Large cap growth stock to buy - BHEL

This time it is a large cap stock analysis of BHEL. What makes BHEL a growth stock with value and a stock to buy in your investment portfolio?

Bharat Heavy Electricals Limited (BHEL) is engaged in the energy and infrastructure sector. The Company caters to power generation and transmission, industry, transportation, renewable energy and defense. With a network of 15 manufacturing divisions, two repair units, four power sector regions, eight service centers, 15 regional offices, one subsidiary and a number of project sites spread all over India and abroad, BHEL is a one of the Navratna companies in public sector.

Company's products include thermal, nuclear, gas and hydro-based utility power plants. BHEL also produces steam turbines, generators, boilers and matching auxiliaries. Circulating fluidized bed combustion (CFBC) boilers for thermal power plants and custom built hydro power equipment are other products of company.

To conclude the product portfolio, BHEL manufactures and supplies some of the most important products in power generation sector. Power generation and realted infrastructure is one of the most encouraged and under developed sector in India and government is actively promoting the same. A long queue of power and energy projects is being planned and lined up to meet the power demand in India. This gives opportunity of tremendous growth for BHEL in future.

Bhel's current order book stands at Rs.1580 billion (5 times FY10 revenues). All these orders are from projects which have financial closure. This estimates the visibility of 25% EPS CAGR for next 3 years.

Company has a very strong order book position for next few quarters. This ensures steady stream of revenues and earnings. The reasoning mentioned above compelled me to include this large cap stock in my list of "Stocks to buy in 2011".

Stock valuation
At current stock price of Rs.1975, the stock trades at 17.6x FY11E earnings of Rs 112 and 14x on FY12E earnings of Rs 140. The cheap valuations at current stock price and growth visibility make it a growth stock to buy at these levels. One should buy stocks of BHEL for a target price of Rs.2900 for medium term (12-18 months)

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Reliance Industries & British Petroleum deal

Reliance Industries Ltd. (RIL) and British Petroleum (BP) has announced a partnership deal. Let's see if this new development will help RIL and it's investors or not.

BP will be buying a 30% stake in 23 oil and gas production-sharing contracts that RIL operates in India. This includes oil producing KG-D6 block. Also a 50:50 joint venture (JV) will be formed between the two companies for sourcing-marketing gas in India. This JV will accelerate creation of infrastructure for receiving, transporting and marketing natural gas.

BP will pay RIL US $7.2bn for consideration. Adding up performance payments of up to US $1.8bn based on exploration success in future, combined investment could amount to US $20bn.

This deal is definitely positive for RIL since expertise of both companies may transform into optimization of existing oil producing blocks and enhancement of resources for exploration activities. The transaction amount evaluates RIL stock at Rs.363/share to the east coast blocks against valuation of Rs.409/share as estimated by one of the stock broking firm. BP will incur other capex costs as exploration projects proceed.

Stock valuation:
The deal looks like bringing in value and earnings in the long term for investors. BP will bring in it’s technical expertise and help RIL to optimize. RIL stock trades currently at forward (FY 12 estimated) P/E ratio of 12.8. Once the deal goes through, stock valuations may dip on account of shedding 30% share in east coast blocks. But this is expected to be recovered by cash consideration and rerating of blocks with BP’s technical expertise meeting RIL efficiency.

One may buy stocks of RIL for target price of Rs.1,175-1200 in next 1 year. I would update the valuations after regulatory approvals and more clarity on financials involved in deal.

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Mid cap stock analysis - Deepak fertiliser

Mid cap stock analysis report of Deepak Fertilizer. Market leading positions for products it manufactures makes it a mid cap stock to buy among fertilizer sector stocks.

Deepak Fertilizers and Petrochemicals Corporation Limited operates mainly in 3 segments: chemicals, agri-business & specialty retailing. Major products of company are methanol, various grades of nitric acid, iso propyl alcohol, carbon dioxide and hydrogen. Company also have explosives division which manufactures low density ammonium nitrate, used to make ammonium nitrate-fuel oil (ANFO), blasting agents and emulsified ANFO (HANFO).

Agri-business division of Deepak fertilizer manufactures 23:23:0 prilled nitrophosphate fertilizer, the brand name is Mahadhan. Company has dealer network of more than 1000 dealers to market Mahadhan. The Company subsidiaries include, Smartchem Technologies Ltd., Deepak Nitrochem Pty. Ltd. and Deepak Mining Services Pvt. Ltd.

Deepak fertilizer is a leading manufacturer of products mentioned above and enjoys good market share in India for these products. Technical Ammonium Nitrate (TAN) is the main product which enjoys 30% share with leadership in market. Company’s another product, Iso Propyl Alcohol (IPA), has 75% market share in India. It is used in industries such as pharma, agro-chem, organic chemicals, imaging chemicals, healthcare sector and paints.

Recently Deepak fertilizers has announced their plans to setup a plant with investment of Rs. 100 crores. This expansion will ramp up its production capacity and further strengthen its revenues.

Stock valuation
Estimated revenues for company in FY 11 are at Rs. 1545 crores, a 16% growth over previous year. Similarly, estimated revenues for FY 12 are at Rs.2082 crores, a jump of 35% over FY 11 estimates. This would take EPS at Rs.25 in FY 12. So at current stock price, Rs.160, the stock trades at forward P/E (FY 12) of only 6.4 which makes it a good bargain.

One may buy stocks of Deepak fertilizer in 1-2 years investment portfolio for target price of Rs.200. Any dips in current price can be considered as a good opportunity to invest in it.

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Large cap banking stock to buy - ICICI Bank

ICICI bank is the most aggressive and growth oriented bank among large cap banking stocks and this makes it a large cap banking stock to buy. Let's checkout it's stock analysis.

ICICI bank is second largest bank in India and a biggest private sector bank. It has total assets of Rs.3.60 Trillion under management. ICICI bank mainly focuses on retail banking operations. Retail lending and retail financing comprises of 40% of it's loan portfolio.

ICICI bank has started looking at international markets and corporate sector loans and financing which is going to be next big growth drivers for bank.

ICICI bank's business model is one of the most fit and lean business model among all bank in India and that shows that bank is on right track to be an efficient value creator.

Asset quality of bank is good and non performing loans for bank are reducing.

At current stock price of Rs.1025, stock trades at forward FY 12 P/E of 17.7 with estimated EPS of Rs.57.7 against current EPS of Rs.36.1 (current P/E stands at 28.39)

One may buy stock of ICICI bank for stock price target of Rs.1300 in medium term.

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Stock idea : Tata Motors - Large cap stock to buy

Stock analysis of Tata motors for medium term investment horizon.

Tata motors is the largest automobile company in India. Although they are not market leaders in cars segment, they are the market dominant player when it comes to commercial vehicles such as commercial trucks, heavy duty dumpers etc.

Government of India has started promoting infrastructure activities and this means big demand for commercial category vehicles which are used in infrastructure construction activities. Tata motors, being dominating player in this category will be a big beneficiary of this demand.

In cars category too, Tata motors is slowly making it's inroads to capture market share of Indian cars and SUV market. It has been researching new models and launching constantly to increase market share as much as possible.

Jaguar and Land Rover are doing well now. These are the luxury cars and have good demand in US, China and Russia. Margins from these businesses are good for Tata motors and will continue to do so.

All new product launches like Tata winger luxury, strong Nano distribution network and revenues from Jaguar and Land Rover, shows Tata motors is on a good progressive track and will sustain it's growth numbers for at least 2 - 3 years.

With expected revenue growth of around 16% in FY 12, one may buy stock with medium term perspective for target of Rs. 1500.

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Stock analysis - Mahindra & Mahindra : Buy stock for medium term

Stock analysis of Mahindra & Mahindra from medium term investment perspectives.

As we all know, Mahindra & Mahindra is one of the leading automobile sector player when it comes to SUV and tractors. There is competition to them but minimal. And it does not looks like anyone would be their big competitor in near future to snatch away their market share. In SUV space, everyone is trying to take away the market share that Mahindra scorpio enjoys but hardly anyone has been able to do that.

Recently Mahindra & Mahindra has avquired Ssangyong motors. Ssangyong motors is a big South Korean SUV maker. This deal would bring in SUV technology and presence in large markets for Mahindra & Mahindra.

Mahindra & Mahindra have many subsidiary companies holding good amount of value. This value unlocking will happen eventually but many of it's subsidiaries doing good business are actually adding value. This should take it's intrinsic value only towards north.

Company has debt to equity ratio of only 0.4 which shows that it's balance sheet is strong. Company is expected to grow at 12% Compounded Annual Growth Rate in next two years.

At estimated EPS 0f 44.9 in FY 12, stock trades at forward P/E of ~14. With company's strong market share in automotive sectors, it is part of consumer growth story in India. Mahindra & Mahindra has a good upside potential in near future. Buy stock for medium term with target of Rs.800

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Buy stocks of Exide Industries at every dip in its stock price

Why should you buy stocks of Exide Industries at every dip in its stock price? Let’s have a look at this mid cap stock, it’s stock valuations and why should you invest in it.

This is another stock in my list of "Stocks to buy in 2011". Exide Industries Limited (EIL) is undisputed the number one battery manufacturer in India. And do you know Exide is one of the top five battery manufacturers in world? Yes it is.

If you own an automatic vehicle (Truck, car or bike) in India, checkout your vehicle’s battery and there are high chances that you would see the name “Exide” on it. I am sure don’t need to open it, you would probably know it. Overall Indian battery market is more than Rs.10,000 crores. It has grown in past 5 years (2005-2010) at 30%. Average profits for battery industry grew at 50% every year, thanks to ever growing demand from automotive sector in India.

Target markets for battery industry are mainly divided into two segments, automotive and industrial. Automotive sector (cars/trucks/bikes etc.) is expected to grow at 20%. The same is for industrial segment. Leading stock broker firm, Angel stock broking has mentioned in it’s industry report that revenues for battery industry are expected to grow at 19.7% compounded (CAGR) for next 3 years. In automobile, new cars as well as battery replacement for old cars is what drives the volume for batteries. In industrial segment, it is railways and power sector. All the entities mentioned here are on growth curve and not expected to slow down their growth for sure.

Exide industries has very strong distribution network with presence at 206 locations and they are expected to grow to 250 by mid 2012. Company has plans to make it’s presence in small 3-tier cities where battery market is dominated by unbranded and unorganized sector batteries.

Being market leader, company has full control and power for pricing it’s products. Company revises it’s prices whenever need arises which helps maintaining it profit margins.

Company has a plan to invest Rs.400 crores and expand the capacity for growing two wheeler and 4 wheeler markets. Exide has already launched batteries for electric bikes. It is researching and developing batteries for electric and hybrid cars which is going to be next big growing sector looking at ever rising petrol and diesel prices. So huge growth ahead if Exide comes up with good products for this market.

A few concerns
Last two years have been slow due to recession but economies are recovering and India is growing at pretty good rates now. Many new competitors are entering this segment, recent example being Tatas. Another concern is competition from cheap imports from China. These could take away some market share from this industry leader. Amara Raja is making it’s moves fast to capture more and more market share.

Stock valuation
One of the best part I liked about Exide is that it is a zero debt company. It has very good cash flow which would help it expand without any debt. Company has observed high returns on networth (RONW) ratio which is good. At current ock price, stock trades at P/E ratio of 17.40. Company’s EPS has grown at more than 40% CAGR (Compounded Annual Growth Rate). The Price to Earnings growth ratio stands at 0.6. All this makes Exide a high growth and value stock to buy. One may buy stocks of Exide at every dip in it’s stock price for long term investment.

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Stock to buy for long term - Blue Star Limited

Compounded Annual Growth Rate (EPS) of more than 30% and Price to Earnings Growth (PEG) of less than 1 certainly makes Blue Star limited a bluechip stock to buy.

Here is a stock analysis of bluechip stock Blue star in my series of “Stocks to buy in 2011”. Being bluechip stock, Blue star provides stability to your stock portfolio and resistance in times of stock market correction as bluechips tend to correct lesser than mid cap and small cap stocks.

Blue Star Limited (Blue Star) is a central air conditioning and commercial refrigeration company. Blue Star has three business segments: electro-mechanical products and packaged air conditioning systems, cooling products, and professional electronics and industrial systems.

Air conditioning sector
The market size for air conditioning in India growing constantly. Home air conditioning and commercial, both have tremendous demand and growth due to rising incomes and huge rise in high end realty constructions like shopping malls, high end offices, hospitals, schools and commercial buildings. Estimated size of this market was more than Rs. 10500 crores in 2009-10. Out of this, commercial and central air conditioning market was in tune of 5000 crores.

cold storage, water cooler, bottled water dispensers, deep freezer, milk coolers, ice-cubers are another commercial cooling business opportunity in India that is growing rapidly due to huge growth in organized retail sector. Latest Angel stock broking reports says that Blue star has 30% market share in central air conditioning market in India with lots of repeat business from institutional clients.

Governments decision on setting up country wide cold storage chains poses a great opportunity for company’s growth. Blue Star Electromechanical Limited, completed the acquisition of the plumbing and fire-fighting businesses of D.S. Gupta Construction, the largest independent plumbing and fire fighting contracting company in India. With this acquisition, the company will not only be in a position to aggressively pursue an integrated MEP (Mechanical, Electrical and Plumbing). It will add a vertical of new services and get benefitted from existing set of clientele.

Company’s financial numbers show Five year compounded annual growth rate (CAGR) of 22.6 per cent in sales and 40.1 per cent in profit after tax. Average return on net worth over the last five years was pretty high at 43.9 per cent.

In next 1–2 years, although company’s profit after tax levels may remain flat due to high debt of acquisition cost of D.S.Gupta constructions, revival in commercial estate demand and cold storage opportunity (both private retail and government) provides high growth potential for company.

Stock Valuation
At present, the stock trades at a twelve-month trailing price-to-earnings (PE) ratio of 17.6 (February 16th), which is fairly below its five year median PE of 21.86. Stock dividend yield stands at 2.3%. It has posted a five-year earnings per share (EPS) CAGR of 34 per cent. This translates into a price-earnings to growth (PEG) ratio of 0.60.

Should you buy stocks of Blue star?
Looking at company’s market share and position, order book of Rs.1990 crores, growth prospects due to demand in commercial real estate sector and cold storage chains, one may buy stocks of Blue star at current price or below it for long term investment horizon (3-4 years).

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Telecom stocks - Any takers?

With latest recommendation from TRAI to recover the spectrum cost from all telecom operators in India is the latest news related to spectrum scam in which politicians and telecom companies have shamelessly looted taxpayer's money. Is this going to affect telecom stocks?

"A. Rajane 3000 crores khaaye", it's an old news! Pata nahi sala yeh log kaise itana paisa khaa jaate hai. Mai ek rupaye ka coin bhi khaaun to muze to doctor ke paas jana padegaa operation ke liye!! Yeh RAJA ko 3000 crore rupayese subah problem nahi hogi??? Kaunsaa kayamchurna khata hogaa kameena? ;)

Anyways. TRAI has recommended to increase the 2G spectrum prices for all 2G operators in India which have licenses.

All companies collectively will need to pay RS.24,700 crores! These are rough calculations but following are the numbers which telecom companies will have to shell out as a price for their corrupt business strategies.

BSNL: Rs.7563 crores (not listed in stock marekt)
Bharti Airtel: Rs.4284 crores
Idea cellular: Rs.1985 crores (idea of corruption is bad sirjee!!, shame on you)
Vodafone: Rs. 1763 crores
MTNL: Rs. 1150 crores
Aircel: Rs. 489 crores
Loop telecom: Rs. 191 crores
R-Com: Rs. 78.7 crores

Newly launched companies like Videcon, loop, uninor, Tata teleservices (old CDMA player, got GSM 2G license recently, R-COM (same as Tata) will be bearing a brunt in this. Collectively these companies will have to shell our Rs. 7000 crores. It is just an IDEA and not the exact figure.

Bravo! Big companies, big fines! Every company listed here is going to pay price from their kitty of profits, reserves, investments. Book value and profits of each of these companies are going to be eroded and so the value of shares. Being a shareholder, each one will be paying price in terms of book value and profit share.

Stocks of these companies will loose it's sheen and stock value at least in medium term. Do not buy stocks of any telecom company at least for next few weeks till the picture gets clear.

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Stock to buy : Corporation Bank

Corporation bank is a well managed PSU banking stock to buy. I had posted stock analysis and recommended a few months back to buy stocks of this bank if it corrects below Rs. 550 levels.

Since then stock market has corrected a lot and Corporation bank stock is not exception to this correction. Now the banking stock trades at below Rs.550 levels.

Corporation bank has 1,000-plus branches in the southern and western parts of the country. It has the reputation of being one of the best-managed public sector banks in India. It has relatively clean balance sheet compared to other banks and impressive track record.

Bank is expanding in Northern part and Tier II cities allover India. Nonperforming loans of bank are around 1% which is not much risky. Price to BV (402 in 2010, FY 2011 should be even higher) ratio at Rs.542 is 1.34 which is very good. Dividend yield at current stock price comes to be 3% which makes it a good dividend yield stock.

Must read: Should you buy stocks now at these levels?

Average return on equity ratio for bank has been 18 per cent for past three years. It is a healthy ratio. According to bank's expectations, bank is likely to post EPS growth of 14 per cent for next 2 years.

Bank has been recording very good EPS growth for past 5 years and it is expected to do so for at least next 3 years. One may buy stocks of Corporation bank if stock market corrects further and if stock is available at even lower levels. All in all, Corporation bank is one of the stocks to buy in 2011 in my list for next 2-3 years.

Also read: Stock report - Corporation Bank

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Should you buy stocks now at these levels?

Stock markets have bounced back on account of short covering. Do not make a mistake of taking this as an end of correction. Here is my understanding of what I interpret by looking at SENSEX.

For last 3 trading sessions, SENSEX was trading around 18,000 levels. Although it almost touched 18,000 but did not go below that. Yesterday, i.e. on 2nd February, stock market bounced back by more than 300 points due to short covering. Looking at below chart for SENSEX over the period of 1 year, we may interpret that 18,000 looks like strong level to breach, but hold on to this thought and have a look at second chart below.


Now look at below chart. After 18,000 levels, broadly, I can see the range of 16,000 to 18,000 with support to markets. I strongly believe that there is good scope for market to correct further in net few weeks/months before it again resumes it's uptrend. It will long time before this happens.


At this stage, don't be in hurry to buy stocks for your long term investment portfolio. Wait and watch should be our mantra for some time.

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Buy stocks of JSW Steel for medium to long term

Another stock to buy in the series "Stocks to buy". This post reasons why to buy stocks of JSW Steel for medium to long term investment.

JSW Steel Limited (JSW) is in the business of production and distribution of iron and steel products. The Company has two primary business segments, Steel and Power (used mainly for captive consumption). The Company’s products include hot-rolled coils/steel plates/sheets, rolled products (long), cold-rolled coils/sheets, galvanized plain/corrugated/color coated coils/sheet, steel billet, and bars and rods.

Let's have a look at few key drivers for growth of JSW steel in year 2011.

JSW Steel is set to buy 41.29% stake in Ispat industries for Rs 2157 crore (Rs 19.85 per share) through the issue of fresh shares. Present promoters would hold around 20% - 22% but Management control would be with JSW steel. Ispat's stock valuation are at very cheap level as it is stuck in debt raised for its expansion plans.

JSW Steel is also the top bidder to buy banks' Ispat Convertible Debt at premium. Ispat owes about USD 1.5 billion, including foreign-currency loans, to lenders including IFCI Ltd., IDBI Bank Ltd. and ICICI Bank Ltd. On November 26, 2010, it converted part of the debt into equity by issuing 77.7 million shares to lenders.

All steel majors like Tata steel and Arcelor Mittal were looking to buy stake in Ispat but JSW steel has snapped the deal quickly to own controlling stake.

Company has announced a new capex of Rs 4bn on setting up of a new cold rolling mill (CRM) complex of 2.3mtpa in two phases at its Vijaynagar unit to cater to the niche auto and white goods segment demand.

The acquisition is definitely positive for JSW steel in long term. It will become largest steel company in India with total capacity of 14.3 million tonnes. With expected EPS of Rs 112 for FY 12, stock price target could be around Rs 1200. Gains of ~30% at current stock price. Investors may buy stocks for medium to long term.

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