Which mid cap and small cap stocks to invest in for expected Multi-Cap rebalancing?

Which mid cap and small cap stocks to invest in for expected Multi-Cap rebalancing?
by Nikita Bhoota 16/09/2020
Market regulator SEBI on Friday i.e September 11, 2020 has revised asset allocation norms for multi-cap equity mutual fund schemes. According to the revised rules, multi-cap mutual funds will have to invest at least 75% of their total asset under management (AUM) in equity & equity related instruments versus the earlier threshold of 65% of the total AUM. The market regulator also mandated multi-cap funds to invest at least 25% in each small-cap, mid-cap and large-cap stocks. So, if a multi-cap scheme of a fund house has an AUM of Rs 10,000 crore, it will have to invest at least Rs 2,500 crore each in the three categories of stocks. According to earlier rule, multi-cap funds had freedom to invest across sectors and market capitalizations. SEBI has directed to abide by the revised rules by January 2021.

Data sourced from media reports shows at present the multi-cap fund (AUM of ~Rs1.5tn) holdings are tilted towards large cap stocks (~73% of AUM as of Aug-2020), So it is widely projected that the mutual funds would have to rebalance the portfolios by increasing allocation to midcap stocks (~17% of AUM as of Aug-2020) and small cap stocks (~6% of AUM as on Aug-2020). However, the clarification issued by SEBI (SEBI Clarification Circular) on Sunday evening also points out that portfolio rebalancing is one of the options available to mutual funds and the MF could consider options like merging with existing schemes. The clarification also suggests that SEBI is open to inputs from MF industry on the revised rules for multi-cap funds. 
We have shortlisted some of the 5 mid cap and small cap stocks that can benefit if the portfolio rebalancing was to happen. 

5 Mid Cap Stock Recommendations

Company

Sector

~Market Cap (Rs Cr)

EPS CAGR (%)

FY20-22E

PE FY21E

Godrej Agrovet Ltd.

Agriculture

10,190

31

30.1

Coromandel International Ltd.

Agriculture

23,727

14

18.7

Ashok Leyland

Auto

22,853

49

NA

Kajaria Ceramics Ltd.

Building Material

8,270

8

45.2

Ipca Laboratories Ltd.

Healthcare

27,214

27

25.1

Source:5paisa Research, BSE

Godrej Agrovet Ltd:

Godrej Agrovet (GAVL) is a diversified, research & development-focussed agri-business company. It is the one of the leading companies in the animal feed business and the market leader in the oil palm plantation industry in India. Additionally, it has a sizeable presence in agri-inputs (i.e. agrochemicals), dairy products, and processed poultry.

Coromandel International Ltd.

Coromandel is the flagship company of the Murugappa Group and operates in fertilisers and other agri-input segments. It is India's second-largest producer of phosphatic fertilisers and is particularly strong in the South-Indian states of Andhra Pradesh and Telangana. Coromandel has an installed capacity of nearly 3.5m tonne of fertilisers (22% of domestic production capacity) and also operates in the agrochemical, specialty nutrient and organic compost verticals.

Ashok Leyland:

Ashok Leyland (AL), part of the Hinduja Group, is one of India's leading manufacturers of commercial vehicles such as trucks, buses, tippers, trailers and Defence vehicles. It is the second-largest player in the medium & heavy trucks segment in India, with market share of ~33%. AL is one of the leading players in heavy buses with market share of ~43%. The company also manufactures and sells engines for industrial and marine applications, spare parts and special alloy castings.

Kajaria Ceramics Ltd.

Kajaria Ceramics is the largest manufacturer of ceramic and vitrified tiles in India. The company manufactures ceramic wall & floor tiles as well as glazed & polished vitrified tiles. It has also ventured into some allied segments (like bathware, plywood); albeit, these segments are still quite small at present, in terms of contribution to revenues and profits.

Ipca Laboratories Ltd.

Ipca Labs is a fully integrated pharmaceutical company producing branded and generic formulations, APIs and intermediates. The company has a strong position in the domestic market, mainly in cardiology, pain, anti-malarial/bacterial and anti-diabetics products. The company exports to 110 countries and is the ninth-largest pharma exporter from India, in terms of volume.

5 Small Cap Stock Recommendations

Company

Sector

~Market Cap (Rs Cr)

EPS CAGR (%) FY20-22E

PE FY21E

Kaveri Seeds

Agriculture

3467

17

10.9

Quess Corp

Industrials

6,470

14

33.6

Sudarshan Chemical Industries

Chemicals

3,258

26

27.2

Heidelberg cement India Ltd.

Cement

4,268

13

14.9

Persistent Systems Ltd.

IT

8,949

23

21.4

Source:5paisa Research, BSE

Kaveri Seeds:

Kaveri Seeds is one of India's leading seed producers, with a broad product portfolio that includes hybrids for cotton, corn, paddy, bajra, sunflower, sorghum and various vegetables. In addition, in its Microteck division, Kaveri markets micronutrients and organic biopesticides.

Quess Corp:

Quess Corp (erstwhile IKYA Human Capital Solutions) is one of India’s leading integrated providers of business services. Quess is focussed on emerging as the preferred business function outsourcing partner for enterprise customers across a wide range of industries. Quess’ service & product offerings are currently grouped under three operating segments: Work Force Management, Operating Asset Management and Global Technology Solutions. 

Sudarshan Chemical Industries:

Sudarshan Chemical Industries (SCIL) has grown to become India’s largest and the world’s fourth-largest manufacturer of colour pigments. Its estimated market share in India stands at ~35%. The company’s product portfolio comprises organic, inorganic and effect pigments serving four main end-uses: coatings, plastics, inks and cosmetics.

Heidelberg cement India Ltd.

Heidelberg cement India Ltd (HCIL) is a subsidiary of Germany based Heidelberg Cement, the world’s third largest cement producer. HCIL’s clinker plants are located in Madhya Pradesh and Karnataka and its cement grinding units are located in Madhya Pradesh, Uttar Pradesh and Karnataka. Current cement grinding capacity of HCIL is 5.4mtpa (2.1mtpa in Damoh, 2.7mtpa in Jhansi and 0.6mtpa in Ammasandra).

Persistent Systems Ltd.

Persistent Systems is a technology services company. The company’s focus is on helping clients build and manage software-driven businesses. Its business strategy is aligned around four key areas: 1) Digital: Bringing together their technology partner ecosystem, solutions and a unique architecture to enable enterprises with digital transformation; 2) Alliance: Focus on the long-standing and multi-dimensional relationship between PSYS and IBM; 3) Services: Focus on services for software and product development including an agile and experience design; 4) Accelerite: Focus on products that include business-critical infrastructure software for enterprises, telecom operators and the public sector.
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Which mid cap and small cap stocks to invest in for expected Multi-Cap rebalancing?

best multi cap mutual funds
by Nikita Bhoota 17/09/2020

Market regulator SEBI on Friday i.e September 11, 2020 has revised asset allocation norms for multi-cap equity mutual fund schemes. According to the revised rules, multi-cap mutual funds will have to invest at least 75% of their total asset under management (AUM) in equity & equity related instruments versus the earlier threshold of 65% of the total AUM. The market regulator also mandated multi-cap funds to invest at least 25% in each small-cap, mid-cap and large-cap stocks. So, if a multi-cap scheme of a fund house has an AUM of Rs 10,000 crore, it will have to invest at least Rs 2,500 crore each in the three categories of stocks. According to earlier rule, multi-cap funds had freedom to invest across sectors and market capitalizations. SEBI has directed to abide by the revised rules by January 2021.

Data sourced from media reports shows at present the multi-cap fund (AUM of ~Rs1.5tn) holdings are tilted towards large cap stocks (~73% of AUM as of Aug-2020), So it is widely projected that the mutual funds would have to rebalance the portfolios by increasing allocation to midcap stocks (~17% of AUM as of Aug-2020) and small cap stocks (~6% of AUM as on Aug-2020). However, the clarification issued by SEBI (SEBI Clarification Circular) on Sunday evening also points out that portfolio rebalancing is one of the options available to mutual funds and the MF could consider options like merging with existing schemes. The clarification also suggests that SEBI is open to inputs from MF industry on the revised rules for multi-cap funds. 
We have shortlisted some of the 5 mid cap and small cap stocks that can benefit if the portfolio rebalancing was to happen. 

5 Mid Cap Stock Recommendations

Company Sector ~Market Cap
(Rs Cr)
EPS CAGR (%)
FY20-22E
PE FY21E
Godrej Agrovet Ltd. Agriculture 10,190 31 30.1
Coromandel International Ltd. Agriculture 23,727 14 18.7
Ashok Leyland Auto 22,853 49 NA
Kajaria Ceramics Ltd. Building Material 8,270 8 45.2
Ipca Laboratories Ltd. Healthcare 27,214 27 25.1

Source:5paisa Research, BSE

Godrej Agrovet Ltd:
Godrej Agrovet (GAVL) is a diversified, research & development-focused agri-business company. It is one of the leading companies in the animal feed business and the market leader in the oil palm plantation industry in India. Additionally, it has a sizeable presence in agri-inputs (i.e. agrochemicals), dairy products, and processed poultry.

Coromandel International Ltd.
Coromandel is the flagship company of the Murugappa Group and operates in fertilisers and other agri-input segments. It is India's second-largest producer of phosphatic fertilisers and is particularly strong in the South-Indian states of Andhra Pradesh and Telangana. Coromandel has an installed capacity of nearly 3.5m tonne of fertilisers (22% of domestic production capacity) and also operates in the agrochemical, specialty nutrient and organic compost verticals.

Ashok Leyland:
Ashok Leyland (AL), part of the Hinduja Group, is one of India's leading manufacturers of commercial vehicles such as trucks, buses, tippers, trailers and Defence vehicles. It is the second-largest player in the medium & heavy trucks segment in India, with market share of ~33%. AL is one of the leading players in heavy buses with market share of ~43%. The company also manufactures and sells engines for industrial and marine applications, spare parts and special alloy castings.

Kajaria Ceramics Ltd.
Kajaria Ceramics is the largest manufacturer of ceramic and vitrified tiles in India. The company manufactures ceramic wall & floor tiles as well as glazed & polished vitrified tiles. It has also ventured into some allied segments (like bathware, plywood); albeit, these segments are still quite small at present, in terms of contribution to revenues and profits.

Ipca Laboratories Ltd.
Ipca Labs is a fully integrated pharmaceutical company producing branded and generic formulations, APIs and intermediates. The company has a strong position in the domestic market, mainly in cardiology, pain, anti-malarial/bacterial and anti-diabetics products. The company exports to 110 countries and is the ninth-largest pharma exporter from India, in terms of volume.

5 Small Cap Stock Recommendations

Company Sector ~Market Cap
(Rs Cr)
EPS CAGR (%)
FY20-22E
PE FY21E
Kaveri Seeds Agriculture 3467 17 10.9
Quess Corp Industrials 6,470 14 33.6
Sudarshan Chemical Industries Chemicals 3,258 26 27.2
Heidelberg cement India Ltd. Cement 4,268 13 14.9
Persistent Systems Ltd. IT 8,949 23 21.4

Kaveri Seeds:
Kaveri Seeds is one of India's leading seed producers, with a broad product portfolio that includes hybrids for cotton, corn, paddy, bajra, sunflower, sorghum and various vegetables. In addition, in its Microteck division, Kaveri markets micronutrients and organic biopesticides.

Quess Corp:
Quess Corp (erstwhile IKYA Human Capital Solutions) is one of India’s leading integrated providers of business services. Quess is focussed on emerging as the preferred business function outsourcing partner for enterprise customers across a wide range of industries. Quess’ service & product offerings are currently grouped under three operating segments: Work Force Management, Operating Asset Management and Global Technology Solutions. 

Sudarshan Chemical Industries:
Sudarshan Chemical Industries (SCIL) has grown to become India’s largest and the world’s fourth-largest manufacturer of colour pigments. Its estimated market share in India stands at ~35%. The company’s product portfolio comprises organic, inorganic and effect pigments serving four main end-uses: coatings, plastics, inks and cosmetics.

Heidelberg cement India Ltd.
Heidelberg cement India Ltd (HCIL) is a subsidiary of Germany based Heidelberg Cement, the world’s third largest cement producer. HCIL’s clinker plants are located in Madhya Pradesh and Karnataka and its cement grinding units are located in Madhya Pradesh, Uttar Pradesh and Karnataka. Current cement grinding capacity of HCIL is 5.4mtpa (2.1mtpa in Damoh, 2.7mtpa in Jhansi and 0.6mtpa in Ammasandra).

Persistent Systems Ltd.
Persistent Systems is a technology services company. The company’s focus is on helping clients build and manage software-driven businesses. Its business strategy is aligned around four key areas: 1) Digital: Bringing together their technology partner ecosystem, solutions and a unique architecture to enable enterprises with digital transformation; 2) Alliance: Focus on the long-standing and multi-dimensional relationship between PSYS and IBM; 3) Services: Focus on services for software and product development including an agile and experience design; 4) Accelerite: Focus on products that include business-critical infrastructure software for enterprises, telecom operators and the public sector.

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A Beginner’s Guide to Investing Internationally from India

International Investment
by Vested Team 20/09/2020

Ace investor & co-founder of First Global, Shankar Sharma’s global portfolio was up 70% in 2019. His Indian portfolio, by his own admission, didn’t do nearly as well. He attributed this performance to this strategy of diversifying across countries. “If you have single-country, single-asset exposure, you are fated to lose sooner or later, irrespective of what the government or fund managers tell you,” he says. In the post-Covid era, he’s gone to highlight how Indians must expand their horizons beyond domestic shores. “The Indian market has delivered zero, in fact, negative returns in dollar terms,” Sharma adds.

In 2020, Indians are now eyeing international investments in larger numbers than ever before. There are several factors fueling this interest. A number of US stocks, including Apple, Amazon, and Facebook, have exhibited steady upward growth, making them attractive alternatives to Indian stocks. In contrast, investing in the Indian economy has been a mixed experience in 2020 and prior. Even before the coronavirus pandemic, the International Monetary Fund (IMF) lowered India’s economic growth forecast from 6.1% to 4.8% for 2019-20. Naturally, the numbers became more concerning as markets tanked March onwards. Such developments, coupled with a broad increase in interest, are paving the way for international investments from the Indian investor community. If you’re looking to get started with investing internationally from India, here’s a handy guide covering the what, the why, and the how.

Why should you invest in US Stocks?
“What’s interesting about US stocks is that you not only get exposure to the United States but also to the world, as many companies have global operations but are listed there.”This statement from Viram Shah, co-founder and CEO of Vested Finance, highlights one of the major advantages provided by investment opportunities in the US market. Portfolio diversification is one of the many reasons why investing in US stocks is a helpful addition to your portfolio. US indices such as the NASDAQ and S&P 500 have very little correlation with Indian indices such as the Sensex – 0.36 over the past decade, to be precise. From a diversification perspective, this makes investing internationally an essential task for Indian investors.

vested graph 1

Figure 1: Dow Jones Industrial Index vs Sensex. Annual returns 2010-2019. Source: ET

Another advantage that the US stocks have over Indian stocks is the currency in which they trade. The US dollar is up 6% against the rupee this year alone. The US markets have also proved to be more stable than Indian markets in the long run.

And when you focus on returns, international investments typically outperforms domestic stocks investments. The DJIA has beaten the Sensex over 3-year, 5-year, and even 10-year periods.

Perhaps more importantly, despite this performance, the Dow Jones is at a lower price-to-earnings value (20.53) than the Sensex (25.01) as of Feb 2020. At the same time, dividend yield remains higher in US markets.

vested graph 2

Figure 2: Returns comparison between Dow Jones and Sensex (INR based), from January 2009 – Dec 2019

So, how can you get started?
How to start investing internationally from India
Investing in international markets may seem overwhelming at first. But it is 2020, and fortunately, the process has been significantly simplified for those who are keen on diversifying their portfolios. There are many ways by which you can go about investing internationally:

  • You can purchase mutual funds that invest in international stocks
  • You can invest in Exchange Traded Funds (ETFs) using an investing account. ETFs are different from mutual funds as they are listed and traded just like stocks and tend to have lower expense ratios
  • Or, you can directly invest in international stocks listed on international exchanges using dedicated platforms.

How to invest in US stocks with 5paisa
5paisa through Vested platform facilitates international investing by offering both direct investments in stocks and ETFs and investments through curated portfolios. Investors can open an account through a paperless process with no minimum balance and take advantage of commission-free investing. All they need to provide is their:

  1. PAN card number and copy, and
  2. Proof of address

Here’s how the two investment options work:

  • Direct investments by opening a US brokerage account: To facilitate direct investments, we offer a dedicated platform where Indian investors can directly purchase stocks and ETFs in the US markets. This method lowers overall costs for the investor, but funds must be wired to the US. The Liberalisation Remittance Scheme (LRS) allows this, with the annual upper limit capped at $250,000 per person. We also offer fractional investing capabilities, lowering the barrier of entry for many
  • Diversified investments into curated portfolios for varying risk profiles: Our platform, investors that want more advice on what to invest, can also invest in Vested’s proprietary curated portfolios. These portfolios are called Vests. Vests are curated for different risk profiles and are constructed with different themes in mind. Vests might be a great option for investors looking to expand their investments to international shores but wishing to retain a narrow focus on specific sectors or industries
vested 5paisa

How does Taxation work

International Exchange Traded Funds (ETFs) are treated as debt funds for taxation purposes. This means that to qualify as long-term holdings, you must keep them for three years. While the short-term capital gains tax rate is as per your applicable income tax slab, long-term capital gains tax is charged at 20% with indexation benefits.
For investors making direct investments in US markets, they are liable to pay taxes on both investment gains and dividend gains. Investment gains will be taxed in India only – where the tax liability is determined by the duration of their holdings. 24 months is the long-term capital gain threshold, with the rate of 20% with indexation benefit. Investments held less than 24 months will incur short-term capital gains tax, calculated according to applicable individual income tax slabs.

Dividends are taxed in the US at a flat rate of 25%. Thanks to the US and India’s Double Taxation Avoidance Agreement (DTAA) though, taxpayers can offset the income tax they’ve already paid in the US. Learn more about this topic here: how taxation works for Indians investing in US markets.

Investing Internationally from India: Closing Thoughts

International investments help you gain exposure to other markets. Geographical diversification can reduce country risk, including risk from negative events that might impact India’s domestic economy. Moreover, as mentioned earlier in this post, when you compare investing in Indian markets vs US markets, US stocks have historically exhibited lower volatility, higher returns, and higher international exposure.

Next Article

Here’s all You Need to Know About IPO Application Process

IPO
22/09/2020

Initial Public Offering (IPO) is the first time issue of shares to the public and listing of stock exchanges. It can be a Fresh Issue of shares, Offer for Sale by existing shareholders or a mixture of both. Application for subscribing for an IPO can be done through both Online & Offline modes.

How to apply for IPOs online?

If you want to apply for an IPO, you need the below:

* Demat account - To hold your shares

* Trading account - To sell your shares

* UPI ID - To block funds in your bank account

You can open demat account with any SEBI registered Depository Participant (DP). These DPs can be banks or brokers.

Key Steps to Apply for an IPO Online.

* Login to your trading platform and select the desired issue (company) in the Current IPO section.

* Enter the Number of lots and price at which you wish to apply for.

* Enter your UPI ID and click on submit. With this your bid will be placed with the exchange.

* You will receive a notification to block funds in your UPI app. Approve the block request.

* Upon the successful approval, the required amount will be blocked in your bank account.

* On allotment, the blocked amount will be deducted from your bank account and shares are credited into your Demat account. Any extra amount to the extent of shares applied but not allotted, will be unblocked by your bank.

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Check Glenmark Life Sciences IPO & Rolex Rings IPO and apply online through 5paisa

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How to apply for IPOs offline?

An offline application is made by submitting the filled-up application to the designated collection centre.

Fill in details like Name, PAN, Demat number, bid quantity, bid price and submit the ASBA application to the Self Certified Syndicate Banks (SCSB). The bank will upload the details of the application in the bidding platform. The onus is on you to ensure accurate details to avoid chances of rejection.

 

Check Out the List of Upcoming IPOs in 2021

 

Tips for making money in IPOs:

1. For retail Investors, in case of over subscription, allotment is done on a lottery basis. So, it is advisable to apply from multiple family accounts instead of more lots from single account.

2. In order to increase allotment chance, instead of select a lower price, it is advisable to place the IPO bid price at cut off, which signifies that you are ready to buy the stock at final decided price.

3. Grey market premium (GMP) is the premium for which people are ready to pay for buying the shares before even stock is listed on the exchange. High GMP signifies higher demand in the market and hence can give more listing gains.

All the required details are available in the Red herring prospectus. You are advised to read the risk factors thoroughly before applying.

Next Article

UTI AMC IPO Analysis: All You Need to Know About the Issue

UTI AMC IPO Analysis: All You Need to Know About the Issue
29/09/2020

UTI Asset Management Company Limited is coming up with Initial Public Offer of Equity Shares that is opening on 29th September 2020 and will continue till 1st October 2020. The company will open the initial public offer of equity shares of face value bearing Rs 10 each. The price band fixed at Rs 552 to Rs 554 per equity share. Bids can be made for a minimum of 27 Equity Shares and in multiples of 27 Equity Shares thereafter.

UTI Asset Management Company Limited is the second largest asset management company in India in terms of Total AUM and the eighth largest asset management company in India in terms of mutual fund QAAUM (Quarterly Average Assets Under Management) as of 30th June 2020.

The company has four sponsors for each of which, the Government of India is a majority shareholder. At present it has 11 million live folios accounting for 12.8% of client base managed by the Indian mutual fund industry.

This offer consists of an initial public offer of up to 38,987,081 Equity Shares by the Selling Shareholders comprising an offer for sale of up to 10,459,949 Equity Shares by State Bank of India, up to 10,459,949 Equity Shares by Bank of Baroda, up to 10,459,949 Equity Shares by Life Insurance Corporation of India, up to 3,803,617 Equity Shares by Punjab National Bank and up to 3,803,617 Equity Shares by T. Rowe Price International Ltd. Around 200,000 Equity Shares of the offer would be reserved for the eligible employees.

UTI AMC IPO at a glance

IPO Date

29th September to 1st October

Issue Size

38,987,081 Eq Shares of Rs 10
(aggregating up to Rs 2,159.88 Cr)

Finalisation of basis of allotment

7th October

Demat Credit

9th October

IPO Listing

12th October

Face Value

Rs.10 per equity share

IPO Price Band

Rs.552 to Rs 554 per equity share

Market Lot

27 Shares

Min Order Quantity

27 Shares

Minimum Retail Application

1 lot (Rs 14,958)

Maximum Retail Application

13 lots (Rs 194,454)


How to apply for UTI AMC IPO?

You can apply for the UTI AMC IPO either offline or online. Ideally, you can use the ASBA route to apply for the IPO. Application Supported by Blocked Amount (ASBA) allows you to just block the monies without debiting at the time of application. On allotment, only the amount allotted will be debited and the balance amount is released. You can also use the UPI facility to apply for the IPO with select brokers.

If you intend to apply for UTI AMC IPO through your 5paisa account, you need to follow the steps as mentioned below:

  • Login to your 5paisa mobile app
  • Under trade section click IPO
  • Select current issue
  • Enter your bidding details along with your UPI ID and save details
  • Once the details are saved, you will get an payment notification with 4-5 hours
  • Open your UPI app, go to one-time mandates
  • Your will get requested IPO mandate along with its amount
  • Select mandate and approve for payment
Watch this video to know about about the issue, company's profile, financial sheet, peer comparison and future growth. 

Next Article

5 Stocks to benefit from Modi’s rural focus policies

22/10/2020

The Modi Government is actively focusing on reviving the rural economy. The government has undertaken many initiatives in order to improve consumption, infrastructure and job opportunities in the rural parts of India. Various programs have been designed by the Government to fulfill the rural requirements. In order to double the farm income by 2022, the government has allocated Rs1.07 lakh crore for expenditure on rural development, out of which Rs.48,000cr is allocated to MNREGA for FY2017-18. At present, as per the media articles, India has ~4 crore un-electrified rural households and the Government targets to provide electricity to every village under its Deendayal Gram Jyoti Yojana. Moreover, the Pradhan Mantri Awaas Yojana (PMAY) plans to provide shelter to people in rural India.

We believe that with increasing rural income levels in the coming years, the rural consumption will get a boost, which in turnwould prove positive for the Indian business scenario. We have chosen some stocks that are likely to benefit from the pick-up in rural economy and are good investment bets from a long term perspective.

Mahindra & Mahindra Financial Services (MMFSL)

MMFSL is one of the leading non-banking finance companies in India, which focuses on the rural and semi-urban sectorsand is the largest Indian tractor financier.Its AUM mix comprised of auto/UV (28%), tractors (17%), cars (22%), CV (12%), pre-owned cars (9%) and SME (12%) as of September 2017. AUM is expected to grow at 17% CAGR over FY17-19E on account of pick-up in rural economy supported by average monsoon in the last two years.. NCDs are forecasted to be ~60% of funding mix in FY19E (vs. 47% in Q2FY18). This will lead to lower cost of funds and margin expansion by~130bps to 8.1% in FY19E. Better collection efficiency via rural cash flows would reduce GNPA to 8% in FY19E (vs. 9% in FY17). We see an upside of 16% from CMP of Rs.475 from one year point of view.

Year NII (Rscr) Net profit (Rscr) NIM (%) P/BV (x) ROE (%)
FY17 3,790 511 7.6 3.6 6.8
FY18E 4,683 753 8.2 3.2 8.9
FY19E 5,511 1,061 8.4 2.8 11.0

Source: 5Paisa Research

Hero MotoCorp

Hero MotoCorp Limited (Hero), the largest manufacturer of Motorcycles in India, enjoys ~53% market share (Q2FY18 domestic sales volume data). It nearly derives half of its total revenue from rural India.The total volume growth in motorcycle was 13% yoy, and in two-wheeler (2W) was ~11%yoyin Q2FY18. Hero is planning new scooter launches to increase market share in that segment and has outlined Rs25bn capex plan over next 2 years. A satisfactory monsoon, Government’s push to double farm incomes and rising urban incomes are strong triggers that will aid volume growth for the company. Hence, we estimate consolidated revenue and PAT CAGR of 12% and 9% respectively over FY17-19E. Exports comprise only 2.3% of total volumes. Despite Hero being a late entrant into the export market, it plans to double the number of countries that it exports to(from 20 to 40) over next few years.We see an upside of 15% from CMP of Rs.3,804 from one year point of view.

Year Net Sales (Rscr) OPM (%) Net Profit (Rscr) EPS (Rs) PE (x) P/BV (x)
FY17 28,475 16.3 3,377 169.1 22.5 7.5
FY18E 32,224 16.3 3,717 186.1 20.4 6.4
FY19E 35,867 15.8 4,041 202.4 18.8 5.5

Source: 5Paisa Research

Dabur India

Dabur is one of the largest FMCG companies in India. Dabur’s business is divided into four areas i.e. consumer care, foods, retail and international business. It is a likely beneficiary of rural expansion and new product launches. We expect revenue growth to be driven by increasing rural reach and market share gains in juices and toothpaste categories. Dabur plans to penetrate ~60,000 villages (particularly in South India) in near term to capitalize on revival in rural consumption (~45% of revenue). Further, new product launches in hair care, fruit drink and ayurvedic segments are likely to support volume growth.It expects GST to be positive for its portfolio, except for Ayurvedic products where tax levied has risen by 5%. Its recent acquisitions in African market in personal and hair care segments and strengthening online presence with large e-retailers (Amazon) would boost profit. Thus, we expect FY17-19E sales and PAT CAGR of 6.0% and 8.2% respectively.We project an upside of 16% from CMP of Rs.355 from one year point of view.

Year Net Sales (Rscr) OPM (%) Net Profit (Rscr) EPS (Rs) PE (x) P/BV (x)
FY17 7,592 19.9% 1,277 7.3 49.0 12.9
FY18E 7,800 20.3% 1,326 7.5 47.1 11.0
FY19E 8,518 20.3% 1,494 8.5 41.8 9.5

Source: 5Paisa Research

Rallis India

Rallis India, a member of Tata group and a manufacturer of pesticides, fertilizers and fine chemicals, stands to benefit from the launch of ‘Rallis Samrudh Krishi’ by improving the quality and yield of the crops. This is a digital initiative, which will help the company to provide end-to-end Agri Solutions to Indian farmers. The company aims to increase market share of Non-Pesticides portfolio (NPP) going forward. Rallis plans to launch new products in cotton, rice, wheat and hybrid cotton segments. Rallis India also aims to increase its focus on plant growth nutrients to support sustainability of crop yields. The management is optimistic on NPP and expects it to contribute 40% to revenue (currently 31%) over next few years. Also, the company is targeting ~20% yoy increase in sales from Metahelix (subsidiary company) backed by adequate seed supplies. Thereby, we see revenue CAGR of 9.3% over FY17-19E. It is virtually a debt free company, which lends financial stability. We see an upside of 17% from CMP of Rs.274 over a period of one year.

Year Net Sales (Rscr) OPM (%) Adj Net Profit (Rscr) EPS (Rs) PE (x) P/BV (x)
FY17 1,772 14.8% 170 8.8 31.3 4.8
FY18E 1,863 15.4% 178 9.2 29.9 4.4
FY19E 2,117 16.2% 222 11.4 23.9 3.9

Source: 5Paisa Research

Jyothy Laboratories Ltd

Jyothy Laboratories Ltd (JLL), present in soaps and detergents for homecare segment, is expected to rebound post demonetisation and GST. JLL has transitioned from a south based player to a pan India company and has multiple drivers that would enable it to grow its market share in respective categories. JLL’s portfolio of six power brands – Ujala (fabric whitener), Exo (dish bar), Maxo (household insecticides), Henko (fabric detergent), Margo (soaps) and Pril (dish wash) contributed 87% to revenue in FY17. Ujala enjoys ~77% share in niche fabric whitener segment. We believe, owing to JLL’s power brands, newer products (toilet cleaner) and passing of GST benefits, volume growth would get a boost. We expect the company to post revenue CAGR of 7.3% over FY17-19E. We project an upside of 20% from CMP of Rs.388 over a period of one year.

Year Net Sales (Rscr) OPM (%) Net Profit (Rscr) EPS (Rs) PE (x) P/BV (x)
FY17 1,683 15.1% 208 11.5 33.8 6.4
FY18E 1,723 15.5% 164 9.1 42.8 5.6
FY19E 1,936 16.7% 214 11.8 32.8 4.8

Source: 5Paisa Research