Asian Paints

While the biggest paints company is transforming itself into a home decor company, expanding its foot­print into kitchen appliances, con­struction, etc, besides moving overseas, the fact remains that paint is still the biggest contributor. A fall­ing crude price with hopes of lower interest rates augurs well for boost­ing demand, both rural and urban. And with growing income levels, new houses as also older ones will increasingly go in for more branded paints. And Asian Paints is a house­hold brand, having the best recall amongst decorative paints.

With a PAT of ?1,427 on a turnover of ?14,182 crore on a consolidated basis in 2014-15, it is one of the few stocks where net profit margins are in near double digits. It is trading at a P/E of 58 times, but given the non­linear returns the company has been providing, it makes sense to get in such stocks when markets are down. The P/E of other consumer durables stocks in the BSE 100, like Hindu­stan Unilever, Godrej Consumer and Dabur (India), all equally good wealth creators, is about 43. If one is more inclined to look at dividend payouts, ITC, which is traded at a P/E of 26, is also a good bet, as it has been consis­tently following a dividend payout ratio of over 50 per cent.

Between Tata Steel and Steel Authority of India, both of which are available at ?21,000 crore each, Tata Steel’s fortunes are linked to its per­formance in Europe. And this may not change for some more years. Tata Steel also took a big hit on the exposure to the Benga Coal mines in Mozambique. The company took an impairment of ?6,392 crore on these two assets in 2014-15, rationalising that Europe may not recover quickly and coal prices may remain subdued for some more time. SAIL has the larg­est steel capacity in the country and is going ahead with its expansion plans, irrespective of the problems in
the global industry. The company is going ahead with its expansion plans for doubling its capacity to 50 mil­lion tpa by 2032.

However, if one is not comfortable in taking direct exposure to cyclical stocks, one can look at proxy stocks like power or construction. L&T will benefit from the turn in the invest­ment cycle. It will also benefit from the unlocking of value, with at least one of its subsidiaries, L&T Infotech, likely to go in for an IPO.

Also Industrials: If the India growth story has to happen, invest­ment demand has to pick up. In which case, economy-sensitive indus­tries, such as cement, steel, alumin­ium cannot remain depressed for a long time.

RIL vs ONCC

Both RIL and ONGC are large cap con­tributors to the index and oil prices are not going to remain low indefi­nitely. Both have been building up E&P capabilities, as also refineries and petrochemical complexes – the latter acting through its subsidiary ■

MRPL. The NPM of ONGC is however 3x RIL’s 6.9 per cent. Both, however, suffer from commodity discount given to the oil industry. RIL has a P/E of 11.6, while ONGC is at 10.5. This is comparable with global integrated giants like Exxon Mobile and Chev- eron Corp.

However, RIL is now building two different revenue streams – retail and telecom – both consumer-facing businesses. While retail is a low-mar- gin business worldwide and largely driven by volumes, it is telecom that is really capable of getting the com­pany a rerating and giving it a much
higher P/E. While the jury is still out on how successful the telecom busi­ness will pan out, one can invest some part of the allocable investments in Reliance. If telecom, where RIL also has a media edge, having taken over the entire TV18 group, does turn out to be a game changer, RIL will once again become the market’s darling and fund managers will rush to have a higher portion of the company in the portfolio – not because of its sheer weight in the index but because of its changing profile and promise to get non-linear returns. For the extra cau­tious investors, one can always wait for a few months to see the outcome of its entry in 4G before taking a call, albeit at a higher price!

ZEE Entertainment

Media and entertainment is the only industry which is totally recession proof. People do not stop watching soaps or TV programmes or movies during a recession. Delivery platforms have increased, as have the demands of the viewers. Zee Entertainment an integrated production house, is well poised to become a global media player. It has an audience of close to a billion viewers with a target to grow five fold times by 2020. It is lay­ing big bets on the spread of mobile culture which will see faster conver­gence of the real world and virtua’ world. It expects the tally of mobile users in India to grow up to 213 mil­lion by end of 2015.

Zee’s programmes are aired in 169 countries and it has 36 international channels and 33 domestic ones. It enjoys a market cap of ?35,661 crore After the restructuring done by the group, where the news channels were spun off into a new company, the net margins of the company for 2014-15 was 24 per cent. Over the last one year, the shares have grown from ?27! on 28 August to touch a 52-week higr of ?420. Unlike other television stu­dios, the income stream for Zee is we7 distributed and does not rest sole!’ on advertisements. The subscription income contributes nearly 37 per cent while advertising contributes to 54 per cent of its total income.

DAKSESH PARIS B [email protected]:=r

 

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