ICICI Prudential

Bluechip Fund
Invest in India’s
biggest* companies

*Top 100 Companies in terms of

full market capitalization.
To invest, Visit: www.iciciprumf.com | Download IPRUTOUCH App Contact your Mutual Fund Distributor

ICICI Prudential Bluechip Fund (An open ended equity scheme predominantly investing in RISKOM
E ME ET
large cap stocks) is suitable for investors who are seeking*: CH E
R
S

• Long term wealth creation

• An open ended equity scheme predominantly investing in large cap stocks

̴UŨǍğơƭųƙơ͘ơŀųƵŝė͘ĐųŨơƵŝƭ͘ƭŀğņƙ͘ǦŨñŨĐņñŝ͘ñėǍņơğƙơ͘ņķ͘ņŨ͘ėųƵĎƭ͘ñĎųƵƭ͘ǎŀğƭŀğƙ͘ƭŀğ͘ƖƙųėƵĐƭ͘ņơ͘
Investors understand that their
suitable for them. principal will be at Very High risk

Some of the portfolio holdings as on March 31, 2024. To view the current portfolio, please refer the latest factsheet. Past performance may or may not
be sustained in the future. The stock(s)/sector(s) mentioned do not constitute any recommendation and ICICI Prudential Mutual Fund may or may not
have any future position in them. The asset allocation and investment strategy will be as per the Scheme Information Document. The Risk-o-meters
ơƖğĐņǦğė͘ñĎųǍğ͘ǎņŝŝ͘Ďğ͘ğǍñŝƵñƭğė͘ñŨė͘ƵƖėñƭğė͘ųŨ͘ñ͘ŦųŨƭŀŝǔ͘Ďñơņơ̩

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
 May 2024 VOLUME XVII, NUMBER 11

46 Cover Story
EDITORIAL POLICY
The goal of Wealth Insight, as with all
publications from Value Research, is

10 rock-solid
not just limited to generating profitable
ideas for its readers; but to also help
them in generating a few of their own.
We aim to bring independent, unbiased
and meticulously-researched stories
that will help you in taking better-in-
formed investment decisions, encour-
aging you to indulge in a bit of research
on your own as well.
stocks with
stable earnings
All our stories are backed by
quantitative data. To this, we add
rigorous qualitative research obtained by
speaking to a wide variety of
stakeholders. We firmly stick to our
belief of fundamental research and val-
ue-oriented approach as the best way to
earn wealth in the stock market. Equally
important to us is our unwaveringly
focus on long term planning.
Simplicity is the hallmark of our
style. Our writing style is simple and
so is the presentation of ideas, but that
should not be construed to mean that
we over-simplify.
Read, learn and earn – and let’s
grow and evolve as we undertake this
voyage together.

EDITOR-IN-CHIEF Dhirendra Kumar

COPYEDITING Harshita Singh, Khyati

Simran Nandrajog, Mithilesh Bhaumik
and Ujjal Das

RESEARCH & ANALYSIS Chirag Madia,

Hemkesh Khattar, Karthik Anand Vijay,
Karon Anand, Kunal Bansal, Ravikant
Prasad, Ruchira Sharma, Samridh Rela, 38 Words Worth Wisdom 44 Interview
Satyajit Sen, Shubham Dilawari, Sneha
Suri, Udhayaprakash J and Vishal Goyal Cracking the Through the
DESIGN Aman Singhal, Anand Kumar,
Aprajita Anushree, Harish Kumar, Kamal
multibagger professional’s lens
Kant Koner, Mukul Ojha and Nitin Yadav code Anish Tawakley
DATA SOURCE FOR STOCKS AceEquity
Siddhartha Bhaiya Deputy CIO-Equity,
ICICI Prudential Mutual Fund
MARKETING Aastha Tiwari, Managing Director
Aditya Roy, Ashish Jain, Jash Ashar and Fund Manager
and Kasturi Kaushik
of Aequitas
PRODUCTION MANAGER & CIRCULATION Investment
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EMAIL editor@valueresearch.in

4 Wealth Insight May 2024

 

CONTENTS
26 IPO Tracker 55 Main Street
by SAURABH MUKHERJEA
D-Street debutants
The rise of the woman voter
has major investment
27 ABCD ETF implications
Passive funds and How increased female voter
specialised investing participation benefits the economy

7 Edit
by DHIRENDRA KUMAR 58 Straight Talk
by ANAND TANDON
Process + Action
= Results Will AI innovations topple
For anchored investing with Alphabet’s market
steady performers leadership?
AI-led breakthroughs pose a threat
to the company’s hegemony
8 Twitter
The independent 28 Analyst’s Diary
market pundit 60 Everyday Economics
z Weaving the growth fabric by PUJA MEHRA
Utsav Shrivastava
z Too hot to handle
@utsav1711 | 52.2k Why smart young
z Starting the upward
Indians aren’t working in
journey on a rollercoaster the private sector
10 Market Reporter
z Diamond market sparkles A dearth of private-sector jobs pushes
Buzz of the month with new opportunities job seekers to turn to government jobs
z FY24 Performance review
14 Stock Story 62 Stock Screen
On the boil Finding growth and value
The story of the second-largest 41 vis-a-vis
Using our stock screens to help you
oil & gas company in India In the fast lane find still-growing large companies and
attractive high-quality mid caps

16 Big Moves
The most significant 66 Wordsworth Now
price movements Quotable words from
prominent figures
22 Index Watch
‹9DOXH5HVHDUFK,QGLD3YW/WG
S&P BSE Metal Wealth Insight is owned by
42 Stock Advisor
Value Research India Pvt. Ltd.,
by DHIRENDRA KUMAR 5, Commercial Complex, Chitra Vihar, Delhi 110 092.
24 Market Barometer Stock-picking with Editor-In-Chief: Dhirendra Kumar.
Trends and trails Stock Advisor Printed and published by Dhirendra Kumar on behalf
of Value Research India Pvt. Ltd. Published at 5,
Here are some charts that will help you Here’s why our members trust us to Commercial Complex, Chitra Vihar, Delhi 110 092.
Printed at Option Printofast, 46, Patparganj Industrial
make sense of the current market in build and maintain dynamic, resilient
Area, Delhi-110092
terms of valuations and return potential portfolios that last them a lifetime Total pages 68, including cover

',6&/$,0(5
The contents of Wealth Insight published by Value Research India Private Limited (the ‘Magazine’) are not intended to serve as professional advice or guidance and the Magazine takes no responsibility or liability, express or implied, whatsoever for any investment
decisions made or taken by the readers of this Magazine based on its contents thereof. You are strongly advised to verify the contents before taking any investment or other decision based on the contents of this Magazine. The Magazine is meant for general reading
purposes only and is not meant to serve as a professional guide for investors. The readers of this Magazine should exercise due caution and/or seek independent professional advice before entering into any commercial or business relationship or making any
investment decision or entering into any financial obligation based on any information, statement or opinion which is contained, provided or expressed in this Magazine.
The Magazine contains information, statements, opinions, statistics and materials that have been obtained from sources believed to be reliable and the publishers of the Magazine have made best efforts to avoid any errors and omissions, however the
publishers of this Magazine make no guarantees and warranties whatsoever, express or implied, regarding the timeliness, completeness, accuracy, adequacy, fullness, functionality and/or reliability of the information, statistics, statements, opinions and
materials contained and/or expressed in this Magazine or of the results obtained, direct or consequential, from the use of such information, statistics, statements, opinions and materials. The publishers of this Magazine do not certify and/or endorse any
opinions contained, provided, published or expressed in this Magazine.Reproduction of this publication in any form or by any means whatsoever without prior written permission of the publishers of this Magazine is strictly prohibited. All disputes shall be subject
to the jurisdiction of Delhi courts only. ALL RIGHTS RESERVED

May 2024 Wealth Insight 5


EDIT
Process + Action
= Results
X For anchored investing with
steady performers
B
y its very nature, equity investing attracts
optimistic people. Often, they are not just
ordinarily optimistic but wildly optimistic.
No one becomes an equity investor to lose less
money. Equity investing attracts maximisers. They
are not interested in modest success. Instead, they
are driven by the desire to achieve extraordinary
returns and outperform the market. This
combination of unbridled optimism and the pursuit
of maximum gains can lead investors to take on more
risk than they can handle. They may overlook
potential pitfalls and downplay the possibility of
losses, focusing solely on the potential upside.
However, that’s where investors begin. Sooner
rather than later, life and the markets teach them a
lesson, and the wild optimism of the beginner investor
somewhat moderates. Good returns, but tempered with
moderation, start looking like a better idea. This
transition from boundless enthusiasm to a more
measured approach is often the result of experiencing
market fluctuations first-hand. As investors mature,
they begin to appreciate the importance of
diversification and risk management. The lessons
learned from market downturns can be invaluable,
instilling a sense of realism that tempers their initial
optimism. Instead of chasing the highest possible
returns at all costs, seasoned investors aim for
consistent, sustainable growth. They understand that
in the world of equity investing, sometimes the best
strategy is to aim not just for the stars but for steady
progress that withstands the test of time.
That’s precisely what our cover story of the month is
about. Within the Indian equity markets, there are
many companies that satisfy the criteria for stability as
well as basic quality. That much is obvious. However,
like most things in the equity markets, identifying the
investment-worthy amongst them is a lot more difficult
by Dhirendra Kumar
than it was in the past. This sounds paradoxical, for
aren’t we living in an age of perfect information?
Once upon a time, you needed some kind of an
information advantage, some access to people or
institutions that was not commonly available. Now,
however, this advantage has largely disappeared.
Presently, virtually all information and analytical
methods are accessible to everyone, often without any
cost. The main constraints for investors now are their
own intellect, knowledge base and the amount of time
they are able to invest in their financial endeavours.
Despite the democratisation of information,
investing has paradoxically become more challenging.
This increased difficulty could be attributed to the
overwhelming abundance of data and the rapid pace of
market changes, which require investors to be more
agile and discerning in their decision-making
processes. Consequently, the sheer volume of
information can sometimes lead to analysis paralysis,
where making informed decisions becomes
unexpectedly cumbersome.
The quest to identify companies that have a track
record of stable earnings growth is a perfect example.
Most investors working alone would not even think of
this as a category, much less actually be able to create a
tentative set of companies that fit the criteria. Without
the research and analytical rigour that an organised
investment process brings, they would not be able to do
an exhaustive search for such stocks. That’s the unique
value that Value Research’s team brings to you.
We formulate a rigorous methodology, start with an
appropriate universe and at the end of the multi-stage
process, create a qualitative review of the stocks that
make the grade.
However, do keep in mind that like all our articles in
Wealth Insight, this is not a recommendation list.
What it does is show you examples of the kind of stocks
that you should be researching further. What we offer
is a starting point for your own due diligence. It’s
crucial to remember that the final decision rests with
you, the investor.
May 2024 Wealth Insight 7
 TWITTER

The independent
market pundit
The biggest number in the world multiplied by zero equals zero.
Utsav Shrivastava Similarly, a company with great products/capacity/moat multiplied by a
@utsav1711
below-par promoter will create zero value for investors.
Any promoter that doesn’t create wealth for minority shareholders
52.2k | Followers is below-par.

Why Follow The beauty of India is that a right product at a right price has infinite demand.
There are very few markets in the world with this luxury.
Key is to get a quality product in the mkt at an affordable price. If cos are able

P
une-based Utsav
Shrivastava retired at a to do this then demand will outstrip supply!
young age and became
a self-learned independent If you ask me my biggest mistakes, it’s not investments, which become zero
but stocks, which I sold too soon.
investor. He is a classic
In the stocks, which became zero, I lost finite capital.
long-term investor who
But in the stocks, which I sold too early, I lost infinite upside.
likes to share his views on
current market scenarios and
It’s a shame that we let the index movement of de-growing or stagnant
topical trends across various
economies affect our stock owning decisions.
industries through his X
(Twitter) account. Shrivastava
Markets seldom fall when investors are in caution mode, bearish, and sitting
is also passionate about
on cash.
early stage investing and has
Big corrections mostly happen when there is exuberance in the mind, leverage
been involved in investment in the system and when people throw caution to the winds.
banking related activities.
He spent a significant part A good company must throw out cash sooner or later.
of his career working in Otherwise it’s like owning a cow, which drinks all of its own milk.
home, mortgage and personal The owner has pleasure of ownership, but gets nothing else.
loan sales across reputed Avoid cos where:
companies such as Citi India, 1. Working capital consumes all cash generated
Standard Chartered Bank and 2. Are on continuous capex spree.
Centurion Bank of Punjab.

Follow us on
social media
@VROStocks vrostocks VROStocks
 Aim to Solve
Jigsaw
of Volatility

Invest in

Mirae Asset
Multi Asset Allocation Fund
ETF- Exchange Traded Funds

352'8&7/$%(//,1*0,5$($66(708/7,$66(7$//2&$7,21)81'
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&NKC$3%R 2HKUDQ$3%R@MCDWBG@MFDSQ@CDCBNLLNCHSXCDQHU@SHUDR
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Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
 MARKET REPORTER

IOCL and Panasonic to
form a JV for producing
lithium-ion cells
Indian Oil and Panasonic Energy, a
subsidiary of Panasonic group, have
partnered to manufacture cylindrical
lithium-ion cells in India. They aim to
capitalise on India’s target to achieve
30 per cent of electric vehicles by 2030.
IOCL stated that the partnership seeks
to fulfil domestic demand and make the
production process self-sufficient
regarding raw material sourcing.
This will also help the company meet
its net zero emissions goal by 2046.
Vodafone’s mega
fundraising plan
Vodafone recently opened its
`18,000 crore FPO (follow-on
public offering) by issuing
1,636 crore shares. Around
71 per cent of the proceeds
will go towards expanding
the infrastructure in both Nestle India
4G and 5G. Further, the
company raised `6,275 crore
hikes royalty
from 85 anchor investors payment
through 570 crore shares.
With the latest fundraising,
to parent
the company’s total shares The Nestle India board has
outstanding have jumped approved the licence fee
by 44 per cent to 7,219 crore. payment hike to its Swiss-
based parent company,
Nestle. The hike will be done
in a staggered way, with the
licence fee increasing by
0.15 percentage points each
year for the next five years.
At present, the company
pays 4.5 per cent of its
revenue, which will reach
5.25 per cent by FY29.

Jio Financial Services partners

with BlackRock
Jio Financial Services has announced a joint

`32,400 crore
is the capex announced by
Ultratech Cement for the next
three years. With this move,
its total capacity would be
151.6 MTPA
venture with US-based BlackRock for its wealth
business, which includes wealth management
and setting up a brokerage business in India. This
is part of its plan to bring lending, asset
management, insurance and stock broking
under one umbrella. In the previous quarter,
the company also announced its leasing and
supply chain financing business after its
demerger from Reliance Industries in August 2023.

Hinduja Group enters the asset management business

One of India’s leading conglomerates, Hinduja Group, entered the asset management
business by acquiring a 60 per cent stake in Invesco AMC through IIHL. The remaining
40 per cent stake will continue to be held by Invesco. Hinduja Group has also got approval
from NCLT to acquire Reliance Capital for `9,861 crore as part of its plan to expand its
operations in BFSI segments.

10 Wealth Insight May 2024

Exide Energy Solutions partners with ECONOMIC METRICS
Hyundai and Kia .:;JVSSLJ[PVU
Exide Energy Solutions, a wholly-owned subsidiary of Exide Industries, 2,00,000 In ` cr
signed an MoU with Hyundai Motors and Kia Corporation.
1,50,000
The partnership will explore the production and supply of
EV cells for Hyundai’s electric vehicles in the Indian 1,00,000
market. Exide’s subsidiary will also set up a lithium-
50,000
ion gigafactory in Karnataka. With this move, the
share price of Exide Industries is up 13 per cent in 0
one week (as of April 18, 2024). Mar '22 Mar '24

0UMSH[PVU!*VUZ\TLY7YPJL0UKL_
Aditya Birla group
launches ‘ABCD’ app `8,339 crore 8

7
% change YoY

Aditya Birla Capital, the group’s was invested by Adani 6

listed finance arm, has Group in Ambuja Cements,
5
announced the launch of a taking its total investment
direct-to-consumer app ‘ABCD’. to `20,000 crore and 4
The platform will offer 22 Mar '22 Mar '24
increasing its stake to
products to users including UPI,
recharges, loans, insurance,
70.3 per cent.
0UK\Z[YPHSHJ[P]P[`!0UKL_VM
investments and more. The
0UK\Z[YPHS7YVK\J[PVU
company aims to add 30 million
20 % change YoY
RBI keeps interest
new users in three years.
In March 2024, the company 10
recently converted from an
NBFC CIC (core investment
rates unchanged 0

company) to an NBFC ICC RBI has announced that the

-10
(investment and credit repo rate will remain at Jan '22 Jan '24
company). 6.5 per cent. This is the eighth
consecutive time the rate has
remained unchanged. RBI has `]Z
stated that global economic 72 Inverted scale
growth is expected to be steady
in 2024 and inflation too, has 75
been easing. Real GDP growth 78
for FY25 is projected at
7 per cent and CPI inflation 81
at 4.5 per cent. 84
Apr '22 Apr '24

Tech giants announce FY24 results *Y\KLVPS

Indian tech giants TCS and Infosys have announced their 150 Brent $/barrel
results. Both companies posted modest revenue growth of
7 and 5 per cent, respectively, in FY24. While TCS’s 120
operating profit grew by 9 per cent, Infosys posted a
growth of just 3 per cent in FY24. This affected the latter’s 90
operating profit margin. On the other hand, Wipro’s CEO
Thierry Delaporte has stepped down and Srini Pallia is set 60
to take his place. Apr '22 Apr '24

May 2024 Wealth Insight 11

 MARKET REPORTER

Aditya Birla Fashion announces demerger

ICICI Securities
secures shareholder
approval for delisting
ICICI Securities has received
approval from its shareholders to
delist. Post-delisting, the company
will merge with its parent company,
ICICI Bank. The shareholders of
ICICI Securities will get 67 shares of
ICICI Bank for every 100 shares
held. During the merger
announcement, its parent stated
that it could better capitalise on the
operational synergies with this
move. Both entities faced backlash
from minority shareholders at the
time of the announcement.
Aditya Birla Fashion and Retail recently announced a demerger, in which
its Madhura Fashions segment will be listed as a separate entity. Post-
demerger, value retail (Pantaloons), ethnic, luxury and digital
brands will remain with the company. The move aims to
simplify the structure for value creation and is expected to
be completed in the next year. Madhura segment includes
reputed brands such as Peter England, Allen Solly, and more.
Indian exports
touch record high `12,000 crore
Indian exports are expected is the amount that PowerGrid
to reach $776.6 billion in plans to raise in FY25
FY24, up from $776.4 billion through non-convertible
in FY23. The growth was bonds in multiple tranches.
primarily led by electronic
goods, which rose by
23.6 per cent to $29.1 billion.
Iron ore exports grew the
most, by 117.7 per cent,
while drugs and pharma
rose by 9.7 per cent.
Chemical exports fell by
3.2 per cent in FY23.

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of world-class money managers

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 STOCK STORY OIL INDIA

On the boil
The story of the second-largest oil & gas company in India

S
tate-run Oil India, the second-
largest domestic oil and gas
exploration and production
company, has been on a
monumental rise. Its stock yielded a
sharp return of 140 per cent in the
last one year as the company
amassed its best-ever revenue and
net profit as well as incurring the
highest-ever capex in FY23.
Profit and loss statement
break-up of Oil India
Oil India’s journey
(` crore)
The company has come a long way
since crude oil was first discovered in
the fields of Digboi, Assam in 1889. To
expand the oil fields of Naharkatiya
and Moran in the northeastern region,
Oil India was incorporated in 1959 as a
Total Operating Profit before Finance
joint venture between the Bumrah Oil costs
income expenses interest and tax
Company (UK) and the Government of 36,208 24,146 9,585 882
India. It then became the latter’s Tax
wholly-owned subsidiary in 1981. Revenue 2,075
This was followed by expansion 34,902 Profit
Operating after tax
and diversification. Oil India went profit 6,627
from setting up an LPG plant in 1982 Other 12,063
income
(focusing on the gas segment) to 1,306
diversifying into the downstream Exceptional items and
business by acquiring a 12.3 per cent loss from JV
stake in Numaligarh Refinery in -2,478
2000. The highest-ever number of
seismic surveys helped it cross three
million metric tonnes (MMT) of
Data for TTM December 2023

Oil India Sensex (rebased to stock price)

Sep 30, 2009 Sep 15, 2010 Mar 16, 2016

`228 `325 `152

Feb 11, 2010
Joins a multi-billion
dollar integrated oil
project in Venezuela.
Oct 4, 2012 June 25, 2013 Jul 4, 2014 Dec 26, 2015
Acquires 30 per cent stake Oil India & ONGC Videsh Ltd Enters Russia by Signs MoU with
(jointly with Indian Oil sign pact to acquire Videocon acquiring 50 per cent Russian oil and
Corporation) in Carrizo’s Niobrara Mozambique Rovuma 1 stake in PetroNeft’s gas major
shale assets in Colorado, US. (giant gas field) for $2.5 billion. oil block. Rosneft.

14 Wealth Insight May 2024


Revenue and
profit after tax
Revenue
(` ’000 cr, left side)
Profit after tax
(` ’000 cr, right side)
Operating profit
and margin
Operating profit
(` 000 cr, left side)
Operating profit margin
(%, right side)
Crude oil
production
Million metric tonnes
Capital
efficiency
ROE
ROCE
Mar 5, 2018
Gets approval from Announces final
Mozambique government investment for the
to develop Golfinho-Atum two train Mozambique
natural gas field. LNG project.
crude oil production for the
40 10.0 first time in 2004. The same year,
it started exploring export
30 7.5
opportunities by signing an MoU
20 5.0 with Indian Oil Corporation.
But, the company’s growth path
10 2.5
has always had its fair share
0 0 of challenges.
FY14 FY23
A history of underperformance
The recent turnaround in Oil
16 40
India’s stock follows over a decade
12 30 of negative returns after its listing
in 2009. The company raised
8 20
`2,770 crore through its IPO, which
4 10 was oversubscribed by 32 times.
Post-debut, the company went
0 0
through many difficult years of
FY14 FY23
sluggish growth until FY17 owing to
highly volatile crude prices. Between
3.5 FY10-17, its revenue grew 3 per cent
annually while net profit declined
3.3
7 per cent per annum.
3.0 The company’s debt ballooned to
over `14,000 crore by FY17, partly
2.8
from the Mozambique project.
2.5 Its earnings did improve from FY18
FY14 FY23 onwards as a result of climbing
crude prices and the company’s
diversification into gas exploration.
32%
Going forward, Oil India’s crucial
24 Numaligarh plant, acquired from
BPCL for `9,876 crore, is
16
expected to be operational by
8 the end of 2025. This is part of
its ambitious plans to
0 achieve net zero emissions
FY14 FY23
by 2040. 2,721
Apr 5, 2024
`628
Jun 10, 2022 Sep 28, 2022
`300 `170
Jun 19, 2019 Nov 22, 2019 Mar 26, 2021 Jan 8, 2024
Joint venture pact with Assam Gas Acquires additional Joint venture agreement with Assam
Company and GAIL Gas to develop 54 per cent stake Power Generation Corporation to
city gas distribution network by the in Numaligarh maximise energy generation to meet
name of Purba Bharti Gas. Refinery. increasing demand.
May 2024 Wealth Insight 15
 BIG MOVES

Large caps
3M Price to 3Y avg 3Y earnings
Stock Rating returns (%) earnings RoE (%) growth (%)

Oracle Financial Services  64.0 32.7 26.7 10.8

Profit after tax grew by 69 per cent YoY in Q3 FY24.

Oil India  59.9 11.4 23.7 19.6

Signed an MoU with FACT to spot opportunities in the green hydrogen space.

Indus Towers  52.2 16.1 22.9 41.9

Shares rose when Vodafone Idea, a key customer, announced a fundraising plan.

Torrent Power  51.3 39.6 12.9 45.8

Bagged a 306MW solar project worth `1,540 crore.

Cummins India  51.0 55.1 18.5 34.9

Q3 FY24 revenue and profit after tax rose 16 and 21 per cent YoY, respectively.

JIO Financial Services Unrated 42.4 1.9* - -48.6

Share prices increased due to general market conditions.

Zomato Unrated 40.8 - -12.8 16.8

Q3 FY24 revenue and profit after tax rose 69 and 140 per cent YoY, respectively.

Indian Overseas Bank  38.7 4.9* 9.8 58.9

Q3 FY24 profit after tax was up 30 per cent YoY.

ABB India  36.5 111.4 19.9 78.3

Order inflow and backlog in 2023 rose by 23 and 30 per cent YoY, respectively.

Vedanta  35.7 29.0 30.3 56.0

Q3 FY24 revenue was up by 39 per cent YoY.

Zydus Lifesciences  32.4 31.6 15.3 17.8

Announced a `600 crore buyback offer.

Hindustan Zinc  27.1 20.7 31.8 15.6

Formed a subsidiary to foray into mineral exploration.

UCO Bank  26.7 2.6* 4.8 153.5

Interest income increased by 20 per cent YoY in Q3 FY24.

Solar Industries  23.7 96.5 27.1 51.5

Won an export order worth `994 crore.

NHPC  22.8 27.0 11.4 7.1

Signed MoU with GPCL for `4,000 crore in a 750 MW hydro storage project.

*Price-to-book ratio. Our large-cap universe has 132 large companies, making the top 70 per cent of the total market capitalisation. The list mentions the stocks that have fluctuated most wildly
in the last three months. Data as of April 15, 2024.

16 Wealth Insight May 2024

 BIG MOVES

Mid caps
3M Price to 3Y avg 3Y earnings
Stock Rating returns (%) earnings RoE (%) growth (%)

Waaree Renewable  299.2 202.1 40.4 197.2

Bagged a 980 MW solar project worth `991 crore.

Schneider Electric  75.8 84.7 194.2 150.8

Q3 FY24 revenue and profit after tax grew 30 and 109 per cent YoY, respectively.

Action Construction Equipment  64.3 62.1 17.9 71.6

Q3 FY24 revenue and profit after tax grew 35 and 90 per cent YoY, respectively.

EIH  59.9 57.8 -1.3 60.5

Posted its highest-ever profit after tax in Q3 FY24.

Tata Investment Corp  59.3 1.8* 1.3 44.3

Stock prices soared due to buzz over Tata Sons IPO.

Housing & Urban Development Corp  49.5 2.4* 12.1 11.2
Signed a pact with the Gujarat government for a `14,500 crore investment.

Godfrey Phillips  40.5 19.1 17.7 28.4

Q3 FY24 revenue rose 34 per cent. Recently, it exited the retail business.

NBCC  40.1 60.7 14.8 17.8

Bagged multiple government contracts in the last three months.

IFCI  33.8 - -34.6 23.9

Announced raising `500 crore through the issue of equity shares.

Punjab & Sind Bank  30.5 2.8* -8.5 7.7

The Board approved raising up to `2,000 crore through equity.

MRPL  28.1 8.9 22.8 49.3

Signed a five-year pact with BPCL for RLNG supply from Kochi.

Swan Energy  16.3 48.4 -8.9 256.0

Subsidiary prepaid `2,206 crore debt while DIIs increased stake in Q4 FY24.

Reliance Power  -13.2 - -2.4 18.3

Loss in Q3 FY24 expanded to `1,137 crore.

Astrazeneca Pharma  -17.3 93.2 17.9 22.6

Its Q3 FY24 profit after tax fell by 46 per cent YoY.

The Fert. And Chemicals Travancore  -19.0 113.2 69.0 11.5
Its Q3 FY24 profit after tax fell by 82 per cent YoY.

*Price-to-book ratio. Our mid-cap universe has 296 mid-sized companies, making the next 20 per cent of the total market capitalisation. The list mentions the stocks that have fluctuated most wildly
in the last three months. Data as of April 15, 2024.

18 Wealth Insight May 2024

 BIG MOVES

Small caps
3M returns Price to 3Y avg 3Y earnings
Stock Rating (%) earnings RoE (%) growth (%)

Kisan Mouldings Unrated 433.3 - -101.5 4.5

Apollo Pipes acquired a 53.6 per cent stake in the company.

Diamond Power Infra Unrated 213.9 - -36.1 -62.2

Share prices increased due to general market conditions.

Spright Agro Unrated 181.9 239.6 - 257.7

Its Q3 FY24 revenue was up 11 times YoY.

Veritas  153.2 18.3 5.0 7.5

Its consortium received an order from BMC worth `156 crore.

Bondada Engineering Unrated 149.5 137.2 21.7 -

Bagged multiple orders, including a contract worth `81 crore from NLC India.

Force Motors  133.8 28.1 -1.4 113.8

Q3 FY24 revenue and profit after tax were up 30 and 648 per cent YoY, respectively.

PVP Ventures  122.4 - 86.6 10.4

Joined hands with Brigade Enterprises for a residential project in Chennai.

NIBE  106.4 276.4 2.9 126.0

Signed an MoU with Munitions India to develop new-generation ammunition.

Jubilant Industries  100.7 71.9 23.5 15.6

FPIs increased their stake by 0.4 percentage points in Q4 FY24.

ASM Technologies  94.2 - 16.4 -163.8

Announced an equity fundraising plan of `170 crore.

Panorama Studios  88.2 71.0 44.1 -4.3

Announced production of new movies in Hindi and regional languages.

The Hi-Tech Gears  80.2 14.6 5.4 189.1

Its Q3 FY24 profit after tax was up five times YoY.

Salasar Techno Engineering  52.2 65.6 12.2 28.7

Won a `1,034 crore order from TN Generation and Distribution Corp.

Sarveshwar Foods  30.6 62.1 4.4 11.5

Won an export order of `50 crore. It aims to raise `99 crore via warrants.

Urja Global  24.5 483.6 0.8 16.7

Q3 FY24 revenue and profit after tax grew 15 and 54 per cent YoY, respectively.

Our small-cap universe (minimum market capitalisation of `650 crore) has 1,075 small-cap companies, making the last 10 per cent of the total market capitalisation. The list mentions the stocks
that have fluctuated most wildly in the last three months. Data as of April 15, 2024.

20 Wealth Insight May 2024

 INDEX WATCH

S&P BSE Metal

With a 15 per cent rally, the BSE Metal Index has been among the top-performing
indices in the past three months. In the last year, all its constituents have yielded
double-digit returns. As a result, the index appears to be overvalued in terms
of P/E, P/B and dividend yield, in relation to its five-year median.
.H\QXPEHUV ,QGH[PRYHPHQW
z BSE Metal z Median z BSE Sensex

21.0
Price to earnings
2.4
Price to book
35,000

28,000

21,000

3.89 12.9 14,000

7,000
Dividend yield (%) Market cap (` lakh cr)
Sensex rebased to index
0
Apr 2019 Apr 2024
,QGH[ZHLJKWV
Tata Steel 3ULFHWRERRNYDOXH 3%
21.1 5

4
Others
3
22.0
2
In % 1 1.6
Vedanta
7.9
0
Apr 2019 Apr 2024
JSW Steel
Hindalco 18.4
14.3
3ULFHWRHDUQLQJVUDWLR 3(
Coal India 125
16.2
100

75
9DOXDWLRQVGLYLGHQGVDQGUHWXUQV
50
    Dividend 1Y
Company 6WRFNRating P/B P/E yield (%) return (%) 25
8.6
Jindal Stainless  4.1 19.2 0.4 160.9 0
NMDC  2.7 11.0 2.7 116.6 Apr 2019 Apr 2024

Coal India  3.5 9.5 5.4 99.9

SAIL  1.1 20.1 1.0 85.1
'LYLGHQG\LHOG
In %
Jindal Steel  2.1 16.7 0.2 59.6 7.5

Tata Steel  2.3 - 2.2 49.7 6.0

4.4
Hindalco  1.4 14.7 0.5 45.2 4.5
Vedanta  4.0 29.0 27.4 34.4 3.0
APL Apollo Tubes  12.5 56.3 0.3 30.0 1.5
JSW Steel  2.8 18.8 0.4 19.4
0
Data as of April 15, 2024 Apr 2019 Apr 2024

22 Wealth Insight May 2024

 Invest with confidence

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 MARKET BAROMETER

Trends and trails

Here are some charts that will help you make sense of the current market in
terms of valuations and return potential
z Max Current z Median z Min

Sensex’s movement The Sensex is the most convenient indicator to tell

z
In ’000 the state of the Indian market.
75
73,651 The 10-year graph presented alongside shows the
z
72,944 secular run in the markets. However, this rally was
60 punctuated by several bearish phases.
The most prominent ones include the following:
z
Chinese growth concerns in 2015, demonetisation
45 blues in 2016, the sell-off in 2018 due to US–China
trade war, and the March 2020 COVID-19 shock.
After staging a remarkable recovery from the lows
z
30
of March 2020, the markets yielded to the Russian
22,418 invasion of Ukraine and rising interest rates.
15 z With recessionary fears easing and interest
Apr ’14 Apr ’24 rates peaking, Sensex has been climbing new
all-time highs.

Sensex’s price-to-earnings ratio The price-to-earnings ratio of the Sensex is a

40 simple market-valuation ratio. A general
guideline to help understand the valuation is:
35 35.1 Highly undervalued
(mouthwatering Fairly Dangerously
30 valuations) valued overvalued

25 23.3 25.3 P/E

12 16 20 24

20 Undervalued Overvalued
17.5
15 This graph is based on standalone data of Sensex companies.
Apr ’14 Apr ’24 If one takes the consolidated data, the P/E will likely be lower.

Sensex’s price-to-book ratio

4.0 The price-to-book value ratio tells us how
3.83 many times an investor is ready to pay for
3.77 a rupee of net assets. Since book value is
3.6
stable and less volatile than earnings, some
consider it better than the P/E as a measure
3.2 3.05 of valuation.
If:
2.8 P/B > Median P/B = Overvalued
P/B < Median P/B = Undervalued
2.4 2.36

2.0
Apr ’14 Apr ’24

24 Wealth Insight May 2024

Sensex’s dividend yield
1.6% Dividend yield is nothing but the return an
1.52 investor gets in the form of dividend on their
investment. It is measured as dividend per
1.4 share divided by price per share. Generally
speaking, when stocks are cheap, dividend
yields are high.
1.2
1.21 If:
1.11 Dividend yield > Median dividend yield
1.0 = Undervalued
Dividend yield < Median dividend yield
= Overvalued
0.8
0.72
0.6
Apr ’14 Apr ’24

Market cap to GDP

150% Here, we have considered the market
capitalisation of all the listed companies on
132 the BSE.
120 120 This measure is Buffett’s personal favourite.
According to him, “It is probably the single
83 best measure of where valuations stand at
90
any given moment.”
If:
60 Market cap > GDP = Overvalued
56
Market cap < GDP = Undervalued

30
Considering market cap of all the listed companies on
the BSE, first revised estimate of FY23 nominal GDP,
second advance estimate of FY24 nominal GDP and
0 RBI's forecast for FY25 GDP.
FY06 FY25

10Y G-sec yield vs Sensex’s earnings yield

4.6% The spread between G-sec yield and Sensex’s
earnings yield is another important valuation
3.97 measure. G-sec yield is the yield of the
3.8 10-year government bond. Sensex’s earnings
yield is the inverse of the Sensex’s P/E ratio.
2.92 3.22 The greater the deviation from the median
3.0 in either direction, the greater the degree
of overvaluation or the undervaluation
of the Sensex.
2.2
If:
Spread > Median = Overvalued
1.4 Spread < Median = Undervalued
0.94
0.6
Apr ’14 Apr ’24 All data as of April 17, 2024

May 2024 Wealth Insight 25

 IPO TRACKER

D-Street debutants
Here is how the S&P BSE IPO Index has performed over the last one year
and how the biggest IPOs have fared
Highest %6(6HQVH[YV%6(,32
listing-day gain
With a slew of IPOs, the IPO Index has performed well in the last one year
Tata Tech

140.0%
200 z BSE Sensex z BSE IPO

180
Highest
listing-day loss 160
Gopal Snacks
140
-12.7% 120

Highest 100
post-listing gain
IREDA 80 Rebased to 100

217.1% April 2023 April 2024

Highest Most Least Biggest

post-listing loss subscribed IPO subscribed IPO IPO Total
issue size
Ideaforge Tech BLS E-Services Popular Vehicles & serv. Mankind Pharma

-47.2% 162.5 times 1.2 times `4,326 cr `60,691 cr

7RS,32VE\LVVXHVL]H
Subscription Issue Issue List Current Listing Change post Sensex Current
Company Listing date ratio (times) size (` cr) price (`) price (`) price (`) gain (%) listing (%) change (%) P/E

Mankind Pharma May 9, 2023 15.3 4,326 1,080 1,300 2,265 20.4 74.2 18.8 52.5
Bharti Hexacom Apr 12, 2024 29.9 4,275 570 755 806 32.5 6.7 -1.1 73.4
JSW Infrastructure Oct 3, 2023 37.4 2,800 119 143 235 20.2 64.6 12.0 66.8
Tata Technologies Nov 30, 2023 69.4 2,251 500 1,200 1,065 140.0 -11.3 9.6 69.2
RR Kabel Sep 20, 2023 18.7 1,965 1,035 1,179 1,580 13.9 34.0 9.9 93.9
Juniper Hotels Feb 28, 2024 2.1 1,800 360 361 475 0.3 31.4 1.5 -
Honasa Consumer Nov 7, 2023 7.6 1,702 324 324 395 0.0 21.8 13.0 -
Concord Biotech Aug 18, 2023 24.9 1,551 741 900 1,533 21.5 70.3 13.0 66.8
IREDA Nov 29, 2023 38.8 1,501 32 50 159 56.3 217.1 9.7 5.2*
Inox India Dec 21, 2023 61.3 1,459 660 933 1,323 41.4 41.7 3.6 78.6
Cello World Nov 6, 2023 38.9 1,430 648 831 823 28.2 -0.9 13.0 65.7
Samhi Hotels Sep 22, 2023 5.3 1,370 126 131 198 3.6 51.9 11.2 -
Sai Silks Sep 27, 2023 4.4 1,201 222 230 214 3.6 -7.1 11.0 33.6
DOMS Dec 20, 2023 93.5 1,201 790 1,400 1,686 77.2 20.4 4.1 106.8
India Shelter Finance Corp. Dec 20, 2023 36.7 1,200 493 613 579 24.3 -5.4 4.1 2.4*
*Price-to-book ratio. Data as of April 15, 2024

26 Wealth Insight May 2024

Passive funds and specialised investing
Just as the stock market moves in But how do you
cycles, businesses, themes, and target these cycles?
investing strategies also exhibit Enter sectoral funds,
cyclicality. If you can catch thematic funds, and
them, you may be in for a treat. smart beta funds.

Sectoral funds focus on specific sectors like IT, while thematic funds
invest in overarching themes, such as manufacturing. Smart beta funds
combine active and passive investing strategies, tracking an index like a passive
fund and incorporating active investment attributes like momentum and quality.

However, these specialised You could partially offset these risks through
strategies carry risks. passive funds (subject to other risk
The fund manager could factors). Passive funds simply track an
make wrong bets and the underlying index and seek to generate
sector or trend could see a returns as per that. You are not exposed to
reversal in fortune. a fund manager’s discretion anymore.

Moreover, when these specialised For example, the Nifty

strategies are integrated with passive
Smallcap250 Momentum
funds, such as index funds or exchange-
traded funds/fund of funds, they Quality 100 Index aims to track
typically provide a relatively the performance of 100 small-cap
stocks that are selected from the Nifty
cost-effective way Smallcap 250 index based on the
as compared to actively
combination of momentum and quality
managed funds to access
factors. By investing in passive funds
these specialised tracking such an index, you may seek
strategies. to get underlying index returns.

The views expressed here constitute only the opinions and do not constitute
Investing in niche strategies through any guidelines or recommendation on any course of action to be followed by the
passive funds is as easy as… reader. The data/information/opinions are meant for general reading purposes
only and are not meant to serve as a professional guide/investment advice
for the readers. Readers are advised to seek independent professional advice
and arrive at an informed investment decision before making any investments.
An investor education and awareness initiative by Mirae Asset Mutual
Fund. All Mutual Fund investors have to go through a one-time KYC (Know
Your Customer) process. Investors should deal only with Registered Mutual
Funds (RMF). For further information on KYC, RMFs and procedure to lodge a
complaint in case of any grievance, you may refer the Knowledge Center section
available on the website of Mirae Asset Mutual Fund.

Mutual fund investments are subject to market risks, read all scheme related documents carefully.

May 2024 Wealth Insight 27

 ANALYST’S DIARY

Weaving the growth fabric

Tracing out the exponential growth of this textile chemicals company

H
igh-quality companies with sustainable
earnings growth are always on the market’s
radar as their stocks are believed to become
wealth creators. So, we used our Stock Ratings tool to
find companies that measure up to these standards.
We kept our criteria focused on:
z Non-BFSI companies
z Market cap above `1,000 crore
z A stock rating of five
z A growth score of nine or above
To our surprise, only one company made it through
these filters: Fineotex Chemicals. This small-cap and
debt-free market leader in textile speciality chemicals
boasts an impressive track record. In the last five
years (TTM basis), it has grown its revenue, operating
profit and profit after tax annually at 26, 33 and
44 per cent, respectively. subsidiary, Biotex, in
The market, too, has rewarded the company, with Malaysia. Fineotex sells
its stock price jumping almost nine times in the last its products in
five years. Naturally, this piqued our interest, and we 70 countries and derived
decided to take a closer look at this company. 25 per cent of its total
revenue from exports
The business during 9M FY24.
With over 50 years of expertise, Fineotex Chemicals is
India’s largest producer of textile speciality chemicals. What led to its
It caters to multiple stages in the textile exceptional growth?
manufacturing process, with a strong product Regulatory norms have prompted the textile industry
portfolio of over 470 molecules. to shift towards high-quality and environmentally
Companies like Raymond, Vardhman Textiles, sustainable chemicals. This has primarily driven
Welspun Living, etc., are among its key customers. Fineotex’s growth, given its portfolio of eco-friendly
It also has a strong international presence through its products. According to a report by the Textile
Exchange, India was among the largest producers of
Mouth-watering returns on strong earnings growth eco-friendly fabrics in 2020 and it reached a global
Fineotex’s stock price has jumped almost nine times in the last five years market share of nearly 50 per cent in the organic
`600 z Fineotex Chemicals z BSE SmallCap cotton segment. The company capitalised on this shift
by leveraging its portfolio of hazard-free chemicals.
450 Such chemicals account for nearly 2 per cent of
textile companies’ production costs, which is why
300
they outsource their production, benefitting players
150 like Fineotex. The company further offers to modify
the chemicals as per client requirements, leading to
0
repeat business and stable margins. Evidently,
April 2019 April 2024
Fineotex has been posting double-digit volume growth
Data as of April 1, 2024. BSE SmallCap index rebased to share price.
since FY18 while maintaining stable margins, ROCE

28 Wealth Insight May 2024

 mature and highly competitive retail segment by
Fineotex’s remarkable growth supplying these intermediaries directly to detergent
The company’s profits have more than doubled in the last two years manufacturers and cleaning products in larger
FY21 FY22 FY23 TTM Dec 2023 quantities to hospitals, the hospitality sector and
commercial offices. Despite these products having
Revenue (` cr) relatively lower gross margins, their operating
margins are similar to that of the core business as a
517 554 result of the operational synergies. It is safe to say this
368
219 venture augured well, with revenue from this new
segment jumping from `61 crore in FY22 to `210 crore
in FY23, contributing almost 41 per cent to the
Profit after tax (` cr)
company’s total revenue.

116 Can the growth be sustained?

43 55 88
Cash flow from operations (` cr)
107
9 13
ROCE (%)
37.3
29.4
31.1
Profit after tax margin (%)
14.8
20.3
18.0 16.8
and an industry-beating fixed asset turnover.
However, textile chemicals is not the only segment
contributing to its growth.
Strategic product diversification
Fineotex’s management decided to venture into
complementary segments with similar underlying
chemistry, allowing the company to keep
manufacturing housed in existing plants and derive
operational synergies. It promptly announced its
entry into the health and hygiene segment at the end
of FY20 and started operations in H2 of FY21.
The new category includes cleaning and sanitising
products like floor cleaners, hand-washes, sanitizers,
dishwashers, etc. But, intermediaries of fabric
detergents emerged as the largest sub-segment in this
category for the company. Fineotex also avoided the
Fineotex Chemicals has delivered impressive growth
in the past, but how can it sustain this momentum?
Well, the company’s management has taken multiple
steps to expand its core textile speciality chemical
117
business. In FY22, it partnered with Australia’s
HealthGuard and Belgium-based Eurodye-CTC (both
involved in textile processing), becoming their
distributor in several geographies.
The company also expanded into the developed
43.4 markets of North America and Europe in FY24.
After successfully foraying into the health and
hygiene segment, management has diversified its
operations further by targeting speciality chemicals
used in the oil drilling and water treatment industries.
Since it aims to produce its products in an existing
plant, Fineotex undertook a capacity expansion in the
Ambernath plant, which was completed in November
2022. It further acquired land worth `35 crore in
Q3 FY24 for future expansion. Most importantly, it has
a `280 crore equity fundraise in the pipeline and has
guided nearly `50 crore in capital expenditure on
organic growth.
The company also plans to capitalise on potential
opportunities for domestic and international
acquisitions.
Risks to keep on radar
It is important to note that the company is pursuing
aggressive expansion and diversification. While it was
successful in the new segments it entered, whether it
can repeat such success in more verticals and sustain
the growth in the existing portfolio remains to be
seen. This uncertainty further gains ground when one
looks at the stock’s P/E of 37 times, which is higher
than its five-year median of 32.
By Hemkesh Khattar

May 2024 Wealth Insight 29

 ANALYST’S DIARY

Too hot to handle

Despite high growth opportunities, Dixon Technologies is a risky bet

T
he fast-growing Indian electronics
manufacturing services (EMS) industry
continues to be in the limelight owing to its
high-growth potential. The government’s Premium returns
policy support and the ‘China plus one’ trend have Dixon has delivered 35 per cent more annual returns
further cemented its growth expectations. Among the than that of Sensex since its listing
listed domestic players in the EMS industry, Dixon `8,000 z Dixon Technologies z Sensex
Technologies has outpaced the rest.
7,000
The electronics contract manufacturer has
maintained better returns on capital and cash 6.000
conversion when compared to peers. It has grown 5,000
its revenue and profit after tax by 10 times since
4,000
FY16 as of December 2023 (TTM basis).
3,000
Naturally, this is reflected in the company’s stock
price, which has generated strong annual returns of 2,000
49 per cent since listing. 1,000
But something caught our eye in the latest concall.
0
It was the management’s confidence in achieving an
September 2017 April 2024
ambitious revenue growth of 35-40 per cent in the
Data as of April 3, 2024. Sensex rebased to Dixon Tech.
next 4-5 years.

Going the long distance For the long haul

This confidence stems from the company’s bet on Capex grew 49 per cent annually during FY18-23
mobile phones, which has been its fastest growing `490 cr
category with a whopping annual revenue growth
420
of 96 per cent between FY19-23. Dixon is
in manufacturing partnerships with 350
prominent global brands such as 280
Samsung, Xiaomi and Motorola.
210
The company expects to benefit from
140
sustained demand for handsets, with
more global companies looking to shift their 70
production lines to India. 0
This is in addition to the growth it expects in other FY18 FY19 FY20 FY21 FY22 FY23 9M FY25E
segments such as consumer electronics and home Expected capex for FY25 sourced from concall FY24
appliances, where it is already among the leading
players. These segments, too, have clocked impressive
annual revenue growth of 38 and 32 per cent,
respectively, between FY19-23 aided by consistent
capex. Overall, the company opened 11 more plants `400 crore spending for capacity expansion in FY25.
with a capex of `1,205 crore between FY19-23, doubling Motorola, one of Dixon’s anchor customers, has
capacity in the majority of its product segments. targeted doubling its market share in India, which
The capex spree is unlikely to lose momentum could be another impetus for the company. Add to
anytime soon as Dixon has planned another this, its healthy annual profit after tax growth of

30 Wealth Insight May 2024

33 per cent between FY18-23, and the high-thirties
business growth seems achievable. But is that all? A pricey affair
Sensitivity analysis for potential returns in different scenarios
Valuations may play spoilsport Five-year expected
EPS growth (% pa)
Five-year
forward P/E
Possible returns in
next five years (% pa)
Its growth prospects indeed make Dixon an enticing
60 19.9
investment, but this is when it is worth mentioning
40 80 27.0
what Peter Lynch said, “It’s a real tragedy when you
100 32.8
buy a stock that’s overpriced, the company is a big
60 11.4
success, and still you don’t make any money”.
30 80 18.0
Dixon is a pricey bet commanding a
100 23.4
hefty P/E of 130 times, which has more
60 2.8
than doubled from a median P/E of
61 times in 2017. 20 80 8.9

Hence, one must ask, does the current 100 13.9

valuation justify the growth expectations?

Or can there be attractive returns after a correction
from current levels? We did a sensitivity analysis
to find out, which you can see in the table titled
‘A pricey affair’.
In the best-case scenario, investors can potentially
achieve a maximum annual return of 33 per cent in
the next five years, assuming a P/E of around
100 times and an earnings per share (EPS) growth
rate of 40 per cent. The worst possible scenario,
assuming annual EPS growth of 20 per cent, still an
excellent growth rate, and a P/E of 60 results in a
meagre annual return of just 3 per cent.
Hence, despite the company’s strong growth
potential, the stock’s hefty valuation is a major risk.
Any minor deviation from management’s
expectations and a correction in current P/E could
result in significant loss of returns for investors.
By Vishal Goyal

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 ANALYST’S DIARY

Starting the upward

journey on a rollercoaster
Will Imagicaa finally see a change in its fortunes? Let’s find out.

paid `415 crore to acquire a controlling stake in

A
s kids, most of us loved visiting theme parks.
One name that became synonymous with theme Imagicaa, after which Manmohan Shetty, the earlier
parks in India was Imagicaa. Imagicaaworld promoter, stepped down from the board. The Malpani
Entertainment, which came to be in 2013, operates a Group is a family-owned, diversified business group that
theme park, water park, snow park and a five-star has operated its park business for over two decades.
hotel in Maharashtra. Despite its theme park It owns two water parks, one amusement park under the
reporting high footfalls, the company’s financials brand ‘Wet’n Joy’ and one
presented a pretty gloomy picture. devotional theme park
Between FY15 and FY22, the company consistently ‘Sai Teerth’.
reported losses. Further, it had accumulated over In February 2024,
`1,000 crore in debt and saw its equity nosedive to the new promoters
-`351 crore as of FY20. However, between FY22 and announced they
FY23, Imagicaa saw a sudden change in its financials.
From a -82 per cent operating profit margin in FY22,
the number suddenly jumped to 54 per cent in FY23.
Moreover, the ROCE also surged from -17 per cent in
FY22 to 34 per cent in FY23.
So, what changed for the company? Let’s dig
deeper to find out.

Malpani Group comes to the rescue

Imagicaa’s fortunes seemed to change for the better
when, in June 2022, it was taken over by the Malpani
Group in a debt resolution process. The conglomerate wanted to operate all the parks under
one umbrella. Hence, Imagicaa acquired the
four existing parks run by the Malpani Group for
Imagicaa’s profit margins over the years `630 crore. Moreover, another Malpani Group-owned
After a nosedive in FY21, operating profit margin has only surged upwards water park under construction in Indore was also bought
for `140 crore. The deal for the four operational parks
150 z Operating profit (` cr) z Operating profit margin (%) 300
was done at an EV/EBITDA of 7.4 times. All five parks
are expected to add to Imagicaa’s topline starting FY25.
The management has stated that the acquisition of the
0 0
plant under construction has been sold for
`140 crore. However, this can fall to around `100 crore
-150 -300 as the company plans to apply for a capital subsidy
under the Madhya Pradesh tourism policy.
The merger of these entities is likely to bring the
-300 -600 company many cost synergies. The management plans
FY15 FY17 FY19 FY21 FY23 to have a common operations team for all the parks.
Since all the four parks in Maharashtra are nearby,

32 Wealth Insight May 2024

 will be made in tranches over the next 30 months.
Key performance indicators On a TTM basis (as of Q2 FY24), Imagicaa generated
Post-acquisition, Imagicaa’s financials may increase almost two-fold `141 crore in cash from operations. Combined, the
z Imagicaa z Four new acquisitions z Combined four operational parks had an EBITDA of `85 crore on
a TTM basis (as of Q3 FY24), too. Assuming that the
Parks entire EBITDA is converted into cash flows, the
3 4
7
combined entity would have cash flow from
operations of `226 crore.
By September 2024, the company has to pay
`230 crore, slightly above our estimated cash flow
Footfall (in lakh)
generated. Since the entire cash flow will be
facilitated for the payment, Imagicaa would have little

27.8
left for reinvestment or working capital. If it fails to
generate the expected cash flow, the company may
13.6 14.2 have to either take up debt, resulting in higher
interest costs, or dilute equity, or both.

257
Revenue
149 406 Some things cannot be ignored
Imagicaa’s sudden improvement in financials and
(` cr) synergy from this move cannot be overlooked.
More than just a lifeline, this can also result in
94 85
178 substantial growth.
The company also has a cash balance
EBITDA (` cr) of `62 crore as of September 2023,
more than that of FY16-22 combined!
EBITDA Post-acquisition, Imagicaa will have
margin
(%)
36.0 57.0
44.0 a more extensive portfolio with eight
parks and a five-star hotel. Its focus is on
Numbers are as of TTM December 2023
expanding to newer regions and having parks in
Tier-1 and premium Tier-2 cities across India.
However, whether this growth potential can be
fully captured remains a question. Given the
current payment schedule, the company would
have nothing left for reinvestment. While the
transaction benefits the owners, whether this would
reflect in the company’s share price returns in the
long run is yet to be seen.
Further, Imagicaa operates in the leisure segment,
which is highly dependent on economic cycles.
Thus, a downturn can adversely hamper the
there is a vast opportunity to cross-sell and upsell. company’s financials.
In addition, the company plans to increase its share Additionally, the earnings appear skewed,
of non-ticketing revenue, focusing on food and owing to the one-time effect of exceptional items,
beverages, merchandise, sponsorships, etc. This is which is -`20 crore, depreciation of -`55 crore and tax
expected to enhance its growth prospects further. of -`189 crore, distorting its P/E ratio. As a
result, the company’s valuation seems low, since it is
However… currently trading at 11 times its TTM earnings.
While the move looks good, concerns remain Considering EBITDA instead of earnings, its
regarding Imagicaa’s payment structure. P/EBITDA would be 46 times.
The `630 crore payment for the four operational parks By Samridh Rela

May 2024 Wealth Insight 33

 ANALYST’S DIARY

Diamond market sparkles

with new opportunities
With the slowdown waning, diamond
merchants see glimmers of hope

D
espite its skyrocketing gold prices, the yellow
metal remained in demand among Indian
consumers. However, diamond jewellery
makers had a different story to tell.

Poor demand
The US is the primary source of revenue for diamond
merchants in India. Post-Covid, the demand for
diamond jewellery in the US spiked quickly, followed
by a slump since 2022, owing to inflation.
Subsequently, diamond prices corrected by around
10-15 per cent. Naturally, diamond jewellery makers in
India faced the brunt of this. But things seem to be
changing for the better now.

Light at the end of the tunnel?

Signet, one of the world’s leading retailers of diamond
jewellery, stated that demand for diamonds is now on
an upswing. Anticipating the surge, many small
retailers overstocked diamond jewellery post-Covid. However, Signet believes that this trend has ended.
Unfortunately, the market demand did not follow This was proven true when we looked at the cycle-
up. Since then, retailers have been selling their wise sales numbers of De Beers, one of the world’s
existing stocks at high discounts. largest diamond mining companies (it provides sales

Share price numbers: Diamond exporters De Beers reports a resurgence in sales

vs gold retailers This comes after a series of declines in 2023 $ mn
Both reported a vast difference in their share performance Cycle 2 2024 P* 430
350 z Diamond jewellery exporters z Gold jewellery retailers
Cycle 10 2023
300
Cycle 8 2023
250
200 Cycle 6 2023

150 Cycle 4 2023

100 Cycle 2 2023
50 Cycle 10 2022
0
Cycle 8 2022
January 2022 April 2024
Cycle 6 2022 638
Data as of April 4, 2024. Rebased to 100. Diamond jewellery exporters: Renaissance 0 100 200 300 400 500 600 700
Global, Goldiam International, Vaibhav Global Gold jewellery retailers: Titan, Kalyan
Jewellers, Thangamayil Jewellery *P stands for provisional. Source: De Beers

34 Wealth Insight May 2024

Goldiam and its lab-grown bet
Revenue from LGDs has grown at an annual rate of
109 per cent between FY20-23
z Natural diamonds z Lab grown diamonds
575
365 388
346
18 41 138 167
FY20 FY21 FY22 FY23 9M FY24
numbers in cycles based on auctions).
With a recovery in sight, we found two diamond
jewellery retailers that could greatly benefit from the
demand resurge based on their recent strategies:
Goldiam International and Renaissance Global.
Goldiam and its lab-grown diamond play
Although their global demand remains low, lab-grown
diamonds (LGDs) are gaining popularity in the US.
This can be attributed to two factors: a) their
environment-friendly nature and b) lower prices
compared to natural diamonds (generally, LGDs are
one-fourth the price of natural diamonds).
LGDs further gained popularity when De Beers,
one of the largest diamond producers in the world,
started selling LGDs under its brand ‘Lightbox’,
boosting its credibility.
Sensing this opportunity, Goldiam International, a
leading exporter of diamond jewellery, has been
gradually shifting its focus towards this segment.
It started backward integration by manufacturing
LGDs, resulting in higher realisations than selling
natural diamonds. With an order book of `165 crore,
which the company expects to be executed in next four
to six months, the prospects of LGDs seem bright.
However, it is essential to keep in mind that
manufacturing LGDs is not a patented process.
Thus, companies like Goldiam International face
threats from new and existing global players in the
lab-grown diamonds market.
A move towards brands
Returning to De Beers, the diamond manufacturer had
boosted the demand for diamond jewellery due to its
extensive marketing. However, since it cut down its
marketing efforts, its sales have been on a decline.
The rise of Renaissance’s branded segment
Its share of branded business increased from 18 to 30 per cent
during the period
`2,500 cr z Branded business z Other segments
In ` cr
2,000
274
1,500
1,000
500
192
0
FY21 FY22 FY23 TTM
Reduced marketing has also created a vacuum in the
marketing space for diamond jewellery.
In a hope to take advantage of this, Renaissance
Global, a global branded jewellery player, in 2018,
began shifting to the branded jewellery space and
promoting its products using internationally renowned
brands such as Disney, Star Wars and Marvel.
Taking its marketing strategy further, the
company launched its website to enter the D2C space,
which will further help expand margins and improve
working capital needs, generating ROEs in the
range of 20-30 per cent. Although it is at a small
scale currently, D2C is showing traction and
Renaissance Global’s management aims to grow its
ROE from around 8 per cent currently to 15 per cent
in the next few years.
Our view
Can Goldiam International and Renaissance Global
replicate their short-term success in the long run?
The answer to this question remains to be determined.
Presently, not only do these companies lack a moat,
but they directly compete with leading international
players. Moreover, the US concentration can come
back to bite both of these companies in the future.
However, both brands seem aware of these threats and
are willing to take the risk, given the potential upside
if they succeed.
In addition, one cannot ignore the valuations of
these companies. While the numbers may appear
inflated owing to a decline in EPS in recent quarters
(due to low demand for diamond jewellery), the fact
that Goldiam and Renaissance’s P/E trade at 55 and
51 per cent premiums, respectively, to their five-year
median should also be taken into account.
By Kunal Bansal
May 2024 Wealth Insight 35
 ANALYST’S DIARY

FY24 Performance review

With FY24 behind us, let’s have a look at the winners and losers of the year

24.6% 38.0% 127.4%

Sensex BSE 500 Realty
Best performer

62.8% 58.3% 17.5%

BSE MidCap BSE SmallCap FMCG
Worst performer

Top 5 best performers Top 5 worst performers

LARGE CAP
Company Return (%) Company Return (%)

IRFC 411.7 HUL -10.6

REC 284.8 HDFC Bank -10.1

BHEL 254.2 SBI Cards -8.7

Zomato 250.9 Dabur India -4.4

Power Finance Corp 214.4 Vedanta -3.8

MID CAP
Company Return (%) Company Return (%)

Jai Balaji Industries 1,879.7 UPL -37.5

Waaree Renewable 786.3 One97 Communications -37.0

GE T&D India 578.3 Zee Entertainment -35.1

Inox Wind 457.5 IIFL Finance -27.7

Suzlon Energy 400.2 Navin Fluorine -26.5

SMALL CAP
Company Return (%) Company Return (%)

SG Mart 1,720.3 NIIT -68.7

Insolation Energy 1,194.8 Raj Rayon Industries -64.4

Last Mile Enterprises 887.2 Rajesh Exports -56.7

Cupid 852.4 Best Agrolife -54.7

Unitech 818.9 Delta Corp -41.1

36 Wealth Insight May 2024

:LJ[VYHSSLHKLYZHUKSHNNHYKZPU  Best performer Worst performer

REALTY POWER
Mahindra Adani Suzlon
Lifespace Sobha Energy Energy

65.2 127.4 233.9 8.2 86.5 400.2

CAPITAL GOODS AUTO

Schaeffler Suzlon Sundram Tata
India Energy Fasteners Motors

-3.0 76.7 400.2 10.2 71.6 134.1

TELECOM OIL & GAS

Sterlite Indraprastha Indian
Tech Avantel Gas Oil

-28.3 63.4 256.1 2.5 60.0 116.5

HEALTHCARE METAL
Medicamen Jindal
Biotech Wockhardt Vedanta Stainless

-44.8 59.8 264.4 -3.8 46.7 140.2

CONSUMER DURABLES IT
Rajesh Cressanda Aurionpro
Exports Dixon Tech Railway Solutions

-56.7 37.9 158.7 -37.4 25.6 572.7

FINANCE FMCG
One97 Comm. GRM DCM
(Paytm) IRFC Overseas Shriram Inds

-37.0 21.7 411.7 -39.5 17.5 193.5

May 2024 Wealth Insight 37

 WORDS WORTH WISDOM

Cracking the multibagger

code Siddhartha Bhaiya’s insights on
navigating stock market intricacies

“I
call a ten-bagger as a tiger tasting
the blood. If you’ve tasted a ten-
bagger in your life, you’re not
going to settle for anything less
than that”, is something Siddhartha Bhaiya
said in a presentation, which surprised us.
He continued, “Within our team, nobody even
talks about 50,70, 100% returns… they only
talk about multibaggers because that is the
mindset we have cultivated.” Siddhartha
Bhaiya is one of the few investors we have
come across who says his focus is only
on multibaggers. Moreover, he is
willing to endure everything it
takes to attain them.
He is the Managing Director
and Fund Manager of
Aequitas Investment
Consultancy. With a
10-year annual return
of 38 per cent, he
ranks among the

best-performing
fund managers in
India. Previously, he
worked with renowned fund
houses, such as Reliance AMC
and Principal AMC.
In a session with the CFA Institute,
Siddhartha Bhaiya discusses cracking the
multibagger code, what to avoid, what to do and
Illustration: ANAND

what to look out for. Here, we present some

excerpts from his session. In case you want to
watch the full video, head to the link: https://
tinyurl.com/2rhzc4bb

38 Wealth Insight May 2024

 Losing money in a multibagger market
The first thing Siddhartha Bhaiya pointed
out was how the market had been a multibagger
over the years. He stated, “Sensex is a 650-bagger
over the last 40-odd years. So that is a 15x
return for every single year… if you
started off with an SIP of `1,000 in 1979,
increased it by 10 per cent every single
year, today your portfolio would have been
more than `100 crore.”
He added, “If your wealth has not multiplied
by 25x in the last 15-20 years, then maybe you
should not be doing or maybe you need to relook
at how you are going about investing.”
When posed with the question of why people lose
money, he provides five primary reasons:
Treating investing like gambling: Siddhartha Bhaiya
highlighted that people throw money in
markets like in casinos. They constantly seek
tips or shortcuts to find the next potential
multibagger. He said, “I cannot walk into my
building without somebody asking me, what do
you like? Give me two tips. I think how, you
know, we spend more time buying a shirt than
we decide what stocks to buy.” Doing very little
background research before investing results in
investors losing money.
Derivatives trading: He started, “The biggest form of
gambling in India right now is derivatives. It is
India’s Las Vegas without any of the glamour.”
Derivatives command 90 per cent of the total
volumes in the market as they have become the
investors’ go-to avenue. He continued, “There is
SEBI data which says that 90 per cent of people or
retail people in the derivatives segment are
losing money.” But this hasn’t stopped investors
from entering the segment.
IPO investing: “I would call IPO market as India’s
Khumb Mela,” said Siddhartha Bhaiya. While
How do we overcome these issues?
Siddhartha Bhaiya simply asks investors to
avoid all activities that lead to losing money:
close derivatives accounts, do not invest in
IPOs, and mainly do not ask for any kind of
tips. He stated that survival should be the
Nifty has been a 10-bagger since 2004, out of the
600 IPOs during that time, 60 per cent have
given negative returns. He continued, “Only 25
stocks became 10-baggers and within that
nine stocks went negative in the first
` three years of listing”. Despite it being
apparent that IPO investing does not
make money, people continue rushing
towards the next new IPO.
Leverage: Siddhartha Bhaiya mentioned that
while compounding is the eighth wonder of the
world, leverage is the biggest sucker punch.
Pointing out the history where a majority of
investors who use leverage have lost money, he
continued, “If you are perpetually leveraged at
some point in time, you’re going to have a
global financial crisis or you’re going to have a
COVID-19 or something like that and you’re
going to get wiped out.” He pointed that people
who panic sell whenever there is a crisis are
most often leveraged.
If your wealth has not multiplied by
25x in the last 15-20 years, then
maybe you should either not be
doing or relook at how you are
going about investing
Impulsive decision making: Above all this,
investors only consider the short-term effects
and are impulsive decision makers. He stated,
“Majority of the people are very impulsive
decision makers in the stock markets. You
cannot be, you have to be a very rational
decision maker.”
priority when it comes to the market, and
investors should focus only on things that yield
results. He said, “Every decision that you make
in the markets… you have to increase your
probability of going right. You have to minimise
your drawdowns.”
May 2024 Wealth Insight 39
 WORDS WORTH WISDOM
The two multibagger tenets
Siddharth Bhaiya said that a mindset
issue prevents investors from succeeding ` company at a small valuation. And then hope that the
beyond getting into avenues where it is
easy to lose money. He pointed out two
significant things that investors should
keep in mind when they are dealing in the market:
Time in the market: Siddartha Bhaiya said, “The biggest
thing about a multibagger is you have to hold a
multibagger till it becomes a multibagger.” For one to
create wealth in the market they should be invested in
it for a very long period of time. He went on, “If you
don’t give the stock an opportunity to become a 10x or
a 50x or a 100x, how will you have a multibagger?
If you book profits at 50 per cent gain or 75 per cent
gain then you can’t go about searching for a
multibagger”. He cited the example of Rakesh
Jhunjhunwala, Radhakishan Damani and the
Inam group. What is common between these
great investors? They stayed invested in their
winning stocks for a long time. He highlighted,
“What is the biggest learning from these guys? That
you have to hold stocks for a very long period of
time. You will not get multibaggers in one year, three
years or five years.”
Enduring drawdowns: Staying invested is more
challenging than it may look, and investors must
endure multiple drawdowns. As per Siddharth
Bhaiya, “You’re going to see drawdowns. And you’re
not just going to see drawdowns, you’re going to see
multiple drawdowns… you have to be prepared to,
you know, hold stocks for a 50 per cent drawdown.”
Whether investors can make money in the market
depends on their guts to endure such drawdowns.
Pointing out how often Titan has corrected over the
years, he says, “You have to be a very reluctant seller
in the stock market”.
Hack for multibaggers
Now that he explained what not to do in
the market and the two tenets to keep in
mind, here’s what investors should look
for in multibaggers:
Multibaggers know no size: There is a misconception that
small caps will be multibaggers and large caps are for
safe investments. Not according to Siddhartha Bhaiya,
though. As per him, “Myth that one, large caps are
safe… no they are not safe, myth that you are going to
make multibaggers out of small caps, not necessarily.”
He said that getting a multibagger does not need to
40 Wealth Insight May 2024
just focus on small caps. He continued, “What is
multibagger? Multibagger is when you buy a large
valuation will go up… that is what a multibagger is.”
He said an investor should not consider investing in
any small-cap company as most fail in the long run,
“The first and foremost thing when you buy a
smallcap is buy an industry leader. Do not buy
anything in the name of smallcap.”. By leadership, he
meant, “Industry leadership is two things: either you
should be number one in the country, or you should
be the most efficient.”
Valuation: Siddhartha Bhaiya explained how valuation
is the most important thing for any investment. He
said buying companies at any valuation is a trend
that emerged in recent years. Siddhartha Bhaiya
continued, “What P/E multiples right now you are
The first and foremost thing when
you buy a smallcap is pick an industry
leader. Do not buy anything in the name
of smallcap…Industry leadership is
two things: either you should be
number one in the country, or you
should be the most efficient.
seeing in the markets have never been… last ten
years don’t define the stock markets. We have never
seen such high P/E multiples for such high period of
time.” The only way to make money in an investment
is when you, “Buy them at a significant discount to
intrinsic value.”
Growth: Siddhartha Bhaiya showed how growth is
more complex than it looks, and it too, comes in
cycles. Many sectors, such as capital goods and
power, are doing well because investments are being
made in them. This wasn’t the case 10 years ago.
An investor cannot be led just by narratives that are
going around. He concluded, “Market, cycles, life,
growth, industries, they work in trends, we have
cycles and cycles typically last longer than most
people’s memories.”
Finally, he said, “It is not about going against the
crowd; it is about being different from the crowd.”
Throughout the video, he gave several examples from
his experience, adding to his points. This is why we
highly recommend you watch the full video.
 VIS-A-VIS

In the fast lane

We compare two leading giants in the world’s largest two-wheeler market
Hero MotoCorp TVS Motor
Hero MotoCorp has been the world’s largest two-wheeler With a market share of 22.3 per cent, TVS Motor is
manufacturer for 22 consecutive years. Its flagship India’s third-largest two-wheeler maker, only behind
product, Splendor, is the highest-selling motorcycle Hero MotoCorp and Honda Motors India. It also has
globally. As of February 2024, the company held its a strong presence in the electric two-wheeler
leadership in the domestic two-wheeler segment with a segment, with a 19 per cent market share in FY24.
30.2 per cent market share. It manufactures its vehicles The company’s overall exports comprised 24 per cent
in eight facilities, with a total annual capacity of over of total sales volumes in FY24. TVS is the only listed
95 lakh units. In FY24, its exports contributed 4 per cent two-wheeler maker with a significant presence in
to total sales volumes. the scooter segment.

)LQDQFLDOV (` cr)
Revenue Operating profit Net profit Net worth Total debt Cash from operations Market cap
36,606 4,340 3,615 17,674 651 3,662 91,844
37,134 4,174 1,635 6,320 25,062 -3,696 1,04,341

3ULFHFKDUW 7RWDOVDOHVYROXPH
`500 Rebased to 100
72 In lakh
400 64
58 53 56
49
300 39 37 42
33 31 33
200
100
0
April 2019 April 2024 FY19 FY20 FY21 FY22 FY23 FY24

25.4 62.0 4.9 14.8 2.2 0.2 0.04 3.59

Price to earnings Price to book Dividend yield (%) Debt to equity

)LYH\HDUDQQXDOLVHGJURZWK
In % 29.4 29.4 In % pa
22.4
21.6
14.6 14.4 15.3
9.6 11.9 11.2
4.4 1.0

Net profit Operating profit ROE ROCE

margin margin -6.5 -5.5
Revenue Operating profit EPS

Price data are as of April 8, 2024. P&L and ratios as of TTM December 2023. Balance sheet numbers are as of September 2023.

India remains the world’s largest two-wheeler market, with annual sales of 1.6 crore units in FY23.
Globally, the two-wheeler market reached a valuation of $121.5 billion in 2022 and is expected to grow
7 per cent annually until 2028. The rising purchasing power among India’s lower and middle-income sec-
tions will keep the demand for two-wheelers robust. This trend will likely shift more towards premium
motorcycles, as the premium two-wheeler segment has grown briskly compared to the overall industry.

May 2024 Wealth Insight 41

 STOCK ADVISOR
Stock-picking with Stock Advisor
Here’s why our members trust us to build and maintain dynamic, resilient
portfolios that last them a lifetime
by
Dhirendra
Kumar
I
t’s been six years since Value Research Stock
Advisor launched, and the most common
question I’ve been asked is, “What kind of stocks
do you recommend?” My answer has always
been straightforward: We recommend stocks that
make you money.
Some people may find this response unsatisfactory
and react like I’m dodging the question. However,
that’s assuredly not the case. They’re looking for a
jargon-filled answer, and I refuse to use that jargon.
I intentionally avoid using the typical jargon many
investors expect to hear, such as dividend stocks,
value stocks, growth stocks, large/mid/small-cap
stocks or contrarian stocks. These are all common
ways of categorising stocks, and many investors
anticipate an answer filled with such terminology.
Mind you, these classifications all have their role,
but our Stock Advisor recommendations are not
structured like this. Instead, we categorise our
recommendations into two clear and intuitive groups;
‘All-weather stocks’ and ‘Handpicked Stocks’.
These names are self-explanatory.
All-weather stocks thrive under any economic
conditions. They represent companies with strong
fundamentals, consistent earnings and a proven track
record of stability and resilience. These stocks are
akin to the bedrock of a portfolio, designed to
safeguard and steadily grow your investment
regardless of market volatility. By itself, this category
is ideal for investors seeking peace of mind and steady
growth. However, to some extent, everyone should
42 Wealth Insight May 2024
invest in these companies.
On the other hand, handpicked stocks are especially
appropriate to invest in right now. They are,
relatively speaking, the best buys now. The category
description refers to stocks that, based on our
research, are poised for significant short-term gains.
These opportunities arise from temporary market
inefficiencies or particular catalysts that may drive
stock prices upward in the foreseeable future. This
category is more dynamic and can change frequently
based on new information and market shifts.
We accomplish two things by this approach of
dividing our recommendations into two groups:
z We provide our subscribers options that suit
different investment styles and risk tolerances.
This approach steers clear of traditional stock market
jargon, focusing instead on the fundamental
characteristics that matter most – potential for profit
and suitability for varying market conditions.
z We provide a platform for our new members to start
a portfolio quickly and build upon it. We recommend
that when you become a member, you create a base of
‘All-weather stocks’ and regularly add the
‘Handpicked stocks’.
The reason our categories are de-jargoned is that
we align with your goals. Our philosophy at Value
Research Stock Advisor is to demystify stock
investing. Everyone deserves to understand where
their money is going and why certain stocks are
chosen. Therefore, we ensure that our
recommendations are accessible and based on solid,
understandable criteria, avoiding overly complex
Our philosophy aims at demystifying
stock investing. Thus, we ensure that
our recommendations are based on
understandable criteria, avoiding
classifications that confuse investors.

classifications that can alienate or confuse investors.
This strategy makes investing more approachable and
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May 2024 Wealth Insight 43
 INTERVIEW

Through the
professional’s
lens
Insights from a
veteran fund manager

R
ecently, we sat down
with Anish Tawakley,
Deputy CIO-Equity at
ICICI Prudential Mutual
Fund. He talks about the rally in
mid and small caps, whether
large caps are the place to be and
what he thinks of the new-age
companies. Lastly, he shares two
useful lessons for investors.
So, let’s dig in!

What can spoil the party

for mid-and small-cap stocks?
Do their current valuations
make sense?
We’ve seen in the past that it’s
not unusual for investors to get
drawn into stocks based on
narratives or on one or two
quarters of strong performance,
particularly when the economic
outlook is positive.
I don’t know what can spoil the
party, whether the liquidity dries
up or the euphoria fizzles out.
Some of the companies in the
mid-and small-cap segments don’t
have strong moats.
So I think there is that risk; ANISH TAWAKLEY
the risk-return trade-off in small Deputy CIO-Equity, ICICI Prudential Mutual Fund
and mid caps is not attractive.
In our view, large caps offer a
much better risk-return trade-off.

44 Wealth Insight May 2024

Large caps appear to be out of
favour. Is that about to change? Nothing is cheap at the moment. But our argument is
I think that should change. I
that the economy is in good shape, so the earnings
wouldn’t say it’s about to change.
But if you’re asking me, is the risk-
outlook is good. When the economy does well, cyclical
return trade-off in large caps better sectors tend to do well. So, we like domestic cyclical.
than in small and mid caps? I
would unambiguously answer yes.
I have two problems with that
Among large caps, which sectors argument. One, even if the US cuts
or themes offer good value rates, it isn’t necessary that India
for a buck? should follow. They will cut rates if
Nothing is cheap at the moment. their economy is weak. But the
But our argument is that the Indian economy is strong, and
economy is in good shape, so the there’s no reason why the Indian
earnings outlook is good. When the economy should cut rates. And as
economy does well, cyclical sectors it turns out, the US economy is
tend to do well. So, we like also very strong. So, the
domestic cyclicals. expectations of US rate cuts are
Then there are the Automobiles, also increasingly being deferred.
Capital Goods and Financials I don’t think the Fed is in a rush to
sectors. Currently, I’m less positive cut (rates). Even if they cut, it will
about FMCG space and metals. be done cautiously.
Are we set for interest rate cuts? What do you make of the
If so, which segment of the market so-called new-age companies?
stands to benefit the most? What do you like and dislike
The economy does not need rate about them?
cuts when demand is healthy. I I have a preference for companies
don’t think we need to stimulate that have a demonstrated track
demand. That said, I’m not saying record of profitability. If companies
that a small number of rate cuts don’t make profits, I am reluctant
cannot happen. In fact, a lot of the to invest in those companies.
rate-cut argument is based on the Many say that these new-age
fact that the US will cut rates. companies can become profitable
Many say that new-age
companies can become
profitable once they scale up
their business. But the reality
is, many of those companies
will have to shrink to become
profitable rather than scale
up to compete.
once they scale up their business.
But the reality is, many of those
companies will have to shrink to
become profitable rather than
scale up to compete. This is
because they’re already serving a
set of customers who don’t have
the purchasing power to cover the
full cost of the service, and this is
why they’re making losses. As they
try to raise prices, volumes will
drop, and that is why I am careful.
What do you like about them?
I like the fact that they are
innovative and are doing things
differently. But the proof
of the pudding is ultimately in
the profitability, which we
haven’t seen yet.
Looking back on your lengthy
equity research career, what
lessons have proven most
valuable now that you
manage funds?
As far as equity analysis is
concerned, I have realised
that having a good foundation in
economic theory is very helpful.
Understanding economic
theory helps you predict how
industries will evolve. Second,
respect history, as history repeats
itself in industries and markets in
terms of euphoria and pessimism.
So, once you study economic
history and the history of
industries, you are in a very good
position to form a view of what
will happen in the future and the
risk-return trade-offs.
May 2024 Wealth Insight 45
 COVER STORY

10 rock-solid
stocks with
stable earnings
By Udhayaprakash, Kunal Bansal,
Shubham Dilawari and
Mithilesh Bhaumik

F
rom dust, we came, and to dust, we shall return.
The universe’s hunger for disorder and
randomness is unrelenting. The markets, too,
share a similar insatiable hunger for volatility.
But like our pale blue dot in the universe, there exist
pockets of certainty in the market: Companies with
stable earnings.
These companies might not fetch you the adrenaline
rush of the high-risk, high-reward investment style.
They can, however, help you survive the randomness of
the market, minimise the risks and grow your wealth
over long periods. But beware! This stability comes at a
cost. After all, there is no such thing as a free lunch.
So, in this issue of Wealth Insight, we explore
an investment strategy based on these stable wealth
generators. Also, a handy framework awaits you
further down this journey to help you identify these
stable companies.
Before that, we must cover the boons and banes of this
investment philosophy. Without further ado, let’s dive in.

46 Wealth Insight May 2024

The search for order in disorder
How stable earnings in companies can help mitigate market volatility

F
rom the beehive to our concrete jungle, all
life seeks to create order in a universe More than a decade of stability
governed by disorder. The plight of investors The FMCG sector grew its profit before tax in 14 of the last 15 years
is similar. The markets are inherently Automobile FMCG
volatile. So, how does one create a portfolio that can `70 in ’000 cr `70 in ’000 cr
generate stable returns?
56 56
Several investing strategies have cropped up over
the years in this pursuit. Some invest in only large 42 42
companies, believing that grandeur is the cure for
34 34
volatility. Some look at companies with a history of
stable returns in hopes that history will repeat itself. 14 14
The markets have more often than not proved that 0 0
these strategies seldom bear the expected results. FY08 FY23 FY08 FY23
One can, however, borrow a page from the
playbook of life itself. In the disorderly universe, life
thrives in pockets of order. So, the answer might lie BSE Auto index in the last 15 years. Here’s what the
in spotting order in the ever-changing market. numbers say:
Price movement, as the wiser investors know, is In the 205 months from April 2007 to April 2024, the
unpredictable, at least in the short term. BSE FMCG index fell more than 5 per cent in only
Earnings, however, are relatively more predictable. 13 months. The BSE Auto index, however, fell in a
Companies that have consistently shown stable troubling 30 months. Also, while the steepest decline
earnings are likely to continue doing so. for the FMCG sector was 17 per cent, it was 31 per cent
But does stability in earnings lead to stable for the auto sector. The results underscore a strong
returns? For that, we turned to one of the most stable relationship between stable earnings and downside
earners of the Indian economy: The fast-moving protection. Simply put, if a company’s earnings are
consumer goods sector. stable, its market price is less likely to suffer
steep declines.
A case study on chaos We wanted to go a step ahead and enquire how deep
The fast-moving consumer goods this connection is. To do so, we calculated the five-
(FMCG) sector has undoubtedly been year rolling returns of the BSE FMCG and BSE Auto
one of the most resilient sectors of the indices since 2012, as seen in the graph below.
past 15 years. In contrast, the Indian
automobile industry is notoriously
cyclical. Both had similar levels of cumulative profit Stable profits = Stable returns?
before tax and exceptional items 15 years ago. The BSE FMCG index never reported a negative five-year annualised return
Their present (FY23) cumulative earnings are also 45% pa BSE Auto BSE FMCG
comparable. However, their journey couldn’t differ
30
more. The FMCG sector grew its cumulative profit
before tax and exceptional items in 14 out of the last 15
15 years. In contrast, the automobile industry did so 0
in only 10 of the last 15 years (see graph ‘More than a
-15
decade of stability’).
March ’12 March ’24
But the question is, did this consistency in earnings
The graph represents the five-year rolling returns based on monthly closing
translate into stable returns? To find out, we looked at values of respective indices
the performance of the BSE FMCG index and the

May 2024 Wealth Insight 47

 COVER STORY
This is what we found:
z In terms of upside potential, the BSE Auto index led
the way, with an impressive five-year annual return
of 40 per cent.
z The BSE FMCG index was ahead when it came to
protecting capital. It never recorded a decline on a
five-year annualised basis. The BSE Auto index,
however, fell in value in 13 of the 145 five-year-long
periods we observed.
z The FMCG sector was also more consistent. It beat
the Sensex in 90 five-year-long periods. The auto
sector did so in only 85 periods.
So, the verdict is out: If capital protection takes
precedence over lofty gains, stable earners should find
a place in your portfolio. They offer more downside
protection and lower price volatility.
But before you rush to find these stable earners,
know that stability comes at a cost.
The cost of stability
Despite their advantages, there are
certain downsides of investing in
stocks with stable earnings.
Ever heard of Tardigrades? These are
microscopic creatures that resemble bears
and can survive extreme temperatures and even the
vacuum of outer space! Talk about resilience. Surely,
we humans cannot hold a candle to Tardigrades in the
contest of survival. But, when it comes to awe-
inspiring works of art, Tardigrades might learn a
thing or two from us.
Stables earners are akin to the Tardigrades of the
market. They are resilient, have survived many
market apocalypses and are likely to persevere
through a few more. But when it comes to inspiring
returns, they might lag behind.
For instance, most stable earners fall under the
large-cap bracket. When Covid hit, large caps offered
the comfort of stability and fell far less than the
average small-cap or mid-cap company. But once it
was sunny again after the pandemic, small and mid
caps left most large caps in the dust, both in terms of
earnings growth and price appreciation (See ‘Large
caps: Leaders or laggards?’). Notably, the
BSE 100 index had underperformed compared to the
BSE SmallCap and BSE MidCap index in terms of
annualised returns in the past five and 10 years.
Similarly, despite its history of resilient earnings,
the FMCG sector has recently struggled to outperform
the benchmark. In the past decade, the Sensex has
48 Wealth Insight May 2024
Large caps: Leaders or laggards?
Small and mid caps outperformed large caps in three out of five periods
Five-year profit before tax growth (% pa)
FY19 FY20 FY21 FY22 FY23
Large 39.3 32.9 40.5 46.2 39.6
Mid 44.9 38.8 34.4 45.8 44.2
Small 47.4 36.8 37.5 45.3 45.2
Five-year growth is calculated as of each financial year. It excludes
exceptional items.
grown around 13 per cent annually. In contrast, the
BSE FMCG index has grown around 11 per cent.
Even the BSE Auto index, despite its volatility, has
managed to outperform the benchmark, surging
around 14 per cent annually.
So, perseverance and stability come at a cost.
Here are the three things you should keep in mind
before investing in stable earners:
z These businesses are usually in the latter stages of
their business cycle. They have seen several winters
and springs and are nearing the end of their growth
runaway. Their experience offers stability, but their
age means they are unlikely to witness unprecedented
earnings growth.
z Most seek stocks with decades of stable
performance. So, you are likely to be late to the party,
and thus, valuations are usually expensive.
For example, the nine-year median P/E of the
BSE FMCG index is 41 times, while it is 27 times for
the BSE Auto index.
z Investors dabble in equity markets as they want
returns risk-free assets cannot offer. These stable
stocks might offer capital preservation but their low
returns means opportunity cost is high.
The way forward
So, here’s the question: Are you willing
to bear the costs? We believe the wiser
choice is to invest a portion of your
corpus in these stocks. Get some
downside protection and invest the rest in
some high-growth alternatives. Now, the next step is
to learn how to spot such stable stocks. For that, we
have prepared a concrete framework.
Our methodology
A framework to identify high-quality companies with stable earnings

H
ow do you quantify earnings stability?
Several companies reported stable earnings Our methodology vs BSE 500
recently but were volatile in the past. Our selections gave index beating returns in four out of five periods
Conversely, some may have been stable
25 % pa Stable earnings portfolio BSE 500
earlier but now battle instability. Hence, we decided to
conduct our search over two periods: five and 10 years. 20
We excluded banking, financial services and insurance 15
companies due to the unique nature of their operations.
10
Below are the filters we used:
z Market capitalisation higher than `500 crore. 5
z Profitable in each of the last five or 10 years.
0
z Growth in profit before tax and exceptional items in
FY14-19 FY15-20 FY16-21 FY17-22 FY18-23
at least four out of five or nine out of 10 years.
z To measure earnings volatility, we used a standard
statistical measure called Coefficient of Variation (CV). that only 10 unique companies featured in both.
We calculated the average and standard deviation of But can they outperform the benchmark?
YoY growth rates and divided the standard deviation To find out, we applied our methodology over five
by the average to determine the CV. We chose different five-year periods. The stocks picked using our
companies with a CV less than 0.75 times. methodology beat the benchmark in four out of the five
z Valuations can be the Achilles’ heel for stable periods (see ‘Our methodology vs BSE 500’).
companies, as they usually trade at high valuations. This underscores that our 10 rock-solid stocks may
We combined two quantitative points to ensure beat the benchmark over the long term. As we delve
reasonable valuations: A valuation score of 4 or more deeper into the specifics of these businesses, remember
as per Value Research Stock Ratings and a current that these insights should not be taken as direct
P/E ratio lower than the five-year median P/E. investment recommendations. Prospective investors
We got two lists for the two time periods and found are advised to conduct their own due diligence.

A rock-solid start
10 stocks with the potential for stable returns
Five-year growth (% pa) 5-year
Company Stock Rating Revenue Operating profit Profit before tax Current P/E median P/E
Asian Paints  13.6 16.8 17.2 50.2 77.5
Hindustan Foods  56.8 52.4 48.2 59.7 91.4
Berger Paints  13.6 16.0 15.1 59.0 75.5
PI Industries  23.0 29.5 29.4 36.9 47.0
HUL  10.1 11.1 10.5 51.7 65.3
KNR Constructions  14.7 23.7 21.9 12.1 15.0
Stylam Industries  15.7 22.7 26.6 22.5 25.9
Marico  5.9 9.3 9.5 43.9 50.0
Infosys  14.1 12.3 10.5 25.5 26.4
Abbott India  10.1 19.7 17.7 50.0 50.2

Stock Rating and price data as of March 28, 2024; Growth calculated over TTM December 2018 and TTM December 2023. Profit before tax excludes exceptional items.

May 2024 Wealth Insight 49

 COVER STORY
ASIAN PAINTS
Painting a stable future
E
stablished in 1942, Asian Paints is a
household name among Indian
consumers. It is the largest paints
company in India and the second-largest in
Asia, with an installed capacity of 17.3 lakh
kilolitres per annum.
The company has been the market leader
in the country for over half a century due to
consistent innovation in operations and
processes. Identifying consumption
patterns, smart investments in IT and
robust dealer networks helped Asian Paints
consolidate its position in the market over
the years. It expanded its dealer network
and ensured timely product deliveries
through regular payments and discounts to
dealers. Also, it optimised the supply chain
through demand forecasting and inventory
management. Asian Paints has maintained
impressive double-digit volume growth
HINDUSTAN FOODS
Consistency through capex
B
rooke Bond, Surf Excel, Kwality
Walls, Strepsils, Santoor, US Polo
Assn – Hindustan Foods is the
contract manufacturer of several renowned
FMCG brands. The company started in 1984
as a joint venture between Glaxo India and
the Dempo Group. Today, it owns around
18 manufacturing facilities spread across
the country.
Over the last five years, Hindustan Foods
has posted exceptional revenue growth of
around 57 per cent annually, as it expanded
its product portfolio from beverages and
shoes to cosmetics and medicines. Much of
this expansion stemmed from acquiring
manufacturing facilities of FMCG
companies. It was a win-win situation, as
Hindustan Foods got ready clients, and
FMCG companies benefited from reduced
risk through an asset-light model.
50 Wealth Insight May 2024
even in recent years thanks to its consistent
investments in these aspects.
However, the company does face a few
challenges. The first is cyclical demand and
volatility in raw material prices, which can
hurt profit margins. The second challenge
comes from the rising competition from
players like Grasim (part of the Aditya

Stock Rating
Birla Group) and other new companies,
50.2
which threatens its market share
and growth.
However, the company’s management Current P/E
remains optimistic and is planning to
invest `2,100 crore to set up VAE (Vinyl 17.2
Acetate Ethylene) and VAM (Vinyl Acetate 5Y PBT
Monomer) facilities in India and `550 crore growth (% pa)
in a white cement manufacturing facility.
These backward integrations are expected
to strengthen Asian Paints’ cost position in
36.3
5Y median ROCE (%)
the paints and coatings business.
However, the acquisitions were products
of incremental capex, which exceeded the
company’s operating cash flows and
resulted in negative free cash flows. It took
the debt route to fund these. Consequently,
its total debt soared almost six times
between FY19 and FY23. In addition, the
sustainability of this revenue growth is

Stock Rating
uncertain, as many FMCG sectors face
59.7
market saturation.
However, the company is confident and
has projected a turnover of `4,000 crore by Current P/E
FY25 (almost 50 per cent growth over the
TTM numbers). It has identified several
promising merger and acquisition
48.2
5Y PBT
opportunities in the over-the-counter (OTC) growth (% pa)
pharma and shoe manufacturing space.
In addition, the stricter quality standards
are expected to drive growth for its
17.2
5Y median ROCE (%)
branded products.
BERGER PAINTS
Colourful growth story
B
erger Paints is India’s second-largest
paint company. It offers a wide range
of industrial and decorative paints,
waterproofing solutions and express
painting services. Its popular brands
include ‘Silk Breathe Easy’, ‘Weathercoat
Champ’, ‘Luxol XTRA’ and ‘Luxol 7in1’.
Since 2012, the company shifted focus
from increasing dealers’ discounts to
boosting advertising spending (4 per cent
of sales in FY11 to 7 per cent in FY16).
This helped it build a strong brand in the
economy and premium segments.
Besides Asian Paints, it was the only
company consistently focusing on building
a strong distribution network and
improving supply chain efficiency using
technology. It started supplying tinting
machines to dealers, reducing the need to
stock multiple SKUs and improving
PI INDUSTRIES
Synthesising resilient growth
T
he Indian chemical industry is
battling headwinds such as rising
energy prices, overstocking due to
Chinese supply and a slowdown in global
markets. But, PI Industries remains
resilient. Its revenue and profit after tax
have grown 18 and 38 per cent,
respectively, as of TTM December 2023.
It primarily focuses on the agrochemical
space, with almost 80 per cent of the
revenue coming from exports.
PI Industries has a strong presence in
the custom synthesis and manufacturing
(CSM) segment. This gives it exclusive
access to patented molecules from global
innovators. This segment’s revenue share
has grown from 30 per cent in FY11 to over
75 per cent by FY23.
A key product in its CSM segment is
Pyroxasulfone, an herbicide developed by
operational efficiency. As of FY23, it had
over 60,000 distributors, the second-largest
network in the industry.
The company has also focused on cost
reduction, product premiumisation and
achieving economies of scale. Thus,
operating profit margin zoomed from
9 per cent in FY14 to 12 per cent in FY23.

Stock Rating
However, the company faces risks from
59.0
industry-wide capacity expansions:
Its peers are spending between `20,000-
`22,000 crore over the next three to four Current P/E
years (CRISIL report). Seasonal demand
fluctuations and volatile input prices also 15.1
pose challenges. 5Y PBT
However, Berger Paints remains growth (% pa)
optimistic. It continues to expand its
capacities with a `500 crore investment
funded by internal accruals, reinforcing its
29.1
5Y median ROCE (%)
strong market position.
Japan’s Kumiai Chemicals. This product,
representing over 50 per cent of the CSM
revenue, has grown 26 per cent annually
from FY17 to FY23. Pyroxasulfone has been
in the news recently as its patents are set
to expire in some countries. This may lead
to increased competitive pressure in
pricing and volume for PI Industries.

Stock Rating
However, the company remains positive
36.9
as the molecule will remain patented in
most countries. Further, its management
continues to be aggressive in its product Current P/E
launches. It has plans to launch 25 new
products over the next five years.
Moreover, PI Industries has expanded
29.4
5Y PBT
into the pharma and specialty chemical growth (% pa)
space. Also, it aims to take the non-
agrochemical revenue share up to
25 per cent in the next five years in a move
22.1
5Y median ROCE (%)
to reduce revenue concentration.
May 2024 Wealth Insight 51
 COVER STORY
HUL
The FMCG titan
H
industan Unilever is India’s largest
FMCG company and owns popular
brands like Brooke Bond, Surf
Excel and Kwality Walls (manufactured
under contract by Hindustan Foods).
Presently, it has over 50 brands in
its portfolio.
In a competitive industry like FMCG,
brand recognition is the company’s
strength. Impressively, 85 per cent of its
revenue comes from brands that are
market leaders in their respective
segments. Moreover, its robust
distribution network has also helped most
of its brands gain market share across
regions and price segments.
The company’s claim, “9/10 households
in India use one or more of our brands,”
suggests earnings stability. However, it also
underscores a potential limit to growth.
KNR CONSTRUCTIONS
Engineering stable margins
K
NR Constructions offers
engineering, procurement and
construction (EPC) services
primarily in road/highway, irrigation, and
urban water infrastructure sectors.
The company has completed over
8,700 kilometers of road projects across
12 Indian states.
The government’s focus on
infrastructure development in India is
opening up new opportunities in the EPC
industry. KNR is expected to be a key
beneficiary of this growth. Its history of
timely order execution has helped it win
several government orders. As of Q3 FY24,
its order book value stood at `4,964 crore.
Further, the order book is 1.2 times its
TTM December 2023 revenue, providing
revenue visibility.
The company has also successfully
52 Wealth Insight May 2024
In the past two years, while revenue growth
averaged 13 per cent annually, volume
growth remained low at around 4 per cent
(due to inflation). Nonetheless, Hindustan
Unilever has managed to maintain
operating profit margins at 23-24 per cent
during this period, demonstrating the
resilience of its business.

Stock Rating
The company is betting on the long
51.7
growth runway available in the industry.
India’s per capita FMCG consumption is
still among the lowest in the world. Current P/E
While the long growth runway works in
the company’s favour, the industry is 10.5
fraught with competition. So, the growth 5Y PBT
will not come easily. Indeed, there are growth (% pa)
other growth routes, such as mergers and
acquisitions, as seen with other players
and HUL itself (the GSK consumer
38.4
5Y median ROCE (%)
business deal).
maintained stable margins in a highly
cyclical industry thanks to its flexible
contracts with NHAI and higher-margin
irrigation projects.
Despite dealing primarily with the
government, KNR maintains an efficient
working capital cycle. It generates
consistent cash flows, supporting its growth

Stock Rating
and financial health. The company’s
12.1
cumulative 10-year cash flow from
operations is 93 per cent of its profit after
tax, reflecting an efficient cash collection. Current P/E
However, KNR faces risks typical of the
cyclical infrastructure sector. Increased
competition has muted order inflows in the
21.9
5Y PBT
last three quarters. It also faces collection growth (% pa)
challenges in its high-margin irrigation
business, exacerbated by state government
funding issues. These have affected both
21.9
5Y median ROCE (%)
margins and the working capital cycle.
STYLAM INDUSTRIES
Delivering glossy gains
S
tylam Industries, one of India’s
leading laminate manufacturers, has
been operational for over 30 years.
It boasts Asia’s largest single-location
laminate plant, serving both domestic and
international markets. Its exports (across
more than 80 countries) make up
two-thirds of its revenue.
Over the past decade, the company has
seen consistent earnings growth,
expanding into new export markets and
the non-resident laminate sector.
It introduced cutting-edge technologies
like the PU+ lacquer coating process in
India, which significantly enhanced
product quality. This is evident from
acceptance in markets such as Europe and
the US. Europe currently accounts for
about 35 per cent of the company’s export
earnings. The US business is also growing
MARICO
Global growth, local roots
M
arico, known for its popular
coconut oil brand Parachute,
offers various FMCG products that
are used daily. The company operates
in over 50 countries and generated 25 per
cent of its FY23 revenue from international
operations.
Marico’s strength lies in its robust
brand portfolio, led by Parachute in the
coconut oil market. It holds a 62 per cent
market share in this segment (including
Nihar brand) as of FY23. Saffola edible oil
and oats are among the leaders in the
segments, with the latter holding
43 per cent of the market share. In recent
years, expansion in export markets and the
personal segment drove topline growth.
Its earnings, however, grew faster than
revenue, helped by lower raw material
costs and efficient manufacturing.
at a brisk pace and is likely to become as
big as Europe.
Despite the successes, there are
challenges. The company recently faced a
slowdown in Europe due to
macroeconomic factors. Besides,
competitive pressures in the domestic
market affect pricing and brand visibility.

Stock Rating
It postponed its plan to foray into the
22.5
plywood market for similar reasons.
However, the management remains
optimistic. It has guided for a capex of Current P/E
`200 crore for this financial year. Further,
Stylam also plans to enter new export 26.6
markets. India’s economic growth and 5Y PBT
government initiatives in housing and growth (% pa)
infrastructure also present promising
opportunities. Yet, the cyclical nature of
the real estate industry, which Stylam
24.0
5Y median ROCE (%)
serves, could pose risks in the future.
Its biggest drawback is the saturation in
its core segments. Growth in hair oil and
edible oil has been in single digits in the
past few years, primarily due to the
stagnation in the coconut oil segment.
The slowdown has also led to expensive
valuations. Currently, Marico trades at a
high P/E ratio of 44 times. Besides this,

Stock Rating
the company is also prone to fluctuations
43.9
in commodity prices, which can impact
its margins.
Marico has been focusing on Current P/E
diversification in recent years, which can
be seen in the slightly changing segment-
wise contribution to the overall revenue.
9.5
5Y PBT
The focus and growth opportunity lies in growth (% pa)
personal care and value-added products,
which the company itself has stated
has the potential to generate double-
44.8
5Y median ROCE (%)
digit growth.
May 2024 Wealth Insight 53
 COVER STORY
INFOSYS
Scaling success in IT
I
nfosys is India’s second-largest IT
company by revenue and the sixth-
largest by market cap. It offers a wide
array of services, including software
development and management.
BFSI (banking, financial services and
insurance) was its largest revenue source
at 30 per cent in FY23, followed by retail at
15 per cent.
Success in IT often hinges on
operational scale. Large companies like
Infosys offer diverse services under one
roof, making them preferable for larger
deals. This scale has enabled Infosys to
secure long-term client relationships and
consistently win high-margin contracts.
It won orders worth around $9.8 billion in
FY23 and $9.5 billion in FY22.
Infosys boasts an impressive profit
margin in the IT industry due to its ability
ABBOTT INDIA
The secret pill of consistency
A
bbott India, a subsidiary of the
US-based Abbott Laboratories, is the
manufacturer of the well-known
antacid Digene. It operates in multiple
therapeutic areas, including women’s
health, gastroenterology, central nervous
system, etc. It commands a 38 per cent
market share in laxatives, and two of its
brands rank among India’s top
15 pharmaceuticals.
Abbott’s primary strength lies in its
strong parentage and robust product lineup.
From FY14 to FY23, Abbott launched
138 products, averaging about 14 in a year,
which translated into strong revenue
growth. Several products have also become
leaders in their markets. This success has
positioned Abbott as one of only
14 companies to achieve growth in profit
before tax and exceptional items every year
54 Wealth Insight May 2024
to win large, high-margin contracts,
strategic onshore/offshore staffing and
efficient employee utilisation.
These factors, coupled with robust client
relationships and operational scale,
facilitate prompt cash collections. Despite
high regular dividends (a 10-year median
payout ratio of 57 per cent), the company

Stock Rating
has sustained steady earnings growth.
25.5
Recently, Infosys has encountered
growth challenges due to a general
industry slowdown. Businesses often cut Current P/E
discretionary IT spending during economic
downturns, which poses a risk to demand 10.5
for IT services. Nevertheless, the long-term 5Y PBT
outlook remains positive. Ongoing growth (% pa)
demands for digital transformation and
infrastructure modernisation will continue
to drive growth in the sector and for
37.8
5Y median ROCE (%)
leaders like Infosys.
for the past decade.
However, the pace of new product
launches has recently slowed. After
launching 58 products from FY18 to FY20,
this number dropped to 35 between FY21
and FY23. A continued slowdown could
pose risks, especially as the company relies
heavily on new launches from its parent’s

Stock Rating
portfolio. Additionally, price controls on
50.0
some of its products have resulted in
limited profitability potential.
Despite these challenges, Abbott aims to Current P/E
capitalise on the projected 9 per cent annual
growth of the Indian pharmaceutical sector
from FY22 to FY27, as stated in its FY23
17.7
5Y PBT
annual report. The focus would be new growth (% pa)
product launches and maintaining market
share in existing products. Although it’s
trading slightly below its five-year median,
37.9
5Y median ROCE (%)
a P/E of 50 times still seems expensive.

The rise of the woman voter has
major investment implications
How increased female voter participation benefits the economy
By
Saurabh
Mukherjea
“T
he right to equality in voting is a basic
human right in liberal democracy. Women
enjoy this right to equality in voting, and by
casting a vote, they make a formal expression of their
individual choice of political parties, representatives
or of broad policies. The fact that more women are
voluntarily exercising their constitutional right of
adult suffrage across all states in India is testimony to
the rise of self-empowerment of women to secure their
fundamental right to freedom of expression. This is an
extraordinary achievement in the world’s largest
democracy with 717 million voters of which
342 million voters are women.” – Dr. Shamika Ravi in
her essay titled Women and Electoral Politics: The
Good, Bad and Ugly (2017).
Female representation in Parliament continues
to remain abysmal
Kondagaon district in Chhattisgarh is home to some of
the most disadvantaged people in India. Here resides
Ms Lata Usendi, a seasoned politician who served as
Minister of Women and Child Development in
Chhattisgarh. She has actively participated in politics
since 1998. Whilst she lost the 2018 state assembly
elections, she continued working towards the
betterment of people in Kondagaon. Five years later,
she contested the state assembly election again and
won. The grit and determination demonstrated by
Ms Usendi, her passion towards her profession, and her
aspiration despite challenging circumstances,
MAIN STREET
especially in the region she comes from, are
increasingly becoming the norm.
Despite India implementing a universal adult
franchise in 1947, women’s political representation in
the Indian Parliament has remained poor.
The number of women getting elected to Lok Sabha
grew at a meagre 2 per cent CAGR over the last
20 years. Thus, even though the percentage of women
elected from those who contested decreased materially
(meaning more women are contesting than before),
the share of women across elected representatives in
Lok Sabha has risen from 9 to just 14 per cent during
the same period. This indicates that more women
contesting elections does not translate into more
women getting elected.
Despite a higher female voter turnout,
representation of women in Parliament is low
15 % z Women elected z Women elected from those who contested 30 %
12 24
9 18
6 12
3 6
0 0
1977 2019
Source: Marcellus Investment Managers, Election Commission of India; complete data is
available for election year post-1977 for these metrics
More Indian women are turning out to vote
Interestingly, even as women’s representation in the
Parliament remains low, more women today than at
any point in India’s history are exercising their right
to vote. If we look at the Lok Sabha elections post 1947,
women voters, as a percentage of all women registered
to vote, have reached their highest-ever tally as of
2019. Remarkably, this ratio has already surpassed its
equivalent for men; more women than men are
May 2024 Wealth Insight 55
 MAIN STREET

hard work, vision and perseverance that went into the

In the 2019 General Elections, female voter turnout creation of JAM are emblematic of Indian women,
was higher than the male turnout who are the torchbearers of these values.
12
Freeing up time to engage in other activities
Male voter turnout - Female voter turnout

9 “With the creation of scheduled part-time work in the

1940s and its enormous diffusion in the 1950s, the
6
(% points)

substitution effect became larger. Reinforcing factors

3 electric household technologies, such as the
0
-0.2
-3
1971
Source: Marcellus Investment Managers, Election Commission of India; complete data was
available after 1971 for this metric
exercising their right to vote, with the gender gap
ratio turning negative for the first time in 2019.
This dichotomy between lower representation of
women in politics yet greater participation in the
political discourse, where more women are exercising
their right to vote, naturally raises two questions –
a) why did women start voting more and b) what are
its implications for the country?
Improved access to the Internet and better
educational outcomes for women
Nandan Nilekani, the erstwhile CEO of Infosys, began
India’s journey towards a social security-like number
(Aadhaar) for all Indians. Aadhaar was awarded to all
citizens by 2014, followed by bank accounts in 2015 for
all families under the Jan Dhan Yojana, followed by
the proliferation of the Internet, dubbed as JAM (Jan
Dhan, Aadhaar and Mobile).
This, coupled with the fact that more women are
getting educated today with better outcomes, creates a
powerful phenomenon of greater access to women and
the knowledge about how to leverage it. In a way, the
The dichotomy between the dismal
representation of women in politics, yet
their increased voter turnout raises two
questions: a) why did women start
voting more and b) what are its
implications for India?
include the almost complete diffusion of modern,
refrigerator and the washing machine, and the
previous diffusion of basic facilities such as
electricity, running water, and the flush toilet” –
Nobel Laureate Claudia Goldin in the Richard T. Ely
2019
lecture (2006).
In the US, from 1920-40, thanks to the widespread
introduction of appliances that ran on electricity,
household chores that took all day now took only a
fraction of the time. Women, the primary agents
responsible for running their households, saw their
efforts from managing these activities go down
materially, leaving them with spare time to pursue
other interests. And so emerged the working-class
American women who preferred to work outside the
households. This is remarkable, as Claudia Goldin has
explained, because in the years prior, whilst some
women were engaged in work, the ‘income effect’ (the
pressing need to earn more money) was the dominant
reason for engaging. In other words, women worked
out of necessity. 1920-40 was the first time when
women could choose to work, not out of necessity to
sustain the household but by choice, shrinking the
‘income effect’ and increasing the ‘substitution effect’
(women working and earning instead of men, rather
than supporting the incomes earned by men).
Today, India is at a similar stage of development.
Most Indian women spend most of their time on
household chores, akin to their American counterparts
before the 1920s. Thankfully, recent policy changes
have improved the lives of Indian women.
By 2018, all census-recorded villages across states
had reported 100 per cent electrification. Under the
Pradhan Mantri Ujjwala Yojana (PMUY), roughly
80 million LPG connections were provided to below
poverty line households by 2019, increasing the total
LPG connections from around 140 million in 2014 to
over 320 million as of March 2023.
Further, under the Nal se Jal mission, roughly
145 million rural households (out of 190 million rural
households) have received tap water as of

56 Wealth Insight May 2024

February 2024, up from 30 million in 2019.
These three changes have freed up many Indian
women’s time, which they can now use for more
economically rewarding tasks.

Access to seed capital courtesy of the

government’s direct transfers
The central and state governments have floated
multiple schemes targeted towards women, especially
before elections, given that their turnout has trended
upward. Among them, the schemes that directly
transfer hard cash into women’s bank accounts via
direct benefit transfer (DBT) are worthy of mention.
These include the Pradhan Mantri Matru Vandana
Yojana (transferring `5,000 to all pregnant and
lactating mothers), Laadli Behna scheme in Madhya
Pradesh (awarding each woman from 23 to 60 years of
age `1,000 per month in their bank accounts), Lakhpati
Didi scheme in Rajasthan (provides interest-free loans
up to `5 lakhs to start a business) and Karnataka
government’s Gruha Lakshmi scheme (offers financial
assistance of up to `2,000 per month to women from
impoverished backgrounds).

Impact #1: Economic and financial freedom

A major culmination of access to information, freeing
up of their time and access to seed capital has increased
women’s entry into the workforce. The latest annual
Periodic Labour Force Survey (PLFS) data shows that
women’s labour force participation rate (LFPR) rose to
37 per cent from 23 per cent in 2017-18.
This has naturally led to women becoming
financially independent and aware of their rights.
Having seen the fruits of policy interventions over the
years and felt the benefits personally, women are
more likely to prefer policymakers who helped them
become financially and socially stronger.
Impact #2: A positive feedback loop of policy
intervention at grassroots levels will drive
greater political participation by women
The beauty (and risk) of the government’s schemes
and policies at the grassroots level are: a) they are
relatively easy to track, and b) they can be understood
by the intended beneficiaries better because of
improved education and awareness. As the three
levers – access to information, freeing up of time to
engage in financially rewarding activities and access
to capital – have started firing into tangible and
measurable benefits for women, they have begun
Illustration: ANAND
applauding the underlying policy changes.
Thus, women are more likely to come out and vote
to let this change continue. Consequently, an even
higher voter turnout for women is expected in the
forthcoming general elections. This would spur
policymakers to deliver more benefits to their most
significant and fastest-growing supporter base.
As this dynamic continues, we will continue tilting
our portfolios towards stocks where women are the
target customers. Stocks like Nestle, Titan and
Rainbow Hospitals already form a prominent part of
several of our portfolios. Research is underway into
more Indian companies whose products are aimed at
the female consumer.
Amongst the companies mentioned in this note,
Titan, Nestle, and Rainbow Hospitals are part of
Marcellus’ portfolios. Saurabh and his immediate
relatives may be invested in these companies.
The described stocks/securities are for educational/
illustration purpose only and not recommendatory.
Saurabh Mukherjea is part of the Investments team at Marcellus
Investment Managers (www.marcellus.in). He is the author of
‘Diamonds in the Dust: Consistent Compounding for
Extraordinary Wealth Creation’.

May 2024 Wealth Insight 57

 STRAIGHT TALK
Will AI innovations topple
Alphabet’s market leadership?
AI-led breakthroughs pose a threat to the company’s hegemony
By
Anand
Tandon
T
he latest driver of tech returns globally has been
Generative AI. Alphabet has pioneered many
algorithms that help train large language
models. However, with the dramatic entry of ChatGPT
backed by Microsoft, Alphabet appears to have lost
some of its sheen. Its attempt to launch Bard, the
answer to ChatGPT, was marred by the engine
generating incorrect answers. This was
embarrassingly repeated, with its successor Gemini
generating incorrect images of the Moon landing
depicting a woman and an African American. Not
surprisingly, Alphabet’s stock price has languished
compared to other similar technology leaders.
Investor concerns
In mid-2023, Bernstein, a US brokerage firm, put out a
report downgrading Alphabet. The key issues it
highlighted were:
z Google’s position in Search was under threat.
Vertical-specific searches, particularly in retail, were
increasingly being carried out on Amazon, Meta and
other social media platforms, chipping away at Google’s
once-dominant dominance. The company attempted to
defend itself by integrating AI into search, as had been
done by Microsoft, but with much less success.
Meanwhile, the cost of developing the AI engine
continued to remain steep.
z YouTube faced incremental competition from TikTok,
and the Connected TV market was set to erode the ad
dollars that YouTube was generating.
58 Wealth Insight May 2024
z Alphabet had been more restrained in cutting costs
than its competitors, causing margin pressures.
z Regulatory action was most focused on Alphabet.
While the outcome was indeterminate, it could
potentially damage some of Alphabet’s franchises.
These concerns partially explain Alphabet’s
underperformance over the past few months. That said,
the stock is currently valued at $157, up 26 per cent from
the report price of $125 – by no means a laggard.
Over the same period, the S&P500 registered an increase
of about 20 per cent.
Did Alphabet deliver?
The Q4 FY24 results of Google laid some fears to rest.
Search revenues were broadly in line with the Street’s
estimates. Retail consumers sought out discounts
using Google during the holiday season. YouTube’s
revenues accelerated with an upscaling of creator
economy, subscriptions and YouTube shorts delivering
growth. Cloud, which had begun to slow down,
reversed and demonstrated strong QoQ growth.
Operating income showed an upside surprise due to
‘cost re-engineering’, and capex guidance was raised.
Forecasts by Goldman Sachs now estimate a 25 per cent
increase in EPS for the current year.
Capex: Will it generate enough revenue?
Investors are still concerned about the enormous
upfront investment required in computing
infrastructure. Alphabet is increasing its capex
expenditure for the current year by almost 33 per cent
to over $40 billion. Customers are, however, not rushing
to pay premium prices for AI tools, as evidenced by the
results of Adobe. There are also concerns that online
chatbots like Perplexity AI will eat into Google’s market
share and revenues. While there is reason to be
concerned, Microsoft’s much-heralded entry into
AI-based search using ChatGPT hasn’t exactly set the
market on fire. Google continues to report over
91 per cent market share in search results, compared to
the 92 per cent share it reported over the past five years.
Nifty IT’s H1 performance has been weaker than that of H2 in nine of the last 13 years
In % z H1 z H2
64

43
33
20 20 20
13 15
10 10
4 2 3 3 3

-2 -2 -1 -2 -2 -2
-7 -6 -6
-12
-28
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Q1 2024

Source: Bloomberg, IIFL Research

On another front, Google has invested in some companies deliver industry-leading growth while
producing semiconductors. The chip, called Axion, is others have lagged. The ‘moat’ that will help protect
an ARM-based chip designed for data centres. While these companies from global changes is hard to detect.
unveiling the chip, Google said it offers ‘up to 50 per As US companies transform and look at manpower
cent better performance and up to 60 per cent better reduction to prepare for the impact of AI and other
energy-efficiency’ compared to the current productivity-enhancing technologies, Indian firms
generation tech. This should reduce the costs of are receiving incremental business. Recent deals
setting up data centres and servicing AI demand by have largely been focused on cost take-out. US tech
a considerable amount. budgets have largely remained flat, and decision
cycles remain long. An impending election doesn’t
The Indian IT sector help. Earnings forecasts assume recovery in the
The large-cap listed space in Indian IT remains second half of the calendar based on hope and some
dominated by IT services companies with little to historical data. Analysts remain more optimistic
distinguish among them except execution. than business demands.
Segmentation of clients and technologies has helped Even without assuming that the earnings outlook
deteriorates, IIFL, a leading institutional brokerage,
estimates a sector growth rate of 14 per cent CAGR for
IIFL’s estimates of the Indian IT sector the next 24 months. Over the same period, Alphabet is
FY26 (estimates) FY24-26 (% pa) likely to deliver a growth rate of 22 per cent CAGR, per
Company Price EPS P/E Revenue ($) EBIT EPS Goldman Sach’s estimates.
Persistent Systems 3,959 121.6 32.6 16 23 31 The price-to-growth ratio of Alphabet computes at
Cyient 2,101 91.7 22.9 13 16 17 less than one, while that of large-cap Indian IT services
remains between 1.6-2x.
L&T Technology 5,648 162.2 34.8 13 16 15
Many global analysts feel the US market is
Mphasis 2,445 108.3 22.6 11 14 15
overvalued and money should move to emerging
Infosys 1,507 76.1 19.8 9 12 13 markets. It is often assumed that this implies a
TCS 3,984 158.3 25.2 9 12 11 tsunami of investments is headed to India. As
LTIMindtree 4,918 226.5 21.7 9 14 21 the analysis above shows, even for an industry
where India is globally an established and leading
HCL Tech 1,539 71.0 21.7 8 9 10
player, the valuation versus growth versus business
Tech Mahindra 1,266 58.9 21.5 6 43 41
quality doesn’t stack up in India’s favour. Home
Wipro 477 26.1 18.3 4 8 11 country bias is a thing.
Sector 9 13 14 However, Indian investors will also be well served
Price data as of April 10, 2024
to look beyond India’s borders while investing, and
yes, it’s too early to write Alphabet off!

May 2024 Wealth Insight 59

 EVERYDAY ECONOMICS
Why smart young Indians aren’t
working in the private sector
A dearth of private-sector jobs pushes job seekers to turn to government jobs
By
Puja
Mehra
S
anjeev Sanyal, a government economist, has said
that scores of young Indians trying for a handful
of civil services jobs show their ‘poverty of aspi-
ration’. I have yet to watch the interview where he
said this, but the statement was plucked out and
became the talk of the town. Sanyal left a private job
in the financial sector to join the government. He is
now the member secretary of the Prime Minister’s
Economic Advisory Council, prior to which he was an
advisor in the Finance Ministry. There, he helped
write the economic surveys just ahead of the presenta-
tion of the annual Union Budget.
Is Sanyal’s analysis correct? About 10 lakh Indians
apply each year for a thousand-plus civil services jobs,
which makes the Union Public Service Commission
(UPSC) exam among the most competitive selection
processes in the world. There’s such a craze for these
jobs that a cottage industry thrives to prepare aspir-
ants. If you’ve watched the acclaimed Bollywood
movie ‘12th Fail’, you know what it is like.
Does India’s youth actually want to work
for the government?
It’s more than just the bureaucracy that draws appli-
cants in large numbers. A similar preference for gov-
ernment jobs is seen at all job market levels.
For instance, 60,000 openings for UP police consta-
bles attracted 48 lakh applicants recently. Such data
figures come up routinely for jobs.
Why do youngsters want to work for the govern-
60 Wealth Insight May 2024
ment? India’s job market is structured as a hierarchy
of jobs, ranging from least to most attractive. At the
lowest rung of this ladder are informal jobs that offer
no job security or benefits and are often exploitative.
Employers often don’t even provide drinking water at
the workplace. Wages may or may not be given to the
workers in full and on time.
A little better are the organised sector jobs, which
are not to be confused with formal jobs that must offer
specific employment benefits such as paid leave, relia-
ble remuneration, hygienic and safe work conditions,
etc. The organised sector has both formal and infor-
mal jobs, which are mostly contractual. The contrac-
tual jobs are also fairly unattractive as they are usual-
ly seasonal or temporary placements, leaving workers
out of work and pay for extended periods.
Naturally, anyone who is qualified and looking for
employment would like to have a formal job – the best
out of the available options. So, the maximum demand
remains for formal jobs.
Lack of job creation in the private sector
Radhicka Kapoor, an economist at the International
Labour Organisation (ILO), told me that of the total
jobs created in the economy, only about 5 per cent are
formal jobs. Her calculations show that the vast
majority of these jobs are government jobs – UPSC
positions, openings in public sector banks and PSUs,
universities, etc.
Therefore, while what seems like a preference for
Out of the total number of jobs created
in the Indian economy, only 5 per cent
are formal jobs. The vast majority of
these openings are in the government
sector – UPSC, public sector banks,
PSUs, public universities, etc.

government jobs to Sanyal is a preference for formal
jobs in which pay is predictable and timely, paid leave
is available and work conditions cannot be exploita-
tive. Since the private sector generates a minuscule
number of these jobs, it so happens that the bulk of the
formal jobs are in the government sector. Hence, there
tends to be a scramble for them. The scarcity of any-
thing creates a scramble. This is essentially a scram-
ble for formal jobs, not a craze for government jobs.
Poor placement record at elite universities
Let’s look at some numbers. As per The Times of
India, while placements have been on this year since
January in the Indian Institutes of Technology (IITs),
nearly a third of the students applying for jobs hadn’t
been placed even until early April. The situation was
only slightly better in 2023. IITs are intensifying
efforts to secure their students’ job opportunities and
extend placement periods. Close to 33 per cent of the
students in B.Tech, post-graduate and doctoral pro-
grammes at the Powai campus are yet to be placed.
Of the 1,970 students who sat for job interviews and
tests, only around 1,300 had been placed as of
March-end. Therefore, students want to join govern-
ment companies or appear for the UPSC exams.
If a third of the IITians looking for jobs, the cream
of India’s labour force entrants, can’t be absorbed by
the job market, can their turning to IAS be called pov-
erty of aspirations? Sanyal is wrong to equate a prefer-
Illustration: ANAND
ence for IAS with an aspiration for IAS. He is misread-
ing the country’s youth.
Let’s look beyond the elite IITs. The latest
Economic Survey (2022-23) was calculated using the
Quarterly Employment Survey published by the
government’s Labour Bureau, showing that one
million organised sector jobs are added monthly.
That’s the supply of jobs. What’s the demand for jobs?
The CMIE reports that 1.8 million Indians join the
workforce every month.
So, the number of jobs falls short of the number
of workers, a supply-demand mismatch. This results
in unemployment or underemployment, which is
when people take up jobs that don’t allow them to
use their time and skills adequately. This is usually a
distress option.
Further, Neelkanth Mishra, a part-time member of
the Prime Minister’s Economic Advisory Council,
recently wrote in an op-ed in The Economic Times
that while more entrants continued to join the labour
force during the Covid years, job creation was even
lower than usual, creating a bigger backlog of unmet
demand for jobs. The fact is that the number of formal
jobs created in the private sector is so small compared
to the number of government sector jobs, that they
end up scrambling for the latter.
Puja Mehra is a Delhi-based journalist and the author of
‘The Lost Decade (2008-18): How the India Growth Story Devolved
into Growth Without a Story’
May 2024 Wealth Insight 61
 STOCK SCREEN

Finding growth and value

Using our stock screens to help you find still-growing large companies and
attractive high-quality mid caps

T
ired of spending hours sifting through the vast
listed stock universe? All you need is a reliable
stock screener. It can help you generate a list of
promising stocks that deserve your attention
with just a click of a button. Once you have a manageable
list, your job is just to research these companies further
and find the ones worth investing in.
Value Research offers several carefully curated
stock filters that can pick the most attractive
companies from the listed Indian universe.
In this issue, we cover the ‘high growth
large caps’ and ‘top value mid caps’
screens in detail. We have also given a
concise list from other screens. To view all
the companies, visit: https://www.
valueresearchonline.com/stocks-screener/.
What do these screens offer?
The first screen will help you find large caps that, despite
their size, are still growing. The second one filters
quality mid caps available at reasonable valuations.
High growth large caps: Large caps usually lag behind
their smaller peers in growth owing to their size and
matured industry. Nonetheless, investors prefer them
due to their high liquidity and all-weather style. Add to
this healthy growth, and you will get a solid all-rounder.
Our screen lists large caps that are still clocking double-
digit growth. However, these are often pricier due to
their strong growth at this size.
Top value mid caps: Mid caps often come with a dilemma:
The quality ones come with high valuations while the
ones that are valued low often lag behind in
quality. We aim to attain a balance between
both. In this screen, we try to find mid caps
that are valued relatively low while being
high in quality. These, however, carry
more risk than their larger peers.
A word of caution
Note that a mere inclusion in a stock screen
does not mean that a stock is worth investing
in. Consider our stock screens as the starting point
of your research and do your due diligence before
investing. However, if you are interested in a list of
stocks to invest in right away, subscribe to our
recommendation service at Value Research Stock
Advisor. You can access the details by visiting: www.
valueresearchstocks.com.

Key terms
7YPJL[VLHYUPUNZ7,
A ratio of the stock price and
earnings per share (EPS). It shows
in multiples how much investors are
willing to pay for a share in a
company’s earnings. Note that a
high-growth stock often will have a
high P/E ratio, while a value stock
will have a relatively lower P/E ratio.
7YPJLLHYUPUNZ[VNYV^[O7,.
A ratio of P/E to the five-year EPS
growth of the stock. Shows how high
a price we are paying for the growth
that we are purchasing. A PEG of
less than one indicates an
attractively priced stock.
9L[\YUVULX\P[`96,
Measured by taking profit after tax as
a percentage of the net worth of the
company. Indicates how efficiently
the company has been able to utilise
investors’ money.
@YL]LU\LNYV^[O 
The five-year annualised growth rate
of revenue.
@,7:NYV^[O 
The five-year annualised growth rate
of EPS.
:[VJRYH[PUN
Value Research Stock Rating
combines the three scores (quality,
growth and valuation) based on
assigned weights to arrive at a
holistic stock rating. We have created
a five star rating system. The higher
the stock rating, the better.
8\HSP[`ZJVYL priced. This quantitative rating
It assesses the quality of a considers the stock’s current and
company quantitatively, capturing historical valuation parameters based
two crucial aspects, i.e., business on metrics such as P/E ratio, free cash
efficiency and balance sheet flow yield, dividend yield, etc. The
quality. It considers various score is out of 10. The higher the
metrics, such as return on equity, score, the more attractively priced it is.
return on capital employed, debt- :[VJRZ[`SL
to-equity ratio, etc. The score is Derived from a combination of the
based on the relative ranking of all stock’s valuation – growth or
parameters after assigning certain value – and its market
weights to each. Both current capitalisation – large, mid and
values and historical values drive small. For Growth Value
the ratings. The score is out of 10. example,
Large
The higher the score, the higher here is the
the quality. stock style of Mid
=HS\H[PVUZJVYL a large-cap
Small
It gauges if a stock is reasonably growth stock.

62 Wealth Insight May 2024

High growth large caps No. of companies that
cleared the filters

Reasons to invest The filters

134
Relatively safer with strong M-cap greater than `60,000 cr
balance sheet Growth Score more than 7 18
Interest from institutional
investors
High liquidity

5Y revenue 5Y EPS
Company Stock Growth growth growth 5Y avg. Market cap Share 52-week
Industry style Stock Rating score PEG (% pa) (% pa) ROE (%) (` cr) price (`) high/low (`)

ABB India
Switching Equipment  8 3.0 9.3 37.5 14.8 1,38,201 6,452 6,773-3,141

Adani Enterprises
Trading  8 1.4 23.9 40.4 4.3 3,57,658 3,113 3,350-1,776

Adani Green Energy

Power Projects  9 5.6 39.2 40.1 8.5 2,87,827 1,811 2,019-816

Adani Total Gas

Natural Gas Utilities  8 8.0 21.5 41.0 25.4 1,03,382 937 1,259-522

Avenue Supermarts
Retailing  8 5.4 20.5 22.6 14.1 3,01,488 4,625 4,832-3,352

Axis Bank
Banking  8 1.6 14.9 59.1 7.9 3,19,077 1,028 1,152-854

Bajaj Finance
Other Financial Instututions  10 1.6 22.8 29.6 19.4 4,30,305 6,908 8,192-5,828

Cholamandalam Investment
Other Financial Instututions  9 1.9 19.8 20.6 18.8 94,852 1,122 1,310-823

Dr. Reddy’s Labs

Drugs & Pharma  8 0.9 12.7 24.1 14.7 1,01,483 6,003 6,506-4,384

HDFC Bank
Banking  8 1.0 19.8 17.9 16.8 11,49,451 1,502 1,758-1,364

IndusInd Bank
Banking  8 0.9 15.8 11.4 12.2 1,16,048 1,484 1,695-1,065

Kotak Mahindra Bank

Banking  9 1.3 13.1 19.2 13.5 3,59,804 1,801 2,064-1,667

Siemens
Switching Equipment  8 6.4 7.4 15.8 11.8 1,99,509 5,611 5,770-3,240

State Bank Of India

Banking  8 0.9 11.3 63.9 10.4 6,74,388 751 793-537

The Indian Hotels Co

Hotels  8 2.1 8.0 32.5 1.0 84,936 596 623-329

Titan Company
Gems, Jewellery & Accessories  8 4.9 20.8 20.3 23.9 3,22,315 3,581 3,887-2,559

Stock Rating and price data as of April 18, 2024. For the full list, scan the QR code on the right.
 STOCK SCREEN

No of companies that

Top value mid caps cleared the filters

300

Reasons to invest The filters 156

Relatively undervalued M-cap greater than `7,500 cr
High on quality Quality score more than 5 15
Higher growth opportunities Valuation score more than 6

5Y EPS
Company Stock Quality Valuation 5Y avg. growth Market cap Share 52-week
Industry style Stock Rating score score P/E ROE (%) (% pa) (` cr) price (`) high/low (`)

Authum Inv. & Infra

Misc. Fin.services  8 7.0 2.7 4.9 84.8 12,646 754 1,010-192

Bandhan Bank
Banking  7 8.0 9.5 13.6 5.5 28,361 175 272-173

Chambal Fertilisers
Nitrogenous Fertilizer  8 7.0 11.7 28.5 21.8 14,954 371 403-250

Chennai Petroleum Corp

Oil Refineries & Marketing  6 7.0 4.5 12.1 250.4 13,994 945 1,036-256

City Union Bank

Banking  9 7.0 11.7 12.2 8.0 11,480 154 168-120

Gujarat State Petronet

Natural Gas Utilities  10 7.0 14.3 38.9 9.3 22,202 389 407-255

Indiabulls Housing Finance

Housing Finance  6 7.0 10.9 12.4 -22.5 12,657 170 209-90

Indraprastha Gas
Natural Gas Utilities  10 7.0 15.9 21.9 18.2 30,968 442 516-376

LIC Housing Finance

Housing Finance  8 7.0 7.4 13.0 5.7 36,024 649 672-328

Mahanagar Gas
Natural Gas Utilities  10 7.0 10.9 22.4 20.1 14,041 1,414 1,580-971

Manappuram Finance
Misc. Fin.services  10 8.0 8.1 22.4 19.2 16,446 193 202-102

Petronet LNG
Natural Gas Utilities  10 7.0 13.2 24.6 8.8 46,260 307 319-192

Sun TV Network
Media & Entertainment  10 7.0 12.7 23.6 5.6 24,084 610 735-414

The Federal Bank

Banking  7 7.0 9.8 11.6 26.5 37,792 154 166-121

The Great Eastern Shipping

Oil & Gas Transportation  7 7.0 6.0 10.3 44.8 14,512 1,023 1,072-630

Stock Rating and price data as of April 18, 2024.

64 Wealth Insight May 2024

Want more? Here you go
Other screens available on the Value Research website
P/E P/E

5-star stocks Coal India 9.3 Caplin Point Labs 22.8

Gives you a list of companies that have Chambal Fertilisers 11.5 Fine Organic Inds. 29.4
received a five-star Stock Rating IOL Chemicals And Pharma 13.4 LTIMindtree 30.3
Gujarat State Petronet 14.0 Hawkins Cookers 33.9
Cigniti Technologies 18.0 Nestle India 79.4

High-quality JK Paper 5.3 VST Industries 21.3

small caps GHCL 5.4 Just Dial 23.6
Small-cap stocks rated high on Quality Score KNR Constructions 12.8 Jamna Auto Industries 25.8
Gujarat Narmada Valley Fert. 14.1 Mastek 30.9
Gulf Oil 17.1 Ion Exchange (India) 40.7

Growth at a Jain Irrigation 3.6 IST 9.6

reasonable P/E Hindustan Petroleum Corp 4.0 Adani Power 9.9
Growth stocks available at low P/E Indian Oil Corp 5.1 Mahanagar Gas 10.8
Uttam Sugar Mills 7.9 Mafatlal Industries 11.3
Swadeshi Polytex 9.1 Geekay Wires 14.1

Cheap quality stocks Seshasayee Paper 5.9 Vishnu Chemicals 18.0

The Great Eastern Shipping Co 6.0 Fiem Industries 18.9
Quality stocks available at low valuations
Coal India 9.2 Dr Reddy’s Labs 19.0
Pearl Global Inds. 14.1 Godfrey Phillips 19.1
Bannari Amman Sugars 17.8 Bharat Wire Ropes 22.3

P/B P/B

Zuari Industries 0.3 DCB Bank 0.8

Discount to book value
Provides a list companies that are available GFL 0.3 The Karnataka Bank 0.8
at less than their net worth Dhunseri Ventures 0.4 The South Indian Bank 0.8
Zuari Agro Chemicals 0.5 Tamil Nadu Newsprint & Papers 0.9
The Sandesh 0.8 Tamilnad Mercantile Bank 1.0

For all the screens and to customise them

as per your requirements, visit
z Stock Rating z Value Guru screens z Easy peer comparison

www.valueresearchonline.com/stocks-screener/
 WORDSWORTH NOW

Madhabi Puri Buch

Chairperson, SEBI
For trust, it’s a two-way street, it takes two to tango. So not only
is it imperative for the industry to create trust and build trust, it is
also equally imperative for the regulator to build trust in itself why
is this because the regulator in many ways is simply a proxy for
the wider investor base.
CII Corporate Governance Summit, April 2, 2024

Nirmala Sitaraman
Union Finance Minister

India has been the

economy in the last
three consecutive
financial years and
Stephan Winklemann
CEO and Chairman,
Lamborghini
On how the luxury
business operates
One key element of
the luxury business
is to have an order
bank that lasts. You
25 years will be very
must have residual
values, which are
high and more than
the new cars. Plus,
the brand value must st
constantly keep
rising. That means
there are always
indicators to tell us
if we are going the
right way.
Business Today,
April 28, 2024
fastest growing
Satya Nadella
CEO, Microsoft
On how tech
can be a driver of
this growth can economic growth
continue in the In the height of the
industrial revolution in the
coming years as United Kingdom, they
spent 10 per cent of their
well. The next GDP building the
railroads and obviously
railroads…is not about
the railroads, it was about
critical for India. the entire economy of the
Mint, April 17, 2024
United Kingdom
King and so
something like that I think
is what..that’s
what..tha the unit of
analysis at least for me
as to how tech
t and its
future will impact
i broader
society and economy.
Norges Bank IInvestment
Management podcast,
p
2024
March 13, 202
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