Let The Light Shine On Your Investments

Diwali is the time when investors engage in ‘muhurat buying’. It is a traditional practice integrated with what the festival of lights brings in its wake – hope, knowledge, wellbeing and prosperity. So, add a little more colour and sparkle to your Diwali with Shashikant’s choice of well-researched stocks that will do well to strengthen your financial portfolio 

The Indian investment landscape has undergone significant changes since last Diwali. These changes have been driven by a number of factors, including the rising US’ bond yields, inflation still not at a comfortable level for most of the central banks, rising crude oil prices, conflict between Israel and Hamas in the Middle East and the ongoing war between Ukraine and Russia. This has thrown a new challenge for investors to manage their portfolios. However, despite this backdrop, the Indian equity market has shown strong resilience. 

The Nifty Total Market index, which tracks the performance of 750 stocks covering the Large-Cap, Mid-Cap, Small-Cap and micro-cap segments, has increased by 10.91 per cent from last Diwali. Though it may not sound very appealing for many investors, if we dig deeper we find that large-cap stocks have not performed in the last one year as Nifty 100, representing largecap stocks, is up by only 5.6 per cent. Compare this with Nifty Small-Cap 50, which is up by 34.05 per cent. The broader markets have kept equity investors in India rich and shining. 

The best performing equity index in the last one year has been Nifty Micro-Cap 250, which stands out with an impressive gain of 47.15 per cent, indicating a substantial rally in the micro-cap segment. Furthermore, the Nifty PSU Bank index has demonstrated a substantial increase of 42.44 per cent, underlining the resilience of public sector banks and their strong comeback after years of underperformance. The PSU banks have been on the path of recovery and growth. The Nifty CPSE and Nifty PSE indices have also showcased substantial gains of 39.66 per cent and 37.88 per cent, respectively, underscoring the strong performance of public sector enterprises in India. [EasyDNNnews:PaidContentStart]

The broader market indices reflect the prevailing optimism witnessed in the key benchmark indices. The overall market sentiment has remained positive this season with numerous stocks achieving substantial gains. We observe that at least four stocks have surged by an astounding 2,000 per cent or more in the past year. A remarkable total of 390 stocks have delivered returns exceeding 200 per cent, providing investors with a diverse array of options for high-yield investments over the last year. Also, during this period, investors had a choice of 390 stocks, all of which more than doubled in value since the previous year’s Diwali. 

The broader market’s robust performance becomes even more evident when we note that a substantial 460 stocks have gained between 50 per cent and 100 per cent since the earlier Diwali, and a minimum of 508 stocks have exhibited gains ranging from 25 per cent to 50 per cent. This past year has undoubtedly been a noteworthy period for investors in the broader market. The graph below shows the probability density curve of returns of all the stocks listed on the BSE in the last one year. The graph is heavily skewed towards the right side, indicating how the returns from stocks in the last one year were positively biased. 

Most of the gains in the Indian equity market have been from the start of April 2023. The rally has been largely relentless and there seems to be no stopping the bandwagon, at least for the time being. The 50-share benchmark index, which closed on Friday at 19,542.65, is up 11.1 per cent over the last one year. During the same period, NSE’s Nifty Small-Cap 250 and Nifty Mid-Cap 150 indices have gained 34 per cent. 

₹ 10,00,000 Diwali Portfolio 

Logic of Correction 

In the past one month, Nifty 50 has experienced a volatile session with downturn bias with a decline of nearly 5 per cent. This correction can be attributed to various factors, the primary one being escalating geopolitical tensions, which have prompted investors to adopt a risk-off approach. This entails reallocating assets from higher-risk investments, such as equities, towards safer havens like gold or US’ treasuries. Additionally, the substantial rally that has characterised the start of FY 2024 has pushed valuations beyond their historical averages. For instance, the MSCI India index is currently trading at a price-to-earnings (PE) ratio that is 1.17 standard deviations away from its 25 times mean. This signifies heightened risk. In contrast, the US’ market’s PE ratio is only 0.72 standard deviations away from its 26 times mean. Examining the Warren Buffett Indicator, which assesses market capitalisation-to-GDP ratios, it stands at 105 per cent, well above the long-term average of 80 per cent, indicating frothiness in the market. Even the Nifty Mid-Cap 150 index has seen an increase in its price-to-book value (PBV) ratio, moving from 3.2 times to 3.5 times. Its PE ratio has climbed from 25 times to 27 times over the same period, with minimal change in the implied return on equity (ROE) at 13.52 per cent over the past year. 

However, despite these valuation concerns, India remains an attractive prospect for investors when compared to other key emerging markets. The overarching narrative is that India is poised to sustain an annual growth rate of approximately 6 per cent for the foreseeable future. Recently, the International Monetary Fund (IMF) increased its FY 2024 growth projection for India by 20 basis points to 6.3 per cent, citing robust consumption between April and June. Pierre-Olivier Gourinchas, Economic Counsellor and Director of the Research Department at the IMF, has noted that India has consistently outperformed expectations and serves as a significant growth engine in the global economy. 

There is significant potential for foreign direct investment in India, particularly as international companies seek to reduce the risks associated with China. Although some small-cap stocks have started to appear overvalued, investors are advised to exercise caution within that segment. Furthermore, India’s market earnings exhibit greater visibility compared to several other markets, which is contributing to an expansion of its valuation multiples. Given the current geopolitical landscape, India offers a valuable diversification option for global investors, mitigating the potential for significant declines in multiples and share prices. 

Diwali Portfolio 2022 Review: Surpassing Benchmarks with Striking Performers 

In keeping with our consistent track record, the DSIJ Diwali Portfolio for 2022 has not just outperformed but eclipsed the BSE Sensex and BSE 500 indices by a remarkable margin. Among the stars of this portfolio, Phoenix Mills, IDFC First Bank, and Hindustan Aeronautics stand tall, demonstrating extraordinary growth within eight months and successfully hitting their target price of 40 per cent. These stocks have truly outshone the broader market indices. On the flip side, we also had our learning moments with the two lowest-performing stocks: Gujarat Alkalies and Chemicals and Infosys. These stocks fell short of our expectations, resulting in negative returns. Overall, the DSIJ Diwali Portfolio delivered an impressive return of 18.85 per cent over one year (or 20.16 per cent when factoring in dividends), while the BSE Sensex and BSE 500 indices posted returns of 9.07 per cent and 11.03 per cent, respectively. It is abundantly clear that our DSIJ portfolio has not just outperformed but outshone both benchmark indices. The resounding success can be attributed to the remarkable growth of Phoenix Mills, IDFC First Bank Ltd, and Hindustan Aeronautics, all of which made substantial contributions to the portfolio's exceptional performance.

Great Year Ahead 

As the festival of Diwali approaches, India will be illuminated with the glow of lamps, bursting fireworks and vibrant colours. Beyond the cultural and spiritual significance, Diwali is also a time when many of us turn their attention to another kind of illumination – the brilliance of their financial portfolios. This age-old tradition of investing during Diwali, often accompanied by ‘muhurat buying’, holds deep-rooted beliefs and practical wisdom that have stood the test of time. It is also the time for many first-time investors to take a serious look at the world of stocks and invest in tune with their long-term goals. 

The oil lamps that are lit during Diwali represent knowledge, prosperity and good luck. Just as the lamps cast away the shadows of darkness, the right investments can help us to achieve our financial goals and create a brighter future for ourselves and our families. As per our yearly tradition, you will find an equity portfolio of nine stocks to light up your wealth. As we illuminate our homes and hearts during this festive season, let us also shine a light on our investment strategies, hoping for prosperity and wealth in the year ahead. 

I N T E R V I E W 

Pankaj Pandey
Research Head (Retail Research), ICICI Securities 

"We Remain Constructive On Indian Equities From A Medium To Long-Term Perspective" 

What is your evaluation of the present state of the market?

The equity markets, globally, have faced some pullback recently amid concerns over elevated rates in the US as well as geopolitical tension. The Nifty 50 index saw a fall of around 6.5 per cent from the top. Nifty Mid-Cap 150 index was down by around 9.5 per cent while Nifty Small-Cap index went down by around 8.5 per cent. Overall, we are at the lower end of the percentage range of fall across large-cap, mid-cap and small-cap which we have historically witnessed. Nonetheless, one should understand that in a structural bull market, 8-10 per cent correction in the interim is a normal phenomenon. 

What are your thoughts on the geopolitical tensions and their potential impact on the Indian markets?

Unlike Ukraine-Russia, the current Israel-Palestine conflict is smaller in scale both in terms of geographical and countries’ participation as well as global trade impact. Thus, the overall impact is likely to be limited in terms of commodities or equities or markets. Moreover, positive catalysts such as robust corporate earnings (likely to grow at 16.5 per cent CAGR over FY23-25) and the favourable growth-inflation dynamics of India (~6-7 per cent sustainable growth with comfortable inflation of ~5 per cent), indeed, makes India an outlier as an equity investment destination in the medium to long term amidst a dwindling global growth milieu. 

Besides geopolitical crises, are there any other risks you anticipate for the equity markets in the remaining part of this financial year?

Besides geopolitical crises, one of the major risks for the equity market is sustained higher interest rates in the US. This risk has become more pronounced as the GDP and unemployment indicators remain healthy amid elevated inflation which implies that a rate pause or cut might not be in sight in the near term. While the US’ elevated interest rate is indeed a concern, albeit it is a known one. Nonetheless, robust corporate earnings and favourable growth-inflation construct does make India a superior destination for investment. 

How do you interpret the management commentaries following the Q2FY24 results?

The management commentary post the results was encouraging and firm on growth prospects primarily driving confidence from unperturbed economic recovery domestically. On the exports front, however, given the geopolitical tensions, the outlook remains uncertain. The start to the earning season i.e. Q2FY24 has been encouraging and on expected lines. At the index level for the results declared till date, top-line and bottom-line growth came in ahead of 20 per cent+ on YoY basis. On a sequential basis, reassuringly, it came in at higher single digit at ~8 per cent. On the sectoral front, IT results were muted with BFSI space reporting robust earnings’ growth. With healthy earnings’ growth in H1FY24 we are comfortably placed on the earnings front and expect Nifty to clock earnings with CAGR of 16.5 per cent over FY23-25E. 

With the substantial surge in small-cap and mid-cap stocks, is it advisable to consider securing partial profits at this juncture?

We believe that the broader markets represented by the midcaps and small-cap segments offer multiple investment opportunities. The primary reason is higher earnings’ growth for the mid-cap and small-cap segments. Apart from higher earnings growth, the earnings’ upgrade in the last two quarters has been higher for mid-caps and small-caps. Also, the universe of small-cap stocks with higher profitability has increased significantly in the last six years with the number of companies with PAT of more than ₹ 100 crore in FY17 at 232 increasing in FY23 to 800. 

What guidance would you offer to individual investors during this phase?

We remain constructive on Indian equities from a medium to long-term perspective. We believe that it is not always possible to buy at the bottom. Therefore, long-term investors may start investing from the current levels and further accumulate on every dip from here on. In the existing scenario, conservative investors may start fresh lump sum allocation to markets at the current levels but would be advised to go slow as the market may fall more. However, if one is an aggressive investor, he or she can start allocating from the current market levels without waiting for a further market fall. 

In the ensuing sections, we have meticulously selected a range of thoroughly researched stocks with the aim of constructing a resilient and diversified portfolio.
 

CIE Automotive India Ltd

CMP (₹ ): 473.10
BSE CODE: 532756
Face Value(₹ ) : 10
52 Wk High/Low : 578.10 / 279.30
Mcap Full ( ₹  Cr.) : 17,450.67
 

Here is why:

◼ The company plans to expand in capacity with a capex guidance of ₹ 250-300 crore for CY2024.
◼ Increasing penetration in EVs in both Europe and India with strong order book from OEMs. 

CIE Automotive India is a multi-technology, multiproduct automotive component supplier with a strong emphasis on innovation, quality, and sustainability. The company is headquartered in Mumbai, India, and operates in over 20 countries, including Spain, Germany, Brazil, Mexico, China, and the USA. It functions as a subsidiary of CIE Automotive, a Spanish industrial group specializing in supplying components and sub-assemblies for the automotive sector. CIE Automotive has a global presence and is listed on the Madrid stock exchange. CIE Automotive India offers a comprehensive range of products and services, encompassing forging, casting, machining, and assembly of components for engines, transmissions, chassis, and other automotive applications. The company also provides design and engineering services, along with research and development capabilities, to cater to the evolving requirements of the automotive industry. Its worldwide reach, diverse product portfolio, and dedication to customer satisfaction establish it as a trusted partner for automotive industry clients. 

Financials 

In the recently concluded quarter (Q3CY23), the company reported a revenue of ₹ 2279.41 crore, marking a 2.24 percent increase compared to the previous year. The company's PBIDT (Excl OI) amounted to ₹ 345.38 crore, registering a robust growth of 17.7 percent. Furthermore, CIE Automotive India maintained a PBIDTM% (Excl OI) of 15.15 percent in Q3CY23. The Profit After Tax (PAT) showed a substantial surge of 119.57 percent on a YoY basis, reaching ₹ 375.62 crore. In summary, the company showcased strong year-on-year growth.

For the fiscal year 2022 (CY22), CIE Automotive India Ltd witnessed a significant increase in total income, surging by 29.38 percent to reach ₹ 8753.04 crore, compared to ₹ 6765.17 crore in CY21. The company demonstrated a respectable level of profitability with a PAT margin of 8.10 percent for CY22, resulting in a net profit of ₹ 709.15 crore. 

Rationale 

As one of the largest global automotive component suppliers, CIE enjoys a diversified automotive presence across multiple regions and product segments, including forgings, castings, and stampings, providing CAIL with extensive access to operational and technological support. Additionally, CIE holds strategic significance for CIE's global operations, serving as the auto component division for the South Asian and South-East Asian markets. CAIL is expected to continue benefiting from CIE's robust technological expertise and established relationships with global OEMs.

CIE Automotive is well-positioned to capitalize on the growing trend of electric vehicles (EVs), with a substantial order book for EV parts and partnerships with major European and Indian OEMs. The EV order book covers a wide range of components, including aluminum and steel forgings, gears, stampings, and composite parts for e2W, e3W, and e4W vehicles. In CY22, EVs accounted for nearly 40 percent of CIE's order book in Europe and 35 percent in India. EVs have a greater emphasis on stamped, plastic, and aluminum parts as compared to forged, cast, or machined parts. Given that the EV supplier ecosystem is still in its nascent stages, EV OEMs are actively seeking partners with a strong track record and reputation, presenting new opportunities for CIE.

CAIL operates as a diversified auto component supplier, with six business segments and a presence in multiple automotive segments and geographies. It is a leading supplier to reputable OEMs in India and Europe, with a revenue mix of 64 percent from India and 36 percent from Europe in CY2022. CAIL possesses key competitive strengths in forgings, ductile iron castings, cores and magnets, and automotive stampings. The company is transitioning to a dynamic manufacturing system and aims to achieve a consolidated EBITDA margin of 17%- 18% by FY25. Its growth drivers include a robust order book, an increased share of business with existing customers, and the addition of new customers. CAIL is expanding its capacity in all verticals to meet the growing demand. Given the company's growth prospects, we recommend a BUY.
 

Ethos Ltd

CMP (₹ ): 1662.70
BSE CODE: 543532
Face Value(₹ ) : 10
52 Wk High/Low : 1,999.95 / 846.00
Mcap Full ( ₹  Cr.) : 3,866.98
 

Here is why:

◼ Multiple new store openings are on the horizon with debut of upscale jewelry and luggage boutiques.
◼ The pre-owned luxury watch segment is expected to grow significantly. 

Ethos is India's largest luxury and premium watch retailer, with over 60 retail locations and a team of 545+ employees. They offer an impressive collection of 7,000 premium, bridge to luxury, luxury, and high luxury watches from 60+ premium brands, including 42+ exclusive brands. Since FY19, Ethos has expanded into the certified pre-owned luxury watch market. 

This retail network includes 15 Ethos Summit stores and one airport store with bridge to luxury, luxury, and high luxury brands. They also operate 20 multibrand outlets and 13 Ethos boutiques featuring bridge to luxury and premium brands. In addition, Ethos manages 10 mono-brand boutiques dedicated to specific luxury watch brands and a certified pre-owned luxury watch lounge for pre-owned watches. Their business model uniquely combines a loyalty program with a strong social media presence, leading to over 35 per cent of their sales originating from returning customers. 

Financial Overview

In Q1FY24, on a consolidated basis the company reported a revenue of ₹ 230.02 crore, which was a 32.5 per cent increase from ₹ 173.56 crore in Q1FY23. EBITDA grew by 25.5 per cent to ₹ 33.92 crore from ₹ 27.02 crore in Q1FY23. Net profit rose by 42 per cent to ₹ 17.94 crore, compared to ₹ 12.63 crore in Q1FY23. 

For FY23, the company's consolidated results displayed revenue of ₹ 789 crore, a 36.7 per cent increase from ₹ 577 crore in FY22. EBITDA grew by 59 per cent to ₹ 135 crore from ₹ 85.5 crore in FY22. Net profit surged by 157 per cent to ₹ 60.30 crore, compared to ₹ 23.39 crore in FY22. 

Furthermore, the company's key financial metrics include a ROCE of 17.4 per cent, ROE of 13.8 per cent, and a PEG ratio of 0.82. In terms of liquidity and solvency, the company has a current ratio of 4.21, interest coverage ratio of 7.35 times, and a debt-to-equity ratio of 0.19. 

Rationale

Ethos has secured a leading position in both the luxury watch and certified pre-owned watch markets. Projections for the Indian watch market show significant growth. By FY 2025, it is expected to reach ₹ 22,300 crore, up from ₹ 13,500 crore in FY 2020, with a 10.6 per cent CAGR. Simultaneously, the premium and luxury watch market in India is projected to expand to ₹ 11,890 crore by FY 2025, growing at a 12.5 per cent CAGR from ₹ 6,610 crore in FY 2020. 

The growth in high-net-worth individuals (HNIs) and ultrahigh- net-worth individuals (UHNIs) is directly linked to the increased sales of luxury watches. Over the next five years, the UHNI population, those with a net worth exceeding USD 30 million, is expected to surge by 58.4 per cent, while India's billionaire population will increase from 161 individuals in 2022 to 195 in 2027. The HNI population, individuals with assets valued at USD 1 million or more, is forecasted to reach 1.65 million from 797,714 individuals in 2022, marking a remarkable 107 per cent increase within the same five-year period. The growing startup culture and innovation are also contributing to substantial wealth creation. 

Additionally, Ethos is the leading organized multi-brand luxury watch provider in India, uniquely capable of certifying, purchasing, and restoring pre-owned watches. The pre-owned market is expected to outpace the primary market, particularly through online sales channels. Additionally, the debut of the first Rimowa Boutique featuring upscale luggage and the introduction of the Messika Boutique showcasing luxurious jewellery are planned for FY24 in India. 

Multiple new openings are on the horizon, including the first Rimowa Boutique in Mumbai's Jio World Plaza Mall, six boutiques at the Mall of Asia in Bangalore (including five mono-brand boutiques and one Ethos Summit multi-brand store), and two stores (one multi-brand and one brand boutique) at the Mall of Millennium in Pune. Hence, we recommend BUY.
 

ICICI Bank

CMP (₹ ): 924.50
BSE CODE: 532174
Face Value(₹ ) : 2
52 Wk High/Low : 1,008.70 / 796.10
Mcap Full ( ₹  Cr.) : 6,41,314.97
 

Here is why:

◼ ICICI Bank plans grow its domestic lending, especially in retail space.
◼ Build upon its digital push and focus on risk-calibrated operating returns. 

ICICI Bank is one of the largest private banks in India, with over ₹ 9.38 lakh crore in advances and ₹ 10.9 lakh crore in deposits as of September 30, 2023. It is also one of the three banks classified as domestic systemically important banks (D-SIBs) by the Reserve Bank of India (RBI). The bank’s strong market position is due to its experienced leadership and management, as well as its size, scale and positioning in various business segments. As a leading full-service universal banking group with a pan-India footprint, ICICI Group also has a strong presence in life and general insurance, asset management, private equity, and retail broking. Its wide geographical spread is reflected in its network of over 6,248 branches and 16,927 ATMs and CRMs. 

The bank is expected to continue its strategy of building upon its established market position in the domestic lending space, particularly in retail lending, while maintaining a strong liability franchise. ICICI Bank also has an international presence, with branches in the US, Singapore, Bahrain, Hong Kong, Dubai International Finance Centre, South Africa, China, an offshore banking unit (OBU), and an international financial services centre (IFSC). It also has representative offices in the US, the UAE, Bangladesh, Malaysia, Nepal and Indonesia. ICICI Bank has wholly-owned banking subsidiaries in the UK and Canada, with branches across both countries. Its UK branch also has an offshore unit in Germany. 

Financial Overview 

For the quarter ended September 30, 2023, the bank’s net interest income (NII) rose by 23.8 per cent YoY to ₹ 18,308 crore as against ₹ 14,787 crore from the previous year’s corresponding quarter on a standalone basis. The net interest margin (NIM) improved 22 bps YoY, while it contracted 25 bps QoQ to 4.53 per cent. Margin compression is expected to continue in the coming quarters, due to the lag in deposit repricing and stable yields. The cost of deposits is expected to rise further, as older deposits are repriced at higher rates, while the rates on new deposits have stabilized. Its core operating profit rose by 21.7 per cent to ₹ 14,314 crore from ₹ 11,765 crore. Net profit stood at ₹ 10,261 crore, rising by 36 per cent YoY on higher core income and lower provisions compared to ₹ 7,558 crore from the previous year’s corresponding quarter.

ICICI Bank’s asset quality improved in Q2FY24, with gross NPA ratio contracting 28 bps to 2.48 per cent and net NPA ratio down 5 bps to 0.43 per cent. Gross NPA additions were ₹ 4,687 crore, down from ₹ 5,318 crore in Q1FY24. The bank wrote off ₹ 1,922 crore in gross NPAs and recovered ₹ 4,571 crore in the quarter. ICICI Bank’s total provisions dropped 64.5 per cent YoY to ₹ 583 crore in Q2FY24. Domestic advances rose 19.3 per cent to ₹ 10.74 lakh crore, while total advances were up 18.3 per cent to over ₹ 11 lakh crore. The domestic corporate loan book rose 15.3 per cent year-on-year, while the retail book recorded a growth of 21.4 per cent. Retail loans currently comprise 46 per cent of the total loan book. 

Total deposits of the bank rose 19 per cent YoY to ₹ 12.94 lakh crore, with period-end term deposits increasing 31.8 per cent YoY to ₹ 7.67 lakh crore. CASA deposits growth was muted at 4 per cent YoY and, resulting in a CASA ratio of 40.8 per cent, down from 46.6 per cent YoY and 43.3 per cent QoQ. 

At TTM, the stock trades at 2.98 times its book value, which is slightly on a higher side if we compare with its top five peers (median P/Bv 2.82 times). The bank’s RoA improved 35 bps YoY and stood flat QoQ at 2.16 per cent. Its ROE improved 250 bps YoY and 20 bps QoQ to 19.1 per cent. 

Rationale 

ICICI Bank continues to perform well with strong net interest income and controlled provisions supported by robust asset quality. The bank’s healthy mix of high-yielding unsecured loans and continued growth in business banking, SME and secured retail loans is enabling broad-based growth, which helps it to maintain business diversification. Furthermore, ICICI Bank has a robust balance-sheet driven by a strong digital push and a focus on risk-calibrated operating returns. Considering these factors, we recommend BUY. 

Indian Bank Ltd.

CMP (₹ ): 410.85 
BSE CODE: 532814
Face Value(₹ ) : 10
52 Wk High/Low : 446.15 / 240.90
Mcap Full ( ₹  Cr.) : 52,320.98
 

Here is why:

◼ Indian Bank has added 3.03 lakh fresh enrolments with Average Account per Branch of 52 against proportionate target of 50 during H1FY24 

Indian Bank was incorporated on March 5, 1907, with an authorized capital of ₹ 20 lakhs and commenced its business on August 15, 1907. Indian Bank is a medium-sized bank offering deposits, loans and services. The bank’s segments include treasury, corporate and wholesale banking, retail banking and other banking operations. Over the years, Indian Bank has grown to become one of the leading commercial banks in the country, with a strong presence in both rural and urban areas.

Indian Bank's products and services are tailored to meet the needs of a diverse customer base, ranging from individuals to small businesses to large corporations. The bank is committed to providing its customers with high-quality banking and financial services at competitive prices. The merger with Allahabad Bank has given Indian Bank a larger balance sheet, more efficient capital utilization, and a wider geographic reach, resulting in deeper market penetration. Indian Bank has a strong domestic branch network of 5,787 branches and 4,929 ATMs and BNAs.

Financial Overview

For the second quarter of FY24, the income from interest was recorded at 13,763.80 crore, a significant rise of 28.3 per cent from 10,727.67 crore for the same period last year. The total income surged by almost 26 per cent from Q2FY23's level of ₹ 12,714.20 crore to Q2FY24's level of 15,929.41 crore. In the second quarter of FY24, the bank had spectacular growth of 74.61 per cent, increasing its net profit to 2,776.74 crore from 1,590.23 crore in the corresponding quarter of FY23. In terms of annual earnings, the bank reported interest income of 44,985.16 crore for FY23, an increase of 15.08 per cent from 38,888.44 crore for FY22. The total income surged 14.1 per cent in FY23, from 46,268.15 crore in FY22 to 52,789.66 crore. From the net profit of 3,993.89 crore in FY22 to the net profit of 5,330.48 crore in FY23, the company reported a remarkable rise of 33.47 per cent.

In addition to the above, the bank's ratio of non-performing loans to total assets (GNPA) improved to 4.97 per cent, down from 5.47 per cent in June 2023 and 7.30 per cent in September 2022. Similarly, the bank's ratio of net nonperforming loans to total assets (NNPA) also improved, standing at 0.60 per cent in September 2023, down from 0.70 per cent in June 2023 and 1.50 per cent in September 2022.

The bank's deposits grew by 9 per cent year-over-year to ₹ 6.21 lakh crore, and advances grew by 12 per cent to 4.73 lakh crore. The bank's CASA ratio grew by 7 per cent year-over-year and 3 per cent quarter-over-quarter.

Presently, Promoters own 79.86 per cent of the business as of September 2023. Whereas institutional investors, including FII and DII, are having stake of around 16.09 per cent in the bank. The remaining 4.05 per cent of the equity is held by noninstitutional investors.

Rationale

India's banking sector contributes significantly to the country's economy and is a crucial one from a strategic perspective. The banking industry in India is well-regulated and adequately capitalized. Government of India has initiated various reform measures and structural changes including recapitalization plan and introduction of 'Enhanced Access and Services Excellence (EASE)' towards Smart and Tech-enabled banking. Amalgamation of Allahabad Bank into Indian Bank has placed the Bank as the 7 largest Bank in India with more than 8 lakh crore business, 43,000 strong workforce and over 6000 branches network with a strong CASA base. The primary focus area of Indian Bank for this FY is to increase the CASA, curtailing cost, increasing revenue other than from interest, accelerating recovery in respect of impaired assets and containing the level of NPA. This will also help bank improve its bottom line. Among its key strengths are the varied loan book, improving asset quality, adequate capital, good profitability, extensive distribution network, and robust product groups. Considering the potential of Indian bank and its rapid growth and also keeping in consideration the excellent long-term prospects for the Indian banking industry, we recommend BUY.
 

Kolte Patil Developers Ltd.

CMP (₹ ): 470.10
BSE CODE: 532924
Face Value(₹ ) : 10
52 Wk High/Low : 520.00 / 231.00
Mcap Full ( ₹  Cr.) : 3,641.75
 

Here is why:

◼ Q1 FY24: Kolte-Patil's revenue jumps from ₹ 200 Cr. to ₹ 571 Cr., EBITDA doubles to ₹ 91 Cr.
◼ Strong financial foundation: Net debt-to-equity ratio of 0.02x, Q1 operating cash flow of ₹ 87 Cr. Attractive stock pick. 

Kolte Patil Developers Ltd., a prominent player in the real estate sector, has a strong presence in Pune and is expanding into Mumbai and Bengaluru. They operate under two brands, Kolte- Patil for mid-income properties and 24K for premium luxury offerings. With a history of delivering over 26 million square feet in these cities, the company is firmly established. They have ambitious new launches planned, with an estimated saleable area of 17 million square feet, potentially generating over ₹ 12,000 crore in revenue. Pune has been their stronghold, contributing 68 per cent of sales in FY22, and they aim to maintain this focus while expanding in Mumbai and Bengaluru, targeting them to contribute 30 per cent to sales by FY25. 

Their project portfolio for FY23 includes a substantial 36 million square feet, taking into account areas under execution and approvals. It has a robust land bank. They have engaged in strategic partnerships and innovative models, including development management and redevelopment projects in Mumbai. In FY22, they exhibited commitment to growth through a significant share buyback. Financial partnerships with renowned institutions and debt reduction underscore their financial stability. 

In June 2023, Kolte-Patil amalgamated with Sampada Realities Private Limited and issued non-convertible debentures, raising capital from India Realty Excellence Fund IV and Marubeni Corporation, Japan. Leadership changes have occurred with Khiroda Jena taking over as CFO. Their dedication to excellence was recognised with ‘The Trusted Brand of the Year’ award. Over the past five years, they have systematically reduced their net debt, with a 15 per cent reduction achieved in FY23, highlighting prudent financial management. 

Financial Overview In Q1FY24, Kolte-Patil demonstrated a remarkable financial performance. The company reported revenues of ₹ 571 crore, a substantial increase from ₹ 200 crore in Q1FY23. Its EBITDA for Q1FY24 surged to ₹ 91 crore compared to ₹ 47 crore in Q1FY23, showcasing the company’s robust financial health. The PAT (profit after tax) for Q1FY24 stood at ₹ 46 crore, a notable growth from ₹ 21 crore in Q1FY23. Kolte-Patil maintains a strong financial position, with its net debt-toequity ratio standing at an impressive 0.02 times as of June 30, 2023. Furthermore, the company generated an operating cash flow of ₹ 87 crore in the quarter, underscoring its liquidity and financial stability. This solid financial foundation provides the company with ample room to pursue its ambitious growth objectives.

The company reported a notable increase in sales volume, reaching 0.93 million square feet, reflecting a remarkable 52% year-over-year growth. The total sales value for the quarter amounted to ₹ 701 crore, marking a substantial 58% YoY increase. The realization per square foot saw a 4% uptick compared to the previous quarter, standing at ₹ 7,545. 

However, collections for Q1FY24 declined by 13% from the previous quarter, totaling ₹ 513 crore, while registering an 8 per cent YoY increase. These figures highlight Kolte Patil's strong presence and progress in the real estate sector, as well as their commitment to growth and financial stability. For the entire fiscal year 2023 (FY23), the company continued its upward trajectory, recording a 21% increase in volume, a 28% surge in value, and a 21% growth in collections compared to FY22, solidifying their position as a dynamic real estate powerhouse. 

Rationale As Kolte-Patil looks ahead to achieving milestones and expanding its project portfolio, it remains confident in the value it delivers to customers, with benefits poised to accrue to all stakeholders. Looking ahead to FY24, Kolte-Patil is focused on new business development, targeting a top-line potential of approximately ₹ 8,000 crore through various geographies and deals. With a robust project portfolio and strategic vision, the future holds promise for this dynamic real estate powerhouse. We therefore recommend BUY.
 

Mrs Bectors Food Specialities Limited

CMP (₹ ): 1125.40
BSE CODE: 543253
Face Value(₹ ) : 10
52 Wk High/Low : 1195.00 / 378.40
Mcap Full ( ₹  Cr.) : 6,588.73
 

Here is why:

◼ Company plans to enhance penetration in Tier I and II markets
◼ To introduce new premium varieties in the sweets and savouries space 

Mrs Bectors Food Specialities Limited (MBFSL) is one of the leading companies in the premium and midpremium biscuits segment and the premium bakery segment in North India. The company manufactures and markets a wide range of biscuits, such as cookies, creams, crackers, digestives and glucose under the flagship brand ‘Mrs. Bector’s Cremica’. It also manufactures and markets bakery products in the savoury and sweet categories, which include bread, buns, pizza bases and cakes under the ‘English Oven’ brand. All products are manufactured in-house at the company’s six manufacturing facilities and supplied to retail consumers in 26 states and three Union Territories within India. 

It also supplies to reputed institutional customers with a pan- India presence and to 63 countries across six continents. The company operates through its two business segments, biscuit and bakery. The biscuit segment consists of the premium and mid-premium biscuits category in North India and is one of the largest exporters of biscuit products from India. The company had a 5.4 per cent market share of the premium and mid-premium biscuits segment in North India at the end of FY23. The company has a strong presence in North India with 1,180 distributors and 580,000 retail outlets. The company is also a contract manufacturer of biscuits like Oreo and Chocobakes for Mondelez. 

Financial Overview

The biscuit segment revenue for Q1FY24 stood at ₹ 223 crore as against ₹ 178 crore in Q1FY23, thus registering a growth of 25 per cent compared to Q1FY23, including the domestic and export biscuit segment. The bakery segment of the company is one of India’s fastest-growing premium bakery brands with leading positions in Delhi NCR, Mumbai and Bengaluru in the premium category. It is also a leading company in the institutional bakery space as a preferred supplier to large QSRs in India.

For the first quarter of FY24, the revenue of the company stood at ₹ 374.2 crore, which is 24 per cent higher on a YoY basis. The operating profit of the company stood at ₹ 57.90 crore which increased by 85.72 per cent YoY. The company also maintained an operating profit margin of 15.5 per cent in Q1FY24 that improved by 508 bps YoY. Its PAT stood at ₹ 34.8 crore which increased by 174 per cent YoY as against ₹ 12.70 crore in Q1FY23. The PE at which the shares of the company are trading is 57.1 times, which is high but can be justified by the growth potential it has with its growing market share in both the business segments. The company has a PEG ratio of 0.6 times and debt-to-equity of less than 0.3 times. Looking at all these factors, we recommend BUY. 

Rationale

The company is strategically expanding its capacity in the Bakery sector within the NCR and undertaking several projects, including the Khopoli project for Bakery and MP projects for Biscuits, set to be commissioned in the upcoming financial year. With these capacity investments for the current and next financial year, the company is poised to reach a substantial revenue range, almost ₹ 2,400 crores to 2,500 crores. Looking ahead, the capex for FY24 is expected to be approximately ₹ 120 crores. Furthermore, the company has made substantial strides in expanding its distribution reach, doubling its direct distribution over the past two fiscal years. In the pursuit of its ambitious target, an additional 1 lakh direct-reach outlets are slated to be added this year, aiming for 3,20,000 outlets by March 2024. The company is determined to maintain a consistent high teen growth rate throughout the current financial year. 

It has a leadership position in key metropolitan markets in the premium bread category and also has dedicated lines for bun production for QSRs. Currently, the company plans to enhance penetration in Tier I and II markets and introduce new premium varieties in the sweets and savouries space. The company has a 5 per cent market share in the branded bread segment in India. It has 600 distributors and 35,000 retail outlets. The bakery segment revenue for Q1FY24 stood at ₹ 135 crore against ₹ 107 crore in Q1FY23, thus registering growth of 26 per cent compared to Q1FY23 including the retail bakery and institutional segment.
 

Power Finance Corporation Limited

CMP (₹ ): 238.95
BSE CODE: 532810
Face Value(₹ ) : 10
52 Wk High/Low : 258.15 /90.48
Mcap Full ( ₹  Cr.) : 81,413.51
 

Here is why:

◼ Consistent growth in loan book with strong growth in renewable energy generation loans.
◼ Lowest gross NPA and net NPA in the last 6 years 

Power Finance Corporation Limited, a non-banking financial institution based in India, is registered with the Reserve Bank of India as an infrastructure finance company. The company's primary focus is to provide financial support to the power sector. It offers a wide range of fund-based products, including project term loans, equipment lease financing, short and medium-term loans to equipment manufacturers, interest-free loans for studies and consultancies, corporate loans, lines of credit for coal import, buyer's lines of credit, lease financing for wind power projects, debt refinancing, and credit facilities for purchasing power through power exchanges. 

Additionally, the company provides non-fund-based products, such as deferred payment guarantees, letters of comfort (LoC), guarantees for contract and obligation performance related to fuel supply agreements (FSA), and credit enhancement guarantees. Furthermore, the company offers consultancy and advisory services in financial, regulatory, and capacity-building domains. 

Financial Overview

In the first quarter of FY24, the interest income reached ₹ 20,815.76 crore, marking a significant increase of 13.71 percent compared to ₹ 18,305.53 crore in the same period last year. The total income also rose by 13.25 percent, increasing from ₹ 18,544 crore to ₹ 21,001.44 crore during the same period. In Q1 FY24, the bank achieved remarkable growth with a 30.62 percent increase in net profit, rising to ₹ 5,982.14 crore from ₹ 4,579.53 crore in the corresponding quarter of FY23. 

Regarding annual earnings, the bank reported interest income of ₹ 76,495.93 crore for FY23, a moderate increase of 2.15 percent from ₹ 74,887.12 crore in FY22. Total income for FY23 increased by 1.7 percent from ₹ 76,344.92 crore in FY22 to ₹ 77,625.19 crore. The company's net profit also saw a notable 12.84 percent increase, rising from ₹ 18,768.21 crore in FY22 to ₹ 21,178.59 crore in FY23. 

As of September 2023, Power Finance Corporation's current valuation stands at ₹ 78,410 crores. Promoters own 55.99 percent of the business, while institutional investors, including FII and DII, hold stakes of around 16.85 percent and 17.86 percent, respectively. The remaining 9.3 percent of the equity is held by public investors. 

Rationale

PFC's loan book has been consistently expanding, with a temporary growth dip in FY22 due to reduced power sector demand post-COVID-19. As of June 30, 2023, the loan book stood at ₹ 4,32,339 crore, up from ₹ 4,22,498 crore as of March 31, 2023. The proportion of loans to conventional generation companies decreased to 42 percent in FY23 from 47 percent in FY22, driven by the increasing presence of renewable energy companies. In infrastructure financing, PFC sanctioned ₹ 16,647 crore and disbursed ₹ 1,016 crore as of March 31, 2023. Government sector lending remained the majority, accounting for 83 percent of the loan book as of March 31, 2023, down slightly from 84 percent as of March 31, 2022. 

PFC has shown a consistent improvement in its asset quality over the past several years. In FY23, the company reported a decrease in the GNPA ratio to 3.91 percent, which further improved to 3.82 percent in the June quarter, down from 5.61 percent as of March 31, 2022. Additionally, the capital adequacy ratio increased, reaching 24 percent as of March 31, 2023, and 25 percent as of June 30, 2023, up from 23 percent as of March 31, 2022. 

PFC, as a quasi-sovereign financial institution, effectively diversifies its funding sources, securing funds from various channels such as international agencies, domestic bonds, and bank loans. Borrowings increased by 13 percent year-on-year to ₹ 3,66,508 crore as of June 30, 2023.PFC's pivotal role in financing power projects for the public and private sectors, contributing to the nation's power infrastructure, has earned robust backing from the Government of India, which currently possesses a majority stake in the company. Given the consistent growth in the loan book, ongoing improvements in asset quality, and an enhanced capital adequacy ratio, we recommend a BUY.
 

Saksoft Ltd.

CMP (₹ ): 367.85
BSE CODE: 590051
Face Value(₹ ) : 1
52 Wk High/Low : 399.40 / 97.00
Mcap Full ( ₹  Cr.) : 3,763.50
 

Here is why:

◼ The Indian IT sector's thriving growth prospects
◼ The company is pursuing strategic acquisitions for growth 

Saksoft Limited is a global IT services and consultancy company that focuses on information management, web development and business application testing. They offer strategic consulting, products and services in information management, transforming large amounts of data into strategic business insights. They have worked with Fortune 100 clients worldwide and have a competitive global cost model through mixed on-site, near shore and off-shore delivery teams. Saksoft has partnerships with SAP Business Objects, Microsoft, Oracle, IBM, Informica and Atos Origin, and offers services such as business intelligence applications, data warehousing, data integration, application migration, and solution frameworks. 

Financial Overview

Saksoft Ltd.’s Q1FY24 financial performance was robust, with net sales increasing by 23.95 per cent YoY to ₹ 183.47 crore. This growth was attributed to high demand for services in logistics, transportation, financial technology and healthcare sectors. The total expenditure increased by 18.63 per cent YoY to ₹ 148.94 crore, primarily due to higher employee costs and operating expenses. PBIDT excluding other income increased 53.66 per cent YoY to ₹ 34.54 crore, with a margin of 18.82 per cent. PAT increased by 41.27 per cent YoY to ₹ 25.15 crore, with a margin of 13.71 per cent. On a quarter-on-quarter basis, net sales increased by 0.78 per cent, while total expenditure decreased by 0.41 per cent. 

This led to a 6.23 per cent increase in PBIDT excluding other income and a 0.65 per cent increase in PAT. Saksoft’s financials for the year ended March 31, 2023 showed a 38.9 per cent YoY increase in net sales to ₹ 665.60 crore, driven by growth in all business segments, with the IT services segment experiencing the fastest growth at 45 per cent. Total income also increased by 37.4 per cent YoY. Its PBIDT grew by 30.5 per cent YoY to ₹ 117.58 crore, while PAT grew by 29.6 per cent YoY to ₹ 81.98 crore. Saksoft’s dividend payout ratio was 70 per cent, indicating sufficient cash flows to meet its dividend obligations.

Rationale

The IT and BPM sector is a significant economic driver in India, contributing 7.4 per cent of the country’s GDP in FY22 and expected to march up to 10 per cent by 2025. The Indian IT industry’s revenue reached USD 227 billion in FY22, a 15.5 per cent YoY growth. IT spending is expected to increase to USD 1,110.3 billion in 2023. India produces 16 per cent of the world’s AI talent pool, making it the third-highest in the world. PwC India plans to hire 10,000 employees in the cloud and digital technologies space over the next five years. India’s IT export revenue rose 11.4 per cent to USD 194 billion in FY23, while the IT industry added 2.9 lakh new jobs, bringing its workforce to 5.4 million people. 

The IT sector attracted cumulative foreign investment inflows worth USD 94.92 billion between the year 2000 and March 2023. The Union Budget 2023-24 allocated ₹ 97,579.05 crore (USD 11.8 billion) for the IT and telecom sector. Saksoft, a digital transformation partner, has acquired Solveda, a software design and development company specialising in e-commerce applications. The acquisition is expected to enhance Saksoft’s e-commerce capabilities, particularly in the B2B segment. The company is also investing in its front-end sales force and other capabilities for future growth. Saksoft has 14 customers with over USD 1 million in revenue and has added one more in the USD 0.5 - USD 1 million range in the most recent quarter. 

Saksoft’s key verticals include financial technology, telecom and utilities, transportation and logistics, retail and health technology. The company aims to reach USD 500 million in revenues by 2030 and grow by 25 per cent to 30 per cent annually. Saksoft’s stock PE ratio is 41.6 times, which is higher than the industry PE ratio of 35.3 times. This indicates that the stock is trading at a premium to its peers. However, the company’s ROCE and ROE ratios of 28.4 per cent and 22.7 per cent, respectively, are strong, which suggests that it is generating good returns on its capital. Its strategic focus on innovation, talent development and global expansion will undoubtedly propel its success in the dynamic IT landscape. Hence, we recommend BUY. 

Torrent Power Ltd.

CMP (₹ ): 723.00
BSE CODE: 532779
Face Value(₹ ) : 10
52 Wk High/Low : 763.45 / 430.90
Mcap Full ( ₹  Cr.) : 34,914.41
 

Here is why:

◼ A diverse power generation portfolio
◼ Strategic positioning in India's dynamic growth 

Torrent Power Ltd. (TPL) is a leading integrated power utility in India engaged in generation, transmission and distribution of power. The company operates across the states of Gujarat, Maharashtra, Uttar Pradesh and Karnataka. TPL has an aggregate operational generating capacity of 3,879 MW with a unique mix of coalbased, gas-based, solar and wind power plants. TPL’s licensed areas of Ahmedabad, Gandhinagar, Surat and Dahej SEZ offer to its customers one of the best power availabilities of more than 99.9 per cent along with transmission and distribution losses of a mere 5.5 per cent, one of the lowest across the globe. 

The company is currently focused on significantly scaling up renewable business and developing electricity supply infrastructure at Dholera SIR and streamlining operations in the franchised areas of Shil, Mumbra and Kalwa. The company is well-aligned to contribute as per the sustainable development goals (SDGs) set out by the United Nations. The company distributes power to over 40 lakh customers in the cities of Ahmedabad, Gandhinagar, Surat, Dahej SEZ and Dholera SIR in Gujarat, Bhiwandi, Shil, Mumbra and Kalwa in Maharashtra and Agra in Uttar Pradesh. Due to its low distribution losses in India, the company is able to keep its tariffs competitive. 

Financial Overview

Torrent Power’s revenue and income increased significantly in the financial year 2022-23, compared to the previous year. The company’s net sales increased 80.2 per cent from ₹ 14,257.61 crore to ₹ 25,694.12 crore. Its total expenditure also increased by 94.9 per cent from ₹ 10,756.59 crore to ₹ 20,959.48 crore. However, the increase in revenue and income was higher than the increase in expenditure, resulting in a significant increase in the company’s profits. The company’s PAT (profit after tax) increased by 371.9 per cent from ₹ 458.70 crore to ₹ 2,164.67 crore. Overall, Torrent Power’s financial performance in the financial year 2022-23 was very strong.

The company’s financial performance for the quarter ended June 30, 2023 was strong, with revenue and profitability growing year-on-year. Net sales increased by 12.55 per cent to ₹ 7,327.62 crore while total expenditure rose by 12.71 per cent to ₹ 6,142.84 crore. As a result, PBIDT excluding other income grew by 11.73 per cent to ₹ 1,184.78 crore and PAT by 6.03 per cent to ₹ 532.28 crore. On a sequential basis, revenue grew by 21.36 per cent, while total expenditure increased by 24.16 per cent. This led to 8.65 per cent growth in PBIDT excluding other income and a 9.99 per cent growth in PAT. Overall, Torrent Power’s financial performance for the quarter ended June 30, 2023 was impressive with both revenue and profitability growing on a year-on-year basis. 

Rationale

India’s power sector is one of the most diversified in the world. India is the third-largest producer and consumer of electricity worldwide, with an installed power capacity of 423.25 GW as of July 31, 2023. The company’s power portfolio includes thermal and renewable power generation plants along with licensed and franchised distribution across four states. The management of the company has maintained annual capex across the regulated business, which will help the company to drive its ROEs higher.

TPL now sells power directly to more than 40 lakh consumers across the domestic, industrial and commercial divisions after acquiring DNDD. In Ahmedabad, Gandhinagar, Surat, and Dahej SEZ, collection efficiency is nearly 100 per cent due to an urban-centric and diverse customer base. At TTM, TPL is trading at a PE of 16.2 times which is higher than compared to its three-year median PE of 14.2 times. The valuation looks cheaper when compared with the industry PE of 22.6 times. The company’s three-year sales and profit growth stand at 23.5 per cent and 11.5 per cent, respectively.

The company is well-positioned to benefit from the growing demand for electricity in India. Power is among the most critical components of infrastructure, crucial for the economic growth and welfare of nations. The existence and development of adequate power infrastructure is essential for sustained growth of the Indian economy. Considering company’s business and its value, we recommend BUY. 

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