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Last Updated : Feb 07, 2019 11:05 AM IST | Source:

'Management commentaries suggest an optimistic outlook, general election key risk'

Going ahead, management commentaries suggest an optimistic outlook, with the general election being the key risk to their strategy going ahead

Moneycontrol Contributor @moneycontrolcom
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Siddharth Sedani

The Interim Budget 2019 was rationally stable in its fiscal approach with the fiscal deficit target for FY19 and FY20 fixed at 3.4 percent of the GDP. The Budget was inclined towards consumption and will be good for lower-end consumption, rural agri-related, consumer staples, two-wheelers and real estate businesses.

In its latest report, UN stated that ‘India is among the several countries that stand to benefit from the ongoing trade tensions between the world's top two economies’, i.e, the US and China. It will add to the country’s growth story.


Also, the positive macro-economic factors like low inflation, higher GDP growth, controlled crude oil prices and stable currency will strengthen the economy further. However, auto sales number for December 2018 came on a weaker side, which is worrisome.

Going ahead, management commentaries suggest an optimistic outlook, with the general election being the key risk to their strategy going ahead. Higher money in the hands of middle-income people and increased government expenditure before elections is likely to boost consumption driven stocks. We have RBI policy ahead this week that will further help in assessing the market direction.

Investors should stick to quality companies with consistent performance and prudent management.

Aditya Birla Fashion & Retail | Rating: Buy | Target: Rs 242

ABFRL brings together Madura Fashion and Pantaloons Retail. It is the custodian of several icons, including the top fashion brands of India - Louis Philippe, Van Heusen, Allen Solly, Peter England and other high-end brands.

With its operations across segments and a wide retail network, it is appropriately placed, to benefit from India’s growing branded apparel industry.

In the current quarter, the consolidated revenue of the company grew 23 percent YoY to Rs 2,280 crore. Also, the EBITDA margin expanded 14bps to 7.6 percent on account of controlled rent, employee and other expenses.

Pantaloons reported its highest ever SSSG, of 17 percent, driven by product improvement and strong brand enhancement. Madura Lifestyle reported its highest ever Q3 revenue, driven by 8 percent SSSG growth. We expect this growth momentum to continue into H2FY19, backed by strong SSSG growth and network expansion.

During the quarter, the company added 14 Pantaloons stores and 62 Madura Lifestyle brands stores, taking the totals to respectively 302 and 1,959.

We raise our FY19e revenue growth for Madura Lifestyle brands to 11 percent (earlier 9.7 percent). We are optimistic about Pantaloons’ SSSG picking up as the newer stores will be included in calculations from Q1FY20 as well.

Hindustan Unilever | Rating: Buy | Target: Rs 2,250

Hindustan Unilever (HUVR/HUL) is India’s largest fast-moving consumer goods (FMCG) company with a heritage of over 80 years.

In the December quarter, it reported a growth of 11.3 percent YoY in its revenues at Rs 9,558 crore. The domestic consumer growth during the quarter was 13 percent with underlying volume growth at 10 percent.

The rural market continued to remain a key driver for the growth, registering 1.3 times faster growth than urban markets.

The company’s EBITDA margins for the latest quarter stood at 21.4 percent at Rs 2,046 crore as against 19.6 percent at Rs 1,680 crore in Q3-FY18. The improvement in operating margins was mainly due to prudent management of volatility in costs (crude and currency) along with improved mix and operating leverage.

In terms of business segment, Home Care segment continued its impressive performance and grew 16 percent in the quarter with both fabric wash and household care delivering double-digit growth.

Going ahead in medium term, the management has guided for a stable demand scenario at current levels. However, management has sounded a caution on macroeconomic environment that continues to be a key factor to watch both internationally or domestic factors due to upcoming general election.

In terms of strategy, the company continues to follow its existing plan of volume driven growth and improving operating margins.

We continue to remain positive on the company in the long run and maintain our buy rating on Hindustan Unilever Limited (HUVR) with a target price of Rs 2,250 per share.

HCL Technologies | Rating: Buy | Target: Rs 1,182

The company reported a good set of numbers for the December quarter. Revenue from operations improved 22.6 percent year-on- mainly led by better performance in Europe followed by North America (geographically).

Among verticals, Telecommunications and Media (35.4 percent QoQ and 40.3 percent YoY) and Retail and CPG (8.4 percent QoQ and 21.5 percent YoY) led the growth.

The EBITDA from operations for the quarter improved 30.2 percent year-on-year at Rs 3,632 crore with a margin of 23.1 percent. The company achieved the reported PAT of Rs 2,605 crore, a growth of 25.5 percent year-on-year with a net margin of 16.6 percent translating into EPS of Rs 19.1 per share.

The company signed 17 transformational deals during the quarter for another straight quarter driven by financial services, technology and services, and manufacturing.

The management said bookings in the first nine months of FY19 were 40 percent higher than the same period last fiscal. Further, a qualified deal pipeline is very healthy and is at a record level.

The management expects Q4FY19 to be a healthy quarter on the back of healthy bookings and deal pipeline in the last nine months.

In December 2018, the company signed a definitive agreement to acquire select IBM software products for $1.8 billion. The process is expected to be completed by mid-2019. We are not incorporating this into our estimates.

With continuity of robust growth across Mode-2 and Mode-3 business (28 percent of revenue combined) and target of 40 percent of revenue over medium-to-long term along with limited onsite risk, we expect the growth momentum to continue in the near term supported by strong deal pipeline and ramp up of large deals. We maintain our buy rating on the stock with a target price of Rs 1,182 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.

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First Published on Feb 7, 2019 10:46 am
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