Stock Selection

Process & Criteria Initial Screening

1st screening 5 yr CAGR of PAT > 20%
Shortlisted 121 companies out of 1624

2nd screening 5 yr CAGR of Sales > 20%

Shortlisted 49 of 121 companies

3rd screening PE Ratio > 10

Shortlisted 41 of 49 companies

4th screening Top 20 based on Enterprise Value

Shortlisted companies had EV > 45,000 million
25-08-2014

Stock Selection

The Top 20 Stocks

Company
Mahindra &
Mahindra Ltd.
Motherson Sumi
Systems Ltd.

CAGR Sales

CAGR PAT

P/E Ratio

Ent. Value

Retention R

22%

23%

24.5

8,20,742

75%

62%

37%

56.0

3,23,684

69%

51%
24%

443.5
16.1

2,62,664
1,01,236

87%

Amtek Auto Ltd.

31%
26%

Lupin Ltd.

24%

30%

19.2

5,59,398

97%
84%

Aurobindo Pharma
Ltd.
Torrent
Pharmaceuticals Ltd.

21%

63%

15.7

2,65,598

83%

20%

29%

16.8

1,40,475

48%

Ajanta Pharma Ltd.

28%

56%

22.8

56,606

85%

Adani Ports & SEZ

Ltd.

34%

32%

33.1

7,00,155

86%

J S W Energy Ltd.

37%

23%

17.8

1,70,229

58% 3

Eicher Motors Ltd.

25-08-2014

Stock Selection

The Top 20 Stocks

Company

CAGR Sales

CAGR PAT

P/E Ratio

Ent. Value

Retention R

Bajaj Holdings & Invst.

Ltd.

66%

23%

20.0

1,04,530

-28%

Godrej Properties Ltd.

Titan Company Ltd.

42%
23%

26%
35%

35.9
43.1

54,570
3,21,794

81%
70%

Godrej Consumer
Products Ltd.

40%

36%

56.5

3,15,853

77%

United Breweries Ltd.

21%

38%

86.1

2,05,752

86%

Astral Poly Technik

Ltd.
Tata Consultancy
Services Ltd.

42%

41%

54.2

47,848

95%

24%

29%

24.6

46,78,316

64%

H C L Technologies Ltd.

20%

25%

18.7

10,91,089

Tech Mahindra Ltd.

33%
23%

25%
23.9
30%
20.4
Stock Selection

5,16,103
45,190

76%
91%
78%4

Persistent Systems Ltd.

25-08-2014

Final Shortlisting Criteria

From the Top 20, stocks were individually
studied on parameters such as
Growth opportunities & Likelihood of growth
Earnings quality
Return on Equity & Its de-compisition
Relative performance to peers in the industry
Stock price trends
Risk associated with the stock
25-08-2014

Stock Selection

Stocks selected - IT industry

All 4 shortlisted companies in this industry
have experienced extremely high levels of
growth
COMPANY
P/E
Tata Consultancy
Services Ltd.
H C L Technologies Ltd.

Tech Mahindra Ltd.

Persistent Systems Ltd.
25-08-2014

Beta

Alpha

24.6

0.49

0.71

18.7
23.9
20.37

0.79

0.87

1.12
0.61

0.51
0.52

Stock Selection

HCL Technologies
4th largest IT services exporter.
Globally competitive, 78% of contracts won against
HP, IBM, Accenture, etc.
Strong sales & earnings growth

PBIDT/Sales(%)
Sales/Net Assets

PAT/PBIDT(%)
Net Assets/Net Worth
ROE(%)
25-08-2014

Jun 13 Jun 12 Jun 11 Jun 10 Jun 09

40.45
31.56
24.76 30.09 31.48
1.09
1.09
0.96
0.80
1.17
73.17
69.38
71.21 69.14 67.77
1.12
1.24
1.21
1.28
1.15
43.99
31.29
22.20 25.08 29.76
Stock Selection

Stock Price Movement

25-08-2014

Stock Selection

Companies Not Selected

Company

Reason for not selecting

Tata Consultancy
Services
Persistent Systems

-Growth expectations are already very high

and built into the current stock price
-Outsourced Product Development a major
revenue contributor is very competitive
market & overall spend on OPD likely to
reduce
-Stock price doubled in past 1 year. Maybe
overvalued
-Growth in Sales not translating into
corresponding growth in PAT

Tech Mahindra

25-08-2014

Stock Selection

Adani Ports & SEZ Ltd

Logistics venture of Adani Group (Mundra Port
& SEZ)
Strong earnings quality (34% CAGR in Sales &
32% CAGR in PAT)
~85% of profits retained for growth

Net Worth
Sales
PAT
25-08-2014

Mar 14
39.28
29.30
14.94

Rate of Growth
Mar 13
Mar 12
28.41
21.61
35.42
31.66
49.01
19.38
Stock Selection

Mar 11
23.11
35.37
40.69

Mar 10
18.45
22.68
52.02
10

Stock Price Movement

25-08-2014

Stock Selection

11

Companies Not Selected

Company

Reason for not selecting

JSW Energy

- Very high sales growth but not translating

into corresponding PAT growth
-Relatively small player in the industry.
Unlikely to outperform industry growth
-Slow growth in auto industry
- High dividend payout (low growth
opportunities)

Godrej Properties
Bajaj Holdings &
Investment Pvt Ltd

25-08-2014

Stock Selection

12

Godrej Consumer Products Ltd.

Value
Year
PAT
Sales

Low Beta Value: Indicates The Stocks Are Less Risky

Dividend Yield Is On The Higher Side
An equitable increase in Pat corresponding to an increase in Sales
MPS Is High But So Is EPS And DPS Indicating Value For Money
Growing Rapidly: The Company's Revenue Has Doubled To Rs 7,823 Crore In
2013/14 From Rs 3,643 Crore In 2010/11
Innovation And Expansion: Almost 30 Per Cent Of Gcpl's Revenue In The Past Year
Has Come From New Products
Future Plans: We Want To Be 10 Times Our Current Size 10 Years From Now
Nisaba Godrej
Rate of Growth
P/E
56.46
Mar 14

25-08-2014

Beta
0.38
Mar 13

Alpha
0.73
Mar 12

Div Yield
0.54%.
Mar 11

dps
5
Mar 10

EPS
16.99
Mar 09

8193

8454.3

7512.4

5147.1

3395.9

1732.6

78229.4

66244.1

49866.1

37758.9

20842.8

14391.7

Stock Selection

13

Stock Price Movement

25-08-2014

Stock Selection

14

Companies Not Selected

Company

Reason for not selecting

United Breweries Ltd.

-High Beta (0.91) but significantly low dividend yield at

0.12%.
-High PE ratio of 86.13
-High risk
-Negative sentiments

Astral Poly Technik Ltd.

Highest Beta (0.99) but significantly low dividend yield at

0.08%

Titan Company Ltd.

-A good Company to Invest in but Beta is quite high as

compared to GCPL with a marginally high Dividend Yield
hence Godrej was more secure

25-08-2014

Stock Selection

15

Motherson Sumi Systems Ltd

High growth potential industry Auto Anciallary

Stock P/E Values close to industry P/E values
Debt/Equity Not highly leveraged companies
The dividend yield Similar as compared to Peers
PAT and Sales CAGR for last 5 years

Stocks
Motherson
Sumi

25-08-2014

Price P/E
358

56.01

P/B

Beta
15.76

Stock Selection

Div Yield EPS

0.64

0.56%

6.4

16

Stock Price Movement

25-08-2014

Stock Selection

17

Companies Not Selected

Company

Reason for not selecting

Eicher Motors

- Very high Stock Price considering future

growth prospects
- Hasnt achieved the kind of growth in
others have achived.
- Fluctuating Stock Prices

Mahindra &
Mahindra Ltd
Amtek Auto

25-08-2014

Stock Selection

18

Thank You

25-08-2014

Stock Selection

19