If you have started investing in Indian stocks in January 2017, chances are you are sitting on huge pile of profits. The S&P BSE Sensex rallied nearly 20 percent and many small and midcap stocks gave multibagger returns in the same period.
The Sensex is currently trading at 18.8x of its FY2019 earnings which is an 8 percent premium to its 10-year average PE of 17.4x. Analysts suggest as interest rates are likely to remain lower, equities will stay attractive asset class and domestic inflows will be supportive of liquidity and valuations.
Investors’ can continue with their bottom-up stock picking approach and select stocks which can benefit from affordable housing scheme, consumption pick-up, banking, etc.
"The year 2017 has been a solid year for equities globally and India is no different. 2017 has also heralded an era of immense liquidity driven by the solid growth in domestic asset management industry. This liquidity has made parts of broader markets expensive with earnings not commensurate with the price action," Arbind Maheswari, Head of India Equities - Sales Trading, Bank of America Merrill Lynch told Moneycontrol
We have collated a list of ten stocks which could turn out to be multibaggers in the next 2-3 years:
Analyst: Hemang Jani, Head, Advisory, Sharekhan
Hindustan Unilever
In Q1FY2018, Hindustan Unilever Limited’s (HUL) revenue and PAT grew by 5 percent on a YoY basis and 15 percent on a YoY basis, respectively, beating Street’s expectations for the quarter.
Sharekhan has already revised their earnings estimates upwards for FY18 and FY19 by 2 percent and 3 percent, respectively, to factor in better-than-expected operating performance.
The company is banking on operating efficiencies through various initiatives and cost-saving activities at the supply-chain/distribution level to see a gradual improvement in OPM.
Petronet LNG
Rebound in LNG imports and shutdown of Dabhol LNG terminal during the monsoon to improve PLNG’s Dahej terminal utilization in Q2FY18. Sharekhan expects PLNG to be a key beneficiary of the rising share of LNG imports in India’s overall gas consumption due to the following factors:
1) Flat to a marginal increase in the domestic gas production outlook over FY18E-FY20E and, 2) Low competition in LNG market as only two new LNG terminals - 5mmt Mundra terminal and 5mmt Ennore terminal is expected to come on-stream over FY18E-FY20E.
The stock is trading at an attractive valuation of 14.9x FY19E EPS given the strong earnings growth outlook (15 percent CAGR over FY17-2019E) and resilient RoE of 22-23 percent.
Maruti Suzuki
Maruti Suzuki India (Maruti) is India’s largest passenger vehicle (PV) manufacturer with a strong 47 percent market share. Over the past two years, the company has been able to gain market share due to new product launches, a vast distribution network (with an increased focus on rural markets) and a shift in consumer preference to petrol models from diesel models.
Maruti has successfully established itself in the big car category (Ciaz, Vitara Brezza, Dzire, and Baleno), led by strong product features and success of its premium distribution network Nexa, which offers a unique buying experience. Maruti continues to remain our top bet in the automotive space, given the sustained trend of outpacing the PV industry’s growth.
Reliance Industries
Sharekhan expects Reliance Industries' (RIL) GRM to remain strong at USD 11.5/12.0 per bbl in FY18/FY19, given the robust global oil demand growth outlook for 2017 at 1.5mbpd (International Energy Agency estimate).
Moreover, a likely improvement in diesel cracks would help RIL to maintain a premium of USD 4bbl-5/ bbl over Singapore Complex GRM. Ethylene margin is also expected to remain firm at USD 600-650/mt, led by healthy demand and likely delay in the commissioning of incremental capacities in CY2018.
It expects EBITDA/PAT CAGR of 23 percent/12 percent over FY17-FY19, driven by the commissioning of core downstream projects in FY18. Any positive surprise in terms of better-than-expected financials of the telecom business would be an important re-rating trigger for RIL going forward.
NBCC
Sharekhan marginally tweaked its earnings estimates on account of strong order inflow guidance and margin expansion despite flat topline in Q1. NBCC is likely to deliver an earningss CAGR of 51 percent during FY17-FY19E.
The positive outlook on revenue guidance for the next two years is on account of revenue booking to kick-start from large projects of Nauroji Nagar, Netaji Nagar, and Sarojini Nagar. It is backed by strong earnings visibility, a lean balance sheet, high return ratios and its quasi-monopoly position.
Analyst: Vinod Nair, Head of Research at Geojit Financial Services
Bharat Electronics
BEL will emerge as a key beneficiary from the on-going defence modernisation programmes & GoI focus on indigenisation. The current order backlog of Rs 40,000 crore is 5.3x FY17 sales, which has significantly improved the earnings outlook.
We factor order book to grow at 15 percent CAGR; consequently, earnings are expected to grow by 14 percent CAGR over FY17-FY19E. We value BEL at P/E of 22x on FY19E on improved order inflow outlook.
Symphony
Symphony is the largest air cooler manufacturer with a market share of ~50 percent in the organised market in India. Led by strong R&D, launched more than 40 new products in the last six years.
Its asset-light business model has enabled the company to sustain its EBITDA margin level above 20 percent and ROCE above 40 percent over the years. Introduction of a new premium range of air coolers will prove to be margin-accretive in the long run.
We expect earnings to grow at 22 percent CAGR over FY17-19E led by volume growth.
Mahindra CIE Automotive
Diversified product portfolio, broad-based customer profile and strong geographical presence establish MCIE a preferred choice for the OEMs. Scaling up the new product line to drive growth in two-wheeler business will paint a positive outlook for the company.
We expect EBITDA margin to improve by 350 bps over CY16-18E led by cost control initiatives and capitalizing the OEM mix. Consolidated Revenue/PAT to grow at 14 percent/57 percent CAGR over CY16-18E led by an increase in order book from OEMs & recent acquisition (BFPL).
TCI
Transport Corporation of India (TCI) is one of the largest well-integrated players in the organised logistics industry providing freight, supply chain, warehousing solutions & shipping services. Has a fleet of 9000 trucks, 5 ships & 11mn sq ft of warehousing space.
TCI will emerge as a key beneficiary from the implementation of GST, which is expected to boost third-party logistic players (3PL) business. With the improvement in scale, free movement of goods and lower transit time is expected to bring overall efficiency thereby improvement in margin profile.
Aarti Industries
Aarti Industries (ARTO) is a global leader in Benzene-based derivative products. Has a diversified product portfolio with end-users in pharma, agrochemicals, specialty polymers, paints & pigments.
Recently, it bagged contract worth Rs 4,000 crore for the supply of high-value agro chemical intermediary from a global chemical supplier. Management’s focus on high margin products, forward and backward integration is expected to provide higher growth opportunities.
We expect PAT to grow at 22 percent CAGR over FY17-FY19. Given strong earnings outlook, we continue to remain positive on the stock.
Disclaimer: The author is Founder & CEO, 5nance.com. The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management.