There is lot of skepticism and fear among the people on the street. The crash of 2008 has left an impression on investors which is horrific and tough to forget. But where would people invest if not equities. People who remain hibernated till today have the leftover feeling now and trying to renter the market, but market this time is not obliging them. Most of the falls that are happenning are very shallow and tough to time it. This time the market is diametrically opposite to what it was in 2008.
The biggest difference is that the valuation that the sensex was trading at 20000 in 2008 was close to 25 times, whereas this time when sensex is at 20000 it is trading at a comfortable valuation of less than 20 times its estimated earnings.
The other noticable difference is the fear and skepticism prevailing in the market today. In 2008 there were wide spread optimism and everyone who was in the market was making money without any effort. I myself know many people who left their job as they were making much more money in the markets then their job, and they were new investors. I was myself making lot of money and started thinking that all the investing principles I have learnt are so easy to apply and forgot the basic principle that success without effort & experience is a house build of cards and would collapse even with a slight headwind. And that is what exactly happened. Subprime crisis came in just when we were at bubble kind of valuation and when no body was expecting such blowout news. People panicked and pressed the exit button. Then the situation was similar to the situation of a stampede in a temple full of crowd. There was blood bath every where. But things are different this time around. People are well prepared for any catastrophic news, hedged and under invested.
99% of the people have not been able to participate in the rally from 8000 to 20000. they are now waiting for a chance to get in and that is why every dip is being bought immediately.
Third is the the small & midc cap stocks valuation. In 2007 there were hardly any good quality midcaps available at less than 10 times PE multiples. But today even when SENSEX is at 20000 there are many good quality midcaps available at less than 10 times PE multiple. This also signifies that retail participation is not there which is usually responsible for creating panic like situation in 10-20% fall.
All these factors would prevent a major correction in the markets and every dip would be bought by the new investors. 10 to 20% fall is possible in any kind of market but a crash seems to be not happening in near future. It seems from the market movement that it will spend sometime near 20000 and would slowly move up. The mid caps and small caps would eventually catch up and would outperform the large caps over the next 1 year.
So the best approach now would be to selectively look for quality stock available at cheap valuations and avoid investing in hot stocks available at rediculous valuations.
Lloyd electric and engineering an Airconditioner coil manufacturer is the largest producer of coils used in all types of ariconditioners, domestic or industrial. It also manufatures complete air conditioner units on contract basis. Almost all the leading players in India such as Voltas, Blue Star, Hitachi, samsung etc are its clients.
Demand for air conditioners are rising at exponential pace, and are expected to continue for next few years thanks to global warming and rising income of Indian people. The company is diversifying into Metro rail airconditioning which is likely to give boost to order book thanks to Metro rail expansion in various cities in India.
The current market price of the company is Rs. 78/- which translates into the market cap of approx Rs 242 crores. The company is expected to do around 850 crores on standalone basis while on consolidated basis it is expected to clock a revenue of 1050 crores. As its last years european acquisition not expected to yield any profits due to overall slowdown in European region, the expected PAT for this year on standalone and consolidated basis is expected to be around 48 crores which translates into an EPS of approx Rs 16/-
At the CMP of 78 the stock is available at less than 5 times its current year earnings which is extraordinarily cheap with respect to other air conditioner players in the market such as Hitachi, voltas, blue star etc as these companies are trading at somewhere close to 15-25 times its current year earnings.
The company's FY-09 book value was approx Rs 132/-. For the current year i.e FY-10 the BV is expected to be around 147. so at CMP the stock is available at 0.53 times or 47% discount to its book value.
Considering the industry it is part of and the kind of low valuation it is trading at, the stock is expected to generate around 80% return from these levels in 6 to 12 months time.
So this cooling business is expected to make Lloyd Electric & Engineering a hot stock on dalal street soon.