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All about Value Funds!

All about Value Funds!
by 5paisa Research Team 17/11/2021

Value funds invest in any stocks by adopting a strategy that has less market value and high intrinsic value.

We live in a world where an individual has various options to park his funds but presently, individuals are in a dilemma where to invest their hard-earned money and receive optimal benefits from the same. Mutual funds offer various schemes where every type of individual can invest his corpus such as equity-oriented schemes, non-equity-oriented funds i.e., debt funds, a combination of both equity and non-equity-oriented funds i.e., hybrid funds as well as solution-oriented funds for long term goals such as retirement and children’s raising expenses. Equity-oriented funds are further divided into 11 sub-categories such as value funds, contra funds, focussed funds, and many more.

We are going to discuss value funds in this article.

Value funds are equity-oriented mutual funds, which invest in the stocks of the company that has ‘value’. What is meant by value? There are various ways in which value is defined. To value the company's stock, various metrics are used like price-to-earnings ratio (P/E ratio), price-to-book ratio (P/B ratio), dividend yield, and free cash flow. So, value funds invest in stocks that score relatively lower in the above ratio. When a fund manager adopts a value investing strategy, he looks for stocks that are undervalued or may trade for less than their intrinsic value. These stocks have the potential to grow in the future. When the intrinsic value of any stock or company is more than its market value it is known as value. Hence, fund managers of value funds search, analyse and then invest in such value companies.

Things to consider before investing:

Risk: As these funds are equity-oriented, they are risky but less than growth funds. These funds are not for the risk-averse investors but for those, who are more suitable for investors that are ready to take risks. These funds face market risk and volatility like any other equity fund. Value funds tend to outperform during bear markets.

Investment horizon: Fund managers invest in stocks that are undervalued and can take some time to deliver returns. So, investors, who are willing to invest for a longer period, should consider investing in these funds. Investors should at least have an investment horizon of five years. This will help investors to receive optimal returns.

Diversification: Fund managers invest in stocks of large-cap as well as mid-cap companies and also, pool a corpus of investors in various sectors, which help investors to reap optimum benefit even if any particular sector is not performing well.

Returns: Fund managers analyse and forecast the performance of the undervalued companies in the market and invest the capital of investors in companies having higher potential. Investors, who want regular investments, should consider investing in these funds. Dividends are paid periodically, depending upon the performance of the fund. These funds offer steady returns over a longer period. Due to the lower cost of these funds, they are quite cheaper than growth funds.

Taxability: As these funds are equity-oriented, they will be taxed accordingly-

Short-term capital gains (STCG): If capital gains arise within 12 months, then they will be taxed as per short-term capital gains at the rate of 15%.

Long-term capital gains (LTCG): If capital gains are arising after 1 year, then they will be exempted up to Rs 1 lakh while above Rs 1 lakh, it will be taxed at the rate of 10% without indexation.

The following table depicts the top five value funds in India based on a one-year return along with their AUM: 

Fund Name  

1-Year Return (%)  

AUM (in crores)  

IDFC Sterling Value Fund  

85.77482  

4,395.72  

Templeton India Value Fund  

75.01647  

645.64  

Nippon India Value Fund  

61.32742  

4,505.66  

ICICI Prudential Value Discovery Fund  

59.36352  

23,219.02  

Aditya Birla Sun Life Pure Value Fund  

59.23967  

4,384.20  

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How to become a Rs 1 trillion company by market cap through IPO? Ask Nykaa!

How to become a Rs 1 trillion company by market cap through IPO? Ask Nykaa!
by 5paisa Research Team 17/11/2021

Investors are embracing P/E levels of 1,710 for this beauty and fashion company.

Nykaa has been a hot topic on Dalal Street since it had a massive debut on the exchanges. Sky has not been the limit for the optimism that investors have shown for this huge IPO listing when it gained about 78% premium over the higher end of the issue price. This has been undoubtedly one of the biggest IPO debuts which has created a lot of buzz, especially among retail investors.

Post-pandemic markets are witnessing a bull rally like never before. The markets have rebounded strongly over last year. As a result, IPOs have come in hoards to reap the benefits of pumped optimism of the investors. One such trending IPO was FSN E-Commerce Ventures Ltd (Nykaa) which received an overwhelming response from investors. The IPO was subscribed 82 times. As a result, the stock had a stellar debut and opened on 10 November at Rs 2,001 on the BSE and Rs 2,018 on the NSE making it a trending company in the markets. The company’s founder and CEO, Falguni Nayar, became the richest self-made female billionaire in India with a net worth of about USD 6.5 billion.

The company announced quarterly results that ended September on 14 November, a few days after its debut. The profitability dipped by 65% on a sequential basis and by nearly 96% when compared to the same quarter last year. Increased marketing costs along with IPO costs had led to poor profits in the quarter.

The price-to-earnings multiple of the company has soared to insane levels of 1710. It would take 1710 years for investors to get back their invested money assuming the current level of earnings. Only the shareholders of the company know how this gap is going to fill with ever-optimistic growth. The stock had a high of Rs 2,409.95 and a low of Rs 1,994.10 in its so far journey.

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Top Trading Ideas: Lux Industries

Top Trading Ideas: Lux Industries
by 5paisa Research Team 17/11/2021

The company recently posted its quarterly numbers which contained double-digit growth on every front.

Lux Industries Limited is engaged in the business of manufacturing and sale of knitwear. Its brands include Lux Cozi, Lux Venus, Lux Karishma, Lux Touch, Lux Bigshot and Lux Classic. The clothing company is a midcap company with a market cap of Rs. 13,848 crore. The company has strong financials and has reported higher than industry revenue growth and net income. Not only that, but the company has also witnessed an increase in market share from 2.36% to 5.12% in the last five years. This certainly shows that the company is on the right track with its business performance and is quite evident with its movement in the stock price.

The stock has performed exceptionally well by delivering awesome returns of 178% YTD. On a YoY basis, the stock has gained 205% and it has also gained 14.53% in three months. This shows that the stock is in no mood to stop its momentum. Lux industries recently posted its quarterly numbers which contained double-digit growth on every front. Strong management commentary regarding their business boosted investors’ confidence.

On Wednesday, the stock has logged a fresh all-time and is currently trading 8.82% up at Rs 4594.

The stock trades well above its key moving averages and RSI is going strong at 85. Huge volumes have been recorded in the last couple of days indicating higher institutional activity. The positive directional movement (+DMI) crossed the -DMI a few trading sessions back and currently it is well above it. It shows strong strength. The above parameters suggest that the stock is in super bullish mode and shows no signs of stopping as it heads into uncharted territory.

Considering the performance Lux Industries has shown, we can expect the stock to continue its momentum on the higher side. Traders can expect some good returns for the short to medium term as the technical analysis validate our point.

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RHI Magnesita India gaining momentum post strong Q2 results

RHI Magnesita India gaining momentum post strong Q2 results
by 5paisa Research Team 17/11/2021

RHI Magnesita India zoomed 5% today with positive results and a capacity expansion plan from the company. 

RHI Magnestia India Ltd is in the business of manufacturing and marketing special refractory products, systems and services to the steel industry in India and Globally. It is a market leader for special refractories in India and has many global customers for its international quality products.

Business model

Revenue Breakup: Presently, the company earns 74% of its revenues from the manufacturing of refractories and 22% from the trading of refractory items.

Dependent Industries: Demand for refractory is primarily dependent on the steel industry, which accounts for 75% of total sales. Refractory products are also used in glass, cement, non-ferrous, petrochemicals industries. 

Manufacturing Facilities: The company has 2 manufacturing facilities located in Bhiwadi, Rajasthan and Tangi, Odisha, Vizag, Andhra for its manufacturing operations.

Today, the parent company has announced to make India a research and development hub, and a manufacturing hub. They have established a new R&D centre in Rajasthan. They have allocated Rs 400 crore to increase the production capacity of its existing plants, planning for brownfield expansion and automation of these facilities.  

Financials

Recent: Two days back, they have reported strong Q2FY22 sales growth of 25%YoY stood at Rs 432 crore beating the estimates, with domestic steel production jumping 18% YoY. This was led by volume growth of 19% and a 6% price hike.

EBITDA grew 33% YoY stood at Rs 66 crore, however as EBITDA margin stood at 15.16% rose 95bps YoY though down 213bps QoQ, with inflationary cost pressures. Net profit grew 34% YoY stood at Rs 43 crore, however, the margin stood at 9.96% rose 60bps YoY.

5-year history: In the last five years from FY16 to FY21, revenue has grown at a CAGR of 24% and profit has grown at a CAGR of 20% which shows the steep growth of the company. The operating margin is consistent and stable in the range of 15% to 20% for the last 5 years.

Brokerage outlook

With capacity expansion (underway) aimed at capturing strong domestic and exports opportunity, Edelweiss estimate RHIM would log CAGRs of 19% in sales and 21% in PAT over FY21-23 with RoCE expansion of 310bps to 26.5%, with a target price of Rs 438 in next 12 months.

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Superstar stocks for tomorrow!

Superstar stocks for tomorrow!
by 5paisa Research Team 17/11/2021

Looking for stocks that could deliver good returns till tomorrow, here are the superstar stocks for tomorrow selected on a three-factor model.

Many of the time market participants see a stock opening with a gap-up and wish they should have bought this superstar stock a day before to take advantage of the gap-up move. To fulfil this wish, we have come out with a unique system, which would help us to get the list of candidates that can be probable superstar stocks for tomorrow.

The superstock stocks for tomorrow selected are based on a three-factor prudent model. The first important factor for this model is price, the second key factor is the pattern, and last but not least is the combination of momentum with volume. If a stock passes all these filters it would flash in our system and as a result, it will help traders to spot the superstar stocks for tomorrow at the right time!

Here are the superstar stocks for tomorrow.

PVR Limited: PVR was taking support at its 20-DMA for four trading sessions before shooting up 3.31% on Thursday outperforming broader indices. Volume recorded today is 1.5 times the previous day’s volume. It is nearing its 52-week high which is at 1840, and we could possibly see a breakout from hereon. The stock traded firmly in green throughout the day and RSI is showing strength on hourly, daily, and weekly time frame. PVR witnessed huge buying in the latter half of the session. The stock should be the trader’s watchlist given the potential it has for the coming days.

GlaxoSmithKline Pharmaceuticals Limited: The stock is showing good strength for a few days. It is up almost 13% in this month out of which it gained 4.72% today. The stock is trading firmly in green throughout the day and witnessed above average volumes indicating active participation of the clients. The RSI is in bullish territory and the stock looks attractive for BTST trade.

Home First Finance Company: The stock rallied 4.61% on the trading session of Thursday, as it outperformed the benchmark indices. The stock traded in a narrow range of 720-750 entire November before breaking out. It is already trading at its all-time high at 775. RSI shows good strength in every time frame. The above-average volume witnessed since a few trading sessions indicate that the momentum will stay strong for the coming days, and one could keep this stock on their watchlist.

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Star Health and Allied Insurance IPO- Largest standalone health insurance company plans to raise over Rs.2000 crore

by 5paisa Research Team 17/11/2021

Star Health Insurance, founded in 2006, is the first standalone health insurance (SAHI) company in India. Since then, the company has become the largest SAHI company in the entire insurance market of the country with a Gross Written Premium (GWP) of Rs.9,348.95 crores in FY21. They have a pan-India network of 737 health insurance branches, spread across 26 states and 4 union territories. Star Health Insurance’s product suite has insured 20.5 million lives in FY21.

The IPO comprises of a fresh issue worth Rs.20,000 million and an offer for sale up to 60,104,677 equity shares. The promoters of this issue are Safecorp Investments India LLP, WestBridge AFI I and Rakesh Jhunjhunwala. The company has close relations with numerous banks across India. The book running lead managers to the IPO are CLSA India Pvt Ltd, Credit Suisse Securities (India) Pvt Ltd, and Jefferies India Pvt Ltd. The co- book running lead managers are IIFL Securities Ltd, Ambit Pvt ltd, DAM Capital Advisors Ltd and SBI Capital Markets Ltd.

The company plans to use the proceeds from the issue to enhance and augment the capital base of the company in FY22.

According to a CRISIL research, the Indian health insurance market is still in a nascent phase and still continues to be one of the most under penetrated markets, globally. Health insurance premiums have grown at a CAGR of 19% in the last six Financial years. Compared to the 21% CAGR of private companies during FY15-FY21, the premium of SAHI witnessed a CAGR of 39%.

Financials: (In Rs mn)

PARTICULARS FY21 FY20 FY19
Equity Share Capital 5,480.87 4906.38 4,555.67
Total Borrowings  2,500 2,500 2,500
Net Worth 34,846.44 16,286.21 12,156.93

 

PARTICULARS FY21 FY20 FY19
Total Income 75,687.57 55,549.61 43,370.06
PAT (8,255.81) 2,680.02 1,282.26
EPS (In Rs/share) (16.54) 5.59 2.81

Star Health Insurance is the largest private company in the Indian health insurance sector and accounts for 16% market share in FY21. And, Star Health is the only SAHI in the top 5 health insurance companies. The company witnessed an increase of 4.9% in market share, between FY18 and FY21. The company accounts for 31% of the gross premiums collected by the retail health insurance industry in FY21. This premium was 3 times any of its close competitors.

Star Health has a network of around 350,000 agents in India as of March,2020, which is followed by CARE which has 125,000 agents as of the same date. In order to judge a non-life insurance company, combined ratio is an important measure. Anything above 100% indicates that the company is spending more than net premium earned. In FY20, Star Health had the lowest combined ratio.

The company also was the only SAHI to have a healthy ROE in FY20, having more than 10% ROE in the last three fiscal years. The company also has the maximum number of offices in India.

Strengths:

1. Star Health Insurance offers a large variety of products and services which allows the company to grab a larger market share and customer base

2. With the recent pandemic, many young professionals and people are getting read to invest in insurances. Due to the huge network and general goodwill in the market, Star Health Insurance has a higher probability of capturing these new customers

Weakness:

The plans and policies that are provided by the company are very common and almost all of its competitors provide the same policies. There is a stagnancy in innovation in the company, which can become a problem in the long run.

Key points:

1. Has an active network of about 9,500 hospitals

2. The company sold nearly 43 lakh insurance policies in the period between April 2020 and November 2020

3. Promoter, Rakesh Jhunjhunwala will not be selling his shares in the OFS, according to the DRHP

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