Buying Into Value

This article first appeared in the December issue of Wealth Insight magazine. The dateline therefore, would not allow the inclusion of the latest figures, but we have added the current data in brackets where possible.

In general, a stock's high price-to-earnings (P/E) ratio suggests that investors are expecting higher earnings growth in the future compared to those companies with a lower one. Or that the stock is overvalued. During good times it is expected that companies will trade above their median P/Es. With the BSE Sensex rising 6.48 per cent in November, and close to 10 0 per cent since March, these are good times, despite the talk of correction (in December Sensex gained 3.18%, while the entire 2009 gain was 81%).

Based on this logic we tracked and unveiled companies that are trading below their one-year median P/E. To ensure that there is no doubt about the quality of the companies revealed, we checked the trend in net sales and net profit as well.

Apollo Hospitals Enterprise (AHEL) is an integrated healthcare company, which owns and operates a network of primary, secondary, tertiary hospitals and clinics across India. At the end of FY09 the company owned 20 hospitals across India. The combined capacity consists of 2,481 beds. It also has an additional capacity of 1,875 beds through subsidiaries, joint ventures and associate hospitals.

It operates in two major segments: healthcare services comprise hospitals, hospital-based pharmacies and consultancy division; the other consists of pharmacies segment. The company provides project management and operations consulting services to other hospitals too.

The company reported a 12 per cent rise in its sales, QoQ while the same was up 25 per cent YoY. Meanwhile, expenditure of the company increased and its net profit reported a decline of 24 per cent (QoQ), but went up 13 per cent (YoY).

Telecom giant, Bharti Airtel has a presence in all the 22 licensed jurisdictions in India and has international operations in Sri Lanka. It tried to buy out the South African telecom major MTN, but it had to drop out at the eleventh hour after regulatory issues crept in. It operates through five segments, providing telecom services for corporates and individuals to mobile infrastructure. All the services are provided under the Airtel brand.The company is under pressure because of the intense competition in the sector. This was reflected in its sales (-1.5%) and net profit (-14.5%) on a QoQ basis. Whereas on a YoY basis the company reported a growth in sales (7.6%) as well as net profit (43.1%).

Idea Cellular too is a telecom major, which operates in two segments: mobility services and national long distance. In FY08, the company formed three new wholly-owned subsidiaries: Idea Cellular Services (ICSL) to provide manpower services, Idea Cellular Infrastructure Services (ICISL) and Idea Cellular Tower Infrastructure (ICTIL), to provide infrastructure services in specified license areas.

Idea too faced the wrath of high competition as its quarterly results logged contracting sales (-1.9%) and net profit (-11.7%) on a QoQ basis. The acquisition of Spice makes it difficult to compare the performance on a YoY basis.

Diversified infrastructure industrial conglomerate, Jaiprakash Associates is engaged in a number of businesses from heavy civil engineering construction to expressways, cement, and real estate along with hospitality.

Although the company’s sales dropped 11 per cent (QoQ), its net profit went up by 77 per cent (QoQ). In September quarter, the company has made profits to the tune of Rs 870 crore, which is nearly as much profit as it had reported for the full year FY09 (Rs 897 crore).

Koutons Retail India is an apparel manufacturing and retail company. It is engaged in designing, manufacturing and retailing apparel under popular Koutons and Charlie Outlaw brands across India. The company follows a franchise model. It is also looking at inorganic growth, having acquired DBG Retail Holdings in 2008. The company’s performance can be gauged from the fact that it has managed to increase sales (72%) and net profit (105%) on QoQ basis. Net profit and sales were up 23 per cent and 21 per cent respectively (YoY).

Time Technoplast (TTL) is involved in manufacturing polymer-based products. The company operates through five strategic business units, such as industrial packaging, lifestyle, auto components, healthcare and infrastructure products. The company’s net profit went up 25 per cent on a rise in sales by 10 per cent (QoQ).

Karnataka-based Vijaya Bank, which was nationalized in 1980, saw its net profit climb 36 per cent (YoY), compared to interest earned, which was 0.3 per cent (YoY).