Brokerages turn Santa!--10 stocks where they initiated coverage could give up to 23% return

Indian market is going through a big bull run and the party is happening in small and midcaps which looks slightly overpriced but analysts’ think that the party is not over yet in the broader market and the momentum could well continue in the year 2018.

 

It is time for a party this Christmas! Santa Claus fulfilled wishes of equity investors as benchmark indices rallied over 30 percent from last Christmas.

The S&P BSE Sensex rallied from 25,807 on 26 December 2016 to 33,940 recorded on 22nd December 2017. In the case of Nifty, the index rallied about 2,500 points in the last one year.

Indian market is going through a big bull run and the party is happening in small and midcaps which looks slightly overpriced but analysts’ think that the party is not over yet in the broader market and the momentum could well continue in the year 2018.

We saw a remarkable rally from 8000-10500 from Christmas to Christmas is a big reason for a grand party to investors. The global equity market is going through a bull run but we also did well despite some bottlenecks on the domestic front.

Domestic liquidity is a key driver of Indian equity market Bull Run especially the Midcap and Smallcap space which witnessed eye-popping returns to investors,” he said.

The benchmark indices might give another 10-15 percent return in the year 2018 but there will be plenty of action in quality individual stocks, suggest experts.

The focus of the investors has turned towards budget as the upcoming union budget will be the biggest trigger for the stock markets. The reforms which were initiated this and the last year be it Demonetization or GST should play out over 2018 and 2019.

“Market participants would focus on the government’s plan to spend and kick-start the economy through further investment in the infrastructure and job creation industries,” D.K. Aggarwal, Chairman and Managing Director, SMC Investments, and Advisors told Moneycontrol.

“It is recommended to investors to invest in quality stocks on every decline after doing proper homework. By quality stocks, we mean stocks that have greater clarity on their earnings trajectory and have strong fundamentals such as good management, return ratios, etc.,” he said.

Here is a list of 10 stocks which global brokerages initiated coverage for the first time. The minimum holding period is 12 months in which these stocks could give up to 23% return:

Credit Suisse: Hindustan Zinc | Rating: Neutral | Target: Rs 325| Return 12%

Hindustan Zinc is an integrated mining and resources producer of zinc, lead, silver, and cadmium. It is a subsidiary of Vedanta Resources and is the world's second-largest zinc producer.

Credit Suisse has initiated a neutral rating on Hindustan Zinc with a target price of Rs 325 expecting the company to expand the volume to 1.2 mt mined metal production by FY20. It also expects cost moderation as it shifts to 100 percent underground mining.

EBITDA/tonne is likely to stay healthy with decent free cash flow generation, it added. The research firm is of the view that silver prices have and output is expected to grow while zinc prices have peaked. Despite planned volume growth, Hindustan Zinc is fully valued, it said.

In a bull case scenario, Credit Suisse has a target of Rs 380 assuming higher commodity prices.

Credit Suisse: S Chand and Company | Rating: Outperform | Target Rs 625| Return 21%

1. Chand Group is one of the largest publishing and education services enterprise, founded in 1939, based in New Delhi. The publishing house prints books for primary as well as higher education including engineering, and commerce.  The company operates from 110 offices and branches.

Credit Suisse has initiated an outperform rating on S Chand and Company Limited with a price target of Rs 625. It expects a compounded growth rate of 14 percent, 13 percent and 25 percent of revenue, operating income and earnings per share by March 2020.

The house believes that lower borrowing cost and the tax rate is likely to accelerate earnings per share. adding that the management is looking at two acquisitions in Western India state board and Cambridge international board.

Axis Capital: JSW Energy | Rating Buy | Target: Rs 100| Return 12%

JSW Energy is a division of JSW Group which caters to various areas of power including generation, transmission, and trading. The company’s presence extends across India and also includes stakes in a coal mining Company in South Africa.

Research and broking firm Axis Capital has initiated a buy rating on JSW Energy with a target price of Rs 100. It believes that strategically located assets result in high plant load factor adding that declining share of merchant volumes and a higher share of PPA is likely to increase earnings visibility which will substitute 50 percent of imported coal with cheaper domestic coal.

The under-leveraged balance sheet is likely to aid inorganic growth while balance sheet has the capacity to acquire up to 3GW capacity, it added.

Axis Capital: Mahindra Logistics | Rating: Buy | Target: Rs 525| Return 17%

Mahindra Logistics operates in two distinct business segments, supply chain management, and corporate people transport solutions. It provides customized integrated third-party supply chain and people transport solutions to companies across multiple industries.

Axis Capital has initiated a buy on Mahindra Logistics with a target price of Rs 525. The house is of the view that focus on non-automotive and reducing dependence on M&M group is likely to aid margin wherein M&M group's contribution may reduce to 38 percent by FY20 as against 54 percent in FY17.

The firm believes that better client mining and new client additions are likely to drive growth while gross margin may remain largely stable across SCM and PTS business. GST is likely to drive clients’ focus on improving supply chain efficiency, it said.

Axis Capital expects 28 percent earnings CAGR and firm return ratios are given limited capex and also expects premium valuations to sustain on MLL’s strong positioning.

Motilal Oswal: Oberoi Realty | Rating Buy | Target: Rs 580| Return 23%

Oberoi Realty is a real estate developer based in Mumbai. The company has developed over 39 projects at locations across Mumbai. Its main interest is in residential, office space, retail, hospitality and social infrastructure properties in Mumbai.

Research and broking firm Motilal Oswal has initiated a buy on Oberoi Realty with a price target of Rs 580. It believes that sharp focus and trusted brand are the key strengths adding that the company is likely to be a key beneficiary of likely consolidation post RERA.

Portfolio expansion may provide consistent cash flows. A recent foray into affordable housing should help it enjoy tax incentives adding that low net debt provides ample room to acquire large land parcels in the Mumbai.

The house expects revenue and net profit to grow at a compounded rate of 47 percent and 56 percent respectively by March 2020 while high operating margins is likely to be backed by premium pricing. In a bull case scenario, Motilal Oswal has a price target of Rs 638 per share.

Ventura Securities: Everest Industries | Rating: Buy | Target: Rs 712| Return 22%

Everest Industries specializes in providing building products and building solutions for commercial industrial and residential sectors including roofing, ceilings, walls, and flooring.

Ventura Securities has initiated a buy on Everest Industries with a price target of Rs 712. It is of the view that government policies are likely to promote housing sector which is a positive sign adding the boards and panels segment may lead to better profitability. New product launches are likely to maintain growth momentum.

The house believes that change in product mix is likely to boost profitability. It expects revenue, operating income, and net profit to grow at a compounded rate of 11 percent, 53 percent and 173 percent by March 2020.

ICICIdirect: Narayana Hrudayalaya | Rating: Buy | Target: Rs 340| Return 14%

Narayana Hrudyalaya is a chain of multi-specialty hospitals in India, with its headquarters in Bengaluru and operates a chain of hospitals, heart centres, and primary care facilities across India. Narayana Health was founded by Devi Shetty and has its flagship hospital in Bangalore.

Research and broking firm ICICIdirect has initiated a buy on Narayana Hrudayalaya with a target of Rs 340. It believes that government drive on affordability favours company’s cost-efficient and affordable model. Improvement in case mix is likely to boost average realisation per operating bed.

The company is well poised to thrive in the domestic healthcare delivery and expects RoCE to improve to 19 percent by FY20 as against 12.5 percent in FY17. It also expects revenue/net profit to grow at a CAGR of 17 percent/34 percent over FY17-20.

Edelweiss Investment: GNA Axles | Rating: Buy | Target: Rs 455| Return 12%

GNA Axles is the supplier and manufacturer of ring gears, rear axle shafts, shafts assemblies gearbox exporter of auto parts like gear, axel and starter drive engine headquartered in Jalandhar, Punjab.

Edelweiss Investment has initiated a buy on GNA Axles with a target of Rs 455 per share. The house is of the view that strong presence in exports and the domestic market provides competitive edge while cost reduction and the new initiative is likely to fuel the rise in topline and bottom line.

Edelweiss expects strong growth momentum in North America heavy truck market which may drive exports while on the other hand, healthy domestic demand scenario in M&HCV and OH is likely to drive domestic business. In a bull case scenario, Motilal Oswal has a target of Rs 505 on GNA Axles.

IIFL: Mphasis | Rating: Buy | Target: Rs 810| Return 10%

Mphasis is an IT services company based in Bangalore, India. The company provides infrastructure technology and applications outsourcing services, as well as architecture guidance, application development and integration, and application management services.

It serves financial services, telecom, logistics, and technology industries. Research and broking firm IIFL has initiated a buy on Mphasis with a target of Rs 810.

The firm believes that the company is in middle of a turnaround in its growth and profitability profile. It is of the view that strong deal wins and optimization of cost pyramid is likely to drive revenue.

IIFL expects revenue/EPS to grow at CAGR of 10 percent/12 percent over FY17-20 with 13 percent dollar revenue CAGR. The firm also expects Mphasis to continue returning cash to shareholders on a consistent basis.

Credit Suisse: Vedanta | Rating: Outperform | Target: Rs 345| Return 9%

Vedanta is a natural resources company with operations in zinc, lead, silver, copper, iron ore, aluminium, power and oil & gas. It is the largest mining and non-ferrous metals company in India and has mining operations in Australia and Zambia[2] and oil and gas operations in three countries.

Global research firm Credit Suisse has initiated an outperform rating on Vedanta with a target of Rs 345. It believes that aluminium business is the most important for incremental profits adding that global supply-demand and surging raw material prices bodes well for aluminium.

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