stocks

The Economic Times Wealth October 21-27, 2019 11

of 20-25%). Privi Organics has been supplying to the top 10

Fairchem Specialty global fragrance companies for over 10 years and has direct HDFC Bank
relationships with global FMCG giants like P&G, Henkel etc.
Though the demand for flavours and fragrances products is Despite the recent share price rally and increased valuation
fairly mature in developed countries, there is potential for ratios, research houses continue to bet on HDFC Bank due
growth in emerging markets like China, India, Middle East, to its retail focus, strong positioning, large branch network,
Latin America, etc. Since Fairchem has spare capacity in healthy balance sheet, superior asset quality and efficient
existing products lines, it should be able to manage its future management. Strong retail banks like HDFC Bank should be
growth without straining its balance sheet. able to gain further market share, especially from the space
vacated by NBFCs. To benefit from this situation and also
RESEARCH HOUSE
CURRENT TARGET POTENTIAL increase loan book growth, HDFC Bank is focusing on deposit
PRICE (`) PRICE (`) UPSIDE
mobilisation, which is good for its long-term growth. One can
HDFC Sec-Retail 480.05 569 18.53% expect HDFC Bank to continue to deliver consistent growth
with margin leadership and robust return ratios.
160
FAIRCHEM
SPECIALITY CURRENT TARGET POTENTIAL
140 RESEARCH HOUSE
128.01 PRICE (`) PRICE (`) UPSIDE

It is a speciality oleochemicals manufacturing company and 120 ET CHEM. Anand Rathi 1,222.90 1,410 15.30%
now has the combined strength of its former merged entities 115.64 JM Financial 1,222.90 1,425 16.53%
(Adi Finechem and Privi Organics). Among the 65 products 100
SENSEX
it manufactures, its main products are mixed tocopherols, 130
sterols, linoleic acid, monobasic acid and dimer acid for 80 109.51 HDFC BANK

polyamides and printing ink industry. Though it is a small 16 Oct 2018 15 Oct 2019 120
122.76
company working in a niche area, Fairchem is the largest PE PBV DIV YIELD M-CAP (` CR) ET BANKS
aroma chemical manufacturer in India and the second largest 110
110.96
pine tree fragrance manufacturer in the world (market share 11.33 3.26 0.52 1,875.08
100 SENSEX
109.51
90

ICICI Bank 16 Oct 2018

PE PBV
15 Oct 2019

DIV YIELD M-CAP (` CR)

CURRENT TARGET POTENTIAL Among corporate based banks, maximum earnings
RESEARCH HOUSE
PRICE (`) PRICE (`) UPSIDE turnaround are expected from State Bank of India, ICICI Bank 30.34 4.35 0.61 6,69,024
and Axis Bank, mostly because of the aggressive recognition
Motilal Oswal 431.70 530 22.77% and write down of stressed loans. For example, ICICI Bank’s
Reliance Sec 431.70 500 15.82% net stressed loan (excluding NPA) has declined to 2.9% now,
while its provision coverage ratio (PCR) has improved to
150 74.1%. Asset quality improvement is also happening because
140 ICICI BANK of its aggressive loan recovery strategy and increasing
134.47
PHOTOS: GETTYIMAGES

130
share of its retail loan mix, which is placed above 60% now.
Despite some actions by government and RBI, second rung
120 ET BANKS
NBFCs are still facing liquidity crunch and this is helping
110 110.96 banks with wide branch networks like ICICI Bank to increase
100 SENSEX market share of retail loans. Wide branch networks also help
banks to have high retail mix on their deposit side as well.
90 109.51 For example, ICICI Bank’s share from current and savings
16 Oct 2018 15 Oct 2019 accounts (CASA) is now placed comfortably around 43%. The
overall fall in interest rate and credit cost moderation is good
PE PBV DIV SYIELD M-CAP (` CR)
for banks and this should help strong players like ICICI Bank Pidilite Industries
41.23 2.51 0.23 2,78,870 to improve their return on equity further. Pidilite Industries, the manufacturer of Fevicol, is the largest
adhesive company in India. Due to its well-accepted brands in
the consumer space, Pidilite was able to show strong revenue
order book and faster execution, there is clear visibility for growth in the past. Increasing dealer network and reaching
Larsen & Toubro earnings in coming years. Its return ratios are also expected out to smaller towns is the cornerstone of Pidilite’s growth
strategy. This explains how Pidilite is able to maintain its
to improve in coming years because of the focussed actions
by the management on cost reduction and working capital revenue growth despite the ongoing construction slowdown.
management. For example, its ROE is expected to cross 18% Pidilite has also been able to increase its operating margins
by 2020-21.More importantly, this counter is now trading at by 700 bps during the past 10 years. Conscious management
a discount to historical valuation averages. efforts like launching new products to leverage power
brands, cost control measures, increasing manufacturing and
CURRENT TARGET POTENTIAL marketing efficiency, etc helped Pidilite achieve this margin
RESEARCH HOUSE
PRICE (`) PRICE (`) UPSIDE improvement. The recent reduction in corporate tax rates will
also benefit companies like Pidilite.
ICICI Direct 1,433.15 1,740 21.41%
CURRENT TARGET POTENTIAL
Motilal Oswal 1,433.15 1,900 32.58% RESEARCH HOUSE
PRICE (`) PRICE (`) UPSIDE

140
L&T
ICICI Direct 1,377.45 1,625 17.97%
130 117.05 160
PIDILITE
ET CAPITAL INDS
120
GOODS 140 138.72
While smaller capital goods and infrastructure players are
struggling now due to the ongoing macroeconomic slowdown,
110 112.61 120 ET CHEM.
strong players like Larsen & Toubro are benefitting from it. In 100 SENSEX 115.64
addition to the customer preference of staying with stronger
players in an environment like this, Larsen & Toubro has also 90 109.51 100
SENSEX
16 Oct 2018 15 Oct 2019
been able to corner market share from the space vacated 80 109.51
by medium sized players. Continuing order inflow suggests PE PBV DIV YIELD M-CAP (` CR) 16 Oct 2018 15 Oct 2019
that Larsen & Toubro should be able to achieve its order
inflow guidance of 10-12% for 2019-20. Due to its strong 21.95 3.22 1.26 2,01,107 PE PBV DIV YIELD M-CAP (` CR)

All index values normalised to a base of 100. Compiled by ETIG

71.48 16.87 0.47 69,974