MUST HAVE STOCKS

HDFC Bank is among the top performing banks in the country having strong presence in the retail segment with strong asset quality and best in class margins. Not only the bank, but its strong and marquee parentage enjoy arguably the strongest brand recall in the country which is a significant competitive advantage in the Indian banking space. Buoyed by a strong brand appeal, impressive corporate governance and strong management team (consistency in performance and best-in-class granular clientele) has enabled HDFC bank to be a long term wealth creator for investors, and the above factors still hold true. The bank continues to report consistent margins and advances growth over the years across various credit / interest rate cycles, and has been able to maintain its asset quality too indicative of the strong business franchise strength and leadership qualities. We believe the Bank has a strong business model, and is relatively well placed to tide over near term challenges.
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Reliance Industries is diversified conglomerate with 60% EBITDA contribution from core business of refining and Petrochemicals and 37% from consumer businesses (retail and digital services). The long term earnings growth outlook remains robust with potential improvement in the financial of telecom business (likely ARPU hike, ramp-up of recently launched fibre broadband services and rollout of enterprise business and new commerce services) and sustained high growth from retail business supported by unique online-offline retailing strategy. The company’s aim to increase the share of EBITDA from the consumer business to 50% would play crucial role to tide over margin volatility in cyclical downstream business. Potential induction of a strategic partner for telecom and retail businesses could act as key catalyst for value unlocking from consumer business and create long term value for investors.
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Titan is India’s largest specialty retail player having businesses in jewellery, watches & eyewear. It is one of the largest players in the branded jewellery space where the company is focusing on driving growth by grabbing market share from regional/small players through new product/scheme launches, opening new stores in tier II/III towns and building trust amongst customers. In watches business the company is transforming itself into a digital play (~10% of watches revenues) from conventional watch players, which will act as a key catalyst for growth in the long run. Its cash flows have consistently improve which takes care of its retail expansion putting less stress on the balance sheet. Thus and strong brand loyalty, lean balance sheet and return ratios standing upwards of 20% makes Titan one the best picks in the discretionary space.
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HDFC Life is one of the top private insurers in India backed by a strong and marquee parentage that arguably has the strongest brand recall in the country. Leveraging its strengths, HDFC Life also has displayed sustained product leadership and innovation over the years, which has helped it to maintain superior VNB margins and operating metrics relative to peers. We find Indian Insurance space is attractive which has a long runway for growth available for strong players like HDFC Life. HDFC Life’s strong business model, its diversified portfolio and synergies with its group network are strong business positives, which would help the company drive sustainable growth in the longer term. We believe the company is well placed to tide over near term challenges.
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Kotak Mahindra Bank (KMB) is one of the top private banks in India with a strong bouquet of products and services offerings which are increasingly finding better acceptance across India over the years. Kotak Bank’s consistent performance across interest rate and asset cycles is a key differentiator and indicates the management’s quality and strength of the franchise. Buoyed by a strong brand appeal, impressive corporate governance and strong management team has made it a long term wealth creator for investors. KMB also has strong subsidiaries which are leaders in their own domains, and are shaping up well for the long term and will be further value creators for the bank. We believe the Bank has a strong and resilient business model, and is relatively well placed to tide over near term challenges.
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TCS is one of the leading global IT services companies with a wide-range of capabilities, robust digital competencies, strong platform and stable management. Predictable cash flow generation (~100% FCF/PAT), stable margin, tight balance sheet and strong client franchise will help the company to mitigate the threat of crisis better than peers. Management has stated intent to keep the payout ratio at 80-100% of free cash generated. Superior execution, broad-based offerings and a strong product and platform portfolio make TCS well-positioned to deliver in top-quartile of industry growth among large peers across cycles. Hence, we believe TCS is an excellent business model to remain in the portfolio.
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Asian Paints has a de-risked business model with 80% of revenues comes from strong growth decorative paints business (consistently growth at 1.5-2x GDP) unlike other paints companies who have large contribution from cyclical auto/industrial paints. It is the market leader in the decorative segment with 55% market share and consistently gaining market share from small/regional players through its strong product portfolio and distinctive service offerings. In view of becoming a total home décor play, the company has recently ventured into selling and fitting of modular kitchens and bathroom fittings through inorganic initiatives, which will be a big opportunity due to rapid urbanisation. With stable cash flows, lean balance sheet and consistent dividend payout (~55% for last three years) it is one of the best play in the Indian decorative paints space.
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