The Golden Goose
Uniply industries was a great investment bet. A small player in the plywood industry space with great brand, great products and ambitious management. Great market scope with "Housing for all" initiative of the government and lot of commercial and office space developments along with huge FDI investments again thanks to the aggressive push of the central government in this direction.
And suddenly out of nowhere came a shocker news
The Ugly Swan
The company announced a diversification into Civil Construction work ??? While Civil and Mechanical work also has good scope with lot of infrastructure push in the country and on a standalone basis is not a bad business, but when you compare it with the plywood business it sounds like a horrible decision. Plywood is a consumer business with high margins whereas Civil and Mechanical work is long gestation, capex intensive and low margin business. Uniply was trading at high P/E's that are suitable for consumer business and suddenly it announces a plan to diversify into Civil and Mechanical business, which commands much lower P/E's, makes the business way more complex to understand. There is doubt on the management ability to make a successful foray into a business segment that is already overcrowded with large, small and medium sized players of all types. It is a non-transparent and corruption ridden business segment.
The smart market and the foolish me
A great business was ruined in a single day. Market realized it, however I didn't. I realized it only after all my gains (over 30%) was washed away over the days following the announcement. However what doesn't give you profits, makes you wiser. I had read the announcement, somehow didn't register or analyze it properly, kind of ignored it thinking it was not a big deal. However it was. Once such lessons are absorbed, small losses of today can be converted into huge benefits in future as an aspiring value investor.
*Note/disclaimer: As always I try to share my most important lessons for free and with all the good intentions and do not intend to manipulate or profit from it in any way. Many of you have started investing in stock markets by following me and I feel responsible to share anything good I learn. However it is advisable for you to do your research & verification independently and not follow anything blindly.
Uniply industries was a great investment bet. A small player in the plywood industry space with great brand, great products and ambitious management. Great market scope with "Housing for all" initiative of the government and lot of commercial and office space developments along with huge FDI investments again thanks to the aggressive push of the central government in this direction.
And suddenly out of nowhere came a shocker news
The Ugly Swan
The company announced a diversification into Civil Construction work ??? While Civil and Mechanical work also has good scope with lot of infrastructure push in the country and on a standalone basis is not a bad business, but when you compare it with the plywood business it sounds like a horrible decision. Plywood is a consumer business with high margins whereas Civil and Mechanical work is long gestation, capex intensive and low margin business. Uniply was trading at high P/E's that are suitable for consumer business and suddenly it announces a plan to diversify into Civil and Mechanical business, which commands much lower P/E's, makes the business way more complex to understand. There is doubt on the management ability to make a successful foray into a business segment that is already overcrowded with large, small and medium sized players of all types. It is a non-transparent and corruption ridden business segment.
The smart market and the foolish me
A great business was ruined in a single day. Market realized it, however I didn't. I realized it only after all my gains (over 30%) was washed away over the days following the announcement. However what doesn't give you profits, makes you wiser. I had read the announcement, somehow didn't register or analyze it properly, kind of ignored it thinking it was not a big deal. However it was. Once such lessons are absorbed, small losses of today can be converted into huge benefits in future as an aspiring value investor.
*Note/disclaimer: As always I try to share my most important lessons for free and with all the good intentions and do not intend to manipulate or profit from it in any way. Many of you have started investing in stock markets by following me and I feel responsible to share anything good I learn. However it is advisable for you to do your research & verification independently and not follow anything blindly.
