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  • Jun 10, 2022 - 3 Indian Stocks that Pass the Warren Buffett Filter

3 Indian Stocks that Pass the Warren Buffett Filter

Jun 10, 2022

The Russia and Ukraine war, the US ripple effect, skyrocketing crude oil prices, and the risk of fiscal slippage has led to unprecedented market volatility in recent months.

Adding to woes, the Reserve Bank of India (RBI) decided to tighten the money supply and increase policy rates.

From an investor perspective, it is understandable to look up to ace investors and market analysts for some meaningful advice to tide over these tough times.

And a name that immediately comes to mind is Warren Buffett.

The Warren Buffett Style of Investing

Undeniably, Warren Buffett is the most successful investor of our time. Investors across the world are inspired by his ability to pick winning stocks that deliver long term returns.

Many even want to emulate his success. But that's not possible if you do not have an in-depth understanding of his investment philosophy.

The Buffett methodology gives a well-defined, scientific logic for loading or unloading stocks.

First, he only focuses on stocks that are trading at reasonable prices. He believes in value investing. The idea is to look at operating earnings because it highlights the quality of the core business. This will help investors to assess the price appreciation of the stock in future.

Second, the Oracle of Omaha emphasises on long term frame and insists on investors considering the broader picture. The mantra is to acquire low leveraged stocks with growth potential instead of investing in businesses that one has to analyse first.

Third, the legendary investor focuses on investing in companies that are run by able and honest managers.

So, keeping his style of investing in mind, if Warren Buffett was to pick out a bunch of stocks in India to invest in, these would surely make the list.

These are the stocks that came up when we searched for Warren Buffett kind of stocks on Equitymaster's powerful stock screener.

#1 Indus Towers

Indus Towers is one of the largest digital communications infrastructure providers in the world that enables communication for millions of people around the globe every day.

With customers like Bharti Airtel, Vodafone Idea, and Reliance Jio, the company is one of India's leading wireless telecommunications service providers by revenue.

Indus Towers in its present form happened as a result of the merger between Bharti Infratel and erstwhile Indus Towers in 2020. Today, the company operates over 185,447 towers and 335,791 co-locations with a nationwide presence covering all 22 telecom circles.

As demand for telecom density increases, this 15 year old company is poised at the brink of growth.

During the last union budget, the government of India paved the way for 5G deployment in the country.

5G services are estimated to be rolled out by the fiscal year 2023 which implies long term growth prospects in data utilisation and a rise in the need for densification of networks. For tower companies like Indus, this is a definite revenue booster.

Moreover, the revival of Vodafone Idea is sure to trigger the demand wave in a market that has been otherwise tepid for a while.

Going forward, Indus Towers is considering foraying into the fiber space. The company also sees the tower network as a big fit for EV infrastructure, and even advertising in the foreseeable future.

With a current market capitalisation of Rs 555.3 bn, Indus Towers shares are trading at around Rs 206, which is very close to its 52 week low of Rs 198.5.

With a high promoter holding at 67.5%, Chief Executive Officer (CEO) Bimal Dayal has held onto the reins of the company for almost 12 years.

Over the past three years, Indus Towers has shown a consistent revenue growth at 28%.

Riding on a huge upsurge in data demand and the need for a better-connected nation, Indus Towers has maintained a healthy profit growth of 11.4% over the last three years.

To know more about Indus Towers, check out its factsheet.

#2 Ultratech Cement

Ultratech Cement is a flagship company of the renowned Aditya Birla Group and is one of India's largest manufacturers of grey cement, white cement and ready mix concrete (RMC).

It is also the third largest cement producer in the world with business operations spanning the United Arab Emirates (UAE), Bahrain, and Sri Lanka.

It is the only company in the world other than China to have a 100+ MTPA of cement manufacturing capacity within the borders of a single country.

The company markets its white cement under the brand name Birla White. Ultratech has more than 130 ready-mix concrete plants in 50 cities across India to support the growing needs of institutional customers.

Led by K C Jhanwar as the managing director (MD) of UltraTech Cement, the company boasts of the highest market capitalisation at Rs 1,603.6 bn in the cement industry. Under his leadership, the company doubled its capacity over the last five years.

As recent as June 2022, the company's board has signed off the new expansion plan of Rs 128.9 bn that is expected to take the company's transformational journey forward.

This ambitious expansion plan will grow Ultratech's production capacity to 159.3 MTPA with a mix of brownfield and greenfield manufacturing units.

The stock is trading at a 52 week low of Rs 5,500. The stock has already plunged over 26% since the beginning of 2022 and has underperformed despite the announcement of the Rs 129 bn capex plan.

The promoters of the company hold a 60% stake. With a well-capitalised balance sheet, the company has clocked a 13.7% compound annual growth rate (CAGR) in net revenue over a three year period.

Given the sustained increase in energy costs, flat demand over the last few quarters and global headwinds, the company has maintained healthy profitability at 33.8% in the last three years.

To know more about Ultratech Cement, check out its factsheet.

#3 Infosys

Infosys is the second-largest IT services provider in India and a global leader in next-generation digital services and consulting with clients across 50 countries.

With a journey spanning over 40 years, the company has played a vital role in defining India's emergence as the global destination for software services talent.

Over the last few years, Infosys has ventured into emerging technologies like artificial intelligence (AI), machine learning, blockchain, cloud computing, and the metaverse. Internet of Things (IoT), security and data analytics solutions are key growth drivers for this major IT giant.

Infosys has expanded its market reach with its 13 subsidiaries across the globe and strengthened its leadership position through alliances with leading technology partners.

To strengthen its digital capabilities and expand its footprint, Infosys has acquired key companies like Wangdoody, Brilliant Basics, and Hitachi Procurement Service in the last five years.

In 2021, Infosys went on an acquisition spree, spending Rs 14.7 bn on Beringer Commerce, Beringer Capital Digital Group, Kaleidoscope Animations, and GuideVision.

The company reported weaker than expected earnings for the March 2022 quarter, a result of the overall slowdown in the IT industry. With Rs 6,339.4 bn marketcap, the shares are currently trading at a price of Rs 1,500, close to their 52 week low of Rs 1,395.6.

The company has grown at a CAGR of 12.5% in the last three years as a result of rapid digitisation specifically in the technology, energy, and utility sectors. Demand remains intact and the order book remains strong.

With its large scale of operations, Infosys has been able to maintain lower operating costs than its immediate industry rivals. This has enabled the company to reach an average operating profit margin of 24% in the last three years.

Infosys has had virtually no debt for years.

To know more about Infosys, check out its factsheet.

Snapshot of Warren Buffett type of Stocks from Equitymaster's stock screener

Take a look at the above mentioned companies along with other important metrics on Equitymaster's stock screener.

Please note that these parameters can be changed according to your selection criteria.

This will help you identify and eliminate stocks that are not meeting your requirements and emphasise those stocks that are well inside the metrics.

Why you should invest like Warren Buffett...

Inflation is the biggest worry for retail investors right now.

So, if you are looking for an investment strategy that pays off in the long term, it's hard to beat the strategy of super investor Warren Buffett.

To emulate his success, you don't have to possess extraordinary investment intellect. On the contrary, his investment style is fairly uncomplicated.

Buy into businesses and not stocks is the fundamental philosophy that has been the reason for Warren Buffett's success as an investor.

Avoid being swayed by market sentiments. Invest in companies that you understand at a fair price.

Choose businesses that offer a margin of safety and offer long term economic moats or competitive advantages. Remember that companies that can successfully deflect challengers are in a better position to raise their intrinsic value over time.

Don't fear market crashes or corrections. Simply hold onto them for as long as they remain great businesses.

This means that you have to keep up with your research. Closely monitor the company fundamentals and sell if the scenario changes.

Most importantly, you need the right temperament and a disciplined investment approach to find success in your investment journey. Follow the Warren Buffett philosophy and see where it takes you.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...

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