Here are 14 stocks which are capable of generating above-average returns.
This is the second part of the study done by Khandwala Securities on companies generating large free cash flows. The fundamentals of the 14 stocks summarised below are part of the portfolio of 19 stocks shortlisted by the research house based on their business credentials and ability to produce super-normal returns.
BHARAT EARTH MOVERS Current price: Rs 340.75Price-earnings ratio: 51.63
BEML is the largest manufacturer of earth moving equipment in India and the second largest in Asia. It manufactures heavy earthmovers, rail coaches, military tanks, heavy-duty trucks, trailers and high-powered diesel engines.
Its products find application in all infrastructure segments, mining and defense. It has manufacturing units at Bangalore and Mysore. The company plans to diversify into underground mining equipment and leasing and financial services.
As the largest manufacturer of earth moving equipments in India, it commands around 70 per cent market-share. It recently entered into a 15-year contract with Rotem of South Korea to make stainless steel metro rail coaches. It exports to over 25 countries in Europe, Africa and West Asia. The company enjoys a good order book position. Rising steel prices in the international markets.
Outlook: The stock currently trades at Rs 340.75, which discounts its FY04 earnings by nearly 51.63 times - BEML also gets a near monopoly stauts in the domestic market. Overall recovery and growth of the economy will create huge demand for its products.
Hence, the prospects of this company are very good for the coming years. We expect it to post a robust growth in earnings on the back of cost efficiencies. A potential multi-bagger.
HERO HONDACurrent price: Rs 508.7Price-earnings ratio: 13.94
The company enjoys the status of India's largest two-wheeler company. Its product range includes Karizma, Ambition 135, CBZ, Splendor, Splendor+, Passion+, CD100SS, CD100 and CD DAWN. It exports to around 31 countries. It is the first two-wheeler company to cross Rs 50 billion in sales in FY04. During this period its volumes also surged by around 23.4 per cent, which is a record in itself. It is a leader in the economy and executive segments. In FY04 the company has been successful in regaining its lost market share; it achieved market share of around 36.7 per cent. It has increased its distribution reach and has tie-ups with banks to boost sales. Increased competition has put pressure on the price of the products. But due to intense cost control activities it has been able to maintain its operating margins quite effectively. It has a track record of paying good dividend to its shareholders over the years. High competition poses a threat to the pricing policy of the company. It depends on good monsoon for its success. Hence vagaries of monsoon can be a threat to the bottomline of the company. Increased fuel cost can also be a cause of concern. The company has high share of related party transactions. Fall in other income will also have impact on the bottomline of the company.
Outlook: The company's stock currently trades at Rs 508.7 which discounts its FY04 earnings by 13.94 times. The automobile industry is on a growth trajectory and considering the fact that Hero Honda is the leader in the two-wheeler industry in India it is in a better position to leverage this growth.
The company is consistently showing good performance and in FY04 it has been successful in regaining its market share. Hence the stock looks attractive at the current valuations taking into consideration its growth potential.
A potentially high growth story with earnings CAGR over the next two years to approach the 20 per cent mark.
ACCCurrent price: Rs 316.80Price-earnings ratio: 28.05
ACC is involved in manufacturing and marketing of cement, readymix concrete (RMC), refractories and refractory products. It is also into consultancy and engineering services.
Its manufacturing base consists of 14-cement plants spread all over India, two refractory plants - one each at Maharashtra and MP - and 6 RMC plants near to four metros of India and Bangalore.
The company meets around 83 per cent of its power requirements through its captive power plants. Its marketing is done through a network of 11 regional marketing offices, 16 area offices and 160 warehouses. It is the largest and oldest cement manufacturer in India. Extensive R&D facility as well as expertise in manufacturing all types of cement. It has a widespread distribution network throughout the country. It has commenced the establishment of 1.3 mtpa clinkering unit along with a 15 mw captive power plant at Chaibasa. The project cost is estimated at Rs 2.85 billion and is expected to be completed by 2005. This would mark the conversion of all its plants into the cost efficient dry process. During FY04 it acquired 86.79 per cent equity stake in IDCOL Cement, now renamed as Bargarh Cement (BCL). ACC had no significant presence in Orissa. BCL has 1 mtpa integrated cement plant in northwest Orissa. Hence this acquisition has instantly provided a sizeable market share in Orissa and is expected to further strengthen the company's position in the eastern market. High cost of inputs such as crude oil, petroleum products, coal, etc puts pressure on the bottomline. Cement is one of the highly taxed commodities in India.
Outlook: The stock currently trades at Rs 316.80, which discounts its FY04 earnings by 28.05 times. There are huge prospects of cement industry growth in the coming years. Housing and infrastructure are the key demand drivers for the cement sector.
ACC being one of the oldest and largest cement players is in a good position to leverage this growth. Its thrust on divesting non-core business activities is also providing additional benefits to the company. Another solid stock, which should comfortably provide 25 per cent plus earnings CAGR during the current fiscal and next.
AHMEDABAD ELECTRICITY COCurrent price: Rs 120Price-earnings ratio: 16.22
AEC has a transmission and distribution network having a generating capacity of 500 mw. Besides the generation and distribution of electricity, the company's power services division undertakes project management of power plants, electrical installation contracts and operation and maintenance assignments of other power stations in the country. The most significant achievement of the company in FY04 was reduction in its transmission and distribution loss by more than 2 per cent. It carried out a massive drive against illegal connections and for a slum electrification programme. During the FY04 various measures were undertaken for the upgradation of the system network. The Electricity Act 2003 has ushered in a new era of long overdue reforms in the Indian power sector. It is participating in a 1095 mw power project being established near Surat under Torrent Power Generation. State Electricity Boards (SEBs) and central public sector companies mostly dominate power sector. The Electricity Act will also increase the risk of growing competition. Quality and availability of coal supply is also a cause of concern. Establishment of captive power plants can also cause loss of bulk customers.
Outlook: The stock currently trades at Rs 120, which discounts its FY04 earnings by 16.22 times. The overall industrial growth will increase the requirement of power.
Also, the company has taken various measures to upgrade its system network. It has also undertaken various power projects. There is huge growth potential for this company. The earnings CAGR over the next two years is likely to exceed the 25 per cent mark.
This is the second part of the study done by Khandwala Securities on companies generating large free cash flows. The fundamentals of the 14 stocks summarised below are part of the portfolio of 19 stocks shortlisted by the research house based on their business credentials and ability to produce super-normal returns.
BHARAT EARTH MOVERS Current price: Rs 340.75Price-earnings ratio: 51.63
BEML is the largest manufacturer of earth moving equipment in India and the second largest in Asia. It manufactures heavy earthmovers, rail coaches, military tanks, heavy-duty trucks, trailers and high-powered diesel engines.
Its products find application in all infrastructure segments, mining and defense. It has manufacturing units at Bangalore and Mysore. The company plans to diversify into underground mining equipment and leasing and financial services.
As the largest manufacturer of earth moving equipments in India, it commands around 70 per cent market-share. It recently entered into a 15-year contract with Rotem of South Korea to make stainless steel metro rail coaches. It exports to over 25 countries in Europe, Africa and West Asia. The company enjoys a good order book position. Rising steel prices in the international markets.
Outlook: The stock currently trades at Rs 340.75, which discounts its FY04 earnings by nearly 51.63 times - BEML also gets a near monopoly stauts in the domestic market. Overall recovery and growth of the economy will create huge demand for its products.
Hence, the prospects of this company are very good for the coming years. We expect it to post a robust growth in earnings on the back of cost efficiencies. A potential multi-bagger.
HERO HONDACurrent price: Rs 508.7Price-earnings ratio: 13.94
The company enjoys the status of India's largest two-wheeler company. Its product range includes Karizma, Ambition 135, CBZ, Splendor, Splendor+, Passion+, CD100SS, CD100 and CD DAWN. It exports to around 31 countries. It is the first two-wheeler company to cross Rs 50 billion in sales in FY04. During this period its volumes also surged by around 23.4 per cent, which is a record in itself. It is a leader in the economy and executive segments. In FY04 the company has been successful in regaining its lost market share; it achieved market share of around 36.7 per cent. It has increased its distribution reach and has tie-ups with banks to boost sales. Increased competition has put pressure on the price of the products. But due to intense cost control activities it has been able to maintain its operating margins quite effectively. It has a track record of paying good dividend to its shareholders over the years. High competition poses a threat to the pricing policy of the company. It depends on good monsoon for its success. Hence vagaries of monsoon can be a threat to the bottomline of the company. Increased fuel cost can also be a cause of concern. The company has high share of related party transactions. Fall in other income will also have impact on the bottomline of the company.
Outlook: The company's stock currently trades at Rs 508.7 which discounts its FY04 earnings by 13.94 times. The automobile industry is on a growth trajectory and considering the fact that Hero Honda is the leader in the two-wheeler industry in India it is in a better position to leverage this growth.
The company is consistently showing good performance and in FY04 it has been successful in regaining its market share. Hence the stock looks attractive at the current valuations taking into consideration its growth potential.
A potentially high growth story with earnings CAGR over the next two years to approach the 20 per cent mark.
ACCCurrent price: Rs 316.80Price-earnings ratio: 28.05
ACC is involved in manufacturing and marketing of cement, readymix concrete (RMC), refractories and refractory products. It is also into consultancy and engineering services.
Its manufacturing base consists of 14-cement plants spread all over India, two refractory plants - one each at Maharashtra and MP - and 6 RMC plants near to four metros of India and Bangalore.
The company meets around 83 per cent of its power requirements through its captive power plants. Its marketing is done through a network of 11 regional marketing offices, 16 area offices and 160 warehouses. It is the largest and oldest cement manufacturer in India. Extensive R&D facility as well as expertise in manufacturing all types of cement. It has a widespread distribution network throughout the country. It has commenced the establishment of 1.3 mtpa clinkering unit along with a 15 mw captive power plant at Chaibasa. The project cost is estimated at Rs 2.85 billion and is expected to be completed by 2005. This would mark the conversion of all its plants into the cost efficient dry process. During FY04 it acquired 86.79 per cent equity stake in IDCOL Cement, now renamed as Bargarh Cement (BCL). ACC had no significant presence in Orissa. BCL has 1 mtpa integrated cement plant in northwest Orissa. Hence this acquisition has instantly provided a sizeable market share in Orissa and is expected to further strengthen the company's position in the eastern market. High cost of inputs such as crude oil, petroleum products, coal, etc puts pressure on the bottomline. Cement is one of the highly taxed commodities in India.
Outlook: The stock currently trades at Rs 316.80, which discounts its FY04 earnings by 28.05 times. There are huge prospects of cement industry growth in the coming years. Housing and infrastructure are the key demand drivers for the cement sector.
ACC being one of the oldest and largest cement players is in a good position to leverage this growth. Its thrust on divesting non-core business activities is also providing additional benefits to the company. Another solid stock, which should comfortably provide 25 per cent plus earnings CAGR during the current fiscal and next.
AHMEDABAD ELECTRICITY COCurrent price: Rs 120Price-earnings ratio: 16.22
AEC has a transmission and distribution network having a generating capacity of 500 mw. Besides the generation and distribution of electricity, the company's power services division undertakes project management of power plants, electrical installation contracts and operation and maintenance assignments of other power stations in the country. The most significant achievement of the company in FY04 was reduction in its transmission and distribution loss by more than 2 per cent. It carried out a massive drive against illegal connections and for a slum electrification programme. During the FY04 various measures were undertaken for the upgradation of the system network. The Electricity Act 2003 has ushered in a new era of long overdue reforms in the Indian power sector. It is participating in a 1095 mw power project being established near Surat under Torrent Power Generation. State Electricity Boards (SEBs) and central public sector companies mostly dominate power sector. The Electricity Act will also increase the risk of growing competition. Quality and availability of coal supply is also a cause of concern. Establishment of captive power plants can also cause loss of bulk customers.
Outlook: The stock currently trades at Rs 120, which discounts its FY04 earnings by 16.22 times. The overall industrial growth will increase the requirement of power.
Also, the company has taken various measures to upgrade its system network. It has also undertaken various power projects. There is huge growth potential for this company. The earnings CAGR over the next two years is likely to exceed the 25 per cent mark.