We are in for tough times, again. Recent economic data from across the globe seems to suggest just that. Even the stock markets are feeling the chill, having pulled down significantly in the last few weeks. And if you need any more pointers, look at the slowdown in domestic industrial production and economic activity (GDP growth). When the going gets tough, the tough get going. So goes the good old saying. That's true of companies, too. The challenge for an investor is to be able to pick out those winners despite the uncertain conditions.
Like in the current scenario, periods of higher inflation and hardening interest rates are often followed by times of reduced expenditure by households and corporates. This may curtail growth in revenues and profits thereby restricting upward movement in stock valuations. So do you just sit back and try to ride out the storm? Not if you can invest smartly.
There's a way to invest even amidst the economic turbulence. Hunt for companies with a consistent performance which have not yet reached the mature phase of their lifecycle. To help our readers invest better during hard times, the ET Intelligence Group culled a list of consistent performers which are still trading at relatively lower valuations on bourses. Some of these players operate in niche areas, which would help protect their margins even during a slowdown. A few others have strong order books that offer revenue visibility beyond the near term.
METHODOLOGY
We analysed the financial performance of nearly 5,000 companies over the last five years with a focus on growth in sales, operating profit and net profit. We calculated year-onyear growth in these three parameters for each of the last five years. And then we selected only those companies which reported at least a 15% growth on all three counts in each of the five years.
THE BIG PICTURE
There are only 27 companies in the sample that fit the bill. Each of these companies grew their key numbers in the higher double digits over the said period. But our hunt for good investment bets does not end here. This is because some of the consistent performers in our sample no longer look promising on several counts. Also, some who have steam left in them are trading at rich valuations.
For example, Chennai-based Sun TV Network has had a brilliant run over the last five years. It is the only media and entertainment company listed on the bourses to secure over 71% of operating margin. The company's dominant position in the cable and DTH business down South has ensured consistent revenue growth. In financial terms, its future looks bright given its latest tie-up with TV18 to distribute content in the South and the North.
It would appear that Sun TV is a rising star, but the company's stock has taken a severe beating recently. This follows news reports alleging that a member of the promoter's family is being probed in the 2G telecom scam. The stock currently trades at a P/E of 17, way lower than its average P/E of above 23 and its oneyear peak P/E of 32. This shows that even if business fundamentals are sound, the stock may suffer a severe blow if the 2G scam verdict turns out to be unfavourable. Another company that made it to our short-list of consistent performers, but falls short of a fresh recommendation is Bombay Rayon Fashions. It is engaged in manufacturing, exporting and retailing of fabrics and apparel.
Source- Economic Times
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DENIP consultants Pvt Ltd
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