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Last Monday, the market was more about panic than prices; more about emotion than earnings. An experienced stock picker refrained from buying because "the overall environment is just too uncertain", while another said, "Jump right in!"
A seasoned player, Prashant Jain, would have said, "We have seen this situation several times in the past, where the Indian markets soon start decoupling from international markets and return to their mean." But, some would have suggested: "God, this might be the start of a bear market."
I would choose to go back to my biggest refuge: An adequate safety margin, based on a conservative interpretation of corporate performance, prospects of reasonable growth (that would only deepen the discount) and a relative discount vis-à-vis the prevailing sector discounting, which means that should the stock catch up with the sectoral average, there would be a far bigger value on my hands than only a linear earnings increase.
These, then, have been my pickings over the past week:
NCL Industries: A celebrated turnaround in 2014-15, reported its fifth straight quarter of growth in the first quarter of 2015-16 with a profit after tax (PAT) of Rs 20.3 crore. Interest cover of more than five in a capital-intensive business. Assuming the company can report only half its annualised profit, it would still be priced less than eight times the current year earnings. Fancy getting a two-million TPA cement company in the worst of markets (in what could one of the most attractive geographies, going forward) for a market cap of around Rs 300 crore.
Omkar Speciality Chemicals: Generated an Ebitda (earnings before interest, tax, depreciation and amortisation) in excess of Rs 10 crore in the first quarter of 2015-16, with an interest cover of around four. Market cap of Rs 320 crore ,with the possibility of 20 per cent annual revenue growth and attractive operating leverage.
Jubilant Industries: On the face of it, there is nothing to commend an investment, as the company has reported a sequence of uninterrupted quarter-wise losses. But, a look at the notes to the performance of the last quarter indicates the company disinvested its loss-making business in July; a business-wise review indicates the retained business generated a first quarter surplus of Rs 14 crore on an equity of Rs 11.85 crore. The stock emerged as one of the quickest movers in the mid-week rally.
Salzer Electronics: A long-term story in a relatively safe space, with impeccable credentials. Reported a Rs 5 crore profit after tax (PAT) in the first quarter of 2015-16 (Rs 4.83 Earnings per share) and likely to report Rs 18-20 crore PAT for the full year corresponding to a market cap of Rs 220 crore. The Qualified institutional placement will raise equity by Rs 2.6 crore but that would then create the ammunition to generate revenues of Rs 1,000 crore by 2020. Work the math, given that the company is working on a five per cent net margin (and likely to rise).
The author is a stock market writer, tracking corporate earnings and investor psychology to gauge where markets are not headed
