Guj Gas, Titan, MCX, Oberoi, Petronet LNG

1). Gujarat Gas - virtual monopoly, government gives sole license to operate as a city gas distribution network in areas and anyone consuming less than 50,000 metre cube per day in that area have no choice to buy from anyone but them. This includes anyone from a household to large businesses who have requirement of gas. This allows them unlimited pricing power. I was on the other end of their monopoly when buying gas from a company I used to run! High ROCE, growth growth numbers over last few years and historically low PE’s make this a good choice for me.

3). Titan - I had a chat with one of RJ’s managers who told me that the curbs on gold import have only made RJ more bullish on Titan since the barriers to entry have only gone up. Removing foreign LC financing makes the business more working capital intensive but Titan is one of the only few companies in this sector that will be able to cope with this because of their already strong balance sheet. We have already seen the impact on companies like Gitangali. Moat of a strong brand which is recognized by people coupled with their past history of bouncing back and low valuations makes this attractive

5). MCX - I still believe in this story despite the scam surrounding its sister company. History suggests that even when a transaction tax was introduced in equity trading, there was a similar dip in volumes but it slowly and steadily creeped back up as people got used to it. Indias volume of commodity trading is abnormally low compared to other countries which presents a huge opportunity. Further 50% volume is in options and 50% in futures and currently options trading is banned in India in commodities. If and when this opens up, this could be a huge jump in volumes. Further with a current market share of approx. 80% this is as close you can get to a monopoly. Upsides from MCX-SX are expected to start coming as their volumes are increasing by the day. I believe that if the government doesnt intefere in an unexpected way the profits should only slowly but steadily rise. Furthermore, there is almost negligible capex required.

6). Oberoi Realty - One of the only few 0 debt realty companies. The reason for this is simple. Unlike other realtors, he believes in JV’s with land owners and focusses on his core skill which is execution. This means far lower committment of cash. He has a strong brand value and is able to command significantly higher prices (i have personally experienced this) because people know that the project is likely to be completed on time. It is operating in a tough Mumbai market but we can see that he is diversifying his portfolio in other cities. His model of late is quite simple. The revenues from his Worli project have not started flowing yet and although sales should be slow over the next 6-8 months, I am expecting it to pick up. Given the huge amounts of cash, it is available at a relatively attractive valuation.

10). Petronet LNG - cheap valuation. Historically low PE’s. Everyone knows the natural gas story in India. The demand supply gap is almost alarming and worrying. This happens in very few industries. Until someone makes a huge discovery, imports are the only solution. Petronet being one of the largest doing so with firm sourcing contracts with governments in the middle east, it is well poised to grow in the future. There will be immediete pressure on profitability in the near future because they are not able to evacuate gas from their new Kochi terminal but this should be resolved in 2014. Good stable growth in profits, good ROCE, no shortage of demand for the next 10 years - a good long term pick according to me.