The recent bull-run in the market is likely to sustain till the end of the calendar year, even as some amount of intermittent volatility might be seen. As per our in-house research, there is a strong possibility of an early Diwali for the markets -- Nifty 12,000 levels may be achieved before Diwali.
Sector-wise insurance, power and pharma could be the dark horses of 2019, while one should also look at steel, infra and corporate banks. The level of 30,000 on the Bank Nifty seems very much possible.
Despite the possible strength in the market, the retail investor without access to solid research should still invest through mutual funds or create a health portfolio based on research as volatility could dampen the bull-run any time. Moreover, an increase in crude oil prices and volatility in the rupee has already been observed keenly.
Furthermore, upcoming general elections and high valuations have resulted in huge correction in small-cap and mid-cap stocks. Hence, considering the risk and correction in mid-cap/small-cap stocks, investors are heading towards frontline large-cap stocks. These stocks offer liquidity and have a high market presence.
Our in-house research team has cherry-picked some large-cap stocks for investment that are expected to generate decent returns in the long run.
ITC Ltd: ITC has a leadership position in all the segments it caters to, viz. cigarettes, hotels, paperboards, packaging and agri-exports and is continuously trying to gain market share in its FMCG segment through new product launches and newer segments. ITC has around a 75 percent market share in the cigarettes business, which has been adversely affected post-GST implementation on account of higher taxation. With higher taxation incidence, we project a cigarette realisation CAGR of around nine percent over FY18-20E.
Nevertheless, we see volumes to post-growth only in FY20E. Further, ITC is aiming to grow its FMCG business at around 15 percent CAGR over FY18-20E and EBITDA would expand on the back of enhanced scale, product mix enrichment and cost management initiatives. Thus, we estimate a revenue and PAT CAGR of 11.5 percent and 10.5 percent respectively over FY18-20E.
IndusInd Bank: IndusInd Bank's loan mix for Q1FY19 stood at around 60 percent corporate finance and about 40 percent consumer finance. For Q1FY19, its loan book was around Rs1.5 lakh crore; CASA ratio stood at 43.4 percent; GNPA was at 1.15 percent; and NNPA was at 0.51 percent.
The bank is projected to register a 27 percent loan book CAGR over FY18-20E driven by improved loan mix and corporate loans. Additionally, strong consumer finance and a rising CASA franchise augurs well for margin expansion. We estimate a loan book CAGR of 25 percent over FY18-20E on account of a favourable loan mix. This will be driven by expected growth in vehicles sales (around 80 percent of consumer finance) and lending to high rated companies. Thereby, we see NII growth at 21 percent CAGR over FY18-20E. Further, improvement in CASA franchise (about 37.2 percent) and rising high yield in the consumer finance business is expected to elevate NIMs to 4.2 percent by FY20E.
Zee Entertainment: Zee Entertainment Enterprises Ltd (ZEEL) is one of the largest broadcasting houses in India. The company is expected to report a revenue and PAT CAGR of 17.2 percent and 24.3 percent respectively over FY18-20E supported by market share gains in regional markets (mainly Tamil and Kannada), viewership gains due to higher Original Programming Hours (OPH) in the Hindi GEC space and strong outlook for subscription revenue on account of digitisation. The company is currently debt free at the net-debt level.
Petronet LNG: Petronet re-gasifies and markets liquefied natural gas (LNG) in the Indian market. It operates India’s largest LNG terminal with a 15MMT capacity at Dahej (Gujarat) and 5MMT at Kochi (Kerala). It is a JV between four government-owned companies i.e. BPCL, GAIL, IOC and ONGC (12.5 percent stake each). Petronet is in the process of expanding capacity of the Dahej LNG terminal from 15MMTPA to 17.5MMTPA and the expansion is likely to be commissioned in FY19E.
We project the completion of the Kochi-Mangalore pipeline to increase utilisation of the Kochi terminal to around 40 percent by FY20E from about 12 percent in FY18. We project a revenue and PAT CAGR of 14 percent and 20 percent respectively over FY18-20E, with an EBITDA margin of 11.4 percent in FY20E. The company is debt free on a net cash basis. We expect a higher free cash flow generation in the coming years since there is no major capex planned except the Dahej expansion.
Reliance Industries: Reliance Industries (RIL) is one of the largest private sector enterprises in India. It derives around 54 percent of its revenue from the refining business, about 24 percent from the petrochemical business and the remaining 22 percent from other segments. The company has rapidly grown its broadband business (4G) through RJio owing to strong operating competitiveness and healthy consumer traction. RIL’s margins are expected to remain strong due to firm demand and an improvement in the petchem segment. The company’s petcoke gasifiers are under commissioning, which will ramp up over FY18-19E. Refinery Off-Gas Cracker (ROGC) has been commissioned and fully operational now.
We estimate a revenue CAGR of 25 percent over FY18-FY20E. Traction in the subscriber base and new service offerings in RJio would enhance profitability. Jio’s RMS (revenue market share) is expected to be around 43 percent over the next few years. Consequently, we expect a PAT CAGR of 17 percent over FY18E-20E.
(The author is CEO, 5Paisa.com.)
(Disclaimer - The recommendations and opinions expressed in this article are those of the author and not that of Firstpost or its management. Firstpost does not provide, nor claims to provide, recommendations or investment advice to its readers. To make specific investment decisions, readers must seek their own advice.)
(Disclosure - Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.)
Updated Date: Sep 06, 2018 15:35 PM