Diwali 2018 picks: Top 12 bets to light up your portfolio

Significant rise in raw material prices and aggressive pricing to capture market in entry level have put operating profitability under pressure. However, despite overall weak demand, the company continues to witness strong growth across segments and geographies. Change in permit regime for three wheelers, strong growth outlook for export markets and rupee depreciation is expected to aid to growth, going forward.

Balaji Amines

Balaji along with Alkyl Amines dominate the near duopoly market of aliphatic amines industry in India. Not only does the company benefits from the improving end markets, recent results have been supported by anti-dumping duties, forward integration, improved exports due to lower production in China and commissioning of newer facilities. The company’s strategy of focusing on import substitution opportunities is expected to aid higher trajectory of earnings growth.

HDFC

Despite its large size, HDFC is growing its mortgage book faster than the industry. On the margin front, spreads continue to remain in a narrow range of 2.2-2.35 percent irrespective of the interest rate cycle. The current interest rate cycle shouldn’t alter the lender’s financials significantly as it continues to have edge on funding vis-à-vis competition. While the core mortgage business is on a stable growth trajectory, the financial conglomerate stands to gain from equally strong performance of its subsidiaries.

HOEC (Hindustan Oil Exploration Company)

HOEC has a healthy portfolio of discovered assets and is rapidly monetising and ramping up production which has led to a stellar performance in the last quarters. It has a debt free balance sheet and plans to fund further expansion through internal cash generation. The monetization of the discovered blocks and further ramp up of production volumes leaves scope for rerating.

ICICI Bank

With 2020 vision in place and new management at helm of ICICI Bank, investors should expect much lower NPA formation and normalised credit cost in FY20, mid-teen loan growth, steady interest margin and commencement of the journey to reach RoE (return on equity) of 15 percent. With a strong capital adequacy, we don’t see many constraints in delivering its targets. While credit cost may remain elevated in FY19, the risk-reward is extremely favourable.

Indian Hotels

Post aggressive restructuring, Indian Hotels Co. has a clean balance sheet. The company has exited unprofitable ventures in the international segment and plans to monetise its brand with increased focus on the flagship domestic business. Slowdown in supply growth along with steady demand is facilitating improvement in room rates and occupancies that should reflect in earnings growth, going forward.

IRB Infra

IRB has emerged as a strong player within road constriction space, with better balance sheet and execution capabilities. On the back of reasonable traffic growth, proceeds from InvIT and strong order book of close to Rs 14000 crore (4x FY18 sales), the company is well placed to capitalise on growth in the segment.

IRCON

The public sector engineering major, IRCON International, which caters to railway projects, is expected to deliver 20% revenue growth over the next two years backed by strong capex in railways and robust order book of close to Rs 22,400 crore (5.6x FY18 sales). The stock trades at an undemanding valuation of 8 times its FY19 estimated earnings, offering a dividend yield close to 5%. This is even more attractive in the context of cash in the books and high RoE of about 23 percent.

JK Paper

JK Paper is well positioned in high-quality paper segment with cost leadership and integrated production capacities. Favorable industry factors such as improved supply-demand dynamics and raw material availability in proximity will continue to aid profitability. With strong earnings visibility and potential upside triggers arising from ramping up the additional capacity acquired (Sirpur Paper Mills), valuation re-rating should be on the cards.

Mahindra & Mahindra Financial Services (M&MF)

M&MFS, the NBFC from the Mahindra stable has a deep penetration in rural geographies and stands to benefit from a near normal monsoon and improvement in rural purchasing power. The liquidity crisis engulfing the NBFC sector will have much lesser impact on corporate backed NBFC like M&MF. In fact, the reduced competition should give it a better pricing power amid rising rates. While margin compression is a headwind, its impact on earnings could be countered by falling credit cost.

Maruti

Macroeconomic and regulatory headwinds have dampened the demand for passenger vehicles and impacted the performance of Maruti Suzuki India Limited (MSIL) in the latest quarter. Today, MSIL is a very strong franchisee, with a market share of close to 57 percent, in passenger vehicle market in India led by strong dealership network, brand loyalty on the back of competitive prices and resale value. This coupled with reasonable valuation beckons attention.

Transport Corporation of India (TCI)

The Multimodal logistics service provider, has a consistent financial track record of delivering industry leading growth over the past few years. Aided by government initiatives (Dedicated Freight Corridors, Sagarmala and BharatMala) and increased economic activity, company is expected to post mid-teen revenue growth over FY18-20. TCI continues to perform well on the operational front and the current valuations (16x FY20 Price-earnings ratio) makes the stock noteworthy.