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In light of the Russian invasion of Ukraine the Indian markets have taken a plunge, the price of , , and other commodities have soared and there is a lot of uncertainty all around. With share prices trending downwards, it would be an ideal time to consider investing in quality stocks at reasonable prices after consulting a SEBI Registered Investment Adviser.
1. Balkrishna Industries (NS:)
Founded in 1987 Balkrishna Industries is an Indian multinational Company that manufactures tyres for industrial automotive-like tractors, cranes and its products are widely used in the mining, agriculture and infrastructure industries. Based in Mumbai the company has 5 factories in India, it is ranked 41st worldwide in the tyre manufacturing sector and has about 8% of the global market share in the off-road tyre sector, and has a market capitalisation of 38,406 crores.
Industry overview
India is a developing country and there has been massive growth in terms of infrastructure, which leads to a higher demand for off-road vehicle tyres. The Indian Budget has focused on the development of commercial infrastructure for the past few years and this has led to growth in demand for OTR tyres. The demand for these tyres is projected to grow by 15% by the end of 2025.
The application of OTR tyres in agriculture and agrotech facilities is expected to push the growth further as due to assistance by the Government, the demand for tractors and agricultural vehicles has managed to stay steady despite Covid-19.
Peer comparison
The OTR tyres sector is highly competitive and has many companies competing for market share. Balkrishna Industries faces competition from CEAT Ltd (NS:), JK Tyres, Apollo Tyres (NS:) and M.R.F. Ltd. (NS:) mainly.
Fundamentals & Valuations
The PE ratio shows the current market price of the company with respect to its Earnings Per Share (EPS), the PE ratio of Balkrishna Industries is 26.63 with an EBITDA Margin of 34.28 for FY21 compared to 15.95 and 31.63 for FY20 respectively. The Cash Flow from Operations (CFO) has gone up from 1173.14 crores in FY20 to 1339.03 crores in FY21. The company has shown a steady growth of assets and has managed to improve its Debt to Equity ratio over the years.
Despite Covid-19 the company has managed to increase its revenue and PAT by 17.65% and 22.7% respectively. The company has a higher Revenue CAGR of 7.50 % compared to its peers like MRF at 2.30% and has an Operating Profit Margin of 27.08 which is more than double that of MRF at 12.44. The company has a dividend yield of 0.88% and it announced a special dividend of 600% a few days after the payment of an interim dividend of 200% in February 2022.
The CMD of the company Mr Arvind Poddar believes that investing in research and development of new technology and innovations are key for the growth of the company and his ideologies can be seen working as the company holds 8% of the global market share.
Future Outlook
Balkrishna Industries approved a CAPEX plan of 1900 crores on the 9th of February, the company aims to expand production and to improve its technology in the coming years to keep up with rising demand. 800 crores have been allotted to the factory at Bhuj to increase production by 50,000 MT, 450 crores for technological advancement and 600 crores to set up a new carbon black facility.
Despite the rise of crude oil and an expectation of a bad Q4 for the auto ancillaries industry due to the rise in the price of crude oil the company may do well in light of the boost of infrastructure planned by the government in 2022. The fact that the stock trades at a premium compared to its peers even in such challenging times is promising, but it is to be kept in mind that valuation alone cannot be taken in isolation. The strong fundamentals and good management of the company as well as the industry trends make Balkrishna Industries a promising investment.
2. Oracle Financial Services Software (NS:)
Oracle Financial Services Software is one of the subsidiary companies of Oracle Corporation (NYSE:), it is concerned with offerings such as risk and compliance services, human resources, accounting facilities and business management processes. It is India’s 9th best company in the IT sector and is present in 145 countries worldwide, with a market cap of 29129 crores.
Industry Overview
The IT sector in India has grown tremendously in the past and the future growth is expected to be in line with the IT sector growing at twice the rate of the Indian economy at 15.5% to become worth $227 billion in 2021-22. The sector contributed to 9% of the total GDP of 2021 and accounted for 51% of the net exports from India. With the advent of fintech and the push towards digitalisation as well as the new cryptocurrency which will be issued by the Reserve Bank of India the IT space will be one to watch out for and would be a high return investment.
Peer Comparison
Oracle is a part of a highly competitive industry with new players being added regularly vying for market share, some of its competitors are Tata Elxsi (NS:), L&T (NS:) Tech, Persistent Systems (NS:) and Coforge. It is ranked 12th in terms of its market share and has a relatively low PE ratio of 16.03 and a market cap of 29,129 crores compared to its peers like Tata Elxsi which has a market cap of 4,932 crores and a PE ratio of 86.48 and L&T Tech 51,476 crores and 58.60 respectively.
The share is relatively underpriced compared to its peers but has the best dividend yield of 5.85% in the industry.
Fundamentals & Valuation
The PE ratio of Oracle Financial Services Software is 16.03 with an EBITDA margin of 52.17 for FY21 compared to 11.95 and 49.49 for FY20 respectively.
The Cash Flow from Operations (CFO) has gone up from 1521.82 crores in FY20 to 1919.51 crores in FY21. Despite Covid-19 the company has managed to increase its revenue and PAT by 1.53% and 20.49% respectively. The company has an operating profit margin of 50.09.
Future Outlook
Oracle has been spending a lot of its resources to shift its data onto cloud services over the past few years and is committed to making all its accounts easily accessible and automated at a fraction of the cost of maintaining physical databases. Their client base has been steadily growing and they are known for consumer success.
With Covid-19, work cultures have shifted to a hybrid or remote form and there has been an immense growth in the performance of IT companies, although Oracle had a flatter growth curve, its steady dividends are very much attractive.
Disclaimer: The above analysis is just for informational purposes. It shouldn’t be taken as a recommendation.
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