HDFC Bank Stock Analysis, Asian Paints & Nestle India Update

Today, we are here to discuss the HDFC Bank Stock Analysis, where we will discuss three large-cap stocks: Asian Paints, HDFC Bank, and Nestle India. So these three companies are part of the India stock market index, that is NIFTY 50. 

So, HDFC Bank's weightage in the index is  11%, Asian Pain's is 1.3%, and Nestle India's is 0.95%. These are three companies that have completely different reasons to be discussed today in this blog. So, let’s have a look at these stocks one by one in this blog.

HDFC Bank

First, we will discuss HDFC Bank, As it is India’s largest stock, HDFC Bank was at its 52-week low till last month, as there is fundamentally no issue in the bank and that was also a very strong stock. So we are not here to force you to buy this stock as it is all up to you, but there are many investors who already bought stock at a 52-week low.

No Investment Advice Provided

It is not like that at all. As we mentioned, we will not give you any investment advice or recommend that you buy or sell the stock we recommend here in this blog. If you want to invest, first do some investment research, then try to invest at your own risk. But we must say that if a stock is at its 52-week low, it does not mean that the business is bad.

HDFC Bank Stock Performance Vs. Business Performance

Well, it may very well happen that the performance of a business is going up, and the performance of their business is going up, and the performance of its stock is going down, and exactly the same happened with HDFC Bank and hence when this stock was down, so many investors invested a lot in it to average out the prices, so now this remedy has started coming.

March Quarter Report Overview

Now recently the March Quarter report has come, and this bank has once again increased its revenue.

Quarter on quarter, the revenue of the bank has increased from Rs 1 lakh 15 thousand crore to Rs 1 lakh 24 thousand crore and that is not all, there is also growth in the profits of the bank.

Mutual Funds Increase Holdings in HDFC Bank

As this is the best sign of a healthy business is that despite tough conditions, profit and revenues are also increasing, albeit slowly, and the mutual funds managers have found this out. So, therefore, the mutual funds also increased their holding in HDFC Bank last quarter. 

Investment Plan For HDFC Bank

So now the plan with this stock is very simple: invest a little aggressively in HDFC Bank in the next 1-2 months. So now the market is already very high, and these large-cap stocks show the least volatility. So today this blog is on three large-cap stocks. 

Potential For Breakout And Return

Secondly, I feel that HDFC Bank which is down 10-11% from its 52-week high, will definitely break the high this stock has given only a 30 to 35% return in the last 5 years. So there is a major breakout of this stock pending which can happen anytime in the next 1-2 years. The breakout of the HDFC Bank means a 15-20% return in the short term.

Dividend Growth  and Large-Cap Stability

So this is a large cap, what is large, so this is a Giant stock so don’t accept the multi returns that can be expected from it. Now in the last quarter of the report, HDFC Bank has as reported a healthy dividend, which is marginally higher than last year. So this is also a positive sign according to me.

HDFC Bank Strong Fundamentals

So basically this situation with HDFC is that because it is a fundamentally very strong business and this bank has consistently grown its revenue but the stock price has not kept up with it. So eventually their stock will definitely catch up and there are many investors who will continue to hold it.

Asian Paints

Now, the second stock of this blog which I already mentioned in this blog which is Asian Paints. Asian Paints is a market leader stock today, but due to the entry of Birla Group’s Grasim Paints, as its market share which can most definitely be reduced, and it is also wrong to ignore this threat completely.

Investor Mistakes and Market Uncertainty

And this is a common mistake investors make – that the stock I have invested in will win the race and beat the Grasim Paints. 

Honestly, humans don't know what will happen and we will know only when the time comes. Many competitors of Asian Paints have been in the market for a long time, and the share of Asian Paints has also reduced.

Strong Performance Despite Competition

But looking at the numbers, Asian Paints has been growing its revenues and profits non-stop for the last 10 years despite fierce competition.

And is it not so that Grasim Paints will come into the market, and Asian Paints will not make any efforts to maintain its dominance? In fact, a healthy competition between these 2 giants can seriously hurt the brands.

Impact of Competition on Pricing and Profits

Because if you think about it, both these brands will reduce their prices to compete with each other. So in such a situation, if someone goes to buy paint and gets paint of brands like Asian Paint or Grasim at a cheaper price, then he will not buy any other brand. But this competition can significantly affect their profit margins in the short to mid term.

Hypothetical Scenarios and Future Diversification

Now this is a hypothetical container, where nothing has happened yet, and secondly, Asian paints which is also diversifying itself in the paint industry, although there is still a lot of time to show the impact of this diversification on revenue.

Strong Revenue and Profit Growth

Well, year after Year Asian Paints has grown its revenues and profits, and it is expected to do the same this quarter too. 

But we look at this stock fundamentally, keeping the threat of inflation in mind. According to me, Asian Paint's revenue growth may slow down due to Grasim Paint, but not reduce - at least not at all for the next 2-3 years.

Valuation and Stock Performance

So this stock has given a 10% return in the last 3 years and it is also trading at its lowest PE in the last 5 years. From the valuation point of view Asian Paints which is already very down, at a time when its business has grown its revenue by more than 80%.

Undervaluation and Decision-Making

So revenue growth is 80%, profit growth is 50% but stock price increased only by 10%? As this situation has already significantly undervalued the stock. Now the question comes, what to do with the stock of Asian Paints? So here you will have to make this decision yourself according to your portfolio construction.

Current Valuation and Strategy

But currently, Asian Paints are quite fairly valued. And the Grasim threat is already considered in the stock price, but still, I will remain cautious with the main Asian Paint and will not make any major lumpsum investments.

Future Updates and Diversification Opportunities

So when the quarterly report comes on 9th May, well we will make a post on our main YouTube channel and will also update whether the strategy is the same or has changed. Now to hedge the position and to diversify the paint industry, investors can invest in some small-cap paint stocks also after some time.

Nestle India

Now, let’s move on to the 3rd stock of this blog list whose name is Nestle India, and now according to recent news, Nestle baby products are basically Cerelac which has added sugar, which is not there in the UK or European versions.

Cerelac Controversy

It means there is sugar in Indian Cerelac and there is no sugar in UK Cerelac. And the ethical point of view is kept aside legally, as Nestle has not done anything illegal here so regulatory action can be taken. Because the added sugar that is in their product which is already mentioned on the packaging.

Nestle’s Response and Potential Impact on Sales

Now Nestle, how it handles this situation will be known with time, but Cerelac is a major part of Nestle India's revenue and its consumer perception changes, as it could impact sales. But honestly, we doubt it will happen, so now you think to yourself that there is 30-40g of sugar in a can of Pepsi. But the Indian children are still here.

Pepsi and Future Sales Impact

 

Pepsi sales are at an all time high.  By the next quarter we will definitely know how much impact it has had on Cerelac's brand reputation. 

But, a very important thing. The growth of the Indian baby food market is projected at 14% CAGR in the next 6 years. 

This means Nestle has a lot of scope to revamp and rebrand its products, even if it means reducing market share.

Long-Term Investment Perspective

Now Mainly long-term investors there is no harm in such turbulent turbulence making which is a good brand struggle even for a year. So Nestle's long-term growth prospects are very good, if we talk about the annual profit of the company then they are growing consistently.

Debt Management and Dividends

Moreover, the company has a debt of only INR 300 CR. and the interest coverage ratio is 34 which shows that Nestle which has been able to manage their debt very well and is still doing so. This brand Nestle India stock also pays dividends, which makes it a good dividend growth stock.

Valuation and Investor Perspective

So if we talk about the valuation, this stock usually remains overvalued, but this Cerelac controversy will create a good opportunity for investors like we also have in this stock. Nestle already has a heavyweight in many investor portfolios, and we think many inverters will try to increase their investment in it mainly. But we also have to ensure that it does not become overweight in our portfolio.

Conclusion

In conclusion, let us conclude this blog, HDFC Bank, Asian Paint, and Nestle India. So, in our opinion, there are three fundamental strong large-cap companies and what will be our investment approach, this is what we have given here to you.

As our portfolio is quite diversified with around 60 stocks, if you want to see our portfolio then you can join us here, where you will get the list of all our stocks which will help you a lot in your research process. As the Nestle result is coming soon, and we will tell you through a community post or the Instagram story whether our stance on Nestle remains the same or it has changed.