In my earlier article named “How to take advantage of the biggest growth story of the 21st century-Indian economy”, I had talked about my “Hi-Five principles/framework” of value Investing which I use for picking great businesses (stocks) within Indian economy. This framework has been inspired by the principles followed by Value investment gurus like Warren, Benjamin Graham & Philip Fisher

The “Hi-Five principles/framework” provides the following Five criteria/filter for picking up a solid business/company

- Proxy to the Indian economy growth story or strong co-relation with Indian economy growth
-  Excellent long term growth potential and durable competitive advantage (“sustainable economic moat”  as Warren would call it)
- Honest and competent management - transparent and shareholder friendly 
- Strong financial track record -stable & high profitability/ROE with low debt
- Available at attractive or atleast fair prices with good “margin of safety”

I  had already provided a few examples(like PFC , LIC Housing Finance and Bank of Baroda) using this framework in the earlier articles in July . Today, I will give provide one more example of successful deployment of this framework to select or validate a great business for value investment. Its BHEL.


- Power is the biggest “theme” aligned to Indian growth story
- Power needs investments of $400 Billion in next 6 years(till12th 5 year plan).
- BHEL is the dominant market leader(>50% market share) in power related equipments/capital goods with durable competitive advantage. 
- Its best suited to service the huge requirement of equipments given its expertize,domain knowledge and technology(alliances with global companies).
- Order book is huge at >$30 Billion, gives revenue visibility of 4-5 years 
- Last 5 years business and financial track record has been fantastic with 28% growth in sales, 35% growth in EPS/earnings and 27% ROE . Its almost a zero debt company.
-  The current P/E is 13.5 only due to concerns of power project execution delays and slow down in the orderbook inflows as new projects are getting delayed in this high interest environment .The fears are exaggerated due to heavy orderbook which gives revenue visibility of next 4-5 years. Historically the P/E rates have been >25 & hence the current P/E rate attractive.
- Bottomline is that it satisfies all the Hi-Five criteria and hence is a strong bet

You could invest in this scrip now(trading at < 1750) with a time horizon of  atleast 3-5 years with a target annualized returns of 15-25% over long term, provided there is no terrible market shock. Its a safe and risk free bet with excellent return prospects.

Remember again , Successful investment is not a rocket science . It doesn’t require a high IQ or professional expertise. All its requires is the right temperament(long term investing) , sound and common sense driven framework or  principles to pick the right businesses available at right valuations & finally discipline/patience to stick with the decisions, ragardless of short term variations in the market.

These are interesting times in the market with lots of turmoil and fear . However , its a good time to invest in the market on fundamentally strong businesses(buying at every dip or fall in prices) with a long term perspective. Great Businesses like BHEL, PFC,LIC Housing Finance etc are available at very attractive prices, providing a high “margin of safety”.

Happy stock picking and investing.