INVESTMENT IDEA - ALEMBIC LTD

In these times of global turmoil, we need to look at companies with promoters having credentials of coming through downturns and Alembic is one company which has done it so far. Alembic is a 100-year old
company, which itself indicates a management that has survived well through all the tough times.

About the company:-

http://www.alembic-india.com/index.asp

Alembic is a fully integrated player in Anti-infective segment which is the largest segment for this company accounting for over 60% of sales. Alembic has its presence in over 75 countries globally by a chain of agency tie-ups and user tie ups. The company has a distribution network that spans 29 states in India and has manufacturing facilities in Baroda and Baddi.

Recent development:-

• Alembic board has approved a buy-back of the company’s shares through the open market.
  http://www.bseindia.com/qresann/news.asp?newsid=%7b5BAC3CD0-47D6-433A-A91B-675FF65ED6C3%7d&param1=1
• The buy-back will be for a minimum of 12,00,000 shares.
• Maximum buy-back price is Rs 55/- (82% premium to CMP of Rs 30.10)
• Alembic Promoters hold 61% stake in the company http://www.bseindia.com/shareholding/shareholdingPattern.asp?scripcd=506235&qtrid=59
  
• The maximum amount of buy back shall be for an amount not exceeding Rs 3,300 lacs, constituting 9.69% of the paid-up capital & free reserves of the Company (which are Rs 34071.54 lacs).
  

The stock has come down from a high of Rs 108 in Nov 2007 and now the stock is consolidating at current price. The buy-back activity is scheduled to start on 8 Dec 2008 and investors can buy this stock at CMP of around Rs 30 for stable returns. Important thing is that the company will itself support the price and as a result the downside is limited in the stock. As investors we have to buy with some margin of safety, and this development assures us the same thing. Buy-back itself stresses the confidence of the management in the company valuation and no company can complete a buy-back if it does not have enough cash.

WHY NOT TO FEAR EVEN IF SENSEX DOES 6000?

WHERE DO YOU FIND SENSEX IN THE NEXT 3-4 YEARS TIMEFRAME? IF THE ANSWER IS NEAR 20000, BY CURRENT LEVELS OF 9000, THAT WILL BE GROWTH OF 122% (22% PER ANNUM CAGR) IN 4 YEARS ALSO. NOT BAD BY ANY STANDARDS! AND WHAT'S THE ANSWER FOR WHERE DO YOU FIND SENSEX IN NEXT 3-4 MONTHS? 12000? 8000? OR IS IT 6000? EVEN IF WE DO 6000, RISK IS ONLY 3000 POINTS BUT WHAT ABOUT REWARDS? THAT IS 11000 POINTS FROM HERE. SO IS IT RISKY? NOT REALLY!!! RISK COMES FROM NOT KNOWING WHAT YOU ARE DOING – WARREN BUFFET. BUT NOW YOU KNOW THE RISK, SO GO AHEAD AND BUY!

  It's an interesting article by leading economist Mr Yogesh Chhabria.   

LATELY, I have been thinking a lot about the Lehman crisis. Spending money that they didn't have and going beyond their means is one of the main reasons for their situation today. In fact that is the cause for the current economic crisis in the US. 

When I see all this happening, I can only remember the good old days. Then, karz was bad. People looked down upon those who took loans. Parents would not give their daughter's hand in marriage to a man with loans.

 

But of course, the times have changed now. Everyone I know has a loan. The buzz word is EMI (equated monthly instalment). Today, you can buy everything on EMI - a house, a television, even an i-Pod. In fact I know of someone who just bought a fancy BMW 3 series on EMI, instead of buying a cheaper car outright with cash. I mostly prefer to take public transport, but then I am an old man with old thoughts! 

Anyway, coming back to what caused the crisis. 

Imagine having Rs 2 lakh in your bank account, no regular income, yet buying a house worth Rs 65 lakh, in the hope of selling it for a higher price. Even if the price of the house fell by just 5% (that is Rs 3 lakh), you will go bankrupt. This is what Lehman Brothers did; with around USD 20 billion they went and bought assets worth over USD 600 billion. Isn't it suicidal and simply foolish? 

 

I am sure things would have been different, had I been the head of Lehman brothers. But who wants an old conservative man like me to head a complex financial institution. 

But there are a few lessons that we can learn:

 

*        Live a balanced life and avoid overspending. 

*       Don't buy things we don't need. 

*       Don't buy Branded goods. 

*       Don't buy excess Food, Cloths, Cosmetics, Footwear, electronics and Fashion accuracies just think before you buy. 

Tip: World still has a lot of growth ahead and the future holds immense opportunities for us. Let us make the most of it and save and invest it wisely instead of wasting our precious little on things we don't need. 

*        Try to balance life with work (No one is happy to work in their professions). 

*       Don't stress out yourself, after work try to do some extra activities like swimming, yoga, walking, running where you can divert your mind from stress. 

A thumb rule: Health is more important than money. 

*        Try to understand each other (Wife and Husband) in financial matters and help each other. Tip: As soon as you get your monthly salary, set aside a fixed amount, usually 35 per cent, for insurance, savings and investments. You can then spend the rest. 

Not all loans are bad. Loans that are 'need based' (home loans, education loans) can always find a place in your finances against those that are largely 'want based' (Credit cards, personal loans, car loans). 

 

*        Borrow only if repayment is financially comfortable. 

A thumb rule: Keep EMIs within 35 to 45 per cent of your monthly income  

In that respect, there is one American who I really respect - Warren Buffet. He has lived in the same ordinary house for over three decades, drives his own medium sized car and leads an extremely regular 'middle class' life. If that's all it takes for the richest person on earth to be happy, why do all of us need to take extra stress just so that we can get things which aren't even essential?

"I have not committed a crime. What I did was fail to comply with the law." -- Former New York Mayor David Dinkins

So if you are not abiding the law or at least not knowing the directions of the law, you are committing some crime. What's the result of a crime, some punishment? What is happening now is governments all over the world are indicating that shorting is not a good idea for anybody at this point. Didn't we hear US SEC ban shorts for some days? Didn't we read about Karachi Stock Exchange announcing support prices for stocks? It has all happened very recently, not even 3 months back! Governments have always tried to support markets when the crash is so untimely (in their view). India is not really different in that aspect too. Our markets have crashed more than Dow Jones did and Indian government has been very quick to improve sentiment. RBI has cut its benchmark rates and ratios (CRR, SLR and Repo) so many times in the last 2 months. Just 4 months back we were fighting with inflation and now we are fighting with liquidity, times have really changed. SEBI is also not behind in regulating, they have changed the circuit rules (I view them as bullish, why? Read !), they have allowed promoters to do creeping acquisitions beyond 55% up to 75%, provided they buy from open market, that even not through bulk deals (source). SEBI has been time and again cautioning FIIs about stopping overseas lending of securities. It released the list of shorts also just 2-3 days back, saying openly which scrips FIIs are short in. On 29 October, 2008 FM meets RBI and SEBI chiefs and on 1 November, we see all CRR, SLR and Repo being cut through a single announcement. Yes, it is not a perfect co-relation, but it does convey a message that SEBI, Government and RBI are resolving the issues of financial markets collectively. May be we will see fuel price cuts also happening in near future. And when all these forces are indicating bullish behavior, are shorts committing a crime here!

A quote by Peter Lynch "I've found that when the market's going down and you buy funds wisely, at some time in the future, you will be happy. You won't get there by reading, 'Now it's time to buy'." When it is panic, you have to buy your stock at your value. When bad things flow, all news is negative, but tide changes and everything looks positive.