mutual fund: Mutual Funds bet on NBFCs, auto and solar themes in December

As economic activity gathers pace, mutual fund managers are eyeing stocks that will benefit from low interest rates and improvement in demand. In December, fund houses allocated some money to NBFCs including housing finance companies, which could be beneficiaries of the expected revival in the real estate sector. Companies in the automobile sector were also added to the portfolio last month. ET takes a look at some of the companies that caught the eye of fund managers in December.

Endurance Tech

Market cap: Rs 19,107 crore

CMP: Rs 1,358

Bought by: Mirae MF

Diversified auto-ancillary company Endurance Technologies, which manufactures brakes, suspension and transmission products used in two-wheelers, three-wheelers and fourwheelers, is expected to benefit from four factors. First, increasing contribution of revenues from its new clients such as Hero MotoCorp, TVS Motors, Hyundai and Kia will boost its revenues in the coming quarters. Second, increasing business from existing clients such as Bajaj Auto and Royal Enfield is another advantage, which will ensure stability in revenue growth. Both these factors improve order inflows. Third, launches of new products are likely to sustain revenue growth for the company. Lastly, impressive financials have also contributed to the high interest of fund managers in the company’s stock. Analysts estimate that the company’s earnings per share in the next two fiscals is expected to increase in the range of 22-57 per cent

Shriram Transport Fin

Market cap: Rs 30,187 crore

CMP: Rs 1,216

Bought by: Kotak Mutual Fund

In the past six months, fleet utilisation levels of vehicles have gone up. Also, collections of vehicle-financing companies have reached pre-Covid levels— it is close to 90 per cent. Demand for financing of small commercial vehicles (SCV) and light commercial vehicles (LCV) has been improving. Analysts point out that as economy opens up cashflows of road transport operators — key borrowers of Shriram Transport Finance — have improved. Besides, rating agency S&P maintained stable outlook ratings on the company, which added to its attractiveness among fund managers. Recent interactions of major companies revealed that in FY22 revenues of vehicle financing companies may show high growth as demand cycle in CV industry has entered growth phase.

Borosil Renewables

Market cap: Rs 3,576 crore

CMP: Rs 275

Bought by: Franklin Templeton

Fund managers are attracted to this small-cap solar glass company as they believe it is a good bet on solar power. The Indian government has a target of having 100 GigaWatt of installed capacity of solar power by 2022 and the company being the only domestic manufacturer of solar glass in India could gain as it is the world’s first manufacturer of 2mm fully tempered solar glass. Analysts estimate spending for renewable power projects will become the largest area of energy spending in 2021. With a capex announcement to increase capacity from 450 tonnes per day to 1,000 tonnes a day by 2023, fund managers believe valuations are attractive

Can Fin Homes

Market cap: Rs 6,603 crore

CMP: Rs 496

Bought by: UTI MF

One of well-placed mid-sized home financing companies, Can Fin Homes is known for its book quality and relatively low non-performing assets (NPAs) in comparison with the industry. Recently, the company’s management said in a media interaction that demand in the affordable housing segment has improved considerably and reached pre-Covid levels. This is reflected in the company’s net interest margin (NIM), which has improved to little over 4 per cent after hovering in the range of 3-3.7 per cent for several quarters. In December, the company’s share price fell by 5.7 per cent. This provided a good opportunity for fund managers to seek fresh exposure in the company’s stock given its strong business fundamentals and financials.