One of the important value themes highlighted by Benjamin Graham in 'Intelligent Investor' is the story of a large, unpopular (in the markets) company.
In the Indian stock market context, it is best exemplified by AV Birla group’s Hindalco.
A few weeks back, I read an analyst report which mentioned that due to capex and high debt burden, the earnings of Hindalco will reduce to about Rs.6 per share in FY 2010. That prompted me to check Hindalco’s earnings for now and it stands at a solid 14.24 Rs per share.
The share is quoting at about Rs. 49.50. Hindalco is one of the largest players of Aluminium not just in India but the world with a consistent track record.
Even assuming that bad turns to worse, and that the EPS comes does indeed come to Rs.6 in 2010, is it still a bad bet? I don’t think so. I am not sure of many companies which can boast of an EPS as high as Rs.6 for every one rupee share. Add to it, Hindalco’s advantage of scale and its entrenched position in the aluminium business, one is less likely to lose money in Hindalco even in worst case scenario.
Ofcourse, if one is not in a mood to wait for 2-3 years, then he does not have much to do in the value investing world in the first place.
My conclusion, Hindalco, with a current earnings yield of 15.8% and an ROC of 25% is a safe bet in the long term, especially at its current price levels.
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