December 15, 2011

The Right Time to Invest

The year 2011 has been a year of correction for Indian equity markets. Key indices witnessed negative returns in first 3 quarters of current year and they have fallen close to 23% in year to date. Euro zone uncertainty around sovereign debt has created strong headwinds for emerging market equities but correction has given way to cheaper valuations and one may start investing slowly at current point of time.

SENSEX Historical Correction Cycles

Historically, it has been observed that market the corrections have lasted between 12 and 18 months. Already we have completed 13 months for ongoing correction. It has also been observed that generally after such a deep correction, markets bounce back and regain the lost grounds in next 12-24 months. Given current circumstances, it is likely that Indian markets are going to bottom out before March 2012 and markets can take a healthy rally going ahead in next two years. It is generally seen that when markets take a rally, it is the Midcaps which have given better returns that largecaps, so we have kept our bias slightly on midcap side.

Markets at attractive valuation levels: Time to start accumulation process

Whenever Nifty PE has dropped below 12 and risen above that its been a time to buy, on the other hand whenever it has risen above 25 and then fallen below that, we have seen corrections. We can never buy at exact bottom and sell at exact top, similarly we dont know if we are at lowest P/E currently but if one goes on accumulating over next 3-4 months, slowly investing 20-25% per month, one can expect to reap handsome returns in next 1-2 years.

Taking these factors into consideration, we feel that Indian markets are going to bottom out or might have bottomed out and we expect that Nifty should touch a level of 6000 in 2012 after which 7000 levels may be seen in 2013. Here is a list of 15 companies, with either solid fundamental businesses, great management and execution capabilities or immediate news based catalysts, that investors can start accumulating over the next few months and enjoy the upside.

Recommended Picks:
1. Aditya Birla Nuvo CMP: ` 834.65
Industry: Textiles 52 Wk High/Low: 993.65 / 719 Mcap: 9473 EPS: 85.12

Target Price: ` 1100

P/E: P/B: 10.18 1.48

Aditya Birla Nuvo Ltd is a foremost player in most of its business segments, including viscose filament yarn (VFY), carbon black, branded garments, fertilisers, textiles and insulators. Over the past years, Aditya Birla Nuvo, through its subsidiaries and joint ventures, has also made successful forays into life insurance, telecom, business process outsourcing (BPO), IT services, asset management and other financial services, striking a balance between value businesses and high growth businesses. The company has strengthened its leadership position in financial services, telecom and fashion and lifestyle businesses. It has posted strong earnings even amidst the challenges of prevailing macro-economic environment that affected few businesses. This only reflects the strength of its conglomerate model.

2. GMDC CMP: ` 168.90

Industry: Mining / Minerals 52 Wk High/Low: 194 / 101.70 Mcap: 5371 EPS: 13.52

Target Price: ` 230

P/E: P/B: 12.77 3.29

Gujarat Mineral Development Corporation Ltd is a mining and mineral processing company in India. The company is the largest merchant seller of Lignite in India. The company produces lignite, bauxite, calcined bauxite, fluorspar and manganese ore. They are also engaged in the generation of power. The company offers lignite for various industrial units, including textiles, chemicals, ceramics, bricks, and captive power. The company is the sole merchant seller for Lignite in India. Higher lignite & bauxite volumes, better power plant performance and ongoing capacity expansion plans makes the company a good opportunity for investment. Moreover the company has huge reserve base to cater to demand potential of Gujarat.

3. LIC Housing Finance CMP: ` 218.20

Industry: Finance - Housing 52 Wk High/Low: 245 / 150.40 Mcap: 10357 EPS: 16.21

Target Price: ` 260

P/E: P/B: 13.47 2.49

The Company was promoted by Life Insurance Corporation on 19th June 1989. The main objective of the company is providing long term finance to individuals for purchase / construction / repair and renovation of new / existing flats / houses. The Company also provides finance on existing property for business / personal needs and gives loans to professionals for purchase / construction of Clinics / Nursing Homes / Diagnostic Centres / Office Space and also for purchase of equipments. Its strong brand name with wide marketing network and buoyancy in demand for housing loans would support its growth going forward. Margins would remain under pressure led by higher interest rate regime. Recently, LICHF has launched New Advantage 5', under which the interest rate would remain, fixed for the first five years and thereafter at floating rates. The floating rates will be linked to the Prime Lending Rate prevailing at the time of the switch.

4. SRF CMP: ` 254.95

Industry: Textiles 52 Wk High/Low: 373.9/252.45 Mcap: 1543 EPS: 83.32

Target Price: ` 365

P/E: P/B: 3.17 0.99

SRF Limited (SRF), a multi-product and multi-business organization was incorporated on 9th January 1970 under the name of Shriram Fibres Ltd, now it is market leader in Technical Textiles, Refrigerants, Engineering Plastics and Industrial Yarns. The business divisions of the company include Technical Textile Business, Chemical Business, Packaging Films Business, Industrial Yarn Business and Engineering Plastics Business. SRF is a global entity with operations in 8 locations of India, in Dubai, in South Africa and in Thailand, totally 4 countries. Building on its in-house R&D facilities for Technical Textiles Business and Chemicals Business, the company strives to stay ahead in business through innovations in operations and product development. The company plans to set up 28,500 MT polyester film plant in Bangladesh and a metalliser with a capacity of 7,050 tonnes annually in Thailand at a total investment of around Rs 290 crore. The company also plans an upward revision in capital investment for a multipurpose chemical plant at Dahej to Rs 132 crore.

5. Power Grid Corporation CMP: ` 99

Industry: Power Generation & Supply 52 Wk High/Low: 112.35 / 93.60 Mcap: 45834 EPS: 5.95

Target Price: ` 120

P/E: 16.19 P/B: 2.07

Power Grid Corporation of India Ltd is India's principal electric power transmission company. The company is engaged in the transmission of bulk power across different states of India. They own and operate more than 95% of India's interstate and inter-regional electric power transmission system. There has been tremendous spurt in the volume in Short Term Open Access (STOA) scheme resulting in overall reduction in cost of power to the consumers. With more and more UMPPs (Ultra Mega Power Projects) and Merchant Power coming up, management expects that the volume in STOA will continue to increase. Despite of the difficulties in land acquisitions, RONW etc, management is confident of achieving its planned targets for 11th and 12th 5-year plan. For 11th 5-year plan, which ends on Mar'12, capex of about Rs 55000 was planned of which till Oct'11, about Rs 43000 has been incurred. Management is confident of incurring the capex of the balance of Rs 12000 crore before Mar'12. For 12th 5-year plan, capex of about Rs 100000 crore is planned and management is confident of the same.

6. ZYLOG SYSTEMS CMP: ` 395.65 Industry: IT-Software Mcap: 650 P/E: P/B:

Target Price: ` 520 4.92 0.96

52 Wk High/Low: 468.05 / 334.90 EPS: 80.21

The company provides complete Software Development Life Cycle, ranging from new product development and product advancement to product migration, re-engineering, sustenance and support. They have global partnerships with some of Fortune 500 companies, including leading ISV and Technology companies. In March 2010, it acquired a Canadian consulting and engineering firm Brainhunter for about USD 35 million. The company plans to sell solutions and services which they have specialty in the areas of industry verticals. Zylog is gearing itself up for a big play in the eGovernance area.

7. VOLTAS CMP: ` 83.20

Industry: Diversified 52 Wk High/Low: 237 / 81.50 Mcap: 2752 EPS: 7.30

Target Price: ` 120

P/E: P/B: 11.46 2.18

Voltas Ltd is one of the leading engineering solutions providers and project specialists companies in India. Going forward the management is expecting the traction in order book to gain further momentum in ensuing quarters led by contribution from new geographies (Saudi Arabia and Oman) along with strong order booking in the domestic market. Moreover, the project execution in Qatar is also gathering momentum, keeping the long-term outlook for the company's intact.

8. HAVELLS INDIA CMP: ` 400.55

Industry: Electrical Equipments 52 Wk High/Low: 451.25 / 290.10 Mcap: 4997 EPS: 20.67

Target Price: ` 540

P/E: P/B: 17.78 8.19

Havells is one of largest electrical and power distribution equipment manufacturer Company in India. The restructuring of Sylvania has strengthened the performance of Havells and the company expects a significant jump in performance in FY12. In the domestic market, Havells is expected to continue its robust sales growth trend, led by switchgears, consumer durables , cables and wires segments, and helped by industrial expansion, ramp-up in power capacity and strong demand for consumer products. Its strong growth in domestic market, new product launches and capacity additions will be key growth drivers for the company.

9. GODREJ INDUSTRIES CMP: ` 198.35

Industry: Diversified 52 Wk High/Low: 235.7/155 Mcap: 6300 EPS: 8.43

Target Price: ` 275

P/E: P/B: 23.29 3.27

Godrej Industries Ltd is a diversified Indian company with business interests ranging from chemicals, personal care, processed foods and beverages, animal feeds, poultry, rural retailing, pest management services, property development, agri-products to branded tea, confectionery and household insecticides. The company largely operates in the business of oleo-chemicals, edible oils, fats, processed foods, finance & investments and estate management. The Chemicals Division of the company is a leading manufacturer of oleochemicals like fatty acids, glycerin, fatty alcohols and surfactants. The Chemicals Division has manufacturing facilities at Vikhroli, Mumbai and Valia, Gujarat. The Veg Oils division of the company manufactures edible oils, vanaspati and bakery fats. Its diversified business provides a hedge against adverse developments in particular industry. The company is planning a major expansion in its agri and chemical businesses at an investment of around `300 crore. The Godrej group owns about 5,000 acres of land in Vikhroli; a part has been used for residential and commercial purposes. The company plans to develop approx 3mn sq ft of property. The company holds 69.51% stake in Godrej Properties Ltd.

10. MUNDRAPORT SEZ CMP: ` 127 Industry: Diversified 52 Wk High/Low: 169.75 / 115.25 Mcap: 25443 EPS: 5.45

Target Price: ` 170 P/E: P/B:

23.93 6.09

Mundra Port and Special Economic Zone (MPSEZ) is the largest private port in the country providing port services for a diversified cargo including bulk, liquid and container cargo. It also provides value added service including container rail and storage service. Its superior infrastructure and natural advantages have helped the company increase its volume at a CAGR of 33% over FY06-FY11 to 52 million tonnes. The company is also aggressively expanding in other coastal parts of India and even abroad.

11. INDIA CEMENTS LTD. CMP: ` 69.80

Industry: Cement 52 Wk High/Low: 112.80 / 62.10 Mcap: 2144 EPS: 8.12

Target Price: ` 120

P/E: P/B: 8.75 0.62

India Cements India cement appears well-placed to benefit from falling raw material costs and maintain its price line. With several infrastructure projects being rolled out in Tamil Nadu, demand in the region may revive. India cement has outlined capex of Rs 600 crore to set up two captive power plants, one each in Andhra Pradesh and Tamil Nadu. These units, as they are commissioned, will help in additional savings. The company's coal mine in Indonesia is all set to begin activity by endDecember.

12. BERGER PAINTS CMP: ` 90.70

Industry: Paints 52 Wk High/Low: 117.75/74 Mcap: 3139 EPS: 4.57

Target Price: ` 128

P/E: P/B: 20.46 4.49

Berger Paints India Ltd is the third largest paint manufacturer and the second largest decorative paint player in India. Demand for industrial paints has been improving in the auto and infrastructure sectors but decorative paints segment accounting nearly 75% of the overall Indian paints market. The company enjoys a market share of 18% in decorative paint segment. With improving government spending on infrastructure and construction in the urban and metro areas, the prolink (dealing directly with major projects) segment is also expected to do well.

13. TVS MOTOR COMPANY CMP: ` 52.85

Industry: Automobiles 52 Wk High/Low: 74.95 / 43.70 Mcap: 2510 EPS: 4.90

Target Price: ` 67
P/E: P/B: 10.74 2.50

The company manufactures a wide range of two-wheelers from mopeds to racing inspired motorcycles. On the back of consistent growth across all segments, the company has shown strong numbers in H1FY12. Its net profit jumped by 42.2% to Rs 135.31 crore while net sales increased by

23.7% to Rs 3659.43 crore. In FY11 its net profit jumped by 60.3% to Rs 194.58 crore while net sales rose 41.6% to Rs 6179.48 crore.

14. IRB INFRASTRUCTURE CMP: ` 145.95

Industry: Construction 52 Wk High/Low: 233.70 / 132 Mcap: 4850 EPS: 14.44

Target Price: ` 245

P/E: P/B: 9.96 1.97

IRB Infrastructure Developers is one of the leading infrastructure development Company (acting through various SPVs/ subsidiaries) in the country with extensive experience in roads and highways. The company has now a portfolio of about 7000 lane kms of highway across 17 country wide projects. Of these, 10 are already operational, 6 are under implementation and one is under financial closure. IRB Infrastructure's order book now stands at Rs 11700 crore, including Rs 9700 crores worth of EPC order book that will be executed over a period of 3-4 years.

15. DLF CMP: ` 202.35

Industry: Construction 52 Wk High/Low: 298.2 / 173.40 Mcap: 34362 EPS: 7.87

Target Price: ` 330

P/E: P/B: 25.52 2.47

DLF Ltd is focusing on strengthening its lateral and vertical business drivers and charted it next growth steps to retain its leadership position in India, already a major player in locations across the country, including metro and key urban centres. The group is capitalizing on emerging market opportunities to deliver high-end facilities and projects to its wide base of customers by constantly upgrading its internal skills and resource capabilities. In line with its current expansion plans, the DLF Group has over 748 million sq. ft. of development across its businesses, including developed, on-going and planned projects. This land bank is spread over 32 cities, mostly in metros and key urban areas across India.

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