Rail Vikas Nigam (BSE Code 542649)

A research analyst working with a mutual fund recommends investment in Rail Vikas Nigam Ltd (RVNL), a wholly owned subsidiary of Indian Railways which is involved in building rail infrastructure. RVNL is an offshoot of the National Rail Vikas Yojana announced from the rampants of Red Fort on August 15, 2002 by the then Prime Minister Atal Behari Vajpayee and became fully functional in March 2005. The company has made rapid strides from then onwards. During the last five years, its revenues have more than trebled from Rs 4,541 crore in fiscal 2015 to Rs 14,581 crore in fiscal 2020, with the profit at net level spurting by more than two and a half times – from Rs 304 crore to Rs 790 crore during this period. The company’s financial position is getting strong, with reserves at the end of March 2020 standing at Rs 2,415 crore against its equity capital of Rs 2,085 crore. For the last two years, it has been paying dividends at a rate of 11 per cent.

Last week, Life Insurance Corporation acquired a 8.22 per cent stake in RVNL. Earlier, the government which owns 87.84 per cent stake in RVNL had announced an offer of a 15 per cent stake sale at a price of Rs 27.50 per share. LIC’s acquisition has boosted the market sentiment for RVNL.

(CMP Rs. 32.70, 52 week H/L Rs. 36/17, BV Rs. 26.10, FV Rs. 10)

---

IndusInd Bank (BSE Code 532187)

A brokerage house is bullish on IndusInd Bank which has turned out a heart-warming performance in the second Covid-19 year. Having suffered a moderate setback in fiscal 2020 on account of the Covid-19 pandemic, the bank is moving gradually through uncertainties and has put up a highly encouraging show for fiscal 2021. Net interest income has risen from Rs 120,567 crore in fiscal 2021 but the profit at net level has declined from Rs 44,179 crore to Rs 28,374 crore.

The bank’s asset quality position is comfortable, having accelerated provisions over fiscal years 2019-2021 to improve PCR from 43 per cent to 75 per cent with 75-80 bps of contingent provisions. The focus on growth in domain expertise and curtailing growth in higher exposures have helped the bank do better this year. Of late it has been selling down standard loan assets with Rs 9,000 crore undertaken in fiscal 2021 to lower risk procedures in the corporate book and continues to grow in the focus domain areas like MFI vehicle financials, gems and jewellery and other secured assets. MFI has started to grow strong, outpacing industry growth. and most of the loan book has been replaced making its position strong. Deposit initiatives like Pioneer, the NRI segment and the affluent segment remain a focus area. The bank remains poised to grow with strong capital ratios, strong liquidity and steady deposit franchise and should remain a strong choice among longterm investors as RoEs are expected to improve to 14-15 per cent in the next two years.

(CMP Rs. 1033.55, 52 week H/L Rs. 1120/457, BV Rs. 558.00, FV Rs. 10)

Time Technoplast (BSE Code 532856)

The equity research wing of a stock broking entity of a leading bank is bullish on Time Technoplast, a small-cap company engaged in the manufacture of plastic products including products for industrial packaging, infrastructure, technical, material handling and composite cylinders. The company has been growing steadily on the financial performance front. During the last five years, its sales turnover has expanded from Rs 1,407 crore in fiscal 2016 to Rs 2,141 crore in fiscal 2020, with gross profit inching up from Rs 151 crore to Rs 230 crore during this period. However, at the net level, there is a modest decline from Rs 99 crore to Rs 98 crore. The company’s financial position is very strong with reserves at the end of March 2020 standing at Rs 1,413 crore – over 62 times its equity capital of Rs 22.61 crore.

Experts believe that the shift of the chemicals business from China to other Asian companies will be a plus factor for companies like Time Technoplast. Again, sale of non-core assets, big opportunities in the CNG cascade segment and revocation of pledge will also benefit the company. The share price is most likely to cross the Rs 100 mark very shortly.

(CMP Rs. 85.70, 52 week H/L Rs. 93/35, BV Rs. 83.90, FV Re. 01)

Ambuja Cement (BSE Code 500425)

A research analyst working with a securities company of a leading bank favours investment in Ambuja Cement, a leading cement company which is riding on an ambitious expansion programme. The company has chalked out a plan for jacking up its manufacturing capacity from the current level of 29.7 million tonnes to 50 million tonnes.

The company has started the new fiscal year on a positive note, operating at almost full capacity in Q1 of calendar year 2021 with capacity utilization reaching 96 per cent of capacity. Now, to enhance capacity to 50 million tonnes, the company has laid out growth plans to emerge as a player with a 50 million tonne capacity. In terms of regions, the company is exploring opportunities in the markets of east and west India with brownfield expansions in the Bhatpara and Maratha plants. While its upcoming facility in Marwar Mundwa in Rajasthan will enhance clinker capacity by 3 million tonnes, it would help improve cement sales by 5 million tonnes. Apart from this, the company is also looking at significant debottlenecking opportunities across all its plants to further enhance their cement capacity.

Of course, the immediate prospects for the company are not that bullish on account of the pandemic-induced restrictions but the long-term growth trajectory of the company will remain healthy with capacity expansions backed by strong prospects ahead.

(CMP Rs. 341.50, 52 week H/L Rs. 345/183, BV Rs. 114.60, FV Rs. 02)

J.K. Paper (BSE Code 532162)

An independent research analyst tracking the paper sector among others recommends investment in JK Paper, a leading player in office papers, located papers and packaging papers. Its packaging board and official documentation products include JK Copier Plus, JK Copier, JK Easy Copier, JK Cmax, JK Cedar, JK Excel Bond and JK Ledger. Its uncoated and board products include JK Cote, JK Super Cote, JK Cote Premium and JK Coated Chromo, JK Ultima, JK Tuffcote, JK Tuff Pack, JK Endura and JK Club Card. All these products are popular and in good demand. Of course, of late the demand for paper has been adversely affected on account of the pandemic as schools and colleges have remained closed under the first and second wave of corona and office work has been disrupted on account of the lockdowns. As a result, sales turnover declined from Rs 3,257 crore in fiscal 2019 to Rs 3,054 crore in fiscal 2020 and further to Rs 2,742 crore in fiscal 2021, with the profit at net level declining from Rs 492.71 crore in fiscal 2020 to Rs 322.99 crore in fiscal 2021. But the equity analyst believes that once the pandemic eases and the situation gets normalized, the company will be doing very well as its products will be in good demand and the share price will reach near Rs 200.

(CMP Rs. 178.40, 52 week H/L Rs. 182/86, BV Rs. 148.50, FV Rs. 10)

HDFC Bank (BSE Code 500180)

A former banker (ex-executive director of a leading nationalized bank) and now a research analyst tracking the finance and banking sector advises investors not to get distracted by the revenue of Rs 5,753 crore in Q4FY2021, which is 56 per cent higher compared to the same quarter a year ago. The net profit, in the process, was slashed compared to that in the corresponding quarter a year ago. The net profit in the process was slashed from the pre-provisioning level of Rs 17,018 crore to Rs 8,444 crore. According to the analyst, the higher provisioning will strengthen the balance sheet and will not affect the sustained growth adversely.

The bank’s performance during Q4 (January to March 2021) was in fact robust. During the quarter, the bank saw a net interest income (NII) of Rs 18,524 crore, suggesting a 13.9 per cent rise over the same quarter a year ago – with NIM (net interest margin) standing at healthy 4.2 per cent. Operating metrics have remained steady. Total interest income (comprising interest income, income on investments, interest on cash balance with the RBI and others) inched up by 2.6 per cent yoy to Rs 32,607 crore during Q4FY21. Interest expense declined 9.3 per cent yoy and cost to income ratio improved to 37.2 per cent, which can be attributed to lower spend levels in promotional activities, discretionary spends and investments. As a result, NII rose 13.9 per cent to Rs 18,524 crore. The bank’s asset quality has remained stable with gross NPAs improving 6 bps qoq to 1.32 per cent and net NPAs flat at 0.40 per cent in Q4FY21.

During the quarter, the bank’s recovery in the retail segments with steady growth in both advances and deposits and stable asset quality is backed by sufficient provisioning, built up over the prior quarters for contingent needs.

(CMP Rs. 1490.10, 52 week H/L Rs. 1650/942, BV Rs. 380.20, FV Re. 01)

HCL Technologies (BSE Code 532281)

A knowledgeable HNI (high networth investor) who has been accumulating HCL Technologies in his portfolio of information technology stocks advises not to be disheartened by its poor performance during Q4FY20. Terming this as a temporary setback, he insists that the trend will undergo a subtle change going ahead and there will be strong revenue growth during fiscal 2022 with base growth of double digits, which along with strong TCV data implies potential for much wider growth for the year. Revenues during 2022 are expected to cross the Rs 85,000-crore mark and touch the Rs 1 lakh-crore mark the next year during fiscal 2023. Strong double digit organic growth guidance by the company management, backed by strong TVC/pipeline along with much improved FCF profile profit, makes a strong case for re-rating of the stock.

The Q4 FY2021 New Deal TCV stood at $3.1bn (all-time high) with new 19 large deals (most with F500s). The pipeline (all-time high) and TCV was largely broad-based across verticals and geographies. The IT & Business Services (72% of revenue), although down -0.6% on a yoy basis, is witnessing continued traction led by Digital Transformation demand. The ERS (15% of revenue) was flat in Q4 due to weakness in aerospace and manufacturing and has bottomed out, and HCL expects growth ahead. P&P business (13% of revenue) just witnessed seasonality in Q4 with 4.9% decline qoq but pipeline continues to be strong. HCL highlighted that 75% of P&P product portfolio is expected to witness double digit growth while the remaining 25% is expected to decline (higher decline in FY22) over the medium to long term. HCL is continuing its investments in geographies in developed markets and emerging markets – Brazil, Mexico, South Korea (country Heads already hired) and investments in sales for and product engineering in the P&P Segment. HCL is also launching a SaaS platform “HCL Now” for the SaaS version of HCL software products.

(CMP Rs. 985.40, 52 week H/L Rs. 1074/545, BV Rs. 220.80, FV Rs. 01)

---