Brokerages bet on consumer, infrastructure sectors as new govt comes in

Narendra Modi-led government’s second term is expected to kick start the economy by boosting rural income, increasing investments in infrastructure and expanding its housing for all scheme. The Street believes that these measures coupled with lower interest rates and easing liquidity could boost consumption and spur investments. This should help companies in the consumer, financials, infrastructure, automobile, and cement sectors among others. Here are select picks, which have been recommended by brokerages. 

Maruti Suzuki

• Incentives for the sector, lower interest rates, and rural demand revival to aid Maruti, India’s largest passenger vehicle producer
• Rural has seen double digit growth in FY19 and the company gets a significant 39 per cent revenue from this segment
• Lower channel inventory, fall in discounts should help improve the company’s profitability
• Strong product line up, robust distribution network, cost reduction efforts and capacity expansion should help Maruti outperform the sector
• Decision to phase out diesel models and the tie-up with Toyota  to streamline products and tap new technologies should also help

State Bank of India 

• Strong branch network and a vast geographical spread reaching the hinterland auger well for the bank
• India’s largest bank is best placed to cash in on the opportunities from the government’s focus on infrastructure investments, plans to boost rural incomes and housing for all schemes
• An improvement in asset quality in March 2019 quarter with healthy bad loan provisioning cover highlights the earnings potential for the bank in the near term 
• The management also expects a strong recovery in FY20, which should boost loan growth and support overall earnings

Ashok Leyland 

• Surge in infrastructure spending and vehicle scrappage policy to be launched going ahead are expected to improve the demand for commercial vehicles in the country
• Pre-buying ahead of the implementation of the BS VI norms next year should also boost the demand for medium and heavy commercial vehicle trucks
• New product launches, uptick in defence orders and exports are expected to keep incremental revenue growth strong
• Given the volume growth and margin triggers, the stock has more legs to run from these levels 

Siemens 

• Rising relevance of services orders led by digitalisation and automation contracts positions Siemens favourably to capture the operating expenses-led orders 
• While large capital expenditure-led contracts remain elusive, small orders from sectors such as food & beverages, chemicals, data centers, captive power units and railways is helping
• Fresh orders from these segments helped Siemens grow its order book to Rs 13,020 crore, providing it over a year of revenue 
• Post March quarter results, the Street has upped its earnings estimates by 2-5 per cent for FY20

UltraTech Cement

• UltraTech, India’s largest cement producer, will be the biggest gainer of demand surge from infrastructure, housing and rural India
• With expanded capacities across the country in place, UltraTech had reported 16 per cent volume growth in March quarter, higher than its pan-India peer ACC
• Per tonne profitability of Rs 1,039 during fourth quarter, too was better than Rs 589 reported by ACC
• A strong recovery in the company’s operating performance, efforts on cost controls and focus on improvement in return on capital employed are other positives

Britannia Industries 

• Though the are some near-term demand concerns, Britannia with 30-32 per cent rural revenues is expected to be benefit from the government’s thrust to improve disposable rural incomes, both in the near term as well as over the  long term 
• New product launches and a likely improvement in sales realisation supported by price hikes would propel overall earnings growth in the current fiscal year
• Correction in the stock, which is currently valued at 49 times FY20 estimated earnings, is a good opportunity for long-term investors 

Larsen & Toubro 

• Larsen &Toubro (L&T) will be a key gainer from the government’s thrust on infrastructure, metro, railways, roads, defence and renewable energy sectors
• L&T’s revenue growth guidance of 12-15 per cent and 10-12 per cent order inflow growth during FY20 is considered conservative 
• The core engineering and construction segment estimated to grow 15 per cent annually over FY19-21, coupled with order book and margin improvement will drive earnings growth
• Overall growth is well supported by the hydrocarbon segment’s faster execution and order inflows

ICICI Bank 

• ICICI Bank is well placed to leverage the expected pick up in investment cycle with adequate capital position and branch expansion across the country
• Expected normalisation in credit costs (provisioning as a percentage of advances) and a strong liability franchise should support overall earnings growth
• Analysts expect the private lender’s return on equity to improve to 12-13 per cent in FY20 from 3.2 per cent in FY19
• Stock valuation of around 2 times FY20 estimated book value, too, looks reasonable when compared to with peers