Larsen & Toubro
Stock is trading at P/E multiple of around 21 which is lower end of its 5 yr band (19-40). Top line and bottom line of stock is consistently increasing quarter after quarter. With infrastructure spending picking up stock will get rerated sooner or later.
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Two beaten down stock that IMO turning aroundā¦
JK Tyre :
JK Tyre has had a abysmal 2.5 debt to equity in recent past, owing to their over aggressive capex & acquisitions. Since the midcap correction of Jan 2018, stock has gone from 176 to 55 levels(losing nearly 70%). Now CMP hovering btw 65 & 70.
What has changed now is, management stance & them walking the talk. In Annual report of FY19, Management said their debt is peak debt and their focus is now on debt reduction and said there is no capex plans for next 2 to 3 years. Since then they have walked their talk and have reduced debt by 700crores in 2 quarters (& interest on top of this). Debt to equity now in Sep2019 is reduced to 2.09. This at a time when sector is under pressure from demand side. If auto sector picks up, with lower tax rate, we can expect them to keep deleveraging their balance sheet on a on going basis. IMO, that should rerate the stock. I see a 40% upside in next 9 to 12 months.
Karur Vysya Bank :
This is also a beaten down stock in the midcap carnage in last 2 years. While others have shown recovery, this hasnāt yet. But without much recognition, bank has made major reform to their business model moving from corporate bank to retail & msme bank. They have completely revamped how their branch worksā¦moving from inefficient paper trail to complete digital working. So, we can expect efficiencies at branch level. Digitally, they have implemented a new Coorigination platform, which can now connect to a NBFC and move to market in 1 month and take advantage of RBIs new coorgination policy. Stock is languishing at 55 levelsā¦NPA wise bank has turned a corner in Q2FY20 - reporting improved situation on NPA front. IF (big IF) bank start showing retail growth over next 2 or 3 quarters and retail loan book becoming bigger than corporate, IMO this is a long term multibagger at hand.
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JK Tyre does look like a good bet. The demand slump seems to be over, uptake in CVs and PVs is expected in next financial year. Additionally if the replacement demand also kicks in, this could lead to healthy growth in topline for next 2-3 years.
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I am not a fan of holdings companies because I was tracking Vardhman Holdings for long time because of low Price to Earning then understood it does not work that way. Then I was tracking Sundaram Holdings and that too is in a bad shape now.
However, now I am tracking Cholamandalam holdings (NSE:CHOLAHLDNG) and will let you know how it progresses.
Some of stocks which are available at below 7PE due to some structural issue and can re-rate if the issue is solved.
- NCL Industries - Cement company trying to become a building construction comapny avaibale at 7 PE. AP CM stopped all infra projects and excess capacity in south India with less demand.
- Everest Ind - Building materials company made a editda loss this quarter due to high input cost and lower sales. When economy picks up, expected to improve
- PTC Financial - Good discount to book value due provisions and power based finances. Trying to diversify and increase the margins
- Pokarna - US quartz import duty, already levied 84% and expected to increase in next june 2020. New plan quartz plant will be commissioned in next two quarters. If US trade war reduces or if pokarna is able to scale up on sales inspite of duty. This stock can re-rate
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Why is it trading at 7 PE while industry average is 16.
Anything fishing in operations?
High debt taken for capex in subsidiary (Cavendish)
Their interest coverage ratio is the lowest in the industry, which does rings alarm bell. Conversely, if they are able to reduce debt in the next 2-3 years and their is some recovery in demand, it could ver well lead to PE rerating.
Not sure if there are any other red flags. Other boarders might throw some light on this.
Mr Market heard you today itself!
Very good analysis Mr Paresh! - also HDFC securities had a similar note on Glenmark 2 days ago mentioning ābottomed outā
An idea from my side is Intellect design arena - this stock has been derated due to poor results (loss in last quarter and deal pipeline only semi-strong). I feel it has bottomed out as well, but will need 1-2 quarters to get rerated / or may languish
Another re-rating candidate came to my mind : 
- Radico Khaitan - company has been deleverging using its great cashflows; also launching premium brands, making it a 50% candidate in 6-9 months
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Care ratings can be a candidate as per me. The results for Q1 was bad but is improved during Q2. The reason given is subdued economy and fall in lending. As economy improves it is likely to do good. Business has great entry barrier. However, one has to take risk with regard to ongoing fraud investigation
(from 15th minute, why holding companies can be value trap by Sanjay Bakshi)
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I dont know why you didnt make money in Vardhman Holdings (VHL)where as price history shows that it has given 78x from the 2002-03 lows to the high of 2018 ie somewhere 17-18 years. Please correct me if something wrong with my data. Also look BBTC it has also given tremendous return. Curious to know what was your tracking price & year if you can
I have a classic investor mindset. I started noticing these holding companies when it was at the top. Time tracked is 4 years and not 15+ years. So it was not a good bet for 4 years I would say, maybe for 15+ years it could do good. There is Bajaj Holdings which proved wrong. Chola Finance Holdings is also showing good signs.
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Sterling & Wilson Solar could be an opportunistic buy. Itās the world no. 1 solar EPC company, and to my knowledge the only Indian company thatās a global leader in its field. Fundamentally debt free, negative working capital, good geographical diversification and good order book visibility.
The stock has corrected by 50% because the Shapoorji Pallonji group requested more time to repay an inter corporate deposit that was meant to be paid out of IPO proceeds.
As things stand now, below is the status of intercorporate loan given to SP Group by S&W Solar:
Company has debt of ~2,200 cr on its books which will be paid off once this money comes back from the Promoter. The net interest cost to the company is zero (interest on loan to promoter > external borrowing). The Promoters have committed to repay a further 750 cr and communicate the plan for paying the balance 1,300 cr by the end of next month. IPO & institutional investors were understandably furious and the stock tanked 50%. Soon after we have seen news reports of SP Group exploring a sale of Eureka Forbes and other asset sales:
If you can take a view that SP Group can and will honour this commitment, and whether the company can service debt of ~2000 cr if they donāt (worst case), then the company is available right now at ~10 P/E and could recover once this plays out.
5 Likes
SREI Infra, already up 35% since 1-January, till-date, 15% in past 2 days, circuit limit was increased from 5 to 10 about a month ago.
They repeatedly mentioned that they were never going to default or go bankrupt. With PE = 1.5 and earnings cycle uptick already predicted in past Q2 con-call (QoQ, not on YoY basis!). Dividend works out to be 5%.
Announced fresh NCD issue 2 days ago worth 2000 Cr around and more credit facilities (CP) also around 1000 Cr.
Rated A- but could benefit from asset purchase program along lines of TARP.
Never doing Infra finance again, anyway their best and largest business was Equipment finance and they have spun it off on 1-January.
Even with low earnings YoY, PE would be 2.5 around end FY20 and will start to get better already in next 6-9 months.
Disc: 10% of my holdings, averaged down to 9, since 2 years, .
Srei infra has debt to equity of 8 ,
too high .What are their plans to reduce the debt.Isnt it too risky to have 10% of pf in such high risk company
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Just betting on survival and then back to a decent growth in 1-2 years. Too much beaten down, I am trusting the Kanoria jockeys in a sense. Fin companies have such DE anyway, 8 is a decent standard. If no fraud, none so far, then low downside risk.
Their equipment finance business is quite robust, mine auction action will increase demand really soon etc.
Averaging action ballooned the holdings (starting from 2-3%), am in profits since over a month ago. Yes, maybe should book some of it!
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My short theory is:
- It got beat down like the rest of the mid and small caps, starting its journey down from peak in Sept 2017.
- Results peaked for FY19, yet the price took a hit continuing from Sept 2018 NBFC crisis trigger.
- NPA figures are improving rapidly without profits hurting that much, but yes, numbers do look bad YoY. When the time-window moves on, the future may look better, lets see if the Q3 is better then Q2. Management claim seeing green shoots.
- Q1 was worst YoY, Q2 bit better. At worst they may rewind to FY17. Not particularly bad.
- NBFC crisis continues but cost-of-funds is only so important if they cannot pass it on. They look to have abandoned infra finance and equipment finance may look up on back of mining/infra ramp-up etc.
- Management seem decently competent and mostly legit.
Adding to list of mispriced stocksā¦
GIPCL (positioning change into renewables co)
Everest Industries
Andhra Sugar
GNFC (strong earnings momentum)
Century Enka (turnaround play from good b/s and reasonable vals on below median earnings as starting play)