Monthly Stock Picks – February 2021

Reliance Industries Ltd:

Reliance Industries Limited is engaged in refining, petrochemicals, oil and gas, organized retail, digital services and others. Reliance Q3FY21 consolidated revenue grew by 6.7% QoQ to Rs. 123,997cr, due to increase in revenue across all verticals mainly in Oil to chemical (O2C) businesspartially offset by decline in organized retail sales. The increase in O2C business aided by high oil demand, feedstock flexibility and recovery in downstream demand results. Consolidated revenues of Reliance Jio grew by 5.3% QoQ to Rs 22,858 crore on back of higher ARPU. ARPU during the quarter of Rs 151.0 per subscriber per month as against Rs 145.0 per subscriber per month in the trailing quarter. Over the last five years, RIL has seen a huge transformation from being an energy company to becoming a market leader in both the Digital and Retail space.  While H1 2020 was dominated by Jio, RIL turned its attention towards its retail division in H2 2020. A similar continuous fundraise was seen at Reliance Retail too, with a majority of Jio’s investors lining up to fund what would become India’s largest retail operator in the year. Reliance delivered strong operational results during the quarter with a robust revival in O2C and Retail segments, and a steady growth in Digital Services business.  Future Group stores stand to bring in additional business worth $5.5 billion in grocery alone for Reliance Retail. the deal gives RIL more bargaining power over FMCG players, vendors, and logistics partners, along with easing its entry into smaller towns.

Bharti Airtel Ltd:

Bharti Airtel Limited is a leading global telecommunications company with operations in 18 countries across Asia and Africa. In India, the company’s product offerings include 2G, 3G and 4G wireless services, mobile commerce, fixed line services etc. Bharti Airtel had over 423 million customers across its operations at the end of March 2020. Bharti Airtel continued adding subscribers to its network in the month of November, taking its user base to 334.6 million. The company had 4.4 million new users in November, according to the monthly subscription data by the Telecom Regulatory Authority of India (TRAI). In September, Bharti Airtel was the biggest gainer in terms of users with 4.4 million subscriber additions. Bharti Aitel reported highest ever consolidated quarterly revenues in Q3FY21 on the back of strong customer addition. Airtel posted a 24% year-on-year increase in consolidated revenues to ₹26,518 crore for the quarter ended on 31 December. Bharti Airtel holds the highest ARPU in Industry at Rs. 166. In Q3 FY21. Data traffic share gains for Bharti Airtel will likely continue because even as its 4G base increased to 153 mn, 4G penetration is still at 52% of its 294 mn total mobile subscribers.

Asian Paints:

Asian Paints Ltd is India’s largest paint company and Asia’s third largest paint company.  In Q3FY21 Y-o-Y : Revenue up 25% at Rs.6788 Crore, Profit up 65% at Rs.1265 Crore, EBITDA up 50% at  1787 crore, EBITDA Margin at 26.3% Vs 21.9%. Q-o-Q:  Revenue up 27%, EBITDA up 41%,EBITDA Margin at 26.3% Vs 23.6%,Profit up 52%.Decorative business registered volume growth of more than 30%, Industrial coatings delivered robust performance and  International business registered  double digit growth led by growth in Asia and Middle east. Strong 33% volume growth in Q3 lead by Strong push across markets and product segments, gaining market share and good demand conditions due to construction resurgence & festive demand.Company launched waterproofing product range across all international  units and Bath Business in Bangladesh and south Asia.Q4 demand conditions expected to be strong with strong recovery in consumer sentiments  Roll-out of Covid vaccination program augurs well for the domestic demand recovery to becomev broad-based and well-entrenches.

HCL Technologies:

HCL technologies is a global technology company offers it’s services and products through three business units IT and Business services, Engineering & R&D Services and products and platform. Company has reported growth in revenue of 3.81% Q-o-Q and 6.4% Y-o-Y at Rs.19302 Crore in Q3FY21. PAT stood at Rs.3977 crore witnessed growth of 26.54% Q-o-Q and 35.09% Y-o-Y. HCL won 13 transformational deals across industry verticals, including life sciences and healthcare, technology and financial services. HCL completed the acquisition of Cisco’s Self-Optimizing Network (SON) technology. This acquisition, which comprises products and services built on Cisco’s SON technology, will help HCL meet the growing needs of its clients in the telecommunications industry. It also launched the 1PLMCloud solution that helps manufacturing companies transform their Computer-Aided Design (CAD) and Product Lifecycle Management (PLM) infrastructure into an on-demand, scalable, and agile environment to drive the business innovation needed for the New Normal. To assist companies around the world, HCL has combined its decades of engineering system experience with strong partnerships to create 1PLMCloud, which helps manufacturing enterprises navigate their CAD and PLM cloud journey.

Infosys

Infosys managed to beat Street expectations on revenue and margin front in the quarter ended December. Infosys posted its strongest third-quarter result in Eight years. Financial services, Energy, utilities, manufacturing are among the business segments that registered the double digit growth in this Quarter. North America region supported the company’s growth among all market segments. The company has Initated salary hike from January 2021 and expect some cost like travelling could also hit this quarter. It has partenerd with Daimler AG to support a technology-driven IT infrastructure transformation. Company signed the largest deal worth $7.13 billion in the Indian IT Industry. Apart from this, signed another deal of $500 Million. The company has provided the Guidance on Revenue and margin band to 4.5-5% and 24-24.5% for the FY21E.

Indraprastha Gas:

Indraprastha Gas offers piped natural gas (PLG) to homes and industrial and commercial customers. Among the two segments, CNG accounted for 76 per cent of the company’s volumes in FY20. PNG business represents a long-term opportunity with low penetration of 10 per cent in the domestic segment. The number of households getting piped cooking gas is targeted to rise to 5 crore in coming 5 years from the current 62.5 lakh. IGL volumes are poised to accelerate to a 10–15% CAGR over five years led by a doubling in domestic gas connections and ‘enhanced economics’ of CNG vehicles. IGL targets 2x CNG stations in five years. Recent open access regulation encourages new CGD buildout while restricting a pure change of hands. High barriers remain. IGL has the option to widen margins as CNG is about half the price of competing fuels. IGL targets to end 3QFY21 with flat YoY volume and 4QFY21E with 10–12% YoY growth. For FY22E, it expects volume growth of 20–22% over FY20.

Pidilite Industries :

Pidilite industries is a consumer centric company known under it’s famous brand name Fevicol. It’s Business segment include two business segments namely Consumer & Bazaar (C&B) and Business to Business (B2B). Company consolidated  revenue grew by 22% Q-o-Q and 19.36% Y-o-Y at Rs.2299 crore for Q3FY21.Revenue of C&B segment witnessed strong improvement with 25.1% growth and 2.7% in B2B segment slightly improved Y-o-Y. EBITDA and PAT stood at Rs.6408 Crore and Rs.4418 Crore registered growth of 38.4% and 29.3% Y-o-Y. On margins front EBITDA margins up by 60 basis points Y-o-Y and 390 basis points Q-o-Q. Improved in margins on account of  Input cost as % of sales lower by 105 basis points vs same quarter last year and higher by 80 basis points vs previous quarter and lower discretionary spends. Resumption in Infrastructure activities after Covid-19 and significant allocation of union budget towards infrastructure sector will aid company to maintain it’s margins between 21% to 24% for the next few quarters.

Dr. Reddy’s Laboratories:

Dr. Reddy’s Laboratories Limited provides a complete range of pharmaceutical services. The Company manufactures bulk drugs and formulations including verapamil and cephalexin. Dr. Reddy Net sales grew 12.5% YoY  to Rs. 4942 Crore in Q3FY21 driven by across segments. Dr. Reddy’s sales in the Indian market rose 26% year-on-year to Rs 960 crore in the reported quarter. It contributed 19% to the overall revenue for the quarter. Company has launched two Covid related products – Fujifilm’s Avigan (Favipiravir) and Gilead’s Remdesivir. Dr Reddy’s had tied up with the Russian Direct Investment Fund (RDIF) for manufacturing and distributing its covid-19 vaccine – Sputnik V – in India. The peer-reviewed phase-3 trial results of Russia’s Sputnik V vaccine showed it to be 91.6% effective against covid-19. Margin of the company contracted to 24% from 24.4% due to impairment charge of Rs 600 crore in the third quarter. Dr. Reddy has a strong pending pipeline comprising 92 ANDAs. We expect Dr. Reddy to sustain this growth momentum ahead on the back of strong growth visibility in US 30+ launches guided in FY21, Strong domestic business growth led by Wockhardt revenue synergies and benefits from covid portfolio.

Aarti industries:

Aarti Industries a leading speciality Chemical company in Benzene based derivatives with a global market share of 25% and also engaged in the Pharma operations spanning APIs, Intermediate and Xanthene derivatives. Company  Revenue stood at Rs.1186.78 crore  which  witnessed growth in revenue of 1.20% Q-o-Q and 9.51% Y-o-Y  in Q3 FY21 and generate 83% of it’s revenue from Speciality chemicals and rest 17% from Pharmaceuticals. Company’s pharma business  topline grew by 32% Y-o-Y which is at record level high  in Q3FY21 and expect to sustained the margin in the long term as additional capacities for API’s and intermediates are operationalized.  Capex during the quarter stood at Rs.365 crore which is in line with the guidance and expect the runrate of Rs.1000 -1200 crore in the next  4-5 years. The ‘Aatma Nirbhar Bharat’ mission and India continues to get prominent positioning within global supply chains for innovators in speciality chemicals and pharma sectors, Aarti Industries is slated to derive structural benefit from the opportunity.

TATA MOTORS DVR:

Tata Motors’ DVR has 10 per cent voting right compared with its common stock. Its DVR currently trades at 60 per cent discount to the common stock compared with the 43 per cent discount on average over the past decade. In developed markets such as the US, the DVR discount is around 3-5 per cent. Traders usually ascribe a discount to the DVR due to lower liquidity and voting rights. TATA Motors reported healthy numbers in Q3FY21: Revenue  stood at Rs.74878.98 crore up by 5.39% Y-o-Yand 41.71% Q-o-Q, EBITDA stood at Rs.11357.88 crore up 67.79 Y-o-Y and 110% Q-o-Q,EBITDA Margin expand by 500 basis points Q-o-Q and 560 basis points Y-o-Y at 15.61%,PAT stood at Rs.3222.21 crore turnaround Q-o-Q and up by 85.37% Y-o-Y,PAT Margin expand by 186 Basis points Y-o-Y at 4%.Company has a futuristic vision as a dynamics in the industry pushing auto mobile industry towards the Electric vehicle segment and though company already has two vehicle in this segment which accounts more than 70% of the sale in the electric four wheeler Industry.

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