10 Down-but-not out stocks
With the BSE sensex soaring past 17,000, the market is on a roll. Predicting where it will go seems to be futile as foreign inflows continue to prop up the stock market.
With the BSE sensex soaring past 17,000—the quickest six-day 1,000 point rise in its history—the market is on a roll. Predicting where it will go seems to be futile as foreign inflows continue to prop up the stock market. Wherever you look in the market, there are stocks hitting their all-time highs. Several stocks have outperformed the market in the last year even as the Sensex has given a solid 42 per cent return last year.
But for all the market’s gains, there are stocks that have underperformed or barely performed over the last year. The reasons are plenty—for IT major Infosys, the rising rupee is weighing the stock down while for HPCL, the high oil subsidy is dragging its stock price. Yet, some of these laggards have value written all over them. In the current market, they provide an excellent hedge against a sudden downslide as they have already bottomed out. You may have to be patient with some of these stocks, but they make an excellent case for investment.
Bombay Dyeing and Manufacturing (Rs 668)
amous for its textiles and its range of fabrics and readymades, including bed linen, towels, furnishings, Bombay Dyeing has also forayed into real estate development. Recent market reports suggest that it is attracting the attention of a host of private equity players, including the Blackstone Group.
Whispers are that it is also looking to divest some stake to private equity funds to help fund its expansion plans in real estate, aviation and planned forays into retail. The stock has underperformed the market, but now is poised to recover.
Greaves Cotton (Rs 316)
A manufacturer of agro equipment, and construction equipment, the company operates through four groups: Power Generation, Agro Equipment, Light Engines, and Infrastructure Equipment.
It will start selling engines for mini trucks in 2008, marking its entry into the fast growing four-wheel light cargo carrier segment. The company, which already sells engines to three-wheeler makers such as Piaggio and Atul Auto, plans to tap the growing number of fleet operators migrating to mini trucks from three-wheelers citing costs and ease of operations. The company’s expansion at the right time will help its stock.
Hindalco Industries (Rs 164)
When Hindalco acquired Novelis Inc., the world’s leading producer of aluminium rolled products, the company’s stock got bogged down because of the huge price tag. But the Novelis acquisition catapulted Hindalco into the list of the top 10 primary aluminium producers in the world. The company should benefit from the synergies of global operations over the long haul. Hindalco exports its products to North America, western Europe, West Asia, Asia, China, Korea and Taiwan. Aluminium demand is expected to grow at 7 per cent over the next four years, and its prices are expected to remain stable due to a strong demand, and its brownfield expansions will deliver good results in the coming years, making its stock an attractive buy.
HPCL (Rs 272)
High oil prices are a cause of concern and oil subsidies have bogged down the stock prices of Indian refineries. Hindustan Petroleum is one of them.
But the company is a contrarion play, having underperformed the markets for a long time. The growing demand for petroleum products will keep refiners busy. At the beginning of the year, there’s a high uncertainty about sharing under-recoveries; however, the company’s stock is already discounting the pessimism and seems to have little downside risk.
Indian Hotels (Rs 137)
Owner of the popular Taj Hotels, this hotel major needs no introduction. A high capital expenditure plan has weighed down the company’s financials, but the additional room capacity will result in a spike in revenues in future. It owns and operates 82 hotels under the Taj, Gateway, and Ginger hotels brand names in India, Great Britain, the United States, Australia, South Asia, and West Asia. Indian Hotels is trading at an attractive valuation of 22 times 2006-07 earnings.
Expect some moderation in average room rates over the next year. However, volume growth from room additions is likely to contribute to strong revenues, helping sustain profit growth. Indian Hotels completed its first phase expansion in the US market and has now set sight on the Asian hotel market, which is promising. A rights offer proposal is underway for funding its growth; this is an ideal opportunity to accumulate the stock.
Infosys Technologies (Rs 1,912)
This IT major is among the best technology-enabled business solutions providers in the country. The appreciating rupee has put pressure on the company’s margins, worrying the investor community.
The stock has taken a heavy beating lately and barely performed in the last year, but is now beginning to recover. Infosys is weathering the rupee storm and is scaling up its operations. A planned increase in its billing rates for both existing and new customers should help increase its operating margins. The company is also likely to make acquisitions. It’s still the best IT company to invest in.
INOX Leisure (Rs 122)
This fast growing multiplex chain has state-of-the-art projection and acoustic systems, stadium-style high-back seating with cup-holders, arm-rests and international-standard interiors. INOX is also expanding. Till March 31, 2006, it operated 12 multiplexes with 44 screens across cities; this has increased to 18 multiplexes and 62 screens that get 75,000 footfalls every day. Besides, Future Media, the media arm of Kishore Biyani’s Future Group, has acquired onscreen media rights of all Inox multiplexes in the country for the next two-and-a-half years. Advertisers will go through Future Media and this will fetch INOX an assured minimum level of income after which there’s revenue sharing.
Ranbaxy Laboratories (Rs 420)
Among the top 10 generic pharma companies in the world, exports contribute 80 per cent of its revenues. Ranbaxy has been seeing a bit of dip due to severe price competition resulting in a drop in profitability. Further, a delay in product launches and the loss of Lipitor patent has affected its performance. But the worst is behind it and the company is back to its profitable ways. It is growing on the back of increased contribution from emerging markets. The company has lined up new generic launches and has adopted cost-control measures. Further, its acquisition and integration of Be-Tabs (South Africa) and Terapia (Romania) will pay off. The stock makes a good defensive acquisition.
Savita Chemicals (Rs 253)
This Mumbai-based company manufactures critical petroleum products, including liquid paraffin, optical fibre cable filling compound, transformer oil, pour point depressants and white oil, most of which are used in machineries. These products enjoy strong demand due to the huge capital expenditure plans across India Inc. right now. The company also generates power through its wind power plants and has an installed capacity of 11.60 MW. High oil prices are a concern, which is why the stock has not performed, but a steady demand for its products points to a sound future.
Tata Motors (Rs 751)
It is India’s largest commercial vehicle manufacturer and commands a 16 per cent market share in the passenger car segment. Analysts have a positive look on the stock and expect it continue to perform well in the medium to long-term period. Considering the robust demand growth, it has aggressive capital expenditure plans of around Rs 10,000 crore over the next three-tofour years, and issue of convertible securities in the foreign market is a step forward.
The market has a positive outlook on the CV and passenger car segment and expects these segments to report growth of 10-12 per cent for next two-tothree years. Higher interest rates have been a cause of concern as it impacts volumes, but given its strong positioning in the market, the stock makes a good buy.
But for all the market’s gains, there are stocks that have underperformed or barely performed over the last year. The reasons are plenty—for IT major Infosys, the rising rupee is weighing the stock down while for HPCL, the high oil subsidy is dragging its stock price. Yet, some of these laggards have value written all over them. In the current market, they provide an excellent hedge against a sudden downslide as they have already bottomed out. You may have to be patient with some of these stocks, but they make an excellent case for investment.
Bombay Dyeing and Manufacturing (Rs 668)
Whispers are that it is also looking to divest some stake to private equity funds to help fund its expansion plans in real estate, aviation and planned forays into retail. The stock has underperformed the market, but now is poised to recover.
Greaves Cotton (Rs 316)
A manufacturer of agro equipment, and construction equipment, the company operates through four groups: Power Generation, Agro Equipment, Light Engines, and Infrastructure Equipment.
Hindalco Industries (Rs 164)
When Hindalco acquired Novelis Inc., the world’s leading producer of aluminium rolled products, the company’s stock got bogged down because of the huge price tag. But the Novelis acquisition catapulted Hindalco into the list of the top 10 primary aluminium producers in the world. The company should benefit from the synergies of global operations over the long haul. Hindalco exports its products to North America, western Europe, West Asia, Asia, China, Korea and Taiwan. Aluminium demand is expected to grow at 7 per cent over the next four years, and its prices are expected to remain stable due to a strong demand, and its brownfield expansions will deliver good results in the coming years, making its stock an attractive buy.
HPCL (Rs 272)
High oil prices are a cause of concern and oil subsidies have bogged down the stock prices of Indian refineries. Hindustan Petroleum is one of them.
Indian Hotels (Rs 137)
Owner of the popular Taj Hotels, this hotel major needs no introduction. A high capital expenditure plan has weighed down the company’s financials, but the additional room capacity will result in a spike in revenues in future. It owns and operates 82 hotels under the Taj, Gateway, and Ginger hotels brand names in India, Great Britain, the United States, Australia, South Asia, and West Asia. Indian Hotels is trading at an attractive valuation of 22 times 2006-07 earnings.
Infosys Technologies (Rs 1,912)
This IT major is among the best technology-enabled business solutions providers in the country. The appreciating rupee has put pressure on the company’s margins, worrying the investor community.
INOX Leisure (Rs 122)
This fast growing multiplex chain has state-of-the-art projection and acoustic systems, stadium-style high-back seating with cup-holders, arm-rests and international-standard interiors. INOX is also expanding. Till March 31, 2006, it operated 12 multiplexes with 44 screens across cities; this has increased to 18 multiplexes and 62 screens that get 75,000 footfalls every day. Besides, Future Media, the media arm of Kishore Biyani’s Future Group, has acquired onscreen media rights of all Inox multiplexes in the country for the next two-and-a-half years. Advertisers will go through Future Media and this will fetch INOX an assured minimum level of income after which there’s revenue sharing.
Ranbaxy Laboratories (Rs 420)
Among the top 10 generic pharma companies in the world, exports contribute 80 per cent of its revenues. Ranbaxy has been seeing a bit of dip due to severe price competition resulting in a drop in profitability. Further, a delay in product launches and the loss of Lipitor patent has affected its performance. But the worst is behind it and the company is back to its profitable ways. It is growing on the back of increased contribution from emerging markets. The company has lined up new generic launches and has adopted cost-control measures. Further, its acquisition and integration of Be-Tabs (South Africa) and Terapia (Romania) will pay off. The stock makes a good defensive acquisition.
Savita Chemicals (Rs 253)
This Mumbai-based company manufactures critical petroleum products, including liquid paraffin, optical fibre cable filling compound, transformer oil, pour point depressants and white oil, most of which are used in machineries. These products enjoy strong demand due to the huge capital expenditure plans across India Inc. right now. The company also generates power through its wind power plants and has an installed capacity of 11.60 MW. High oil prices are a concern, which is why the stock has not performed, but a steady demand for its products points to a sound future.
Tata Motors (Rs 751)
It is India’s largest commercial vehicle manufacturer and commands a 16 per cent market share in the passenger car segment. Analysts have a positive look on the stock and expect it continue to perform well in the medium to long-term period. Considering the robust demand growth, it has aggressive capital expenditure plans of around Rs 10,000 crore over the next three-tofour years, and issue of convertible securities in the foreign market is a step forward.
The market has a positive outlook on the CV and passenger car segment and expects these segments to report growth of 10-12 per cent for next two-tothree years. Higher interest rates have been a cause of concern as it impacts volumes, but given its strong positioning in the market, the stock makes a good buy.
