Use market correction as entry opportunities
The domestic bourses witnessed steep decline on the fag day of trading in response to negative global cues and profit taking in the index majors across the board. Among the sectoral indices, banking stocks dampened the sentiments, followed by consumer durable and auto stocks. By the end, Nifty shed more than one and half per cent but managed to settle above 8,800. We feel it is a healthy correction after the recent advance in the index and it may extend further. Considering the overall trend, traders should utilize this move as an entry opportunity but do maintain caution in stock selection. In Nifty, the index at 8,600-8,650 holds crucial support while 8,950-9,000 will continue to act as hurdle.
Jayant Manglik, president, Religare Securities
Macro recovery will lend colour to industry
The paint industry is expected to clock robust performance over the medium term with growth until 2015-16 driven by volumes. Pick-up in macro conditions will support higher per capita consumption. Paint demand is likely to improve across the decorative and industrial segments. Among companies we upgrade Asian Paints from SELL to BUY as its strong brand, wide distribution network and market leadership will enable it to capitalise on the growing market opportunity. India’s paint market expanded at 17 per cent CAGR over the past five years. We expect the market to grow at a similar rate over the medium term with the organised sector likely to outperform the unorganised segment in sales volumes. Currently 67 per cent of the market is organised. India’s paint market volumes have historically grown at 1.2–2.5x GDP growth. In times when GDP growth has moved into a recovery cycle or been higher than average the ratio of paint volume growth to GDP growth has climbed to the higher end of the band. We expect GDP to grow 7 per cent in 2016-17 from 4.7 per cent in 2013-14 implying 15 per cent volume growth for the paints industry. Capacity utilisation for companies is set to improve as production increases to cater to recovering demand. In the decorative paints segment we expect a demand boost due to per capita incomes increase and as the government’s thrust on ‘housing for all’ by 2022 plays out. For the industrial paints segment, onset of the capex cycle as well as an expected recovery in the auto industry will act as key growth drivers.
Bottom-linesturdy in challenging times
Atul Auto is clocked in impressive performance in third quarter 2014-15 with total Income of Rs 1401.10 million and net profit of Rs 113.10 million. In volumes, the company sold 31,338 vehicles in April- December 2014 compared to 27,908 vehicles in the previous nine months. Demand in the automobile industry is estimated to improve 5 per cent in the current year and touch double digit in 2015-16. The industry is further hopeful of excise duty reduction in forthcoming Budget. Atul Auto has aggressive expansion plans and more variants are to be launched. It will boost top line performance and being debt free strengthen bottom-line as well. The company could achieve expected statistics and is continuously growing at modest rate despite of challenging environment in auto industry.
Strong earnings growth
Emami’s third quarter 2014-15 performance better than estimated due to healthy domestic sales of 18 per cent and international sales of 21 per cent. New product launches contributed to revenue growth during the latest quarter. The company registered sharp improvement in gross margins due to stable raw material prices and increase in selling price of products. Profitability was also aided by lower other expenses. We have raised our near term estimates and expect 26 per cent CAGR in EPS over the next two years.
Motilal Oswal Securities