Diwali Picks

Fundamental 2024
 Diwali Picks 2024
Samvat 2080 marked a historic milestone for Indian equities as the Nifty reached the 26,000 mark on September 26, 2024. The NSE and BSE posted
impressive gains of ~26% and ~24%, respectively. The Nifty midcap and small-cap indices outperformed, delivering ~42% and ~40% returns, respectively,
despite geopolitical tensions in the Middle East, the looming Lok Sabha elections, an increase in capital gains tax, high-interest rates scenario, and concerns
about a global recession.
One of the driving forces behind this growth was inflows from all categories of investors, particularly retail investors, who contributed ₹1,912bn through SIPs
between Jan-Sept 2024, pushing monthly SIP inflows close to ₹25,000cr. FPIs injected around ₹30,212cr into equities YTD, although this was lower than last
year due to a significant sell-off in October 2024, amounting to ₹70,398cr, triggered by a strong recovery in Chinese markets following stimulus measures
resulting in shift of funds leading to heavy FIIs selling in recent days.
Indian markets hit all-time highs during Samvat 2080, buoyed by political stability, ample liquidity, and strong growth prospects compared to weaker
markets. A "tectonic shift" occurred as India surpassed China to become the largest market in the MSCI Emerging Markets Index, now ranking 6th in the MSCI
All-World Index. In the past 12 months, India’s weight in the MSCI index increased by 400bps, surpassing 20% in September 2024, with further gains
expected due to strong performance, new issuances, and improved liquidity.
With rate cuts on the horizon, earnings growth is likely to continue. The U.S. Federal Reserve cut interest rates by 50bps in September 2024, and the RBI is
expected to follow suit with at least a 25bps cut at its next meeting. Historically, markets have remained positive during Fed rate cut cycles in the absence of
major global crises. Meanwhile, the ECB has cut rates by 75bps this year, bringing them down to 3.25%. The Indian economy has remained resilient, with real
GDP growth projected at 7.2% for FY25. Urban consumption remains steady, and rural consumption is showing signs of recovery, giving confidence that the
growth target will be met. However, the RBI Governor hinted that Q2FY24 GDP could come in at around 7%, with the second half of FY25 expected to be
stronger due to a revival in the capex cycle.
India's forex reserves, which stands near an all-time high of $701bn, are providing support to the rupee. Favorable sowing trends and adequate reservoir
levels are expected to help keep inflation within the RBI's tolerance range, with a FY25 target of 4.5%.
The recent 7% correction in the market from its all-time high can be attributed to a) rising geopolitical tensions in the Middle East, b) elevated valuations
across the broader market, and c) China's stimulus, which prompted aggressive FII selling. Currently, the Nifty is trading at a PE of 19x one-year forward
earnings, a level that is in line with historical averages, suggesting that valuations are moderate, not expensive.
Looking ahead to Samvat 2081, the market is expected to remain stable with some volatility due to state elections in India and ongoing global geopolitical
risks, especially the Middle East conflict, which could disrupt global supply chains, along with the outcome of the U.S. elections. However, the overall outlook
for the market remains optimistic. Although small and mid-cap stocks (SMIDs) are trading at a record premium, caution is advised. That said, the long-term
outlook remains positive, with SMIDs offering exposure to high-growth themes like AI, digital transformation, electronics manufacturing services (EMS),
electric vehicles (EVs), data centers, green energy, solar power, transformers, transmission, semiconductors, and water management.
Diwali Picks 2024

Following stocks are our Top-picks for SAMVAT 2081 -

Company Reco. Price Market Cap FY24 RoE Target Upside %

CCL PRODUCTS 648 8,980 16% 850 31%

CYIENT DLM 692 5,588 11% 900 30%
FEDERAL BANK 195 47,678 15% 240 23%
JSW ENERGY 677 1,20,244 8.5% 900 33%
KEYSTONE REALTORS 730 9,018 6.5% 950 30%
LEMONTREE 123 9,860 16% 160 30%
SHRIRAM PISTON 2225 9,976 25% 2800 26%
VARUN BEVERAGES 589 1,97,617 35% 750 27%
YATHARTH 630 5,618 22% 850 35%
Diwali Picks 2024

CCL PRODUCTS (INDIA) LIMITED (CCL PRODUCTS) CMP ₹ 648

CCL Products is India's largest manufacturer and exporter of instant coffee and the world's largest private label instant coffee
manufacturer. It specializes in converting raw coffee beans into instant coffee granules and powder using Swiss and Brazilian technology,
enabling them to produce ~1,000 blends of coffee. It operates 4 manufacturing units located in Andhra Pradesh (2), Vietnam (1), and
Switzerland (1), with a combined installed capacity of ~77,000 TPA (~60,000 of spray-dried coffee and ~17,000 TPA of freeze-dried
coffee). In addition to its B2B business (private label), CCL Products offers a range of in-house coffee products through its own B2C brand,
Continental Coffee having ~3.5% market share in overall Indian retail coffee market. Its strategic expansion was driven by strong demand
visibility from clients and industry tailwinds, positioning CCL to capitalize on emerging market opportunities. CCL aims to effectively ramp
up production to meet anticipated demand increases, ensuring robust growth in the coming years as well as having strong balance sheet
to support the growth. ESG SCORE 52 (CRISIL).

CYIENT DLM LIMITED (CYIENT DLM) CMP ₹ 692

Cyient DLM is focused on the Indian defence segment by expanding sales team, expanding manufacturing capacity in Mysore, added
foreign clients, building capability to expand into the US defense segment and exploring new industries – EV, infra related opportunity or
energy, etc. We remain positive on the stock due to revenue being positively impacted by - addition of new logos, global tailwinds and
increased offering of value-added services and Semiconductor opportunity which parent Cyient has ventured into – can bring significant
business. We expect Revenue/EBITDA/PAT CAGR of 30%/45%/60% over FY24-26E with OPM of 10.7%/11.5% in FY25/26E and earnings
YoY growth of 57%/67% in FY25/26E. The stock is currently trading at 22x FY26 EPS. ESG SCORE NA
Diwali Picks 2024

THE FEDERAL BANK LTD (FEDERAL BANK) CMP ₹ 195

Federal Bank (FB) has demonstrated a strong business growth trajectory over FY22-24, backed by effective risk management and fintech
partnerships, despite facing regulatory challenges. FB is well-positioned to leverage its strong balance sheet and extensive customer base
for sustainable profitability. Supported by new leadership’s focus on growth. We estimate FB to maintain 18% CAGR both in advances and
deposits and achieve RoA/RoE of 1.3%/15.2% by FY27, making its current valuation at 1.2x FY26 BV attractive for long-term growth. ESG
SCORE 65 (CRISIL)

JSW ENERGY LIMITED (JSW ENERGY) CMP ₹ 677

JSW Energy Ltd. (JSWEL) is a prominent power generation company which has aggressive growth plans aligned with India’s Green Energy
targets. The company has an operational capacity of 3.5 GW of thermal & 3.8 GW of renewable generation. The total locked in capacity
for the company is 18.2 GW with 2.1 GW under-construction across wind, thermal and hydro and RE pipeline of 8.3 GW (PPA signed for
4.4 GW). The company also has 16.2 GWh of locked-in energy storage capacity through battery energy storage system and hydro pumped
storage project. The Company aims to reach 20 GW generation capacity and 40 GWh of energy storage capacity before 2030. We expect
the company to benefit from increasing peak demand on account of EV adoption, data centres, AI, etc. We expect significant margin
expansion on account of increasing RE contribution going ahead. The stock currently trades at 15x FY26 EV/EBITDA. ESG SCORE 62
(CRISIL)
Diwali Picks 2024

KEYSTONE REALTORS LIMITED (RUSTOMJEE) CMP ₹ 730

Rustomjee is one of the well- recognised MMR based real estate developer and a leader in the redevelopment space with 34 Completed
Projects, 15 Ongoing and 27 Forthcoming, across various price points. It has delivered over 25 msf of area with a pipeline of over 43 msf
through its asset-light model. We expect Rustomjee’s superior asset-light model, strong balance sheet, brand value, improving pre-sales,
strong GDV guidance, gradual expansion into new micro- markets of MMR and data centre opportunity to fuel the next- leg of growth.
Further, the rising housing demand especially in MMR, interest rate cuts around the corner, consolidation in the sector post RERA and
positive consumer sentiment, will provide boost to the organised RE players. We remain positive on the company and sector as a whole.
ESG SCORE- NA

LEMON TREE HOTELS LIMITED (LEMON TREE) CMP ₹ 123

Lemon Tree Hotels (LTH) is the largest mid-market hotel chain and the 6th largest overall hotel chain in India in terms of room inventory
and currently operates ~10,125 rooms in 107 hotels in India and abroad. It operates in the upscale segment and in the mid-priced sector,
consisting of the upper-midscale, midscale and economy segments. It delivers differentiated yet superior service offerings, with a value-
for-money proposition. It has a target of more than 20,000 rooms and 300 hotels by FY28. The industry is seeing structural tailwinds in
form of improved leisure travel, resumption in foreign tourists’ arrival, increase in MICE, strong marriage season and demand-supply
mismatch. ESG SCORE 57 (CRISIL).
Diwali Picks 2024

SHRIRAM PISTONS & RINGS LIMITED (SHRIRAM PISTON) CMP ₹ 2225

Shriram Pistons & Rings Ltd (“SPRL”) is a leading manufacturer of pistons, piston rings and engine components for the automotive
industry. SPRL has emerged as a key player in the piston & related components space, with ~40-45% market share in core products across
segments serving both, the domestic and export markets. The company benefits from the reduced fresh spending in ICE segment by the
competitors whose spending were much directed towards EV segment. to future proof itself has also diversified its presence into core EV
products like motors and controllers via purchase of ~66% stake in EMFI. The company aspires to be the only company to offer both
motors and its required electronic controllers and components under one roof. We expect the Revenue/ EBITDA/ PAT to grow at a CAGR
of 12%/ 15%/ 17% respectively over FY24-27E. ESG SCORE- NA

VARUN BEVERAGES LIMITED (VBL) CMP ₹ 589

VBL is a key player in the Indian beverage industry and one of the largest franchisees of PepsiCo. The company produces and distributes a
wide range of carbonated soft drinks, non-carbonated drinks and packaged water sold under trademarks owned by PepsiCo. With the Co.
ramping up production capacities and increasing the distribution reach to penetrate in the new markets coupled with healthy demand
amongst the consumers and their entry into the value- added dairy and snacking segments, the growth potential seems huge. We expect
VBL’s Revenue/ EBITDA/ PAT to grow at a CAGR of 21%/ 24%/ 28% respectively over CY23-26E. ESG SCORE 53 (CRISIL)
Diwali Picks 2024

YATHARTH HOSPITAL LIMITED (YATHARTH HOSPITAL) CMP ₹ 630

Yatharth is one of the largest hospitals in Noida in terms of bed count and with its strong brand name, experienced management and
their focused expansion plans, is well placed for a huge growth opportunity. It operates at one of the lowest operating metrics in the
industry, hence delta from strong improvement on these metrics will also be huge. As on date, with the IPO proceeds, Yatharth has
become net debt free and has sufficient free cash available to fund the plans of inorganic growth opportunity. We expect the Revenue/
EBITDA/ PAT to grow at a CAGR of 30%/ 29%/ 32% respectively over FY24-27E. ESG SCORE- NA
Past Performance
Performance of our last year’s Diwali picks -

Company Reco. Price CMP Returns %

APLAPOLLO 1547 1570 1%

BEL 136 280 106%

CCL PRODUCTS 615 647 5%

HAL 1887 4460 136%

INDHOTEL 390 690 77%

L&TFH 139 163 17%

MARATHON 421 605 44%

SYRMA 506 402 -21%

AVERAGE RETURNS 46%

Fundamental Team

Vinit Agarwal BFSI/ EMS 022-6819 0517 [email protected]

Mihir Manek Auto/ Consumer/ Healthcare/ Hospitality 022-6819 0520 [email protected]

Aayush Rathi Capital Goods/ Chemicals 022-6819 0521 [email protected]

Ninad Sarpotdar Power/Pharma 022-6819 0538 [email protected]

Mohan Jaiswal Technical Analyst 022-6819 0515 [email protected]

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