Higher crude oil prices and the rupee’s weakness will continue to dampen sentiment putting pressure on the fiscal deficit and bond yields in the short term.
Nifty, which continued to correct on Monday, has fallen nearly 4 percent from its three-month high of 10,900 that it hit earlier this month.
Rising crude oil prices, weaker rupee, weak corporate earnings and the political uncertainty in Karnataka dented the market sentiment.
Experts believe the consolidation is likely to continue for a while as investors will closely monitor the movement of oil prices and rupee, and the remaining corporate earnings.
We expect the Indian markets to remain rangebound in the coming sessions. Further course of market would be dictated by global developments, crude oil price and currency movement in near term.
However, stock-specific volatility would continue with on-going corporate earnings season, he feels. "We would advise investors to accumulate quality companies on dips."
Vikas Jain, Senior Research Analyst, Reliance Securities also said one would have to be very selective in the approach towards individual stocks from the current levels as lot of macros are changing with respect to higher crude prices and rupee weakness against the greenback.
Higher crude oil prices and the rupee’s weakness will continue to act as dampener putting lot of pressure on the fiscal deficit and bond yields in the short term, he feels.
Here is the list of top 10 stocks that can return between 28 percent and 94 percent in 10-24 months period:
Aurobindo Pharma: Buy | Target - Rs 909 | Return - 61%
Aurobindo received VAI status from USFDA post the company's adequate address of the concerns on the Bhiwadi plant. The assigned status by USFDA is positive development for ARBP as the status implies that the plant is unlikely to receive warning letter.
ARBP filed ANDAs on four Penems from the plant and currently supplies only Meropenem (market size: $98 million) to US and multiple Penems to emerging markets. There are three Penems of ARBP are under review including Doripenem (market size: $2 million), Ertapenem (market size: $383 million) and Imipenem/Cilastatin (market size: $18 million).
With Apotex recalled 36 lots of Tazo-Pip (3.375gm and 4.5gm/vial) in US due to elevated levels of impurities, there could be a possibility of Aurobindo to boost its Rx share in Tazo-Pip in near to medium term. While the recalled lot size is too small to assume market share expansion in near term, the ongoing organisational disarray in Apotex (promoted died with no heir apparent, CEO resigned with no captain in the ship) may led to the lower supply from Apotex or regulatory scanning from USFDA due to lingering of the issue.
Currently, Aurobindo produces Tazo-pip from Unit-12 and newly inducted Unit-16. Aurobindo received revenues of $22 million from Tazo-Pip in FY17 and expected to have revenues of $30 million in FY18E. While it will be too early to discount the possibility in earnings estimates, Aurobindo's 9 percent Rx share in Tazo-Pip may gain from 16 percent Rx share of Apotex going forward. We maintain Buy and retain target price at Rs 909.
UltraTech Cement: Buy | Target - Rs 4,989 | Return - 29%
UltraTech Cement has announced it will be acquiring the cement business of Century Textiles in a share swap deal.
In the near term, the deal will depress UltraTech margin, as its EBITDA per tonne is Rs 970 in FY18 versus Century Textiles’ Rs 445 (blended, including clinker volume). As Century Textiles’ cement book value is low (net block of Rs 2,400 crore, i.e., $27), depreciation burden is likely to be less. Thus, the deal would be EPS-accretive.
Our analysis indicates the deal could add Rs 5.5 to EPS by FY21E, i.e., the second year after completion of acquisition (we assume savings of 10 percent in fixed cost, 6 percent reduction in freight cost, reduction in cost of debt by 75bp and transfer fees of Rs 64 per tonne with a volume CAGR of 7 percent over FY18-21E).
After factoring in the acquisition in FY20 numbers (the first year), we upgrade EPS by 1 percent and target price by 2 percent to Rs 4,988. We upgrade rating to Buy from Accumulate due to 7 percent price correction since 25-Apr-2018.
Birla Corporation: Buy | Target - Rs 1,100 | Return - 51%
We believe the company will gain pricing power in the central region, accounting for 56 percent of overall capacity on limited capacity additions.
Cost structure also is expected to improve, as the company will be reducing the purchase of power from the grid in Reliance Cement (RCCPL) by installing a waste heat recovery system (WHRS) and use of alternative fuels.
Apart from this, a strong pipeline of capacity addition would ensure it will grow faster than the industry. Thus, we reiterate Buy rating on the stock with a revised price target of Rs 1,100 from Rs 1,229 based on enterprise value per tonne of USD 110 on FY20E capacity.
JBM Auto: Buy | Target - Rs 560 | Return - 45%
We believe, JBM Auto's core sheet metal business (body-in-white and chassis) will continue to deliver strong earing growth helped by 1) Accelerated growth in passenger vehicle's segment, 2) Increasing revenue from Ford, Tata Motors, M&M, RE, HMSI and VECV, 3) benefits of operating leverage.
Also, strong order book of tooling division business will boost margin and profitability. Moreover, proposed amalgamation of its subsidiary JBMAS and JV JBMMA into a single entity will be synergetic and EPS accretive.
We reckon 35 percent PAT CAGR over FY18-FY20E; fuelled by improving operating leverage, richer product mix and acquisition of new clients. We value stock at Rs 560 (18x FY20E EPS) and maintain Buy.
KEI Industries: Buy | Target - Rs 580 | Return - 29%
KEI Industries posted strong turnkey revenue, leading to 17 percent revenue beat in Q4FY18. Bottomline also surpassed estimate around 30 percent. Key
highlights: a) Q4 & FY18 cables volume grew around 18 percent—reasonable in light of tepid housing demand—attributable to KEI’s diversified business, & is better than peers; and b) exports (up 21 percent YoY) & extra high voltage (EHV; up 65 percent YoY) helped KEI outpace peers, driving overall utilisation above 90 percent.
We revise up FY19/20E EPS 4/6 percent factoring in higher growth. We believe, strong return on capital employed (RoCE) and earnings spurt will be complemented by rising B2C traction driving free cash flow over FY18-20. Maintain Buy with revised target price of Rs 580 (Rs 550 earlier).
Dollar Industries: Buy | Target - Rs 656 | Return - 66%
Stewart & Mackerch Research iniates coverage on Dollar Industries (DIL) with a strong Buy rating.
It has a wide range of men's, women's and kids' innerwear. It has been given the status of an “export house” by the government of India.
On the back of favorable policies by the government towards development of businesses in India coupled with aggressive organic and inorganic growth, Dollar Industries is expecng a healthy growth of 15-20 percent per year for a period of 5 years. Aggressive brand building exercises would lead to the Company accruing 15 percent EBITDA in a period of next 3 years.
Internet penetration and urbanisation are the key areas which Dollar Industries is targeting in order to carve out a market share in the premium and super-premium segments with the help of e-commerce, modern outlets, and EBO models. The company is radically trying to change the way it operates by transforming itself to a value-driven, innovation inspired, asset light and brand powered company.
We assign a P/E(x) multiple of 36.10 on FY20E EPS, to arrive at a target price of Rs 656.
Brokerage: SMC
ONGC: Buy | Target - Rs 261 | Return - 41%
The company achieved good performance during Q3FY18 and management expects demand for crude oil would continue to rise from the strong consumption growth in petroleum products and prices are expected to firm up sharply.
It is expected exploring and other activities would get benefit from free pricing, strong demand and stabilising capacity additions, thus we expect the stock to see a price target of Rs 261 in 8 to 10 months time frame on a target expected P/E of 11x and FY19 (E) earnings of Rs 23.75.
Tata Chemicals: Buy | Target - Rs 941 | Return - 28%
The company’s cash-cow business – soda ash and sodium bicarbonate – has been performing well across geographies. Apart from that, the company has begun focusing on growing other segments, as evident from the launch of new products under pulses and expected commissioning of the HDS plant in FY19 and of the nutraceuticals plant in 1HFY20.
We largely maintain estimates, and expect Tata Chemicals to deliver 10 percent revenue CAGR and 7 percent PAT CAGR over FY18-20E. We value Tata Chemicals on an SOTP basis to arrive at a target price of Rs 941. Maintain Buy.
Suven Life Sciences: Buy | Target - Rs 350 | Return - 94%
Analysis indicates company’s earnings have reached a sustainable base and will continue to improve on this base going ahead. We expect the core CRAMS base (Core CRAMs around 13 percent CAGR FY14-18) coupled with the commercial/pre-commercial supplies that have started ramping up company is on better earning trajectory.
One more molecule addition to commercial phase further enhances FY20E earnings outlook. However, FY19E consolidated number would see higher R&D spend as the SUVN 502 phase II trials are expected to conclude (remaining R&D spend of $10 million would be spilled over FY19E and FY20E, which larger portion in FY19E.
With one of the best management with a focus on NCE development, this investment adds a huge option value from its current NCE pipeline called SUVN 502 (in Phase II A, trials ongoing). We have a Buy rating with to 20xFY20E EPS, resulting in target price of Rs 350.
Newgen Software Technologies: Buy | Target - Rs 500 | Return - 94%
Newgen Software Technologies is a software products company offering a platform that enables organizations to rapidly develop powerful applications addressing strategic business needs.
Newgen is currently trading at 22.9x FY18 P/E, which is reasonable in our view, given strong growth prospects. It has healthy balance sheet & scalable business model. Company continues to strengthen the horizontal product platform with vertical service accelerators.
We strongly believe Newgen can drive innovation and adopting solutions in line with rapidly evolving technological trends. Considering the above, along with the growth drivers; we recommend a strong Buy to investors with a target price of Rs 500 with duration of 18-24 months.
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