The year 2019 was like a roller coaster ride for the equity market but at the end, Nifty manages to close above the psychological level of 12,000 mark, supported by select large-cap names that remained at the centre of investors’ interest. Private Banks, financial services and select energy (Oil & Gas) names gained while metals, pharma, auto, media, and PSU banks were among the major losers in 2019. Nifty Media index plunged 31 per cent, Nifty PSU Bank 19 per cent, Nifty Metal index 15 per cent and Nifty Auto 11 per cent.
The US-China trade war, gloomy macroeconomic environment, and corporate tax rate cuts were the factors that kept investors busy throughout the year. Looking-ahead, the scenario looks more constructive and can expect sector rotation in the New Year. Due to surprise corporate tax cuts and ongoing implementation of reform agenda to upgrade infrastructure, raise productivity and improve governance market looks positive. We expect modest growth, comfortable inflation, accommodative policy, and highest single-digit profit growth in FY20 and 18-20% growth in FY21.
With a gradual recovery in the economy, we may see a shift in focus from large cap to large mid-cap stocks as they are trading at attractive valuations. In the last few months, Automobile and metal sectors have shown some signs of improvement. We expect the next year to be a year of recovery in the Indian economy. This recovery will drive earnings growth, and lower provisioning by banks (private and PSU both would boost earning. After the Corporate rate cut companies has shown this impact on the bottom line but still on PBT growth is missing. The current scenario for 2020 is relatively favourable and expects some major announcements in the upcoming budget. We are positive on the Pharma sector, Cement, Chemical, infrastructure and Metals.
JSW Steel Ltd. CMP: Rs.266 Target: Rs.350*
JSW Steel is the largest domestic steel producer with an installed capacity of 18 million tonne per annum (mtpa). The Company is a part of the O.P. Jindal Group, manufactures iron and steel products. The company’s products include hot-rolled steel strips, sheets/plates, mild steel (MS) cold-rolled coils/sheets, MS galvanised plain/corrugated/colour-coated coils/sheet, steel billet, bars and rods.
- Company remains focused on capex projects (Rs. 48,715cr cumulative capex projected over FY18-21E). All development projects are on track to commission as per the schedule, including 5MTPA capacity expansion at Dolvi, capacity expansion at CRM-1 complex at Vijaynagar works and modernization-cum-capacity enhancement at downstream facilities of JSW Steel Coated Products.
- The company expects to increase its supplies to the metro rail projects to about 1,50,000 metric tonnes as compared to its supplies averaging 1,00,000 metric tonnes per year over last few years. The ongoing supplies as well as those already completed during the current fiscal will boost JSW Steel’s supplies to metro rail projects by more than Rs 600 crore following successful completion of these deliveries.
JSW Steel become the leading steel company in India. In line with the Indian Government’s vision of increasing Indian steelmaking capacity to 300 MnT by 2031, JSW Steel envisions increasing its domestic capacity in India to 45 MnT over the same time period. The company expects steel demand to grow 5% in FY20 and should pick-up in H2FY20 on account of measures announced by Government. In the current challenging scenario, the declining trend seen in coking coal prices would act as a silver lining. This would aid steel spreads (EBITDA/tonne) to inch higher from Q2FY20 levels. Hence, investors can buy this stock at CMP Rs 266 for the target price of Rs.350 with time horizon of next 9-12 months
Glenmark Pharmaceuticals Ltd. CMP: Rs.347 Target: Rs.455
Glenmark Pharmaceuticals Ltd is a global innovative pharmaceutical company with operations in more than 50 countries. Glenmark has a diverse pipeline with several compounds in various stages of clinical development, primarily focused in the areas of oncology, respiratory disease and dermatology. The Company has 17 manufacturing facilities across US, India, Argentina, Czech Republic and Switzerland and 5 state-of-the-art R&D centres in India and Switzerland.
1.Glenmark generated around $250 million through 8 out-licensing deals to companies including Merck, Eli Lilly, Sanofi and Forest Laboratories
2.Spin-off its innovation R&D business under a new company with an aim to explore divestment of innovation subsidiary or licensing out its pipeline under development.
3.Glenmark had demerged its API division into a separate entity called Glenmark Life Sciences. The intent was to raise money to repay debt(The company appointed Yasir Rawjee, a former Mylan executive as Glenmark Life Sciences CEO). We expect the the sale of API business to generate capital in the range of Rs 850-1,100 crore. (Expected to close in a few months)
We expect strong performance from Glenmark. Glenmark went on to conduct clinical trials in India for over two years. It received DCGI approval and launched under brand names ZIten and Zita Plus, at a 55% lower price. Launched in April 2019, Glenmark’s remogliflozin is making noteworthy progress, garnering the highest prescriptions in the SGLT-2 category for the second month in a row. FY20 expansion to be about ₹ 8bn; FY21 will be lower. 1. Monroe a large part of capex 2. 100 mn $ invested there 3. Opportunities from this asset include some good injectable. RoW growth at 10–15% for FY20 . Debt reduction plan of ₹ 7–8bn remains on course for FY20. R&D marginally lower in percentage of sales, flattish in absolute terms. Hence, investors can buy this stock at CMP Rs 347 for the target price of Rs.445 with time horizon of next 9-12 months
Havells India Ltd. CMP: Rs.643 Target: Rs.790
Havells India Ltd (HAVL) is a leading player in electrical consumer goods in India. It is the market leader in light‐duty power distribution products. Its offerings include electrical products like circuit protection equipment (domestic and industrial switchgears), cables and wires, and consumer durables like fans, CFLs, and lighting fixtures.
1.Switchgear segment recorded a strong growth supported by export demand, various governments’ electrification projects and slight demand recovery from residential projects.
2.Company has recorded a strong performance in the ECD segment led by fan segment and new launches like water purifiers and personal grooming segments. Company has maintained 40%+ market share in the premium fan category.
- Havells preparing for future with constant products expansion, deepening market reach & brand reinforcement. India represents large untapped opportunity with lower penetration, higher unorganized sector & growing electrification. 70% of Lloyd portfolio is RAC and is more stable. The new plant will help consolidate the RAC positioning. In washing machines, the company has lost some ground over the past two quarters, but management is optimistic about coming period.
Havells is witnessing slow down since November 2018 led by shortage of capital impacting SMES/traders etc. Distributors are keeping lower inventory, following conservative stance of preserving cash. Management expects ramp up in infra and sustained consumer demand which will lead to better growth vs H1 FY20 . Also, cost savings will help deliver better OPMs. Industrial/infra demand impacted growth for cable and wires, switchgears while consumer demand helped ECD growth. RAC sale in Q2 were flattish, while LED panels faced 25% price disruption for the industry which may continue to impact in Q3 as well. Management is focusing on cost control programmes, which coupled with improved demand should help H2 growth and OPM. Hence, investors can buy this stock at CMP Rs.643 for the target price of Rs.790 with time horizon of next 9-12 months.
Mahindra & Mahindra CMP: Rs.529 Target: Rs.675
Mahindra and Mahindra Limited is engaged in the manufacture of passenger cars, commercial vehicles and tractors. It is India’s 3rd largest passenger vehicle company and the 2nd largest commercial vehicle company. Mahindra & Mahindra Limited (M&M) is the flagship company of the Mahindra Group. The Mahindra Group has a leadership position in utility vehicles, information technology, financial services and vacation ownership in India and is the world’s largest tractor company, by volume.
- The demand scenario is expected to improve going forward led by good monsoon, higher reservoir level, and good moisture content in soil which is likely to have a positive impact on Rabi output.
- The company will also launch product in electric vehicle named electric KUV in 4QFY20 followed by C100 (last mile connectivity) to be launched in Q2FY21Q3FY21 and S201 electric SUV in Q1FY22-Q2FY22.
- The electric vehicle segment is expected to see continuing growth momentum going ahead. In October, the company sold 2000 EVs out of which E-Alpha – 1300, Treo -600, E-Verito – 150 vehicles were sold.
- The company has stopped the production of Jeeto PV as the vehicle cost would increase by 30-33% due to new safety norms.
The overall passenger vehicle is expected to remain weak in FY20 and the management expects it to decline to 5% in H2FY20 as against 23% in H1FY20. The management has reiterated the decline in tractor industry growth outlook from 5% to 7-8% for FY20. The UV segment is expected to see a positive growth in H2FY20 while the CV segment is expected witness a de-growth of 25%. M&M’s market share grew in all segments it competes in. In tractors, market share grew 1.5% and ~0.6% in the PV segment. Overall UV segment (at industry level) will post positive growth in H2FY20 due to new launches. In SCV segment regained >50% market share, which had dipped in the past few quarters. M&M’s market share grew 7.2% to 7.8% in the PV segment. Hence, investors can buy this stock at CMP Rs.529 for the target price of Rs.675 with time horizon of next 9-12 months.
Aarti Industries CMP: Rs.826 Target: Rs.960
Aarti industries manufactures organic and inorganic chemicals, active pharmaceutical ingredients and surfactants. Aarti is the largest producer of benzene derivatives in India, and a major player among global manufacturers, with a 25-40% global market share across various products. It supplies to diverse end-user industries such as polymer additives, pigments, dyes, paints, pharmaceuticals, agrochemicals, fertilizers, and fast-moving consumer goods.
- India to benefit from China’s downturn, India is expected to benefit from this shift as there are few other countries with requisite scale, technology, raw materials, and supportive government policies to capture this opportunity.
- Depreciation of rupee in recent times is expected to aid the domestic industry’s export competitiveness.
- The share of downstream products increased to 75% from 70% in the corresponding quarter last year. The segment continues to benefit from structural shift of chemicals manufacturing to India.
- EBIT decline was offset by rising share of value-added products to 75% from 70% in the corresponding quarter last year.
Aarti industries manufactures organic and inorganic chemicals, active pharmaceutical ingredients and surfactants. Last 3-4 years, Interest cost has reduced from 11-12% to 6-8% possibly due to increase in low-cost export financing. Aarti industries is currently investing Rs. 20-25 billion over FY19-22E with major projects like NCB/Chlorination capacity expansion, CRAMS contract to supply intermediate for US herbicide market. With the innovator launching new herbicide in US/Brazil, Multiple minor downstream projects each with a capex of Rs. 0.5 billion. In Q2FY20, Aarti industries revenue declined 22% YoY due to exclusion of revenue from the HPC segment, sharp decline in key raw material prices and increase in contribution from downstream products to 75% from 70% in Q2FY19.
Container Corporation of India Ltd. CMP: Rs. 570 Target: 700
Container Corporation of India Limited (CONCOR) is engaged in transportation of containers (rail and road), and handling of containers. The Company is also engaged in the operation of logistics facilities, including dry ports, container freight stations and private freight terminals.
- Concor’s domestic business performed better than Exim business in Q2FY20 with Exim revenues de-grew 7% to 1357 crore while domestic revenues grew 7% to 381 crore. Lower EXIM revenue is largely as no SEIS income has been recognized in current quarter (as against Rs 99.63 crore in corresponding previous quarter) as no notification has been issued by Govt. for the same.
- Company aims to consistently invest Rs. 1000 crore annually, which has helped the company to shape up the business around and is expected to contribute meaningfully in FY20.
- The government plans to sell its stake from 54.8 percent to 30.8 percent may provide the required trigger to capture the huge growth opportunity presented by the DFC (Dedicated freight Corridor) and could also lead to quick decision making of various projects.
Container Corporation of India (CONCOR) is India’s largest railway container freight operator. Concor report muted volume growth in Q2 amid subdued economic scenario. However, the company was able to report better margins owing to price hike taken in April 2019. The management expects freight pricing on the DFC will be similar to the current railway charges. Further, as the 25ton axle load wagons are operationalized, company will gain market share from the domestic roadways segment, particularly on the long haul routes. . Hence, investors can buy this stock at CMP Rs.570 for the target price of Rs.700 with time horizon of next 9-12 months.
ICICI Prudential Life Insurance Company Ltd. CMP: Rs. 488 Target: 645
ICICI Prudential Life Insurance Company provides life insurance, pensions and health insurance to individuals and groups. Its segments include Par Life, Par Pension, Non Par, Annuity Non Par, Health, Linked Life, Linked Pension, Linked Health and Linked Group.
Key Takeaways :
- In H1FY20, value of new business of company grew 20.2% YoY to Rs. 709cr, and margin improved 350bps YoY to 21.0%. VNB margin, which is the ratio of VNB to the amount of new business underwritten in the period expanded to 21.0% from 17.5% in H1FY19
- The company has better diversification with contribution of protection business increasing to 14.8% of overall APE in H1FY20 (vs. contribution of 9.3% in FY19).
- Interim dividend reduced to Rs. 0.8 for H1FY20 (vs. Rs. 1.6 for H1FY19), as the company plans to invest in protection business.
- The company will continue to focus on annuity and protection business . Share of ULIP in product mix declined sharply (-1,670bps YoY) as management focus shifted towards protection.
The company has registered strong results with robust growth in new business despite the market volatility. In Q2FY20, gross premium income rose 6.6% YoY, driven by the increase in group level premium by 80.4% YoY. The company’s focus on premium growth, while maintaining its solvency levels should be the key for the upcoming few quarters. The company has been expanding partnerships and on-boarding a variety of distributors, both conventional and nonconventional, to address growth. The company remains committed to doubling VNB in next 3-4 years. Hence, investors can buy this stock at CMP Rs.488 for the target price of Rs.645 with time horizon of next 9-12 months.
Vindhya Telelinks Ltd. CMP: Rs. 950 Target: 1320
Vindhya Telelinks Limited is engaged in the business of manufacturing and sale of telecommunication cables, other types of wires and cables, fiber reinforced plastic (FRP) rods/glass rovings and connectorized cable products. The company caters to reputed client base like BSNL, MTNL, Indian Railways, Defence (Indian Army), NTPC, SAIL, Bharti Airtel, Tata Tele Service Limited, Reliance Infocom, and North Bihar Power Distribution Company Limited among others.
- India has emerged as a top data consuming subscriber base which is increasing the requirements of optical fibre cables significantly, moreover universalization of 4G services and planned rollout of revolutionary new technologies such as 5G and IoT also pushing the demand of optical fibre.
- Government has already announced its intention for auction of 5G. The 5G technology requires five to six times in terms of volumes of optical fibre cables in the telecom networks from the current volume of fibre cables laid in 4G networks.
Vindhya Telelinks has emerged a leading manufacturer & supplier of Jelly Filled Telecommunication Cables, as well as of Optical Fiber Telecommunication Cables. As demand for 4G and then 5G grows, networks will become denser and deeper, making fiberisation an imperative. The emergence of new technologies is set to multiply the consumption of data, necessitating the need for installing more towers. Additionally, 100,000 telecom towers will be required in the immediate future to meet the growing demand for data across the country which will lead to sustained demand for optical fibre cables and related networks. Hence, investors can buy this stock at CMP Rs.950 for the target price of Rs.1320 with time horizon of next 9-12 months.
Indraprastha Medical Corporation ltd CMP: Rs.40 Target: Rs.70
Indraprastha Medical Corporation was incorporated as Joint Venture between Apollo Hospitals Enterprise Ltd. and the Delhi Govt. Apollo Hospital has currently 25% stake in IMCL and government has 26% stake. IMCL has established position as the heathcare provider in Delhi NCR having 718 bedding facility in Sarita Vihar (15 acre land that is leased to the Delhi government from past 30 yrs at nominal rate) and 46 bedding facility in Noida (as mother and Child care hospital). The company has operated on around 7.4 million patients. The group also owns 12 hospitals and four clinics. It is running a multi super-specialty hospital.
The largest contributing specialty is Oncology, which accounted for 13% of total revenue in 9M FY2019.
– The company is into Quality Health care and services.
– The average bedding in the main hospital per day increased 3.30% i.e 484 to 501
-Total outpatient volume (Repeat visit) increased by 2.15% from 431011 to 440556
-Kidney transplant increased from 377 to 577 (3.30%)
-Apollo annual health checkup increased from 33304 to 38111 (14.43%)
-Angiographies increase by 18.62% from 145 to 172
-MRI increased 16.5% 103089 to 12005
-Ultrasound increased 4.47% from 57880 to 60466.
IMCL has established position as the healthcare provider in Delhi NCR having 718 bedding facility in Sarita Vihar. The company has operated on around 7.4 million patients. The group also owns 12 hospitals and four clinics. It is running a multi super-specialty hospital. Company has shown good financial position on the account of debt reduction levels and Positive Operating ash flow.Hence, investors can buy this stock at CMP Rs.40 for the target price of Rs.70 with time horizon of next 9-12 months.
Pidilite Industries Ltd. CMP: Rs. 1384 Target: 1650
Pidilite Industries Limited (PIL) is India’s dominant player in the adhesives & sealants segment, with its flagship product ‘Fevicol’ and other legacy products (M-Seal, Dr. Fixit, etc) that command 70% of domestic market share and contributes around 50% to its topline. Its segments include Consumer & Bazaar Products, Industrial Products and Others.
- The company reported consolidated revenue growth at 3% YoY , led by 14% growth in revenue of industrial segments while C&B segment was impacted by slow volume off take in Q2FY20. Industrial segment growth driven by pigment business which is gaining traction both in India and export market. Also, as more than half of the segment’s revenue is through exports the effect of slowdown in Indian economy is minimal.
- Company foresees a steady growth in rural area as the value in the current quarter increased in double digits and is also more than urban towns.
- Slowdown in construction related activities and interior decor related activities has impacted company’s top line. Company expects pick up in these segments by next fiscal year.
The Company is the market leader in adhesives & sealants. Moderation of top line is attributable to subdued market conditions and liquidity crunch as well as a prolonged monsoon. Net sales grew by 3.5% YoY with sales volume and mix growth of 0.6% YoY. This was driven by a 12.6% YoY uptick in sales volume and mix of industrial products, and decline of 0.9% YoY in sales volume & mix of Consumer Products. In half of industrial products, which is exports, the company is gaining share. Growth rate in rural and small towns is faster than Urban India. This is also backed by steady distribution expansion. EBITDA before non-operating income grew marginally on account of higher Advertising and Sales Promotion spends due to phasing in this quarter. EBITDA growth in ICA is on account of improved margins due to scaled-up local manufacturing and forex gains.Hence, investors can buy this stock at CMP Rs.1384 for the target of Rs.1650 with time horizon of next 9-12 months.
DISCLOSURE IN PURSUANCE OF SECTION 19 OF SEBI (RA) REGULATION 2014
Elite Wealth Advisors Limited does/does not do business with companies covered in its research reports. Investors should be aware that the Elite Wealth Advisors Limited may/may not have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as read more
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