Home Market Talking stock: HPCL valuations attractive after the recent correction

Talking stock: HPCL valuations attractive after the recent correction

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By G CHOKKALINGAM
(Founder, Equinomics Research & Advisory)

I am holding 150 shares of LIC Housing Finance at Rs 617 and 3,400 shares of Vascon Engineers at Rs 36.5. Please advise on future course of action. —NITESH JAIN

You may hold LIC Housing as after its 37 per cent correction from its 52-week peak price it trades at a decent valuation of around 1.8 times its FY19 estimated book value. Vascon Engineers trades at highly stretched valuations on both standalone and consolidated earnings. Its consolidated balance sheet also doesnt give any comfort as receivables and inventories together at ?676 crore exceed annual sales of ?570 crore. Hence, sell the stock if it recovers around 10 per cent from the current levels.

I am holding 3,000 shares of HPCL at an average cost of Rs 372 for four months and 1,000 Everest Industries at Rs 480. Should I hold or book losses? —MANOJ KANTI DATTA

Add more of HPCL if it forms less than 5 per cent to 6 per cent of your portfolio to reduce your average cost. After steep correction it trades at a P/E of 8 on FY2018 earnings. Oil price is likely to stabilise at less than $75 a barrel as any further rise would hit the oil producers themselves in terms of reduced oil demand. You may hold Everest Industries with a target price of over ?500 and sell if it goes near this target price before September quarter results are published as the monsoon quarter normally impacts the performance of building product business quite adversely.

I bought 60 shares of Greenply for Rs 309. Should I hold or exit? — AMANDEEP JHA

In my view, Greenply doesnt have solid growth momentum in the last five years either in revenue or profits to deserve a P/E of 22 on trailing earnings. So sell it if the stock moves up 5 per cent to 10 per cent from the current level.

I have 130 shares of Natco Pharma at Rs 816 per share and 200 shares of Jain Irrigation at Rs 140 per share. Should I hold these shares or sell? — EASWARAN LALITHA

Hold Natco Pharma as another 5 per cent recovery in the short term is possible considering gradual improvement in the re-rating of pharma stocks in the recent weeks. Jain Irrigations valuation at current price is quite fair — you may sell it if it moves beyond ?110. In my view, recent spike in oil price will start impacting the margins of producers of plastic products from June quarter onwards.

I hold 200 shares of Sterlite Tech, 2,000 of Morepen Laboratories, 600 of Finolex Industries. Please guide if I should buy more quantities of these stocks to add to my portfolio? JAYESH SHAH

You may sell Sterlite Technologies if it rises close to ?340 from the current level as the growth story has largely played out in its price and the stock trades at fair valuation of over 26 times anticipated earnings of FY19. You may sell if Morepen moves beyond ?30. While on standalone its valuation is stretched, over ?117 crore investments mainly in its subsidiaries havent yielded any significant returns for quite long time. Sell Finolex Industries as I firmly believe that recent spike in oil prices should adversely impact the margins of producers of PVC and PVC products.

I bought Sun Pharma at Rs 699, 50 shares of IDFC Bank at ?61. What should I do? — MOHAN IYER

Hold IDFC Bank as it got hammered beyond what fundamentals deserve in my view. Its profitability was impacted by higher provisions. It is worth noting that its net nonperforming assets is one of the lowest in the industry at 1.69 per cent, trades at just around FY18 adjusted book value of ?42 and its credit base is still growing at around 5.6 per cent on year-on-year basis. Hold Sun Pharma with a target price of around ?600 with 6 -12 months investment horizon.

I bought 300 shares of Orient Paper at Rs 42. I can hold for long term. What should I do? — VIPIN

You may hold Orient Paper with expected return of around 20 per cent within a year, considering recent crash in stock price, benefit of rupee depreciation for the paper industry and its balance sheet strength (least leveraged).

I am holding 120 shares of Tata Motors at Rs 405 and 200 shares of Peninsula Land at Rs 30. Should I exit both the stocks? — P YASHWANT

There is still some uncertainty for Tata Motors about earnings growth from Jaguar Land Rover in the short-to-medium term. Still, you may hold Tata Motors as it has been beaten down a lot. You may start adding it only if after its JLR business starts showing some credible signs of significant growth in profits. Losses have widened and also debt has expanded quite substantially for Peninsula Land in FY18. You may sell the stock it moves beyond Rs 22.

Please send your queries on Stocks to [email protected]; Mutual Funds to [email protected] Tax to [email protected] Insurance to [email protected] Realty to [email protected]

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