Quality companies that are currently underperforming


I’m relatively new to value pickr.

I’m currently trying to merge some technical trading with quality stocks.

Two companies that are currently under performing and seem to have a high regard on VP are:

-IPCALAB (Borrowed conviction from Hitesh Patel.)

-KSCL (I’m not sure this is still a quality company since Ayush Mittal has stated his disinvestment but it is a ROCE leader in its segment.)

HCLTECH was close to being an under performer but seems to be clear (my own conviction.) Kajaria Ceramics and Adi Finechem were weak towards the end of last year but are fine now.

What are the companies that are not performing that well but are good quality companies with a lot of growth potential?

I confess that I’m asking this question because my ability to pick quality stocks is not well developed and I’m mostly working on borrowed conviction.

I just noticed that Astral just got out of some turbulence with a 5 % gain.

jammu and kashmir bank:

The reason: the 75-year-old bank, in which the state government holds a 53% stake, has 45% of its commercial advances tied to establishments in the state. Besides, two of its big corporate clients â REI Agro and HDIL â have turned out to be NPAs, a big reason why the stock fell out of favour with the Street since the development was leaked by a local newspaper last May.

of favour with the Street since the development was leaked by a local newspaper last May. The marketâs fears have not been unfounded, as the gross NPA has increased from 1.7% as of FY14 to 4.2% as of June 2015. Thanks to all this stress, profits declined 58% to Rs 130 crore in the first quarter of the current fiscal.

J&K Bank has grown its revenue and profits at an annual rate of 16% and 26%, respectively, over the last decade. Along with its long operating history and capable management, operationally, too, the bank is attractive. It has strong operating margins (a net interest margin of 3.8%), return on equity of 22%, huge operating cash flows and minimal capex. Despite the stress in the balance sheet, it has strong NPA coverage ratio (87% in FY14) and a well-capitalised balance sheet (capital adequacy ratio of 12.7% in FY14), with a net worth of close to Rs 6,000 crore.

(source: outlook business magazine)

Thank you for the input …pd…

I like the growth of J&K bank between 2009 to 2013 although it’s golden years seem to have been between 2001 and 2004.

Currently J&K seems to be very turbulent. Imight add J&K to my portfolio since it seems to be a very promising bank.

Selan is another stock that is under performing that is stated as a quality company (borrowed conviction from Ayush Mittal and Subash Nayak). Now may not be a time to buy but it is a good time to start watching for an entry opportunity.

I think ITC is big under performer in the current rally. 100 year old, strong and solid company on all the parameters except the health ministry muddle. Any views ??

@Bharat Joshi, ITC is indeed a high quality company and yes it is seeing some turmoil on charts. ITC’s best years were until 2012; 2013 and 2014 were very turbulent years with only a 25% overall rise over 2 years.

I’m not certain that I’d invest in this stock due to the high turbulence (Colpal would be safer but currently it is not under performing.) Maybe more well versed investors may have more quality input.

Kaveri Seeds can be another potential candidate in the list considering Promoter stake sales is in pipeline and stock is showing weakness due to it

@Ashish, I did mention KSCL/Kaveri in the opening post. I thought the scrip prices was going down due to plans to open a new business subsidiary. If it is only planned promoter stake sales that are pulling down the price, then KSCL may be worth getting back into when the charts indicate a recovery.

JK bank has irreplaceable moat with 65% market share in the state itself and very low capital need. The trouble persist but that’s what jockeys (management) are for. Remember, this is not a turn around. There was no trouble in balance sheet or the management as such. The trouble is because of a natural calamity which is not in the hands on humans. No wonder, people like Mohnish Pabrai comes in such situation and ‘pulls the trigger’ heavily…


Highest order book ever. Project execution is going on as per the target.

debt reduction by 600cr. More reduction coming in the current year. this will decrease the interest burden. Company managed to improve its working capital situation and brought its debtor days down from 105 days in FY11 to 80 days in FY14.

Recently bagged order in UP of about 1670cr which they have already started executing. Bagged order worth 6000cr in first 9 months of the year. They are concentrating on their core expertise i.e EPC projects and not BOT projects.

Top line of almost 3800cr. in the first six months.

Moreover, after the NDA govt in center who are very keen on 100 mega cities and other development, entire construction sector in under radar. The trend seems to have started.

(disc: hold small position)

NCC looks promising. I’ll have to wait till it shows some near to medium term weakness before getting in.

Anyone with views on Venus Remedies? It seems to be selling at cheap valuations for the past few years(is it a value trap).

Sale of Trois in Singapore starting 2015 and tie ups with Teva&Mylan are expected to bring in revenues.The company has been investing heavily in R&D, IP, setting up a marketing office etc.Though it has been receiving drug approvals, it hasn’t really impacted the bottom line due to disproportional increase in interest & depreciation and other expenses. CDR proposal of the Venus Remedies has been approved. Can the company turn-around?

I skimmed through the AR of Venus Remedies. I could not find enough convincing information to invest in the company. My knowledge of the market they focus on is limited. What is the growth potential of making drugs that solve anti biotic resistance and are such advances in product development sustainable?

The company had great growth from 2003 to 2007 but I haven’t been able to put together enough evidence for strong future growth given my limited fundamental analysis skill level. What was the reason for weakness after 2007? What has changed in the structure of the company that corrects the weakness? These are the questions that come to my mind when I see prolonged weakness in market.

Hi Steve, thanks for your quick response

WHO in 2014 declared Anti Microbial Resistance as a worldwide threat. India’s seen a rise of startups in the drug discovery space in AMR(http://articles.economictimes.indiatimes.com/2015-01-18/news/58200765_1_drug-discovery-indian-angel-network-antibiotic-resistance). Venus is a relatively unknown company which has made progress on this front and is receiving patents for drugs they have developed.

What I like about Venus Remedies is they have consistently grown sales at ~15% while sustaining their Gross Margin. They however seem to be over investing on capital(low Capacity Utilization), overspending on their marketing office (~60 crores while its not their core strength) and being unable to clear debts. Their R&D expense, Interest and Depreciation are shooting up YoY. While the Chairman has been talking about getting major drug approvals, increasing CU through out licensing & tie ups with MNC pharma companies, he seems to be really happy about their research, >15% topline & EBITDA growth. Excuses based on long pipelines of drugs in research is the reason they’ve been giving over the past years for failing to repay debt in time.

What I hate about the company is they have been diluting equity YoY through issue of preferential shares to promoters etc. The promoters also hold board positions in Suneev Pharma(owns 22% stake in Venus Remedies) & a software company(shares the newly constructed marketing office). The promoter stake in Venus Remedies is low and declining(~34% currently)