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Thursday, August 21, 2008

New stocks for investments

Legendary investor Peter Lynch believes retail investors, through their hands-on experience,can make fairly smart investment decisions —at times smarter than those made by analysts and fund managers. An oft-quoted instance is that of Mr Lynch buying a company that makes lingerie,after his wife mentioned how popular the brand was with women.

Stretch that logic, and retail investors at this point may want to own the stocks of some companies that supply goods for home interiors. With a booming real estate market and rising wealth levels, the increasing popularity of home interior products (either for new homes or for renovations) is likely to continue for a long time.The boom in real estate is there for everybody to see.The obvious winners are the builders and developers. But step inside a house and view it a la´ superman with his X-ray vision and you’ll see the things which go into converting that 500 or 1,000 square feet of carpet area into a full-fledged home.

To start with, there are those switches and miniature circuit boards (MCB).Copper wires run like the nerves of human systems carrying power through your homes. Remove the carpets, and there are the floor tiles. Every 1,000 square feet carpet area of space roughly requires 1,000 tiles. The house needs a fresh coat of paint once every four years. What is a house or an office without furniture — either wood or its substitute particle board?

And all the woodwork requires adhesives.Home improvement is another big segment, which involves decorative bed sets among other textile items. Lights, fans, sanitary-ware items like commodes, kitchen sinks, granite slabs are the other inputs that go into transforming that 1,000 square or more feet of space into what we call ‘home’.

I looked at a preliminary list of around 104 stocks that were in the related business of home interiors. Of the lot, Havell’s India, Finolex Cables, Orient Ceramics, Pidilite and ICI seemed reasonably priced at current market prices.

Havell’s India is the number one maker of MCBs;the industry is growing at the rate of 20-30% per annum. The company doubled profits over the last few years.The company has ventured into new products in the past three years and is present in nine verticals including switches, wires, cables, fans, compact fluorescent lamps (CFLs) and bathroom fittings. It is the second-largest player in the wires and cables business operating in the low-tension space. At a forward P/E of less than 11, it is reasonably priced.One can buy the stock for decent returns.


Regards,
ARUN
I can be reached at:-arunanalyst@rediffmail.com

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