Rahul Sharma is betting on Lemon Tree, LGB and IOL Chemicals. Here’s why

IOL Chemicals. This is part of the Trident Group and it is the largest manufacturer of Ibuprofen with around 35% global share and the company worldwide is being backward integrated for ibuprofen, says Rahul Sharma, Co-founder, Equity99 Advisors

On the Market
I am quite bullish on the market and I hope that we will definitely cross the 18,000 mark very soon but the global scenario will definitely impact the market. Right now, Nifty at 17725 is a very strong support, unless we break it on the downside. Maybe 17,650 or 17,600 will act as a strong support to the market as well as on the upside right now. 17,885 and 17950 will act as a resistance for going beyond 18,000.

Similarly, I am quite bullish on the Bank Nifty because banks have really good potential to go further. The overall scenario is quite good for the market in the coming days. Support level is placed at 37,450 and then 37,200. Similarly on the upside, resistance is placed at 38,100, 38,350 for Bank Nifty.

What is your first positional trade idea?
I am quite going with the themes which are running in the market. First one is from the hotel industry -- Lemon Tree. Lemon Tree has shown really good moves and overall there was a hurdle at 4,950. It crossed that and there are good volumes there.

This particular company is the largest mid priced and the third largest overall hotel chain in India. Presently, it operates at a network of around 84 hotels with around 8,300 beds in operation. The company has a share of around 17% of the branded mid market hotels in India and it is expected to increase to 22% because of the new projects which they are going to launch, where the fundamentals are not so attractive.

But demand is increasing marginally and the occupancy is also increasing day by day. I am quite bullish on this stock for Q3 because I think the unlock theme will definitely play. On the technical side, good breakouts are happening on the weekly charts. We can see inverse head and shoulder breakout, horizontal line breakout. So, chart structures are positive.

Hotel stocks have shown a good rally but this particular stock has not participated though it has really good potential to go beyond these levels. So, the target is around Rs 55 and then Rs 60. The one who is taking trade right now should place the stop loss at Rs 45 and Rs 46.

What is your second positional trade idea?
The second positional trade will be from the chemical sector and the stock is IOL Chemicals. This is part of the Trident Group and it is the largest manufacturer of Ibuprofen with around 35% global share and the company worldwide is being backward integrated for ibuprofen. It is the largest producer of ethyl acetate at a single location in India and the second largest producer of Isobutylbenzene with around 30% of global share.

It has superb ROCE of around 54.3% and ROE of around 43.1%. The company has zero debt and is available at a PE ratio of just 9.1x against the industry PE ratio of around 30.2x. It has delivered good PAT growth of around 67.35% over the last five years and technically also good breakouts are happening there. The company is very deeply connected to API themes and has a huge market share as well. The stop loss for IOL Chemical will be placed at Rs 590 and the target price is around Rs 655 and Rs 700. Currently it is trading near Rs 615.

What is your third idea?
It is an auto ancillary. The name is LG Balakrishnan & Bros Ltd. The current market price for LGB is around Rs 465-466. It is a major manufacturer of chains, pockets and metal parts of automotive applications. Around 18% of the company’s revenues comes from exports. The company’s clients include major two-wheeler automobile manufacturers of India. At present, the company has around 75% market share in automotive chains in the Indian two-wheeler industry.

The company has a superb ROC of around like 19.6% and ROE of around 16.8%. It is available at a PE ratio of just 7.82x against the PE ratio of industry which is coming at 22x. The company has reduced its borrowing and the DE ratio is at around 0.09x, FIIs have been increasing stake in the company. They were earlier at 2.36%, now they are at 3.32%. I am setting a stop loss at Rs 425 and the target price will be Rs 520 and 550 in coming days.