Monday, 19 February 2018

Buy, Sell, Hold: 4 stocks are on analysts’ radar on February 19, 2018

Adani Ports, Titan, among others are being tracked by investors on Monday.


Adani Ports
Brokerage: CLSA | Rating: Buy | Target: Rs 505
CLSA said that fresh capex will not hurt our argument of the company tripling its dividend. Further, investments shall be self-financing if the company can seal JV deals in time.
Varun Beverages
Brokerage: CLSA | Rating: Buy | Target: Rs 885
CLSA said that off-season makes Q4 less relevant for the firm. It also said that Q4 contributes <5% of its full-year EBITDA. It also highlighted that the firm has been able to secure the rights for more territories. New Territories & products give the firm an opportunity to expand volume & market share.
HUL
Brokerage: Deutsche Bank | Rating: Buy | Target: Rs 1,700
The global investment bank said that the firm expects Q3 volume growth of 11% to sustain. Further, it said that the company plans judicious price increase to counter inflationary pressure.
Titan
Brokerage: Deutsche Bank | Rating: Buy | Target: Rs 970
The bank said that the firm is a big beneficiary of formalisation in jewellery sector. Further, it said that it has a strategy to launch new collections every quarter.
MORE WILL UPDATE SOON!!

Consolidation to continue but steep correction unlikely; top 10 stocks that can return up to 49%

Overall benchmark indices have been in a tight range and that range bound or consolidation is expected to continue in short term, experts suggest.

  


The market corrected sharply from the start of February, with the benchmark indices losing around 6 percent from their record highs hit on January 29. The Mid-Smallcap indices also fell around 8 percent each.
The market has not seen any major recovery since then as every rally has been sold into due to weak sentiment on the domestic front especially after PNB fraud case. On the other side, it has been getting support from positive global cues, wherein global peers recovered sharply after recent steep fall.
Overall benchmark indices have been in a tight range and that rangebound or consolidation is expected to continue in short term, experts suggest.
They don't see major fall from here on, citing likely robust recovery in earnings globally as well as domestically. If the market corrects sharply by any reason (mostly global cues), then that fall has to be bought into, experts advised as they are not worried.
Pratik Gupta, Head of Equities, Deutsche Bank India is not worried for market due to recent correction of 5-6 percent driven largely by rising US bond yield, which he thinks was actually was good. The market will see such correction intermittently going ahead.
Ratnesh Kumar, MD & CEO of BOBCAPS also said, “I don’t think we are at the cusp of a big correction. We have seen double digit earnings growth after many years and the momentum will only get better."
Gupta also said underlying corporate earnings recovery not only looks robust in India but also globally, and he is still constructive on equities saying it will continue to be the preferred asset class in current year.
Kumar believes the current momentum is a case of risk aversion coming off globally due to rate hike and oil price fears. “Naturally, there will be a laggard performance in such cases among emerging markets,” he told the channel, adding, the blip could be a temporary thing.
He feels the market is good for investment at this stage. Aggressive returns of 2017 may not be repeated, but on a 2-year basis, investors can expect positive returns, he said.
Here are 10 top stocks that can give up to 49% return over next 12 months:
Brokerage: Emkay
Varun Beverages | Rating - Buy | Target - Rs 902 | Return - 37%
We maintain Buy on Varun Beverages with new street-high target price of Rs 902. The 2017 profit increased 31 percent backed by strong international business performance and margin expansion.
We expect this momentum to continue with earnings growth of 32 percent in 2018 and 30 percent in 2019. This will be on the back of recovery in India business.
The India business revenue would rise 18 percent in 2018 supported by recovery in sales volume (post GST shock) and benefits from recently acquired new territories (inorganic growth).
Current valuations (PER of 33.2x and EV/EBITDA of 12.9x CY19E) are attractive given strong EPS growth and ROE expansion. Target price of Rs 902 is based on EV/EBITDA of 17x CY19E (much lower than peer average).
Brokerage: Prabhudas Lilladher
RPP Infra Projects | Rating - Buy | Target - Rs 385 | Return - 34%
RPP Infra (RPP) reported strong execution with stable margins in Q3FY18. It has guided for revenues of around Rs 650 crore with around 14-15 percent EBITDA margins in FY19.
Order book at the end of Q3FY18 stood at Rs 895 crore, with 27 percent from buildings, 32 percent from Water Management and Irrigation and 41 percent from infrastructure and is expected to end the year with a book of Rs 1,200 crore.
Concall Highlights: 1) Seeing great traction in Orders due to the Central Government’s focus on Infrastructure Building especially in Rural Infrastructure Development. 2) Main focus for the company is Water Management Segment due to better margins and expertise 3) Bid Pipeline of Rs 1,500 crore - Rs 5 crore from Concrete Roads, Rs2.75bn from Affordable housing. 4) Aim to reduce Working Capital by 10-15 days from 160 days at the end of Q3FY18. 5) No more tax liability pending. Expecting Rs 2-3 crore write back 6) Not looking at bidding for HAM project now.
We expect RPP to deliver Sales and PAT CAGR of 28 percent/34 percent, respectively, over FY17-20E. We believe the company is a good play on government’s increasing focus on improving rural infrastructure. We maintain a BUY with a target price of Rs 385.
Brokerage: ICICIdirect
PNC Infratech | Rating - Buy | Target - Rs 215 | Return - 26%
We like PNC given its robust order book, strong execution capabilities and lean balance sheet with better working capitalWC management. Furthermore, we believe the company is well poised to capture huge opportunities ahead.
We expect revenues and earnings to grow at CAGR of 40.1 percent, 22.6 percent, respectively, in FY18-20E given the significant ramp up in execution from Q4FY18 onwards with receipt of appointed dates.
Hence, we maintain our Buy recommendation on the stock with a target price of Rs 215. We value its construction business at Rs 182 per share and BOT & HAM projects at Rs 53 per share.
Brokerage: Edelweiss Financial
Welspun India | Rating - Buy | Target - Rs 84 | Return - 27%
Welspun India’s Q3FY18 revenue, at Rs 1,400 crore (4 percent above estimate), fell 7 percent YoY impacted by customer destocking and reduced incentives post GST implementation. While lower cotton prices supported gross margins, EBITDA margin improved a mere 40bps QoQ to 18.1 percent (estimated 20.5 percent) impacted by operating deleverage.
Management mentioned over long term EBITDA margin of 20 percent is sustainable. As we introduce FY20E, we build in 6 percent/10 percent improvement in revenue/PAT and believe all concerns about growth and margins are factored in our expectations.
Rolling forward, we maintain our target EV/EBITDA multiple of 7.0x, giving a target price of Rs 84 (Rs 83 earlier). Maintain ‘Buy’.
Simplex Infrastructure | Rating - Buy | Target - Rs 826 | Return - 43%
Simplex Infrastructure’s Q3FY18 revenue fell 2 percent YoY due to GST impact and client-related issues. However, better cost control led to PAT surging 69 percent YoY.
Improving business prospects (reflected in healthy order inflow) has led to management now shifting focus from consolidation to growth—targeting 20 percent top-line growth going ahead.
Moreover, green shoots are emerging on the working capital cycle front—an elongated cycle had led to higher leverage and constrained growth over the past couple of years.
We believe, a diversified segmental presence and robust execution capabilities will drive around 40 percent PAT CAGR over FY18-20. Maintain Buy with SOTP-based target price of Rs 826 as we roll over to FY20.
Carborundum Universal | Rating - Buy | Target - Rs 426 | Return - 21%
Carborundum Universal’s Q3FY18 consolidated revenue grew 16 percent YoY led by volume growth across segments. While abrasives’ sales grew at 15 percent YoY, electrominerals’ sales growth sustained at 17 percent YoY (around 20 percent YoY in Q2FY18).
Ceramics recovered strongly with sales growing 18 percent YoY, driven by industrial segment. CUMI expects to add around Rs 1,000 crore over next two-three years by ramping up capacities relocated from its South African entities (Bubble Zirconia and Thukela Refractories are operating at less than 25 percent utilisation) and NTK Cylinders (Metz Cylinders) from Japan and growing existing business.
We believe Carborundum is well positioned to ride the demand recovery across segments by scaling up the value chain with advanced products and working towards specialised ceramics and composite-based electrominerals for EVs. Hence, we estimate PAT CAGR of 24 percent over FY17-20.
While stock has underperformed since our downgrade (Hold) in Q1FY18, we upgrade to Buy, led by improving visibility domestically and globally, with target price of Rs 426.
Texmaco Rail | Rating - Buy | Target - Rs 140 | Return - 49%
Texmaco Rail & Engineering’s Q3FY18 topline declined 14 percent YoY as insufficient wagon orders led to wagon revenue plummeting 73 percent YoY. EBITDA margin fell 20bps YoY to 4.1 percent due to operating de-leverage.
Texmaco group is witnessing significant growth across verticals – wagons, coaches, locomotives and rail EPC, leading to overall order book rising to Rs 4,450 crore (around Rs 3,620 crore in Q2FY18). The company’s rich experience places it in ideal position to seize the burgeoning opportunities arising from overhaul of the Indian Railway (IR) network.
Maintain Buy with SoTP-based target price of Rs 140 as we roll over to FY20E.
J Kumar Infraprojects | Rating - Buy | Target - Rs 474 | Return - 39%
J Kumar Infraprojects posted healthy revenue growth (up 24 percent YoY and 44 percent QoQ) in Q3FY18. With operating costs under control, PAT also jumped 24 percent YoY, in line with revenue.
Healthy execution was a result of traction achieved on Mumbai Metro and JNPT projects. With tunneling expected to gather pace in Mumbai Metro Line 3 project, we expect revenue to remain strong.
Robust order book (book-to-bill at 5.5x), lean balance sheet (net debt<0.1x) and ample opportunities in the Metro space render us bullish on the company. Maintain Buy with target price of Rs 474 as we roll over to FY20E.
Brokerage: Motilal Oswal
MCX | Rating - Buy | Target - Rs 1,100 | Return - 48%
Overall volumes for MCX have been soft because of multiple issues (demonetisation, GST, PMLA) reducing Bullion volume to nearly a half in a span of a year. Over first nine-month of FY18, while volume in Bullion declined by 30 percent YoY, that in base metals increased by 17 percent, thereby stemming the overall volume decline to 8 percent. The contribution of Bullion to overall volume has now come down to 23 percent (from 30 percent last year), whereas that of base metals has moved to 43 percent (from 34 percent).
Now that specific issues are behind and regulatory drive has only picked up over the last year, volumes should start seeing growth on a normalised base. To a large extent, this has panned out in the first 1.5-month of 2018 – where ADT has been Rs 23,500 crore versus Rs 20,300 crore in 9MFY18 (and Rs 21,000 crore in 9MFY17).
Over the past year, several regulatory steps have supported a case for volumes uptick. The SEBI allowed trading of Options, with Gold being launched and the full suite expected to be running by 2HFY19. MCX expects Options to add 15 percent to its revenue pool once it starts monetising the product.
While the SEBI allowed Alternative Investment Funds (AIFs) to take commodity exposure, a change in the regulation of custodians was necessary for them to begin. Along with this change, allowing MFs and PMS would further boost institutional participation.
Bank subsidiaries being allowed to distribute commodities opens up large untapped retail participation. While the process is of long gestation, it should result in a meaningful increase over the long term.
With growth returning on the exchange, new products getting launched and steps being taken toward an increase in participation (both retail and institutional), mid-teen growth in ADT over the next few years can be expected. The cost structure for MCX would largely remain stable (with an increase of 3-5 percent expected in non-variable expenses).
Prime Focus | Rating - Buy | Target - Rs 130 | Return - 27%
Revenue grew 20 percent YoY (+11.4 percent QoQ) to Rs 610 crore (in-line), led by robust growth in the Creative business. Yet, EBITDA (pre-ESOP) grew by a meager 4 percent YoY (+6 percent QoQ) to Rs 130 crore (8 percent miss) due to a 25 percent YoY rise in operating expenses. EBITDA margin contracted 320bp YoY (-120bp QoQ) to 20.9 percent (180bp). However, adjusted for one-offs (Rs 10 crore of forex translation accounting, and Rs 10 crore of Montreal set-up cost), EBITDA margin stood at 24.2 percent. Higher finance cost and depreciation led to a loss of Rs 8.7 crore (estimated of profit of Rs 25.8 crore; Rs 22.7 crore profit in the year-ago period).
Creative segment (around 78 percent of revenue) rose 25 percent YoY to Rs 480 crore, led by growing offerings to movie content. Adjusted EBITDA margin grew 230bp YoY to 26 percent. Also, Tech business reversed the previous quarter’s negative trend, growing by 3 percent YoY to Rs 80 crore. However, higher SGA expenses led to a 360bp Tech margin contraction to 23.6 percent.
Prime Focus has a strong order book of more than USD 250 million for the creative segment. This, coupled with the gradual shifting of operations to low-cost centres, is likely to drive strong growth in the creative segment. Furthermore, a steady around USD 200 million pipeline in the Tech business augurs well. We cut FY19/20E revenue/EBITDA by 2-3 percent, and expect consolidated revenue/EBITDA CAGR of 15 percent/19 percent over FY18-20, led by a 21 percent EBITDA CAGR in Creative.
MORE WILL UPDATE SOON!!

These 7 stocks' fundamentals remained robust despite capex doubling over last 5 fiscals

hese companies, doubled their assets without much leverage and were able to maintain a double-digit sales and profit CAGR.

To access earnings visibility of any company, business expansion would be one of the most important factors anyone would look at. And although companies have different ways of going about this, at the very core, they are all headed towards the same goal -- any measures taken should at some point result in more money in the company's coffers.
Bearing this in mind, we at Moneycontrol have shortlisted a few names that  fulfill all the criteria mentioned below:-

  • Gross block of the company at least doubled in the past five fiscals. (Average increase over the 5-year term is minimum 50 percent as well).

  • The company’s debt to equity ratio did not exceed 0.5 times in any of the past five financial years.

  • A return on equity (ROE) of minimum 10 percent was earned in each of the past five fiscal years.

  • The 5-year compounded annual growth rate (CAGR) for sales and profit after tax exceeded 10 percent.

Interestingly, only seven companies listed on the BSE met these criteria -- 8K Miles Software Services,  Astral Poly Technik , Infobeans Technologies, Just Dial, Mahindra Logistics, Reliance Nippon Life and Sun Pharma.
Unsurprisingly, these companies, more often than not, are good performers in terms of returns on stock price, as seen in the exhibit below:-
8K Miles and Astral Poly Technik delivered positive returns in 4 out of 5 fiscal years, in the range of 25-583 percent. Just Dial, on the other hand, has been a major underperformer over the years, barring the year it got listed -- 2013 -- when it returned 154 percent.
MORE WILL UPDATE SOON!!

Encouraging report card from earnings season – how to make the most of it?

A detailed analysis of the third quarter numbers of over 7600 companies showed all-around improvement in financial parameters. Aggregate sales growth of 8% was better than the 6.7% in the previous quarter. EBIDTA (earnings before interest depreciation & tax) margins improved a tad as well.

At the start of 2018, market mood was euphoric despite anaemic corporate earnings growth. With the latest earnings season over, the situation is just the opposite. Corporate earnings are looking up—partly the base effect of the demonetisation quarter, and partly the easing of GST woes—but outlook on the market has turned cautious.
All companies – indications of broader recovery, low base may have aided
A detailed analysis of the third quarter numbers of over 7600 companies showed all-around improvement in financial parameters. Aggregate sales growth of 8% was better than the 6.7% in the previous quarter. EBIDTA (earnings before interest depreciation & tax) margins improved a tad as well.
Post-tax profit grew 4.9%, a turnaround considering the decline of 8% during the third quarter of the previous year. A notable trend was the reduction in overall interest outgo, as interest cost as a proportion of sales at 12.4% was 70 basis points less compared to the preceding quarter.
The number of companies reporting a decline in profitability also fell from the previous quarter.
Nifty – back in the double-digit growth trajectory
For the companies in the headline Nifty index, the double-digit growth in profitability was impressive.
For the group, the year-on-year growth in sales, operating profit and net profit at 9%, 18% and 13.6% respectively was much better compared to 7.4%, 14.7% and 9.7% growth reported in the previous quarter.
What’s even more interesting is the fact that the performance was largely driven by non-financial companies, with their overall profitability rising by a healthy 15.3%.
The numbers from the financial pack was somewhat marred by the loss reported by State Bank of India on account of higher provisioning post the asset quality divergence from RBI’s audit. Consequently, for the aggregate of all the financial companies in the Nifty, the profitability growth was a modest 6.8% although the private sector pack reported a steady show.
Besides SBI, the other notable misses from Nifty were the two large pharmaceutical companies –Dr Reddy’s and Lupin as well as Tata Motors.
Pharmaceutical sector continues to reel under pricing pressure for the US generic business besides company-specific issues with the US regulator. We do not see this reversing in a hurry and investors got to place their bets selectively. For Tata Motors, their luxury car business under Jaguar Land Rover was disappointing although domestic business staged a turnaround.
PSU banks – poor show that might continue this way for a while
Amid the otherwise comforting earnings picture, public sector banks disappointed, with most of them reporting losses. Results were weighed down by higher provisioning for non-performing assets as well as investment depreciation and lower treasury gains on account of hardening of yields on Government securities.
The poor show by PSU banks impacted the aggregate picture for the BSE Small cap index (significant decline in profitability) that has a meaningful representation of state-owned banks.
Sectoral trends – consumers, CVs and metals strong
For the market’s favourite mid-cap space, the performance of the BSE Mid Cap index was reassuring with significant improvement in operating performance (operating profit growth of 23%) leading to 7% growth in profit, against a profit decline of 13.4% reported in the immediately preceding quarter.
The notable trends within the broader universe was a decent performance of large number of consumer companies, both discretionary as well as staples (thanks to the low base of demonetisation) with encouraging volume performance and positive commentary about revival in rural demand.
In the automobile pack, commercial vehicles along with ancillary companies catering to this sub-segment were the stand out performers.
Cement companies had a modest quarter where despite some improvement in volumes, cost pressures took away the sheen.
In the infrastructure space, road and railway capex related companies continued to report robust performance. While private capex still remains elusive, many of the companies alluded to green shoots in order recovery.
Metals space had a strong show and the effect trickled down to smaller companies in the ecosystem.
The largely positive sectoral trends had their reflection in the aggregate performance of BSE 500 index that reported significant improvement in profitability.
A decline in interest cost pushed up the performance of the BSE 200 aggregate as well.
The truly winning sector - IT
However, the sector that truly deserves a mention in this quarter is Information Technology (IT). While the commentary from large and mid-sized companies seem to suggest a stronger pipeline of deals and a better year ahead, some of the midcap companies are beginning to see better days with ramp up in their digital revenues. The worst clearly seems to be behind for the sector, but investors need to differentiate men from the boys.
How should investors be positioned?
In sum, the result season broadly was an incremental positive for the markets. Now the tailwinds from earnings will confront several headwinds like the continued strength in commodity prices and hardening of G Sec (government securities) yields on inflation outlook etc.
The recent circular directing banks to recognise asset quality stress upfront will not only warrant higher near-term provision but can push the capex recovery beyond 2019 elections besides exerting pressure on yields (should the government commit more funds for salvaging banks).
The trend in GST collection also remains a critical monitorable in impacting the direction of government finances as well as interest rates.
Finally with the global economy is on a strong footing, the hardening of rates in developed world could lead to outflow of capital from emerging markets.
The street is pinning hopes on a very robust earnings recovery of the order of mid-twenties. The debacle in the baking space raises serious doubts about the magnitude of the earnings recovery.
While we expect earnings momentum to sustain in Q418 aided by the weak base partially, we are still not convinced about heady growth numbers in FY19 and believe that the aggregate growth in profitability could be in high-teens.
Nifty is fairly valued at 18.5x FY19 projected earnings. However, the current phase of consolidation (also led by introduction of LTCG tax) could throw up interesting investing opportunities.
Looking beyond the near-term noise of populism and politics, a stable political formation post FY19 could set the stage for reforms version 2 and support secular recovery in the markets. Selective buying of high conviction ideas in this consolidation phase would therefore prove rewarding.
MORE WILL UPDATE SOON!!