Two fundamentally good stocks for going long
On September 24, India’s benchmark stock indexes made history. Le broke through the 60,000 mark to end the day at 60,048.47, while NSE broke through the 17,850 mark to rest at 17,853.20. Intraday, Sensex hit the daily high of 60,333 and the low of 59,946.55. Nifty fluctuated between 17,819.40 and 17,947.65. The BSE midcap index fell 1%, while the smallcap index fell 0.3%. Among the main sector indices, the automotive, computer and real estate indices posted gains. The FMCG, PSU banks, metals and pharma indices plunged by 1 to 2%. We select fundamentally good stocks with the potential to generate above-average returns in the short to medium term. Two actions that caught our attention are listed below.
1. Welspun India Ltd (NS 🙂
Welspun India is part of the $ 2.7 billion Welspun Group. The company is one of the largest manufacturers of home textiles in the world. It offers a wide range of home and technical textile products and flooring solutions. Welspun also manufactures a wide range of home textile products, including towels, bathrobes to linens and basic and trendy bedding. The company recently entered the carpet flooring solutions business. The reimbursement of state and central taxes and levies (or RoSCTL) has been extended until March 31, 2024, providing significant relief for home textiles and clothing companies. The central government notification in mid-July 2021 bodes well for home textiles and clothing companies that derive a significant portion of the profits from these incentives. The Union Cabinet production incentive program (or PLI) of Rs 10,683 crore covers players producing more than 50 synthetic fiber garments and fabrics and a handful of technical textile products. Welspun is about to take advantage of this. A niche brand, innovation and a diverse customer base help the business thrive in the future. The rise in the price of cotton yarn – the basic raw material accounting for 50% of the expenditure, acts as a headwind in the future.
In the first quarter of fiscal 2022, Welspun reported a quadruple year-on-year net profit of Rs 222.9 crore, compared to Rs 53.75 crore in the quarter of the previous year. Total consolidated revenue was Rs 2,214.49 crore, up 84.3% from Rs 1,201.8 crore in the first quarter of fiscal 2021. Over the past five years, The company’s revenue CAGR was 4%, while the net profit CAGR was negative 6%. Although the ownership of promoters remained unchanged in the June 2021 quarter, MFs, FIIs / REITs and DIIs increased their stake in the company slightly. Major technical indicators such as RSI, MACD and 20 days / 50 days / 100 days signal a “buy on the stock”.
2. Cipla (NS 🙂 Ltd
Cipla Limited is an Indian multinational pharmaceutical company. The company mainly develops drugs to treat respiratory diseases, cardiovascular diseases, arthritis, diabetes, weight control and depression, as well as other medical conditions. During the first week of September, Cipla wrote to the National Pharmaceutical Pricing Authority to allow the drugmaker to raise the prices of certain respiratory drugs. Management remained focused on four verticals viz. One-India, South Africa and international markets and global lung leadership and US generics. Cipla continues to enjoy strong traction on branded prescriptions, commercial generics and consumer welfare in India. Its multi-quarter growth in branded prescription and comprehensive Covid-19 portfolio continues to drive growth in India. In the United States, the company continues to expand its market share in the overall Albuterol market. Cipla entered the league of the top 10 generic manufacturers in the United States by prescription in fiscal year 2021. The inclusion unlocked the respiratory franchise and limited the launch of competition for the past 2-3 years.
In the first quarter of fiscal 2022, Cipla’s consolidated revenue increased 27% year-on-year to Rs 5,504 crore. EBITDA jumped 28% to Rs 1,346 crore during the quarter. Its after-tax profit rose 24% year-on-year to Rs 715 crore. Notably, FII / FPI ownership increased by 1.57% during the June 2021 quarter. DIIs also increased their ownership by 0.65% during the quarter. Vital technical indicators such as RSI, Momentum, MACD and EMA 20 days / 50 days / 100 days signal a “buy on the stock”.