7 Growth Stocks for Long Term Investors

Here is a selection of 7 growth stocks for Indian long term investors. The idea here is not to suggest the next multibagger, but to highlight stocks with proven track records which will most likely keep delivering in the medium-to-long term. These stocks are selected based on a few parameters.

On What basis are these Stocks Selected?

• Growth: Only the companies that are showing good compounded annual growth rate (CAGR) in both topline and bottomline for the last three years are selected.
• Valuation: Only the Companies that are trading less than 20 times past twelve month’s earnings are selected. Also, to qualify in this list, the growth in profits had to be significantly higher than the price earnings multiple (PE). The benefit of having such stocks is that as the market discovers the earnings momentum, the PE expands to match the earnings growth. But if there is a broader selloff in the markets, growth-valuation mismatch will restrict the fall.
• Margins: Companys with good profit margins only are considered for this list. Healthy profit margins are important for businesses. They not only indicate the ability of the company to price its products or services, but also shows how well a company is placed through phases in the business cycle. A very low profit margin also means that the business is excessively competitive and can restrict future growth.
• Market Cap: Companies with more than Rs 1000 Cr market cap only are selected, as these large cap stocks are well known, wll-researched and with good past record.

Here is the List

• Patni Computer Systems: With change in management, it looks like Patni Computers is getting ready to do the catch-up. The net profit for Patni has grown in excess of 38 per cent CAGR in last three years. The company has developed a strong ability to protect profits, as it is constantly increasing the share of fixed price projects. Also, better relations with clients is paying off, as it now earns 90 per cent of its revenue from existing clients.

• MindTree: Over a decade after Infosys became a million-dollar idea, a few friends from Wipro such as Ashok Soota, Subroto Bagchi and a few others came together to form MindTree. The idea was simple—everything in the 21st century will either be software enabled or constrained. Today, MindTree is a well-respected midsized information technology (IT) company, with over 30 per cent CAGR growth in past three years, the idea called MindTree holds promise.

• Dewan Housing Finance Corporation: Dewan Housing saw the benefit of being in the affordable housing segment long back. Its focus on the tier-II and tier-III cites helped it grow even in bad times. Asset quality was maintained as loan ticket sizes were small.

• LIC Housing Finance: LIC Housing Finance, promoted by the Life Insurance Company of India, also maintained a robust loan disbursal rate without compromising on asset quality. Non-performing assets have come down significantly, while the net interest margin improved by over 3 per cent in the last quarter. Although the company has interests in the commercial space, its focus is on retail, which has worked well for the company. With the economy improving, both areas look poised to reap benefits.

• Shriram Transport Finance Company: Shriram Transport Finance Company is primarily engaged in financing pre-owned commercial vehicles. That means smaller loan sizes and better repayment track records. The focus area helped the company to overcome the downturn. While sales went down significantly for new commercial vehicles, the second-hand market did not suffer as these vehicles are used in the shorter routes and largely by traders carrying essential commodities, which was not affected by the slowdown. In order to maintain better quality of lending, the company has devised a formula. Fifty per cent of the salary of field officers is linked to the receivables, which automatically means better lending practices.

• Sintex Industries: Sintex has exposure to building products, custom moldings and textiles. While in plastics the company’s growth comes from automotives and electrical accessories, in textiles it supplies brands like Armani, Diesel, Van Heusen and Arrow. The company has an impressive track record of creating value for its shareholders.

• Power Finance Corporation: Power Finance Corporation is financing power companies to deal with the power deficit in the country and has now diversified into financing raw material and equipment makers in the segment. The company faces competition from banks, but the asset-liability mismatch in funding long-term power projects by banks is an advantage for PFC. Also, the liabilities for the company is at fixed cost and its assets are at floating cost, which helps maintain margins. Given the kind of power shortage the country is facing currently, there will be much higher level of activity in the near future, and most of the power projects are financed by a combination of debt and equity, with debt being the major portion, PFC will be the preferred choice.

Source:  Outlook Money

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