Diwali Stock Picks! Make most of equities this festival; invest in these 9 companies, become rich by next Samvat
As history says, markets are also wait eagerly for this day, to receive buying sentiments from investors.
Diwali 2018: Diwali week has begun with immense excitement and many people were busy buying gold yesterday, on Dhanteras, at their local shops. It is the festival of light and colours, and citizens take it as a very auspicious day for making investments or taking any big step. Well, looks like this festival might just be the moment you need when it comes to investing in equities. Every year during Diwali festival, investors across the country make an investment on stock exchanges - even the ones who have not traded in a while make it a point to bet on equities on this day.
According to analysts at Aditya Birla Capital, in a report said that the markets have performed in a mixed manner in previous SAMVAT 2074, as the Indian equity markets corrected across the board (2.2%, -7.8%, -23.6% returns for Large Caps, Mid Caps and Small Caps resp.). This was after a stellar Samvat 2073 (returns of 17.6%, 18.1% & 24.1% for Large Cap, Mid Cap & Small Cap indices resp.).
The analysts added, with positive real interest rates, the financialisation of savings and equitisation (within the financialisation) will continue to gather momentum domestically leading to healthy flows into Equity over the next few years. Also, a start of the new Capex cycle is on the anvil, and a consumption boom likely awaits as India’s per capita GDP is likely to double over the next 5 years (boosting discretionary spending).
Hence, to begin with Samvat 2075, here's a list of 9 companies which can give superior risk adjusted returns over the next few months and quarters, as per Aditya Birla Capital.
Dmart’s revenue and profit has grown at a CAGR of 35% and 53% over past 5 years. With strong brand, solid business model, proven track record, strong management pedigree and Industry tailwind, we expect Dmart to grow at a much higher rate than the organized industry over next many years delivering healthy returns - A perfect long term compounder.
It trades at rich valuation of 64x on FY20E earnings which we believe should sustain. Expect Stock to deliver 25%+ over 12M.
CCL’s revenue has grown ~2.5x to ~11bn over FY12-18 while its profits have gone up ~4x from Rs.36cr in FY12 to Rs.148cr in FY18, delivering ROE of 20%+ over same period. Its expansion has come mostly through internal accruals and little blend of debt and it hasn’t raised additional equity since listing.
It is trading at 20x on TTM basis. It is expected that, the earning to grow at a CAGR of 20% over FY18-20E. Hence, expect the stock to deliver ~25% return over 12M.
Steel Strips Wheels
Steel Strips Wheel’s Topline and PAT has grown at a CAGR of 10% and 25% over past 5Y. With entry into alloy wheels, it will continue to deliver strong PAT growth.
As far as valuation is concerned, it is valued at 15x FY20E P/E. Considering the prospects of CV and Tractor industry, the company should benefit and deliver healthy performance.
Expect the stock to deliver 25%+ returns over 12M.
MSIL has delivered Revenue and PAT CAGR of 13% and 25% respectively over the past five years with ROE of 15%+.
As far as valuation is concerned, it is valued at 20x FY19E earnings. Being market leader and most preferred car maker in the country, it should continue to command a premium.
Expect the stock to deliver 25%+ returns over the next 12 months.
The company is well-positioned to grow credit at 30-35% CAGR and PAT at ~35-40% CAGR for next couple of years. It earns strong NIM of ~10% mainly owing to superlative yield it earns. CoF to remain on lower side considering the strong business model and large corporate backing.
ALM risk is minimal as diversified lending book across tenors acts as a natural hedge. It is well-capitalised with tier 1 ratio of 18% for growing credit at such strong pace. RoA of ~4% is amongst the best in industry mainly owing to superior margins, cost efficiency and stable asset quality.
Rich valuations to be maintained considering the agile management, superlative growth, retail and SME exposure, high NIM and ROA earning ability of business. Expect stock to deliver ~25% return in 1 year time-frame.
The bank is well set to achieve all its target which shall enable it to grow profits by 22-25% compounding over FY18-FY20E. Kindly note that one-off provisioning impact due to IL&FS exposure will dent profitability in FY19E.
However, Aditya Birla capital believes the recent correction factors the same in stock price. Valuations are reasonable at current levels. Expect stock to deliver ~25% return in a year’s time.
Aarti is well placed to benefit from environmental issues in China and MNCs thrust for a reliable alternative source of supply for its end products. At CMP, it is trading at 21x of FY20 earnings.
Expect the earnings to grow at a CAGR of 23- 25% over FY18-20. Expect stock to deliver 25% return over 12M.
It is expected that, the company's overall revenue and PAT CAGR of 18% and 25%, respectively over FY18-20E with a strong FCFF. The high asset turnover and improved profitability has created strong cash flow generation (~65% of EBITDA) for Abbott.
It already has ~Rs 960cr of liquid investments in its balance sheet. The stock is currently trading at 20.1x of FY20E earnings. Expect stock to deliver 20-25% returns over 12M.
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Philips Carbon Black
The stock is currently trading at 9.6x of FY20E earnings. Improved capacity utilization levels of rubber carbon black, a shift in mix towards specialty black, and operating efficiencies due to brownfield expansions are likely to drive growth in the bottom line at a CAGR of 25-28% over FY18–20.