Outlook Business e Magazine PDF

SPECIAL EDITION
April 10, 2020 #50
8 904150 800041 08
STOCKS FOR
2020
By Ambareesh Baliga, Amit Khurana, Arunagiri N, Gautam Trivedi, Harendra Kumar,
Mehul Bhatt, Safir Anand, Vijay Kedia, Vikas Khemani and Viraj Mehta
PERSPECTIVE BY DEVINA MEHRA, SHANKAR SHARMA AND CHAITANYA DALMIA

Making INDIA
safe. connected. Smart.
Indus adds a layer of

Smart Connectivity
To New Delhi & Gujarat
www.industowers.com
Keeping in mind the Citizen’s requirement in the areas of

Safety, Environment & Connectivity with next generation
mobile services along with a robust Fiber infrastructure, a
first of its kind in India - Public Private Partnership (PPP)
initiative has been rolled out by New Delhi Municipal
Council (NDMC) and Vadodara Municipal Corporation
Environment Sensors
(VMC) and Indus Towers.
Projects comprise of Smart Poles with LED lights,

CCTV cameras, Environment Sensors integrated with
the Command Control Center and will enable telecom
service providers to offer public WiFi system at each
Smart City Lighting IP-67 certified hydraulically operated
Kaizen box for equipment to provide pole. The Environment Sensors capture and display
uninterrupted services
features on real time basis.
The above projects are important initiatives under

the Govt. of India’s Smart City Mission and truly
demonstrates our credo of ‘Putting India First.
Measuring the Air Pollutants
EDITOR’S NOTE
Time to cherry pick

The COVID -19 pandemic is an event none from valued. For all we know, this may be an inflection
our generation has experienced. To that extent, point, but there is also a possibility that this will
investors and speculators are in the dark about continue to be the case because earnings visibility
the final outcome and hence the current market of other sectors will worsen with further demand
panic. But as Warren Buffett has always em- destruction, higher delinquencies and delay in the
phasised, the secret of investing success is to be private investment cycle.
fearful when others are greedy and greedy when While it may take some more time to figure out
others are fearful. who will be the front runners when sentiment
Sounds great but being ‘greedy’ when there is revives, the multiple you are paying for down-
gloom, is really difficult. And that’s not only be- graded earnings should be the criteria to pick
cause it requires nerve to bet against the crowd. stocks. In short, it’s not how much a stock has
Mostly, when catastrophe strikes, you are low fallen from the peak that should determine your
on liquidity, or there is great uncertainty over purchase decision, but how justified is the valua-
future cash flows. The future looks hazy — will tion from a future earnings perspective. Invest-
things get worse, how much more, and when will ment return, after all, is driven by earnings and
they get better and so on. earnings alone.
But then, as history has depicted, gloomy times Our annual feature, “My Best Pick”, comes this
provide the best opportunity to buy into the year at an interesting time. Keeping with tradi-
‘right businesses’ with an adequate margin of tion, we bring you 10 experts who present their
safety. Are we at that point where investing can best ideas. As usual, the disclaimer stands: these
be hugely rewarding? Yes and no. It will depend are not recommendations to buy, but ideas you
greatly on which stocks you pick. could consider based on your personal portfolio.
Even today, after a 30% correction, many stocks
still do not represent deep value and therefore un-
likely to yield handsome return even with a lon-
ger holding period. Over the past few years, the
market has been polarised in favour of consumer
stocks because of heightened stress in core sec-
tor and financials. Several consumer stocks have
taken a beating but they continue to be highly N Mahalakshmi
www.outlookbusiness.com | email: mahalakshmi@outlookindia.com
/ 10 April 2020 3
Contents
VOLUME 15, ISSUE 8, APRIL 10, 2020 PUBLISHED ON STANDS ON MARCH 27, 2020
Perspective
8 Renaissance Group’s Chaitanya Dalmia believes the 58 First Global’s Devina Mehra and Shankar Sharma
current market carnage has brought market valuation point out why getting asset allocation right is much
closer to ground reality more than specific stock selection
12 16
12 Ambareesh Baliga believes GMR

is set to soar high with its laser focus
on the airports business
16 Dolat Capital’s Amit Khurana

22 26 feels Page Industries will continue to
comfort investors
22 Rubber chemicals player Nocil’s

expertise gives the stock its bounce,
says Arunagiri N of TrustLine Holdings
26 TCPL, might look pricey but it’s

worth every rupee, thinks Nepean
Capital’s Gautam Trivedi
4 10 April 2020 /
32 38
42 46
32 Elara Capital’s Harendra Kumar

picks I-Sec for being an all-in-one
stock with diversified business and
strong fundamentals
38 In an uncertain time when the

chips are down, Mehul Bhatt of
OysterRock Capital is putting his faith
in an old favourite — Nesco
34
42 The understated and low-key
Transpek Industry is Safir Anand’s
choice for its flair for innovation in the
50 54 chemicals industry
46 Vijay Kedia of Kedia Securities

advises us to watch out for Repro,
which is set to disrupt the book
publishing industry
50 To deal with market turbulence,

Carnelian Capital Advisors’ Vikas
Khemani relies on efficient general
insurer ICICI Lombard
54 Bucking the trend with its clean

gold loan book, Manappuram Finance
is Equirus Securities’ Viraj Mehta’s
best bet for 2020
/ 10 April 2020 5
Contents
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PERSPECTIVE
CHAITANYA DALMIA
CIO, Renaissance Group
Corona ko blame karo na

MONETARY GASOLINE FUELLED EQUITY MARKETS OVER THE PAST DECADE, AND NOW COULD JUST
BE THE TIME TO GET RATIONAL ABOUT VALUATIONS
X X… No, it does denote either kisses

or a conjugal visit rejection, from the
smiley-infested world we live in today.
Nor does it refer to types of chromo-
somes. That’s an abbreviation I coined for ‘Xaggera-
tion Xtrapolated’. We are in unprecedented times. I
have witnessed markets hitting circuit breakers on the
miniscule part of what has been driving markets. The
biggest factor can be charitably described as ‘chimps
with a bazooka’. The bazooka is armed with all the Puts
that central banks across the world have underwritten.
And chimps are ETFs. Add algorithm traders, cheap le-
verage and you have a heady mix.
The fundamentals of the global economy have been
downside. I have also seen individual stocks hitting suc- on a weak footing for the past decade. The trouble
cessive upper circuit. Needless to say, I have seen bull with this instant-coffee world obsessed with data,
markets and bear markets. Bull markets have correc- even if it’s useless, is that majority of the markets
tions as they ought to, and bear markets have pullback miss the big picture or choose to do so. That’s myopia
rallies. But, the events of the past two months in the on the verge of blindness. Public money-laden private
financial markets made me term the goings-on as XX . funds and governments are equally in cahoots. Mar-
kets have threatened to slip into a coma on any bad
BACK STORY news and governments have been accommodating
Like mutual fund pioneer, John Templeton, I am aware with morphine shots to revive the patient. This has
of the perils of his axiom, ‘This time it’s different’. But been going on for a decade.
I am compelled to use his maxim, though in the op- And if one were to examine the phenomenon from
posite connotation. During the past few years, we have point to point, it’s clear that whatever anaemic eco-
seen significant changes in our country, each one of nomic expansion eked out was only due to far higher
them unprecedented — demonetisation, GST, NCLT, leverage across the system. That also implies lower
Article 370, NRC/CAA , AGR , IL&FS/DHFL/Yes Bank etc. productivity. Clearly, monetary policy was broken,
Globally, we have seen change in geopo- and further fiscal incentives only trans-
litical equations, covert and overt trade ferred the burden from corporates to the
wars, compression of tax arbitrages across
Events of the taxpayer. The consumer inflation num-
jurisdictions, near-zero interest rates for past two months bers seem fudged anyway (with clumsy
a decade across OECD countries, oil prices
sub-$30, emergence of AI, social media
in the markets gimmickry of core inflation and so on, or
the inflation basket itself is outdated —
destroying traditional media, shift in con- made me term ask anyone if their cost of living has gone
sumer behaviour with marketplaces gain-
ing prominence, and so on.
the goings-on as up by less than 5% in the past decade).
The combined effects of all the above is XX — ‘Xaggera- SOME (RELEVANT) DATA
something either Jim Simons’ algorithm The earnings growth of Nifty companies
or some big-data firm can decode. But
tion Xtrapo- has been meagre, to say the least. They
even that combined impact, might be a lated’ have grown less than 7% p.a. in the past
8 10 April 2020 /
Money for nothing
The story of growth revival was more alluring and prevailed over the reality of poor core earnings growth
Nifty CAGR: -3% Nifty CAGR: 37% Nifty CAGR: 4% Nifty CAGR: 7% 25
12,000
23.7
Nifty (LHS) (RHS) Nifty P/E (x)
9,000 20
21.0
Average: 15.7x
6,000 15.1 15
3,000 10
0 5
Mar Mar Mar Mar Mar Mar Mar Mar
98 03 04 08 09 13 14 20
Source: Motilal Oswal Securities
five years (See: Money for nothing). However, Nifty cover lost ground. The second phase (2003 -2006) was
doubled from 6,200 to 12,400. Implicitly, the Buffett- based on low interest rates, cheap valuations and 60%
quoting brigade led the multiple expansion in ‘quality’ growth in EPS, albeit on a depressed base, owing to
stocks. It’s not as if the base multiple was ridiculously positive operating and financial leverage. Liquidity
cheap; we were at 18x in 2014 and over the past two started chasing the stocks, and the foundation was be-
years, the market became very narrow and skewed. ing laid for the next bubble.
It eased the promotion of a host of analysts/relation- 2006 -2008 was the phase in the run up to the Lehm-
ship managers to money managers. You got paid 2/20 an Brothers-induced global credit crisis, index earn-
for investing in those specific dozen stocks which ev- ings were up 85%! This is the time when EPS and P/E
ery man and his dog knew about, and were invested started chasing each other and catapulted the Sensex
in. Just as an empty mind quickly becomes a devil’s to 21,000. In hindsight, Lehman became the poster
workshop, the aforementioned excess liquidity had boy for that super-normal growth and super-rich val-
to find its way somewhere. Acknowledging the ‘risks uations to mean revert. The benchmark lost 60% in
in the markets’ and bad economic data, the liquid- little more than a year (quicker and deeper than the
ity stuck to those dozen stocks, leading to a bubble in last time in 2000). The fourth phase between Decem-
their valuations. ber 2008 and June 2010 saw some recovery in stock
It’s obviously not the fi rst time this has happened, prices owing only to undervaluation, despite weak
nor will it be the last. During the tech boom towards earnings growth. By November 2010, the Sensex had
the end of the last century, Wipro traded at 300x regained all its lost ground (little short of two years –
and Infosys at 200x, never mind the scorching 100% again quicker than the last time).
growth in earnings. I am not even talking about Since then and until now, I would keep it under the
shams such as DSQ Software and Pentasoft. Technol- fi fth phase (2011 till 2019). The reason is simple. Re-
ogy, media and telecom (TMT) stocks were destined to call all that tectonic change mentioned in the begin-
go all the way to heaven, and rest of the markets were ning and juxtapose it with Index earnings. It merely
touted as ‘old economy’ and considered ‘untouch- doubled in the past 11 years, since 2008. Even a bank
ables’. Similarly in the run-up to the 2008 global cred- FD doubled in lesser time. However, the Sensex al-
it squeeze, infrastructure, real estate and steel stocks most tripled to 42,000 since June 2008.
wore that halo. This time the darlings were mostly
consumer stocks and non-corporate fi nancials. WHY WE ARE WHERE WE ARE
Now, why would anyone pay an equity risk premium
LESSONS FROM THE PAST for FD commensurate return? Is it not quirky? What is
The technology bubble burst in 2000 due to the funda- on display here is the undying belief of institutional in-
mental cocktail of high interest rates and high valu- vestors in central banks, post the Lehman bailout (See:
ations, which eventually seemed unjustified with flat Never-ending party). Hence, zero interest rates, which
EPS growth. The benchmark fell 40 % in less than two in turn help governments overburdened with debt, is
years. It would need more than double that time to welcomed. These bottom-scraper rates are not seen as
/ 10 April 2020 9
PERSPECTIVE
a deeper underlying problem but become We have seen reasonable prices in many
de rigueur. The flattish yield curve sig-
In equity mar- stocks and sectors over the past decade,
nifying a prolonged recession is ignored. kets, the expec- but have not really seen ridiculously cheap
Poor core earnings growth is dismissed as
one-off in light of fiscal stimulus or hope
tation of better prices, which is what a deep bear market
throws up.
of growth revival in the near future. And growth keeps the Even though I thought markets
with all these assumptions, FIIs chasing should correct significantly, I attached a
relative return have net pumped in al-
market going low probability to it, given all the power
most #5 trillion in equities since 2011 until until real un- central banks yield these days, and the
January 2020, and mutual funds with
their SIPs got another #3.75 trillion. Pre-
derlying growth fact that zero/very low discount rates ac-
tually change everything in the world of
sumably, LIC’s inflows would be a positive catches up finance. This is what forced me to throw
number as well. in the towel and not wait for those ridicu-
For sure, equity markets are a forward-looking asset lous prices and buy a chunk (though thank God no-
class, and so the expectation of better growth keeps where near fully) at reasonable prices. So even when my
the market going until real underlying growth catch- framework told me to steer clear and wait for ‘as long as
es up. But if the digression gets prolonged, you know it takes’ as Buffett says, I was not fully convinced. Nor
you are treading on thin ice, which thins quicker un- could I bet on the ‘expected fall’ since the only way to
der a rising dawn. do that was to keep buying Puts and paying premiums,
World Wars have been triggered by seemingly in- until the eventual collapse.
consequential events. But, warlike conditions had
always been brewing under the surface. Its only in VIRUS, SERIOUSLY?
hindsight can we say that a particular event triggered The virus and the news (who knows how much fake),
the war. Financial markets are similar where reasons on which there has been an overdose from all imagin-
get attributed post collapse. Various small events able directions and sources, seems to be the event that
keep occurring until that one event which turns into has triggered the long overdue correction in the mar-
a snowball and takes the elephant down. And nobody kets. The five-year Index return stands at - 6%, as on 19
can predict in what form and when such an event will March, 2020. Even the broader Nifty 500 has returned
take shape. - 6% over that period. It has taken only two months to
I have seen ridiculous prices way back in 2000, wipe out the gains of almost four years (the Sensex was
and I have been forced to wonder over the past two last at this level in May 2016). We have fallen 35% from
decades if such prices shall be seen again. Bear the top, and this is on account of only #120 billion of
markets are a part of investing, and to imagine a net outflow (FII and MF combined till 19th of March)
perennially upward sloping index made no sense con- against the 70x combined net inflows over the past de-
sidering all that I have read and seen over the years. cade. Surely the economic impact of the virus shall be
Never-ending party
The massive injection of liquidity by global central banks kept equities on a tear
3,400 16
3,200 S&P 500 & ASSETS OF MAJOR CENTRAL BANKS 15
3,000 14
2,800 13
2,600
12
2,400
2,200 11
2,000 10
1,800 9
1,600 S&P 500 Index 8
1,400 7
1,200 Total Assets of Fed, ECB, BOJ (in $ trillion)
6
1,000
Quantitative 5
800
600 QE1 QE2 QE3 tightening 4
3
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: Yardeni Research
10 10 April 2020 /
Value illusion
Forward Nifty P/E is now lower than its long-term average but ‘quality’ stocks still trade at a premium
25 12-month forward Nifty P/E (x) 23.3
22
19
16 Long-term average: 17.2x

15.1
13
10
Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar
05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Source: Motilal Oswal Securities
devastating, but the “Nanga nahayega kya aur nichode- pullback and that too without outrageous net liquid-
ga kya” economic environment is already abysmal. As ity outflows, only indicates the omnipresence of ETF
it is, the market was out of sync with the economy for money compounded by algorithmic traders. The IPO
many years. of the country’s premier exchange is stuck in a case
As the market overshoots in either direction, here allowing early and preferential access to some such
are some more data-driven reasons to expect further players. So, serious money can be made by these ma-
downside: First, a lot more money is queued up head- chines. But technology can be destructively brutal,
ing for the door as can be observed from the above and these hot money machines have XX impact on
mentioned liquidity inflows and outflows. Two, the the markets, which only leads to more volatility than
earlier bear markets saw more than 50% drawdowns. desired, and can cause serious market dislocations.
We are far away from there even if we don’t go all the What adds fuel to the fire is the availability of stock
way this time. Three, we shall be at a median-ish P/E futures to raise the traded volume. Imagine, if the
band of 15 -16x closer to 25,000 for the Sensex. This market falls 10% daily, it can shave off 65% value in
number could be even lower given that FY21 may see two weeks. That sounds more like the Argentinean or
sharp earning downgrades. Severe bear markets can Zimbabwean inflation nightmares of the past. Ideally,
go to as low as 12x (See: Value illusion). Four, we may regulators need to figure out a way to keep the role of
be looking at supply shocks (and/or past monetary the machines to a manageable level. They also need
stimulus rearing its ugly head) leading to high infla- to ban or at least limit the use of leveraged products,
tion. Finally, and most importantly, the ‘pied piper’ which don’t serve much purpose except to increase
stocks have still not corrected enough to what one trading volume, so that the exchange gets a premium
may call intrinsically reasonable prices. IPO valuation.
However, it is not all gloom. All the above only im- As for investors, they would do well to remain mind-
plies that the stocks that went to outrageous valuations ful of the risks and evaluate them appropriately before
are unlikely to do much for the next decade. But besides fishing for return. Despite having heard ‘markets can
those stocks (which also comprise the Index remain irrational longer than you can re-
to a large extent), there is a whole world
of stocks which have almost halved, have
There is a whole main solvent’, it’s quite hard to steer clear
for half a decade if the valuations remain
a stable business, don’t have any balance world of stocks elevated. Jhoot bhi agar sau baar bola
sheet issue and are not run by crooks. In-
trinsically, they are at ridiculous valuations
that have almost jaaye to sach lagne lagta hai. So come what
may, valuation comfort is perhaps the
no matter what assumptions one may make. halved, have a only basis to invest on and sleep well. On
It won’t even need an eagle eye to find those
gems; they are scattered on the road.
stable business second thoughts, sleeping well may be a
thing of the past; the machine-age mixed
and don’t have with social media infodemic and cata-
MORAL OF THE STORY any balance lysed with virtually free and unlimited
Given the ferocity of the fall, and the an- leverage is likely to make XX bouts occur
gle at which it has fallen with hardly any sheet issues more often than ever before. So, brace! b
/ 10 April 2020 11
MY BEST PICK
AMBAREESH BALIGA
INDEPENDENT MARKET EXPERT
GMR Infrastructure is
cleaning up its act and
has a golden goose in
GMR Airports
FAISAL MAGRAY
*Ambareesh Baliga has an interest in the stock and has also recommended it to his clients
12 10 April 2020 /
GMR INFRASTRUCTURE
/ 10 April 2020 13
MY BEST PICK
STOCK PRICE 17
M-CAP 103 billion
FY20* RETURN 0.8
TTM P/E NA
ROE NA
ROCE NA
Net Sales 62.06 billion
LOSS 9.19 billion
Market data as on March 20, 2020. Financials for 9MFY20; Return ratios as of FY19 Data: Ace Equity
I n movies, an aircraft landing

bumpily on a poorly built runway
that ends in single-cabin office
suggests a hick town. The pro-
tagonist has arrived in the back of the be-
yond. Over the years, airports have come
to convey the poverty or prosperity of a
The airport business offers long-term vis-
ibility with a stable regulatory environment
(after extensive regulatory experimenta-
tion). The revenue model is well diversified
with non-aero revenue ranging from retail,
food and beverages, cargo, rentals, adver-
tisements and ground handling in addition
city or a state. They are no longer mere to the regular aero revenue. GMR Airports
transport hubs, with empty hours of wait- has consistently performed well with FY20E
ing. They are vibrant spaces, where travel- Ebitda margin higher than 40% (See: Fly-
ers are invited to engage with local history, ing high). Globally, airport stocks are val-
art and food. One such is Indira Gandhi ued at around 18x EV/Ebitda. Despite the
International Airport in New Delhi, with advantage of India’s higher growth rate,
its famous hand sculptures. using the same yardstick would value GMR
The airport has earned accolades as one Airports at EV of #500 billion.
of the world’s best, year after year, with However, GMR Airports is not listed, thus
its Terminal 3 built in a record time of 37 one needs to play this theme through the
months, just before the biggest sporting listed holding company GMR Infrastruc-
event that Delhi hosted — Commonwealth ture. The listed entity has had a tumultu-
Games in 2010. It is operated by Delhi In- ous journey during the past decade, after
ternational Airports, which is a subsidiary initially being a much sought after infra-
of GMR Airports, the fourth largest private structure stock when it was listed in 2006.
airport developer in the world. In addition to investment in airports, like
It is in the thick of things, as the Indian many others who were riding the infra-
government has recently unveiled plans to According structure wave, GMR stretched its balance
develop 100 greenfield airports by 2024. Air to a FICCI sheet by committing big to energy and
passenger traffic has more than doubled highway projects. The downturn in the
in the past decade and has seen a healthy
report, total economy post the Lehman Brothers crisis,
double-digit growth over five years. As per air passenger the regulatory overkill and unkept prom-
a FICCI report, total air passenger traf-
fic in India should grow 6x by 2040 to 1.1
traffic is ises such as PPAs as well as gas supply for
power projects turned out to be its nemesis.
billion at a CAGR of around 9%. The total expected to The silver lining, however, were the airport
number of operational airports may rise to grow 6x to projects that continued to be cash-positive.
200. In the same period, global passenger The past 10 years were spent fire-fighting,
traffic is expected to double by 2040 and
1.1 billion after which the management seems to have
reach 19.7 billion. by 2040 clarity on the way forward. They have de-
14 10 April 2020 /
GMR INFRASTRUCTURE
Flying high
The core airport business has long-term revenue visibility... but also the highest debt
Gross Revenue PAT EBITDA Total debt in %
(# billion)
39.2 45.5 Others Energy
2 10
4.9 5.3
14.7 18.6 Highways
Airport 10
43
35
Corporate
(Inc. debt for
PE Exit)
9MFY19 9MFY20
Note: Certain loans part of Energy and Others segment till Mar’19
Source: Company are reclassified as Corporate Debt
cided to focus on the fledging airport busi- third party utilising 2,000 acres. Another
ness and divest the rest of the businesses at 2,500 acres may be developed as a mega
an opportune time. However, to immedi- petrochemical park by HPCL , GAIL and
ately reduce the debt burden and clean the Haldia Petrochemicals. They also have
balance sheet, they have divested 49% of 2,500 acres of land at Krishnagiri in Tamil
the airports business to Aeroports de Paris Nadu. A special investment region is be-
(Groupe ADP) at a post-money valuation ing set up on 600 acres in collaboration
of #220 billion, which is about #40 billion with TIDCO. The land should be in demand
higher than their earlier agreement with when global majors look for alternate re-
the Tatas. Earn-out achievements may add gions for their manufacturing facilities
another #45 billion in due course. post the Covid-19 scare and the US -China
GMR Infra would utilise part of the #100 trade spat. Even assuming a paltry #5 mil-
billion it receives from Groupe ADP, to lion per acre, the land value works out to
reduce debt from #95 billion currently to #65 billion. Additionally, there are claims
about #25 billion at the listed entity level. of #39 billion pertaining to the road as-
It has also been able to divest the 1,050 sets against government authorities which,
MW Kamalanga Thermal Power Plant to when realised, will be added to the bot-
JSW Energy with an equity payout of #12 tomline. There is also a 30% interest in PT
billion and made a similar divestment Gems Coal Mines, which was acquired for
of Chhattisgarh Power project in 2019 to around $500 million in 2011.
Adani Power at zero equity value. The road Over the next two years, we should see
project vertical is self-sustaining. The oth- the clean-up being completed. The airports
er thermal projects, too, are self-sustaining business will drive the group valuation
with some of them providing a positive with a possibility of GMR Airports being
cash flow. The Rajahmundry Power Plant, listed independently and GMR Infrastruc-
which was an albatross around its neck, ture shareholders directly holding the 51%
where it has 45% equity, has been able to currently (could go up to 59% with earn-
go through a resolution plan and the debt
GMR Infra outs) held by the holding company. This
has been brought down to sustainable lev- has decided could unlock huge value. Though Covid-19
els. GMR is in a position to clean the bal-
ance sheet across verticals.
to focus on is a risk factor for the airports business due
to travel curtailment and lower footfalls, I
A closer look reveals some hidden wealth the fledgling would prefer to be an optimist looking at
in the backyard. GMR has 10,400 acres of airport life beyond the next three to four months.
port-based land at Kakinada in Andhra The stock has corrected sharply by 33%
Pradesh with eight kilometres of coastline,
business and due to the Covid-19 scare, making it an op-
which will be developed into a port by a divest the rest portunity to buy for long-term growth. b
/ 10 April 2020 15
MY BEST PICK
AMIT KHURANA
HEAD-INSTITUTIONAL EQUITIES, DOLAT CAPITAL
Page Industries will

continue to comfort its inves-
tors through brand loyalty
and strong distribution
FAISAL MAGRAY
*Amit Khurana does not own Page Industries, but Dolat Capital has recommended the stock to its clients
16 10 April 2020 /
PAGE INDUSTRIES
/ 10 April 2020 17
MY BEST PICK
STOCK PRICE 18,060

M-CAP 201 BillioN
FY20* RETURN -23
TTM P/E 52x
ROE 48
ROCE 70
Net Sales 24 BillioN
PAT 3.12 BillioN
*Market data as on March 20, 2020. Financials for 9MFY20; Return ratios as of FY19 Data: Ace Equity
I t fits like a song. The internation-

al brand that is known for com-
fort wear came to India in the
mid ’90s and has since remained
the first choice of innerwear for the aspira-
tional youth. Sure, many came and went.
The likes of VIP and Hanes have been a
tion (A&P) spends at 4 -5% and undertook
calibrated price hikes. Even though minor
price changes lead to major volume devia-
tion in mass-category products, Jockey has
proved an exception to this rule. The com-
pany has taken annual price hikes of 4 -7%
over a long period without having any im-
few competitors, but Jockey’s brand loyalty pact on its volume. This goes to show that
has only increased over time. With strong the brand has ‘stickiness’. One would hard-
faith in its brand value, we believe Page ly ever find discounts on Jockey products
Industries makes for a good bet, since it online as well. According to us, the brand
has had the exclusive rights to the brand strength is the ‘glue’. This has helped the
in India since its entry in the market. In company maintain its operating margin at
fact, the company has been reporting al- 19 -22% over FY08 -FY19, which resulted in a
most 35% CAGR growth over the past two similar growth in profitability.
decades. While its net sales grew at 19.4% We also expect the ongoing store addi-
CAGR from FY14 -19, PAT grew at 20.7% tions and innovations to help the company
CAGR (See: Breathing freely). sustain its growth rate over the next few
years. It already boasts of more than 720
THE PROMISE OF COMFORT exclusive business outlets (EBOs) in over
One cannot really miss the Jockey logo 250 cities, which contribute to nearly 10%
on a storefront in all its black and white From 720 of the company’s revenue. Out of these,
glory. Distributed in more than 63,000 out- EBOs, Page 530 are located on high streets and 170 in
lets across 2,800 cities in the country, the malls. They are confident of increasing
brand enjoys a monopoly in the premium Industries is that number to 1,000 by FY22, which will
innerwear segment. To stay with the times, confident of further improve Jockey’s brand visibility.
this century-old brand also sells via most With the recent foray into kids wear and
e-commerce platforms. Despite rising com-
increasing new launches in athleisure, cross selling in
petition from brands such as Dollar, Lux, the number EBOs is expected to gain momentum.
Van Heusen and Rupa, the management is
confident of sustaining volume growth.
to 1,000 by LADIES, FIRST
Strong recognition and high distribution FY22, which As with most trends these days, Page
are only a few factors that give Page In- will further Industries’ Jockey is shifting its focus
dustries a pricing advantage over peers. To towards women. It has introduced new
boost market share over the years, the com-
improve its women’s wear products including the Miss
pany maintained advertising and promo- brand visibility Jockey Collection, which is aimed at teen-
18 10 April 2020 /
PAGE INDUSTRIES
Breathing freely
Page Industries has remained a consistent performer over the years
Net sales Net profit
CAGR 2014-19 CAGR 2014-19 28.5
19.4% 20.7% 25.5
21.3
18
15.1
11.7
8.6
3.5 3.9
2 2.3 2.7
1.1 1.5
FY13 FY14 FY15 FY16 FY17 FY18 FY19

Figures in # billion Source: Dolat Capital
age girls. During the past three years, that Jockey has always bounced back from
contribution of Page’s dominant men’s seg- similar phases in history. In the domestic
ment has been gradually decreasing from market, the brand witnessed many turbu-
51% value in FY15 to 46% value in FY19. lent phases where it had to compete with
Volume has decreased from 61% to 54% local and foreign brands.
over the same period. The other challenge Page Industries has
While men’s segment grew at value and to face is an economic slowdown and slug-
volume CAGR of 19% and 9%, respectively, gish consumer sentiment. For 9MFY20, the
that of the women’s wear grew at 27% and company’s revenue grew 7% YoY to #24
17%. Seeing that athleisure is catching on billion, with volume growth of just 1% YoY.
in a big way with women, we expect that But the slowdown has hit companies across
segment to continue to drive earnings. the board. Furthermore, after a year of av-
As of now, the brand dominates with 20% erage performance, we expect growth on a
market share in premium men’s innerwear favourable base. Once the economy recov-
and 5% in women’s. ers, Page Industries’ volume will pick up
In a bid to diversify its portfolio and and reach past levels.
transform its men-centric brand image,
Jockey also extended its foray in the kids’ ARSENAL-READY
category. Page Industries has emphasised That has been reaffirmed through our in-
that kidswear is another focus area, and teraction with multiple distributors. Page
losing no time, it has set up an indepen- is ready with multiple new products, which
dent team and realigned sales and mar- After a year can be launched any time. On ground, the
keting strategy for ‘Jockey Juniors’. With of average sales team is focused on increasing the
a view to strengthen its ground in the out- distribution and retail reach of kids wear,
erwear category, Jockey launched a new performance, which can be a big lever in the coming de-
MOVE range for men and women. we expect cade. At an estimated FY21 P/E of 55.9x, its
This need to diversify and cover all its immediate valuation appears to be on the
bases has come from growing competition
growth on a richer side, but it has long term potential to
in the premium space. From mass play- favourable generate strong free cash flow along with a
ers such as Rupa, Lux and Dollar to sports
and leisurewear names such as Puma,
base. Once well-oiled inventory management and low
requirement for incremental capex. More-
Benetton, Levi’s and others, many brands the economy over, improvement in domestic demand will
are vying for a share of the premium in- recovers, trigger significant growth in all the catego-
nerwear category. Van Heusen’s recent ries. With fundamentals in place and pros-
success in this space is surely on Page’s
volume will pect of healthy volume growth, the compa-
radar. But anecdotal evidence suggests pick up ny’s future prospects look snug. b
/ 10 April 2020 19
RA CHANDROO MY BEST PICK
20 10 April 2020 /
NOCIL
AR UNAG I RI N
FOUNDER, TRUSTLINE HOLDINGS
Coronavirus has wreaked havoc

on global markets, but it could
prove to be a boon for specialty
rubber chemicals player Nocil
*Arunagiri N and his clients own the stock
/ 10 April 2020 21
MY BEST PICK
STOCK PRICE 64
M-CAP 10 Billion
FY20* RETURN -55
TTM P/E 7.3x
ROE 16
ROCE 25
PAT 1.08 billion
I t isn’t that hard to choose, and

it’s a no-brainer. Yes, it’s a prim
adaptation of the Justin Beiber
song You stick out of the crowd,
baby. But he’s singing about his love inter-
est and this is about Nocil, a no-brainer
stock, or a deep-value stock.
When one has the following factors sup-
porting a product in any business, it in-
variably has a towering entry barrier or in
other words, a durable competitive edge
(leaving out the most obvious moats such
as consumer brands):
Highly critical ingredient that con-
Is this the best time to be talking about tributes to the quality of end product, but
value stocks? Value as a strategy has been at the same time, constitutes a very low
under-performing for an extended period percent of the end product in terms of unit
of time since early 2018 because of flight value.
to safety and polarised market dynam- Long lead time for customer approval
ics. As a result, a value investor is a beast and stringent approval process.
that is vanishing. Even the last man Exceptional need for technical know-
standing is being tested for his tenacity. how and long gestation period for setting
One needs to be brave to back a value up capacity.
stock. But, do not be mistaken, it is not a Favourable replacement cycle in the
‘value for value’s sake’ kind of stock, rath- end user markets.
er a ‘growth at a discount’ stock. Noth- Few limited specialised players (niche
ing beats value that comes from trying to oligopolistic market).
buy ‘quality-cum-growth’ at a discount, In the industry in which Nocil operates,
be it large-cap or small-cap. Of course, the economics of business is extremely at-
in small-caps, such spicy opportunities tractive with dynamics that reflect the
come more often, because the space is above industry traits. Nocil has established
under-researched and under-covered —
Nocil has itself as a niche specialty player in the rub-
Nocil is one such opportunity. established ber chemicals business with a high entry
Openings in both — successful screen-
plays and stock research — are crucial.
itself as barrier. Rubber chemicals constitute only
3.5 - 4% as raw material to manufacture a
Good opening moves in stock selection a niche tyre. However, that component is critical
usually start with the most critical ques- speciality to the production of rubber to enhance
tion, that is, whether there is a competi- its key characteristics such as elasticity,
tive edge in the business and, more im- player in strength, durability, hardness, flexibil-
portantly, where does it come from? The the rubber ity and resistance to wear. This blend of
answer to this question will determine low unit value with high importance for
whether one takes a deep dive into more
chemicals the end product quality, acts as a critical
due-diligence. business source of competitive edge for the rubber
22 10 April 2020 /
NOCIL
chemicals industry. Besides this industry- Many in one

level economics, Nocil also has another Nocil is a one-stop shop for tyre companies across the world
significant source of moat. That is, its due to its diversified portfolio
business enjoys a high level of operational
Revenue breakup (FY19)
and process efficiency that comes from a
long period of specialisation. Now that the Pre/Post
opening move has been made, it is time for 10% Vulcanization
the main plot. inhibitor
ATTRACTIVE DYNAMICS
Globally, there are just a handful of rub-
ber chemical players. First, there is a need 45%
for advanced technical manufacturing Accelerator
knowhow, high R&D investments and long 45%
customer approval process. Besides these, Anti oxidant
there is another critical factor that makes
the industry dynamics attractive. This Source: TrustLine Holdings
comes from the nature of the replacement
cycle in the end-product (tyres) where rub- Nocil enjoys a strong net cash position of
ber chemicals are used. The tyre industry’s #1.47 billion (#8.9/share) as on FY19 and its
replacement intensity makes the rubber expansion capex of #4.25 billion is com-
chemical industry less cyclical in terms of pletely funded through internal accruals.
demand volume. Its revenue, operating profit and net profit
Nocil is the largest manufacturer of grew at a CAGR of 10%, 27% and 34% over
rubber chemicals in India with a domes- FY15 -19, respectively. Its operating profit
tic market share of 40% and a diversified and profit margins have grown from 15.8%
22 -product portfolio in the entire range and 7.9% to 28.1% and 15.2%, respectively
of rubber chemicals (See: Many in one). It (See: Growth formula). On the back of its
is also the fourth largest in the world, in robust earnings growth and cash flows,
terms of capacity, with a market share of Nocil was able to clear its entire debt in
5%. Tyre manufacturers prefer to work FY18 (from #1.31 billion in FY14) and is cur-
with such companies with a diverse range, rently debt free (See: Cash is king).
which can assure steady supply. In the current fiscal (9MFY20), revenue
Nocil’s expertise in the rubber chemical fell by 21% to #6.34 billion due to weak re-
business spans over four decades, during alisation, steep slowdown in domestic auto
which it has built business relationships volumes and no benefit of anti-dumping
with clients in over 40 countries. Just like duty in the second and third quarters. Its
its product pipeline, it has a diversified operating margin also contracted by over
clientele that includes the likes of MRF, 670 basis points to 22.4% from 29.1% in
Apollo Tyres, Pirelli, CEAT, Michelin and 9MFY19. As a result, net profit fell by 27%
JK Tyres to name a few. The company’s to #1.09 billion. However, the management
65 -70% offtake is consumed by tyre manu- has guided a recovery in volume from
facturers and the rest by non-tyre sectors Q4FY20 following the commercialisation of
such as latex, cycle tyres, surgical gloves Nocil is the Dahej plant and renewed focus on volume
and footwear among others.
largest Indian growth, which will lead to positive oper-
ating leverage. FY21 could be a welcome
GOOD BOOKS manufacturer change given a significant increase in en-
High quality business, check. Leadership of rubber quiries from domestic and global OEMs on
in the market, check. With robust funda- supply disruptions in China.
mentals in place, Nocil’s financial ratios chemicals and
paint a pretty picture. From 60% on oper- has a domestic BANKING ON STRUCTURAL GROWTH
ating profit to operating cash flow to over The prevailing coronavirus crisis could
48% on net profit to free cash flow, the
market share turn out to be the biggest opportunity for
company boasts a healthy balance sheet. of 40% Nocil. Reducing China dependency is no
/ 10 April 2020 23
MY BEST PICK NOCIL
Growth formula Cash is king

Quality business and market leadership have helped Prudent cash management has allowed the company to
Nocil maintain healthy margins shed all its debt
Ebitda margin (%) Profit margin (%) Debt-to-equity (%)
0.45
27.5 28.1 0.40
0.35
22.4
21.5 0.30
19.5
17.8 17.6 17.2 0.25
15.8
13.1 0.20
11
0.15
8.1
0.10
0.05
0
FY15 FY16 FY17 FY18 FY19 9MFY20 FY14 FY15 FY16 FY17 FY18 FY19 FY20
Source: TrustLine Holdings
longer a cocktail discussion, it is a clear IT'S A STEAL

danger facing the boards of all global Besides an experienced and competent
companies. Buyers everywhere are speed- management, a long and complex pe-
ing up their ‘China hedging’ process, riod of specialisation, attractive industry
which kicked off post the US -China trade dynamics with high entry barriers and
war. India is likely to be one of the po- robust financials make this stock a high
tential beneficiaries, in industries such as quality one from the smallcap space.
specialty chemicals where the country is With a market obsessed with quality and
globally competitive. growth, one would have expected the
Right now, Chinese players dominate the stock to trade at a premium. But due to
global market with over 68% share, but the overall global uncertainty, that has
that is likely to change and Nocil is well not happened yet.
placed to capitalise on this transition. In Its short-term earnings visibility is in
fact, it has already done that once. In Jan- question coupled with removal of an-
uary 2019, the US imposed additional 15% ti-dumping duty. Hence, the stock has
duty on rubber chemicals from China. We de-rated to a level where it offers a sig-
believe this has acted as a trigger for Nocil nificant discount to what it is worth.
to capture the incremental wallet share In our estimate, the per-share intrinsic
from Chinese rubber chemical players. value for the stock, even with a conser-
In addition, the export market remains vative growth and margin assumption,
highly untapped for Nocil. With increased works out to be around #220 -#230. At
capacity, it can leverage and increase its #64 per share (as on March 20), it trades
global market share. With asset at a sharp discount and offers substan-
Nocil’s current capacity utilisation stands tial margin-of-safety of over 70%. Over
at 45%, which means it has huge head- turn of 2x, a four-year period, it can provide signifi-
room for growth. With asset turn of 2x, and capex of cant upside to long-term investors as we
and given the capex of #4.25 billion, the
company has the potential to double rev-
#4.25 billion, expect the intrinsic value to grow at a
reasonably high rate.
enue over the next three to four years. The the company Of course, no investment opportunity
other triggers that could boost growth are
increasing share of radialisation, espe-
has the comes without any downside risks. In this
one, a protracted delay in the recovery
cially in the MHCV tyres (requires 1.3x-1.4x potential to of demand in the domestic auto industry
rubber chemicals compared with regular double revenue could pose a serious risk to earnings in
tyres), expected recovery in Indian auto- the short-term. Since much of this risk is
mobile sector in FY21 and increasing pollu-
over three to already in the price, further downside, if
tion curbs in China. four years any, is likely to be limited. b
24 10 April 2020 /
NATIONAL COOPERATIVE DEVELOPMENT CORPORATION (NCDC)
IN SERVICE OF AGRICULTURE & RURAL DEVELOPMENT
National Cooperative Development Corporation is promoting various development programmes through
Cooperatives for agricultural activities like production, processing, marketing & inputs, storage, export & import of
agricultural produce, foodstuff and allied activities. NCDC plays a key role in doubling farmers’ income through many
modes including its Mission called SAHAKAR-22 targeting 222 districts in the country which include 117 Aspirational
Districts identified by NITI Aayog. Activities broadly include:-
· Ginning, Pressing & Spinning, Weaving & Garmenting

· Sugar and other agro-processing units
· Credit for procurement and marketing of agriculture product
· Storage and cold chain activities
· Support to Cooperatives for undertaking Consumer Business
· All types of Industrial Cooperatives, Cottage & Village Industries, Handicrafts/rural crafts etc.
· Credit & Service Cooperatives Labour Cooperatives & Service Cooperatives: Water Conservation works
& Irrigation in Rural Areas, Animal Care/Health,Agricultureal Insurance & Agriculture Credit, Rural Sanitation,
Tourism, Hospitality & Transport/ Generation & Distribution of Power by New, Non-Conventional &
Renewable Sources of Energy/ Rural Housing/ Hospital / Health Care & Education through Cooperatives etc.
· Integrated Cooperative Development Projects in selected districts
· Weaker Sections Fisheries, Dairy & Livestock, Poultry, Schedule Caste/ Tribe, Handloom, Coir, Jute,
Sericulture, Hill area, & Labour & Women Cooperative
· Assistance for Computerization
Net NPA of NCDC are at zero and loan recovery position is approximately 99%. Cumulatively assistance
of almost n1.25 Lac Crore has so far been provided for various cooperative development programmes
by NCDC.
NATIONAL COOPERATIVE
DEVELOPMENT CORPORATION
(An ISO 9001:2015 Certified Organisation)
4, Siri Institutional Area, Hauz Khas, New Delhi-110016
Phone: 26567475, 26567026, 26567202, 26567140
Fax: 0091-011-26962370, 26516032
Website: www.ncdc.in
FAISAL MAGRAY MY BEST PICK
26 10 April 2020 /
TATA CONSUMER PRODUCTS
G A U TA M T R I V E D I
CO-FOUNDER, NEPEAN CAPITAL
TCPL, with its vast

distribution network and
promising new manage-
ment, looks expensive but
holds great promise
*Gautam Trivedi holds the stock in his fund’s portfolio
/ 10 April 2020 27
MY BEST PICK
STOCK PRICE 264

M-CAP 243 billion
FY20* RETURN 33
TTM P/E 68x
ROE 6.6
ROCE 9.5
Net Sales 56.9 BillioN
PAT 4.73 billion
A lmost exactly a year ago,

the chairman of Tata
Sons, N Chandrasek-
aran, decided to restruc-
ture the $113 billion conglomerate (FY19
revenue). The plan was to have the group
focus on 10 verticals, merge businesses
ond by value in branded tea in India) and
Tetley (among the top three brands in the
UK and Canada). Post-merger, branded tea
accounts for 57% of revenue, down from
71% pre-merger.
Coffee accounts for 13% of revenue, down
from 17%. While Eight O’ Clock is the
that have synergies with each other and be fourth largest player in coffee bags in the
among the top three in each vertical. US, Tata Coffee Grand is an instant coffee
As a result, Tata Global Beverages brand in India launched in late 2015. An as-
(TGBL) and Tata Chemicals (TCL) decided tounding 330 million servings of its bever-
to unite their consumer products busi- age brands are consumed everyday globally.
nesses to form Tata Consumer Products Starbucks India is a 50:50 joint venture
(TCPL), a premier diversified consumer with Starbucks that has 174 stores across
products company (See: The sum of parts). 11 cities (as of December 2019). This busi-
TCL shareholders would receive 1.14 ness, which is already cash-positive, has a
shares of TGBL for every 1 share of TCL . long runway for growing this iconic global
TCL shareholders now own 31.4% of the brand in India. The company is taking a
combined entity. The scheme of amalga- measured approach to expansion, much
mation became effective from February like group company Trent, which has built
7 this year and the company has been re- an outstanding retail fashion brand.
named Tata Consumer Products. The new TCPL has The company is present in the water
name is more befitting the future plans become the business with Himalayan Natural Mineral
that the Tata group appears to have with Water, one of the biggest brands in India.
TCPL . This is the fi rst of the many triggers
Tata group’s It also has Tata Gluco Plus that makes a
that will play out. vehicle for glucose-based energy drink for the masses.
TCPL has become the Tata group’s vehicle It’s attractively priced at #10 and sold in
for its FMCG ambitions with 91% of the rev-
its FMCG seven different flavours. Currently avail-
enue coming from branded products. The ambitions able only in three states, it will be gradu-
combined company is now home to various
brands and businesses and the revenue mix
with 91% of ally launched in the rest of the country.
The consumer products business, that
is also set to change going forward. the revenue comes from TCL , includes Tata Salt (the
The company has the second largest coming from top branded salt in India with a two-thirds
branded tea company in the world and one share of the branded market), and Tata
of the largest in India, with iconic brands
branded Sampann that has branded pulses, spices
such as Tata Tea (first by volume and sec- products and ready-to-cook packaged food. The
28 10 April 2020 /
TATA CONSUMER PRODUCTS
The sum of parts

With a focus on branded products including tea and coffee, TCPL is an FMCG player to be reckoned with
Tata Global Beverages
TCL TGBL TCPL Tata Chemicals’ Consumer Products
#112 billion* #72.5 billion* #90.99 billion*
REVENUE (# BN)
CPB Others Others 72.52
16% 12% 12% 18.47
Coffee
EBITDA (# BN)
17% 18% Salt
57% 8.38
3.16
13% India Reach
84% 71% (#Households)
Coffee 110 mn
Other Business Tea Tea 140 mn
TCL to de-merge its Consumer Product Business (CPB) into TGBL through a NCLT approved Scheme of Arrangement; TCL shareholders will be entitled to receive 1.14 shares of
TGBL for every 1 share of TCL; Post the Transaction, TGBL to be renamed as Tata Consumer Products Limited *FY19 Revenue
penetration of branded pulses, and spices For a period of 10 years, that is, between
and condiments businesses in India are 2006 and 2016 end, the stock price of the
merely 1% and 30%, respectively. erstwhile TGBL went up a mere 32% from
TCPL expects strong growth in both these #94.50 to #124.45. As a result, investors
segments given the rise in modern trade, had lost interest in the stock and missed
online trade and the secular trend of buy- the growth that came soon after Chandra
ing more branded goods. Their products assumed office as Chairman of the Tata
are available with major online retailers Group on February 10th, 2017. The stock
such as Amazon, BigBasket and Flipkart. has since tripled to hit a lifetime high of
In fact, Tata Sampann is already the lead- #392 , before falling to #265 (on March 20,
ing online pulses brand in India. 2020). This was led more by the corona-
The next trigger will be the unfolding of virus correction in global equity markets
the synergies between TGBL and TCL . We than any change in fundamentals. What’s
believe that TCPL will be able to leverage more, with 66.8% free float, the stock
Tata Salt’s 2.5 million distribution points trades $28 million a day (last 3 months av-
and widen its reach to over 200 million erage), making it among the top 50 most
households across India. Moreover, TCPL liquid stocks in India.
will be able to leverage the Tata group’s TCPL has a healthy balance sheet which
other consumer-facing businesses, namely generates free cash flow of #10 billion.
Trent, Indian Hotels and Vistara. Trailing twelve months (TTM) financials of
The other major trigger in the stock is TCPL have combined revenue of over #95
the appointment of Sunil D’Souza, who TCPL will billion and Ebitda of over #12 billion. India
takes over as managing director and CEO be able to will contribute more than 60% revenues,
with effect from April 4, 2020. A gradu- against 49% at TGBL .
ate of IIM Calcutta, D’Souza joins from leverage While the stock is not cheap at 24.5x FY21
white goods major, Whirlpool of India. Tata Salt’s price to earnings, we estimate that the P/E
During his five-year tenure, Whirlpool’s will expand as the story plays out and the
sales grew 14% CAGR and profit grew 27%
2.5 million stock catches up to the high valuations of
CAGR . Prior to that, he spent 14 years at distribution its listed peers, such as Hindustan Unile-
PepsiCo’s Asian operations.
Besides Sunil D’Souza, TCPL has made
points and ver, Nestle and Dabur.
Over the next five to 10 years, the com-
several senior management changes, hir- widen its pany will introduce more FMCG products
ing fresh talent such as Ajit Krishnakumar reach to over and pump them through its extensive
(COO), Adil Ahmed (head of international), nationwide distribution. We believe Tata
Rakesh Sony (head of strategy and M&A)
200 million Consumer Products is the next food and
and Rishi Dang (head of US business). households beverages giant in the making. b
/ 10 April 2020 29
MY BEST PICK
HARENDRA KUMAR
MD, ELARA CAPITAL
ICICI Securities has a

strong moat, thanks to its
distribution reach and a
strong product offering
FAISAL MAGRAY
*Harendra Kumar does not own ICICI Securities, but Elara Capital has recommended
the stock to its clients
30 10 April 2020 /
ICICI SECURITIES
/ 10 April 2020 31
MY BEST PICK
STOCK PRICE 282

M-CAP 91 BillioN
FY20* RETURN 12
TTM P/E 18x
ROE 53
ROCE 52
PAT 3.86 BillioN
I CICI Securities (I-Sec) is one

of the largest and oldest eq-
uity brokers in India and ranks
number one with an overall re-
tail client base of 4.7 million, and number
two by active client base with 10% market
share and number two in market volume
ents, where up to #500,000 is transferred
to all clients within half an hour against
industry practice of T+2 (transfer day plus
two) working days. I-Sec still has a size-
able customer base above the 40 -year age
bracket, which is considered sticky and a
segment that has been difficult to crack by
with a 9% blended market share — its re- discount brokers.
tail volume share is higher than its blended The biggest moat in financial services in
share. While the advent of discount bro- India has always been distribution, which
kers has dented margin, I-Sec is still the serves the dual purpose of client acqui-
number two by revenue market share, with sition and servicing. While the broking
a CAGR of 14% over FY14 -19. industry has moved online with 30% of
I-Sec is a full-scale broker and provides the NSE cash and derivatives trade being
research, margin funding and a full bou- done via the internet, broking still remains
quet of other financial products including a light touch model, and being the sub-
mutual funds, life and general insurance, sidiary of a bank with 4,874 branches, of
and third-party loan products. The leader- which 50% are in semi-urban and rural ar-
ship position extends even to the distribu- eas, has its advantages.
tion piece, where I-Sec is the second-larg- We see enough room for the industry to
est non-bank distributor with a market expand client base from a mere 28 mil-
share of 4% as on FY19, as per AMFI. The lion retail participants (See: Geared for
capital markets business remains its crown growth), of which I-Sec has 0.96 million on
jewel, with I-Sec being number one domes- board as active users on December 2019
tic financial advisor by revenue for FY19, as (See: More the merrier). Beyond the natural
per Prime Database. ICICI shift to financialisation of savings, which
benefits the industry at large, the firm has
THE MOAT Securities other advantages including the 8,600 -plus
As a subsidiary of one of the largest pri- is one of the sub-brokers.
vate banks in India, the ICICI brand pro-
vides customers the trust, especially given
largest equity BENEFICIARY OF CONSOLIDATION
the recent incidents surrounding client brokers in A growing client base (2x over FY14 -20) and
asset misappropriation, with client’s cus- India with a revenue pie (16% CAGR over FY14 -19) are
tody sitting with the bank. I-Sec has been testaments of I-Sec weathering the storm of
an innovator from the start, with being client base of discount broking, which heightened since
the first to provide eATM facility to all cli- 4.7 million FY17. Revenue did take a beating at 64%
32 10 April 2020 /
ICICI SECURITIES
Geared for growth More the merrier

I-Sec has enough room for expansion I-Sec has close to 10% share of the overall active client user base
In million In million
Market participants
28 9.8
8.8
Demat holders 8.3
39
6
Individual tax filers 5.1 5.2
59 4.3
Retail MF folio
77
EPFO subscribers
170 FY14 FY15 FY16 FY17 FY18 FY19 FY20*
Source: Elara Securities Research Source: Elara Securities Research. *Till January 2020
CAGR in average daily turnover versus reve- the minimum networth requirement for
nue growth of 16% over FY14 -19, though not trading and clearing membership (TM &
all was because of pricing but also a shift to CM) in the capital market and futures and
derivatives and intraday trading. options segment, which currently stands at
Recognising the needs of new-age cus- #30 million. The networth for large brokers
tomers and aggressive competition, the remains high and comfortable and gives
management led by Vijay Chandok has them an edge. The changing regulations,
taken steps to bridge gaps in pricing while do not directly increase the require-
and products. I-Sec launched a separate ment, are pro-large brokers given their
membership plan called Prime, where stronger balance sheets.
it has reduced the rack rates, although We see tightening regulations working
they are still higher than those of dis- towards the benefit of large brokers and
count brokers. The steps have been well increasing networth requirement putting
received with 5% of the customer base a floor to the price war. On one hand, a
shifting to Prime, which has resulted in stricter implementation on margin fund-
increased activation rates. ing will be detrimental for the industry at
Of the 230,000 Prime customers, 90% are large. On the other, regulations to reduce
in the first category, as per the manage- settlement frequency and inability to use
ment. While volume has held up for 60% client assets post the Karvy episode work
for 9MFY20, broking revenue was down in favour of I-Sec. We expect a 27% CAGR
2% YoY, which we ascribe to the launch of in market volume over FY19 -24, with I-
Prime at the start of the current fiscal. We I-Sec began Sec growing higher at 28% as we build in
currently do not build in any material shift a separate market share gains. These gains could be
of customers to Prime, and expect FY20 sharp due to the reducing competition,
brokerage revenue to see 2% YoY growth. membership but we keep them conservative, given
Margin trade financing, too, has picked plan ‘Prime’ the uncertainty around margin funding.
up with a quarter on quarter jump in book We expect 12% CAGR in broking revenue
to #11 billion in Q 3FY20 from #6.8 billion
with reduced over FY20 -22 on the back of 20% CAGR in
in Q 2FY20. Management sees this is as a rack rates, market volume and a slight dip in yield
stable source of revenue. Given its current
networth of #10 billion, I-Sec has the abil-
although they to account for the impact of Prime and
Option20.
ity to grow this 4x. are still higher
than those AMAZON PRIME OF BROKING INDUSTRY
TIGHTENING RULES A POSITIVE I-Sec historically has had a diversified rev-
Despite the growing size of the broking
of discount enue mix, with distribution being an inte-
industry, the regulator has not increased brokers gral part at 23 -26% of revenue. This makes
/ 10 April 2020 33
MY BEST PICK
the company partly offset the cyclical- The We expect distribution income to bottom
ity of the broking business. The manage-
ment’s long-term objective remains to have
management’s out in FY20 for the combined impact of
TER cuts and slower growth by ICICI Pru-
a 50:50 broking and non-broking share, long-term dential Life. We estimate distribution in-
which stands at 57:43 currently. objective come at a CAGR of 13% over FY20 -22.
The largest pie in the distribution piece Long entrenched relationships are the
is mutual funds. With an MF AUM CAGR is to have a backbone of wealth management, with
at 24% over FY14 -19, I-Sec has seen its cli- 50:50 broking I-Sec boasting of 65% of revenue contri-
ent MF post an AUM CAGR of 35% over the bution by customers who have been in as-
same period, with market share in com-
and non- sociation for more than five years. I-Sec
missions going up from 2.3% in FY14 to broking share, classifies its wealthy clients as having as-
4.0% for FY19. The recent total expense
ratio (TER) cuts have dragged MF rev-
which stands set under advice of more than #10 million
and currently stands at an aggregate of
enue down 3.0% for FY19. We estimate MF at 57:43 #1 trillion spread over 30,000 strong client
revenue to fall by 16% YoY for FY20, with currently base (See: Gilded edge). Given limited dis-
growth resuming over FY21-22. closures, the potential from this pie could
Being a one-stop shop, insurance is also a range from 12% to 30% of revenue. We see
part of the bouquet of services. But unlike this piece gaining increased focus under
MF, the tie-up is only with group compa- the new management and could be a sig-
nies on the life (LI) and general insurance nificant value driver.
fronts, while for health, it has tie-ups with As far as investment banking activity
two standalone health insurers. The man- goes, FY16 -18 were the best years as I-Sec
agement is looking to go the open archi- reported #1.4 billion in revenue for FY18,
tecture route here too, which could be an at a CAGR of 31% over FY15 -18. FY19 was
additional growth lever. Revenue for the hurt by the IL &FS crisis, which combined
LI business has been flat in 9MFY20, due to with the fall in consumption reflecting in
subdued performance by ICICI Life Insur- macro and GDP growth rate. With GDP
ance with annualised premium equivalent growth and capex expected to bottom out,
(APE) up just 1.2% for 9MFY20. We see it we expect capital market activity to revive
improving once ICICI Prudential Life picks in the medium term. Additionally, the gov-
up steam. ernment’s #2 trillion divestment target will
I-Sec has other distribution products, in- be a key driver to revive capital market ac-
cluding the National Pension Scheme, Al- tivities. I-Sec remains the largest domestic
ternative Investment Fund, portfolio man- financial advisor by revenue, and a high
agement services and fixed deposit, which share in public issuances will enable it to
contribute to 28% of distribution revenue. capture the above opportunity.
We are conservative in our projections of
Gilded edge overall revenue CAGR of 12% over FY20 -22
I-Sec’s parentage could spur the wealth management business on the back of 12% CAGR in broking rev-
enue and 13% for non-broking. We cur-
AUM (# trillion) rently project 20% CAGR in market volume
over FY20 -22 against 68% over FY17-19,
IIFL Wealth and we expect further moderation in pric-
1.79 ing owing to the adoption of Prime and
Edelweiss Option20.
1.11
CALL FOR EFFICIENCY
ICICI Securities Profitability of the capital markets busi-
1 nesses is volatile, given the cyclical nature
JM Financial of business, which coupled with lofty em-
0.47 ployee cost, makes it a highly operating
leverage play. For I-Sec, profit before tax
Motilal Oswal margin has been moving from 20% for
0.19 Source: Elara Securities Research FY14 to 44% for FY19 and has maintained
34 10 April 2020 /
ICICI SECURITIES
The perfect mix competition from fintech. Another advan-

Distribution business helps I-Sec offset cylicality of broking tage to I-Sec would be the continued con-
solidation into larger brokers. A diversified
FY15 FY16 FY17 FY18 FY19 business model and expectation of further
491 diversification bode well to reduce cyclical-
ity (See: The perfect mix). We expect FY20
500
to be a bottom for revenue growth and ex-
400 pect it to pick up to 12% CAGR over FY20 -
289 22. This clubbed with an 6% CAGR in opex
300 would result in an earnings CAGR at 21%
179 over FY20 -22.
200 165
131
95
100 BIG TO BIGGER
We see changing regulations working
0
Equity + MF AUM Insurance in favour of large brokers as the smaller
Derivative ADTO* Premium ones find it difficult to sustain incremen-
Note: Rebased FY14 to 100 *Average daily turnover Source: Elara Securities Research tally. This opens up 35% of market share
gains for large brokers. Risks from the
during 9MFY20. This is a result of the fol- entry of other big firms such as Paytm
lowing: One, tight leash on other opex, remains, but having weathered the on-
which was up by 3% CAGR over FY14 -19, slaught from the largest discount broker
owing to the strategic shift in closing down Zerodha with continued increase in mar-
branches. As per the management, direct ket share, I-Sec is likely to ride this one
cost toward branches is 10% of FY19 over- out, too. A one-stop shop for all financial
all cost, and, thus, has further scope for products provides stickiness and is ex-
rationalisation as it closes more branches. pected to provide delta to earnings and
Two, given the increasing use of digital as reduce cyclicality of business.
a platform, I-Sec has broadly maintained Importantly, I-Sec has been an innova-
headcount, but wage inflation has meant tor at its core. With Chandok taking over
employee cost rising at CAGR of 11% over charge in May 2019, the company has fur-
FY14 -19. Management is now only looking ther strengthened its offerings. The incum-
to fill vacancies which are crucial, else the bent management undertook an extensive
headcount is expected to rationalise fur- internal assessment to bridge product gaps,
ther. Three, the focus is also on reducing further strengthen the core and plug ex-
cost-income ratio to 50% by FY22. cesses in cost. The new launches via Prime
and Option 20 is already visible in a 133,000
ONE-STOP SHOP increase in active client share over the past
We see merit in financialisation of savings 10 -11 months to 988,000 in January 2020.
as a theme and expect fi nancial savings Along with that, blended volume market
to post CAGR of 11% over FY19 -24. Even I-Sec ticks off share has also moved up from 8.1% to 8.9%
with intense competition in financial ser- all the boxes as on December 2019. Additionally, the
vices and disruption from new entrants, management looks to adopt open archi-
we believe I-Sec will hold its fort as it has — leadership tecture in distribution of life and general
weathered the storm with a strong balance position insurance segments and acquire non-ICICI
sheet. I-Sec’s net worth of #100 billion is bank customers as well to broaden the cus-
more than combined networth of 400 small
across clients, tomer base. We see strategies playing out
brokers. revenue and well with Chandok at the helm until FY24.
It ticks off all the boxes — leadership po-
sition across clients, revenue and distribu-
distribution, We are bullish on I-Sec with a target
price of #610, based on an earnings growth
tion, and a strong brand that instills trust. and a strong model which implies a P/E of 26x. We see
The organisation has a lot of firsts to its brand that moat in the business, reflective in its wide
credit and continues to innovate under distribution, brand name, good balance
the aegis of a new management, which we
instills trust sheet, diversified revenue streams and
believe is of utmost importance, given the in customers strong execution. b
/ 10 April 2020 35
MY BEST PICK
M E H U L B H AT T
FOUNDER, OYSTERROCK CAPITAL
Nesco, with its enviable real

estate assets, well-managed
cash-flow and competent
management, looks like a
good place to move into
FAISAL MAGRAY
*OysterRock Capital owns shares of Nesco in the fund’s portfolio and may buy or
sell in the future and to that extent, could be considered as interested
36 10 April 2020 /
NESCO
/ 10 April 2020 37
MY BEST PICK
STOCK PRICE 502

M-CAP 35 BillioN
FY20* RETURN 12
TTM P/E 20x
ROE 16
ROCE 23
PAT 1.80 BillioN
W hat do you love, in

the time of corona?
The question is in-
spired from the ti-
tle of the famous Gabriel Garcia Márquez
book, set in a period of cholera epidemic.
We are in a similar situation. Much like
Mumbai Development Plan for 2034, Ne-
sco plans to create a holistic growth pro-
gramme including, potentially a hotel. The
entire exercise is expected to be financed
internally without equity dilution or debt
and, interestingly, in some instances, even
from customer advances. This makes for
the book’s protagonist Florentino Ariza, in a formidable investment case. Now, let us
times of market carnage like the one we dive into each of its diversifications.
are facing due to Covid-19, it is difficult
to maintain a sense of equanimity. In the Exhibition Centre: In FY19, Nesco gener-
present milieu, many investments offer ated revenue of #1.56 billion with an EBIT
mouth-watering valuations for good busi- of #1.26 billion from this business. It has a
nesses. But, my love for a clean, strong leasable area of ~0.65 mn sq ft. Typically,
balance sheet and transparent manage- the space sees large, sizeable exhibitions
ment draws me towards Nesco, which has every alternate year. The third and fourth
a history of healthy return ratios com- quarters tend to be the best ones, while the
bined with an attractive valuation (that second quarter is often weak due to the in-
could get cheaper). ternational calendar. It plans to construct
Originally known as New Standard En- the New Business Exhibition Center with
gineering Company, Nesco figured out built-up area of ~0.15 mn sq ft, which is ex-
the potential of real estate and a way to pected to be completed in a few years.
commercially exploit it by creating an IT
park lease rental business. And in the ’90s, IT Park: Nesco currently has three op-
it converted itself into a pure lease rental Nesco figured erational IT buildings with a total of ~2
play. Its 65 acre land in Goregaon, Mumbai, out a way to mn sq ft leasable area generating revenue
has excellent connectivity — it is in close of ~#1.37 billion in FY19 (See: Jewel in the
proximity to both the airports, and is right
commercially crown). The construction of IT park 4 is also
on the Western Express Highway. As an off- exploit its completed, which will add another ~2 mn sq
shoot, the company also started a hospital-
ity business and continues to run a legacy
real estate ft of area. The handover of premises to les-
sors is currently underway. There are plans
engineering business. by creating to construct one more building that will
Additionally, Nesco has embarked on an an IT park add 0.13 mn sq ft, in the next four years.
expansion plan that, in the short run, will
add significant IT park space, to increase
lease rental Hospitality: Nesco has created food
leasable area. To take advantage of the business courts on its premises and is now look-
38 10 April 2020 /
NESCO
ing at this business as a profit centre. For Jewel in the crown

FY19, this division brought revenue of The IT park business has compounded at 19.54% over the past decade
~#350 million and an EBIT of #70 million Business exhibition centre IT Park Others
on capital employed of ~#250 million. The
company set up a state-of-the-art kitchen 0.99
0.81 0.82
for #150 million and is expecting this busi-
ness to grain traction. 0.65
1.37
Engineering Division: Nesco makes sur- 0.47 1.41 1.45
face preparation systems called ‘Indraba- 0.38 1.20
tor’ shot blasting machines. For FY19, the 0.44
0.45 0.37 0.48 0.90
revenue from this was ~#350 million with 0.42 0.28
0.34 0.27
an operating profit of ~#70 million. De- 0.23
spite being the company’s legacy business,
this division has become relatively insignif- 0.54 0.65 0.76 0.91 0.95 0.85 1.11 1.32 1.30 1.56
icant. But, it plans to continue this opera- FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
tion without any further investment. Revenue in # billion Source: Jainam Share Consultant, Ace Equity
EXHIBITING PROMISE rona, commercial real estate will also see

All in all, the company plans to add over challenges in the coming year.
4 mn sq ft of space over the next many However, in our view, issues such as the
years incurring a capex of #20 billion. coronavirus will blow over. Locational ad-
The leadership team of Suman Patel and vantages and top class infrastructure will
his son Krishna Patel, both with a strong ensure that Nesco’s rental business is not
pedigree and an excellent record on gov- at significant risk.
ernance issues, shun models such as JV The company trades at a valuation of
or REIT structures and continue to focus ~20x trailing 12 -month earnings. This con-
on basics. siders a reduction in rentals due to tearing
While the sheer size of Nesco’s land down of one structure for a new develop-
parcel gives it a competitive advantage, ment and does not include the just opera-
Reliance Industries plans to build a large tionalised IT park. However, earnings are
convention centre in BKC, Mumbai. This likely to be lower in the current year due
might pose a direct threat to Nesco. How- to the pandemic, and hence, valuation
ever, due to the location, the size would be will seem elevated. But, taking into ac-
smaller than Nesco, which would limit it count consistent return ratios, long history
to only certain types of exhibitions. Also, of positive free cash flows and growth in
combining forces for both companies — if revenue and earnings, the business offers
it ever happens — could attract larger ex- good prospects to warrant making an in-
hibitions, some of which do not happen in vestment case. In each of the businesses,
India or are moved to NCR for various rea- The leadership increasing leasable area and rising rentals
sons. A price war could lead to potential has a great offer growth opportunities. If one applies a
lower yields for both. cap rate (not preferred), the numbers could
Nesco faces various risks. One, if the eco- record on become even more attractive. Also, in case
nomic slowdown persists, exhibition rev- governance of a benign interest rate environment, low-
enues could be affected due to lower occu- ering cap rates would increase valuation.
pancy. This can also reflect in the IT parks.
issues and Future growth plans, sufficiency of in-
Two, the large convention centre being shun models ternal accruals to fund growth, a com-
built by Reliance Industries in BKC could
compete for revenue. Three, a pandemic
such as petent management, size and locational
advantages of the asset, and an attractive
such as the coronavirus can pose consider- JV or REIT valuation make Nesco a solid business. So
able threat to the exhibition business, as structures, much like the protagonist of Love in the
congregation of large crowds is discour- time of Cholera, Florentino Ariza, I keep
aged. Four, as work-from-home becomes
while focusing going back to one of my old favourite
an acceptable corporate norm post Co- on the basics stocks — Nesco! b
/ 10 April 2020 39
MY BEST PICK
SAFIR ANAND
SENIOR PARTNER, ANAND AND ANAND
With macro dynamics

shifting in its favour and
a sturdy business model,
Transpek Industry has the
perfect formula for growth
VISHAL KOUL
*Safir Anand owns the stock and is not a Sebi-registered advisor
40 10 April 2020 /
TRANSPEK INDUSTRY
/ 10 April 2020 41
MY BEST PICK
STOCK PRICE 1,390

M-CAP 7.91 billion
FY20* RETURN -6
TTM P/E 10x
ROE 24
ROCE 27
PAT 0.48 billion
E verything does not have

to be pomp and show. Just
because something is not
in the limelight does not
mean it is not worth respect. How else
would this world find gems such as Irrfan
Khan or Pankaj Tripathi? They were un-
that heavy dependence on China will cost
everyone dearly. According to the latest
data compiled by India’s drug regulatory
authority, 57 active pharmaceutical ingre-
dients of crucial antibiotics, vitamins, and
hormones or steroids could go out of stock
in case of a prolonged lockdown in China.
derrated despite being in the industry for Moreover, western chemical companies
long, but today, both have a cult following are seeking strategic alliances and invest-
of hardcore film-watchers. Transpek In- ment opportunities. In this aspect, they
dustry is one such stock. deem several Indian companies to be reli-
Established in 1965 by Shroff Group, able, one of them being Transpek Industry.
Transpek has been exploring all kinds of Besides the fact that the company delivers
compounds — from sulphur to chlorine — quality chemicals, it also counts some re-
and has earned a name for itself as a quali- puted pharma giants as its clients. Hence,
ty supplier and manufacturer of chemicals. in the foreseeable future, we expect the
With more than five decades of experi- company to register solid growth for the
ence, the company has evolved as a fi rst- Shroff Group.
time manufacturer of several products in
India and also built the market for these. UNIQUE STANDING
They developed the process for chlorinated In 2017, Transpek struck a long term
chemicals including thionyl chloride and Transpek has agreement with global giant DuPont to
various acid and alkyl chlorides that are been exploring manufacture an existing product for the
used across industries such as agrochemi- company for the next 10 years. The poly-
cals, polymers, pharma, dyestuff, flavour all kinds of mer chemicals are used to make Kevlar,
and fragrance, and surfactants. compounds, a high performance heat resistant, strong
If that exhaustive list of potential client synthetic fibre. In simple words, Kevlar is
sectors wasn’t enough to convince one,
from sulphur a super-strong plastic, a plastic so strong
let’s turn to the overall outlook for Indian to chlorine, that it can stop bullets and knives and 5x
chemical companies. Demand contin-
ues to rise domestically and internation-
and has stronger than steel. Yes, it’s Kevlar that is
used to make bulletproof vests. It also has
ally, as companies are looking for sources earned a name other applications, ranging from bicycle
outside of China due to high pollution as a quality tires to racing sails. The deal is a big posi-
levels and increasing cost. Not to mention tive for Transpek since it ensures a stable
the Novel Coronavirus outbreak that has
supplier of client and revenue source for almost a
jolted global markets into the realisation chemicals decade. In fact, after signing this agree-
42 10 April 2020 /
TRANSPEK INDUSTRY
Formula for success

With a number of major clients and focus on innovation, Transpek has delivered strong growth over the years
Sales (# billion) Net Profit (# billion) OPM % ROE %
2.90 2.84 3.17 3.61 5.95 5.70

0.22 0.21 0.30 0.26 0.66 0.79
13% 17% 17% 13% 20% 22%
29% 23% 15% 11% 21% 25%
FY15 FY16 FY17 FY18 FY19 FY20*

*Estimate Source: Company, reports
ment, DuPont announced that it would be for value creation, one cannot overlook
closing down its facility in the US to source Transpek’s upper hand in terms of exclu-
from suppliers (read Transpek) who have sivity when compared to its peers. This
“newer process technology”. The company can be attributed to factors such as back-
also called Transpek’s technology “more ward integration and on-site production
productive” than its own. of intermediaries, a unique recycling sys-
Even on the financial front, the com- tem with closed loop chemistry and R&D
pany has performed well over the recent recognised by departments of the Indian
past. While net profit grew at CAGR of government. It also boasts of 100 acres of
31% from FY15 to FY19, sales grew at 19% land with a green belt of more than 30,000
CAGR (See: Formula for success). Even after trees, fully fledged effluent management
the company had an accident at its plant system with a licensed discharge facility
in May 2019 and production was halted for to the central effluent channel and a self-
two months, the company has managed to sustained water source.
deliver steady growth over the past three Transpek’s focus on innovation is reflect-
quarters of FY20. The company also boasts ed in its pipeline of organic as well as in-
healthy return ratio (See: Quiet underdog). organic products. Manufacturing technol-
Though the products it manufactures ogy for all of its existing products has been
are chemicals that are hazardous in na- developed in-house.
ture and, thus, timely environmental
approvals and expansions are necessary POISED FOR GROWTH
During a recent board meeting, Transpek
Quiet underdog sought approval to undertake a greenfield
Transpek seems an attractive play on the rising specialty chemicals expansion project at an estimated cost of
demand around the world #1.20 billion, funded by a mix of debt and
Stock CMP P/E Market cap D/E ROE equity. Even if it undertook the project,
(#) (x) (# billion) (x) % it will not hurt its books since its current
fixed assets stand at #2.70 billion.
Aarti Ind 772 24.7 134 0.91 24
As more global players see a reliable part-
Navin Fluorine 1,186 35.2 58.8 0 14 ner in Transpek, it can further boost its
growth and assure steady return for inves-
Alkyl Amines 1,250 13.8 25.5 0.44 24 tors. The DuPont deal is testimony to the
company’s capability and the upcoming
Fairchem 454 64 17.6 0.85 18 expansion can unlock the runway for this
mid-sized chemical player, taking it to the
Transpek 1,390 10 7.9 0.46 24
next level of growth. b
Data as on March 20, 2020 Source: Companies, reports
/ 10 April 2020 43
MY BEST PICK
V I J AY K E D I A
MD, KEDIA SECURITIES
Repro India is changing the way

people read, and is set to capture
a third of the market
FAISAL MAGRAY
*This is a personal analysis by Vijay Kedia, who has invested in Repro India
and is not to be construed as a recommendation to buy or sell the stock
44 10 April 2020 /
REPRO INDIA
/ 10 April 2020 45
MY BEST PICK
STOCK PRICE 388

M-CAP 4.65 BillioN
FY20* RETURN -32
TTM P/E 18.6x
ROE 10.5
ROCE 7.7
PAT 0.17 BillioN
R eaders are fickle crea-

tures. Ask the publishers.
They will tell you how
a book that was all the
rage yesterday has become as uninterest-
ing as dust today. Therefore, publishers
have to manage a promising business on a
expected to grow to $200 billion by 2026,
and the online book market in India is
expected to grow to #80 -100 billion in the
next three to five years.
But the Indian book industry has its
challenges. It receives no direct investment
from the government, which is “a serious
rickety supply chain. They are never sure roadblock for publishers”. Other key chal-
what will be rejected, what will be read lenges include fragmented nature of pub-
and what will be returned. Therefore, Re- lishing and bookselling, a tortuous distri-
pro comes as a godsend. bution system, and long credit cycles.
Repro India has created a print-on-de-
mand solution where it prints a book after PUBLISHING DISRUPTED
the customer has bought it, hence disrupt- Currently, the publishers face challenges
ing the decades-old existing supply chain. in the traditional way of doing business.
Its solution fulfills the demand through Books are produced and then sold — lead-
various channels — by aggregating, digitis- ing to high levels of inventory. The solu-
ing, listing titles on online storefronts, pro- tion, therefore, is keeping zero inventory.
ducing on demand, delivering anywhere By the time a book reaches the market or
in the world. Repro has done this through is actually sold, it might be out of date or
tie-ups with the world’s largest e-retailers no longer relevant. The solution, there-
— including Amazon, Flipkart, Paytm, In- fore, is zero obsolescence. All books are
fibeam, Rediff and Snapdeal. Repro India bought on consignment in various differ-
Currently, India is the sixth-largest book
market in the world and, with the total
prints a book ent geographies and so publishers may feel
they have sold higher numbers than they
number of internet users in India expect- after the actually have. The solution, therefore, is to
ed to grow rapidly, the number of people customer entertain zero returns. Books are produced
expected to buy books online is increasing at one place and sent over to one part of
every day. Today, around 100,000 books are has bought the country, while the actual book may be
sold per day through online marketplaces. it, hence, required in another corner of the country.
Books have emerged as an instrumen- The Repro solution is a tech platform
tal category for e-commerce business,
disrupting the that aggregates content from publishers
accounting for 15% of the overall e-com- decades-old all over the world and reaches more books
merce trade, just trailing behind electron-
ics at 34%, and apparel and accessories at
existing supply to more readers, anytime, anywhere!
Just like aggregation platforms such as
30%. The Indian e-commerce market is chain Uber and Airbnb, it connects products and
46 10 April 2020 /
REPRO INDIA
Page turner
The company’s e-retail business has been quite a successful one, and it continues to grow at a healthy pace
Volume (Books sold/quarter) Revenue (million/quarter)
Domestic International Total Domestic International Total
400,000 140
367,327 130
120
300,000
320,554 100
82.1
200,000 80
150,371 61.8
60
100,000 122,731 33.7 48
46,773 40 28.2
27,640
0 20
Q1FY19 Q3FY20 Q1FY19 Q3FY20
Source: Company
services to users. Repro’s aggregation plat- 4,000 books per day and average sales of
form offers books to readers all over the #250,000 a week. It saw 114% increase in
world from publishers all over the world. It volume of books from Q 1FY19 to Q3FY20.
lists the publishers’ titles online through e- Similarly, its revenue also increased pro-
retail giants such as Amazon and Flipkart, portionally by 111% over the same period
and readers order the online books from (See: Page turner).
Repro. The platform then produces the By the end of 9MFY20, it listed over more
book (after it has been bought) and deliv- than five million titles, two operational
ers it in 24 - 48 hours. Repro then pays the facilities, one in Bhiwandi and other in
publishers their royalty immediately on Delhi and third facility is expected soon in
sale of the book. Bengaluru and cumulative capacity will be
Hence, the publishers can focus their en- 22,000 books per day and revenues are now
ergies on creating a book, making no other touching #130 million per quarter. It has a
investment. The industry need no longer negative working capital cycle.
be bogged down by worries about inven- Repro seems to be entering an exciting
tory, obsolescence, returns and wastage. phase of growth with its capex almost over
Also, the cash flow is positive. and commercialisation of the new capacity
Repro India tied up with US -based In- set to start in FY21. The balance sheet has
gram content group, which is one of the become healthy with debt/equity ratio fall-
world’s largest content aggregators and ing to 0.35 in December 31, 2019, as against
distributors for books. They have the in- 0.52 in March 31, 2019. Operating cash flows
dustry’s largest active book inventory have been improving and the company may
with access to 14 million titles from 45,000 start generating healthy free cash flows
publishers. The company has exclusive from FY21. The debtor days, too, have re-
agreement with Ingram in which the US With its capex duced from 105 to 68, over the same period.
company will provide international titles almost over One thing to note is the old printing busi-
to Repro India to sell on Indian platforms, ness could continue to be a cash cow for
and Repro will also share domestic titles it
and a tie-up the company, in-spite of the topline being
has aggregated over the years from Indian with US-based range bound. Thus, Repro would have a
publishers with Ingram to list those titles
on international platforms.
Ingram, Repro healthy working capital cycle and would
become debt-free sooner than expected.
seems to be Being the first-mover in this space, we
BOOKED FOR GROWTH entering an expect Repro India to have minimum one-
Repro started the print-on-demand opera- third market share in three to four years,
tion in 2016 -2017 with ~90,000 titles, with
exciting phase and we are confident that it will disrupt
one facility in Bhiwandi with a capacity of of growth the industry in a meaningful way. b
/ 10 April 2020 47
MY BEST PICK
VIKAS KHEMANI
FOUNDER, CARNELIAN CAPITAL ADVISORS
Growth opportunity and a

competent management are
great for compounding
capital, and that’s why
ICICI Lombard makes the cut
FAISAL MAGRAY
*Vikas Khemani owns the stock
48 10 April 2020 /
ICICI LOMBARD
/ 10 April 2020 49
MY BEST PICK
STOCK PRICE 1,004

M-CAP 456 BillioN
FY20* RETURN 2.5
TTM P/bv 8.82x
ROE 21
ROCE 329
PAT 9.11 BillioN
S tuff happens. Life is ran-

dom and unpredictable.
2019 was a perfect illustra-
tion of this, with the floods
in Kerala and Karnataka, and Cyclone
Fani in Odisha to the big pandemic that
has spooked everyone. In times of such
of the private expenditure incurred on
healthcare is out of the consumer’s pocket.
These dynamics leave ample room for
players to penetrate and increase the size
of risk coverage.
The other interesting trend playing out
is the large market share movement from
uncertainty, insurance shines like a bea- public players to private players, quite
con. In India, the opportunity size of the similar to what is being seen with banks.
insurance industry is huge, with the min- In early 2000, private players held around
iscule penetration in general insurance. 13% of the market, which has increased to
Companies operating there usually don’t 55% in FY20. The mood towards PSU play-
have to fight for growth. Therefore, we ers has not been too sanguine. The gov-
like ICICI Lombard. ernment has also allocated #70 billion for
This industry has several things going mergers and the recapitalisation of general
for it. First is its size and scale. Second is insurance companies to manage manda-
the structural benefit inbuilt in the dy- tory solvency ratios, which has soured the
namics. Here, one receives cash upfront sentiment against them.
and pays later, leaving a large sum of In the recent past, regulatory changes
money called ‘float’, which allows insur- such as mandatory third-party insurance
ance companies to generate investment of three years for four-wheelers and five
return while underwriting profit. That, in Backed with years for two-wheelers have also helped
turn, helps these players generate good re- a strong the industry immensely. Thus, an insur-
turn on equity. ance player gets the money upfront for
The #1,700 -billion general insurance in- parentage, three and five years — one could not ask
dustry has been growing at 16% CAGR for well-known for more in a float-oriented business.
the past 20 years and yet the premium per
capita stands at only $19 in India. Where-
brand and an STRONG LINKAGES
as, in countries such as China, South experienced Focusing on ICICI Lombard, this com-
Africa and Brazil, that figure is 8x to 10x
higher. Within sub-segments such as mo-
leadership, pany brings with it a strong parentage,
well-known brand and an experienced
tor, only 25% of two-wheelers and 60% of ICICI Lombard leadership. All these factors form a great
cars are insured as compared to the global has the recipe recipe to capture growth in any good
benchmark of 90%. Even with something business. The dynamic and capable lead-
as crucial as health insurance, penetra-
to capture ership of Bhargava Dasgupta makes it
tion is merely 27% in the country, and 89% growth even more exciting. He is one of the best
50 10 April 2020 /
ICICI LOMBARD
Getting it right
Conservative underwriting has ensured that ICICI Lombard continues to enjoy high solvency
Underwriting profi ts/(losses) (# mn) Underwriting margin (%) Solvency (%)
34
2.26
2.24
-1,152
-363
-891
-400
-489
-686
-622
-322
-430
0.2 2.21
-2.0 2.20
-1.8 -1.4 -1.8 2.18 2.18
-2.3
-3.1 -2.8
2.10 2.12
-4.8 2.05
2.04
-6.4
Q2FY18 Q1FY19 Q4FY19 Q1FY20 Q3FY20 Q2FY18 Q3FY20
Source: Company, HDFC Securities
CEOs I have come across, who has priori- quet of services, so that they don’t have
tised product innovation, technology and to deal with several vendors.
risk management. What could have been another risk for
ICICI Lombard is the largest private the company — technology — has not yet
general insurer with a comprehensive posed a threat since the management has
and well-diversified product portfolio always been a bit ahead of the curve in
covering motor, health, fi re, engineering, terms of innovation and cost efficiency.
marine and more coupled with strong
infrastructure of 265 branches, 910 vir- SOLID AND SOLVENT
tual offices and over 10,000 employees. We believe ICICI Lombard should be able
The insurer’s premium income grew to double its profit from #11 billion to
16% CAGR over the past five years and #20 billion over the next four years and
net profit at 16% CAGR . Strong solvency further enhance its market leadership. If
ratio, combined ratios and loss ratios in anything could dent its path towards ac-
comparison to its peers only validate the celerated profitability growth, it is only
strong underwriting skills, risk averse- regulatory risk and persistent economic
ness culture of the company combined slowdown. But a great company will know
with focus on profitability (See: Get- how to navigate turbulence.
ting it right). Their ability to reject a less Compounding at 15 -20%, with no ad-
profitable business is commendable. For ditional capital requirement and a huge
instance, it exited its crop insurance retail customer base, ICICI Lombard is
business and did not chase commercial more of a consumer business than a finan-
vehicle insurance when it stopped look-
ing lucrative.
ICICI Lombard cial services one. Can the company reach
$50 billion in market cap over the next
Yes, the recent regulatory plan of allow- should be able decade? I believe the probability is quite
ing life insurance players to sell health to double its high. Of course, the stock is not trading
insurance policies can be an additional cheap. At 5.7x its estimated FY21 P/BV, the
competitive factor, but I do not believe it
profit from 11 stock may look expensive to many inves-
will deter players such as ICICI Lombard. billion to #20 tors but a business like this will remain
The company offers a huge back-end in-
frastructure across claims processing,
billion over the expensive. Sure, in equities, one should
never overlook risk. But, investing has
tie-ups with third party administrators next four years always been a game of probability in an
and hospitals. If anything, life insurance and further ever-changing world. And ICICI Lombard
players should be wary of ICICI Lombard. will compound over a long period. As the
Furthermore, corporates generally prefer enhance its saying goes — if you want quality stocks,
insurance companies that provide a bou- leadership you have to pay for it. b
/ 10 April 2020 51
MY BEST PICK
52 10 April 2020 /
MANAPPURAM FINANCE
V I R A J M E H TA
HEAD–PMS, EQUIRUS SECURITIES
With steady cash flow, robust

business model and prudent risk
management, Manappuram
Finance’s future looks golden
*The stock is part of Equirus Long Horizon Fund
/ 10 April 2020 53
MY BEST PICK
STOCK PRICE 97
M-CAP 82 BillioN
FY20* RETURN 23
TTM Pbv 2.3x
ROE 30.4
ROA 6.3
PAT 10.8 BillioN
*Market data as on March 20, 2020. Financials for 9MFY20; Return ratios as of Q3FY20 Data: Ace Equity
“When lending people money, be sure

their character exceeds their collateral”
– Jackson Brown Jr
T his lesson was one of the

thousands in the Ameri-
can author’s book of life
instructions, which, if our
bankers had read, would have done great
service to this country. While growth is
important, risk assessment is vital. While
the consequent five years, the industry
underwent a consolidation, primarily due
to stagnant gold prices and regulatory in-
terventions. But now that the players have
adjusted to the new norms, the industry
is expected to grow at 8 -10% rate for the
foreseeable future.
asset quality is important, determining
loss in case of a default is vital. While NIM SAFE HAVEN
is important, risk adjusted yield is vital. Billionaire investor George Soros once
It may be a cliché, nonetheless true, that wrote, “The act of lending can change the
anyone can lend but not everyone recovers. value of the collateral.” While this may be
This is where risk management plays an im- true in most forms of lending, it does not
portant role in any lending business. For in- hold water in case of gold loans. Gold is a
stance, in the gold-loan business, a company highly liquid asset and can be easily mon-
would have to closely assess the quality of etised in case of a default without having
gold and price fluctuations, both are major much effect on its value. Another common
risk parameters. While the first is objec- Manappuram financial market wisdom falls on its face in
tive, insulating against the latter requires has introduced case of Manappuram’s gold loans business
a nuanced strategy. That’s why we like — high risk, high return. The company has
Manappuram Finance, a company that has an additional one of the highest spreads in the lending
smartly introduced an additional protection protection business and, despite being one of the safest
measure by shortening the tenure of loans forms of lending, it earns a very high yield.
to three months compared to industry prac-
measure with a What further strengthens our case for
tice of one year. Thus, it protects the lender loan tenure of the stock is the current economic turmoil.
from sharp vagaries of price fluctuations.
It’s no wonder then that its gross NPA rose
three months Considered safe and valuable when things
get tough, gold holds a special appeal in
above 1% only in one out of the past five compared Indian households. Collectively, Indians
years, which was the year of demonetisation. to industry own more than ~20,000 tonne of gold, ap-
From FY08 to FY12, its gold loans grew proximately valued at #80 trillion at cur-
at a scorching pace with AUM increasing
practice of rent prices. At 70% loan-to-value ratio, this
~15x on the back of rising gold prices. Over one year translates to an opportunity size of #56
54 10 April 2020 /
MANAPPURAM FINANCE
Well-funded All that glitters is not gold

A well-diversified liability mix ensures cost of capital is in check Manappuram has derisked its business
Bank Finance Commercial Paper Subordinated Bond NCD Others Gold loan AUM Non-gold AUM
in %
FY19
1 2
13.1 18.7 10.9
3.8 1 0.1
23.6
28.3 100
33
FY15
82 62.8
52.7 67
FY15 FY18 Q3FY20

Source: Company, PL Source: Company, PL
trillion. Of this, organised gold loans have <0.5% as of Q 3FY20. While Manappuram’s
barely scratched the surface with 3% pene- gold business continues to be a core one,
tration. That means a long growth runway we believe non-gold business will also be
for players such as Manappuram Finance. a substantial growth driver, contribut-
Furthermore, lending is a commodity busi- ing nearly 50% of the AUM in the next five
ness and anyone including banks, NBFCs, years (See: All that glitters is not gold). With
local money lenders can lend against gold. a customer base of 4.93 million customers,
However, specialised NBFCs have a distinct it has large cross-sell opportunities, which
advantage against other lenders. Gold loan Manappuram should be able to capitalise.
NBFCs enjoy speed and flexibility of local
moneylenders while benefiting from much SHINING BRIGHT
lower cost of funds. Despite high growth over the past de-
The company has already proved its mettle cade, Manappuram raised equity only
as it emerged out of the IL&FS fallout most- once, in FY11. It has reported strong earn-
ly unscathed. While the cost of borrowing ings growth with EPS rising from #1.8 in
for troubled NBFCs increased substantially FY10 to #15.9 in FY19 on a trailing twelve
over two years, Manappuram was not one of months basis. The financier’s efforts to
them. In fact, recent commercial paper issu- lower security cost over the years has
ance at 6.12% yield was at a much lower rate also reaped rich dividends in the form of
compared to peers (See: Well-funded). This is healthy return ratios — RoA of 6.3% and
because of its high quality loan book backed RoE of 30.4% on consolidated basis as of
by highly liquid collateral. Due to its Q 3FY20. Despite being in a capital-inten-
Due to its healthy gold loans business, healthy sive business, Manappuram has not missed
the company has maintained substan- dividend payouts for more than 15 years,
tial cash flow, which has been prudently gold loans which demonstrates the robustness of its
utilised by the management. From being a business, business model as well as cash flows.
100% gold loan company in FY14, Manap- All these factors prove the company has
puram’s 33% of the loan book now comes
Manappuram significant room to grow, and it would
from sectors such as micro finance, vehicle has steady not even require much capex. It already
loans and housing finance. Ashirvad Micro
Finance, which it acquired in February
cash flow, has more than 4,600 branches across the
country and as business grows, operating
2015, is now among the top five MFI lenders which has leverage should kick in, which would mean
in the country. The subsidiary’s AUM has been prudently extremely attractive return ratios. At #82
grown from #3 billion to more than #50 bil- billion market cap, Manappuram trades at
lion over the past five years. It enjoys RoA/
utilised by the ~5x estimated FY21 earnings. That, with-
RoE of ~5.3%/~26.8% and gross NPA of management out a doubt, is a great steal. b
/ 10 April 2020 55
PERSPECTIVE
DEVINA MEHRA
Co-founder and head of research, First Global
SHANKAR SHARMA
Founder and vice chairman, First Global
What asset allocation is,

what it is not
FOR ASSET ALLOCATION STRATEGY TO WORK IN YOUR FAVOUR, INVESTORS MUST INCLUDE ALL ASSETS
R emember XYZ stock I told you about

three months ago? It is up by 80%
since then”, “ABC ekdum solid hai.
Just jump in”, “PQR kya lagta hai?”
Sounds like a familiar party conversation…or some-
thing that you watch fi nancial channels for.
If your endgame is to have fun discussion at par-
Just go and look at his record in the past 15 or 20
years and you will see an investor who has missed
practically every single multibagger that the US mar-
ket has given in this period: Amazon, Netflix, Dom-
ino’s, Google, Apple (he bought way too late), Face-
book, Microsoft, and so on. He is an investor who has
consistently underperformed the stock indexes.
ties, this is fi ne. But if your purpose is to protect and This is PRECISELY the problem with the ‘sexy’ bot-
multiply your wealth, or to optimise your portfolio, tom-up stock-picking approach. Everybody is relevant
you are frankly approaching the problem from the in a period. And one fine day, the market changes,
wrong end! Why? The answer takes you to Investing and you and your strategy become irrelevant.
Basics 101. And, it is to do with asset allocation. De- Therefore, when you are picking people to manage
pending on the study you read (and there have been your money, check the approach and their strategy.
many, conducted over decades), you will find that
fully 85 -92% of the returns of a portfolio come from THE GOLDEN KEY TO INVESTING
asset allocation. Most investors fall in the very familiar trap of get-
ting over exposed to the hot asset class of that era.
YOU GOT THAT RIGHT! But the key point to always keep in mind is that if
Specific stock selection, which eats up most of your you start playing every innings thinking that you
and your advisor’s waking hours contrib- are going to get a hundred runs, you
utes only 10 -15% of the return. Moral
of the story: it does not make sense to
Bottom-up stock are never going to be successful. Mar-
kets change; sometimes they become
concentrate your resources and time on picking is a easy, sometimes very tough.
security or stock selection. But, all the The key to successful investing, over
talk you will hear from portfolio manag-
very difficult the long term, is to have every major as-
ers is about how good they are at picking art, and nobody set class in your consideration set, across
stocks and great bottom-up winners.
The uncomfortable point is — bottom-
has been able to countries and currencies and across in-
vestible assets — equity, fixed income,
up stock picking is a very, very difficult do it successful- real-estate, precious metals, other com-
art, and nobody in the history of invest-
ing has been able to do it successfully for
ly for decades. modities and more.
The mantra: there is always a bull
decades. Yes, not even Warren Buffett. Not even Buffett market somewhere in the world, even
56 10 April 2020 /
as there is a bear market elsewhere at the very same markets. For instance, let us look at the past 10
time. View this: Technology in 1998, Emerging Mar- years. In two years, gold was the best performing
kets in 2004 - 07, Commodities 2003 - 08, US equities- asset class in India (partly due to currency move-
tech 2010 onwards, Japan 2013 -15, Global Fixed In- ments), and in another year, it was the second-best
come 2009 onwards. performing asset class. In other years, real estate did
Even more recently, 2018 and 2019 have been ex- extremely well. And now, through REITs and some
tremely difficult periods for Indian stock markets. Bar- other instruments, it is possible to get systematic ex-
ring a handful of stocks, most have been in negative posure to real-estate as well.
territory. Despite the difficult 2019 period, First Glob- When we, at First Global, talk of ‘asset allocation’ it
al’s global portfolio returns have been up 40%! means that your consideration set has practically all
That’s the beauty of asset allocation. the investible asset classes in the world.
To optimise your portfolio, it is important to have The other key is to have a dynamic and tactical
all asset classes in your consideration set and carry asset allocation model, that is, assets are to be real-
out dynamic and tactical asset allocation. located based on the tactical view of various asset
classes at any point in time. Just crude measures
WHAT ASSET ALLOCATION IS NOT — like at an age of X years, you should have 60%
The phrase ‘asset allocation’ is bandied around rather exposure to equity and 40% to debt — simply don’t
casually these days. Hence, it is important to under- work, if you are looking to protect and multiply
stand what asset allocation is not. your wealth.
We see this phrase being used quite lightly by many An in-depth understanding of the underlying asset
financial advisors and fund managers classes is also important. Among other
claiming to do asset allocation strate-
gies. Only when one goes somewhat
You may be get- things, this is to ensure that asset classes
are largely not correlated. That comes
deeper into it, one realises that all the ting trapped by from data and vast experience. Is your
talk is about the nature of large-cap ver-
sus small-cap Indian stocks or moving
the narrow ex- money manager well-versed across asset
classes, across countries, across curren-
from value strategies to growth strate- pertise of your cies? If not, you need to be very care-
gies in terms of stock choice within the ful because you may be getting trapped
Indian market. This, combined with
money man- into the narrow expertise of your money
some debt allocation, appears to be the ager, which can manager, which is fine for him, but can
philosophy underlying the so-called ‘as-
set allocation’ strategy.
be disastrous for beFor disastrous for your portfolio.
example, if one has a positive view
In fact, some of the investment docu- your portfolio on commodities and a positive view on
ments even cite the same studies that we Brazil and Russian equity markets, in-
mentioned — 85 -92% of a portfolio return comes from creasing exposure to both will most likely be corre-
asset allocation, with specific stock-selection con- lated as commodity prices drive many of the large
tributing only 8 -15%. The problem? The studies cited company earnings in these two markets.
take into account a portfolio consideration set that Currency alone, or a single country exposure,
is across countries and across asset classes, not just can also change your portfolio return profi le
couple of asset classes in a single country! dramatically.
So, for asset allocation strategy to really work in To conclude, investing is about batting like Sunil Ga-
your favour, your consideration set must include all vaskar: a steady, decidedly ‘unsexy’ approach of care-
assets — developed market equities, emerging market ful risk management through diversification across as-
equities, developed market fixed income, gold and set classes… just like Gavaskar played shots all around
precious metals, other commodities, real-estate (RE- the wicket, hit both pace and spin balls with equal
ITs) across countries and so on. mastery, and also batted well across the world.
Just changing allocation across different categories Bottom-up stock picking is a bit like Virendra Se-
of the Indian equity market or even Indian equity hwag: brilliant when it works, terrible when it doesn’t.
and debt markets is simply not good enough. That is But, never steady or predictable. So, runs come with
like playing football on 20% of the football field. It high volatility or standard deviation.
might be better than not playing at all... but can it re- Who would you want managing your money: Gavas-
ally be called football? kar or Sehwag? The answer is obvious, isn’t it? b
Hence, it is important to look at asset classes be- THE AUTHORS ARE FOUNDERS OF FIRST GLOBAL,
yond just debt and equity, even within the Indian A GLOBAL PMS AND SECURITIES FIRM
/ 10 April 2020 57
MY BEST PICK
WHAT A YEAR!
Amidst a weakening economy, uncertain policies and a global pandemic,
the 16 stocks recommended in 2019 have delivered mixed return
I
t was a year when the Nifty hit an all-time
high, but as the financial year comes to a
close, it might end 30% below its peak. Out
of the 16 stocks recommended by some of the
top market experts in the country in March 2019,
five delivered positive return. While Coffee Day
Enterprises declined due to unfortunate events,
even stocks such as Bombay Dyeing, Majesco and
Tata Motors have not been spared in the market
carnage. The only true winner in the list is spe-
cialty chemicals player Alkyl Amines, which was
recommended by Viraj Mehta of Equirus Securi-
ties. With a gain of 53% since the recommendation,
it tops the chart, followed by Dr Lal PathLabs,
recommended by Saurabh Mukherjea of Marcel-
lus Investment. As the market carnage continues
amid the novel coronavirus scare, analysts believe
the time is ripe to bet on quality stocks, and that’s
SHUTTERSTOCK
what they have recommended this year. Here’s hop-

ing FY21 is kinder. b
Taking stock
A quick look at how the top picks of 2019 have performed
Reco Peak price CMP** Change
Stock Recommended by price* (#) post reco (#) (#) (%)
Alkyl Amines Viraj Mehta, Equirus Securities 815 1,810 1,250 53
Dr Lal PathLabs Saurabh Mukherjea, Marcellus Investment 1,073 1,846 1,420 32
Vaibhav Global Vijay Kedia, Kedia Securities 628 1,199 765 22
Aavas Financiers Gautam Trivedi, Nepean Capital 1,156 2,101 1,328 15
Dr Reddy’s Aditya Narain, Edelweiss 2,749 3,364 2,879 5
ICICI Bank Vikas Khemani, Carnelian Capital Advisors 392 552 344 -12
Maruti Suzuki Gautam Duggad, Motilal Oswal Financial 6,558 7,758 5,094 -22
Reliance Harendra Kumar, Elara Capital 1,342 1,617 1,028 -23
Grauer & Weil Arunagiri N, TrustLine Holdings 51 62 36 -29
Star Cement Jigar Shah, Maybank Kim Eng Securities 100 140 70 -30
Greenply Ekansh Mittal, Katalyst Wealth 154 194 101 -34
Engineers India Ajay Jaiswal, Stewart & Mackertich 113 128 57 -49
Tata Motors Ambareesh Baliga, Independent Market Expert 175 239 77 -56
Majesco Mehul Bhatt, OysterRock Capital 497 587 206 -58
Bombay Dyeing Gaurav Parikh, Jeena Scriptech 143 147 43 -69
Coffee Day Niraj Dalal, 3A Capital 287 318 26 -91
*As on March 22, 2019 **As on March 20, 2020
58 10 April 2020 /

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SPECIAL EDITION

April 10, 2020 #50

PERSPECTIVE BY DEVINA MEHRA, SHANKAR SHARMA AND CHAITANYA DALMIA

Indus adds a layer of

Keeping in mind the Citizen’s requirement in the areas of

Projects comprise of Smart Poles with LED lights,

The above projects are important initiatives under

Time to cherry pick

www.outlookbusiness.com | email: mahalakshmi@outlookindia.com

12 Ambareesh Baliga believes GMR

16 Dolat Capital’s Amit Khurana

22 Rubber chemicals player Nocil’s

26 TCPL, might look pricey but it’s

32 Elara Capital’s Harendra Kumar

38 In an uncertain time when the

46 Vijay Kedia of Kedia Securities

50 To deal with market turbulence,

54 Bucking the trend with its clean

EDITORIAL TEAM BUSINESS OFFICE

FEATURES National Revenue Head-Print: Archana Tyagi

Krishna Gopalan :Deputy Editor Vice President: Preeti Sharma

Himanshu Kakkar :Assistant Editor Digital Team: Amit Mishra

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RA Chandroo :Chief Photographer Associate Manager: Gaurav Shrivas

Vishal Koul :Principal Photographer ACCOUNTS

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Open a Savings Account

Up to `1 Lakh - 6.00% p.a. > `1 Lakh - 7.00% p.a.

Corona ko blame karo na

X X… No, it does denote either kisses

16 Long-term average: 17.2x

I n movies, an aircraft landing

Page Industries will

STOCK PRICE 18,060

I t fits like a song. The internation-

FY13 FY14 FY15 FY16 FY17 FY18 FY19

Coronavirus has wreaked havoc

*Arunagiri N and his clients own the stock

I t isn’t that hard to choose, and

chemicals industry. Besides this industry- Many in one

Growth formula Cash is king

longer a cocktail discussion, it is a clear IT'S A STEAL

· Ginning, Pressing & Spinning, Weaving & Garmenting

TCPL, with its vast

STOCK PRICE 264

A lmost exactly a year ago,

The sum of parts

ICICI Securities has a

STOCK PRICE 282

I CICI Securities (I-Sec) is one

Geared for growth More the merrier

The perfect mix competition from fintech. Another advan-

Nesco, with its enviable real

STOCK PRICE 502

W hat do you love, in

ing at this business as a profit centre. For Jewel in the crown

EXHIBITING PROMISE rona, commercial real estate will also see

With macro dynamics

*Saﬁr Anand owns the stock and is not a Sebi-registered advisor