At first glance, Tube Investments, Coromandel International, or Alkem Labs appear complex stocks, and are considered 'relatively-less understood' by the Street, that often rewards simplicity in ownership structures or revenue visibility. But these shares are now likely to find more takers as valuations across the board have become more expensive The list of the relatively-less understood stocks includes PI Industries, BHEL, or Apollo Hospitals, the last being one of India's largest -and rare -publicly listed healthcare companies.

Coromandel International, a southbased fertilizer and pesticides manufacturer, generates the bulk of its revenue from a business the fortunes of which are tied to fertilizer subsidy.Thus, delays in receiving subsidies and policy changes have limited the PE expansion for the stock.



To bring down the cyclicality in earnings, Coromandel International has changed its revenue composition and the product mix, moving swiftly toward the branded fertilizer segment in the last couple of years. The rising share of branded fertilizer grades has increased margins while reducing the reliance on subsidies for revenues. The margins of branded fertilizer are about 1.5 times of commoditised fertilizers.The reliance on government subsidy has reduced to 27 per cent of the total fertilizer realisation in the last fiscal as compared with 60 per cent in FY11.

Furthermore, the company's crop protection business contributes nearly one-third of total revenues. The share of higher margin crop-protection is expected to increase to 46 per cent of the total operating profit in the current fiscal, according to Axis capital. The combined impact of the change in business positioning from the superior margin products should improve the average margins and return ratio. Coromandel is trading at 16 times its projected FY19 earnings and RoE is expected to improve by 400-500 basis points in the next two years.

Similar is the story at agrochemicals company PI Industries. It is entering into related products such as pharma and fine chemicals to increase the addressable market of its custom-synthesis business by almost 10 times. The unique business model of the company with high-entry barrier provides multi-year volume visibility, supporting 20 per cent earnings growth for the next three years.

Alkem Labs owns five of the top 20 pharma brands in India. Yet, the Street has some apprehensions on revenue visibility from the domestic business that contributes about three-quarters of sales. The company can sustain 20 per cent operating profit growth in the next few years owing to a strong brand and higher MR productivity. Lastly, the aggressive capital expenditure cycle at Apollo Hospital is ending, and free cash flows from new investments should start flowing from the current year. The end of the cycle for capex, which many believe is nothing but deferred expenditure, should make the stock more attractive to investors.