Nifty 50 has gone through decent correction in the last two weeks. Probably, we could be in the last leg of the correction. The gap in the chart has been the major concern for the traders from past two months that was emerged ahead of Lok Sabha election result euphoria. The July 19 session registered the low of 11,399.3, and the gap has been filled, the scenario indicating that we can expect some stability in the market now onwards.
As per the Fibonacci retracement, we are trading near 50 percent retracement level of recent up-move and intraday charts are trading in oversold zone. The overall picture is reflecting that selling pressure is likely to mature and bounce back is not ruled out.
Though the midcaps are going through rough phase, but we believe that it is a time to look for good pedigree stocks that delivered phenomenal performance in Q1 and are expected to do so in the subsequent quarters.
Here is the list of four stocks which could give double digit return:
IndusInd Bank: Buy | CMP: Rs 1,420 | Target: Rs 1,730 | Return: 22 percent
As expected, the bank delivered good set of numbers, with consolidated PAT rising 38 percent for the quarter. Alongside the strong balance sheet growth, advances grew 28.4 percent. Expect 25 percent growth levels ahead. Both corporate and consumer finance loan-books grew handsomely at 20 percent. The management is in line with its stated planning cycle 4 (2017-2020). Giving guidance of 25-30 percent loan growth, it stood at 28 percent during Q1.
NIM’s stood at 4.05 percent higher by 13bps (QoQ) which is mainly attributable to high growth in retail lending business and expected to remain in the levels of 3.85-3.90 percent ahead. Though the increase in NNPA and GNPA at 1.23 percent and 2.15 percent translates to concerns of asset quality risk, most of them are already accounted for in books and are expected to stabilise soon.
As the merger with Bharat Financial has taken place, it has driven synergies across revenue opportunities and operating efficiencies, boosting return on asset and NIM. But, the higher piece of the pie is still left on the plate. Moreover, it would help increase penetration and strengthen balance sheet.
The focus of the management is to continue growth on the retail lending business side after this merger. It aims to add 7.5 million new savings accounts by end of FY20. This would support CASA, which will lower funding cost. Though the vehicle sale remained subdued all over, the bank delivered better growth amongst peers. Going forward, as the festive season unfolds; it could drive growth from Q3FY20.
Bandhan Bank: Buy | CMP: Rs 528 | Target: Rs 620 | Return: 19 percent
The bank has started the year with phenomenal Q1 performance. The net profit jumped 46 percent. Total deposits surged 42 percent, with the asset growth at 39.36 percent. Moreover, NII grew by 36 percent; NIM’s was higher at 10.45 percent. With the decline in provisions, the bank has also maintained a stable asset quality (GNPA and NNPA stood at 2.02 percent and 0.56 percent). Further, it has added 7.08 lakh customers during Q1 to reach a total customer base to 17.27 million.
Going forward, the bank’s focus would continue to remain on micro-loans, with a growth of 40 percent in micro banking assets. Moreover, it is looking at exploring and expanding into housing segment and retail. The management is looking at good deposit pockets for new branches. With the completion of the merger with Gruh Finance expected in 2019, it would further add into growth and bring diversification.
Avenue Supermarts: Buy | CMP: Rs 1,400 | Target: Rs 1,700 | Return: 21 percent
It has kicked off FY20 on an optimistic note by registering sturdy double-digit growth in its operating metrics led by store addition and improvement in gross margin. The profit grew 31.87 percent to Rs 323.06 crore and the revenue soared 27 percent to Rs 5,814.6 crore. EBITDA surged 39.17 percent YoY to Rs 607.71 crore with margin came at 10.45 percent, owing to better operational efficiency despite growing concerns over pricing pressure and competitive intensity. The net profit margin is at 5.56 percent, higher than 5.35 percent a year ago and ahead of 4.0-4.8 percent range seen in the last three quarters.
In addition, it opened eight stores in Q1, aggregating 184 stores as of now. It is the highest compared to any other Q1 historically and is expected to add 25-28 stores in FY20 though a large part of additional store was a spill-over from the previous quarter. With consciously opening large stores and steady same-store-sales-growth plus superior per store revenue compared to peers; the company’s sharp value-retail positioning with efficient backend operations and e-commerce initiative could be a silver lining for its superlative growth in next few quarters.
ACC: Buy | CMP: Rs 1,540 | Target: Rs 1,800 | Return: 17 percent
Despite the muted volume growth in Q2, ACC remains in a sweet spot going ahead. The revival of the pricing power is to be seen in recent quarters as demand remains firm. It is expected to gain traction that will lead to higher capacity utilization. Rising cost efficiencies and lower energy costs should boost profits and upswing margins in subsequent quarters for the company, indicating a solid future ahead.
Looking on operating metrics for Q2, it reported a solid 39 percent YoY growth in Net profit at Rs 455.68 crore and 7.8 percent growth in Revenue at Rs 4,149.82 crore. EBITDA rose 25 percent to Rs 783 crore on back of sharp jump in operating margin. The cost increased on account of higher fuel prices YoY. It was partly mitigated by lower cost of raw materials, improvement in operating efficiency and lower fixed cost. Additionally, the company’s ongoing expansion plans (to add six million tonne by making Rs 3,000 crore capex), which will come on stream by CY21, will drive volume growth from CY22 onwards and boost ACC’s positioning in the central market.