Five interesting stocks from TIA’s 20-20 Ideas Summit

The summit is so named because the TIA selects 20 eminent speakers who get to pick a stock of their choice and give a presentation on the stocks. Each speaker gets 20 minutes for the presentation during the summit. TIA is an actively-run investor association based out of Chennai. It was the first investor association to be registered by market regulator Sebi in 1992.

To be sure, TIA emphasises that the presentations are meant only for educational purposes and not to be construed as stock recommendations. Also, all the speakers make a disclaimer to this effect. Speakers also disclose their holdings, if any, in the stocks that they feature and also detail the factors that favour the stock.

This year’s 20-20 Ideas Summit was held at the IIT Madras Research Park in Chennai on 18 February. Close to 350 stock enthusiasts attended the event in Chennai and another 150 joined it virtually. Here are five stocks (chosen randomly) that were presented at the summit.

Usha Martin (Speaker: Jatin Khemani, managing partner & CIO, Stalwart Investment Advisors LLP.)

Khemani said the late Rakesh Jhunjhunwala, an ace investor, believed in betting on ‘change’ —in earnings growth and quality, and in market perception leading to stock re-rating. Khemani’s stock pick was Usha Martin, a leading producer of steel wires and ropes with applications in manufacturing elevators, cranes, bridges, etc. He said this is one company where he sees many positive changes happening.

Khemani noted that the company’s products are highly specialized and mission critical in nature which works as a high entry barrier, and these have a steady predictable demand akin to fast-moving industrial goods, or FMIG. An important metric he highlighted was Usha Martin’s high Ebitda (earnings before interest, taxes, depreciation and amortization) per tonne of ₹20,000 compared to ₹4,000-5,000 for some other steel convertors.

“The company has been off the radar due to several factors—weak demand and oversupply, bankruptcy risk in 2018, and a family feud for control over the business," said Khemani. But he feels the situation is changing while the market perception is not. The stock is trading at a trailing price-to-earnings (P/E) ratio of 20 times. On one hand, global demand from sectors such as oil and gas, mining, infrastructure, etc., is rebounding, and on the other, China is not a threat to supply as it has a negligible presence in global trade. India’s relatively cheap steel prices are another positive.

Among other factors, he pointed out that the company became debt free in 2022, and is currently undertaking capacity expansion. The family feud too has been resolved, providing clarity on company leadership. The lack of sell-side analyst coverage of the stock, and low institutional shareholding in the firm are other favourable factors.

Kaynes Technologies (Speaker: Ravi Dharamshi, CIO, ValueQuest.)

Emphasizing the large potential for local manufacturing of electronic components in India, both for domestic consumption and exports, Dharamshi picked Kaynes Technologies for his presentation. The Mysore-based electronics manufacturing services company is primarily focussed on PCB (printed circuit boards) manufacturing. “Globally, this is going to become a $3 trillion industry by 2025, from $2.5 trillion currently. In India, there is 80% localization in auto components but in mobiles, it’s just 3%. So, there’s a huge scope for localization in electronics manufacturing and, within this, PCBs is a large opportunity," said Dharamshi.

Highlighting the positives at the macro level, he added, “China’s demographic issues due to its one-child policy, and India’s largest and youngest workforce make India globally competitive in this segment."

Among the factors in favour of the company are its diversified revenue profile—it has clients across automotive, industrial, medical, railways and other segments. The company is moving up the value chain, and its order book has gone up—from just ₹300 crore two years ago to ₹2,500 crore now. He expects this pace of growth to sustain, and the return on capital employed to rise to over 25% following 4-5 years of capital expenditure. However, given the company’s high inventory days and receivables, Dharamshi noted that the company faces working capital risk.

Life Insurance Corporation (LIC) of India (Speaker: Deepak Shenoy, founder and CEO, Capitalmind.)

For Shenoy, LIC is a stock worth looking at—It enjoys the trust of most Indians, generates over ₹6,000 crore of steady state profits per quarter and has no debt. And he expects the company’s profit to only go up further. Currently, non-participating policies account for about 10% of LIC’s effective annual premium, and this share is expected to rise to 25% over the next few years. Under such policies, the entire surplus goes to shareholders. The fact that single premium policies are expected to go away by 2024 will augur well for the company.

To him, the insurance behemoth has many moats—its market leadership (seven times that of the second largest player), multiple sources of profit and government backing, and comfort on the valuation front. The LIC stock trades at 13 times its current annualised earnings. At a broader level, India’s growing insurance penetration will be another tailwind.

Public sector companies generally do not think about shareholder returns. This, according to Shenoy, is a possible risk for investors. Tax changes are another risk factor as is any equity stake dilution by the government in future. The higher tax exemption limit under the new tax regime as announced in the Budget may encourage people to spend more, and put less money in insurance policies. Apart from that, the government proposal to dilute its stake further to 25% could hurt the LIC stock price in the interim.

Krsnaa Diagnostics (Speaker: Aditya Khemka, fund manager, InCred Healthcare PMS, InCred Asset Management.)

Khemka piqued audience interest by stating that the BSE Healthcare Index has outperformed the Nifty 50— ₹100 invested in the healthcare index would have turned to ₹315 over the last 10 years as against ₹300 in the Nifty 50. And the difference in returns gets starker if the investment is only in stocks comprising the bottom half of the healthcare index— ₹100 would have grown six times to ₹600 by now.

He highlighted that diagnostics companies saw their earnings go up amid the covid pandemic; their valuation multiples soared as well. Now, the multiples are de-rating to below their averages. “The best time to invest is when the earnings and the multiples are below long-term averages," said Khemka. In this backdrop, he presented Krsnaa Diagnostics, a discounted player in this space as his stock idea.

Elaborating on his rationale, he pointed that the B2G (business to government) company is a leader in public private partnership (PPP) asset-light model where it bids for government tenders to set up diagnostic centres. The company has not faced receivables issues and has maintained its debtor days at a reasonable level of 50 days. It generates industry level Ebitda margins of 28-30% with returns ratio in the mid-to-high teens.

According to Khemka, the company’s revenue growth over the medium term (post the high growth in FY24) would likely be 10-18% per annum. “We value Krsnaa Diagnostics at 10x EV/Ebitda (enterprise value to Ebitda), which is in-line with companies with similar tender business model in other sectors."

Among the possible risk factors, he touched upon media reports relating to the company having an undisclosed income of ₹100 crore. He, however, expects the company to get a clean chit, and this would work as a re-rating trigger for the stock.

HDFC Bank (Speaker: Balaji G R, head of research & co-fund manager, ithought Financial Consulting LLP)

Balaji presented HDFC Bank as an ‘all-weather stock’ and says it will be a big player in India’s growth story. The bank stock, he highlighted, has returned 17% CAGR on a 10-year basis, and has beaten the market over every 10-year period since 2002.

Alluding to the bank’s ability to continue growing despite its size, he said HDFC Bank is the third most profitable company among NSE 500 firms based on net profit (trailing 12 months). So, what makes the bank well-placed? According to Balaji, it is well-capitalized, has the strongest deposit franchise among private sector banks, and is strong on risk management, customer engagement and cross-selling. The bank has had an average GNPA (gross non-performing assets) ratio of only 0.9% to 1.4% over the last decade that was marked by economic shocks due to demonetization, the NBFC (non-banking financial company) crisis, and even the covid pandemic.

According to Balaji, the key revenue drivers for the bank will be its above-market credit growth, expanding gold loan portfolio and wealth management business, and value unlocking in HDB Financial Services or HDFC Securities. Among the risks, he highlighted the bank’s high operating cost, which he expects to normalize over the medium-term, and regulatory issues related to the merger of the housing finance behemoth HDFC with itself. At a price-to-book value of 3.35 times, the stock, though not cheap, is in line with its historical valuations.