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Budget 2021

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HDFC Securities Retail Research picks these 'Super 10' for 2021

Birla Corporation, Infosys, Sun Pharma, HPCL and ONGC are among 10 companies that are likely to witness superior earnings growth and outperform the benchmark indices, says HDFC Securities Retail Research.

January 12, 2021 / 09:37 AM IST
2020 has been among the worst years for the global economy in more than 70 years. HDFC Securities expect 2021 to be a year of restoration. Some segments have reached near-normalcy while others will attain so in the coming months. It bring 10 stocks from different sectors that are likely to benefit from the rebound in the economic activities. These companies are likely to witness superior earnings growth and are likely to outperform the benchmark indices.
The year 2020 was among the worst years for the global economy in more than 70 years. HDFC Securities Retail Research expect 2021 to be a year of restoration as some segments have reached near-normalcy, while others will attain so in the coming months. It brings 10 stocks from different sectors that are likely to benefit from the rebound in economic activities. These companies are likely to witness superior earnings growth and outperform the benchmark indices.
Bandhan Bank | The bank has consistently demonstrated a strong track record in growing its balance sheet/earnings (AUM grew by CAGR 44% FY10-20) and maintained a robust market share/cost leadership with superior return ratios, pristine asset quality and low-cost DSC (door step service centers) network. Despite the slowdown HDFC Securities expect the bank to deliver RoA in the range of 3.3-3.5% and RoE of ~ 19-20%. At CMP of Rs 410 the bank trades at 3.2x FY22E ABV. It believe the bank would continue to trade at premium valuations given the huge opportunity in MFI business.
Bandhan Bank | The bank has consistently demonstrated a strong track record in growing its balance sheet/earnings (AUM grew by CAGR 44% FY10-20) and maintained a robust market share/cost leadership with superior return ratios, pristine asset quality and low-cost DSC (door-step service centres) network. HDFC Securities Retail Research expect the bank to deliver RoA in the range of 3.3-3.5% and RoE of ~ 19-20%. At CMP of Rs 410, the bank trades at 3.2x FY22E ABV. It believes the bank will continue to trade at premium valuations given the huge opportunity in the MFI business.
Birla Corporation | Company has 4.2% of the market share in Indian cement industry. It has a 15.58 MTPA of cement capacity, 52631 metric tons of jute and 3750 metric tons of iron & steel casting installed capacity. Its 34% cement capacity is located in Madhya Pradesh followed by 26% capacity in Rajasthan and remaining in other regions. Its debt-funded expansion and ownership fight can create pressure on valuation and performance. HDFC Securities expect, that the company will get benefit from the regionally diversified position with upcoming capacity. It like Birla Corp due to its extensive retail presence in the lucrative north/central regions, substantial ongoing cost reduction and healthy balance sheet despite significant expansions plans.
Birla Corporation | The company has 4.2% market share in the Indian cement industry. It has a 15.58 MTPA of cement capacity, 52,631 metric tons of jute and 3,750 metric tons of iron & steel casting installed capacity. Its 34% cement capacity is located in Madhya Pradesh followed by 26% in Rajasthan and remaining in other regions. Its debt-funded expansion and ownership fight can create pressure on valuation and performance. HDFC Securities Retail Research expect the company to benefit from the regionally diversified position with upcoming capacity. It likes Birla Corp due to its extensive retail presence in the lucrative north and central regions, substantial ongoing cost reduction and a healthy balance sheet despite significant expansion plans.
GAIL (India) | HDFC Securities expect GAIL’s ongoing pipeline projects to enhance its dominant market position over the medium term. GAIL owns 70% of India’s gas transmission network which is its stable, non-cyclical and regulated business. This is likely to remain the key operating income contributor over the medium term generating stable cash flows. Cost effective operations, experienced management, attractive valuations and sound financials are key advantages offered by the stock apart from a decent dividend yield. The stock currently trades at 10.2x FY22E EPS.
GAIL (India) | HDFC Securities Retail Research expects GAIL’s ongoing pipeline projects to enhance its dominant market position over the medium term. GAIL owns 70% of India’s gas transmission network, which is its stable, non-cyclical and regulated business. This is likely to remain the key operating income contributor over the medium term, generating stable cash flows. Cost-effective operations, experienced management, attractive valuations and sound financials are key advantages offered by the stock apart from a decent dividend yield. The stock trades at 10.2x FY22E EPS.
Hindustan Petroleum Corporation | Hindustan Petroleum Corporation Ltd (HPCL) has dominant market position as one of India’s top-three oil marketing companies. HPCL’s marketing business is the strongest amongst peers with consistent market share gains in auto fuel segment despite rising private competition. HPCL is targeting the completion of the Mumbai and Vizag expansions in 2021, followed by upgradation at Vizag in 2022 and Rajasthan (Barmer) refinery in 2023. The company expects all pipeline projects to be completed on time as well. The stock is currently trading at 5.3x FY22E EPS.
Hindustan Petroleum Corporation | Hindustan Petroleum Corporation Ltd (HPCL) is one of India’s top-three oil marketing companies. HPCL’s marketing business is the strongest among peers, with consistent market share gains in the auto fuel segment despite rising private competition. HPCL is targeting the completion of the Mumbai and Vizag expansions in 2021, followed by upgradation at Vizag in 2022 and Rajasthan (Barmer) refinery in 2023. The company expects all pipeline projects to be completed in time. The stock is trading at 5.3x FY22E EPS.
Source: AFP
Hindustan Unilever | HUL is a play on consumption growth in India. The company has proved its ability to implement effective price hikes and to grow ahead of the market. HDFC Securities Retail Research believe HUL will be able to overcome short-term economy led hurdles as it has done in the past. Disruptive times are particularly hard on unorganised players, which may lead to HUL gaining market share. HUL has the best of breed earnings growth potential in the longer term owing to its diversified portfolio, execution strengths, and RoCE levels well ahead of peers. All these factors indicate that premium multiples are likely to sustain, the stock is trading at ~54x FY22E earnings.
Infosys | HDFC Securities remain optimistic on its revenue and profitability trajectory as well as cost rationalisation efforts going forward. It expect a repeat of past post crisis opportunity for IT services when it benefitted out of a wave of fresh outsourcing and offshoring demand given India’s large pool of engineers and low cost advantage. In the medium term Infosys sees opportunities around vendor consolidation and large re-badging deals which it can capitalise on given its ability to seamlessly transition to work from home and strong balance sheet position.
Infosys | HDFC Securities Retail Research remains optimistic on the company's revenue and profitability trajectory as well as cost rationalisation efforts. It expects a repeat of past post-crisis opportunities for IT services when it benefitted from a wave of fresh outsourcing and offshoring demand, given India’s large pool of engineers and low-cost advantage. In the medium term, Infosys sees opportunities around vendor consolidation and large rebadging deals, which it can capitalise on, given its ability to seamlessly transition to work from home and strong balance-sheet position.
Nippon Life India Asset Management | A complete exit of ADAG and promoter backing of global giant Nippon gives HDFC Securities confidence in the company’s future. Extensive expansion to newer locations and industry leading B30 AUM augurs well for NAM India. Given the massive under-penetration of financial products and inclusion in India, there is enough scope for AMCs like NAM India to continue to expand profitably.
Nippon Life India Asset Management | A complete exit of ADAG and promoter backing of global giant Nippon gives HDFC Securities Retail Research confidence in the company’s future. Extensive expansion to newer locations and industry-leading B30 AUM augurs well for NAM India. Given the massive under-penetration of financial products and inclusion in India, there is enough scope for AMCs like NAM India to continue to expand profitably.
Oil and Natural Gas Corporation | ONGC enjoys a dominant market position in the domestic crude oil and natural gas production business with large proven reserves, globally competitive cost structure, and stable performance of its subsidiary ONGC Videsh Ltd. (OVL). The Government is looking to provide a package of measures to help domestic oil producers pull through the price crash and the uncertainty in the global oil market. Any relief in this regard could be positive for ONGC to add to its profitability. Acquisition of a majority stake in HPCL fits well into the group’s integrated energy strategy.
Oil and Natural Gas Corporation | ONGC enjoys a dominant market position in the domestic crude oil and natural gas production business with large proven reserves, globally competitive cost structure and stable performance of its subsidiary ONGC Videsh Ltd. (OVL). The government is looking to provide a package of measures to help domestic oil producers pull through the price crash and the uncertainty in the global oil market. Any relief in this regard could be positive for ONGC to add to its profitability. Acquisition of a majority stake in HPCL fits well into the group’s integrated energy strategy.
State Bank of India | SBI is almost immune to any liability-side risks at this juncture, given its expansive, granular deposit base and government’s majority holding. It is better placed to curtail asset quality worries than many other large banks because of its quality of loan book. Moreover, ample provision coverage will curtail incremental loan loss provisions. SBIN has one of the strongest deposit franchises; along with inexpensive valuations.
State Bank of India | SBI is almost immune to any liability-side risks at this juncture, given its expansive, granular deposit base and government’s majority holding. It is better placed to curtail asset-quality worries than many other large banks because of the quality of its loan book. Moreover, ample provision coverage will curtail incremental loan loss provisions. SBI has one of the strongest deposit franchises along with inexpensive valuations.
Sun Pharmaceutical Industries | We estimate 7% revenue, 13% EBITDA and 18% PAT cagr over FY20-23E led by strong domestic revenues and healthy growth in US market. HDFC Securities remain positive given Strong Management Team, robust balance sheet, strong earnings growth expected over FY20-23E and compelling valuations. We believe that in the next 2-3 years there will be a gradual comeback for pharma companies, driven by i) healthy growth momentum from domestic market ii) actual and likely regulatory resolutions, iii) moderating price erosion and iv) several product launches across generic and specialty categories in the medium-long term.
Sun Pharmaceutical Industries | HDFC Securities Retail Research estimates 7% revenue, 13% EBITDA and 18% PAT CAGR over FY20-23E led by strong domestic revenues and healthy growth in the US market. HDFC Securities Retail Research remains positive given a strong management, robust balance sheet, strong earnings expected over FY20-23E and compelling valuations. It believes that in the next three years, there will be a gradual comeback for pharma companies driven by i) healthy growth momentum from the domestic market ii) actual and likely regulatory resolutions, iii) moderating price erosion and iv) several product launches across generic and specialty categories in the medium-long term.
Rakesh Patil
first published: Jan 11, 2021 11:09 am

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