Investment in Companies with Unique Business Models

It has been often observed in the market that companies that are in a unique business perform very well in the market in the long-run. These companies show a strong growth both in their toplines and bottomlines since they are a niche player in the market. Consequently, the stocks of such companies give handsome returns & their valuation commands a scarcity premium. These types of companies have characteristics like they have a first mover advantage or a technological edge over others etc. Therefore, investment in these types of companies proves to be a prudent investment. There are a few companies that have a unique business models. They are:

1. Nitin Fire Protection: It is a leading player in fire protection, safety, security and intelligent building management systems. It has interests in high pressure cylinders, fire extinguishers and fuel dispensers. The company has been in an expansion mode as the demand for each of its products is growing tremendously.

2. Everest Kanto Cylinders: It is Asia's leading manufacturer of high pressure seamless industrial/CNG cylinders and cascades with major share of domestic market and sizeable exports. The company has international presence with factories in Dubai and a plant in China. The global demand for CNG applications is set to increase on the back of a firm oil-price outlook. This is likely to benefit the company which derives about 68 per cent of its revenues from the CNG segment. Catering to demand from countries such as Malaysia, Thailand, Gulf countries and CIS nations, EKC appears well placed to tap the growth potential in the CNG space in overseas markets since it has the necessary approvals from its target countries. Interestingly, demand from the domestic market may also increase with the Supreme Court mandating the use of CNG as auto fuel for heavy vehicles in 28 highly polluted cities. The proposed extension of City Gas Distribution projects may offer an opportunity for growth.

3. Educomp Solutions: This is one of the rare educational content creation & delivery players in the market. The company has a strong order book for its online education solutions. During FY07, it signed on 2,819 Govt. schools as compared to 613 a year earlier. During the first quarter of FY08, it added 2,800 more schools. With such a high-paced client acquisition and low capital expenditure, company’s profitability is likely to leap frog this year.

4. GMR Infrastructure: It is a diversified infrastructure player across sectors such as power, roads and airports. After getting Hyderabad and New Delhi airports, the company has recently won contract to develop one at Istanbul, Turkey. It has strong operational partnerships with Malaysia Airports, Germany’s Fraport AG and Turkey’s Limak for its airport foray. Airport projects are usually high return business. So the company is likely to benefit.

5. Mic Electronics: It is one of the few players globally. It is in the light emitting diode (LED) business which a very few competitors across the world and the only listed player in India. Mic Electronics is aiming at a huge market of LED lighting for billboards and video walls for advertising, signaling systems and industrial lighting. Therefore this one holds lot of promise.

6. Bartronics: It has a first-mover advantage in the radio frequency identification (RFID) solutions & smart cards markets. The company is the largest smart card maker in India and it also provides a range of solutions comprising of the hardware and software required to automate inventory management and tracking for its various types of clients, which include retail chains, warehouses, manufacturing companies etc. Moreover, the company has reported very strong numbers year after year and maintained high profitability.

Is It The Right Time to Buy?

So, the Indian Stock market continues to fall and it is well below its August 31, 2007 lows. Sensex has fallen well below 15000 mark. Most of the good scrips have reached a mouth-watering level. So is this the right time to accumulate the stocks?

I would say probably not. Although most analysts say the fundamentals of Indian companies are strong in the long run, I beg to differ a bit. Firstly, the high level of inflation will impact the profitability of Indian companies and that is why the market is trying to discount this fact. Secondly, in India general elections are due to be held next year so the present Government will shy away from taking tough decisions. Government will take populist measures only and ultimately the economy will suffer. Lastly, the US and the other Asian markets are also in a bad shape due to rising crude oil prices. Hence there seem to be no way out.

Once the inflation demon is controlled the sanity in the market will be back and the impact of inflation on corporate earnings will become clear. That may be the right time to accumulate the fundamentally sound stocks. Till then stay put.

Real Estate Mutual Funds to Help Retail Investors Diversify

Until now, retail investors were not able take advantage of real estate boom due to high investment requirement which could run into crores of rupees. But with Real Estate Mutual funds (REMFs) it will be possible for even small investors to earn good returns. Now you don’t need to buy property to actually benefit from the high capital gains it offers. You can simply invest through REMFs.

In case of venture capital funds, the minimum investment size is around Rs. 1 crore. For REMFs, this is expected to come down to about Rs. 10,000. Thus it will give small investors one more investment avenue to diversify their portfolio. This spells well for retail investors because Real estate as an asset class provides excellent risk adjusted returns along with low correlations with other asset classes. However, they are riskier than diversified equity funds as REMFs focus on only one sector.

As per SEBI regulations, REMFs are going to be close-ended funds. So you don’t have the option to selling the units back to the fund. You can sell units only on the exchange. The investment timeframe will be equal to the fund tenure. Therefore it will be a good investment if you are a long-term investor.

These funds will primarily invest in real estate projects and in equity, debt & debentures of real estate companies. They will earn returns from properties by way of rents & capital appreciation, interests, dividends & share price appreciation from shares of real estate companies.

For steady returns one should go for a fund which invests large part of its corpus in rent producing properties. And if one wants quick appreciation, one should go for a fund that invests in the early stages of development projects.