Like auto, pvt banks for the medium to long term; these 3 stocks could return 14-38%

Siddharth Sedani of Anand Rathi says strong demand for capital and consumption goods is likely to continue

July 06, 2018 / 08:11 AM IST
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Siddharth Sedani

Automobiles sales data for June was positive and reflects strong demand in the sector. We are positive on the automobile sector and private banks with a medium to long term view. We prefer to remain with sectors where there are earnings growth and better business prospects.

The upcoming result season will now be closely watched by market participants for support after the steep price fall seen in mid and smallcap stocks in the last few months.

The increase in minimum support price for kharif crops by the central government has been taken keeping in mind the farmer’s welfare. This is a positive step for the rural economy, and coupled with forecast of a normal monsoon, strong demand for capital and consumption goods is likely to continue.

The move was in line with the Budget announcement of hiking the support price 1.5 times of production cost. However, there is a concern that this will be inflationary and effect fiscal slippage.

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Here is the list of stocks that can offer 14-38 percent return:

Sundram Fasteners: Buy | Target - 760 | Return - 18%

It is the largest manufacturer and exporter of high tensile fasteners. Manufactures automotive components such as high tensile fasteners, radiator caps, powder metal parts, pumps and engine components.

Caters to OEM in 2 wheelers, 4 wheelers, farm equipment and commercial vehicle segment. Company is making efforts to improve product mix with focus on high-value products and increased contribution of exports.

As a part of its backward integration strategy, company added a second 10,000 Ton foundry plant to cater high demand for machine castings in China. Company is significantly adding capacity and has incurred Rs 200-300 crore capex in FY18.

Management expects to invest Rs 350 crore in FY19. Company has High return on equity (ROE) of 25.40 percent.

IndusInd Bank: Buy | Target - Rs 2,248 | Return - 14%

IndusInd Bank continues to report robust operating performance after having absorbed the high NPA divergence reported last quarter, keeping profitability intact.

Low credit costs, steady NIM and high credit growth would keep profitability high through FY19-20.

The strategic Bharat financial deal would be synergistic in the medium term.

We expect the bank to maintain stable asset quality over FY19-20, aided by its well-diversified loan mix. We expect slippages from the corporate book to shrink as the bank increases its exposure to higher-rated corporate bodies. Thus, we model a gross-NPA ratio of around 0.97 percent in FY20.

We factor in around 26 percent overall credit growth through FY19-20. The corporate book was largely driven by gaining market share from PSBs and working-capital loans to better-rated corporate bodies. With a pick-up in CV growth expected in FY19, retail advances could be buoyant.

Indiabulls Housing Finance: Buy | Target - Rs 1,580 | Return - 38%

Indiabulls housing finance top line growth of 25 percent continues to be strong, with NII growth of 21.30 percent & stable margin.

Despite upward movement of interest rates, spread is resilient at 311 bps

Total loan asset grew 34 percent of which home loan was up by 44 percent which contributes 60 percent if total loan assets.

Company has planned to mitigate pressure with a hike in lending rates and higher growth in commercial lending.

Bank borrowings reduced to 34 percent from 37 percent YoY in Q42018.

Management targets to gradually increase the share of securitization in its loan book from 10 percent currently to 20 percent over medium – to – long term.

Company is looking at increasing fee income as a % of disbursement to 2 percent from 1.60 percent now.

The company enjoys AAA rating by CRISIL.

Disclaimer: The author is Vice President - Equity Advisory, Anand Rathi Shares and Stock Brokers. 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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