All of the Sensex companies have created tremendous wealth over the last 10 and 20 years. They have beaten returns from banks deposits by a hefty margin. However, the holding period of such stocks is rather large and the longer you hold, the more money you can make. We have picked a few stocks from the Sensex companies that we believe have a huge potential to make money for investors. However, we have also picked one stock from the non-Sensex companies, which we believe is one of the best long term stock bets in India.
This has to be one of the best long term stocks to buy in India. Just take a look at the Q2 nos of Reliance Industries. The company reported a net profit of Rs 7,206 crores, more or less in line with expectations. But, there were some other things that well stand-out. The company reported record profits in the petchem business, which continues to drive the performance of the company, along with the refining business. The petchem business saw a 1.70 basis points improvement in margins. The company's refining business reported gross refining margin of $10.1 per barrel. The company in fact is able to report one of the best gross refining margins in the world.
Telecom: A good long-term story
But, what is interesting to note is that the telecom business would contribute substantially to the company's net profits in the next 5 years or so. The company is planning to invest a staggering 1 trillion in the venture by 2020, taking its total investment to Rs 2.5 trillion by 2010. A solid 16 million customers were added in the month of Sept and the company keeps adding 5 lakh new customers everyday. The retail business is continuing to show profits at the operating level, which is extremely heartening. The EBIT of the retail business stood at Rs 162 crores, driven by good demand in lifestyle and digital. We would most likely see good performance of the company going forward.
Fundamentals and valuations
Reliance Industries reported an EPS of Rs 23.80 for the quarter ending Sept 30, 2016. There is no reason, why the company cannot report an EPS of Rs 95 for the full year 2016-17. If it reports that number, which is rather conservative, the company trades at a p/e of just 11 times, one year forward earnings and this is not expensive at all. In fact, it is extremely difficult to find any Sensex company trading at such low p/e multiples. Even metal companies are traded higher. The stock is also trading 1.42 book value, which is also excellent by any standards. At Rs 1064, the shares is good to buy and an excellent long term stock bet.
2) Vinati Organics
Vinati Organics started by manufacturing Isobutyl Benzene (IBB). IBB is a specialty organic intermediary, which is used as a raw material in the manufacture of Ibuprofen. We all know that Ibuprofen is a painkiller and an anti-inflammatory drug. In fact, the company has become the top supplier for leading producers of Ibuprofen across the world.It also manufactures 2-acrylamido-2-methylpropane Sulphonic acid, a specialty monomer that finds applications in oil-field recovery, water treatment, acrylic fibre manufacturing, adhesives, personal care products, medical hydrogel, mining industry, coatings and as dispersing and flocculating agents. It is also the world's largest manufacturer of both 2-acrylamido-2-methylpropane Sulphonic acid and IBB.
Vinati Organics has earned distinction of being the only specialty chemicals company in the world to be backward integrated. Expertise in producing superior quality chemical based products, coupled with the strong marketing strategies has led the company to pinnacles of success. Vinati Organics has achieved leadership position and boasts of a commendable client base. The company has registered growth of 17.90% in QoQ. The Company has operating profit margin of 32.46%. The Company has net profit margin of 21.37%. Vinati Organics has very minimal debt and huge interest coverage ratio and does not have any promoter's pledge.
(Courtesy: Dynamic Levels)
This is one stock that has churned impressive performance quarter after quarter on a very small equity capital. In fact, the stock has also the characteristics of a good high quality stock. For the year ending June 30, 2016, the company reported an EPS of Rs 25.50. Going forward the company can report an EPS of Rs 30 at the very eat for 2017-18. Even if you apply a p/e of 25, the stock has the potential to reach Rs 750 in the nest two years. A good stock to buy for the long-term.
3) Ultratech Cement
Ultratech Cement is the largest cement player in India and a good stock for the long term. At the moment the company has a market share of 18 per cent, which is likely to go up to 21 per cent with the acquisition of the cement assets of Jaypee. The acquisition sill give it access to the markets of Andhra Pradesh, even as it has a solid presence in the Western and Northern regions. Demand for cement is already surging, which should benefit the company immensely. Rural demand and the government's surge on infra development is likely to positive for the company.
Advantages of Ultratech Cement
The company has plants that are strategically located to serve all regions. This means it reduces the transportation costs for the company. Ultratech also has captive power plants, which avoids disruption to production due to power cuts and also makes it highly cost efficient. In fact, Ultratech generates highest EBITDA/tonne of cement produced in the cement industry. The company has set up grinding units in various locations, that can help the company to reduce freight costs.
We believe Ultratech Cement can report an EPS of Rs 150 in FY 2017-18. If we apply a p/e of at least 40 times, considering its leadership status and potential demand, the stock should trade at Rs 6,000 in the next few years. Hence, it is not a bad bet at the current market price of Rs 3,980. Buy the stock if you are ready to hold for the long term of 5 years.
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