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KS Oils buys 50,000 acres of palm plantation in Indonesia

KS Oils, a company I talked about as having huge insider trades (“Insiders Buy The Big Dip“), has just acquired 50,000 acres of palm plantations in Indonesia.

They will invest Rs. 230 cr. for this, over three years. Not huge, considering they will make sales of 1600 cr. for the year and a profit of 110 cr. or so (likely).

This should ensure lower supply cost. At commodity costs today palm oil is expensive, and margins will stay low if the prices continue to rise. KS Oils currently imports nearly all its oil. The plantation’s yield of 80,000 MT is about 2.5% of India’s oil imports, which is quite impressive then as an acquisition.

Additionally, duties on palm oil have been slashed recently, giving a higher edge. The acquisition should yield returns after around three years.

Ok so 1) Insider buying and 2) Acquisition. Anything else? 3) Institutional interest. Lot of institutional buying has happened in the stock, but at low prices. Don’t know what to make of that, yet. And 4) Power: They have a power division that gets money from Wind Energy.

Negatives: Input prices will stay high until the commodity cycle reverses. I also don’t understand the business, and it makes very small margins (<10%). All technicals are negative - MACD, moving averages, Relative Strength etc. There may be a better price point available. P/E still at 15 or so, which is not "value". (Though EPS growth is nearly 25%)

Disclosure: No positions. This may be a time for bargain hunters but this is not a bargain at this price. A bargain would be Rs. 40. But it is a momentum story, and if it needs to be picked up, the technicals should show signs, not just the (already sound) fundamentals.

  • சாமான்யன் Siva(stocksiva.blogspot.com) says:

    >Dear Deepak, I am your regular reader. Nowadays, your BLOG is not got opened in IE browser or while opening, it closed all other applicaitons too.I checked in different machines, but, result is same. Then, Now I opens in Mozilla browser. If would be great help if u look into it.

  • Rohit Chauhan says:

    >deepak
    there is a long list of companies especially in the midcap-small cap similar to mudra which are selling at very low valuations. the drop in the midcap / small cap has been much higher.
    ideas such as Mudra are more value plays – early buffett type than the later picks such as coke, gillette etc. Here the returns would be from reduction in the discount to the intrinsic value.

    However where i differ in my approach is the wieghtage i give to such stocks in my portfolio. These stocks as a group would do well and hence may require a decent amount of diversification

    rgds
    rohit

  • Deepak Shenoy says:

    >StockSiva: I haven’t had that problem with my IE, which version of IE are you using?

    Rohit: I agree, there are perhaps a lot of value picks in the small and midcap markets. I have traded Mudra earlier so I decided to take a deeper look and liked what I saw. I would like to know more – that’s why only 10% of my portfolio is in this stock.

    There’s a funda called the pig’s trough. You pick a stock or a few stocks. Then if you find something else you first decide which one is going out because you don’t want to overdiversify. Put a lot of money on each pick, and when you get better picks you throw out something that’s currently in. Like pigs in a trough, as there are more pigs they will push from themiddle and the ones on the fringes get pushed out.

  • Anonymous says:

    >Hi Deepak, I am one of the many regular readers of your blog. I have a basic question though – what/who drives the price of a share up/down? Googling only resulted in lengthy explantions about company balance sheets, revenues, industry sector etc and what not. Also if an FII panics and sells a stock at Rs.20 that is currently trading at Rs.40 will Rs.20 become the share price purely bcoz exchange concludes somehow that Rs.20 shld be trading price.

  • hari says:

    >Hi Deepak,

    I have a question? Since this is common I have posted it here else I would have mailed it to you.

    I take printouts of some articles in this blog and read it. Sometimes I also mail the articles from your blog to some of my friends.

    I just want to know if you are ok with me mailing articles from your blog to my friends.If you not ok with it I will stop doing the same.
    I had a doubt on this regard and just need your clarification.

    Regards
    Hari

  • Deepak Shenoy says:

    >hari: no problem at all 🙂

    anon: Price is only a supply/demand indicator that is all. It’s like the price of sugar or rice. The higher the demand to supply ratio, the higher the market price.

    Yet, some people may decide that a stock is “undervalued” or “overvalued” and suddenly buy or sell large quantities of shares to make up the difference. These people have different methods of valuation – some are price dependent (moving averages, supports and resistances, trend breakouts etc.). Others are fundamentally driven – EPS growth, good news, acquisitions and so on.

    The factors people use to determine value are impossible to count. But it all reflects in a share price.

    A share that seems overvalued to someone else may seem undervalued to you because you use different parameters to value it.

  • Anonymous says:

    >Deepak.. I was the Anonymous who had written that long comment on P/E and then not having the capital like Buffet. Thanks for getting back quickly and as usual, your dig in Teledata was good.
    Thanks again

  • Anonymous says:

    >hi deepak

    thanks for the quick reply on the Share pricing question. It really helped, couldnt find simple answers out there… so thanks again.

    Aditya