Seeing is believing


Go for quality companies that have visible growth and strong balance sheets

With improving macro economy and renewed focus on investments, the Indian market’s structural bull run is intact. Furthermore, the sharp decline of prices of global commodities has helped the government’s fiscal position and improved corporate earnings. This has led to an increase in consumer demand and a gradual uptick in the investment cycle in the latter half of the fiscal year.

We recommend investing in quality names that have reasonable and visible growth coupled with strong balance sheets.


We have a positive stance on ITC given that its focus is shifting to the growing FMCG business with a target to achieve a revenue of 11 lakh crore by 2030, which translates into a 17 per cent CAGR (compound annual growth rate). Simultaneously, a structural decline in commodity prices has increased the visibility of earnings growth in the segment. Furthermore, the rising unrest among tobacco farmers could prevent an excise hike on cigarettes in the next budget, which could be a relief for the cigarette manufacturer in the medium term.


Baja Finance is the leading asset finance NBFC (non-banking financial company) with a strong hold in the consumer durable and lifestyle product financing business (approximately 15 per cent of the asset under management) with no major competition. The company’s asset quality has been steady compared to its peers, with the GNPA (gross non-performing asset) ratio at 1.5 per cent. At approximately 10 per cent, Bajaj Finance’s margins are one of the highest, and it has delivered a strong PAT (profit after tax) CAGR of 38 per cent (Rs.897 crore) through 2011 to 2015. The company’s premium valuations are expected to sustain on better earnings visibility, with PAT CAGR estimated at 29 per cent (Rs.1,502 crore) through 2015-17.


Being the industry leader, Kajaria is likely to be the key beneficiary of the favourable structural shift (India’s per capita consumption stands at 0.54sq.m per person compared to 3 to 4sq.m per person among peer countries), and government initiatives like Swachh Bharat Abhiyaan, housing for all by 2022, and Smart City Mission. With its strong return profile, lean balance sheet and the sharp improvement of 225 basis points in EBITDA (earnings before interest, tax, depreciation and amortisation) margin to 18 per cent during 2015-2016, Kajaria is expected to sustain its bottom line growth trajectory at 27.8 per cent CAGR during 2016-2017.



Syngene is poised to cash in on the growing global pharma R&D outsourcing trend. Global pharma players are inclined to outsource part of their R&D budgets to contract research organisations (CROs) like Syngene to maintain cost balance and new product introduction. As an Indian player, it has a significant cost advantage and skilled personnel compared to global CROs. It also enjoys high recall value because of its integrated service offerings coupled with consistent performance and high data integrity ethos.


Symphony is the leading player with a market share of nearly 55 per cent (in value terms) in the organised air cooler segment. It has established a robust distribution network comprising about 750 dealers, 16,500 retail dealers and 4,500 towns. We believe the air cooler industry will grow at nearly 19 per cent CAGR in 2015-25, because of the demand in tier-II and tier-III cities. The air cooler industry is now largely dominated by unorganised segment, which has about 80 per cent market share by volume. We believe a shift from unbranded to branded category would increase Symphony’s sales by 27 per cent and PAT CAGR by 31 per cent for 2015-18.


PNC is an EPC (engineering, procurement, construction) player that has a track record of timely/early completion of projects. With a strong order book of Rs.4,000 crore (including L-1 bids), healthy order inflow and lean balance sheet, we expect PNC to speed up its growth trajectory. We expect its top line/bottom line to grow at a CAGR of 20.7 per cent/25.4 per cent during 2015-17, compared to 16.0 per cent/17.3 per cent CAGR during 2010-15.


BlueDart continues to be a market leader in the air express market with nearly 52 per cent market share. We expect the implementation of GST (goods and services tax) to aid the shifting from the unorganised (50 per cent of the market) to the organised segment in the ground express market. Also, upcoming deals from e-commerce companies would lead to continued higher business-to-consumer volumes for the company. Revenue growth with continued margin expansion affirms our positive stance.


We like NBCC because of its competitive advantage of having public works organisation status (as a result of which it gets 70 to 80 per cent projects on nomination basis), strong order book of Rs.30,000 crore, cash-rich balance sheet and healthy return ratios. We believe the next leg of growth opportunities lies in the redevelopment of old government colonies (NBCC is currently expecting Rs.30,000 to Rs.40,000 crore from re-development opportunities) and in government initiatives such as Smart City and Swachh Bharat Abhiyaan. Considering the huge opportunities in the redevelopment space and the 41.5 per cent CAGR in earnings during 2015-2017, we remain positive on the stock.


IGL’s operations in the national capital region offers good demand potential due to lower CNG and PNG penetration and a Supreme Court directive to have all public transport vehicles run on CNG. The verdict, which relieved Petroleum and Natural Gas Regulatory Board from setting tariff and retail prices of CNG and PNG, has provided impetus to IGL to expand its network and maintain high pricing power. IGL’s investments in Maharashtra Natural Gas Ltd and Central UP Gas Ltd present incremental growth opportunity. IGL’s volumes, revenue and PAT are set to increase at 5.2 per cent, 4.2 per cent and 9.1 per cent CAGR in 2015-17.


With a strong portfolio of owned and licensed brands, Arvind is poised to capture the immense growth opportunity in the branded apparel segment. It has strategically transformed itself from being a denim manufacturer to a brand power house with a portfolio of 13 owned and 15 licensed brands. With brand monetisation in the front seat, coupled with higher focus in garmenting positions, it is one of the most favoured textile players. Driven by strong revenue growth in its brands and retail business, we expect Arvind's top line and bottom line to grow by 12 per cent and 19 per cent CAGR, respectively, in 2015-17.

Pandey is head (research) at ICICI Securities.
Disclaimer: It is confirmed that the research analyst or his relatives or I-Sec do not have actual/beneficial ownership of 1 per cent or more securities of the subject company, at the end of October 2015, or have no other financial interest and do not have any material conflict of interest. I-Sec or its associates might have received any compensation towards merchant banking/broking services from the subject companies mentioned as clients in preceding 12 months.

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