Monsoon nears! These 5 stocks may make you rich ahead
The monsoon on Indian soils plays a major role for sectors like agriculture, chemicals, fertilizers, constructions, cement, FMCG and infrastructure to quite an extent.
According to experts, monsoon on Indian soil plays a major role for sectors like agriculture, chemicals, fertilizers, constructions, cement, FMCG and infrastructure to quite an extent. Hence, if there is a good prediction for rainfalls, there will be boost witnessed even in these sectors on overall resulting in better earnings for firms and vice versa. Having said that, considering almost normal monsoon is right around the corner, you can also become a beneficiary of this season by making most of the right investment on Dalal Street. Take note, a right stock can make wonders work. Experts are optimistic on few stocks listed on exchanges like Sensex and Nifty which will be uplifted due to the monsoon season.
Here’s how you can get rich this monsoon on Dalal Street.
Hitesh Goel, Nishit Jalan and Nishit Jalan analysts at Kotak Institutional Equities believe monsoon will play key role on this stock. The trio said, “We have cut our FY2020-21E EPS estimate by 7-8% led by lower revenue and EBITDA margin assumptions. We believe Escorts is well-placed to benefit from the strong tractor demand and market share gain. However, monsoon will play a crucial role in the near term. Strong growth in construction and railway has also aided in improvement in margin in these two businesses. We have reduced our fair value to Rs 1,000 (from Rs 1,050) as we value the stock at 15X on March 2021E EPS. The stock trades at 9.7X on FY2021E EPS, which we believe is inexpensive due to strong earnings growth (11% CAGR) over FY2019-21E. Maintain BUY rating.”
Ankit Merchant, analysts at SMC Institutional Equities said, “Though there are signs of liquidity coming back and higher inventory starting to stabilize, the demand scenario is tepid due to lower than expected demand from rural area also urban demand continues to remain subdued. Going ahead, we anticipate the demand from rural and urban to improve on the back of normal monsoon for MSIL and as festive season kicks-in."
Merchant added, “We expect company’s Revenue/EBITDA/PAT to grow at a CAGR of 11%/9%/8% respectively between FY19-FY21E. At FY21 EPS stock is trading at 22.5x FY21E EPS of INR 297.2. From valuation perspective we have valued MSIL’s common stock using DCF and PE methodology by assigning (50:50 weightage). Our DCF target stands at INR 7,120/share and PE target stands at INR 7,133/share by assigning 24x on FY21E EPS of INR 297.2. We maintain our target price of INR 7,120/share and assign an “ACCUMULATE” rating on the stock.”
Deepak Kumar, Research Analysts at Narnolia Financial Advisors said, “Management believes the demand to normalize going ahead after the election results as well as better monsoon will also boost the growth and expect the AUM growth of 18-20% in FY20. Management also believes that the pre-buying of CV before the BS VI will also improve the pricing of older vehicle. Rise in cost of fund management, slowdown in high yield assets and excess liquidity in the balance sheet has led to the margin compression. Although the management has passed on the cost burden but it will take time to reset the total loan portfolio. Management has also reduced its NIM guidance by around 20 bps for FY20. Assets quality and credit cost has remained stable and management lowers the credit cost guidance for FY20. We believe continuous liquidity pressure and slowdown in auto industry will keep the margin and growth of SRTRANSFIN under pressure going ahead. We reduce our earning estimates by 6% for FY20 and value the stock at Rs 1214 at 1.5x BV FY20e.We maintain BUY.”
Experts at Sharekhan said, “Like other FMCG companies, the management expects a better monsoon to play a major role in reviving the rural demand in the near term. HUL has maintained its thrust on premiumisation and enhancing its distribution reach in the domestic market which will assist in delivering steady volume growth in the near to medium term. We expect volume growth to stand at single digit in the near term and expect it to improve gradually with the improvement in the demand environment. HUL’s OPM expanded by almost 200BPS to 22.6% in FY2019. We expect OPM to expand in the range of 30-50BPS as the company will focus on delivering steady volume growth in the near term.”
“We expect HUL’s earning to grow at CAGR of 18% over FY2019-21. HUL’s stock price is currently trading at 42.5x its FY2019E earnings. We maintain our Buy recommendation on the stock with a revised price target of Rs1990 (in-line with reduction of FY2021E estimates),” said Sharekhan.
Can Fin Homes:
Kumar from Narnolia also highlights about this NBFC. He says, “Conversion of disbursement to loan book is expected to improve going ahead because of lesser balance transfer, prepayment. Though growth rate has improved but it is expected to remain impacted in 1HFY20 due to election & monsoon period while 2HFY20 is expected to be better. Incremental loan book growth is expected to improve to double digit. Incremental Loan book growth of Rs 4600 Cr is expected in FY20 mainly from Housing 2022 scheme, mostly the growth is expected to come from Individual Housing segment.”
Further, Kumar added, “With the stability or fall in cost of fund, margin for CANFIN is likely to improve going ahead. Further the disbursement has shown sign of revival with Karnataka book also improving. Sanctions are showing good tractions. Due to little ease in competition, management said that the prepayment rates have reduced which was also reflected in the incremental loan growth of 21% YoY in 4Q FY19. Management is optimistic of loan book growth, and has guided 25% YoY growth. Asset quality has shown improvement and management is confident of further recovery from under the SARFAESI Act. CANFIN has Rs 1000 Cr of capital raising approval and is likely that management will raise the capital in near term to improve leverage. We roll over our target price on FY21 Book Value at 2.2x and maintain BUY with the target price of Rs 421.”