Samco baffled by post election rally; liked Jubilant Food, Metropolis, Mamaearth, Senco in mid/smallcap space

Going ahead, the brokerage sees constricted short-term upside for the Nifty owed to precocious valuations and a deficiency of affirmative catalysts. Despite this, the intermission is viewed arsenic a impermanent signifier successful a semipermanent bull market, with a debased likelihood of a important correction.

SAMCO maintains a affirmative outlook connected the manufacturing and concern cycle, favoring the Durables (Auto) and Materials sectors. Interestingly, they besides place imaginable opportunities successful the FMCG and Tech sectors based connected comparative valuations. For Industrials and Financials, they suggest a selective attack focusing connected tiny and mid-cap stocks (SMIDs).

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The brokerage added Jubilant FoodWorks, Honasa Consumer (Mamaearth), Suprajit Engineering, and Metropolis Healthcare to its SMID picks and retained Senco Gold.

These selections are based connected their strategical insights and investigation of marketplace trends and valuations. The brokerage has filtered the stocks connected growth-adjusted valuations, ROE trends, and cash-flow ratios. However, it has not considered the stock-price momentum successful its filters.

Headline indices – Limited upside

The brokerage noted that the Nifty is trading astatine 20.1x one-year guardant PER vs the 18.8x five-year average. This looks overcooked with the premia successful the cheaper sectors similar banking and industrials much astatine risk, oddly. SAMCO sees nary affirmative triggers for the adjacent 2-3 quarters, either from argumentation (a affirmative fund is present factored in) oregon from net revisions. It said that it volition revisit its June 2025 Nifty people of 22,000 (at a PER of 19x, -1sd beneath LTA) aft the mid-July Union Budget, which is the adjacent large event.

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Macro trends intact

The brokerage further pointed retired that the BJP’s dependence connected conjugation partners is improbable to alteration the 2 wide pillars of the NDA’s macro argumentation – fiscal-monetary conservatism and a penchant of capex successful authorities spending.

Structural reform, particularly successful origin markets, volition beryllium challenging, arsenic authorities volition present necessitate a consensus-building approach. Though the conjugation authorities could bring much uncertainty successful policymaking, SAMCO does not foresee immoderate pivot towards large-scale payment spending. The station Covid rhythm of manufacturing implicit services and concern implicit depletion remains undisturbed.

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Mean reversion connected sectors

SAMCO's counterintuitive calls are i) Overweight connected staples, wherever it sees net acceleration and valuation accompanied by a imaginable turnaround successful wide spending; ii) Underweight connected Industrials, wherever valuations are stretched and net growth, though robust, is decelerating; and iii) Overweight connected Technology, wherever valuations are adjacent LTA adjacent if the maturation betterment is 2-3 quarters away.

As per the brokerage, the Staples assemblage is experiencing a broad-based betterment successful net per stock maturation (EPSg) and instrumentality connected equity (ROE). This affirmative inclination could pb to a tactical rerating of the sector. The absorption is connected companies trading astatine the little extremity of their semipermanent mean (LTA) price-to-earnings ratios (PER), presenting charismatic concern opportunities. It added that Hindustan Unilever (HUVR) and Dabur are presently trading astatine important discounts to their 5-year mean price-to-earnings ratios (PER). A affirmative catalyst, specified arsenic accelerating net maturation oregon rising instrumentality connected equity (ROE), could trigger an upward question successful their banal prices.

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SAMCO views the Industrial assemblage arsenic charismatic from a semipermanent perspective. However, they enactment that 40% of companies successful this assemblage are trading astatine a valuation premium compared to humanities levels, and net upgrades are stalling. Additionally, there's immoderate deterioration successful currency travel ratios, which is emblematic for manufacturing companies successful a precocious maturation signifier but poses a impermanent hazard to valuations.

Given these factors, SAMCO is cautious successful the abbreviated term, contempt a compelling 2-3 twelvemonth outlook. They judge that selective bottom-up opportunities successful tiny and mid-cap (SMID) stocks volition stay appealing.

Meanwhile, for the IT space, it noted that large-cap IT stocks are trading astatine 5-year average. There are nary contiguous catalysts, but a turnaround successful request could thrust a rerating.

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The brokerage's different large calls are overweight connected Durables (strong rhythm and currency flows) and underweight connected Financials (valuations retired of sync with growth).

This is simply a stock-pickers vs top-down market, truthful determination are a fewer exceptions: e.g. opportunities successful prime SMID Industrials, it added.

Apart from its SMID picks listed earlier, its exemplary portfolio includes: Bharti Airtel, Tata Motors, TVS Motor, Hero Moto, Maruti Suzuki, Dabur India, HUL, Nestle, RIL, Shriram Finance, IndusInd Bank, Axis Bank, ICICI Prudential, Infosys, Wipro, TCS, Shree Cement, UltraTech Cement, and Interglobe Aviation.

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SMID Picks

Jubilant Foodworks: Jubilant FoodWorks (JUBI) is experiencing a maturation reversal, and if these trends continue, its valuations should stay high. SAMCO appreciates JUBI's multi-country, multi-format food-tech positioning, which is bolstered by investments successful back-end commissaries, store networks, and exertion platforms. Although the existent people terms (TP) offers constricted upside, the consolidation of DP Eurasia and sustained beardown trends could pb to a re-rating for JUBI. Therefore, SAMCO recommends an "ADD" standing for JUBI. Over the mean term, margins should enactment connected the way to improvement, with investments successful commissaries and a imaginable simplification successful competitory intensity, it added.

Metropolis Healthcare: Leveraging its specialized offerings (71% of revenue) and beardown marque loyalty among aesculapian influencers (80 percent measurement from acute patients), Metropolis has grown from a determination relation to the third-largest pan-India specialized diagnostics chain. Easing competition, a absorption connected improving B2C and wellness share, and premium marque positioning person boosted margins (400bps implicit FY24-26E) and resulted successful a 37 percent PAT CAGR, said SAMCO.

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Suprajit Engineering: SEL's planetary business, comprising 47% of revenue, is stabilizing and improving, with maturation resuming successful Q4FY24 aft two-quarters of diminution and sequential borderline expansion, noted the brokerage. The institution is expected to outpace manufacture maturation owed to bid wins, including done the China Plus One strategy, successful cables, and beyond. Domestically, a betterment successful the two-wheeler (2W) manufacture and maturation successful caller merchandise verticals similar braking systems and sensors enactment a affirmative outlook. SEL's tech halfway drives caller merchandise development, diversifying its gross base, it said. With tenable valuations, SEL is projected to execute 24%/51% revenue/EPS CAGR implicit FY24-26E.

Honasa: Honasa has strategically built a robust quality and idiosyncratic attraction portfolio covering 70% of the Rs1.5 trillion TAM done its 'House of Brands' strategy, ensuring relevance crossed divers user segments. As it expands offline, robust gross maturation (21% CAGR FY24-27E) and margin-driven net enhancement are expected, supporting a beardown returns illustration (FY27E RoE 19%), stated SAMCO. It recommends BUY connected Honasa Consumer with a June 2025 people terms of ₹525/share, based connected 6x EV/sales. Our valuation, 15% beneath the assemblage average, aligns with maturation prospects (~21% gross CAGR FY24-27E).

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Senco Gold: Senco's >20% net maturation is driven by caller stores and beardown same-store income (SSG) owed to a displacement to organized retail, premiumization, and higher golden prices. FY24 EPS maturation was muted owed to IPO dilution and borderline normalization without diamond inventory gains, noted the brokerage. Senco has consistently delivered mid-teen topline maturation and trades astatine 33x FY25E EPS, a 30% discount to Kalyan. With important re-rating imaginable arsenic it meets expectations, it recommends a BUY connected Senco with a people terms of Rs1,100/share.

Disclaimer: The views and recommendations made supra are those of idiosyncratic analysts oregon broking companies, and not of Mint. We counsel investors to cheque with certified experts earlier taking immoderate concern decisions.

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Published: 15 Jun 2024, 12:01 PM IST