Taking a moderate stance on the backdrop of volatile year ahead for market in 2018, Rohira expects Nifty index to trade at around 11,801-11,906 target level with upside of about 14 percent by the end of December 2018.
The year 2017 was a fantastic for equity market as the 50-share NSE Nifty shot up 28 percent, largely driven by liquidity following likely continuity in economic policies, government reforms, improvement in corporate earnings and positive global environment.
Even the broader markets showed smart returns in the year as the Nifty Midcap surged 45 percent, outperforming frontline indices. The rally also created lots of multibaggers during the year.
The buoyancy seen in the year going by is likely to continue in 2018 as well, though returns may be less than 2017 as eight assembly elections, last full-fledged Union Budget ahead of general elections 2019 and up-down in crude oil prices may cause volatility, experts suggest.
The confidence of the current government to execute a structural reform on broad level has leverage the investor with long-term optimism in the Indian equity market. The rally witnessed during the current year certainly paved buoyancy with similar expectation for next year.
Taking a moderate stance on the backdrop of volatile year ahead for market in 2018, he expects Nifty index to trade at around 11,801-11,906 target level with upside of about 14 percent by the end of December 2018.
Experts believe the domestic liquidity is expected to remain strong.
"With lack of any material returns, equities are the only asset class left, with only about 4-5% of total population having invested in equities, this trend is expected to last over the medium to long term. Hence, domesic liquidity should remain buoyant," Vinit Bolinjkar, HOR at Ventura Securities said.
Here is a list of stocks which rose up to 350% in 2017 can still deliver up to 54% upside in 2018:
Brokerage: Motilal Oswal
M&M Financial Services | Rating - Buy | Target - Rs 562 | Returns - 20%
Being one of the most widely levered NBFCs to the rural economy, Mahindra & Mahindra Financial Services is witnessing a clear turnaround in both growth and asset quality, with two successive normal monsoons (2016 & 2017) as well as the government’s focus on rural spending.
Over the past five years, MMFS has almost doubled its branch count – however, most branches are yet to reach full potential. As the company looks to sweat its branch potential with an improving business environment, we expect 15-18% AUM CAGR over the medium term. In addition, credit costs are expected to decline ~100bp over the medium term from around 3 percent witnessed in FY17.
With the recent capital raise of INR21b, MMFS is well equipped to support strong loan growth over the medium term. We increase FY18-20 BVPS estimates by 15-20 percent, while our EPS estimates are largely unchanged. We roll over our numbers to FY20E to arrive at a target price of Rs 562 (SOTP-based). BUY.
ONGC | Rating - Buy | Target - Rs 227 | Returns - 21%
Current price for gas production from difficult fields stands at USD 6.3/mmBtu (GCV) versus USD 2.89/mmBtu for APM gas. Gas production from S1/Vashistha and KG-DWN-98/2 would fetch premium pricing, benefiting profitability. Cost-control measures are also yielding results, in our view. Using Brent of USD 60 per barrel, we estimate EBITDA of Rs 74,300 crore and EPS of Rs 22.7.
The ongoing valuation exercise for HPCL is a cause of concern. An unjustified premium would be a double-whammy through holding company discount that investors would attach to ONGC’s stake in HPCL.
The stock is trading at 8.2x its FY19 EPS. We value the stock at Rs 227, valuing it at 10x average FY19-20 EPS, adjusted for other income. We reiterate Buy rating on the stock. Our valuation includes a negative value of Rs 4 for its stake in the Mozambique block. We also estimate that every USD 5 per barrel would result in around 10 percent change in EPS.
Brokerage: Kotak Securities
Dilip Buildcon | Rating - Buy | Target - Rs 1,217 | Returns - 31%
Dilip Buildcon is one of the leading private sector road-focused engineering procurement construction (EPC) contractors in the country. With a strong order book providing a revenue visibility of next 2.5 years, company is all set to bag the upcoming road awards with its superior balance sheet strength.
Post divestment of its road assets, DBL has transformed itself into a complete EPC player. Execution pace ahead of industry peers, strong margins coupled with lower debt and refinancing of interest rates are likely to be the key drivers for the stock.
Stock is currently trading at 16.5x/15.3x P/E on FY19/20 estimates and we recommend BUY on the stock with a price target of Rs 1,217 based on 20x FY20 earnings. We believe that the momentum in the stock is going to be maintained going forward too led by order inflow announcements, rating upgrades as well as refinancing of interest rates.
Key risk to our recommendation would come from lower than expected order inflow or slower rate of execution.
Vascon Engineers | Rating - Buy | Target - Rs 60 | Returns - 30%
Vascon Engineers has presence in construction and development of residential and commercial real estate projects with a history of over 25 years. After having a rough patch between FY13 to FY15, the company has embarked on a decisive restructuring exercise.
We feel the company could be a good turnaround story in FY19E with focus on affordable housing in both its EPC and real estate business.
The four pronged strategy of turnaround are: 1) Focus on increasing the order book of EPC business. The company has capability to execute 8 mn sq ft of projects/Rs 1,000 crore in value per annum as compared to potential revenue of around Rs 300 crore in FY18. It has already increased its EPC order book from Rs 520 crore in Mar’17 to Rs 720 crore at the end of first half of FY18; 2) Reviving the real estate business under the new CEO of Real estate division, by focusing on affordable housing in a big way; 3) Liquidation of non-core investments to the tune of around Rs 200 crore in its subsidiaries & other businesses to fund future growth plans; and 4) Exiting loss making services business in its 85 percent held subsidiary called GMP Technical Solutions.
This has the potential to swing PBT by Rs 10-15 crore between FY17 to FY19. On an overall basis, we expect company’s revenue and earnings to grow a CAGR of 26 percent and 231 percent, respectively between FY17-20. We expect 1257 bps improvement in EBITDA margins in FY17-20. Based on detailed working of individual businesses, we arrive at a SOTP price target of Rs 60. We initiate coverage on the stock with a BUY recommendation and potential upside of 30 percent.
Brokerage: ICICI Securities
Sandesh | Rating - Buy | Target - Rs 1,585 | Returns - 18%
We had come out with an I-direct Instinct on Sandesh in March, 2017. We reiterate that our upside thesis was based on Gujarat state elections given the company’s presence in the state. Moreover, we note that despite the recent run-up, the company is available at attractive valuations of 10x FY19 earnings despite a healthy growth matrix.
Sandesh has showcased decent growth in the regional print space at 16.7 percent CAGR over FY14-17 coupled with strong cash flow generation. The near term growth trigger in the form of Gujarat elections would boost the ad revenue growth in Q3FY18. Given the robust growth potential, we assign P/E multiple of 12x on FY19E basis (10-15 percent discount to other print players). Hence, we revise upward our target price to Rs 1,585 per share.
SKF India | Rating - Buy | Target - Rs 2,225 | Returns - 27%
SKF is the leader in the Indian bearing market with around 28 percent share. We believe the company is stepping on the growth trajectory due to traction in its key segments, auto and industrial. SKF derives around 54 percent sales from the automotive segment and around 46 percent of sales from the industrial segment.
In the auto segment, the company is witnessing improved demand in HUB-3 bearings with the Indian auto industry moving from first generation bearing to third generation bearing. With a pick-up in auto sales, we expect SKF’s manufactured product (auto) sales to exhibit 11.2 percent CAGR till FY20.
The industrial segment is also likely to perform well due to a pick-up in import substitution in this segment. This coupled with a pick-up in the railway and metro segment is likely to help the company deliver revenue growth at 11.6 percent CAGR in FY17-20. To cater to increasing demand, the company has planned a capex of Rs 80-100 crore over the next two years.
Overall, we expect SKF to deliver sales and PAT CAGR of 11 percent and 13.6 percent, respectively, in FY17-20. We value the company at 32x P/E on FY20E EPS of Rs 69.6 to arrive at a target price of Rs 2,225 per share.
Brokerage: BP Equities
GMM Pfaudler | Rating - Buy | Target - Rs 1,106 | Returns - 54%
GMM Pfaudler has a leadership position in GL reactors with strong pricing power in the domestic market. The company is well positioned to witness steady revenue and profitability growth going forward in the business through brown field expansion and higher capacity utilization on the back of steady domestic demand and outsourcing opportunity from the Parent (Pfaudler Inc) to add fuel to GL business growth.
GMM is likely to leverage its deep rooted relationship with GL customers to cross sell its non-GL equipment. We estimate revenue/EBITDA/PAT to clock 18.6/27/24.8 percent CAGR during FY17-20.
At the current market price (of Rs 717) the company is trading at 20.6x its FY19 EPS of Rs 34.9 and 16.2x its FY20 EPS of Rs 44.2. We believe with the market leadership positioning in industry, strong brand name, sticky client base, superior growth in NGL and thus deserve premium valuation.
We initiate coverage on the stock & recommend ‘BUY’ rating by assigning 25x to its FY20 earning. We arrive at a target price of Rs 1,106 (potential upside of 54 percent from CMP) for an investment horizon of 15-18 months.
Brokerage: Reliance Securities
Asian Granito | Rating - Buy | Target - Rs 701 | Returns - 30%
Asian Granito is the third largest listed tile player in India with total manufacturing capacity of 32msm. Over the past decade and half, the Company has aggressively increased its capacity from 2,500 square meter per day to 100,000 square meter per day on the back of increasing own manufacturing capacities, joint ventures and outsourcing.
Going forward, we expect the growth momentum to accelerate further owing to faster formalisation of industry post GST roll-out, increasing focus on premiumisation, higher A&P spend and enhanced distribution footprint.
We expect Asian Granito to report revenue, EBITDA and net profit CAGR of 16 percent, 22 percent and 40 percent, respectively through FY17-20. Considering visible improvement in growth trajectory coupled with attractive valuations of 15.2x FY20 earnings (45 percent discount to market leader Kajaria), we initiate coverage on the stock with a target price of Rs 701, which implies 30 percent upside from the current levels.
Brokerage: SMC
Marico | Rating - Buy | Target - Rs 390 | Returns - 23%
Marico's principal products include edible oils and value added hair oils. The Company's geographic segments include India and International, which includes primarily the Middle East, The South Asian Association for Regional Cooperation (SAARC) countries, Egypt, Myanmar, Malaysia,
South Africa and Vietnam. It offers various brands in the categories of hair care, skin care, health foods, male grooming and fabric care.
Factors such as strong brand equity in its flagship brands, extension into higher growth and underpenetrated categories, revival in discretionary demand and improving economic scenario and unorganised market are likely to benefit Marico.
Thus, it is expected that the company would see good growth going forward and the stock will see a price target of Rs 390 in 8 to 10 months time frame on a target P/E of 22.65x and FY19 earnings of Rs 7.8.
Essel Propack | Rating - Buy | Target - Rs 361 | Returns - 23%
Essel Propack (EPL) is a leading manufacturer globally of laminated plastic tubes and laminates. Its products are extensively used in the packaging of products across categories such as beauty & cosmetics, pharma & health, foods, home and oral care. The FMCG and pharma industry which consume the Company’s products continue to offer sustained growth opportunity for the Company.
Driven by innovation and technology, the company continues to grow offering smart packaging solutions to replace traditional packaging forms like bottles, metal and plastic tubes both in existing categories and in newly emerging categories and applications from food to pharmaceuticals to lifestyle.
Thus, it is expected that the company would see good growth going forward and the stock will see a price target of Rs 361 in 8 to 10 months time frame on a target P/E of 22x and FY19 earnings of Rs 16.4.
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