In 2013, the markets have been bludgeoned out of shape by the Cyprus bailout and the political uncertainty. While the BSE Sensex & Nifty have plunged about 6 per cent so far, the CNX Mid-Cap Index has toppled 14 per cent. Sharekhan’s strategy is to pick front-line large-cap stocks.
Bajaj Corp Ltd:
Bajaj Corp is the third largest player in the hair oil segment and has emerged as the dominant player in the premium light hair oil (LHO) category with its Almond Drops hair oil.
With consumers upgrading to the LHO category, Bajaj Corp’s strong volume growth momentum is expected to continue in the coming quarters. Also, with the prices of the key inputs stabilising, Bajaj Corp’s GPM is expected to improve in the coming quarters.
Bajaj Corp’s thrust on enhancing the distribution reach in rural India and improving the market share every year has helped it clock a good sales volume growth for the past few quarters.
Federal Bank:
Federal Bank is an old private bank with a network of over 1,000 branches and a dominant presence in south India. Under a new management, Federal Bank is working on a strategy to gain pan-India presence, shift the loan book to better-rated corporates, increase the fee income, become more efficient and improve asset quality.
Federal Bank’s asset quality has remained steady after showing some strain initially. Going forward, with the initiatives undertaken, the recoveries could pick up and the NPAs may decline.
Federal Bank’s return ratios are likely to go up led by an increase in the profits. It is expected to show a RoE of 16 per cent and a RoA of around 1.2 per cent by FY2015 led by a 17 per cent CAGR in the earnings.
GCPL:
Godrej Consumer Products Ltd (GCPL) is a major player in the fast-moving consumer goods ( FMCG) market with a strong presence in the personal care, hair care and home care segments in India.
On the back of strong distribution network, advertising and promotional support, GCPL is expected to sustain the market share in its core categories of soap and hair colour in the domestic market.
On the other hand, continuing its strong growth momentum, the household insecticide business is expected to grow by 20 per cent YoY. In the international markets, the Indonesian and Argentine businesses are expected to achieve a CAGR revenue growth of around 25% and 35% respectively over FY2012-15.
This along with the recently acquired Darling Group would help GCPL to post a top-line CAGR of 24 per cent over FY2012-15.
HCL Technologies Ltd:
HCL Technologies Ltd ( HCL Tech) is a global information technology (IT) services company providing software-led IT solutions. In the current environment, HCL Technologies is well placed in terms of its business strategy of consciously targeting the re-bid market.
Recently won contracts are testimony to HCL Tech’s capability to gain a larger share in the growing rebid market. HCL Tech has overcome any apprehensions on the margin front by consistently improving margins despite headwinds. Going forward, gradual and consistent improvement in operating margins will aid further re-rating of the stock.
HDFC Bank Ltd:
HDFC Bank’s current and savings account (CASA) ratio is among the highest in the sector, which should stable net interest in margins (4.2% levels). Any reduction in the policy rates by RBI would improve the credit demand and will be positive from margins perspective.
HDFC Bank’s asset quality is among the best in the sector and the bank is expected to sustain it due to strong credit origination practices and marginal exposure to the troubled segment.
HDFC Bank is expected to deliver earnings compound annual growth rate (CAGR) of 27 per cent over (FY2012-15) leading to return on equity (RoE) and return on assets (RoA) of 23 per cent and 1.8 per cent respectively.
ICICI Bank:
ICICI Bank continues to report strong growth in advances with stable margins of 3 per cent. ICICI Bank’s advances is exppected to grow by 20 per cent CAGR over FY2012-15. This should lead to a 21 per cent CAGR growth in the net interest income in the same period.
ICICI Bank’s asset quality has shown a turnaround as its NPAs have continued to decline over the last eleven quarters led by contraction in slippages. The stock trades at 1.7x FY2014E BV. The bank’s RoE is likely to expand to about 15.1 per cent by FY2015 while the RoA would improve to 1.7 per cent. This would be driven by a 21% CAGR in profits over FY2012-15.
L&T Ltd:
Despite challenges like deferral of award decisions and stiff competition, L&T has given robust guidance of 15-20 per cent growth in revenue and order inflow for FY2013. “Sound execution track record, bulging order book and strong performance of its subsidiaries reinforce our faith in L&T. With L&T entering new verticals, namely solar and nuclear power, railways, and defence, there appears a huge scope for growth.
Oil India:
Recent proposal by the oil ministry to partially deregulate diesel and proposals by Rangarajan committee to increase gas upto $8-8.5 per mmbtu augurs well for Oil India and will significantly increase its’ earnings going ahead.
Further, OIL has cash of around Rs 10,935 crore (Rs182 per share) as on March 2012 and offers a healthy dividend pay-out (dividend yield of 4.3%), which provides comfort to investors.
Sharekhan remains bullish on OIL because its huge reserves and healthy RRR would provide a reasonably stable revenue growth outlook and its stock is available at an attractive valuation and likely rerating of the company on account of partial deregulation of diesel.
Reliance Industries Ltd:
Reliance Industries Ltd (RIL) has a strong presence in the refining, petrochemical and upstream exploration business. However, the gas production from the Krishna-Godavari-D6 field has fallen significantly in the past one year.
In case of the upstream exploration business, Reliance Industries has recently got the nod for further investments in exploration at the Krishna-Godavari basin, which augurs well for the company and could address the issue of falling gas output.
The new gas pricing formula recommended by the Rangarajan panel augurs well for Reliance Industries and could provide further upside to the earnings. At the current market price (CMP) the stock is trading at PE of 11.9x its FY2014E earnings per share (EPS).
Sun Pharma Ltd:
Taro may not show a similar performance in the next quarter, but Sun Pharma is expected to perform better going forward mainly driven by (1) the resumption of sales from the US based subsidiary Caraco Pharma post USFDA clearance, (2) contribution from newly acquired Dusa Pharma and URL Pharma in US and (3) launch of key products in US and emerging markets including India.
Sun Pharma is expected to show 21 per cent and 16 per cent revenue and PAT CAGR respectively over FY2012-15E. With a strong cash balance, Sun Pharma is well positioned to capitalise on the growth opportunities. Its debt-free balance sheet insulates it from the negative impact of volatile currency.
Leave a Reply