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Last Updated : Dec 13, 2018 10:12 AM IST | Source:

Use volatility to accumulate good quality stocks for the long term: Anand Rathi

As volatility is a long-term investor’s best friend, we believe investors should make use of such situation to accumulate good quality companies for long term

Moneycontrol Contributor @moneycontrolcom
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Siddharth Sedani

The market has reacted positively with strong volumes, after major events like state election results, RBI governor’s resignation and OPEC’s meeting are out of the way.

The market seems to have discounted the uncertainity over the last couple of months due to the lined up key events and corporate governance issues cropping up in the financial sector

Additionally, the markets have reacted positively to the US-China trade truce, stable debt market and stabilizing crude oil prices. We believe markets will not break October 2018 lows so easily unless some global issue escalates.

As volatility is a long-term investor’s best friend, we believe investors should make use of such situation to accumulate good quality companies for long term.

Here are the stocks on which we are bullish:

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

In H1FY19, HUL has reported a growth of 11.2 percent in its revenues of which volume growth was around 11 percent for the period.

We expect HUL to grow at a CAGR of 13.5 percent in the next two years. We estimate the company to report revenues of Rs 4,012.8 crore in FY19E and Rs 4,575.61 crore in FY-20.

The operating margins for the company should continue to improve with our estimate of around 120 basis points over two years. We expect company’s EBITDA margins to be around 21.8 percent in FY19E and 22.3 percent in FY20E.

Aditya Birla Fashion & Retail | Rating: Buy | Target: Rs 239

With its operations across segments and a wide retail network, it is appropriately placed, to benefit from India’s growing branded apparel industry. During the quarter, the company added six Pantaloons stores and 59 Madura Lifestyle Brand stores, taking the totals to 288 and 1,897, respectively.

The company posted a sharp H1FY19 turnaround with profit of Rs 48.3 crore versus a Rs 30.3 crore net loss a year ago in H1FY18 due to management initiatives across its various divisions.

We expect overall revenue/EBITDA CAGR of 12 percent/25 percent over FY18-21. The stock currently trades at 19x FY21e EV/EBITDA.

Aarti Industries | Rating: Buy | Target: Rs 1,600

One of the global leader in benzene-based chemistry through its process chemistry and scale-up engineering competencies, Aarti Industries’ revenue and profit are expected to grow at 20 percent and 22 percent CAGR over FY18-21, driven by scale-ups in its specialty chemical and pharmaceutical businesses and the new toluene capacity.

For Q2FY19, Aarti’s revenue surged 46.4 percent y/y to Rs 1,290 crore, chiefly due to strong volume growth and increasing share of high-value products.

The specialty chemicals, pharmaceuticals and home- and personal-care divisions brought respectively 80 percent, 14.8 percent and 5.2 percent to revenue. The good performance and higher capacity utilisation boosted the EBIDTA margin 58bps y/y to 18.6 percent. Thus, due to the good operational performance, PAT swelled 56.6 percent y/y to Rs 120 crore.

Its capex of Rs 1,700 crore in the next three years, strong operating performance of all divisions, focus on R&D and strong relationships with clients would shift growth to a higher trajectory in future.

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.
First Published on Dec 13, 2018 10:12 am
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