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Sunday, August 26, 2007

Buy Neyveli Lignite

At the current market price of Rs. 73, the stock trades at 19 times it's trailing 12 month earning per share. This makes the stock sufficiently valued at this level.

On the other hand the stock is available at a discount to it's peers based on it's Annualized quarterly June' 08 EPS of 6.72. The stock is trading at 11 times it's FY08E earnings. Neyveli had taken an hit on it's financials for the last two years due to delay in acquisition of land which had taken an hit in lignite production and due to the order passed by CERC on lignite transfer pricing upto 2004. Having the above two already taken care this must not impact the earnings in the quarter's to come.

Based on FY08 earnings Neyveli has a target of around Rs. 105 at a one year time horizon. Not to mention the massive expansion going on which will start reaping benefits in FY09. If the investor has patience to hold the stock for three years this can turn out to be a multibagger stock.

Fundamentals:

1) Good financial track record.
2) High profit margins (more than 30%)
3) High cash reserves and low debt position
4) Massive expansion ahead.
5) Disinvestment of additional stake a bonus.

Risks:

1) Any New order affecting the pricing of power and lignite.
2) Delay in getting the project approval for expansion, which is happening now.

Updated on 24-Sep-2007

Target 1 of Rs. 105/- as recommended above crossed today. Return of 50% within one month of recommendation.

Stock Long term growth story still intact. Hold on if you are a long term investor.
Short term traders can book partial profits at current levels and re-enter on dips.

Posted by Srivatsan

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Fundamental Analysis

Fundamental Analysis is the cornerstone of Investing. In fact, some would say that you aren't really investing if you aren't performing fundamental analysis.

During fundamental analysis we look at a stock from three aspects

Company

At the company level, fundamental analysis may involve examination of financial data, management, business concept and competition.

Industry

At the industry level, there might be an examination of supply and demand forces for the products offered.

Economy

Fundamental analysis might focus on economic data to assess the present and future growth of the economy.

To forecast future stock prices, fundamental analysis combines economic, industry, and company analysis to derive a stock's current fair value and forecast future value. If fair value is not equal to the current stock price, fundamental analysts believe that the stock is either over or under valued and the market price will ultimately gravitate towards fair value. Fundamentalists do not heed the advice of the random walkers and believe that markets are weak-form efficient.