1.SUPREME INDUSTRIES
The company is one of India’s largest plastic
processors. It has been growing at a fast pace for the
past 10 years due to steady rise in the proportion of
value-added products in the portfolio and expansion of
the distribution and production network (it has 2,000
channel partners). The operating profit margin of value-
added products is more than 17%.
The stock has risen 19 times between 31 December
2003 (Rs 21.92) and 31 December 2013 (Rs 425.35).
“Supreme Industries’ decision to move from
commoditised products (which can be easily produced)
to technologically-advanced products has contributed
to its outstanding performance over the years,” says
Jaipal Shetty, research analyst, Maximus Securities.
Supreme has been increasing net profit at the rate of
22.8% a year on an average for the past five years. It
reported a net profit of Rs 272 crore for the year ended
June 2013 as against Rs 97.39 crore for the year
ended June 2009. The return on equity, or RoE, rose
from 9.40% in 2003 to 37.79% in 2013. The strong
balance sheet had Rs 22.76 crore cash in hand and
bank in June 2013. The company, say experts, looks
like a good bet considering its history of efficient
capital allocation, excellent distribution network, good
brand recall, decent record of developing products and
an innovative product line-up.
“We feel the company will be able to at the very least
maintain its current growth rate for the next five years
provided oil prices do not rise much and India’s
economy recovers,” says Shetty.
On March 31, the stock was at Rs 499 with trailing 12
months price-toearnings, or PE, ratio of 22.52
compared to the industry average of 14.98. The stock
has risen 43% since October 2013 in spite of the
company reporting weak numbers in the second
quarter. The management has cut revenue growth
guidance for the financial year from 22% to 20-22% and
volume growth guidance from 12% to 9-10% because of
weak demand. “But the stock is trading at a slightly
high PE multiple,” warns Shetty.
CRISIL
CRISIL has been giving huge returns to investors for
the past 10 years primarily due to its robust business
model. It has been able to successfully diversify into
the non-rating business with a series of acquisitions.
CRISIL’s RoE has almost doubled from 20% to 40% in
the past ten years. Moreover, it has been paying good
dividends. Growth in revenue and net profit has been
consistently high.
The stock rose 2,090% between 31 December 2003 (Rs
55) and 31 December 2013 (Rs 1,207). In 2008, it had
fallen 32.9%. “Share buyback, high dividend payouts,
inorganic growth, robust business model, backing of a
foreign parent and high return ratios have been driving
the stock for the last 10 years,” says Silky Jain,
research analyst, Nirmal Bang Securities.
Operating profit rose 32% a year on an average
between 2005 and 2013. Net profit was Rs 312.57
crore in the year ended December 2013 as against Rs
32.41 crore in the year ended December 2005. Jain
expects healthy revenue and net profit growth to
continue.
“One can remain remain invested in this market leader.
With recovery in the economic environment, the
expansion of the sector will lead to faster growth and
better returns.” On March 31, the stock was at Rs
1,229.30, with a PE ratio of 30.89 as against the
industry figure of 26.72.
2.LA OPALA RG
La Opala was set up in 1988. In 1999, Radha Glass and
La Opala merged to become La Opala RG. The
company makes glass and glass products. It exports
85% of its crystal ware production.
La Opala RG has 125 distributors and 10,000 dealers.
Gokul Raj, executive director and head of investments,
HBJ Capital, says La Opala has been the beneficiary of
the rise in aspirational spending by Indians over the
last decade. The stock returned 47.7% a year on an
average between 2003 and 2013.
Factors driving growth are urbanisation, rising demand
for branded kitchenware and increasing
competitiveness of Indian products against imports
from China.
“The exceptional returns of the past decade are a
function of strong earnings growth and valuation re-
rating,” says Gokul Raj.
While revenues have been growing at 16% a year,
operating profits have been rising at 32% a year. The
latter is due to high margins and capacity utilisation
(fixed asset turnover has improved from 1.7 times to
over 2.6 times over the last decade).
Gokul Raj expects 15-20% annual revenue and profit
growth over the next five years. The reasons are higher
utilisation of the recentlyexpanded capacity and rise in
exports.
The stock has undergone a sharp re-rating, especially
over the last three years, due to improvement in the
quality of growth. The Ebitda to capital employed ratio
has shot up from 15% to 50% over the last five years.
Ebitda, or operating profit, is earnings before interest,
tax, depreciation and amortisation. “Leaders of niche
consumption segments that have been able to grow
fast over the past five years have been re-rated. This
has helped La Opala to also deliver fantastic returns,”
says Gokul Raj.
On March 31, the stock was at Rs 708.50 with a PE
ratio of 27.05. It is expensive as the industry PE is just
16.50. Gokul Raj is not positive on the stock. “The
current valuation of 10 times the book value and more
than 26 times forward PE is high and factors in all the
positives. Valuation re-rating is not likely and hence
our base case scenario is 15% rise in the stock price.
While earnings growth of 15-20% can continue to push
up the stock, the risk of negative earnings surprises
has increased due to moderation in consumption
growth. In view of the sharp rise over the last five
years and expected earnings, we believe that the risk-
reward equation is not favourable for investing in the
stock at current levels.”
3.CERA SANITARYWARE
Consumer spending in India has been rising at a
scorching pace over the last 10 years. This is reflected
in the top line and operating performance of Cera
Sanitaryware. Net profit has been rising by 40% a year
and stock by 54.5% a year on an average for the last
10 years (it rose from Rs 9.1 on 31 December 2003 to
Rs 701.50 on 31 December 2013).
Twinkle Gosar, equity research associate, mid-caps,
Angel Broking, says, “Growth in consumer demand
encouraged Cera to expand its sanitary ware division in
2006-07. We expect top line and profit growth of 25%
and 15%, respectively, a year in the coming four-five
years.”
Operating performance has been stable (margins above
17%) while top line has been growing above 40% a year
on an average for the last five years.
The stock has risen 283% in the past two years; it was
at Rs 890.70 on March 31 (PE ratio of 24.24). “Despite
expectation of robust performance, the company is
expected to deliver an annual return of 15% for the
next five years. The stock has risen sharply in the past
two-three years,” says Gosar.
BOSCH
Bosch is a leading supplier of technology and services
in the areas of automotive/industrial technology,
consumer goods and building technology. Its stock has
been rising by 20% a year on an average for the last 10
years. It was at Rs 10,087 on 31 December 2013.
Bosch, a global leader in diesel fuel injection
technology, commands 80% share of the domestic
diesel systems market. In this it has been helped by
fast growth in demand for tractors and commercial
vehicles and introduction of the anti-lock braking
technology in 2010. Other factors are pricing power in
fuel injection systems and spark plugs, rising demand
for diesel vehicles (55% sales in 2012-13), wide
product portfolio which insulates the company from
cyclical factors and long relationship with major original
equipment makers. Also, the non-auto business grew
20% a year between 2011 and 2013.
Bosch recently launched the energy solutions business,
which signals intent to expand the non-auto business.
The company has been increasing revenue and net
profit at the rate of 14.25% and 13% a year,
respectively, on an average for the past eight years.
Experts say such high growth is likely to continue due
to revival in commercial vehicle and tractor segments,
demand for diesel engines due to low price of the fuel,
traction in the non-auto business and implementation
of new emission norms in 2015.
Cholamandalam Securities says revenue will grow 14%
a year and net profit 16% a year between 2013 and
2018 due to higher localisation and favourable product
mix.
On April 1, the stock was trading at Rs 10,858, with PE
ratio of 38.20 as against the industry PE of 21.72.
Cholamandalam says Bosch is trading at a premium of
50-60% to other auto ancillary companies. The high
valuation, it says, is justified given the company’s
access to expertise of parent, leadership in diesel fuel
injection technology, high return ratios and ability to
maintain growth even in tough times. The stock can
give 15% a year return in the next five years.
4.BUTTERFLY GANDHIMATHI APPLIANCES
The maker of home appliances was the first in India to
introduce stainless steel pressure cookers and vacuum
flasks. Product range includes LPG stoves & mixer
grinders. The stock has returned 65.9% a year on an
average in the last 10 years.
The company, which was referred to the Board for
Industrial and Financial Reconstruction due to financial
troubles, has managed to increase operating profit
margin from 4.6% in 2005-06 to 9.5% in 2012-13 and
reduce the debt-to-equity ratio from 2.1 in 2007-08 to
0.2 in 2012-13. It plans to become debt-free over the
next two to three years. In March 2012, Reliance
Alternative Investments Fund picked up a 13.7% stake
in the company for Rs 100 crore.
The top line has grown 57.62 a year on an average for
the last eight years; it was Rs 807 crore in the year
ended March 2013. Net profit was Rs 33.42 crore in
the year ended March 2013 as against a loss of Rs
3.36 crore in the year ended March 2005.
“We expect branded sales to grow at 15-20% per
annum for the next five years. The company is hopeful
of expanding margins as its turnover crosses Rs 1,000
crore. However, we expect flat margins in the near
term due to rise in promotional expenses in non-south
markets,” says Dhvani Bavishi, analyst, ICICIdirect.com.
Bavishi is bullish on the stock. “Due to stable top-line
growth, we expect a 15-20% price rise over the next
12-18 months.” On April 1, the stock was at Rs 293.80.
BATA INDIA
The stock has given a return of 33% a year on an
average for the past 10 years. One reason is the
massive restructuring at the company, including halving
of the head count, which has led to fast growth in
profitability.
Bata India has saved a lot in employee cost in the past
few years, says Gaurang Kakkad, vice president,
institutional research, Religare Capital Markets. “The
cost, around 20% of sales in 2004-05, is now 10% of
sales Almost 10% margins are on account of savings
under this head. Shift to premium products has also
helped,” he says.
The company reported an operating profit margin of
17.10% for the year ended December 2013 as against
4.71% in the year ended December 2005. Net profit
grew from Rs 12.49 crore to Rs 190.74 crore during
the period.
Kakkad is positive on the stock. “We expect 17-18%
growth in revenue and 20% in profit per year over the
next five years. One can expect 15-18% return from the
stock in the next 12-18 months.” On April 1, it was at
Rs 1,131.
AMARA RAJA BATTERIES
Amara Raja is among the pioneers of maintenance-free
batteries in India, something that has catapulted it to
the second position in the Indian automotive battery
market in a short period. The company continues to be
a leader in introduction of new technologies in the
automotive and industrial battery space. One of its
biggest strengths is the technology tie-up with global
battery maker Johnson Controls, which owns 26%
equity in the company.
The stock has risen 48% a year on an average between
2003 and 2013. “One reason for such spectacular
growth has been the shift in demand towards branded
batteries. Other reasons could be rapid increase in
market share in automotive and industrial segments.
The company has managed to retain margins even as
its increased sales rapidly due to the strength of its
product mix,” says Vikram Dhawan, director, Equentis
Capital.
In the past 10 years, net profit and sales have been
rising 44% and 33%, respectively, a year on an average.
Net sales and net profit were Rs 2,961 crore and Rs
286.7 crore, respectively, in the year ended March
2013.
“We expect profit and revenue growth of 20-25% a year
for the next five years. The stock is likely to be a clear
outperformer in the next few years. One can expect
15-20% annual returns in the next two-three years on
the back of earnings per share growth, healthy
operating margins and improvement in the country’s
economy,” says Dhawan.
On April 1, Amara Raja was trading at Rs 386, a PE
ratio of 19.
GOODYEAR INDIA
The company’s financials have been improving for the
last ten years. Ten years ago, it had huge debt and
was making losses. Now, the debt is zero while profits
are soaring. One trend that has helped Goodyear is
growth of the automobile industry, more specifically
tractor and passenger car segments, its main focus
(98% offtake).
New products and launch of a retail outlet are the
other factors that have helped the company report
decent growth.
The stock has returned 22% a year on an average in
the last 10 years. Vijay Dave, senior research analyst,
Sunidhi Securities, says, “The stock is attracting
investors due to improvement in the company’s
fundamentals, high dividend payouts, fall in rubber
prices and the company’s MNC status.”
In the last five years, revenue and net profit have
grown at a compounded annual growth rate of 11% and
24%, respectively. DK Aggarwal, chairman and
managing director, SMC Investments and Advisors,
says, “In 2013, the performance improved significantly
due to higher margins on account of favourable rubber
prices. As the economic situation improves, revenue
and profit growth are expected to rise further.”
At Rs 418.45, the stock is trading at a PE of 10.26,
close to its five-year average of 9.52. Thus, it is fairly
priced. “Falling rubber prices, rising incomes in rural
areas and topping out of interest rates will benefit the
company. One can expect 15-20% annualised return in
the future too,” says Aggarwal. An Angel Broking report
in March 2014 said the stock could hit Rs 472 in the
next 12 months.
SUN PHARMACEUTICAL INDUSTRIES
The stock rose 34.3% a year on an average between
2003 and 2013.
Edelweiss Financial Services says high growth in
earnings per share and stock price has been due to
various acquisitions and leadership in the chronic
ailment space.
Net sales and profit have been growing at 10% every
year since 2003. Edelweiss expects 20% growth every
year for the next three years. The stock is trading at a
premium to peers, mainly due to higher return ratios
and margins. Analysts expect rise in competition for
some of Sun’s most profitable brands. This, they say,
will make it difficult for the company to sustain
returns.
On April 1, the stock was trading at Rs 573.35.
Sun recently entered into an agreement to acquire 100
% of Ranbaxy in an all-stock transaction. Ranbaxy
shareholders will receive 0.8 share of Sun Pharma for
each share of Ranbaxy. The exchange ratio represents
an implied value of Rs 457 for each share of Ranbaxy.
The combination of Sun Pharma and Ranbaxy will
create the fifthlargest specialty generics company in
the world and the largest pharmaceutical company in
India.
Rahul Sharma, analyst, Karvy Stock Broking, says, “The
deal could be accretive in the long run as Sun Pharma
has a track record of turning around acquired
companies. We cut our earnings per share estimates
by 5% to Rs 30.4 for 2015-16. We roll over our price
target to 2015-16 from December 15. We reduce our
price target by 5% to Rs 684 based on 22.5 times
2015-16 earnings.”
TTK PRESTIGE
Consumer durables industry does well during periods of
high economic growth. This is more so in an emerging
market like India where ownwership of white and grey
goods is low. During the boom years of 2004-11,
thanks to exploding discretionary incomes, the industry
did spectacularly well.
TTK Prestige reported a remarkable spurt in sales from
Rs 339 crore in 2007-08 to Rs 1,385 crore in 2012-13.
The net profit rose from Rs 20.67 crore to Rs 133.09
crore during this period. Earnings per share zoomed
from Rs 17.64 to Rs 114.29, pushing the stock to dizzy
heights.
VK Vijayakumar, investment strategist, Geojit BNP
Paribas Financial Services, says, “The explosive growth
in top line and bottom line was reflected in the stock
price. The market rewarded the performance by a
higher PE ratio.”
TTK Prestige has returned 70.5% a year in the last 10
years. “It will be unrealistic to expect such returns in
the immediate future. Investors should temper
expectation to a more reasonable 25% in the next five
years,” says Vijayakumar.
ITC
Stock markets were under a lot of pressure in the last
few years. That’s why investors took refuge in
defensive sectors, the ones that are not as prone to
slowdown as others. One such sector was fast moving
consumer goods. That’s the biggest reason for the
25.5% a year return given by the ITC stock in the past
ten years.
Sudip Bandyopadhyay, president, Destimoney
Securities, says, “Tobacco business is a cash cow for
ITC. It is also recessionproof. It helped the company
report fast earning growth during the period. I expect
15% revenue and 8-10% net profit growth every year for
the next five years.”
Sales rose from Rs 5,865 crore in 2003 to Rs 41,810
crore in 2013. Net profit rose from Rs 1,371 crore Rs
7,418 crore. On April 2, the stock was trading at Rs
344.25, with a PE ratio of 32.46 as against the industry
average of 31.93.
“At present, ITC is reasonably valued and one can
expect 10-15% annualised return for the next five
years.”
SHRENUJ & COMPANY
The company makes polished diamond and jewellery
products. The market capitalisation is Rs 900 crore.
The stock has returned 25.6% a year on an average in
the past 10 years. It was at Rs 99.6 on 31 December
2013 as against Rs 10.20 on 31 December 2003.
Nikhil Kamath, director, Zerodha, says, “A bullish
diamond market is the biggest reason for Shrenuj’s
stellar performance. We expect revenues to grow by
10% annually. The stock looks fairly valued at current
levels with PE of three. We can expect annualised
returns of 15% for next five years. However, the stock
is a fairly illiquid, and so entering and exiting will be
fairly convoluted.” On April 2, Shrenuj and Company
was trading at Rs 93.70.
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