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Stock Analysis, IPO, Mutual Funds, Bonds & More

Here are five stocks whose valuations are rich

The valuation of TVS Motors seems to be pricing in the success of Victor and its guidance of 10% operating margin for FY18 , looks too optimistic.

, ET Bureau|
Updated: Aug 05, 2016, 08.34 AM IST
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The valuation of TVS Motors seems to be pricing in the success of Victor and its guidance of 10% operating margin for FY18 , looks too optimistic given the current margin level of under 7%.
The valuation of TVS Motors seems to be pricing in the success of Victor and its guidance of 10% operating margin for FY18 , looks too optimistic given the current margin level of under 7%.
The premium stock valuation of companies offering better earnings visibility in markets sloshed with liquidity may sound justifiable. However, it becomes a case of overvaluation when companies under the scanner are not able to chalk out a high growth path in the future. Here’s a list of stocks where investors may need to prune their positions.

Motherson Sumi
The stock of key supplier of auto components to European car maker is trading at 21.64 times its FY18 projected earnings, 33% premium to its 10-year average PE. Interestingly, stocks of its customers do not portray encouraging picture, and they trade in low single digits.

TVS Motor
The stock has been trading at 18x FY18 projected profit, which is 15-20% premium to its peers. The valuation seems to be pricing in the success of its 100 cc bike, Victor and its guidance of 10% operating margin for FY18 , which looks too optimistic given the current margin level of under 7%.

Voltas
It is currently trading at 22.5x FY18E earnings (trading above one standard deviation) given the headwinds in the AC business. The competitive intensity is reflected from the fact that Lloyd Electric’s market share almost doubled to 13% in FY16.

BHEL
The stock’s P/E based on FY18 projected earnings is at 26% premium to its 10-year average at a time when improvement in demand looks difficult in the near term.

Havells India
The stock attracts P/E of 33.7 based on FY18 projected earnings which is similar to the average valuation of domestic consumer-centric companies, although only two-third of its business is consumer facing.
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