Mindtree bags IT grant, NALCO monopoly; feature in A-list

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There are a few companies that stand out on their own fundamentals. Which are these? Sifting thousands of listed companies, analysts at CNBC-TV18 have come out with two stocks that made into the coveted A-list. The first stock is Mindtree: In the midcap IT space, this is a company, which has the potential to become a largecap. It has got solid execution, the past track record is good and the company is making the right investments for future.PositivesThe key positive is that its revenue growth performance has been above the industry for the last two years and its revenue growth rate has doubled. As in FY13, the dollar revenue growth was only about 8.82 percent and that increased to 16.5 percent in FY15. The management has indicated that their organic growth will beat the industry growth rate of 12-14 percent this year as well.Mindtree is bigger than other midcap peers like Hexaware and Persistent. Though its revenue performance is comparable to the other two, the profit after tax (PAT) compounded annual growth rate (CAGR) is higher.Looking ahead, digital will be the big theme for IT sector in which, Mindtree has been making the right investments. They are one of the few IT companies, which have quantified the digital contributes close to about a third of the company's revenues. In addition, last quarter they made two acquisitions to improve the capabilities in this space, Bluefin Solutions as well as Relational Solutions and this will help the company going forward.Other positives include client mining. The current rupee depreciation provides margin tailwinds and that will offset some of the margin pressure, which the company could have because of its investments.Cash on books is good like other IT companies; USD 150 million for Mindtree and margins for the company have been fairly stable at 21-23 percent. So this would put it at the top end of margins other IT companies operate at.The stock performanceIt has corrected close to about 15 percent from levels to Rs 1,600. The stock was a big out-performer last year. However, it has not done too much this year, if compared with other peers. Infact, in the CNX-IT index, it has only gone up close to about 6 percent year-to-date (Y-T-D) compared to the IT index which is up 2 percent. The risk factorThe only risk is valuations are still very high, which means people believe in the growth story of Mindtree. The big question is if it can continue delivering stock returns even as it may deliver industry leading performance; it is operating at valuations higher than its peers.The second stock is NALCO: In terms of company’s Compound Annual Growth Rate (CAGR) over the last few years, revenues haven’t grown too much but profitability has been increasing, that is because they are selling more amount of alumina rather than aluminium.NALCO has a zero debt in its books, which is a big positive and cash in books is Rs 4,600 crore, as of March 31, 2015. The current investments are at around Rs 950 crore. So, a total of around Rs 5,500 crore for a market capitalisation of around Rs 8,300 crore is clearly healthy. Just to equate that Rs 5,577 crore, in terms of per cash value, is close to around Rs 22 for a stock that is trading at around Rs 33 per stock. The cash and the current investments are equivalent to close to around Rs 22, that is close to around Rs 68-70 percent of the current market price. With Re 1.60 as dividend, the dividend yield is also quite healthy, which equates to a dividend yield of around 5 percent.In terms of cash flows, The company has generated around Rs 550 crore approximately in FY15 and FY14. In terms of valuations, it is difficult to compare NALCO with any other metal company because Hindalco has a copper element attached with them; they are selling more amount of aluminium while NALCO is selling only alumina. It has an FY16 EBITDA of Rs 800 crore; while it was around Rs 1, 700 crore in FY15. So, it can be assumed that it could be really bad, but at around Rs 800 crore, it is still trading at 4.5 times enterprise value/earnings before interest, tax, depreciation and amortization (EV/EBITDA). Hindalco, with a market capitalisation of around Rs 16,000 crore and a debt of around Rs 55,000 crore, is trading at around 8 times EV/EBITDA.Disclosure: Stocks mentioned in 'A-List' are not buy recommendations