Siddharth Sedani Anand Rathi Shares and Stock Brokers
The Nifty and Sensex made a new all-time high on Wednesday. This is due to the contribution by blue chip companies which have reported good results despite the challenging macro environment. There is a strong demand for quality companies - witnessed in the recent HDFC AMC IPO, which got oversubscribed 83 times. Reliance industries also made new high and became the most valuable company by market capitalization surpassing TCS.
The monthly sales figures released by some of the two-wheeler, commercial vehicle & tractor manufacturers were encouraging and robust – indicating strong rural demand. Some of the top FMCG companies, private banks & auto companies also made new all-time highs, being contributors to the large-cap index.
However, the macro environment concerns are looming on the markets which include the rising inflation & interest rates. The RBI in its policy announcement on Wednesday increased the repo rate by 25 bps with a neutral stance & kept the GDP growth forecast unchanged at 7.40 percent. Adequate & widespread monsoon will ease the pressure on inflation and keep the rural demand going strong.
Here are 3 stocks to watch out for:
Pidilite Industries | Rating: Buy| Target: Rs 1345
Factors
The company, having a leadership status in adhesives and sealants market is now eying the similar position in waterproofing & Flooring business which is currently very small (approx. 5% of revenues) as compared to its traditional business. Its key brands in this segment includes Dr.Fixit and Roff
The overall market for waterproofing & Flooring in India is expected to grow to more than ₹5,000 Crores by 2025 which is currently less than ₹2,000 Crores.
Construction chemicals market has a huge growth potential in India owing to the growth of construction and manufacturing sector. The company will benefit from the basket of products offered by it to these sectors.
The company’s Industrial specialty chemical products in Professional & Do It Yourself (DIY) segment in foreign markets is also catching up fast as they provide flexibility, innovation and unlimited design variation.
We expect Pidilite Industries revenues to grown at a CAGR of 15.8% from FY-19E through FY-20E. Its consolidated revenues are expected to be around ₹8,156 Crores by FY20E.
On profitability front, we expect Pidilite to continue to maintain its operating margins at current levels. The margins for the company have improved on the back of increased value addition in its product mix. We expect company to continue to get benefit of higher realisations, better product mix.
We have a Buy rating on Pidilite Industries Ltd with a target price of ₹1345 per share based on 47.86x FY20E EPS of 28.10 per share.
Mahindra & Mahindra Financial Services | Rating: Buy | Target: Rs 609
Factors
The company’s strength in vehicle financing which is showing good traction across products & geography.
The company’s Housing-Finance loan growth is expected to expand 18-20% CAGR.
The main driver for improvement in RoA would be gradual increased share of SME business going ahead.
Mahindra Finance to foray into financing two-wheelers, consumer durables.
Normal Monsoon, Higher farm income and Govt. spending will give boost to company’s business.
The Company has a strong Rural & Semi-Urban area presence – with 1284 offices covering 27 States & 4 Union Territories.
The company has a healthy mix of Both - ( A) Vertical lending across products & (B) Geographic mix which reduces volatility & risk.
We have a BUY coverage on M&M Financial with a target of Rs. 609 based on 21.90x FY20E EPS of 27.80
Sundram Fasteners | Rating: Buy | Target: Rs 760
Factors
It is the largest manufacturer and exporter of high tensile fasteners.
Manufactures automotive components such as high tensile fasteners, radiator caps, powder metal parts, pumps and engine components.
Caters to OEM in 2 wheelers, 4 wheelers, farm equipment and commercial vehicle segment.
Company is making efforts to improve product mix with focus on high-value products and increased contribution of exports.
As a part of its backward integration strategy, company added a second 10,000 Ton foundry plant to cater high demand for machine castings in china.
Company is significantly adding capacity and has incurred Rs. 200 – 300 Crores Capex in FY18. Management expects to invest Rs. 350 Crores in FY19.
Company has High ROE of 25.40%
Disclaimer: The author is Vice President - Equity Advisory, Anand Rathi Shares and Stock Brokers. The views and investment tips expressed by investment experts/broking houses/rating agencies on Moneycontrol are their own, and not that of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
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