Top 10 stocks to bet on for cool returns this summer

By Sanam Mirchandani & Rajesh Mascarenhas

As the temperature begins to rise, brokers and advisors are recommending that investors should buy stocks of companies associated with air conditioners, cooling systems, consumer durables and tours & travel that normally see an uptrend between March and June. Some of the other categories that can benefit from a harsh summer include makers of talcum powders, ice creams, juices, fruit and aerated beverages, deodorants etc. ET analyses ten stocks that would benefit from the demand surge for these products.

Blue Star The summer season has begun well for the AC industry with an expected growth of 15% YoY in value terms. Blue Star, according to analysts, aims to again outperform the industry with a 25% YoY growth, leading to its market shar e ^[1] further rising to 11.5-12%. "We value the co at 21x FY18 estimated earnings at Rs 433 for standalone business and 10x FY18E earnings at Rs 32 for Blue Star," said Renjith Sivaram, analyst, Antique Stock Broking.

Hitachi Home & Life Analysts expect Hitachi to deliver healthy growth of 15-20% during the quarter. The stock has declined 30% from its 52-week high and is currently trading at 36 times its FY2017 earnings compared to its 5-year average PE of 47. "Hitachi is likely to deliver strong sales growth in 4 QFY16 and 1QFY16. However, with margins likely to remain under pressure, we retain 'trade' rating on the stock," said Manoj Gorim, analysts, Equirus Securities.

Manpasand Beverages Manpasand is in the fruit drink segment. Manpasand's aggression is helping it do all the 'right thing s' ahead of schedule. Its Mango Sip reported a revenue growth of 101% YoY and Fruits Up reported revenue growth of 62.3%, YoY in the fi rst quarter of the year. "Considering the growth potential, we have valued the stock at Rs 687 with a PE of 25 times on FY18E EPS, which is at 10% discount to consumer companies" said Anand Mour, analyst, ICICI Securities.

Vadilal Industries A harsh summer bodes well for ice-cream makers like Vadilal. It turn out to be positive for the company especially in fi rst quarter of FY17 as it has a larger portfolio of brands. Though the stock has rallied 49% in the past one month, there is still 8% upside according to Bloomberg consensus estimate. Vadilal stands next to Amul in term of volumes in India and has been recognised as most trusted ice cream brand for the last two years.

Lloyd Electric Stock has rallied 32% in last one month as the company is gaining market share in the air conditioner category. Analy st expects further increase in market share and subsequent growth in topline and bottomline. "Dealers reassures our belief that Lloyd is moving in the right direction and at a faster pace and we expect Lloyd to report robust growth of 30-35% in coming quarters," said Manoj Gorim of Equirus Securities.

Voltas With summers being harsh, there is certainly a chance that Voltas could surprise on the upside. This has triggered a short-term rally in stock price. The stock has risen 23% in last one month. "But with current valuations is diffi cult to justify any case for investment in the stock, in my view," said Pawan Parakh, analyst, HDFC Securities. "We has assumed 10% revenue growth for the AC business. A growth rate higher than this would be the only event turning us buyer on the stock."
Top 10 stocks to bet on for cool ret urns this summer
Pidilite Industries Pidilite has a product which needs to be applied to roof and walls so that the walls absorb heat. Price to book value of the stock is expected to be 10.9 and 9.5 times for FY16 and FY17 estimated book. "We have been buyers of this now because we have been expecting a hot summer and the risk reward is evenly balanced from a short-term basis," said Ravi Shenoy, VP-research at Motilal Oswal. "If one is looking at near-term positive returns, one could look at this stock for 5-10% upside".

Emami Emami's volume growth is seasonal. First quarter of FY17 will certainly get a boost in the summer portfolio like Navratna Cool Oil, Talc and HE deodorant which contribute about 25% to total portfolio on annualised basis. The stock is currently trading at 36/27 times FY2017/8 estimated adjusted earnings. "We have a price target of Rs 1,250 valuing the stock at 35 times FY2018E earnings, said a rec ent note by Sharekhan.

Symphony Heat wave will be more towards central and northern parts of India, and Symphony ^[2] will be a major gainer as it is more into the cooler segment than air conditioner. It also has a very good brand recall. Though stock is trading at an expensive PE of 45 times its FY17 estimate earnings, analyst says it could give 20% return in the next few months. "The stock is still looking good and I see Rs 2,900 as a potential target for the stock in the next two-three months," said AK Prabhakar, head of research at IDBI Capital.

Cox & Kings For tour and travel companies, summer months are the peak busin ess season as they coincides with school holidays. These months account for nearly 60% of the holiday bookings of the entire fi nancial year. Analysts are very bullish on Cox & Kings not only for summer benefi ts also for its debt restructuring. "The stock is trading at 7 times FY18E EPS and we recommend a buy with a target price of Rs 202," said Joyjit Sinha, analyst, Karvy Stock Broking.