The market's upward trajectory was in spite of volatility in stocks traded abroad and crude hitting multi-year highs, primarily because investors continued to be hopeful that earnings would keep getting better.
The market continued its coasting in the green on Monday, having risen by nearly 6 percent over the past four weeks and recovering more than half the losses it witnessed since February.
The market's upward trajectory was in spite of volatility in stocks traded abroad and crude hitting multi-year highs, primarily because investors continued to be hopeful that earnings would keep getting better.
TCS' healthy Q4 earnings and outlook for FY19, a normal monsoon forecast by meteorological agencies, and consistent inflow from domestic institutional investors, also boosted sentiment.
After a rally of nearly 6 percent in four straight weeks, the market is largely expected consolidate in the coming week. The expiry of April derivative contracts would add to overall volatility.
Investors will continue monitoring earnings performance, crude oil prices and movements in the rupee going ahead, apart from developments pertaining to the Karnataka assembly elections slated to take place next month.
Markets will remain volatile during the next week with impending derivatives expiry and a number of companies’ annual results.
Apart from the ongoing corporate earnings season, markets would start factoring in the sharp rise in crude oil prices, and weakness in the rupee, Gaurav Jain, Director, Hem Securities said.
Brent crude oil futures crossed USD 74 per barrel mark last week, their highest since late 2014.
Here is the list of 10 stocks that can give up to 27 percent return:
Cyient: Buy | Target - Rs 780 | Return - 10%
Cyient reported Q4FY18 numbers wherein revenues were above our estimates mainly on account of higher-than-expected growth in the Rangsons business. A positive outlook for services and DLM, traction across business verticals would lead to strong earnings growth of 16.5 percent CAGR during FY18-20E.
We upgrade Cyient to Buy rating on the back of sustained earning growth momentum and revise target price to Rs 780.
Cyient USD revenues grew 8.3 percent QoQ to USD 164.6 million, above 7.6 percent QoQ growth and USD 163.5 million estimate. Revenues in rupees grew 8 percent QoQ to Rs 1,061.8 crore, above Rs 1,052.3 crore estimates.
EBITDA margins fell 50 bps QoQ to 14.1 percent, below our 30 bps decline, 14.3 percent estimate mainly due to higher material cost (up 76 percent QoQ). Reported PAT of Rs 118.4 crore was above our Rs 96.1 crore estimate on account of lower-than-expected tax rate (ETR of 21.3 percent as a percentage of profit before tax versus our estimate of 28 percent) and higher other income (Rs 40.8 crore versus Rs 27.3 crore in Q3FY18).
Cholamandalam Investment: Buy | Target - Rs 1,775 | Return - 14%
Cholamandalam Investment and Finance Company (CIFL), incorporated in 1978 as the financial arm of the Marugappa Group, is one of the leading vehicles finance (VF) companies in India. Starting business firstlyin South India, CIFL has now presence in around 27 states and AUM is well diversified, both geographical as well as product wise.
CIFL reported significant improvement in assets quality (GNPA ratio reduced to 3.7 percent in Q3FY18 versus 4.5 percent in Q4FY17) and also concern on Home Equity segment’s assets quality eased as the company repossessed 43 properties under SARFESI which will be auctioned soon.
Management’s focus on NPA recovery, reducing credit cost and quality performance of vehicle finance segment would improve the assets quality going forward. AUM is likely to grow at around 20 percent in coming fiscals given strong activity momentum in commercial vehicle (CV) & overall auto industry and expansion into newer segments like LAP and MSME financing.
The stock has already rerated; increased by 45 percent over the last six months, factoring improving operational and financial performance. We assign ‘Buy on Dips’ rating to the stock with potential price of Rs 1,775 per share (upside potential 13 percent, holding period 12-18 months).
Radico Khaitan: Buy | Target - Rs 500 | Return - 15%
We maintain Buy on Radico Khaitan with catalysts expected from strong Q4FY18 results (+55 percent YoY) and faster debt reduction.
Most of the investors were surprised to know that Radico Khaitan has 50 percent share in India's Vodka market and is India's third most profitable liquor company.
Investors showed keen interest in understanding its drivers for earnings improvement in past 2 years. The management highlighted that it would continue its focus on premiumisation and debt reduction.
With improving demand scenario for liquor and execution on track, we remain constructive. We may upgrade our earnings forecasts if the company reduces its debt faster-than-expected. Target price of Rs 500 based on 35x FY20E PER.
Bajaj Electricals: Buy | Target - Rs 735 | Return - 14%
Bajaj Electricals's project business secured two large orders worth Rs 3,000 crore recently in rural electrification segment. The order book has increased by 150 percent to Rs 5,000 crore which is executable over the next 2 years.
We have raised our FY19-20 earnings forecast by 12 percent as we factor in these large orders into our revenue forecasts. As per the management, the margins on these orders are on the expected lines. We now forecast Bajaj Electricals' EPS to rise 50 percent in FY19 and 31 percent in FY20. Our new SOTP based target price is Rs 735 versus Rs 674 earlier.
We maintain strong Buy on the stock as we continue to like its consumer business which contributes 57 percent to Bajaj Electricals' profits. Catalyst from earnings upgrades from new order wins and accelerated growth in consumer business.
Torrent Pharmaceuticals: Buy | Target - Rs 1,570 | Return - 12%
In Torrent Pharmaceuticals, there is likely improvement in its domestic business. We expect Unichem acquisition is a strategic fit for Torrent Pharmaceuticals, as the deal would further strengthen its presence in key chronic therapy segment and improvement in profitability of Unichem’s product portfolio through its own strong field force and robust distribution network.
Its domestic business is expected to clock 25.7 percent CAGR led by Unichem acquisition, while Brazilian and RoW businesses are likely to witness 12.5 percent and 12.2 percent CAGR, respectively over FY17-20E.
Looking ahead, we expect Torrent Pharmaceuticals' sales, EBITDA and PAT to clock 14 percent, 17 percent and 12.5 percent CAGR, respectively through FY17-20E, while EBITDA margin is expected to improve by 197bps to 25.5 percent during the same period.
We maintain our fundamental Buy recommendation on the stock with a target price of Rs 1,570.
Ashok Leyland: Buy | Target - Rs 175 | Return - 13%
We recently attended Ashok Leyland's (AL) global conference, which reinforced our positive stance on the company as: (1) management guided for growth in FY19/20 & expects the shift towards higher tonnage vehicles to sustain; (2) focused strategy on exports/spare parts yielding results—up >30 percent in FY18; (3) product launches across categories.
We were impressed by the company’s effort to create a new 41T (lift-axle) category via intelligent engineering of existing 37T (lift-axle) offering; and (4) management envisages strong profitability in the LCV business. We believe, given the decisive shift in the industry’s product mix and Ashok Leyland, margin can surprise on the upside once the heightened competitive intensity and commodity cost headwinds subside.
We maintain that our robust demand outlook will be driven by ban on overloading, replacement demand, GST and driver shortage; our recent channel checks in South India validate our thesis. We maintain 'Buy/SO' with SOTP-based target price of Rs 175.
Ambuja Cements: Buy | Target - Rs 290 | Return - 17%
Ambuja Cements has strong balance sheet and consistently reporting steady performance on quarter on quarter due to healthy sales. The company
expects with the government's continued focus towards infrastructure development, affordable housing, smart cities, concrete roads and highways, coupled with remonetisation and the structural reforms pursued by the Union Government in the form of GST, it is expected that the economy would return to a high growth trajectory.
With its continued operational excellence programs, combined with segmented marketing and value added special cement products and building solutions, Ambuja Cements is well placed to benefit from economic growth trajectory.
Thus, it is expected that the stock will see a price target of Rs 290 in 8 to 10 months time frame on current P/E of 24.99x and FY19 EPS of Rs 11.61.
Container Corporation of India: Buy | Target - Rs 1,602 | Return - 19%
Container Corporation is well poised to tap the new business opportunities arising from potential growth in EXIM container volumes. In-depth knowledge of multi modal logistics business, availability of fairly large fleet of rolling stock, specialised container handling equipment, customised owned/leased containers and fully computerised commercial operations with internet based customer and customs interface provide
it a strong competitive advantage in availing opportunities for further growth.
Moreover, the management of the company expects increase in container traffic due to development of dedicated freight corridors. Thus, it is expected that the stock will see a price target of Rs 1,602 in 8 to 10 months time frame on a target P/E of 34x and FY19 (E) EPS of Rs 47.11.
Entertainment Network India: Buy | Target - Rs 827 | Return - 20%
Entertainment Network India Limited (ENIL), a Times of India (Bennett Coleman) Group Company is the leading radio network with 76 stations. This will fortify its presence in the top cities with dual stations.
ENIL registered healthy revenue, EBITDA and earnings CAGR of 14/15/17 percent over FY13-16, despite zero inventory addition. Over FY16-18E, ENIL’s operational stations expanded from 32 to 52. Yet, its revenue, EBITDA and PAT grew by 3/-15/-46 percent CAGR. This is primarily owing to economic slowdown and company specific issues in FY18.
Launch of new stations accentuated the decline. Led by economic tailwinds, consequent higher utilisation and price increases in established stations, and as new stations start contributing we expect ENIL to register healthy revenue and earning CAGR of 15 percent and 47 percent from FY18-20E. Initiate Buy with target price of Rs 827 at 30x FY20E FCFE per share.
Music Broadcast: Buy | Target - Rs 492 | Return - 27%
Music Broadcast (MBL), a Jagran Prakashan Group Company, is one of the leading radio networks in India. MBL has expanded from 20 stations in 2015 to 39 now. This includes eight Radio Mantra stations acquired from Jagran group and 11 new stations acquired in phase III, ensuring increased reach and more audiences.
Led by economic tailwinds, consequent higher inventory utilisation, and growth in new stations we expect MBL to register healthy revenue and earning CAGR of 13 percent and 22 percent from FY18-20E. Core return on capital employed (ROCE) will improve from 11.8 percent to 19.1 percent. Initiate Buy with target price of Rs 492 at 30x FY20E FCFE per share.
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