Top five stocks that can turn out to be multibaggers in the next 2-3 years
Transport Corporation of India
Implementation of Goods & Services Tax (GST) will be a game changing event for businesses in general and for organised logistics players. It will provide a boost to warehousing, supply chain management and third-party logistic players (3PL) business.
Lesser border checks/paperwork would lead to faster movement of trucks; Transit times and cost is expected to shrink by 20-30%. Further, GST will lead to consolidation of warehouses and outsourcing of warehousing services to third party logistic players.
Transport Corporation of India Ltd (TCI) will be one of key beneficiary from the implementation of GST given its well-integrated network with a fleet of 9000 trucks, 1400 branch network, manages 5 ships and has warehousing space of 11mn sq ft.
Bharat Electronics (BEL) has market leadership in defence electronics given its strong execution capabilities, technological tie-ups with a higher focus on R&D. BEL is a debt free & a cash rich company with a strong order book with of Rs 33,806 crore which is 4.7x FY16 sales, providing strong revenue visibility for next 4 years.
Further, BEL will be a major beneficiary of GoI higher focus on Make in India and higher indigenous procurement. GoI plans to bring down import dependence to 30% from current 60%.
Further, under the new defence procurement policy, a new category called Buy Indian (Indigenously Designed, Developed and Manufactured – IDDM) was introduced, having the highest priority in procurement which will provide higher opportunities for domestic players and improve domestic R&D investments.
Higher than expected GST rate in consumer discretionary may give some impact on volume due to likely price hike post the GST rolled out. However, being a leading player in electrical consumer goods and the recent acquisition of Lloyd consumer business is expected to bring long-term scalability to HAVL’s consumer business.
We expect revenue & PAT to grow at healthy 14% & 17% CAGR over FY17-FY19E. Given strong revenue growth and healthy earnings outlook, HAVL is expected to portray a long-term story in the consumer goods segment.
Ashok Leyland (AL) is the second largest commercial vehicle (CV) manufacturer in India will be direct beneficiary led by improvement in the road infrastructure projects. AL is the largest supplier of logistic vehicles to Indian Army (5% of revenue), will see higher traction from the new defence procurement policy.
AL's 100% Acquisition on its 3 JV with Nissan Corporation of the LCV business will give positive impetus for the business and also allow using the Nissan technology on a 1% royalty basis for 5 years.
Management is focused on gaining market share in LCV from 15% to 30% over next 2-3 years by launching new models in FY18. We expect the AL's revenue to grow at 14% CAGR over FY17-19E by factoring 12% volume growth in our estimate for the same period.
Bharat Forge (BFL) is planning to scale up the new business from current 5% to 15% in the next 2 to 3 years. The orders from Boeing and new defence JV with AM General will provide higher revenue visibility in the non auto sector during FY18.
BFL has also entered into JVs with SAAB, Rafael & IAI (Israel Aircraft Industry) which will boost its presence in the field of air defence. Government mandatory for in-house sourcing for ‘Make in India’ projects will benefit Bharat Forge, in the long run, to build up order book.
Upcoming BS6 emission norms can aid a sharp increase in content per vehicle due to increase in the engine components parts in car and Truck segment. We expect 13% revenue CAGR over FY17-19E led by picking in US truck market and de-risking the utilization in Non-auto sector
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