Friday, January 8, 2010

How Do I Discover Hidden Undervalued Assets?

Our last post got a lot of fellow Happionaires sending e-mails and trying to figure out which company I was speaking about that has assets worth Rs. 10,000 crores but is selling for around Rs.800 crores. Most people suggested names of existing real estate companies or infrastructure companies. I even had the fund manager of a relatively smaller Mutual Fund e-mailing me and asking me which company I was speaking about.

Now the thing about looking for hidden land banks in real estate companies is like looking for hidden stocks of soap in a soap factory. They wouldn’t be hidden and would be all out in the open. Whenever an analyst or investor looks at investing in a real estate company, one of the main things he checks is the land bank. This reduces the possibility of a value based investor discovering any hidden assets.

But would they do the same if they wanted to invest in a Bank or in a Pharma company? The first thing most investors will research is the way the core business is doing. If someone was to invest in a Pharma company they will check the sales of drugs, any new innovations, profitability, medical opportunity, etc. thus overlooking any hidden assets These are the basics, but most of the fun lies is going beyond just the basics.

Imagine a company that has been around for over fifty years(and are not in the real estate space). Let us say they purchased/got land 50 years ago. There balance sheet will continue to reflect the price of the asset purchased in those days. We very well know the type of price appreciation that must have happened over the years. Something that might be costing Rs. 1 on the balance sheet, today could be worth several hundred or even thousand crores. These are the types of hidden assets, I love to hunt for.

Almost all public sector companies have such assets, I remember sitting at the SBI Building, when I was told by a good friend there that the entire building is priced for only Rs. 1 on the balance sheet. I still wonder how strange it is that the entire building is priced at Rs. 1. Wouldn’t we all love to buy such buildings? Maybe in the public sector it might not be so easy to sell these assets immediately. These will be long term stories of around ten years, but a lot of private sector companies today are looking at developing their land banks. I must confess, many times I have thing easy, since I meet so many people from different areas of life. and they reveal a lot.

I’m sure investors must be remembering the type of extraordinary returns defunct and dead mills in the Mumbai region gave to investors, as this property was developed into prime retail, commercial and residential real estate.

Investing for me has never been about balance sheets, but going beyond them. A large part of it is about trying to observe and learn from our surroundings, the people we meet, interact, socialize and do business with. For a few this might seem like hard work and time, consuming, I don’t see it as hard work because I love what I do and am extremely passionate about it.

That way everybody puts in hard work and effort in what they do. An engineer has to pass entrance exams, study hard at college and work as a trainee. A doctor has to spend several years in medical school and as an intern before he can achieve something. A pilot has to spend several hours practicing to fly a plane and make sure he is physically fit. An actor, dancer, sportsperson, business man – even a small child learning the alphabet or numbers puts in effort and hard work. I remember as a kid, I found it extremely difficult learning the alphabets in order. I could read and writer, but till a very late age didn’t know the exact order in which alphabets came.

To become a good engineer, doctor, artist, marketer, pilot or businessman – it took you some time, didn’t it? Investing too is like life. If we dedicate a bit of time, love, work and passion things do work out wonderfully in the long run.

To find the company I am talking about, start by short listing all those companies which have a market cap of between Rs.700-Rs. 900 crores and then figure out which one of them is quite old and might have purchased land for the purpose of its business. Study the various businesses you find, speak to their managements, make calls and if needed visit them personally. There is no fixed formula and we all learn along the way. In your journey for knowledge you will surely discover a lot. Take action now, because you don't want to look back ten years from now and grumble about how you missed out opportunities. This is going to be a really special decade for India.

Best of luck and happy investing!

Yogesh Chabria


Samant said...

Such a simple funda...I Remember Rajesh Khanna's Dialogue from the movie Bawarchi - "It is so simple to be happy, but it is so difficult to be simple"

For those who are busy searching this asset..take a nap, read this and continue ;)

Anonymous said...

I know this must be a pharma company starting with letter A.

Shabu's said...

It is a great truth that the real worth of a stock not always lying in it's balance sheets. Thanks for such a superb article...

Madan Kumar said...

Investments are more about common sense and less about numbers. People's brain has become too complex that they try complicate the numbers so much that it has over shadowed common sense to a great extent.

Madan Kumar Rajan



Naresh Pisharody said...

Dear Yogeshji, Thanks for picking our brains. I hope one day u would start a school for educating us on value based investing. recently I attended a lecture by a self proclaimed consultant, who claimed to know the formula to investing. Like me many others too joined the lecture. At the end I figured out the formula , just that it works for him alone. He gave an enigmatic speech and enrolled about 70 people into his batch. What he spoke there is completely in contradiction to what we believe as Happionaire. Spare a thought to us Yogeshji, pl start an education program and I am sure there would be a million plus people who would be benifited.

Naresh Pisharody said...

Hi Ganesh,
I dont think it is that as this company is already in real estate and they are about 3000 cr in MCap,
Keep pricking ur brains, that's what YogeshJi wants us to learn.

anirvinya said...

I think the company could be Tata coffee limited. Its MCap is around Rs. 750 crores, has huge land bank in many parts of the country to grow coffee and was started (as Consolidated Coffee Estates) way back in 1943


Patel Engineering, a prominent player in the civil engineering and infrastructure space has got
five decades of excellent project execution capabilities and experience. Its core businesses
include construction of hydro power, irrigation and tunneling projects, which enjoy high
operating margins. Also it possesses niche technologies (via subsidiaries) like RCC dam
construction and micro tunneling, lake water tapping, etc in-house.
The company has got a vast land bank of almost 1000 acres mainly in Mumbai, Bangalore,
Chennai and Hyderabad cities with projects under various phases of development. The raw land
bank value is around Rs.2100 Cr without any developments; whereas the company’s current
market cap is just nearly Rs. 800 Cr.


Ravi P said...

Hello Everyone,

After spending quite a bit of hours today, I came up to a small list of companies.

I excluded companies by using a simple logic:

*All the companies that were not incorporated before 1965 were excluded. I took pain to google all companies and look their historical data.
*Yogesh always trust the way Indian do Business. It has to be founded by an Indian. After few companies i got a feel that anything having foreign collaboration is simply getting excluded.
*There was no IT minors or Digital Media or TV Media 50 years ago. So I removed all of them.
*Now ultimately i have following companies on my plate to look at.

Name Cap P/E
Elecon Engineering Company Ltd. 837.61 14.58
VST Industries Ltd. 835.95 13.52
Dhampur Sugar Mills Ltd. 802.71 14.29
Hinduja Ventures Ltd. 757.06 22.94
Tata Coffee Ltd. 753.43 40.41
KSB Pumps Ltd. 752.28 11.78

I am very interested in Tata Coffee and Dhampur Sugar and finally Hinduja Ventures. I have sent emails to above three at their Investor's Desk. Awaiting Responses. Fingers Crossed.

**** There is another company that looks interesting that is Finolex Cables. But the M. Cap is not around 800 rather 900 Crs and also founded in 70s. I have excluded in the list because it is one of my prime focus and have kept it seprately. ;-)

Please brainstorm further and let's find it out. Who knows this could be turning point of our situations!!!

Yogesh, Please suggest if our analysis is wrong. You're our man that we are counting on who will make us stand if we are falling in any trap. Atleast a green or a red!!

Venkat Annavi said...

After my analysis, I think that the company is arvind mills with a market cap of 948 crores. It was started in 1930 and they are planning big on investing in real estate. Read this article.

krishna said...

What about Walchandnagar ?? A very old company which has (or had,not sure) huge land assets in mumbai.....Can somebody throw futher light on this ? There was some talk about sale of this property way back in 2007 and there has been no talk about it since then.....

Bose Tipirneni said...

A good puzzle for intelligent investors. My guess is Patel Engineering or Bombay Dyeing or Arvind Mills.

Anonymous said...

yogesh sir,

can you give us some clue, in which business , the company is working in, i was searching in real estate earlier, now i am trying in a new way

Anonymous said...

Hello Indians..
Please look at some of the older article posted by Yogesh..... he had mentioned about this earlier (He had mentioned like.. the company was doing business in manufacturing sector....) so it could be garments.. or automobiles etc.... Now looking at the comments coming to this post... it looks like... everyone is asking for a hot tip and I fear if the intention of Yogesh was that when he started this blog. Read more.. search more..... understand more.... minimize risk and make investment... There is nothing called free lunch....(unless in charity)..... here the charity what Yogesh does is financial education/awareness.... not the hot tip.... I would not expect him to put that company name here as the purpose of this blog is not that... It is left to all of us to find time and learn and improve and become investors, than running behind the hot tip...... The market always provides opportunity to the informed investor, no matter where the market is.... so lets try to be an investor.......Plz do not consider this as an offence to any one....


after more than 6 hrs in front of my system i singled out this company.most probably this is it.its market cap is 750.they are in this businnes since 150 yrs.they are into infra bank worth app same.
i followed same technique as outlined by mr.ravi.

Sunil said...

Hello All,

Just droped in to say a quick "hello" ... please go through the link given below ...good article from one my Fav authors "Robert Kiyosaki"

Anonymous said...

what i think its walchandnagar ind the mkt cap on date of first when it was written about was 798 cr, the pe of the company doesn't support the price only a company with hidden asset value can support this price, since then mkt cap has risen to 886 cr,

Rao, Hyd said...

All these type of valuations arise, always, when the markets are up and touching peaks. Earlier, at the time of Harshad Mehta scam also, he prompted the theory of replacement value. As such he valued the share of ACC at Rs.10,000/-. What happend later, we know well. Even in the bull rally that was led by real estate stocks in late 2007 and January 2008, every body was after land banks that are held by every company. As such shares of companies like Bata, HMT, etc. which are under losses also went up. If at all these companies sold part of their land holdings, it makes some sence and would have held good cash position for their core business expansion.
First of all the core business must be doing well for any company, any other value is an adding factor only.

Anonymous said...

found your site today and really liked it.. i bookmarked it and will be back to check it out some more later ..

Anonymous said...

I think its VST ( Vazir Sultan Tobacco). Huge landbanks in Hyderabad area and at nominal value on the books. Looks like we guys need to use our brains

Anonymous said...

Hello everyone.... good evening... my name is shiva.
Just few days back i saw this blog.., its really superb n its very useful who are new to this field.., as i am., thank you chabria.. As chabria tells one as to use common sense to identify the stock.., its not real estate stock, bz its mentioned in the chabria article, may be a pharma or private sector industries..

Anonymous said...

HI.. shiva here..
i am new to this field of stock investing, i have done, can anyone help/guide me, wht should i do before investing in any company, i do day to day trade but most of the time end up with huge losss., dono wht to do.., after reading this blog.. came to know one who is new to this field should not do day trading at first. so can anyone help me.. how should i start investing step by step... plz chabriaji... guide me.

Krishna said...

I think Yogesh is talking about Gulf oil corporation.

Noorul said...

Hi Everybody,
As I am new to this blog. I am trying to find out the companies of market capitalization between 700 to 900 Cr. But I didn't find in the website how to find out the companies of the above mention market capitalization. Can somebody help me to how to find out the companies from market capitalization?

Sunil said...

Hello All,

Please go through the link below on GOLD by Marc Faber ... Yogeshji I am sure you must be aware that since past few weeks your Value Picks that you have shared in you research reports have been in news

Anonymous said...

I want not approve on it. I assume nice post. Expressly the appellation attracted me to be familiar with the whole story.

Jagan said...

Dear Fellow happionaires,

After doing a thorugh research during which I came across few companies, I zeroed on:

Yogeshji is referring to Gulf Oil Corporation. This is Hinduja group company. This company is into explosives, chemicals manufacturing for more than 40 years. Its current market capital is 786 Cr with sales of 900+ cr. nothing to cheer about the growth in its core business, but still we can't write it off, its been maintaining its leading position in explosives division and diversifying to other works within core business. They are relatively new entrants into bulk chemicals business, doing average with moderate losses :). As all of you know, their lubricants division is doing fine. Overall, its core business can be calssiffied as 'average' with moderate profits, of late.
As our guruji was mentioning, the beauty of this company (if our Yogeshji is referring to this Co.), the beauty of this company lies in its landbank. Huge land of more than 400 acres (yet to confirm the exact figure, but surely mroe than this)is available at its manufacturing location in Hyderabad, which is one of prime area. aprat from this land, they have some real estate ventures in bangalore, as per their website.

As Yogesh was suggesting, this can turn out to be a great asset down the line.

With limited knowledge as you, I beg to reserve my right to be wrong in this analysis. I request Yogeshji to correct us and advise rightly.

happy investing.


Anonymous said...

hi... everyone.. this is shiva.
After longtime searching in the net.. abt all the midcap companies.. i founded of the company with huge landbank is gulf oil corporation,, they have about 2000ace of land in bangalore n hyd.., so i think its gulf oil.. is this the stock ur speaking mr chabriaji...

Naresh narker said...

Could anybody tell me what P/E is all about?And how does it matter in purchase of stocks

Jagan said...

Hi all,

I found an article, which I believe worth sharing with you all.

I request Yogesh if he can give his valuable opinion on mentioned article.

...awaiting for right opppirtunity

Naresh Pisharody said...

Naresh Narker,
P/E is a relative number which shoes how expensive or cheap the market is available at the moment. It is a measure of how many times the earnings you are willing to pay as a price to buy shares of a given company. If the earnings are Rs 25 for a given company and you are willing to pay Rs 100 to buy it in the market, you are willing to pay 4 times its earnings. The P/E here is 100 / 25 = 4.

Pennystocks said...

Finding the undiscovered gems. Fantastic, plus can be financially rewarding.

s. dalamal said...

Chabria ji, In my 15 year investing career I have rarely seen such exciting discussions and so many people actually trying to research companies. A real pleasure and I must congratulate everybody for this move.

I know for sure that this company is Arvind, but at the same time many of the other companies mentioned here are also excellent.

It will be an honour for me to meet you and discuss how my company can invest with you and partner with you. I have sent you an e-mail please revert back.

Anonymous said...

Good fill someone in on and this enter helped me alot in my college assignement. Thanks you as your information.

Anonymous said...

hi.. everyone.. shiva here. i think arvind as abt only 8oo acres of landbank,,, but gulf oil corporation as abt 2000acres of landbank.. so it is gulf oil..

Unknown said...

Yogesh ji its really exciting to lok for company you have given it as our Home work, I remember the scene from 3 idiots where aamir is giving lesson to the class, its really like what u r doing makeing us learn to invest in right manner by doing our home work, we might not get LAXMI now but due to SARASWATI with us LAXMI will follow behind her.

Really wonderfull, i 2 have done my studies and still finding for the gem, will mail u the details soon.

Mohit Agrawal said...

Hello everyone

After doing lots of research I have hunted some of the mid cap companies which are fundamentally very much strong and they have very good business model and this companies are into the business of goods and services which will be in high demand after few years...

But I am waiting for the right time to enter into all this companies as stock market seems to be very much over overvalued...As Mr. Rakesh Jhunjhunwala has said

"Its important what you buy.Its more important at what price you buy"

I request to all the happionaire to read this article:-

Unknown said...

I have pin pointed company by study. At present price is quite high. Waiting for significant correction to enter that script.

The Happionaire™ Blog said...

The e-mails have been too many - I finally did manage to read almsot all of them. A lot of fellow Happionaires have got it right - but the best part is that even the other companies shared offer a lot of value! I discovered a few of them for the first time.

Whether you believe in Lord Krishna, Rama, Shiva, God, Allah or Buddha all lead up the same path. It is the same in investing - at the end of the day the right investments will reward you with returns.

A correction is just around the corner - good value can be purchased at even more attractive prices.

Yogesh Chabria

Naresh Narker said...

Thnxs, Mr Pisharody,In short it means Market Price/EPS...good good...The resultant is the P/E..
Naresh Narker..

Anonymous said...

HI everyone.... shiva here., chabriaji. ur not telling the name of the script... plz tell the name.... so its usefull for all members of this blog....

Naresh Narker said...

I had purchased 800 shares of L&T on 13 Mar 2009 at Rs 600/ and sold off 400 today at 1650/.Could any good soul tell me where do I park this money..?Yogeshji even you could help if time permits on your side..Thnxs

Anonymous said...

Numbers rocks...