European deal boosts equity markets across the globe. Indian markets join in frenzy. In our opinion we are getting overexcited. Our problems currently are more of domestic nature. Even for the highly acclaimed deal, there shouldn’t be much to be happy about. Our worst fears have come through with banks already writing off 50% of their lending to Greece. That is as good as default.
Moreover, rest of PIIGS are now growing to drive harder bargain and demand for similar write offs. The expected result remain same as before the agreement. European banks book loses and domino effect spreads over to US and spills over across the globe.
We hold a cautious approach to macro factors and are more likely to stay away from the party rather than foot the bill at later date. Will wait for positive singals from RBI and Manmohan, rather than FED and Merkel, to change the stance.
Wishing you a Happy and Joyous Diwali. May lord bless you and your investments with peace, prosperity and profits in the coming year.
Adhering to time honored tradition of commencing investment in long term assets on this festival of light, we hereby initiate coverage on couple of companies that have potential to almost double the investment over the coming 2-3 years. Inspired by the festive season, we are unveiling these investment jewels as Diwali gift to our investor companions who have been following us from quite some time, but have shied way from subscribing to our services. Please find below 3 such stocks.
1.Punjab and Sind Bank: Small scale bank with large scale returns Current Price: Rs71 Target Price: Rs150
It is a public sector bank trading at PBV of 0.5. The company has been generating ROE of over 20% for the past 5 years. The bank has concluded an IPO in late 2010 @ Rs120. The bank’s NPA are manageable under 1.0% and has CAR of ~13% compared to RBI requirement of 9%. We expect the company to generate EPS of more than Rs20 beyond FY2012 and trade at PBV of 1.0x over the long run. We expect the stock to generate absolute return of 100%+ over the next 3 years. Taking liberty with financial jargons, we view the stock as a post dated cheque of Rs150 issued by GOI currently available at Rs71.
2.Onmobile: A telecom story untocuhed by 2G scam and debt woes Current Price: Rs57, Target Price: Rs90
It is a value added service provider to telecom industry. Given uptrend in telecom sector the company’s financial performance is expected to improve in coming years. We believe having a piece of rising industry, growing at over 15%, at PE of 8 and with no debt, is worth the deal. Surge in usage of smartphones and tablet and enhancement of wireless telecom network to 3G will sustain high growth in mobile VAS over the coming years. Ongoing buyback offer of Rs25 Cr will limit potential downside in stock over the near term.
3.Nocil: A proxy for Indian auto story Current Price: Rs16, Target Price: Rs25
Nocil is a Mafatlal Group Company manufacturing rubber. It is currently trading P/S of 0.5 and P/E of 7. The company is a debt free entity having cash of Rs45Cr and net current assets of Rs160Cr against market cap of Rs250Cr. Rubber is set to be in demand given huge rise in auto sales which is likely to boost tire demand from 2012 onwards. We forecast the company’s sales to average Rs600 Cr by 2015. At net margin of 10%, Nocil is expected to accumulate cash of over Rs160 Cr by 2015. The company also owns some land bank in New Mumbai which offers scope for decent liquidation value, in the bear case scenario of businesses not doing well.
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