The Modi Government is actively focusing on reviving the rural economy. The government has undertaken many initiatives in order to improve consumption, infrastructure and job opportunities in the rural parts of India. Various programs have been designed by the Government to fulfill the rural requirements. In order to double the farm income by 2022, the government has allocated Rs1.07 lakh crore for expenditure on rural development, out of which Rs.48,000cr is allocated to MNREGA for FY2017-18. At present, as per the media articles, India has ~4 crore un-electrified rural households and the Government targets to provide electricity to every village under its Deendayal Gram Jyoti Yojana. Moreover, the Pradhan Mantri Awaas Yojana (PMAY) plans to provide shelter to people in rural India.

We believe that with increasing rural income levels in the coming years, the rural consumption will get a boost, which in turnwould prove positive for the Indian business scenario. We have chosen some stocks that are likely to benefit from the pick-up in rural economy and are good investment bets from a long term perspective.

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 Mahindra & Mahindra Financial Services (MMFSL)

MMFSL is one of the leading non-banking finance companies in India, which focuses on the rural and semi-urban sectorsand is the largest Indian tractor financier.Its AUM mix comprised of auto/UV (28%), tractors (17%), cars (22%), CV (12%), pre-owned cars (9%) and SME (12%) as of September 2017. AUM is expected to grow at 17% CAGR over FY17-19E on account of pick-up in rural economy supported by average monsoon in the last two years.. NCDs are forecasted to be ~60% of funding mix in FY19E (vs. 47% in Q2FY18). This will lead to lower cost of funds and margin expansion by~130bps to 8.1% in FY19E. Better collection efficiency via rural cash flows would reduce GNPA to 8% in FY19E (vs. 9% in FY17). We see an upside of 16% from CMP of Rs.475 from one year point of view.

Year

NII (Rscr)

Net profit (Rscr)

NIM (%)

P/BV (x)

ROE (%)

FY17

3,790

511

7.6

3.6

6.8

FY18E

4,683

753

8.2

3.2

8.9

FY19E

5,511

1,061

8.4

2.8

11.0

 

Hero MotoCorp

Hero MotoCorp Limited (Hero), the largest manufacturer of Motorcycles in India, enjoys ~53% market share (Q2FY18 domestic sales volume data). It nearly derives half of its total revenue from rural India.The total volume growth in motorcycle was 13% yoy, and in two-wheeler (2W) was ~11%yoyin Q2FY18. Hero is planning new scooter launches to increase market share in that segment and has outlined Rs25bn capex plan over next 2 years. A satisfactory monsoon, Government’s push to double farm incomes and rising urban incomes are strong triggers that will aid volume growth for the company. Hence, we estimate consolidated revenue and PAT CAGR of 12% and 9% respectively over FY17-19E. Exports comprise only 2.3% of total volumes. Despite Hero being a late entrant into the export market, it plans to double the number of countries that it exports to(from 20 to 40) over next few years.We see an upside of 15% from CMP of Rs.3,804 from one year point of view.

Year

Net Sales (Rscr)

OPM (%)

Net Profit (Rscr)

EPS (Rs)

PE (x)

P/BV (x)

FY17

28,475

16.3

3,377

169.1

22.5

7.5

FY18E

32,224

16.3

3,717

186.1

20.4

6.4

FY19E

35,867

15.8

4,041

202.4

18.8

5.5

 

Dabur India

Dabur is one of the largest FMCG companies in India. Dabur’s business is divided into four areas i.e. consumer care, foods, retail and international business. It is a likely beneficiary of rural expansion and new product launches. We expect revenue growth to be driven by increasing rural reach and market share gains in juices and toothpaste categories. Dabur plans to penetrate ~60,000 villages (particularly in South India) in near term to capitalize on revival in rural consumption (~45% of revenue). Further, new product launches in hair care, fruit drink and ayurvedic segments are likely to support volume growth.It expects GST to be positive for its portfolio, except for Ayurvedic products where tax levied has risen by 5%. Its recent acquisitions in African market in personal and hair care segments and strengthening online presence with large e-retailers (Amazon) would boost profit. Thus, we expect FY17-19E sales and PAT CAGR of 6.0% and 8.2% respectively.We project an upside of 16% from CMP of Rs.355 from one year point of view.

Year

Net Sales (Rscr)

OPM (%)

Net Profit (Rscr)

EPS (Rs)

PE (x)

P/BV (x)

FY17

7,592

19.9%

1,277

7.3

49.0

12.9

FY18E

7,800

20.3%

1,326

7.5

47.1

11.0

FY19E

8,518

20.3%

1,494

8.5

41.8

9.5

 

Rallis India

Rallis India, a member of Tata group and a manufacturer of pesticides, fertilizers and fine chemicals, stands to benefit from the launch of ‘Rallis Samrudh Krishi’ by improving the quality and yield of the crops. This is a digital initiative, which will help the company to provide end-to-end Agri Solutions to Indian farmers. The company aims to increase market share of Non-Pesticides portfolio (NPP) going forward. Rallis plans to launch new products in cotton, rice, wheat and hybrid cotton segments. Rallis India also aims to increase its focus on plant growth nutrients to support sustainability of crop yields. The management is optimistic on NPP and expects it to contribute 40% to revenue (currently 31%) over next few years. Also, the company is targeting ~20% yoy increase in sales from Metahelix (subsidiary company) backed by adequate seed supplies. Thereby, we see revenue CAGR of 9.3% over FY17-19E. It is virtually a debt free company, which lends financial stability. We see an upside of 17% from CMP of Rs.274 over a period of one year.

Year

Net Sales (Rscr)

OPM (%)

Adj Net Profit (Rscr)

EPS (Rs)

PE (x)

P/BV (x)

FY17

1,772

14.8%

170

8.8

31.3

4.8

FY18E

1,863

15.4%

178

9.2

29.9

4.4

FY19E

2,117

16.2%

222

11.4

23.9

3.9

 

Jyothy Laboratories Ltd

Jyothy Laboratories Ltd (JLL), present in soaps and detergents for homecare segment, is expected to rebound post demonetisation and GST. JLL has transitioned from a south based player to a pan India company and has multiple drivers that would enable it to grow its market share in respective categories. JLL’s portfolio of six power brands – Ujala (fabric whitener), Exo (dish bar), Maxo (household insecticides), Henko (fabric detergent), Margo (soaps) and Pril (dish wash) contributed 87% to revenue in FY17. Ujala enjoys ~77% share in niche fabric whitener segment. We believe, owing to JLL’s power brands, newer products (toilet cleaner) and passing of GST benefits, volume growth would get a boost. We expect the company to post revenue CAGR of 7.3% over FY17-19E. We project an upside of 20% from CMP of Rs.388 over a period of one year. 

Year

Net Sales (Rscr)

OPM (%)

Net Profit (Rscr)

EPS (Rs)

PE (x)

P/BV (x)

FY17

1,683

15.1%

208

11.5

33.8

6.4

FY18E

1,723

15.5%

164

9.1

42.8

5.6

FY19E

1,936

16.7%

214

11.8

32.8

4.8

 Sourc:5 paisa.com

 

 



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