McDowell Holdings Limited

MCDH hardly makes any money, yet has about Rs. 43 crores in investment. The major investments are in (annual report FY2007) :
70.2 lakh shares in Mangalore Chemicals & Fertilizers
3.2 lakh shares in UB Engineering
52.6 lakh shares in United Breweries Holdings
96.3 lakh shares in United Breweries

Interestingly, the stated price and market price of each scrip was miles apart ...
Mangalore Chemicals .............. cost per share = 5.03; CMP = 38.6
UB Engineering ........................ cost per share = 9.70; CMP = 160.0
United Breweries Holdings ..... cost per share = 54.00; CMP = 1123.0
United Breweries ..................... cost per share = 10.80; CMP = 299.0

There are some other investment in various banks etc. but these four scrips together valued at today's market price calls for about Rs. 911 crores of investments (as against the cost price of Rs. 42 crores). The market cap of McDowell Holdings itself is 425 crs, which is about 45% of the current value of the investments.

An number of institutions have made a killing buying and selling in the 200-300 rupee range. In time I have observed that a lot of holding companies do operate at a significant discount to it's NAV. The 911 crs of investments amounts to about 750 rupees per share. At 350 rupees a pop, we are looking at a discount of 56% to market value of investment. This is a bit too much ... traditionally I have seen a 35-40% discount. So there is still about 15% upside to work on ... which comes to about 105-100 rupees. Hence I'm raising the target to about 450 rupees in the next 4-5 months.

Tips !

A friend recently recommended the scrip Syschem (India). As I dont believe in tips, I made a 10-min research on the company. The company does about 4 crores of sales and about 40 lakhs of profits. In the last three quarters, two have been negative. The m-cap of the stock is 40 crs and the current price is Rs. 3.62. BSE has categorised this stock as 'T'

And just when I thought most people will pass on this stock, I saw the avg qty on bseindia ... 2 wk avg of 2,405,548 shares ! I peeked through moneycontrol ... here are the entries :-)

Posted by: mohitjohri on ( 09-Jan-08 16:06 ) Price : BSE: Rs 3.66 ( 3.68 % )
sir i hv purched 10000 shair @ 3.61 ...sir plz sages .. .wt ,s tha targ plz confarm me

Posted by: Guest on (10-Jan-08 07:25 ) Price : BSE: Rs 3.66 ( 3.68 % )
i have more then 50000 shares. insallah you will see 10+ shortly but i would recommand to hold certain percentage of your profit for almost a year & you will get 100+.you have got the right thing.

Posted by: vino1983 on (10-Jan-08 21:02 ) Price : BSE: Rs 3.71 ( 1.37 % )
syschem india is a awsome stock which will be in limelight in a very short future.
it has a good scope. will reach 10rs before mid feb 2008. might still go up till 15 - 16 by end of feb. i hold 74500 stocks @ 3.69. my friend who is working for a stock broking firm holds 235000 stocks at a average price of 3.03. good luck. invest and reap very good returns.

FCS Software

The scrip has jumped heavily in the last 1 month, before the last week tainted the growth with a 16% drop. (all time high at 144 rupees). FCS is a low m-cap stock (165 crs). The revenue of the company has been inconsistent and yet, they have been able to maintain the growth in EPS quarter on quarter. The stock seems out of favour with the mutual funds aswell.

Interestingly, FCS has a very low price-earning as compared to other IT scrips ... just about 5.2 (current price = 116; expected 1-yr fwd EPS = 22). There has been some recent activity in the stock which pushed the price from the 80 levels to 145 .. then back to 116 rupees per share. A word of caution, 97% of FCS's revenue comes from the US and they have not hedged their currency.

In a recent notice to the BSE, FCS Software had claimed that subject to Board approval, it'll issue 25,00,000 share warrants on preferential basis to some investors convertible at Rs 150/- per share (Rs 10/- face value + Rs 140/- premium). Interestingly, the market price of the scrip on that date (Jan 10) was just 116 rupees.

Warrants by nature, are quite speculative. If one believes the price of the share will increase in the coming months, then one can just buy the share and sell it off later (at a higher price). Warrants offer the option of leverage however. So you can commit, say 10% of the money to purchase a warrant call and fix the price. This will allow you to garner more share commitments and if the price of the share really shoots up .. the warrants can be converted at the exercise price. If thats the hypothesis with FCS Software, then FCS is a buy !

FCS has some uncertainty but can turnout to be a high risk-high return investment.

ICSA India

This week, PN Vijay had made a recommendation for ICSA India. The year-end target was Rs. 1000 .... a 93% rise in invested amount. The company is involved in the business of devising solutions for the energy sector for power, oil & gas firms.

Some points to note -
a) Consistent growth in the EPS over the last 5 quarters - 4.53, 5.49, 5.37, 7.01, 7.13
b) If the company maintains this growth in EPS over the next 4 quarters, we are looking at an year EPS at about Rs. 30.00 which'll calculate to a P/E of 16.5
c) The revenue per quarter has consistently risen from 74.9 crs, 94.8 crs, 101.0 crs, 122.6 crs and 146.2 crs.
d) The consistency in margins is quite unnerving ... 19.8%, 19.2%, 18.2%, 19.0%, 19.6%

For a knowledge intensive company, ICSA's margins are quite strong and the price-earnings is much lower than other organisations. Peer comparison would include a CRISIL (1yr fwd PE : 26; margins : 27%). ICSA is cheaper than CRISIL and a bit more consistent.

ICSA has been eyed by a number of bulk deal clients, however the mutual funds have been keeping away from this scrip. Dont know why!

ICSA definitely seems to have some more stretch from it's current price, especially with the macro-environment (growing penchant for power, oil & gas sector projects) shining on them.

Recommend a BUY ! Rs. 1000 target is possible.