Gurupreet Singh

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This report does away with all the short term distractions that you read every day, everywhere from Europe crisis to US downgrades and focuses entirely on the long term big picture – India growth story and how can make the best of it. I personally  identified in this report the key sectors that are set to benefit from the long term growth India is set to witness and we’ll not just leave you in terms of broad economic numbers and jargons; we’ll in this report tell you your exact action points, 5 stocks you should buy for the next 10 years.

·         India has come a long way since the economic reforms in 1991, moving from the Hindu growth rates of 5% into the orbit of 7-9% growth rates.

·         This growth has been structurally driven by economic reforms, private entrepreneurship and linkages to the global economic boom.

·         Fundamental factors like young population (median age of 26), growing middle class, rising income levels with stable and growing household savings make India’s medium to long- term growth secure.

·         We believe India’s real GDP will grow at a CAGR of 9% over the next decade translating to a nominal GDP of ` 205 Trn (USD 4.5 Trn) by 2020. In nominal terms we expect growth over the next decade at 13% (Long term inflation projection of 4%).

·         These significant changes will manifest in three key investment themes for the next decade – savings, consumption and infrastructure. Certain sectors (SUPER SECTORS) will grow well beyond the 13% nominal GDP growth.

·         Certain stocks (SUPER STOCKS) are all set to reap the benefits from their stronghold in their SUPER SECTORS and these are the stocks that you should just buy and forget, literally forget!





Coal India

World’s largest coal reserve holder, Coal India is the primary beneficiary of the structural deficit of coal in India.

Financial Services

Axis Bank

Banking revenue set to grow 5.3x to ` 10.6 Trn, AXIS a front-runner to capture this opportunity.

Organized Retail

Pantaloon Retail

Organized retail to grow 6.3x to ` 6.3 Trn, FDI in retail to bring in the global biggies, Pantaloon Retail – biggest beneficiary.


Mahindra & Mahindra

Automobile market forecast to grow ~5x to ~ ` 4.3 Trn.

Domestic Consumption


Cigarettes business to remain robust, FMCG the trump card, classic domestic consumption bet.

Coal India Limited (COAIND)

Fundamental – BUY

CMP –RS. 386


Mkt Cap (Rs.Cr.)

52W High

52W Low


Rs. 241,000

Rs. 422

Rs. 289

Coal India (COAIND) is the world’s largest coal reserve holder and producer and also controls ~80% of the Indian coal market. It is going to be the primary beneficiary of the structural deficit of coal in India. Moreover, it is one of the least cost producers of coal in the world.

COAIND, a Maharatna company, is one of the largest public sector companies in India in terms of turnover. Its product portfolio consists largely of thermal coal (90%) with the balance being coking coal. The company enjoys a near-monopoly position in the lucrative coal market and is more of a utility player due to assured volume off-take and minimal chance of a product price cut, as prices already remain at ~50% discount to internal benchmark prices.

It currently operates ~471 mines in India and is also scouting for international mines to increase global presence and assure its resources. It sells ~10% of its production based on the e-auction route and ~3.5% beneficiated coal (2x realizations of raw coal). Beneficiated coal volumes are expected to rise significantly to ~150 mtpa by FY17 (25% of total volumes).

COAIND produced 43.13 crore tons in FY10 and their reserve position (extractable reserves) stands at 2175 crores tons as of April, 2010. This translates into 51 years of production capacity going by current production rates. Going by the reserve position, we believe that CIL is a great opportunity to own a critical resource. On the demand side, India being a power deficit country, there is significant power capacity being added with fuel resource being coal. Currently most private companies building power capacities have been signing up long term Fuel Supply Agreements (FSAs) with foreign players due to shortage of coal domestically. We believe there is enough demand for coal and further scale up of production by CIL would find more than enough takers.

The big trigger for COAIND comes due to the pricing differential between raw coal that CIL sells and washed coal that is imported from mines abroad. The average realization for CIL is 50% lower than import parity price of coal. The margin for CIL per ton is currently close to ` 400/ton. The management of CIL has indicated that it is putting in place a system for producing more of washed coal to match the quality of imported coal. This would require capex of `350/ton but would improve realization and margins manifold. By FY17, COAIND would have a 25% share of washed coal.

At the CMP of ` 386, the stock trades at a PE of 13.66x FY12E earnings and 12.64x FY13 earnings. We believe that Coal India Ltd is an excellent investment and would prove to be a multi-bagger in the long term.

Income Statement (Rs. Mn)

Year to March
















Net rofit










Year to March




Diluted PE (x)




EV/Sales (x)














Axis Bank Ltd (AXIBAN)

Fundamental – BUY


CMP –RS. 1211


Mkt Cap (Rs.Cr.)

52W High

52W Low


Rs. 51,508

Rs. 1,609

Rs. 1,150


·         We believe that the current stage of economic growth in India, where savings and capital formation are at ~34% of GDP, offers serious opportunities in financial intermediation. Core to our hypothesis is our belief that, over the next ten years nominal GDP (excluding agriculture) is expected to grow at ~13%, and revenues from the financial services sector (which would lead this growth) are expected to grow at 22% to ` 266.4 trillion by FY20E .


·         Axis Bank is the third-largest private sector bank in India in terms of asset size, with a balance sheet of ` 1.5 tn. It has a network of over 1000 branches and extension counters across the country. The bank earns substantial fee income from transaction and merchant banking activities.

·         Axis Bank has registered buoyant loan growth on a balanced portfolio skewed towards corporate advances than retail (as compared with its private peers). Retail advances contributed 20% to the total loan portfolio. Thus, it has better scope for aggressively expanding across segments where it has a low presence. It is also spreading across geographies and targeting presence in more than 75% of India’s districts in the next five years. The bank’s loan book is expected to grow at a brisk pace of 25% plus in FY09-11E with SME, agri, housing, and personal loan segments likely to be the key growth engines.

·         Rapidly growing franchise and new product offerings (viz., credit cards) will further drive growth in retail fee income. The bank is also intensifying efforts to penetrate the remittance business by aggressively spreading its international operations. Other key contributors to fee income will be project advisory, debt syndication, and third party distribution of insurance.

·         Led by stable to improving margin coupled with benign asset quality we expect Axis Bank to deliver a healthy 25% earnings CAGR over FY11-13E. The bank’s strategy of moderating pace of loan growth will enable it to build a more formidable retail franchise and achieve consistently higher RoA. We believe, it can sustain higher RoA of 1.5-1.6% against 1.0-1.2% a few years ago, allowing RoE to move closer to 20% in a capital efficient manner. As Axis Bank delivers consistent earnings we expect the current valuation discount of 40% with HDFC Bank to come off to ~25%.

 income statement axis bank limited

balance sheet axis bank

Pantaloon Retail Ltd (PANRET)

Fundamental – BUY


CMP –RS. 311


Mkt Cap (Rs.Cr.)

52W High

52W Low


Rs. 7,000

Rs. 528

Rs. 228


·         Pantaloon Retail Ltd is a leading Indian retail company with presence across most sectors of organized retail. The company, entered modern retail in 1997 with the opening of its department store format Pantaloons. In 2001, PRIL launched Big Bazaar, a hypermarket chain, followed by Food Bazaar, a supermarket chain. A five format company, two years back, it now operates over 20 formats which include Central (seamless malls located in city centers), Collection I (home improvement products), Depot (books, music, gifts and stationeries), aLL (fashion apparel for plus‐size individuals), Shoe Factory (footwear), and Blue Sky (fashion accessories). It has recently launched its e‐tailing venture, futurebazaar.com.

·         The Indian retail landscape is evolving with interplay of several demographic and economic factors. The long term prospects backed by changing consumer behavior in favor of larger discretionary spend has set the stage for a healthy growth in the retail space over the next few years. The big opportunity lies in the growing share of organized retail with the growing trend among consumers to allocate a larger share of income to consumption and gradual improvement in lifestyle.

·         Media reports suggest that the Cabinet could clear the proposal to allow FDI in multi-brand retail in the near term, setting the stage for the entry of large chains by the FY12 end. Nod to the proposal seems likely post the backing of the Prime Minister Manmohan Singh and Finance Minister Pranab Mukherjee. By opening the retail sector for FDI, organized retail penetration can swell significantly, benefitting retail firms. We believe this will be a positive for Indian retail sector especially for larger players like Pantaloon Retail.

·         At the CMP of ` 311, the stock trades at a PE of 32.6 FY12E and 24.0x FY13E earnings, (represented by the core retail business). We rate Pantaloon as a ‘Buy’ for the long term.

income statement pantaloon retail ltd valuations pantaloon retail ltd

Mahindra & Mahindra Ltd (MAHMAH)

Fundamental – BUY


CMP –RS. 729


Mkt Cap (Rs.Cr.)

52W High

52W Low


Rs. 44,825

Rs. 827

Rs. 585


·         Mahindra & Mahindra (MAHMAH) operates in nine segments—automotive, farm equipment, financial services, infrastructure, hospitality, IT services, Systech, which consists of automotive components and other related products and services, and others, which consists of logistics, after-market, two wheelers and investment.

·         Mahindra & Mahindra dominates the domestic tractors market, commanding 41% market share. Three key structural factors—higher farm product prices, firmer labour wages (notably NREGA), and greater commercial usage of tractors—have significantly increased rural incomes and brought smaller farmers (owning <4 hectares of land) into the “tractor purchasing” ambit. These factors are likely to drive long-term tractor demand, which Mahindra & Mahindra (M&M) is well-positioned to capitalize on.

·         MAHMAH is the leader in the UV segment and has managed to keep its market share above 55% currently. MAHMAH, as the leader in the utility vehicle (UV) segment, is well entrenched with strong brands. Further, incremental volumes could come from the LCV/ minivan segment, where we expect the company to regain lost market share with the launch of its sub tonne Maxximo and Gio.

·         We believe, Ssangyong Motors acquisition is a strategic fit with MAHMAH’s ambitions of being a global SUV player. Ssangyong’s current financial performance seems to suggest a turnaround. Apart from the M&HCV space (JV with Navistar), other new businesses (two wheelers, defense or logistics) require minimal investments. The returns over a three year period though could be substantial, particularly considering MAHMAH’s impressive track record in unlocking value of subsidiaries.

·         MAHMAH is in a sweet spot as demand for tractors and utility vehicles are benefitting from rising rural incomes and government’s increased rural thrust. At the same time, with a dominant market share and low competition in the segment, the company enjoys pricing power.

 income statement mahindra and mahindra ltd balance sheet mahindra and mahindra ltdgrowth ratio mahindra and mahindra ltdvaluations mahindra and mahindra ltd



Fundamental – BUY


CMP –RS. 199


Mkt Cap (Rs.Cr.)

52W High

52W Low


Rs. 1,52,778

Rs. 211

Rs. 149


·         Favourable macroeconomic drivers such as GDP and population growth, coupled with rising income levels and lifestyle changes to drive the FMCG market growth in India. Low penetration and low per capita daily consumption offers room for further growth. Increasing rural penetration to urban penetration levels presents another growth opportunity; multiple usage of products offer further upside. IMF expects the Indian economy to be ~USD 2.0 tn by FY15. Assuming FMCG spend/GDP trend to continue, we expect the FMCG market to cross the ` 2 tn mark by 2015, from ~` 1 tn currently

·         ITC is one of the largest FMCG companies in India with businesses spanning cigarettes, hotels, paper and packaging, and agri-commodities. Recently, it has set up a branded foods division with products such as staples, confectionery, and biscuits. Though the cigarettes division is still the major source of revenue, other businesses have grown over the years, contributing ~49% to net sales and ~34% to gross sales in FY10.

·         ITC’s pricing power is strong due to relatively inelastic demand profile of cigarettes and the company’s ~80% market share. This translates into increasing margins for ITC as compared to any other FMCG company. Cigarettes volume growth of 8% in Q1FY12 surprised positively against our expectation of 6%. We expect cigarettes volume growth to be 6-7% with upward bias for FY12.

·         The e-Choupal network established by ITC gives it a phenomenal sourcing edge, which can help it transform into a retailing giant. The demand-supply conditions are in favor of the paper businesses, as the new supply will just be sufficient to meet the additional demand. With the Indian economy slated to grow at about 8% for FY11E, we expect cigarettes volumes to continue to witness growth momentum. The FMCG division is expected to scale up and turn profitable in FY13, contributing positively to the bottom line, going forward.

valuatons itc ltdbalance sheet itc ltdgrowth ratios itc ltdvaluatons itc ltdSo, what stocks you are going to select? Please write in comments and let me know if you want more articles/researches/post on Indian Stock Market?

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Top 5 Indian Stocks to buy for next ten years – BSE NSE, 7.8 out of 10 based on 10 ratings

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2 Responses so far.

  1. Amit Nagpal says:

    good research.No other site offer this type of customised figures,just fancy headings are ther!

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    Rating: +1 (from 3 votes)
  2. Other potential multibagger selections on the basis that “Lower the price of an asset (stock, property etc.) the more it will grow over time : –

    Manjushree Technopak
    Dewan Housing Finance
    Karur vysya bank
    Yes bank
    South Indian Bank

    And waiting for these to fall and then buy – Crompton Greaves, Agro Tech Foods

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    Rating: 0 (from 2 votes)

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