Samvat 2077 saw one of the best returns for the equity market in the last decade. Indian equity market kept rising from last Diwali. Except for a brief period in February, May, and June, there was almost a vertical rise in the Indian equity market. Frontline equity indices touched new lifetime highs with the Nifty and Sensex surpassing the 18000 and 60000 mark for the first time in history. It looks surprising that market run-up from pandemic lows of 7620 mark in March 2020 – amid lockdowns and other health challenges to the current level.
It was not only the frontline indices; even the broader market saw spectacular growth during Samvat 2077. While the Nifty 50 gained 38.9 per cent during Samvat 2077, it was the small-cap index represented by Nifty 50 that made a killing and gained 81 per cent. The nifty Midcap index gained 64 per cent.
Even all sectoral indices also delivered positive returns, with top gainers being Metals, which more than doubled, even the Realty gained in triple-digit while PSU Banks was up by 93 per cent. On the other hand, Pharma (+23 per cent), FMCG (+29 per cent) and Private Banks (+30 per cent) were underperformers as defensives took a breather. The theme of Samvat 2077 was high beta, cyclical, and value.
Such performance was on the back of huge FIIs flows in equities. Inflows during Samvat 2077 were the highest ever at Rs 1.6 lakh crore. The optimism in the Indian equity market was due to benign global liquidity, containment of COVID-19 cases, significant pickup in the pace of vaccination, sharp recovery in corporate earnings, and a market-friendly budget. Macroeconomic trends saw a good recovery, with high-frequency indicators (GST collections, e-way bills, PMI readings, power & fuel demand) improving month-on-month. Exports have emerged as a growth engine with India reporting the highest ever export in a single quarter in the second quarter of FY22.
The country witnessed the third consecutive year of normal monsoon which is also likely to aid rural demand, and with the government balance sheet in good stead, we expect the government to press the fiscal pedal to drive growth over the next 6-12 months. Corporate India too surmounted the challenges posed by Covid with unprecedented cost containment measures with a parallel improvement in the balance sheet as well as cash-flows.
Not all the Samvats have been great for equity investors, however, we have witnessed positive returns in most of the years. It is especially true for a large-cap index such as Nifty 50. Out of the last ten years, we have seen negative results only once. Nevertheless, in the case of mid-cap and small-cap, we have seen negative returns three times out of the last ten years. Nonetheless, the subsequent returns after these negative returns are more than enough to compensate for the negative returns. For example, in Samvat 2069 (2012-13) we saw a negative return from both mid-cap and small-cap index, however, in the following year both of them gained in excess of 50 per cent.
The following table shows the last ten-year returns from different indices during different Samvats.
Going ahead, there are some negatives emerging on the horizon like commodity price inflation, supply chain issues, the normalcy of monetary stimulus, and a rise in interest rates. The result so far by India Inc., for the quarter ending Q2FY22, shows some pain on the margin front due to the rise in commodity prices and impact on the top line due to supply chain issue. Therefore, we cannot expect similar returns in Samvat 2078.
Most sectors and stocks are discounting the best in economic recovery in their prices. Hence, it becomes very tricky to select stocks that will outperform markets going ahead.
Larsen & Toubro Ltd.
- Core business available at just Rs 1000 per share
- Order book strong at more than three lakh crore
- Its revenue guidance is around 15 percent
Larsen & Toubro (L&T) is an Indian multinational engaged in technology, engineering, construction, manufacturing, and financial services. It operates in many countries worldwide. L&T is engaged in core, high-impact sectors of the economy, and its integrated capabilities span the entire spectrum of ‘design to deliver’. The company will be the primary beneficiary in the pickup in economic activity and private capex given its financial, technical & managerial capability for sustaining and gaining market share.
Second-quarter results stand testimony to the company’s execution capabilities and earnings momentum. For the quarter ending September 2021, the company’s profit grew 56 per cent YoY and was ahead of street estimates. Core E&C EBITDA grew 18 per cent YoY, which was once again a beat on consensus estimates. Expansion in the margin was led by margin expansion in the Infrastructure segment. Despite the increase in commodity prices, EBITDA margins were stable mainly due to the higher contribution of variable price contracts. Order inflow during the quarter came in at Rs 42100 crore (+50 per cent YoY), led by order win in Oil & Gas, Metros, Rural Water Supply, Minerals, Metal, and Power T&D.
Order book stands strong at more than three lakh crore, which is more than two times its trailing twelve-month revenue. After the result management has maintained its revenue guidance of around 15 per cent, order inflow guidance of 10-15 per cent, and a stable core E&C margin on a YoY basis.
The company’s core business is available at just Rs 1000 per share after adjusting for its listed subsidiaries. For example, L&T Infotech, L&T Technology Services, and Mindtree alone contribute around Rs 800 per share of L&T’s share price.
KEC International Ltd.
- It is the flagship Company of the RPG Group
- Posted Q2 result above the street estimates
- FIIs and DIIs have increased stake by 3 per cent
KEC International is a global infrastructure Engineering, Procurement, and Construction (EPC) major. It has a presence in the verticals of Power Transmission and Distribution, Railways, Solar, Civil, Smart Infrastructure, and Cables. The Company is currently executing infrastructure projects in several countries and has a footprint in many countries (includes EPC & Supply). It is the flagship Company of the RPG Group. The company made a strategic shift in the portfolio from T&D to non-T&D, which now contributes 42 per cent of the revenue from 13 per cent way back in FY16. Besides company also has spread its wings internationally and now has a presence in 20 countries.
The latest quarter result of the company was above the street estimates. Topline came in at Rs 3587 crore, up 10.1 per cent YoY, aided by strong growth in non-T&D. Overall, T&D contributed 54 per cent followed by railways (27 per cent), Civil (13 per cent) and Cable (10 per cent) to revenues. KEC’s YTDFY22 order inflows came in decent at Rs 7386 crore. The unexecuted order book as on Q2FY22 was at Rs 21,167 crore, while the company is L1 in orders worth more than Rs 7000 crore. T&D business contributed 52 per cent to order book while non-T&D contributed 48 per cent to order book. EBITDA margins came in at 7.1 per cent down by 200 bps on a YoY basis while improving by 80 bps on a QoQ basis mainly impacted by the change in business mix.
Looking at the future potential of the company, institutional investors, both FIIs and DIIs have increased the stake in the company in the last year by three per cent jointly.
DLF Ltd.
- A unique business model with earnings from two streams
- Strong launch pipeline in the residential business
- Constantly moving on its debt reduction path
DLF Limited is engaged in the business of real estate development. The company has a unique business model with earnings arising from development and rentals. The business of DLF is organized on an SBU basis. The Homes SBU caters to 3 segments of the residential market – Super Luxury, Luxury, and Mid-Income. The product offering involves a wide range of products including condominiums, duplexes, row houses, and apartments of varying sizes.
After showing a lackluster performance for many years, realty major DLF has started to perform. DLF’s Residential business performance was at its best in the last five years’ quarterly performance. Its pre-sales were at Rs1512 crore (up77 per cent YoY & 49 per cent QoQ) while the collection was at Rs1448 crore, which was again highest in the last five years. It generated a cash surplus of Rs759 crore resulting in net debt reduction by Rs760 crore to Rs3985 crore. In the residential business, DLF is to continue with its debt reduction path with another Rs900 crore debt reduction in H2FY22 through a healthy collection with the sale of completed inventory and a strong launch in the pipeline. In the rental business, the company’s revenues grew 9 per cent QoQ to Rs1088 crore and management indicates that vacancy rate is bottoming out and leasing inquiries has picked to 75 per cent of Pre-Covid level.
The company will continue with its debt reduction path through a healthy collection with the sale of completed inventory and a strong launch pipeline in the residential business. On the commercial business, the vacancy rate is bottoming out and leasing inquiries have picked up. Improving the leasing environment and ramp-up in the rental CAPEX cycle would be another trigger for DLF over the next few years.
Prestige Estates Projects Ltd.
- It has investors like the Government of Singapore
- Only 3.53 percent shares with the public
- It has reduced its debt now considerably
Prestige Estates Projects Limited is one of India’s largest real estate developers with a well-established presence in India’s high-growth locations. Its residential projects span townships, apartments, luxury villas, mansions, rowhouses, townhomes, golf developments, and plots. In association with global players such as Hilton, Sheraton, Marriott, and Oakwood, it builds and operates modern hotels, located at prime locations.
The share price of Prestige rose a little over 60 per cent so far in the year 2021 compared to the 26 per cent gain seen in the Nifty50 in the same period. The stock with a market capitalization of more than Rs 17,000 crore hit a 52-week high of Rs 507 on the BSE on 28 September, and since then it has been consolidating gains.
Although the company has yet to announce its Q2FY22 results, its operational performance filed with exchanges shows what we can expect. The Company has reported an 88 per cent year-on-year growth in its sales bookings at Rs 2,111.9 crore for the quarter ending September on better housing demand. Its sales bookings stood at Rs 1,123.3 crore in the year-ago period. The company in its regulatory filing informed that its sales bookings rose to Rs 2,845.8 crore in the first six months of this fiscal year from Rs 1,584.4 crore in the corresponding period of the previous year. According to management, “Despite the challenging environment, Prestige has clocked highest quarterly sales and collections.”
Prestige has some of the big investors like the Government of Singapore leaving only 3.53 percent shares with the public. As it has reduced its debt considerably and there is no dearth of liquidity, it could be the best buy in the real estate space.
ITD Cementation India Ltd.
- Order book as of Q1FY22 stands Rs12040 crore
- A dominant player in urban infra space
- Parent Company is a leader in Maritime Structures
ITD Cementation India is a leading construction company in India operating for over eight decades and has established its prowess across multiple lines of business. ITD Cementation, together with the expertise of the parent Company, Italian-Thai Development Public Company Thailand, has successfully maintained its position as a market leader in the field of Maritime Structures and Foundations. The company is a preferred contractor for Highways, Bridges, Flyovers, Industrial Structures and has established a strong presence in Tunnels, Dams, and other Infrastructure projects. Italian-Thai Development Company Limited is the leader in infrastructure construction of Thailand for more than 50 years (24 per cent market share) and is one of the largest in South East Asia.
The company has yet to announce its Q2FY22 results, however, results announced by the industry leaders show a strong quarter for the company. For the quarter ending June 2021, the company had orders worth Rs1620 crore bagged during the quarter, Order book as at Q1FY22 stands at Rs12040 crore. This translates to a healthy order-book-to-sale of 3.8 times trailing-twelve-month revenue, providing comfortable revenue visibility for the next 2-3 years.
Order book mix comprises of Urban Infra/ MRTS/ Airports (31 per cent), Marine Structures (27.4 per cent), Irrigation (17 per cent), Buildings (12.7 per cent), Water & Waste Water Treatment (8.1 per cent), and others (3.4 per cent). With a strong bid pipeline, the company has a strong bid pipeline for projects worth Rs300-35000 crore largely in Marine and Metro projects.
The company being a dominant player in urban infra space with MNC parentage, we remain positive on its healthy and diversified order book, strong execution capabilities, lean balance sheet and advanced technology, and skilled labour.
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