Hope rally puts 450 stocks at risk

The hope rally that followed the 12 May 2014 opinion polls has reached a risky level for stocks that become multibaggers in four months. S&P CNX Nifty and the 30-scrip BSE Sensex have gained 23 per cent each in four months, whereas multibaggers have appreciated by a whopping 150 per cent. Even so equity analyst have recommended only about 25-30 stocks that are part of multibaggers list.

The 450 BSE-listed stocks that have appreciated by over 100 per cent each are mostly mid-cap and small cap companies. Except Bharat Forge, no A-group stock is figured in the list of multibaggers, which is crowded by B-group (329 stocks) and T-group (120 stocks).

Multibaggers' net profit grew 38 per cent in the quarter ended 30 June 2014, but their share is a paltry 4 per cent in the corporate sector net profit. Among multibaggers, 162 have earned net profit of over Rs5 crore each during the twelve months ended 30 June 2014, and 50 others reported net losses in all the last four quarters.

The promoters' holdings have been strong, above 50 per cent in 284 companies while it is below 10 per cent in 38 others. Foreign portfolio investors have invested over 10 per cent each in just 22 firms and their holding is less than two per cent each in as many as 385 companies. The non-promoters have majority stake, above 50 per cent, in 133 companies.

The valuation risk has been very high for 450 multibaggers as they are currently trading at an average price to earnings (P/E) multiple of 34.5 based on net profit for trailing twelve months (TTM) ended 30 June 2014. Even if we remove the TTM loss making companies, P/E stands at 20 times for profitable companies, which is higher than the current Sensex P/E of 18.50 times on TTM basis.

Among the profit making multibaggers, risk is very high for 106 companies that reported a paltry 3 per cent rise in TTM net profit. They are currently trading at P/E multiple of over 25 times. The risk is even higher for the 92 companies that have joined the hope rally with an average gain of 160 per cent in three months despite TTM net loss of Rs4,300 crore.

Stocks recommended by analysts

PC Jeweller: (up 122 %) Current P/E is around 11 on TTM earnings and 8.50 times over analyst consensus earnings for FY15. Sunidhi Securities and Finance had buy recommendation in July with a target price of Rs154. The stock is currently trading at Rs207. The net profit is expected to grow by 20 per cent in FY15.

Bharat Forge: (up 107 %) Current P/E is around 45 on TTM earnings and 25 times over estimated earnings for FY16. This stock has been recommended by Karvy Stock Broking with target price above Rs1,000, currently trading at Rs851 on NSE.

Ceat: (up 102 %) JM Financial has come out with buy rating on 15 September with March 2016 target price of  Rs1,050, valuing the company at 9 times of its FY17E earnings. Stock is currently trading at Rs 760, a P/E multiple of 11 times of its TTM earnings.

NBCC: (up 1166 %) Geojit BNP Paribas Research has buy recommendation on National Building Construction Corporation (NBCC) with target price of Rs571. The stock is trading at Rs611 with TTM P/E of around 29. Analyst expects P/E valuation to come down to 16 based on estimated earnings for FY16.

Ybrant Digital: (up 290 %) The stock has gained over 2,100 per cent in a year and 290 per cent in the last three months. SPA Capital Services expects earnings growth of 21 per cent between FY14 and FY16E. The stock is trading at a P/E of 11 based on TTM earnings.

Hope rally gainers
Company
Price*
% chg **
P/E ***
Promoters
JBM Auto
840.00
450.46
12.69
61.99
Exdon Trading Co
117.95
433.71
Negative
1.46
Hester Bios
462.70
418.43
31.63
53.81
Mapro Industries
277.45
401.26
2393.20
38.20
Eins Edutech
159.45
400.63
22929.00
9.57
Rajlaxmi Inds.
313.65
387.41
1409.16
1.63
Bhageria Dye-Che
206.10
350.00
5.39
40.90
Kirl.Bros.Inv.
3764.40
327.29
42.06
72.20
Excel Inds.
303.20
315.06
13.58
42.04
D-Link India
124.05
313.50
28.09
51.02
Svaraj Trading
166.50
310.10
248.07
7.87
Fineotex Chem
145.90
306.97
27.58
71.72
Dion Global
113.15
306.28
Negative
53.31
Mold-Tek Pack.
174.40
297.27
17.80
42.45
Sh. Hari Chem.
179.15
295.91
2.00
45.32
High Ground
274.55
295.04
55.42
42.48