Even as we believe that 2020 will witness volatile moves, it is going to be a great year for portfolio building, for the next upcycle.
Amar Ambani
Even as we believe that 2020 will witness volatile moves, it is going to be a great year for portfolio building, for the next upcycle.
The mantra should be to identify companies that have a strong balance sheet and management to survive the crisis and emerge stronger.
In a market, currently short on ideas, here are some “Stars for a Bargain”, not yet noticed by many.
Here is a list of top five stocks which could give 20-40% return in the next 12 months:
VST Industries Ltd: Buy| LTP: Rs3,306| Mcap: Rs5,242cr| Target: Rs. 4200| Upside 27%
While many are looking at ITC as a contra bet, it is worthwhile looking at VST Industries in its place. It is the 3rd largest tobacco company, with brands like Charms, Charminar Total, which has gained market share, growing cigarette volumes by 8 percent and revenues by 18 percent in the last couple of years.
It has dominance in the small-sized segment (less than 60mm). It is possible that the company could double the industry growth run-rate for the next 2-3 years.
VST is in a sweet spot – it benefits when people upgrade from bidis and cheap cigarettes, and also some premiumization with its Edition brand selling at Rs10 per stick versus average price point of Rs5-6 for the company.
It is also a beneficiary of down trading in tough times like these and when the government raises taxes on the industry. Strong cash-heavy balance sheet, growing cash flows, high consistent dividend payout of 65 percent, ROCE 52 percent (vs 31% for ITC). The stock trades at a multiple of 16.8x FY20.
Nippon Life AMC: LTP: Rs276| Mcap: Rs 16,833 crore| Target: Rs. 370-400| Upside 45%
HDFC AMC: LTP: Rs 2,727| Mcap: Rs 56,400 crore| Target: Rs. 3400| Upside 24%
AMC’s business has been resilient, despite volatile equity markets and credit market issues. In April, open-ended equity funds witnessed net inflow growth of 35 percent on a YoY basis and SIP AUM grew by 15 percent on a MoM basis, with 7.5 lakh new SIPs registered.
After a sharp fall in April, debt funds seem to have stabilized in May, with net inflows doubling mom and 34 percent YoY.
Low penetration ensures a multi-year story, comfortably growing at low-to-mid teens with a strong profitability profile. A good way to play the BFSI space.
CDSL: LTP Rs261| Mcap: Rs 2,786 crore| Target: Rs 340| Upside 30%
CDSL may be another smart bet in the non-lending space. ~1.2mn investor demat accounts opened with the CDSL in March and April alone.
This is a big jump in new accounts, compared with 4.2mn opened in 11 months (April 2019 and February 2020).
Overall, the company witnessed a 22 percent jump in new accounts in FY20, surpassing the competition, for the first time, to reach over 21mn cumulative investor accounts.
With a large number of private and unlisted companies admitted, CDSL saw its volume of securities increase 26 percent YoY, last year.
It now has 599 depository participants (vs 280 for competition), offering DP services from over 20,000 locations, representing 94 percent pin-codes.
SEBI recently allowed Aadhaar based e-KYC for account opening, which acts as an enabler for their services.
The company has rejigged its top management with new MD & CEO, CTO and CFO as well as its entire Board composition in FY20. The company has witnessed a cagr of 12 percent in the last ten years.
Going forward, expenses will be lower in the absence of high provisions made for statutory liabilities and legal matters, helping PAT grow faster. ROCE at 25%; stock trades at 25x FY20 P/E.
Castrol India: Buy| LTP: Rs 123| Mcap Rs12,163 crore| Target: Rs 169| Upside 37%
Those looking to bottom-fish in oil marketing companies can consider Castrol India instead. Lubricant demand is likely to bounce back as industries open up and vehicles start plying on roads.
Soft crude oil prices will translate into robust operating margins as well. Debt frees status, ROCE of 100 percent, dividend yield of 4.4 percent, and trough P/E of 14.5x FY20.
(The author is Senior President & Institutional Research Head, YES Securities)
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
