Four undervalued stocks you can pick now

Ratio's used and their meaning
Sometimes, PE ratio fails to identify the stock's value accurately. If you are hunting for bargain stocks, use the PEG metric, which combines value and growth, giving a more holistic picture about a stock's valuation relative to its growth prospects.

The lower the PEG of a stock, the better it is. A PEG lesser than 1 means the market has not priced in higher growth expectations and the stock is undervalued. A PEG higher than 1 implies the market is paying much more for the stock than is justified by its earnings growth.

Investors should ideally avoid using a single tool to find stocks that are potentially undervalued. One could use the PEG in combination with other metrics to identify good stocks.

Price to book value (PB ratio) -A lower P/B ratio could mean that the stock is undervalued. However, it could also mean that something is fundamentally wrong with the company. As with most ratios, be aware that this varies by industry

Sintex Industries
A Gujarat-based company involved in building products, custom mouldings and textiles, Sintex Industries has a proven track record of pioneering innovative concepts in the plastics and textile space. Its diverse business model allows it to generate a steady cash flow with little volatility in revenues.

The company has recently shifted its focus from textiles and water tanks to building products, such as monolithic and pre-fabricated structures, where it boasts market leadership. These are expected to exhibit strong growth in the coming period.

It continues to witness healthy additions to its order book, which stood at about Rs 3,000 crore at the end of the previous quarter. Sintex has also acquired a substantial global footprint with presence in nine countries across Europe, the US, Africa and Asia.

Its foreign subsidiaries are showing operational improvement, bringing in a higher synergy to the domestic business. It has incurred heavy capital expenditure over the past few years, which is expected to pay rich dividends in the future.

Capex investments made by the company over the past three years (about $350 million) should continue to drive faster sales growth and improvement in margins through operational leverage," states a Goldman Sachs note on Sintex. To achieve its aim of doubling revenues by 2013-14, the company has planned to invest another Rs 1,000 crore mainly for capacity expansion across segments. Suman Memani, senior analyst at PINC Research says, "The stock appears attractively priced, given its strong order book, proven execution capability and increased synergies from overseas operations."
• Price Earning Growth (PEG ratio) - 0.36
• Price to Earning ratio (PE ratio) - 8.54
• Price to Book Value (PB ratio) -1.65
• Dividend Yield - 0.45

Balkrishna Industries
A specialty tyre manufacturer, the company is witnessing growing demand for its niche products. Its unique off-highway tyre solutions find application across various industries, such as agriculture, construction equipment and mining. The company enjoys significant cost advantages over its more illustrious global peers, enabling it to provide quality products at cheaper prices (nearly 30% lower), thereby, gaining market share.

Balkrishna has benefited from the recent softening in rubber prices, with EBITDA margins hovering around a healthy 18%. The company expects rubber prices to either remain steady or fall further, boosting its margins.

It derives nearly 90% of its revenue from exports to overseas markets, nearly half of which is to the US and Europe. The company's diversification in the Middle East, Russian and CIS nations provides it a cushion against a possible slowdown in demand from the developed nations.
Its brown-field expansion plan, which is already under way, is expected to wrap up by the end of this month, taking its capacity to 140,000 metric tonnes (MT). Another 90,000 MT will be added by 2012-13 through its green-field expansion at Bhuj.

The continuing demand from the replacement market provides it sustained revenue visibility. ICICIDirect states in its report, "Strong revenue outlook, backed by relatively inelastic demand along with geographic diversification, makes BIL an attractive play in comparison to its peers."
• Price Earning Growth (PEG ratio) - 0.24
• Price to Earning ratio (PE ratio) -8.55
• Price to Book Value (PB ratio) -1.93
• Dividend Yield - 0.81

IPCA Laboratories
This pharmaceutical company is growing due to its export formulations and a strong domestic portfolio. It is a backward-integrated player, with more than half of its formulations backed by its own active pharmaceutical ingredients (APIs).

In the Indian market, the company is a therapy leader in anti-malarials and rheumatoid arthritis. With operations in over 110 countries across the globe, it also boasts a growing presence in the international market, even though exports and domestic business make almost an equal contribution to its revenues.

The export formulations business has been driving the company's business, growing at 69% in the previous quarter. The company will continue to benefit from the high growth export formulations business, especially in regions like Africa, where anti-malarials are in great demand."

Lower material costs helped Ipca Labs to report healthier operating margins at 18%, which are expected to improve as the company focuses on its institutional business and its additional field force in the domestic market becomes productive.

It has also recently acquired a 100% stake in the holding company of UK-based Onyx Scientific through its wholly owned subsidiary, Ipca Labs UK. Onyx Scientific is one of the well-known chemistry service companies in Europe and is a preferred supplier to several large pharma and biotechnology customers. Ipca plans to launch six new products this year, expecting to strengthen its domestic portfolio and boosting revenues.

• Price Earning Growth (PEG ratio) - 0.67
• Price to Earning ratio (PE ratio) -14.39
• Price to Book Value (PB ratio) -3.61
• Dividend Yield - 1.06

IRB Infra Developers
Despite a lull in the infrastructure sector, IRB has shown strong project execution to post robust growth across various segments. The largest toll road player in India has a proven business model.

It is experienced in project execution and making competitive bids for large projects given its operational size. Says Mathews: "IRB Infra is a good pick in the infrastructure space because of its execution capabilities and access to financing."

Given the high debt on its books, its interest expense has increased, resulting in a steep stock price correction. However, the company's financials are firm, with a healthy cash flow from its existing toll-based projects in high-growth corridors.

In the recent quarter, its construction segment saw an 84% growth, driven by robust execution at its Surat-Dahisar and Kolhapur projects, and commissioning of construction work at other projects. The company's BOT (build, operate, transfer) segment also exhibited a growth of 14% in revenue, led by a hike in tariffs across key projects (Mumbai-Pune and Bharuch-Surat).

The company plans to effect further tariff hikes in other key projects, including the one in Surat-Dahisar. This, along with an initiation in tolling in other projects, is expected to help the firm cross Rs 1,000 crore in toll revenue by 2011-12. The industry expects the NHAI to show traction in awarding new projects in the coming months, which will also act as a trigger for the stock.
• Price Earning Growth (PEG ratio) - 0.67
• Price to Earning ratio (PE ratio) -11.91
• Price to Book Value (PB ratio) -2.21
• Dividend Yield - 0.92

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