In the last post, I analyzed my stock portfolio holdings and said that I'm confused about SRF, MAZDA and IGL.
I took some time to analyze these further, starting with MAZDA, and here's what I find:
- Another independent research on this business:
http://valueinvestinginpractice.blogspot.in/2012/04/mazda-limited-engineering-value-play.html
Good analysis, pros and cons and I more or less agree and would do the same...
- Management compensation. While it is high in percentage terms (15% of net profit), looking at the history, for last 5 years, the three executive directors' salaries have been around Rs 30 lacs each, and occasional bonus / commission. This is still high in percentage terms, but reasonable in absolute terms considering the performance they've generated - consistent OPM and NPM of 15% and 10% roughly, and an ROE of 18%+ (except this year) with nearly zero debt
- Custom engineering business means lesser competition and hence lower risk of profit margin erosion.
- Crolles technical collaboration is a plus, with equal risk of losing competetive advantage if terms go bad with crolles.
All in all, this looks a decent business, undervalued substantially and low risk of things going wrong. Hence, even though it is small, I've decided to increase and build up to 5% stake in my portfolio. I've started buying more below Rs 100 (my initial IV calculation was Rs 87, but considering management has bough shares from market at that price, its unlikely prices will come down to Rs 87 soon, and I'm only buying it about 10% higher than my target.
Next is on IGL and SRF in another post :-)
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