Sumit Bilgaiyan of Equity99 feels valuation looks attractive but sentiment still remains uncertain
We have seen three consecutive black Fridays in a row. The Sensex fell over 4,600 points in just 25 sessions and Nifty crashed over 12 percent in the same period. The market capitalisation of BSE, which stood at Rs 1,59,34,695 crore in August, fell drastically to Rs 1,36,60,618 crore. This means investors lost almost Rs 22,74,077 crore in the turmoil.
Last month, market participants were talking about 12,200 levels on the Nifty, now they are talking about 9,000 levels. The BSE Midcap and Smallcap indices are down 23.56 percent and 31.42 percent from January highs. Most stocks are available 40-70 percent below their January’s highs.
Valuation looks attractive, but sentiment is still uncertain. Crude price, rupee weakness, high bond yields and liquidity issues are main concerns for the market which can play out over the next 2-5 months.
The only thing positive is corporate earnings. We have seen strong performance in Q1 and expect the same performance in Q2, which can support the market at lower levels.
One thing is sure, investors have lost faith in the market and everybody lost money, some beyond their capacity, in the last 9 months.
Investors will get an opportunity to invest after companies announce their Q2 earnings to reshuffle and average out their portfolios. Companies posting a strong performance in Q2 can be added to one's watch-list as these stocks can provide above average returns after the dust settles.
The company has posted fantastic numbers in Q1FY19 led by higher same-store-sales growth (SSSG). Its sales and EBITDA grew by 26 percent and 78.5 percent YoY, respectively, while PAT increased by 213.2 percent to 74.68 crore.
It reported EBITDA margin to 16.6 percent, an improvement of 490 bps on YoY basis. SSSG for Q1 stood at 25.9 percent. At the CMP, the stock trades at a P/E of 61x on TTM EPS. Stock already corrected 27 percent from recent high. We are recommending a buy in staggered manner for medium to long term.
Pharmaceutical stocks are little bit safe in this kind of market. Sun Pharma has reported better-than-expected performance in Q1FY19, led by healthy US sales (ex-Taro), strong growth in domestic business.
Its sales and EBITDA grew by 16 percent YoY and 47 percent YoY, respectively, while PAT increased by 87 percent. Taro has unperformed in Q1. Its US sales fell by 4.2 percent YoY, while ex-Taro US sales grew by 17.5 percent YoY to $240 million owing to launch of gWelchol AG, Yoansa and sales improvement from Halol unit. This clearly shows that Sun Pharma's dependency on the Taro is reducing.
India grew by 22 percent YoY on lower YoY base, while emerging markets business grew 21 percent YoY. We are expecting strong performance in Q2 also. We are recommending a buy in staggered manner for medium to long term.
Alkem Laboratories has reported excellent results for Q1FY19. Its sales and EBITDA grew by 27.19 percent YoY and 86.08 percent YoY, respectively, while PAT increased by 90.26 percent to 136.15 crore. EBITDA margins in Q1FY19 were at 14 percent vs 9 percent in Q4FY18 and 9 percent in Q1FY18. It has paid 650 percent dividend for FY18.
With tiny equity of just Rs 23.91 crore, company has huge reserve of around Rs 4,839.86 crore. In August, company has successfully cleared the USFDA inspection at Baddi plant.
At the CMP, the stock trades at a P/E of 34.6x. We are recommending a buy in staggered manner for medium to long term.Disclaimer: The author is Founder of Equity99. The views and investment tips expressed by investment experts 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.