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Sunday, March 10, 2013

Largecap Stock analysis - Reliance Industries, ICICI Bank, Tata Motors and Punj Lloyd!

Question: Can you please cover some Large-Cap stocks which will make good profits over the next 3-6 months. Since large caps stocks are available at good value, which are the stocks that we can invest currently in?


Reliance Industries
Reliance Industries or RIL is truly is a forgotten story. Behemoth of Indian giants, leader through Market Cap, and crown jewel of Indian stocks is today languishing in terms of stock price performance. The stock which has seen a highs of 1600 in 2007 end, and highs of 1200+ as recently as 2010 was languishing at 750-850 kind of range during most of 2012.

Nothing really has changed on the ground, fundamentally speaking, for RIL. Its performance from 2008 to 2012 has been stellar, with revenues growing each year and profits following suit. In a period of 4 years, the revenues have more than doubled from Rs 1.39 Lakh crores to Rs 3.29 Lakh crores, which is terrific for a company of this size, this delivering an annual CAGR of over 20%.

Even on a Quarterly basis, over the past 5 quarters, RIL performance has been stellar. Revenues have shown growth on a quarterly basis, growing from 85,135 cr in quarter ending Dec, 11 to 93,886 cr in quarter ending Dec, 12. Profits and EPS have been improving, which shows a growth of net profit to 5,502 cr in Dec, 12 over 4,440 cr recorded in Dec, 11 quarter. Net profit margin has improved to 5.75% from 5.11% over five quarters and EPS has improved from 13.56 in Dec, 11 quarter to 17.04 in Dec, 12 quarter.

Thus what we see is that this behemoth is able to clock solid growth in revenues, and recently even on the profit margins front there is a visible improvement. One key parameter which value investors look for is the Book Value. This represents the amount a firm brings to the table in terms of its tangibles, i.e. simply speaking, if you sell the firm piece by piece, what is the amount that can be realized.

For RIL, the Book Value is at INR 507. Thus if you own one share of RIL, you actually own 507 rupees of value that you can realize when the firm closes down its operations, simply speaking. Making investments closer to Book Value is a smart thing to do, as you avoid overpaying for a security.

For Large Caps like RIL, amount closer to 2X the Book Value is not a steep price to pay either. There are times when market goes over board and investors end up investing in firms trading at 4-5 times their Book Value. That's the time one should step back and make slow careful exits from the heated markets. Not at 2X the Book Value. This is the time to step in and make investments.

One simple thing to look at, and most investors miss looking at this parameter is Dividends. Firms which pay dividend on a regular basis are good companies. Period!

For RIL, the firm has never missed a dividend payment in last decade. One also needs to confirm the amount of dividend paid over the price you are paying to hold the share. That's the only payout you receive, if you are a long term investor and hold the scrip for over a year. e.g. for RIL, a share holder will receive 85% of dividend and this is calculated on face value of a share. So a shareholder receives INR 8.5 of dividend for holding a share for one year. On a market price of about Rs 850, this stands to about 1% rate of return for a long term investors from dividends alone.

Technically speaking, 750 is a strong support and firm is making higher lows on charts. Recent lows of Rs 804 would be another good support for RIL on charts. The profit levels to seek on charts are 900 as first level profit, 960 as second level of profit and 1150 as medium level profit target for RIL.

RIL is also in midst of heavy expansion plans in its core and new ventures and is planning entry in Telecom business through 10,000 crores investment its 4G ventures. RIL is also in the process of doubling its petrochemicals capacity and upgrading its refinery business by setting up a pet-coke plant. Also, Reliance Retail is already the largest Food and Veggie retailer for India, despite the stiff competition in Indian Retail space.

RIL, fundamentally and technically, thus looks like a safe, solid long term investment for an Indian investor.


In year 2013 and for couple of initial quarters of 2014, interest rates are expected to decline through-out the year, which increases profitability of banks like ICICI Bank, as lower rates prompts more loans and borrowing and hence greater business and Net Margins for Banks.

ICICI Bank being one of the most successful banking brands in the country, its top-line and bottom-line is showing an uptrend whether one looks at its annual or quarterly trend. EPS has grown from Rs 37.37 per share in 2008 to Rs 56.08 in 2012. Latest quarter revenues are Rs 10,138 crores for quarter ending Dec, 12 and EPS for the quarter is staggering Rs 19.51. Hence bank is profitable and continues to do well on a QoQ basis. Firm is regular dividend paying company and at current market price of Rs 1138, is trading about 2X of its Book Value of Rs 524.

Interesting fact about ICICI bank is that if you look at FII holding of ICICI bank, it is going up quarter on quarter, from 34.93% to 37.18% in last two quarters. General public shareholding is as low as 5.16% and is going down. Hence knowledgeable folks about ICICI’s business are accumulating the stock in a stealth manner.

Technically speaking, 1038 is the nearest support, so one can hold the stock till 1038 is intact. 1100 is another good support for ICICI bank. 1165 is a good place to book partial profits and another place to book partial profits is around 1200.

Tata Motors

Domestic growth for Commercial Vehicles and Car manufacturer companies like Tata Motors is under stress due to overall slowdown in Indian economy and high interest rate environment. However, internationally, Tata Motors continues to do well with its acquisition of Jaguar-LandRover (JLR). JLR is also planning to manufacture its products in India, from scratch, whereas right now only two of their cards get assembled in India.

Firm’s growth has been staggering from Yr 2008 onwards where the sales have grown from Rs 31,884 crores in Year 2008 to Rs 54,306 crores in Year 2012. Firm is a regular dividend paying company and FII shareholding in Tata Motors has been increasing on a QoQ basis.

Technically speaking, Tata Motors is close to its support of 280, from where it has received several rejections. 310 is a resistance level for the stock, crossing which stock can see levels of 340 which is a recent high. If 280 does not hold, stock will receive good support at Rs 250 and Rs 224 respectively.

Punj Lloyd

Punj Lloyd is among the handful of Infrastructure firms which have not turned loss-making during the painful years of 2011 and 2012 for this sector. The firm has shown decent growth in performance, and revenues have grown from Rs 1533 crore in Dec, 11 quarter to Rs 2053 crores in Dec, 12 quarter.

Firm is also a regular dividend paying company and promoter holding has remained consistent for this scrip, unlike many other Infra sector firms. FII holding in the scrip has actually gone up in past two quarters, signifying fundamental strength of the company.

Punj Lloyd is currently available at less than 50% of its Book Value of Rs 114 and is trading at Rs 45.95 currently. For most of year 2012, the firm has traded in a narrow band of Rs 40 to Rs 60 and on breakout of this band, one can see levels of Rs 65 and 77 respectively. Technically speaking, support is at 41 and immediate resistance level is at Rs 59. Rs 65 can be an achievable upside target for the firm in next 6-12 months.

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