Dmart, Jubilant FoodWorks, Tata Power Among IDBI Capital’s Top Diwali Picks

Nifty is down 5 per cent since Diwali last year and the markets have been highly volatile in current Samvat 2078. The benchmark Nifty 50 index touched high of 18,604 and low of 15,183 and unlike last two years the Nifty has given negative returns this Diwali. Reversal in low interest rate cycle across the globe, high inflation and resultant fears of recession have dented the investors’ sentiment towards equities. 

The sentiment for equities soured following Russian invasion of Ukraine which led to sanctions on Russia and that disrupted supply chains of everything from wheat-to-crude oil and other raw materials and led to spike in inflation which surged to a four-decade high in US and European Union. Domestically, selling by foreign institutional investors since most part of the year also added to weakness for equities.

Meanwhile, amid all the volatility brokerage firm IDBI Capital has come out with its top stock picks for Diwali:

Avenue Supermarts: Avenue Supermarts Ltd (DMART) owns and operates D-Mart stores across India. The national supermarket chain offers a range of products with focus on Foods, Non-Foods (FMCG) and General Merchandise & Apparel categories. Company operates 302 stores across the country. As on 30th June’22 company had retail business area of 12.1 million square feet across Maharashtra, Gujarat, Daman, Andhra Pradesh, Karnataka, Telangana, Tamil Nadu, Madhya Pradesh, Rajasthan, NCR, Chhattisgarh and Punjab.

Dmart plans to expand store count by 5 times from 302 to 1,500 stores going forward. IDBI expects its revenue to grow 35 per cent in two years and has target price of Rs 5,148 per share.

Blue Dart Express: Blue Dart is South Asia’s premier courier and integrated express package distribution company. The company has the most extensive domestic network covering over 35,000 locations in India, and service more than 220 countries and territories worldwide through group company DHL, the premier global brand name in express distribution services. The competitive advantage of the company lies in its vast and unparalleled domestic network, technology, air network and financial credibility.

With increasing internet penetration, rising disposable income and desire for convenience and better price points, more and more Indian customers are shifting towards online shopping leading to strong growth of the E-Com segment. E-Com now contributes approximately 20% of the revenues and is growing at 20 to 25% CAGR for the company. IDBI expects the stock to touch Rs 11,500 by next Diwali.

City Union Bank: City Union Bank is among one of the oldest private sector having 700+ branches and 1700+ ATMs/ spread across different states in India. The Bank is a pioneer among traditional banks in India in the area of using technology to leverage its operations and offering best in class products and services to its customers. The bank has a strong understanding of local market (Tamil Nadu) and focuses majorly in providing working capital loans to retail trader and MSME customers. The bank has a very granular loan book comprising of small ticket size loans and almost 99% of the loan book is secured. The bank prefers to maintain sole banking relationship with its customers and avoids consortium lending.

CUB’s asset quality got impacted due to Covid-19 with GNPA at 5.6% Q1FY22 as against 3% FY19 (pre Covid-19). GNPA declined to 4.7% by end of FY22 backed by higher recoveries/upgrades (including write offs) as against fresh slippages. Going forward, Management guided for upgrades/recoveries to be higher than fresh slippages which shall result in GNPA declining further and improving asset quality

Brokerage has target price of Rs 230 on the stock.

Jubilant FoodWorks: Jubilant Foodworks Ltd (JUBI) is India’s largest foodservice company incorporated in 1995. JUBI holds exclusive master franchise rights from Domino’s Pizza Inc. to operate the Domino’s Pizza brand in Sri Lanka, Bangladesh and Nepal. Company has extensive network of 1,625 Domino’s stores across 349 cities in India. In Sri Lanka and Bangladesh, company operates through its 100% owned subsidiary which currently has 36 and 10 restaurants respectively. The company also enjoys exclusive rights to develop and operate Dunkin’ restaurants in India and Popeyes restaurants across India, Bangladesh, Nepal & Bhutan. In 2019, Jubilant launched its first owned-restaurant brand Hong’s Kitchen in the Chinese cuisine segment which now has 14 restaurants across 4 cities. In 2020, company launched Ekdum biryani which has 6 restaurants across 3 cities.

The brokerage has target price of Rs 767 per share.

Kolta-Patil Developers: Kolte-Patil Developers Limited (KPDL) is a leading residential real estate player based in Pune with an experience of over 3 decades in homebuilding. Company has a well established presence in Pune and has expanded in Mumbai and Bangalore. The company has developed and constructed over 50 projects including residential complexes, integrated townships, commercial complexes and IT Parks covering a saleable area of 23 million square feet across Pune, Mumbai and Bengaluru. Residential real estate sector is placed in a structural upcycle and demand momentum is expected to continue in the next 3-5 years despite headwinds of rising property prices and rising interest rate. KPDL will be a beneficiary of this uptrend with its growth trajectory and declining debt levels. Company is tied up with institutions such as JP Morgan, KKR, Portman Holdings, ASK Capital, Motilal Oswal, ICICI Ventures and Planet smart city which has benefitted company’s growth trajectory, internal processes and corporate governance practices.

Tata Power: Tata Power (TPWR) is today one of the country’s largest integrated power companies which has a wide presence across India in areas of generation, transmission and distribution (T&D), electric vehicle (EV) infrastructure creation, and solar EPC projects. Tata Power, together with its subsidiaries & joint entities, has a generation capacity of 13,735 MW of which 35% comes from clean energy sources.

Tata Power is aiming to triple its revenue from FY22 levels, with aiming to achieve PAT growth of 4x. ROE profile is expected to improve to ~13% by FY27 from 8.5% in FY22. Debt levels are also expected to reduce with Debt/EBITDA aimed at 3.5x vs. 3.92x (FY22). Company is planning a strategic shift in its capital employed with 80% of the planned Rs1tn capex to be done in green business, T&D capex to be 17% and rest 3% will be other businesses. Accordingly in FY27, green business segment would have 69% of capital employed, followed by 14% in T&D, 9% in CGPL, C&S, rest 8% for generation and other segments.