You haven’t missed the bus yet...a third of stocks on BSE500 index are still quoting below book value.

Value for MONEY

Aman Dhall takes a peek into some of the best deals on offer

 OPPORTUNITIES are not missed, they are just passed on to those who are willing to take them. For retail investors who think they lost out a chance to buy bluechips at dirt-cheap valuations in the beginning of March, all is not lost yet. A closer look at the Indian equity market reveals that more than 170 stocks in the BSE500 index still quote at market prices which are well below their book value. Which means that one-third of the stocks in the BSE500 universe continue to remain undervalued. The reasons for a high number of stocks quoting at attractive valuations are many. Since 2008 beginning, market sentiment has remained weak. While metals got impacted after the global meltdown last October, banks' valuation suffered owing to financial crisis in the West. Even the shipping and IT sectors had taken a beating due to the downturn.
    SundayET offers you some of the best value deals available on Dalal Street. These scrips have a price-to-book ratio of less than one which indicates low valuation. For starters, P/B ratio is calculated to compare a stock's market price to its book value.
RECOMMENDATION: SMC GLOBAL
Allahabad Bank (P/BV of 0.54): The bank posted an annual business growth of 18% during FY09 and targets a business growth of 21% by FY10E. At present, the stock is trading at distressed valuations. The company also raised capital to meet the capital adequacy norms as per Basel II and is adequately capitalised.
Central Bank of India (P/BV of 0.55): The government has approved infusion of funds in the Central Bank of India to enable it to meet the capital adequacy requirements as per Basel II. The net interest income registered YoY growth of 38% during 9MFY09. CAR was recorded at 10.02 % during 9MFY09.
Jindal Stainless (P/BV of 0.31):The company is India's largest and only integrated stainless steel manufacturer cornering a market share of 35%. The company is expected to be the key beneficiary of upside in steel prices and increasing domestic and international demand. Therefore, JSL is expected to register revenue growth coupled with better profitability.
Bharti Shipyard (P/BV of .33): The company has set up two greenfield projects at Dabhol and Mangalore, thereby increasing the capacity by seven times the current turnover capacity. Also, it has a strong order book and offshore vessels' orders comprise 70% of the order book.
MTNL (P/BV of 0.38): The company corners a prominent market share in the fixed line and also owns 33 and 34 land plots in Delhi and Mumbai, respectively. The telecom player is trading at a low P/BV vis-a-vis its peers such as Reliance Comm and Idea.
RECOMMENDATION: INVEST SHOPPE
Tata Steel (P/BV of 0.75): The company is among the top six steel makers globally with a consolidated capacity of 30 mt post acquisition of UK-based Corus Group. The consolidated cash position was quite strong at Rs 9,400 crore as on February 2009. Its consolidated revenues are expected to be around Rs 100,000 crore and Rs 1,40,000 crore during FY10E and FY11E, respectively. The stock presents a very good upside potential in the long term. Currently, the stock is quoting at around 4.4 times and
times of its trailing earnings and book value respectively.
    GE Shipping (P/BV of 0.58): Great Eastern Shipping is India's largest private sector shipping company. It has a committed expansion plan of Rs 6,200 crore between FY09 and FY12. It has a track record of distributing handsome dividends for the past five years. The company's huge cash reserve coupled with fleet assets makes it financially sound. The sum of fleet assets value and net cash after excluding debt is Rs 5,000 crore. The current m-cap of Rs 3,200 crore appears quite low in comparison and makes it an attractive bet.
    Gujarat Industries Power (P/BV of 0.58): The company is in the growth mode and is increasing generation capacity that will add to earnings from 2009-10. The existing generation units are stabilising and improving their operating efficiencies. Gujarat has a 8.5% energy deficit which goes up to 13.6% during peak hours. Given this large deficit, GIPC's power will be consumed even at marginally higher prices.
    Tata Chemicals (P/BV of 0.99): Though the stock valuations have been battered due to the commodity meltdown, the company continues to hold good growth prospects in its soda ash and fertiliser businesses. A diversified global presence, a relatively strong soda ash cycle and the prospect of higher margins on the fertiliser business, suggest that the company may easily exceed the growth expectations reflected in its current stock price. The low valuation and high dividend yield (5.5%) provide protection against protracted downside. On the consolidated basis, the company is expected to grow its topline and bottomline by 40% and 15%, respectively, over the next two years.
CONTROL FEAR PSYCHOSIS
Analysts say value stocks offer sufficient margin of safety, provided you have the patience and are ready to stay invested in testing times. Depending on your risk appetite, you must allocate funds in value stocks. Given the current market levels, analysts say a portfolio allocation of around 50-60% in value stocks won't be a bad idea. In fact, many stocks are even quoting at market prices below cash per share (CPS). "For instance, Jindal Stainless is trading at Rs 48 and has cash per share of identical amount (Rs 47.2). Similarly Bharti Shipyard is trading at Rs 76 and has cash per share of Rs 82," says DK Aggarwal, managing director of SMC Wealth Management Services.
    Amar Ambani, V-P — research, India Infoline believes the current economic scenario is something which is likely to be witnessed just once in a lifetime. "A sound investment made today will reap substantial returns in the coming years," he says. According to analysts, one of the reasons for these stocks quoting at distressed valuations is a number of them are on a high growth trajectory faced with lot of pressure. "These stocks have relatively low downside risk and good upside potential," says Ashish Kapur, CEO of Delhi-based brokerage house, Invest Shoppe.
    Bulls or Bears — the jury may be still out on that one, but don't forget to throw your hat in the ring this time for value propositions, because you never know when the time might turnaround!
LOOK BEFORE YOU LEAP

• Check out other financial details such as net cash/m-cap, P/E ratio, net assets value, dividend yield and EV/EBITDA

• Study company specific and sector specific risks associated with such stocks

• Try to gauge the reasons for these stocks trading so undervalued