.

"The opening up of the skies had led

to similar boom situations in other

markets, like the United States in the

1980s and Europe in the 1990s," says

Dinesh Keskar, vice-president of sales

at Boeing.

Despite the temporary setback interms of profitability, most industry

watchers remain bullish about long

term prospects for the airline industry.

Kiran Rao, vice-president, sales

(India and Africa) at Airbus Industrie

says the growth phase in Indian avia-

tion will continue into the near future.

Both Boeing and Airbus have revised

their India forecasts in the past year.

4 .MosChip Semiconductor

Technology (CMP Rs 31)When Ram Reddy and Dayakar

Reddy chose to return to India in1999

to set up a chip design company,

everyone thought the company would

have to be aborted because semicon-

ductor and India just didn't go togeth-

er. Ram Reddy spent over 23 years the

Silicon Valley, designing and manu-

facturing various ICs, had turned an

entrepreneur to set up semiconductor

design companies and sold them to

larger companies in the last 18 years.

Dayakar Reddy, graduated in elec-tronics engineering from California

State University, San Jose, has filed

for 12 patents in his 10- year stint

Cirrus Logic and later turned into an

entrepreneur in his own right.

But, grappling against odds, these two

engineers made this Hyderabad-based

firm MosChip Semiconductor a

stand-alone success. Now, Moschip

has achieved the distinction of being

the first India's fabless design firm to

have shipped two million units from

its suite of peripheral component

interconnect (PCI) controller chips

since this product was launched four

years back. These chips, which con-

nect peripherals to a PC are high per-

formance connectivity solutions for

Only 0.01% of the population usesair transportation - huge marketopportunities

Sector growing at 20%

Markets similar to US boom of1980s

Growth of economy to fueldemand for business air travel

Rising income levels will furtherboost leisure travel

Developing business in non-metrocities creating new routes and air

travel demand

Markets are consolidating andprice wars are expected to endleading to profitable operations of

Largest chip and complete productdesigner in India

Established brand

Reputed clients like IBM,Panasonic

Huge market potential

Innovative and market orientedproducts

January,2008 [19]

COVER STORY

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consumer, industrial and computing

applications and are used right from

printers to handheld devices when

they have to be connected to PCs

Today, with customers including

IBM-GES, Panasonic among others,

its 80-strong team of engineers is

product centric-thinking and design-ing products that working across dif-

ferent operating systems and multiple

platforms of various hardware config-

urations.

Says Dayakar Reddy, co-founder and

managing director of Moschip, "The

remarkable record of the our product

(MCS9800) which has crossed the

two million mark shows the confi-

dence our customers have in us. We

are seeing a continued growth indemand for these products as well our

other products which have become

major design-wins."

This suite of products are also being

used in point of sale ( POS) machines,

industrial automation, set top boxes,

vending/banking kiosks,

GSM/GPRS modems, gaming moth-

erboards and CTV systems.

Basically the company develops sys-

tem software to enable the complete

functionality of ICs. It focuses on

product design and development uti-

lizing standard cell approach portable

to multi foundries for processing.

After the design is done here the prod-

ucts are fabricated in fabs in Taiwan

and sold worldwide through its Santa

Clara office in the US.

"Today, we are able to design end to

end solutions - right from conceptual-

izing the design to production stage

by talking to customers, getting an

idea of the market need and refining

features of the products. These

become customized products and we

are also able to create intellectual

property (IP) for customers," Reddy

pointed out.

Although India is seeing a number of

design houses working on chip

designs - right from well established

companies (like Wipro, Sasken and

MindTree) and start-ups (like Insilica,

Qualcore), most of them are in the

services side of the chip design.

Moschip is unarguably the largest and

one of the very few firms that designsand completes the product here and

sends it for manufacture in Taiwan

and markets it on its own.

Its performance is not at all reflected

by its stock price because its true

growth will happen once its products

gain mass volumes. It has been show-

ing increasing sales since last few

years, though its bottom line still has

to come out of red. The stock has been

languishing between Rs 20 to 50 forlast five years, which is not strange

considering that the company is at its

early stage.

Just consider this one product of

Moschip to understand its potential -

Moschip has recently unveiled a chip

for digital home solutions that can be

used in a variety of applications that

need network connectivity and high

performance to run their unique soft-

ware applications. The product will

enable virtualisation of peripheral

devices over Ethernet. Design of such

complex ASIC's from India are almost

non-existant. Company has several

customers in US & Far-East who are

actively designing systems using this

product.

The product can be used in several

potential application markets such as

USB servers, print servers, NAS

servers, surveillance applications,

industrial automation, POS and access

control. The product has been devel-

oped in India and thus the costincurred is significantly below the

industry norms.

The company estimates that the mar-

ket opportunity for this product in all

the verticals is about Rs.1,020.27

crore. Even if the company captures a

fraction of this market (they should

not have difficulty as they have sig-

nificant cost advantage), it will be

able to boost its sales tremendously

which was just Rs 5.2 crore for FY07.And we have considered just one of

company's numerous successful prod-

ucts. It can be very imagined by any

one that what will be the revenue once

the development and production of

Moschip reaches high volumes.

5. MAX India (CMP Rs 247)

Max India Limited and its sub-sidiaries primarily operate in

the health care, life insurance, and

clinical research sectors in India. The

company's life insurance activities

include the provision of individual

and group insurance products.

Individual insurance products com-

prise unit-linked, protection, savings,

January,2008 [20]

COVER STORY

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retirement, and children's endowment

insurance; and group insurance prod-

ucts consist of group term life,

employee deposit linked insurance,

credit shield, group gratuity, and unit

linked group gratuity, as well as a

range of other insurance products,

such as rural and bancassurance. Itshealthcare activities comprise the

operation of various specialized cen-

ters and provision of a range of med-

ical services in the National Capital

Territory of Delhi. It operates Max

Devki Devi Heart & Vascular Institute

for cardiac care and allied services;

Max Institute of Neuro Sciences for

neuro-surgical operations; Max

Institute of Orthopaedics, an ortho-

peaedics and joint replacement center;Max Institute of Obstetrics and

Gynaecology; Max Institute of

Paedeatrics; and Max Eye Care. The

company provides clinical research

services during the various phases of

drug development and discovery,

which include study management,

project management, data base man-

agement, monitoring services, and

clinical trial pharmacy supply chain

management services to the pharma-

ceutical, medical device, biotechnolo-

gy, and contact research organizationsworldwide. In addition, Max India

engages in activities relating to sourc-

ing, training, and placing healthcare

personnel in India and abroad.

With a formidable presence in insur-

ance and healthcare, two of the fastest

growing sectors, Max India is a

unique play on India's increasing eco-

nomic prosperity and changing

lifestyle. The buoyant economy willprovide a strong growth momentum

to the hitherto underserved/under pen-

etrated life insurance and healthcare

sectors. The life insurance venture,

Max New York Life (MNYL), aided

by industry's most productive agent

force is set to reclaim market share.

Added impetuses are a change to

multi-channel distribution approachand a high growth in ULIP portfolio

which is amongst the best in the coun-

try on account of longer tenors. With

hospital beds likely doubling in the

next 4-5 years, superior margins

(>20%), increasing rate of medical

tourism and a strong brand and fran-

chisee network, the healthcare busi-

ness, Max Healthcare (MHC) too is

set to see golden times ahead.

A confluence of booming economy,rising life expectancy, shift in disease

profile to lifestyle-related ones, med-

ical tourism opportunity and growing

health insurance penetration are

poised to drive an accelerated growth

in India's healthcare sector. The pri-

vate healthcare sector is expected to

grow to $35.9bn in size by 2012 from

$15.5bn in FY06. The growth will be

driven by increased hospitalization

cases as well as higher average billing

per case.

Low penetration level of life insur-ance inIndiahence ample scopeforgrowth

More productive workforce whichwill lead tohigher margins

Value unlocking from various sub-

sidiaries incoming years

With change in lifestyle andincreasingconsumerism, the inci-dence of lifestyle diseases hasincreased which will leadto highermedical care expenses

Medical Tourism is on fast growthtrack asIndiahas emerged as acentre forquality medical care at alow cost

January,2008 [21]

COVER STORY