In Issue #007, we examine Imagicaa's magical rise from bankruptcy to a highly profitable & growing franchise. This issue also includes my 2024 Magic Formula Investing stocks for your consideration
I have a query wrt Imagicaa. why are they not merging the giriraj enterprises with imagicaa which woul d have been a good idea but they would have to shell out 200crores to pay giriraj every year and the profits of the acquired entities will just go in clearing the dues to giriraj which means that the profits from acquired entities will not flow into the bottomline even though the topline is increasing. i agree they have acquired it a low EV/EBITDA at 7.5x but i am looking at the context where earnings can double in 2-3yrs. it might not be the case. I hope i was able to articulate properly.
Hello Ananth - let's explore your query from multiple angles
1. Giriraj Enterprises (GE) is not just parks and is into a number of businesses. Infact, the park business is only 16% of total revenue & 17% of EBITDA for GE. GE discontinued the tobacco business but is involved in the renewable energy and real estate businesses. A merger would mean Imagicaaworld getting into unrelated businesses which doesn't augur well for anyone. It's also good to note that while Imagicaaworld has profits of ₹93.6 crores, GE had profits of approx. ₹410 crores -- so I'm not sure how Imagicaa's proposal to merge might have sounded to them. Understandably, Imagicaa would not be the leading party in these discussions which means it might get the short end of the stick when deciding the split ratio
2. This brings me to the impact on shareholding. With the Malpani Group already holding over 70% shareholding, a merger would have increased their share well over the 75% mark and then again some liquidation will need to be done. The public shareholders would have been rather pissed off at that. From a financial engineering standpoint and especially when the acquirer and the target company/business have stable revenues and profits, its better to use loans to complete the acquisition rather than equity (which is a really high cost to pay)
3. Ofcourse the terms of the transaction matter. GE is offering the park business at a cheap valuation and is offering easy payment terms. It's like someone offering me a 10 lakh rupee car at 5 lakhs and allows me to pay ₹20,000 a month for 25 months. I'll certainly prefer this deal rather than paying a rental of ₹15,000/month if I plan to keep the car for the next 25 months
To put this together and in my view -- I don't see why Giriraj Enterprises will want to merge, why the public shareholders will approve the merger, why Imagicaa would want to ignore a seemingly delicious deal & instead merge.
Payment of 650crs in instalments during 30 months would mean No profit during this period, may have losses also after these payments. Hence imagica could only be good for investors willing to remain invested for long periods more than 3 years when it may start showing profits. Moreover huge equity of 450+ crs may generate very slow growth in EPS .
1. A payment of ₹650 crores does not mean "no profit". The company will continue to declare accounting profits of ₹200 crores and more. Perhaps the term you are looking for is -- "no freecash flow" as this money towards the principal will need to be paid from the cash within the company i.e. cash balance + cash generated from park operations. But on paper, there will be handsome profits.
2. You are right. Imagicaa is a long-term play and is aligned to the themes of burgeoning middle class, better infrastructure and tourism growth. In my newsletter, readers will find more long-term investing ideas and not much of switch-on-switch-off tactics.
3. I didn't understand the point on huge equity of 450+ crores of it generating a slow growth in EPS. Can you please elaborate what is meant by that in this context? Is it saying that companies that have a smaller equity base have faster growth in EPS? Appreciate if you can share some literature on that. I am keen to learn this.
Hello Ninad - thank you for your kind appreciation. I'm glad you like my writing and the cases studies.
I don't follow a rigid template for analysing long term investments but follow some simple rules such as a) can the company continue growing by x% every year? b) is the management honest & transparent? c) is money compounding better within the company as compared to other opportunities? etc.
Here's my suggestion -- if you want to learn some sector, let's say IT Services -- then:
a) pick the annual report of 1 large company (like Infosys) and 1 mid company (like Persistent Systems) and do a deep-dive. Pay special attention to the MD&A
b) Then pick the latest earnings call transcript and understand it
This way, i.e. a reading of a) and b) will help you identify most factors that the IT Services business is dependent on
Apologies, I don't a have systematic procedure here but this is what I do and it really helps me. Outside of this - you should read industry analysis on Dr. Vijay Malik's website for good starting idea on different industries (and then you can adapt it to particular stocks)
Do you suggest progressive investing on these stocks? Also since market is at all time high don’t you see downward trend overall in the short term I.e 1 year?
Hello Sunil. I always buy stocks in tranches. About 40% of my allotted capital in the first salvo, another 40% in the second salvo and the rest in the third. After 2, 3 quarters I average up in some of my holdings. If the stocks are down, then I let them go down by 15 to 20% before putting up some more amount - generally 40% of the original allotted capital. I don't think there is an scientific basis here but it's from many years of doing this, I feel comfortable with this.
I have started my investing journey while watching your videos, forensic, personal finance videos etc.
You guys are one of the best in your respective field nobody can beat Shankar in simplifying personal finance that too through interactive presentation skills.. similarly for BTS - I have no words...they are sharpest minds in the market I have ever seen...their forensic is unmatched and have learnt alot and save lot of money through their warnings...!!
When I saw your one of the initial post on BSE - i observed that you both guys have colloborated and working on this newsletter. I was very excited because Shankar is simplifying the best ideas of Beat The Street which are uncommon. I have invested decent sum in all of those ideas and sitting on decent gains and beating benchmark returns.
I can forsee one of the best financial product in building because two of the best minds are putting their efforts.
More than performance or quality of research, I respect both of you for for unmatched ethics and honesty..which is very rare in today's world of social media...!!
This was a small appreciation post...wish you all the luck and success in building this great product...!!
I keep tracking news and videos about stock on youtube and from other resources but yesterday i got suggestion of your video then today i saw one of yours video and came here to read your articles this is first time i am getting genuine and in depth knowledge about stocks and investment .
Sir i want to know that the list of 30 stocks which you have provided is that you suggest to invest in this 30 stocks for a year ?
Good article - do you also look at Promoter score or some other metric from that aspect. As a long term investor, I feel credibility of promoter plays an important role. Any suggestions / feedback?
Yes, there was a merger between Jindal Stainless Limited and Jindal Stainless (Hisar) Limited. Since the current price of JSHL wasn't available, I removed it from the list
Thanks for your quick reply. Any plans to start a smallcase on this Magic formula? It will make it easier for anyone who would be interested and any timely changes can be incorporated easily as well. Thank you.
I have to get the necessary registrations/certifications for the same. I'm currently focussing on the newsletter, I want to make it a paid subscription offering w/ community. If a smallcase comes this year, then it will be in Q4 or else early next year
Btw, I'll find a way to give regular Magic Formula lists via the newsletter at regular intervals, say every 3 months.
Thanks for taking effort in giving regular quarterly update on Magic formula list. Maybe you can do something similar with few other Analysis you had done e.g. Value vs. Momentum (when to switch to Value or momentum on quarterly basis) and 2-3 other such YouTube videos which you had done. These 3-4 analysis can be done every quarter, I am sure your followers will appreciate it. Thank you.
Yes, that's the plan. The paid offering will cover a lot of these incl. periodic updates of older videos (I think I have atleast 30 videos where regular updates are warranted), 5-7 investment ideas esp. in the small & microcap space, company deep dives, group videocalls, keeping track of the companies I have highlighted in the newsletters etc. I'll have to recruit a couple of analysts, buy subscriptions of screening platforms etc. -- a lot more work definitely
The subscription itself might be 350-400 rupees a month but I'm certain it will offer a lot more in value. I've myself invested in many of the ideas shared in the newsletter and I've profited enough in the last 3 months to pay for the next 20 years of newsletter subscription :) (heightened ego warning!). So in doing this, I'll be targeting and creating a community of investors who like to know what they are getting into rather than just wanting a list of stocks. I do understand this will be a small few but that's my kind of crowd! If this part works well, then I can definitely invest more in infrastructure and look at a few smallcase offerings
1. When to exit was covered in the Magic Formula video
2. How to buy was also covered in that video
3. Per stock % allocation was explained in the earlier video and also when I explained the process in the newsletter
I'll add your video request to the content queue but since a lot of it will be a duplication, may I request you to kindly go through the existing resources. I'll be happy to help if there are any new queries. Wishing you the best
I have a query wrt Imagicaa. why are they not merging the giriraj enterprises with imagicaa which woul d have been a good idea but they would have to shell out 200crores to pay giriraj every year and the profits of the acquired entities will just go in clearing the dues to giriraj which means that the profits from acquired entities will not flow into the bottomline even though the topline is increasing. i agree they have acquired it a low EV/EBITDA at 7.5x but i am looking at the context where earnings can double in 2-3yrs. it might not be the case. I hope i was able to articulate properly.
Hello Ananth - let's explore your query from multiple angles
1. Giriraj Enterprises (GE) is not just parks and is into a number of businesses. Infact, the park business is only 16% of total revenue & 17% of EBITDA for GE. GE discontinued the tobacco business but is involved in the renewable energy and real estate businesses. A merger would mean Imagicaaworld getting into unrelated businesses which doesn't augur well for anyone. It's also good to note that while Imagicaaworld has profits of ₹93.6 crores, GE had profits of approx. ₹410 crores -- so I'm not sure how Imagicaa's proposal to merge might have sounded to them. Understandably, Imagicaa would not be the leading party in these discussions which means it might get the short end of the stick when deciding the split ratio
2. This brings me to the impact on shareholding. With the Malpani Group already holding over 70% shareholding, a merger would have increased their share well over the 75% mark and then again some liquidation will need to be done. The public shareholders would have been rather pissed off at that. From a financial engineering standpoint and especially when the acquirer and the target company/business have stable revenues and profits, its better to use loans to complete the acquisition rather than equity (which is a really high cost to pay)
3. Ofcourse the terms of the transaction matter. GE is offering the park business at a cheap valuation and is offering easy payment terms. It's like someone offering me a 10 lakh rupee car at 5 lakhs and allows me to pay ₹20,000 a month for 25 months. I'll certainly prefer this deal rather than paying a rental of ₹15,000/month if I plan to keep the car for the next 25 months
To put this together and in my view -- I don't see why Giriraj Enterprises will want to merge, why the public shareholders will approve the merger, why Imagicaa would want to ignore a seemingly delicious deal & instead merge.
Thanks for the elaborate explanation and it has given me a fair perspective.
Payment of 650crs in instalments during 30 months would mean No profit during this period, may have losses also after these payments. Hence imagica could only be good for investors willing to remain invested for long periods more than 3 years when it may start showing profits. Moreover huge equity of 450+ crs may generate very slow growth in EPS .
Hello Santosh,
1. A payment of ₹650 crores does not mean "no profit". The company will continue to declare accounting profits of ₹200 crores and more. Perhaps the term you are looking for is -- "no freecash flow" as this money towards the principal will need to be paid from the cash within the company i.e. cash balance + cash generated from park operations. But on paper, there will be handsome profits.
2. You are right. Imagicaa is a long-term play and is aligned to the themes of burgeoning middle class, better infrastructure and tourism growth. In my newsletter, readers will find more long-term investing ideas and not much of switch-on-switch-off tactics.
3. I didn't understand the point on huge equity of 450+ crores of it generating a slow growth in EPS. Can you please elaborate what is meant by that in this context? Is it saying that companies that have a smaller equity base have faster growth in EPS? Appreciate if you can share some literature on that. I am keen to learn this.
Great Read Shankar Sir
Thank you so much, Karan. I'm glad you liked it
Nice Work Sir...
Thank you
Hello Shankar,
Love your newsletter for it's simplicity & also your style of writing has been very easy to understand.
I am an aspiring stock market enthusiast. Want to learn how to do fundamental analysis for long term investments.
Can you suggest some learning resources? Will Zerodha Varsity will be enough?!
Thanks & Cheers
Hello Ninad - thank you for your kind appreciation. I'm glad you like my writing and the cases studies.
I don't follow a rigid template for analysing long term investments but follow some simple rules such as a) can the company continue growing by x% every year? b) is the management honest & transparent? c) is money compounding better within the company as compared to other opportunities? etc.
Here's my suggestion -- if you want to learn some sector, let's say IT Services -- then:
a) pick the annual report of 1 large company (like Infosys) and 1 mid company (like Persistent Systems) and do a deep-dive. Pay special attention to the MD&A
b) Then pick the latest earnings call transcript and understand it
This way, i.e. a reading of a) and b) will help you identify most factors that the IT Services business is dependent on
Apologies, I don't a have systematic procedure here but this is what I do and it really helps me. Outside of this - you should read industry analysis on Dr. Vijay Malik's website for good starting idea on different industries (and then you can adapt it to particular stocks)
Thanks alot Shankar for detailed inputs! 👍
Good article Santosh
Thank you very much 🙌
Do you suggest progressive investing on these stocks? Also since market is at all time high don’t you see downward trend overall in the short term I.e 1 year?
Hello Sunil. I always buy stocks in tranches. About 40% of my allotted capital in the first salvo, another 40% in the second salvo and the rest in the third. After 2, 3 quarters I average up in some of my holdings. If the stocks are down, then I let them go down by 15 to 20% before putting up some more amount - generally 40% of the original allotted capital. I don't think there is an scientific basis here but it's from many years of doing this, I feel comfortable with this.
Thanks for sharing the 30 stocks list :)
Most welcome
Dear Shankar and Beat The Street,
I have started my investing journey while watching your videos, forensic, personal finance videos etc.
You guys are one of the best in your respective field nobody can beat Shankar in simplifying personal finance that too through interactive presentation skills.. similarly for BTS - I have no words...they are sharpest minds in the market I have ever seen...their forensic is unmatched and have learnt alot and save lot of money through their warnings...!!
When I saw your one of the initial post on BSE - i observed that you both guys have colloborated and working on this newsletter. I was very excited because Shankar is simplifying the best ideas of Beat The Street which are uncommon. I have invested decent sum in all of those ideas and sitting on decent gains and beating benchmark returns.
I can forsee one of the best financial product in building because two of the best minds are putting their efforts.
More than performance or quality of research, I respect both of you for for unmatched ethics and honesty..which is very rare in today's world of social media...!!
This was a small appreciation post...wish you all the luck and success in building this great product...!!
Great work sir
I keep tracking news and videos about stock on youtube and from other resources but yesterday i got suggestion of your video then today i saw one of yours video and came here to read your articles this is first time i am getting genuine and in depth knowledge about stocks and investment .
Sir i want to know that the list of 30 stocks which you have provided is that you suggest to invest in this 30 stocks for a year ?
Shankar sir please go through this article on sgb gold discount
https://manualofmomentum.substack.com/p/sovereign-gold-bond-sgb-discount?utm_source=substack&utm_campaign=post_embed&utm_medium=web
Thank you for the 2024 list. Big fan of your research, presentation style and content.
How do we access the additional 20 stock list?
Kindly access the worksheet. The 20 additional stocks are mentioned there
Good article - do you also look at Promoter score or some other metric from that aspect. As a long term investor, I feel credibility of promoter plays an important role. Any suggestions / feedback?
Yes, I prefer owner-operator companies. And in this case, a large shareholding is with the Malpani Group.
Noted.
But how's Malpani as a group. Credibility, integrity and performance wise over the years.
Do you feel it's an important metric to consider
Share
I completely agrOne more thing I want to add as help for other readers
I have personal interest in these stock & invested as per my own understanding.
If you are convinced with rationale, Below are some imp levels:
1. Entry Between 72 - 82 levels,
SL-65
Target: 117/180+, ROI-120%
Do due diligence & Dont invest blindly
Quick question. Why you say 29 stocks in 2023, your list had 30 names from what I remember
Yes, there was a merger between Jindal Stainless Limited and Jindal Stainless (Hisar) Limited. Since the current price of JSHL wasn't available, I removed it from the list
Thanks for your quick reply. Any plans to start a smallcase on this Magic formula? It will make it easier for anyone who would be interested and any timely changes can be incorporated easily as well. Thank you.
I have to get the necessary registrations/certifications for the same. I'm currently focussing on the newsletter, I want to make it a paid subscription offering w/ community. If a smallcase comes this year, then it will be in Q4 or else early next year
Btw, I'll find a way to give regular Magic Formula lists via the newsletter at regular intervals, say every 3 months.
Thanks for taking effort in giving regular quarterly update on Magic formula list. Maybe you can do something similar with few other Analysis you had done e.g. Value vs. Momentum (when to switch to Value or momentum on quarterly basis) and 2-3 other such YouTube videos which you had done. These 3-4 analysis can be done every quarter, I am sure your followers will appreciate it. Thank you.
Yes, that's the plan. The paid offering will cover a lot of these incl. periodic updates of older videos (I think I have atleast 30 videos where regular updates are warranted), 5-7 investment ideas esp. in the small & microcap space, company deep dives, group videocalls, keeping track of the companies I have highlighted in the newsletters etc. I'll have to recruit a couple of analysts, buy subscriptions of screening platforms etc. -- a lot more work definitely
The subscription itself might be 350-400 rupees a month but I'm certain it will offer a lot more in value. I've myself invested in many of the ideas shared in the newsletter and I've profited enough in the last 3 months to pay for the next 20 years of newsletter subscription :) (heightened ego warning!). So in doing this, I'll be targeting and creating a community of investors who like to know what they are getting into rather than just wanting a list of stocks. I do understand this will be a small few but that's my kind of crowd! If this part works well, then I can definitely invest more in infrastructure and look at a few smallcase offerings
Seems like a reasonable ask considering the time and effort investment. In the meanwhile will be looking forward to updates for free ;-).
Thanks a lot, fan of your work.
Waiting for the speciality chemical list..
Most welcome. And thanks for your patience
hi
will you launching any video or google sheet for the 2024 magic stocks
for better understanding...
Hello, can you please clarify what additional info would you like here beyond what's been shared in https://shankarnath.substack.com/i/142092121/magic-formula-investing-stocks-for ? I've already covered:
a) the process of evaluation
b) list of stocks
c) worksheet with rankings/scores
questions like
1 when to exit
2 how to buy (together or 1 by 1)
3 per stock % allocation in portfolio
in short a short guidance video for new investors like me , will be good
thanks for your reply
Hello:
1. When to exit was covered in the Magic Formula video
2. How to buy was also covered in that video
3. Per stock % allocation was explained in the earlier video and also when I explained the process in the newsletter
I'll add your video request to the content queue but since a lot of it will be a duplication, may I request you to kindly go through the existing resources. I'll be happy to help if there are any new queries. Wishing you the best
THANKS FOR THE HELP
I WILL SOON BE REQUESTING FOR YOUR 1 TO 1 CONSULTATION
AS I GET APPOINTMENT
THEN WILL CLEAR MY DOUBTS THERE ONLY
THANKS AGAIN