Value Picks: 5 Things You Must Do, To Shortlist Them
Jan 18, 2019 | 13:10 PM IST
Jan 18, 2019 | 13:10 PM IST
From Warren Buffett to Rakesh Jhunjhunwala there are many stock investors who have mastered the art of wealth creation. There is a reason why some investors always pick the winners while others suffer heavy losses. What is the trade secret which keeps these successful investors ahead of the league? The secret is - Value Investment. It's a great method to minimize the market risk and at the same time to ensure maximum returns.
Here's a list of must-dos in stock investment which works wonders in picking your value pick.
1. Look At The Big Picture To Pick Value Exactly
For the starters, understand the basic fact: stocks make money because the business, companies are making money. If a company is doing good business and has sustainable growth prospects the share of the company will consequently make money. E.g. Tata Motors is one of the biggest automobile manufacturers in India. It has good market capital and excellent management which ensures good quarterly results and regular dividend payouts. Now that you know these details - imagine how likely is it that Tata Motors will go bankrupt and all shareholders' money will sink along with it? It's impossible, right? It simply means that if the company is good you will grow with the company. So look at the big picture; be a stakeholder of some big success story.
2. Don't Chase Every Opportunity For Value Picks
Every day, in the stock market, many stocks rise and fall. People make loads of money in quick succession. On the other hand, many of them a lose a lot of money too. Just remember one important rule: It's not important to hit at every opportunity. You become more susceptible to fail when you try to step on many stones. The best way out of this quagmire is to select a group of stocks based on intensive research carried out by you or by a good stock advisory firm and analyze them with the long-term perspective.
3. Analyze A Group Of Stocks And Find A Value Pick Among Them
Once you define the group of stocks, you need to analyze all of them with a long term perspective. Lets understand it in a simpler manner, that how you can analyze your basket to find a value pick.
4 Step Analysis To Verify Your Value Pick
A. Know The Business Model First
Before shortlisting any stock or a company, you should always understand the business of the company. An efficient business can earn more than just a name. So, its the most basic and important step for picking a value pick.
B. Know The Potential Of Management
A good business plan in the hands of bad management will always lead to losses. To execute the business plan at its best, a company must have good management practices. So it is the second step of your fundamental analysis to verify the management of the company. Here are some of the pointers to help you to do it.
C. Analyze The Financial Ratios
To shortlist a value pick for your portfolio, you need to have a ratio analysis of the financial s of the company. There are dozens of ratios which defines the various capabilities of the company. Its not necessary to conduct an analysis of all the ratios. However, missing some of the important could be hurting. Price to Earnings ratio and Price to Book value ratio which suggests the valuation and Current Ratio Current ratio and debt to equity ratios which suggest the strength of the balance sheet comes under most important filters.
Though if you want a thorough and in detail research, for the stock, you can reach us anytime at 1800-120-0671. We Niveza are SEBI registered research analyst who is authorized to produce the research reports of the stocks. We analyze companies with a 360-degree approach to arrive at biased views and forecasts.
D. Dont Get Tempted With Short Term Rally, Think Long-Term
Indian stock markets are volatile. Any simple rumor or news can drive prices of stocks or group of stocks though they are not fundamentally strong. Being a smart investor, the smartest decision would be not to relying on such short term rallies and down trends. Always have the patience to hold the invested stock. The history of the markets also suggests one who can hold the stock for the long run he is expected to reap higher profits. Even the famous investor Warren Buffet said that Only buy something that youd be perfectly happy to hold if the market shut down for 10 years.
4. When It's Raining Gold, Reach For A Bucket, Not A Thimble
This iconic quote of Warren Buffett holds the wisdom of value investment. You will fail to make it big even if you invest in good stocks. That's true! Let's illustrate this point with an example. If you invest in Asian Paints stock at this point when it's trading at 934.00 and if it goes on to hit 1000.00 in six months you will only gain 66.00 on each share. But had you invested in the same stock when it was trading at 400-500.00 you would have got real bang for your money when it hits the thousand rupee mark. The point is - it's important to buy the right stock at the right time. And when the right time comes to reach for a bucket and not a thimble.
5. Ask The Expert
It is impossible to do everything on your own. To search for the undervalued stocks, ascertain the right time to buy them and keep a regular tab on its movement after buying is a heck of a lot of work. For working professionals, it's virtually impossible. A stock advisory firm is a tailor-made option for such people. The research analysts of these firms with their holistic understanding of stock market help you to chalk out an investment plan which best suits your requirements. Their timely entry, exit calls help you to strike a perfect balance in your stock investment.
We at Niveza are committed to helping all those investors who are either new to the markets or are busy with own stuff and unable to monitor own investment. Our p360 variants are designed to ease the investing life of all type of investors. These personalized services form unique options for investors. These services assure you a service guarantee too which is a most unique feature. We promise you an uninterrupted service until you make money (Profits) with us. That is we take all the responsibility of losses made with us. We dont believe in making money until our investors do. Moreover, our p360o freedom offers you a dedicated relationship manager who can act on behalf of you to capture all the opportunities at right time. With us, your value pick is not so far, kick start your journey with all the above must dos and if you find anything difficult reach us anytime at 1800-120-0671.
Niveza's Value Picks For 2019
Company Name- Finolex Cables Ltd.
The wires and cable industry in India have come a long way, growing from being a small industry to a very large one, over the past decade. With the segment comprising nearly 40 percent of the electrical industry in India, the increasing demand for power, light, and communication has kept demand for wires and cables high. Growing at a CAGR of 15 percent, boosted by momentum in the power and infrastructure segments. The present estimated per capita consumption is only about 0.5 kg. As GoI is focusing on Make in India, the industry can grow at a similar rate for the next five years.
- Robust Numbers:
In FY18, the company posted revenue growth of 15.9% and it is expected to grow at 10-12% in the next two years. EBIT margins may grow at a historic pace of 14% while profit after tax may give some relief with 12-15% growth during next couple of years. Debt has Improved over the years.
- Key Financial Takeaways
In Electrical Wires & Cables, FNXC cut prices by 3-5% in July, mainly to pass on sharp volatility in copper. This segment has reported negative volume growth. Kerala floods and transport strike impacted 2Q sales by Rs 500-600mn (7-10% sales are from Kerala). Communication Cables: Saw strong volume growth of 15%, which it expects to continue, supported by strong offtake from the government. Other segments (new products) grew 28% yoy to Rs180mn in 1Q. Expects this segment to contribute significantly to revenues over 2-3 years (sees Rs1bn revenue in FY19). Currently, new products have covered 1,000+ touch points(around 30% of Cables &Wires channel) and will focus more on improving the supply chain. Expects a slight increase in working capital mainly due to inventory (supply availability issue in copper). In FY18, working capital days were at 66; we expect 68 days in FY19. In other income Rs 400mn was dividend income from Finolex Industry Ltd. J-Power (JV) remained stressed; expects to become EBITDA positive by FY20. Its current order book is Rs 900mn. Expects PVC electrical conduits and fitting facility in Goa to be operational by February 2019 at a total Capex required of Rs500mn. Sees Rs 500mn of revenue in its first year of operation (market size is Rs 15bn). Sees total Capex for FY19 at Rs 1.5bn.
FNXCs product categories (current and planned), the inherent strength of its business model, and its superior reach offer investment comfort, especially in a sluggish economic environment. With its cash flows and balance-sheet strength, its valuations will gradually align with its peers (Havells, V-guard). We see it transforming into a multi-product electrical company over the next 2-3 years.
Company Name- JK Papers Ltd.
India paper market is calculated to grow with a CAGR of more than 10% in value terms during review period starting from 2011-12 to 2016-17 and the market is anticipated to reach more than Rs.75,000 crores at the end of the forecasted year 2022-23. Paperboard & industrial packaging paper, paper stationery, newspaper print, and specialty paper altogether creates the overall paper market. As the paper industry of India is becoming more competitive by adding improvements of key ports, roads & railways and communication facilities, revision of forest policy is required for wood-based paper industry so that plantation can be raised by industry, cooperatives of farmers and state government.
- Capacity Expansion to drive volume
As operating at full capacity, the management plans to increase capacity to achieve meaningful volume growth. It announced a brownfield investment of Rs.1,450 crores for setting up additional packaging board capacity of 1.5lakhMT. Though commercialization of new capacity addition is likely to take more than 24-30 months, acquisition of Sirpur Paper Mills is a near term positive. So from 4.5 lakh tons capacity, Sirpur acquisition will make up capacity to 6-lakhs. Therefore, in two years time, capacity will move up from 4.55-lakh to 7.5-lakh tons and will become the number two paper company in the country.
- Acquisition story:
JK Paper acquired Telangana-based Sirpur Paper Mill at ` 371cr through NCLT insolvency process. This consists of a cash payment of `166cr and issue of equity shares of `43cr and preference shares of `162 cr. Also, would help increase capacity at a total investment of around ` 671 cr, including incremental capex towards modernization. The capex, for both the planned organic and inorganic expansion, would lead to an increase in leverage, especially over FY20-21. However, the staggered nature of the capex, with favorable industry fundamentals, mitigates the risk to some extent.
- Key Financial Highlights
The company generated a nearly two-fold jump in its standalone net profit to `109.57cr mainly driven by volume growth and sales realization. It had posted a net profit of `56.63cr. Total income rose 17.47% to `795.46cr as against `677.11 cr in the same period previous fiscal. Margin improved further to 26.1% in Q2 (FY18 21%) on the back of improving realizations, reducing raw material costs and improving operating efficiency. During the quarter, JK Paper took possession of the Sirpur Paper Mills and refurbishment and overhaul of plant and machinery is underway. Revenue remained flat on a sequential basis as production was impacted due to plant shutdown in Rayagada, Odisha following a strike by workers.
Volume growth, higher realizations coupled with improved operating parameters and abridged finance cost resulted in uptick in profitability for the quarter. Having current capacity at 4.55lakh tones, JK paper is all set to commence the additional capacity of 1.38 lakh tones from Sirpur plant in Telangana, to help venture into the color paper segment, the very first time by April 2019. Likewise, will further increase its capacity by adding 1.5 lakh tonnes in the next two years from Gujarat plant stemmed to focus on the packaging board vertical. Both would help to grow revenues at 15% CAGR over the next 5 years.
Company Name- Raymond
Sector- Textile Sector
Indias textiles sector is one of the oldest industries in Indian economy dating back several centuries. India's overall textile exports during FY 2017-18 stood at US$ 39.2 billion. The Indian textiles industry is extremely varied, with the hand-spun and hand-woven textiles sectors at one end of the spectrum, while the capital intensive sophisticated mills sector at the other end of the spectrum. The decentralized power looms/ hosiery and knitting sector forms the largest component of the textiles sector. The close linkage of the textile industry to agriculture (for raw materials such as cotton) and the ancient culture and traditions of the country in terms of textiles make the Indian textiles sector unique in comparison to the industries of other countries. The Indian textile industry has the capacity to produce a wide variety of products suitable to different market segments, both within India and across the world. The Indian textiles industry, currently estimated at around US$ 150 billion, is expected to reach US$ 250 billion by 2019. Indias textiles industry contributed seven percent of the industry output (in value terms) of India in 2017-18. It contributed two percent to the GDP of India and employs more than 45 million people in 2017-18. The sector contributed 15 percent to the export earnings of India in 2017-18.
- Financial Key Takeaways
Net revenue increased by 15.8% to INR1847.75 crore against INR1595.45 crore for the same quarter last year. This was backed by double-digit growth across all segments. Branded textile/Branded Apparel/Shirting/Garmenting/ Auto Components/Tools & hardware segments grew 14.5%/15.2%/17.2%/18.6%/15.0%/21.4% respectively on YoY basis. EBITDA/PAT grew 35.8%/4.9% YoY to INR 186.44/62.89 crore in Q2 FY19. EBITDA Margin grew 150 bps, whereas, PAT Margin declined by 40 bps to 3.4% on the back of an increase in depreciation, interest cost & tax rate.
- Segment Performance
Segmentwise, EBITDA margins for Branded Textile declined 50 bps YoY largely on account of increase in raw material cost and higher A&P spends. Branded Apparel margins remain unchanged at 3.2% on LTL basis. Garmenting margins was more than doubled to 7.8% led by export growth in US & operational efficiencies on LTL basis. Luxury Cotton Shirting margin improved 480 bps on LTL basis mainly due to change in product mix. Tools & Hardware improved 540 bps due to higher product efficiency, whereas, Auto Components margins impacted by 40 bps on LTL basis due to higher raw material cost.
- Business Outlook
Deep discounts, lower footfalls, and offtake resulted in a subdued retail performance in the beginning, however, consumer demand improved as the quarter proceeded; Witnessed double-digit growth across all segments, EBITDA margins exceeded Company guidance. Under Branded textiles, Suiting segment driven by 14% volume growth, whereas, Shirting segment grew by 17% with 8% volume growth, export biz grew by 25%. Wool price increased 30-35% YoY impacting margins by 250 bps. However, wool microns optimization, process improvement and nominal price hike of 2%-4% helped in minimizing EBITDA margins loss. Compounding the impact of deep discounting by E-Com players, subdued consumer demand impacted Branded Apparel margins. Garmenting margins improvement led by export-driven growth, whereas High-Value Cotton Shirting margins improved on product mix and stabilization of Amravati operations.
Niveza Editorial Desk :
We are a team of stock market nerds trying to stay ahead of the herd. We spend our grey cells everyday to a pave a smooth road for our clients in the shaky world of stock market. While tracking the mood swings of the market we bring our clients the most rewarding deals.
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