The situation of Non-Banking Finance Companies (NBFCs) is fragile, especially after select companies were downgraded, which is why investors should stick to NBFCs or housing finance (HF) companies with strong fundamentals.
Sectors such as FMCG, consumer durables, financials and speciality chemicals are expected to provide growth and value opportunities. And we can expect mid-caps to perform in the coming year, as they are at a 10 percent discount as compared to large-caps.
We believe a broad-based rally in the stock market is likely for the next two to three years. Most measures, such as cleansing exercise, implementation of key policies like GST and infrastructure development, undertaken in the past five years by the NDA government built the foundation for long-term growth. Now, a host new measures announced in their election manifesto is likely to boost the equity market.
Here is the list of three stocks which could give returns:
Hindustan Unilever (HUL): Buy | Target: Rs 2,250 | Return: 22 percent
Homecare delivered strong volume-led growth with both the fabric wash and household care segments growing in double digits. Growth in beauty and personal care segment was driven by growth in personal wash, hair care and double-digit growth in skin care segment.
HUL reported 9.3 percent growth in revenues. The domestic consumer growth during the quarter was 9 percent with underlying volume growth at 7 percent.
The rural market continues to remain a key driver for growth, registering 1.1 times faster growth than urban markets during the quarter. For the year ended March 2019, the company’s revenues grew 10.7 percent.
We continue to remain positive on the company in the long run and maintain our buy rating on HUL with a target price of Rs 2, 250 per share.
AstralPoly Technik: Buy | Target: Rs 1,430 | Return: 9 percent
We expect both pipes and adhesives to grow at a healthy pace with higher margins. We largely retain our earnings estimates; revenue/Ebitda/PAT would register 14 percent/19 percent/27 percent CAGRs over FY19-21 (a 20 percent PAT CAGR over FY14-19).
Pipe volumes are expected to grow more than 15 percent in FY20 and the management expects at least 15 percent volume growth in its pipes division and 25 percent growth in Rex Poly.
It aims to manufacture all key products at plants across India to save on logistics cost. DWC pipes have a great future in India, per management. Astral is focusing on shortening its working-capital cycle, visible in FY19. We expect low capex (1 billion) and lower debt in FY20.
We like Astral for its consistent focus on growth and profitability, supported by innovative product launches, vigorous brand-building and successful product diversification. We maintain a Buy, with a higher target of 1,430. Strong earnings growth is essential to hold to this high valuation multiple.
Finolex Cables: Buy | Target: Rs 514 | Return: 15 percent
Volumes in electrical wires recovered while power cables and OFC declined. The Ebitda margin expanded both Year on Year (up 85bps) and Quarter on Quarter (72bps) to 15.3 percent. FMEG grew 20 percent YoY; however, it has yet to turn sizable and profitable.
We broadly maintain our FY20e/21e earnings and expect consolidated PAT to clock a 13 percent CAGR over FY19-21 (around 20 percent over FY13-18). After the marked re-rating over FY13-18, low growth expectations led to the stock de-rating. Success in its FMEG division and significant improvement in JVs are key monitorables.
We like Finolex for its leading position in electrical cables and debt-free status. At 13.5x FY21e P/E, we find the stock reasonably valued. We maintain a buy with a higher target of 514.
(The author is Vice President - Equity Advisory at Anand Rathi Shares and Stock Brokers.)
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