DHFL, Akzo Nobel, Lemon Tree and other stocks holding out while the rest of the market is melting
- India’s stock market lost over ₹5 lakh crore (over $70 billion) of investor wealth in the opening minutes of the trade.
- The panic sell-off in the Indian market is the continuation of the carnage seen on Wall Street due to the coronavirus epidemic.
- However, there are a few stocks on the Bombay Stock Exchange (Group A) that are holding out in the green, each for a different reason
- Here’s a look at what’s keeping them strong in the face of the rampage by the bears.
The Sensex has lost over a 1,000 points and all its components are in the red. The panic sell-off in the Indian market is the continuation of the carnage seen on Wall Street.
However, there are a few stocks on the Bombay Stock Exchange (Group A) that are holding out in the green, each for a different reason. Here’s a look at what’s keeping them strong.
Ironically, bankrupt mortgage financier Dewan Housing Finance (DHFL) is top of the list. The gains have come largely because the company’s lenders have decided the grounds on which the bids for the company will be evaluated, according to a report citing sources. This has stoked hopes of a quicker resolution of the debt and revival of the company.
Nearly 24 applicants had submitted expressions of interest (EoI) — either for the whole company or in parts— to bid for DHFL.The stock is up eight days on the trot.
Interestingly, Lemon Tree Hotels is gaining at a time when, globally, airlines, tourism, hospitality and other travel-related industries are facing a downturn. When there is a disease outbreak, people tend to cut back on travelling.
However, the stock had already lost 12% since the start of year. The dent was much more but, in mid-February, the company reported better-than expected earnings driving the stock up for a few days before bears struck again. The cut in goods and services tax (GST) has boosted demand from retail customers, driving average room rate growth, the management told analysts at Motilal Oswal.
Not just Lemon Tree, the revenue per available room for the entire hotel industry in India rose to 5.5%, the highest in three quarters.
Lemon Tree Hotels is also investing despite the downturn. It announced its foray into Bhutan with its first hotel in the nation's capital, Thimphu. The mid-priced hotel chain said the entry into Bhutan is through its management subsidiary Carnation Hotels. The property in Thimphu is its second hotel in an international destination, the company said in a regulatory filing.
An interesting trend in Lemon Tree is that the stock has bounced from around the ₹52 level at least twice in the last fortnight. Motilal Oswal expects the stock to reach ₹72 a piece in the next one year.
3. NLC INDIA
“What really makes money for investors over time—and with- out the hair-raising volatility of hypergrowth stocks—is steady businesses paying regular dividends,” market expert Alexander Green wrote in the foreword to Marc Lichtenfeld’s 2012 book ‘Get Rich With Dividends’. NLC India would fit right into his bucket.
The 60-year old Navaratna company has been giving back a bigger chunk of its profits to its investors. Part of the reason is that the company is 81.9% owned by the Government of India and high dividends from state-owned companies help the exchequer manage finances. The benefits to banks, mutual funds, institutional investors, and the general public who own the rest of the stock are just incidental.
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Most recently, the company announced a 11.8% dividend and the stock has shot up ever since on February 27. The stock has shot up since then. Considering the Indian government needs more resources— given the economic slowdown and sluggish tax collections — other state-owned companies may also dole out high dividends to their masters, benefiting a few investors along the way.
4. RAJESH EXPORTS
The $2.8 billion company based out of Bengaluru is the world's largest gold refiner and world's only fully integrated entity across the entire value chain of gold. The stock was among the “fastest wealth creators” in the five years between 2014 and 2019, according to a report from Motilal Oswal. The stock appreciated at a compounded growth rate of 49% every year.
The stock took a 15% tumble this month before bouncing back the last couple of days.
The Company sells everything from gold medallions and gold bullion to jewellery (from handmade to cast to studded). It also retails diamond jewelry through its chain stores under the brand name of SHUBH Jewellers.
Its gold products manufacturing, and research and development (R&D) facilities are in Bangalore, Cochin and Dubai, and the refining facility is at Balerna, Switzerland. It has a combined capacity to manufacture approximately 350 tons of gold jewellery and gold products every year, according to Reuters.
The Company also operates as a gold refiner with a capacity to refine over 2,400 tons of precious metals per annum. It exports gold jewelry and gold products from Switzerland, India and Dubai.
The management has also decided to diversify further. Earlier this month it signed an agreement to set up a manufacturing unit for electric vehicles— investing ₹50,000 crore for manufacturing electric cars and lithium ion batteries for the domestic and overseas markets— in Dharwad, Karnataka.
5. AKZO NOBEL INDIA
The fear of a fall in demand due to the coronavirus outbreak has dented crude oil prices. And that has been good news for paint makers for whom crude oil is a key ingredient. Lower crude oil prices tend to widen the profit margin even when the sales are down.
The fall in key input prices had helped Akzo Nobel India, which sells the Dulux brand of paints in India, widen its margin by over half a percentage point in the three months ended December 2019. In those three months, the price of Brent Crude went from mid-$50s a barrel to late $60s.
Since the start of 2020, Brent crude has slid back to $50 a barrel. “We expect the focus on premium paints to continue, limited investments in commodity products such as putty and correction in input prices to result in EBITDA (earnings before interest, tax, depreciation, and amortisation) margin expansion of 100 basis points over FY20 to FY22,” ICICI Securities said.
The stock hit a 52-week high recently and has been firm around that level since.
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