Monday, Sep 22, 2014

Top stocks may not have topped out just yet

Mumbai | Posted: September 4, 2014 5:46 am

With the Sensex scaling new peaks — it closed Wednesday’s session at a record 27,139.94 points — stocks too are no longer cheap. Most blue-chips now command very stretched valuations and among the top ten most expensive stocks — put together by FE based on Bloomberg’s earnings estimates — are five FMCG firms. These include, not surprisingly, alcoholic beverage makers United Breweries and United Spirits, which trade at a jaw-dropping 59 and 49 times one-year forward expected earnings.

With a forward PE of 69, Just Dial, the voice and online information provider that listed in June 2013, was the most expensive stock. That’s despite analysts questioning the firm’s pace of transition from voice- based to internet-based services. The stock recently found a place in the NSE mid-cap index.

Click here for graph

Indeed, the compilation — which took into account companies with a market value of more than Rs 10,000 crore and which boast a one-year forward price to earnings ratio (P/E) of more than 25 — threw up as many as 38 companies and lots of surprises.

Logistics player Blue Dart, a subsidiary of DHL, is the second most expensive stock with a P/E multiple of 65. While speculation that the MNC parent may delist the Indian arm keeps the stock going, DHL’s decision to foray into e-commerce has also boosted valuations.

Tata Communications is a surprising candidate but the Street seems to be acknowledging the turnaround in the company, which reported a net profit of Rs 102.8 crore in FY14, ending a four-year loss-making streak. The recovery led to a jump in the buy ratings on the stock from 53% to 71% of the total recommendations.

United Spirits has been a winner ever since the UK-based Diageo made an open offer back in November 2012 — after all, who doesn’t want to own an MNC with big brands and strong margins? While the stock has made an exit from the NSE’s flagship indices, including 50-share Nifty, since it postponed the publication of its FY14 earnings, it nevertheless has a fan following.

Always fair and lovely, Hindustan Unilever was a top performer 2011 and 2012 when the broader market was dull; with parent Unilever increasing its stake in the company to 67.3% through an open offer last year, the stock has acquired even more charm.

HUL currently trades at a forward P/E multiple of 37, an astounding 30% premium to its historical valuations. Smaller players like Nestle and P&G also command P/E multiples of 43 and 45.5.

Devangi Gandhi | The Financial Express

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