Why large-cap picks like HPCL and United Breweries are the good value buys right now
HPCL has one of the highest earnings and cash flow visibility with such low valuations and high dividend yields. It announced results on Friday after hours.
Stock of state-run oil marketing company Hindustan Petroleum Corp (HPCL) is trading at 6.5 times its FY16 earnings and 5.5 times its FY17 earnings. HPCL has one of the highest earnings and cash fl ow visibility with such low valuations and high dividend yields. It announced results on Friday after hours. Net profi t for December quarter was Rs 1,042 crore against expectation of Rs 558 crore and a loss of Rs 320 crore in the September quarter.
Tata Motors too has corrected very sharply. For the December quarter, the company reported a net profi t of Rs 3,508 crore, similar as last year’s but was much higher than analyst expectations. The stock is down 50 per cent in the last one year. Tata Motors’ stock is trading at seven times FY16 earnings, which is very attractive for a company that owns Land Rover, the most aspirational brand in the SUV segment.
LIC Housing Finance
Company is expected to deliver earnings growth of 23 per cent for the next two years, higher than that of HDFC, and is expected to give higher dividend payout. But its stock still trades much cheaper. LIC Housing Finance’s stock has given 98 per cent return in the last two years, while HDFC’s stock has given 39 per cent return. It has corrected 15 per cent in the last one month, giving a buying opportunity. The stock is trading at 2.5 times FY16’s book value.
The country’s largest brewer that sells brands such as Kingfisher and Heineken and owns over 50 per cent share of the country’s beer market reported a 14 per cent sales growth, highest in the last nine quarters. Operating margins have improved by 400 bps on QoQ and year-on- year basis to 17.8 per cent. The stock is down 22 per cent from the price that Heineken paid to acquire 3.2 per cent share from United Spirits.
The state-run coal giant reported a 14 per cent earnings growth in the December quarter despite 6.3 per cent decline in average realisations and at a time of declining prices of imported coal, thanks to production growth in the last 18 months. The fi rm is also benefi tting from declining costs such as lower diesel prices. Further, Coal India is sitting on a huge cash pile, which is roughly 25 per cent of its market capitalisation