Article

5 Blue-chip Stocks for Investment

07 Aug 2019 Nikita Bhoota

The Indian equity market has been witnessing higher volatility over the past six months. Fluctuating crude oil prices, rising interest rates, instability in rupee, upcoming elections, etc. have affected the market performance. Since midcap and smallcap stocks are trading at expensive valuations and are in correction phase, investors can prefer investing in Blue-chip stocks. Blue-chip stocks are well established and financially sound companies. Additionally, these stocks offer liquidity and are less volatile when compared to midcap and smallcap companies. The information on Blue-chip companies is easily available, which makes it easier to track their performance.

Below mentioned are some of the stocks that can offer decent returns in the long-run.

Emami Ltd

Emami is a leading FMCG company with significantly diversified product portfolio across niche categories. Company is set to benefit from increasing direct reach, investment behind new launches, stabilizing trade channels and recovery in Kesh King. We project revenue and Adj. PAT CAGR of 13% and 14% respectively over FY18-20E. Additionally, the company would benefit from the much anticipated rural recovery. Elevated ad spends and key raw material (mentha and crude oil) costs are expected to keep the EBITDA margin flat over FY18-20E. We are estimating EBITDA margin of 28.5% in FY19E and 28.7% in FY20E.  We estimate an upside of 20% from CMP of Rs554 over a period of 12 months.


Year

Net Sales (Rs Cr)

OPM (%)

Adj Net Profit (Rs Cr)

EPS (Rs)

PE (x)

FY18

2,531

28.4%

550

12.1

45.7

FY19E

2,862

28.5%

604

13.3

41.6

FY20E

3,256

28.7%

721

15.9

34.9

Source: 5paisa research

Biocon

Biocon is India’s largest biologics company. It is a fully-integrated biopharma player and has API manufacturing facilities, strong capabilities in biologics, innovative drug development and a branded generics business in India. In Q1FY19, small molecules, CRO, branded formulations and biologics contributed 33%, 34%, 12% and 21% respectively. Biocon’s early entry in the biosimilars business is a long term positive for the company. Biocon-Mylan has recently received an approval for Trastuzumab and Pegfilgrastim in US and we project approval to 3-4 more biosimilars in 2018/2019 across US and EU. This will help Biocon to grow its profit 6x over next five years. The extension of Bristol-Myers Squibb contract and agreement with GSK is a positive for its research business. We estimate 26% and 62% CAGR in revenue and PAT over FY18E-20E. We expect EBITDA CAGR of 20% over FY18-20E. We see an upside of 30% from CMP of Rs596.


Year

Net Sales (Rs Cr)

OPM (%)

Net Profit (Rs Cr)

EPS (Rs)

PE (x)

FY18

4,122

25.1%

372

6.2

96.1

FY19E

4,750

25.6%

600

10.0

59.6

FY20E

6,500

26.2%

980

16.3

36.5

Source: 5paisa research

HCL Technologies

HCL Tech (HCLT), India’s fourth largest IT company would perform well on expected recovery in IMS, higher traction in ER&D segment and investments in IP partnerships. HCLT is better placed among peers with sector leading revenue growth guidance and stable margins. We see the company to post 10.1% revenue CAGR over FY18-20E owing to recovery in Infrastructure Management Services (IMS), higher rate of Engineering and R&D (ER&D) services outsourcing in India and strategy of investing in IP partnership to complement its internally developed IPs (key part of growth). We expect EBITDA CAGR of 12% over FY18-20E on better execution and IP revenue contribution. We expect PAT CAGR of 10.5% over same period. We expect an upside of 25% from CMP of Rs1,003.


Year

Net Sales (Rs cr)

OPM (%)

PAT (Rs cr)

EPS (Rs)

PE (x)

FY18

50,569

19.9%

8779

63.2

15.9

FY19E

56,815

20.2%

9,773

70.3

14.3

FY20E

61,894

20.4%

10723

77.1

13.0

Source: 5paisa research

ICICI Prudential Life Insurance Ltd

IPru Life has consistently been the market leader among private sector life insurance companies in India on a Retail Weighted Received Premium (RWRP) basis. IPru Life’s product mix mainly consists of ULIPs (~80% Q1FY19 APE), par life savings (~10%) and protection product (~8%). ICICI Prudential Life Insurance (IPru Life) is well positioned to capture growth opportunities arising from increase in penetration of life insurance and strong brand identity. It sources its business through the large network of ICICI Bank under bancassurance channel (55.6% of Q1FY19 annual premium equivalent). IPru Life’s 13th month persistency ratio of ~85.8% in Q1FY19 is one of the best in the industry. We expect VNB (value for new business premium) margin to be around 20% in FY20E. We project new business premium and PAT CAGR of 23% and 22% respectively over FY18-20E.  The embedded value of the company was ~Rs18,788cr (March 31, 2018). We see an upside of 20% from CMP of Rs387.


Year

NBP (Rs cr)

APE (Rs cr)

VNB margin (%)

Net Profit (Rs cr)

P/EV (x)

FY18

8,402

7,792

16.5

1,620

3.0

FY19E

10,503

9,767

18.0

2,127

2.4

FY20E

12,813

11,660

20.0

2,403

2.0

Source: 5paisa research

Indraprastha Gas (IGL)

Indraprastha Gas Ltd (IGL) is a North India based city gas distribution company. IGL has operations across Delhi, Noida, Greater Noida and Ghaziabad. We expect the company to report total volume growth of ~14% CAGR over FY18-20E aided by 19% CAGR volume growth for PNG users and 11% CAGR volume growth for CNG users. The company is also benefiting from conversion of vehicles to CNG on the back of pollution related problems. We expect the company to report revenue CAGR of 20% over FY18-20E. EBITDA margins are likely to be maintained at ~24% over FY18-20E. We estimate IGL to report PAT CAGR of 23% over FY18-20E. We see an upside of 23% from CMP of Rs278 over a period of 12 months.

Year

Net Sales (Rs cr)

OPM (%)

Net Profit (Rs cr)

EPS (Rs)

PE (x)

FY18

4,592

24.2%

671

9.6

29.0

FY19E

5,454

24.0%

802

11.5

24.3

FY20E

6,597

24.2%

1,014

14.5

19.2

Source: 5paisa research

Research Disclaimer 

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5 Blue-chip Stocks for Investment

07 Aug 2019 Nikita Bhoota

The Indian equity market has been witnessing higher volatility over the past six months. Fluctuating crude oil prices, rising interest rates, instability in rupee, upcoming elections, etc. have affected the market performance. Since midcap and smallcap stocks are trading at expensive valuations and are in correction phase, investors can prefer investing in Blue-chip stocks. Blue-chip stocks are well established and financially sound companies. Additionally, these stocks offer liquidity and are less volatile when compared to midcap and smallcap companies. The information on Blue-chip companies is easily available, which makes it easier to track their performance.

Below mentioned are some of the stocks that can offer decent returns in the long-run.

Emami Ltd

Emami is a leading FMCG company with significantly diversified product portfolio across niche categories. Company is set to benefit from increasing direct reach, investment behind new launches, stabilizing trade channels and recovery in Kesh King. We project revenue and Adj. PAT CAGR of 13% and 14% respectively over FY18-20E. Additionally, the company would benefit from the much anticipated rural recovery. Elevated ad spends and key raw material (mentha and crude oil) costs are expected to keep the EBITDA margin flat over FY18-20E. We are estimating EBITDA margin of 28.5% in FY19E and 28.7% in FY20E.  We estimate an upside of 20% from CMP of Rs554 over a period of 12 months.


Year

Net Sales (Rs Cr)

OPM (%)

Adj Net Profit (Rs Cr)

EPS (Rs)

PE (x)

FY18

2,531

28.4%

550

12.1

45.7

FY19E

2,862

28.5%

604

13.3

41.6

FY20E

3,256

28.7%

721

15.9

34.9

Source: 5paisa research

Biocon

Biocon is India’s largest biologics company. It is a fully-integrated biopharma player and has API manufacturing facilities, strong capabilities in biologics, innovative drug development and a branded generics business in India. In Q1FY19, small molecules, CRO, branded formulations and biologics contributed 33%, 34%, 12% and 21% respectively. Biocon’s early entry in the biosimilars business is a long term positive for the company. Biocon-Mylan has recently received an approval for Trastuzumab and Pegfilgrastim in US and we project approval to 3-4 more biosimilars in 2018/2019 across US and EU. This will help Biocon to grow its profit 6x over next five years. The extension of Bristol-Myers Squibb contract and agreement with GSK is a positive for its research business. We estimate 26% and 62% CAGR in revenue and PAT over FY18E-20E. We expect EBITDA CAGR of 20% over FY18-20E. We see an upside of 30% from CMP of Rs596.


Year

Net Sales (Rs Cr)

OPM (%)

Net Profit (Rs Cr)

EPS (Rs)

PE (x)

FY18

4,122

25.1%

372

6.2

96.1

FY19E

4,750

25.6%

600

10.0

59.6

FY20E

6,500

26.2%

980

16.3

36.5

Source: 5paisa research

HCL Technologies

HCL Tech (HCLT), India’s fourth largest IT company would perform well on expected recovery in IMS, higher traction in ER&D segment and investments in IP partnerships. HCLT is better placed among peers with sector leading revenue growth guidance and stable margins. We see the company to post 10.1% revenue CAGR over FY18-20E owing to recovery in Infrastructure Management Services (IMS), higher rate of Engineering and R&D (ER&D) services outsourcing in India and strategy of investing in IP partnership to complement its internally developed IPs (key part of growth). We expect EBITDA CAGR of 12% over FY18-20E on better execution and IP revenue contribution. We expect PAT CAGR of 10.5% over same period. We expect an upside of 25% from CMP of Rs1,003.


Year

Net Sales (Rs cr)

OPM (%)

PAT (Rs cr)

EPS (Rs)

PE (x)

FY18

50,569

19.9%

8779

63.2

15.9

FY19E

56,815

20.2%

9,773

70.3

14.3

FY20E

61,894

20.4%

10723

77.1

13.0

Source: 5paisa research

ICICI Prudential Life Insurance Ltd

IPru Life has consistently been the market leader among private sector life insurance companies in India on a Retail Weighted Received Premium (RWRP) basis. IPru Life’s product mix mainly consists of ULIPs (~80% Q1FY19 APE), par life savings (~10%) and protection product (~8%). ICICI Prudential Life Insurance (IPru Life) is well positioned to capture growth opportunities arising from increase in penetration of life insurance and strong brand identity. It sources its business through the large network of ICICI Bank under bancassurance channel (55.6% of Q1FY19 annual premium equivalent). IPru Life’s 13th month persistency ratio of ~85.8% in Q1FY19 is one of the best in the industry. We expect VNB (value for new business premium) margin to be around 20% in FY20E. We project new business premium and PAT CAGR of 23% and 22% respectively over FY18-20E.  The embedded value of the company was ~Rs18,788cr (March 31, 2018). We see an upside of 20% from CMP of Rs387.


Year

NBP (Rs cr)

APE (Rs cr)

VNB margin (%)

Net Profit (Rs cr)

P/EV (x)

FY18

8,402

7,792

16.5

1,620

3.0

FY19E

10,503

9,767

18.0

2,127

2.4

FY20E

12,813

11,660

20.0

2,403

2.0

Source: 5paisa research

Indraprastha Gas (IGL)

Indraprastha Gas Ltd (IGL) is a North India based city gas distribution company. IGL has operations across Delhi, Noida, Greater Noida and Ghaziabad. We expect the company to report total volume growth of ~14% CAGR over FY18-20E aided by 19% CAGR volume growth for PNG users and 11% CAGR volume growth for CNG users. The company is also benefiting from conversion of vehicles to CNG on the back of pollution related problems. We expect the company to report revenue CAGR of 20% over FY18-20E. EBITDA margins are likely to be maintained at ~24% over FY18-20E. We estimate IGL to report PAT CAGR of 23% over FY18-20E. We see an upside of 23% from CMP of Rs278 over a period of 12 months.

Year

Net Sales (Rs cr)

OPM (%)

Net Profit (Rs cr)

EPS (Rs)

PE (x)

FY18

4,592

24.2%

671

9.6

29.0

FY19E

5,454

24.0%

802

11.5

24.3

FY20E

6,597

24.2%

1,014

14.5

19.2

Source: 5paisa research

Research Disclaimer