LKP Sec bullish on retail pvt sector banks & gold loan NBFCs; lists four fundamental picks for FY19

17 April, 2018 5:09 AM

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LKP Sec bullish on retail pvt sector banks & gold loan NBFCs; lists four fundamental picks for FY19

In an interview to Moneycontrol’s Sunil Shankar Matkar, Ranganathan said he continues to be optimistic on retail focussed private sector banks and gold loan NBFCs.

S Ranganathan, Head of Research at LKP Securities, sees the Nifty delivering high single-digit return in FY19 amid higher volatility, uncertain global cues, geopolitical issues and rising yields. In an interview to Moneycontrol’s Sunil Shankar Matkar, Ranganathan said he continues to be optimistic on retail focussed private sector banks and gold loan NBFCs.

After a sharp rally from 2018 lows the market has mostly traded sideways. Is it waiting for cues from the corporate earnings before taking a stand?

We expect the Nifty to deliver high single-digit return this fiscal amid higher volatility, uncertain global cues, geopolitical issues and rising yields.

Last fiscal, India had the advantage of better macros but higher commodity prices this fiscal would impact macros though the micros would support an earnings recovery, something which has been elusive for many years.

Domestic retail flows for the first three months of CY18 have been fairly robust with March SIP crossing Rs 7,000 crore, which is a Rs 700 crore month-on-month rise from February.

Corporate earnings season which kicked in last week and monsoons would decide the medium-term outlook for markets in a year which has several state elections coming up starting next month.

Recent bond rally drove NBFCs higher and there are also expectations of an earnings revival in the sector? What is your advice in the NBFC space? Banking has been in focus due to asset quality concerns. Do you think it is the right time to buy PSBs and will the NPA problem end in FY19?

We have been bullish on private sector banks, NBFC and housing finance companies for quite a few years now. We continue to be optimistic on retail focussed private sector banks even now. We also like the prospects of gold loan NBFCs and continue to adopt a wait and watch stance with PSU banks.

The stock underperformed the pharmaceutical sector as it was a late entrant in the US market. It has taken close to a 10 percent impairment in INVAGEN assets this fiscal. However, the company is now all set to improve upon its $100 million quarterly run-rate in the US driven by high value launches of limited competition products and Para 4 filings in respiratory, oncology and dermatology segments. Its respiratory platform will be the key driver in scaling up its US business trajectory even as its India continues to grow at double-digits.

India's largest gold loan company with over 4,300 branches and more than 75 lakh customers is in a sweet spot as rural India holds close to 65 percent of the country's physical gold and 40 percent of gold demand emanating from South India where it has a strong presence. Its gold loan AUM remained resilient even during demonetisation and its gross non-performing assets is backed by liquid collaterals. Given its low borrowing cost, healthy net interest margin of 15 percent and capital adequacy ratio of 27 percent, it has enough growth capital to fund its growth for the next two years. Muthoot Finance is currently trading at two times book.

Jamna Auto is the second largest player globally and market leader in India for leaf springs used in commercial vehicles. It has a 73 percent market share. It is a key vendor to large original equipment manufacturers like Ashok Leyland, Tata Motors, M&M and Daimler. The structural shift towards higher tonnage vehicles should trigger demand for its high margin parabolic springs. Superior return on equity, deleveraged balance sheet and minimum capex plans makes it a proxy to play the infrastructure theme in India.

The biopharma company manufactures drug intermediates for global innovator companies. It provides contract research and manufacturing services (CRAMS) including supplies for new chemical entities (NCE) launched by innovator companies.

Its core CRAMS business has superior return on capital employed compared to peers. It is witnessing traction as several projects enter Phase II, prompting the management to increase capacity at a cost of Rs 120 crore.

Source: moneycontrol.com

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