12 stocks with good fundamentals to buy for 2019
Sharekhan, a leading brokerage and research house which is owned by BNP Paribas, has issued a research report in which it has recommended investment in 12 stocks which have strong fundamentals and a good track record of profitability and dividends.
All the 12 stocks recommended by Sharekhan are well known names and have given multibagger returns to investors in the past.
It should not be a surprise if these stocks give multibagger gains in the future as well.
(1) Aarti Industries (Aarti) CMP: Rs 1,249
❑ Incorporated in 1984, Aarti Industries is a leading Indian manufacturer of speciality chemicals and pharmaceuticals with a global footprint. It maintains leadership position in its key products and is ranked between 1st to position for of its speciality chemical product portfolio.
❑ During FY2018‐21E, growth prospects are strong, as the company plans to expand across the benzene value chain and has also diversified into the toluene value chain. Concerns over specialty chemical supplies from China will help Indian companies, including Aarti Industries, increase its market share in world trade.
❑ Aarti has won multi year large orders worth Rs 4,000 crore for 10 years and Rs 10,000 crore for 20 years from two global clients These orders indicate growing confidence in the company and can drive up its revenue in the long term.
❑ Between FY2018 and FY2021E, the company has planned capex of Rs. 2,100 crore to expand capacity, Promoter’s Share (%) 53.1 including facilities to execute the two large orders.
❑ Key risks: Delay in commissioning the above two facilities might affect business performance and profitability.
6 High Dividend Yield Blue Chip Stocks
Investors looking for blue chip stocks with high dividend yield have a lot to choose from. There is a recent list of six blue chip stocks which offer a high dividend yield of as much as 7%, which is very attractive. The six stocks are all PSU companies which means that they are safe and the return of capital is assured.
(2) Arvind Limited CMP: Rs. 322
❑ Arvind Ltd has transformed itself from a pure textile manufacturer into the largest branded retail player, with a portfolio of top global brands across all market and price segments.
❑ The management proposes to demerge its branded and retail apparel and engineering businesses as both have matured enough to enhance growth prospects in the coming years. Moreover, listing these businesses as separate entities will help boost the value of these businesses.
❑ After the demerger, the company plans to invest Rs. 1,500 crore in garments, knitted fabrics and technical textiles. Margins of the branded & retail business are likely to improve with consistent growth in power brands, emerging brands turning profitable and operating leverage in Unlimited Fashion.
❑ From FY2017 to FY2020, we expect the company’s revenue and profit after tax to report CAGRs of 17% and 36%, respectively.
❑ Key risks A rise in cotton prices changes in government policies and weak demand environment risks: prices, environment.
(3) Britannia Industries CMP: Rs. 5,557
❑ Britannia is one of the largest biscuit & snack manufacturers in the domestic market. It is the largest biscuit maker in India, ahead of Parle, with a turnover of close to Rs. 10,000 crore
❑ We expect domestic sales volumes to keep growing at 10 12% as strong growth in regional markets along 10‐12%, with better demand in the urban market will drive sales. Sustained focus on innovation and distribution expansion in core categories is expected to drive the near‐term performance.
❑ In the coming years, the company can achieve double digit earnings growth by launching products with high gross margins, growing in adjacent product categories such as cakes and rusk and driving up margins through operating efficiencies and improving profitability in the cheese segment.
❑ Key risks: A rise in raw material prices and weak environment.
(4) Divis Laboratories (Divi’s) CMP: Rs. 1,289
❑ Divi’s Laboratories Ltd is an Indian pharmaceutical company based in Hyderabad, Telangana, India. Founded in 1990, the company is engaged in the manufacture of generic Active Pharmaceutical ingredients (APIs), contract research (custom synthesis) of APIs for other pharma companies, specialty chemicals and nutraceuticals. It operates predominantly in the exports market by selling to regulated markets in USA and Europe, and also is present in India.
The Indian rupee has depreciated by 10‐In the past five months, benefiting exporting pharmaceutical companies such as Divi’s Laboratories in terms of better sales realisation and profitability.
❑ Besides a weak rupee, there is immense scope for better‐than‐expected growth and re‐rating of valuation multiples in the coming months. The company stands to gain for two reasons, one, capacity expansion, as two manufacturing blocks are to be commercialised in FY2019 and two, emerging opportunities from China, where pollution‐related issues are restraining supply, which open up opportunities for Divi’s.
❑ We expect the company to deliver sales and profit CAGR of 23% and 32% over FY18‐21E.
❑ Key risks: Adverse regulatory changes could affect our estimates
(5) ICICI Bank CMP: Rs. 315
ICICI Bank is one of India’s largest private sector banks and also has subsidiaries which operate in financial services and insurance (BFSI) space.
❑ We believe that non‐performing assets (NPAs) cycle has peaked and though incremental loan slippages are likely to be elevated for medium term, but are expected to trend downwards.
❑ ICICI Bank is well capitalised, with a capital to risk (weighted) assets ratio (CRAR ) of 18.3% and tier‐1 capital reserve of 15 8% This will enable it to make the most of opportunities in the retail and corporate loan segment as PSU banks & NBFCs grapple with their own challenges.
❑ ICICI Bank has got a strong liability franchise, where current and savings account (CASA) deposits constitute 50.5% of overall deposits, which helps the bank manage its cost of funds and in turn sustain its net interest margins.
❑ Uncertainty regarding the leadership have been addressed to with the RBI giving approval of the appointment of the new MD & CEO.
❑ Key risks: Higher than anticipated haircuts in large cases at the National Company Law Tribunal (NCLT) could near term affect profits
8 stocks with strong fundamentals to buy for 2019
The current correction is an opportunity to investors to invest in good quality businesses at reasonable valuations. Investors should focus on sustainability of earnings growth than percentage of growth while investing in current round of market uncertainty. This is a list of 8 good quality companies
(6) IndusInd Bank CMP: Rs. 1,577
❑ With superior metrics, IndusInd Bank has been among the best‐performing private sector banks. During FY2014‐FY2018, the bank’s advances recorded a 26.7% CAGR, while net profit clocked a CAGR of 27.7% in the same period. In FY2018, net interest margin stood at a healthy 4.0%.
❑ Despite the banking sector being marred by non‐performing asset (NPA)‐related issues, IndusInd Bank has been able to maintain good asset quality with a gross NPA ratio of 1.09% as of Q2FY19, which is
❑ In the last few quarters, advances have gathered pace. We expect the growth momentum to stay steady, which would aided by a rise in loans for commercial vehicles. The bank is also well‐capitalised to take advantage of opportunities as PSU banks are starved of capital. The merger with Bharat Financial Inclusion could also give IndusInd Bank access to a new customers and increase cross‐selling opportunities.
❑ We expect margins to normalise as the effect of a rise in lending rates comes in with a lag.
❑ Key risks: An increase in credit risk that arises from the merger with Bharat Financial Inclusion Ltd
(7) Infosys Limited CMP: Rs.683
❑ Infosys is India’s second‐largest IT services company in terms of export revenue, $10,939 million in FY2018.
❑ Infosys focuses on a four‐pronged strategy to navigate clients’ digital journey, as it provides significant room for growth given there are opportunities worth $160 200 billion in the agile digital market growth, 160‐market.
❑ The company has stepped up its investments and acquired companies such as Fluido, WongDoody, etc to build up its digital capabilities and catch up with large competitors. Rapid revenue growth in the digital business has showed initial signs of progress.
❑ With a strong leadership bench, a rise in the value of total contracts signed under the new leadership and better business visibility, we expect Infosys to deliver strong revenue growth in FY2020 as compared to FY2019.
❑ The stock currently trades at 16 times its FY20E earnings, a meaningful discount to TCS. We believe that the Promoter’s Share (%) 12.8 valuation gap would gradually narrow as Infosys catches up with TCS on most parameters.
❑ Key risks: A rise in managerial level exits and a growing protectionism stance in the US.
(8) Jubilant FoodWorks (JFL) CMP: Rs. 1,269
❑ JFL, India’s largest food service company had shifted its focus to customer satisfaction from store additions to improve its store fundamentals over the long run, which has fructified in the near term, as desired.
❑ The management is focusing on offering superior value for money products and improve the customer superior, value‐for‐experience. The move to use digitilisation to improve product delivery has also worked well. The company’s same‐store‐sales growth of 25.9% in Q1FY2019 and 26.5% in Q4FY18 were the highest in last few years and is expected to remain robust going ahead too
❑ A sustained focus on efficiencies and a lower losses of Dunkin Donuts is expected to drive up operating margin to 16‐17% from 15% in FY2018.
❑ JFL would be one of the key beneficiaries of improvement in the discretionary environment in the domestic market.
❑ Key risks: A rise in raw prices weak demand environment and rising competition material prices, competition.
(9) Larsen & Toubro (L&T) CMP: Rs. 1,208
❑ L&T is the best play on the recovery in the domestic capex cycle. The management is focusing on a multipronged strategy ‐ achieving profitable growth, driving up return on equity (RoE) in the medium term and superior capital allocation. This augurs well for the company’s earnings that can clock an 18% CAGR from FY2018 to FY2020E.
❑ L&T began FY2019 with strong order inflows in the infrastructure, hydrocarbon and heavy engineering businesses that took the total order backlog to Rs 2 7 lakh crore for Q1FY2019 These orders offer revenue visibility for 2.2 years on a trailing twelve month (TTM) basis.
❑ The management has retained its forecast of a 10‐12% and 12‐15% rise in order inflow and topline, respectively. Consolidated margin is expected to rise by 50 bps. Expectation of a strong earnings performance is backed by growth in order inflows that is likely to be led by government capex and continued growth momentum in subsidiaries.
❑ Key risks: Slowdown in government and private capex led by macroeconomic issues such as rising interest rates, higher crude oil prices and a liquidity crunch among others.
(10) Larsen & Toubro Infotech (LTI) CMP: Rs.1,740
❑ Set up by L&T in 1996, LTI is India’s sixth‐largest IT services company in terms of revenue, $1,132 million in FY2018. It is also among the top‐20 IT service providers globally.
❑ The company’s prudent strategies and efficient sales force have helped it gain share in accounts and large new logo wins.
❑ Digital revenue currently contributes 34% of the company’s overall revenue as against 25‐30% for the top four Indian IT companies.
❑ Investments in sales resources, focus on large deal wins and efforts to strengthen ties with top 50 clients are expected to continue reaping rich dividends for LTI going ahead.
❑ Over FY2018‐FY2020E, LTI is well placed to deliver industry‐leading revenue and earnings CAGR of 20% and 22%, respectively.
❑ Key risks: A rising protectionist stance in the US and hostile regulatory developments against current VISA regime.
(11) Reliance Industries (RIL) CMP: Rs.1,102
Reliance Industries is a diversified conglomerate with business interests spanning from refineries, petrochemicals, exploration & production, retail and digital services.
❑ We expect refining margins to be robust in H2FY2019E and FY2020E, riding on a gradual ramp‐up of the petcoke gasification project over H2FY2019. Moreover, the relatively better economics of the petcoke gasification project, given rising crude oil prices and implementation of the revised International Maritime Organization (IMO) regulations from January 2020 to lower sulphur content for marine fuels would further drive up gross refining margins.
❑ As the paraxylene and refinery off‐gas cracker (RoGC) projects are commissioned, the company’s volumes and profitability are to increase significantly during petrochemical likely FY2019E FY2020E.
❑ Financials of the telecom business are likely to improve as we expect Reliance JIO to gain revenue market share; margins are likely to widen on account of operating leverage. Moreover, the launch of fixed‐line broadband services (JIO Gigafiber) would add to revenues of the digital services business. The retail business is also doing well with high double‐digit revenue and EBITDA growth.
❑ Key risks: Lower‐than‐expected refining and petrochemical margins.
(12) Sundram Fasteners (SFL) CMP: Rs. 535
❑ Sundram Fasteners Ltd (SFL) ) is witnessing a healthy traction across geographies. Strong demand traction from the OEM’s and a rise in content per vehicle (on back of technologically advanced and value added products) is likely to drive the domestic operations (65% of sales).Further, capacity expansion in fast‐growing fast geographies (SFL recently expanded capacity in China) and a rise in share of business in existing markets such as North America would drive up exports that account for 35% of sales.
❑ Operating leverage a better product mix as value added products gain share would lead to margin leverage, mix, value‐share, expansion. Further, the company’s subsidiaries have seen their financials improve significantly in FY2018.
This trend is likely to sustain, further aiding growth momentum. SFL is poised to clock strong 22% earnings CAGR over the next two years.
❑ SFL is a quality auto‐ancillary stock with return ratios of over 25%. Earnings are poised to outpace growth in the automotive industry over the medium term. Strong return ratios and robust growth make it an attractive investment bet.
❑ Key risks: Slowdown in automobile demand and Adverse currency movement