Long term picks

Bharat Bijlee - Results are coming up, should be a good one, but not as good as expected a year back. Valuations looks very reasonable at around 11 P/E (excluding the cash/investment value of the stock) and sales team is doing an amazing job of keeping the order book full.

Larsen & Toubro - One of the best stock in the Indian markets. An expensive stock, but considering that they are planning to separate out around 11 verticals and strong growth in the sectors the company has presence, the earnings multiples look okay.

Reliance Power - This is my speculative bet. Fundamentals take a back seat here.

DLF Limited - Best real estate stock in the index. Period. Probably a very good long term pick. I will pick up some more stocks as and when an opportunity arise.

Some of the better ones in 2008 could be NTPC, SBI, HDFC, ICICI Bank, JP Associates, BHEL, Jindal Saw, Reliance Energy, Reliance Industries, ABB, Mundra Port & SEZ, On Mobile, MIC Electronics, Jindal Steel & Power, ONGC etc.

J K Lakshmi Cement - A superb Opportunity !!!

The Nifty is down to 4745 at the time of writing this. Can it go down further? Yes, it can. The way I look at the current market scenario is like this. There are two different pockets in the market right now. One pocket consists of the frothy stocks which went up to crazy heights just a couple of months ago, without having any real earnings to justify their price rise. I am talking about stocks like REL, RIIL, Jai Corp, Unitech, JP Assoc, Punj Lloyd, GMR Infra etc. These stocks need to go down further.

Then the second pocket consists of stocks like JKLAKSHMI CEMENT which have gone down on very low volumes purely in sympathy with the overall negative sentiment in the market. They don't deserve to be at such prices. At today's low of 119, JKLAKSHMI is trading at a PE of 2.53. This is incredible for a company of this size and quality of management. JKLAKSHMI's PE is at a huge discount to its peers. The industry average PE used to be in the range of 10-14 which has now shrunk to between 8-12 after the January crash.

If I was a Fund Manager I would be going all out to buy this stock in bulk at these prices. Capacity is going to be enhanced from the present 3.5MT to 5MT by October 2008 and to 10MT by 2011. Cement is going to be in demand due to the thrust on building new infrastructure in the country. Considering all this, I would say that the market is giving a golden opportunity to buy gems like JKLAKSHMI at such throwaway prices.

Rel. Energy buyback

The management of Reliance Energy (REL) has announced a share buyback, seemingly to appease shareholders following the rout its stock has seen over the past couple of months. In fact, the company's stock price has almost halved from a peak of Rs 2,630 that it touched in January 2008.

This weakness follows a period of overvaluation where the stock price had reached dizzying heights not conforming to the company's inherent value. Then came the Reliance Power shocker, which investors had originally believed to be a 'fairytale' IPO, but that turned out to be a 'nightmare'.
Anyways, the management, with a view to "reduce short term volatility in the company's share price, deter speculative activity in the company's shares, send a strong signal to the capital markets on the perceived under-valuation of the company's share price and reiterate the confidence of management in future growth prospects of the company", has declared a buyback programme that will be spread over two stages.
Firstly, shares worth Rs 8 bn will be bought back, pursuant to the approval granted by the company's board of directors.
Then, a further amount of Rs 12 bn will be spent towards a further buyback, again subject to necessary approvals by the shareholders.
In totality, REL has proposed to buy-back shares worth Rs 20 bn for a maximum price of Rs 1,600 per share. This price represents a premium of around 10% to the closing share price on Wednesday, the last trading day before the buyback was announced.
In effect, for a transaction worth Rs 20 bn and at a maximum price of Rs 1,600 per share, REL will buy back around 12.5 m shares, or just about 5.3% of the current shares outstanding. This reduction in share base will improve the company's earnings per share by just around 5.8%, which is miniscule. How does the management then expect to provide 'substantial' benefits to shareholders through this buyback is thus questionable!
The fact that the stock has declined by over 10% after the buyback announcement points to the inadequacy of the entire exercise. Also, considering that the buyback amount of Rs 20 bn is just around 23% of the company's estimated net cash for FY08 (after reducing debt from cash and investments), the company could have given away more (bought back higher number of shares). This is also considering that due to the fact that all capex related to power generation will be taken care by Reliance Power going forward, REL's cash requirements will not be high in the future.
We had recommended a 'Sell' on Reliance Energy in January 2008 at Rs 2,135. The stock is down 37% since then. We had valued REL's core businesses at Rs 808 per share and its investment in Reliance Power at Rs 1,224 per share, thus arriving at a total value of Rs 2,032 per REL share. While we maintain our view with respect to the company's intrinsic value and the stock does look attractive on a valuation basis, we still prefer other power stocks under our coverage for simple reasons like their lower execution risks and management integrity
source:equitymaster.com

Stock Recommendation - March

NTPC

The present state of the market has brought the blue chips at much below their intrinsic worth, with many having corrected by about 30% from their recent highs. Under the present circumstances, it is thus best to pick up stocks which today offer greater value for money. National Thermal Power Corporation (NTPC) is one such stock.

This power generating PSU currently has a power generation capacity of 27,904 MW. Of this, the company owns 26,850 MW. Of this 26,50 MW, 22,895 MW is coal based with 15 projects while 3,955MW is gas based with 7 projects. 1054 MW is under JV of which 314 MW is coal based and 740MW is gas based.

The paid up equity of the company is at Rs.8,245 crore being 824.55 crore equity shares of Rs.10 each. Of this, the Government of India holds 89.5%, 7.55% by mutual funds, banks and insurance companies while public holds 2.95% as at 31/12/07. Such a massive power generation company with a paid up equity of just Rs.8,245 crore is beyond imagination!

NTPC is implementing 11 projects for 10,860 MW in various states, which would take the capacity of the company to close to 40,000 MW. All these projects would be operational in next 36-42 months. The total cost of these projects is Rs.40,000 crore and are located in UP, Bihar, Assam and Maharashtra.

NTPC has also entered into a Joint Venture with BHEL, a 50:50 JV to carry on EPC activities, including manufacturing and supply of equipments and power plants for third party power generating companies.

With huge thrust in the 11th Plan on power generating capacity of 70,000MW, the company would cross power generating capacity of 50,000 MW by the end of the 11th Plan period, viz: 2012.

Instead of going for Ultra Mega Power Projects, the company is implementing projects of 1,000MW to 2,000 MW which can get completed in 3 years, in phases. Some of these projects are 1980 MW (660 MW ´3) in Bihar with Capex of Rs.7,341 crore; 750 MW (250 ´3) with outlay of Rs.4,375 crore in Assam; 1000MW (500 MW ´2) with outlay of Rs.5,459 crore in Maharashtra and 1320 MW (660MW ´ 2) in Allahabad. This puts the projects on a fast track thus minimizing the execution risks and cost overruns.

Once Nuclear Power project takes off, NTPC would be a giant player in the field to increase its power generating capacity.

Share at Rs.190 is a safe and excellent bet, which can give a consistent return of 24% over the next 3-4 years in share price.