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10 blue chip stocks for long-term investing

Last updated on: July 21, 2011 18:42 IST

10 blue chip stocks for long-term investing

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Salil Dhawan, Investment-mantra.in

Blue chip stock is qualified as a high-quality and usually high-priced stock. It has high price because of public confidence in company's long record of steady earnings.

Blue chip company is very strong financially, with a solid track record of producing earnings and only a moderate amount of debt. It also has a strong name in its industry with dominant products or services. Typically, these companies are large corporations that have been in business for many years and are considered to be very stable.

Most of the people in the stock market for the long term need to make sure that they always possess few blue chip stocks in their portfolio. So before you venture into small and mid-cap category have few of blue chip companies in your portfolio so as to have stability in your portfolio for the long run. Click NEXT for more

Courtesy: Investment-mantra.in

Disclaimer: I don't have any position in stocks mentioned above but we may have recommended some of stocks to our clients time to time.

This article is for information purpose only. This article and information do not constitute a distribution, an endorsement, an investment advice, an offer to buy or sell or the solicitation of an offer to buy or sell any securities/schemes or any other financial products /investment products mentioned in this article or an attempt to influence the opinion or behavior of the investors /recipients.

Any use of the information /any investment and investment related decisions of the investors/recipients are at their sole discretion and risk. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Opinions expressed herein are subject to change without notice.


Image: India's benchmark share index is displayed on the facade of the Bombay Stock Exchange (BSE) building in Mumbai
Photographs: Punit Paranjpe/Reuters
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Blue chip stocks are those stocks which have been known to be the stocks that have following characteristics:

  • Leaders in their individual industry segments
  • Large capitalisation
  • Stability of earnings
  • Sustained growth
  • Regular dividend payouts
  • Good governance model
  • Widely held

Some of the blue chips which can be considered by retail investors are as follows:

  • Tata Consultancy Services
  • Bharti Airtel Limited
  • ITC
  • Coal India
  • HDFC Bank
  • Tata Motors
  • L & T
  • NTPC Ltd
  • Hindalco Industries Ltd
  • Axis Bank

Click NEXT for an analyses of these 10 stocks which can help you accumulate wealth over a long term:


Image: eople walk past a bronze replica of a bull at the Bombay Stock Exchange (BSE) building in Mumbai
Photographs: Punit Paranjpe/Reuters
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Tata Consultancy Services

Tata Consultancy Services Limited (TCS) is an Indian IT services, business solutions and outsourcing company headquartered in Mumbai, India. It is the largest provider of information technology in Asia and second largest provider of business process outsourcing services in India.

TCS, a Tata group company (74 per cent shareholding) is the largest software services exporter from India. It is a global technology services company that provides end-to-end business solutions to its clients.

TCS offers a consulting-led, integrated portfolio of IT and IT-enabled services delivered through a Global Network Delivery Model, recognised as the benchmark of excellence in software development. Along with its subsidiaries, TCS operates in 55 countries with over 1,60,000 employees.

TCS has performed robustly in all its parameters over the last six years. Its impressive fundamentals in the past form a strong base for its future.

TCS has registered an impressive 5 year Net Sales CAGR of 23.4 per cent; this has been a result of high repeat business (95 per cent+) from existing clientele and at the same time continuously increasing new clientele base.

Also, the company has managed to clock a consistent growth in profits, registering a robust 5 year EPS CAGR of 21.9 per cent.

TCS has a great past and with its last few quarters performance, it has proved that it has the ability to be a winner, even in tough times.

TCS is India's largest IT company and one of the strongest brands. In the recent past it has outperformed its peers in terms of registering great financial performance. Its ability to generate repeat business from its strong client base and strategic acquisitions have been its major growth driver till today & with our ever-increasing dependence on technology solutions, a company like TCS is poised for good growth in the future.

NEXT: Bharti Airtel Limited


Image: Tata Consultancy Services is the largest software services exporter from India

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Bharti Airtel Limited

Bharti Airtel is a leading Indian telecommunication service provider with 21.64 per cent market share. It has more than 127.5 million subscribers in India -- the world's second largest wireless market by users. It has three strategic business units namely Mobile Services, Telemedia Services and Enterprise Data Services.

The company provides services to all 23 telecom circles of India. Bharti's mobile network covers approximately 81 per cent of the country's population. Bharti Airtel has been the leader in market share (on subscriber base) as well as on turnover basis. Also, it generates the maximum Average Revenue Per User.

Bharti vs the telecom industry:

  • Outperformed the industry's net profit margin in the last 3 years.
  • Where the industry profit margin has shown a declining trend since 2007, Bharti has mantained a stable net profit margin
  • Inspite of intense competition, it mantained 20 per cent+ net profit margin in the last 8 quarters
  • Bharti Airtel has proved itself in the past by performing better than all its peers. It is well-poised for growth in the long term due to the growing telecom market, the competitive advantage of its leadership position and opportunities available in the 3G space.
  • Competition is giving it a bumpy ride right now, but it is well-armed to fight and remain successful.

NEXT: ITC


Image: A labourer cleans a Bharti Airtel advertisement billboard installed on a truck in Kolkata
Photographs: Rupak De Chowdhuri/Reuters
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ITC

ITC is the market leader in the Indian tobacco space, as its foray into FMCG, particularly foods and cigarettes. The company has been able to build strong positions in completely new businesses such as soaps, packaged staples and snacks over the past few years. This adds another strong leg to the medium-term growth prospects for ITC.

Dominant player in tobacco space: ITC is by far the biggest player in cigarette market with a strong -- 70 per cent market share is more than 5x the size of its nearest competitors.

ITC Ltd., a well-established player in the food space in India with presence across segments such as packaged staples, finger snacks, biscuits and packaged foods.

ITC has significantly invested in expending its food business portfolio and the related supply chain which helped the company to create strong backbone. The company is expected to deliver strong earnings growth in medium term considering packaged and processed food as the next growth driver.

Agri business -- Benefits from continued mix change: The company's conscious decision to focus on higher profitability products and move away from lower-margin products like sesame, rice, pulses, etc., in FY09 resulted in EBIT (earnings before income and tax) margins increasing to 11 per cent in FY09 (vs. 5.2 per cent in FY08).

Leaf tobacco is at present 50 per cent of category sales -- with soya, coffee and wheat accounting for the rest. The company expects to sustain margins, though volumes/revenue growth might decline on account of lower leaf tobacco output due to unseasonal rains.

In spite of high valuations, ITC seems a good long term pick.

NEXT: Coal India


Image: ITC Ltd is a well-established player in the food space in India with presence across segments such as packaged staples, finger snacks, biscuits, packaged foods and tobacco

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Coal India

Coal India is the largest producer and reserve holder of coal in the world with raw coal production of 431 million tonnes (MT). CIL operates 471 mines across 21 coalfields (this includes 163 open-cast mines, 273 underground mines and 35 mixed mines). The company produces coking and non-coking coal and also undertakes beneficiation of raw coal.

CIL transports approximately 47 per cent of sales volume through railways. Hence, availability of rake is of key importance. Historically, CIL has been facing a lot of issues on availability of rakes, which has led to lower offtake and higher inventory at the pit head.

In FY11, during the first half of the year availability of rakes was slightly lower (approximately 158 rakes per day [rpd]), whereas the full year average was approximately 162 rpd. However, in order to address this issue, the Indian Railways has assured CIL of  higher availability of rakes. Rakes availability has improved in April 2011 to approximately 177 rpd from approximately 154 rpd in April 2010.

For May and June 2011 rakes availability has improved to approximately 166 rpd and approximately 161 rpd, respectively, from approximately 150 rpd each in May and June 2010.

CIL plans to add 20 new coal washeries (of which 15 would be non-coking coal and five would be coking coal) with a capacity of 111 MT. It currently has 17 coal washeries with a capacity of 39.4 MT. Washed coal commands higher realisation compared to raw coal. Hence, going forward, higher realisation due to higher sales from washed coal will lead to strong growth in revenues of CIL.

A major cost to CIL is wage cost, which accounts for approximately 47 per cent of the total cost (FY11). The national wage agreement IX is due in July 2011, which will subsequently lead to higher wage cost. However, CIL has been proactive and has undertaken a price hike in February 2011 (increase of approximately 12 per cent in blended realisations as compared to Q3FY11).

Even in case of a steeper increase in wage cost, we believe the company has enough levers & headroom to neutralise the impact. Hence, we expect CIL's EBITDA margin to remain intact at approximately 22 per cent.

Currently, as per Planning Commission estimates, the coal deficit in India in FY12 is expected at approximately 142 MT, indicating huge demand for coal. With the ramp up in production and liquidation of inventory, the revenues and profitability of CIL are slated to post healthy growth, going forward.

NEXT: HDFC Bank


Image: Coal India is the largest producer and reserve holder of coal in the world with raw coal production of 431 million tonnes

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HDFC Bank

HDFC Bank was incorporated in August 1994, and, currently has a nationwide network of 2,000 branches and 5,998 ATMs in 996 Indian towns and cities. HDFC Bank is among the top banks in the private sector domain. It has a very strong franchise.

That has led to a huge amount of operational efficiencies for the bank over the years. It has got the strongest asset quality, good coverage ratios. The bank has aggressively looked into rural areas and tier-V and tier-VI cities. And that would lead to almost 30 per cent plus compound annual growth rate (CAGR) in revenues for the bank in the next two-three years.

It has positive net interest margins (NIMs) of almost 4.6 per cent. Going forward bank would be able to maintain that for the next two-three years easily. Given the kind of good asset quality, traction of business, reduced credit cost going forward, HDFC Bank is a definite good long term buy.

NEXT: Tata Motors


Image: People walk in and out of a HDFC bank branch in Srinagar
Photographs: Fayaz Kabli/Reuters
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Tata Motors

Tata Motors, a leading player in the global and domestic auto industry, benefited from a sharp improvement in the performance of its Europe-based marquee brands Jaguar and Land Rover (JLR) during FY11. Apart from strong vehicle sales growth, especially in China and Russia, the company's cost-saving measures in Europe also paid off.

As a result, the company's JLR operations reported a segment profit of Rs 7,700 crore for FY11, a rise of more than 140 times from a year earlier, while revenues in this segment grew by 42.3 per cent y-o-y to Rs 70, 218 crore. Total JLR sales grew 25 per cent y-o-y to 2.41 lakh units in FY 11 on strong demand.

JLRs operations accounted for nearly 57 per cent of Tata Motor's consolidated revenues of Rs 1,23,133 crore (approximately $27.4 billion) during FY11, and helped the company to deal with higher commodity input costs. Tata Motors has also improved its ranking in the latest Fortune Global 500 list to 359, from last year's rank of 442.

Tata Motors will shortly launch the SUV Evoque in Europe. Consumer interest for this model is understood to be strong. This should help the company to deal with the fallout of the European debt crisis. In addition, there are fears of a slowdown in the fast-growing BRIC countries. This has cast a shadow on its growth momentum in the short term. In the domestic market, auto finance rates are on the rise and there are signs of a slowdown in the broader auto sector. Tata Motors' consolidated vehicles sales (including JLR) grew 11 per cent y-o-y in the first two months of this fiscal.

Tata Motors is understood to have received strong consumer interest for its SUV Evoque, which will be launched soon. This should drive growth in Europe in the short term.

In its domestic operations, however, rising auto finance rates remain a key cause for concern. Also, while commodity prices have shown signs of easing, they still remain at elevated levels. The company has also approached the judiciary with regard to its dispute with the West Bengal government for its Singur land.

Investors could consider Tata Motors as an investment on a long-term basis.

NEXT: Cipla


Image: New cars awaiting despatch at Tata Motor's plant in Pune
Photographs: Punit Paranjpe/Reuters
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Cipla

Cipla has a product range comprising antibiotics, anti-bacterials, anti-asthmatics, anthelmintics, anti-ulcerants, oncology, corticosteroids, nutritional supplements and cardiovascular drugs. It is into anti-bacterial and anti-asthmatic segments and is the first player in Asia to launch non-CFC metered dose inhaler. DPCO coverage of Cipla is around 40 per cent. Exports grew by 30 per cent, exceeding Rs l0,500 million.

Both active pharmaceutical ingredients (APIs) and formulations contributed to the growth in business in the international market. Overseas business forms 45 percent of the company's total turnover. The company has its manufacturing facilities at Goa, Kurkumbh, Bangalore, Patalganga and Baddi.

Cipla has been among the major suppliers of anti-malarial drugs and drugs for neglected diseases such as schistosomiasis to international markets. With the launch of Lamivudine, the company has become one of the few companies in the world to offer all three component drugs of retroviral combination therapy (sidovudine and stavudine already launched).

The company plans to continue its R&D efforts with a major thrust on developing new products and delivery systems. It would also include patenting of newer processes/newer products/newer drug delivery systems/ newer medical devices/newer usage of drugs for both local and international markets. Development of agrotechnology, genetics and biotechnology for cultivation of medicinal plants and isolation of active ingredients from plant materials is also foreseen.

Considering strong growth prospects, Cipla can be considered for investment on long term basis.

NEXT: L&T


Image: Cipla has a product range comprising antibiotics, anti-bacterials, anti-asthmatics, anthelmintics, anti-ulcerants, oncology, corticosteroids, nutritional supplements and cardiovascular drugs

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L & T

Larsen & Toubro Ltd is a name known to most people. It is one of India's leading engineering and construction company. Let's see what is its business and how it operates:

Revenue segregation: Its business operations are categorised in three segments, as given below:

a) Engineering & Construction (E & C) segment

b) Electrical & Electronics Segment

c) Material Handling & Industrial Products

L & T has performed robustly in all its parameters over the last 10 years. Its impressive fundamentals in the past form a strong base for its future.

L&T has clocked an impressive CAGR of 67 per cent in its EPS (earnings per share) which has been possible due to the strong investment back into the business which is evident from its high BVPS (book value per share) CAGR of almost 50 per cent. Also, it has improved its margins over the years from a stagnant average of 10 to 11 per cent from FY 03 to FY 06 to 15 per cent in the last 4 years. In fact in 2010 the company's operating margin has increased to 19 per cent.

It's sales have registered a CAGR of 19.6 per cent over the last 10 years, indicating a good order inflow over the years. Over the past 5 years the CAGR of order inflows has been 33 per cent. This has helped the company register an impressive 67.2 per cent CAGR over the last 10 years.

The company has been witnessing an increase in order inflows since the past few months. Order inflow for the quarter ended June 2010 was Rs 15626 crore, up 63 per cent on y-o-y basis. The company expects increased bidding activities in the next few months and expect this momentum to continue. As of June 2010 the company has a healthy order book of Rs 1,00,239 crore to be completed over the next 2 to 3 years. Recently, the company bagged 2 projects worth Rs. 1200 Cr. from ONGC to set up additional processing units at its plants. Hence, this is expected to ensure good revenue growth in the coming quarters.

L & T is one of the leading players in the Indian engineering industry. It is poised for good growth in future considering the government focus and spending on infrastructure & power, its strategic plans and capacity expansions. But it needs to work on a plan to manage its operating inefficiencies.

NEXT: NTPC


Image: Larsen and Toubro is one of India's leading engineering and construction company

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NTPC

NTPC Limited, a maharatna status company, is the largest state-owned power generation company in India. NTPC is primarily in the business of generation and sale of bulk power and is engaged in the engineering, construction and operation of power generation plants. The total generation capacity of NTPC is 34,194 MW with 15 coal-based and 7 gas-based stations, located across the country. The company is emerging as a diversified power major with presence in the entire value chain of the power generation business. Apart from power generation, NTPC has already ventured into consultancy, power trading, ash utilisation and coal mining.

In 2010, NTPC stood 341st in the 'Forbes Global 2000' ranking for the world's biggest companies.

The performance of the company over the past 10 years has not been very impressive. The company has registered good growth rates in its net sales from FY05, but the same has not been reflected in the EPS growth rate, primarily because of high tax payments.

Over the past 5 years, sales of NTPC has grown at a CAGR of 15.47 per cent whereas its EPS has grown at a CAGR of just 6.98 per cent. In FY2009, the low growth in EPS was because of high expenditure incurred for buying fuel (Coal). The BVPS of the company has grown at a CAGR of 8.59 per cent over the past 5 years.

Though NTPC has managed a good six-year ROI (return on investment) average of 14.11 per cent, its declining trend, from FY06 is a cause of concern. The debt-to-net profit ratio for FY11 is 4.85 and it has been above 3 for most of the years as the company continuously requires debt for increasing its generation capacity. The debt-to-net profit ratio is expected to remain high considering the company's plans of expanding its capacity to 75,000 MW (more than double of current capacity) by 2017.

Robust capacity addition plans, growth from a well-diversified fuel-mix and the long-term demand for power are expected to augur well for NTPCs long-term prospects.

NEXT: Hindalco Industries Ltd


Image: NTPC Limited is a maharatna status company and is the largest state-owned power generation company in India

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Hindalco Industries Ltd

Hindalco Industries Ltd., a Aditya Birla group company, is the largest aluminum producer in India and one of the world's largest aluminium rolling companies. It is also one of the biggest producers of primary aluminium in Asia.

The company has captive bauxite mines, that source around 70 per cent of its requirements for its 1.5 mtpa (million tonne per annum) alumina refinery, and its 0.54 mtpa smelting capacity.

The company also produces copper and its copper smelting capacity is the largest in Asia. Hindalco's products include standard and speciality grade aluminas and hydrates, aluminium ingots, billets, wire rods, flat rolled products, extrusions, foil, alloy wheels copper cathodes, continuous cast copper rods along with other by-products, including gold, silver and DAP (Di Ammonium Phosphate) fertilisers. On a consolidated basis, Hindalco is a global player operating through its global subsidiary Novelis (global leader in aluminium rolled products and aluminum beverage can recycling) which has 32 plants in 11 countries.

Hindalco has been performing well since the last four quarters on standalone as well as on consolidated basis. It has reported good growth in net sales and profits in the last 4 quarters as a result of better price realisation and rising demand in domestic markets. Also, on a consolidated basis, Novelis recently witnessed a turnaround and has significantly contributed to the rapid growth of Hindalco in FY11.

Novelis continues to enjoy pricing power in the developed markets due to recovery in demand and has been able to increase product prices continuously this year. However, the rise in sales realisation has not been fully converted in net profit mainly because of higher coal (a key raw material) prices. A slight dampener to the company's copper business was planned shutdown of 3 weeks in one of its smelters. With the buoyant demand from domestic and global market, we can expect the growth to continue in coming quarters as well.

Hindalco is the industry leader with a strong global and domestic presence in aluminum and copper segments and is one of the world's largest aluminium rolling companies. To strengthen its position further, the company is planning to enhance its refining capacity from 1.7 million tons at present to 6.15 million tons by 2015.

The demand for aluminium and copper is expected to grow rapidly in the coming years. Hindalco is the largest player in the above segments and with its expansion plans it is likely to benefit the most from the rise in demand for aluminum and copper.

NEXT: Axis Bank


Image: Hindalco Industries Ltd., a Aditya Birla group company, is the largest aluminum producer in India and one of the world's largest aluminium rolling companies

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Axis Bank

Axis Bank, formerly UTI Bank, is India's third largest private-sector bank after the significantly larger ICICI Bank and HDFC Bank. It is engaged in large & mid corporate banking, retail banking, SME banking, agri-business banking, international banking, treasury etc. It has the largest EDC (Electronic Data Capturing) network, the third largest ATM network and the fourth largest base of debit cards in India.

As of December 31, 2010 it had a very wide network of more than 1,281 branches including 169 service branches and over 5,303 ATMs. With a customer base of over 150 lakh (15 million), it also has overseas branches at Singapore, Hong Kong and Dubai and representative offices at Shanghai and Dubai.

Since its inception, Axis Bank has been jointly promoted by UTI-I, LIC, GIC and four other PSU insurance companies, that is, National Insurance Company Ltd., The New India Assurance Company Ltd., The Oriental Insurance Company Ltd. and United India Insurance Company Ltd.

Promoters hold 37.35 per cent stake in Axis Bank as on December 31, 2010 out of which UTI-I holds 23.72 per cent stake, LIC 9.58 per cent, and GIC 1.87 per cent.

Axis Bank's strength:

  • It is India's third largest private bank, with 1,281 branches and 5,303 ATMs, and a customer base of over 150 lakh as on Dec 31, 2010
  • It has the largest EDC network, the third largest ATM network, and the fourth largest base of debit cards in India.
  • It already has branches in Singapore, Hong Kong and Dubai International Financial Centre. About 14 per cent of the bank's asset book is from international operations. It is further going to set up a subsidiary in London and upgrade its representative office in Shanghai to a branch.
  • 100 per cent core banking facilities with advanced technology
  • On-line trading facilities in alliance with Geojit BNP Paribas

The economy is expected to grow roughly by 5-7 per cent in the next five years. The banking sector is poised to grow in line with the growth of the economy. Considering its large size and its strengths, we can expect this economic growth to have a positive impact on Axis Bank's growth.


Image: Axis Bank, formerly UTI Bank, is India's third largest private-sector bank after the significantly larger ICICI Bank and HDFC Bank

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