Apollo Micro Systems’ Rs 156-cr IPO opens today. Should you subscribe to the issue?

The company fixed a price of Rs 270-275 per share and said that the proceeds will be used to meet additional working capital and other general corporate purposes.

 

A new entrant to the primary market on Wednesday will be Apollo Micro Systems, which is set to open its initial public offering.

"The IPO of Rs 156 crore of face value of Rs 10 each for cash at a premium will be offered through a book-building route at a price band of Rs 270–275 per equity share," Apollo Micro Systems had said in a statement earlier.

The company fixed a price of Rs 270-275 per share and said that the proceeds will be used to meet additional working capital and other general corporate purposes.

Further, a discount of Rs 12 on the issue price will be offered to retail investors and to eligible employees.

Aryaman Financial Services is the sole book running lead manager to the issue.

The company offers integrated solutions to the aerospace, defense, home land security and transportation sectors.

Multiple brokerages recommend subscribing to the issue, citing reasonable valuations and strong sectoral outlook as well.

Apollo Micro | Rating: Subscribe

The brokerage highlighted that it reported a CAGR of 54.2% and 58.3% on revenue and net profit fronts respectively over FY2013-2017. On its upper band of price of Rs 275, the issue is priced at PE ratio of 27.1x of its H1FY2018 annualised EPS of Rs 10.2.

“We believe that the IPO is fairly priced leaving a room for upside. Hence, we recommend to Subscribe the IPO,” it said in a report.

Angel Broking | Rating: Subscribe

The brokerage house highlighted aspects regarding valuation and said that the pre-issue P/E works out to 29x 1HFY2018 annualized earnings, which is lower compared to its peers like Astra Microwave (trading at 36.2x its 1HFY2018 annualized earnings).

Further, the company has a strong financial record and return ratios compared to Astra Microwave.

Hence, considering the above positive factors, growth in the defence industry we recommend subscribe on the issue.

Choice Broking | Rating: Subscribe with Caution

Choice Broking believes that the business is fairly priced, leaving limited space for further upside. Defense investment theme is long term in nature. “Given the strong sector outlook, we believe that the stock would provide returns in medium to long term.

However, the key concern linked to the sector is the highly stretched working capital cycle. Thus considering the above observations, we assign a “subscribe with caution”rating for the issue.

MORE WILL UPDATE SOON!!

2017-like rally unlikely, but can expect 12-15% returns this year; 5 themes key in 2018

12-15% returns possible if earnings show 10/19 percent growth in FY18/19 and GDP grows more than 7 percent in next few quarters.

The market gave a big surprise to investors in 2017 as the 50-share NSE Nifty shot up 29 percent, which was largely in line with global trend, but it was despite growth slowdown due to twin disruptions — demonetisation and GST implementation.

The stupendous rally was driven not only by liquidity, but also by hope of earnings and economic recovery (due to reforms by Modi government) going ahead, which had been lagging for many quarters in the past.

That kind of returns seem unlikely in 2018 though earnings and economic recovery look possible, is the word coming from Aditya Birla Capital.

What it expects is 12-15 percent return in the current year and the similar kind of uptrend is likely to continue in 2019 & 2020 as well.

But is it really achievable? Yes, it is largely possible if earnings show 10/19 percent growth in FY18/19 and GDP grows more than 7 percent in next few quarters, Mahesh Patil, Co-Chief Investment Officer of Aditya Birla Sun Life AMC said on the sidelines of Aditya Birla Capital conference on Tuesday.

These are not the only assumptions for double digit returns for 2018. The research house expects crude oil to trade in range of USD 55-65 a barrel, global growth to continue, reforms (GST, IBC, RERA, road projects worth Rs 7 lakh crore, Rs 2.11 lakh crore PSU banks' recapitalisation, affordable housing, etc) announced in last two years to show results and rural growth which was lagging to be seen going ahead, which will create conducive growth environment for the country.

"Modi government's five reforms would see the results starting 2018 putting India in a 'Stronger for longer' position," Patil said.

He further said the higher ranking in 'ease of doing business' and Moody's India upgrade also gave strong confidence to investors.

Last year, global rating agency Moody's after raising India's rating by a notch to Baa2 (after 13 years) had said reforms implemented to date would advance the government's objective of improving the business climate, enhancing productivity, stimulating foreign and domestic investment, and ultimately fostering strong and sustainable growth.

The reform program would thus complement the existing shock-absorbance capacity provided by India's strong growth potential and improving global competitiveness, it added.

Other positives that Aditya Birla Capital pointed out are consumption growth (due to low interest rates, 7th pay commission, lower GST rates, farm loan waiver, recovery in rural) is expected to drive GDP; likely pick up in private capex; likely long term liquidity support to market on the downside; stability in inflation; comfortable current account deficit (led by foreign flows & forex reserves); and stability in rupee (around 61-66 to US dollar).

The investment firm expects India to remain an investment destination for foreigners due to growth opportunities it provides at the back of strong economy and currency.

Mutual fund industry, which has seen average monthly inflow run rate of Rs 19,000 crore in 2017, is expected to see at least Rs 10,000 crore monthly inflow in current year, the firm said.

It also believes the NSE Nifty which rallied 29 percent on hopes of recovery is not in a bubble territory and will look cheaper as earnings recover going ahead. In fact, the Nifty has merit in trading at premium valuations compared to historical averages and also 2008 peak.

Considering other parameters like P/B, P/S, dividend yield etc, there is no froth in the markets. Infact, IIP, eight core industries and other indicators point to bottom of the cycle is behind and the economy is recovering. Composition of Nifty50 index has also changed with more weightage to non-cyclical sectors. Hence, it commands more valuation than in the past.

But... if all these things go for a toss, which means earnings & economic recovery do not happen, reforms do not work out, crude increases sharply, geo-political risks arise, US specific risks pop up (political, reforms, tax), China growth slows down etc, though are unlikely, then that could be a bigger risk for 12-15 percent market return expectations.

MORE WILL UPDATE SOON!!

51 stocks have fallen over 50% from their 52-week highs: Should you pick any?

A rising tide lifts all boats, or most. With markets hovering at all-time highs, nearly all stocks in the market have appropriately risen.

While some investors and traders choose momentum  as a strategy, in which you chase high-performing stocks, others look at a contrarian approach.

So even as the general complaint in the market is there are not enough lucrative opportunities left anymore, interestingly, there are 51 stocks that are trading at, at least, a 50 percent discount from their 52-week high.

To filter out microcap stocks, we weeded out companies with marketcap below Rs 100 crore.

Should you go out and buy these stocks then? Don't -- at least not only because of their fall. Remember the market adage 'don't catch a falling knife'.

But here's a further spin to our numbers.

To assess the fundamentals of the companies whose names turned up in the above list, we looked for those that had posted at least double-digit sales growth and return on equity for each of the last fiscals.

Only two stocks, Kushal and Pincon Spirit, passed our screen.

Price performance: While Kushal has given a sterling 1574 percent absolute return over the past three years, Pincon Spirit has netted a stable 80 percent.

Company’s growth: Both the companies have clocked consistent sales and profit growth of 40% over 3 years.

MORE WILL UPDATE SOON!!

Should investors wait for a 3-5% correction before putting fresh money ahead of Budget?

If the dip happens, investors would welcome it with both hands but it is difficult to time markets. Hence, a staggered approach of investing should be followed.

   

The bulls remained in control of Indian markets so far in the month of January with benchmark indices climbing to record highs just ahead of the Budget 2018.

The next crucial question in the mind of investors is -- will the momentum continue and is this the right time to deploy fresh capital?

Moneycontrol spoke to analysts tracking D-Street who confirmed that what we are witnessing is a pre-budget rally and any fresh capital should be deployed on dips or at least in a phased manner.

The correction which everyone is eyeing for might not come ahead of Budget and even if it comes, it will be quickly bought into leaving most on the sidelines.

Over the last 12-18 months, we have not seen any major corrections owing to strong domestic liquidity and raging global bull markets.

Long-term participants may deploy 50 percent of the investable amounts at current levels and any major shocks or corrections of around 7-10 percent into the markets can be utilized to deploy the rest amounts.

Indian market is discounting most of the negative news flow such as a rise in inflation, rising bond yields, crude oil prices which are inching towards USD 70/bbl, and lingering concerns over fiscal deficit.

Even the derivative data points towards bullishness atleast in the near term. Open Interest (OI) breakouts are the most interesting sweet-spots to be traded. The strike of 10,600 had the nearest highest congestion before 11,000 and with a move in Nifty above that, a lot of shifts are expected.

Smart money has already been sitting firmly at 11,000 for a long time and could be a probable upper range for January expiry. India VIX despite the fact of an event and result season has been quoting lower than normal. VIX has a negative correlation to Nifty and it seems to be respecting the fact that Bulls are in control,” Shubham Agarwal, CEO & Head of Research at Quantsapp Private Limited.

A wise way to approach this Budget season would be to build positions pre-budget and deploy a hedge to cover uncertainty of the event. This may lead to a slight compromise to the return but on a risk-adjusted basis is still lucrative. The level of 10,450-10,400 now becomes a strong support for the index with upside open up to 11,000-11,200.

Should investors wait for a dip?

If the dip happens, investors would welcome it with both hands but it is difficult to time markets. Hence, a staggered approach of investing should be followed.

We prefer a pyramiding approach, continued to add, albeit, slowly to positions that have been built earlier. However, waiting for a 3-5 percent dip may be a folly, if it were to happen in the next 30 days or so, as it should ideally mark a break in momentum, and hence, it would be prudent to play the strength, rather than waiting for weakness,” Anand James, Chief Market Strategist at Geojit Financial Services told Moneycontrol.

“However, with earnings beginning to flow in across the globe, it would not be surprising to bump into pockets of volatility, but 11,000 in Nifty should continue to act as a lighthouse for the time being.

MORE WILL UPDATE SOON!!

Short covering likely to push index towards 10,750; 5 stocks which can give up to 19% return

On the technical front, 10,550-10,500 spot levels is strong support zone for Nifty and current trend is likely to continue towards 10,700-10,750.

 

At current levels still, there is a lot of outstanding short position held in Nifty and Index calls and we can expect another round of short covering move going forward.

As per the current derivative data, Nifty can move towards 10,750-mark as the market undertone remains bullish with the support of consistent long buildup and short coverings.

The derivative data indicates the bullish scenario is expected to continue with Nifty having multiple strong supports at lower levels around 10,550 and 10,500 spot.

Currently, Nifty is moving up, with a decent addition in the open interest (OI) which indicates strength in the current trend. Option writers were active in the recent rally as we have seen put writing in 10,400, 10,500 & 10,600 strikes along with the unwinding in calls.

We have been continuously seeing open interest addition post expiry which indicates long buildup. Moving forward, we expect a fresh breakout in the Nifty Bank which can lead the market and let Nifty to make new highs.

On the technical front, 10,550-10,500 spot levels is strong support zone for Nifty and current trend is likely to continue towards 10,700-10,750.

Here is a list of top 5 stocks which can give up to 19% return in the short term:

Bharat Gears Limited: BUY| Target Rs247| Stop Loss Rs197| Return 14%

The stock has been trading in a rising channel band on the daily and the weekly charts. However, from the last three weeks, the stock has been seen consolidating in a narrow range of 200-215. The price movement is similar to a rectangle formation on the charts.

In Tuesday’s session, fresh breakout and the stock price rose above the pattern formation along with higher volumes. The formation is generally traded as continuation pattern of the previous trend.

Traders can accumulate the stock in the range of 215-220 for the target of 247 with a stop loss below 197.

Persistent Systems Limited: BUY| Target Rs837| Stop Loss Rs685| Return 13%

The stock has given a price volume breakout above Rs675 levels in the recent past and also tested Rs720 levels in the short span of time.

However, since then, the stock is trading in the range of Rs695-720 and formed a bullish flag pattern on the daily charts.

In Tuesday’s session, we saw a fresh breakout above the pattern formation along with hefty volumes which suggest next up move in prices moving forward.

Traders can accumulate the stock in a range of 740-745 for the upside target of 837 with a stop loss below 685.

Srikalahasthi Pipes Limited: BUY| Target Rs490| Stop Loss Rs390| Return 15%

In the recent past, the stock witnessed profit booking at higher levels and fell towards its 200 days exponential moving average on daily charts.

However, since then the V shape recovery has seen in prices as once again the stock has risen above its short-term moving averages.

Additionally, on the daily charts, it has formed an inverted head and shoulder formation and also given breakout above the neckline of the pattern. Traders can accumulate the stock in a range of 425-430 for the target of 490 with a stop loss below 390.

Garden Silk Mills Limited: BUY| Target Rs59.50| Stop loss Rs45| Return 19%

The stock has given consolidation breakout above 40 levels in recent past and tested 49.50 levels following the bullish momentum.

At the current juncture stock has formed Bullish flag formation on daily charts and has also given breakout above the recent resistance of 49 along with breakout above the pattern formation along with marginally higher volumes.

Traders can accumulate the stock in a range of 50-51 for the target of 59.50 with a stop loss below Rs45.

Kanoria Chemicals & Industries Limited: BUY| Target Rs122| Stop Loss Rs98| Return 14%

On the daily and weekly interval, the stock has formed a symmetrical triangle formation. Additionally, a fresh breakout above the pattern formation has also been witnessed in Tuesday’s session along with hefty volumes.

Moreover, positive divergence in secondary indicators like stochastic and RSI also supporting the next up move in prices moving forward.

Traders can accumulate the stock in a range of Rs107-109 for the target of Rs122 with a stop loss below Rs98.

MORE WILL UPDATE SOON!!

Looking where to invest? Check out CLSA's list of 7 midcap stocks

The global investment bank has turned cautious on the midcaps space and prefers quality and growth visibility. The domestic mutual fund's industry has a bias towards mid/smallcaps in general.

The CNX Midcap Index is trading at a 30 percent premium to the Nifty on a one-year forward PE basis over the 10-year average discount of 10 percent, CLSA said in a note released last week.

The global investment bank has turned cautious on the midcaps space and prefers quality and growth visibility. The domestic mutual fund's industry has a bias towards mid/smallcaps in general.

A recent Sebi circular proposes imposing several conditions on domestic equity mutual fund houses and schemes and may force them to buy more midcaps (market cap of US$1.4bn-4.4bn) over the next few months.

 

Here are top seven stocks from the midcap space:

Aditya Birla Fashion & Retail: BUY

Aditya Birla F&R offers a strong combination of India’s top-four apparel brands (Madura division) and one of the largest value-fashion retail networks (Pantaloons). The steps taken to turn Madura around should lead to sustainable same-store sales growth (SSG).

Pantaloons continue its store expansion, with the majority of the newer stores coming under franchise agreements. CLSA sees a large opportunity in women’s fast-fashion with limited competition.

FY21 is likely to breakeven by end of FY18. The innerwear business is ramping up rapidly and the distribution network has now expanded to more than 3,400 outlets.

Crompton Consumer: BUY

Crompton Consumer has set itself a target to be the fastest-growing company in the sector with an aim to create ‘disproportionate’ stakeholders returns.

Crompton has margin tailwinds with an opportunity to grow not only in its existing categories but also considerably expand its addressable opportunity.

A shorter credit cycle could help Crompton negotiate better vendor terms; offset near-term margin headwinds from higher ad and distribution expenses. Expansion into a new category by leveraging its strong distribution network and brand recall could lead to further stock rerating.

Crompton’s strong returns profile, robust growth expectations, and improvement in FCF justify premium valuations. Crompton remains our most preferred pick in the consumer durables and affordable housing space.

Century Plyboards: BUY

Century Plyboards is transitioning from a market leader in plywood to a complete interior-infrastructure-solutions provider by leveraging its brand strength and distribution network.

Its diversified raw material sourcing capability is its key competitive advantage. It has scaled up its laminates business operations and is further expanding its capacity about 50% to 7.2m sheets by FY18CL.

It has made a strong entry into the MDF market with an installation capacity of 198,000 cubic metres, around 35-40% of the total MDF capacity. The recent cut in GST rates also impacted its margins.

Jubilant FoodWorks: BUY

Jubilant FoodWorks, a play on the recovery in consumer sentiment and its growth focus and profitability should drive strong earnings growth.

Apollo Hospitals Ltd: BUY

Apollo Hospitals is seeing a turnaround in its existing and new hospitals.

Oberoi Realty and Godrej Properties: BUY

Both companies are major beneficiaries of the shift to organised developers after the implementation of RERA.

MORE WILL UPDATE SOON!!