Smart picks for your portfolio

Companies with good managements and sound business models invariably deliver impressive returns over the long term. Here are some stocks which should be in your radar.

If ever investors wanted a correction it's now. The Sensex is at 7,700 and despite all the talk of valuations being stretched, the market shows no real signs of coming off. If you've missed the bus take comfort in the fact that there are many like you.

While it may be little consolation, you could still buy into the market and make money. Valuations at this point in time are not cheap - on the contrary many stocks look positively overvalued.

But, if you bet on a good management you can't go too wrong; so pray for a correction! And then there are always those somewhat risky stocks - which could give your portfolio a kicker. Three themes which are likely to play out in the next couple of years are consumption, economy and competitive advantage.

Keeping in mind the management quality, sustainable business model and long term earnings visibility, The Smart Investor has picked a basket of stocks, which one can add to the portfolio, as and when the opportunity arises.

Some the stock may have already run up quite high, but keeping in mind the current market volatility, these stocks are worth keeping an eye on and an entry can be considered on dips. 
 

WHERE THEY STAND
Rs crore	Price (Rs) Aug-26	Sales (For trailing 12 months ended June 2005)	Net profit	EPS (Rs)	P/E (x)
Alok Inds	78	1289	97	7.10	11.02
Bajaj Auto	1403	6335	811	80.18	17.50
Bajaj Hind	193	773	117	10.85	17.80
Bharat Forge	300	1325	176	9.31	32.33
Centurion Bank	17	361	33	0.32	53.92
Dabur	151	1269	156	5.46	27.58
Greaves Cotton	210	730	69	15.18	13.85
IDFC*	65	728	304	3.04	21.38
i-flex solutions	964	933	168	22.40	43.03
Indian Hotels	766	890	100	19.09	40.13
Indian Rayon	564	1930	124	20.64	27.33
Infosys Technologies	2270	7355	1989	73.27	30.98
ITC	1716	7977	2265	90.79	18.90
Maruti Udyog	473	11259	909	31.47	15.04
Nicholas Piramal	258	1266	175	9.21	28.04
Reliance Ind	699	74696	8445	60.58	11.53
Rico Auto	88	651	41	3.35	26.17
SBI	780	33928	4469	84.91	9.19
Siemens	2292	2394	208	62.62	36.60
Titan Ind	490	1177	38	9.02	54.32
Trent	810	262	21	16.17	50.09
* Financial figures are for FY05 *Source: BS Research Bureau

Consumed with money

India's demographics are a marketer's delight - a young, growing nation with nearly half the population less than 30 years old. Changing lifestyles and growing aspirations are boosting the demand for cars, two-wheelers and branded jewellery.

The Indian consumer, with a higher disposable income, is shrugging off his reluctance to leverage, whether it comes to buying a home or taking a holiday. He is eager to invest and not averse to taking risks.

Today, the urban market is undoubtedly the bigger catchment area. But, spending power is growing in the hinterland, too. Indian grain prices have been witnessing a turnaround since CY2004 and the best part is that the trend is likely to sustain. Moreover, higher global grain prices coupled with low domestic stocks are also boosting farm incomes.

Thus, consumer companies are likely to see moderate but sustained growth in rural areas. The rural economy accounts for a significant share of FMCG sales - over 50 per cent of sales of cigarettes, tooth powder, tea, toilet soaps and washing cakes/bars comes from here.

Besides, penetration for some products such as toothpaste and toothpowder is estimated to be low at around 35 per cent. The best way to play the consumption boom is through ITC, Bajaj Auto, Titan, ICICI Bank, Indian Hotels, Bharti Tele, Trent and Indian Rayon. However, we have a basket of smaller companies that you could check out.

ITC
While cigarettes still account for the bulk of revenues, there is a steady increase in the contribution to both the topline and bottomline from other segments such as hotels, paper, agri-products and non-cigarette businesses.

Over the next three years, the hotels business should grow on the back of new properties and it should emerge as one of the largest players in this segment. Its rural initiatives, E-Chaupal and Chaupal Sagar, through which it is building up a rural sourcing and distribution structure, would emerge as a key strength.

Currently the network reaches out to over 5,000 chaupals and three million farmers. With a presence in snackfoods, staples, ready-to-eat and confectionery, ITC is also making its presence felt in the foods segment. At Rs 1710, the stock trades at 18.3 times estimated FY06 earnings and 16 times FY07 earnings, and is reasonably valued.

Bajaj Auto
The two-wheeler market promises to grow in double digits, given the increasing disposable incomes and relatively low level of interest rates. Bajaj Auto is well-poised to cash in on the demand with a reasonably good range of products.

Its recent success in the economy, executive and premium segments has demonstrated that it is capable of delivering consumer-friendly products. The company is targeting the export market and planning to set up a manufacturing base in one of the ASEAN countries.

While Hero Honda undoubtedly has a better record in motorcycles, having a share of 50 per cent compared with Baja's 30 per cent, Bajaj Auto has a more diversified portfolio with a reasonably good three-wheeler business and scooters.

The company should also gain from its stake in the insurance venture with Allianz. At the current price of Rs 1380, the stock trades at 18.3 and 15.2 times estimated FY06 and FY07 earnings, and is reasonably valued.

Maruti Udyog
The consumption boom fueled by the burgeoning middle class in the country is set to benefit many companies. Auto makers were among the first to experience the boom, and going by the recent trends, it is unlikely to end anytime soon.

In such a scenario, is it any wonder that analysts are backing the tried and tested? Maruti Udyog has been the leader in the passenger car segment for more than decade. Now, the company is planning to enter the diesel car market by the end of December 2006.

Surprisingly, diesel car market, which accounts for 20 per cent of the total passenger car market, has been left untouched by the company.

Analysts believe that Maruti has a huge potential with its current market share of 50 per cent. When one considers that the company caters to only 80 per cent of the market (excluding diesel segment), the market share goes up to 62.50 per cent in the segments in which it is present.

Analysts note that the passenger car market has a high growth potential in India, as the density level is very low in India compared to other countries.

The passenger car segment is expected to grow at a CAGR of 13 per cent over the next three years. This coupled with rising income levels and easy financing, are an ideal situation for Maruti to exploit. The stock (Rs 473) is currently trading at a P/E multiple of 11x on FY07 estimates.

Dabur
With the acquisition of the Balsara basket of brands, Dabur's product portfolio has become even stronger. The company should be able to leverage the new brands successfully, given that geographically the two companies complement each other.

The company also gets an entry into the household care space. Dabur has demonstrated its ability to grow market share across segments such as hair- and oral-care.

It has also shown that it is capable of building brands such as Vatika. Its foods business shows high growth potential and Dabur is the clear leader in the juices business.

Earnings are estimated to grow at 18-20 per cent in the next couple of years, making it one of the fastest-growing companies in the FMCG space. At the current price of Rs 150, the stock trades at 22 times and 19 times estimated FY06 and FY07 earnings, and is reasonably valued.

Centurion Bank
The merger with Bank of Punjab (BoP) will create the seventh-largest private sector bank in the country. Centurion's retail asset base and high capital adequacy together with BoP's branch network, customer base and low cost deposit base make for a good combination. The combined capital adequacy would be around 11.8 per cent.

Geographically, too, the two banks complement each other. BoP has a sizable SME portfolio while Centurion has lent mainly for two-wheelers, CVs and construction equipment.

Analysts expect the RoE to expand to 18 per cent by FY07. At Rs 17.50, the stock trades at nearly three times FY06 estimated adjusted book and 2.5 times FY07, and is expensive. However, the bank could be a takeover candidate.

Indian Rayon
The stock is a play on the growing insurance sector, though it is a diversified firm and operates in segments such as textiles, insulators, carbon black, viscose filament yarn and software.

The company has a 74 per cent stake in Birla Sunlife Insurance, which will add tremendous value over the next few years. Birla Sunlife is among the top three private life insurers in the country with a premium income of Rs 910 crore in FY05. The company could be one of the first to break even and report profits by FY07.

Should the government allow foreign players to increase their stake, Indian Rayon could then unlock value by selling some of its stake to Sunlife.

At the current price of Rs 560, the stock trades at 22 times and 19 times estimated FY06 and FY07 earnings, respectively, and is a trifle expensive, given that there are margin pressures on businesses such as carbon black and VFY and that earnings are expected to grow at around 25 per cent in the next couple of years.

Titan
Titan is a compelling play on growing incomes and aspirations. The company has over the years managed to scale up operations and it is its more profitable jewellery segment that is now growing at a faster pace. Jewellery now contributes about 70 per cent of profits before interest and tax. Titan's balance-sheet has also become stronger with lower debt.

Operating leverages are kicking in and it is also using less capital for its watches business. With a strong brand, the company should be able to grow earnings at a steady 20 per cent in the next two to three years. At the current price of Rs 471 though, the stock is richly valued at 27 times and 21 times estimated FY06 and FY07 earnings.

ICICI Bank
The bank's aggressive growth in the past few years, predominantly in the retail assets space, has catapulted it to a level from where it can gain significant leverage. It is also growing its corporate business and earns impressively from fees. Its balance-sheet is improving with net non-performing loans (NPAs) now at around 2. 5 per cent, though it is certainly not as clean as HDFC Bank.

Nonetheless, the sheer scale that it has achieved in both distribution and assets sets it apart from its peers. The bank has also grown in insurance and brokerage businesses, and its ability to foray into new areas makes it one of the most attractive banking stocks. At Rs 480, the bank trades at 2.46 times price to estimated FY06 book and 2.1 times estimated FY07 P/B and is attractively valued.

Trent
Trent is a good play on the growing organised retail space. It currently runs 16 stores in the department store format - Westside - and has recently entered the hypermarket and food segment.

By FY08, it hopes to add another 17 stores and is planning a couple of hypermarkets, too. Close to 80 per cent of Trent's sales comprises apparel and around 90 per cent of its products sport private labels which yield higher margins. The company posted sales of Rs 262 crore in the past four quarters combined while the net profit was Rs 21 crore.

At Rs 810, the stock does appear expensive, given that it is trading at 48 times estimated FY06 earnings.

However, the company has a much stronger balance-sheet compared to that of its peers. It is present in a growing segment and both the return on capital employed and the return on equity should improve with scale. The stock should be bought for the long term.

Indian Hotels
The stock is a play on the growing inflow of foreign tourists into the country, estimated at around 3.5 million in FY05.

With India becoming an attractive business and tourist destination, the inflow is likely to sustain. Domestic tourism is also on the rise. The group runs a chain of hotels across the country, some of which are owned and some are franchised. It has recently started operating budget hotels and has also set up luxury residences in Mumbai.

While average room rates (ARRs) are unlikely to continue to grow at the pace that they did in the past year owing to a shortage of capacity, the demand for hotel rooms, especially in the metros, is unlikely to flag.

At Rs 744, the stock is expensive, given that it trades at 29 times estimated FY06 earnings. However, the company has a strong brand image and should become of the main gainers from the growth in the hotel industry.

Advantage India

Having convinced the world that outsourcing is a necessity, Indian technology firms are now attempting to match their international peers in terms of higher value-added services. Needless to say, labour arbitrage still exists and, more importantly, labour.

The outsourcing story is only gaining ground. That holds for manufacturing, too, where India's engineering and quality skills are now well-proven.

The few global automobile manufacturers that do not yet buy Indian components will soon be doing so. We believe Infosys will continue to deliver the kind of performance it has all these years. Will Bharat Forge be another Infosys. Maybe.

Infosys
Infosys' strengths lie in its impeccable systems, risk management skills and ability to deliver what it promises. While its peers may have excellent implementation capabilities and R&D strengths, what sets Infosys apart, say consultants, are its strong business model and assertive marketing. Its timely entry into new high growth areas should help is sustain growth.

The expansion into new areas such as BPO, consulting, infrastructure management , testing and systems integration, say analysts, is estimated to contribute a third of the growth in revenues in the 12 months and perhaps half of the growth a couple of years down the line.

With revenues of Rs 7355 crore and a net profit of Rs 1989 crore in the past 12 months, the stock has always commanded premium valuations. There's little reason to believe it will be any different in the future. At the current price of Rs 2,250, the stock trades at 24.7 times and 18.5 times estimated FY06 and FY07 earnings respectively.

i-flex
If one looked to invest in a company which had leadership in a software product, i-flex would stand out as a compelling case.

The acquisition by global technology major Oracle has made the company even more attractive. i-flex's flagship core banking software product Flexcube is the largest selling in the world.

The Oracle parentage should only help it push sales further. The company was already in the buy list of several broking firms as it looked well poised to grow its software services substantially on top its stronghold in core banking solution products. Over the past three years, i-flex's growth rate has outpaced that of its larger peers - both in products and services.

Apart from Fexcube, i-flex also has two other products - Reveleus which is a data analytics product, and Daybreak which is a retail mortgage lending product, the outlook for which looks good. Not just products, the company's service business should also be on a new growth trajectory with the new parentage. The company has won significant new deals and there is a strong pipeline, too. The stocks looks good for the growth it promises.

Analysts expect the company to grow by 50 per cent over the next couple of years at least. FY06 earning is projected at Rs 44 and FY07 earnings per share is projected at Rs 59. At current price of Rs 965, the stock trades at 22 times FY06 earnings and 16 times FY07 earnings.

Bharat Forge
BFL, which makes engine and chassis components for CVs and passenger cars is aiming to become a big Tier I supplier to global OEMs like Delphi and Visteon.

The addressable export market for forged and machined components is estimated to be in the region of $10 billion, of which BFL has about a 4 per cent share. Its share of the US CV forgings market is around 30 per cent. BFL's business model is diversified across products, markets, clients and geographies, it has customers in the US, Europe and China, and is building capacity through acquisitions.

In the longer term, BFL hopes to emerge into an engineering solutions firm. It is embarking on a Rs 500 crore expansion plan, which should help it show strong earnings growth of 30 per cent in the next couple of years.

With sales of Rs 1,325 crore and a net profit of Rs 176 crore in the past 12 months the stock currently trades at 25 times and 19 times FY06 and FY07 estimated earnings, respectively. Given its earnings potential the stock is reasonably valued.

Rico Auto
According to analysts, Rico Auto is perfectly prepared to take advantage of the auto-ancillary outsourcing in the next five years.

Rico Auto is a major producer of aluminium and ferrous die-castings and its product portfolio includes hub, flange and clutch assemblies.

The company supplies mainly to original equipment manufacturers (OEMs) and caters to top global and Indian auto biggies. Its main customers include General Motors, Maruti, Hero Honda, Honda Motors and Scooters India. Hero Honda contributes more than 50 per cent to the company's topline.

However, Rico is increasing its thrust on the export business. In fact, exports are growing at a scorching pace. In the June quarter, exports grew by 271 per cent on a year-on-year basis. The company clocked sales of Rs 651crore and net profit of Rs 41 crore in the past 12 months.

Analysts expect it to achieve exports of Rs 100 crore in FY06. Overall, topline is expected to grow at around Rs 750 crore. Net profit is expected to be around Rs 50 crore. Based on FY06 earnings per share of Rs Rs 3.9 and the current price of Rs 88, the stock trades at a P/E of 22 times.

Alok Industries
The Indian textile industry is all set to tap the opportunity presented under the new regime in global textile trade post the dismantling of quotas. This is apart from the huge growth opportunity in the domestic industry.

Among the many companies in the sector, Mumbai-based Alok Industries is considered to be among the best bets.

According to analysts, the company is all set to take on global challenges in the post-MFA regime. It is positioning itself as a one-stop shop for global clients.

The company's strength has been its texturising and processing business which are low margin ones. However, increasing sales from the value-added business of home textile and garmenting are likely to have a positive impact on margins.

The texturising segment accounted for 32 per cent of revenues, while the contribution of home textile division amounted to 24 per cent. Apparel fabrics division was the biggest contributor to revenues at 43.20 per cent.

The company is undertaking a massive expansion project at an estimated cost of Rs 1,030 crore in order to broaden its base in all possible segments of value addition.

The company has also adopted a strategic backward integration plan into ring frame spinning to meet part of its cotton yarn demand accruing from weaving/knitting expansion. However, Alok Industries' stock has not really set the bourses on fire during the past 12 months, with only a 36 per cent appreciation in price.

Analysts note that the major reason for Alok's stock underperforming the market has been the frequent equity dilution that the company has resorted to. The equity capital of Alok has increased from Rs 88.2 crore in March 2004, to Rs 136.6 crore as on June 2005.

However, a further expansion is unlikely in the next few years. With its capacities becoming fully operational this fiscal, Alok Industries is expected to witness a big jump in topline and bottomline in FY07. At Rs 78 levels, the stock trades at a trailing 12-month P/E of 11x.

Nicholas Piramal
Contract research and manufacturing (CRAMS) has long been touted as the next big kicker for Indian pharma companies. Nicholas Piramal is among those Indian companies that is vying for the burgeoning opportunity in the CRAMS space.

Add a stable existing business model and low-risk revenues, the stock makes for a compelling investment case, say analysts. The biggest contributor to company's revenue is the respiratory and cardiovascular segment.

The other major therapeutic segments in which the company operates include anti-infectives, nutritional and gastro intestinal. Nicholas Piramal registered an net sales of Rs 1266 crore and net profit of Rs 175 crore in the past four quarters.

The company had a strong domestic focus till recently, but exports have been growing of late. The contribution of exports to total sales has increased to 12 per cent from zero in the space of three years. The company has been focusing on its core business more, as evidenced by the fact that it discontinued its diagnostics business last year.

Analysts have projected an EPS growth of 50 per cent in FY07, driven by the company's stable domestic revenues and scaling up of CRAMS operations. The stock currently rules at Rs 258 levels, on a trailing 12-month P/E of 22x.

Building infrastructure

After years of lying low, some sectors of industry such as cement are almost running out of production capacity with utilisation at over 90 per cent.

Armed with stronger balance-sheets and able to borrow moundfuls at low interest rates, Indian industry is once again going all out to scale up.

Confident that this time round the demand will sustain and that if it can't be sold at home, there's always the overseas market to buy it out. The government is doing its bit, trying to build highways and power plants. Whether its in steel, petrochemicals or power, capacities are coming up on global scale.

That's good news for machinery makers whose order-books are already full. We believe Siemens will be one of the biggest gainers from this spend on infrastructure.

IDFC
For those who did not buy IDFC during the IPO - bad luck. The stock has more than doubled since its issue. But not all is lost yet. Owned by a group of public and private enterprises, including the government of India, IDFC is a leading infrastructure financing institution. And if one believes that infrastructure in this country is abysmal and there is tremendous scope for growth, IDFC is a good play.

Infrastructure services in the country have historically been provided by the central and state governments. However, given the shortage of infrastructure and the growing demand for products and services, the infrastructure industry will require private participation, making the role of financing companies like IDFC vital.

IDFC is mainly focused on energy, transportation and telecommunications sectors, all of which are well poised for growth. The company has a clean book with no NPAs. Growth, too, has been good.

Over the last four years, disbursements increased to Rs 8,027 crore, growing 47.6 per cent per annum; total income grew 23.3 per cent to Rs 727 crore and profit after tax increased 20.7 per cent to Rs 304 crore.

In the June quarter, net profit grew at an astounding 113 per cent. Net approvals (net of cancellations) during the quarter amounted to Rs 15,690 crore at end-June compared with Rs 14,980 crore as on March 31, 2005 - an increase of Rs 710 crore.

The adjusted EPS stood at Rs 0.96 for the June quarter. Taking the annualised EPS and with the current price of around Rs 70, the P/E works out to less than 20 - cheap when one considers its y-o-y growth rate in EPS.

Siemens
Siemens, the electrical and electronics engineering major, is a good play on the economy. Siemens products find application in the growing sectors like energy, transportation and communication.

And the company is ideally poised to take advantage of the upturn in the economy led by increased investment demand. Siemens is investing in its capacities, infrastructure and other resources.

In the past four quarters, Siemens recorded sales of Rs 2,394 crore and net profit of Rs Rs 208 crore. Based on the railing 12 month earnings per shares of Rs 62.62 and prevailing price of Rs Rs 2292, the stock trades at a P/E of 36.6. But considering the excellent management and a booming business, the stock should yield good returns in the long run.

Reliance Industries
Reliance Industries is a great play based on its mega growth plans in oil and petrochemicals and the spin-off which is due this October. The Rs 60,000 crore expansion plan that the company has for the next five years should transform it from a predominantly domestic player to a global company apart from ensuring robust growth, especially considering the strong industry dynamics in the oil refining sector.

A focused approach, appealing growth potential and the large equity base should also make sure that RIL continues to attract institutional buying interest from domestic and foreign investors.

According to analysts, the company is set to grow earnings by 15-20 per cent over the next three years despite its size. Apart from its business plans, what makes RIL an attractive bet is that it provides an indirect play on the telecom sector. RIL stock price has already run up substantially as businesses get separated.

But when the Reliance Infocomm goes for an initial public offer in March, there could be more gains. This is based on the fact that the Reliance Infocomm was valued at to Rs 32,000 crore for the conversion of preference shares held by Reliance Industries. Bharti Tele-Ventures, which has 13.2 million subscribers, is currently valued at over Rs 50,000 crore.

In fact, Reliance Infocomm has a comparable mobile footprint and subscriber base (12 million) compared to that of India's top mobile operator which means there could be more upsides for Reliance Communications. The stock has potential for appreciation even from the current level of Rs 699.

State Bank of India
If one is looking for a play on the economy, State Bank of India (SBI) is probably the best. SBI is the undisputed king in the Indian banking sector. It ranks among the top 100 banks in the world and the top 20 in Asia.

Along with its seven banking subsidiaries the bank has a nation-wide network of over 14,000 branches. On the back of its huge balance-sheet size and the customer base, the bank is aggressively ramping up its retail reach.

In FY05 the bank grew its advances by 28 per cent. Credit deposit ratio improved from 49.6 per cent (March 2004) to 55.1 per cent in March 2005. Net interest margin, a key measure of profitability of the bank, has also been rising. It went up from 3.04 per cent in March 2004 to 3.39 per cent in March 2005. Net NPAs accounted for 2.64 per cent. Analysts expect an earnings per share of Rs 80 for FY06 and Rs 95 for FY07. Based on the current price of Rs 780, the stock trades at 5.86 times FY06 earnings and 4.97 times FY07 earnings.

Based on its book value, the stock looks even more compelling with price to book of less than 1 for FY07. One negative for the stock is that foreign institutional stake in the bank is capped at 20 per cent which limits the head room for fresh foreign funds coming into the stock.

Bajaj Hindustan
Dealing in sugar was not an easy thing till now, considering the political compulsions. A large section of the country's agriculture-dependent population is relying on the farming of sugar cane, which incidentally constitutes 60-70 per cent of cost of sugar. Winds of change are sweeping across the sugar industry, as the restrictions over the distribution of commodity have been removed. Analysts expect the industry to enjoy favourable business dynamics for the next two seasons.

Bajaj Hindustan is expanding capacities to increase its crane crushing capacities, by putting up three new greenfield expansions in Western UP. With this expansion, the company is set to become the largest sugar manufacturer in India.

Analysts believe that Baja Hindustan's size will enable it to achieve better economies of scale going forward. The company recently raised money through a GDR and FCCB issue to fund its future growth strategies.

The funds raised will help the company to reduce its working capital borrowings and interest costs as deployment of funds for expansion will occur in phases. This is expected to bring down the debt/equity ratio to 0.5 in FY06.

Besides, this is expected to be crucial to Bajaj Hindustan's strategy of aggressive expansions going forward as it will enable the company to raise long-term debt at attractive rates. The company is expected to post a net profit of Rs 98 crore in FY05 (September ending), up 62 per cent from FY04.

Analysts expect that Bajaj Hindustan will be the biggest beneficiary of the strong sugar cycle expected to continue for the next two seasons, due to its volume growth. The stock currently rules at Rs 193, on a trailing P/E of 17x.

Gateway Distriparks
The surge in international trade to and fro from India has led to an improvement in port infrastructure, opening up new opportunities for companies that are engaged in the business.

Gateway Distriparks (GDL), a leading provider of port-related logistics services, is one such company. GDL has a container freight station (CFS) at Navi Mumbai, catering to the West coast traffic, and an inland container depot (ICD) at Garhi, Haryana, to cater to the demand from northern India.

Gateway Distriparks is a market leader at JNPT, India's largest container port with nearly 25 per cent market share of the addressable port traffic. Container cargo handled at Indian ports is estimated to have grown by 16 per cent CGR over the past five years. However, the proportion of container traffic is significantly low at 15 per cent of total trade.

Analysts note that this can potentially go up to 60 per cent. With JNPT - which accounts for 60 per cent of India's container traffic - aiming to double capacities over 2005-08 and several other new projects apart from expansions being taken up at Chennai, Cochin, Mundhra, Pipavav, etc., container traffic in India is set to grow in strong double digits over FY05-10.

According to analysts, GDL's advantage lies in the fact that it is the market leader in the CFS market, which is a critical element in the international trade. The company has reported a 47 per cent CAGR growth in revenues and 142 per cent CAGR in profits over FY00-05.

Analysts expect a 65 per cent CAGR growth in EPS over FY05 to FY07. Though the stock has appreciated by 177 per cent since its listing in March 2005, analysts note that considering the multi-year growth phase that the company is likely to witness, it is still attractive. It currently trades at Rs 199.45.

Greaves Cotton
Greaves Cotton should perform well on the back of business restructuring and the boom in infrastructure. Strong demand conditions in its key business should give it the necessary growth momentum over the next couple of years, say analysts.

Greaves Cotton manufactures diesel engines, gensets and equipment for the infrastructure sector. Its engines find application in gensets, agriculture, low-end transportation vehicles and industrial operations.

The company has been focusing on improving efficiencies by divesting non-core business and reducing staff headcount. The strong upturn in its key engines business should see the company grow steadily. Sales growth in the last quarter has been driven primarily by the company's dominant position in the light diesel engine market.

Also, the implementation of the golden quadrilateral project has translated into improved offtake for the company's construction equipment. As a result, its infrastructure equipment division was able to turn around last quarter.

The company has also recently exited from the oilfield and drilling business - a part of the infrastructure segment - to focus on the current upturn. The company recorded sales of Rs 730 crore and a net profit of Rs 69 crore in the trailing four quarters. Based on the earnings for the period and the prevailing price of Rs 210, the stock trades at 14 times.

Additional reporting with N Mahalakshmi & Sunil Nayanar