Aavas Financiers, Voltas Top 2 Stocks to Buy

Domestic stock market started the new financial year on a strong note. Sensex and Nifty advanced over 0.75 percent last week. Sentiment was boosted after the Services sector ended the fiscal year on a high note. March saw one of the strongest expansions in total sales and business activity in almost 14 years at 61.2 from 60.6 the previous month – according to data released by HSBC.

India’s Goods and Services Tax (GST) collections hit the second highest level ever in March 2024, reaching Rs 1.78 lakh crore. This robust figure, representing an 11.5 percent year-on-year jump, strengthens positive sentiment about the Indian economy. Further strengthening positive economic sentiment, forex reserves hit an all-time high of $642.63 billion, marking the fifth consecutive weekly increase.

RBI on Friday kept the repo rate unchanged at 6.5 percent. The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth. These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 percent within a band of +/- 2 percent, while supporting growth.

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However on the global front uncertainty persist, US indexes fell more than 1 percent on Thursday as Federal Reserve officials took a cautious approach in comments on the outlook for interest rate cuts.

Going ahead volatility is likely to persist led by outcome of multiple big events like that of Initial Jobless Claims and CPI data of US, and on the domestic front Q4FY24 will kick-start followed by Industrial Production and CPI data.

Here are the top 2 stocks which can give up to 16% Return:

Voltas | CMP: Rs 1231 | Target: Rs 1435 | Upside: 16.6%

Voltas intends to grow faster than the RAC market over the next few years and gradually improve its market share. With the new Chennai plant commissioning soon, the company is set to ramp up revenue from Southern region. However, the management expects EBIT margin to be in the range of 8-8.5 percent. In the EMP segment, domestic business remains strong however challenges persist in the overseas business, front in Qatar.

Voltas largely does component sourcing for RAC and the final product is built in its own factory. Going forward, it will manufacture more products in-house under the PLI scheme at its Chennai factory.

Voltas Beko which is improving its market share is set to achieve EBITDA breakeven by FY25 and PAT breakeven in 2-3 years. Voltas expects the RAC industry to grow at 10% CAGR over the next few years and they expect to grow faster than the market with an aim to improve its market share gradually. The company has guided for a high single digit margin in the business given rising competition.

The firm plans to spend Rs 500 crore capex by FY25 for Room AC and commercial refrigeration.

Aavas Financiers | CMP: Rs 1594 | Target: Rs 1825 | Upside: 14.5%

Aavas Financiers is the larger player in affordable housing listed space with 351 branches as of Q3FY24 spread across 13 states majorly north & west. Its focus area is 60% customers are self-employed while remaining 40 percent are salaried in non-formal segments. The operationally intensive business model and low ATS has kept competition from banks and large NBFCs at bay.

Further, the focus on tier 3/4/5 towns with low mortgage penetration has helped Aavas deliver a sustainable ROA of around 3.5 percent. The company started to add low ticket size MSME/small business loans which should boost profitability and sustain growth.

Aavas Financers reported strong 4QFY24 business update. It reported disbursement growth of 20 percent YoY and 39 percent QoQ at Rs 18.9 billion. AUM grew by 22 percent YoY at Rs 173 billion. Branches stand at 367 with addition of 21 branches in FY24. Aavas has reported better asset quality over the years despite offering lending to self employed and underserved customers.

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Disclaimer: The information provided in this blog post is for informational purposes only and should not be construed as investment or trading advice. The author is not a financial advisor and does not have any professional qualifications in this area. The author does not guarantee the accuracy or completeness of the information provided. Any action you take based on the information in this blog post is done at your own risk. Please consult with a financial advisor before making any investment.