Benjamin Graham's Net Cash Bargain for Indian Market

I have been extremely impressed by the writings of Benjamin Graham and their followers. This is the first real true application that I have come accross after 2004. Markets have been into blood bath and the more blood it sheds, the bigger the opportunity gets.

Here is the opportunity of a software company that is operating from last 15 years in business.

The theme is called “cash bargains” , as wrote by Benjamin Graham in the Intelligent investor. A cash bargain arises when the market value of a company goes below the amount of cash and other liquid assets in its possession, net of all current liabilities and debt. In effect, the market is not giving any valuation to the fixed assets, to the inventories , and to the receivables.

Cash	339.83		(as on 31st March,08)
----Current Liabilities & Provisions	-55.6
----LT Debt	-79.17
Net cash	205.06		(as on 31st March,08)
----Market Cap	183.75		(as on 10th Dec,08)

Few Problem areas !!

1. Auditor during Mar-08’s Audit review indicated that around 113.9 Cr. Items are not considered as loans and advances which potentially would not be paid back to the company, but that is irrelevant from the perspective of above net net cash bargain perspective from Graham.

2. Low stake of promoters : Promoters hold around 16% of the total company which it substantially low.

3. No insider buying happening as of now : As per the publicly available information people within the company are not buying substantial stake in the company.

4. I have talked to few people within the company and have understood that the technology is their key strength where as they do not seem to convert that strength into the increased in revenue/profits.

In FY-2008-09 1^st half , they have cloaked around 80% revenue growth over last year same period, which helps them to stand at around 8 rs per share as an EPS. At a price of 12 Rs, it seems value buy. In last financial year, they paid 0.5 rs./share dividend, which at this rate is around 4% dividend yield.

It may seem over simplistic calculation but this is certainly anomaly. Whats your guess ?

Let me know what you think of it.