Asian Paints, Hindustan Unilever, TCS hit new highs

Thus far in the current calendar year 2018, Asian Paints, HUL and TCS have outperformed the market by gaining in the range of 15% to 39%, as compared to 4.5% rise in the S&P BSE Sensex.

Shares of paint company Asian Paints, fast moving consumer goods (FMCG) firm Hindustan Unilever (HUL) and information technology giant Tata Consultancy Services (TCS) from the Sensex have hit their respective new highs on the BSE on Friday.

Thus far in the current calendar year 2018, these three stocks have outperformed the market by gaining in the range of 15% to 39%, as compared to 4.5% rise in the S&P BSE Sensex.

TCS hit a new high of Rs 1,909, up 1%, extending its Thursday’s 1% gain, ahead of its April-June (Q1FY19) results on Tuesday, July 10, 2018. In past one month, the stock rallied 10%, against 1.6% gain in the benchmark index.

The board of directors of TCS, the country’s largest information technology (IT) services provider, on June 15, approved a proposal to buy back up to 76 million equity shares worth about Rs 160 billion. The buyback price has been fixed at Rs 2,100 a share.

“We expect 1Q growth for tier-1 IT to be 2.2% q-q (marginally ahead of 2% q-q last year) and 8.7% y-y in constant currency (CC). In CC terms, TCS is likely to lead on organic growth at 3.5% q-q, driven by large deal ramp-ups,” analysts at Nomura said in Q1 preview.

We expect TCS to continue its outlook of gradually accelerating revenue growth. However, keenly watched will be the commentary on BFS recovery, green shoots of which were cited in the previous quarter. TCS should also retain its outlook for EBIT margin in the range of 26-28%, Motilal Oswal Securities said in technology results preview.

HUL touched a record high of Rs 1,696, surging 23% in past three months, against 6% rise in the Sensex. The FMCG firm is scheduled to announce its Q1FY19 results on July 16, 2018.

Since May 14, post Q4FY18 results, HUL have outperformed the market by surging 12% against a marginal 0.33% rise in the benchmark index. HUL’s continued proactive approach toward product innovation and distribution enhancement provides a more sustainable competitive edge over peers.

“We believe a gradual recovery is under way as rural demand stabilises and benefits from lower GST rates (price reduction/grammage increase) start flowing through. Margin tailwinds remain, given mix improvement, manageable input cost inflation, judicious pricing, GST benefits, rational competitive spends and significant cost control measures. We believe HUL’s initiatives in the areas of margin-accretive innovation, cost savings and market share gains should hold the company in good stead over the medium term,” JP Morgan said in report, with ‘overweight’ rating on the stock and target price of Rs 1,700 per share.

Asian Paints too hit a new high of Rs 1,336, up 1%, surpassing its previous high of Rs 1,335 recorded on May 28, in intra-day trade.

A >50% share of the decorative paint segment, growing market share, unparalleled distribution network (nearly 2x that of the No. 2 firm), the widest product portfolio spanning price points and a good management team makes Asian Paints a key beneficiary of rising paint consumption in India, according to analysts at JP Morgan.

The brokerage firm said it remain positive on the Asian Paints medium- to long-term growth prospects, near-term demand uncertainty, increasing market share challenges, rising input costs (posing downside risk to earnings) and demanding valuations (46x FY19E P/E) keep us on the sidelines.