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Last Updated : May 09, 2019 12:17 PM IST | Source: Moneycontrol.com

Global cues, corporate results to keep markets choppy till election result: Anand Rathi

We suggest that investors should continue to build equity exposure for the long term as good quality company will continue to grow regardless of different election outcomes.

Siddharth Sedani
 
 
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Siddharth Sedani

Escalating trade tensions between the United States and China have triggered global growth fears for the overall market.

Currently, we are transiting through a phase of little uncertainty. Internationally, these include outlook on growth (especially in China and Europe) and possibilities of hardening of crude oil prices as US starts withdrawing exemptions granted earlier on oil imports from Iran. There is also little clarity on the course of Brexit.

Global developments and corporate results are the two key factors that will keep the market choppy till the election result is known, however, volatility will continue to remain on the higher side due to the ongoing results.

Market witnessed a meaningful pre-election rally in the month of March and early April. But since mid-April, we have witnessed a lack of aggression in the broader markets. Midcaps have witnessed meaningful correction while mixed activity is seen in the largecaps. NBFCs, media, FMCG are some of the sectors which remain under pressure.

We suggest that investors should continue to build equity exposure for the long term as good quality company will continue to grow regardless of different election outcomes. Also, it will be advisable for investors to allocate a certain proportion of their corpus to good quality midcap companies.

Here is a list of three stocks where Anand Rathi initiated coverage with buy rating:

Bajaj Finance: Buy | Target: Rs 3,370 | Return: 15%

Bajaj Finance Limited is one of the largest players in the rapidly growing consumer finance segment in India, the company also has substantial business penetration in SME, commercial and rural lending. With housing subsidiary, mortgages are also gaining traction.

The AUM of the company has been appropriately diversified between consumer lending (46.6 percent), SME lending (31.38 percent), commercial lending (14.73 percent) and rural lending (7.30 percent).

In its latest quarterly results, Bajaj Finance Limited (BFL) has reported 54 percent growth in PAT to Rs 1,059 crore led by 41 percent loan growth. Asset quality remains under control with GNPAs and NNPAs coming at 1.55 percent and 0.62 percent respectively. Loan growth was largely led by consumer finance segment growing 42 percent YoY, 13 percent QoQ to Rs 43,826 crore.

At CMP the stock is trading at 8.0x times FY19E book and 6.4x times FY20E book. We initiate our coverage on Bajaj Finance Limited with a buy rating and target price of Rs 3,370 per share.

Indian Hotels Company: Buy | Target: Rs 185 | Return: 26%

Indian Hotels Company Ltd (IHCL) is the largest player in the Indian hospitality sector. During the FY19, IHCL registered 10 percent growth in consolidated revenues to Rs 4,512 crore. PAT increased significantly to Rs 286.82 crore from Rs 100.87 crore in FY18, driven by healthy performance in domestic portfolio as well as international portfolio.

During FY19, IHCL’s network domestic revenue PAR growth was 6.6 perrcent while international revenue PAR growth was 9.3 percent. IHCL signed 22 hotels in FY19 and added over 3,200 rooms to its pipeline via 18 management contracts and 4 operating leases. Management expects to open 12 hotels in FY20 with room addition in the range 1,800–2,000 rooms.

Given IHCL’s sound financials, market leadership with strong brand recognition, restructuring moves with asset-light model and the benefit form the ongoing favourable demand supply mix in the industry, we believe the company is well positioned for continued growth and initiate our coverage on Indian Hotels Company Ltd with a buy rating and a target price of Rs 185 per share.

Blue Star: Buy | Target: Rs 947 | Return: 24%

Blue Star has again showcased its robust and agile business model, developed over time. It’s rising RoCE in challenging times, from 20.5 percent in FY18 to 24.9 percent in FY19, depicting its ability to deliver superior returns in FY20/FY21.

We expect the RoCE to rise to 29.9 percent and 34.7 percent respectively, aided by a supportive macro environment. We initiate coverage on the stock, with a target of Rs 947 (30x FY21e EPS of Rs 31.6).

Q4 FY19 consolidated revenue growth (19 percent YoY) was led by 21 percent YoY growth across project divisions and 19 percent across the UPC segment, while the professional electronics division declined 11 percent.

The pending order book at end-Q4 FY19 across its MEP business was Rs 2,430 crore, up 16 percent YoY. FY19 orders were Rs 2,950 crore, up 19 percent YoY. Blue Star received orders for more than 100 MEP projects in FY19, which it expects to expand in FY20.

The author is Vice President - Equity Advisory at Anand Rathi Shares and Stock Brokers.

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his 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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First Published on May 9, 2019 12:17 pm
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