Acentury of returns and still going strong

The top six stocks in BSE100 index could outperform in 2018 as well, given the strong prospects

The stock markets had a good year in 2017, with indices like the BSE Sensex and Nifty 50 gaining 28-29 per cent and broader indices gaining even more. While this is good, it pales in comparison to the star performers of the year. The stocks more than doubled investors’ money over the same period. While this performance is unlikely to be maintained in the current year, analysts believe there is still steam left in the top performers.

Bajaj Finance

A diversified loan book, lower cost of funds and strong consumer demand have helped the financier register robust loan growth trends and higher margins. Even in the September quarter, the loan growth rate was 38 per cent year-on-year, despite the headwinds of slowing economic growth and goods and services tax (GST) implementation. While there is higher competition in the consumer durables and loans against property segments, analysts believe the company will outperform on the credit growth front, given cross-selling opportunities, technology edge and superior underwriting skills. Analysts at JM Financial expect 35 per cent annual growth in net profit over FY17-20, driven by robust asset growth and improvement in credit costs.

DLF

The sale of promoter stake in DLF’s rental arm, subsequently, with the owners investing back into DLF, has been a long-pending trigger for the stock. This takes care of the perceived conflict of interest, while bringing down DLF’s debt. Stake sale in the rental arm to GIC, investing the proceeds into DLF and private placement to maintain promoter stake in DLF at 75 per cent should help bring a total of ~150 billion to the company. This will help bring down the net debt, currently ~260 billion. The Street will now focus on pace of liquidation of real estate inventory, which could act as another trigger. Analysts at HSBC say renewed focus on the main business and an openness to do joint ventures are likely to result in faster monetisation of the company’s land bank and improvement in stock valuations.

Tata Global Beverages

Renewed focus on turning around or selling loss-making entities, saving on costs and new growth opportunities are translating to strong gains. Earnings growth in the first half of FY18 was a robust 18 per cent. In the domestic tea market, the company is leader and gaining share. This and its effort at product premiumisation, which includes tea bags, green tea and speciality, teas, as well as new launches should help improve profitability. Restructuring or selling loss-making units will help check the strain on profit and lead to better utilisation of capital. Entry into new areas excluding water, tea and coffee, expansion of capacity and brand launches in foreign markets should ensure

incremental growth. This and tie-ups with value-accretive brands such as Starbucks and reasonable stock valuations leaves scope for more gains.

Titan

The company’s recent update indicating double-digit growth in retail sales in the festive season and market share gains, reinforces the faith the Street has in the stock. The gains came despite a high base and stiff norms for the industry (such as the Prevention of Money Laundering Act). What has tilted the balance in favour of organised players such as Titan in the ~2-trillion Indian jewellery market are new rules governing the segment, including identity proof for transactions above ~0.2 million, goods and service tax (GST) implementation and crackdown on black money. Given the scale of top line opportunity traction in watches, as well as eyewear sales, analysts at Motilal Oswal Securities expect 36 per cent annual earnings growth over FY17-20 and thus justify its premium valuation.

TVS Motor

The trend of robust volumes continues for TVS Motor, which reported 38 per cent year-on-year growth in December. An uptick in the key export market of Nigeria, recovering sharp increase in crude oil prices, should help maintain export volume. Analysts expect the strong sales uptrend in the domestic market to sustain, given new launches and recent offerings. Given its focus on the faster growing scooter segment, it is expected to launch the Dazz scooter in 2018, which should improve overall volume growth. Most analysts are bullish on the company’s prospects, given its vehicle launch pipeline, which will improve revenue visibility, as well as a foray into the premium motorcycle segment, aiding margins.

Vakrangee

The highest gainer on this list, investors in this company have seen their holding value triple in the past year. Why the Street is still bullish on the company, which provides government-to-citizen services, real-time banking and assisted e- commerce using franchisees, is the scope for revenue growth of its stores or kendras. Foreign brokerage, Maybank Kim Eng expects the company’s operating profit to triple over FY17-20, on the back of doubling of kendras to over 75,000, activation of Amazon’s services on these and increase in mature stores to 75 per cent. Revenue triggers include launch of new offerings such as lead generation for loans, visa services and reverse logistics. Given the headstart Vakrangee has, analysts believe it is difficult for competition to replicate the brick and mortar franchisee model as well as its presence. Given the scope for services expansion, the revenue growth trajectory is still strong.