India’s gross domestic product (GDP) for the financial year 2021 contracted 7.3 percent, lower than expected. Even though several rating agencies and brokerage firms have lowered its FY22 growth forecasts, a bounceback is expected from as early as the next quarter as the population gets vaccinated and lockdowns ease.
“The second wave rules out any fiscal or monetary tightening in FY22,” said Siddharth Sedani, Vice President, Equity Advisory, at Anand Rathi Shares and Stock Brokers. The brokerage has cut its FT22 growth forecast to 7 percent from 10.5 percent.
As the economy finds its feet again, stocks that were impacted the most such as those in contact intensive sectors such as hospitality, tourism and entertainment will get back in favour.
“Valuations are reasonable for the number of companies in these. Banks would also start outperforming with lower shocks going ahead,” said Milan Desai, Lead Equity Analyst, Angel Broking.
Here are 15 stocks linked to the domestic economy’s prospects that are well-positioned to gain in the long term.
Stock recommendations by Siddharth Sedani, Vice President, Equity Advisory, Anand Rathi Shares and Stock Brokers
Grasim Industries | LTP: Rs 1,441.85 | Target price: Rs 1,781
Grasim Industries is a leading global producer of viscose staple fiber (VSF), and the largest Chlor-alkali, linen and insulators player in India.
Through its subsidiaries, UltraTech Cement and Aditya Birla Capital, it is also India’s largest cement producer and a leading diversified financial services player. Grasim has also announced a foray into the decorative paints business.
India accounts for nearly 10 percent of the global VSF demand and is projected to grow at a faster pace than the global growth rate.
“Given the growing business with stronger balance sheet and capital allocation discipline and no allocation to telecom subsidiary we initiate our coverage on Grasim with a ‘buy’ rating,” said Sedani.
Tata Consumer Products | LTP: Rs 673.30 | Target price: Rs 728
Tata Consumer Products aims to boost the coffee business with its joint venture with Starbucks.
In the last couple of years, in order to improve effectiveness, unlock synergies, optimize costs and streamline operations, TCPL exited some of its loss-making businesses and restructured its international operations.
Simplifying the business structure with a focus on core businesses should drive growth in the long term.
In line with its strategic intent of entering new adjacent categories, the company has recently acquired Kottaram Agro Foods Pvt Limited (Soulfull).
“We believe the company is well-positioned for growth in the medium to long term owing to its strong portfolio of branded products in tea, coffee and salt categories, expanding presence in pulses and spices segments along with strong distribution network,” said Sedani.
The expected synergies from the merger with the consumer business of Tata Chemicals will enable better execution of the strategic roadmap.
Godrej Properties | LTP: Rs 1,392.60 | Target price: Rs 1,880
Considering the company’s strong market position backed by an established brand, strong execution track record and healthy saleability and robust financial flexibility owing to the parentage of the Godrej group Anand Rathi has initiated coverage on Godrej Properties with a ‘buy’ rating with a target price of Rs 1,880 per share.
Radico Khaitan | LTP: Rs 629.05 | Target price: Rs 721
“We expect it to be debt-free by FY23, which would afford it enough headroom to up its dividend pay-out,” said Sedani.
The stock trades at 17 times/15 times FY22e/FY23e EBITDA. In the highly regulated and competitive spirits sub-segment, Radico Khaitan’s execution in its P&A (Prestige and Above) category has been strong, aided by innovations and capitalising on opportunities in vodka.
Further, its FCF (free cash flow) generation has been healthy, thereby consistently reducing debt and strengthening its balance sheet.
“We expect its impressive track record to continue, and factor in 9 percent/13.6 percent/13 percent sales/EBITDA/PAT CAGRs over FY20-23 and initiate coverage with a ‘buy’ rating,” said Sedani.
Hero MotoCorp | LTP: Rs 2,972.45 | Target price: Rs 3,653
The two-wheeler industry is seeing high demand due to the lack of public transport availability and social distancing norms in place due to COVID-19.
India’s two-wheeler story stays intact as two-wheeler is not a luxury in India, it is about mass mobility and also as social distancing norms are observed, it could give rise to a shift towards personal mobility.
Hero MotoCorp has announced it has entered a strategic partnership with Taiwanese electric scooter manufacturer Gogoro to tap into India’s nascent EV two-wheeler space.
“We believe the two-wheeler industry is set to bounce back faster and Hero MotoCorp being the market leader in its segment should also benefit in medium-term,” said Sedani.
Stock recommendations by Milan Desai, Lead Equity Analyst, Angel Broking
Avenue Supermarts | LTP: Rs 3,065.65 | Target price- Rs 3,349
Avenue Supermarts (ASL) owns and operates the supermarket chain ‘D-Mart’. In Q4FY21, ASL has shown strong revenue growth of about 18 percent YoY and adjusted profit growth of nearly 53 percent YoY.
“We expect healthy revenue growth on the back of 234 D-Mart stores (which are expected to increase further with store and cluster-based expansion) and due to significant discounts compared to other players,” said Desai.
Hawkins Cookers | LTP: Rs 5,865 | Target price: Rs 6,699
Hawkins Cookers (HCL) operates in two segments i.e. pressure cookers and cookware. Over FY17-21, the company has outperformed TTK Prestige (market leader) in terms of sales growth in the cookers and cookware segment.
The analyst expects HCL to report healthy top-line and bottom-line growth on the back of gaining market share, increase in penetration of cooking gas, strong brand name and wide distribution network and healthy demand for kitchen product post-COVID-19.
Ashok Leyland | LTP: Rs 124.15 | Target price: Rs 145
Ashok Leyland (ALL) is one of the leading players in the Indian CV (commercial vehicle) industry with a nearly 30 percent market share in the M&HCV (medium and heavy commercial vehicles) segment.
The company also has a strong presence in the fast-growing LCV (light commercial vehicles) segment where it is gaining market share which would be supported via new launches.
Desai believes that the company is ideally placed to capture the growth revival in the CV segment and will be the biggest beneficiary of the government’s voluntary scrappage policy.
PVR | LTP: Rs 1323.05 | Target price: Rs 1,500
PVR is the largest multiplex chain in India with more than 800 screens across India. Multiplex screens are gaining ground in India at the expense of single screens.
While the second COVID wave will impact numbers of the first half of the financial year 2022 (H1FY22) due to delay in new releases, Desai expects a strong revival in demand in H2FY22 as the COVID situation normalises.
Lemon Tree Hotels | LTP: Rs 42.80 | Target price: Rs 50
Lemon Tree Hotels (LTH) is India’s largest chain in the mid-priced hotels sector and the third-largest overall.
Given the continued recovery in demand led by a pick-up in domestic tourist and corporate travel, the analyst expects normalisation of operations by H2FY22.
Stock recommendations by Ashis Biswas, CapitalVia Global Research
Asian Paints | LTP: Rs 2905.35 | Target price: Rs 3,270
With a market share of 53 percent, Asian Paints (APNT) is the market leader in the Indian paint manufacturing business.
In Q4FY21, strong top-line growth of 44 percent YoY was fueled by strong demand from tier-2 to 4 cities, with volume growth of 48 percent, while demand from tier-1 and metros increased sequentially.
Hindustan Unilever (HUL) | LTP: Rs 2,358.65 | Target price: Rs 2,788
The FMCG sector has shown an overall resurgence, spearheaded by smaller urban centers. The metro and modern trade center sales have been on the rise for the past three months.
On a standalone and consolidated basis, the analyst expects the company’s EBITDA margins to rise YoY. The company will benefit from the addition of the GSKCH business.
HUL has proved its ability to adapt cost-cutting programs based on best-of-breed analytics and execution in recent years as earnings growth has accelerated. The introduction of a herbals product line is one of the crucial variables that will fuel earnings development.
Kajaria Ceramics | LTP: Rs 970 | Target price: Rs 1,240
Kajaria Ceramics (KCL) is India’s most prominent and ninth-biggest ceramic/vitrified tile manufacturer, with an annual aggregate production capacity of 73 million square feet.
Pidilite Industries | LTP: Rs 2,064.60 | Target price: Rs 2,890
VAM (vinyl acetate monomer) prices are likely to reach a peak in June 2021, according to the business. As a result, gross margin pressure may persist in Q1FY22.
However, in May 2021, the firm began raising prices in its adhesive product portfolios to combat inflationary pressures (prices increased by 4-6 percent).
In Q4, Pidilite’s standalone sales climbed 40 percent YoY, owing to the same level of volume growth. Despite short-term demand difficulties, Pidilite will continue to invest Rs 350 crore in FY22.
Havells India | LTP: Rs 1,048 | Target price: Rs 1,750
Havells India is a significant player in the Indian market for electrical consumer goods. Switchgears, cables and wires, lighting fixtures, and consumer appliances are among the company’s core verticals.
Revenue and profit increased by 50 percent and 71 percent, respectively, in Q4FY21, driven by broad-based growth across segments due to robust demand recovery in consumer and B2B business.
Scale benefits, product mix, price rises, and cost rationalization boosted EBITDA margin by 410 basis points year over year to 15.2 percent.
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