History suggests that these events do not leave a lasting impact, but have more of a knee-jerk reaction and any dips should be used to get into quality stocks on declines.
Worried about geopolitical tensions? Well, it may look bad, but it might not be as bad because any knee-jerk reaction could give investors an opportunity to buy into quality stocks on dips.
Things took a u-turn for D-Street after South Korea said that its northern counterpart could be preparing to launch an intercontinental ballistic missile (ICBM) following its ‘flawless’ test of a hydrogen bomb, various media reports quoted.
“Geopolitical tensions always cause undesired volatility. But, over the last decade or short lived geopolitical tensions have always given entry opportunity to investors,” Rakesh Tarway - Research Head - Reliance Securities told Moneycontrol.
“Unless market believes that tensions in North Korea are going to escalate to a full-time war in immediate to short term any negative volatility caused by the same will provide a good correction for investors,” he said.
We have collated a list of top 10 stocks from various experts which could turn out to be multibaggers in next 2-3 years:
Analyst: Sahil Kapoor, Chief Market Strategist, Edelweiss Broking
RMTL currently has an ongoing investment of Rs350cr with an objective to enhance its leadership in the stainless steel (SS) tubes/pipes segment.
This new capacity will enable RMTL to capture the significant opportunity emerging from the government’s policy of encouraging imports substitution and preferring domestic suppliers over imports in PSU contracts particularly in sectors such as oil and gas, defence, aerospace, nuclear energy — an opportunity valued at least at Rs 1,000-1,500 crore beyond its present market of Rs 1,500 crore pa.
We expect SS tubes volumes to grow by 22.6 percent CAGR between FY17-20E with higher blended realizations and margins. The carbon steel pipes segment has a strong opening order book of Rs420cr, a majority sourced from the water and gas sectors.
We expect RMTL’s carbon steel segment to grow volumes at 8.8 percent CAGR over FY17-20E. Higher operating leverage and improving blended realization is expected to take FY20E EBIDTA margin to 20% from the current 18.2 percent.
In the past decade, RMTL has consistently posted RoCE of 20 percent, which we believe can be grown to 23 percent in FY20E as the current demand leads to improved realizations.
Indian road sector is expected to experience immense growth backed by an increase in spend and improved policies by the government both at central and state levels.
Dilip Buildcon (DBL) is the largest road construction company in India with Rs20,000 cr order book and Rs5,100 crore revenue and is expected to be a major beneficiary of thrust in road and construction segment.
Strong and in-house execution, an end to end capabilities, and before time delivery aid DBL to earn highest EBIRDA margin and one of the highest RoCE in the road construction space.
Limited investment and the improved working capital cycle will reduce the stress on the balance sheet and hence return on invested capital will improve going forward.
GIC Housing Finance (GICHFL)
GICHFL is a well-capitalized retail HFC with over 97 percent of loans financed by individuals and up to Rs15lakh loans constituting 50 percent of the loan book.
While housing loans account for 83 percent of loan book, the balance is loans against property (LAP). Company’ prefers to finance the salaried class, which forms 77 percent of the loan book.
Humungous untapped market and policy push significantly burnish prospects. Hence, GICHFL has raised its loan growth target significantly — to Rs160bn by March 2019 from Rs79.1bn in March 2016, implying 26% CAGR over FY16-19 and 29.3% CAGR over Q3FY17-FY19.
Dip in high-cost borrowings and rising share of high-yield loans to boost NIM. The share of high-cost borrowing was 75 percent in FY15, which fell to 67 percent in FY16 versus the industry average of 28 percent.
The management has guided to cut it to ≤50 percent. We estimate GICHFL’s earnings to jump significantly over FY16-19 which will expand RoA and RoAE.
The earning surge is expected on account of a) target to double loan book to INR160bn over FY16-19; b) plan to increase the share of LAP from ~17 percent to 20 percent, and c) goal to steadily cut borrowings from commercial banks to ≤50 percent from 67 percent in FY16.
We have projected loan book CAGR of 25 percent over FY16-19, while NII, operating profit, and PAT are estimated to grow 24 percent, 26 percent, and 27 percent, respectively
Trident which commenced operations as a yarn player has now shifted to the higher margin home textile segment (71 percent of FY19E revenues vs 46 percent in FY16).
We envisage Trident’s EBITDA margin to increase due to the shift from a yarn manufacturer to the higher margin home textiles, improved performance from the paper division and increasing utilisation.
Utilization of terry towels and bed linen is expected to improve from 49 percent and 32 percent currently to 66 percent and 54 percent in FY19E, respectively resulting in operating leverage.
Trident will generate Rs600cr free cash flow every year over FY17-19, a part of which will be used to repay the debt which will boost PAT.
Higher utilisation will spur asset turnover and margin, which will result in RoE and RoCE expanding from 8 percent and 14 percent in FY16 to 16 percent and 22 percent in FY19E, respectively.
The stock trades at an inexpensive valuation of 8x FY19E P/E in spite of improving financials and a leadership position in home textiles and branded copier paper.
Asian Granito India (AGL) is the fourth largest tiles manufacturer in India, with ~33MSM capacity and accounts for ~8 percent of the organised tiles market.
It produces ceramic wall & floor tiles and digital, polished/glazed vitrified tiles- and is also engaged in marble and quartz manufacturing with an annual installed capacity of 1.3MSM.
The company has a wide range of tiles portfolio offering 1,200 plus designs across the INR 30 to INR 165 per sq ft price range. A vibrant product range, aggressively expanding distribution network, sustained capacity expansion and potential benefits of shift of market share to organised players are expected to aid AGL to outperform peers.
Expected Growth FY17-19E - Sales: 19 percent CAGR; EBITDA Margin Improvement: 180 bps; PAT: 46 percent CAGR.
Strong footprint on domestic and international platforms, the untapped potential for national consumption, Greater emphasis on exports and enhancing partnerships via mergers and acquisitions.
Analyst: Hemang Jani, Head – Advisory at Sharekhan Ltd
Arvind Limited’s (Arvind) revenue for Q1FY2018 grew strong by 17.6 percent YoY to Rs.2,475 crore, driven by 40 percent growth in the branded apparel’s business and 17 percent growth in the garment business.
In view of lower margins in the textile business, we have reduced our earnings estimates for FY2018 by 7 percent and have broadly maintained our FY2019 earnings estimates.
With the branded and retail business expected to grow strongly and improvement in the scale of garment business on account of commencement of new unit in Ethiopia, near to medium-term growth prospects are intact.
The balance sheet is expected to remain lean and return ratios are expected to improve in the coming years (management is targeting 17-18% RoCE for FY2019E).
The steady operating performance with net interest income (NII) up 15.6 percent on a YoY basis and PAT rose by 25.6 percent YoY aided by a boost in other income Loan book up 29.1 percent YoY driven by large corporate advances growth, retail, and agri loan book clock decent growth.
External factors and chunky large account slipping into NPA results in decline in asset quality Growth atmosphere remain conducive with credit offtake and increase in overall demand.
While asset quality performance o the lender was clouded by one off events, and the outlook remains bright for Federal Bank. As overall demand improves in the Indian economy, credit off-take would be conducive for well-managed players like Federal Bank.
RBL Bank (RBL) posted strong operational performance in Q1FY18 as the net interest income increased by 54.7 percent YoY to Rs378.4 crore while the noninterest income was up by 53.3 percent YoY to Rs256.9 crore.
While strong growth momentum has been maintained, we find that the microfinance has been the main point of pain due to external factors.
Going forward, the management has indicated course correction with steps like vintage customers to graduate to individual loans, deepening customer relationships and engagement across other banking products.
Considering the present valuation, we believe that short-term pains are factored in the price. The proposed QIB placement, will be book value accretive and make valuations further attractive. We have changed our stance from “Neutral” to “Positive”.
For Q1FY2018, Relaxo Footwears Limited’s (Relaxo) revenue grew by 19.8 percent on a YoY basis to Rs.490.5 crore. The company witnessed increased volumes across all product categories and geographies. Gross margin contracted by 476BPS YoY to 53.4%, mainly led by higher rubber prices.
In view of the dip in margins in Q1FY2018, we have revised downwards our earnings estimates for FY2018 by 6 percent and for FY2019 by 2 percent.
But, Relaxo has a superior portfolio of footwear brands and its relentless focus on driving sales through the expansion of distribution and improving the brand presence augurs well for the company to achieve good growth in the backdrop of better demand environment.
Moreover, GST implementation will be a key growth lever fo Relaxo, as a large part of the Indian footwear market is unorganised (~60%). Relaxo’s stock price is currently trading at 31.3x its FY2019E earnings.
Va Tech Wabag’s (VTW) consolidated revenue for Q1FY2018 grew by 15% YoY to a Rs.669 crore, driven by healthy execution in the domestic market (grew by 39% YoY), while international market remained subdued.
Despite weak order inflow during Q1, management has reiterated its order inflow guidance on account of healthy inquiries from export as well as domestic markets.
Revenue guidance is also maintained, driven by enhanced execution of large-size projects. Despite a low margin profile in the European market, VTW is committed to maintaining its margin by focusing on other geographies having better margins.
Hence, on this backdrop, we have maintained our earnings estimates. Therefore, we retain our Buy rating given that it is a quality engineering company having niche expertise, professional management and structural growth story in the water treatment industry.Disclaimer: 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.