We are of the view this financial year will be for mid-caps positive performance due to improvement in earnings, inline monsoons as per expectation and constructive reforms by new government.
After a record run to its all-time highs on the back of exit polls for Lok Sabha Elections 2019, both the Nifty and Bank Nifty reversed their gains made on May 23 to end the day on a negative note on the back of profit booking. A stable government and more policy action to come, can definitely give a boost to the economy and that will act positive for the market.
We are at an inflection point today in front of big events unfolding. We are of the view that this financial year will be for the positive performance from mid-caps due to an improvement in earnings, a monsoon to be in line with expectations and constructive reforms by the new government.
The India Meteorological Department (IMD) has predicted a 'near-normal' monsoon in 2019 at 96 percent. So sectors such as FMCG, agrochemical, automobile, cement, which are indirectly related to agriculture will be in focus for the coming weeks. Additionally, macro data and global sentiments will have a significant impact in driving market direction.
It is time now for the investors to continue to build equity exposure for the medium to long term. On a CAGR basis, the returns of the Nifty during the tenure of the past three governments were 16 percent, 25 percent and 16 percent respectively, which proves how the stock market stabilises despite the electoral outcome.
The long-term investment opportunity in India remains firmly in place, so the right time has come to accumulate below mentioned stocks in a gradual manner.
Deepak Nitrite: Buy | Target: Rs 346 | Return: 22 percent
The company has reported a growth of 22 percent in its standalone revenues in Q4 FY19 YoY. The performance wan mainly driven by a better product mix, capacity expansion and higher realizations across key products even as overall volume growth stood 11 percent YoY.
On the profitability front, the standalone EBITDA margin for the company stood at 22.7 percent at Rs 110.7 crore as against 13.9 percent at Rs 55.4 crore in same quarter previous year, which is an improvement of 880 basis points.
On its phenol-acetone plant, the company has reported revenues of Rs 537 crore in Q4 FY19 and has operated at almost 100 percent capacity utilization levels in the quarter. For the full year, the phenol business contributed Rs 927 crore in revenues and Rs 56 crore as profit before tax.
Overall, the results were in line with our expectations on the revenue front, while marginally lower on profitability front.
Larsen & Toubro: Buy | Target: Rs 1,894 | Return: 28 percent
Larsen & Toubro reported a consolidated gross revenue of Rs 44,934 crore in Q4 FY19, reflecting an increase of 10 percent on a YoY basis. The quarter witnessed growth in several segments including infrastructure, heavy engineering, hydrocarbon and IT & Technology services.
Overall PAT in Q4 increased 8 percent on YoY basis to Rs 3,418 crore, up from Rs 3,167 crore in the previous year quarter. The order inflow for the quarter was Rs 56,538 crore, increasing 14 percent YoY.
For full year FY19, the company reported consolidated gross revenue of Rs 1,41,007 crore, registering 18 percent YoY growth. Consolidated PAT for FY19 was Rs 8,905 crore, up 21 percent on YoY basis.
The company won new orders worth Rs 1,76,834 crore at the group level during FY19, increasing 16 percent over the previous year. Order wins in infrastructure and hydrocarbon segments were the major contributors to the order inflow during the year. The international orders during the year at Rs 46, 805 crore accounted for 26 percent of the total order inflow.
Tata Consultancy Services (TCS): Buy | Target: Rs 2,510 | Return: 22 percent
TCS has delivered a double digit revenue CAGR of 10.5 percent in the last three years. The company has grown consistently at industry leading growth rates on the back of its strategy to add new clients, win large deals and co-innovate with customers.
In the latest quarterly results, digital business, which accounts for 31 percent of revenue, continued to add steam TCS’s growth and grew by 46 percent YoY in constant currency terms. Revenue growth was 12.7 percent YoY in constant currency terms. Further, TCS secured contracts with TCV (Total Contract Value) of $6.2 billion versus $5.9 / $4.9 / $4.9 billion in Q3 FY19/Q2 FY19/Q1 FY19.
TCS's strong TCV wins, its improving YoY growth in the BFSI segment, its all-round vertical growth, its rising digital revenue and its healthy Q4 exit rate all drive confidence on underlying momentum, and we expect the IT major to comfortably post double-digit revenue growth for FY20E.
We expect growth momentum to continue in FY20, given deal wins of $6.2 billion in Q4 FY19, up from $5.9 billion in Q3 FY19, and net hiring of 29,287 in FY19 versus 7,775 in FY18. We initiate our coverage on Tata Consultancy Services Limited (TCS) with a buy rating and target price of Rs 2,510 per share.
ITC: Buy | Target: Rs 352 | Return: 22 percent
ITC has reported a growth of 13.3 percent in its standalone revenue at Rs 11,992 crore (net of excise duty) in Q4 FY19 as against Rs 10, 587 crore in Q4 FY18.
On the profitability front, the company reported a growth of 19 percent in its net profit which came in at Rs 3,481 crore in Q4 FY19 versus Rs 2,933 crore in Q4 FY18. EBITDA margin came in at 38.1 percent.
Overall, the results are above our expectations in terms of revenue and marginally below expectations in terms of margins.
With strong operating cash flows, continuous capacity expansions across businesses and a healthy balance sheet, we have a positive view on the company over medium to long term. We have a buy rating with a target price of Rs 352 per share.
L&T Technology Services (LTTS): Buy | Target: Rs 1,940 | Return: 11 percent
The company has reported a growth of 27.3 percent in Q4 FY19 at Rs 1,343.1 crore as against Rs 1,054.8 crore in same quarter previous year. In dollar terms the growth was 17.8 percent at $191.3 million in Q4 FY19 YoY while constant currency growth stood 20 percent.The growth was mainly driven by process, transportation and medical devices verticals.
For the full year, the revenues grew 36 percent at Rs 5,078.3 crore and 26.5 percent in constant currency at $723 million.
On profitability front, the EBITDA margin for the quarter stood at 18.5 percent as against 16.1 percent in Q4 FY18, an improvement of 240 basis points.
During the quarter, LTTS won nine multi-million dollar deals across all industry segments. On a YoY basis, LTTS has increased the number of its $50 million + clients by 2, $10 million + clients by 4 and its $million + clients by 10.
Overall, the results were in line with our expectations in both dollar and rupee on the revenue front, while being marginally better in profitability terms.
(The author is Vice President - Equity Advisory, 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.