Global cues are expected to dominate the equity market, but now the focus will gradually shift to corporate earnings as that will help investors to re-think their estimates for FY19.
After 2 percent rally in the past week, the consolidation is likely to continue due to global cues, but the more upside from hereon is largely dependant upon performance of March quarter earnings that will start in the coming week, experts suggest. Infosys is the first company to kick off earnings season.
“Going ahead, the focus of the markets will shift back to earnings which are likely to kick start from next week as well as future growth outlook by the various management. Earnings growth is also likely to be supported by a low base of Q4FY17," Teena Virmani, Vice President – Research at Kotak Securities said.
Hence, Rahul Sharma, Senior Research Analyst at Equity99, feels that over the next two months, the market will witness a lot of stock-specific movements as fund-managers will be re-balancing their portfolio to align with corporate earnings.
Overall, corporate earnings will grow in mid-teens after many years of single-digit growth. However, the markets have already factored in the earnings recovery in the current valuations, he added.
Globally, Virmani said concerns over global growth owing to trade war triggered by Trump tariff threat continued to remain. "Escalating trade standoff between US and China may continue to impact financial markets negatively."
Here is the list of top 17 stocks that can give up to 99% return:-
Titan Company | Rating - Buy | Target - Rs 1,090 | Return - 16%
Titan's Q4FY18 turned out to be a good quarter for the Jewellery division, with retail growth coming in at mid-teens, despite no new collection launch. Growth was driven by successful diamond jewellery activation and the revised gold exchange policy.
Watches performed strongly in the quarter, aided by the multi-brand and e-com platforms.
Prescription Eyewear, too, sustained its growth momentum, while Sunglasses business continued to suffer.
We maintain Buy rating on Titan, with a revised target price of Rs 1,090 (valued at 55x March 2020E EPS, a 33 percent premium to the three-year average multiple, because of the strong earnings growth prospects – 26 percent EPS CAGR over FY18-20).
Power Grid | Rating - Buy | Target - Rs 287 | Return - 45%
We analyzed the tariff-based competitive bidding (TBCB) projects from the annual reports of Power Grid’s subsidiaries. Power Grid will generate more than 14 percent equity IRR (debt/equity ratio of 80/20) on its TBCB projects. The equity IRR on the three projects that are fully commissioned is around 24-38 percent.
Power Grid enjoys a competitive edge due to its (a) low cost of borrowed funds, (b) dominant position with suppliers and (c) vast geographical spread, which should continue driving
healthy returns.
Power Grid has around Rs 1 lakh crore of orders pending execution, providing strong visibility of EPS CAGR of around 12 percent over FY18-22. The earnings estimate factors in a 150bp cut in the regulated RoE (to 14 percent) in the next tariff regulations. However, with bond yield rising over the last few months, the extent of such cut could be lower, in our view.
At CMP, the stock is trading attractively at 1.4x FY20E P/BV for an RoE of around 16 percent and a CoE of around 10-11 percent, not appreciating any future growth potential.
If we were to assume no growth after FY20, which means PAT is available for dividend distribution, the stock is trading at an attractive dividend yield of around 11 percent for an assured return model and revenues backed by state-guarantees (g-sec yield is around 7 to 8 percent). We re-iterate our Buy rating with a DCF-based target price of Rs 287/share.
HDFC | Rating - Buy | Target - Rs 2,225 | Return - 22%
HDFC is not just a play on rising mortgage penetration, but also on increasing financial literacy and financialization of savings in India. Having incubated several subsidiaries over the past two decades, HDFC derives almost 50 percent of its value from its subsidiaries, up from around 30 percent in FY13. In addition, there are still some segments, like health insurance, where HDFC is to yet to enter.
The core mortgage business is on a stable growth trajectory, despite intensifying competition. The corporate lending business, on the other hand, has witnessed a revival over the past few quarters, after 3-4 years of modest growth.
HDFC is well equipped to take care of its own growth and growth capital requirement of subsidiaries, with (a) large capital issuance of Rs 13,000 crore, (b) expected warrant conversion of Rs 5,390 crore, and (c) capital gains from HDFC MF (Rs 1,500 crore+). Of this, we expect Rs 8,500 crore to be utilized for HDFC Bank stake (already announced) and Rs 4,500 crore for other ventures (new segments like health insurance, stressed asset acquisition, investments in affordable housing projects, etc). As there are no firm announcements for Rs 4,500 crore, we have valued it at 1x cash.
Despite the huge capital raising, HDFC will still maintain core RoE of around 18 percent over the medium term. We use SOTP to value the company (core business at 20x EPS and 3.2x BV) and arrive at a TP of Rs 2,225. Buy.
Mahindra & Mahindra | Rating - Buy | Target - Rs 889 | Return - 16%
M&M is a best proxy on a rural recovery in the auto segment. We expect continued growth in tractors, a strong recovery in the pick-up segment, and stabilisation in the market share in passenger utility vehicles.
We estimate 14 percent CAGR in the core business over FY18-20. The stock trades at 19.1x FY19E and 16.6x FY20E consolidated EPS, and core business (adjusted for value in subs after 20 percent hold-co discount) trades at around 13.9x/12x FY19/20E. Maintain Buy with an SOTP-based target price of Rs 889.
Shalby | Rating - Buy | Target - Rs 320 | Return - 51%
The stock is valued at a P/E of 37x on FY17 diluted EPS which is at a discount to peers in listed space like Apollo Hospitals (52x), Narayana Hrudalaya (70x) and Healthcare Global Enterprises (112x) with much lower OPMs and single digit return ratios.
With due consideration to factors like a) leadership in orthopaedics and strong capabilities in other specialties, b) integrated and scalable business model enhancing its patient reach, c) only player in the industry to grow 2000+ beds without any non-promoter equity funding. Growth funded entirely through internal accruals and debt recently, d) strong Q3FY18 performance witnessed, e) market leader in the procedure of joint replacement surgeries with a 15 percent market share of all such surgeries conducted by private corporate hospitals in India in 2016, according to the F&S Report, f) payback Period best in class, g) best in class EBITDA levels - consistent EBITDA upwards of 20 percent against industry average of 12-15 percent, h) significant improvement in PAT going forward post repayment of debt, i) robust ROE of 28 percent as against single digit ROE of peers, we recommend investors to Buy with a target of Rs 320 on a conservative basis (P/E of 50x which is at discount to Industry P/E of 67x) at estimated FY19EPS for investors with a horizon of 9-12 months.
Brokerage: Axis Securities
RBL Bank | Rating - Buy | Target - Rs 650 | Return - 17%
We met with the senior management of RBL and came back confident on its outlook and execution capabilities. Growth rates to remain healthy with benefits flowing from multi-channel distribution network. NIM to remain intact with granular retail franchise.
Some near-term challenges persists like asset quality pain in farm loan book and credit costs linked to demonetization-impacted MFI loans, which will ease over next few quarters.
We expect RBL to scale up materially without any significant teething issues while achieving best in class performance across major parameters.
RBL is transitioning from being a wholesale-focused regional player to an agile technology-leader with a diversified portfolio, focus on strategic niche customer segments, and pan-India aspirations.
Retain Buy with a target price of Rs 650.
Brokerage: HDFC Securities
Symphony | Rating - Buy | Target - Rs 2,150 | Return - 20%
Symphony, once an almost bankrupt company, has risen from the ashes and become the global leader in air coolers. After suffering financial stress and restructuring, post 2005 the company focussed on a ‘one product, many markets strategy’. This has worked out well and revenues/EBITDA/APAT grew at 35/49/54 percent CAGR during the last 10 years.
Symphony commands 50 percent value and 42 percent volume share in India’s organised air cooler market, but its overall volume share is still at around 14 percent. It will ride the post-GST shift in the market from unorganised to organised players. Its strong track record of product innovation and a unique distribution model will help cement further gains.
Our bullishness on Symphony is based on (1) Rising demand for cooling products driven by growing disposable incomes, cheaper financing options and increasing up-country penetration of electricity, (2) A large unorganised air cooler market, (3) Symphony’s consistent product innovation, (4) Growing distribution reach (40,000 dealers targeted versus 30,000 now) over the next 2 years (dealer reach grew at 24 percent CAGR over FY10-17) and (5) Untapped opportunities in RoW markets. We model revenue/EBITDA/APAT CAGR of 22/28/29 percent over FY18E-FY20E, driven mostly by premiumisation.
Symphony’s high return on capital employed (RoCE) >100 percent, market leadership and multi-year growth visibility warrants high valuations. The stock has consistently traded at a premium to AC/appliance companies. Our valuation is based on 45x Mar-20 EPS, yielding a target price of Rs 2,150.
Initiate coverage with a Buy.
HG Infra Engineering | Rating - Buy | Target - Rs 375 | Return - 17%
There are expectations of strong earnings growth in ensuing quarters.
HGI has been gaining a healthy traction for last two years on the backdrop of consistent order book addition and improving execution expertise.
While current order book of Rs 5,060 crore (4.8x FY17 revenue) provides robust growth visibility, HGI is expected to add more orders to its kitty mainly led by improvement in financial prequalification and
enormous opportunity in Roads & Highway segment.
We expect HGI’s revenue and earnings to clock 31 percent and 46 percent CAGR, respectively through FY17-FY20E. Further, current valuations at 18.4x / 13.7x EPS of FY19E / FY20E, respectively, look attractive considering less than 1x PEG ratio and strong return ratios.
We maintain fundamental Buy rating on the stock with a target price of Rs 375.
Ramkrishna Forgings | Rating - Buy | Target - Rs 975 | Return - 17%
In Ramkrishna Forgings, there are expectations of healthy improvement in earnings in coming quarters led by visible improvement in automobiles volume especially in commercial vehicle (CV) segment.
RFL is the second largest forging company in India after Bharat Forge with an installed capacity of 150,000MT.
RFL derives more than 80 percent of its total revenue from Automotive segment (including exports) as auto volumes had been favourable over the years.
RFL has concluded its major expansion drive and is currently in the process of improving the utilisation of newly commissioned facility.
We expect RFL to generate free cash flow of Rs 460 crore over FY18-FY20E aided by low capex requirement and healthy margins.
We maintain Buy rating on the stock with a target price of Rs 975.
NBCC | Rating - Buy | Target - Rs 295 | Return - 40%
In NBCC, there are expectations of healthy earnings in ensuing quarters. It continues to be a robust growth story owing to its PWO status and niche presence in redevelopment of government’s old colonies.
Notably, order book stands at Rs 80,000 crore (13.2x TTM revenue) and offers unmatched growth visibility, going ahead. Its key redevelopment projects i.e. Pragati Maidan (Rs 2,500 crore), Nauroji Nagar (Rs 3,000 crore) and Maharashtra Irrigation (Rs 1,000 crore) projects were started, which will start contributing to revenue from current quarter.
Further, NBCC is in negotiation or at advance stage of securing more projects in coming months i.e. Railway redevelopment, Dharavi redevelopment, etc.
A debt-free balance-sheet and superior return ratios augur well for the Company. We expect 30% CAGR in NBCC’s earnings through FY17-FY20E backed by robust order book and execution pick-up in
redevelopment projects.
We maintain fundamental Buy rating on the stock with a target price of Rs 295.
Federal Bank | Rating - Buy | Target - Rs 119 | Return - 29%
Federal Bank is a Kerala based bank with the strong business presence in southern region of the country. Over the last few quarters, the bank has reported improvement in the business growth while the margin remained healthy at around 3.3 percent higher than close peers.
Advances book is well diversified with corporate book share at 40 percent, retail at 29 percent and SME at 32 percent, witnessing healthy growth in all these three segments. While the addition to NPAs also remained elevated due to spike in corporate and retail slippage, continued moderation in SMA-2 list indicates fresh slippage will decline in FY19.
Furthermore, adequate provisioning for NCLT 2nd list will ease pressure on provisioning front going forward. We recommend potential price of Rs 119 determined afterapplying 1.8 P/ABV (x) to FY20 adjusted book value per share of Rs 66.2.
Ajanta Pharma | Rating - Buy | Target - Rs 1,740-1,809 | Return - 25-30%
Ajanta Pharma is well poised to foray in the US markets coupled with approval for its Dahej factory. Currently the stock is trading close to 52-week low, which provides investors an opportunity to buy in. Despite a challenging environment in the US, the management expects decent growth on the back of products launches in the next 18-24 months.
On the domestic front, the management expects FY18 growth to be impacted due to GST transition but return to growth trajectory in FY19.
The company has an upside potential of 25-30 percent in the next 12-18 months. We arrive at a target price in range of Rs 1,740-1,809 per share. Thus we assign a Buy rating on the stock.
Avenue Supermarts | Rating - Buy | Target - Rs 1,590 | Return - 17%
Avenue Supermarts (D-Mart) promoted by Radhakishan Damani, owns & operates India’s most profitable supermarket, D’Mart. It offers products like Foods, Non-Foods (FMCG), general Merchandise and Apparel categories under 141 stores with 4.4 million square feet.
Food & Grocery constitutes around 67 percent of total retail industry, but organised retailers’ accounted only around 3 percent and expected to grow at 26 percent CAGR by FY20.
Mall additions and ‘everyday discount’ strategy helped to deliver strong revenue & PAT CAGR of 37 percent & 51 percent in the last 5 years.
EBITDA margin is higher among peers due to better asset-turnover and lean cost structure.
A revamp in the strategy by including leased stores along with the owned will accelerate pace of growth.
We estimate Revenue/PAT to grow at 34 percent/43 percent CAGR over FY18E-20E.
We initiate D-Mart with a Buy rating based on DCF with a target of Rs 1,590, implying P/E of 69x on FY20E.
Cochin Shipyard | Rating - Buy | Target - Rs 625 | Return - 21%
Cochin Shipyard is the largest public sector shipyard in India deriving major revenue from Navy. The main sources of revenue are ship building for navy, coast guard, commercial and ship repair.
Current order book is Rs 2,337 crore (Q3FY18) and has visibility to garner around Rs 18,000 crore of orders over the next 2 years.
Additional, order visibility are L1 status on ASW-SWC of Rs 5,400 crore and Phase - III of IAC (Rs 10,300 crore).
Market leader in ship repair and poised to grow further led by JVs and MoUs.
Cash rich in spite of huge capex – Capacity to double in both the segment of ship building & repairs by FY22 with a total debt-free capex of Rs 2,760 crore.
Revenue expected to grow by 22.5 percent in FY17-20, led by 27 percent CAGR in ship building.
Owing to strong order book visibility and being a market leader in ship repair we value CSL at 17x on FY20E EPS initiating coverage with a target price of Rs 625, with a Buy rating.
TVS Motor Company | Rating - Buy | Target - Rs 782 | Return - 22%
Recently, the stock price of TVS Motor Company corrected by around 22 percent from 52-week high of Rs 795 despite reporting good set of numbers in the recent quarters.
It has been consistently outpacing the 2-wheeler industry growth since FY15 with successfully gaining market share in both the motorcycles and scooter segments on the back of new launches. Further, TVS Motor has also gained pricing power given the feature rich products and strong brand recall.
TVS Motor has incurred a capex of Rs 550 crore by Q3FY18 for capacity expansion as well as product development toward the BMW products. The management has further guided a capex of around Rs 650 crore in FY18E and Rs 500 crore in FY19E, which includes investment in electric vehicle technology, investment in R&D and marketing & branding.
It has tied-up with BMW to manufacture sale in premium category, 250-500CC in the domestic market. The collaboration will enable it to gain foothold in the high-margin premium motorcycles segment, where it had only one model ‘Apache’.
With 4th largest 2-wheeler manufacturer, good response to new products in domestic market, continuously launches new products in domestic market, gaining market share in both the motorcycles and scooter segments, investment in electric vehicle technology and tie up with BMW, we value TVS Motor at 54.60x FY19E EPS of Rs 14.30 to arrive at target price of Rs 771, an upside of around 22 percent.
Motherson Sumi | Rating - Buy | Return - 15-17%
Motherson Sumi Systems (MSSL) through its step-down subsidiary, Samvardhana Motherson Automotive Systems Group BV (SMRP BV), announced the proposed 100 percent acquisition of Reydel Automotive Group (Reydel). Reydel manufactures interior components and modules (cockpit modules, instrument panels, door panels and console modules; products are similar to MSSL polymer range) for global automotive customers and has 20 manufacturing facilities spread over 16 countries.
Reydel derives 66 percent of its revenue from Europe, 28 percent from Asia and 6 percent from South America market.
As per management, the acquisition is EPS-accretive from day one and would add 10-12 percent to MSSL topline and 4-5 percent to earnings upon consolidation. The deal would take 4-6 months to conclude. We maintain Positive view on the stock and expect 15-17 percent returns in the next six to eight months.
GMR Infrastructure | Rating - Buy | Target - Rs 40 | Return - 99%
Amidst all the challenges in power and road sector, GMR has grown its airport assets from two to five (3 operational, 2 under development) which demonstrates company’s ability to grow a high margin and positive cash flow business. Airport assets accounted for 53 percent of the revenues and 82 percent of EBITDA. Passenger traffic has grown at a 5-year CAGR of 10 percent and 12 percent at its two marquee assets – Delhi and Hyderabad respectively and combined they handle 73 million passengers per annum.
The company’s debt has reduced from Rs 39,400 crore in FY16 to Rs 22,800 crore in H1FY18. The company entered debt restructuring agreement through SDR schemes which helped bring down leverage further. Consequently, Net Debt to EBITDA has improved from 12.3x to 6.3x.
Unlike other conglomerates, GMR group seems to be out of the problem as far as energy vertical is concerned.
Over last 3 years, GMR has successfully divested assets worth more than 120bn across airport, power, transmission, coal mines and road sector.
We believe that we have not seen last of such divestments as GMR has identified further assets which are non-core or non-strategic up for sale. This includes – Indonesian coal mines, road assets and monetization of land parcels at Kakinada and Krishnagiri SIR.
MORE WILL UPDATE SOON!!
