5 Evergreen Stocks for Investment

Source: 5paisa Research

HDFC Bank

HDFCB indicated that it had a very capable set of business leaders to take over from those who have left recently. Incrementally, it is finding robust growth opportunity in corporate loans without taking significant risk and has seen very positive trends in its retail/SME customer profile from a cash flow perspective. Just 9% of loans are under moratorium. Continuous efficiency improvement would support profitability. Given strong commentary and financial performance, we expect the valuation overhang to diminish. HDFCBs customer quality, deposit position and capitalisation are among the best in the sector. This will enable it to strongly gain market share in the long term The stock trades at 3.1x P/BV FY21E.

Source: 5paisa Research

Hindustan Unilever (HUL)

HUL is looking at the HFD (Health Food Drinks) category as a penetration opportunity with rural penetration at 27% much lower than urban at 60%+. 25% of India’s population is under 14 years, with ~33% suffering from stunted growth, 25% from malnutrition and ~90% from micronutrient deficiency. Even in the southern and eastern regions, where Horlicks and Boost have a dominant position, rural penetration is 26-28%, while urban penetration is 60-67%. Management would focus on mobilising penetration in the southern and eastern regions, followed by the North and the West.  The company would also focus on expanding the nutrition category, through hi-science variants, targeting the maternal & women’s nutrition and adult deficiency & wellness categories, in the medium term. Since the announcement of the acquisition in December 2018, there has been a margin expansion of 250-300bps, executed by GSK itself Management has guided for another 550-700bps margin expansion in the medium term driven by Scale benefits in media and materials buying, optimisation of depots and route to markets and efficiencies in supply chain, such as logistics, distribution and factory operations. We estimate PAT CAGR of 19% over FY20-22E. The stock trades at 60x FY21EPS.

Source: 5paisa Research

Hero Motocorp

Demand in rural and semi-urban markets is robust (better than urban), driven by a good Rabi crop, lower impact of the Covid-19 outbreak and forecast of a normal monsoon. As recovery is led by rural, share of scooters in the 2W industry may not increase in the near-term. Hero’s dealer inventory level is very much under control. Management is focussed on growing its exports (currently at ~3%). In Phase-I, Hero created a good footprint in more than 40 markets and made efforts to leverage its existing products. In Phase-II, it is focussing on developing customised products for each market cluster. With the BS-VI transition behind, R&D has better bandwidth for such product customisation. We expect revenue CAGR of 9% over FY20-22E. The stock currently trades at 26.2x FY21EPS.

Source: 5paisa Research

Reliance Industries Lid (RIL)

RIL has aggressive growth plans for the retailing business; in the next 12-18 months, it plans to scale up the JioMart (on-line ordering and fulfilment) vertical and introduce other merchandise on this platform (pharmaceuticals, fashion and electronics etc). Simultaneously, Reliance Retail Ventures (RRVL) also plans to focus on expansion in tier II/III and IV cities, to expand its retailing space and grow its off-line presence. Recent agreement to acquire retailing and logistics assets of Future Group bodes well in this regard. Perhaps, cash mobilised through induction of strategic investor(s) would go a long way towards meeting this objective. We expect revenue and PAT CAGR of 19.5 and 12.7 respectively over FY20-22E. The stock currently trades at 24.5x FY21EPS.