Stocks and their momentum. (Image: iSTOCK)
As interest returns to large-caps and well-known mid-caps, stocks with demonstrated earnings capabilities, some of which have broken out from a prolonged phase of underperformance, are now the season’s favourites. Although any correction in equities could also have some impact on these stocks, most of the companies have a prove-track record and are in a better position to withstand any pressure that may be ahead. Here are 10 companies—most of them leaders in their businesses, which offer promise and are less likely to disappoint investors.
While this all-under-one roof financial services player draws over 60 per cent of its strength from Bajaj Finance (India’s top non-banking lender), its insurance arms too offer promise. Its already profitable general insurance business is likely to sustain momentum, while visible signs of a turnaround are eminent in its life insurance arm. Analysts at Investec have upgraded their earnings estimates for Bajaj General, Bajaj Life and Bajaj Finance by 22 per cent, 3 per cent and 17 per cent, respectively.
With the recent launch of biosimilars in the US market, Biocon’s medium-term story could be all about new launches and their revenue potential. Analysts at Motilal Oswal Financial Services expect biopharma to be the key growth driver generating 36 per cent revenue growth during FY18-20, while those at Morgan Stanley (having an ‘overweight’ stance on Biocon) say the next two years would be all about monetisation.
Transitioning into a retail-focused business has helped Havells
tide through tough years. Despite criticisms regarding valuations, Havells
is reaping benefits from the Lloyd Electric acquisition and is further enhancing its position as a consumer durables player. Analysts at Reliance Securities expect Havells
to grow its revenues and net profit by 15 per cent and 24 per cent, respectively during FY18-20.
This two-wheeler major has crossed multiple roadblocks — be it note ban, BS IV implementation or the roll-out of goods and services tax (GST), all without comprising its market leadership. Analysts feel Hero will be a big beneficiary of a robust return in rural demand and overall buoyancy in the two-wheeler market. Emkay Global says, Hero’s ability to sustain market share led by new products and favourable geography mix also works to its advantage. Focus on new markets and R&D are other important drivers.
With the focus back on driving same-store sales growth and margins, and more importantly on its core strength – pizzas, Jubilant has undone some of its past mistakes and has charted a new territory of profitable growth. This should support its financials in the medium to long-term. Macquarie expects Jubilant to witness 29 per cent annual growth in operating profit during FY18-20.
As the ghost of Maggi is now well behind it, Nestlé is back to bettering Street expectations yet again. It plans to foray into ready-to-drink beverages and breakfast cereals which hold good potential. Till then, its key offerings—infant and culinary foods, chocolates and beverages will remain prominent revenue drivers. Analysts at Credit Suisse, who have increased their earnings expectations by 4-5 per cent, say Nestlé is best placed to play the long-term packaged foods growth story in India.
India’s second-most valuable company, Reliance Industries
(RIL) has seen many changes over the years, the most prominent being the success of its telecom venture, Jio. Even its core oil refining and petrochemicals businesses are set to garner better margins owing to capacity expansions and better product mix. Morgan Stanley believes RIL is set for earnings inflexion with upside triggers every quarter until end-FY19, driving 12 per cent upside surprise to consensus earnings. “All businesses are experiencing once-in-a-decade step-ups in margins”, they note. Now, with consumer businesses to generate higher profits, RIL’s earnings should grow faster.
Tata Consultancy Services
Post a tough period due to the Brexit vote, TCS stock is now seeing strong gains. Three large deals signed in 2018 that ramp up TCS’s dominance in the insurance and retail segments should help offset any pressures in its banking vertical and accelerate FY19’s revenue growth. UBS views TCS as the best-positioned Indian IT services provider. “We expect stronger revenue momentum in FY19-21, led by growing digital exposure,” they foreign brokerage adds.
Successfully meandering through multiple hiccups, be it the tighter regulatory compliance for purchasing gold jewellery, the note ban or the GST rollout, Titan
has emerged as a major beneficiary, gaining market share from unorganised players. The management’s aspiration to compound jewellery business revenues by 20 per cent till FY23 reiterates the evolution Titan
has seen over the years. Analysts at ICICI Securities believe that Titan’s growth story will remain multi-pronged and drawn over a longer time frame. The recent update on the June quarter numbers, indicating slower growth (after a strong 50 per cent rise in March quarter), is more of a short-term blip. This, along with the partial stake sale by Rakesh Jhunjhunwala recently has weighed on sentiment, but it has also brought the rich valuations lower.
Having waded through a prolonged period of challenges (mostly regulatory changes), United Spirits
is set to accelerate. While GST-related uncertainty may stay in the near-term (alcohol not part of the new tax regime) and so may tax uncertainties (given the hike in duties by Karnataka), renewed management focus on product premiumisation and cost-effectiveness should deliver strong growth going ahead. Analysts estimate the company’s earnings to grow by 25-30 per cent over the next two years.