Moneycontrol
Oct 18, 2017 03:19 PM IST | Source: Moneycontrol.com

Top 10 market-beating stocks with mcap of $1 bn to buy this Diwali

Heavy exposure to small and midcap stocks should be avoided because most of them are already trading above their key long-term moving averages.

 
 
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Indian markets rose to a fresh record high in Samvat 2073 and all expectations are Samvat 2074 will also not disappoint investors. The benchmark indices are likely to hit new highs in the next 12 months but investors are advised to stay with quality.

Last Samvat was one of the most eventful years for the economy as well as the equity markets because of two unprecedented events, demonetisation, and introduction of Goods and Services Tax (GST).

The Nifty saw some correction from 8,638 levels on Muhurat Trading day to sub-7,900 levels in December after the announcement of demonetisation in November 2016.

Watch | Samvat 2074 : The Story Behind Muhurat Trading

“After hitting a low of 7,099, we have witnessed an almost secular positive movement with Nifty making a new life high of 10,179 during this period. Samvat to Samvat, Nifty has given a return of 15 percent in 1 year,” Reliance Securities said in a report.

“Mid-caps and Small Caps have outperformed with gains of 17 percent and 22 percent, respectively. Nifty achieved a new peak during the year helped by outperformance of financial services index (36 percent weight in Nifty) which increased 24 percent from last Samvat,” it said.

Going into Samvat 2074, investors should handpick stocks which can generate market‐beating returns. This portfolio should be well-balanced to provide superior returns, without any unnecessary risk.

Heavy exposure to small and midcap stocks should be avoided because most of them are already trading above their key long-term moving averages.

The market rally is the testimony of the strength of economy; however, recent macro data is giving mixed signal amid concerns of a further slowdown in the economy due to demonetisation and GST.

“The reforms undertaken in recent past be it demonetization or GST would be instrumental is shaping up the quality of growth in future. Coupled with other reforms viz., implementation of Aadhaar, IBC and Jan-Dhan Yojana, the economic progress would be all-inclusive and positively impacting each and every individual in the country,” Arun Thukral, MD & CEO, Axis Securities told Moneycontrol.

“The markets are expecting robust earnings growth from H2FY18, thereby keeping the markets upbeat. Mid and smallcap stocks have rewarded the investors handsomely in recent past,” he said.

Thukral further added that an investor should undertake a detailed study before investing in small and midcap stocks. Once convinced an investor should set a target based on the fundamentals and accordingly book profit once the target price is reached.

Here is a list of top 10 stocks to buy with a market capitalisation of more than $1 billion: 

Research Firm: Centrum Wealth Research

Aditya Birla Capital Ltd (ABCL): Market Cap Rs 39,660 crore

Aditya Birla Capital Ltd (ABCL) is the holding company of all the financial services businesses of the Aditya Birla Group. It has a presence in segments like life insurance, asset management, private equity, corporate lending, structured finance, project finance, general insurance broking, wealth management, equity, currency and commodity broking.

The loan book in the housing finance business under Aditya Birla Housing Finance Ltd (ABHFL), has grown at an exponential rate of 29x over FY15-17 to Rs4,136 crore and stood at Rs4,816 crore as of 30 Jun’17.

Of the total ABHFL’s loan portfolio, 56 percent is individual housing loans, 32 percent LAP, and 12 percent corporate finance. The business has healthy NIM of 3.2 percent as on 31 Mar’17.

Aegis Logistics Ltd: Market Cap Rs7841 crore

Aegis Logistics Ltd (ALL) is India’s leading Oil, Gas, and Chemical logistics company. The company operates through two segments – liquid division (37 percent of FY17 revenue) and gas division (63 percent of FY17 revenue).

The Liquid Terminal Division undertakes storage and terminalling facility of oil and chemical products. Its Gas Terminal Division relates to imports, storage, and distribution of petroleum products, such as LPG and propane.

It is one of the largest bulk liquid and LPG terminal operators in India providing third-party supply chain management solutions to oil, gas, and chemical industries.

For Q1FY18, on a consolidated basis, revenue grew by 16 percent YoY to a Rs856 crore. EBITDA grew 19 percent to Rs58 crore, with margins expanding by 21bps to 6.8 percent. The net profit grew 47 percent to Rs40 crore. Debt to equity as of Mar’17 stood at 0.4x.

ICICI Lombard General Insurance Co. Ltd: Market Cap Rs31,036 crore

ICICI Lombard General Insurance Co. Ltd (ICICI Lombard) was formed as a joint venture between ICICI Bank Ltd and Fairfax Financial Holdings Ltd. It is the largest private-sector non-life insurer in India based on gross direct premium income (GDPI) in FY17.

The company has an extensive distribution reach through 51 corporate agents as on 30 Jun’17, including ICICI Bank, which provides access to its 4,850 branches along with 20,775 individual agents.

ICICI Lombard has a diversified composition of insurance products with major contribution coming from three major categories – Motor Insurance (36.5% of Q1FY18 GDPI), Crop Insurance (21.8%) and Health Insurance (18.2%). Over FY15-17, the GDPI witnessed 26.7% CAGR thus exceeding the Rs10,000 crore mark in FY17.

Over FY13-17, the net premium earned witnessed a 12.3 percent CAGR to Rs6,158 crore. The operating profit and profit before tax also grew at a healthy pace of 17.3 percent p.a. and 18.2 percent p.a., respectively. The net profit grew 5.2 percent. For Q1FY18, the net premium earned grew 10.1 percent.

Lupin:  Market Cap Rs46,970 crore

Lupin Ltd. is the 4th largest generic pharmaceutical company by market capitalisation globally, as of Mar’17. It is the 6th largest by sales, 2nd largest Indian pharm company by global sales, and ranks 1st in Anti-TB ailment globally.

The company has global revenue of $255 million in FY17. Over the last 10 years (FY07-17), the company’s revenue and EBITDA grew 8.5x and 9.6x, respectively.

EBITDA margins also have improved over the years by 200bps to 27 percent. Further, the R&D spends of the company have increased 16.3x to 13.5 percent of sales in FY17 vs. mere 7 percent of sales in FY07. Thus, giving a boost to newer product launches along with growth in revenue and profits.

Manappuram Finance Ltd: Market Cap Rs8769 crore

Manappuram Finance Ltd (MFL), incorporated in 1992, is one of India’s leading gold loans NBFCs engaged in providing finance against used household gold ornaments. It has established a pan-India presence, with a strong distribution network of 3,293 branches across 23 states and 4 union territories, with a live customer base of 2.25 million.

The promoters of the company have been involved in the business of gold loans since 1949. It’s total AUM has grown from Rs7,549 crore in FY11 to Rs13,380 crore as of 30 Jun’17. Of the current AUM, gold loan business accounts for 80% as of 30 Jun’17.

MFL has strategically forayed into non-gold businesses - microfinance, home loans, CV loans and loan against property (LAP) to reduce dependence on the gold loan business. The share of new business currently stands at 16 percent of AUM (vs 12% in FY16).

The management expects this to increase to 25 percent of total AUM by FY18E. The diversification will enable faster utilisation of funds on the balance sheet and generate better return ratios going forward.

Brokerage Firms: Sharekhan Ltd

Aurobindo Pharma: Market Cap Rs43560 crore

Aurobindo Pharma Ltd (Aurobindo), headquartered at Hyderabad, manufactures generic pharmaceuticals and active pharmaceutical ingredients. The company’s manufacturing facilities are approved by several

Market leading regulatory agencies such as the USFDA, UK MHRA, among others. Its product portfolio encompasses leading regulatory agencies such as the USFDA, UK MHRA, among others. Its product portfolio encompasses antibiotics, anti‐retrovirals, CVS, CNS, gastroenterologicals, pain management drugs and anti‐allergics.

Management expects to launch over 25 products (more approvals of complex products) in the coming years, which will help Aurobindo to achieve higher growth and mitigate increasing pricing pressure in the US which will help Aurobindo to achieve higher growth and mitigate increasing pricing pressure in the US market.

Bajaj Finserv: Market Cap 84,255 crore

Bajaj Finserv (BFS) is the holding company comprising of lending business and insurance companies. Bajaj Finance Limited (BFL), subsidiary of BFS (58% stake), is the lending arm with a strong and well‐diversified loan book with niche segments.

Its strong operating performance with a healthy asset quality diversified loan book with niche segments. Its strong operating performance with a healthy asset quality, achieved on the back of a 38.9% y‐o‐y growth in assets under management (AUMs) indicates the strength of its business model.

We believe BFL, BAGIC, and BALIC have plenty of headroom to grow and can outperform the industry in terms of growth. Hence, we find significant long‐term value in BFS and expect its subsidiaries’ earnings momentum to continue.

Bata India: Market Cap Rs9505 crore

Bata India is the largest retailer and manufacturer of footwear in India with a network of over 1,300 stores; unmatched by any of its peers. The company has strong brands such as Bata, Hush Puppies and Power catering to varied strata of population in the Indian market.

With redefined strategies and senior management changes, Bata is transforming itself from a conventional footwear player to branded footwear player.

Sustained store expansion, premiumisation and steady same-store sales growth (SSSG) would help the company’s revenue and profit after tax (PAT) to clock CAGRs of 11 percent and 22 percent over FY17‐FY20, respectively.

IndusInd Bank: Market Cap Rs1,00,909 crore

IndusInd Bank (IndusInd) has been among the best‐performing private sector banks with its superior operating metrics. Its advances have recorded a 27.1% CAGR during FY14‐FY17, while net profit clocked a 26.8%. Net interest margin stood at a healthy 4.0% in FY17.

Currently, the bank is in merger talks with Bharat Financial Inclusion Ltd, which if successful, could bring in a lot of synergies for IndusInd.

These include the acquisition of high‐yielding loans, enhanced priority‐sector lending and capital release from Bharat Financial for the merged entity.

Mahindra & Mahindra: Market Cap Rs80,866 crore

Mahindra & Mahindra (M&M) benefits from the encouraging outlook for farm equipment segment, given the normal monsoon and higher minimum support prices (MSPs) that will boost farm incomes. Further, its focus on introducing new products will help it outpace industry growth.

M&M is the only Indian automobile company having a track record of manufacturing passenger electric vehicles (EVs).

Given the government’s push for EVs and M&M’s planned new launches in this space, it will clearly enjoy the first‐mover advantage and significantly benefit from the shift to EVs.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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