Stock Picks

STOCK MARKET:
Sandeep Singh
Posted online: Monday , October 01, 2007 at 1405 IST
Reliance Industries: Businesses to rely on
The one stock that has fuelled this rally more than others is Reliance Industries. The company is one of the few large companies offering a heady cocktail of businesses that are stable and profitable (petrochemicals and petroleum) and new businesses that could turn out to be just as big and profitable (retail, and oil and gas exploration).
In the last three years, the Mukesh Ambani-led company's revenues have increased from Rs 69,093 crore to Rs 1,10,405 crore, or a compounded annual growth rate (CAGR) of 16.9 per cent. Higher product prices have led to net profit increasing at a faster CAGR of 32.4 per cent to Rs 11,943 crore. Net margin has increased from 7.4 per cent in 2003-04 to 10.8 per cent in 2006-07. At its current price of Rs 2,296, the stock discounts its earnings for the trailing four quarters by 27.5 times. While there are small upsides for the company to be had by factors like the current rupee appreciation (lower crude import bill), the company is well placed to grow, while maintaining its profitability. When it comes to building something from scratch, few, if at all any, do it better than Reliance Industries. Still a buy for the long term.

STOCK MARKET: NTPC: Could trip on valuations

Posted online: Monday , October 08, 2007 at 1351 IST
On Thursday, 29 BSE ‘A’ Group stocks hit their all-time highs. Among them was the country’s largest power-generation company, NTPC, which has surged 45.7 per cent in just three months to Rs 228. What gives? Agreed, the power sector is coming alive, with the government following up reforms with intent and spending. Obviously, NTPC, being the largest player in thermal power, will get its share of business, if not more. NTPC has a total commissioned capacity of 54,754 mw, of which 26,850 mw is fully owned by it and the rest through joint ventures. Thus, it controls over 20 per cent of the total installed power capacity in India, while generating 28 per cent of power. In the eleventh five-year plan, the government has set a generation target of 68,869 mw, some of which will be commissioned by NTPC.
While its business prospects are strong, spare a thought for what this spike has done to its valuations. On July 4, NTPC was quoting at a PE of 18.6. Now, it’s 31.2. Historically, the market has given good utility companies PEs of 10-15. Even factoring in the growth shot from new projects, current valuations seem high, and NTPC could trip on it.

STOCK MARKET: Unitech: Nifty moves

Posted online: Monday , September 17, 2007 at 1353 IST
Call it the index effect. On September 11, the National Stock Exchange (NSE) announced that Unitech will replace IPCL from October 5, making it the first real estate stock to enter the index. Since then, the share has appreciated from Rs 254 to Rs 282, or 9.9 per cent. Unitech has been doing well, recording a three-year compounded annual growth in revenues and net profit of 91 per cent and 312 per cent, respectively. But this latest spike seems to have less to do with its prospects and more to do with entering a club where more investors want a piece of it.
Many investments are linked to indices like the Sensex and the Nifty. There are many index funds whose portfolio mirrors the Nifty. There are many FIIs who invest, or do futures and options trading, only in index stocks. All these institutional investors will rush to recalibrate their portfolios. Trading in IPCL’s shares will be suspended following its merger into Reliance Industries. And Unitech will enter more investor portfolios. This will create a spike in demand. But this is a short-term effect. In the long run, Unitech the company holds the fate to Unitech the stock.

STOCK MKT: Tata: The ‘Rs 1 lakh’ question

Posted online: Monday , September 10, 2007 at 1409 IST
A few years ago, Tata Motors took a bold turn to diversify into passenger cars. The stakes in its Rs 1 lakh car, scheduled to be launched by mid-2008, might not be as high as they were back then, but they do have the ability to steer the company on to a higher profit trajectory and a higher market share. The call on the small car project is essentially the call to make on Tata Motors today.
If the car is a success, it can do wonders to Tata Motors' numbers. But if it doesn't capture the numbers, the company will feel the weight of the large investment it is sinking into the project. Going by the track record of the Tatas, the aggressive pricing and what the competition has under their bonnets, the odds are in favour of the Tatas.
At its current price of Rs 698, its stock trades at a PE of 13.5. Its commercial vehicles business is growing well, and cars (Indica and Indigo) is managing to weather slowdowns. Over a three-year period, the company has registered a CAGR of 27 per cent in sales and 30 per cent in net profit. That might slow a tad, but even then is a good reason to own the stock. And if the Rs 1 lakh car turns out to be a hit, so will be the stocks.