Ambitious predictions regarding Nifty
It is well known that Porinju has an irresistible urge to be bullish and to make ambitious predictions about the Nifty.
In the past, Porinju has made confident predictions with regard to the bottom and top of the market and also with regard to the effect of the appointment of the POTUS.
and that was the Nifty bottom, for the decades to come!https://t.co/eGQCLROjuw
— Porinju Veliyath (@porinju) June 22, 2015
Amateurs discussing if Nifty could fall below 7500 / 7200; smart guys wondering in which month of 2016, Nifty will cross 10000 – Buy India!
— Porinju Veliyath (@porinju) September 16, 2015
— Porinju Veliyath (@porinju) November 2, 2016
While the levels predicted by Porinju have not been breached, it is undeniable that the markets are on an unstoppable upward trajectory.
It is evident that if we had shared Porinju’s bullish outlook and aggressively bought stocks, we would also have had bulging bank balances now.
Nifty could touch 12,000-13,000 in next two years
“Nifty can go to 12000-13000 kind of levels in the next I would say two years,” Porinju said, his eyes sparkling with confidence.
— ETMarkets (@ETMarkets) February 23, 2017
Buy high-quality mid-cap stocks which are presently sluggish and have not posted hefty gains in the recent past
Porinju’s secret to finding multibagger stocks is really simple if one thinks about it.
He homes in on stocks with top-quality management pedigree, proven business model, consistent earnings, etc which have remained sluggish for one reason or the other.
Thereafter, it is a simple case of playing the waiting game. It is inevitable that the stocks will come back into favour one day or the other and surge like rockets and shower multibagger gains on their lucky shareholders.
“I am still sticking to some quality midcaps. On the budget day, I was talking about stocks which did not move in the last one year. That is where people should look,” Porinju opined.
Two mid-cap stock recommendations
Porinju has recommended two mid-cap stocks as being ripe for a buy now. These are Transport Corporation of India (TCI) and Hindustan Sanitaryware (HSIL).
“These are very high quality companies, not only are they high quality midcaps they are also industry leaders and have Rs 2000 crore, Rs 1500 crore kind of valuations. The economic environment is going to be favourable for them going forward,” he opined.
“With GST happening, demonetisation and related efforts are going to create a lot of structural changes in the economy — from black to white, from unorganised to organised . As these kind of major changes happen in the economy and the country, some of the smart companies are going to benefit immensely. TCI and HSIL have gone up significantly after we discussed it on the budget day. But even at the current prices, I like such industry leaders in this country,” he added.
Transport Corporation – logistics are the backbone of the economy
Porinju first recommended TCI on 22nd August 2015 when the stock was quoting at Rs. 234.
TCI up 15%, up 40% in few days – nothing changed! Second largest holding under PMS!
— Porinju Veliyath (@porinju) March 4, 2016
After that, there was a demerger under which a shareholder was allotted one share of TCI Express for every two shares of TCI held by him or her.
Presently, TCI quotes at Rs. 206 while TCI Express quotes at Rs. 293. This means that a person who invested in two shares of TCI at Rs. 234 each (Rs. 468) would today be worth Rs. 206 x 2 + Rs. 293 = Rs. 705. This translates into handsome gains of 51%.
TCI has issued an investors’ presentation which makes for interesting reading. It suggests that the Company does have ambitious plans for the future.
Can TCI XPS go the Blue Dart way? Core holding in PMS; always liked TCI than VRL:-) Latest presentation on BSE:https://t.co/xzSPAb49rW
— Porinju Veliyath (@porinju) June 3, 2016
HSIL – waiting for the real estate sluggishness to end
HSIL is an old favourite of Porinju. He recommended it on twitter in December 2012.
Watch for HSIL@124, No.1 brand, available at Rs.800 Cr mkt Cap. expect to double in an year. Selling pressure to end soon.
— Porinju Veliyath (@porinju) December 24, 2012
He publicly recommended it on CNBC TV18 at the same time that he recommended TCI i.e. 22nd August 2015.
The stock was then at Rs. 258. It is today at Rs. 312.
The gains are very modest at 10% over 18 months though the gains on a YoY basis are quite hefty at 34%.
The stock appears to have suffered from the real estate sluggishness and also demonetisation. It also has a container/ packaging division which is a drag on the ROE.
Porinju’s opinion is that the period of sluggishness is the ideal opportunity to buy the stock at throwaway valuations.
If the real estate sector picks up momentum, HSIL will benefit due to the increased demand for sanitary ware etc.
HSIL is on track – seems to be doing all the right things:https://t.co/k5M1pRSmQB
— Porinju Veliyath (@porinju) October 26, 2015
Cera Sanitaryware and Kajaria Ceramics are also powerhouse stocks and ideal investment candidates
At this stage, it is notable that if one is looking to buy “high quality companies”, which are “industry leaders” and are “generally sluggish”, then Cera Sanitaryware and Kajaria Ceramics are also ideal investment candidates.
Both stocks are powerhouses with an illustrious track record of growth and profitability.
Cera Sanitaryware is a favourite of Vijay Kedia. He holds 2,00,000 shares as of 31st December 2016. Some other illustrious shareholders include DSP Blackrock Micro-Cap Fund, Malabar India Fund, Nalanda India Equity Fund etc.
Kajaria Ceramics has equally impressive credentials. It boasts of shareholders like Jwalamukhi Investments/ Westbridge Capital, Steadview Capital etc.
CRISIL recommends buy of Cera Sanitaryware
CRISIL has issued a detailed research report on Cera Sanitaryware in which it has recommended a buy. The logic is very convincing and reads as follows:
“As a natural extension of its core sanitary ware product portfolio, Cera Sanitaryware Ltd (Cera) has expanded into faucets and tiles over the past few years. While sanitary ware remains its mainstay, the other businesses are gradually attaining critical mass. In its quest for higher growth, the company is taking several strategic steps across segments, including 1) enhancing presence in the untapped premium segment of sanitary ware, 2) launch of products with innovative designs in faucets across price points, and 3) commission of a tiles manufacturing plant in South India through a joint venture (JV) with Anjani Tiles. We expect these initiatives to augment the company’s strong fundamentals and boost growth. While the next few quarters are expected to be challenging, we expect growth to revive in FY18, driven by recovery in demand and the aforementioned measures. Keener competition across product segments remains a threat. We maintain our fundamental grade of 4/5.
Sanitary ware: Premiumisation efforts gathering pace
With well-entrenched positioning in the mass- and mid-market segments of sanitary ware, Cera is looking to bolster its presence in the fast-growing premium segment. It has entered into a marketing-and-distribution agreement with ISVEA, an Italian luxury brand. The company is focusing on high-value products in its portfolio, as reflected in steady growth in realisations. We believe this strategy complements the company’s strong presence in the mass- and mid-market segments and augurs well for future growth.
Faucets on steady ground; the new plant in South India to augment growth in tiles
Notwithstanding a slowdown in the faucets segment, we remain positive on the company’s growth prospects, given its right steps: (1) launching new products at competitive price points versus Jaquar, the market leader; (2) expanding the distribution network; and (3) bolstering after-sales service. These measures are likely to enhance the brand image and fuel growth. In addition, the newly commissioned tiles plant in the south, where organised players have limited presence, also augurs well for future growth. We expect these segments to continue to boost Cera’s growth.
Operating margin likely to expand, but remain below the historical peak of 18-20%
We see limited scope for operating margin expansion, as the benefit of lower gas prices is likely to wane gradually. However, the downside risk to margin is limited, given that premiumisation in sanitary ware, operational efficiency (owing to advance technologies such as 3D printing and automation in faucets) and operating leverage (on higher volume) are likely to offset the impact of higher gas prices.
We raise our fair value estimate to ₹2,862 per share
We revise our earnings estimates for FY17 and FY18, and roll forward our estimates by a year to FY19. Considering the sustained decline in G-sec yields, we revise the cost of equity by 100 bps. Accordingly, we have raised our discounted cash flow-based fair value estimate to ₹2,862 from ₹2,742. At the current price of ₹2,093, our valuation grade is 5/5.”
Edelweiss recommends buy of Kajaria Ceramics
Edelweiss has recommended a buy of Kajaria Ceramics on the following logic:
“Kajaria Ceramics’ (KJC) Q3FY17 consolidated numbers surpassed our and consensus estimates, despite demonetisation impact. Volume growth of 0.5% YoY versus our 6% dip estimate supported top line. However, EBITDA margin fell by 55bps YoY to 18.6% due to muted top‐line growth and higher outsourcing. We upgrade to ‘BUY’ as: (1) KJC is anticipated to be major beneficiary of accelerated shift in market share from unorganised to organised players spurred by GST and demonetisation (refer to our report: THE SHIFT); (2) government’s thrust on housing is envisaged to boost overall demand in tiles industry; and (3) we roll over to FY19E.
We now value KJC at 28x (earlier 25x) due to long term opportunity from shift to organised players and estimate 15.1% and 24.6% sales and earnings CAGR, respectively, with 372bps RoCE expansion over FY17‐19. Our revised TP is INR 708 (INR 585 earlier).”
Other leading experts such as Daljeet Kohli, Deepak Purswani and others are also bullish about Kajaria’s prospects.
“We are positive given the favourable structural shift towards organised sector, it’s better return ratio profile coupled with a strong balance sheet“, the experts opined.
Porinju’s advice that investors should buy high quality mid-cap stocks which are leaders in their respective sectors is flawless. The advice that such stocks should be bought during periods of sluggishness in the stock price is also very sound. We need to take advantage of the sluggishness to tuck into such stocks. That is the best way to make mega gains!