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In these times when the markets are going through mayhem, the sentiment is running low and the earnings of India Inc are under pressure, not everything is lost. Beaten-down share prices provide an opportunity to buy quality stocks with good earnings visibility at reasonable valuations. Apart from the information technology majors that could hold ground in this weak marker, below are five Sensex companies that are expected to post good growth in earnings not only in the current financial year but in FY15 as well.
Bharti Airtel: With competition intensity reducing and pricing power back with larger incumbents, India's largest telecom company is seen as the biggest beneficiary. Given the increase in call rates, Bharti's voice realisations moved up in the June quarter after stagnating in recent quarters. This, coupled with higher usage, especially 3G and non-voice segments, have helped it make the largest gains in revenue market share in the June quarter. These improvements in India business are expected to sustain. Worries on spectrum pricing are also easing and payout is expected to fall substantially. Growth in its other key market, Africa (30 per cent of overall revenues), however, is likely to remain muted in the near term. Further, a falling rupee increases Bharti's liabilities, given that two-thirds of its $10-billion debt is dollar-denominated. Much of the forex risk and Africa slowdown are priced in and analysts say the stock (trading at an all-time low valuation of 6.9 times FY14 enterprise value/Ebidta) is attractive.
HDFC Bank: The stock made a new 52-week low of Rs 555 on Tuesday and now trades at just 3.2 times FY14 estimated book value (below its historical average one-year forward price/book value of 3.5 times). With a negligible net non-performing assets ratio of 0.3 per cent, the bank's asset quality remains superior to its peers. The bank has delivered consistent financial performance over the past decade (even during the 2008 crisis) and, thus, is a preferred choice within the banking space. A strong capital adequacy ratio of 15.5 per cent provides sufficient fuel to HDFC Bank to further expand its footprints and gain market share. In the interim, though, weakening of GDP growth might curtail opportunities, believe analysts. Nevertheless, the bank will also be among the first to benefit from any positive developments on the macro front.
ITC: After Tuesday's fall, the stock trades at 26.4 times FY14 estimated earnings, closer to its historical one-year forward average PE of 25 times. The company enjoys strong pricing power in its cigarettes business (80 per cent of profits), which is less vulnerable to economic slowdowns. While the company has witnessed some volume pressure in cigarettes, it has maintained revenue growth via price hikes. The 64 mm segment (Deluxe Filter) is likely to provide strong support to cigarette volumes. Its diversification in other fast-moving consumer goods segments (personal care, packaged foods, etc) continues to yield good results-it is growing at 18-20 per cent yearly in sales, and is expected to break-even in FY14, thereby adding to consolidated profits. The only risk is imposition of an adverse tax/regulatory action in the cigarette business.
Tata Motors: With over 75 per cent of its revenues and nearly all its net profits, Jaguar Land Rover (JLR) continues to drive Tata Motors' fortunes. In fact, it is the JLR exposure and the strong demand for its products that have helped the company be rated as the top pick in the Indian auto space, while peers are struggling to ramp up sales in a demand slowdown (almost in every category). To keep its growth rates going, JLR is planning to launch the new Range Rover Sport. While its India business continues to suffer due to sharp fall in demand for commercial and passenger vehicles, the medium-term growth will continue to be powered by an estimated 14 per cent increase in JLR volumes in FY14.
