Why I Bought SAIL, BHEL and Shipping Corp Stocks

Recently bought SAIL stock for the first time. Also, bought more shares of BHEL and Shipping Corp. A quick rundown of the thought process:

4. Is cash still the king? Is it really a good idea to park all your savings in bank fixed deposits? Your capital is unlikely to evaporate but it will not grow either. Is it not a better idea to own companies instead?

You could buy a broad basket of prominent Indian stocks, i.e. an index. But if you are okay with doing some homework, why not stuff your basket with only the truly attractive ones?

3. Scared or excited? Should you wait for a further decline in the stock prices of SAIL, BHEL and Shipping Corp? They already are at multi-year lows.

If their prices fell by another 50%, would you be scared or excited?

2. Will they curl up and die? Will India’s largest steel company, its largest maker of power equipment and its largest shipping company just shrivel up and disappear from the scene?

Or, is it likely that they will continue to remain key players in vital industries?

1. Are the heavens really falling? The future prospects of SAIL, BHEL and Shipping Corp are bad in the short-term. But are they really all that bad even in the long-term? Is India really not going to need more steel, power or shipping of crude oil and dry cargo in the coming years?

Indian stock markets get spooked by short-term worries. As value investors, we must learn to focus on the long-term.

(Disclosure: I DO hold a position in these stocks at the time of writing this post. Please also read the terms of use.)

15 thoughts on “Why I Bought SAIL, BHEL and Shipping Corp Stocks”

  1. Mohnish Khiani

    Certainly they’ll remain in the scene,but can they ever come out of the shackles of political bureaucracy.SCI is a loss making company for many years,Bhel does not have a competitive edge against Chinese imports and when the end consumers of it’s goods(power sector companies) are in a bad shape,who will it’s business pick up.Can a company like SAIL compete with efficient managements of companies like TATA steel….though these companies promise higher growth in terms of volume targets,they always end up missing them. Last but not the least big companies in this case does not mean efficient companies it’s just that they have large capital at their disposals,what we as investors need is proper utilization of capital and the returns earned on them and in my view all the above mentioned one’s are not great capital utilizers because they’ll always be bogged down by a lethargic work force.And finally I complete agree with you that they do have a ‘price value’ in them but are far behind in terms of quality.In value investing we should never compromise Quality for Price,because quality is the actual value that we get and not the price.

    These are just my views as a budding investor sir,I would like to stand corrected if I am wrong.I would also like to know your views on these points

  2. Mohnish, all valid points and well taken πŸ™‚ It’s the old (and very important) quality vs. price debate.

    If we had to choose between a HUL or NestlΓ© and SAIL, BHEL or Ship Corp, it seems like a no-brainer to pick the first set, doesn’t it?

    But as Charlie Munger says, anyone can pick a great company, it is the stock price which makes things interesting. In other words, great companies (high ROEs, durable competitive advantage) broadly sell for premium prices, which reduces them to not-so-great investments.

    On the specifics of SAIL vs. Tata Steel, imports and power sector worries for BHEL, and losses at Shipping Corp – none of the concerns are fatal/catastrophic. They are party poopers at best, which are more than adequately reflected in the stock price.

    Important: As value investors, we would do well to trace the full arch of Warren Buffett’s evolution as an investor.

    In the second half of his investing career, he has emphasised on quality. Given his world-wide fame, this message has resonated with would-be investors. However, keen students of the game will realise that Buffett is making a virtue out a necessity, given the billions of dollars he has to shepherd.

    The first half of his investing career is little-known. He had lesser money to invest and more freedom. He made finer judgements then about quality vs. price, often leaning on the side of price. This, of course, has its roots in teachings of Benjamin Graham.

    Interestingly, it is possible to combine these two approaches. One such attempt is the Quantitative vs Qualitative Matrix. https://valueinvestorsonly.com/2012/09/02/the-worlds-best-investing-framework-benjamin-grahams/

    1. Mohnish Khiani

      Thank you for your thoughts sir,I completely respect your views.But what I try to do is first find a quality company and then wait for the right price in it.Though,it may result in waiting for long periods of time,but what I am looking for are companies that can compound for a large number of years,maybe at a slightly lower rate,rather than companies that can give me higher rate of returns.If i get the price I buy,or else I may miss the opportunity as losing an opportunity is better than losing money.When the market falls,everything falls and though good companies may not fall to very high extents so as to give any kind of ‘price value’,in my view that is the right time to enter them.

      1. Mohnish,

        What you are talking about is the Phil Fisher/Charlie Munger approach to value investing. That’s how Buffett invests today. And what he advocates vigorously.

        If it appeals to you, great! One can hardly fault you for that. I also happen to be a fan of this approach. In fact, being a Buffett devotee, that’s all I knew once or cared about. Anyone who loves Berkshire letters would feel the same way, I guess.

        But as I kept waiting for ideas and due to some bright colleagues who pointed it out, I realised that there is more to value investing. Which takes us to straight to Benjamin Graham’s approach and Security Analysis, 1940 edition.

        Both can co-exist. In fact, as a serious student of investing, we must learn both styles. Hell, even Buffett needed both πŸ™‚

    1. Hello Dev!

      Yes, it is hard to disagree that SAIL seems cheap by several historical indicators. I’d only like to add that a balanced assessment of even the future isn’t bad as the popular opinion would have us believe.

  3. Hello Satyajeet,

    In the Metals and Shipping Sector the demand is very unlikely to pick-up any time soon. The sluggishness might be extended over 5 years. Some might not mind it cuz, logically, for a 20% yearly portfolio growth, after 5 yrs price has to ONLY double from CMP. That should be easily achievable. In that light, all is well in SAIL and SCI. Kudos.

    BHEL, on the other hand, is evergreen on P&Ls. And at CMP it is a steal. Plenty of upwards room. Super choice too.

    Great Picks. 2 times the returns of FD !! πŸ™‚

    1. Hi Amit!

      Very articulately put.

      Waiting is not a problem at all. As long as the initial decision is made on sound grounds.

      Thanks for the compliment, I guess πŸ™‚ Of course, we must wait to receive the long-term verdict of the stock market. That is the only test that finally matters.

    2. Situation is getting from bad to worse. Bonds are being dumped crazy hitting circuit yesterday. RBI had to stop trading… it is unheard of.

      At the very least, metal-stock prices are gonna lose a digit. Steel prices (for billets?) have collapsed 55% from the top. Indian cos are even importing cheaper steel !!

      All aside, it does not make sense to start buying before Nifty touches 52 W Low

  4. From SCI’s Annual Report 2011-12 Chairman’s Statements to the Shareholders section, he summarizes

    “….. However, as I see, it would still take a long period for the market to look up and the sluggish phase would continue even in 2012-13.”

    From the horses mouth πŸ™‚

    1. Yes, no illusions at all about the pain the shipping industry is going through. SCI’s management interviews and analyst conference calls over the last several quarters are all about that πŸ™‚

  5. Hi Satyajeet,
    I recently stumbled unto your blog, coincidentally, because I was doing homework on SAIL! I have since taken a position in the stock although looking around, I’ve found myself to be one of the very few! Fortunately, I have the flexibility and ability to wait 3-4 years which is how long I think it will take for India’s next cyclical uptick. On a historical basis, the stock is dirt cheap, bordering on liquidation value! Fundamentally, the stock is reasonably strong with lower debt, high cash but also lower margins than, say, a Tata Steel. I like your graphic on where each company gets it’s revenues from. If you plot the price performance of SAIL and Tata Steel over the last ten years, SAIL has outperformed TISCO each time there was a cyclical uptick or a sentiment uptick! I think this ties in with SAIL being completely India-focused. I don’t think the stock has much more downside and offers a tasty dividend yield to boot. A massive modernisation drive coupled with falling raw material prices (although the rupee depreciation has offset this to some extent) should place the company well when Infrastructure spending picks up.
    I don’t know much about the shipping industry but in the past I have made a decent return on SCI but that was a looong time ago so I won’t comment. However, with increasing LNG imports, coking coal (for steel), thermal coal,..etc, one would think that SCI would be placed well to capture increasing sea borne traffic. (I’m assuming it’s vessels are infact used for such activities. I may be wrong)
    As for BHEL, valuations look very reasonable and when things pick up, I’m sure the stock will react more than others in the Power Cap Goods sector. However, I already have Thermax in my portfolio which, in my opinion, is both fundamentally better as well as offers me access to fast growing sectors like waste water solutions and renewable energy. This on top of being well managed from a working capital, debt point of view. But if BHEL falls further, it will be very hard not to enter the stock!
    I’ve rambled enough. Great job on the blog. I’ll make sure to keep checking back for new posts! πŸ™‚

    1. Hello!

      Many thanks for the kind words. You made my day!

      Do keep visiting. πŸ™‚ And do consider signing up so that you receive mails automatically whenever there’s a new post.

      Thanks again!

  6. On July 18 2013 I bought 5000 shares of SAIL at the rate of Rs.45.95/share ,on that day my assessment was LIC bought some handful of volume from OFS at the rate of Rs.63/share i am getting cheaper than LIC (whether LIC holding is same or not is not known to me).I felt insecure and started to find some brave material for support of my decision in internet,then i found a reasonable thought on Ur
    blog thanks u very much

  7. Pingback: Model Portfolio - Update 13 - BHEL | Tankrich

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