Introduction
The Indian equity markets have seen exponential growth since the lows of March 2020 to nearly witness a two-fold rise and are currently standing near all-time high levels. Multiple stocks from the
mid-cap and
small-cap have turned into multi-baggers and have given multifold returns to the investors.
At the current levels of the Indian
equity markets, the investors who prefer to reduce their risk can potentially turn to stocks of blue-chip companies.
What are Blue-Chip Stocks?
The blue-chip stocks are stocks of those companies that are generally market leaders in their segment (
market capitalization > INR 50,000 crores) having sound financials, robust management, minimal / no debt on their balance sheet and a proven sales track record. These companies have a really high brand value and are generally household names across the country given the quality of product / service that they provide. These blue-chip investments have lower risk with consistent returns and have weathered multiple economic downturns in the past and these companies have proven that they can continue to grow with profitability irrespective of the market conditions. The blue-chip investments are best for people who generally have a lower risk profile but also want their money to be a compounding machine.
Let’s have a look at the best blue-chip stocks in India:
1. Reliance Industries Limited:
Sector: Oil and Gas
| FINANCIAL SNAPSHOT: |
| Market Capitalization (in crores): |
INR 13,49,475.00 |
Price to Earnings: |
27.47 |
| Current Price: |
INR 2,093.90 |
Price to Book Value: |
1.69 |
| Debt to Equity |
0.32 |
Earnings per share: |
76.23 |
*The numbers are as of 20
th July, 2021.
Reliance is India’s largest publicly listed company in terms of market capitalization. The company initially was into the petrochemical business (exploration, refining, marketing and distribution of petroleum and its allied products) but with the advent of Reliance Jio and Reliance Retail, the company now is a conglomerate functioning in multiple divisions namely retail, telecom and technology space.
The company in FY21 recorded a revenue of INR 466,924 crores with a net profit of INR 53,223 crores. The major cash flows of
Reliance Industries are driven by the robust oil and gas division but its other ventures ensure diversification and a platform to achieve consistent growth for the upcoming fiscal. Reliance managed to clock a return on equity of 7.01% in FY21 despite the market being subdued due to the coronavirus pandemic and its resultant causing pressure upon the oil and gas business. The company has also successfully become a debt-free company and this was largely possible due to the value added by its other business verticals.
The company has large expansion plans in the retail, telecom and technology space which will create value going forward in the future. The company also aims to achieve carbon neutrality by 2035 thereby focusing upon the energy business while simultaneously maintaining a continuous investment in their oil and gas business.
2. Asian Paints:
Sector: Paints
| FINANCIAL SNAPSHOT: |
| Market Capitalization (in crores): |
INR 3,03,015 |
Price to Earnings: |
96.52 |
| Current Price: |
INR 3159.05 |
Price to Book Value: |
22.91 |
| Debt to Equity |
0.03 |
Earnings per share: |
32.73 |
*The numbers are as of 20
th July, 2021.
The company enjoys a dominant market share of nearly 50% in the domestic paints industry and more than 70% market
share in the organized paints industry.
Asian Paints ltd network that is nearly impossible to be replicated and has a wide range of products with extremely high brand recall within its customers.
The company in FY21 recorded a revenue of INR 21,712 crores and a net profit of INR 3,178 crores. The EPS has been on a consistent increase from INR 20.22 per share in FY2017 to INR 32.73 in FY2021 and the company has consistently been able to clock a return on equity at 25% since the last five fiscals.
With the company adding new products in their array of an already large existing product range and with the expansion strategies of moving from manufacturing and supplying paints to providing a complete home décor experience, there is still huge potential to grow. The additional advantage of focusing on its core niche market instead of unnecessary expansion of business verticals has been a big reason why they have consistently been the market leaders and would continue to do so.
3. Avenue Supermarts (D-Mart):
Sector: Retail
| FINANCIAL SNAPSHOT: |
| Market Capitalization (in crores): |
INR 3,03,015 |
Price to Earnings: |
190.54 |
| Current Price: |
INR 3397.30 |
Price to Book Value: |
18.07 |
| Debt to Equity |
0.00 |
Earnings per share: |
17.83 |
*The numbers are as of 20
th July, 2021.
Avenue Supermarts is a blue-chip stock that owns and operates D-Mart stores. D-mart stores are retail chains that offer a wide range of products from grocery to home and personal care products under one single roof. The company does not work on a rental model and works on a greenfield model and is the owner of every store that it operates. D-mart operates 221 stores across 11 states within the country. The company works on really strong cost-controlled measures with strong procurement ability which helps them list their products at a really competitive price. This leads to high inventory turnover and increased profitability.
As of FY21, the revenues stood at INR 24,870 crores with a net profit of INR 1300 crores. There has been a consistent rise in
EPS from 8.49 in FY17 to 20.71 in FY21. One major cause of concern would be the falling return on equity as the ROE in FY18 was 17.26% which has dropped down to 9.02% in FY21. Since the company operates on an ownership model, the company cannot leverage and introduce multiple stores and increase their access point to increase their customer base but the company is poised to grow organically due to the massive untapped market lying ahead of them.
4. HDFC Bank:
Sector: Banking
| FINANCIAL SNAPSHOT: |
| Market Capitalization (in crores): |
INR 7,97,588 |
Price to Earnings: |
25.05 |
| Current Price: |
INR 1443.15 |
Price to Book Value: |
3.79 |
| - |
- |
Earnings per share: |
57.60 |
*The numbers are as of 20
th July, 2021.
HDFC Bank is the leading private sector bank in the Indian banking industry. The bank is the leading lender in the retail loan segment which is driven by car, home and personal loans and credit card business with a steady increase in
market share. With India being a young country in terms of the median age of the population, the bank is poised to leverage that advantage and increase its growth due to a strong presence in the retail loan segment.
The company’s FY21 revenues stand at INR 1,28,552 crores and the net profit has more than doubled from INR 15,287 crores in FY17 to INR 31857 crores in FY21. The company has been consistently able to clock a return on equity of more than 15% since the last five fiscals. The company has a robust loan book standing at INR 11.3 lakh crores with a 13.9% increase on a year-on-year basis.
HDFC Bank is a one-stop solution for all the financial needs of an individual in a growing economy and with a healthy balance sheet and revenue growth guided by strong management which focuses upon asset quality leveraging all the organic and inorganic growth opportunities that are poised before them.
5. Larsen & Toubro:
Sector: Heavy Engineering
| FINANCIAL SNAPSHOT: |
| Market Capitalization (in crores): |
INR 2,23,381 |
Price to Earnings: |
19.29 |
| Current Price: |
INR 1590.35 |
Price to Book Value: |
2.87 |
| Debt to Equity |
1.73 |
Earnings per share: |
82.46 |
*The numbers are as of 20
th July, 2021.
Larsen and Toubro is India’s largest infrastructure and heavy engineering company and stands with a gigantic order book of INR 3274 crores in FY21. Such high-order books reflect the high revenue possibility in the near future. The company is diversified into multiple segments like power, infrastructure, heavy engineering, defense engineering, hydrocarbon, financial services, IT and reality.
The FY21 revenues stand at INR 135,979 crores with a net profit of INR 4668 crores. The net profit decreased drastically from INR 10,167 crores in FY20 to INR 4668 crores in FY21 owing to a major part of the year being lost to the pandemic. The company still managed to post EPS of INR 82.49 per share with the return on equity being around 15.26%.
With huge order books and diversification into multiple non-correlated businesses, the company has great potential to unlock value considering that the spending on infrastructural activities is going to be one of the biggest elements in the budget of the government.
6. Maruti Suzuki:
Sector: Automobiles
| FINANCIAL SNAPSHOT: |
| Market Capitalization (in crores): |
INR 2,18,485 |
Price to Earnings: |
49.76 |
| Current Price: |
INR 7232.70 |
Price to Book Value: |
4.17 |
| Debt to Equity |
0.01 |
Earnings per share: |
145.34 |
*The numbers are as of 20
th July, 2021.
Maruti Suzuki India Pvt. Ltd. is one of India’s largest and oldest automobile manufacturers. The company has a dominance in the market with around 50% market share in the passenger car market segment. The automobile market has been subdued for a couple of years but with the revival in demand, Maruti will be poised as the biggest beneficiary of the same.
The company’s revenues dropped from INR 75,660 crores in FY20 to INR 70,372 crores in FY21. The major hit was seen in the profitability figures as it dropped by 43.6% to INR 4220 crores from FY19 to FY21. Similarly, the EPS has also reduced from INR 253 in FY19 to INR 145.3 in FY21. The reduced margins and sales figures could see revival once the demand stabilizes going forward.
The pandemic created a subdued demand for the automotive industries as the focus shifted from luxuries to necessities. With the rollout of mass vaccination and with the unlocking of the economy, there can be a revival in demand for the automotive segment. As against the industry peers, Maruti Suzuki is valued at a reasonable price to earnings of INR 49.76 as against the market price to earnings of 69.52 hence giving Maruti Suzuki much room to grow.
7. Hindustan Unilever Ltd:
Sector: FMCG
| FINANCIAL SNAPSHOT: |
| Market Capitalization (in crores): |
INR 5,72,101 |
Price to Earnings: |
71.55 |
| Current Price: |
INR 2434.90 |
Price to Book Value: |
12 |
| Debt to Equity |
0.00 |
Earnings per share: |
34.03 |
*The numbers are as of 20
th July, 2021.
Hindustan Unilever is one of India’s oldest FMCG companies with a proven track record of over 80 years. The company makes a variety of products ranging from food and beverages, cleaning agents and personal healthcare products. The products of the company have high brand recall and brand visibility which is reflected in its financial performance. Twelve of the company’s products generate an annual turnover of more than INR 17,000 crores for the company.
The revenues have seen a consistent growth from INR 33162 crores in FY17 to INR 47028 in FY21 backed by an increase in profitability to INR 8000 crores in FY21. The EPS has steadily increased from INR 20.68 in FY17 to INR 34.03 in FY21. The company has no debt on its balance sheet and has multiple brands within which the company’s products are market leaders. Brands like Axe, Lux, Dove, Knorr, Lipton, Lifebuoy, Surf Excel, Rin, Vim and Ponds are recognizable brand names in every household of the country.
HUL’s strong financials and brand value helps it to maintain its leadership position in the domestic FMCG market and the company has the potential to weather any economic downturn/crisis which makes it an evergreen blue-chip investment to make.
8. Housing Development Finance Corporation (HDFC):
Sector: Housing Finance
| FINANCIAL SNAPSHOT: |
| Market Capitalization (in crores): |
INR 4,43,989 |
Price to Earnings: |
36.91 |
| Current Price: |
INR 2458.75 |
Price to Book Value: |
4.14 |
| Debt to Equity |
2.85 |
Earnings per share: |
66.61 |
*The numbers are as of 20
th July, 2021.
Housing Development Finance Corporation (HDFC) is the leading housing finance company in India with an extremely widespread distribution network. The company has diversified into Banking, Asset Management, Life Insurance, General Insurance and Real estate to create a strong base of growth for the future.
The revenues of the company have more than doubled from INR 61,034 crores in FY17 to INR 139033 crores in FY21 but the profit has seen a 20.5% dip from INR 17,080 crores in FY20 to INR 13,566 crores in FY21. The result of the dip in profitability could be seen in the EPS too with the EPS dipping to INR 105.59 in FY21 from INR 124.14 in FY20.
HDFC is known for its management’s record of execution, adequate capitalization levels, strict underwriting standards, high asset quality and diversification into various allied segments will help the company to grow while the debt to equity ratio has to be kept in check and adherence should be made that the asset quality does not weaken going forward.
Conclusion:
The blue-chip stocks are investments into one of the best companies that have a long-standing record of performance and delivery of returns and they still have the potential to grow going forward. These companies make a vital contribution to the growth of the nation as a whole and are pivotal for the growth of the nation too. Hence, the risk associated with these blue-chip stocks is very low and still can provide consistent returns in the future.
