Diwali Picks - Samvat 2071-72

Happy Diwali and Welcome to My Blog

This blog is my humble effort to just share my views of the stocks, not making research reports. Over a two decade experience as an investor in the Indian Stock markets I strongly feels that it is better to ' invest in individual stocks on their merits' to get good return. 

This Diwali I am suggesting three quality stocks to invest for a medium to long-term perspective. My detailed views of these stocks are given below:

1. Nilkamal Ltd - BUY

   Plastic products business is expected to remain high as it is comparatively cheap and its user friendly nature. Declining crude oil prices expected to boost the profit margins of the company, while softening inflation increases revenue.

       Nilkamal Limited is Asia's largest moulded plastic products manufacturer, located at Mumbai, Maharashtra. The company’s product portfolio includes Plastic Furniture, Material Handling Crates and Bins, Tables, Rack, Chairs, Industrial Pallets, Waste Bins, Insulated Crates and mattress etc.

     Mattress Division of the Company grew by 36% in FY 2013-14, while the industry grew by 10%. Nilkamal propose to invest up to Rs. 60 crore in three years to setting up additional factories in the West, North and Central India to expand manufacturing capacity of the mattress segment. 

  In the last financial year the Company has added 7 one stop furniture showrooms named “Nilkamal Home Ideas” to taking the total of “Nilkamal Home Ideas” stores to 26. The company proposes to further increase its sales channels of both Nilkamal Home Ideas and @home.  

   Nilkamal protected itself from stiff competition as the company’s very strong brand image, product quality and nationwide dealer and distribution network. Plastic furniture business of the company enjoys a leadership position with a market share of around 32% and a lead of over two times its closest competitor. 

   Going forward, Plastic products business is expected to remain high as it is comparatively cheap and its user friendly nature.  With the economic activity picking up, we expect to increase the plastic furniture use as increasing urbanization, coming up new malls, food courts and offices etc. 

 Last financial year the company registered a modest growth in its financials due to a 15% increase in the raw material prices and a sudden fall in the currency value. Plastic resins, the main raw material of the plastic products is a by product of crude oil. The company’s margins are expected to boost in line with the fall in the crude oil prices. Lower inflation would help to increase the sales of the company. Thus the short to medium term outlook of the company seems bright.  

      For the trailing twelve months ended June 2014, Nilkamal has reported a sales income of Rs. 1682 crore and Net profit of Rs. 39.3 crore. With an equity capital of Rs. 14.9 crore, EPS stood at Rs. 26.3. Prevailing market price of Rs. 330, the stock is trading TTM PE of 12.5Xs and P/BV of 1X. Last financial year the company reduced its debt by Rs. 103 crore to Rs. 270 crore. This would further strengthen the financial position.  We feel the stock to touch Rs. 480 within a one year time frame.

2. Gulf Oil Lubricants India Ltd - BUY

      Part of the Ashok Leyland group, Gulf Oil Lubricants is the second largest Lube manufacturer in the private sector in India. Having a vast marketing network, capacity additions and ever growing demand for lubes make it the company an unshakable long-term bet.

    Gulf Oil Lubricants India Ltd, part of the Hinduja (Ashok Leyland) group is the second largest private sector lubricant manufacturer in India. The company is the de-merged division from Gulf Oil Corporation Ltd in July, 2014.  The company's products- Long drain engine oil is used in all type of engines and industries under the brand 'Gulf'. This brand has a presence in over 100 countries world wide excluding USA, Spain & Portugal.

    Gulf Oil enjoys nearly 5% market share in the domestic lubricant market and nearly 7% market shares in the secondary market. In the domestic front, major strength of the company is its strong marketing network of over 300 distributors and 5000 plus retail dealers across the country.

     The company and the M&M Group on October 7th, 2014 entered a tie-up for the latter's tractor segment, which will be a significant turning point for the company. With an impressive growth in tractor sales M&M dominates a market share of 42% in India, the worlds largest tractor market. This OEM supply contract will contribute more oil to Gulf Oil's existing success.

     Gulf Oil is going for a huge capacity addition. Its Silvasa plant's capacity is propose to increase from 75000 KL to 9000 KL. Apart from this, it is sets up a new 75000 KL capacity plant in Chennai with an investment of Rs.120 crore. The company management is confident to achieve 10-11% revenue growth in this Fiscal and after completion of the expansion, expecting a 15-16% growth.

    For the FY ended march, 2014, the company posted sales of Rs.1060 crore and Net profit of Rs.61 crore. For the quarter ended June,2014, the first quarterly result published after the de-merger and listing, it has reported a net profit of Rs.18 crore and revenue of Rs. 265 crore. At the current market price of Rs. 308, the stock is trading with a P/E of nearly 20Xs on an annualized EPS of Rs.19. Considering the parent company's ample experience in the automotive industry, company's capacity addition, strong dealer and distribution network and ever growing demand from the primary and secondary market we feel the stock having a potential to touch Rs. 450/- within one year.

3. IFB Industries Ltd - BUY

     “IFB” is the most trusted brand and undisputed market leader in the fully automatic washing machines industry in India. Despite a high valuation and recent sharp rally in the stock price, IFB seems a good Investment opportunity at current levels when considering the company’s strong brand image solid financials, growth opportunities in the industry and aggressive expansion of its product portfolio. 

     IFB Industries Limited originally known as Indian Fine Blanks Limited started operations in India during 1974 in collaboration with Hienrich Schmid AG of Switzerland. The company has a Home Appliances division which contributing roughly 80% of revenue and an Auto-ancillary division, contributes roughly 20% revenue. Home appliance division is manufacturing and marketing of fully automatic washing machines, dryers,  dishwashers, microwave ovens, split air conditioners, refrigerators, cooker hoods, built in hobs and modular kitchens. The auto component division of the company is engaged in manufacturing and sale of fine blanked auto components especially for two wheelers. 

   Earlier the company concentrated in single product- front load washing machines. Now the company has shifted to more products to its arena with refrigerators and air conditioners are the latest additions. With the top rated quality and pan India marketing and service network, IFB is able to easily capture its position in a very high competitive market. 

  Low household penetration and well below world average of appliances in India will provide tremendous growth opportunities for domestic home appliances companies.  Rise in double income nuclear families, easy availability of credit, changing life style, introduction of new models and increasing consumer awareness too help to post strong growth even in non-metro cities.  

    As per the company data response to newly launched products like air conditioners and refrigerators has been quite encouraging. The sale of company’s products through IFB Points stood at 16 per cent in last quarter compared to 9 per cent in the previous year. New products will boost the top line of the company in the years to come. 

   Auto mobile Industry is the major customer segment for IFB’s engineering division. Since the last couple of years auto mobile sales was impacted by slowing economy, high interest rates and fuel cost. Now the situation has been changed as Fuel price declined and interest rate seems peaked out. Thus the engineering division of the company too expected to do well in the future. Moreover this division concentrating non-auto sectors for steady growth in the future. 

    With a negligible debt in its book, IFB’s balance sheet is strong and it will remain strong in the coming years as major expenses regarding the manufacturing and distribution front almost seems over.  Last financial year the company reported a sales income of Rs. 1020 crore and Net profit of Rs. 27 crore after consideration of Rs. 14.3 crore forex loss. For the first quarter ended June 2014 it reported a sales income of Rs 290 crore and Net profit of Rs. 17.5 crore. At the current market price of Rs. 320, IFB is trading with a TTM PE of 35 which seems very high. But still we feel the stock is a good investment opportunity with an upside target of over Rs. 500/- within a period of one year if we considering the company’s strong brand, financials, revenue contribution from new products and growth potentials of the industry.

Disclaimer: Please be noted that I have no investments in the above mentioned three stocks.