Profile of 10 blue-chip stocks

[Sukumar.N]

If the past two weeks’ average intra-day fall of over 500 points in
the Sensex is any indicator, it’s evident that investors are out in
hordes to sell. Investors are making a desperate attempt to book
losses, even as they try to save whatever is left of their
investments.

Sitting on cash appears to be the safest option, but it may not be the
smartest thing to do. With the Sensex now in four digits and most of
the stocks down to one-third of their last year’s value, investors
with a long-term horizon can use the market crash as an opportunity to
accumulate blue-chip stocks.

ETIG takes a look at the profile of 10 scrips that a long-term
investor can start accumulating in the current slump. The stocks have
been selected based on their current valuations and relative
historical earnings multiples.

ACC
====


In the last bear phase in the late 1990s, ACC lost nearly 50% of its
market capitalisation from its peak.

In the current market turmoil, the stock is already down by over 60%
from its peak.

So, with each fall, the downside is getting limited. Besides, the
stock has never been available so cheap.

At its current price-earnings (P/E) multiple of around 7.5, the stock
is trading at less than half its 15-year average P/E. And the icing on
the cake is a 4% dividend yield — another historic high.


Castrol India
=========

The company is India’s largest manufacturer of lubricants. Lubricants
are consumables and their demand is directly related to the number of
vehicles on the road and the level of manufacturing in the economy.

In the past five years, the number of vehicles on Indian roads has
nearly tripled, while manufacturing capacity across sectors is about
to jump manifold. This will ensure that the company will see a steady
growth in revenues and profits in the next few years.

The market seems to have recognised this and the stock has appreciated
by 15% in the past 12 months. And despite this, its dividend yield is
at a high 5%

Kesoram Industries
==============

The company is set to emerge as one of India’s leading tyre
manufacturers.

Tyre demand is expected to grow in double digits, thanks to an
explosion in the number of trucks and commercial vehicles on the road.

This will provide the company with earnings stability at a time when
margins in cement are peaking out.

We expect a sharp improvement in the tyre division’s profit margin,
thanks to a fall in the prices of natural rubber and crude oil.


LIC Housing Finance
===============

The company has stepped up its marketing efforts in the past year,
which has led to a 200- basis points increase in its market share to
7% by the end of FY08.

Housing demand is relatively inelastic to the economic downturn and we
expect the company to see a 20-25 % year-on-year growth in loan
offtake in the next few years.


Madras Cement
===========

It is one of best-run cement companies in India with an unbroken
record for generating profits and paying dividends for over three
decades now.

It used the boom in the cement market in the past few years to expand
aggressively and is likely to emerge as the largest player in South
India.

The region is India’s fastest growing cement market. The stock is
currently trading at over 50% discount to its lowest P/E in the last
downturn in the late 1990s.


Petronet LNG
==========

Petronet LNG is India’s only LNG importer, which is doubling the
capacity of its terminal at Dahej to 10 million tonnes per annum
(mpta) by December ’08.

Currently, the company has firm contracts for import of 5 mtpa of LNG,
which will be scaled up to 7.5 mtpa next year.

Apart from this, the company has been sourcing spot LNG cargos to
cater to the natural gas requirement in the domestic market.


N.Sukumar
Research Analyst
www.kences1.blogspot.com