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Market rewarding patient investors in largecaps; Anand Rathi names Nilkamal among 3 top picks

August 09
14:02 2018

Siddharth Sedani

Anand Rathi Shares & Brokers

Stock market indices scaled new highs once again mainly supported by blue-chip companies in oil & gas, IT, FMCG, and banking & finance space, among others. This up move has also taken many by surprise given that India is facing macro headwinds such as interest rate hike, volatile crude and currency, along with premium valuations.

This week’s highlight was the spectacular listing of HDFC AMC, which gave the investors handsome returns on day one. In the short to medium term, markets have rewarded those who have remained invested in large cap quality companies, broadly outperforming the mid and small-cap companies.

The International Monetary Fund has again confirmed that Indian economy is the fastest growing economy & will remain so in coming years, due to strong investment & robust private consumption along with structural government reforms. It described Indian economy as an “elephant that’s starting to run”.

Here are a few stocks that we like

Aarti Industries | Rating: Buy | Target: Rs 1,534

The company reported a growth of 36.2 percent in its standalone revenues for Q1-FY19 at Rs 1078 crore as against Rs 791 crore in Q1 of FY18. The growth in revenues was mainly driven by specialty chemicals segment and pharmaceuticals segment.

Its operating margins stood 17.4 percent in Q1 FY19 at Rs 187 crore against 17.5 percent at Rs 138 crore in Q1FY18.

The firm also reported PAT margins of 8.3 percent at Rs 89 crore for the quarter against 8 percent at Rs 63 crore during the corresponding quarter of last fiscal.

The company’s new Nitro-Toulene facility which started in September-17 has achieved utilization of around 40 percent in the quarter; the management expects to target this to be around 60 percent for the current financial year and around 80-90 percent by FY20.

The management expects a volume growth of 12-15 percent across its business while on profitability front the management expects greater growth of upwards of 25 percent at profit after tax levels on the back of higher utilization of capacity. The management has increased its PAT guidance in the current quarter from earlier 18-20 percent margins.

On capex front, the company intends to incur about Rs 600 crore per year for next two years. With capacity expansion starting operations gradually in FY-19, AIL would be positioning itself in a more margin accretive specialty chemicals segment targeting existing customer base. We expect the company to witness higher growth and subsequently improved margins in medium term.

Deepak Nitrite | Rating: Buy | Target: Rs 346

The company’s new green field expansion plan at Dahej, Gujarat for manufacturing phenol (2,00,000 ton/year) and acetone (1,20,000 T/year) should provide a significant increase in its top line and profitability.

The project is now well into its pre-commissioning activity & the company has set up a marketing team for customer outreach of the new products.

Due to India’s dependent heavily on the imports due to lack of domestic production capacity the macro scenarios for the domestic market looks promising for the company.

The company has reported a revenue growth of 24.8 percent in its standalone sales in Q1-FY19 at Rs 421 crore against Rs 337 crore in Q1FY18. PAT stood Rs 21.78 crore in Q1-FY19 as against Rs 20.10 crore in Q1-FY18.

Nilkamal | Rating: Buy | Target: Rs 2,317

The company is one of the leading plastic molded furniture, fixtures, industrial and material handling products manufacturing company. It operates businesses through three key divisions namely Plastics division (87 percent revenue), Mattress division (2 percent) and Lifestyle division (11 percent).

The India’s furniture market constitutes almost 85 percent of un-organized players and out of organized share the major component is of imported furniture market; signifying very large opportunity for incumbent players. Implementation of GST will play key role in this shift.

On marketing front, company has established its footprint through conventional dealer networks as well as by opening its own branded stores like @Home (26 stores) , Nilkamal Home Ideas (33 Stores) and DoDo Stores(Dealer owned and Dealer operated).

Going ahead, with the company continuously augmenting its range of differentiated products, introducing new product designs to cater to latest market demands and tie ups with various online market place vendors to offer its @Home products.

We expect Nilkamal to grow its revenues at 8.2 percent CAGR in FY19. The company’s profitability is also expected to increase owing to better mix in sales, improvement in operating leverage.

Nilkamal reported a growth of 17.3 percent in its standalone revenues at Rs 571 crore in Q1-FY19 as against Rs 487 crore in Q1FY18.

Its operating margins stood 9.6 percent at Rs 54 crore in Q1-FY19 as against 8.8 percent at Rs 43 crore in Q1FY18 while PAT margins stood at 5.4 percent in Q1-FY19 at ?30 crore against 4.6 percent at Rs 22 crore.

Disclaimer: The author is Vice President – Equity Advisory, Anand Rathi Shares and Stock Brokers. The views and investment tips expressed by investment experts/broking houses/rating agencies on Moneycontrol are their own, and not that of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.

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