Moneycontrol Research’s Diwali Dozen portfolio sparkles, and it’s time for a tweak

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26 Aug, 2025 12:21

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Moneycontrol Research

We had handpicked a set of dozen investment ideas around Diwali – our equal-weighted “Diwali Portfolio” -- with an eye on medium to long-term returns that would handsomely beat the benchmark and deliver the proverbial alpha. After the earnings for the September 17 quarter, the portfolio deserves a review. We are happy to report an outperformance of 8.9 percentage points over the benchmark in little over a month. Still, in our endeavour to closely scrutinize every idea, we are tweaking the portfolio a bit and present the new idea alongside a review of the remaining eleven.

We are introducing Rain Industries into the portfolio. The company is one of the largest manufacturers of carbon products (89 percent EBITDA contribution to the company) in the world. It has seen a surge in price realisations of its key products, calcined petroleum coke and coal tar pitch, thanks to the improving demand scenario for end markets – aluminium and graphite.

Rain is executing capacity expansion to the tune of 16 percent for both products in the coming 5-6 quarters to meet the tight supply-demand situation. Additionally, its global presence helps to participate in the broad-based recovery of the end markets. A recent price correction provides an entry opportunity to the investors, in our opinion.

We are dropping Manpasand Beverages as the heightened competition in non-carbonated beverage space might cloud near-term performance.

We continue to be bullish on the rest

Axis Bank reported 36 percent YoY earnings growth but on a very low base, while it declined 67 percent sequentially on account of high provisions. Core earnings were muted. Asset quality worsened and slippages remained high at 9 percent of loans as the bank reported its second year of major deviation from RBI’s assessment of NPLs (non-performing loans). However, loan growth remains healthy with traction from retail and working capital driven corporates. The bank should be a beneficiary of NPA resolution that should get expedited after PSU bank recapitalisation. Finally, it is raising capital to be well-armed to embark on a growth journey.

Recent quarterly performance of Bhansali Engineering Polymers was encouraging. In the second quarter of FY18, the company posted net sales of Rs 248 crore, up 11 percent QoQ and 52 percent YoY, reflecting a higher pricing trend for ABS and the elevated capacity utilization witnessed recently. In light of this, we continue to expect Bhansali to post earnings growth at a CAGR of 81 percent during FY17-19E. It is noteworthy that the company is building a fourfold increase in manufacturing capacity (by FY22) in two stages, which should help in capturing the import-dependent domestic market (industry domestic capacity 60 percent of demand).

On account of GST, during Q2FY18, Century Plyboard recorded a 4.3 percent decline in sales and 18.6 percent fall in net profits. However, the scenario is easing with volumes expected to be better in the coming months as a result of the expected pickup in demand post GST and government’s focus on housing. Further, benefits of reduction in GST rates from 28 percent to 18 percent and capacity expansion will be seen in the coming quarters, driving higher earnings. Even though the stock has rallied post its inclusion in the portfolio, we see good earnings visibility.

Fiberweb (India) delivered strong earnings. The company is altering its product mix from polypropylene spun-bound non-woven fabric to polypropylene flatbound nonwoven fabric, to align itself with the steadily growing international market for the latter and earn higher gross margins. Furthermore, commissioning of the 3,000 metric ton melt-blown non-woven fabric manufacturing facility by the end of Q3FY18 will enable the company to increase the share of margin-accretive value-added products to its overall turnover from 16 percent in FY17 to around 25-30 percent by the end of FY19.

Within infrastructure, particularly in the road construction space, IRB remains the preferred choice given the improving balance sheet strength and strong construction order book of Rs 8,200 crore or 2.4 times its sales. In Q2FY18, the company reported a 13 percent year-on-year drop in sales. While there was minor slowdown in both EPC revenue and traffic at some of the BOT (built own transfer) projects, post GST implementation that is expected to ease, driving better earnings growth over the next two quarters. Moreover, at current valuations of 10 times its FY19 estimated earnings, the stock has potential for valuation rerating.

Minda Corp (Minda) is a well-diversified auto-component manufacturer catering to the passenger vehicle, three-wheeler, two-wheeler, commercial vehicle segments. The company has posted an excellent set of numbers for 2QFY18, driven by both net operating revenue (up 20 percent) and EBIDA margin expansion (188bps). With marquee clients in its kitty, no client concentration, focus on research and development to develop technologically advanced products, and a turnaround at Minda Furukawa, the company continues to beckon investor attention.

From the brink of bankruptcy, SpiceJet has navigated well over the last few quarters. It has posted a very good set of 2QFY18 numbers driven by a year-on-year improvement in all operating parameters: yield (up 5 percent), load factor (continue to be above 92 percent), ASKM (available seat kilometers) (up 25.6 percent) and RPKM (revenue passenger kilometer) (up 24 percent). With a dynamic management at the helm, huge capacity expansion plans, foray into ancillary services, focus on cost optimization and comfortable valuations, investors may consider boarding the flight for a safe journey.

Star Cement reported a sales decline due to a 23 percent decline in volume. However, robust profitability at Rs 1,626/MT (up 69 percent YoY) drove a 31 percent surge in EBIDTA and 1,770 percent in PAT. Despite the volume de-growth of 14 percent in the first half, the management is confident of delivering overall volume growth of 10 percent in FY18 due to stronger outlook for the second half. The share of sales in North East is likely to improve. This coupled with the receipt of subsidy from the government and the capacity expansion in West Bengal remain the medium-term earnings trigger.

Tata Chemicals reported a steady set of Q2 numbers with a mixed bag of segmental performance. We believe the exit from the working capital-intensive fertilizer business and deleveraging of the balance sheet will provide finance cost benefits. This coupled with higher revenue from asset light but relatively high-margin consumer and specialty chemical businesses will have a positive rub-off on profitability and return ratios. The stock is valued in line with peers and a foray into high-margin businesses could provide a rerating.

Since our initiation in August 2017, Tata Global Beverage has run up 40 percent. However, we see further potential to unlock value as the restructuring initiatives unfold. The company has already exited its China business, changed the operating model for Russia and is undergoing a major capacity expansion plan (USD 6 million) in Vietnam. Further, its initiatives towards building core brands, increasing share of non-black tea in international market, foray into US premium mineral water market and moderate tea commodity prices outlook should aid earnings growth, in our view.

Sponge, which is used in steel making continues to ride the up-cycle in the industry on better pricing. In Q2FY18, Tata Sponge reported strong 72 percent growth in net profit on the back of 20 percent growth in revenues. In the up-cycle, companies like Tata Sponge, which has got integrated facilities tend to earn higher margins, which will continue in the coming quarters. Interestingly, the stock is trading at 12 times its annualised earnings, despite cash and cash equivalent measuring almost 50 percent of its market capitalisation. The company intends to use this cash for the forward integration over the next two years.

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