Uncommon Sense - Dhoni as India Cements VP

India Cements

BSE

Feb 01, 17:00

87.85

1.60 (+1.86%)

VOLUME  56,649

PREV. CLOSE

86.25

OPEN PRICE

86.20

OFFER PRICE (QTY.)

87.85 (5)

Well, if you go back to yesteryear's especially when India won the first Cricket world cup in 1983, no one ever thought on aggressively using cricketers brand image to promote company brands. Media and Entertainment has progressed so much that managements are constantly thinking to innovate.  This one decision announced by the BCCI chief and India Cements Vice Chairman took me aback!!

Dhoni, arguably one of most successful captains India has seen, is crowned as Vice President of a cement company with great south Indian presence! Its hard to say if this is in better interests of the org or maybe vested interests of the individual. But just the idea of getting one of the most expensive brand ambassador at a lower price amuses me!!!

What would be Dhoni's role in a cement company? He probably does not even understand the business, but he can be a great brand ambassador of a company which has so far been seen as a sluggish performer in comparison to some of the large caps in Cement industry. This apart, I somehow find it strange with marketers willing to bet their money on the 'popular' individuals! Would someone buy a product because Dhoni is endorsing it? Would you ever buy cement bags from India cements just because Dhoni is employed there? People would probably buy a "Lux" soap because its marketed by leading actresses in the country. This is probably the first time a cement company is banking on popular brand ambassadors. But the mere idea of getting an expensive brand at a cheaper price looks extremely innovative. Just going by the thought, BCCI and India cements Vice Chairman Mr. N Srinivasan has played a master stroke. My sense is that this move may actually not do any good for the company in the long run...

Will Dhoni play the next world cup - well, I don't want to comment if this move is actually with vested interest. But, ultimately at the end of the day, performance counts!!!! Finally, should you buy India cements because Dhoni is in? Answer is no, buy a company for its fundamentals and not for the news it is making! With interest rates going down, cement companies also would trigger a fresh demand cycle. India cements may well be part of this and will be a good bet for the short term. Buy at lower levels with a target of Rs 100 within a years time. Fundamentals indicate a clear buy - PE of 11.6, BV of 132, Dividend yield of 2.2% and a sales growth of 20% YOY.

Mathematics of Valuation - Is it time to Invest

• SENSEX
  20039.0475.01
• NIFTY
  6064.4025.20
• USD/INR
  54.320.36

Its really interesting to predict markets for most analysts. I find them strange, because most of these TV analysts aren't really accountable for what they say. But I must say, this time on, they seem to be right in their view that the markets seem bullish. Here's why I think so! 

Look at the below table showing PE, P/BV and Dividend yield for Sensex over the years. Every time Sensex has reached a PE of 20+, there has been a correction(logically so!). What surprised me and got me wrong was that Sensex did reasonably well in 2012 though indicators weren't bullish. At this point, I see a good story emerging for the short term(1-2 years). One, Dividend yield for Sensex stocks is at one of the best we are seeing for the last 7 years at 1.53. Secondly, PE is just around the levels we saw in 2005. As most analysts, I would say PE is not the sole indicator of bullishness. However, for now, this looks attractive for a 15% return.

Manufacturing and some of the banks which haven't done well over the past year interest me at this point. Stay off IT stocks though they may run with market sentiment. I for one, don't want to participate in their fiscal management story which are seemingly less bullish. Look at the top line of top IT companies over the years, we are no where near to what we saw during the IT boom. Why should these companies command a PE of 15+? Is there any logic?

I will separately post some of the stock ideas for the year shortly.

Indices :SENSEX

Period : Year 2000 to Year 2013

Year Open High Low Close Price/ Earnings Price/ Bookvalue Dividend Yield 2000 5,209.54 6,150.69 3,491.55 3,972.12 24.48 3.81 1.14 2001 3,990.65 4,462.11 2,594.87 3,262.33 17.60 2.51 1.83 2002 3,262.01 3,758.27 2,828.48 3,377.28 15.22 2.30 2.14 2003 3,383.85 5,920.76 2,904.44 5,838.96 15.02 2.49 2.14 2004 5,872.48 6,617.15 4,227.50 6,602.69 17.26 3.28 2.01 2005 6,626.49 9,442.98 6,069.33 9,397.93 16.21 3.94 1.58 2006 9,422.49 14,035.30 8,799.01 13,786.91 20.18 4.75 1.35 2007 13,827.77 20,498.11 12,316.10 20,286.99 22.25 5.32 1.10 2008 20,325.27 21,206.77 7,697.39 9,647.31 18.22 4.20 1.29 2009 9,720.55 17,530.94 8,047.17 17,464.81 18.08 3.42 1.43 2010 17,473.45 21,108.64 15,651.99 20,509.09 21.71 3.67 1.12 2011 20,621.61 20,664.80 15,135.86 15,454.92 19.21 3.43 1.32 2012 15,534.67 19,612.18 15,358.02 19,426.71 17.14 3.08 1.63 2013 19,513.45 20,126.55 19,508.93 20,039.04 17.91 3.04 1.53