After a race upside down, the benchmarks set a new record on August 17. touched an intraday high of 55,854.88 before settling at 55,792.27. managed to stay afloat and close above 16,600. With the improvement of industrial indicators and the external demand environment, we can hope for a normalization of economic activities from September. Cyclical recovery could support national GDP growth in FY2022. However, potential risks could arise from slow vaccine deployment, new virus variants, skyrocketing inflation , debt overload, uneven monsoon trends and not-so-enthusiastic planting activity that could hamper India’s economic recovery. We shortlisted two stocks, one in the stock market and the other in a mid-cap IT company.
1. Edelweiss Financial Services Ltd. (NOT. 🙂
Edelweiss Financial Services Limited is an Indian diversified financial services giant. It offers a wide range of financial products and services. The company’s services include asset and wealth management, personal and business credit, consulting, capital markets and insurance services. Edelweiss customers include companies, institutions and individuals. Raising capital denotes confidence in managing future business prospects. Edelweiss Wealth Management is a subsidiary of Edelweiss Financial Services. The former recently launched the next round of its Edelweiss pre-IPO crossover opportunities fund to raise Rs 1,500 crore. EFSL’s 5-year revenue CAGR was 39% and 5-year net profit CAGR was 36%. Notably, EWM reported a solid 55.7% increase in revenue in the first quarter of fiscal 2022 and a staggering 155.4% net profit growth. Indian retail investors have traditionally invested in real estate, bank deposits and government-run pension funds. However, the work-from-home culture encouraged by Covid-19 has pushed lakes of retail investors into the markets. Notably, Robinhood (NASDAQ 🙂 investors had grown from $ 1 million in 2016 to $ 13 million in 2020. The trend should continue to directly benefit established brokerage firms such as Edelweiss Financials.
EFSL’s consolidated total income decreased by 14.1% to Rs 1,649.25 crore in the first quarter of fiscal 2022 compared to Rs 1,919.68 crore in the corresponding quarter of fiscal 2021. However, profit net increased 107.4% to Rs 18.09 crore compared to a net loss of Rs 245.08 crore in the June 2020 quarter. Strong growth in mutual fund assets under management, ARC collections, increasing customer base and solid growth in life and non-life insurance are expected to be positive winds for the company. The script returned 18% in one year, 33% in six months, 6.2% in the last five days and 5.4% on August 17. It is trading at a 14.7% discount from its 52 week high of Rs 100.9.
2. Sonata Software Ltd (NS 🙂
Sonata Software Limited provides software products, IT consulting, development services and various business solution services. The company’s main customers are in the United States, Europe and Asia. Sonata Software’s outsourced product development, retail and commodity development activities continue to grow. Going forward, we should see robust revenue growth driven by improving demand for its travel customer and momentum from Microsoft (NASDAQ :). A potential recovery in manufacturing as well as non-core retail and manufacturing should further boost income growth. In addition, Sonata’s domestic revenue, dominated by the domestic currency, is expected to increase by 20% CAGR over the next two years. Sumptuous liquidity on the balance sheet also offers opportunities for inorganic growth. In terms of results, its international IT services margins showed a healthy trend and are expected to continue in the near term. The disadvantages for operating margins remain in the increase in recruitment costs, higher travel and installation costs. However, it should be subsidized by revenue growth and improving international margins.
Sonata’s CAGR of consolidated sales was 17% and the CAGR of Consolidated EBITDA remained at 31% for ten years. It is a near debt free business and has a strong 3 year return on equity of 34.46%. The company’s average collection period fell from 73.8 days to 53.2 days. Specifically, FII / FPI and DII increased their stake by 1.57% and 1.34% during the June 2021 quarter. The script returned 186.1% in one year, 125.9% in six months, 13.1% in one month and 6.5% in the last five days. Currently, it is trading near its all-time high.