Patel Engineering

Patel Engineering, which is an established player in the infrastructure space, derives a large chunk of its revenue from government-backed projects, where growth visibility is still strong. Besides, it is also a leading player in hydro-power construction space as well as projects related to irrigation, which are good attributes given the vast opportunities in these segments.

That apart, the company has a presence in the construction of road and urban infrastructure. Post the elections, analysts are more convinced about the increased capex in these segments.

Apart from the long-term growth drivers, Patel Engineering currently has a strong order book of Rs 7,200 crore, which is 3.3 times its 2008-09 revenues and provides good visibility. Additionally, the relatively lower commodity prices as well as interest rates, and increased systemic liquidity should augur well for the sector and the company. To give an indication, for December 2008 quarter, the company reported an interest outgo of Rs 19.5 crore (Rs 2.9 crore in December 2007 quarter), which could trend down going ahead.

The company also owns real estate assets and plans to start power generation, as part of its long-term growth strategy. It has plans to set up 1,200 mw of power generation capacity in 3-4 phases, for which the company has acquired the land and is awaiting environment clearance. In the real estate space, the company has a land bank of 1,127 acres spread over cities including Hyderabad, Chennai, Bangalore and Mumbai. However, the benefits of this will only accrue over the next 4-5 years, as the company plans to develop this land bank in a phased manner. At Rs 404, the stock is trading at 14.4 times its estimated 2009-10 earnings. 

Sintex Industries

Sintex Industries, a popular household brand in the plastic products space, is a proxy for the domestic consumption story. A large untapped market for its plastic products, which are used in the residential, public enterprises, hospitality and construction sectors for building temporary as well as permanent housing, make Sintex a good long-term bet. Besides, the company has also pursued a strategy of acquiring companies and technologies to tap new and emerging opportunities in sectors like aerospace, wind power, defence and consumer durables. This has not only helped in filling up its product portfolio gap, but also led to higher revenue growth and an increase in exposure to global markets like US, France and Germany.

For now and within its domestic operations, Sintex’s high growth monolithic construction (low-cost housing) business currently has an order book of Rs 1,300 crore, which is three times its 2008-09 revenues. Its prefabricated structures business, which accounts for about a third of total revenues, is expected to grow at about 20 per cent annually on the back of government spending. Prefabricated products are used in constructing schools, kiosks, temporary tents, hospitals, police stations, offices and so on.

Unlike many others, the share price of Sintex Industries has seen little movement in the past few trading sessions, which to an extent is consequent to analysts' concerns over the domestic demand, lower margins and poor performance of its international business (accounts for about 40 per cent of total revenues) due to the economic slowdown in many global markets. However, the concerns over domestic operations are partly easing with demand expected to pick up. Also, since the international prices of petrochemicals (main raw material) have corrected by about 40 per cent, margins should improve in the coming quarters. 

Nevertheless due to these concerns, the stock at Rs 229 discounts its 2009-10 earnings by 11 times and 2010-11 earnings by 8-9 times, which is reasonable given the revenue visibility and the potential to report decent growth in future.

A gentle note of Warning:

If the Indian stock market corrects due to some global and internal cues,  the mid cap  stocks will be  lead the down fall in percentage terms. So use caution and spread out your investing by  buying small amounts in dips and also  keep a diversified portfolio.

Keep a time horizon of atleast two years for your stock investments.