Reseach Wabag Limited

We downloaded the data of S&P BSE MIDCAP companies from Value Research site. Then we filtered those companies by applying below mentioned rules in sequential manner. We have total of 270 cos.

1. To keep the small-cap companies out, we eliminated firms with less than Rs 1,000 crore market-cap- 3 companies get eliminated (shown in Sheet named-Market Cap <1000)

1. The next step was to make sure that companies' profits were growing at a reasonable rate.  We decided to keep a modest cut off of 10% annualized net profit growth in the past five years. – 148 companies out (shown in Sheet named- 5-year-return<10)

1. To make sure that net profits were from business operations and not from other income, we took a closer look at operating margins and kept out the cos with Operating Margin less than 15%.- 46 co out (shown in Sheet named Operating Margin<15)

1. The next step was to make sure that these companies were generating good returns for their stake holders. So we put in one filter i.e.-minimum return on equity of not less than 20%- 34 out (shown in Sheet named RoE<20)

1. Then, we looked at dividend payment record of the remaining companies. The requirement was that the company should have dividend yield of at least 10%-  21 out (shown in Sheet named Dividend Yield%<1)

1. The next step was to make sure that the companies were valued properly. The first filter used was on the PE ratio. which should be less than 20- 10 out (shown in Sheet named PE>20)

1.  We kept a liberal cut off of five for price-to-book value- 2 companies out. (shown in Sheet named PB>5)

1. Sheet Top-6 shows those stocks which have passed all the above tests. Now if we look at the EPS Growth of 5 and 1 year of each companies, the highest EPS (5 year) is for Kaveri Seed Co Ltd followed by Aarti Industries Ltd.

But share of Kaveri are in downfall for the last 1 year. This is mainly because of the deficit monsoon and a case against the co. in the Telengana High Court which if went against the co then it will have to pay Rs. 64 crore for which it has not done any provisioning.(1) 

But Aarti Industries Ltd. is giving positive returns. Also 3-year return of this co is almost double that of Kaveri Seed.