The most recent one has been the rather disappointing budget announcements of buyback tax, minimum public shareholding, and the high-income surcharge, which has strongly dented sentiment.
Tight liquidity conditions have also had the market in grips since Sep’2018 and the situation remains grave as we see several corporates defaulting on debt instruments and getting rating downgrades.
In terms of the global landscape, the world still grapples with the trade war between the US and China with little progress in negotiations between the two largest economies. To add to this are the tensions between Iran and the US & Gulf countries as well as global growth worries.
However, despite the many headwinds, there are still some stocks that look promising during the earnings season.
Cement companies could have one of the strongest results seasons in a decade on the back of enhanced pricing discipline, a low base, and benign coal & petcoke costs.
Although volumes remain a bother, we expect JK Cement to do fairly well among the lot on the profitability front. The company is expected to witness strong yoy growth in revenue and realization compared to its peers.
Further, the company could benefit from the pick-up in infra spending, exposure in its high-margin white cement/putty business (which accounted for about half its consolidated EBITDA), and grey cement capacity expansion, particularly in strong priced markets of North/Central India. Moreover, the company has announced expansion plans (raising its grinding capacity by 4.2MT and clinker capacity by 2.5MT), which may be complete by FY20E.
Indraprastha Gas & Mahanagar Gas
Petrol and diesel consumption in India so far has stayed relatively inelastic to price changes, probably owing to the lack of proper alternative fuels. However, recently, CNG has emerged as the best auto-fuel alternative in India with its importance likely to increase on the issuance of the 135 new CGD licences by the PNGRB.
The attractiveness of CNG is even greater due to the high taxation on petrol & diesel.
Companies like Indraprastha Gas & Mahanagar Gas are expected to benefit from this.
Gujarat Gas may also be a stock to watch out for due to benign LNG prices which will boost margins, the scope for geographical expansion, low risk from a change in domestic gas allocation policy, and penetration of electric vehicles.
The company has demonstrated its ability to raise funds despite the liquidity crisis, enabling growth across segments.
Recently, the company released data for Q1FY20: New loans booked during Q1FY20 was 7.3mn as compared to 5.6mn in Q1FY19.
Customer franchise as of June 30, 2019, stood at ~36.9mn as compared to 28.3mn as of June 30, 2018.
Additionally, assets under management stood at ~Rs1.29 lakh cr as of June 30, 2019, yoy and Rs1.15 lakh cr as of March 31, 2019.
Amidst the shadow banking sector’s grim challenges, Bajaj Finance does shine as a diamond among stones.
Source: IIFL Research