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Rupeeting’s Top 5 Picks For 2023 💡

Irrespective of how the markets perform, there are always some stocks that perform exceptionally well. Take 2022 for example.


The markets were up by a mere 3%. But we had some stocks in our portfolios that had exceptional returns; the top 5 being:

Stock

Returns in 2022

Portfolio

Bharat Dynamics

+141%

Varun Beverages

+127%

Hindustan Aeronautics

+106%

Jagsonpal Pharma

+106%

Rail Vikas Nigam

+94%

In the spirit of the new year, we thought of disclosing a few of our bets that we usually keep close to heart, and why we think they will catapult across the benchmark.


1. IDFC First Bank

Revamped itself into a retail bank from being a corporate bank, witnessing a 5x growth in retail deposits in the past 3 years, and we expect this pace to continue


Profit After Tax jumped by 3.6x YoY in 2QFY23, and we expect the figure to hit Rs. 4,000 crore in the next 2 years, double what they made in FY22


Taking their profit and market cap into consideration, this stock is available at a steep discount and will see valuation re-rating in our opinion


2. Satin Creditcare

Over the last few years, Satin has come out of several crises - demonetisation, floods, and the pandemic, making growth very patchy. However, Satin has used these disasters as opportunities to improve the quality of business


In 2QFY23, gross yield is up to 20% from 19%, net interest margin is up to 12% from 9%, the cost-to-income ratio has come down to 59% from 69%, and GNPAs have more than halved


Additionally, it has now diversified into home loans and loans for MSMEs, which both have the potential of exponential AUM growth on a small base, and a further improvement in metrics at a consolidated level


With stability in the MFI business and high growth from new ones, Satin can achieve 15-20% AUM growth over the next 5 years, with a more balanced portfolio, and better return ratios


3. Tata Consumer Products


In the midst of economic uncertainty, a stable FMCG bet seemed reliable, and Tata Consumer Products, with its leadership in salt, tea, coffee, mineral water and spice sectors of India was ripe for the picking


The company has been seeing very strong growth in its food business in India, which includes salt, pulses, spices and packaged foods (29% YoY), and it's coffee business in India (+39% YoY) and in the US (+16% YoY). These businesses together make up for half the company’s revenue and are expected to continue contributing to growth in the coming year


Additionally, tailwinds exist in the form of the launch of new high-growth products, continued product innovation, premiumisation, the ability to pass price increases on to consumers, and softening of raw material prices


4. Cummins India

Under the parentage of the largest diesel engine manufacturer in the world, Cummins India is an industry leader in manufacturing (i) diesel and natural gas-powered engines, (ii) power generation systems (generator sets, alternators, switchgear, etc.), and (iii) components in the areas of filtration systems, engines, emission solutions, and fuel systems


We see triggers in the stock in the form of demand recovery led by the government’s thrust on CAPEX, higher market share given its product portfolio, and margin expansion led by product innovation and implementation of new technologies


Taking these expansionary plans into consideration, we forecast a 10% revenue CAGR between FY20-FY24. Additionally, demand recovery and margin expansion are likely to lead to EPS upgrades and a valuation re-rating


5. Xpro India

Xpro is the only manufacturer of dielectric films in India and has a 30% market share. The rest of the country’s growing demand is fulfilled by imports. Through capacity expansion, import substitution and government support, Xpro can be a key beneficiary in a multi-year growth story


The company intends to triple capacity in dielectric films in the next 4-5 years, and get the first-mover advantage. It also intends to increase capacity in the coextruded business, where it already has a stronghold


With a clear runway for growth, aggressive capacity expansion, and increasing demand for dielectric films, we see a doubling of EPS in the next two years



Disclaimer: The following stocks form part of our portfolios: 1. IDFC First Bank (Monopolies), 2. Satin Creditcare (Disruptors), 3. Tata Consumer Products (Socially Responsible Investing), and 4. Xpro India (Disruptors).

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