These top 10 stocks can deliver up to 76% return over next 15 months
The Nifty50 is up more than 7 percent from its 2018 lows of 9,980 to over 10,700 levels. Hopes of an earnings recovery, easing of trade war fears and geopolitical tensions and strong domestic institutional inflows have been able to overshadow higher crude oil prices, rising US bond yields and a weak rupee.
The benchmark has been consolidating and the same could continue for a couple of sessions, experts said, adding investors await clarity on corporate earnings as well as next week’s Karnataka assembly elections.
From a 12-month perspective, IL&FS' Vibhav Kapoor expects earnings to support the market despite weak macros and sees it trading between 10,000 and 11,000 levels. “One needs to be wary of the 11,000-mark as that is when earnings will start to look expensive. Anything beyond that will be an opportunity to book profits in the short-term.”
He feels the Nifty could touch 13,000 levels if the Bharatiya Janata Party (BJP) manages to win the 2019 general elections. But if the election results don’t go as desired, then the 50-share index could fall to 9,000 levels.
Investing and trading opportunities if the Nifty trades above the 10,650 level in the coming fortnight. Corporate earnings result for Q4 FY18 have been better than expected. Both the India Meteorological Department (IMD) and private weather forecaster Skymet have predicted normal monsoon this year. They are advised to keep a close watch on crude oil prices and the upcoming earnings results of India Inc.
Here is the list of 10 stocks that can give up to percent 76 percent return over 12-15 months:-
HDFC Buy | Target - Rs 2,250 | Return - 18%
HDFC has commanded premium valuations over the years due to its consistent track record in earnings. Return ratios have remained healthy across economic cycles with return on equity (RoE) more than 20 percent & return on assets (RoA) around 2.2-2.5 percent.
Going ahead, we expect PAT of Rs 11,641 crore in FY20E (up 14.8 percent YoY). We have largely maintain loan estimates and expect 17.2 percent CAGR to Rs 4,94,049 crore by FY20E.
Other parameters such as NIM/spread and asset quality are estimated to be stable, going ahead. We value the standalone business at 2.9x FY20E ABV.
We maintain SOTP based target price of Rs 2,250/share and Buy rating on the stock. HDFC remains a portfolio stock.
Kotak Mahindra Bank: Buy | Target - Rs 1,440 | Return - 15%
Kotak Mahindra Bank reported steady set of numbers. NII grew 19 percent YoY, led by healthy credit offtake at 24.7 percent YoY. Margins improved QoQ to 4.35 percent from 4.2 percent. Healthy operational performance continued with PPP at Rs 2,018 crore, up 18.6 percent YoY.
Banking business has been witnessing continued improvement in business growth and asset quality. We remain positive on the fundamental strength given steady NIM at 4.2-4.4 percent, healthy business growth and improvement in cost-to-income ratio ahead.
Asset quality is seen to remain prudent with GNPA seen at around 2 percent in FY20E. With non-banking businesses (prime, life insurance and securities business) firing up on growth and profitability, value enrichment remains a positive. Therefore, proportion of non-banking business in overall profitability is on the upturn.
Valuing the stock on SOTP, we revise target price upwards to Rs 1,440 from Rs 1,200 earlier and continue with Buy rating on the stock.
Shoppers Stop: Buy | Target - Rs 650 | Return - 15%
FY18 has been a strategic year for the company, with strengthening of the balance sheet being the key focus area. The proceeds of divestment in Hypercity, Nuance Group & Timezone were utilised towards retirement of debt (borrowings as on 31st March 2018: Rs 87.4 crore versus Rs 575.9 crore as on 31st March 2017) leading to substantial reduction in interest outflow (interest expense down 40 percent YoY to Rs 36.2 crore).
Following the same, interest coverage and debt/equity ratio improved significantly from 1.3x and 0.8x in FY17 to 2.8x and 0.1x, respectively, in FY18. Furthermore, return on capital employed (RoCE) improved by 380 bps YoY to 9.6 percent in FY18. Exit from non-core business and re-jig in inventory of private label brands (focusing on value fashion rather than premium fashion) is expected to revive same-store-sales-growth (SSSG) going forward.
Furthermore, the recent tie-up with Amazon will enable Shoppers Stop to fortify its presence in the omni-channel space, with management expecting online channel to contribute 10 percent of revenues over next three years, from current 1 percent. We introduce FY20E estimates and roll over valuation to FY20E. We continue to maintain Buy recommendation on the stock with a target price of Rs 650.
Jindal Stainless Hisar: Buy | Target - Rs 318 | Return - 76%
Jindal Stainless Hisar's (JSHL) Q4FY18 standalone numbers were below estimates, due to lower than expected realisation. The volume during the quarter continues to remain strong. FY18 consolidated PAT doubled to Rs 591 crore, supported by strong performance in standalone operations and improved performance from Jindal Stainless Steelway (JSSL) and Jindal Lifestyle (JLL).
On the back of strong volume and better than expected JSL and JLL performance, we have revised earnings estimate higher for FY19E and FY20E to Rs 21.5 (earlier Rs 18.3) and Rs 24.5 (earlier Rs 19.2), respectively.
Going ahead, we believe, an increasing share of cold rolled (JSHL's focus) in the overall product mix, will help the EBITDA to grow at a CAGR of 9 percent during the FY18-FY20E period, with EBITDA margin in the range of 12-12.5 percent.
Besides these, the strong performance of subsidiaries will also be a potential growth driver. We continue to maintain Buy rating, with an unchanged target price of Rs 318.
MCX: Buy | Target - Rs 1,040 | Return - 37%
MCX delivered robust set of numbers in Q4FY18, revenue was up 12.4 percent QoQ (in-line with estimates), led by 17.8 percent rise in volume. Total ADTV (average daily trading value) was up 17.8 percent QoQ and 22.6 percent YoY led by rise in commodity prices and volatility. Encouraging part is that volume traction is even stronger in April-18, ADTV is up 26 percent QoQ led by 13/27 percent rise in bullion and metals volume.
MCX will launch four to five additional options contract in second half of FY19 and has already started LES in April-18 to boost gold options volume. Regulatory tailwinds like institutional participation (Banks, MFs, PMS) and partnership with retail banks subsidiaries can boost trading volumes.
Universal exchange concept (effective October-18) is a risk and can lead to rise in competitive intensity, pricing pressure and some market share loss to BSE & NSE (if they turn aggressive). However, management doesn’t see significant erosion in market share and expects the overall market size to increase with regulatory boost.
We see value in MCX based on (1) Embedded non-linearity, (2) Strong recovery in ADTV, and (3) Net cash of Rs 1,400 crore (around 35 percent of market cap). We estimate revenue/PAT CAGR of 23/30 percent over FY18-20E. Maintain Buy with a target price of Rs 1,040 implying a P/E of 30x FY20E EPS (earlier 35x).
Equitas Holdings: Buy | Target - Rs 220 | Return - 34%
Equitas Holdings’ (Equitas) Q4FY18 performance, which marks a turnaround quarter, vindicates our stance that earnings have bottomed out. Key highlights: a) non-MFI businesses sustained momentum (more than 50 percent AUM spurt) with improvement in asset quality (GNPLs at 3.4 percent versus 4.1 percent in Q3FY18); b) reduction in MFI book QoQ was primarily due to write-off of Rs 140 crore of loans (MFI GNPLs fell to sub-1 percent levels); c) on liability front, performance was encouraging—CASA at more than 15 percent of borrowings; and d) cost/income ratio fell below 77 percent levels (85 percent in Q3FY18) as costs have started to stabilise.
We believe visible benefits of successful execution (operating leverage benefits, strengthening liability franchise) will further bolster confidence, leading to valuation re-rating.
The ongoing transition phase is strenuous, but the company’s right strategy and adequate capital will rein in execution risks. With large part of stress recognition over, we expect the returns profile to stabilise from FY19 (green-shoots visible over H2FY18) with significant funding cost advantages and lower cyclicality risks. We estimate return on assets (RoA) to scale up gradually to around 2 percent and RoE to around 12.6 percent by FY20. We maintain 'Buy/SO' with target price of Rs 220.
Nelcast: Buy | Target - Rs 140 | Return - 57%
Nelcast Ltd, is India’s largest manufacturer of SG Iron Castings. It’s also one of the leading manufacturers of Grey Iron Castings. Its products find applications primarily in Tractors & Trailers, Medium & Heavy commercial vehicles (MHCVs), and Railways.
We expect the domestic and export market to remain in a healthy shape with growth remaining in strong double digits.
We expect that going ahead overall bottomline growth in the next 3 years starting FY17 onwards should easily increase at a CAGR of 18-25 percent and with fresh capex over the next 2 years likely to be funded out of internal accruals and debt which we believe can be comfortably serviced by its net cash flows generated going ahead.
The ROE and ROCE is also expected to improve to 14 percent and 15 percent and 11 percent and 13 percent by FY19 and FY20. Going ahead we expect Nelcasts’s earnings to grow at a 19-22 percent over FY17-20E led by a rising healthy topline growth, prudent product strategy, and more importantly savings in interest costs as the company has repaid some of its old loans.
The Nelcast stock trades at a P/E of 15x and 12x based on FY19E and FY20E, which looks attractive considering its strong production capability, consistent financial track record and healthy industry trends in the Castings sector where Nelcast looks poised to do well considering its size of operations, domestic clients and significant improvement expected both from the CV and Tractor segments ahead.
Hence we believe that the Nelcast stock should be purchased at the current price for a price target of around Rs 140 over the next 12 to 18 months.
Godrej Agrovet: Buy | Target - Rs 805 | Return - 15%
Government of India has increased its investment towards agricultural and poultry industry which will benefit Godrej Agrovet with its diversified business verticals coupled with pan India presence and established Godrej brand.
Its significant investments towards R&D and diversified business model would help to drive growth, optimize capital efficiency, maintain competitive advantage and hedge against the risks associated with any segment. At the CMP, the stock trades at around 30 times FY19 EPS of Rs 23. Hence, we recommend a Buy on the stock with a target price of Rs 805 with an investment horizon of 9-12 months.
Tata Motors: Buy | Target - Rs 565 | Return - 68%
Tata Motors' April-18 sales volumes were below estimates at 56,500 units (estimates 61,000 units); growing by 82.5 percent YoY on a low base of last year due to pre buy impact of BS-IV switchover in commercial vehicle (CV) segment.
Passenger vehicle (PV) segment sales increased by 27.3 percent YoY (in-line), as the utility vehicle (UV) segment registered volume growth of 290 percent YoY due to healthy demand of Nexon, while the car segment volumes declined 10.3 percent YoY.
Total CV volumes increased by 126.7 percent YoY to 38,900 units (below estimates of 43,000 units), led by increase in both LCV and HCV sales by 182 percent and 95.3 percent respectively.
The stock trades at 6x/5.2x FY19E/20E consolidated EPS. Maintain Buy.
Coal India: Buy | Target - Rs 397 | Return - 41%
We revisited two railway projects that are aimed at improving coal evacuation – DK line and GP line – in Chhattisgarh after 2-3 years. While the DK line is progressing well, work on the GP line is moving very slowly.
Existing evacuation infrastructure can handle planned growth at SECL and MCL for a couple of years but not beyond. The GP and/or JB-HM projects are critical for additional coal dispatches to North and West India.
We believe Coal India (COAL) will have to supply more coal to power plants in proximity due to evacuation bottlenecks.
We believe volume growth of 6-7 percent, operating leverage, closure of unviable underground mines, price hikes and focus on operating efficiencies will drive 31 percent CAGR in EBITDA and EPS over FY18-20. We maintain Buy with a target price of Rs 397.
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