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Published: Jan 15, 2023
Updated: Jan 15, 2023
With 2022’s Russia-Ukraine conflict and global inflation-cum-fears of recession spilling over into 2023, the Indian stock market, like its counterparts elsewhere, is going through a volatile phase even as the Indian economy is doing relatively well. Naturally, retail investors are worried about their shrinking funds valuation, especially as the rupee has been falling against the greenback.
What then are their options? Bank deposits, corporate FDs and bonds, with their low interest rates, are clearly out. The public provident fund is a relatively better investment avenue, with a tax rebate thrown in, but the downside is that one’s money is locked in for 15 years.
Real estate requires a large corpus for investment, art is too specialized a field, precious metals are a volatile investment avenue and mutual funds can be as good or bad as their fund managers. That leaves retail investors with the hard, but ultimately rewarding, choice of doing their own research into the fundamentals of companies.
Corporate India provides its readers with a choice of ‘best buys’ and ‘most promising’ stocks across growth sectors.
Calendar year 2022 has ended with a bitter taste for investors in the wake of the global economic crisis triggered by the Russia-Ukraine conflict and the runaway rise in global inflation. With central banks across the world raising interest rates in order to tame inflation, the pace of economic growth has slackened, generating widespread fears of a worldwide recession. These fears have started influencing trends in stock markets, particularly in the US, Europe, China and Japan.
However, even though the Indian stock market cannot remain immune to such trends, the Indian economy has been distinctly resilient, drawing strength from the domestic fundamentals. And even though the pace of economic growth is on the slide, we are still the fastest growing economy in the world. Though there are no fears of the Indian economy facing a recession, it cannot be denied that the country will not be able to keep itself totally aloof from the global headwinds. Little wonder then that the Indian stock market has been repeatedly experiencing wide volatility, leading to a lot of uncertainty. A year ago, despite the mayhem created by the disastrous Covid-19 pandemic, the stock market spurted to sky-high levels, but come 2023 it started moving in an irregular fashion, generating fears all over again of the likely impact from recessionary trends in the West.
Confused and worried investors are obviously ask as to where to invest in 2023, not least because of rising inflation in the country and the consequent drop in the value of the rupee. In these circumstances, people would naturally want to save and/or invest their funds in such a way as to cushion the inflation-fuelled drop in the value of the rupee.
In such a scenario, bank deposits would miserably fail the test as interest rates on bank deposits are far lower than the prevailing inflation rate. Even though bonds and other debt securities are safer than stocks, commodities, company fixed deposits, etc., they provide lower returns and are a loss-making proposition for investors. As for company fixed deposits, these provide lower returns and, what is more, are totally unsafe now. During the last 10-15 years, several companies have failed to return the deposits on time.
Coming to the public provident fund (PPF), it is one of the most popular retirement savings avenues in India as it offers a tax-deferred way to save for one’s future and provides a relatively good return on investment. A major benefit of investing in PPF is the tax rebate, whereby an investor can claim a tax rebate of upto Rs 1.5 lakh. However, the minus point here is that the investor’s money will be locked in for 15 years. Again, the government has reduced the rate of PPF interest also, and that at a time when inflation is galloping.
Commodities are full of uncertainties, whether they are precious metals like gold, silver and platinum or non-precious ones like agricultural commodities, metals, plastics, etc. They are also more volatile than other types of investment and may not be appropriate for all investors. Most commodities are cyclical in nature, turning many investors losers instead of gainers.
No doubt, equity mutual funds are a low-risk investment avenue, but at the same time they are not high-rewarding options. Mutual fund managers are not always capable fund administrators. Their inefficiency, high fund management fee, etc. will not leave anything for the investor. Instead, it is better for an investor to study the fundamentals of companies, undertake research and learn investment strategies of successful investor.
Real estate is one of the most valuable investment avenues for an investor if he has a sizeable amount to invest in one stroke. Again, the investor will have to hold on property for a relatively long period. What is more, the first acquisition will be used for self- occupation. Hence, the second property can be for investment. This means that one must have a large amount for investment in real estate.
There is one more investment avenue – paintings and art. But in India these have not been widely accepted as a form of investment. Besides, this is a specialised subject and there are chances of being cheated if one does not have enough knowledge of the intricacies of art and paintings.
In these circumstances, today investment in equity stocks is the most preferred avenue where, if properly selected, stocks can yield safe and sizeable returns to beat the prevailing inflationary pressures. Of course, there are mutual funds which can invest in stocks on your behalf but mutual fund managers’ expertise cannot be taken for granted. It is better that investors should themselves be prepared to invest in the stock market.
But investing in the stock market is not child’s play. One has to do proper research before starting investing as one has to select the right stocks, i.e., stocks of fundamentally strong companies which belong to sectors which have tremendous growth potential going ahead. One should not take the risk of investing in stocks of a sector whose future prospects are dim. For example, Coal India which was considered to be a blue chip till yesterday on account of its virtual monopoly in coal mines, is losing its significance on account of the emergence of the sunrise sector of renewable energy. The government is also encouraging non-conventional sectors of energy like solar, wind, hydro, etc. and is discouraging the generation of coal-fired electricity. Again, reserves of fossil fuels like coal and natural gas have been depleting and they may not be available in the required quantity going ahead. Likewise, the lubricants sector is losing its significance as electric vehicles have started replacing petrol and diesel vehicles across the world.
In these circumstances, despite certain limitations, the stock market has remained the best avenue for investment of one's savings. The major problem here is that of selection of stocks for investment. If your selection is wrong, you may lose your hard-earned money. Again, an investor will have to be cautious about his/her investment as the stock market is influenced by several factors - domestic as well as international - and one will have to remain alert about the impact of such developments. The Russia-Ukraine war, for example, has already adversely affected the Indian stock market though India has no direct connection with the conflict. Moreover, the inflationary pressures in the US economy can lead to a decline in stock indices.
Inspite of this cautionary note, it must be said that the Indian economy is in a much better position than is prevailent in other countries. India is no more an underdeveloped country. By 2028 it will become the third largest economy in the world, only behind the US and China. Even though the year that came to an end - 2022 -- was challenging for the global economy, the World Bank report, 'Navigating the Storm', says India's economy is relatively insulated from global shocks compared to other emerging markets. The report quotes Tanokouame, WB country director for India, as saying, "While a 1 per cent decline in growth in US will lead to a 0.4 per cent decline in India's growth rate, for other emerging nations this number is around 1.5 per cent."
Little wonder that while the US Nasdaq slumped by more than 30 per cent and the UK's SRP 500 was down almost 20 per cent, the BSE Sensex in India - based on prices of 30 pivotal stocks quoted on the BSE -- managed to remain positive and moved up 7 per cent in 2022.
Going ahead also, Indian stocks are worth investing in as they can yield substantial returns, but only if the stocks selected belong to companies which are well-managed, financially robust and fundamentally sound, and if the sectors to which they belong are full of high potential. Beware of wrongly picked stocks, which can lead to disaster. In this context, think of the unenviable position of shareholders in Reliance Power, Amtek Auto, Syntex Industries, PayTM, etc.
With the passage of time, the importance of various sectors undergoes a change, as is the case with the lubricants sector. The speciality chemicals sector has gained in prominence after global multinationals adapted a 'China +1' policy stance in order to reduce their dependence on China which was the main supplier of speciality chemicals globally. This has led to global MNC customers looking to India as a reliable alternative supplier.
A sectoral analysis would reveal that the sectors which have high growth potential in India going ahead are spear-headed by banking and finance. The country's resilient economy indicates that there is tremendous growth potential for bank credit. At the same time, on account of the government's liberal attitude in helping banks clean up their balance sheets, the banking sector has good prospects going ahead.
Other sectors with good growth potential in the coming years are: renewable energy, electric vehicles, speciality chemicals, Artificial Intelligence, and 5G.
Corporate India Research Bureau hence recommends two 'best buys' and three 'most promising' stocks in these sectors.
As discussed earlier, the sector has remarkable growth prospects compared to the prevailing global situation. Among best buys in this sector, we include ICICI Bank and HDFC Bank.
| FACE VALUE | 02 |
| CMP | 861.20 |
| 52 WEEK HIGH /LOW | 958/642 |
ICICI Bank, ranked second in the Indian private banking sector, is the best bet among banking scrips in the country. The bank, which had lost its credibility with the former Managing Director Chanda Kochchar allegedly indulging in corrupt practices and throwing principles of corporate governance to the winds, was totally transformed by a lesser known banker Sandeep Bakshi. After replacing Ms Kochchar, Mr Bakshi turned the bank into a clean, growth-oriented and highly ambitious banking entity during the last 3-4 years. Today, the bank is on a solid growth path and its future prospects are all the more promising.
The bank offers a wide range of banking products and financial services to corporate, small and medium enterprises and retail customers through extensive, multi-channel touch points, including branches, state-of-the-art internet banking, mobile banking, WhatsApp banking and phone banking. The bank also has specialized subsidiaries in the areas of investment banking, life and non-life insurance, venture capital and asset management. The bank has a network of 5,298 branches and 13,846 ATMs across India.
Even its arch rival HDFC Bank acknowledges in its research report ICICI Bank's strong balance sheet with sticky accounts, lower stress levels, high PCR (provision coverage ratio) and adequate CAR (capital adequacy ratio), improved underwriting practices and lower exposure to contextually vulnerable products. "On a relative comparison basis, we think ICICI Bank is better placed both in terms of operational and financial metrics as well as valuation," HDFC Bank acknowledges.
The bank's subsidiaries are its great assets. All its subsidiaries are performing exceptionally well and adding substantial value to the bank's valuation. Thanks to these strong subsidiaries - ICICI Venture Funds, Prudential ICICI AMC, ICICI Securities, ICICI Prudential and ICICI Lombard have emerged among the leaders in their respective fields - the bank holds a near-market leadership in almost all its businesses, including mortgages, auto loans, commercial vehicle loans, life insurance, general insurance and asset management.
Needless to say, the bank has gone from strength to strength on the financial front. During the last 12 years, its revenues have more than trebled from Rs 30,081 crore in fiscal 2011 to Rs 95,407 crore in fiscal 2022, with financing (operating) profit inching up from Rs 22,387 crore to Rs 26,558 crore and the profit at net level spurting over four times - from Rs 6,318 crore to Rs 26,538 crore during this period.
The company's financial position is very strong, with reserves at the end of March 31, 2022 standing at Rs 180,396 crore -- over 129 times its equity capital of Rs 1,390 crore and that too after a 1:1 bonus issue during 2017. The company has a robust balance sheet.
Research analysts aver that ICICI Bank's strong brand positioning across retail, business banking and corporate with a pan-India presence makes it an attractive and strong choice. Little wonder that Asia Money, a London-based publication, has recognisd it as India's best domestic bank. Its share price is placed around Rs 860. Discerning investors should include this in their portfolio as it is likely to touch the four-figure mark in the new year.
| FACE VALUE | 01 |
| CMP | 1599.70 |
| 52 WEEK HIGH /LOW | 1722/1271 |
Spun off from its parent company HDFC in 1994 with a single full service branch in Mumbai, HDFC Bank has by now emerged as the largest private sector bank in the country by assets and the world's 10th largest bank by market capitalization. Again, it is the third largest company by market capitalization ($ 12,250 billion) on the Indian stock exchange and also the 15th largest employer in India with nearly 150,000 employees.
By now, the bank has grown into a financial behemoth covering India with 6,342 branches and more than 15,000 ATMs across 2,800+ cities and towns. The bank provides a variety of financial services ranging from life insurance and savings accounts to asset management and credit cards. The bank is also highly fintech-forward with 95 per cent of its all transactions through internet and mobile channels, making it one of the largest banks in India by digital transactions.
The company has made rapid strides on the financial front. During the last five years, its revenues have more than doubled from Rs 60,241.35 crore in fiscal 2018 to Rs 1,27,563.11 crore in fiscal 2022, with operating profit climbing up from Rs 56,236 crore to Rs 75,219 crore and the profit at net level more than doubling from Rs 17,486 crore to Rs 36,961 crore during this five-year period. The company's financial position is very strong, with reserves at the end of March 31, 2022 standing at Rs 239,538 crore - which is over 40 times its equity capital of Rs 554.55 crore.
Prospects for the banking and finance sector are highly promising as the banking sector is on the cusp of a strong growth cycle and large sized banks will be the largest beneficiaries of the new environment due to their low cost of funds and scale advantages. According to experts, the current broad-based healthy loan growth trend is most likely to sustain going ahead as the demand environment is turning better across products across the medium term. Personal loan and credit card spends are also turning higher, led by increased discretionary spends. The corporate loan growth is also expected to sustain over the medium term, driven by capex-led growth. HDFC Bank is likely to see its marketshare accelerate even as credit growth for the banking system is at a multi-year high at 16 per cent yoy.
The company has effected a masterstroke by merging its parent company HDFC with itself. This merger will transform the bank into a financial services behemoth. The merger has brought to the table HDFC's domain experience in real estate and mortgages.
HDFC Bank provides scale and distribution with access to low-cost funds. As the company management maintains, the merger ticks all the right boxes in terms of product offerings, leadership in home loans as well as other retail asset products, distribution strength and a customer base that can be leveraged to cross-sell a complete suite of financial balance products. The merger has led to a combined balance sheet of Rs 25.61 lakh crore, narrowing the gap with SBI - the country's largest commercial bank with a balance sheet of Rs 48.21 lakh crore.
Shares of the bank are quoted around Rs 1,590, and within a year can cross the Rs 2,000 mark. They are certainly worth including in portfolios of every discerning investor.
Besides these two 'best buys', we would suggest 3 highly promising banking stocks. They are:
(1) IDFC First Bank
(2) State Bank of India
(3) Kotak Mahindra Bank
AI is a stimulation or a system where smart machines, computers and robots are capable of performing tasks at a much faster speed, and with greater accuracy, without any human intervention. AI-enabled systems are so smart that they are able to take decisions on your behalf. According to a World Economic Forum report, AI is expected to replace 85 million jobs worldwide by 2025.
Little wonder that AI stocks are quite the rage in international circuits. Some of the popular stocks listed on the US stock market include N VIDIA, IBM, Micron Technology and Amazon. This craze will come to the Indian market to in due course as the future belongs to them.
The two stocks we have selected in the AI segments are Tata Elxsi and Happiest Minds Technologies.
| FACE VALUE | 10 |
| CMP | 6182.20 |
| 52 WEEK HIGH /LOW | 10761/5708 |
Belonging to the illustrious industrial house of the Tatas, Tata Elxsi is one of the top players in the Indian AI space, focusing on information technology services and offering design and technology assistance for sectors like automotive, media and communications, medicine, and system integration.
The company's system integration and support segment is involved in the implementation and integration of complete systems and solutions for broadcast, virtual relality, storage and disaster recovery, as well as professional services for manufacture and support of infrastructure technology.
The company's software development and services segment provides technology consulting for new products, design, development, visual design and branding, product and packaging design, user experience design, service experience design, transportation design, highend content and 3D and animation services.
The company has gone from strength to strength on the financial front. During the last 12 years, its sales turnover has expanded more than six times - from Rs 411 crore in fiscal 2011 to Rs 2,471 crore in fiscal 2022, with operating profit shooting up more than 16 times from Rs 47 crore to Rs 767 crore and the profit at net level spurting over 17 times from Rs 32 crore to Rs 550 crore during this period.
The company's financial position is very sound, with reserves at the end of March 31, 2022 standing at Rs 1,539 crore - almost 25 times its equity capital of Rs 62 crore, that too after a 1:1 bonus issue in 2017. The company has been maintaining a healthy dividend payout of 56.5 per cent and has a good return on equity (RoE) record of 31.6 per cent for the last 3 years.
With IT sector scrips attracting a selling avalanche in the wake of fears of the US economy slipping into a recession, the share price of Tata Elxsi has tumbled down from the 52-week high of Rs 10,760 to around Rs 6,200 by now. But the possibility of any further downside is extremely limited and once fears of a recession in the US dissipate, the share price is bound to go up by at least 50 per cent. Thus, courageous investors should accumulate these shares at the current level as well as at every decline.
| FACE VALUE | 02 |
| CMP | 884.65 |
| 52 WEEK HIGH /LOW | 1360/785 |
A leading player in the space of AI, Happiest Minds Technologies leverages a spectrum of disrupting technologies including big data analysis, cloud, security, cognitive computing, internet of things, SDN - NEV, RPA and Block Chain besides artificial intelligence. Its capabilities span product engineering, digital business solutions, infrastructure management and security services.
If the current-generation technology trio of TCS, Infosys and Wipro have put up an excellent show and cheered their investors time and again, Happiest Minds Technologies is undoubtedly the most promising player among next-gen tech companies. The Bengaluru-based company is engaged in next-gen IT solutions and services, enabling organisations to capture the business benefits of emerging technologies. It applies agile methodologies to enable digital transformation for enterprises, a seamless customer experience, enhancing of business efficiency and actionable insights.
The company delivers these services across many industry sectors such as retail, edutech, R&D, engineering, manufacturing, automotive, travel, transportation and hospitality. It offers a wide range of embedded design services that are intended to turn an idea into a complete product. This includes system architecture, hardware design, software design, mechanical design, prototyping, valuation, regulatory certification and pilot production.
Little wonder then that with such an extraordinarily modern profile, Happiest Minds is making rapid strides on the financial front. During the last 12 years, its sales turnover has skyrocketed from just Rs 8 crore in fiscal 2012 to Rs 444 crore in fiscal 2018 and further to Rs 1,111 crore in fiscal 2022, In the same period, operating profit, which was negative (loss) at Rs 29 crore, turned the corner in fiscal 2017 with a profit of Rs 1 crore and then shot up to a huge profit of Rs 268 crore in fiscal 2022. At the net level, the company was in the red in fiscal 2012 and remained so till 2018 when its loss was Rs 13 crore. However, from fiscal 2019, it turned the corner with a net profit of Rs 4 crore, which skyrocketed to Rs 204 crore in fiscal 2022.
Happiest Mind's operations are highly profitable. During the last five years, while the company's compounded sales growth works out to 19 per cent, its compounded profit growth comes to 112 per cent. Thanks to this high profitability, the company has been able to strengthen its financial position, with reserves at the end of March 2022 standing at Rs 641 crore - over 22 times its equity capital of Rs 29 crore.
What is more, the company has given staggering returns of 285 per cent in the first 12 months after it entered the capital market with an IPO of Rs 166 per piece. On a widespread buying spree, the stock shot up to a high of Rs 1,568 per share of a face value of Rs 2. The stock has not only outperformed the IT sector but also the BSE Sensex by over 250 per cent over a 9-year period, and was even moving above its 200-day average while lower than its 5-day, 20-day, 50-day and 100-day moving averages. It has also been witnessing higher investor participation.
According to HDFC Securities, Happiest Minds has strengthened its relationships with independent software vendors like Amazon, AWS and Microsoft in the last 3 years. It has also established a ground connect with its technical account management for prospective customers. In order to improve its domain expertise and expand clientele, it has increased cross-selling to the existing clients of Microsoft Technologies. The company also plans to deepen its relationship with other ISVs, including Google, Cloud, Salesstore, Appian and Mulesoft.
With a view to expanding and diversifying its business activities, the company has resorted to the inorganic growth route. In 2018, it acquired management control of Texas-based OSS Cube LLC and also a division of OSS Cube Solutions. This was followed by the acquisition of Cupola Technology Pvt Ltd to expand its IoT segment. Going a step ahead, the company has recently acquired a 100 per cent stake in USbased Pimcore Global Services at a cost of $ 8.25 million (about Rs 60 crore). This acquisition will enable Happiest Minds to expand its digital e-commerce and data management solutions. The company has also entered into a partnership with IIantus Technologies with a view to enhancing its next-generation access management security services.
Thanks to all these developments, the company's stocks, which were issued under an IPO last year at a price of Rs 165-166, skyrocketed to Rs 1568. They have nosedived to Rs 785 on selling pressure on IT stocks in the wake of fears of the American economy slipping into a recession. But investment support at lower levels has pushed up the stock price to Rs 879. Future prospects are highly promising and Happiest Minds will emerge as the TCS-Infosys-Wipro of the new technology sector.
The other three most promising companies in this section are:
(1) Tejas Network
(2) Persistent Systems
(3) Oracle Financial Services
5G is the next generation of mobile networks. It’s a new wireless standard for the whole world that aims to connect computers, gadgets, and other IoT to people.
The 5G network is much faster and more responsive than the 4G network. Also, artificial intelligence, machine learning, and automated network management will benefit from 5G’s higher capacity. This upcoming technology attracts the huge attention of investors to the 5G-related stocks in India.
5G technology will introduce advances throughout network architecture. 5G New Radio, the global standard for a more capable 5G wireless air interface, will cover spectrums not used in 4G. New antennas will incorporate technology known as massive MIMO (multiple input, multiple output), which enables multiple transmitters and receivers to transfer more data at the same time. But 5G technology is not limited to the new radio spectrum. It is designed to support a converged, heterogeneous network combining licensed and unlicensed wireless technologies. This will add bandwidth available for users.
5G architectures will be software-defined platforms, in which networking functionality is managed through software rather than hardware. Advancements in virtualization, cloudbased technologies, and IT and business process automation enable 5G architecture to be agile and flexible and to provide anytime, anywhere user access. 5G networks can create software-defined subnetwork constructs known as network slices. These slices enable network administrators to dictate network functionality based on users and devices.
5G also enhances digital experiences through machine-learning (ML)-enabled automation. Demand for response times within fractions of a second (such as those for self-driving cars) require 5G networks to enlist automation with ML and, eventually, deep learning and artificial intelligence (AI). Automated provisioning and proactive management of traffic and services will reduce infrastructure cost and enhance the connected experience.
5G service is already available in some areas in various countries. These early-generation 5G services are called 5G non-standalone (5G NSA). This technology is a 5G radio that builds on existing 4G LTE network infrastructure. 5G NSA will be faster than 4G LTE. But the high-speed, lowlatency 5G technology the industry has focused on is 5G standalone (5G SA). It should start becoming available by 2020 and be commonly available by 2022.
India is currently investing in 5G technology. The world market for 5G technology and related services is worth USD 54 billion. It is said that the size of the 5G market will be bigger than it is now and will reach about $249.2 billion by the end of 2026, which is more than the GDP of any country in a year. So, the 5G companies in India have a great opportunity to boost themselves.
To best buys in this segment are Bharti Airtel and Sterlite Technologies.
| FACE VALUE | 05 |
| CMP | 756.85 |
| 52 WEEK HIGH /LOW | 878/629 |
Bharti Airtel is the number two Indian telecommunication service provider which has successfully conducted 5G trial in Kolkata in collaboration with Nokia. The company has started its journey on the G5 path by launching its cutting-edge services in Shimla and these services will be available in all major Indian cities by 2023 and critical rural areas by March 2024.
The company has successfully fought cut throat competition of Reliance Jio and has emerged stronger. Despite stiff competition, the company has put upa strong show on the financial front. During the last 12 years, its sales turnover has more than doubled from Rs. 59,602 crore in the fiscal 2011 to Rs. 116,547 crroe in the fiscal 2022 with operating profit more than doubling from Rs. 20,164 crore to Rs. 57,534 crore and the profit at net level spurting from Rs. 5899 crore to Rs. 8305 crore. The company’s financial position is sound with reserves at the end of March 2022 standing at Rs. 63,759 crore 22 times its equity capital of Rs. 2795 crore.
According to CLSA, a reputed global brokerage 2023 will see big events for the Indian telecom sector in general and for Pharti Airtel in particular. These events include tariff hikes, finalization of a new telecom sector. AS far as Bharti Airtel is concerned which is its top pick in the Indian telecom sector CLSA has reiterated its buy call with a target price of Rs. 1040 a piece, which reflects a potential upside of nearly 36 per cent from the stocks current price level.
| FACE VALUE | 02 |
| CMP | 170.35 |
| 52 WEEK HIGH /LOW | 280/128 |
Sterlite Technologies, an Indian multinational company specialising in optical fibre, cables, deployment, network software and hyper-scale of digita networks providing all-in 5G solutions. The company’s capabilities across optical networking, services, software, and wireless connectivity place it amongst the top optical players in the world. These capabilities are built on converged architectures helping telecom service providers, cloud companies, citizen networks, and large enterprises deliver next-gen experiences to their customers. STL partners with service providers globally in achieving a green and sustainable digital future in alignment with UN SDG goals.
STL has a strong global presence in India, Italy, the UK, the US, China, and Brazil. Read more, Contact us.
The Mumbai-headquartered company has 536 patents and is active in over 150 countries. The company has made rapid strides on the financial front. During the last 12 years its sales turnover has spurted by more than two and a half times – from Rs. 2262 crore in the fiscal 2011 to Rs. 5754 crore in the fiscal 2022 with operating profit more than doubling from Rs. 266 crore to Rs. 535 crore and the net profit spurting from Rs. 141 crore to Rs. 265 crore in the fiscal 2021. The company’s financial position is very strong with reserves at the end of March 2022 standing at Rs. 1871 crore against its equity capital of Rs. 80 crore.
The company’s stock is placed around Rs. 170. According to analysts this is quite an attractive price to start accumulating these stocks.
Other three most promising stocks are
(1) Reliance Industries
(2) Tejas Network
(3) HFCL
As mentioned earlier, Indian speciality chemicals are very much in demand in overseas countries as China has reduced its production of these chemicals in view of environmental restrictions and the western customers policy to reduce the dependence on Chinese supplies in the wake of the alleged Chinese involvement in the spreading of corona virus. The best buys in this segment are (1) Navin, (2) Fine Organic.
| FACE VALUE | 01 |
| CMP | 4162.60 |
| 52 WEEK HIGH /LOW | 2624/1410 |
Maharashtra-based Clean Science, with its plant at Kurkumbh in Pune district, manufactures critical speciality chemicals, including performance chemicals (MeHQ, BHA, API), pharmaceutical intermediates (such as guaiacol and DCC) and FMCG chemicals (like 4-MAP and anisole). These products are used as key starters, inhibitors or additives by customers for products sold in regulated markets. The company’s client list includes Bayer AG, SRF, Gennex NV and Vianti Organics. It has two modern manufacturing facilities at Kurkumbh with a combined installed capacity of 29,900 mtpa. Each of these two facilities has an onsite R&D unit, a quality control department, a warehouse and an effluent treatment system that makes them zero liquid discharge (ZLD) units.
The domestic market accounts for 33 per cent of the company’s revenues while the balance of 67 per cent comes from China, Europe, the US, Korea, Taiwan and Japan. As the plants are strategically located at Kurkumbh near the JNPT port, export shipments are very convenient. What is more, the company has developed strong long-term relationships with its key customers overseas.
Needless to say, in these circumstances, the company is doing very well financially. During the last six years, its sales turnover has expanded over five times – from Rs 140 crore in fiscal 2016 to Rs 685 crore in fiscal 2022, with the profit at net level spurting more than eight times – from Rs 27 crore to Rs 229 crore in the same period. The company’s financial position is very strong, with reserves at the end of March 2022 standing at Rs 758 crore – almost 69 times its tiny equity capital of Rs 11 crore. The company has a very healthy balance sheet with a debt-free status. It has a good return on equity (RoE), with the track record for the last 3 years being 46 per cent. And it has been maintaining a healthy dividend payout of over 50 per cent.
Chemicals in general and speciality chemicals in particular are bullish on account of the ‘China plus one’ policy adopted by the West. India is widely accepted as a manufacturer of speciality chemicals of high quality and timely delivery. Clean Science is widely admired for developing and commercializing certain performance chemicals like monomethyl ether of hydro quinone (MEHQ) and butylated hydroxy anisole (BHA), using eco-friendly and costcompetitive processes. Overseas demand for the company’s products is on the rise and exports today contribute about 67 per cent of its revenues. By now the company has emerged as a leading supplier of speciality chemicals like ansole, 4-MAP, MEHQ, BHA, DCC etc.
The company is an undisputed global market leader in MEHQ BHA, 4-MAP and anisole, and among the top three in other product categories (MEHQ is the largest contributor to sales, accounting for 48 per cent of total revenues). The company holds a 52 per cent global marketshare in this product category and expects this share to expand to 65 per cent in the next 2 to 3 years. The company has similar aspirations in other product categories as well.
Strong R&D initiatives back robust margins. The company’s R&D initiatives have helped it improve overall productivity by optimizing use of raw material and limiting effluents from processes. Its alternate chemistry and in-house catalysis have allowed better conversion rates from phenol to anisole and from anisole to MEHQ, resulting in higher product yields. The company manufactures anisole via the vapour-phase technology, which discharges only water, thus reducing the cost involved in treating effluents. The starting price point of raw materials is lower for the company. This helps it operate at a higher gross margin than its peers and allows it to bear fluctuations in raw material. Notably, it had a gross margin of 69.2 per cent in fiscal 2020, which has shot up to 75.9 per cent in fiscal 2021.
With a view to meeting the rising demand for its products in its existing and new markets and raising its marketshare, the company has planned an ambitious Rs 400-crore expansion programme to set up manufacturing facilities 3 and 4 near the existing two facilities at Kurkumbh.
Little wonder that the company’s stocks, which were offered at around Rs 800 per piece in July 2021, are now quoted around Rs1460. Viewed in the context of the rising marketshare of the company’s products, the upswing in profit margins and an ambitious expansion programme, the stock price will remain strong and move up further in the coming years.
| FACE VALUE | 02 |
| CMP | 4127.10 |
| 52 WEEK HIGH /LOW | 4848/3361 |
Navin Fluorine International, a Mafatlal group company, is a pure-play fluoro-chemical company with a significant focus on R&D since its inception. The company has built up its expertise in the niche area of fluorination and developed strong relationships with customers all over the world.
With a view to achieving sustained growth going ahead, the company has resorted to intelligent diversification and is now positioning itself for exponential growth. Its strategy comprises strong traction in contract research and manufacturing services (CRAMS) and multi-year contracts with global innovators – and this happily coincides with industry tail winds of increased usage of the fluorine molecule in the pharmaceutical and agrochemical space. Additional growth areas include the speciality chemicals business which has strong growth potential and the formation of a subsidiary company, Navin Fluorine Advance Sciences, which has gone on stream very recently.
The company is going from strength to strength, year-on-year, in its financial performance. During the last five years, its sales turnover has steadily advanced from Rs 701.23 crore in fiscal 2017 to Rs 1,403.61 crore in fiscal 2022, with the profit at net level more than doubling during this period from Rs 134.02 crore to Rs 266.43 crore. The company’s financial position is very strong, with reserves at the end of March 31, 2022 standing at Rs 1,854 crore – over 167 times its equity capital of Rs 9.90 crore!
The company’s future prospects are all the more fascinating and shareholders can reap a rich crop going ahead. With its expanding activities and virtual monopoly situation, the company is all set to enter higher orbits of growth and scale new highs in its performance.
The company has emerged as the world’s third largest producer of bulk fluorides and India’s largest HF producer, having a substantial shareholding in the only fluorspar beneficiation company in India. Over the last several years, the company has developed more than 40 products on a commercial scale using specially built multi-purpose plants. Over the last one decade, it has been investing heavily in growing its business further with a state-of-the-art R&D centre followed by the commissioning of a new pilot plant and then a brand new multi-product/ process plant for manufacturing way back in 2010. By now the company has developed remarkable capacities in the fluorochemical space. Of late fluorine-based molecules are seeing increasing demand from pharmaceutical and agrochemical investors as an active ingredient carrier.
With a view to pushing up the pace of growth, the company has diversified into two high-margin areas of CRAMS and speciality chemicals. When the company made a windfall gain of over Rs 400 crore from carbon credits, the far-sighted and growth-oriented management ventured into Contract Research and Manufacturing Services (CRAMS). In order to give a big boost to this high-value business, NFIL acquired a majority 51 per cent controlling stake in Manchester Organics Ltd, which further enhanced the company’s capabilities to undertake more complex fluorination projects and additionally increase its pipeline of speciality fluoro-organics.
Realising the great future prospects, the company has chalked out a capital expenditure plan involving an amount of Rs 195 crore to set up a greenfield multi-purpose plant for its speciality chemicals business at Dahej in Gujarat. This augurs well for the sustained growth of the company.
With a view to further boosting growth, the company has entered into a joint venture with Piramal Enterprises to manufacture fluorinated intermediates exclusively for PEL. NFIL has also entered into a partnership with Honeywell of the US to manufacture HFO 1234 gas, which is a near replacement for R-1349-used vehicle airconditioning systems.
A strong balance sheet with a debt-free profile, healthy return ratios and steadily growing demand for its products, sustained growth in its topline as well as bottomline going ahead – all these factors suggest that this stock should be in included in te portfolio of every discernible investor.
Other three major promising companies are
(1) Deepak Nitrite
(2) Fine Oreganic
(3) Alkyl Amines
With sustained depletion of fossil fuels like crude oil, gas, coal etc. there are widespread fears of emerging severe shortages of fossil fuels. If there is a disastrous shortage of power, the human life will be facing a miserable future. The stoppage of Russian gas has made the lives of Europeans how miserable is common.
In these circumstances the world has turned its attention to renewable energy sector i.e. solar, wind, hydrogen etc. segments. The best buys in this sector are (1) Tata Power, (2) Adani Green.
| FACE VALUE | 01 |
| CMP | 205.65 |
| 52 WEEK HIGH /LOW | 298/190 |
Belonging to the illustrious industrial house of the Tatas, Tata Power is the country’s largest integrated power company, present across the entire value chain of conventional as well as renewable energy, power services and next generation solutions, including solar rooftop and EV charging stations. The century-old company – formerly known as Tata Electric — has pioneered technology adoption in the utility sector with many firsts to its credit, including setting up one of India’s first hydro-electric power stations in 1915. Together with its subsidiaries and joint entities, the company has 12,772 MW of power generation capacity of which around 30 per cent comes from clean and green energy sources.
The company is doing very well on the financial front. During the last five years, its sales turnover has expanded from Rs 7,537 crore in fiscal 2018 to Rs 11,108 crore in fiscal 2022. However, due to the Covid19 pandemic, the operating profit, which had gone up from Rs 2,594 crore in fiscal 2018 to Rs 2,922 crore in fiscal 2020, declined to Rs 1,817 crore in fiscal 2021 and further to Rs 1,547 crore in fiscal 2022, while the net profit dropped from Rs 3,151 crore in fiscal 2018 to Rs 921 crore in fiscal 2021, before recovering to Rs 2,783 crore in fiscal 2022.
The company’s financial position is getting stronger, with reserves moving up from Rs 12,718 crore in fiscal 2018 to Rs 16,559 crore in fiscal 2021 before declining to Rs 10,560 crore in fiscal 2022. Even these reserves are 33 times the company’s equity capital of Rs 319.56 crore.
Moving with times, the company will gradually do away with conventional thermal energy generation and aims to scale up its renewable energy portfolio from the current level of 4 GW to 15 GW by 2025 and to 25 GW by 2030, thereby achieving 80 per cent clean generation capacity, up from the current 31 per cent.
The company’s big entry into the renewable energy segment has started attracting foreign investment. Of late, the company’s renewable energy platform has already inspired two foreign investment firms – Black Rock and Mabadala — to invest a total amount of Rs 4,000 crore in Tata Power by way of equity for a 10.53 per cent stake in Tata Power Renewable, a subsidiary of Tata Power.
Prospects for the company are highly promising as it is not only the largest power company in the country but is also on the road to huge expansion. At the same time, the country’s electricity demand is picking up pace. Of late, this demand is growing at a rate of 4.9 per cent with supply falling short of demand by 1.4 per cent. This is despite a 3.2 per cent rise in coal-fired generation and a 30 per cent rise in solar output. Prospects are bullish going ahead as economic activity after the second wave of the pandemic has driven electricity demand, resulting in a supply deficit due to an acute coal shortage. Going ahead, the growing urban population is trying to shift its focus towards affordable, clean and reliable power supply. This will lead to a huge scope for continued growth in the power sector.
The company is acing the EV race. With a view to moving in tandem with the government’s aim of speeding up the manufacture of electric vehicles, the company has embarked upon an ambitious programme of setting up EV charging stations in the country. Today, there are around 70,000 petrol pumps that serve as the backbone of the country’s transportation industry. As the production of electric vehicles is on the rise, the country will need a large number of EV charging stations. Tata Power aims to emerge as the numero uno player in the segment. It has already installed around 1000 charging stations by now and in the next 5 years to 10,000. The company has entered into a partnership with group company Tata Motors to develop EV charging infrastructure. It has also entered into a strategic partnership with TVS Motor to set up a large dedicated electric two-wheeler charging infrastructure in the country.
Thanks to the infusion of Rs 2,600 crore by the parent group, the company could bring down its debt from Rs 47,100 crore to Rs 39,500 crore in fiscal 2021. As a result, the interest cost dropped by 9 per cent to Rs 970 crore, which gave an uptick to the bottomline. With the inflow of FDI funds from Black Rock and its associates, debt will be reduced further from the next year, taking the company to a zero-debt status in the next few years.
There are at least three developments which will goa long way in improving the profitability of the company. These are:
(1) The company has decided to re-enter greenfield power transmission projects.
(2) The company’s subsidiary, Tata Power Solar, is going strong in the segment of EPS jobs. The company has a robust order book of Rs 7,257 crore/Rs 1,000 crore/Rs 175 crore for solar EPC/solar motors/solar pumps.
(3) With the government planning to privatise the power distribution segment, the company is getting ready to enter this business. It has already acquired the Odisha power distribution business.
Viewed in all these contexts, the company is all set to make rapid strides going ahead and is very much ready for re-rating. Needless to say, the company is emerging as a high-potential multibagger. This stock should be included in portfolio of every discernible investor. The share price can go up to four-figure level within a decade.
| FACE VALUE | 10 |
| CMP | 1886.00 |
| 52 WEEK HIGH /LOW | 3048/1568 |
Adani Green Energy, an Ahmedabad headquartered Adani group enterprise is one of the largest renewable energy companies in the country with a current project portfolio 13990 MW and 20284 MW locked-in growth from under construction assets. The compny aiming to ramp up its installed capacity to 25 GW/45 GW by 2025/2030 respectively making it the world’s largest renewable energy company.
The company’s strong execution skills and land acquisition strategy have ensured that the project implementation is done before time leading to a shorter payback period ond faster cash flow generation.
The company has started growing on the financial front. During the last five years, it revenues have expanded from Rs. 1398.44 crore in the fiscal 2018 to Rs. 10672 crore in the fiscal 2022 with operating project shorting up from Rs. 13 crore to Rs. 174 crore.
The company has acquired the earlier equity stake of Inox wind in three special purpose vehicles i.e. wind one Renergy Ltd. vehicles wind three Renergy Ltd. and wind five Renergy Ltd.
“These special purpose vehicles (SPVs) are reported to have “commissioned 50 MW each, out of the total 250 MW which it had successfully won under the Tranche 1 of Solar Energy Corporation of India Ltd’s (SECI -1) bids for wind power projects at Dayapar, Gujarat connected on the central grid…,”
The Adani (NS:APSE) Group is one of the major business houses that has made a significant presence in the sector across solar and wind projects with a 647 MW of wind power capacity in operation. Investments in this sector have picked up with the policy focus on renewable energy and the 500 GW of installed clean energy capacity by 2030.
Adani Grewn Energy’s subsidiary AJEJO has commissioned its third wind-solar hybrid power plant of combined operational generation capacity worth 450 MW at Jaisalmer in Rajasthan, thus becoming the world’s largest wind-solar hybrid power form developer. The plant has poowe purchase agreements (PPA) with SECI at Rs.2.67/kwh fpr 25 years.
Prospects for the company going ahead are all the more promising as the renewable energy segment has tremendous growth potential in view of the urgent need for adoption of renewed company, Adani Green Energy has significant growth opportunity to grow, its business in the coming years.
Three other most promising companies are
(1) Reliance Industries
(2) KP Energy
(3) Zodiac Energy
February 15, 2025 - First Issue
Industry Review
VOL XVI - 10
February 01-15, 2025
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