Global events and news flow will influence the market as market players will closely track on any news related to Brexit, US–China trade talks and crude oil prices
The results season has been fairly positive with good delivery across sectors. However, some sectors like autos have seen a slowdown and margin crush that should get corrected going forward.
We have recently seen heavy sell-off in Tata Motors after the company reported a net loss of nearly Rs 27,000 crore for the quarter ended December 2018 on account of an exceptional item of asset impairment in JLR and slowdown in China.
India’s macro continues to strengthen with factory output improving at 2.4 percent in December 2018 after hitting a 17-month low of 0.5 percent in November. Also, India's retail inflation declined marginally to 2.05 percent in January due to cheaper food items and fuel prices.
Retail inflation for December 2018 has also been revised downward to 2.11 percent from the earlier estimate of 2.19 percent. The GDP growth outlook for 2019-20 is projected at 7.4 percent where it is expected to be 7.2-7.4 percent in H12019-20 and 7.5 percent in Q32019-20.
However, extending worries of global economic slowdown and US-China trade brushings put a dampener on investor emotion. The International Monetary Fund (IMF) has also cautioned governments to prepare for an economic tempest as growth undershoots anticipations.
A new round of trade talks is to begin in Beijing after recent discussions yielded no development. The wait for a deal between the two parties is making investors cagy.
In anticipation of the general election, markets will remain volatile. Global events and news flow will influence the market as market players will closely track on any news related to Brexit, US–China trade talks and crude oil prices.
Investors should look for the companies having sustainable earnings with robust business outlook and quality management.
Havells India | Rating: Buy | Target: Rs 788
Havells India Limited is one of the leading Fast Moving Electrical Goods (FMEG) companies and a key player in power distribution equipment manufacturing.
With a robust global presence in over 52 countries, the company offers a wide range of products, including industrial and domestic circuit protection devices, cables and wires, fans, modular switches, luminaires for domestic, commercial and industrial applications.
It is setting a plant for Lloyd products in Rajasthan, enhancing manufacturing capabilities. Post completion of this plant, the company will have 13 plants across 8 different locations in the country.
In its latest quarterly results, Havells has registered a growth of 28.1 percent in its standalone net sales at Rs 2,518.43 crores in Q3-FY19 as against Rs 1,965.77 crores in Q3-FY18. Channel expansion remains one of the key strategic initiatives of the company, focused on modern format retails, brand stores and online platforms along existing relationships with distributors and direct dealers.
In terms of guidance, management expects cable and wire business margin in the range of 15 percent to 17 percent in the coming quarters, while the range for lighting is expected at about 27 percent to 30 percent. After completion of the Lloyd plant, capex is expected in the range of Rs 200-250 crore every year.
With solid fundamentals and favourable macro traits, we believe the company is well positioned for long-term growth and initiate our coverage on Havells India Ltd. with a BUY rating and a target price of Rs 788 per share.
ITC | Rating: Buy | Target: Rs 352
ITC is a well-diversified conglomerate having market leadership position in the cigarette business in India. Apart from its cigarette business, ITC has a very strong positioning in other FMCG, hotel, paper and agri businesses.
It has reported a growth of 14.9 percent in its standalone in Q3-FY18. Revenue growth was driven by growth across all segments. Cigarettes business registered volume growth of ~8 percent after factoring in the price hike taken in this segment.
The company’s operating margins have declined. The drop in the margins of the cigarette business was mainly on account of escalation in input costs due to the consumption of higher cost leaf tobacco crop and increased salience of capsule cigarettes in the sales mix.
The FMCG-Others segment posted a steady performance during the quarter with revenue growing by 11.5 percent led by atta, snacks, premium cream biscuits and noodles in the branded packaged foods business, fragrancing products and liquids (handwash and bodywash) in the personal care products business and Classmate notebooks in the education and stationery products business.
With strong operating cash flows, continuous capacity expansions across businesses and a healthy balance sheet, we have a positive view on the company over medium to long term. We maintain our BUY rating on the stock with a target price of Rs 352 per share.
Biocon | View: Buy | Target: Rs 823
Biocon, is one the largest and fully-integrated, innovation-led bio-pharmaceutical company serving customers in over 120 countries.
It has reported a growth of 45.6 percent in its consolidated revenues at Rs 1,540 crore in Q3-FY19. The growth was mainly attributable to strong performance across its biologics, small molecules, branded formulations and research services segments.
On profitability front, the company’s consolidated operating margins stood 24.7 percent, an improvement of ~375 basis points mainly led by higher contribution of Biologics segment primarily driven by biosimilar portfolio.
Biologics segment grew 136 percent in Q3-FY19 at Rs 449 crore followed by branded formulations at 35.8 percrnt to Rs 212 crore, small molecules at 27 percent to Rs 469 crore and research services at 20.4 percent to Rs 467 crore. The growth in biologics segment was driven by strong performance across company’s portfolio of insulins, monoclonal antibodies (MAbs) and other biologics in key developed and emerging markets.
Biosimilar Pegfilgrastim, launched in the US continues to gain market share in addition to sustained sales momentum of biosimilar Trastuzumab in Latin America and AFMET.
Biocon’s partner Mylan also launched biosimilar Adalimumab in EU this quarter, in-licensed from Fujifilm Kyowa Kirin Biologics. During the quarter Fulphila, biosimilar Pegfilgrastim jointly developed by Biocon and Mylan, received marketing authorisation from the European Commission and a notice of compliance (NOC) from Health Canada’s Biologics and Genetic Therapies Directorate. Fulphila is now approved in the US, EU, Canada and Australia.
Going ahead, we continue to expect the company to get benefits of the first wave of biosimilar commercialisation in the next two years that should drive higher revenues. Also with several Drug Master Files (DMFs) filed in developed and key emerging markets should continue to add to growth for the company on the back of strengthening small molecules' API pipeline.
We continue to remain positive on the stock and maintain our BUY rating with a target price of Rs 823 per share.
The author is Vice President - Equity Advisory, Anand Rathi Shares and Stock Brokers.Disclaimer: 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.