Lets get rich- prove ourselves

Many people who told us that markets will fall must have I told you so looks on their faces but their victory will be only temporary. This is not emotional or philosophical talk, just plain speak. Think deeply . Suppose you were doing SIP, calculate the amount of money you would have put and compare their worth now. Stocks are assets. Would you buy an asset at higher price or lower price ? Of course the values change over time hence you have to identify businesses that are valuable. My next pick is a business whose value is quite high compared to the price the market is paying for it now. Will it ever reach its true value I do not know but its deeply undervalued now.

The stock is State Bank of India. SBI was looking very attractive from higher levels but I waited to know the results with apprehension that it would slide further downwards. And it did.
But SBI results were far better than most PSBs. Actually in many ways SBI and ICICI are very similar. SBI is largest public sector and ICICI is largest pvt sector. Both have very high deposit base, loan accounts, and branch network. And have huge investments in direct subsidiaries. Also high NPAs, and somewhat inefficient operations. Though unlike ICICI which is a laggard in the private sector, SBI actually has best operations in the PSB category. If there is any bank in the public sector that can survive the challenge of private banks it is SBI. Its investments in technology, branch expansion, and customer relations are all noteworthy. SBI has made a conscious effort to modernize and upgrade itself. Of course all this has not been of much help as rising NPAs and provisions have pushed the bank's stock to its lowest level in years.
However a look at the numbers suggest that SBI is still on stronger footing. Its CAR is still high at 12.45%, the best in the public sector banking industry. Its provision coverage at 65% is better than most banks. Its CASA deposit ratio is one of the better ones in the industry meaning the bank can still access high amount of low cost deposits.
With several positives and its size, SBI is the true proxy of India's economy and banking sector. At less than P to BV, it offers great value. With increased focus on NPA recovery and improvement in economy SBI can be a multibagger in the real sense.

 

Thank you w4wealth and Prashant. I am sharing my knowledge. Lets hope I am of some help to retail investors. Also to add to your points, I would draw attention to what Porinju once said "a great company may not be a great stock" meaning a company having all the positives may not be the investment bet. When the company is struggling then it may be the best time to buy it's stock because there is differential in price and value.

My next suggestions will come soon.

 

The next pick is an IT company and a good value stock with strong management. Tech Mahindra is one of the top five largest IT company of India and backed by extremely strong management. Like all major IT companies TM has struggled with revenue and profitability growth in the last year, especially as new investments in the telecom industry which brings almost 50% of the company's revenue have stagnated. But we all know telecom is the industry of the current and future. At current valuations TM is the cheapest of lot, trading at around than 10 times its forward earnings. The flat results of the company, acquisition of Pininfarina (a company not directly related to its core business), and the vicious fall in the market has affected the stock price. However there are lot of positives. Ever since it acquired Satyam, Tech Mahindra's fortunes have been on upward trajectory. Post the successful integration of Satyam the company has also made some smart acquisitions which are likely to definitely increase revenue and profitability of the company (LCC, Sofgen). Given the company's previous track record it should do well with Pininfarina as well. The acquisitions can certainly open new markets for the company and increase revenues. TM has also received an in principle approval for payment banks from RBI. It will launch the bank in collaboration with M&M Financial. Given the strong national, especially rural presence and the operational strength of the Mahindra group it is likely to emerge as a serious player in that domain.

With cheap valuations, positive outlook, and highly enterprising acquisitions TM is definitely a value pick in this market.

 

Bholuji, What is your opinion on SBI? It is also beaten down? SBI is available below 160. HDFC? It is considered as the best bank in the private banking space. HDFC is available below 1000.

 

Check this post. I have already written about SBI. HDFC Bank is a evergreen stock. When the market fell more than 20% from highs, HDFC Bank fell 10%. It results as usual were solid. I cannot comment about technical levels though.

 

Fellow Investors ,today's rally/bounce back would have certainly brought some relief on your faces. However this is no time to relax. Remember the journey is long. We have to produce market beating returns that silence all the knowledgeable analysts who suggested stocks with a bias and not on merit. We have to show this world that retail investors are a force in this market because ultimately it is their hard earned money that is invested in this market, and produces the gains that everybody enjoys.

My next stock is finally the RJ held stock. It is Orient Cement. OC is mid-sized cement company with presence in Tel, AP, Kar, and Mah. The company recently commissioned a new plant in Karnataka which takes the company's total capacity to 8 million tonnes per annum. Orient Cement is considered to be a low cost producer of cement as its plants are located close to sources of raw materials and its key markets like AP, Tel, Mah, Kar. Also on valuations basis it is reasonably valued being cheaper to larger national players like ACC, Ultratech, and Shree. The debt of the company post the commissioning of the new plant is still at comfortable levels. The company posted losses this quarter as depreciation costs for the new plant and low utilization affected revenues and profitability. However the prospects of the stock given the expected rise in demand in the region, low production and transportation costs, and experienced management remain very good. A value buy given the steep market fall. Also held by RJ as per disclosures of the company till the last quarter. This quarter I do not see his name in top shareholders list. I cannot confirm whether he actually holds any of the stock. Anyways my primary criteria for selection of the stock was its valuation and potential, i.e. its merit. RJ holding the stock was more of sentimental or feel good add on.

 

Good stocks. I thought RJ stock is DHFL. It is also undervalued stock.

100% Agreed I am ready to work 24x7

 

I have not reviewed DHFL. But investors tracking this thread may find your recommendation helpful. Thank you. What do you mean by ready to work 24x7 ?

 

Sroutaji,
DHFL is at same price after 2 years, where RJ picked up this stock . I never understood the mystery why this is trading at such low valuation when compared to peers .

Thanks,
Prashant

 

Dear Investors,
Today I have picked up another value stock in Prestige Estates Project. Prestige Estates is a Bengaluru based real estate company with currently 67 million sq feet area under development. It has also 41 million sq feet area of upcoming projects and land bank of 51 million sq feet. The potential of development and land bank itself values the company significantly higher than its market cap of less than 6000 crores. Prestige results were not very good and the company is likely to miss is sales and revenue guidance for the year. However the project profile of Prestige Estate remains very strong. Also the company has almost 51 million sq feet of land bank taking total potential of development to over 150 million sq feet.

Prestige estates has a very well diversified portfolio including both commercial and residential properties. Its projected annual rental income for FY16 is almost 500 crores which is more than 10% of revenues and provides good cash flows. This income is likely to increase further.The company has unrecognized revenues of 7200 crores where sales have been completed but not recorded as revenues. Its total consolidated debt is 5500. Its debt to equity ratio is less than 0.7.
Almost it projects are located in mainly in Bengaluru (80%) and other cities like Chennai, Hyderabad, Cochin, Mysuru (20%) where demand is reasonably good and inventories levels are still much lower than DelhI NCR or Mumbai. Prestige recently bought out its stake is business park joint venture for 600 crores reiterating that the company is adequately funded for future development.

At more than 20 times forward earning Prestige Estates is not cheap on earnings but given its project profile, area under development, comfortable debt ratio, rental income, and market situation of the cities it operates in, the company is a value buy and also a good portfolio stock.

 

Dear Bholu,
some how I am never convinced with these real estate business . Its all about black money and unethical practices business . Its always very difficult to understand who is doing what goof up .

But most of the prestige commercial projects in Bangalore are master piece and shows how a business park should be . You can also have a look at Godrej properties .

Thanks & Regards,
Prashant

 

Thanks Prashant. Real Estate is an integral part of our economy now. Yes, I do agree that there is lot of black money in the system and unethical practices. Unfortunately this has become the nature of the real estate business in the country. However there are a few companies which are quite strong and have highly satisfying levels of disclosure. I think Prestige Estates is one of them. Also the stock offers comfort in terms of balance sheet, and area under development. It is now the leading developer in terms of sq feet area sold. and has good rental income. The fact the projects of the company have been executed well are a testimony to its operations.

 

Dear Investors,

The market ended with good gains with Nifty back at 7200. However many stocks continue to go cheap. I hope investors are re-balancing their portfolios and investing in quality stocks. I am recapping the stocks that I have suggested so far.

Exide Industries - Cheap valuations, strong balance sheet, falling raw material prices, and strong brand recall.

ICICI Bank - Cheap valuations, high deposit and credit base, and direct investments in valuable subsidiaries.

State Bank of India - Cheap valuations, high deposit base and credit base, and direct investment in subsidiaries.

Power Finance Corporation - Largest NBFC. Low NPAs and benefit from power sector reforms.

City Union Bank - Well managed regional player with good strong operations, and strong metrics all round.

Cyient - Niche player, good cash reserves, and good operational performance.

Tech Mahindra - Low valuations, strong management, good strategic acquisitions, and strong balance sheet.

GE Shipping - The strongest player in the sector, falling transportation costs, and improving outlook for the future.

NMDC - Highly profitable reserves, strong balance sheet, and diversification in operations.

Selan Exploration Technology - Good reserves, strong balance sheet, and low valuations.

Tata Global Beverages - Global Operations, strong brands, good management, and good outlook for he future.

Ramco Cements - Strong operating performance, strong management, good brand, and presence in lucrative markets.

Orient Cement - Low cost producer, good presence in lucrative markets, and strong management.

Prestige Estates Projects - Leading real estate developer by sales, comfortable balance sheet, huge area under under development, and well diversified portfolio of projects.

I maybe holding these stocks and my positions can change at any point of time. I am not registered with SEBI . You must analyze every stock, and decide on your risk profile and time horizon before investing.

These are basically repetitions but since many new posts appear my thread gets pushed down. Hence I have to keep adding new comments to ensure that the thread stays in focus. Also the detailed logic for investment in every stock has been discussed in this thread so please do refer to my earlier posts on this topic. I will also start a new thread of stock market investing for retail investors. And I will add new stocks to this list.

Sadly though, I keep facing impertinent comments which are aimed at shifting the focus away from the stocks and their merit. However as I quoted one of my dear friends, "All along your life you have to meet difficult people and learn to deal with them." Hence be prepared to deal with such people who are simply working to confuse retail investors and create losses for them. Please do not get influenced by them. The returns of your portfolio will be the most befitting reply you can give to them. In short, just ignore them. However comments that offer value and insights on individual stocks and stock market investing for retail investors are utmost welcome.

 

Appreciate your concern for investors. Thanks for the recommendations

 

Thank you Prasad Ji,
Friends. The Union Budget will be presented day after tomorrow. Usually investors get excited on the budget day. We have a plethora of experts on TV already wanting the government to do this and do that. Everybody is an expert and everybody has a opinion. However I would advise investors to exercise caution. The budget is merely a presentation of governments revenue and expenditure. The budget cannot really change the fortunes of individual stocks or increase their earnings. However the market will keenly watch the fiscal deficit numbers, taxation on capital gains, and allocation of money for PSU banks. Beyond this there is not much the budget can do. In short do not buy any stock blindly on the basis of announcements in the budget. I hope the government is able to contain fiscal deficit and introduce some prudent policies on taxation. Since the entire focus is on improving the performance of the public sector I am suggesting another stock from the sector.

Bharat Heavy Electricals has hit a 10 year low. However BHEL is a fundamentally strong PSE. The slowdown in the electricity sector and status of several projects has affected the company. In the last quarter BHEL has accumulated more than 30k crores of receivables, i.e. money owed for supplies made by the company. It is feared that company has lost a portion of this money as some projects are completely stuck. As a matter of fact the company had to make provisions for orders where there have been long delay which resulted in net losses. However the government has brought a great deal of reforms in the power sector. Also low prices of energy inputs has given hope that several projects will be revived. BHEL showed an improvement in its order book which is now over 100k crores , which is almost 3 times of current annual revenues. It has 10k in cash and cash equivalents which is almost 50% of its market cap. In this quarter (the ongoing one) the company has commissioned several projects which is likely to improve revenue receipts and help clear the stuck revenues. The company has been awarded 18k crore deal in Telengana and recently won the largest overseas order in Bangladesh (the exact quantity of the order is not known yet). Also the company has made efforts to diversify into other sectors including renewable energy and stands a good chance to win orders in the Indian defence sector, which is considered to be a very big opportunity for the future.

With a strong balance sheet, high order book, improving outlook for the power sector, and the huge potential of orders from the defense sector, BHEL offers great value.

 

Dear Investors,
Following the budget we have seen a good rally in several stocks. I feel satisfied that some of the stocks I selected in the list have risen sharply. I will be adding more stocks to the list soon and as I had written I will start a new post on the basics of value investing soon. We should not satisfied by 10-15% returns. We should invest for good gains and in companies which are true wealth creators and have high standards of corporate governance and contribute to the development of our country.

Coming to the budget, it was on expected lines. The government stuck to fiscal deficit targets, did not introduce LTCG tax, and decided to give some money to PSBs. Besides this the government gave lot of money to rural areas for MNREGA. Also 0.3 million crores were given for construction of rural infrastructure. One hopes that the money is well spent and revitalizes rural economy. Unfortunately the government introduced tax on EPF withdrawals which I hope is reconsidered. EPF is the only social security available to salaried class in the private sector. Salaried class are the only group of earners in this country who pay tax on both income and expenditure. Hence an unfair burden should not be put on them.

The budget also had one proposal which may have short term bearing on the market. Dividend above 1 million will be taxed. Hence I feel companies which have corpus may declare dividends in this month before the new financial year sets in. Expect some good dividend income to come in your accounts. I will be posting about new value stocks soon.

 

Friends I am recapping the stocks I have shared. All are value buys with good fundamentals.

Exide Industries - Cheap valuations, strong balance sheet, falling raw material prices, and strong brand recall.

ICICI Bank - Cheap valuations, high deposit and credit base, and direct investments in valuable subsidiaries.

State Bank of India - Cheap valuations, high deposit base and credit base, and direct investment in subsidiaries.

Power Finance Corporation - Largest NBFC. Low NPAs and benefit from power sector reforms.

City Union Bank - Well managed regional player with good strong operations, and strong metrics all round.

Cyient - Niche player, good cash reserves, and good operational performance.

Tech Mahindra - Low valuations, strong management, good strategic acquisitions, and strong balance sheet.

GE Shipping - The strongest player in the sector, falling transportation costs, and improving outlook for the future.

NMDC - Highly profitable reserves, strong balance sheet, and diversification in operations.

Selan Exploration Technology - Good reserves, strong balance sheet, and low valuations.

Tata Global Beverages - Global Operations, strong brands, good management, and good outlook for he future.

Ramco Cements - Strong operating performance, strong management, good brand, and presence in lucrative markets.

Orient Cement - Low cost producer, good presence in lucrative markets, and strong management.

Prestige Estates Projects - Leading real estate developer by sales, comfortable balance sheet, huge area under under development, and well diversified portfolio of projects.

Bharat Heavy Electricals Limited - Huge receivables (30k crores) which could add to turnover. Strong order inflows, zero debt and high cash reserves, and strong potential in untapped sectors of defence and renewable energy.

Most of these stocks have participated in the post budget rally. I will review the performance of the stocks after March quarter to see how these stocks have fared. I will also keep on adding new stocks to this list. Since investors/members of this forum like small cap/micro-cap stocks I will bring such stocks to my thread. Again, please do your own research before investing in these stocks. Like all the analysts I am not holding any responsibility for your losses.
I have also started a new thread on How to invest in stock markets. The thread is available here:

https://rakesh-jhunjhunwala.in/forum/threads/investing-in-stock-markets.2021/

I hope I am being of help to fellow investors. Please share your suggestions, critiques, and suggestions as frankly as possible. However do not try to shift the focus of the blog away from value investing. If you do, the whole focus of the thread will be lost.

 

Friends,
My next stock pick is Engineers India Limited. EIL is consultancy firm that provides consultancy and turnkey services in the field of oil and gas exploration and transmission and other infrastructure projects.
There are several reasons for EIL to a recommended stock. EIL is one the few if not the only company of its kind that provides these services in the country. The slowdown in the field of oil and gas exploration has affected the company's revenue but the company has diversified into other areas including, infrastructure, power, waste management, and water treatment etc. Currently the order book of the company stands at over 3300 crores which is almost 2.5 times its annual turnover. The cash on books is 2500 crores which is almost half of its market cap.
The unique positioning and expertise of EIL will enable it to bag contracts offered by both upstream and downstream oil companies in the country. Also the focus of the company to diversify into other sectors will help the company gain new orders in those sectors. India offers great scope in this regard. However EIL is not limited to working on domestic orders. It is one of the few PSEs which has bagged overseas orders as well. Currently almost 50% of its order book comprises of overseas orders which proves that EIL has the capability to bag orders which are not related to govt. projects.
EIL currently trades at around 18 times forward earnings. Usually consultancies trade at much higher PEs given their asset light models and zero working capital requirements. The OFS of EIL this year, set at Rs.190 was subscribed almost 4 times in the retail category. The current price at 160 is almost 20% lower than the OFS. Given the unique position of EIL, its reasonable valuations and cash rich balance sheet it is definitely a stock which can give good returns with very limited downside risk. It is also a good investment from a long term view.

 

Very good write up about stock. Informative and professional outlook is there in write up about stock. Pleasure to read again and again. Keep it up. All stocks are of good quality and very safe to keep in portfolio.

 

Thank you Mr. Mukherjee. I hope that these stocks give good returns as well.