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8 stocks that have come alive on first sight of monsoon

A normal monsoon will likely result in robust farm production and boost rural demand.

, ET Bureau|
Updated: Jun 01, 2017, 08.20 AM IST
ET takes a look at 8 stocks that are likely to benefit from the likely normal monsoon.
ET takes a look at 8 stocks that are likely to benefit from the likely normal monsoon.
With the southwest monsoon hitting the Indian coast, companies dependent on good rains have a lot to cheer as earnings prospects have become brighter. Domestic brokerages have already started selling the 'monsoon theme' -the stocks of companies making tractors, tillers, pumps, agri inputs like fertilisers, seeds and agro chemicals, which could gain from a good monsoon. A normal monsoon will likely result in robust farm production and a consequent increase in farm income, which will boost rural demand. ET takes a look at 8 stocks that are likely to benefit from the likely normal monsoon.

Finolex Industries

Analysts say the demand for the manufacturer of polyvinyl chloride (PVC) pipes and fittings will remain strong in the rural segment, thanks to the normal monsoon forecast. “The stock is also at a discount to peers Astral and Supreme Industries,“ said Pankaj Kumar, AVP-Research at Kotak Securities, which has a buy rating and a target price of Rs 676 on the stock.

KSB Pumps

KSB has a healthy balance sheet with surplus cash of Rs 200 crore. Being present only in the product business, it witnessed efficient working capital cycle of 50 days.“With high-skilled technology backing from the parent group KSB AG, we believe KSB India is aptly placed to seize demand revival in the domestic capital goods space,“ said Chirag Shah, analyst, ICICI Securities.

Swaraj Engines

Analysts said the normal monsoon forecast has improved revenue growth visibility for the tractor engine maker. “Tractor growth momentum will continue on the back of pent-up demand and improved sentiment backed by normal monsoon,“ said brokerage Nirmal Bang in a note recently, raising target price on Swaraj Engines to Rs 2,050 from Rs 1,765.

Hero MotoCorp

About 55% of the two wheeler company's volumes comes from rural areas, and the company will benefit if rural incomes increase as a result of good monsoon, said Ashwin Patil, research analyst, LKP Securities, which has a target price of Rs 3,800 on the stock.

VST Tillers Tractors

VST has a healthy debt free balance sheet with surplus cash of about Rs 190 crore in books as of FY 2017 and healthy return ratios with RoCE in excess of 20%. “VST would be a key beneficiary of normal to positive monsoon in southern and North East India“ said Chirag Shah, analyst, ICICI Securities. “We value VST at Rs 2,200, 21 times FY 2019 estimated EPS of Rs 104.9 with a BUY rating on the stock“.

Coromandel Int

“It is a niche company in fertiliser space, the results were excellent and with monsoon likely to be good, Coromandel can go up 25-30% in one year,“ said AK Prabhakar, head of research, IDBI Capital.Coromandel's 800-store strong network is also expected to help the Murugappa group company gain market share post rollout of the Direct Benefit Transfer programme.

Jain Irrigation

The company, which has a market share of over 50% in domestic microirrigation segment, can benefit if monsoon is normal.Government's initiatives to promote micro irrigation also bode well for Jain Irrigation.Both Religare and Edelweiss have maintained `buy' on the firm after it reported a 24% year on year jump in fourth quarter consolidated net profit.

Dhanuka Agritech

The management is confident of posting at least 15% revenue growth in FY18. “We believe, new products such as Sempra and Cover should post strong growth as acreages of sugarcane, cotton and paddy are likely to increase“ said said Sumant Kumar, analyst, Emkay Global. “Robust earnings growth of 22% CAGR over FY17-19E should lead to healthy free cash flow generation in the coming years."

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