RIL, DMart, Britannia top mutual funds' shopping list in August

The top 10 fund houses have incrementally invested Rs 4,970 crore in the stock in August.

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One of the key reasons for high interest in the stock of the mid-segment hotel company is its valuation.
In August, fund managers of the top 10 fund houses by assets under management adopted the time-tested bottom-up approach in selecting stocks. This approach is not limited to the metrics of valuation and size of a company. There have been developments around a few large- and mid-sized companies which point out to high earnings visibility at least for the next 1-2 years. Fund managers have increased exposure to companies whose business models are least affected during the present climate of economic slowdown. In all, the industry recorded inflows of Rs 9,000 crore in August which was spread across all categories of mutual funds — large-cap, mid-cap, multi-cap and small-cap — without any preference for fund category. This has prompted fund managers to invest in companies spanning a range of sectors. ET lists the companies that have attracted high interest from fund managers during the month:

Reliance Industries

Bought by: HDFC, ICICI MF
  • 8.26%Annualized Return for 3 year
  • >3 years Suggested Investment Horizon
  • 4.10 YearsTime taken to double money


CMP: Rs 1,226

Market Cap: Rs 7,76,891 crore

The top 10 fund houses have incrementally invested Rs 4,970 crore in the stock in August. One of the key reasons is the roll out of Jio’s highspeed broadband services JioFiber across 1,600 cities in India. The services include, ultra-high-speed broadband (up to 1 Gbps), free domestic voice calling, conferencing and international calling, TV video calling and conferencing, streaming platform apps, gaming, home networking, device security, and premium content platform for subscribers. The company is partnering with local cable operators and competitive pricing should boost its earnings per share (EPS) for the next two years. Analysts estimate EPS for FY21 to improve by 14-15 per cent.

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Avenue Supermarts

Bought by: HDFC Mutual Fund

CMP: Rs 1,569

Market Cap: Rs 97,925 crore

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Avenue Supermarts owns and operates India’s most profitable supermarket, DMart. It sells products like food, FMCG, general merchandise and apparel through 184 stores spanning 6.3 million sq. ft. It has a strong focus on value retailing. Analysts believe faster store additions, reduction in debt, tail winds from GST, and increase in e-commerce business will support earnings. In FY19, it did not venture into any new state, which means the company is looking in increasing penetration in states where it already has a presence. The retailer commands a strong sales per sq ft of above Rs 30,000 and the average bill size increased to Rs 1,163 in 2019 from Rs 1,014 in 2016.

Britannia Industries

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Bought by: DSP Mutual Fund

CMP: Rs 2,675

Market Cap: Rs 64,289 crore

A key trigger which has led to high interest in the stock of Britannia Industries is the company’s statement of increasing biscuit prices at a time its peers in the industry have not announced any price hike. Besides this, the company’s new launches both in biscuit and non-biscuit segments and increasing distribution network and focus on costs have also contributed to reasonably good revenue growth in the coming quarters. Lastly, the higher growth in sales of its premium products as opposed to value category of products should augur well for the company’s earnings. For the next two years ending FY21, the company’s earnings per share is expected to grow in the range of 9-21 per cent.

Lemon Tree Hotels

Bought by: Franklin Templeton MF

CMP: Rs 56

Market Cap: Rs 4,433 crore

One of the key reasons for high interest in the stock of the mid-segment hotel company is its valuation. The company’s stock has corrected close to 20 per cent in the past three months. For analysts, the company’s valuation was a key concern. On FY21 earnings, the company’s stock is trading at an EV/EBIDTA of 17, which is quite attractive considering its past two-year average EV/EBIDTA of close to 34. In addition, its acquisition of Keys Hotels by acquiring its parent company Berggruen Hotels, has elicited favourable review from analysts. Its recenlty-opened Mumbai property has achieved occupancy level of 60 per cent and operational and interest break even. Analysts say that the company does not have any further expansion plans in the near future. By 2021, Lemon Tree plans to take its total room count to 8,800 across 87 hotels from 5,828 rooms across 57 hotels. Analysts expect the company would be able to generate enough cash flows to address its debt concerns. For the next two years ending FY21, analysts expect the company’s revenues to grow in the range of 22-35 per cent, which is quite impressive, given the relatively stiff competition in the mid-market hotels segment in the country.
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