Navigating the Stock Market Essential Tools and Techniques for Picking Out the Best Stocks

The objective is to pick out 3 stocks, one large cap, one mid cap and one small cap. Then, analyse the reasons behind this choice.

1 Adani Ports & Special Economic Zone(BSE: 532921) (Large cap)

• Adani Ports & Special Economic Zone is in the business of development, operations and maintenance of port infrastructure (port services and related infrastructure development) and has linked multi product Special Economic Zone (SEZ) and related infrastructure contiguous to Port at Mundra.
• The Co.’s business verticals include a comprehensive network of ports & terminals (82% of total revenue), Logistics (8%), SEZ & Ports (6%) and Operations and Maintenance (4%).
• APSEZ is India’s largest port developer and operator comprising 13 domestic and 2 international ports (Haifa & Colombo Port) and terminals and 538 MMT of operating capacity. The company partnered with Flipkart for the construction of a 534,000 sq. fulfilment centre in the upcoming logistics hub at Mumbai.

Strengths-

• Consistent Highest Return Stocks over Five Years - Nifty500.
• Growth in Net Profit with increasing Profit Margin (QoQ).
• Strong cash generating ability from core business - Improving Cash Flow from operation for last 2 years.

Weaknesses-

• MFs decreased their shareholding last quarter.
• Inefficient use of capital to generate profits - RoCE declining in the last 2 years.
• Inefficient use of assets to generate profits - ROA declining in the last 2 years.
• Declining Net Cash Flow: Companies not able to generate net cash.

Threats-

• Companies with growing costs YoY for long term projects.
• Companies with high market cap, lower public shareholding.
• High PE (PE > 40).
• Increasing Trend in Non-Core Income.

Adani Ports and Special Economic Zone is the largest private port player in India. With a net margin of 26.92% and RoE of 16.29% which is the benchmark in this sector. Earning per share of the company is expected to grow by 33.7%, the highest expected growth rate in the port and SEZ sector.

• Promoters have steadily decreased their pledging ever since Hindenburg research report, the conglomerate has drastically decreased their exposure to Debt and similar instruments. Meanwhile FII from the Middle East has shown strong support for the company which suggests the company is in good shape.
• Overall, the company has a strong future lined up owing to strong business and financial profiles, along with a diverse portfolio of seaports and an adequate liquidity position, according to a release on March 15th, 2024. Refinancing risk has eased after Adani Ports bought back half of its $650-million bond ahead of the July maturity, while cash surplus and internal accruals are sufficient to cover near-term operations and debt obligations.

2 Chennai Petroleum Corporation Ltd (BSE: 500110) (Mid-Cap)

• Chennai Petroleum Corporation Limited (CPCL) is in the business of refining crude oil to produce & supply various petroleum products and manufacture and sale of lubricating oil additives.
• The main products of the Company are Aviation Turbine Fuel, High Speed Diesel, Naphtha, Lube Base Stocks and Bitumen. These products are marketed by parent company IOCL. It also produced Speciality products like Paraffin Wax, Mineral Turpentine Oil (MTO), Hexane, Petrochemical feedstocks etc.
• The company achieved a capex of Rs.654 Cr in FY23 also as part of the Fuel Quality Upgradation project. The company has a joint venture with Chevron Chemicals Company since the year 1989 for manufacturing of lube additives components and packages.

Strengths-

• Stock passes majority of CANSLIM Investment criteria.
• Strong Annual EPS Growth.
• PEG is lower than Industry PEG
• Dividend yield greater than sector dividend yield.
• Strong cash generating ability from core business - Improving Cash Flow from operation for the last 2 years.

Weaknesses-

• Sold by Superstar Investors.
• MFs decreased their shareholding last quarter.
• Degrowth in Revenue and Profit.

Threats-

• Companies with higher market cap, lower public shareholding.

CPCL is the market leader in RoE with 43.78% while its P/E ratio 4.48 is below industry median. That suggests that stock is undervalued and has a huge upside potential. The company has steadily beaten its revenue forecast for the last three quarters and is expected to do so in the upcoming financial year. And the reason for this is the fall in CNG prices and increase in Aviation fuel which is pushed by domestic air traffic which has recently crossed pre Covid levels.

The Promoters (Indian Oil Corporation Limited) with 51% stake have kept its stake locked, which is a sign of the company doing financially well, without any additional need of funding in the form of debt. Along with a steady rise in FII holdings, and retail investor trust, it is a clear sign that the company has a strong governance and growth potential.

3 Shukra Pharmaceuticals Ltd (BSE: 524632) (Small Cap)

• Incorporated in 1993, Shukra Pharmaceuticals Ltd manufactures and markets pharmaceutical products, and does laboratory testing.
• SPL is a WHO-GMP certified integrated manufacturer of formulations like tablet, capsules, and small volume parenteral.
• The company has started a new arm Shukra Wellness focusing on marketing of Mouth Dissolving Strips (MDS) both for RX & Nutra products.
• SPL also exports to countries like Australia, Uganda, Kenya, Sri Lanka, Mauritius, Peru, Guatemala, Cambodia, Myanmar, Vietnam, and the Republic of Yemen.

Strengths-

• Company has reduced debt.
• Company is expected to give a good quarter.
• Company has delivered good profit growth of 52.8% CAGR over the last 5 years.
• PEG is lower than Industry PEG.
• Highest Recovery from 52 Week Low.

Weaknesses-

• Stock is trading at 7.38 times its book value
• Company has a low return on equity of 10.1% over the last 3 years.
• Company has high debtors of 187 days.

Threats-

• Increasing Trend in Non-Core Income

• Script is at an all time high.

• Pharmaceutical sector is highly regulated.

• Shukra Pharma has a moderate RoE of 20.67% which is above sector median of 21% at the same time the P/E ratio is below its peers which shows its upside potential in upcoming years.

• Overall, the company has a bright future because of its consistent track record in governance and effective utilisation of its assets. The company has also looked forward to buying back its shares which is a sign of the company having a strong growth laid down in the future.

Blog By: Varun Singh, Assisted By: Megh Jadhav