Which stock should you buy?

Which stock should you buy?

 In the equity market, stock tips are aplenty. Everyone believes themselves to be an expert just because they have a Trading and Demat account and have made some investment in the equity market! Therefore it is very important to have some basic knowledge about share market before you start investing in stocks according to share tips.

There are more than 6000 shares listed in India. But, broadly they can be categorized into four types:

 Growth stocks:  They are companies which grow faster than its industry or the market. Growth shares do not believe in paying dividends but reinvest profits for expansion and growth. They are marked by high P/E ratio and are always in demand due to potential price appreciation.

Value stocks: They are companies which have good fundamentals but are underpriced as they are temporarily out of favour. Value shares are great picks as they have a greater potential of growth. They have a low P/E ratio and low PBV ratio.

Income stocks: They are companies which regularly pay high dividends. These shares are often less volatile and may limited growth options. Profit from these stocks is in the form of regular dividends declared by the company. They are marked with higher dividend paying ratio.

Penny stocks: They are stocks with low price and low market capitalization. These shares are easy to manipulate because of low volumes. Investing in penny shares is extremely risky as these are extremely speculative in nature, illiquid and marked with volatile movements.

Stock Market Update on Cairn India for 4QFY2011

Cairn India (CIL) reported higher-than-expected net profit of `2,458cr for 4QFY2011, driven by better-than-expected operating profit on account of lower operating expenditure during the quarter. Further, lower-than-expected interest cost and tax rate resulted in bottom line coming in above our estimates. We maintain our Neutral view on the stock.

Mangala production drives growth: CIL reported a 428% yoy increase in
its top line to `3,654cr (`693cr) in 4QFY2011. Gross production at the Mangala field stood at an average 118,151bpd in 4QFY2011. Current production from the field is hovering around 125,000bopd and is waiting for approval to ramp up to its potential of 150,000bpd. During the quarter, crude oil realisations registered an increase of 32.7% yoy to US$94.2/bbl (US$71/bbl).

Outlook and valuation: We expect earnings to improve in the coming quarters with Train-4 lined up for production, subject to approvals from management and the operating committee. However, the stock price seems to have factored in these positives. We are concerned about the resolution of the royalty issue in favour of ONGC. We are also skeptical about other regulatory issues bothering the Cairn-Vedanta deal. However, there are various exploratory upsides untapped in Barmer Hills and other fields waiting to be developed and commercialised. Further, operational visibilities and major finds in these fields could trigger our valuation upwards. We remain Neutral on the stock with an SOTP fair value of `355

Stock Market Flash on Sun Pharma for 4QFY2011

4QFY2011 Financials Snapshot:   

                                                                   

(`cr)	4QFY2011	3QFY2011	% chg qoq	4QFY2010	% chg yoy
Net sales	1,463	1,601	(8.6)	1,080	35.5
Other income	111	58	90.9	14	707.4
Gross profit	1,150	1,169	(1.6)	814	41.3
Operating profit	444	441	0.7	419	6.0
Net profit	443	350	26.4	394	12.2

4QFY2011 Financials Actual V/s Estimates :

`cr	Actual	Estimates	Var(%)
Net sales	1,463	1,412	3.6
Other income	111	71	55.5
Operating profit	444	400	10.8
Tax	2	51	(95.6)
Adj net profit	443	331	33.9

4QFY2011 Consolidated Financial Result Highlights-  

·         The Net Sales for the quarter under review for the company stood at `1,463cr (`1,081cr) an increase of 35.5% yoy, higher than our estimates of `1412cr majorly led by the higher than expected exports at `869cr (`494cr), increase of 75.7% during the quarter. The formulation segment on the export front clocked a robust growth of 98.5% yoy at `776cr (`391cr).

·         The Net sales for Taro for Jan-Mar 2011 is at US$107.7 million, a growth of 21% yoy. The net profit for the quarter is at US$ 25.7 million, higher by 199% when compared to the same quarter last year.

·         The domestic formulations sales came in at `588.7cr (`489.8cr) increase of 20.2% yoy.

·         The company reported gross margins higher than our estimates at 78.6% (76%) for the quarter. However, the employee and other expenses grew by 119% yoy to `254cr (`116cr) and 61.9% yoy to `453cr (`279.5cr) respectively. As a result the OPM contracted to 30.3% (38.7%).

·         The Net profit came in at `504cr (`392cr), growth of 28.7% yoy. The adjusted net profit grew by 12.2% yoy at `443cr (`394cr), higher than our estimate of `331cr.

·         For the full year, the net sales increased by 42.8% yoy to `5,72cr (`4,007cr). The adjusted net profit grew by 34.4% yoy to `1,816cr (`1,351cr).
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4QFY2011 Consolidated Financial Performance:

Y/E March (`cr)	4QFY2011	3QFY2011	% chg qoq	4QFY2010	% chg yoy	FY2011	FY2010	% chg yoy
Net sales	1,463	1,601	(8.6)	1,080	35.5	5,721	4,007	42.8
Other income	110.8	58.0	90.9	13.7	707.4	272.7	205.3	32.8
Total income	1,574	1,659		1,094	43.9	5,994	4,213	42.3
Gross profit	1,150	1,169	(1.6)	814	41.3	4,261	2,910	46.44
Gross margin (%)	78.6	73.0		75.4		74.5	72.6
Operating profit	444	441	0.7	419	6.0	1,967	1,363	44.3
Operating margin (%)	30.3	27.5		38.7		34.4	34.0
Interest	0	0	-	0		0	0	-
Depreciation	48	80	(40.1)	42	14.9	204	153	33.1
PBT	506	418	21.1	390	29.7	2,036	1,415	43.9
Provision for taxation	2	54	(95.9)	(1)	(277.8)	128	68	89.3
PAT before extra-ordinary item	504	364	38.6	392	28.7	1,907	1,347	41.6
Minority interest(MI)	(61)	(13)	-	3	-	(91)	4
Extraordinary item	0	0		0		0	0
PAT after extra-ordinary item & MI	443	350	26.4	394	12.2	1,816	1,351	34.4
EPS (`)	4.3	3.4		3.8		17.5	13.0

 

At CMP, the stock is currently trading at 22.7x FY2012E and 18.5x FY2013E earnings. We would revise our estimates post the interaction with the management.

Key financials:

Valuation Summary
Y/E March (`cr)	FY2009	FY2010	FY2011E	FY2012E	FY2013E
Net sales	4,273	4,103	5,721	7,627	9,550
% chg	27.3	(4.0)	39.4	33.3	25.2
Net profit	1,818	1,351	1,816	2,030	2,492
% chg	20.7	(25.7)	34.4	11.8	22.7
EPS (`)	17.6	13.0	17.5	19.6	24.1
EBITDA Margin (%)	43.6	33.2	34.4	29.1	29.8
P/E (x)	25.4	34.1	25.4	22.7	18.5
RoE (%)	30.2	17.8	19.3	19.9	20.8
RoCE (%)	27.4	15.3	18.3	19.0	21.1
P/BV (x)	6.5	5.7	4.9	4.2	3.6
EV/Sales (x)	10.4	10.7	7.7	5.8	4.5
EV/EBITDA (x)	23.9	32.3	23.9	19.8	15.2