Grand Bhagwati Business Analysis .

Case Study :

Company : Bhagwati Banquets &Hotels .

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Net Profits in 2008 : 10.04

Net Profits in 2009 : 9.61

Total debt in years 2008 : 143.95
2009 : 175.21

Cashflow from Operating activities ,

2008 : - 6.83
2009 : -12.57

Cashflow from Investing Activities ,

2008 : -46.69
2009 : -30.85

Interest Paid as per income statement ,

2008 : 2.10
2009 : 3.87

Interest Cost Capitalized :

Background : The recent economic crisis , led to a meltdown in the equity markets all over the world , and affected businesses all over the world . Being in the Hospitality Industry it got affected the most due to the affect on tourism , and global business travel.This affected the price of the stock , and the market price of the stock went down to around Rs.24 .

Company Background :

The company has three hotels in three different cities . A bakery franchise , as well as a catering business which is well renowned and famous in the authors city , Ahmedabad . The company claims to have spend around Rs.200 Cr. on its new , and upcoming Hotel in Surat, India . The company had an IPO in 2008 , and raised 100 Cr.During the crash the market capitalization of the company at one point stood at around Rs.60 Cr.

During the market crash , the company had a negative cashflow , which was due to its upcoming Surat Hotel . Nonetheless , there was an increasing debt load which was needed by the company for its committed investment plans.

Lets take a closer look at the companys assets ,and sum them all up and compare it against the market value for the company .

Its property in Ahmedabad , in addition to the Land and Property at replacement cost stood at round Rs.150 Cr.

Its property in Surat , which as claimed by the company stands at around Rs.200 Cr.

Its property on assumption of property size , and prices is assumed to be around Rs. 50 Cr.

Summing up the value of the properties comes out to be around Rs.400 Cr.

Summing the value of the Franchise , and Catering business we have a total valuation of the business and property of around Rs.420 Cr . That is based on a conservative basis for valuing the company .

Now lets look at the facts objectively , and see how one could have made a fortune by analyzing the risks and rewards of buying the stock .

Scenario 1 :

The company went under receivership , and was liquidated . With a total valuation of around Rs.420 Cr , and total debt or around Rs. 176 Cr , the net equity in the business was around Rs.244 Cr.

This was around 400 percent margin over the market capitalization of the company at the time . This is a scenario where the company could have more money if it was liquidated , and the funds returned back to the shareholders .

SO would a shareholder need to worry about the company running out of business ? Ans : Infact in the given scenario the folks would have partied hard the night the company went under .

Scenario 2 :

The company continued in business , and the market recognizes the value of the stock . In this scenario the motive for buying the share was served , and the investor made money onto the stock .

Scenario 3 :

The economy improves , the business conditions improve , but the market does not recognize the value of the business . In this scenario the investor hasn't lost any money as such , but has forgone the opportunity to put money into other attractive investments . Which is as hurtful as losing money on any investment .


Results :

As I write the report today the price of the stock stands at 131.90 , from 24 at the time the analysis was done in March 2009 . So as we can see any investment is , and needs to be based on objective valuation , and analysis of risk ,plus a margin of safety .

The given stock meets , all the criteria and would have been considered as an investment by a rational investor .