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  • Mar 2, 2022 - Selloff Alert: 4 Fundamentally Strong Stocks to Add to Your Watchlist

Selloff Alert: 4 Fundamentally Strong Stocks to Add to Your Watchlist

Mar 2, 2022

Selloff Alert: 4 Fundamentally Strong Stocks to Add to Your Watchlist

War is never pleasant for anyone.

Since stock markets despise uncertainty, Russia's official invasion on Ukraine, following weeks of posturing, met with jitters in global markets.

Mirroring global sentiment, key indexes of the Indian stock market, the Sensex and Nifty, have plummeted by 10%-12% from the peaks in January.

Adding fuel to the fire, the looming concerns over the sky-high inflation, heavy selling by FIIs, Fed rate hikes, supply chain disruptions, geopolitical tensions, combined with rising crude oil prices, have kept market on the edge.

There's no doubt that shock and fear are the top emotions in the market right now. Investors and traders alike are afraid. Sentiment has taken a huge blow.

While such corrections cause panic, they also provide long-term investors a window of opportunity to diversify their portfolio and load up on beaten down quality stocks.

Investors are therefore encouraged to use this crisis as an advantage and gradually build up long-term holdings in quality companies.

Here's Co-head of Research at Equitymaster, Tanushree Banerjee in her own words...

  • Indian markets have been volatile over past couple of weeks due to earnings disappointments, concerns over interest rate hikes, commodity prices etc. The war has just added to the uncertainty.

    For long term investors the temporary uncertainty could be an opportunity to buy into businesses that remain solid wealth creators and offer margin of safety in valuations.

In this article, we list out the top 5 fundamentally strong stocks to add to your watchlist.

1. IndiaMART InterMESH

IndiaMART InterMESH, the first and largest business to business (B2B) digital marketplace in the country, today stands out as a game-changer on the B2B landscape.

The company provides B2B and customer to customer sales services via its web portal.

It focuses on integrating the small and medium businesses (SMEs) into a fast speed and easy to use platform.

The firm commands nearly 60% market share of the online B2B classifieds space which makes it the largest player in the industry.

It has a portfolio of 6 m supplier storefronts, 102 m registered buyers and a total traffic of 748 m repeated users.

IndiaMART reported consolidated revenues of Rs 1.9 bn in December 2022 quarter, a growth of 8% year on year (YoY). This was driven by improvement in realisations from existing customers and an increase in number of paying subscriptions.

Its profit before tax (PBT) was at Rs 930 m and net profit stood at Rs 700 m, representing margins of 44% and 33% respectively.

Moreover, the company is almost debt free.

It has delivered good profit growth of 52.1% compounded annual growth rate (CAGR) over last 5 years.

Over the past few quarters, the company is undertaking investments in manpower and talent retention to fuel growth.

Moreover, It has been actively executing acquisitions over the past year. IndiaMART has recently invested in Realbooks, Busy Infotech, Vyapar, Legistify, FleetX, and Shipway to add to services like bookkeeping, inventory management, invoicing, and logistics solutions.

These acquisitions will allow the company to scale up its business faster going ahead.

In the past one year, shares of the company have been under pressure. The counter has corrected by more than 45%.

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For more details, check out IndiaMART InterMESH's financial fact sheet and quarterly results.

2. Manappuram Finance

Manappuram Finance is an Indian non-banking financial company (NBFC) based in Kerala.

It provides a wide range of fund based and fee based services including gold loans, money exchange facilities, housing loans, and commercial vehicle loans.

Manappuram Finance has an extensive branch network of 3,500+ branches spread across 28 states of the country.

Recently, the company announced weak set of numbers during the third quarter of the financial year 2022. It reported a nearly 46% decline in its net profit at Rs 2.6 bn as against a net profit of Rs 4.8 bn in the year-ago quarter.

Manappuram's results were impacted due to shift from high yield to lower yielding gold loans coupled with increased cost on account of aggressive marketing efforts/ad-spends.

To reclaim a lost share of the high-ticket client base and compete with peers, the firm has changed its business strategy and reduced the yield which has impacted the margin.

Due to this change in business model, gold loan asset under management (AUM) of the company increased by 9% quarter on quarter (QoQ) but it is coming at a lower rate which has impacted the spread and profitability.

However, over the last 5 years, the company has delivered good profit growth of 37.3% CAGR. It also has a strong return on equity (ROE) track record - 3 years ROE 26.11%.

The company has a good dividend track record and has consistently declared dividends for the last 5 years.

Over the last one year, Manappuram Finance share price is down by 35.8% on the BSE.

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For more details, check out financial Manappuram Finance's fact sheet and quarterly results.

3. IOL Chemical & Pharmaceuticals

IOL Chemicals & Pharmaceuticals is a leading pharmaceutical (APIs) company. It's a significant player in the specialty chemicals space. It serves the domestic and export market.

The company manufactures various APIs for various therapeutic areas such as pain management, anti-diabetic, anti-platelet, anti-cholesterol, and others.

It's the largest producer of Ibuprofen with 35% global share and the only company worldwide being backward integrated for all intermediates of Ibuprofen.

Moreover, the company manufactures various specialty chemicals such as Ethyl Acetate, Iso Butyl Benzene, Mono Chloro Acetic Acid, Acetyl Chloride, and others.

Its products find application in industries such as food processing, flexible packaging, pharma, chemical intermediate, textiles, ink, paints, and pesticides.

Since 2019, the company saw significant increase in profitability margins primarily due to expansion in the manufacturing facility amid supply constraints leading to increased demand of its 2 major products i.e. Ibuprofen and Ethyl Acetate.

In the past five years, the smallcap pharma company has delivered good profit and sales growth of 67.4% and 28% CAGR, respectively.

Moreover, IOL Chemicals has delivered 41% dividend growth per year on average over the past two years.

On the other hand, the company's margins declined to 10.7% versus 30.7% on YoY basis. Its profits also declined by 65% at Rs 400.7 m due to weak pharma's operational performance.

However, the company is confident of delivering 15% earnings before interest and taxes (EBIT) number on a sustainable basis. It's likely to see an improvement in topline and bottomline of non-Ibuprofen business, according to a report.

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For more details, check out IOL Chemical's financial fact sheet and quarterly results.

4. CEAT

CEAT, established in 1958, is one of the largest tyre manufacturers and is one of the fastest growing tyre companies in India.

In the year 2020, CEAT ranked 35th among India's 100 best companies to work for by the Great Place to Work Institute. It and was recognised as one of the best companies in the auto and auto component industry.

The company exports to 90+ countries which are categorised in to 7 clusters for ease of operations.

The tyre manufacturer has established relationships with major original equipment manufacturer (OEMs) like Tata Motors, Ashok Leyland, Escorts, Mahindra, Maruti, Hyundai, Kia, Volkswagen, Honda, Royal Enfield, Bajaj, Piaggio, etc.

CEAT key revenue segments include automobile tubes, scrap, other operating revenue, and royalty income. Presently, trucks and buses category contributes majority of its revenues.

For the quarter ended December 2022 quarter, the company reported a consolidated total income of Rs 24.2 bn, down 1.6 % from last quarter. It reported a loss of Rs 200 m compared to a profit of Rs 1.3 bn in the same quarter last year.

The December quarter results were impacted due to high commodity prices coupled with subdued demand for replacement tyres from transporters.

However, the company has delivered good profit growth of 25% over the last three years. Also, it has been maintaining a healthy dividend payout of 19%.

According to management's comment, it has decided to postpone Rs 7 bn phase-1 truck bus radial (TBR) capacity expansion by 12 months and the balance Rs 5 bn of phase-2 expansion has been postponed indefinitely due to market conditions and revised growth plans.

The company is revising some of its capital expenditure programs. It aims to grow the businesses in three segments - two wheeler, passenger car, and off highway (OHT) tyre segments.

Apart from that, in the two wheeler (2W) segment, where it claims a market share of about 30%, the company has also achieved leadership position in the electric two wheeler category with a market share of about 60%. It's working with all major electric 2-wheeler makers.

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For more details, check out CEAT's financial fact sheet and quarterly results.

How to deal with market corrections?

One of the lessons financial markets have taught us is that the only guarantee is 'change'.

Just a few weeks ago, stock markets were riding high, smashing record after record. While today, the whole situation is entirely different.

In volatile times like these, editors at Equitymaster agree on one thing...

Don't panic! The market will come through this phase stronger. Hold on to your long-term investments.

To conclude, do remember that the volatility is likely to persist going forward...so in this situation, don't make rash decisions and sell all your holdings.

You might miss a chance of accumulating more of the same if you sell all your holdings when markets are in a downtrend. This will apply brakes to the process of compounding, considered to be the eighth wonder of the world.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...

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