Prime Data Crunch: Companies resistant to Covid 19

Share on whatsapp
Share via Whatsapp
Share on twitter
Tweet it out
Share on facebook
Share on FB
Share on linkedin
Post on LinkedIn

This is the first in a series of articles we plan to periodically do on stock screeners – how to define them, how to interpret the results, and how to further refine them – all for the purpose of creating short lists that will serve a particular theme or purpose. Please note that none of the screeners we run are our recommendations or suggestions. At best these number-based screeners may help bring some interesting stocks to your notice for further research. Today, we are looking at a  simple screener of stocks that withstood the 2020 Covid shock.

As Warren Buffett said, “Only when the tide goes out do you discover who’s been swimming naked”. A slowdown year helps you spot stories of resilience and even growth. And these could well be the wealth builders for long-term portfolios. But then when the big boys of Indian stock market – the Nifty 50 pack – see an aggregate 57% drop in their profits for the 6 months ending June 2020 (over a year ago), you wonder whether the others could have fared any better. Were there any high growth companies that managed better? And if so, which segments saw such high growth companies?

high growth companies

High growth companies that bucked the trend

To check this, we took the Nifty 500 companies to see how many managed to expand their profits for the six months ending June 2020. And surprise! A good 30% or 146 of the Nifty 500 companies managed to expand their profits for the six months ending June 2020 over a year ago. 1 in 5 companies in this list, in fact doubled their profits over the said period.

(You can download the 146-stock list with key metrics here)

A demand collapse in the lockdown period meant that sales growth was not a key trigger (sales grew just 2% or this 146-stock universe) for earnings growth. But well-contained costs saw operating profits expand by about 14% while net profits jumped 75%, due to a combination of low base, previous period loss to profits now (especially for banks) as well as extraordinary income. 

Remember this comes at a time when the parent index of these stocks – the Nifty 500 – saw a 70% crash in earnings for the 6-month period ending June 2020. Clearly these companies stood out among the fallen pack.

And no prizes for guessing which sectors managed growth in profits. Pharma and healthcare segments, chemicals, IT and FMCG were the most resilient- with their profits expanding in a lockdown period. Other sectors such as banks saw a big jump largely because moving to profits from losses in the earlier period. Banks such as IDBI Bank, Indian Overseas Bank and UCO Bank moved from losses in the year ago period to profits for this six-month period ending June 2020.

Not just growth stories

Growth is a key metric that market rewards. But are these strong growth companies also quality companies with sound balance sheets over the years? For this we took a simple metric – return on equity. We looked for companies with over 10% return on equity in their latest ended fiscal sheet and arrived at 118 companies of the 146.

But then, this 118-list masked companies whose ROEs had been steadily falling over the years, in line with the trend observed over the past decade for many Indian companies.  In our list of 118 companies with over 10% ROE, we could see many companies such as Cadila Healthcare, Larsen & Toubro, CDSL or Dilip Buildon, whose ROEs have steadily fallen in the past 3 years.

So, we went further to look for companies that have expanded their ROEs in the past 3 years. This immediately reduced the universe to just 40 companies.

In essence, our filters ran thus:

  • Companies that expanded profits for six months ending June 2020 (146 companies)
  • Of the above, companies that had a ROE of over 10% in the latest ended fiscal ((118 companies)
  • Of the above, companies that saw a steady increase in ROE over the past 3 years (40 companies)

In this list of 40, just 7 of them had a market cap of less than Rs 5,000 crore including names such as Kaveri Seed Company, Just Dial and Rail Vikas Nigam. But at the same time, there were only 7 companies that could be called large cap (over Rs 27,000 crore of marketcap). These were the usual suspects such as HUL, Colgate-Palmolive (India), Nestle India, GAIL India, IPCA Laboratories, Ultratech Cement and SRF to name a few. In other words, 24 companies were from the midcap space.

You can refer to the excel sheet link given earlier for all 40 companies.

At what price?

Now, a company may be resilient, utilise capital well but trade at a valuation that is beyond investing comfort. So, the next and final filter we did was to check the P/E (or P/BV for banks and finance companies) to know which of these 40 companies were trading lower than their January 2020 valuations. Do note such an exercise may take away some companies that are probably going through a valuation re-rating. And it did happen. In the filtered list of 20 high growth companies with growing ROE, we could hardly find any pharma companies.

But interestingly it was a mixed bag – from finance to FMCG to power and engineering. And you will see a mix of large mid and small-cap companies. What this shows, then, is that there are always opportunities to be found – even if a sector has already rallied broadly or if a sector seems out of market favour. Digging into the numbers is one of the few ways you can identify where growth is coming from.

Note: This article on high growth companies is based on simple screeners to provide you with some interesting trends on companies that bucked the trend in the current economic slowdown. They are not stock recommendations. As an investor, you need to do your due diligence before deciding to invest in any of them.

Share on whatsapp
Share via Whatsapp
Share on twitter
Tweet it out
Share on facebook
Share on FB
Share on linkedin
Post on LinkedIn

Please note that any specific queries on any of our recommendations will be answered ONLY through email. If you are a subscriber, please mail contact@primeinvestor.in.  Only general queries or discussions will be answered through the comment section of the blog. For full details, please refer to this post – How to communicate with PrimeInvestor.

23 thoughts on “Prime Data Crunch: Companies resistant to Covid 19”

  1. Superb Analysis. Quick reference to stocks to do further research for including into the Portfolio. Maybe if you had included the ROCE along with ROE would have been fantastic. Kindly refresh this article every 6 months, it will be wonderful. Great job Anush. Looking forward to more such articles from your end.

Leave a Comment

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Register for FREE!

Gain instant access to more PrimeInvestor articles, researched products, and portfolios

The essence of PrimeInvestor

Register for FREE!

Gain instant access to more PrimeInvestor articles, researched products, and portfolios

Legal Disclaimer : Redwood Research (with brand name PrimeInvestor) is an independent research entity offering research services on personal finance products to customers. We are a SEBI registered Research Analyst (Registration: INH200007478). The content and reports generated by the entity does not constitute or is not intended to constitute an offer to buy or sell, or a solicitation to an offer to buy or sell financial products, units or securities. All content and information is provided on an ‘As Is’ basis by PrimeInvestor. Information herein is believed to be reliable but PrimeInvestor does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. The services rendered by PrimeInvestor are on a best effort basis. PrimeInvestor does not assure or guarantee the user any minimum or fixed returns. PrimeInvestor or any of its officers, directors, partners, employees, agents, subsidiaries, affiliates or business associates will not liable for any losses, cost of damage incurred consequent upon relying on investment information, research opinions or advice or any other material/information whatsoever on the web site, reports, mails or notifications issued by PrimeInvestor or any other agency appointed/authorised by PrimeInvestor. Use of the above-said information is at the user’s own risk. The user must make his own investment decisions based on his specific investment objective and financial position and using such independent advisors as he believes necessary. All intellectual property rights emerging from this website, blog, and investment solutions are and shall remain with PrimeInvestor. All material made available is meant for the user’s personal use and such user shall not resell, copy, or redistribute the newsletter or any part of it, or use it for any commercial purpose. PrimeInvestor, or any of its officers, directors, employees, or subsidiaries have not received any compensation/ benefits whether monetary or in kind, from the AMC, company, government, bank or any other product manufacturer or third party, whose products are the subject of its research or investment information. The performance data quoted represents past performance and does not guarantee future results. Investing in financial products involves risk. Mutual Fund Investments are subject to market risk, read all scheme related documents carefully. As a condition to accessing PrimeInvestor’s content and website, you agree to our Terms and Conditions of Use, available here. This service is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Redwood Research or its affiliates to any registration or licensing requirement.

• Aditya Birla Mutual Fund • Axis Mutual Fund • Baroda Mutual Fund • BNP Paribas Mutual Fund • BOI AXA Mutual Funds • Canara Robeco Mutual Fund • DSP Mutual Fund • Edelweiss Mutual Fund • Essel Mutual Fund • Franklin Templeton Mutual Fund • HDFC Mutual Fund • HSBC Mutual Fund • ICICI Mutual Fund • IDBI Mutual Fund • IDFC Mutual Fund • IIFL Mutual Fund • Indiabulls Mutual Fund • Invesco Mutual Fund • ITI Mutual Fund • Kotak Mahindra Mutual Fund • L&T Mutual Fund • LIC Mutual Fund • Mahindra Mutual Fund • Mirae Asset Mutual Fund • Motilal Oswal Mutual Fund • Nippon India Mutual Fund • PGIM Mutual Fund • PPFAS Mutual Fund • Principal Mutual Fund • Quant Mutual Fund • Quantum Mutual Fund • Sahara Mutual Fund • SBI Mutual Fund • Shriram Mutual Fund • Sundaram Mutual Fund • Tata Mutual Funds • Taurus Mutual Funds • Union Mutual Funds • UTI Mutual Funds • Yes Mutual Funds

Equity: Large Cap Funds | Mip Cap Funds | Large And Mid Cap Funds | Small Cap Mutual Funds | Contra Mutual Funds | Dividend Yield | Focused Mutual Funds | Find Top Index Funds | Best Sector Funds | Thematic Mutual Fund | Best Value Mutual Funds | Equity Linked Savings Scheme | Tax Saving Funds Debt: Banking And PSU Funds | Corporate Bond Funds | Credit Risk Funds Mutual Funds | Dynamic Bond Funds | Floating Rate Funds | Gilt Mutual Funds India | Find Top Liquid Funds In India | Long term debt funds | Low Duration Funds Debt Funds | Medium Duration Debt Funds | Medium To Long Duration Funds | Money Market Debt Funds | Overnight Debt Funds | Short Duration Debt Funds | Ultra Short Term Debt Fund Hybrid: Aggressive Hybrid Funds | Arbitrage Mutual Funds | Balanced Advantage Mutual Funds | Conservative Hybrid Funds | Dynamic Asset Allocation | Equity Saving Funds | Multi Asset Funds | Multi Asset Allocation

Mutual fund rolling returns by category: Balanced Advantage | Conservative Hybrid Fund | Corporate Bond | Dividend Yield | Dynamic Bond | Equity Linked Savings Scheme | Floating Rate | Index Funds | Large and Midcap fund | Large Cap Fund | Liquid funds | Low Duration | Mid Cap Fund | Multi Cap Fund | Short Duration | Small cap Fund | Solution Oriented – Childrens Fund | Ultra Short Duration

Login to your account
OR