The markets have not rallied too much since the start of the year. In fact, they have given pretty standard returns of around 8 per cent, which is based on the Nifty. Individual stocks may have done better though.
The Nifty, which closed at 7,963 points on Jan 1, is today trading at 8,677 points. However, the mid caps and the small caps have given excellent returns, when compared to the benchmark indices. There are still many stocks from the midcap and smaller cap space that are undervalued. Take a look at some of these:
It is difficult to get a private sector bank at reasonable price to earnings multiples. Karnataka Bank is not a very small bank it used to be. In fact, the bank has rapidly expanded its branch network beyond the state of Karnataka. The bank like government banks started operations in the early 1900s, though it is a private sector bank. Only recently, the share price of the bank hit a 52-week high of Rs 162. The fundamentals of the bank are the best amongst the smaller private sector banks. For example, the stock is quoting at a price to book value of under Rs 1, at around 0.76 times.
Other fundamentals of Karnataka Bank
For the quarter ending June 20, 2016, the bank reported an EPS of Rs 6.45. We believe that as economic momentum gathers steam, the bank can easily report an EPS of Rs 30, in 2017-18. This makes the stock very inexpensive at 5 times one year forward earnings. Where do you get a private sector bank at a p/e of 5 times? You cannot discuss banks, unless you discuss the gross non performing assets of a bank. The gross non performing assets of Karnataka Bank were placed at 3.92 for the quarter ending June 30, 2016, which was up from the previous quarter. We believe that this would improve going forward, as economic recovery gathers steam. The capital adequacy of the bank is also pretty decent at near 12 per cent. A good bank to buy, at the current market price.
Sintex industries is renowned for the Sintex water tankers that it produces. However, it is well-diversified and is one of the leading providers of plastics and niche textile-related products in India. It exports to several countries, including, the European, American, Africa, and Asian markets. One unique thing about Sintex is that it has paid an uninterrupted 82 years of dividend payment to its shareholders. The fundamentals of the company are also pretty sound, which is one reason that we recommend buying the shares of the company.
Why to buy Sintex Industries?
From a fundamental perspective, this is not a bad stock to buy. For example, the company reported an EPS of Rs 1.41 for the quarter ending June 30, 2016. However, Sintex has the ability to do much better than that and can report an EPS of at least Rs 10 in FY 2017-18. If it does that the p/e is just about 8 times. The stock hence looks a little undervalued from that perspective. The company also has a good track record for payment of dividend. Another good thing is that no shares of the promoters are pledged. The only worry is that the company has debt, but, falling interest rates could well reduce financial costs for the company.
Exide Industries needs very little introduction, as one may have used the batteries manufactured by the company at some stage in life. The company is one of the largest lead battery manufacturers in India. In fact, it manufacturers batteries that find application in a wide variety of areas like automotive, industrial, and submarine applications in India.
The one thing to always look for in a company is whether expansion will bear fruit in the future. On that count, Exide Industries scores and is well placed. The company plans to introduce very high performance batteries and has a capital outlay towards the same of Rs 14 billion.
Why Exide Industries is cheap?
The company reported a good set of quarterly numbers for the period ending June 30, 2016. In fact, Exide may end-up reporting an EPS of Rs 12 for FY 2016-17. However, what would be interesting is the numbers for the period 2016-17. The company can easily report an EPS of Rs 15 in 2017-18, which means a p/e of just around 13 times at the current market price of Rs 190. The stock is not a bad bet from a long-term investment perspective.
Investing in shares needs caution. Please seek professional help. Greynium Information Technologies and the author cannot be held responsible for losses incurred based on the article.