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Balaji: Great results, use trailing stop losses

Balaji Telefilms has announced it’s 4th Quarter 07 results. The quarter was stellar, growing profits 37.25%, from 15.5 cr. to 21.28 cr. from the same quarter last year.

EPS for the year 06-07 as grown 33.66%, from Rs. 9.15 a share to Rs. 12.23 per share.

Other significant moves:
Revenue up from Rs. 2,80.37 cr. to Rs. 3,17.47 cr. (Up 13.23%)
Profit after tax up from Rs. 59.42 cr. to Rs. 79.43 cr. (Up33.67%)
Cash and Cash Equivalents of Rs. 1,83.45 cr. as on March 31, 2007, a value of Rs. 28.14 per share.

They paid Rs. 3.5 per share as dividend on March 13; at this time the price of the stock was Rs. 113, and the yield would have been about 3%. Since then, the price has moved to Rs. 201 today.

Balaji has a serial called “Khwaish” coming out in the middle east in June, and has another serial “Kayamath” that they launched last quarter. In addition they have set up a fully owned subsediary which will make films (not that great a business in my opinion, it’s a lot of luck and money). But guess what, the first release of their film “Shootout at Lokhandwala” is on May 25, 2007 and that might boost visibility as well.

They also have a JV with Star to make regional channels. Not just content but the channel as well. Given that the biggest viewership in India is regional, this bodes well for the company.

I could go on forever about the prospects of this company. But remember that such virtues only exist on paper. Despite the company clocking 20-30% annual growth every quarter, there was no recognition of this and the price went down to nearly Rs. 100! Obviously people in the markets are blind to the fundamentals – there is no rocket science involved; for a company that would have a Rs. 12 EPS, a 33% consistent growth, paying less than 10 P/E when other media companies were valued at 40 P/E + was fairly senseless.

Yet, the company was undervalued. The fact that it got recognised is good, but it could have stayed this way for another couple years! How do you know that a share is being recognised? Price breakouts, and volume breakouts are one answer.

I had noticed a quick move to 160 and a spike upmove to 180 which was perhaps an indication that someone somewhere knew about these results – possibly so. But the company has delivered quite good results earlier too, and there was no price movement at these kind of levels, so there’s something more in the offing.

Either ways, what to do now?

Ride your profit. From now on, maintain a trailing stop loss with Balaji. A 10% trailing stop loss means if it falls 10% from its highest close, you should sell. Today the stock closed at it’s highest, Rs. 201. So the stop loss is around Rs. 180. If the stock moves up, say to Rs. 250, your new trailing stop loss will be Rs. 225 (10% below the highest value).

There’s no “loss” here – you probably make profits selling now, or 10% below now. The idea here is to ride a “trend” – the trailing stop loss ensures that if this stock moves out of favour, you get out before it really goes down.

You may say: But the company has such good prospects! Why are you asking us to sell?

But didn’t it always have good prospects? What has happened here is the market has recognised it. Tomorrow, just as easily, the market can forget it. You are just protecting yourself. In fact, if you sell at 180 and it comes back down to the 120 levels, buy it again, because it’s now value all over again.

The worst situation is: if the stock moves down to Rs. 170, and then goes back up to Rs. 250! If you’re afraid of that you can increase your trailing stop loss to 15%, but remember you will lose more money on a downturn.

The trailing stop loss is a good way to ride your profits. Don’t book them just because the stock is up – wait for the trend to reverse against you, confirm the reversal and then sell. If you are a long term investor, you can even do this in 5 minutes every day by looking at the closing values. No need to keep tracking the stock every minute.

Happy investing. I will post a message if Balaji’s trailing stop is breached.

  • hari says:

    >Hi Deepak,

    I have a doubt here about stock picking. How do you select a stock before everyone else does,and how are you able to predict so correctly about its future price growth. Ok BHEL one can sit up and take notice.But how were you able to identify Balaji Telefilms. DO you read and analyze Annual reports of the hundreds of companies like Warren Buffet. If so could you please tell me how I could start doing the same. Can you also suggest how I can understand analyzing balance sheets.Also w.r.t balaji tele is it a buy now for me since I have not bought this stock before. Or should I wait and watch for the price to reduce to reasonable levels.

    Thanks & regards

  • Mumbai Journo says:

    >so what’s your take on the Bajaj Auto demerger? I have purchased a decent chunk of Bajaj Auto Finance just when it was closing. I guess the Bajaj Auto’s finance company would be going great guns in the future especially if one of the scions have to earn his worth from this business. What do you think?

  • Deepak Shenoy says:

    >hari: I don’t analyse all companies, only the ones I am interested in. I went through Balaji when it was the most common thing being played in everyones houses in the evening (where I would visit). That got me thinking – I hate the serials, but perhaps I can cash in on the popularity by analysing the share. And then the star deal happened (this was at 83 levels) and since then I have consistently bought this share.

    Here’s my funda on buying. If you buy right now, you should be ready for a choppy ride. The stock has consistently gone up and it may go even higher, given that even with this price it is only about 17 P/E, and grows at 33%. It’s one of the lower priced steady growing stocks.

    But the scrip has been given only P/E of about 10-15 in the past. if it returns to this range the price will fall.

    So there are two things that have happened – the EPS has grown and the P/E has expanded. The EPS has grown 33% and the P/E has expanded nearly 70% (from 10 to 17).

    You can never predict if there will be a p/e contraction – the EPS will likely continue to expand though.

    If you consider a P/E of 14 and a growth of 33% you will see a price of 224 for the next year, about 10% return from today. Not too bad, but if the company gets a p/e of 20 the price will be 320, a significant upside from here.

    I like the share, but I’ve booked my 25% profit and would like to buy back if the P/E contracts to 15. for further decisions, I will wait for next quarter results.

  • Deepak Shenoy says:

    >mumbai journo: I’d say bajaj auto would have an EPS of 84, bajaj finserve would have an EPS of Rs. 38.

    Giving Bajaj Auto a P/E of 18 gives it a value of Rs. 1500 or so, and the Finserve business, which comprises inurance and investment etc. seems to be growing at about 30% so a p/e of 25 or value of 1000 should be fair.

    That translates to Rs. 2500, the current price. Nothing much to be gained in this case, even at high p/es in each sector.

    I don’t think bajaj auto finance will be affected. Some of the ownership will be transferred but operationally no difference will be visible.

  • Anonymous says:

    >Hi Deepak,

    I regularly watch you blog. I am new to investments and prefers share as long time investments. Can you please explain in detail what is stop loss. I have trading account in ICICI.

    Thanks & Regards,