Experts feel if the March quarter 2018 earnings as well as FY19 come in line with estimates then there could be sharp upside in the market and may surpass earlier record highs.
Indian equities are expected to stay volatile following a 10 percent correction since January, experts believe, even as they say investors should closely watch state elections, Fed interest rate stance and crude price.
Still, they held out hope in-line earnings could help markets take out fresh highs.
If earnings come in line with estimates, markets may start moving up, though there could be volatility intermittently due to elections, global events etc.
Though volatility is likely to rise, we believe that the markets will move up and deliver decent returns during the year. We forecast Sensex to end year 2018 at 37,500, which represents a 1 year forward PE of 16.5x, and an upside of 15 percent from current levels.
The good thing is that micros are looking good and the earrings trajectory is looking better. In the last two quarters, we have seen that the trend is somewhat changing or reversing (fewer banks). Growth which comes on the back of earnings is far more stable and far more sustainable than the liquidity-driven growth in the market. That is the reason why I believe that FY19 could be better. If we look at the collections in the GST, direct collections – both would be better," he reasoned.
He expects to see the Nifty at 11,800 in FY19 which translates into an upside of 17 percent from current levels.
Karvy, however, said factors like US-China trade war, NPA resolution and state elections are likely to limit upside.
Here is the list of 21 stocks that have the potential to deliver up to 60 percent returns over the next 12-18 months, as outlined by various brokerages.
Excerpts from their notes.
Motilal Oswal
Shree Cement | Rating - Buy | Target - Rs 18,867 | Return - 17%
We believe that the key trigger for Shree Cement over the next 12-15 months would be domestic profitability, especially because it is adding around 13 million tonne of capacity domestically (around 3x of acquired capacity) and also diversifying into newer markets.
Given Shree Cement's low cost curve and capex cost, it should be able to generate healthy return ratios from domestic operations, in our view.
Moreover, any improvement in profitability from the acquired capacity in the UAE would be an added benefit. Shree Cement is likely to deliver EBITDA CAGR of 29 percent over FY18-20, led by healthy volume growth (driven by rapid capacity addition) and pricing improvement (driven by higher realisations in the underlying markets in the north).
In our view, Shree Cement – with its superior return ratios and strong earnings growth – deserves to trade at premium valuations. We, thus, value the stock at 15.5x FY20E EV/EBITDA to arrive at a target price of Rs 18,867. Maintain Buy.
Delta Corp | Rating - Buy | Target - Rs 332 | Return - 33%
Delta Corp operates three floating casinos (Deltin Royale, Deltin Jaqk and Deltin Caravela) and one onshore casino (Deltin Casino – part of Deltin Suites) in Goa.
Deltin Royale and Deltin Jaqk are Delta Corp’s major casinos with vessel passenger capacity of 200-400. Deltin Caravela and Deltin Casino are relatively small with passenger capacity of 200 or less. Delta Corp incurs Rs 37 crore as license fee to operate the four aforementioned casinos. However, the outlay for the four licenses would increase to Rs 105 crore once the revised fee structure becomes effective.
On March 27, 2018, the Goa government approved the revised fee structure for onshore and offshore casinos, which will be applicable from April 2018.
In our view – and also based on our communication with management – Delta Corp has two options to rationalize cost: (1) phase out the licenses for both Deltin Suites and Deltin Caravela and (2) phase out the license for Deltin Suites. This should help Delta Corp to minimise the impact of the revised fee structure, and thus, limit losses.
We believe that, whichever option the management choses, some traffic is likely to shift to Jaqk and Royale. This will help recoup EBITDA – around Rs 10.6 crore under option 1 and Rs 5.3 crore EBITDA under option 2 – over a period of time, assuming 50 percent of the traffic is diverted.
To fully mitigate the impact, the entry fee will need to be increased by Rs 755 under option 1 and Rs 1,217 under option 2, based on our estimates.
We believe that the move may dislodge some casino operators, but do not see it having much impact on Delta. In fact, it may increase traffic to
Delta’s casinos. We reiterate our Buy rating with a revised target price of Rs 332 per share.
Brokerage: CESC Research
Kajaria Ceramics | Rating - Buy | Target - Rs 756 | Return | 33%
Kajaria Ceramics' revenue had grown at a CAGR of around 14.2 percent during FY12-17; the growth was aided by the volume growth of 11.3 percent CAGR and realisation grew by CAGR of 3.5 percent. In the 9MFY18, KJC’s revenue grew by 7 percent YoY; volume grew by 7 percent YoY and realisation was flat.
We expect Kajaria's revenue to grow at CAGR of 16.9 percent between FY18-20 and the growth will be aided by the volume growth of CAGR 14 percent and a realisation improvement of CAGR 2.5 percent.
We expect Kajaria’s PAT to grow at a CAGR of 26.6 percent to Rs 400 crore in FY20, as we expect the operating margin expansion to flow through the PAT, coupled with de-leverage balance sheet, which will result in lower finance cost. We expect PAT margin to expand 160bps to 10.7 percent in FY20.
We maintain our Buy rating on the stock, with a target price of Rs 756 based on a target P/E of 30XFY20EPS.
Somany Ceramics | Rating - Buy | Target - Rs 843 | Return - 27%
Somany Ceramics' revenue had grown at a CAGR of around 16.1 percent during FY12-17, aided by the volume growth of 9.6 percent CAGR and realisation grew by CAGR of 6.1 percent. In the 9MFY18, Somany's revenue de-grew by 3.8 percent YoY (adjusted for GST); volume de-grew by 1.7 percent YoY and realisation de-grew by 2.2 percent YoY.
We expect SCL’s revenue to grow at CAGR of 17 percent between FY18-20 and the growth will be aided by the volume growth of CAGR 12.2 percent and a realisation improvement of CAGR 3.8 percent which will be largely due to change in product mix.
We expect SCL’s PAT to grow at a CAGR of 35 percent to Rs 143 crore in FY20, as we expect the operating margin expansion to flow through the PAT, coupled with de-leverage balance sheet, which will result in lower finance cost. We expect PAT margin to expand 147bps to 5.9 percent in FY20.
We initiate coverage on SCL with a Buy rating and with a target of Rs 843.
Brokerage: Edelweiss
India Grid Trust | Rating - Buy | Target - Rs 108 | Return - 15%
We initiate coverage on India Grid Trust with Buy and target price of Rs 108 on account of: a) it being an excellent play on infrastructure assets (transmission) with long-term perpetual yield along with earnings growth option; b) certainty of high cash flows as IndiGrid earns revenue from contracted tariffs under long-term contracts, eschewing volume risks; and c) ROFO assets boost visibility with 3.5x EBITDA potential and 4x growth in net distributable cash flow, which ensure 3.8 percent DPU growth over FY18-22E.
We like IndiGrid’s business model, which entails no volume and tariff revision risks, unlike Power Grid, but fetches similar around 15 percent return (yield + DPU growth) per annum. We anticipate drop down of all ROFO assets to improve around 400bps to 12.1 percent over the next four years, led by higher project IRRs and leverage benefits.
Interest rate risks, construction delay in ROFO assets and poor liquidity in instrument are key risks.
Marico | Rating - Buy | Target - Rs 373 | Return - 14%
Management (Saugata Gupta, MD & CEO of Marico) meet key takeaways: (i) in medium term, Marico is confident of clocking 8-10 percent volume growth (albeit relatively soft Q4FY18), translating into around 13-15 percent revenue growth; (ii) management believes the spike in copra prices has almost topped out at Rs 130-140/kg levels; (iii) volume growth pressure in Saffola edible oil is temporary and course corrections are underway; and (iv) innovations and new launches in Saffola foods to continue.
With two price hikes (around 22 percent YTD) in Parachute and copra prices not expected to inflate materially from hereon, we expect margin pressures to ebb from second half of FY19.
We expect Marico to sustain growth led by price hikes in Parachute, new product launches, market share gains and improvement in IB. Amid a challenging raw material scenario also (now largely behind), Marico has commendably managed its margins. On these positives, we retain target multiple of 42x FY20 and arrive at target price of Rs 373. Maintain Buy.
Tejas Networks | Rating - Buy | Target - Rs 530 | Return - 44%
Tejas Networks has informed stock exchanges that its FY18 revenue is likely to dip YoY versus earlier 5 percent growth guidance. The company attributed the guidance change to delays in receiving certain large orders.
However, it highlighted that order pipeline remains healthy and the company is set for strong revenue and profitability spurt in FY19.
Tejas has also bagged BSNL’s Rs 340 crore BharatNet project order, which will be a key contributor to FY19 revenue growth.
We expect Tejas to sustain its growth momentum riding expanding product portfolio and expansion in emerging geographies. Moreover, the stock trades at attractive 16.0x FY20E EPS, considering strong revenue & earnings growth and high return ratios.
We are confident that the company will recover lost revenue in FY19. Maintain Buy with Rs 530 target price.
Brokerage: Choice Broking
ICICI Bank | Rating - Buy | Target - Rs 385 | Return - 38%
ICICI Bank is the largest private bank in India with business size stood at Rs 10,22,790 crore as of December 2017. While the under provisioning for NCLT List 2 and RBI revised norms of stressed assets to increase provisions in the near term which will impact profitability, ICICI Bank is likely to get benefit on the back strong focus on retail segment, better rated corporates, robust liability franchise and declining slippage.
The impact of NCLT loans provisioning and slippage from restructuring schemes would be limited given the huge business size of the bank. Further, the latest correction makes stock valuation attractive for investment perspective. Our recommended potential price is Rs 385 determined after valuing its standalone business at Rs 300 per share (P/ABV at 2.2(x) to FY19E adjusted BVPS at Rs 135.7)
and adding Rs 115 of its subsidiaries valuation.
Brokerage: Reliance Securities
Indian Bank | Rating - Buy | Target - Rs 445 | Return - 46%
The bank continues to remain the best-managed public sector banking from all major fronts. Analysis of its stressed assets clearly suggests that it is approaching the end of recognition of stressed loan cycle, which along with higher PCR clearly indicates sharp moderation in credit cost from FY19 onwards.
The bank has increased its loan growth guidance to 21 percent for FY18 from earlier 15 percent. Apart from the Retail, Agriculture and MSME segments, the bank also witnessed a strong growth in corporate loans.
Further, strong revival in loan growth along with improvement in NIMs and other income suggests continued improvement in operating profit, going forward.
Hence, we expect healthy traction in earnings to continue owing to robust growth in loan book, moderate credit cost and healthy margins.
We expect the Bank’s earnings to clock 30 percent CAGR through FY17-20E, and continue to recommend Buy on the stock with a target price of Rs 445.
Brokerage: ICICI Securities
Bodal Chemicals | Rating - Buy | Target - Rs 150 | Return - 27%
Bodal is the largest integrated manufacturer of dyestuff and dye-intermediates in India. It has undertaken multiple expansions in its core business and diversified areas with subsequent ramp expected to fuel next leg of growth in FY19-20.
Bodal successfully raised Rs 225 crore by way of a QIP issue in October, 2017 to fund an impressive capex plan. Given the healthy product demand and conducive environment post GST for organised players, we expect it to clock sales, EBITDA & PAT CAGR of 9 percent, 9.2 percent & 12 percent, respectively, in FY18-20.
On the balance sheet front, post the QIP issue, Bodal has a cash surplus of around Rs 50 crore with corresponding gross debt: equity at 0.2x as of FY18. The company has a capital efficient business model wherein it realises around 2.2x asset turnover and records around 15 percent EBITDA margins amid controlled working capital cycle (around 75 days) thereby resulting in core return ratios in excess of 20 percent.
It also generates healthy cash flows, with present CFO yield of around 10 percent. We value the company at Rs 150. We have a Buy rating on the stock. We also derive comfort from an increase in core promoter stake, environmentally compliant chemical manufacturing facilities and strong customer profile like BASF in the dyestuff space.
Brokerage: CD Equisearch
Mayur Uniquoters | Rating - Accumulate | Target - Rs 561 | Return - 20%
With a current capacity utilisation of 85 percent, significant increase in capacity utilisation is anticipated on the backdrop of revival of demand in domestic economy, increasing population and rising disposable income and its potential admittance into the European markets.
The company is confident of getting approvals for orders by Mercedes Benz in FY19 and has been modifying its process to grab such approvals. This would doubtlessly accentuate greater exposure to other prospective customers in the European market.
However, product obsolesce as a result of continuous technological innovation and government regulations pertaining to the harmful environmental effects of processing PVC may serve as major restraints for the market.
In view of vigorous recovery of sales in Q2 and Q3, we revise FY19 EPS by 14.9 percent and assign ‘accumulate’ rating on the stock with a revised target of Rs 561 (previous target: Rs 444) over a period of 9-12 months.
Astra Microwave Products | Rating - Buy | Target - Rs 109 | Return - 38%
Astra Microwave is one of the leading designers and manufacturers of high quality radio frequency (RF) and microwave components and sub-systems in India. Astra Micro’s products find application in Defence, Space and Civil communication systems.
Lower order booking and slower execution to impact earnings growth in FY18 and we expect Astra Microwave (ASTM) EPS for FY18 to drop by 8.3 percent YoY to Rs 5.7. However, this trend could reverse in next two years on the back of large order inflows and earnings are expected to grow at 13.2 percent CAGR to Rs 6.1 in FY19 and to Rs 7.3 in FY20; despite, higher share of low margin export orders.
Hence, we assign Buy rating for a target of Rs 109 representing an upside potential of 38 percent.
However, spillage in order booking could impact our margin estimates going forward.
Gabriel India | Rating - Buy | Target - Rs 189 | Return - 37%
Established in 1961, Gabriel India is the flagship company of ANAND and the company provides the widest range of ride control products in India including shock absorbers, struts and front forks across all automotive segments i.e. 2&3-wheelers, passenger cars, commercial vehicles and railways with over 300 product models to offer.
The company recently won a letter of intent (LoI) from Honda Motorcycles & Scooters India (HMSI) to supply front fork for their largest selling scooter 'Activa'. This is a new business opportunity for Gabriel as the company currently supplies only shock absorbers to HMSI.
The supply will take place for the Gujarat and Karnataka plant of HMSI and would commence in early 2019. Given that HMSI commands around 57.3 percent of the total scooter market in India, Gabriel is expected to have a scalable opportunity of the front fork business with HMSI.
The company continues to be the market leader in supplying shock absorbers to the commercial vehicle (CV) segment, accounting for around 85 percent of the total market share. CV’s volumes are expected to surge with the pick-up of infra-spending and mining activities in coming quarters.
We are bullish on the growth prospects of the automotive industry, going forward.
Our positive view on the company is on the basis of robust track record of growth, continuous order acquisition and improving market share. We
value the company at 20.5x FY20E EPS for a target price of Rs 189, which implies an upside potential of 37.4 percent. However, factors like industry cyclicality and commodity price fluctuations may be the potential risks.
Greaves Cotton | Rating - Buy | Target - Rs 154 | Return - 34%
Greaves has signed-up with major original equipment manufacturers (oem) for development of Bharat Stage 6 (BS-VI) compliant engines, which may come to force in next 25 months.
Greaves domestic market to turn robust with new product launches, new geographical presence, potential addition of customers. ‘Greaves Auto Care’-new service offering and fructification of R&D efforts for BSVI engines could all shape into FY19E, FY20E and beyond. We base our valuation on FY19E estimates and arrive at a target price of Rs 154 valuing Greaves at 20x of FY19E EPS of Rs 7.7 representing an upside potential of 34 percent.
Greaves Cotton is a leading diversified engineering company manufacturing machinery and equipment. Greaves business is organised into auto engines, auxiliary power solutions, farm equipment business and after-market business.
GMDC | Rating - Buy | Target - Rs 170 | Return - 39%
Going forward, factors like sound financials, vast array of mineral products, several upcoming mines and power projects; and increasing commodity prices brighten the prospect for mining and power business. The company reported an impressive performance in Q3FY18, wherein top line grew by 33.1 percent, while bottomline grew by 68.8 percent on YoY basis, due to lignite becoming price competitive to coal following the fixation of GST rate of 5 percent for lignite and other minerals.
Strengthening of commodity prices and increased demand for power, following implementation of schemes like, UDAY, Deen Dayal Yojana and Saubhagya augur very well for the company.
Furthermore, the company enjoyed robust financials in FY17 with zero debt, EBITDA margin of 26.4 percent, PAT margin of 20.5 percent, BV/share of Rs 126 and cash & cash equivalent of Rs 50 crore make this stock a value buy. We value the stock on 1-year forward PE 8x of FY20E EPS, which is inching towards MSCI Energy India Index average PE of 8.9 with TP of Rs 170 with potential upside of 39 percent.
However, likely auctioning of coal mines for commercial use is a risk.
Gujarat Mineral Development Corporation (GMDC) was incorporated in 1963 and is engaged in business of mining and power.
KRBL | Rating - Buy | Target - Rs 635 | Return - 45%
The shift in preference for branded rice, increased restaurant cultures and rise in personal income contributed in domestic sales’ growth, while export growth remains subdued amidst volatile international price. However, basmati exports could rise in FY18E-19E due to steady global demand and strengthening of economies in Gulf region following rise in crude oil price.
We believe that global and domestic conditions are supportive for basmati rice. With growing demand amidst lower harvest, value added products, extensive distribution channel and sound financials, likely export order from Iran and improving gulf economies - the key basmati rice consuming region price realization for the company will further improve.
Hence, we rate Buy on the stock with target price of Rs 635 which gives a potential upside of 45 percent.
However, already high basmati rice price may prove to be deterrent to the overall demand.
Manpasand Beverages | Rating - Buy | Target - Rs 507 | Return - 38%
Under the partnership, Manpasand Beverages will have access to Parle’s 4.5 million outlets across India for its flagship brand ‘Mango Sip’ juice which will be sold under the brand name Mango Sip Gold. The company has planned to target 1000 distributors and 5 lakh outlets by March ’18. Thereafter, the company plans to focus on UP, Gujarat and Maharashtra where Parle has 15 lakh outlets.
With increasing distribution network, it is estimated that the company will be able to increase its capacity utilisation and operate at 55 percent by the end of FY19 which will help the company to reduce its per unit cost and increase its margins.
Manpasand Beverages has continuously been growing by increasing its capacity and is on track with its plan of doubling its capacities.
Seeing the stellar performance and expecting the revenue to grow at a CAGR of 36.5 percent over 2 years, we value the stock at 25x (3 years’ average) FY20EPS with a Buy rating arriving at a target price of Rs 507 with an upside of 38 percent. Competition from MNCs and 20 percent of the company’s revenue coming from IRCTC are the key risks to the call.
Menon Bearings | Rating - Buy | Target - Rs 150 | Return - 61%
Board has given a nod for a fresh investment of Rs 22 crore in engine bearing & bushes plant which is expected to be completed by FY19. The facility will enhance the capacity by 40 percent to cater to the increased order book from bimetal parts. Also, capex of Rs 40 crore is invested in aluminum division & the facility is expected to be ready by FY20. It will enhance the capacity in higher tonnage to cater to increased customer demand. We expect revenue from engine bearing & bushes plant from FY20E & the aluminum division from FY21E onwards.
Menon enjoys a marquee list of clientele like TATA, VOLVO, Mahindra, Greaves & Piaggio and boasts about its superior manufacturing capabilities.
Historically, Menon Bearings has been consistently recording a healthy profitability & return ratios; we expect the trend to continue in future with RoE reaching 24 percent & RoCE of 29 percent levels by FY20.
We ascribe a multiple of 29.0x which is a 3-year average of one year forward PE to FY20E EPS and recommend a Buy rating for a target price of Rs 150 representing an upside of 61 percent.
Threat of counterfeit products which mainly cater to aftermarket segment along with a slowdown in industrial & automotive segments may pose risk to the call.
Mirza International | Rating - Buy | Target - Rs 154 | Return - 42%
Women’s shoes under MIL will offer both formal and sportswear for women probably under the same brand. Given its experience in successfully building the ‘Red Tape franchise’, the entry into women’s footwear is expected to be value accretive to the company. The management is targeting around 5 lakh pairs of women’s shoes to be sold in 2 years post launch.
For Q3FY18 domestic footwear revenue was up 70 percent to Rs 90 crore on the back of 92 percent growth in online sales while wholesale channel sales were up 87 percent. The new products of Bond Street and Sports ‘Athleisure’ Shoes contributed to bulk of the growth for period ended 9MFY18 and they are on track to achieve sales of Rs 150 crore for FY18.
We take into account slowdown in unbranded footwear and exports segment along with the re-attempt to foray in Ladies’ fashion segment including a capex of Rs 30 crore on online-offline stores for increasing demand from the domestic segment.
We maintain a Buy recommendation, valuing at 14.6x FY20E EPS with an upwardly revised target price of Rs 154 representing an upside potential of 42 percent.
Mirza International is the leading Indian supplier of leather footwear to global brands since last 15 years.
Natco Pharma | Rating - Buy | Target - Rs 1,107 | Return - 41%
Mylan (Natco’s marketing partner) is the first to launch a generic of Copaxone 40 mg in October 2017 and is expected to capture a significant market share of the USD 800 million (quarterly sales) drug. Sandoz launched gCopaxone 40mg in February 2018. There are only 2 generics of both Copaxone 20mg and 40mg in the US market. Our estimates indicate that Natco could generate Rs 666.7 crore and Rs 974.2 crore in profit share from both 20mg and 40mg during FY18E and FY19E respectively.
Natco’s partner Lupin became the first to launch gFosrenol in Q2 FY18 & is expected to be the sole generic in the foreseeable future.
According to our estimates, Natco is expected to make Rs 44.4 crore and Rs 76.1 crore in profit share for FY18E and FY19E respectively.
Natco’s partner Dr Reddy’s is the second generic in the difficult-to-manufacture gDoxil. Our estimates indicate that Natco could make Rs 116.8 crore and Rs 112.3 crore in profit share for FY18E and FY19E respectively.
We reiterate a Buy recommendation with Rs 1,107 target price based on 18x FY19E EPS of Rs 49 and cash flow per share of Rs 224 for FTF/Para IV opportunities (primarily gRevlimid). The target price represents a potential upside of 41 percent.
Key Risks:
> US Court’s ruling against Mylan on any of the 5 Copaxone patents.
> Early approvals and launch of both gCopaxone 20 mg and 40 mg in US by Reddy’s and Synthon/Pfizer.
> Form 483 with major observations on any of the Natco’s facility upon inspection by USFDA.
Trident | Rating - Buy | Target - Rs 98 | Return - 61%
The current utilisations between 40-50 percent for Bath & Bed Linen are expected to break-even in FY19E and the utilisation levels would increase to optimum level of around 85 percent by FY20E-21E. EBITDA margins could be in a range of around 18-22 percent in FY19E & FY20E which could be possible by rising captive consumption of yarn, rising share of high-margin home textiles. However, cheaper raw material and stronger realisations have led to margins improving to 39 percent in FY18E.
Challenges like uneven vendor procurement cycle, higher commodity price are expected to overcome in FY19E and anticipating sustainable profitability through higher utilization levels in home textile segment and margin expansion through value added products.
Considering limited capex of Rs 100 crore each year, the cash generated by the operations is to be used to deleverage the balance sheet, management expecting a reduction of debt by Rs 400 crore every year for FY19E-20E.
Considering risks of rupee appreciation, rough cotton season is expected to be overcome in FY19E. At the current inexpensive valuation of 5.9x FY20E P/E, we have given Buy rating with a target price of Rs 98, representing an upside potential of 61 percent.
Headquartered in Ludhiana (Punjab), the company operates in two major business segments of home textiles and paper; with manufacturing facilities located in Punjab and Madhya Pradesh.
MORE WILL UPDATE SOON!!
0 comments:
Post a Comment