Good Monsoon in India is a sign of prosperity & joyfulness for all the people. However, Recent past is not that good. India witnessed dry spell facing drought years in 2014-15 with rainfall deficiency at the rate of 12% and 14% respectively affecting the overall growth of the nation.
For July 2016, Though the monsoon has arrived a week later than usual but have picked up its speed aggressively in following weeks exceeding all the limits and a verge of covering the entire country scheduled for the next few days and proving direct beneficial to the sectors including agriculture related companies, FMCG products and automobiles. Investors should divert their minds towards small cap companies as there’s plenty of growth ahead as their fundamentals are strong unlikely to last but undoubtedly showing upward trends.
Good monsoon brings good news for Jain Irrigation System. The expectation of good monsoon is pushing the stock with consistent uptrend. Due to poor sales in Q4 of 2015-16 company recorded 22% fall in standalone net profit. This made purposeful for the company to recapitalize their balance sheet to boost up its earning as stock holds the full potential to increase further. It has also come up with a decision of adopting new agricultural policy for having strong growth in agro processing.
Dhanuka Agritech manufactures wide range of agro chemical products together having its tie up with Americans and Japanese companies. It makes maximum contribution from in-licensed products, strong traction in Sempra and Cover and a healthy pipeline of innovation products. Q4 has proved to be profitable as it reported 10% growth in EBITDA and 30% rise in net profit at Rs. 28.48 crore. Strong monsoon is expected to enhance 20% extra growth in the revenue where 16% growth because of volume and 4% of price increase over FY16-17 as said by the management. Investors can look to buy stock of Dhanuka Agritech as it is in upward direction claiming increasing in profits.
HUL is India’s largest fast moving consumer goods (FMCG) company. Good monsoon means High disposable income which is expected to translate into the higher rural volume growth. Technically also it is better option to hold and purchase more stocks of HUL. The stock has has given breakout after a long weekly consolidation. Adding fresh open interest by 5-6%. Management believes the demands will increase further estimating net sales and CAGR of 11% / 13% over FY 2016-18. It has also decided in expanding its business by acquiring patanjali products for further upward momentum.
Good Monsoon acts as a big trigger to boost both its segments of farm equipments and commercial vehicle. Growth of 21% in sales encourages investors to buy stocks of M&M and there are further possibilities of company showing strong earning in near future. Tractors and SUV businesses of the company are expected to deliver 14.5% volume CAGR over FY 16-18. The management expects a 34% CAGR on consolidated EPS basis and decided to launch 18 new products under its automotive division in next 3 years.
In addition to HUL, we expect the Marico stock to be another beneficiary of good monsoon. The stock trend also justifies the reasoning. With consistent double digit volume growth at 10.5%, brand based market share and gross margin expansion are the major achievements in Q4 of FY16. Volume and revenue growth for FY16 were 7% each. With changing sales mix in terms of increasing contribution for youth brands and food portfolio the revenue margin is expected to improve to 17.9% by FY 18E.