Investing In Value And Multibagger Stocks

The stockmarket continues to be volatile after the Sensex touched a low of 15,332.42 on 22 January 2008, a drop of over 25 per cent from the top. It was a harsh reminder to investors to stay away from stocks whose fundamentals do not justify their prices. So, looking at fundamentals, as it always does, Outlook Money went bottom-fishing.

We kept sub-Rs 250-crore market cap companies out and came up with a list of around 900. Then we eliminated companies that had not grown their net profits by at least 15 per cent year-on-year (y-o-y) in each of the last six quarters. After discounting for valuations and some quantitative factors, and omitting stocks already in our portfolio, the following are the five we came up with.

1. Amara Raja Batteries [Get Quote]

The Amara Raja Batteries is one of India's largest makers of lead acid storage batteries for both industrial and automotive applications.

In the industrial segment, it is a preferred supplier for major telecom service and equipment providers, oil and gas majors, and the Indian Railways. Buyers of its Amaron batteries are the who's who of automotive companies - Ashok Leyland [Get Quote], DaimlerChrysler, Ford, Honda Siel Cars, Hyundai, Maruti [Get Quote], Tata Motors [Get Quote] and others. ARBL also exports both industrial and automotive batteries to the Asia-Pacific region, Africa and the Middle East.

The Indian automotive industry in seeing slow sales because of high interest rates prevailing since around April 2007. Despite that, ARBL is growing fast due to strong demand in the industrial sector.

In the auto space, the Amaron batteries' growth in volume was up 50 per cent in financial year 2007. In the December quarter, sales went up by 110 per cent y-o-y, while net profits were up 206 per cent.

We believe interest rates in India have peaked. So, any downward revision will only help the company. Despite a sharp correction in the broader market, this stocks continues to maintain its upward trend backed by solid fundamentals.

2. Bank of India [Get Quote]

A public sector bank, it has 2,644 branches in India. Its large credit business is handled by its corporate banking function. Export credit is available at 270 branches. Operations of 2,618 branches are fully computerised. Bank of India has also moved 1,019 branches and 31 extension counters to its core banking solution.

In the quarter ended December 2007, it doubled its net profits over the previous year on an income rise of 40 per cent. Other incomes were up 72 per cent while other operating expenses went down by 13 per cent. Its percentage of net non-performing assets almost halved to 0.62 from 1.14 in the corresponding quarter of the previous year. In the last one year, its stock has gained over 80 per cent, but we believe that it is still grossly undervalued as it is available at a price to earning ratio of 10.

Besides, it is available at 2.5 times book value, much lower than those of some of the prominent private sector banks. This multiple is 7.70 for Axis Bank and 4.88 for HDFC Bank [Get Quote].

3. Infosys Technologies

Arguably India's hottest software company, Infosys [Get Quote] lost 30 per cent of its market cap in 2007, partly on fears of margins thinning because of the appreciation of the rupee. In January, it saw a rise in buying interest as the market felt this stock has been oversold and has bottomed out at around Rs 1,400.

The rupee appreciation, too, could not stop Infosys from growing at a healthy clip. In the December-2007 quarter, sales rose around 16 per cent and net profits 24 per cent. It added 47 new clients and 11,683 employees during the same period. Also there is no indication of IT budget cuts in other markets.

Buyers are still resisting picking up this stock as there is uncertainty over where international stockmarkets, especially the US, are headed. But the company's management is confident about its future. It is hedging against currency risk and diversifying business.

But, it is also cautious that any wild swing in exchange rates could create problems. Instead of a large one-time investment spread out the purchase with a long-term view.

4. Kavveri Telecom Products [Get Quote]

The company makes hardware products and provides solutions to telecom companies. It is India's largest manufacturer of antennas and radio frequency components with capacities of 100,000 and 10,000 units a month, respectively.

It also makes cables and connectors, repeaters, and solar products. Its clients' list includes BSNL, Bharti Airtel [Get Quote], Reliance [Get Quote] Communi-cations, Idea and Tata Indicom.

The company has grown by over 150 per cent y-o-y for the last six quarters. In the December quarter, its sales rose 274 per cent over the previous year and net profits 206 per cent. In January 2008, Kavveri bought wireless telecom equipment maker Spotwave Wireless Canada, and bagged a $100,000-order for Vodafone's European operations.

Moves like the government releasing more spectrum, new players joining the telecom fray and more investment in the sector, bodes well for the company. The stock has been a clear outperformer in the last year. It has gained 350 per cent and is still available at almost 17 times earnings.

5. Tata Consultancy Services [Get Quote] 

Along with Infosys, this is the other IT stock to now become affordable. The stock, as others in the IT pack, was under selling pressure and fell from around Rs 1,300 in February 2007 to Rs 800 in January 2008. It now trades at around Rs 899.95.

Its profitability growth has slowed down from 43 per cent y-o-y in March 2007, to 24 per cent in December the same year. The December quarter, however, saw its sales grow 22 per cent y-o-y.

The company added 54 new clients, with the biggest contract being a $1.2-billion full-services deal with The Nielsen Company. Meanwhile, on 30 January, Diligenta, a subsidiary, bagged a $100-million contract from Sun Life Financial, Canada.

There are number of stocks were Reliance MF has invested over the past one month.

In PTC India, Rel Capital Trustee Company bought 52.16 lakh shares at Rs 120/share. An interesting observation here is that Morgan Stanley Dean Witter Mauritius' account yesterday bought around 25 lakh shares at around Rs 114. This is one interesting stock to watch out for because FIIs and mutual funds are going gung-ho on this stock.

10.12 lakh shares of Man Industries was bought @ Rs 101/sh on Feb 14.

Tube Investment is another stock, which was bought, nearly 2.3% stake, which is around 43 lakh shares at around Rs 62.5/share, this looks like an interesting stock.

HT Media ‘s  25 lakh shares were bought at a price of around Rs 195/share.

Deccan Aviation was bought at around 11.5 lakh shares at a price of around Rs 209/share and also Jindal Saw is another stock where Reliance Mutual Fund has been very active and which they have picked very early. They added nearly 4 lakh shares at a price of around Rs 872/share,

On the flipside there are some stocks where they have sold or they also have exited.

Navneet Publication is one stock where they have sold around 34.33 lakh shares and they made an exit by selling it at Rs 125/share.

There are some interesting stocks like Oswal Chemicals where Reliance Growth Fund, which is one of their flagship funds, sold around 16.7 lakh shares at the price of around Rs 67/share.

In Diamond Cable, Reliance AMC sold nearly 85,000 shares at the price of around Rs 501. The important thing to note here is name of the stock and also the price, which should be looked very carefully.

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While the correction in the markets has been deep and painful, it provides an opportunity for some investors to invest. A number of funds have actually spotted stocks which are trading at a discount of around 20-30% to what institutions paid for it.

For instance, Praj Industries is currently trading around Rs 180. It has corrected around 33% from its 52-week high. Tata Sons has bought over 7% stake in the company for Rs 252 per share. At today’s current market price, investors can buy the stock at around 20% discount of what the Tatas paid. The other shareholders in the company include the likes of Vinod Khosla, who has nearly 6.7% stake, and Rakesh Jhunjhunwala, who holds nearly 7.8% stake. 

NIIT is currently trading at around Rs 116. The stock has corrected nearly 30% from its recent high of around Rs 167. HSBC Global Investment Fund has bought 67 lakh shares, or over 4%, in this company yesterday at Rs 114 per share. This means that investors can actually buy stock at around the same price where HSBC sees value. NIIT’s management has said the company is looking to sell its 25% stake in NIIT Tech. That would be another bonus for NIIT’s shareholders, if it goes ahead. The other prominent shareholders in this company include Citigroup, which holds nearly 8.3% stake, CLSA 5.4%, and Morgan Stanley around 4.5%.

Peninsula Land is trading at around Rs 95 per share. The stock has corrected nearly 40% from its recent high of around Rs 167. Franklin Templeton, HSBC, and ABN Amro have picked around 10% stake in this company for Rs 120 per share. If one were to buy this stock today, it would give a neat discount of nearly 20% to prices that these institutions paid.     

·       Stocks that saw least correction
·       Stocks for long-term investments in 2008
·       Damani's advice to investors
·       Stocks to pick - Tata steel, TCS, Petronet LNG
·       List of the BSE-100 stocks losing most from their ...
·       Lessons from January 2008
·       Zen Technologies:-The scrip to watch out for in th...
·       Find value picks from the day's biggest losers
·       Market update - big fall of 1400 points sector wis...
·       Black Monday again-Biggest ever point fall for mkt...
·       BSE smallcap index: Top gainers and losers
·       Stocks that hit their 52-week lows in todays fall
·       Sensex to see 25K by 2008-end
·       Major IT stocks touched their 52-week lows
·       Not all small stocks caught in turbulence
·       HOT STOCK : GODREJ INDUSTRIES
·       JK LAKSHMI CEMENT LIMITED : Potential MULTIBAGGER
·       Parsvnath Dev eyes 120-140% bottomline growth - Pr...
·       For IT, numbers say it all
·       Stocks to pick: Reliance capital,Axis Bank, Moser ...
·       Rakesh Jhunjhunwala's latest Portfolio
·       Tata Nano may expand market by 65%
·       Nano will drive Tata Motors to top position