Q&A: Future Market Networks, V2 Retail, Concentrated Portfolio

Modified: 01-Jul-20

The current article in this series provides responses related to:

  • Opinion about Agre Developers Limited (Future Market Networks Limited)
  • Opinion about V2 Retail Limited and Pioneer Embroideries Limited
  • Views on concentrated portfolios
  • Clarification about impact of fundamental factors on price movements

 

Agre Developers Limited (Future Market Networks Limited)

Dear Mr. Vijay,

This is regarding my query on a stock I am holding in my portfolio and would like to know your views.

As instructed by you, I am writing answer to all 4 questions about this stock – Agre Developers Limited (Future Market Networks Limited):

  1. Holding period – 4 years
  2. Average cost of buying – ₹26 (Quantity – 6,000)
  3. Qualities noticed while investing — Demerged from Pantaloons Fashion & Retail Ltd. Company was available at mkt cap of ₹40 crore with real estate assets of close to ₹300 crores,
  4. Performance – Company has not at all performed and the share price is one fourth now.

But since it has the real estate (malls etc.) I was hoping that value unlocking will happen someday. Since apart from stocks you also have expertise in real estate, I was hoping to have this analyzed by you. I know you have been very generous and thus have a huge backlog of stocks to be analyzed. I would wait till you come to this one.

Regards

Author’s Response: 

Future Market Networks Limited (FMN) owns real estate. But it gives these properties on lease to its group entities (Future group). It’s not known whether the lease rental it receives from these group entities are at arm’s length (at prevailing market rate). However, looking at the financials it seems that the current business performance not in favour of long term benefit of shareholders.

The operating profit over years, has been in range of ₹30-40 cr. which is not sufficient to meet interest expense of ₹80-90cr. The question of creation of wealth for shareholders seems irrelevant.

Read: How to do Business Analysis of a Company

I suggest you reassess your situation as a shareholder.

Regards,

 

V2 Retail Limited

Vishal Retails (Now V2 Retail Limited), promoted by Ram Chandra Agarwal was a hot stock ever since its listing.

The company came out with an IPO in 2007 @ ₹270, which oversubscribed by a whopping 81 times. Stock hits a high of ₹1,001 in 2008, which now quoting around ₹10.

In June 2007, Vishal raised ₹110 crore (₹1.1 billion) through an IPO but this was not enough to meet its scorching growth. It had 50 stores by then and was looking to add 130 more in a year. It tapped the short-term debt market.

Company sold its old business to TPG and Sriram Group in 2011 for ₹70 Cr (liabilities to the extent of ₹823.20 Crores and assets of ₹ 393.78 Crores transferred in this deal).

Major overhang for this company is the contingent liabilities and the court disputes.

I am fully convinced with company’s business and have confidence in RC Agrawal. Now need your views regarding this.

Pioneer Embroideries Ltd. Is looking like a turnaround story. It is making every effort to retire its debt and hopefully would make improvement in its situation by this financial year end. Let us hope for the best .One of the biggest embroidery brand ‘Hakoba’ is owned by the company.

Author’s Response:

Thanks for writing to me!

V2 Retail Limited as well as Pioneer Embroideries Limited, both are loss making companies. They might be a turnaround stories, but I do not prefer venturing into turnaround segment, when there are enough opportunities available in stock markets in profit making, fundamentally sound companies.

There are many investors who invest in loss making companies. You may look investment opportunities in them post doing your own research.

However, I believe that an investor should prefer profit making, fundamentally sound companies over loss making companies.

Read: How to do Financial Analysis of a Company

Regards,

 

Concentrated portfolio

Sir, are only 6 stocks in your portfolio enough for wealth creation or any new additions are advised? Please reply.

Author’s Response: 

Thanks for writing to me!

I do not have any targeted number of stocks in my portfolio, however, I try to keep this number as low as possible.

Currently, I believe that 6 is enough as I am getting opportunities of additional investment in existing portfolio. Once all the stocks exceed my purchasing criteria, then I will look to add new stock.

You should also read: How Many Stocks You Should Own In Your Portfolio?

Hope it helps!

 

Companies with better operating efficiency generate wealth for shareholders

I am seeing a pattern here. Companies with high ratios of fixed asset & inventory turnover, lower receivable days are continuing their up-move in the market, while others are sideways or moving down after initial up move in May-Oct 2014 rally !

Is this how it’s working now?

Author’s Response:

You can’t imagine, how happy I am after reading your this comment!

You have nailed it. The features which you just described are the characteristics of excellent companies. If companies perform well in their business, market always rewards them, though timing of market’s response may be a bit delayed.

Read: How to analyse Operating Performance of a Company

If an investor chooses and invests in companies which are operating their business efficiently, she may expect to make significant wealth from stock markets.

All the best for your investing journey!

P.S.

 

DISCLAIMER

  • The above discussion is only for educational purpose to help the readers improve their stock analysis skills. It is not a buy/sell/hold recommendation for the discussed stocks.
  • I am registered with SEBI as an Investment Adviser under SEBI (Investment Advisers) Regulations, 2013.
  • Currently, I do not own stocks of the companies mentioned above in my portfolio.

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