Oriental Carbon – Earnings at inflection point; quality play
Generally speaking, a stock that has the backing of three stalwarts, namely, Anil Kumar Goel, Prashant Jain and Ayush Mittal (of valuepickr forum), qualifies as a no-brainer buy.
When these stalwarts give the green signal to a stock, we can rest assured that the stock has been screened from all angles and is certified to be safe and sound, both in terms of fundamentals and valuations.
In addition, we had the benefit of Daljeet Kohli’s expert analysis on Oriental Carbon where he recommended a buy on the logic that the Company has a virtual monopoly, moat, high RoE, reasonable valuations, growth prospects and other virtues.
After that, there was no excuse for us to stay aloof from the stock.
Today, the stock is up a magnificent 52% since I last spoke of it. On a YoY basis, the stock is up 80%.
Fortunately, there is no reason to despair because ICICI-Direct has assured that it is still not too late to tuck into the stock and that more gains can be harvested from it.
Their logic is convincing:
“Quality portfolio play, robust margins and return ratios, retain BUY!
OCCL is a specialty chemical company with a unique product profile, limited competition in the marketplace and consequent sustainable strong EBITDA margins (28%+) and return ratios (RoIC: 20%+). OCCL has a healthy balance sheet profile with FY16 debt: equity at 0.3x & average CFO in FY14-16 at ~| 60 crore (yield ~6.5%). With early commissioning of brownfield capacity and robust product demand, we expect sales & PAT to grow at a CAGR of 14.0% & 16.6%, respectively, in FY17E-19E. We value OCCL at Rs. 1125 i.e. 17.0x P/E (1.0x PEG) on FY18E & FY19E average EPS of Rs. 66.2. We maintain BUY recommendation on OCCL.”
Rural Electrification Corp – current valuations leaves a huge scope for a rise
Some novice investors are under the belief that blue chip large-cap PSU stocks do not make a good investment. However, this impression is mistaken and the same is shown by Rural Electrification Corporation, a powerhouse PSU blue-chip, which has surged a massive 118% on a YoY basis.
However, the astonishing part is that despite the steep run up, NVS Wealth Managers have claimed that there is still a huge scope for the stock price to rise.
Their logic is very compelling:
“REC rewarded its shareholders with a very liberal interim dividend of 70% (Rs. 7 per share) in February 2017, the company also declared a bonus of 1:1 in the month of September, 2016. In FY2016 the company bestowed its shareholders with an attractive dividend of 171% (Rs. 17.10 per share).
The company has performed very well consistently and now the power sector reforms being given a full fledged push by the BJP government, the company is in an inflection point. REC consistently rewards its shareholders with healthy dividend, showing that the company is investor friendly with rising profits year after year. We believe that current valuations leaves a huge scope for a rise.”
Ahluwalia Contracts – The best infra stock?
Porinju Veliyath, in his typical earnestness, has been advising us to buy infra stocks. However, we have been studiously ignoring his advice.
In his latest interview, Porinju reiterated the same advice:
“Maybe it is the right time to look at some infrastructure companies like Sunil Hitech. There are a lot of them. I am just mentioning names that are coming to my mind. Investors should really look at that. Now going forward, more orders would come in. There was a gestation period, so people who bought these stocks one year ago some of them got disappointed but now the orders have started coming in, so in another six months to one year time, people will be excited looking at the order book position, the margin. In the infrastructure segment, the EPC companies’ margins were very low earlier. Now these are shifting to high margin businesses.”
Now, it is obvious that after the spectacular gain of 42% that Porinju’s portfolio generated in FY 2016-17, we have to take his advice seriously and cannot dismiss it in a flippant manner.
Fortunately, Ajay Jaiswal of Stewart & Mackertich has voiced the same opinion as that of Porinju with regard to the prospects for infra stocks and has recommended a buy of Ahluwalia Contracts.
The recommendation is crisp and concise:
“Ahluwalia Contracts have carved a niche in the industry as one of the leading Civil Contractors of the country with specialized experience in the Construction Industry for more than 36 years. The Company has had the distinction of being associated with most of the leading Architects and Consultants of the country for building of large Institutional Buildings and Corporate Office Complexes, Industrial Complex Buildings, Multi-Storeyed Housing Complexes, Township Development projects, Hospitals, Medical Colleges and Laboratory Buildings, 5-Star Hotels, Educational and Technical Institutes, Etc. The company has an order back log of INR4013.87 crore as on 31 December 2016, which provides robust visibility over the next few years.
We expect significant growth in revenues for the company led by strong order backlog, pick up in execution and decreasing debt.
Considering strong revenue visibility as current order book of INR4013 crore (3.2x FY16 revenue), high ROE and declining debt-equity ratio, we assign the PE of 18x for FY19 EPS of 22.93 and arrived at the Target price of INR413.00”.
Elite shareholders throng Ahluwalia Contracts
It is notable that Ahluwalia Contracts has won the confidence of a number of elite shareholders such as Nalanda India Fund Limited, Hsbc Global Investment Funds, Blackrock India Equities (Mauritius), Franklin India Smaller Companies Fund, Sbi Magnum Multiplier Fund, Dsp Blackrock Balanced Fund etc.
This implies that the company has been thoroughly screened from a due diligence perspective and is certified safe.
It is also notable that while the promoters of Ahluwalia Contracts hold 62.40% of the equity, the institutional investors collectively hold 30.64% of the equity. This means that there are only a handful of mom and pop investors in the Company.
Another aspect that requires to be borne in mind is the fact that Ahluwalia Contracts has been flat on a YoY basis. This has been the case with most other infra stocks as well. Porinju has noted this fact and opined that in the next six to twelve months, there will be a gush of orders from the Government which will revive interest in these stocks. Once the orders begin to flow, the stocks will flare up and surge like rockets. So, the best time for us to tuck into these stocks is when they are unwanted and languishing and available at throwaway valuations.