1. Jaiprakash Associates Ltd
Jaiprakash Associates is a diversified player operating in cement, real estate, construction, roadways and hospitality. Its listed subsidiary JP Power Ventures is into power generation.
Jaiprakash Associates' operating profit margin declined 420 basis points y-o-y to 21.4% in the March quarter despite net sales that rose 19%. Inthe cement division, the company's realisations grew an estimated 2% y-o-y on a per tonne basis in Q4 of FY11, but that was not sufficient to offset higher operational costs. The company's cement capacity is expected to grow to 33.6 million tonnes by March 2012 from 19.1 million tonnes at the end of March 2010.
2. ONGC Ltd
ONGC's March quarter results were weaker than expected thanks to a sudden jump in its subsidy burden. This impacted the company's valuations in the first half of June. But the government's move to reduce petroleum industry's under-recoveries by increasing prices and reducing taxes boosted the company. ONGC's net realisation for the rest of FY12 is expected to move up substantially as the industry’s under-recoveries come down. At the same time, there are strong indications that Cairn India would agree to make royalty on Rajasthan fields cost recoverable to obtain the government's approval for its acquisition by Vedanta. This too will boost ONGC’s earnings.
3. Rain Commodities Ltd
Rain Commodities, which is the global leader in calcined petroleum coke (CPC), posted strong results for the March and June quarters as profitability in the CPC business jumped. The company also has 3.5-million tonne of cement manufacturing capacity. The profitability of the business is stagnating due to an oversupply condition in the country. The company plans to demerge and list its CPC business separately. This can create substantial value for the shareholders. The company is currently trading at price-to-earnings multiple (P/E) of just 2.6 times based on consolidated earnings for the last four quarters.
4. ITC Ltd
June saw a rally in all FMCG and cigarette stocks listed on the bourses. ITC, being the market leader, has naturally had the highest buying interest from mutual funds. The company has gained from favourable taxation this fiscal and higher taxation on competing products like pan masala and chewing tobacco. Benign prices of tobacco have also helped the tobacco industry.
ITC has logged a strong performance for the June quarter, driven by a strong volume growth in cigarettes despite price increases. The outlook for the company continues to be positive.
5. NHPC AND SJVN
Mutual funds looking to take exposure to power utilities due to high demand for power in the economy have preferred NHPC and SJVN over other utility companies. There are two main reasons for this.
Firstly, these two companies are hydropower companies with no fuel cost involved. The only input that these companies need is water which is almost free. When thermal utilities are grappling with high fuel cost and fuel availability issues, these hydro companies provide a safer investment option. Secondly, these companies are trading at a price-to-book multiple of nearly one, which is inexpensive. Their latest quarterly numbers show a spurt in profits after stagnation for three quarters, which hints at a better show in the coming quarters. (Posted date - 14 Aug 2011) 6. Bharti Airtel Ltd
The counter of Bharti Airtel reported higher activity by fund houses in June. The number of shares holds by fund managers in Bharti increased sharply by 44.5% from the previous month.
The renewed institutional interest in the country's largest telecom operator looks opportune given the subsequent upward revision in prepaid mobile tariffs by leading operators including Bharti, Vodafone (not listed in India), and Idea Cellular in select telecom circles.
Though Bharti looks well-placed among its peers given its overseas expansion, its current P/E of 21.5 fully reflects its future growth potential. A further increase in its valuations looks limited.
7. United Phosphorous Ltd
The agrochemicals major passed through a tough phase in FY11, and underperformed the markets. The company's growth numbers were unable to support its high valuations. However, its three acquisitions in the last six months have boosted investor sentiment, while quarterly numbers have remained healthy.
The company is currently trading at a price-to-earnings multiple (P/E) of 12.5, which is inexpensive considering United Phosphorous is the largest domestic agrochemicals firm. The company's management also revised up its revenue growth guidance for FY12 to 25-30% from 12-14% earlier. However, maintaining margins will be the key challenge for the company to ensure strong profit growth.
8. Sterlite Industries Ltd
Sterlite Industries is the country's most diversified company from the non-ferrous sector. It is currently the strongest play in the metals and mining sector. The company has posted strong first-quarter earnings despite high raw material and fuel costs which dented margins of other companies. Improvement in treatment and refining margins, which are expected to sustain, helped the company increase revenue from its copper business. The division contributes half of its total revenue. Over the next few quarters, revenues from its silver, zinc and lead businesses are expected to drive earnings. The stock is currently trading near its 52-week low and with a low P/E of 9 times is a compelling buy.
9. Orient Paper Ltd
Orient Paper, a diversified player across various businesses, had recently decided to demerge its key cement business into a separate company -Orissa Cement. This will give it a focused entity, and help get better valuations. The demerger would be effective April 2012, and the existing businesses of paper & board, coupled with electrical consumer durables would remain with Orient Paper. In the June quarter, Orient Paper's operating profit margin rose 360 basis points y-o-y to 21.3%, while net profit improved 73.7% y-o-y to 59.4 crore. The company benefited from a strong improvement in its realisations on a per tonne basis in its key cement division. This improvement was helped partly by production discipline of large players in the southern region. In contrast, during FY11, the company grappled with a fall in operating margins on a y-o-y basis, coupled with a decline in its net profit.
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