Stability, fundamental strength guide MFs’ stock picks in June
Five stocks that attracted major interest from fund managers last month.
SHRIRAM TRANSPORT FINANCE
Bought by: HDFC Mutual Fund
CMP: Rs 1,046
Market Cap: Rs 23,735 crore
At a time when the environment is tough for NBFCs, analysts prefer to stick to those with unique models, long-term track record and reasonable valuations. Shriram Transport, with its niche product offering and strong upcountry presence, stands out from other asset financiers. The company remains optimistic on growth in FY20 mainly due to 3 factors — demand picking up after elections, a normal monsoon, and pre-buying due to BS VI rollout. With a price to book value of 1.5 and P/E of 9.26, valuations are reasonable from a long-term perspective.
Bought by: SBI Mutual Fund
CMP: Rs 942
Market Cap: Rs 23,746 crore
The ongoing liquidity crisis and implementation of the real estate regulation law have led to consolidation in the real estate space, with organised players gaining market share. Fund managers believe Godrej Properties, with its strong brand name, will maintain its leadership position and continue to deliver healthy sales over the next many years. It has managed to continuously scale up operations through steady new launches and recorded strong sales in these projects, giving fund managers the confidence to buy into the company.
Bought by: Reliance Mutual Fund
CMP: Rs 2,569
Market Cap: Rs 51,310 crore
Skidding auto sales notwithstanding, Hero MotoCorp has emerged as a solid contrarian theme. In June, the stock fell about 9%, which provided a strong reason for fund managers to buy into the stock for its robust business fundamentals. On the valuation front, based on FY21 estimated earnings, Hero is trading at an EV/EBITDA of 7.5, which is quite attractive in comparison with its past three-year average EV/EDBITA of 8.25. The company’s recent entry into smaller and fast-growing 125 cc segment of scooters is perceived as a big positive by the Street. Besides this, Hero’s strong dividend payout record and healthy free cash-flows offer high stability to the portfolio.
Bought by: ICICI Mutual Fund
CMP: Rs 2,393
Market Cap: Rs 654,084 crore
The NBFC crisis has enhanced the attractiveness of private sector banks that have extremely well-maintained asset quality. The board’s decision to consider a stock split, aimed at enhancing liquidity, drew in more funds. Also, the bank’s network of more than 2,200 branches and 7,100 ATMs in more than 1,000 cities, greater focus on retail customers, and double-digit growth in deposits and loan book burnished its allure. The listing of its NBFC subsidiary, HDB Financial Services, over the next few months is a strong reason for interest in the bank’s stock.
Bought by: HDFC Mutual Fund
CMP: Rs 128
Market Cap: Rs 126,848 crore
Analysts believe NTPC serves as a good defensive bet in the power sector. In the next two years, the company is expected to record double-digit growth. NTPC’s attractive valuation(1.2 times its book value) and dividend yield (5%) are a few convincing reasons for buying into the stock. In the June quarter, NTPC recorded 91.4% plant availability factor. This was 540 basis points higher than the previous year – and the highest in the past eight quarters. That should also help reduce under-recoveries.