Safe Mid Cap Stock Idea

Here is one mid cap stock that is relatively safer compared to mid cap stocks space. NIIT Technologies, an IT stock with good growth rate could provide you very good investment returns in next 2-3 years.

NIIT Technologies is a mid-tier IT company providing IT solutions to customers aross North America, Europe, Middle East, Asia and Australia. It's services and solutions include application development and maintenance, managed services, cloud computing and business process outsourcing space to organisations across verticals. Revenue wise, Travel and transportation segment is single largest contributor(29%) while financial services and insurance contributes 37%, government segment contributes 18%, manufacturing and distribution 8% and rest is by all other segments.

Stock Financials
Company has reported almost 9% CAGR growth in topline and bottomline for past four years. Company's order book stands 15% higher at $169 million at the beginning of FY12 against the start of previous year. The maximum order intake was during the March 2011 quarter when company received fresh orders at $116 million were more than double the total number of orders in Dec.10 quarter.

Travel and transportation segment was the key growth driver during March 11 quarter with 12% sequential increase in total revenues to Rs 107 crore. Even with good growth, the company's operating profit margin was flat at 19.9%. Comapny has provided, on average, a 13% offshore and 3% onsite salary hike which could stress the margins in near future. But company operates at a utilisation level of above 80% which is higher compared to that of other IT companies.

Stock Valuations
NIIT Technologies is a consistent dividend paying stock with dividend yield of more than 4%!

At current stock price of Rs. 228, the stock trades at P/E of 12.11 for trailing four quarters EPS. Looking at the healthy order book lined up for execution in next one year, its' expected EPS in FY12 and FY13 is Rs.25 and Rs.35 resply. With same P/E of 12, NIIT technologies could touch Rs.300 in one year and Rs.400 in 2-3 years time frame if nothing drastically goes wrong for company.

One may buy stocks of NIIT Technologies at every dip in small quantities. It becomes very attractive if the stock trades around or below Rs.200.

Suzlon Energy – Turnaround large cap stock

Does recent stake sale in one of it’s subsidiaries by Suzlon Energy and it’s recent financial performance makes it an attractive large cap stock to buy? Let’s have a look at the facts and numbers to figure it out.

Recently Suzlon Energy sold it’s 26.06 stake in Netherlands-based Hansen for about Rs 830 crores. No doubt this stake sale is a positive development for Suzlon Energy as it is saddled with high debt in its’ books.

Also, it is expected that Suzlon would consolidate REpower (another wholly owned subsidiary) with it. This consolidation would give Suzlon access to funds worth Rs 1,700 crore of REpower. Also expected is realization of about Rs 1,000 crore receivables from a debtor. These developments would ease some of company’s debt worries. Founder and CMD of Suzlon Group has explicitly said that this deal is in line with their strategy to optimise and strengthen the balance sheet.

With above mentioned sources of funds of Rs 3,500 crore when combined with estimated cash flow from operating activities of Rs 1,000 crore in 2011-12 will enhance cash availability to Rs 4,500 crore. This will provide good liquidity for company to meet obligations.

“Suzlon needs to raise funds for the potential redemption of legacy FCCBs of $480 million (Rs 2,100 crore, at conversion price Rs 76-98 per share) which is due in FY13/14,” as per analyst at JP Morgan. About Rs 1,770 crore are due for redemption in the next financial year.

Company has almost Rs 10,200 crore (as on March 2011) of debt. These sources of funds should certainly prove positive for profits, as it will help reduce debt levels as well as interest costs.

Suzlons’ returning to profitability?
Company posted losses for two consecutive years. Stock market analysts are expecting the company to report about Rs 500 crore worth profits in the current financial year and Rs 900 crore in 2012-13. The order book of company has also seen increments that would give it a better revenue visibility. Suzlon could be well on its way to turnaround as a profitable company again very soon.

Company is expected to grow it’s revenue almost in the tune of 30% this financial year (3400 MW wind power equipments against 2372 MW last year).

Stock Valuations
Suzlon posted net profits of Rs. 309.82 crores for quarter of Mar ‘11. Earlier in Dec.’10 quarter it had posted net profit of just Rs. 1.2 crore. This profitable turnaround would soon start translating in stock price appreciation. As mentioned above, analysts are expecting profit of Rs 500 crores this FY and Rs 900 crores next FY. If everything goes as per this, Suzlon could provide good returns to it’s investor’s in next 3 - 4 years time frame. One may buy stocks in small quantities at every dip for long term portfolio.

Small Cap Multi Bagger Stock - Logix Microsystems

Logix Microsystems is a small cap stock that could be a multi bagger in medium term but slightly risky stock due to it's very high FII holdings. Let's have a look at it's stock analysis and why one may consider to buy stocks of this company.

Logix Microsystems Limited operates in two segments namely enterprise connectivity and security, and Izmo cars solutions. The Company has various solutions such as izmoWeb is an automotive online store for auto dealers. izmoMobi is a mobile Website. izmoRainmaker is an online marketing solution. AddOnAuto involves in-store accessories sales. izmoTele Trak involves call management and tracking. iCRM is an customer relationship management solution for the Automotive industry. iEquity is a database sales solution. iConsult involves sales performance coaching. iService is a automotive service management system. izmoStudio provides digital imagery and interactive media solutions for the automotive vertical.

Company has regional subsidiaries in Europe, USA and ASIA which are Izmo Europe BVBA, Logix Americas Inc., Midrange Software Pte Ltd and izmo Media.

Most of the company solutions cater hundreds of auto dealers with over thousands of showrooms and automobile portals such as Yahoo Auto, AOL Auto and some of the auto OEMs General Motors, Ford Motor Co., Mitsubishi Motors, etc.

Logix Microsystems also operates a web portal www.carazoo.com for Indian market.
Internet has been off lately proving as a big marketing tool for automobile sector due to it’s wide and ever growing reach. Due to very huge user base and low cost to reach that user base automakers have started using internet based interactive websites/application for auto marketing and Logix Microsystems is an established player in catering this market. Logix has an established track record of 7 years in the largest auto market in this world, the US market!

The company is planning to focus on adding big clients and auto dealers in US as well other big auto markets such as Europe, Asia and home ground India. It plans to tap the auto dealers to strengthen their presence in the auto accessories market. Carazoo division has started growing its customer base allover India. It includes automotive as well as 2 wheeler dealers which are huge in numbers.

Stock Valuation
Logix Microsystems is a micro cap stock with market cap of just Rs.20 crores. With trailing four quarters EPS of Rs 3.89, at current stock price of Rs.16.8, the stock trades at P/E of just 4.33 which is very cheap. The book value of stock stands at Rs. 136.65 It is trading at Price/Book ratio of 0.12 So why is it available at such steep discounted valuations? There could be only one possible reason. The stock has low promoters holding (21.49%), high FII holdings (21.10%) The stocks with high FII holdings are very volatile and so is this small cap stock. It has 52 week high/low of 57/14.7

The company has a very niche and unique business model with huge opportunities. Looking at the stock valuations, one may buy stocks of Logix Microsystems for medium term gains and it may even prove to be a multi bagger stock.

IRB Infra - Good Infrastructure Stock To Buy

IRB Infra is one of the good stocks to buy from Infrastructure space. The company has just reported numbers for 1QFY12. Here is results analysis and stock outlook with recommendation post this result.

IRB Infra has posted better than expected numbers for 1QFY12. Company reported 1Q revenue at Rs.800 crore, which increased 50% yoy. EBITDA increased 22% yoy to Rs.330 crore. Net profit for company increased 14% yoy to Rs.130 crore. All these numbers are well above market expectations.

This better than expected strong performance was led by the construction division of company. Construction revenue has increased 81% to Rs. 600 crore with better margins.

EBITDA margin of the construction division is at 25.9%. This has been possible due to better margin from Surat – Dahisar project.

Toll revenue has increased 14% yoy to Rs.230 crore, mainly due to 18% toll hike in Mumbai – Pune expressway. Surat – Dahisar project reported 6.8% increase in toll revenue to Rs.94.2 crore, Bharuch – Surat project reported 12.8% yoy increase in toll revenue to Rs.33.6 crore. Tumkur – Chitradurga project has become operational since June and also contributed Rs.11.4 crore to toll revenue.

On the negative side, interest expenses were 33% higher than market estimates which has led to 33% miss in tolling PAT.

In Infrastructure space, four major projects worth of Rs.9300 crore are coming up for bidding in the near term. It includes Rs.5400 crore Kishangarh – Ahmedabad project and Rs.1900 crore Jabalpur –Rewa project. Any of these project win will be a major catalyst for the stock price.

IRB Infra is one of the good stocks to buy in infrastructure due to its execution capabilities and their relatively comfortable access to finance.

One may buy stocks of IRB infra for a target price of Rs.250 for medium term investment for an year’s time.

L&T Finance Holdings IPO Analysis

L&T Finance Holdings, subsidiary of L&T group is coming up with an Initial Public Offer (IPO) to raise upto Rs.1245 crores. This is first public issue since L&T listed way back in 1950!

The IPO opens on July 27 and closes on 29, has been priced in the range of Rs.51 to Rs.59

L&T Finance Holdings is a fully-owned subsidiary of engineering giant L&T. L&T Finance Holdings owns five subsidiaries namely L&T Infrastructure Company, L&T Finance, India Infrastructure Developers, L&T Investment Management and L&T Mutual Fund Trustees.

Combined assets of these group companies as of FY11 are at Rs.18,800 crore. It was up from Rs.12,000 crores in FY10. The company had a PAT of Rs.392 crores last fiscal, it had grown from Rs.262 crores in the previous fiscal.

The proposed 17% equity dilution values L&T Finance Holdings between Rs.8,800 crore and Rs.9,900 crores. The proceeds from this IPO will be used to fund the expansion of subsidiaries L&T Finance and L&T Infra Finance.

In July, L&T Finance Holdings has raised Rs.330 crores through a pre-IPO placement. It sold a 4% stake to Capital International Group at Rs.55 per share.

IPO Valuation
L&T Finance Holdings' FY11 EPS on post-issue equity stands at Rs. 2.28 and Rs.2.33 on post-issue equity of Rs. 1721.02 crore (lower band of Rs. 51) and Rs. 1688.02 crore (on higher band of Rs. 59). At the price band of Rs. 51 to Rs. 59, P/E works out to 22.4 to 25.3 times.

Current book value of L&T Finance Holdings is Rs. 19.6. Pre issue P/BV at issue price of Rs. 51 comes out to 2.6, while at issue price of Rs. 59 it is 3.0.

Post-issue BV works out at Rs.24.1 and Rs.24.5 at issue price of Rs.51 and Rs.59, respectively. P/BV at both the bands works out to 2.1 and 2.4 times, respectively.

CARE / ICRA has assigned an IPO Grade 5 to L&T Finance IPO. This means as per CARE / ICRA, company has 'Strong Fundamentals'.

This IPO price does not looks very high when looked at from long term perspectives. The stock should give good returns in coming 3-4 years. Listing gains may not be very high. Cautious investors may look at the listing of IPO and then decide when to buy stocks of this holding company from engineering giant.

Small Cap Stock To Buy - Narmada Gelatin

Recently I came across a small cap stock recommendation by Ashish Chugh, well known for his hidden gem stocks. He discussed a small company, Narmada Gelatin. Here are details on why he recommends this small cap stock.

Narmada Gelatin is a 50 years old company from Shaw wallace group and it manufactures Gelatin. It's product, Gelatin is mainly used in food and pharma industry. It is a debt free entity and is available at very attractive stock valuations.

Company had sales of about Rs.91 crore, it was up by 10% in the same period last year. Profit after tax (PAT) was up by about 15% to Rs9.5 crore. Company has a small equity base of Rs.4 crore. EPS for FY11 was Rs 23.50. At the current stock price of Rs 100, the stock trades at PE of 4.25

If you take a look at the balance sheet of the company it shows that Narmada Gelatin is a totally debt free company. Net current assets are close to Rs 26 crore as in FY10. The company has investments of Rs 5.5 crore in mutual funds. After adding profit for FY11 into this, the total current assets and cash swells to around Rs.41 crores. With current assets of about Rs.41 crores, the market cap of this debt free company is at Rs 40 crores. This means the business of a company is available virtually free of cost.

The promoter's holding in this stock is 75%. The recent dividend of Rs.4 puts dividend yield at 4% at current stock price of Rs.100 The book value of the stock is Rs.140

Products of Narmada Gelatin are used in Pharma and food industry (FMCG), that makes it a recession proof business.

Shaw Wallace group has been selling it's many businesses in recent few years. Narmada Gelatin is a good dividend yielding stock with steady growth. If the company is old by Shaw Wallace group, lots of value unlocking would take place.

All in all, it is a good small cap stock to buy, a hidden gem recommended by Ashish Chugh, below Rs.100.

Development Credit Bank, Rakesh Jhunjhunwala & Speculation

I came across a news report about Development Credit Bank and it's stock price. It was reported in April that Rare Enterprises, investment company of Rakesh Jhunjhunwala had bought 1.2 million shares. With this news, the stock rose from Rs. 42 levels to Rs. 65 levels in 3 months when stock market was on roller coaster ride.

As a well known fact, Rakesh Jhunjhunwala is a multi bagger stock picker and investor in Indian stock markets. So when he is buying stocks of any company, people follow him blindly. But is it really a good stock to buy from value investing perspective or it is just a speculation in the name of Rakesh Jhunjhunwala and people taking advantage of short term stock trading opportunity in it.

Read the news article here.

If I look at Development Credit Bank from value investing perspective, it is a mid cap stock with 1291 crores market capital. The stock trades at P/E of 60 at current stock price of Rs.65. Price to book value ratio of 2.30 with NO dividend yield. It was a loss making bank in 2009 and 2010 but turned profitable in 2011. This looks to be the only positive trigger.

Does that means, even after not having a good stock value, Rakesh Jhunjhunwala is invested in stock and knows something for future of bank that other investors do not know? Or is it simply a short term stock trading opportunity that he and other stock traders are taking advantage at the cost of common investors? By the time common investors realize this, all big investors would be out of stock, stock might come down where it belongs to and common investors left looking at their RED portfolio!

I will post a detailed stock analysis of Development Credit Bank soon here.

Post your opinion using below comment form.

Sensex to touch 22,100 by end of 2011 – Nomura Asia

I read this statement made by Nomura Asia. Nomura is a Japanese securities and financial company that operates globally. Why is Nomura confident for such positivity and big target (even when most of the stock broking firms are predicting flat performance in India) for Sensex?

Nomura securities officials mention that big Indian companies are becoming more and more global in their operations and focus. As the global recovery is being sighted across the developed nations after the recession in past 3 years, Indian companies with global focus would certainly benefit from this recovery. This should translate into good performance by companies and so the better financial numbers.

Now, this may boost your confidence as an investor in Indian stock markets and you may feel confident to go out and buy stocks in near future. But, such statements generally create short term interest that translates into stock price movements in upward direction and when this interest fades away after some time due to certain negative trigger, stock markets come spiraling southward crashing down.

We have just observed more than 1500 points swing in stock markets in past 10 days. This is mainly due to FII activities. Market or stock fundamentals have not changed in past 10 days that SENSEX should gain 1500 points. I guess FII’s are pouring in money to park it in anticipation of coming results season for short term gains of few percentage points. Markets went down to below 17,500 and now trading above 19,000 levels within 10 stock trading sessions.

Do not get carried away and start buying stocks right away, instead what we need to do is, to look for fundamentally good stocks to buy. The stocks should have good valuations and they should be available in market at relatively cheaper rates. Buy stocks of such companies in SIP manner in small quantities for long term investing. I believe this should prove a good strategy in such volatile times and fetch handsome investment returns in longer time duration.

I would be posting stock analysis of some of the best stocks to buy for long term, be in touch with IndianStocksNews.com (You are invited to suggest good stocks to buy via comment form below, I would love to analyze your suggested stocks and post my views on them here).