One of the many reasons why every investor should read Wealth Insight
is that apart from the extensive data, critical advice and expert
insight that make up the magazine, we also try to put forth investment
worthy ideas that can be evaluated and implemented by you - the
investor. Last month, we told you about the stocks that fund managers
bought when the markets were crashing; our analysis threw up nine tough
stocks for a tough market.
This time around, we'll tell you which stocks reported a smart recovery
in the past two quarters. But first our modus operandi. We began with
all the 6215 listed Indian companies.Out of these, we selected the top
1000 companies on the basis of market capitalization (30-days average,
as on 14 May, 2008) and ran a query on 545 of them which had declared
their fourth quarter numbers for FY2008. This list was further filtered
to find those companies, which had been struggling since December 2006
but had staged a recovery a year later - December 2007 onwards.
To find these companies, we evaluated the EPS of each company over the
past five quarters. EPS gives you the amount of company's profits that
are attributable to each outstanding equity share and is obtained by
dividing the net profit figure (excluding preference dividends) by the
number of outstanding shares.
After evaluating the EPS, we found that there were 21 companies that
had seen a constant decline in EPS from December 2006 to September
2007. But out of these 21, seven companies have been able to bounce
back in the past two quarters of December 2007 and March 2008. These
seven companies have reported a significant earnings turnaround and
consecutive growth in EPS. These companies have obviously done
something right and would probably make a good investment. So let's
take a close look at each of them…
Sterlite Industries (India)
Sterlite is India's largest non-ferrous metal and mining company (on
the basis of net sales) with operations in aluminum, lead, copper and
zinc.
It is a subsidiary of Vedanta Resources Plc. - a London based
diversified metals and mining company, which has a 57 per cent stake in
Sterlite.
Sterlite is also listed on the NYSE. It holds a majority stake in other
Indian companies like Hindustan Zinc, Bharat Aluminum and Sterlite
Energy (100 per cent). It has plans to participate in coal-based power
generation projects through Sterlite Energy and aims at a capacity of
10,000 MW in five years. The company is in its final stages of setting
up its 2,400 MW coal based power plant in Orissa and even has plans to
come out with Sterlite Energy's IPO.
On the financials front, the company reported a weak set of numbers in
the March and June quarters in 2007, which lead to its EPS decline.
However, in its latest Q4 numbers announced for FY 2008, Sterlite
reported a 46 per cent rise in profits on a q-o-q basis.
The stock had a major run-up on the bourses from September to November
2007 and has also grabbed the attention of fund managers. It was held
by only 50 funds in August 2007, but is now a part of 107 equity
diversified funds (as per the April portfolios).
Mahanagar Telephone Nigam
More commonly known as MTNL, this state-run telecom major has faced
stiff competition from private players. The company, which operates
from only two metros, Delhi and Mumbai, has seen deterioration in its
growth in recent times.
The company has two wholly owned subsidiaries - Millennium Telecom at
Mumbai and Mahanagar Telephone Mauritius Ltd at Mauritius, which helps
MTNL in its new planned business stream of International Long Distance
(ILD) calling.
Though the telecom sector is one of the fastest growing sectors in
India, MTNL has seen its telephony market share decline in the recent
past. However, MTNL is doing the best it could by introducing new value
added services like broadband and IPTV (internet-protocol-based
television) in addition to its fixed line and GSM services. It also has
plans to offer TV channels on cell-phones apart from initiating its ILD
calling business for which the license is awaited.
Recently, there has been a sigh of relief for this lifeline of Delhi
and Mumbai, as the company reported better earnings after quite a few
quarters of declining profits. The PAT figure for Q4 FY2008 stood at Rs
219 crore, up 8 per cent on a q-o-q basis. MTNL's EPS has gradually
risen to Rs 3.49, a good jump from its EPS of Rs 1.5 in September 2007.
Mutual funds too have increased their holdings to the stock in the past
five months and the stock is currently a part of 22 equity diversified
funds.
Jindal Stainless
Jindal Stainless (JSL) is India's largest stainless steel manufacturer
having manufacturing facilities at three locations - Hisar, Vizag and
Orissa.It is the flagship company of the USD 6 billion Jindal Group and
manufactures different ranges of flat steel products to serve the
domestic and international markets.
The company recently signed a joint venture agreement with an
Indonesian mining company - Antam to develop a nickel smelting and
stainless steel plant in Indonesia from early 2009. JSL already has a
stainless steel cold rolling complex in Indonesia and this project is a
step towards becoming a global industry leader.
The company also has major expansion plans in the pipeline to expand
its manufacturing capacities in the coming years. It plans to spend
around Rs 6000 crore over the next two years to fulfill these plans.
JSL reported a decline in its domestic and export income in the period
between December 2006 and September 2007.
However, post that, JSL has reported a domestic sales figure of Rs 1496
crore in Q4 FY2008, a marginal growth of 4 per cent on a q-o-q basis.
JSL's EPS though is far away from its December 2007 figure, and has
recovered in the last two quarters. Equity funds have considerably
increased exposure to the stock. Combined together, equity diversified
funds account for over 22 lakh shares of JSL, a more than threefold
increase from the 7 lakh shares held a year ago.
Polaris Software Labs
Polaris Software Lab is one of India's leading IT companies which
provide global financial services solutions.
It is an expert in outsourcing services in the Banking, Financial
Services and Insurance (BFSI) sector and is the only company in India
which is fully focused on the BFSI sector. Polaris offers specialized
outsourcing services in corporate/core banking, consumer finance,
investment banking and risk and treasury.
Recently, to provide ongoing product development and support services,
the company entered into a strategic partnership with City Networks, a
global software services provider for the treasury, securities and
derivatives markets.
In October last year, Polaris launched a software testing laboratory,
PACE in Australia which helps the company meet the growing demands of
its clients in Australia, New Zealand and Hong Kong.
Back home in India, Polaris faces tough competition from I-Flex,
Infosys and TCS who also offer financial services products. Perhaps,
Polaris' expertise and focus on the BFSI space could help the company
in the coming years.
Talking about numbers, Polaris has seen a significant cut in profits
over 2007. Equity mutual funds have reduced their exposure to the stock
in the last 12-months, but the company is slowly recovering since
December 2007.
Lanco Industries
Lanco Industries started off as a pig iron and cement manufacturing
company in 1991. However, the company struggled to carry on its
businesses in the initial years and was in a way rescued by
Electrosteel Castings Limited when both companies entered into a
strategic alliance in the month of December 2002. After the alliance,
the company first reported profits in 2003.
Consequently, Lanco's capacity to produce pig iron and ductile iron
(DI) pipes has significantly increased. The company also manufactures
foundry grade pig iron and portland slag cement, though it main
business is to manufacture DI pipes (these pipes are generally
preferred for water supply, sewerage and transmission applications).
Last year, in March 2007, the company also installed a 12 MW captive
power plant to generate electricity of 79.2 MU annually. The company
already had a large value addition chain starting from iron ore to DI
pipes and setting up of this plant has further strengthened its value
chain.
Going ahead, the growth in demand of DI pipes offers a positive outlook
for the company. After a disappointing set of numbers from March to
September 2007, when its sales and profit figures were hit, the company
reported robust results for the quarter ending December 2007 when sales
jumped by 28 per cent (q-o-q basis).The trend has continued and Lanco
has reported a whopping 70 per cent rise in profits in its recently
declared results for Q4 FY 2008 (q-o-q basis). Though the stock is not
a part of any equity diversified fund currently, it surged by over 200
per cent in the period between Aug '07 and Jan '08.
CCL Products (India)
CCL Products is a small company which commenced operations in 1995. It
is engaged in the manufacturing of various types of coffee and is a 100
per cent export oriented unit.
The company has marketing collaboration with some of the highly reputed
and experienced companies engaged in the coffee business in UK and the
USA.
On a y-o-y basis, the company's net sales have been growing at a steady
pace of 34 per cent annually in the past four years.
CCL has seen a significant rise in EPS in the past two quarters of
FY2008. In fact, in the quarter ending March 2008, the EPS figure stood
at Rs 14.77, a 100 per cent growth over its previous quarter.
However, equity mutual funds have decreased exposure to the stock in
the past one year.
The stock was held by five funds a year ago but is now a part of only
one fund, namely Franklin India Prima. The stock price too has taken a
major hit in the past and has decreased by over 63 per cent since
January 2007.
UTV Software Communications
UTV started off as a TV content company in 1990, but has slowly
transformed into an entertainment production and distribution house
with pan-Asia operations. It currently has three business verticals -
content (movies, television), interactive (animation and gaming) and
broadcasting. The company has eight subsidiaries which take care of its
different business verticals.
In 2006, UTV entered into a strategic alliance with Walt Disney when
the latter acquired a 13.7 per cent stake.
Walt Disney also acquired a 100 per cent stake in UTV's 24-hour kids
channel Hungama TV. Recently in February '08, the company announced
that Disney is increasing its stake to 32.1 per cent. The deal, once it
goes through, would be the largest strategic deal ever by a foreign
investor in the Indian media and entertainment space.
The company also tied up with 20th Century Fox in 2007 for the
co-production of a Hollywood flick. UTV is the only Indian company to
have partnerships with top international media majors like Fox and
Disney in such a short span.
After reporting a loss in the quarter ending September 2007, UTV has
come out with a good set of numbers in its latest results.
2008. The EPS too saw a significant jump from Rs 0.39 to Rs 1.86 in the
March 2008 quarter. All equity mutual funds exited the stock in January
2008 but re-entered the very next month. The exposure to the stock by
funds has been considerably increased since then.
(Source: Internet)
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