The Nifty scaled a fresh peak on Friday ahead of the festival of lights, Diwali. The festive mood has now set in and it looks like markets likely to witness more fireworks in Samvat 2074.
Stable global cues and rise in domestic liquidity are fuelling a rally in equity markets, although earnings growth still remain elusive.
The Nifty has made a new high in September and October while the Sensex is still about 200 points short of making a fresh high. The markets are waiting for the Sensex to cross the new highs made in August.
Watch | Samvat 2074 : The Story Behind Muhurat Trading
“With the festive mood in the air, markets are likely to do well in the October month, which has historically been the weakest. Globally, things are going to be better, the minutes of the last Fed meeting were also dovish,” VK Sharma, Head Private Client Group and Capital Market Strategy at HDFC Securities told Moneycontrol.
“With domestic investors dipping their toes in the equity markets at an accelerated pace, the process of making new highs in the markets is likely to continue beyond the immediate highs,” he said.
CNBC-TV18 spoke to SP Tulsian of sptulsian.com, Ambareesh Baliga, Independent Market Expert, Prakash Diwan of Altamount Capital and Dipan Mehta who is a Member, BSE & NSE on stocks which investors can buy this Diwali for long-term wealth creation till next Diwali:
Analyst: SP Tulsian of sptulsian.com:
Dalmia Bharat Sugar and Industries: Target by next Diwali Rs245| Return 38%
We have been recommending sugar stocks for the last 18 months which have all given returns of about 500-2000 percent in the last 18 months. We would like to continue with this theme -- Dalmia Bharat Sugar is a great buy.
Here’s why -- they have five sugar mills, three in UP and two in Maharashtra with an aggregate capacity of 32,500 tcd of which 10,000 tcd is in Maharashtra and 22,500 tcd is in UP.
Now, the critical point going forward is that the season which has ended 10 days back for the country, for India, has seen a sugar production of 20 million tonne.
We are estimating the production somewhere in the range of 25 million tonne for the country i.e. about a growth of 25 percent going forward.
The idea of choosing this particular stock is that Maharashtra 10,000 tcd, Maharashtra is going to show a growth of 72 percent against this the company is estimated to show a growth of 100 percent.
The stock has very small equity of Rs 16 crore, with a face value of Rs 2. And, this is the only company in the sugar space where the promoter stake is at 75 percent. That shows the confidence and the financial strength of the company.
The debt is not significant, the long-term debt is closer to about Rs 300 crore, while the major debt is for financing the working capital.
This stock could well be the outperformer in the sugar space, though we have been giving ideas on many UP-based sugar mills which could hit a target of Rs 245 by next Diwali.
Eon Electric: Target by next Diwali Rs130| Return 28%
It is light-emitting diode (LED) lighting maker company and they have a topline closer to about Rs 200 crore and 60 percent of that comes from their LED lighting makers on which they have EBIT margin. They (company) have been ramping up their margin every year.
Coming on to financial, if you take a market cap of the company, it is Rs 150 crore right now of which Rs 70 crore is lying in the books of the company. If we look at it, we are getting the company at a net of cash valuation of Rs 80 crore on the topline of Rs 200 crore, and sales to EV ratio 0.4.
The promoter stake is at 60 percent and on turnaround case, in FY16 they have negative EPS of 2.50. FY17 they had positive EPS of 2.50. This Rs 70 crore cash which translated into Rs 45 per share. If we knockoff Rs 92-93, the present price, you get the share at Rs 50.
If you take price to book in which Rs 75 is the book value, and price to book is 1.2. On earnings multiple, net of cash is ruling at a PE of 10 while all other consumer durables and lighting companies are ruling at a PE multiple of Rs 30-35.
I think in all aspects, maybe as a turnaround story the robust business model of LED lighting maker etc, makes the stock very good and I am expecting it to touch Rs 130 by next Diwali.
LEEL Electricals Ltd: Target by next Diwali Rs440| Return 38%
Diwali is a festival of light and you have caught my mind. This company recently monetised their assets by selling their consumer durable business to Havells India for Rs 1,550 crore and that has been the conscious move.
What I like about the company is that -- pending the adjustments and all things, they have been generous in paying a special dividend of 2000 percent that is Rs 20 per share.
In absolute number, it may turn out to be Rs 100 crore but they have said that the effect of that Rs 1,550 crore will be given in the books of account because they have received that money only in the middle of May.
They make about 8 lakh air conditioners and in fact, they are supplying to the majority of the AC makers. You can say that rest all just put their labels, they market – in fact the entire packaged air-conditions are purchased by them.
Second is the hit exchanger business. It caters to the railway, defence, metros, off the road vehicles and commercial vehicles where you all are seen growing at a very rapid pace.
If you take in all five – defence we all know, railway we all know, metro we all know and the growth can be tremendous. Coming on Q1 numbers, this quarter numbers may not include consumer durables but they have posted an EPS of Rs 8.32 paise.
Even if I don’t extrapolate as Rs 8 EPS, I am conservatively taking 3X that means even if you take an EPP multiple of EPS of Rs 25-26-27x and cash in the books of the company, you are getting this share at a single P/E multiple. This is an extremely positive view over a longer-term but for next Diwali, we have a target of Rs 440.
Indian Toners and Developers: Target by next Diwali Rs400| Return 33%
Even this has a festive theme because if you are sending physical greetings to anyone you need a printer and even if you get email greetings, sometimes you want to retain them by having a print.
Indian Toners and Developers are making toners for all the printers and in this digital era, we need to have a good potential scene for those. They are making digital machines, they are making for multifunctional printers, they are making printers and the best part is that the company has two units.
Coming on to market cap, financials, and equity. The equity is close to 13 crore, and of that, if you take the present market price of Rs 283 with a face value of Rs 10, the market cap is about Rs 360 crore.
The company is having a cash of Rs 72 crore which translates into Rs 55 per share. If I knock that off, the market cap is Rs 360 crore, I knock off Rs 72 crore cash, the EV is sub Rs 300 crore, to be precise Rs 290 crore.
The EPS which is expected for FY18 is close to about Rs 24-25. If I go by the PE multiple without knocking off the cash, it is ruling at a PE multiple of Rs 11.5 and net of cash it is ruling at a PE of Rs 9.
If you take a situation going forward, this is a good stock probably not identified because of a low market cap but we have been keeping a quite positive view with a target of about Rs 400 which we are expecting it to touch by next Diwali.
Analyst: Ambareesh Baliga, Independent market expert
Indo Count Industries: Target by next Diwali Rs180| Return 63%
The company is into home textiles, mainly an exporter although they sell about 25 percent domestically. They sell in about 40 countries across five continents. I was looking at stocks where possibly the downside is limited -- so most of my picks are contra picks.
This is a stock which has corrected from close to about Rs 200-230 to levels of about Rs 108-110 now. But, going forward, I clearly see the performance improvement. Why?
They are increasing the capacity which is currently about 68 million metres to about 90 million metres going up to 110 over the next 18 months and this should clearly show in the performance going ahead.
I am looking at about 11.2 EPS for FY18 and 13.5 for FY19 – it is, in fact, quoting at about 8 times. There have been a few question marks on the management but I have met the management, and most of the things are discounted.
Price target is around levels of Rs 180 and management all of them are various shades of grey and you need to see as to how much of it is grey and how much of it is in the price.
OnMobile Global: Target by next Diwali Rs80| Return 38%
Just to give a background, most of us use OnMobile services we are suing without even knowing. For example, most of the caller tunes which we hear are OnMobile and they are across close to 80 countries and they have about 55-56 various clients.
The latest one to be added is Banglalink, where they added 35 lakh customers out there.
Yes, when you talk of a value trap, here the net worth of the company, they do not have any debt. The net worth of the company is Rs 560 crore and that is the market cap of the company.
The company is making profits and I expect it to show about 3.5 EPS for FY18 and about 4.8 for FY19 unless they end up with a huge loss then it could be a value trap.
I do not see any downside from here and it is a worthwhile risk at these levels because if things work out it can easily move to levels of Rs 80 or more than that.
VA Tech Wabag: Target by next Diwali Rs850| Return 46%
The stock cracked about 4-5 percent and that in fact gave me an opportunity to pick up. The main story is water treatment and I think that is a big story going ahead.
The company is sitting on orders worth about Rs 8,200 crore or so. But, the opportunity size is huge. Namami Gange itself is about Rs 25,000 crore, a couple of states, Maharashtra, Karnataka, Tamil Nadu and Delhi, the opportunity size in terms of the tenders, which would be coming that is about Rs 18,000 crore.
I am looking at an EPS of over Rs 38 for FY18, Rs 46 for FY19 and I don’t think the downside is very much from here. It may just correct in case the market corrects and I am looking at a price of about Rs 850.
Sanghvi Movers: See tremendous potential post-2019
This stock fell sharply in recent past. It was trading at Rs 230-240, and from there it fell to Rs 140 because the management announced that FY18 would be tepid and that they could even de-grow.
The orders which were expected from wind energy sector, that in fact would de-grow and that is nearly 66 percent of the overall turnover. However, one should remember that is one of the largest crane-rental companies, sixth largest in the world.
Since their main business is from wind - one should look at how wind business is going to go in a couple of years. India has to grow from 32.5 gigawatts to 60 gigawatts by 2020, which has been pledged for climate change.
Therefore, if you have to move from 32.5 to 60 gigawatts then it has to happen form possibly 2019. Even if we achieve 50 percent of that, Sanghvi Movers will have enough business coming up.
It is great opportunity to buy because, post-2019 one could see a very good move. In fact, one could see movement happening in the next 8-9 months because market usually discounts quite early.
Analyst: Prakash Diwan of Altamount Capital
Aimco Pesticides: Return 35-40%
This company is from the agricultural space. We know that there is a huge entry barrier issue and a lot of other new players cannot get in, some of the existing players which were struggling including this company made losses for quite some time.
They eroded the net worth and it went to the BIFR. But, the net worth has now turned positive and there is very high chances or probability that it moves out of that BIFR status as well as starts generating positive cash.
It doesn’t have any debt on the books. It is a small company as about Rs 160-170 crore market cap but the promoters have recently gone ahead, issued warrants to themselves, preferential allotment at very decent rates as compared to the market price.
Going forward, the way they are globalising their business with increasing focus on exports, investors can look at the financials by themselves. But, here’s the top-down approach.
In the year, it has done almost more than 3x because it is a turnaround and turnarounds can go up and head anywhere but my sense at least 35-40 percent upside given the kind of robust change that we already see on a quarter-on-quarter (QoQ) basis so that momentum should take it another 40 percent up.
JHS Svendgaard Laboratories: Over 100% return in 15-18 months
The stock is well known but has been on and off on most investors' radar for good reasons because the company was always a contract manufacturer. They have a strong relationship with Dabur India and Patanjali has also kind of blessed them.
With the blessings from Patanjali, things are looking up very differently. Last quarter, the numbers told a very different story. The company also went into expansion mode sometime back.
In the last two-three quarters they have spent a lot of money on expansion to the tune of almost 175 percent of what they used to be last year, they also have a huge packaging.
In the fast-moving consumer goods (FMCG) you need to be fully integrated, you cannot be doing one part. They started making bristles then they started making toothbrush and then toothpaste and now even packaging it in all formats and all shapes.
I think it is a company that is on the right track. It has scalability, it has headroom for growth and they also settled the issue with P&G and got some Rs 27 crore. If you do a math of their other clients, Patanjali would end up being about 46 percent by end of next year.
It has Rs 400 crore of market cap, and of late the management has started meeting some marquee investors from the fund side. Some new names have come in who have been interacting with them.
But, wait for the volatility to subside and you can buy it for the longer term and this could double in about 15-18 months from here.
Gulshan Polyols: Stock is ripe for picking
Gulshan Polyols fairly new name and not many people would have come across this. It is a fairly old company and has been operating out of Muzaffarabad in Uttar Pradesh (UP) for the last many years.
A lot of them are import substitutes like fructose syrups and all of that. These go into various industries. If you look at the client list, it is a who’s who of the industry.
The fast-moving consumer goods (FMCG) industry like the P&G, Colgate of the world to a lot of pharmaceutical companies, to a lot of soap manufacturing companies. It has been a very impressive run for the company.
The bi-product that it makes is gluten and a lot of things that go into feeding animals, poultry, in the dairy business, and fishery. They have started making money out of everything that they do.
A very large mutual fund (MF) has a significant stake in this company, another FII also owns a significant stake. Apart from that, there has not been much of activity on the institutional side but I think it is ripe for the picking.
HPL Electric: It is a perfect re-rating candidate
It is one of the unsung heroes after the IPO. It has been languishing and nobody bothered about it because it did not deliver much. It came at the back of another high performing IPO. However, HPL has been in this business since ages, it is a contemporary of Havel's.
Their product mix is good because it is uniquely positioned into very promising segments - the first is smart metering. Recently, a 5 million order that EESL gave and L&T was probably the L1 for this but it is first in a series of orders that could come through. They will also be a beneficiary of Saubhagya Scheme.
The company is getting its act together and it is fairly valued and not expensive. It is re-rating that will happen more than EPS accretion. So give it some time, it will start delivering.
Analyst: Dipan Mehta, Member BSE & NSE
Mahindra Holidays and Resorts India: Profits to go up by 50% in next 2 years
I think consumption per se remains a very powerful investment theme and leisure travel is growing rapidly and has got good growth potential in India.
It has been around for a long time and a lot of the initial teething problems and the accounting related issues have all been sorted out. The focus is more on providing an experience to a family and therefore, the resorts are in tourist towns. What I like best about the company is its multiple revenue flows.
They are not just a selling a vacation ownership, they get annual subscription fees then they get beverages and the food, which is consumed by the members at their resorts and during the lean period they get rental from the resort income from the resort rooms, which they rent.
I would say that these are long-term stocks and over a period of time, these valuations do get neutralised. Two years down the line, the company’s profits go up by 50 percent or so.
Investors have to be patient in companies like these and this is where you get the benefit of compounding in stocks like Mahindra Holidays with limited downside.
TeamLease Services: It can grow at 15-20 percent for many years
It is a staffing solutions company and it benefits from three very powerful trends. First of all is the growth in the services business, the second is that labour laws in India are getting tougher and the third trend is goods and services tax (GST).
The competing company is Quess Corp and that is double the valuation in terms of price earning multiple and of course, you can get the upside in Quess Corp through Thomas Cook (India).
Look at the holding company returns compared to the actual operating subsidiary company returns, be it Bajaj Finserv versus Bajaj Finance or Godrej Industries versus Godrej Consumer Products, HDFC versus HDFC Bank.
I would like to go for the actual operating company and between TeamLease and Quess, Quess is a great business but it is just that the valuation comfort is more in TeamLease at this point of time.
It is a bit of a concept stock which perhaps explains the high premium valuation but a secular growth story. It can grow at 15-20 percent for many years and that is the most attractive part.
Zee Learn: Can grow at 15-20% for the next several years
We all know that education is a great space to be in but very few stocks one can buy with confidence and Zee Learn certainly comes on top of the list over there.
It is India’s largest operator of pre-school centres and they also have a presence in K12 that is kindergarten-twelfth standard schools under a different brand.
After many years of trying to establish the business, set the model right, I think the company has now reached a growth phase where it is steadily expanding its footprint.
It is in the middle of a very powerful trend where more and more parents are getting aware of child education – we all know getting into good schools is difficult so the planning starts at the pre-school stage.
I am very confident that this company is a secular growth story and can easily grow at 15-20 percent for the next several years. If you get the benefit of compounding over here.
The high premium valuations will get neutralised and you have the benefit of the Zee brand, the KidZee brand which is a very powerful brand, which the company has created over several years.
There is a lot of technology also in terms of delivering education, child development at the pre-school stage as well as the K12 stage. So looking forward to this company.
UFO Moviez: A good buy for next 2-3 years
India seems to be transforming into a consumer-oriented economy and so makes a powerful investment theme. UFO Moviez has been a bit of disappointment after it came with a lot of fanfare and great promise but did not deliver for various reasons.
They were pioneers in converting analogue theatres to digital theatres and that business lasted for 5-7 years but this company is entering a new growth phase where it has got advertising rights for all digital cinemas in which it has supplied the equipment and where it is supplying its virtual prints.
Advertising is going to be the big growth driver, it has been till now growing at 25-30 percent, and will do so going forward as well. Interestingly, all the theaters are in tier II-tier III cities and marketing spends and efforts are now being directed toward these cities because tier- I cities are exhausted.
They are also trying to go hyper-local and get more and more local establishments to advertise in their digital cinemas. These are 3-4 good growth drivers for them.
Valuations are at an attractive level of 15 times. However, 2-3 years hence, there is great potential in terms of a marketing platform to their digital company where we feel earnings can growth and PE can expand.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their 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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