In the current sate of nervousness, one has to have faith in their portfolio and ignore the swirling of the markets. The best course
of action is to take advantage of irrational market behavior. Consider this
period as a deep discount sale where crown jewels are being sold for pennies.
Following are the crown jewels which can deliver superb returns for your
Portfolio:
ICICI Bank
· ICICI Bank has one of the strongest deposit franchise amongst
private banks with a CASA of 47% (43% on average basis) and one of the highest
PCR amongst leading banks.
· We believe the bank is well placed in a challenging environment
with its limited exposure to the newly surfaced stressed names and one of the
highest provisioning coverage in the banking sector.
· The impact of Corona Virus on to the broader economy does pose a
risk to the banking system but ICICI has one of the lowest exposure to SME
segment which forms <4% of total loans.
· ICICI remains one of our top ideas in the BFSI space - we
estimate RoA/RoE to improve to 1.7%/16.8% in FY22.
HDFC Bank
· HDFC bank is the largest private sector bank in India with an
asset size of INR12.6t+ and market share of ~7% in deposit and loans,
respectively
· Superior loan profile has enabled HDFC Bank to consistently gain
market share across retail segments (personal loans, business banking, credit
cards and auto loans), while strong capitalization and liquidity levels will
help sustain this momentum over the next few years.
· Stable margins, a robust fee income profile and strong control
on operating leverage are likely to drive an improvement in the return ratios.
Hindustan Unilever
· HUL is India's largest FMCG Company with strong brands, market
leadership in most of the categories it operates in and one of the largest
distribution network in India.
· Four key trends that point toward an elevated earnings growth
trajectory for HUL are (a) rapidly improving adaptability to market
requirements, (b) recognition and strong execution of the Naturals segment, (c)
a continuous trend toward premiumization, and (d) extensive plans to employ technology,
creating further entry barriers.
· With soaps and detergents at around 46% of sales and the
increased focus on hygiene HUL will not only be a beneficiary of higher sales
but also of premiumization. It is a staples company with low vulnerability to
lockdown, slowdown in discretionary consumption and customers venturing out
lesser unlike other consumer peers.
Reliance Industries
· The company aims for Consumer business to contribute 50% of
consolidated EBITDA in few years (v/s 32% in FY19).
· Jio has rolled out new tariff plans - While Minimum Recharge
Price plans were hiked by 32% (now beginning at INR129), the popular monthly
plans witnessed a price hike of ~25-30%. The hike in ARPUs should result in
~INR134b/INR119b incremental revenue/EBITDA.
· RIL’s target is to become a ‘zero net-debt’ company in the next
18 months which can act as a rerating trigger.
· In the core segment - Refinery throughput is expected to remain
at 70mmt; GRM ~9.9/10.5/bbl for FY20/21.
Infosys
· Infosys has invested aggressively in building capabilities to
match industry spend shifts towards Digital (now contributes ~35% of revenue).
It has also been one of the most disciplined companies in terms of operational
efficiency.
· In a cautious spending environment, we expect Infosys growth to
remain steady (6% YoY, CC) in FY21. Our comfort was driven by Infosys’s
continued robustness in large deal wins and strong order backlog.
· In addition, Exposure of Infosys to challenged verticals like
travel, transportation and hospitality is not material. In addition, its
exposure to Asian markets which are materially disrupted so far is also
limited.
Ultratech Cement
· UltraTech is the largest manufacturer of grey cement, Ready Mix
Concrete and white cement in India with an installed capacity of 95mt. The
acquisition of Century’s cement asset and Binani increased its capacity to
109.4mt and took its pan-India market share to 24%.
· Given limited capex needs, strong FCF generation of >INR75b
per annum (7% yield) from FY20, should drive deleveraging and stock price
appreciation.
· North/Central are structurally the preferred regional markets
for us, where UltraTech has highest exposure.
· We forecast a CAGR of 26%/48% in EBITDA/EPS over FY19-21, driven
by a 6% CAGR in volumes and better margins. We expect RoE to improve 550bps to
13.8% by FY21.
Bharti Airtel
· Bharti Airtel, a leading global telecom company, operates in 18
countries across South Asia and Africa. It has over 410 million customers.
· With SC dismissing the reassessment of AGR liability, Bharti is
better placed given its recent fund raise which should cushion the risk of AGR
liability.
· Expect EBITDA to increase about 15% in FY21 to INR400b and
incremental growth should come through ARPU or market share. This should
provide a healthy 5-6% plus FCF yield. Tailwind from increasing industry size
and improving market share should help.
Alkem Labs
· Alkem has been consistent outperformer to industry in domestic
formulation (67% of sales) market with 16% CAGR to INR49b over FY14-19. Despite
base becoming higher, it has enough levers to sustain the growth momentum over
next 3-4 years.
· With a portfolio of more than 800 brands in India, Alkem is
ranked the fifth largest pharmaceutical company in India in terms of domestic
sales
· We expect strong growth driven by (a) Alkem’s superior execution
across Acute/Chronic segments in DF, and (b) better traction with minimal
regulatory risk in the US generics segment.
· Further it has minimal exposure (less than 5%) to geographies
impacted by coronavirus. With resumption of supplies from China, we expect raw
material cost to moderate going forward. We expect 30% earnings CAGR over
FY19-22.
IPCA Laboratories
· IPCA manufactures over 350 formulations and 80 APIs for various
therapeutic segments. They are one of the world's largest manufacturers of
Chloroquine Phosphate and Hydroxychloroquine Sulphate which could potentially
be used for managing/treating Coronavirus Disease (Covid-19).
· IPCA appears well positioned to deliver strong earnings CAGR of
26% over FY19-22, led by its strong outperformance in Domestic Formulation
(DF), improved prospects in API and revival in International Generics.
· Superior execution, lower financial leverage and healthy return
ratios reinforce our positive stance on the company. We expect 25% earnings
CAGR over FY19-22 (excl. resolution on the US front).
Marico
· Marico is a global consumer company with presence in over 25
countries across emerging markets of Asia and Africa. It has strong brands in
categories of health, beauty and wellness like Parachute, Saffola, Hair &
Care, Nihar, Set Wet, Mediker, Revive, etc.
· After the recent price reduction in its largest brand, Parachute
(~30% of sales), Marico's overall volume growth outlook appears relatively
better than peers of its size.
· Marico is likely to benefit in all its key raw materials (Copra,
LLP, HDPE and Safflower) due to benign costs.
· Demand for brands like Parachute, Saffola, VAHO and youth
products are unlikely to be significantly affected by the Coronavirus.
Disclaimer:
This is strictly for
informational purposes only. It is not a solicitation to buy, sell in
securities or other financial instruments. FINVESTEDGE do not accept
culpability for losses and/or damages arising based on information in this
post. Contact your investment advisor before investing.
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