2011 Deepavali Picks with high Capital Preservation Certainty coupled with high Capital Appreciation Prospect

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Since we are on verge of an auspicious occasion of Deepavali which is highly linked with Prosperity, I thought of starting this thread for valuepickr members to share their investment ideas in which they have high conviction for capital preservationalongwith prospect of significant capital appreciation.

There can’t be better Deepavali than the current one for true stock-pickers as we have already seen an uncertain phase since last many months as also there is no conviction in market players regarding the market appreciation with an almost consensus amongst market players to sell on rallies. Often such phases are followed by unexpected rallies and those ideas which offer high capital preservation certainty with an equal high prospect of capital appreciation will be the true multibaggers in unexpected rallies as those ideas will have triggers for them in place and if company management executes the triggers well, in time, then the ideas will appreciate to much higher extent at a much faster pace.

I would like to highlight one important point here that capital preservation aspect has to be given a minimum 70 % weightage in the mentioned ideas followed by 30 % weightage given to prospect of significant capital appreciation as still we are in an uncertain market with no bottom insight. Similarly, Management Quality and Credibility should be given a high weightage followed by Operational Segment prospect as there are many examples out there that prove that shady management has often turned a promising opportunity to a waste while clean and credible management have often turned a no-seeming-opportuity in an operational segment into a big opportunity.

I request all members to participate in this thread with their high conviction ideas as our collective inputs can help usbecome more prosperous by next Deepavali.

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Rgds.

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Two ideas of 2011 Deepavali from my side:

PI Industries Ltd. [ NSE - PIIND ; BSE - 523642 ] :

Already this company is discussed in quite a detail in “Not So Hidden Gems” section of valuepickr, link of which is :

_http://www.valuepickr.com/forum/not-so-hidden-gems/967028734_

Even after almost doubling in last six months, this company still ranks No. 1 in terms of high certainty for Capital Preservation with an equal High Prospect of Capital Appreciation. This is because, the results that have started coming in after building a strong foundation over last decade on operational front, can’t fizzle out so soon. This company is on a strong foundation and FY12 could very well turn out to be milestone year in company’s history which will make it hard to ignore for not only PMS managers but large fund houses too. This is evident from recent entry of Sequoia Capital into PI at a rate of Rs. 540-550 (5 FV).

Capital Preservation aspect of PI gets vindication from firm order-book of CSM business as also robust growth of Agri-Input segment while Capital Appreciation aspect of PI gets vindication from many future triggers in place like commisioning of CSM plant in end-Q3 or Q4-start, possible Acquisition in Agri or CSM segment this year, 7-8 products slate ready for launch by FY14, Sony-PI relationship taking a bigger shape by FY13, etc.

Q2FY12 numbers to be declared on 5th November 2011 will be key monitorable but inspite of that, at current rate of Rs. 600 (5 FV) it deserves the safest Deepavali Pick status and in all probability, it has to be at a much highervaluation than currently its quoting at by Deepavali 2012.

Jubilant Industries Ltd. [ NSE -JUBLINDS ; BSE - 533320 ] :

Already this company is discussed in quite a detail in “Not So Hidden Gems” section of valuepickr, link of which is :

_http://www.valuepickr.com/forum/not-so-hidden-gems/627522451_

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This companyis a Jubilant Bhartia Group company which counts amongst its group, successful Indian-listed companies like Jubilant Foodworks, Jubilant Lifesciences and AIM-listed ___Jubilant Energy. The compelling story which favours a strong positive investment argument for this company is its gross undervaluation on the bourses which calls for a significant rerating thereby providing scope for decent appreciation of invested capital._

Jubilant Industries is into promising business segments like Consumer Products (C.P.), Food Polymer (F.P.), Latex and Agri-Input (Agri) which together generate revenues of Rs. 554 cr. with an EBITDA of Rs. 46.8 cr… In May 2011, the board decided to merge Jubilant Group’s exponentially growing Retail Mall-cum-Hypermarket business with listed Jubilant Industries. The Retail Business generated revenues of Rs. 315 cr. in FY11. The scheme for merger is already filed with Allahabad High Court and approval is expected by December 2011.

On the current tiny equity capital of just Rs. 8.01 cr., Jubilant trades at a market-cap of just Rs. 145 cr. which signifies a gross undervaluation of even the present businesses and therefore calls for a significant rerating of the stock.

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_The most interesting aspect which significantly enhances attractiveness of Jubilant Industries Ltd. as an investment candidate is its leadership position in each of its operational business segment as well as its strong established brands in each of the segment.In addition to such strong operational segment positioning, company has a strong balance sheet with a Debt-free status _and Cash & Investments worth Rs. 77.8 cr. as at FY11. Each of its present as well as to-be-merged operational segments like Consumer Products, Food Polymer, Latex, Agri-Input and Retail are expected to grow robustly in coming years driven by new innovative product launches (in C.P. Segment a Lamino), enhanced capacities (doubled capacity of F.P. Segment with entire expanded capacity pre-booked), improving demand environment (SSP-Agri industry projected to grow 35 % p.a. till FY14) and smart expansions (in Retail segment – 2 new Malls became operational in first half FY12 in addition to 4 existing Malls with another 4 Malls planned to be opened by FY14).

With most clean and credible management headed by Mr. Hari Bhartia at its helm and a strong group backing like Jubilant Bhartia, there is not a single reason why Jubilant Industries, with an expected consolidated revenues of all business segments (including Retail) in excess of ___Rs.900 cr. in FY12, should trade at such a low valuation of just Rs. 145 cr. on the bourses. This is the reason why Jubilant Industries Ltd. Is a rare case in present uncertain markets which offers strong capital preservation certainty (because of minimal downsides from current levels) with a prospect of significant capital appreciation in medium term once formalities of Retail segment merger get concluded by December 2011. By next Deepavali, Jubilant Industries Ltd., in all probability, has to be at a significantly higher valuation than the present one and therefore is a compelling Deepavali Pick for 2011._

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Thanks Mahesh for starting this topic.

The parameters put up by you in the thread like capital preservation, management integrity plus growth prospects are very interesting.

My picks based on these would be

Mayur Uniquoters – we have discussed a lot on this stock in the relevant thread and the q2 fy 12 have also been fantastic results. cmp around 350.

Indag Rubber – This is a Lynch type of stock available at valuations of PE based on expected EPS of 35 for fy 12. Again management integrity looks good with very high promoter holding of around 77% with no pledging. Company has been generating very high ROE in excess of 30%, debt is negligible at around 7-8 crores as on March 11. Plus company will not need too much capex for the next couple of years. cmp around 140.

As mentioned earlier by Mahesh, the current market scenario is filled with a lot of fear and scepticism and these phases are usually followed by strong rallies and I feel next rally might lead to very strong outperformance by strong mid and small caps.