Update on IMPAL & Hidden Value

I analyzed India Motor Parts & Accessories (IMPAL) here a few weeks back. One of the visitors Chinmay who runs a wonderful blog here, made interesting comments on the unquoted Investments worth 18Crs on book of IMPAL that i had left out in the valuation but mentioned about in the post. Further IMPAL came out with strong Q4 numbers as expected and the stock rallied 20% on Friday but has now come back to earlier levels following the fall in the markets. Lets take a look at these 2 issues:

1. Hidden Value

IMPAL holds 1,80,19,231 shares of "Royal Sundaram Alliance Insurance Company"(RSAIC) valued at 18Crs in book. This comes to a stake of 8.58% in RSAIC which we can glean by looking at Sundaram Finance's Annual Report. Now Sundaram wants to exit the General Insurance business and is in talks with Reliance General Insurance : http://www.financialexpress.com/news/reliance-insurance-proposes-royal-sundaram-alliance-buy/606979/ . So if this deal goes through, Royal Sundaram Alliance will get 26%  stake in Reliance General Insurance.  Now Reliance General Insurance is not a listed company ,ence its valuation is unknown, however various reports that i found peg the value at around 3000 - 3500 Crs. This puts IMPAL share at around 66 - 77 Crs . I shall assume that Reliance General Insurance is conservatively valued at 2000Crs which adds about 45Crs to IMPAL's existing investment. So now the total investments in IMPAL's books are actually worth:

               88crs (Sundaram Finance + MFs + Cash) +  45crs(RSAIC) =   133 Crs or Rs 320/share

2. Latest Results Update 

IMPAL came out with Q4 results recently which also gave us the Profit & loss figures for FY 2009-10 . Though Q4 figures were lower than those of Q3(but well above Q1 & Q2) what i am more concerned is with the yearly results. Total Income was up 19.2 % but more importantly Net Profit was up 42% . So IMPAL managed to have another year of record profits after 2009. Now with the new figures  & the added value calculated above the valuation becomes even more attractive. The market is currently valuing IMPAL at 217crs(Rs 522) which comes to just 84 Crs excluding Investments. IMPAL made Net Profit of 24.67 Crs in 2010 bringing the P/E to  3.5 and P/BV to 1.82 which appears quite attractive. I am not quite sure how the next quarter or year will pan out for IMPAL but at the current valuations the downside seems to be well protected and i will let the upside take care of itself.

                "Heads I Win Big; Tails, I Don't Lose Much" - Mohnish Pabrai

Disclosure: Long IMPAL 

Journey So Far - Part 1

After a lot of pondering and procrastination i have finally decided to start blogging and the only subject i could think of was Investing. I am a very average writer and haven't been writing too much off late so please bear with this long and boring post. This and the next post is about how i got into investing,my experience so far and the objective of this blog.

The Stock Market has intrigued me since high school as far as i can remember. A chapter on stocks in high school and overhearing my father as to how one can make money with them had piqued my interest .However studies took center stage pretty soon and my interest in stocks faded away. Fast forward to 2008 January , i was in my last semester of Engineering doing Internship in Bangalore. This was also the time when the Indian market breached the 21k mark and there was euphoria all around with newspapers carrying them in headlines.In short the stock market was the place to be and no one wanted to miss the bus. This coupled with the fact that my mother was now a part time Mutual Fund distributor got me interested  in the stock market again .I was soon discussing about Mutual Funds with mom and looking it up in the net.  The stock market seemed like a fun way to grow  one's  money provided you knew what you were doing. After reading a bunch of articles  i  fell for the cliched statements like 'let professionals manage your money' ,'invest in SIPs' , 'start early'  blah blah and started investing a part of my stipend in SIPs(Systematic Investment Plans) .I was lured by the performance and returns of the top funds unaware of the big crash that was to follow.Soon the market took a nose dive and kept going lower as i kept investing in  SIPs hoping for a bounce back. 6 months  down the line and i had lesser money left than i began with ,down 35 %.

This was a real disappointment as i was expecting a 100%+ return in a year,something which most funds had delivered in 2007 . I later realized that the Indian markets had had a fantastic bull run starting in 2003 all the way up-to 2007 and that explained those phenomenal returns produced by the funds. I had entered the markets at the peak and was expecting to make money,how stupid of me. This episode reaffirmed my belief that there was no free lunch in this world. Why should the media and financial analysts/experts give us advice about making money instead of they themselves doing it. However this didn't mean that the market itself was a bad place, it was a great place to grow one's capital provided one be ready to do the hard work. Now this incident actually inspired me to read and research more about stocks rather than shun them.The whole idea about making one's money work hard for him/her seemed too compelling to let go.But soon  priorities changed and i was concentrating on my Job search and investing got sidelined. A few anxious months later and after a couple of interviews i got the job i was looking for and joined soon after graduation.

Now with a steady source of income i decided to allocate a  portion of that to investing in the markets(Mutual Funds excluded,direct investing) . The time was Nov'2008 and i couldn't control my enthusiasm and jumped into the market.Looking back,I couldn’t have chosen a better time to invest as the markets were at an all time low owing to the credit crisis. I bought a couple of stocks immediately after getting a Demat account opened,few based on expert recommendations and few because they were selling near 52 week low. During this time as i was impatiently and enthusiastically going through all market tutorials and blogs i was helped a lot by Investopedia(excellent source for beginner investors) . It was here that i learned about The Oracle of Omaha  - Warren Buffett. There were tonnes of resources and articles available on him all over the cyber world and the more i read about him the more i got inspired. Whatever he said seemed to  make a lot of sense ,he had a simple technique that he had followed for decades beating the pants off the market . I came across a quote where buffett referred to this book called ‘The Intelligent Investor’ by his teacher Benjamin Graham. He went to the extent of calling it the best Investment book ever written. This book was about to change my whole outlook to stocks and investing in general..but more about it in the next post.Please feel free to share your thoughts on the post and about your first encounter with stock markets.