10 laggards of 2020 make up for lost year in six months. Worth a look?

NEW DELHI: Stocks that had a not-so-eventful 2020 on Dalal Street have played a solid catchup in the first six months of 2021.

Among them are 10 BSE500 stocks that have rallied up to 89 per cent so far this calendar after falling anywhere between 20 per cent and 36 per cent last year when the broader market had staged a solid rebound after hitting the lows in March 2020.

This year’s rally in those stocks helped them completely erase the losses of last year. The list included names such as Greaves Cotton, Central Bank of India, Container Corporation of India, J&K Bank, UPL, Tata Chemicals and SCUF.

Greaves Cotton is up 89 per cent in the six months after shedding 36 per cent last year. At Rs 160.45, the stock trades at 20 per cent above its December 2019 levels.

Brokerages Sharekhan and ICICIdirect are positive on the stock, as they believe the company is well-poised to benefit from faster adoption of electric vehicles in India, especially in the electric two-wheeler and three-wheeler (e-3W) segments, where the company has a strong portfolio and growth strategies in place. Recent revisions of the FAME II scheme by the department of heavy industries are also seen as positives for the company.

"Greaves has managed to display a strong quarterly revenue growth run rate despite lacklustre sales in three-wheeler engines. Given the improved business outlook and expectations of improving three-wheeler sales, we maintain our positive stance on the stock and retain a buy call,” Sharekhan said.

Central Bank of India has doubled its share price this year, largely on reports that the lender has been shortlisted for disinvestment. This scrip had fallen 23 per cent in 2020. Following the recent rally, it is now up about 50 per cent from 2019-end level.

BOI, another PSU bank stock, has climbed 61 per cent in the first six months of 2020 on a similar trigger. This scrip was down 30.94 per cent in 2020.

Benchmark indices Sensex and Nifty50 rose 15-16 per cent in 2020 and are up about 10 per cent year to date.

Container Corporation of India is up 74 per cent this year after taking a 30 per cent battering in 2020. Edelweiss said share of railway freight is significantly lower than that of roadways in India, but the commissioning of the western dedicated freight corridor (DFC), which will likely focus on external trade, might give a big boost to container rail traffic.

“CCI has over 60 per cent market share in container rail services. The investment case becomes all the more attractive given that it is a stake sale target and some of the issues regarding its lease agreement have been sorted. While valuations have certainly moved up substantially, the 50 per cent plus earnings potential over the next two years can still lead to strong return for investors,” Edelweiss said.

J&K Bank has risen 74 per cent year to date after having shed 22.74 per cent in 2020. The stock now trades 34.28 higher than its 2019-end levels. The state-run bank reported Rs 316 crore profit for the March quarter, which was its highest quarterly profit since March 2014. For FY21, the bank posted a net profit of Rs 432.12 crore compared with the previous year’s Rs 1,139.41 crore loss.

UPL and Shriram City Union Finance have gained 60-72 per cent in FY21 after falling 20-31 per cent in the previous year.

Shriram City Union Finance has risen 60 per cent this year against a 25 per cent drop in 2020. The scrip is up 19 per cent since 2019-end.

Philips Capital in a May note said that the company's March quarter performance was in line with expectations and the management’s guidance of stable credit cost in FY22 adds to the comfort.

“As visibility continues to improve on the business front, with ample liquidity on the balance sheet, we expect the valuation multiple to gradually move back
to pre-Covid levels,” it said.

UPL shares surged 72 per cent in the first half of 2021 after a 20 per cent drop in 2020. The scrip traded at an average P/E of 13.2 times over the last three years on a one-year forward basis. Motilal Oswal Securities is ‘neutral’ on the stock and has ascribed 11 times P/E to the stock on account of the company's debt.

Tata Chemicals, SKF India and MRPL are some of other stocks that have recovered fully from 2020 fall. Tata Chemicals is up 51 per cent this year amid bullish expectations on the proposed EV battery business and chemical earnings. Nirmal Bang has a ‘sell’ rating on the stock as it believes the stock trades at a rich PE of 30 times FY22 and 17.7 times FY23 basis, which prices in the improving fundamentals over FY21E-23.

SKF is up 50 per cent year to date. Analysts said it is a debt-free company with ample liquidity. “Going ahead, we expect the company to post RoCE & RoIC in the northwards of 20 per cent led by an improved margin profile and better utilisation levels. Furthermore, any forthcoming capex will be funded by internal accruals. We expect SKF to post an earnings CAGR of 16.5 per cent for FY21-23 with Ebitda margins at 16.8 per cent for FY22E, and 17 per cent for FY23," ICICIdirect said in a recent note.

MRPL has gained 49 per cent this year against last year's 21 per cent fall.