A few investment ideas and analysis

On running various filters in icicidirect, I was able to list a few companies which were worth further investigation.

My approach was to do a preliminary analysis and reduce the list further to a few more interesting opportunities.

I am listing the companies and my analysis. This analysis is a bit dated as I did this analysis during the aug/sept time frame and have not looked at the recent price for these companies

1. Merck : Indian subsidiary of the american MNC. The american parent has a 100% subsidiary too which could be getting all the new products from the parents portfolio (and I guess special treatment over the listed subsidiary).

The company is selling at approximately 5 times earnings after adjusting non operating income and cash on books. The company has a high ROE of 30 % and low growth of 4-5%. The actual ROE on tangible equity is 60% +.

The company has a Pharmaceuticals and chemicals business. It has recently sold its life sciences business and has approximately 3370 million on its books (Rs 200/ share).

The topline is expected to drop due to the sale of the life sciences business. The pharma business has a growth in single digits and the next years earnings could be 10-15 % over the earnings of 2005 (current year earnings are not comparable due to the sale of life sciences division)

This company is a value play. The management does not seem to be very shareholder friendly. It remains to be seen, what the management will do with the huge cash it has on its books . Will it try to buy out the indian shareholders at an unfair price like a few other MNC’s have done in past? Can happen.

I would estimate the intrinsic value conservatively at 700-800 Rs per share. However it is quite likely that the valuation gap may take a long time to close due to poor growth prospects and a management which may be indifferent to minority shareholders

2. Swaraj engines
The company showed up in my list as the PE seems to be 4-5. However after adjusting for the bonus issue, the actual PE is 14. Also the company has low growth, high debtors position and is mainly supplying to sister companies. It is a small cap company too. I do not see much value in this stock and decided to give it a pass.

The other stocks which I will detail in subsequent posts are

Grindwell norton
Revathi CP
Kirloskar oil engines
Hindustan inks
Tube investments
Neyvelli lignite
Gujarat gas

Please do not take the above list as a recommendation. This above post is just for analysis and I may or may not have invested in any of the above stocks