(Please note: This is NOT Guess the Multibagger 2, GTM-2 will be released on the weekend )
This is a new series im starting ; Safe stocks to buy even on a declining market.
The biggest hurdle to finding a winning stock-picking strategy is that no strategy works under all circumstances. Indeed, after the bull run in the Indian stock market over the past year, finding hidden gems is an even more difficult task. Companies with strong and unimpeded growth are too expensive. Companies that are not exactly of the highest quality are expensive too, thanks to the bull market that has pushed up all kinds of stocks to multi-year highs.
In such a situation, the better bets are companies that, at least, have rising earnings, that is, companies that consistently make more money than they did the year before, thanks to a good business model. There is no easy formula for picking such companies. Every method of picking stocks requires some interpretation and judgement. We need to look for companies that have a diversified portfolio of products or niche products and a well diversified geographical presence. This ensures that demand is not affected by a slowdown or restriction by government regulations in a specific country.
I have looked for stocks that meet these criteria and have found them across sectors like consumer products, building materials, pharmaceuticals, industrial intermediaries and auto-component manufacturers. The companies we have picked delivered a substantial and continuous growth over the past four quarters, thanks to some edge they enjoy. Most of them have a strong export presence which helps to improve even domestic operations. Take a look at these stocks discussed below.
Granules India
Granules India is one of the few companies to offer its clients all three components of the pharmaceutical manufacturing value chain starting with active pharmaceutical ingredients (APIs), pharmaceutical formulation intermediates (PFIs) and finished dosages (FDs). Regulated markets, such as North America and Europe, account for approximately 65% of its revenues, while the rest comes from quality-conscious customers in Latin America and the rest of the world. It is among the global leaders in manufacturing paracetamol, ibuprofen, metformin, guaifenesin and methocarbamol.
According to the figures for December 2014 quarter, 42% of the company’s standalone sales came from FDs while 25% was contributed by PFI and 33% by APIs. It has a 30% market share among regulated market suppliers of paracetamol. Granules Biocause, a subsidiary, has a 16% market share of ibuprofen suppliers. Granules India delivered a robust revenue growth of 26% compounded annually and profit after tax of 63% compounded annually over the five-year period ended FY13-14. Over the past four quarters, it has averaged a revenue growth of 16% and operating profit growth of 38%, maintaining an operating profit margin between 18%-20%. Its RoCE, at 25%, is not among the top league of companies in terms of returns; so its valuation (market cap/operating profits) is lower at 8.42.
This is a new series im starting ; Safe stocks to buy even on a declining market.
The biggest hurdle to finding a winning stock-picking strategy is that no strategy works under all circumstances. Indeed, after the bull run in the Indian stock market over the past year, finding hidden gems is an even more difficult task. Companies with strong and unimpeded growth are too expensive. Companies that are not exactly of the highest quality are expensive too, thanks to the bull market that has pushed up all kinds of stocks to multi-year highs.
In such a situation, the better bets are companies that, at least, have rising earnings, that is, companies that consistently make more money than they did the year before, thanks to a good business model. There is no easy formula for picking such companies. Every method of picking stocks requires some interpretation and judgement. We need to look for companies that have a diversified portfolio of products or niche products and a well diversified geographical presence. This ensures that demand is not affected by a slowdown or restriction by government regulations in a specific country.
I have looked for stocks that meet these criteria and have found them across sectors like consumer products, building materials, pharmaceuticals, industrial intermediaries and auto-component manufacturers. The companies we have picked delivered a substantial and continuous growth over the past four quarters, thanks to some edge they enjoy. Most of them have a strong export presence which helps to improve even domestic operations. Take a look at these stocks discussed below.
Granules India
Granules India is one of the few companies to offer its clients all three components of the pharmaceutical manufacturing value chain starting with active pharmaceutical ingredients (APIs), pharmaceutical formulation intermediates (PFIs) and finished dosages (FDs). Regulated markets, such as North America and Europe, account for approximately 65% of its revenues, while the rest comes from quality-conscious customers in Latin America and the rest of the world. It is among the global leaders in manufacturing paracetamol, ibuprofen, metformin, guaifenesin and methocarbamol.
According to the figures for December 2014 quarter, 42% of the company’s standalone sales came from FDs while 25% was contributed by PFI and 33% by APIs. It has a 30% market share among regulated market suppliers of paracetamol. Granules Biocause, a subsidiary, has a 16% market share of ibuprofen suppliers. Granules India delivered a robust revenue growth of 26% compounded annually and profit after tax of 63% compounded annually over the five-year period ended FY13-14. Over the past four quarters, it has averaged a revenue growth of 16% and operating profit growth of 38%, maintaining an operating profit margin between 18%-20%. Its RoCE, at 25%, is not among the top league of companies in terms of returns; so its valuation (market cap/operating profits) is lower at 8.42.
Kitex Garments
Kitex Garments is the second largest producer of children’s apparel in the world. It has been exporting from India and is now setting up operations in the US. Its dominance in the highly specialised infant-wear market comes with an edge—it is a segment where competitors have found the going tough due to stringent safety norms. Kitex derives around 80% of its garment revenues from exports, of which 90% are to the US and 10% to Europe. It has five large clients—Gerber, Toys R Us, Jockey, Mothercare and Carters—and has added two more large clients recently, viz., Children’s Place and Kohl’s.
The largest manufacturer of infant-wear globally is China’s Wingloo which has a capacity of 750,000 pieces per day against Kitex’s capacity of 550,000 pieces per day, according to Motilal Oswal Research. Kitex plans to be the No.1 player in infant-wear market in the next few years.
According to analysts, to improve productivity, Kitex plans to replace sewing machines older than five years with newer ones which would increase the speed from 7,000 stitches/hour to 9,000/hour and consume one-third the power of old machines. It has now introduced an Italian robotic technology which drastically reduces labour. Similarly, it has installed a bow-making automated machine requiring just one person compared with 50 people earlier. All these measures make Kitex even more efficient. The stock has had an extraordinary run ever since it started acquiring scale and larger contracts. Over the past four quarters ended March 2015, Kitex Garments averaged a growth of 16% year-on-year. Operating profit grew at an average rate of about 80% over this period. Its RoCE is around 48% and, given that factor, valuation is less expensive than many large Indian consumer products companies. Its market-cap/ operating margin is 23 times.
Cmp 810. Short term traders can buy at 810 for a target of 950. Long term investors continue buying in sip or at declines. ( Given to members )
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