ICICI Direct - Consumption Thematic: Discretionary space poised for outperformance...

Technically, consumption stocks have undergone a healthy retracement after outperforming during CY20. Most of the stocks have held their key support despite host of negative news flow owing to surging Covid19 cases in India, thereby offering favourable risk reward. Going ahead, We expect consumption space to resume its uptrend, leading to outperformance in coming months. In this report we are covering Bajaj Finance and Kajaria Ceramics as a proxy to the consumption theme.

Bajaj Finance

Technical View

The share price of Bajaj Finance has undergone healthy correction over six weeks retracing preceding up move by just 50% and thereby making larger uptrend more robust

The stock has witnessed falling channel breakout post results indicating conclusion of corrective phase. We expect the stock to resolve higher and head towards Rs. 5800 as it is the February 2021 high

The share price has rebounded taking support at 52 week EMA coinciding with 50% retracement of recent October - February up move (Rs. 3100-5822). A shallow correction underlines strong buying demand at elevated levels

Fundamental View

- Bajaj Finance is one of the leading asset finance NBFCs. The USP of BFL is its diversified loan book coupled with a stronghold in the consumer finance business while it also has presence in other segments like SME, Mortgages etc.

- Bajaj Finance has sailed through the headwinds and emerged stronger with a leaner operating model and robust growth guidance. The management not changing the stance and expecting the current loss in Q1 due to the second wave to be largely covered in the next three quarters remains a positive scenario for the stock

Technical View

- The stock has remained outlier within consumption space, backed by its robust price performance during CY20. Key point to highlight since May 2020 is that, stock has been sustaining well above its 10 weeks EMA, highlighting inherent strength. Past two months breather has helped share price to cool off the overbought condition and form a higher base above 10 weeks EMA. Thereby offering fresh entry opportunity with favourable risk reward

- We expect, stock to resolve higher and challenge the all-time high of Rs. 1020, that eventually pave the way to move in a new orbit at Rs. 1080 as it is 138.2% external retracement of past 2 months decline (Rs. 1020-851)

- Key point to highlight is that, over past 8 weeks stock has retraced 80% of preceding five week rally (1020-805). The slower pace of retracement above 10 weeks EMA signifies healthy retracement that augurs well for next leg of up move

Fundamental View

- Kajaria Ceramics is the largest manufacturer of ceramic/vitrified tiles in India and the 8th largest in the world. It has present annual capacity of 70.4 mn. sq. meters presently, distributed across eight plants across India. The company's revenues grew at a 12.8% CAGR, while PAT grew at 17.3% CAGR in FY11-20.

- Kajaria strong performance in M9FY21 is attributed to strong traction in tier 1/2/3 cities aiding capacity utlisation notwithstanding Metro cities demand still at 75% of pre-covid (~45% in Q2) coupled with improved profitability at subsidiaries levels. The company has reiterated that exports by Morbi players driven by the anti-dumping duty levied by USA on Chinese players as well as other countries' is structural in nature, thereby absorbing the Morbi based unorganised volumes and improving the demand and pricing scenario for the organised player. It also outlined increased capex of ~Rs. 150-200 crore in FY22E to add ~10 MSM brownfield capacities at its existing plants to cater the demand.

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_GladiatorStocks_ConsumptionThematic_Apr21.pdf

Source : Equity Bulls

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