GEPL Capital has issued a report in which it has created a Model Portfolio of Top 10 Value Stock Picks
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The stocks which are identified are top-quality stocks like Kitex Garments, Tata Elxsi, Kajaria Ceramics etc.
A detailed explanation for each stock pick is given by GEPL Capital.
GEPL Capital has stated that the stocks have an upside of up to 105%.
Amazing whole thesis is based on FY18, we are in 2015 almost three years forward PE calculations. This I don’t believe is value investing anyway, just momentum chasing. But of course quality stocks like real estate always go up. So I may be wrong.
Relying on a PE of 2018 ? Do they think everyone is just plain nuts to fall for this crap ?
Extremely bullish considerations in this analysis for every scrip. They assume that the global economy will grow bullishly to achieve these tall top line growth rates. I know Tata Elxsi quite well. It is no doubt a good company which once had over 5% dividend yield, true it has risen from around 150 levels 5 years ago to 1200 today (like many other companies realising their true value), a whopping growth mainly due to past under valuations. Today, it quotes at 30+ times its latest year EPS. In the last 5 years, TE’s annual sales growth range has been 10% to 28% (so the analysts have picked the highest achieved in any one year of last 5 years, of 28%, happened in 2013-14! Remember its not easy to achieve the same growth rate on higher denominators). The bottom line fell in 2 years (by 40%), was static in the year in between, and there was an abnormal rise of 250% in 2013-14; the latest year it achieved 40% growth, which is close to the future earning growth rate predicted here. Its NPM hasn’t been more than 12% in any of the past 5 years.
Curtailing our exuberance (I can understand the need to attract more investors to invest!) one needs to keep the projections reasonable. A steady annual growth of 20% in top line, and a NPM of 12-13% would indicate a 2018EPS of around Rs 60, which at a higher P/E of 25 would give Rs 1500. its just about 25% rise from today’s price of 1200 for 3 years.
So one has to discount these tall projections substantially before making investment decisions, even if the companies are good.
Similarly, look at Kitex valuations! Its current P/E is 48 on 2015 earnings (as per Moneycontrol website), so even if EPS doubles in 3 years, its CMP discounts 2018 earnings 24 times! quite high. Take another parameter. Its current Mkt Cap is 4,700 Cr. Sales of 511 crore is just 11% of MC! (one of the theories that I have read state that sales to be at least around one time the Mkt Cap), its latest NP is just 2% of the Mkt Cap (that theory states the EBITDA to be around 10% of MC, which I deduce to around 5% NP to MC, to achieve decent future investment growth).
This indicates inadequate yield on investment going forward, unless it grows at rates much higher than the latest 2-3 years. For that, the economies worldwide have to grow at rates much greater than their current day 1-5% growth rates.
Your calculations are analytical . But the question is how many of us have the ability to analyse the given information ? The counter at present is trading at XXX and has an upside potential of 90 %. That is enough to make a buy decision . Who goes into all the details . Some one has done the analsysis and just relay on it is the natural tendency of investors
Gem, i don think you will get consumer company (more or less like kitex) in price to sales 1 ratio. norms is 5 to 6 times. here it is really high agree on that.
Hi Gem… what are the stocks that you bought or buying if i can ask?
@Gem23 – commend your views. I was simply taken aback by the projections in these reports. When I did the math for a few others, I was simply awe struck on how bullish/unnecessary bullish are these projections. Take the case of Kovai medical. They are coming up with plans for a new hospital in Chennai, which to me is an extremely competitive market, with established players like Apollo, sitting with years of lead time ahead. This hospital calls for an investment of 300 crore and I don’t think that this can be funded without equity or some form of dilution via the debt route. The report simply talks about the past expansion, which was done from internal accrual. In fact, there is another 80 crore required for expansion in existing hospital itself. That puts the capex need at 380 cr total. Agreed that there is a land bank of prime area in Kovai and the current value is not in the books but I have rarely seen such things translate to real stock prices. All said and done, I might be wrong but this looks too bullish.
PS – this is not a buy/sell recommendation. Pl do your due diligence
specialist, i think kovai has around 20 acr approx land with very less in book. i analyzed this company sometimes back. The land price is huge. Also their result was good last Q. but i saw one interview of Narayan of ICICI and he told bluntly (6 month back) that land unused is difficult to sale and get money. kovai how they setup in Chennai is really going to be watched as there are many established player. Another point which is think will be crucial where in chennai they going to setup, if premium place then capex will be much higher. it is a company to watch but road ahead need to be closely monitor.
The stocks are top quality and have shown good operational performance in the past. Now, somebody has come up with some analysis to project future returns, which most of us do not agree. But , can anyone tell what is the present fair value of these stocks? Someone said these results are analytical ! completely agree with that and most of us do not have the know how to judge the underlying triggers ( both positive and negative ones) which might alter the valuation of these stocks in future.
Could some one please advise me if
Kanoria chemicals is a good bet for 3 years time ?