9
Consumption, two-wheeler and real estate stocks are likely to be high on investors’ radar on Dalal Street in the near term as the interim budget on Friday provided an impetus to the rural sector and as well as the middle class.
The government announced a Rs 75,000-crore income support package for farmers and raised zero income tax level to Rs 5 lakh, from Rs 2.5 lakh earlier, which bode well for these sectors, said analysts.
Dabur India, ITC, Jubilant FoodWorks, Hindustan Unilever, LIC Housing Finance, Crompton Greaves Consumer Electricals, TTK Prestige and Oberoi Realty are top picks of brokerages as they are seen benefiting from the measures announced in the interim budget.
DABUR INDIACMP: Rs 451.8
Chg in last 1 Year: 29.2%
Dabur has nearly 50% of its domestic sales from India, and a rural push in the budget is expected to trickle down to rural-focused companies.
“The results were good and valuation comfort is high.
New MD Mohit Malhotra has very good understanding on the naturals segment,” said Abneesh Roy, senior-vice presidentinstitutional equities at Edelweiss Securities.
“Margins should improve from Q4 because we have seen cool-off in packaging costs,” said Roy.
ITCCMP: Rs 280.80
Chg in last 1 Year: 2.0%
There was no change in tobacco taxation in the budget which was a relief for ITC although the budget has become less relevant for ITC as the GST council takes calls on taxation change, said CLSA.
“It doesn’t look like there will be further taxation.
We see cigarette demand going up which is bulk of the cash flow for the company.
We like the valuation it is trading at,” said Abhimanyu Sofat, head of research at IIFL.
Sofat sees the stock rising to Rs 335.
JUBILANT FOODWORKSCMP: Rs 1,354.85
Chg in last 1 Year: 32.0%
Income tax benefits are expected to boost consumption which in turn is likely to benefit companies in the quickservice restaurants segment.
“Jubilant has delivered 14.6% same-store sales growth, there is improvement in margins and cost pressure is not there despite high base,” said Abhimanyu Sofat of IIFL.
He expects the stock to rise to Rs 1,550 levels.
HSBC sees the QSR space as a long-term opportunity and believes that Jubilant is well-positioned.
It has a ‘buy’ rating and target price of Rs 1,550.
HERO MOTOCORPCMP: Rs 2,807.35
Chg in last 1 Year: -24.8%
Hero MotoCorp is well-positioned to be the key beneficiary of a rural demand recovery, riding its strong brand equity in entry or commuter segments and high rural exposure, said Centrum Broking.
Deutsche Bank said in a recent report that volume growth of Hero MotoCorp could recover going forward driven by improvement in motorcycle growth due to a combination of rural demand and the waning impact of insurance-related price hikes.
Volume growth is likely to be aided by better scooter volumes, said Deutsche.
HINDUSTAN UNILEVERCMP: Rs 1,796.25
Chg in last 1 Year: 31.0%
The FMCG major has a high rural exposure.
Phillip Capital recently maintained ‘buy’ rating on the stock with a target price of Rs 2,160.
“We believe HUL has all the right ingredients – management focus on premiumisation, strengthening core categories, improving distribution productivity using digital means, and foray into under-penetrated fast-growing categories – to sustain high-single-digit volume growth in the medium term,” the brokerage said.
LIC HOUSING FINANCECMP: Rs 459.80
Chg in last 1 Year: -13.6%
The retail-focused NBFC enjoys strong parentage and credit rating, which is crucial in times of liquidity stress, said Yogesh Mehta, VP, Motilal Oswal Financial Services.
“With systemwide liquidity tightening, we expect competitive pressures to moderate leading to a lower repayment rate and better growth.
Spread should stay stable/improve, it trades at cheap valuations of 1.2 times FY20 price-tobook,” said Mehta.
OBEROI REALTYCMP: Rs 453.65
Chg in last 1 Year: -13.08%
The Mumbai-focused premium real estate developer has the strongest balance sheet among real estate companies, said Yogesh Mehta of Motilal Oswal.
“Its trusted brand enables its projects to enjoy premium, resulting in superior EBITDA margins of over 50%.
We believe such financial strength offers the company with an opportunity for value-accretive land acquisitions to drive growth potential beyond the existing land bank,” said Mehta.
CROMPTON GREAVES CONSUMERCMP: Rs 215.4
Chg in last 1 Year: -14.9%
The government’s focus on boosting rural income should provide a boost to small appliances and light electrical companies, like Crompton Consumer.
CLSA said in a report released after Crompton’s third-quarter result said it continues to believe that new product launches and product extensions remain key for the company to drive sustainable growth going ahead given that market-share-led gains in its core categories become difficult.
Strong balance sheet and large free cash generation should support the company’s plans for inorganic acquisition, said CLSA, retaining the ‘buy’ rating with target price of Rs 275.
TTK PRESTIGECMP: Rs 7,732.7
Chg in last 1 Year: 5.3%
Significant increase in target to provide free liquefied petroleum gas (LPG) connections to 80 million households should be positive for TTK Prestige, said analysts.
CLSA sees TTK Prestige in a sweet spot from improving rural consumption, government welfare spending and rising export opportunities.
“The 3QFY19 (October-December) numbers with 21% revenue growth and strong growth across all categories reflect this trend,” said CLSA, maintaining the ‘buy’ rating with a target price of Rs 9,000.
