We list down 5 stocks in which you can start SIP right now:
Larsen & Toubro (L&T): It is the largest engineering and construction company and its business mix comprises of construction, heavy equipment, electrical equipment, power, shipbuilding, financial services, and IT services. L&T is well-placed to leverage the uptick in investment cycle. Further, strong presence in infra space bodes well for growth in the early cycle recovery, while industrial led businesses have become more cost competitive to play the late cycle capex. The government’s push on infra projects and widening base of mid-size orders will aid faster execution. Moreover, inflows have picked up post GST, driving strong order backlog of Rs2.94 lakh cr (2.8x TTM sales). With the company’s focus on cash flows, working capital has improved to ~23% of sales, which has contributed to ROE expanding from 13% in FY17 to 15% in FY19. Divestment of non-core business assets will further unlock value and improve return ratios. After controlling stake acquisition in Mindtree (60.59%), the consolidation is likely to lead to enhanced ROEs for the overall business. L&T started the year 2019 on a strong note with earnings growing by 29% to Rs1,570cr and healthy order inflow growth of 11% led by strong core performance.
Axis Bank: It is the third largest private bank in India with a ~5% market share in loans as of FY19-end. The bank has a well-diversified loan book of Rs4.95 lakh cr (March 2019) spread across retail, SME, and mid and large corporates. We expect new CEO Amitabh Chaudhry to act as a positive change agent and the bank gradually transforming to a compounder. Moreover, Axis Bank has made certain key hires in the quarter, including Head Liability Sales and Head-Treasury and the management team is now fully in place. Over FY19-21E, the bank is likely to benefit from a sharp reduction in stressed asset and lower loan-loss provisions, which in turn will lead to RoA expansion from 0.6% in FY19 to 1.4% in FY21. We expect loan growth CAGR of 16% over FY19-21E and domestic loan growth to outpace industry by 5-7% in FY20E. The bank was able to tighten operating expenses growth owing to (a) rationalization of outsourced manpower and security expenses, (b) digital initiatives in sourcing, leading to lower back-office and mid-office costs, and (c) lower advertising costs.
ITC: It is a diversified conglomerate present in segments such as Cigarette, FMCG, Hotels, Paperboards & Specialty Papers, Packaging, and Agri-Business; enjoys leadership position in all the segments except FMCG. Its product portfolio consists of Cigarettes - Gold Flake and Kings Classic; Hotels - Welcome and Fortune; FMCG - Sunfeast, Yippee, Bingo, and Aashirvaad, etc. Company is likely to report revenue CAGR of 11.2% over FY19-21E, owing to (a) market share gain in FMCG, (b) acceptance of high cigarette price, and (c) leadership positioning. Cigarette margins have been stable owing to partial indigenization of capsule filters (vs. higher cost imported capsule filters). Further, Cigarette EBIT has grown higher than sales despite negative operating leverage from a subdued sales growth. Margin expansion in the FMCG business has also continued, reiterating the medium term margin expansion story in this segment. Improvement in profitability could result in 26% CAGR in free cash flows over FY19-21E.
HDFC Bank: It is the largest private sector bank in India with market share of ~8.5% in system loans as of FY19-end. The bank offers a wide range of products across its wholesale and retail banking franchises. It also originates home loans on behalf of its parent, HDFC Limited. HDFC Bank is likely to continue to deliver consistent growth in balance sheet and earnings over FY19-21E. Market share gains in assets and liabilities may continue given its strong competitive position. Moreover, cross-selling opportunities and expanding use of technology are expected to improve its business productivity. Driven by increased digitization and unassisted digital origination, it aims to bring down cost/income in coming years from 40% in FY19 to 37% by FY21E. Asset quality remains healthy, both in retail and corporate segments. Its stressed assets ratio remains far lower than peers.
Reliance Industries (RIL): It is one of India’s largest private sector enterprises, a vertically-integrated company with business interests in energy and materials value chain. Activities span across exploration and production, petroleum refining and marketing, petrochemicals, retail and telecom services. RIL is among the top ten largest producers of major petrochemical products (PP, PX, PTA, MEG) and the largest polyester producer in the world. The company’s strategy to have partners in its oil to chemical (O2C) and Jio business will help RIL achieve its target of being FCF positive and net debt free by FY20-21. Notably, the deal with Saudi Aramco, which will buy a 20% stake in RIL’s O2C business (at Rs7,500cr EV), holds the key. RIL’s refining business is well-placed to benefit from IMO implementation w.e.f 2020; its petchem EBITDA was down only 6% qoq at a time when feedstock and product prices witnessed volatility coupled with new capacity ramp ups, and talks of a trade war weighing high on demand. Jio’s focus on growing its customer base plus lowering its debt by having Brookfield in its tower SPV. Retail business is posting robust growth led by solid same store sales growth and focus on tier 3/4 towns. Moreover, the economies of scale is aiding EBITDA margin.