2 Stocks to Bet on Better Rural Economy

Amid the pandemic woes, we have some rays of hope. Overall, the monsoon has been satisfactory in India, barring excess rains in some parts of north India. A good monsoon is directly linked to the rural economy. As the Covid cases are receding, economic activity has picked up. The agriculture sector in India has so far remained immune to the pandemic havoc. A good harvest drives demand for manufactured goods, thereby increasing the factory output. It, in turn, will likely push the growth of companies directly involved in the rural economy. We have selected two stocks that can deliver better returns in short to medium-term periods.

1. Piramal Enterprises Ltd (NS:PIRA)

Piramal Enterprises offers diversified commercial services. It engages in pharmaceutical production and distribution, financial services, healthcare insights, and real estate. Broadly classifying, PEL is into two businesses financial services and pharmaceuticals. The company’s wholly-owned financial subsidiary provides wholesale and retail funding across multiple sectors. Sensing a vast untapped potential in retail financing, the company launched e consumer finance segment at the end of 2020. It has systematically reduced its considerable customer exposure in the wholesale lending business over the years. The company’s efforts to minimize its concentration risk should likely act as a catalyst to improve the top-line in the coming quarters. With the residential real estate sentiments getting better, PEL’s developer financing business will benefit. Its financial arm has enough capital to push growth in the near to medium term. The present pandemic-led conditions boost demand for complex hospital generics and contract development and manufacturing organization (or CDMO) products. It augurs well for the company’s pharmaceutical business segment. PEL’s pharma business posted 14% revenue CAGR and EBITDA CAGR of 28% in a decade.

Now let us quickly go through Piramal Enterprises’ latest financial results. The company’s consolidated net revenue in Q1FY2022 was Rs 2,908.68 crore, down ~1% year-on-year. However, profit after tax was Rs 539.40 crore, up 8.8% from Rs 495.56 crore in the corresponding quarter of fiscal 2021. Its revenue CAGR was 22% for the last nine years, and profit after tax CAGR was 31.7%. Notably, FIIs, MFs, and DIIs have increased their holding in June 2021 quarter. The stock currently trades at a 5% discount to its 52-week high of Rs 2,858.

2. L&T (NS:LART) Finance Holdings Ltd (NS:LTFH)

L&T Finance Holdings’ loan portfolio consists of two-wheelers, housing, farm equipment, real estate, infrastructure, microloans, and mutual fund business. The company has a robust collections framework, well-established liability franchise, improved asset quality, and provisions on the back of a healthier balance sheet. Lending in farm equipment was less impacted during the covid second wave of havoc. After unlocking, the two-wheeler lending has gradually picked up. The company is likely to witness an uptick in disbursement on the infrastructure finance side as the economy opens up.

Now let us focus on key financial metrics in June 2021 quarter results. LFHL’s weighted average cost of borrowing has decreased over the last few quarters and was lowest at 7.64% in Q1FY2022. In its bid to reduce cost, the company is making an early redemption of seven series of non-convertible redeemable preference shares worth Rs 875 crore. Net interest margin stood at 6.31%, up 1.30% from 5.01% in Q1FY2021. Notably, mutual funds have increased their holdings to 1.62% in June 2021 from 0.78% in March. The scrip returned 39.7% in a year. However, it delivered negative returns in six months and one month—the share trade at a 24.6% discount to its 52-week high price of Rs 113.4.