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.
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 demonetization 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
|
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