7 high-quality growth stocks to buy now

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Srilata Rao
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7 high-quality growth stocks to buy now

Post by Srilata Rao » Tue Sep 18, 2018 11:32 pm

Article of ET Bureau

ET Wealth took a deep dive and identified seven high quality growth stocks that are still quoting at reasonable prices.

1. Jamna Auto Industries

The market has already started rewarding Jamna Auto for its high historical and future growth rates. This explains why the stock has outperformed the Sensex by almost 38% in the past one year, despite a 33% correction in its price during the past six months. In addition to the recent correction in the stock price, experts are bullish on this counter for its improving fundamentals.

First, it has benefitted from the structural changes happening in the commercial vehicles space.
Jamna Auto is a key beneficiary of the shift in commercial vehicle demand towards high-tonnage vehicles (parabolic springs and lift axle will witness enhanced demand, resulting in higher margins and realisations).

Secondly, the recent correction was triggered by the government’s decision to allow higher axle load for existing vehicles. Though this may reduce the demand for medium and heavy commercial vehicles, its impact will be in the short term and could affect Jamna Auto’s revenues only for the next one or two quarters.

Third, the company is also planning to de-risk its business by expanding into aftermarkets and introducing new product segments (lift axles, air suspension). Its focus is on the replacement exports market, which is growing by around 15% in volume terms. However, investors should note that commercial vehicles is a cyclical business and therefore, need to time their exit as well.

2. Kalpataru Power

Due to strong order inflow and its bulging order book, Kalpataru Power’s revenue is expected to grow by 16.2% CAGR between 2017-18 and 2019-20.

Part of the real estate developer Kalpataru Group, this company is into design, testing, fabrication, erection and construction of transmission lines, oil and gas infrastructure and railways projects on a turnkey basis. In addition to improving prospects from the power transmission business, there is a strong order inflow from railways, road BOT projects and pipeline businesses.

Its order book increased by 41% y-o-y in the first quarter of 2018-19, giving it clear revenue visibility for coming years. There is also significant improvement in the performance of its subsidiaries like JMC Projects. More importantly Shubham Logistics, which has reported a loss of Rs 10.4 crore during first quarter of 2017-18, has reported a modest profit of Rs 60 lakh during Q1 of 2018-19. Kalpataru Power has also established presence in more than 50 countries and should, therefore, benefit from the recent depreciation in the rupee.

3. KEC International

KEC International’s earnings growth is expected to continue for the next 2-3 years due to higher margins and its fast growing order book.

The flagship company of the RPG group, KEC International has a presence in 100 countries across Africa, Americas, Central Asia, Middle East, South Asia and South East Asia. In addition to the 28% underperformance against the Sensex in the past one year, its investment worthiness has also increased due to improving fundamentals.

First, the government’s UDAY scheme has helped state electricity boards and they have in turn increased their capital expenditure, leading to bigger orders for players like KEC. KEC’s order book has hit an all-time high of Rs 18,200 crore (1.8 x of 2017-18 revenues). Since KEC is favourably placed (it is the lowest bidder) in other orders worth Rs 3,180 crore, its order book is expected to bulge further in the coming quarters.

Second, concentrating only on high margin orders has led to significant margin expansion during the past four years.

4. CESC

We reiterate that the pending demerger could enhance value and remains a potential trigger for the CESC stock.

While CESC’s core business (power generation and distribution) is going on smoothly, CESC has been forced to split its core business into separate power generation and distribution companies due to regulatory issues. After the split, the management wants to focus more on the distribution business with low capex. This strategy should boost its profitability in the coming years. Since the entity is facing conglomerate discount (when the total value of a firm is less than its sum of parts), the management wants to split the company further. Most experts are bullish on the demerger plans of this Sanjiv Goenka Group company. Some of its subsidiaries such as First Source.

Solutions and Spencers are also doing well. The prospects for Spencer’s have improved after the decision to close down unviable stores. It has already broken even at the EBITDA level and is expected to break even at PAT level in the next 12-18 months.

5. Indiabulls Housing Finance

Indiabulls Housing’s stage III assets were broadly similar to gross NPAs. So, there is no other earmarked stress pool. This will result in credit costs falling to 20-25 bps.

Indiabulls Housing has underperformed the Sensex by about 25% in the past one year. However, there is no change in its fundamentals. The company has been reporting around 30% earnings CAGR and a similar rate is expected in the coming year as well. Since there was no negative surprise despite the shift to Indian Accounting Standards or Ind-AS, experts are hopeful that Indiabulls Housing will sustain its earnings momentum and improvements in key ratios like return on equity in future. The housing loan demand continues to soar due to the government’s push of ‘housing for all by 2022.

Indiabulls Housing is also protecting its margin by regular hikes in loan rates to offset the increased funding costs. More importantly, there is no let up in its asset quality due to its strict risk management systems. Analysts feel this will bring down its credit costs.

6. UPL

The acquisition of Arysta is likely to be value accretive if UPL realises 30% of targeted synergy. No worry about details because Arysta is part of a listed company.

UPL is one of the few global agriinput companies with a presence across the agri-value chain. With around 20% historical CAGR and expected future net profit growth, this mid-cap company is also a stable growth player. Its strong performance continued during the first quarter of 2018-19.

Its first quarter revenue from Africa more than doubled and it did well in Latin America despite currency devaluation in countries. The recent acquisition of US-based Arysta Lifesciences for an astounding $4.2 billion (Rs 33,000 crore) is seen as a positive development by experts, who say this deal is value accretive for UPL.

7. Suprajit Engineering

The next leg of growth will be led by gains in global non-auto cables market; domestic 4-wheeler space and marketshare gains in aftermarket.

Suprajit Engineering, India’s largest and among the world’s top five automotive cables manufacturer, has consistently outperformed the industry on revenue and EBITDA growth over the past decade. Its valuation has became reasonable only in the past one year. Since its growth is still continuing, the correction gives investors a good entry point.

The management is taking steps to maintain its high growth rates in the coming years and experts believe that Suprajit Engineering will be able to deliver. With new OEM orders coming from European auto majors and a bigger push planned in North America, the export segment is also doing well.

Pee Vee
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Joined: Mon Dec 26, 2016 10:45 pm

Re: 7 high-quality growth stocks to buy now

Post by Pee Vee » Wed Sep 19, 2018 8:41 am

Thanks for the info. These are good stocks.

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Ravi
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Location: Mumbai

Re: 7 high-quality growth stocks to buy now

Post by Ravi » Wed Sep 19, 2018 10:33 am

Jamna Auto Industries Ltd.
Stewart Mackertich

CMP (INR) (As on 8th Aug 2018) 87.65
Revised Target (INR) 128
Upside(%) 46%
Recommendation Strong Buy

Jamna Auto Industries Limited (JAI) is the undisputed leader of the Indian automotive suspension space with a mammoth 72% share in the OEM segment. It is the India’s largest and world’s second largest manufacturer of tapered leaf springs & parabolic springs for Commercial Vehicles (CVs) in India with an annual production capacity of 240,000 MT and produces over 500 modes of springs for OEMs. It has been a trusted and preferred supplier of Leaf and Parabolic Springs to all major CV manufacturers for over 50 years. The Company has 9 strategically located state-of-the art manufacturing facilities at Yamuna Nagar, Malanpur, Jamshedpur, Pune, Chennai, Pilliapakkam, Hosur, Pant Nagar and Lucknow. It supplies to auto OEMs across the globe and boasts of a strong clientele consisting of Ashok Leyland, Tata Motors, General Motors, Kamaz Motors, SML ISUZU, Mahindra & Mahindra, Volvo and others.

Key Highlights

 Consolidated operational revenue stood at INR562.19 crore, up 107% (down 5.64% QoQ) and it is significantly better than our estimate of INR479.72 crore.

 Significant rise in steel price (up 27% YoY) dented the Gross Profit margin by 281 bps YoY to 36.43%. However, Co. has managed to expand its Gross profit margin by 105bps QoQ through favourable product mix.

 Optimization of operating expenses led to 147% YoY rise to INR75.27 crore and expansion of 214bps YoY of EBITDA margin to 13.39%.

 Consolidated PAT grew 129.77% to INR40.01 crore and surpassed our estimate of INR34.54 crore on the back of lower depreciation.

Going forward we believe, BS IV to BS VI transitions, proposed implementation of fleet modernization programme, Government’s increased focus on building world-class road infrastructure, Indirect Tax reforms, enactment of weigh-in-motion system and higher demand from consumption driven sectors should result into healthy orders for Jamna Auto. We believe company’s focus on bringing technologically advanced products and solutions through its in-house R&D and technical collaboration with global leaders should help the company to increase its market share in the OEM space and to make inroads in the Passenger Vehicle segment.

Considering the recent steep rise in CV demand, strategically located state-of-the-art manufacturing facilities, uncontested leadership in the OEM space, recent brownfield expansion at Hosur & Yamuna Nagar facilities, decision to set up a new plant at Indore to meet the rising demand from the CV space & manufacture U-Bolt and other allied products, increased number of dealers to take advantage of post-GST opportunities in the replacement market, wide array of product offerings and strong focus on R&D; we expect the EPS of the company to grow at a CAGR of 30% from FY18 to INR5.30 by FY20E and accordingly we assign a PE of 24.3 to FY20E EPS, to arrive at a Target Price of INR128.

BSE Code 520051
NSE Code JAMNAAUTO
Reuters Ticker JMNA.BO
Bloomberg Ticker JMNA.IN

Market cap (INR Cr.) 3492.85
Outstanding Shares (Cr.) 39.85
Face Value (INR) 1.00
Dividend Yield(%) 1.65
TTM P/E (x) 23.63
Industry P/E (x) 29.45
Debt/Equity 0.22
Beta vs. Sensex 1.20
52 Week High/ Low (INR) 102.95/43.93
Avg. Daily Vol. (NSE)/1 yr. 1,918,048

Shareholding Pattern (%)
Jun-2018 Mar-2018 Dec-2017
Promoters 47.9 47.9 47.9
Institutions 14.5 12.8 11.7
Non-institutions 37.6 39.3 40.4
Never give up your dreams

Pee Vee
Site Admin
Posts: 429
Joined: Mon Dec 26, 2016 10:45 pm

Re: 7 high-quality growth stocks to buy now

Post by Pee Vee » Wed Sep 19, 2018 5:04 pm

Wow! 46% upside. Looks like a great stock.

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