Friday, June 17, 2016

Unlike some investment strategies, value investing is pretty simple. It doesn’t require that you have an extensive background in finance (although understanding the basics will definitely help), sign up for an expensive subscription service or understand how to analyze squiggly lines on charts. If you have common sense, patience, money to invest and the willingness to do some reading and accounting, you can become a value investor.
Photo: Easy Stock Market
Dimensional Emerging Markets Value Fund is one such entity which generally invests in shares, to achieve long-term capital appreciation.

Dimensional Emerging Markets Value Fund which holds 1.09% stake in Unitech Ltd is also holding 1.05% stake in Dishman Pharmaceutical & Chemical Ltd and 1.66% in India Cements Ltd. 

Value investing is always subject to risk, but over a period it gives good returns if right choice is made; while picking up securities, especially in the small and mid cap space.

Once, Kishor Ostwal, chairman and managing director, CNI Research said: “Stock reactions are often a result of the event itself and also speculation by market participants. At times corrections can be steep and the stock price itself falls below the intrinsic value of the business net of the ‘event’ impact. Buying at such low valuations can result in potential multi baggers". 

So, mainly what needs to be looked at, when a corporate disaster strikes a company?
  • The first thing to consider is whether, despite going through an extraordinary corporate event, the business has value or not. 
  • 2ndly whether the balance sheet of the company will be able to sustain potential losses (penalties and loss of revenue) arising from such an event, and is there enough cash with it,
  • Thirdly, what will be the impending impact on future earnings or whether the future looks bright as compared to the present situation.We invest in stocks/shares based on its future growth potential, hence a distant view is more important than past events. 
Thus, while the value in the stock might be attractive, risks to future earnings need to be analysed if you want to buy into it as a long-term investment. 

Brand is perception, and if that is hindered then future sales can suffer. In case of Unitech Ltd (Rs.4.90), the issue is more of its brand getting a hit rather than the debt on the books (which as of now is manageable). But promoters' credibility is slowly limping back to normalcy, after their name came in 2G scam. 

So, what is the land bank of Unitech Ltd? According to an article published in the Business Standard on 8 May, 2014
Leading real estate companies like DLF and Unitech, too, have not acquired land for the last five years, though they do not jointly develop housing projects with landowners. They have enough land for new projects over the next 10-20 years, according to experts. These companies have been selling land parcels to reduce their debt.
Developers went on a land buying spree before 2007 during the real estate boom, but the economic slowdown in 2008-09 spoilt their party. DLF has about 10,255 acres of land, mostly in Gurgaon, Bangalore, Chennai, Chandigarh and Hyderabad. Unitech has a bank of 5,500 acres in Delhi-NCR, Chennai, Mohali, Kochi, Kolkata, Hyderabad and Bangalore.
With increasing floor area ratios, many developers are expanding vertically, also reducing their need for land buying.
Photo: Business Standard
The new Land Law is expected to make BUYING LAND, a DIFFICULT PROCESS and joint development might become common.

The passage of the land acquisition Bill is set to make land more coveted. Now, those seeking to buy land and develop it would have to pay at least twice the amount. Analysts say acquisition would become cumbersome and expensive, owing to the passage of the Bill; at the least, the cost of land would rise 30-40 per cent and this might lead to property prices rising two-20 per cent.

The escalating price of land will benefit those Builders/ Real Estate Companies, who have large land banks in Prime Locations, eg. DLF Ltd (Rs.131), HDIL (Rs.95.80), Unitech Ltd (Rs.4.89), Sobha Ltd (Rs.304.15), etc. 

There are also reports that Home Buyers in India are set to get a touch of Chinese realty developers with the country emerging as a major investment destination after government allowed 100% foreign direct investment (FDI) into the real estate industry.

100% FDI in Real Estate sector, will be a positive for developers with existing joint development/investment arrangements with foreign investors — they will gain as their addressable market will expand. Also, developers with large land banks will benefit with potential increase in demand for land.

There cannot be a 2nd opinion, that the scrip of UNITECH LTD (Rs.4.89), is at a deep discount as compared to its Enterprise Value; after a sharp corrections during the last few months, following some extraordinary corporate events - - therefore offers a good VALUE BUY.
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